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NOTES ON PARTNERSHIP AGENCY, TRUSTS, LEASE AND PRESCRIPTION

Kenneth and King C. Hizon _________________________________________________________________________________________________________________

UNIVERSITY OF SANTO TOMAS


Faculty of Civil Law
BAR REVIEW

NOTES ON CIVIL LAW REVIEW II:


PARTNERSHIP, AGENCY, TRUSTS
LEASE AND PRESCRIPTION

TITLE IX
PARTNERSHIP NOTE: Persons who attempt but fail to form a corporation and who
carry on business under the corporate name occupy the position of
CHAPTER 1 partnership inter se. Such a relation does not necessarily exist
General Provisions however for ordinarily persons cannot be made to assume the
relation of partners as between themselves when their purpose is
Article 1767. By the contract of partnership two or more persons that no partnership shall exist. No de facto partnership was created
bind themselves to contribute money, property, or industry to a among the parties which would entitle the petitioner to a
common fund, with the intention of dividing the profits among reimbursement of the supposed losses of the proposed corporation.
themselves.
PARTNERSHIP BETWEEN HUSBAND AND WIFE: The better view is
Two or more persons may also form a partnership for the exercise that they can enter into a partnership, so long as it does not violate
of a profession. (1665a) the fundamental provisions on conjugal partnerships, and so long as
the partnership is not universal.
Q: What is a (Business) Partnership?
NATURE OF PARTNERSHIP, A MERE PRIVILEGE
It is a contract between 2 or more persons who bind themselves to
contribute money, property or industry to a common fund with the The organization of a partnership is not a matter of absolute right
intention of dividing the profits among themselves (Pineda, 2006). but a privilege which may be enjoyed only under such terms as the
State may impose (Pineda, 2006).
Q: What is a Professional Partnership?
NOTE: Before the NCC, there are 2 kinds of partnerships: (1) civil;
0 It is a contract where two or more persons who do not contribute and (2) commercial or mercantile partnership. Now, they are
money or property may also form a partnership for the exercise of a governed by the NCC. There is no more distinctions between them
profession (Pineda, 2006). (Pineda, 2006).

REQUISITES FOR A CONTRACT OF PARTNERSHIP KINDS OF PARTNERSHIPS (Pineda, 2006)

0 Mutual contribution to a common stock As to nature Commercial Organized for the pursuit of
1 A joint interest in the profits business or trade
Professional Organized for the exercise of
NOTE: Without a common fund, there can be no partnership profession
(Pineda, 2006).
As to With a fixed Organized for a specific period.
NOTE: The consent to contribute to a common fund cannot be duration term Upon its expiration, it is
implied from the mere fact that a man and a woman lived together dissolved unless continued by all
in a state of concubinage the partners or by some of them
(Art. 1830, 1785)
COMMERCIAL CREDIT MAY ALSO BE CONTRIBUTED: Provided that At will Organized without any definite
the notice thereof is given the debtor. However, political credit period; not formed for a specific
cannot be contributed to the partnership. undertaking and is terminable at
anytime by the agreement or
INTENT CONTROLLING: Although the fact that parties to an consent of the parties.
agreement may refer to their relationship as one of a partnership is a
circumstance entitled to great weight in determining whether As to legality De jure One which has complied with all
partnership really exists, it is not conclusive. of its partnership the necessary requisites for its
organization lawful establishment.
In determining whether or not a particular transaction constitutes a De facto One which has failed to observe
partnership, their intention as disclosed by the entire transaction, partnership the requisites for its lawful
and as gathered from the facts and from the language employed by establishment.
them, as well as their conduct should be ascertained.
NOTES ON PARTNERSHIP AGENCY, TRUSTS, LEASE AND PRESCRIPTION
Kenneth and King C. Hizon _________________________________________________________________________________________________________________
As to Real partnership One which really exists between Principal Its life does not depend on the existence of another
exercise and and among partners themselves contract unlike a mortgage which depends upon a
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its relation and also as to 3 persons. contract of loan
to third Partnership by Not really a partnership but is Onerous Requires consideration consisting in the contribution
persons estoppel deemed a partnership only in of money, property or industry
relation to transacting third Preparatory After its constitution, another contract essential in
persons. the accomplishment of its purposes may be entered
into by the partners
It arises from acts of Capable of It is endowed with legal personality unless it is an
misrepresentation which may be suit unlawful partnership. It can sue and be sued.
oral or written or by conduct. Profit It is for the common benefit or interest of the
oriented partners (Art. 1770); its purpose must be for profit
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BASIS: To protect 3 persons and not just for the common enjoyment of the
who have relied on the property, money, etc. or else it is one of co-
misrepresentation of the alleged ownership.
partners who are called partners
by estoppel. KINDS OF PARTNERSHIP UNDER THE NCC

As to public Open One whose existence is made AS TO Real partner One who is really a
perception partnership known to the public MEMBERSHIP contributing member of an
Secret One whose existence is not existing legal partnership like
partnership made known to the public a general, limited or
industrial partner
As to its Universal One which has for its object all Partner by One who is not really a
object the present property or all the estoppel or partner but represents
profits (Art. 1778 and 1780) quasi-partner himself as one. He is liable as
Particular One which has for its object a partner so that innocent
determinate things, their use or third persons who relied on
fruits or the exercise of s his representation shall not
profession or vocation or be prejudiced
specific undertaking (Art. 1783)
AS TO Continuing One who continues the
NATURE OF THE RELATIONSHIP BETWEEN PARTNERS CONTINUATION partner partnership business after
OF THE the dissolution of the
It is essentially fiduciary. They are required to exercise the highest BUSINESS partnership due to the
degree of good faith. Each is a confidential agent of the other. Thus, AFFAIRS AFTER reasons stated in Art. 1840
a partner cannot, to the detriment of the other apply to his own DISSOLUTION
benefit the results of the knowledge and information gained in the Discontinuing One who does not participate
character of a partner (Pineda, 2006). partner in the partnership business
after its dissolution
PRINCIPLE OF DELECTUS PERSONAE
AS TO VALUE OF Majority One whose contribution
This means that no one become member of the partnership without CONTRIBUTION partner represents the majority or
the consent of all partners (Pineda, 2006). controlling interest
Nominal One whose contribution
JURIDICAL RELATIONS ARISING FROM THE PARTNERSHIP partner represents only a minority
interest
0 Between and among the partners themselves;
1 Between partners and the firm; AS TO EXPOSURE Secret partner One who participates in the
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2 Between the firm and 3 persons who may have TO PUBLIC profits and losses of the firm
contracted with it; and PERCEPTION but is not publicly known as a
3 Between the partners and such third persons (Pineda, partner. He participates in
2006). the affairs of the firm but his
involvement is not ostensible
CHARACTERISTICS OF A CONTRACT OF PARTNERSHIP Silent partner One who does not take any
(Pineda, 2006). active part in the partnership
although he may be known
Fiduciary Based on trust and confidence to be a partner. However, he
Nominate It has a specific name shares in the profits and
Consensual Perfected by mere consent although in certain cases, losses
formalities are required for validity (Art. 1771) Ostensible One who publicly takes active
Bilateral or 2 or more persons must be involved in the contract partner part in the business of the
multilateral
NOTES ON PARTNERSHIP AGENCY, TRUSTS, LEASE AND PRESCRIPTION
Kenneth and King C. Hizon _________________________________________________________________________________________________________________
firm and at the same time is partner or persons only to the extent of
publicly known as a partner special partner his contribution. His liability
Dormant One who does not take active is limited to a fixed amount,
partner part in the partnership that is, only up to his capital
business and is not publicly contribution unlike the
known as a part. general partner
Capitalist- One who contributes both
AS TO NATURE Original One who is a member of the industrial capital and industry
OF MEMBERSHIP partner partnership from the time of partner
its commencement as a
juridical person AS TO Managing One who actively manages
Incoming One who is not an original MANAGEMENT partner the business or affairs of the
partner member of the partnership. firm. He may be designated
He becomes a member in the articles or after the
subsequent to the constitution of the firm by
establishment of the firm or agreement of the partners
one who is to be admitted by Silent partner One who does not participate
the consent of all the in the management of the
members business or affairs of the firm
through he may be known as
AS TO STATE OF Surviving One who remains alive while a partner. He shares in the
SURVIVORSHIP partner one of the partners dies or profits and losses
one who continues to be in Liquidating One who liquidates or winds
the partnership after its partner up the affairs of the firm
dissolution by reason of the after its dissolution.
death of a partner
Deceased One who died while being a OTHER SPECIAL Subpartner One who associates with a
partner member of the partnership. CLASSIFICATIONS real partner in connection
He shares in the partnership with the latters share in the
will be paid to his legal partnership, but he is not a
representatives member of the said
partnership. A subpartner is
AS TO THE Expelled One who is expelled from the related only to the regular
EFFECT OF partner partnership by the other partner but not to the
EXPULSION partner/s for a valid cause partnership itself. He may be
Expelling Partner who caused the admitted only with the
partner expulsion of a partner for a consent of all the other
valid cause partners
Retiring One who withdraws or
AS TO THE Capitalist One who contributes capital partner retires from the partnership
NATURE OF partner (money or property). He Quasi-partners Those who represent
CONTRIBUTION cannot engage in other or partners by themselves as partners
business which competes estoppel although there is really no
with the business of the firm organized partnership.
unless there is a stipulation Nevertheless, they are bound
to the contrary. He is liable as partners in fact with
for the for the losses respect to third persons who
Industrial One who does not contribute deal with them and who
partner capital but only his industry relied on the formers
or labor. He cannot engage in representation
any other business without
the express consent of the TEST OF EXISTECE OF PARTNERSHIP: What determines whether the
other partners. His industry transaction between the parties constitutes a partnership is their
or labor is supposed to be for intention as manifested by the entire transaction, attendant facts,
the firm alone language used and conduct of the parties (Pineda, 2006)

AS TO LIABILITY General One whose liability to third


partner or real persons extends to his
partner separate property when the
assets of the firm had been
exhausted
Limited One who is liable to third
NOTES ON PARTNERSHIP AGENCY, TRUSTS, LEASE AND PRESCRIPTION
Kenneth and King C. Hizon _________________________________________________________________________________________________________________

PARTNERSHIP v. CORPORATION (Pineda, 2006) PARTNERSHIP v. CO-OWNERSHIP (Pineda, 2006)

PARTNERSHIP CORPORATION PARTNERSHIP CO-OWNERSHIP


As to creation or establishment As to creation or establishment
By agreement of the parties By law or by incorporation under Created or established by It may be created without
the Corporation Code contract only whether expressly contract such as by law, other
As to commencement of legal personality or impliedly by conduct generating incidents like
It becomes a juridical person It becomes a juridical person confusion (Arts. 472, 473, 2170)
from the time the contract from the date of issuance of and succession (Art. 1078)
begins to exist Certificate of Registration by the As to Juridical personality
SEC It has a legal or juridical It has no legal or juridical
As to Lifetime personality from the time of personality
No time limit provided by law Not more than 50 years establishment
As to the power to bind As to lifetime
Partners, as a rule, are agents of It is the Board of Directors The law does not fix a time limit Term of co-ownership must not
the partnership. They can bind (Trustees) which binds the exceed 10 years
the partnership and their corporation. stockholders are As to effect of transfer of interest
partners not agents of the corporation Transferee cannot be a partner Co-owner can dispose of his
As to nationality as a juridical person without the consent of all the share in the property and the
It is a national of the country GR: It is a national of the partners transferee becomes a co-owner
where established country under whose laws it was without need of the consent of
incorporated except in time of the others
war where nationality of the As to purpose
controlling stockholders Intended for profit Intended for collective
prevails. The exception applies enjoyment
also in the acquisition of land, As to power to represent
natural resources and ownership GR: There is mutual power to GR: There is no mutual power to
or operation of public utilities. represent one another represent the co-owners except
As to extent of liability in ejectment cases as plaintiffs
Partners are liable with their Incorporators are liable only for As to effect of death
private property beyond the the amount of their subscribed It dissolves the partnership It does not dissolve the
amount of their contributions capital stocks, unless they act partnership
except limited partners unless with fraud
there is stipulation PARTNERSHIP v. AGENCY
As to management
When management is not Power to do business and An agent does not act for himself but only for his principal. However,
agreed upon, every partner is an management of its affairs are a partner is both a principal and an agent. He is a principal for his
agent of the partnership vested in the board of directors own interests but an agent for the partnership and for other
As to suit for mismanagement partners (Pineda, 2006).
A partner may sue as a A stockholder cannot sue in his
mismanaging partner name members of the BOD who PARTNERSHIP v. JOINT ADVENTURE
mismanage the corporation. The
suit must be in the name of the The outstanding difference is that a joint adventure relates to a
Corporaiton single transaction, although it may comprehend a business to be
As to Transferrability of Interest continued over several years, while a partnership relates to a general
Transferee does not become a Transfer makes the transferee a and continuing business of a particular kind. (Pineda, 2006)
partner unless all other partners stockholder. Consent of others is
give their consent not required CORPORATION CANNOT ENTER INTO A PARTNERSHIP: A
As to causes of dissolution corporation cannot enter into a partnership with another person or
a. Death Said causes are not grounds for entity. The reason is that if it be so allowed, it can be bound by
b. Insanity termination of the corporation persons who do not constitute the BOD. Corporations are bound
c. Retirement only by their BOD. However, they may engage in joint ventures with
d. Insolvency others (Pineda, 2006).
e. Civil interdiction
f. Termination of period Article 1768. The partnership has a juridical personality separate
or purpose of the and distinct from that of each of the partners, even in case of
partnership failure to comply with the requirements of article 1772, first
g. Expulsion paragraph. (n)

JURIDICAL PERSONALITY OF PARTNERSHIP: In case of suit against a


partnership, a partner, being represented by the firm, has no right to
appear or be made a party as an individual separate from the firm.
NOTES ON PARTNERSHIP AGENCY, TRUSTS, LEASE AND PRESCRIPTION
Kenneth and King C. Hizon _________________________________________________________________________________________________________________
Article 1770. A partnership must have a lawful object or purpose,
If a partnership commits an act of insolvency, it may be adjudged and must be established for the common benefit or interest of the
insolvent although its members may not be insolvent. partners.

It may sue and be sued in its own name. When an unlawful partnership is dissolved by a judicial decree, the
profits shall be confiscated in favor of the State, without prejudice
CASES FILED AGAINST PARTNERSHIP WILL NOT BE DISMISSED BY to the provisions of the Penal Code governing the confiscation of
REASON OF DEATH OF A PARTNER: A case will not be dismissed the instruments and effects of a crime. (1666a)
because of the death of a partner, where a partnership possessing a
personality distinct from any of the partners (Pineda, 2006). ILLEGAL PURPOSE SEPARABLE: When a partnership is sought to be
formed for several purposes, and only one of the purposes of the
CONTRACT OF PARTNERSHIP IS CONSENSUAL; IF ENTERED ORALLY, partnership is illegal, the partnership will be sustained if the illegal
IT IS AS GOOD AS A WRITTEN ONE: Partnership exists as long as its object can be separated from legal objects of the partnership.
requisites are present:
JURIDICAL DISSOLUTION OF UNLAWFUL PARTNERSHIP: No
0 Two or more persons bind themselves to contribute confiscation can be lawfully effected without due process of law. an
money, property or industry to a common fund action is therefore necessary to give the partners the opportunity to
1 Intention on the part of the partners to divide the profits defend themselves (Pineda, 2006).
among themselves (Pineda, 2006).
COVERAGE OF CONFISCATION: Article 1770 authorizes only the
NOTE: It may be constituted in any form; a public instrument is confiscation of profits but not the contributions of the partners
necessary only when immovable property or real rights are which constitute the capital of the partnership (Pineda, 2006).
contributed thereto.
RIGHT TO DEMAND CAPITAL: Only the fruits of an unlawful
Article 1769. In determining whether a partnership exists, these partnership are confiscated. The partners may recover the capital
rules shall apply: contributed by them because the action for that purpose does not
23 Except as provided by article 1825, persons who are have to be based on the existence of the partnership.
not partners as to each other are not partners as to third
persons; Article 1771. A partnership may be constituted in any form, except
24 Co-ownership or co-possession does not of itself where immovable property or real rights are contributed thereto,
establish a partnership, whether such-co-owners or co- in which case a public instrument shall be necessary. (1667a)
possessors do or do not share any profits made by the
use of the property; FORM OF CONTRACT: An oral contract of partnership is perfectly
25 The sharing of gross returns does not of itself valid and binding between the parties, if the contribution of the
establish a partnership, whether or not the persons partners is not in the form of immovables or rights in immovables,
sharing them have a joint or common right or interest in even if the amount of the capital contributed is in excess of P500.00.
any property from which the returns are derived;
26 The receipt by a person of a share of the profits of a NOTE: If personal property or money is contributed, the partnership
business is prima facie evidence that he is a partner in the is valid even if it is orally agreed or organized (Pineda, 2006)
business, but no such inference shall be drawn if such
profits were received in payment: REQUISITE TO BIND THIRD PERSONS: Where immovable property
23 As a debt by installments or otherwise; had been constituted and the inventory properly made, to bind third
24 As wages of an employee or rent to a persons, the contract of partnership must be registered with the
landlord; Registry of Property where the immovable is located.
25 As an annuity to a widow or representative
of a deceased partner; Article 1772. Every contract of partnership having a capital of three
26 As interest on a loan, though the amount of thousand pesos or more, in money or property, shall appear in a
payment vary with the profits of the business; public instrument, which must be recorded in the Office of the
27 As the consideration for the sale of a Securities and Exchange Commission.
goodwill of a business or other property by
installments or otherwise. (n) Failure to comply with the requirements of the preceding
paragraph shall not affect the liability of the partnership and the
JOINT OWNERSHIP OF PROPERTY: Joint ownership of business or members thereof to third persons. (n)
property, does not itself create a partnership, notwithstanding that
profits are shared. EFFECT OF FAILURE TO REGISTER: Partnerships with a capital of less
than P3,000.00 because the article requires only those with capital
SHARING IN PROFITS: The presumption of partnership arising from a of P3,000.00 or more to register with the SEC.
participation in profits is prima facie, and may be rebutted or
outweighed by other circumstances, such as evidence that the But the mere failure to register the contract of partnership does not
participation was referable to some other reasons such as invalidate the same as among the partners, so long as the contract
compensation for services rendered as agent, broker, salesman or has the essential requisites, because the main purpose of
otherwise. rd
registration is to give notice to the 3 parties, and it can be assumed
that the members know the contents of the contract.
NOTES ON PARTNERSHIP AGENCY, TRUSTS, LEASE AND PRESCRIPTION
Kenneth and King C. Hizon _________________________________________________________________________________________________________________
a partner or some in his or their names, only the equitable interest is
Their failure to register does not affect the liability of the partnership passed to the buyer or grantee who acted in good faith (Pineda,
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and the members to 3 persons. 2006).

Also, the partnership still has juridical personality even if it fails to Article 1775. Associations and societies, whose articles are kept
register. secret among the members, and wherein any one of the members
may contract in his own name with third persons, shall have no
Article 1773. A contract of partnership is void, whenever juridical personality, and shall be governed by the provisions
immovable property is contributed thereto, if an inventory of said relating to co-ownership. (1669)
property is not made, signed by the parties, and attached to the
public instrument. (1668a) ASSOCIATIONS AND SOCIETIES, WHOSE ARTICLES ARE KEPT SECRET:
Where the articles of such groups are kept secret among the
EFFECT OF OMISSION: The execution of the public instrument would members and where anyone of them may contract in his own name
be useless if there is no inventory of the property contributed, with third persons, the same shall have no legal personality to sue.
because without its designation and description, they cannot be The law on co-ownership and not partnership shall govern. (Pineda,
subject to inscription in the Registry of Property, and their 2006).
contribution cannot prejudice third persons.
While they cannot sue for lack of judicial personality, they may,
The contract is declared void by law when no such inventory is however, be sued by third persons under the common name they
made. use (Pineda, 2006).

ORAL CONTRACT OF PARTNERSHIP: An oral contract of partnership Article 1776. As to its object, a partnership is either universal or
is void if immovable property is contributed to the partnership. particular.
Being void, the partners cannot invoke Article 1357 to compel the
others to execute the articles of partnership (Pineda, 2006): As regards the liability of the partners, a partnership may be
general or limited. (1671a)
Article 1357. If the law requires a document or
other special form, as in the acts and contracts UNIVERSAL v. PARTICULAR PARTNERSHIP
enumerated in the following article, the
contracting parties may compel each other to As to object
observe that form, once the contract has been Universal One which has for its object all the present property
perfected. This right may be exercised or all the profits (Art. 1778 and 1780)
simultaneously with the action upon the Particular One which has for its object determinate things,
contract. (1279a) their use or fruits or the exercise of s profession or
vocation or specific undertaking (Art. 1783)
Article 1774. Any immovable property or an interest therein may As to liability of partners
be acquired in the partnership name. Title so acquired can be General One where all the partners are general partners.
conveyed only in the partnership name. (n)
partnership General partners are liable even with their
individual and separate properties to partnership
ACQUISITION UNDET PARTNERSHIP NAME: All property of whatever creditors after the assets of the firm had been
nature contributed to the partnership becomes the property of such exhausted
partnership. Such property acquired by the firm may be conveyed
Limited One where there is one or more general partners,
only in the partnership name (Pineda, 2006).
partnership and one or more limited partners. A limited partner
is one whose liability is limited only to the extent of
NOTE: The present article will not apply if the firm has no name. In his contribution to the partnership (Pineda, 2006)
case of conveyance, it must be in the name of the partner/s (Pineda,
2006).
Article 1777. A universal partnership may refer to all the present
property or to all the profits. (1672)
IMPLICATION OF REFERENCE TO IMMOVABLE: The article expressly
refers to immovable property. Impliedly, personal property need not
be conveyed in the name of the partnership (Pineda, 2006). CLASSIFICATION OF UNIVERSAL PARTNERSHIP:

ND 23 Universal partnership of all the present property of the


RECONCILIATION BETWEEN THE 2 SENTENCE OF ART. 1774 & partners
ART. 1819: Real property should be considered strictly immovable
24 Universal partnership of all the profits derived by the
property. Art. 1819 (pars. 3, 4&5) recognizes the possibility that title partners in their business (Pineda, 2006).
to real property may be in the name of the partner, or some of the
partners or all of the partners. To reconcile Art. 1819 with the
present Article, the rule to follow should be: If the immovable Article 1778. A partnership of all present property is that in which
property is in the name of the firm, it must be alienated in the the partners contribute all the property which actually belongs to
name of the firm; if it is in the name of the partner or partners, it them to a common fund, with the intention of dividing the same
among themselves, as well as all the profits which they may
must be alienated in the name of the said partner or partners. In
acquire therewith. (1673)
both, title is passed to the buyer or grantee. However, if the
immovable property is in the name of the firm but conveyed by
NOTES ON PARTNERSHIP AGENCY, TRUSTS, LEASE AND PRESCRIPTION
Kenneth and King C. Hizon _________________________________________________________________________________________________________________
Article 1779. In a universal partnership of all present property, the Article 1781. Articles of universal partnership, entered into without
property which belonged to each of the partners at the time of the specification of its nature, only constitute a universal partnership
constitution of the partnership, becomes the common property of of profits. (1676)
all the partners, as well as all the profits which they may acquire
therewith. Ratio: There is less obligation in universal partnership of profits
considering that the properties owned by the partners are retained
A stipulation for the common enjoyment of any other profits may by them in naked ownership. To consider the partnership as one of
also be made; but the property which the partners may acquire the universal partnership of present property would be onerous or
subsequently by inheritance, legacy, or donation cannot be more burdensome (Pineda, 2006).
included in such stipulation, except the fruits thereof. (1674a)
Article 1782. Persons who are prohibited from giving each other
Reasons why subsequently acquired inheritance, legacy, devise, or any donation or advantage cannot enter into universal partnership.
donation cannot be included in the stipulation in universal (1677)
partnership of present property:
PERSONS DISQUALIFIED FROM ENTERING INTO UNIVERSAL
23 They are not present property. They are future property at PARTNERSHIP:
the time of the constitution of the partnership
24 Things to be contributed to the partnership must be 23 Legally married spouses (however, spouses may enter into
determinate, known and certain a particular partnership like the exercise of a profession or
25 A universal partnership of all present property constitutes vocation
a donation of property but future property cannot be 24 Common law spouses
donated. 25 Parties guilty of adultery or concubinage
26 Criminals convicted for the same offense in consideration
Article 1780. A universal partnership of profits comprises all that of the same
the partners may acquire by their industry or work during the 27 A person and a public officer (or his wife, descemdants,
existence of the partnership. ascendants) by reason of his office (Pineda, 2006).

Movable or immovable property which each of the partners may PARTICULAR PARTNERSHIPS-one composed of entirely industrial
possess at the time of the celebration of the contract shall continue partners, as in the case of 2 or more lawyers associating themselves
to pertain exclusively to each, only the usufruct passing to the in the practice of law.
partnership. (1675)
When 2 individuals have not formed a general relation of
PARTNERS PRIVATE PROPERTY: It might happen in partnerships that partnership but they have been jointly associated in various real
no one of the partners would have any private property, and that if estate deals, it must be considered as a particular partnership for
they did, the usufruct would be inconsiderable. If they have, such each deal. When one of them makes a transaction while the other is
continues to be his private property, only the usufruct passing to the away, without using any funds of the latter, and without the latter
partnership. having agreed to be a party to such deal, it cannot be said that this
particular deal is for their joint account but must be held only for the
UNIVERSAL PARTNERSHIP OF ALL PRESENT PROPERTY v. account of the individual who executes it.
UNIVERSAL PARTNERSHIP OF ALL PROFITS
Article 1783. A particular partnership has for its object determinate
UNIV. PARTNERSHIP OF ALL UNIV. PARTNERSHIP OF ALL things, their use or fruits, or a specific undertaking, or the exercise
PRESENT PROPERTY PROFITS of a profession or vocation. (1678)
Coverage
All the present property actually Property which the partners Examples:
belonging to the partners are owned at the time of the
contributed to the partnership celebration of the contract shall 23 Determinate thing- to buy and sell a particular lot and
which become common continue to pertain to them. house
property of all the partners and Only the usufruct (use and 24 Profession- practice of law by lawyers; practice of medicine
the partnership fruits) shall become common by doctors. Hence, there is a partnership of industrial
property. partners
Profits 25 Specific undertaking- to paint a building or develop a
Only the profits derived from All profits acquired through the subdivision
the property contributed industry or work of the
common property but not partners become common
profits arising from other property (Pineda, 2006).
property of the partners. The
latter profits, however, may by
stipulation be considered as
common property for the
enjoyment of all
NOTES ON PARTNERSHIP AGENCY, TRUSTS, LEASE AND PRESCRIPTION
Kenneth and King C. Hizon _________________________________________________________________________________________________________________

CHAPTER 2 WARRANTIES OF A PARTNER


Obligations of the Partners
23 Warranty against eviction
SECTION 1 24 Warranty against hidden defects
Obligations of the Partners Among Themselves
CONTRIBUTION OF CREDIT: The partner warrants only its existence;
Article 1784. A partnership begins from the moment of the he does not warrant the solvency of the debtor unless expressly so
execution of the contract, unless it is otherwise stipulated. (1679) provided

COMMENCEMENT OF EXISTENCE 0F A PARTNERSHIP- Being a REASON FOR WARRANTY: The obligation of warranty against
consensual contract, it exists from the declaration of the celebration eviction is the necessary consequence of the nature of the
of the contract even if no contributions had been made yet as long partnership which is an onerous contact like a contract of sale. A
as the elements of a contract are present (Pineda, 2006). partner shall not contribute something that he does not own at the
time of the delivery. When the thing is delivered to the firm, the
AGREEMENT TO FORM PARTNERSHIP: A partnership in fact cannot latter shall from the time of delivery have the right to enjoy the legal
be predicated on an agreement to enter into a co-partnership at a peaceful possession of the thing (Pineda, 2006).
future day unless it is shown that such agreement was actually
consummated. So long as an agreement remains executor, the NOTE: There is still warranty if the thing delivered only for the use
partnership is inchoate. of the firm (Pineda, 2006).

Article 1785. When a partnership for a fixed term or particular REMEDY FOR BREACH:
undertaking is continued after the termination of such term or
particular undertaking without any express agreement, the rights 23 In case of eviction, the proper remedy is to recover the
and duties of the partners remain the same as they were at such proper indemnity from the partner
termination, so far as is consistent with a partnership at will. 24 And, if the partners can prove that they would not have
A continuation of the business by the partners or such of them as entered into the partnership contract, had it not been for
habitually acted therein during the term, without any settlement or the contribution which has been lost through the eviction,
liquidation of the partnership affairs, is prima facie evidence of a they may ask for the dissolution of the partnership
continuation of the partnership. (n)
RULE WHEN CREDIT IS CONTRIBUTED: If what is contributed is
NOTE: Dissolution is not termination because there is still a winding credit, the contributing partner will only warrant its existence but
up of the partnership affairs authorized by law. After the partnership not the solvency of the debtor unless there is a contrary stipulation
affairs have wound up, the partnership is said to have terminated (Pineda, 2006).
(Pineda, 2006).
Article 1787. When the capital or a part thereof which a partner is
PARTNERSHIP AT WILL- The actual continuation of the affairs of the bound to contribute consists of goods, their appraisal must be
partnership, after the termination of its period or accomplishment of made in the manner prescribed in the contract of partnership, and
its purposes, by the habitual managers is prima facie evidence of its in the absence of stipulation, it shall be made by experts chosen by
continuation as such partnership. The resulting partnership as the partners, and according to current prices, the subsequent
continued is called partnership at will because the existence changes thereof being for account of the partnership. (n)
depends upon the will of the partners or on the will of any one of
them (Pineda, 2006). RULE WHEN CONTRIBUTION IS IN GOODS: When a partner
contributes goods as capital, the amount thereof must be
Article 1786. Every partner is a debtor of the partnership for determined by proper appraisal of the value thereof at the time of
whatever he may have promised to contribute thereto. contribution (Pineda, 2006).

He shall also be bound for warranty in case of eviction with regard If there is a mode of appraisal agreed upon, same must be complied
to specific and determinate things which he may have contributed with. If there is none, same must be determined by experts chosen
to the partnership, in the same cases and in the same manner as by the partners (Pineda, 2006.
the vendor is bound with respect to the vendee. He shall also be
liable for the fruits thereof from the time they should have been SUBSEQUENT CHANGES IN VALUE: Any subsequent increase or
delivered, without the need of any demand. (1681a) decrease in value of the property contributed will be for the account
of the firm (Pineda, 2006.
DUTIES OF CONTRIBUTING PARTNERS:
Article 1788. A partner who has undertaken to contribute a sum of
23 To deliver what he has undertook to contribute money and fails to do so becomes a debtor for the interest and
24 To answer for his breach of warranty damages from the time he should have complied with his
25 To answer for the undelivered or delayed fruits (Pineda, obligation.
2006) The same rule applies to any amount he may have taken from the
partnership coffers, and his liability shall begin from the time he
converted the amount to his own use. (1682)
NOTES ON PARTNERSHIP AGENCY, TRUSTS, LEASE AND PRESCRIPTION
Kenneth and King C. Hizon _________________________________________________________________________________________________________________
EFFECT OF FAILURE TO PAY CONTRIBUTION: Such will make the Article 1790. Unless there is a stipulation to the contrary, the
partner indebted to it, with interest and any damages occasioned partners shall contribute equal shares to the capital of the
thereby, but does not entitle the other partner or partner to demand partnership. (n)
rescission of the partnership contract.
Article 1791. If there is no agreement to the contrary, in case of an
Ex: A partner in a construction venture who failed to stand by his imminent loss of the business of the partnership, any partner who
commitment to the partnership will be ordered to reimburse to his refuses to contribute an additional share to the capital, except an
co-partner whatever the latter invested and spent for the projects of industrial partner, to save the venture, shall he obliged to sell his
the venture. interest to the other partners. (n)

INDEMNIFICATION FOR DAMAGES: Includes: GR: CAPITALIST PARTNERS NOT OBLIGED TO CONTRIBUTE
0 Losses suffered ADDITIONAL CAPITAL IN CASE OF IMMINENT LOSS OF THE
1 Profits the obligee failed to obtain BUISNESS

ACCOUNTING FOR PARTNERSHIP FUNDS: Where a partner, without XPN: Unless there is an agreement to the contract. In such case, he
any authority, takes and use the money of the partnership in the is obliged to make additional contribution in accordance with the
purchase and acquisition of property which he later registers in his agreement (Pineda, 2006).
own name, he will be required, in a suit for the dissolution of the
partnership, to account to his partners for the money which he used NOTE: General partners, in case of impending loss of the business
in such purchase. are also obliged to make additional contribution to save the
business. If he unjustly refuses, he must sell his interest in the
Article 1789. An industrial partner cannot engage in business for partnership to the other partners
himself, unless the partnership expressly permits him to do so; and
if he should do so, the capitalist partners may either exclude him Ratio: His lack of cooperation and interest should not be rewarded
from the firm or avail themselves of the benefits which he may (Pineda, 2006).
have obtained in violation of this provision, with a right to
damages in either case. (n) Article 1792. If a partner authorized to manage collects a
demandable sum which was owed to him in his own name, from a
PARTNERSHIP OWNS SERVICES: The industry partner does not person who owed the partnership another sum also demandable,
contribute money or property but only his industry. The partnership, the sum thus collected shall be applied to the two credits in
therefore, is considered the owner of his services. proportion to their amounts, even though he may have given a
receipt for his own credit only; but should he have given it for the
The industrial partner himself cannot exploit his own services for his account of the partnership credit, the amount shall be fully applied
profit without the express permission of the partnership. to the latter.

Ratio for the prohibition: To prevent any conflict of interest between The provisions of this article are understood to be without
the industrial partner and the partnership, and to insure faithful prejudice to the right granted to the other debtor by article 1252,
compliance by said partner with his prestation. Hence, during the but only if the personal credit of the partner should be more
existence of the partnership, the industrial partner must devote his onerous to him. (1684)
full time to such partnership.
APPLICATION OF THE ARTICLE: Requisites:
Exception: The prohibition will not apply if the other partners give
the industrial partner express permission to do so (Pineda, 2006). 0 There are 2 separate credits which are both demandable
1 One credit is owing to the partnership
TOLENTINO: Nature of the prohibition: It is absolute and extends to 2 Another credit is owing to the collecting partner who must
all business outside of the partnership, even if the partnership is be a managing partner of the firm (Pineda, 2006).
engaged in only one trade, because if the industrial partner is
allowed to engage in the other business, the partnership will be NOTE: If the collecting partner is not a managing partner, the law will
prejudiced because of the reduction of the time or the effort which not apply (Pineda, 2006).
he will have for it.
Article 1793. A partner who has received, in whole or in part, his
SANCTION AGAINST INDUSTRIAL PARTNER WHO VIOLATES THE share of a partnership credit, when the other partners have not
PROHIBITION: collected theirs, shall be obliged, if the debtor should thereafter
become insolvent, to bring to the partnership capital what he
Exclude the industrial partner from the partnership with received even though he may have given receipt for his share only.
damages (1685a)
Recover the benefits which the industrial partner has gained in
the business where he had engaged himself without the Ratio: When the debtor becomes insolvent, the debt in favor of the
express consent of the firm or of the partners, with partnership becomes a bad debt and is a loss which must be borne
damages (Pineda, 2006). by all the partners, including the partner who has already received
his share in the partnership credit, because they have a community
of interest and a proportionate share in profits and losses.
NOTES ON PARTNERSHIP AGENCY, TRUSTS, LEASE AND PRESCRIPTION
Kenneth and King C. Hizon _________________________________________________________________________________________________________________
Article 1794. Every partner is responsible to the partnership for the partnership business, and for risks in consequence of its
damages suffered by it through his fault, and he cannot management. (1688a)
compensate them with the profits and benefits which he may have
earned for the partnership by his industry. However, the courts Reimbursement
may equitably lessen this responsibility if through the partner's
extraordinary efforts in other activities of the partnership, unusual The managing partner may be allowed funds borrowed or advanced,
profits have been realized. (1686a) and necessary for the completion of the work, within the scope of
the business and expressly provided for by the agreement among
NOTE: Damages caused by the faulting partner cannot be offset or partners.
compensated with the profits and benefits which he may have
earned for the partnership by his industry. Example: Where the land tax levied on real property owned by the
partnership is paid by a partner out of his private funds, such partner
Compensation cannot apply because a partner is both a debtor in his is entitled to be reimbursed therefor.
duty to secure profits and benefits for the partnership and also in his
duty to observe diligence in the performance of his obligations as a NOTE: The article does not apply where no money other than that
partner. In compensation, it is required that 2 persons in their own contributed as capital is involved.
rights are creditors and debtors of each other (Pineda, 2006).
NOTE: Even in the case of failure of the business entered into by the
Necessity of Liquidation partnership with third persons, reimbursement must be made to the
paying partner, as long as he is not at fault. The paying partner
For the purpose of adjudicating to a partner damages alleged to should not be liable personally because he is a mere agent of the
have been suffered by reason of the supposed fraudulent partnership (Pineda, 2006).
management of the partnership business by another partner, it is
first necessary that a liquidation of the business be made so that the PAYING PARTNER HAS NO RIGHT OF RETENTION: There is a
profits and the losses may be known and the causes of the latter and difference between an ordinary agent and a paying partner. The
the responsibility of the managing partner, as well as the damages former, if not refunded, may exercise the right of retention of the
which each partner may have suffered, may be determined. things which are the objects of the agency. The paying partner is not
given such authority (Pineda, 2006).
Claim against Deceased Partner
Article 1797. The losses and profits shall be distributed in
Any claim against a deceased partner or his estate, for a sum of conformity with the agreement. If only the share of each partner in
money due the partnership by reason of any misappropriation of its the profits has been agreed upon, the share of each in the losses
fund by him, or for damages resulting from his wrongful acts as shall be in the same proportion.
manager, should be prosecuted against his estate in administration
as provided for in the Rules of Court. In the absence of stipulation, the share of each partner in the
profits and losses shall be in proportion to what he may have
Article 1795. The risk of specific and determinate things, which are contributed, but the industrial partner shall not be liable for the
not fungible, contributed to the partnership so that only their use losses. As for the profits, the industrial partner shall receive such
and fruits may be for the common benefit, shall be borne by the share as may be just and equitable under the circumstances. If
partner who owns them. besides his services he has contributed capital, he shall also receive
a share in the profits in proportion to his capital. (1689a)
If the things contribute are fungible, or cannot be kept without
deteriorating, or if they were contributed to be sold, the risk shall SCOPE: It relates exclusively to the settlement of partnership affairs
be borne by the partnership. In the absence of stipulation, the risk among the partners themselves and has nothing to do with the
of the things brought and appraised in the inventory, shall also be liability of the partners to third persons.
borne by the partnership, and in such case the claim shall be
limited to the value at which they were appraised. (1687) Profits and losses: Where there is an agreement as to the manner of
sharing profits, the losses will be divided in the same proportion. The
NOTE: The owner bears the risk. The rule on res perit domino applies parties can validly stipulate a distribution of losses different from
to determine who bears the risk of loss of property held by the that of the profits, so long as nobody is excluded from the profits or
partnership, except as to fungible things and those under appraisal. the losses.

Although the law refers to appraisal in the inventory, the same NOTE: An industrial partner cannot claim for himself of any part of
solution applies even when the appraisal is separate from the the property contributed; he can share only in the profits and
inventory. benefits in conformity with this article, if the contrary is not
stipulated.
Article 1796. The partnership shall be responsible to every partner
for the amounts he may have disbursed on behalf of the Hibberd v. Estate of McElroy (25 Phil 164)
partnership and for the corresponding interest, from the time the
expense are made; it shall also answer to each partner for the Where a partner has paid certain expenses which represent a loss to
obligations he may have contracted in good faith in the interest of the partnership and there is no income from the partnership to
reimburse him, he has a right to look to the estate of his other
partner for such reimbursement.
NOTES ON PARTNERSHIP AGENCY, TRUSTS, LEASE AND PRESCRIPTION
Kenneth and King C. Hizon _________________________________________________________________________________________________________________
Article 1800. The partner who has been appointed manager in the
LIABILITY OF INDUSTRIAL PARTNER FOR LOSSES: Although under articles of partnership may execute all acts of administration
the provisions the industrial shall not be liable for the losses, he may despite the opposition of his partners, unless he should act in bad
nevertheless be held liable, if by stipulation, he is specially made to faith; and his power is irrevocable without just or lawful cause. The
participate in the losses (People v. Tenorio, 53 O.G. 8577). vote of the partners representing the controlling interest shall be
necessary for such revocation of power.
PROFITS REFER TO NET PROFITS- The profits distributable to the
partners should be reduced by the amounts of the income tax A power granted after the partnership has been constituted may be
assessed against partnership (Pineda, 2006). revoked at any time. (1692a)

Article 1798. If the partners have agreed to in trust to a third POWERS OF MANAGING PARTNER
person the designation of the share of each one in the profits and
losses, such designation may be impugned only when it is A managing partner can be presumed to have all the incidental
manifestly inequitable. In no case may a partner who has begun to powers to carry out the object of the partnership in the transaction
execute the decision of the third person, or who has not impugned of business subject to the exception, however, that when the powers
the same within a period of three months from the time he had are specifically restricted, he cannot exercise the powers expressly
knowledge thereof, complain of such decision. denied him.

The designation of losses and profits cannot be intrusted to one of When the articles of association do not specify the powers of a
the partners. (1690) managing partner, he has the powers of a general agent, and even
more; and when the object of the company is determined, the
Ratio: A partner will have conflict of interest (Pineda, 2006). manager has all the powers necessary for the attainment of such
object.
Article 1799. A stipulation which excludes one or more partners
from any share in the profits or losses is void. (1691) NOTE: Power of managing partner is generally irrevocable. The
power granted after the partnership had been already constituted
Prohibited stipulation: The essence of partnership is that the may be revoked at any time and for any cause. It can be reovoked:
partners share in the profits and losses. The law does not prohibit a 23 Upon showing of just and lawful cause
stipulation in which the distribution of the losses is not in proportion 24 Upon the vote of the partners representing the controlling
to that of the profits; what is prohibited is the exclusion of one or interest (Pineda, 2006).
more partners from the profits or losses.
THE POWER GRANTED AFTER CONSTITUTION OF PARTNERSHIP IS
Effect of such stipulation: The profits and losses will be distributed in REVOCABLE AT ANY TIME. It is a simple contract of agency. It may be
accordance with par. 2 of Art. 1797: revoked any time by the partners representing the controlling
interest (Pineda, 2006).
xx
23 Is the managing partner entitled to compensation for his
In the absence of stipulation, the share of each services as such?
partner in the profits and losses shall be in
proportion to what he may have contributed, 0 It depends. If there is an agreement stipulating that he shall
but the industrial partner shall not be liable for receive compensation, he shall be so entitled to the compensation
the losses. As for the profits, the industrial agreed upon for his services as managing partner. The details of the
partner shall receive such share as may be just compensation will be fixed in the agreement. If there is no
and equitable under the circumstances. If agreement, the managing partner, as a rule, is not entitled to
besides his services he has contributed capital, compensation. He is expected to render free service to the
he shall also receive a share in the profits in partnership for the common benefit of all partners (Pineda, 2006).
proportion to his capital. (1689a)
Article 1801. If two or more partners have been intrusted with the
xx management of the partnership without specification of their
respective duties, or without a stipulation that one of them shall
NOTE: French jurisprudence and writers consider that a violation of not act without the consent of all the others, each one may
the present article nullifies, not only the particular stipulation of the separately execute all acts of administration, but if any of them
profits and losses, but the entire contract of partnership. This should oppose the acts of the others, the decision of the majority
conclusion is maintained by analogy to obligations based on illicit shall prevail. In case of a tie, the matter shall be decided by the
condition, which annuls the obligation dependent on it. partners owning the controlling interest. (1693a)

There is, however, no reason why a stipulation to exempt the REQUISITES:


industrial partner from losses should be void.
0 Two or more partners are appointed managing partners
NOTE: A stipulation exempting the industrial partner from losses is 1 In their appointment papers, there is no specification of their
valid because it is just an affirmation of the law. The prohibition respective duties
applies only to capitalist partners (Pineda, 2006).
NOTES ON PARTNERSHIP AGENCY, TRUSTS, LEASE AND PRESCRIPTION
Kenneth and King C. Hizon _________________________________________________________________________________________________________________
23 There is no stipulation that one of them shall not act the third person acted in good faith and the transaction refers to
without the unanimous consent of all the other partners matters within the business of the partnership, the contract cannot
(Pineda, 2006). be annulled, without prejudice to the liability of the guilty partner ot
his co-partner.
NOTE: If there is a designation of the respective duties of the
appointed managing partners, the article finds no application Ratio: The necessity of protecting third person from fraud and
(Pineda, 2006). deceit.

SOLIDARY MANAGEMENT Application of the requirement of previous approval by the other


partner: It only refers to the execution of formal contracts in writing,
See Art. 1803 and not to routine transactions, such as ordinary purchases and sales
for a firm engaged in the business if buying and selling merchandise
OPPOSITION of all kinds, naturally come within the scope of the general authority
of the manager of a business.
Generally, each manager may execute any acts of administration
without asking for the consent of the other managers. Article 1803. When the manner of management has not been
agreed upon, the following rules shall be observed:
Each manager, however, has the right to object to any act or 0 All the partners shall be considered agents and
operation before it is celebrated. Such opposition by one partner to whatever any one of them may do alone shall bind the
the projected act by another is sufficient to prevent it; and if the partnership, without prejudice to the provisions of article
latter, ignoring such objection, goes ahead and executes the acts, it 1801.
shall be void, not only as among the members but also to third 1 None of the partners may, without the consent of the
persons, who had knowledge, or who could have known, of such others, make any important alteration in the immovable
opposition. property of the partnership, even if it may be useful to
the partnership. But if the refusal of consent by the other
NOTE: It will be valid with respect to the third person who partners is manifestly prejudicial to the interest of the
contracted with a partner, if such third person was not informed of partnership, the court's intervention may be sought.
the opposition, and the contract is one within the scope of the (1695a)
administration of the partnership.
NOTE: The article applies only where the articles of partnership
Ratio: The partner contracting is an agent of the partnership, and made no provision for the management of the business of the firm
within the scope of his authority, his contract with an innocent third (Pineda, 2006).
person binds the principal.
PARTNERS ARE PARTNERSHIP AGENTS: When the articles of
Time for the opposition: It must be made before the particular act partnership make no provision for the management of the
of administration has become effective. partnership business, one partner is empowered to contract in the
name of the partnership, and under such circumstances, all the
TIE: In case of tie in the votes, then the controversy shall be decided partners are considered as agents of the partnership.
by the partners owning the controlling interest. This is a new
provision in the Code. Note that it is only in case of a tie or deadlock ACTS REQUIRING UNANIMITY: For acts of disposition or any
that the partner owning the controlling interest will decide in the modification of the partnership articles, unanimous consent is
controversy (Pineda, 2006). required; even a majority will not suffice.

Article 1802. In case it should have been stipulated that none of Example: A partner cannot validly sell or convey the partnership
the managing partners shall act without the consent of the others, business without the consent of all the other partners forming the
the concurrence of all shall be necessary for the validity of the acts, partnership.
and the absence or disability of any one of them cannot be alleged,
unless there is imminent danger of grave or irreparable injury to JUDICIAL INTERVENTION, WHEN PROPER: When an important
the partnership. (1694) alteration of the property is necessary and the unanimous consent
cannot be obtained, resort to the court may be pursued to secure
JOINT MANAGEMENT the total consent, in order to avoid an impending prejudice to the
partnership (Pineda, 2006).
The obligation to secure the consent of the other partner rests upon
the partner entering into the contract. It is not required to verify Article 1804. Every partner may associate another person with him
whether the partner entering into the contract. It is not imposed in his share, but the associate shall not be admitted into the
upon third person who enters into the contract and who is not partnership without the consent of all the other partners, even if
required to verify whether the partner entering into the contract has the partner having an associate should be a manager. (1696)
previously obtained the consent of the other. It is presumed that
such consent has been given, unless the contrary has been SUBPARTNERSHIP: Any partner may form a partnership with another
previously manifested to the third person. person with respect to his share. Their association is called
subpartnership. A subpartnership is a sort of partnership within an
NOTE: But even if the contract entered into by one partner is made, existing partnership separate and distinct from the original or main
not only without the consent of the other but even against his will, if partnership (Pineda, 2006).
NOTES ON PARTNERSHIP AGENCY, TRUSTS, LEASE AND PRESCRIPTION
Kenneth and King C. Hizon _________________________________________________________________________________________________________________
partners is essentially fiduciary, each are confidential agent of the
NOTE: The terms of the subpartnership are immaterial to the other.
original partnership as such terms are mere internal arrangements
between the partner and his subpartner (Pineda, 2006). NOTE: The partners cannot derive a secret profit from partnership
transactions unknown to the others.
Article 1805. The partnership books shall be kept, subject to any
agreement between the partners, at the principal place of business Duration of the fiduciary relation: No fiduciary relation exists
of the partnership, and every partner shall at any reasonable hour between persons negotiating for the formation of a partnership
have access to and may inspect and copy any of them. (n) contract. Such fiduciary relation exists only during the existence of
the partnership.
Keeping books in place of business
It ends at the termination of the partnership. Termination is the
This article refers to a going partnership, and on dissolution, in the stage when all partnership affairs are wound up or completed. It is
absence of other agreement, express or implied, the books to all the different from dissolution (Pineda, 2006)
partners but no one partner is obliged to continue the place of
business to preserve the books for the benefit of the others, nor is Article 1808. The capitalist partners cannot engage for their own
there a duty on the part of the purchaser of goodwill and business of account in any operation which is of the kind of business in which
a firm to store the books so that the former partners may inspect the partnership is engaged, unless there is a stipulation to the
them. contrary.

RIGHT TO INSPECT Any capitalist partner violating this prohibition shall bring to the
common funds any profits accruing to him from his transactions,
GR: Each partner should have free access to the partnership books and shall personally bear all the losses. (n)
for the purpose of inspecting them
NOTE: A capitalist partner cannot engage in the business for his own
XPN: Equity will intervene to prevent one partner from keeping or account or benefit in a business which is similar to the business of
concealing the books the partnership (Pineda, 2006).

Reasonable Hours- means at reasonable hours on business days XPN TO THE PROHIBITION: The other partners may agree to
throughout the year; and not merely during some arbitrary period fo stipulate that the capitalist partners may engage in the same
a few days chosen by the managers. business as that of the partnership if it is perceived that no
destructive competition will arise such as when the place of
PLACE WHERE THE BOOKS SHOULD BE KEPT: The books shall be operation is far away from the sphere of influence of the
placed and kept in a place agreed upon by the partners. In the partnership, or when the business will enhance healthy competition
absence of any agreement, the books shall be kept at the principal with the business of the partnership (Pineda, 2006).
place of business of the firm whereat each partner may come, have
access, inspect or copy entries in the books for valid purposes ACQUISITION OF REALTY: No prohibition on any of the partners,
(Pineda, 2006). even though an active member in the partnership, from acquiring
realty, on his own private account, and the acquisition of realty does
LACK OF BOOKS: Absence of any formal books of the partnership not give the other partners interest therein.
does not affect the validity of the contract of partnership nor its
contracts Article 1809. Any partner shall have the right to a formal account as
to partnership affairs:
Article 1806. Partners shall render on demand true and full 0 If he is wrongfully excluded from the partnership
information of all things affecting the partnership to any partner or business or possession of its property by his co-partners;
the legal representative of any deceased partner or of any partner 1 If the right exists under the terms of any agreement;
under legal disability. (n) 2 As provided by article 1807;
3 Whenever other circumstances render it just and
DUTY TO MAKE DISCLOSURE reasonable. (n)

Good faith not only requires that a partner should not make any RIGHT TO FORMAL ACCOUNT
false concealment to his partner, but also that he should abstain
from all concealment. GR: A partner is not entitled to a formal account

Article 1807. Every partner must account to the partnership for any XPN: Dissolution
benefit, and hold as trustee for it any profits derived by him
without the consent of the other partners from any transaction NOTE: There is no reason why they should constantly render him
connected with the formation, conduct, or liquidation of the accounts in the formal sense of the word. When, however, he is
partnership or from any use by him of its property. (n) excluded from the business or the possession of partnership
property, without any express agreement authorizing such exclusion,
Relation of Partners: Partners are required to exhibit towards each he should have the right to demand a formal account from his
other the highest degree of good faith. The relation between the partners, without necessarily requiring him to dissolve the
partnership.
NOTES ON PARTNERSHIP AGENCY, TRUSTS, LEASE AND PRESCRIPTION
Kenneth and King C. Hizon _________________________________________________________________________________________________________________
property of the partnership assets
The right to demand an accounting exists as long as the partnership Extent
exists. It includes only actual It includes not only the original
contributed and promised to the capital contributed but also all
Effect of approval of account: The approval of the last and final partnership property subsequently acquired
statement of accounts precludes any right on the part of the on account of the partnership
complaining partners to a further liquidation, unless the latter can (Pineda, 2006).
show there was fraud, deceit, error or mistake in said approval.
Article 1811. A partner is co-owner with his partners of specific
0Is there a duty to account for acquisition of earnings and property partnership property.
after termination of the partnership? The incidents of this co-ownership are such that:
0 A partner, subject to the provisions of this Title and to
23 It depends. If the earnings and acquisitions of a partner are any agreement between the partners, has an equal right
obtained from transactions unrelated to the partnership affairs or with his partners to possess specific partnership property
business, there is no duty to account. Otherwise, he has no account. for partnership purposes; but he has no right to possess
Thus, it is a recognized principle that a former partners duty to such property for any other purpose without the consent
share profits with his former co-partner may extend to earnings and of his partners;
acquisitions accruing after the termination of the partnership 1 A partner's right in specific partnership property is not
(Pineda, 2006) assignable except in connection with the assignment of
rights of all the partners in the same property;
2 A partner's right in specific partnership property is not
subject to attachment or execution, except on a claim
SECTION 2 against the partnership. When partnership property is
Property Rights of a Partner attached for a partnership debt the partners, or any of
them, or the representatives of a deceased partner,
Article 1810. The property rights of a partner are: cannot claim any right under the homestead or
23 His rights in specific partnership property; exemption laws;
24 His interest in the partnership; and 3 A partner's right in specific partnership property is not
25 His right to participate in the management (n) subject to legal support under article 291. (n)

PROPERTY RIGHTS: The property rights of a partner are those PARTNERS INTEREST IN ASSETS
enumerated under this article. They constitute property being
susceptible of appropriation or exercise by the owner. To distinguish A partner has no individual property in any specific assets of the
these rights from others, they are referred to as principal rights. firm, but each partners interest in partnership property is his share
in the surplus after partnership debts are paid and the partnership
PRINCIPAL RIGHTS: accounts have been settled.

0Right to demand reimbursement for amounts he advanced to NOTE: The interest of one partner in the assets of a partnership does
the partnership and to indemnity for the burdens arising not entitle him to any particular portion of such assets, but merely
from risks in management (Art. 1796) confers upon him a right to an accounting with other members of
1Right to have access and to inspect partnership books (Art. the partnership, and when affairs of the partnership are settled, such
1805) partner shall receive the share to which he is entitled.
2Right to demand true and full information of all things
affecting the partnership affairs (Art. 1806) A partner, however, subject to agreement between the partners, has
3Right to demand a formal account of partnership affairs under an equal right with his partners to possess specific partnership
the circumstances in Art. 1809 property for partnership purposes, but has no right to possess such
4Right to dissolve the partnership under certain conditions property for his personal or other purposes without the other
(Pineda, 2006) partners consent.

Extent of property right: A partnership has 3 distinct interests arising Transfer of rights: The right of a partner as a co-owner in specific
from his partnership: partnership property is not separately assignable or subject to
0 His co-ownership in the specific property of the attachment and execution. This peculiarity of tenancy in partnership
partnership is a necessary consequence of the partnership relation.
1 His interest in the partnership as such
2 His right to participate in the management Rationale: This is intended to prevent interference by outsiders in
partnership affairs and to protect the right of other partners and
PARTNERSHIP CAPITAL v. PARTNERSHIP PROPERTY partnership creditors to have partnership assets applied to firm
debts (Pineda, 2006)
PARTNERSHIP CAPITAL PARTNERSHIP PROPERTY
Susceptibility to change in value Example: If A and B are partners and A attempts to assign all his right
Its value is constant. It does not Its value varies from time to in some partnership property, to C, and the law recognizes the
change. It is not affected by time in accordance with the possibility of such a transfer C, would pro tanto become a partner
fluctuations in the value of the fluctuations of the market value with B; for the rights of A in the chattel are to possess the chattel for
NOTES ON PARTNERSHIP AGENCY, TRUSTS, LEASE AND PRESCRIPTION
Kenneth and King C. Hizon _________________________________________________________________________________________________________________
a partnership purpose. But partnership is a voluntary relation. B should operate; but the remaining partners may refuse to recognize
cannot have a partner thrust upon him by A without Bs consent. the right of the assignee to join in the conduct of the business, and
make such refusal a ground for dissolution.
Hence, a creditor of one of the partners cannot be forced into the
partnership by involuntary assignment thru attachment and RIGHTS OF ASSIGNEE: The transfer by a partner of his partnership
execution. interest does not make the assignee of such interests a partner in
the firm, nor entitle the assignee to interfere in the management of
Article 1812. A partner's interest in the partnership is his share of the partnership business or to receive anything except the assignees
the profits and surplus. (n) profits.

INTEREST OF PARTNER The assignment does not purport to transfer an interest in the
partnership, but only a future contingent right to a portion of the
The interest of a partner in partnership property and business is the ultimate residue as the assignor may become entitled to receive by
net balance found to be due him after payment of partnership dents virtue of his proportionate interest in the capital.
and adjustment of partnership accounts between himself and his co-
partner. In case of dissolution of the partnership, the assignee is entitled to
receive his assignors interest and may require an account from the
Such interest is property and is susceptible of being seized under date only of the last account agreed to buy all the partners (Pineda,
legal process, or of being sold and conveyed, as well as of being 2006).
made liable for his separate debts.
OTHER RIGHTS OF ASSIGNEE OR CONVEYANCE:
The partners share in the undistributed profits and surplus
constitutes his interest in the partnership. Profit refers to excess of 0 To receive the profits accruing to the assigning partner as
revenues over expenses for a transaction; sometimes used per contract
synonymously with net income for the period. It is gain realized from 1 To avail himself of the ordinary remedies provided by law
business or investment over and above expenditures. While surplus in the event of fraud in the management of the
refers to remains of a fund appropriated for a particular purpose partnership
(Pineda, 2006). 2 To demand an accounting of partnership affairs, but only in
case the partnership is dissolved, and such account shall
Loss, on the other hand, is the difference that results when the cover the period from the date only of the last account
liabilities of the partnership are more than the assets (Pineda, 2006). agreed to by all the partners (Pineda, 2006).

NOTE: Unlike the partners interest in specific partnership property, Article 1814. Without prejudice to the preferred rights of
the partners interest in the partnership may be assigned, attached partnership creditors under article 1827, on due application to a
and subject to payment of legal support (Pineda, 2006). competent court by any judgment creditor of a partner, the court
which entered the judgment, or any other court, may charge the
NOTE: The interest of a partner in an ongoing partnership business interest of the debtor partner with payment of the unsatisfied
where there has been no settlement of his account is not a debt due amount of such judgment debt with interest thereon; and may
to the partner by the partnership and, therefore, is not subject to then or later appoint a receiver of his share of the profits, and of
attachment or execution on a judgment recovered against the any other money due or to fall due to him in respect of the
individual partner. partnership, and make all other orders, directions, accounts and
inquiries which the debtor partner might have made, or which the
Article 1813. A conveyance by a partner of his whole interest in the circumstances of the case may require.
partnership does not of itself dissolve the partnership, or, as
against the other partners in the absence of agreement, entitle the The interest charged may be redeemed at any time before
assignee, during the continuance of the partnership, to interfere in foreclosure, or in case of a sale being directed by the court, may be
the management or administration of the partnership business or purchased without thereby causing a dissolution:
affairs, or to require any information or account of partnership
transactions, or to inspect the partnership books; but it merely 0 With separate property, by any one or more of the
entitles the assignee to receive in accordance with his contract the partners; or
profits to which the assigning partner would otherwise be entitled.
However, in case of fraud in the management of the partnership, 1 With partnership property, by any one or more of the
the assignee may avail himself of the usual remedies. partners with the consent of all the partners whose
interests are not so charged or sold.
In case of a dissolution of the partnership, the assignee is entitled Nothing in this Title shall be held to deprive a partner of his right, if
to receive his assignor's interest and may require an account from any, under the exemption laws, as regards his interest in the
the date only of the last account agreed to by all the partners. (n) partnership. (n)

Effect of assignment of Interest Enforcement of Judgment

The assignment or conveyance of a partners interest in the The proper method of reaching a judgment debtors interest in a
partnership does not act of itself operate as a dissolution of the partnership is by applying for a charging order, and for the
partnership, in the absence of any showing of an intent that it appointment of a receiver under this article rather than by attaching
any particular partnership property.
NOTES ON PARTNERSHIP AGENCY, TRUSTS, LEASE AND PRESCRIPTION
Kenneth and King C. Hizon _________________________________________________________________________________________________________________
POWERS OF RECEIVER Industrial Partner also Liable: An industrial partner is liable to the
same extent and in the same way as a capitalist partner for the debts
0 He is entitled to any relief necessary to conserve the and obligations of the partnership (although under Art. 1797,
partnership assets for partnership purposes and industrial partners shall not be liable for loss).
particularly to a decree nullifying unlawful efforts of a
partner to assign or encumber his interest in specific When he has paid such debts out of his private property during the
partnership property life of the partnership, then, when its affairs are settled, he is
1 He may be authorized to enforce any personal liability of entitled to credit for the amount so paid, and if it results that there is
partners for firm debts because such liability constitutes not enough property in the partnership, then the capitalist partners
partnership assets. must pay him.

NOTE: The liability of the partners for the partnership debts is pro
rata, if their contributions are unequal. Pro rata means in proportion
SECTION 3 or ratably, or a division according to share, interest, or liability of
Obligations of the Partners with Regard to Third Persons each (Pineda, 2006).

Article 1815. Every partnership shall operate under a firm name, PARTNER MAY ACT HIS OWN NAME: A partner may enter into a
which may or may not include the name of one or more of the separate obligation to perform a partnership contract. He is then
partners. acting in his own name for the benefit of the partnership.
Consequently, he is the only one bound for his own acts (Pineda,
Those who, not being members of the partnership, include their 2006).
names in the firm name, shall be subject to the liability of a
partner. (n) Article 1817. Any stipulation against the liability laid down in the
preceding article shall be void, except as among the partners. (n)
CHANGE OF FIRM NAME
GR: Any stipulation by and among the partners contradicting the pro
Where the partners of a general partnership doing business under rata liability of partners provided in Art. 1816 is void.
the firm name of Sharruf &Co. obtained insurance policies issued
to said firm, but later the firm name was changed to Sharruf & XPN: Such stipulation is valid by and among the partners themselves.
Eskenazi which are the names of the same and only partners of the
firm Sharruf &Co. continuing the same business, it was held that Article 1818. Every partner is an agent of the partnership for the
the new firm retained the rights of the former firm under the same purpose of its business, and the act of every partner, including the
policies, and therefore, had juridical personality to sue. execution in the partnership name of any instrument, for
apparently carrying on in the usual way the business of the
FIRM- Implies a partnership of 2 or more persons who bind partnership of which he is a member binds the partnership, unless
themselves to contribute money, property, or industry to a common the partner so acting has in fact no authority to act for the
fund, with the intention of dividing the profits among themselves. It partnership in the particular matter, and the person with whom he
may be formed for the exercise of a profession or vocation. The word is dealing has knowledge of the fact that he has no such authority.
firm is also used to refer to the name, style or title under which An act of a partner which is not apparently for the carrying on of
the company or concern transacts its business (Pineda, 2006). business of the partnership in the usual way does not bind the
partnership unless authorized by the other partners.
Article 1816. All partners, including industrial ones, shall be liable Except when authorized by the other partners or unless they have
pro rata with all their property and after all the partnership assets abandoned the business, one or more but less than all the partners
have been exhausted, for the contracts which may be entered into have no authority to:
in the name and for the account of the partnership, under its
signature and by a person authorized to act for the partnership. 0 Assign the partnership property in trust for creditors
However, any partner may enter into a separate obligation to or on the assignee's promise to pay the debts of the
perform a partnership contract. (n) partnership;
1 Dispose of the good-will of the business;
Against whom action filed: In order to enforce the liability of the 2 Do any other act which would make it impossible to
partners for partnership debts and obligations, both the partnership carry on the ordinary business of a partnership;
and the separate partners may be joined in the same action, but the 3 Confess a judgment;
private property of the latter cannot be taken in payment of the 4 Enter into a compromise concerning a partnership
partnership debt until the common property of the concern is claim or liability;
exhausted. Where the partnership has no visible assets, the partners 5 Submit a partnership claim or liability to arbitration;
individually must respond for its debts. 6 Renounce a claim of the partnership.

NOTE: A withdrawing partner is not liable for debts and obligations No act of a partner in contravention of a restriction on authority
of the partnership after he has ceased to be a member of the shall bind the partnership to persons having knowledge of the
partnership and has only the position of a creditor unless the restriction. (n)
withdrawal was with intent to defraud existing creditors, in which
case, he is still liable as a partner.
NOTES ON PARTNERSHIP AGENCY, TRUSTS, LEASE AND PRESCRIPTION
Kenneth and King C. Hizon _________________________________________________________________________________________________________________
AUTHORITY OF PARTNER
Where the title to real property is in the name of all the partners a
Where the express and avowed purpose of the partnership is to buy conveyance executed by all the partners passes all their rights in
and sell real estate, the immovables acquired form part of the stock- such property. (n)
in-trade and thus within the ordinary powers of the partner.
CONVEYANCE INCLUDE MORTGAGE
RATIFICATION OF UNAUTHORIZED ACT
The right to mortgage is included in the right to convey.
The principle of agency that one who accepts or retains benefits of
unauthorized acts of agents, with knowledge of material facts APPLICABILITY OF THE ARTICLE: The article applies only to real
surrounding the transaction, will be deemed to have ratified those property which refers to immovable like land or building because of
acts will be applicable to a question of ratification of unauthorized the use of the words title to real property, equitable interest and
acts of partmer. conveyances (Pineda, 2006).

LAW ON PARTNERSHIP IS A BRANCH OF THE LAW ON AGENCY: EQUITABLE INTEREST- An equitable interest or title is one cognizable
There is more than mutual agency among the partners. They are not in equity alone; it is a right or interest in property which is imperfect,
agents of one another but they are also of the partnership. Each uncognizable, and unenforceable at law, but which under well-
partner is acting as principal on his own behalf and as agent for his recognized equitable principles should be and is convertible into a
co-partners. legal right or title (Pineda, 2006).

2 KINDS OF ACTS OF A PARTNER CONTEMPLATED IN THE ARTICLE: PARTNERSHIP, NOT ITS OFFICERS OR AGENTS SHOULD BE
IMPLEADED IN LITIGATION INVOLVING PROPERTY REGISTERED IN
23 Acts which apparently are for the carrying of the business ITS NAME: The partners cannot be held liable for the obligations of
of the partnership the partnership unless it is shown that the legal fiction of a different
24 Acts which do not apparently for carrying on the business juridical personality is being used for fraudulent, unfair or illegal
of the partnership in the usual way (Pineda, 2006). purposes (Pineda, 2006).

USUAL WAY- The term usual way means it is an ordinary activity Article 1820. An admission or representation made by any partner
for the particular partnership or similar partnership. Example, a concerning partnership affairs within the scope of his authority in
partnership engaged in real estate is usually involved in the sale and accordance with this Title is evidence against the partnership. (n)
purchase of lands and buildings.
ADMISSIONS AFTER DISSOLUTION
Article 1819. Where title to real property is in the partnership
name, any partner may convey title to such property by a Partnership is not bound by admissions or statements made by a
conveyance executed in the partnership name; but the partnership former partner after the latter has withdrawn from the partnership
may recover such property unless the partner's act binds the as to what took place during the period of partnership.
partnership under the provisions of the first paragraph of article
1818, or unless such property has been conveyed by the grantee or REQUISITES TO MAKE A PARTNERS ADMISSION OR
a person claiming through such grantee to a holder for value REPRESENTATION ADMISSIBLE AGAINST THE PARTNERSHIP:
without knowledge that the partner, in making the conveyance,
has exceeded his authority. The admission or representation must be connected with
partnership affairs
Where title to real property is in the name of the partnership, a It is within the scope of the partners authority
conveyance executed by a partner, in his own name, passes the It is made during the existence of the firm (Pineda, 2006).
equitable interest of the partnership, provided the act is one within
the authority of the partner under the provisions of the first ADMISSION AFTER DISSOLUTION: An admission made by a partner
paragraph of article 1818. after the dissolution of the firm will be binding upon the partnership
only if connected with the winding up affairs of the firm (Pineda,
Where title to real property is in the name of one or more but not 2006).
all the partners, and the record does not disclose the right of the
partnership, the partners in whose name the title stands may Article 1821. Notice to any partner of any matter relating to
convey title to such property, but the partnership may recover such partnership affairs, and the knowledge of the partner acting in the
property if the partners' act does not bind the partnership under particular matter, acquired while a partner or then present to his
the provisions of the first paragraph of article 1818, unless the mind, and the knowledge of any other partner who reasonably
purchaser or his assignee, is a holder for value, without knowledge. could and should have communicated it to the acting partner,
operate as notice to or knowledge of the partnership, except in the
Where the title to real property is in the name of one or more or all case of fraud on the partnership, committed by or with the consent
the partners, or in a third person in trust for the partnership, a of that partner. (n)
conveyance executed by a partner in the partnership name, or in
his own name, passes the equitable interest of the partnership, NOTICE
provided the act is one within the authority of the partner under
the provisions of the first paragraph of article 1818. When notice is given to the partner while he is a partner, the effect
is the same as if notice was had by all the partners. Where the
NOTES ON PARTNERSHIP AGENCY, TRUSTS, LEASE AND PRESCRIPTION
Kenneth and King C. Hizon _________________________________________________________________________________________________________________
knowledge or notice has been received by one before he became a
partner, and his partners are ignorant of this, and he is not the Article 1823. The partnership is bound to make good the loss:
partner acting in the particular matter, there is no doubt that there
has been neither knowledge of nor notice to the partnership. Yet, if 23 Where one partner acting within the scope of his
the partner acting in the particular matter acquired knowledge apparent authority receives money or property of a third
before he became a partner, and the knowledge is then present in person and misapplies it; and
his mind, and partnership should be charged with knowledge. 24 Where the partnership in the course of its business
receives money or property of a third person and the
Article 1822. Where, by any wrongful act or omission of any money or property so received is misapplied by any
partner acting in the ordinary course of the business of the partner while it is in the custody of the partnership. (n)
partnership or with the authority of his co-partners, loss or injury is
caused to any person, not being a partner in the partnership, or Article 1824. All partners are liable solidarily with the partnership
any penalty is incurred, the partnership is liable therefor to the for everything chargeable to the partnership under articles 1822
same extent as the partner so acting or omitting to act. (n) and 1823. (n)

LIABILITY FOR WRONGFUL ACTS NATURE OF LIABILITY

Under the principle of mutual agency, the partnership, or every The liability of a partner for the wrongful act of another partner is
member of a partnership, is liable for torts committed by one of the analogous to that of a principal for the acts of his agent since each
members acting in the scope of the firm business, although they do partner acts both as principal and as agent of the other as to acts
not participate in, ratify or have knowledge of such torts. Such done within the apparent scope of business and purpose of the
liability is not dependent on the personal wrong of the individual partnership and for its benefit.
member of the partnership against which the liability is asserted.
SOLIDARY LIABILITY: All partners are liable jointly and severally for
The test of liability: whether the wrong was committed in behalf of everything chargeable to the partnership by reason of the partners
and within the reasonable scope of the business of the partnership. wrongful act or breach of trust wherein a third person is adversely
If it was so, the partners are liable as joint tort-feasors. affected.

LIABILITY FOR WANTON OR WILLFUL ACT While the liability of the partners are merely joint in transactions
entered into by the partnership, a third person who transacted with
GR: If the injury results from a wanton or willful act of one of the said partnership can hold the partners solidarily for the whole
parties committed outside the agency or common business, then the obligation if the case involves loss or injury caused to any person not
person doing the act and causing the injury is alone responsible. a partner in the partnership, and misapplication of money or
property of a third person received by a partner or the partnership.
XPN: If the act was authorized by the members of the partnership or
subsequently ratified by them. RATIONALE: The law protects the latter who in good faith relied
upon the authority of a partner, whether such authority is real or
REQUISITES FOR APPLICATION OF THE LAW: apparent.

0 Partner committed a wrongful act or omission (crime or quasi- ART. 1824 IS AN EXCEPTION TO ARTICLE 1816: Under Art. 1816, the
delict) liability of the partners, including industrial partners, is pro rata.
1 The guilty partner is acting in the ordinary course of the However, under Art. 1824, the liability of all partners is declared to
business of the partnership or with authority of the co- be solidary under Articles 1822 and 1823. The reason being that the
partners even if the act is not connected with the violation of these two articles constitutes torts, hence, the solidary
partnership business liability of the partners (Pineda, 2006).
2 Loss or injury is suffered by third person as a result of the
wrongful act or omission Article 1825. When a person, by words spoken or written or by
3 The aggrieved third person is not a partner in the firm conduct, represents himself, or consents to another representing
4 There is no pre-existing contract between the partnership and him to anyone, as a partner in an existing partnership or with one
the third person; if there is, but it was grossly and or more persons not actual partners, he is liable to any such
deliberately violated, this itself constitutes quasi-delict persons to whom such representation has been made, who has, on
(Pineda, 2006). the faith of such representation, given credit to the actual or
apparent partnership, and if he has made such representation or
DEFENSES AGAINST THE SUIT: To be exercised from liability, the consented to its being made in a public manner he is liable to such
partnership and the co-partner/s must prove that the erring partner person, whether the representation has or has not been made or
committed the complained act while acting for purposes of his own communicated to such person so giving credit by or with the
and not for the benefit of the partnership, or acted not in the course knowledge of the apparent partner making the representation or
of the business of the partnership (Pineda, 2006). consenting to its being made:

REMEDY OF INNOCENT PARTNERS: The innocent partners who were 0 When a partnership liability results, he is liable as
made liable solidary with the offending partner is to seek recovery though he were an actual member of the partnership;
against the latter for what they have paid with interest (Pineda, 1 When no partnership liability results, he is liable pro
2006). rata with the other persons, if any, so consenting to the
NOTES ON PARTNERSHIP AGENCY, TRUSTS, LEASE AND PRESCRIPTION
Kenneth and King C. Hizon _________________________________________________________________________________________________________________
contract or representation as to incur liability, otherwise 0 The alleged partner cannot disallow liability by claiming he
separately. is not actually a partner. He is estopped from making a
disclaimer. He is bound as a partner, although, he is
When a person has been thus represented to be a partner in an actually not a partner (Pineda, 2006).
existing partnership, or with one or more persons not actual
partners, he is an agent of the persons consenting to such NO REAL PARTNERSHIP IS CREATED BY ESTOPPEL: Art. 1825 does
representation to bind them to the same extent and in the same not create or establish a real partnership as between the alleged
manner as though he were a partner in fact, with respect to partners. It must be stressed, a real partnership is formed by virtue
persons who rely upon the representation. When all the members of a contract, express or implied, between the parties. It is only
of the existing partnership consent to the representation, a insofar as third persons are involved and for the purpose of giving
partnership act or obligation results; but in all other cases it is the them protection that the equitable principle of estoppel is
joint act or obligation of the person acting and the persons recognized in the law (Pineda, 2006).
consenting to the representation. (n)
PROOF OF ESTOPPEL: Whoever alleges the existence of a partner or
PERSONS PROTECTED partnership by estoppels has the burden of proof. The existence of
the misrepresentation and the innocent reliance on it must be
The article is for the benefit of third persons who are misled by the established (Pineda, 2006).
representation holding out an individual as a partner, and who act to
their detriment; but it does not create a partnership as between the Article 1826. A person admitted as a partner into an existing
alleged partners or as respect third persons who have not in facr partnership is liable for all the obligations of the partnership arising
been misled. before his admission as though he had been a partner when such
obligations were incurred, except that this liability shall be satisfied
Where a former partner entered into an agreement with the only out of partnership property, unless there is a stipulation to the
remaining partners to continue the business, and third parties were contrary. (n)
misled into believing that they are dealing with the same old
partnership, that partner who has withdrawn is still liable for NOTE: The article eliminates the difficulty which arises when a new
partnership liabilities. partner is admitted without liquidation of firm debts. This is
illustrated by the case where all the property of the existing
DOCTRINE OF PARTNERSHIP BY ESTOPPEL partnership is taken over, without notice of any break in the conduct
of business, by the new partnership and the incoming partner;
A partnership, not duly organized, which has been recognized as thereby depriving the existing partnership of all its property.
such in its dealings with third persons shall be considered as
partnership by estoppel as far as third persons are concerned. In this case, both the existing and subsequent creditors may believe
it is one and the same partnership. Existing and subsequent CRs have
ESTOPPEL- It may be said that estoppel is a bar which precludes a equal rights as against partnership property and the separate
person from denying or asserting anything contrary to that which property of all the previous existing members of the partnership,
has been, in contemplation of law, established as the truth either by while only the subsequent CRs have the rights against the separate
acts of judicial or legislative officers, or by his own deed or estate of the newly admitted partner.
representations either express or implied (Pineda, 2006).
Article 1840. In the following cases creditors of the dissolved
Mirasol v. Municipality of Tabaco partnership are also creditors of the person or partnership
continuing the business:
The admission or representation must be plain and clear. Estoppel
cannot be sustained on doubtful or ambiguous inferences (Pineda, 0 When any new partner is admitted into an existing
2006). partnership, or when any partner retires and assigns (or
the representative of the deceased partner assigns) his
ESTOPPEL OF THIRD PERSONS: He who enters or contract with a rights in partnership property to two or more of the
partnership as such, is stopped in a suit by the partnership against partners, or to one or more of the partners and one or
him growing out of such contract, to claim that the partnership was more third persons, if the business is continued without
no properly organized (Pineda, 2006). liquidation of the partnership affairs;
1 When all but one partner retire and assign (or the
Requisites to make a person a partner by estoppel: representative of a deceased partner assigns) their rights
in partnership property to the remaining partner, who
0 The person must represent himself as a partner of an continues the business without liquidation of partnership
existing partnership, when in fact he is not a partner or affairs, either alone or with others;
consents to another representing him to anyone as a 2 When any partner retires or dies and the business of
partner in an existing partnership or with one or more the dissolved partnership is continued as set forth in Nos.
persons not actual partners 1 and 2 of this article, with the consent of the retired
1 Third person relied on the said misrepresentation not partners or the representative of the deceased partner,
being aware of the deception but without any assignment of his right in partnership
2 On the faith of such representation, the third person has property;
given credit to the actual or apparent partnership 3 When all the partners or their representatives assign
their rights in partnership property to one or more third
NOTES ON PARTNERSHIP AGENCY, TRUSTS, LEASE AND PRESCRIPTION
Kenneth and King C. Hizon _________________________________________________________________________________________________________________
persons who promise to pay the debts and who continue property of all original partners while only the subsequent creditors
the business of the dissolved partnership; have rights against the separate property of the newly admitted
0 When any partner wrongfully causes a dissolution and partner. Hence, the old creditors do not lose their preference as
the remaining partners continue the business under the partnership creditors because they are recognized as the creditors of
provisions of article 1837, second paragraph, No. 2, either the new firm (Pineda, 2006).
alone or with others, and without liquidation of the
partnership affairs; Reason for making new partner liable for obligations contracted
1 When a partner is expelled and the remaining before admission: To eliminate the difficulty which arises when by
partners continue the business either alone or with his admission, the existing partnership is dissolved and all properties
others without liquidation of the partnership affairs. of the said partnership are taken over by the new partnership. Old
creditors lose their preference as partnership creditors. By making
The liability of a third person becoming a partner in the the new partner liable even to old creditors, the problem is solved
partnership continuing the business, under this article, to the (Pineda, 2006).
creditors of the dissolved partnership shall be satisfied out of the
partnership property only, unless there is a stipulation to the Article 1827. The creditors of the partnership shall be preferred to
contrary. those of each partner as regards the partnership property. Without
prejudice to this right, the private creditors of each partner may
When the business of a partnership after dissolution is continued ask the attachment and public sale of the share of the latter in the
under any conditions set forth in this article the creditors of the partnership assets. (n)
dissolved partnership, as against the separate creditors of the
retiring or deceased partner or the representative of the deceased PARTNERSHIP CREDITORS PREFERRED TO CREDITORS OF
partner, have a prior right to any claim of the retired partner or the INDIVIDUAL PARTNERS: The reason for this grant of priority of
representative of the deceased partner against the person or payment is that the partnership has a separate and distinct
partnership continuing the business, on account of the retired or personality from the individual partners. The partnership should
deceased partner's interest in the dissolved partnership or on apply its property to the payment first of its debts to its own
account of any consideration promised for such interest or for his creditors. Conversely, the private property of the partners cannot be
right in partnership property. taken as payment for partnership debts until the common property
of the firm had been exhausted (Pineda, 2006).
Nothing in this article shall be held to modify any right of creditors
to set aside any assignment on the ground of fraud. CHAPTER 3
The use by the person or partnership continuing the business of Dissolution and Winding Up
the partnership name, or the name of a deceased partner as part
thereof, shall not of itself make the individual property of the Article 1828. The dissolution of a partnership is the change in the
deceased partner liable for any debts contracted by such person or relation of the partners caused by any partner ceasing to be
partnership. (n) associated in the carrying on as distinguished from the winding up
of the business. (n)
NOTE: Article 1826 and 1840 are based on the principle that where
there has been one continuous business, the fact that Ayel has been DISSOLUTION TERMINATION WINDING UP
admitted to the business, or Bebeng ceased to be connected with it, Designates the point Is the point in time Is the process of
should not be allowed to cause endless confusion as to the claims of in time when the when all the settling partners
CRs on the property employed in the business; but all the CRs of the partners cease to partnership affairs affairs after
business, irrespective of the times when they became CRs and the carry on the are wound up. dissolution.
exact combinations of persons then owning the business, should business together.
have equal rights to the property. The change in the The process of It is the state which
relation of the settling the business follows after all the
LIABILITY OF NEWLY ADMITTED PARTNER: The incoming partner or partners caused by affairs of the partnership affairs
newly admitted partner is liable for all the obligations of the firm any partner ceasing partnership (Pineda, have been wound
contracted before his admission. On the surface, this appears to be to be associated in 2006). up or concluded.
harsh for the incoming partner. However, his liability is limited. It is the carrying on of Officially, it is the
only up to his share in the partnership property, unless there is a the business of the end of the
contrary stipulation. His separate property will not be reached by partnership (Pineda, partnership (Pineda,
partnership creditors (Pineda, 2006). 2006). 2006).

EFFECT OG ADMISION OF NEW PARTNER ON THE STATUS OF YJE Dissolution is descriptive of that change in the partnership relation
EXISTING PARTNERSHIP: The admission of the new partner dissolves
which ultimately culminates in its termination. It is not the
the old partnership (Pineda, 2006).
termination of the partnership or of the rights and powers of
partners.
All the properties of the existing partnership are assumed by the
new firm without notice of any discontinuance in the conduct of the EFFECTS OF DISSOLUTION
business, now under the new firm composed of all the original
members and the newly admitted one. In effect, the old partnership
On the partners 1. As to previous obligations, the
is deprived of all its properties. Under Art. 1826, existing and
dissolution does not necessarily mean
subsequent creditors shall have equal rights as against partnership
that a partner can evade previous
NOTES ON PARTNERSHIP AGENCY, TRUSTS, LEASE AND PRESCRIPTION
Kenneth and King C. Hizon _________________________________________________________________________________________________________________
obligations entered into by the them to be charged for their separate debts,
partnership either before or after the termination of any
2. As to new obligations: specified term or particular undertaking;
GR: Dissolution spares the former By the expulsion of any partner from the
partners from new obligations entered business bona fide in accordance with such a
into by the partnership to which they power conferred by the agreement between the
did not consent either expressly or partners;
impliedly
XPN: These new obligations are 0 In contravention of the agreement between the
essential for the winding up of the partners, where the circumstances do not permit a
partnership affairs dissolution under any other provision of this article, by
On membership 1. Any change in the membership of the the express will of any partner at any time;
partnership will result in its dissolution 1 By any event which makes it unlawful for the business
and in the formation of a new of the partnership to be carried on or for the members to
partnership so long as the course of its carry it on in partnership;
business is materially interrupted 2 When a specific thing which a partner had promised
2. All partners constituting new to contribute to the partnership, perishes before the
partnership are considered incoming delivery; in any case by the loss of the thing, when the
partners if there is admission of the partner who contributed it having reserved the
new partner even if the business had ownership thereof, has only transferred to the
been theretofore conducted by the partnership the use or enjoyment of the same; but the
others through the previous partnership shall not be dissolved by the loss of the thing
partnership when it occurs after the partnership has acquired the
3. A change in the relation of the ownership thereof;
partners will cause the dissolution of 3 By the death of any partner;
the partnership but this will not 4 By the insolvency of any partner or of the partnership;
disturb the continuance of the 5 By the civil interdiction of any partner;
business of the partnership under the 6 By decree of court under the following article. (1700a
original articles of partnership by the and 1701a)
remaining partners or by them and the
new partners AUTHORITY AND POWERS OF PARTNERS

TERMINATION OF TERM OR PURPOSE


Article 1829. On dissolution the partnership is not terminated, but
continues until the winding up of partnership affairs is completed. If a fixed duration is agreed on, partnership is dissolved by the lapse
(n) of time on the expiration of such period. Irrespective of any
agreement as to the period of duration of a partnership, it is
PARTNERSHIP IS NOT TERMINATED dissolved on the completion of the enterprise for which it was
formed.
Dissolution affects only future obligations of the business, and as to
EXPRESS WILL OF ANY PARTNER
past transactions the partnership continues until it satisfies all its
pre-existing obligations. Dissolution does not abrogate its contracts
which continue until performed or otherwise become inoperative. It If no time prescribed by the agreement for the duration of a general
has no effect on debts due from the partnership to third parties partnership, it may be dissolved totally by the express will of any
except that partners may not act for each other any further than partner. A partnership may be dissolved by one partner
may joint debtors. unequivocally bringing home notice to the other partners that he no
longer intends to be a partner.
During dissolution, the partnership will be reputed as existing until
the juridical relations arising out of the contract are dissolved. In contravention of agreement

Article 1830. Dissolution is caused: Any partnership, whether under the articles of partnership it is to
exist for a definite period of time or for the accomplishment of a
particular purpose, or whether those articles contain any stipulation
Without violation of the agreement between the
partners: as to the time of existence, may be dissolved by the act of any
partner alone in accordance with his own pleasure and will.
By the termination of the definite term or
particular undertaking specified in the The difference between a partnership for an indefinite period and
agreement; one for a specified term is that in case of a partnership for a definite
By the express will of any partner, who must act term, a dissolution before the expiration of the stipulated time is a
in good faith, when no definite term or breach of agreement which subjects such partner to a claim for
particular is specified; damages for breach of contract if the dissolution is not justified. On
the other hand, the dissolution of partnership at will affords the
By the express will of all the partners who have
not assigned their interests or suffered
NOTES ON PARTNERSHIP AGENCY, TRUSTS, LEASE AND PRESCRIPTION
Kenneth and King C. Hizon _________________________________________________________________________________________________________________
other partner no ground for complaint. In either case the action is of
one partner actually dissolves the partnership. Where the purpose of the partnership can no longer be
accomplished harmoniously or profitably because of serious
This is because a contract of partnership is a contract of agency dissensions, personal ill-will, irreconcilable differences, and lack of
based on the assent of each of the partners, which may be retracted
at any time as to future dealings although the term of the
partnership may not have expired. All that is required is that notice
of the dissolution must be communicated forthwith to the other
members of the firm. By such notice the partnership is dissolved.

The rights of the parties upon dissolution are safeguarded by Art.


1837, subdivision (2).

Article 1831. On application by or for a partner the court shall


decree a dissolution whenever:


0 A partner has been declared insane in any judicial
proceeding or is shown to be of unsound mind;

1 A partner becomes in any other way incapable of
performing his part of the partnership contract;

2 A partner has been guilty of such conduct as tends to
affect prejudicially the carrying on of the business;

3 A partner wilfully or persistently commits a breach of
the partnership agreement, or otherwise so conducts
himself in matters relating to the partnership business
that it is not reasonably practicable to carry on the
business in partnership with him;

4 The business of the partnership can only be carried on
at a loss;

5 Other circumstances render a dissolution equitable.

On the application of the purchaser of a partner's interest under


article 1813 or 1814:

0 After the termination of the specified term or


particular undertaking;
1 At any time if the partnership was a partnership at
will when the interest was assigned or when the charging
order was issued. (n)

Misconduct, gross neglect, or breach of duty

GR: Gross misconduct, want of good faith, willful neglect of


partnership obligations, and such other causes as are productive of
serious and permanent injury to the partnership concern, or which
render it impracticable to carry on the partnership business, are
proper grounds for the dissolution of the partnership by a court of
equity at the instance of the innocent partner.

Also, habitual drunkenness, great extravagance or unwarranted


negligence on the part of the partner in conducting the business of
the partnership justifies a judicial dissolution of the partnership at
the instance of the other partner, although such facts do not
authorize the other, of his own motion, to treat the partnership as
ended and take to himself all the benefits of the joint labors and
property.

DISSENSION, LACK OF CONFIDENCE


confidence between partners, courts of equity can consider these
grounds for the dissolution of the partnership.

Yet, the partner who caused the want of confidence or is the author
of the ill-feeling between himself and his partners will not be
permitted to make the strained relation he has induced the ground
for the dissolution of the partnership.

The complaining partner must show that the things relied upon are
of serious and permanent character as to prevent the profitable
continuance of the partnership business.

Not grounds for dissolution:

0 trifling and minor grievances involving no permanent


mischief;
Remedy: Injunction
1 Friction among the partners

Article 1832. Except so far as may be necessary to wind up


partnership affairs or to complete transactions begun but not then
finished, dissolution terminates all authority of any partner to act
for the partnership:

0 With respect to the partners,


When the dissolution is not by the act,
insolvency or death of a partner; or
When the dissolution is by such act, insolvency
or death of a partner, in cases where article
1833 so requires;
1 With respect to persons not partners, as declared in
article 1834. (n)

AUTHORITY AND POWERS OF PARTNERS: The dissolution of a


partnership terminates the general agency of one partner for his co-
partners, but leaves each of the partners with an equal duty and an
equal power to do whatever is necessary to collect the debts due the
partnership, and to adjust, settle and pay its debts, including
authority as before to represent his firm in all acts necessary to
complete partnership contracts.

When the conversion of property into cash is necessary for the


completion of the winding-up process, each partner is deemed to
have power after dissolution to dispose of such firm property.

NOTE: A member of a dissolved partnership cannot, however, by


borrowing money, bind his co-partners, except when such power has
been expressly or impliedly conferred upon him, inasmuch as such
borrowing, whether to meet pre-existing obligations or not, is
generally considered as a new contract.

Article 1833. Where the dissolution is caused by the act, death or


insolvency of a partner, each partner is liable to his co-partners for
his share of any liability created by any partner acting for the
partnership as if the partnership had not been dissolved unless:
0 The dissolution being by act of any partner, the
partner acting for the partnership had knowledge of the
dissolution; or
1 The dissolution being by the death or insolvency of a
partner, the partner acting for the partnership had
knowledge or notice of the death or insolvency.
NOTES ON PARTNERSHIP AGENCY, TRUSTS, LEASE AND PRESCRIPTION
Kenneth and King C. Hizon _________________________________________________________________________________________________________________
SCOPE OF THIS ARTICLE: Where the dissolution has been caused by of dissolution, the fact of dissolution had not
the act of one of the parties, if the partner acting is subject to a been advertised in a newspaper of general
liability to third persons, he can call on his co-partners to contribute circulation in the place (or in each place if more
towards this liability to the same extent as if there has been no than one) at which the partnership business
dissolution, provided he had no knowledge of the dissolution, at the was regularly carried on.
time of the act. The liability of a partner under the first paragraph, No. 2, shall be
satisfied out of partnership assets alone when such partner had
Example: A, B, and C are partners. A, in accordance with his right, or been prior to dissolution:
in contravention of the partnership. B, subsequently, makes a 0 Unknown as a partner to the person with whom the
contract for the partnership in ignorance of the dissolution. B under contract is made; and
this article would have the right to call upon A and C to assume their 1 So far unknown and inactive in partnership affairs that
share of the burden. The same principle applies when the dissolution the business reputation of the partnership could not be
is caused by the death or insolvency of a partner, and that fact was said to have been in any degree due to his connection
unknown to the partner who subsequently makes a contract of with it.
partnership. The partnership is in no case bound by any act of a partner after
dissolution:
NOTE: The article applies when the partnership is dissolved by: 5888 Where the partnership is dissolved because it is
Act unlawful to carry on the business, unless the act is
Death appropriate for winding up partnership affairs; or
Insolvency of a partner 5889 Where the partner has become insolvent; or
5890 Where the partner has no authority to wind up
In such case, despite dissolution, a partner remains liable to his co- partnership affairs; except by a transaction with one who
partners for his share of any liability incurred by any partner acting -
for the partnership as if there is no dissolution
768 Had extended credit to the
XPNs: partnership prior to dissolution and had no
knowledge or notice of his want of authority; or
0 The dissolution being by an act of the partner, the
representing partner had knowledge of the dissolution 769 Had not extended credit to
1 The dissolution is caused by the death or insolvency of a the partnership prior to dissolution, and, having
partner, the representing partner who acts for the no knowledge or notice of his want of authority,
partnership, had knowledge or notice of such death or the fact of his want of authority has not been
insolvency and still transacts business for the partnership, advertised in the manner provided for
he alone is responsible for the liability incurred (Pineda, advertising the fact of
2006). dissolution in the first paragraph, No. 2 (b).
Nothing in this article shall affect the liability under article 1825 of
UNIFORM PARTNERSHIP ACT any person who after dissolution represents himself or consents to
another representing him as a partner in a partnership engaged in
0 A person has knowledge of a fact within the meaning of carrying on business. (n)
the Act not only when he has actual knowledge thereof,
but also when he has knowledge of such other facts as in ACCEPTANCE OF BILL: After the dissolution of a partnership, a
the circumstances shows bad faith partner cannot bind the partnership or his co-partners by accepting
1 A person has notice of a fact within the meaning of this Act a bill drawn on the firm, unless he has a special authority to do so.
when the person who claims the benefit of the notice,
states the fact to such person, or delivers through the mail, LIABILITY LIMITED BY NOTICE OF DISSOLUTION: The liability of
or by other means of communication, a written statement partnership property for partnership debts does not extend to debts
of the fact to such persons or to a proper person at his contracted by one partner after a dissolution with one having
place of business or residence. knowledge of dissolution.

Article 1834. After dissolution, a partner can bind the partnership, Persons dealing with a surviving partner with notice of the co-
except as provided in the third paragraph of this article: partners death are bound to recognize the limitation on his
By any act appropriate for winding up partnership affairs authority, and act at their peril when they give credit to the survivor
or completing transactions unfinished at dissolution; in a new transaction.
By any transaction which would bind the partnership if
dissolution had not taken place, provided the other party NOTICE OF DISSOLUTION: Since a partnership once established is, in
to the transaction: the absence of anything to indicate its termination, presumed to
0 Had extended credit to the partnership prior continue to exist, the law, for the protection of innocent third
to dissolution and had no knowledge or notice persons, imposes upon partners, when they dissolve the partnership
of the dissolution; or relation or when dissolution is effected by the retirement or
1 Though he had not so extended credit, had withdrawal of one of the partners, the duty of giving notice of the
nevertheless known of the partnership prior to dissolution of the partnership.
dissolution, and, having no knowledge or notice
The members of a partnership after dissolution continue to be liable
to those with whom they have previously dealt as partners who have
no notice or knowledge of the dissolution of the firm and who
NOTES ON PARTNERSHIP AGENCY, TRUSTS, LEASE AND PRESCRIPTION
Kenneth and King C. Hizon _________________________________________________________________________________________________________________
in good faith continue to act in the belief that the firm is still in 5888 He may engage the services of counsel for
existence. reasonable fees to prosecute or defend cases of the firm;
he may also incur obligations for litigation expenses
Article 1835. The dissolution of the partnership does not of itself (Pineda, 2006).
discharge the existing liability of any partner.
A partner is discharged from any existing liability upon dissolution Article 1837. When dissolution is caused in any way, except in
of the partnership by an agreement to that effect between himself, contravention of the partnership agreement, each partner, as
the partnership creditor and the person or partnership continuing against his co-partners and all persons claiming through them in
the business; and such agreement may be inferred from the course respect of their interests in the partnership, unless otherwise
of dealing between the creditor having knowledge of the agreed, may have the partnership property applied to discharge its
dissolution and the person or partnership continuing the business. liabilities, and the surplus applied to pay in cash the net amount
The individual property of a deceased partner shall be liable for all owing to the respective partners. But if dissolution is caused by
obligations of the partnership incurred while he was a partner, but expulsion of a partner, bona fide under the partnership agreement
subject to the prior payment of his separate debts. (n) and if the expelled partner is discharged from all partnership
liabilities, either by payment or agreement under the second
CONTINUATION OF LIABILITY: Dissolution of partnership does not paragraph of article 1835, he shall receive in cash only the net
discharge the existing contractual liability of any partner without amount due him from the partnership.
express or implied agreement between himself, the partnership When dissolution is caused in contravention of the partnership
creditor, and the partnership continuing the business or without agreement the rights of the partners shall be as follows:
novation; and in the absence of such factors, a retiring partners 0 Each partner who has not caused dissolution
liability on contracts of the partnership made before dissolution, wrongfully shall have:
continues as that of a principal or as a co-principal debtor. 0.0 All the rights specified in the first paragraph
of this article, and
NOTE: A partner who has withdrawn from the partnership is 0.1 The right, as against each partner who has
released from liability only when there has been liquidation and his caused the dissolution wrongfully, to damages
withdrawal has been published. breach of the agreement.
1 The partners who have not caused the dissolution
Article 1836. Unless otherwise agreed, the partners who have not wrongfully, if they all desire to continue the business in
wrongfully dissolved the partnership or the legal representative of the same name either by themselves or jointly with
the last surviving partner, not insolvent, has the right to wind up others, may do so, during the agreed term for the
the partnership affairs, provided, however, that any partner, his partnership and for that purpose may possess the
legal representative or his assignee, upon cause shown, may obtain partnership property, provided they secure the payment
winding up by the court. (n) by bond approved by the court, or pay any partner who
has caused the dissolution wrongfully, the value of his
KINDS OF WINDING UP interest in the partnership at the dissolution, less any
damages recoverable under the second paragraph, No. 1
JUDICIAL EXTRA-JUDICIAL (b) of this article, and in like manner indemnify him
When there is a court When the dissolution is against all present or future partnership liabilities.
intervention initiated by any voluntary without any court 2 A partner who has caused the dissolution wrongfully
partner, a legal representative intervention (Pineda, 2006). shall have:
or assignee of a partner 2.0 If the business is not continued under the
provisions of the second paragraph, No. 2, all
WHO CAN INITIATE WINDING UP: the rights of a partner under the first paragraph,
subject to liability for damages in the second
0 The partner who is expressly authorized by agreement to paragraph, No. 1 (b), of this article.
initiate the winding up 2.1 If the business is continued under the
1 If there is no such agreement, all the partners may second paragraph, No. 2, of this article, the
institute the winding up right as against his co-partners and all claiming
2 The legal representative of the last surviving partner who through them in respect of their interests in the
must not be insolvent partnership, to have the value of his interest in
3 Assignee (Pineda, 2006). the partnership, less any damage caused to his
co-partners by the dissolution, ascertained and
POWERS OR PREROGATIVES OF THE LUQUIDATING PARTNER: paid to him in cash, or the payment secured by
a bond approved by the court, and to be
released from all existing liabilities of the
0 He is the sole agent of the partnership for the purpose of
winding up of the firms affairs. The authority is only with partnership; but in ascertaining the value of the
the respect to the winding up of the business affairs partner's interest the value of the good-will of
the business shall not be considered. (n)
1 He may borrow money to meet accruing liabilities of the firm
or may sell property to raise money to pay its debts
2 He may incur obligations necessary to complete existing DISCHARGE OF LIABILITIES: Generally, partnership property must
contracts or to preserve partnership assets first be applied to the payment of partnership debts, and the co-
partners or their creditors are entitled to only such property as
remains after satisfaction of partnership debts.
NOTES ON PARTNERSHIP AGENCY, TRUSTS, LEASE AND PRESCRIPTION
Kenneth and King C. Hizon _________________________________________________________________________________________________________________
Upon the dissolution of a partnership by death of a partner, all 0 Right to be indemnified by the supposed partner guilty of
members of the firm are entitled to a division of the surplus of the the fraud or misrepresentation against all debts and
assets over the amount necessary to discharge the liabilities of the liabilities of the partnership (Pineda, 2006).
partnership.
Article 1839. In settling accounts between the partners after
CAUSES OF DISSOLUTION UNDER THIS ARTICLE: dissolution, the following rules shall be observed, subject to any
agreement to the contrary:
Dissolution not in contravention of partnership agreement
Dissolution in contravention of partnership agreement (Pineda, 0 The assets of the partnership are:
2006) 0 The partnership property,
1 The contributions of the partners necessary
GOODWILL OF PARTNERSHIP: The guilty partner is not entitled to a for the payment of all the liabilities specified in
proportionate share of the value of the goodwill if the firm. This is a No. 2.
penalty for his bad faith in wrongfully dissolving the firm (Pineda,
2006). 1 The liabilities of the partnership shall rank in order of
payment, as follows:
Article 1838. Where a partnership contract is rescinded on the
ground of the fraud or misrepresentation of one of the parties 0 Those owing to creditors other than
thereto, the party entitled to rescind is, without prejudice to any partners,
other right, entitled: 1 Those owing to partners other than for
capital and profits,
0 To a lien on, or right of retention of, the surplus of the 2 Those owing to partners in respect of
partnership property after satisfying the partnership capital,
liabilities to third persons for any sum of money paid by 3 Those owing to partners in respect of
him for the purchase of an interest in the partnership and profits.
for any capital or advances contributed by him;
1 To stand, after all liabilities to third persons have been 2 The assets shall be applied in the order of their
satisfied, in the place of the creditors of the partnership declaration in No. 1 of this article to the satisfaction of
for any payments made by him in respect of the the liabilities.
partnership liabilities; and
2 To be indemnified by the person guilty of the fraud or 3 The partners shall contribute, as provided by article
making the representation against all debts and liabilities 1797, the amount necessary to satisfy the liabilities.
of the partnership. (n)
4 An assignee for the benefit of creditors or any person
RESCISSION DUE FRAAUD appointed by the court shall have the right to enforce the
contributions specified in the preceding number.
Where one is induced to form a partnership by reason of fraud or
misrepresentation, the court, upon prompt application of injured 5 Any partner or his legal representative shall have the
party after deceit becomes known, rescind the contract of right to enforce the contributions specified in No. 4, to
partnership. the extent of the amount which he has paid in excess of
his share of the liability.
NOTE: Since the ground indicated in the article to set aside the
contract of partnership is fraud or misrepresentation, the 6 The individual property of a deceased partner shall be
appropriate technical word for the setting aside of the contract liable for the contributions specified in No. 4.
should be annulled and not rescinded (Pineda, 2006).
7 When partnership property and the individual
The deceit must be material and mere exaggerations as to the properties of the partners are in possession of a court for
prospects of an enterprise or the value of the property which he has distribution, partnership creditors shall have priority on
put into the firm as capital is not a ground for dissolution. partnership property and separate creditors on individual
property, saving the rights of lien or secured creditors.
When fraud is established, court will compel the repayment of
whatever sums may have been improperly obtained. 8 Where a partner has become insolvent or his estate is
insolvent, the claims against his separate property shall
RIGHTS OF PARTIES ENTITLED TO ANNUL: rank in the following order:

0 Right of lien on the surplus of the partnership property 0 Those owing to separate creditors;
after satisfaction of the partnership liabilities to third 1 Those owing to partnership creditors;
persons for any sum paid for any capital or advances 2 Those owing to partners by way of
contributed by him. This is right of retention of the contribution. (n)
surplus.
1 Right to subrogate partnership creditors after his payment LIQUIDATION NECESSARY BEFORE RECOVERY OF SHARE: A partner
of partnership liabilities to them who has retired must first ask for liquidation of the partnership
before he can recover his proportionate share of the partnership
NOTES ON PARTNERSHIP AGENCY, TRUSTS, LEASE AND PRESCRIPTION
Kenneth and King C. Hizon _________________________________________________________________________________________________________________
assets. The reason is that the creditors of the partnership must be partners, or to one or more of the partners and one or
paid first as they enjoy priority of payment (Pineda, 2006). more third persons, if the business is continued without
liquidation of the partnership affairs;
CONVERSION OF ASSETS INTO CASH 23 When all but one partner retire and assign (or the
representative of a deceased partner assigns) their rights
GR: After taking an accounting on dissolution of partnership, the in partnership property to the remaining partner, who
court should require a sale of the partnership property and continues the business without liquidation of partnership
distribute the proceeds to the partners after payment of costs and affairs, either alone or with others;
expenses and debts. 24 When any partner retires or dies and the business of
the dissolved partnership is continued as set forth in Nos.
XPNs: 1 and 2 of this article, with the consent of the retired
partners or the representative of the deceased partner,
23 Where there are no debts and division in kind may be fairly but without any assignment of his right in partnership
and equitably made; property;
24 If sale of assets would be prejudicial to an innocent partner 25 When all the partners or their representatives assign
who has not consented to the sale; and their rights in partnership property to one or more third
25 Where dissolution of the partnership is had on suit of a persons who promise to pay the debts and who continue
partner upon violation of a partnership agreement, and a the business of the dissolved partnership;
judicial sale of the assets would amount to confiscation. 26 When any partner wrongfully causes a dissolution and
the remaining partners continue the business under the
AGREEMENT AS TO DISTRIBUTION OF ASSETS provisions of article 1837, second paragraph, No. 2, either
alone or with others, and without liquidation of the
Co-partners may agree in what proportion assets of the partnership partnership affairs;
may be divided between them upon dissolution. 27 When a partner is expelled and the remaining
partners continue the business either alone or with
Where there is no fraud, an agreement of dissolution and settlement others without liquidation of the partnership affairs.
will not be set aside merely because one partner has made an
improvident agreement and settlement is on the basis different from The liability of a third person becoming a partner in the
that provided by the articles. partnership continuing the business, under this article, to the
creditors of the dissolved partnership shall be satisfied out of the
Partners share cannot be returned without first dissolving and partnership property only, unless there is a stipulation to the
liquidating the partnership, for the return is dependent on the contrary.
discharge of the creditors whose claims enjoy preference over those
of the partners. It is self-evident that all partners of the partnership When the business of a partnership after dissolution is continued
are interested in its assets and business, and are entitled to be heard under any conditions set forth in this article the creditors of the
in the matter of the firms liquidation and the distribution of its dissolved partnership, as against the separate creditors of the
property. retiring or deceased partner or the representative of the deceased
partner, have a prior right to any claim of the retired partner or the
PREFERENCES OF PAYMENT: representative of the deceased partner against the person or
partnership continuing the business, on account of the retired or
23 Those owing the creditors other than partners deceased partner's interest in the dissolved partnership or on
24 Those owing to partners other than capital and profits account of any consideration promised for such interest or for his
25 Those owing to partners in respect of capital right in partnership property.
26 Those owing to partners in respect of profits (Pineda,
2006) Nothing in this article shall be held to modify any right of creditors
to set aside any assignment on the ground of fraud.
RULE IN CASE OF INSOLVENCY OF A PARTNER OR THAT OF HIS The use by the person or partnership continuing the business of
ESTATE IN CASE OF HIS DEATH: the partnership name, or the name of a deceased partner as part
thereof, shall not of itself make the individual property of the
Order: deceased partner liable for any debts contracted by such person or
partnership. (n)
23 Separate creditors
24 Partnership creditors SCOPE
25 Partners who gave contributions (Pineda, 2006)
The article deals with the right of CRs when a new partner is
Article 1840. In the following cases creditors of the dissolved admitted or a partner retires, is expelled or dies and the business is
partnership are also creditors of the person or partnership continued without liquidation of all debts of the partnership
continuing the business: dissolved by the change in personnel.

23 When any new partner is admitted into an existing This does not alter the rule that any change in membership dissolves
partnership, or when any partner retires and assigns (or a partnership and creates a new partnership; neither does it alter
the representative of the deceased partner assigns) his the rule that on any change of personnel, the property of the
rights in partnership property to two or more of the dissolved partnership becomes the property of the partnership
NOTES ON PARTNERSHIP AGENCY, TRUSTS, LEASE AND PRESCRIPTION
Kenneth and King C. Hizon _________________________________________________________________________________________________________________
continuing the business. Hence, CRs of the dissolved partnership Applying the general law on prescription of actions, the period of
become CRs of the new partnership. prescription is 10 years if the contract of partnership is in writing;
and if not, it is 6 years from dissolution (Pineda, 2006).
SIX SITUATIONS WHERE THERE IS DISSOLUTION BY REASON OF
CHANGE IN MEMBERSHIP CAUSED BY ANY OF THE FF:

512 Admission of a new partner CHAPTER 4


513 Retirement of a partner Limited Partnership (n)
514 Assignment of rights in partnership property
515 Death of a partner Article 1843. A limited partnership is one formed by two or more
516 Expulsion persons under the provisions of the following article, having as
members one or more general partners and one or more limited
Article 1841. When any partner retires or dies, and the business is partners. The limited partners as such shall not be bound by the
continued under any of the conditions set forth in the preceding obligations of the partnership.
article, or in article 1837, second paragraph, No. 2, without any
settlement of accounts as between him or his estate and the LIMITED PARTNERSHIP; NATURE OF LIABILITY
person or partnership continuing the business, unless otherwise
agreed, he or his legal representative as against such person or It is one in which the liability of the members is limited (but not all).
partnership may have the value of his interest at the date of
dissolution ascertained, and shall receive as an ordinary creditor an Such is formed under laws permitting an individual to contribute to a
amount equal to the value of his interest in the dissolved specified sum to the capital of a firm and then limiting his liability for
partnership with interest, or, at his option or at the option of his losses to that amount on the parties complying with certain
legal representative, in lieu of interest, the profits attributable to established requirements. Their liability is limited to a fixed amount,
the use of his right in the property of the dissolved partnership; that is, to the amount they have contributed or invested in the
provided that the creditors of the dissolved partnership as against partnership (Pineda, 2006).
the separate creditors, or the representative of the retired or
deceased partner, shall have priority on any claim arising under this SUCCESSION TO GENERAL PARTNER
article, as provided article 1840, third paragraph. (n)
Mere acceptance of the inheritance does not make the heir of a
AGREEMENTS AS TO LIQUIDATION general partner a general partner himself.

No specific amounts or properties may be adjudicated to the heirs of But by authorizing the widow of a managing partner to manage
the deceased partner without the liquidation being first terminated. partnership property which is a limited partner could not be
authorized to do, the other general partner recognized her as a
Agreements between the partners with respect to liquidation of the general partner, and is now in estoppel to deny her position as a
partnership on the death of one of the members are binding. All general partner with authority to administer and alienate
rights against the surviving partners are merged in said agreement partnership property.
and deceased partners representatives have no rights outside said
agreement.
CALLING A PARTNERSHIP AS LIMITED DOES NOT NECESSARILY
MAKE IT ONE: The legal intention deducible from the acts of the
GR: When a partner retires from the firm, he is entitled to payment parties controls in determining the existence of a partnership
of what may be due him after a liquidation. (Pineda, 2006).

But liquidation is not necessary where there is already a settlement CHARACTERISTICS OF LIMITED PARTNERSHIP:
or agreement as to what the retiring partner shall receive. Where
the return of the contributions of the retiring partners was There must be compliance with the statutory requirement of
understood and intended by all the parties as a final settlement of form under Art. 1844 which is mandatory
whatever rights or claim the withdrawing partners might have in the Partnership business is under the control of one or more of
dissolved partnership, the acceptance of such payment precludes general partners who are personally liable to partnership
the retiring partners from later on claiming their supposed share in creditors
the profit of the firm at the time of dissolution.
One or more limited partners contribute to the partnership
capital who share in the profits but do not take part in the
Article 1842. The right to an account of his interest shall accrue to management of the business
any partner, or his legal representative as against the winding up The limited partner/s are not personally liable for the
partners or the surviving partners or the person or partnership partnership obligations beyond the amount of their
continuing the business, at the date of dissolution, in the absence contributions or investments
of any agreement to the contrary. (n)
The partnership debts or obligations are paid out of the
partnership assets and the separate properties of the
PRESCRIPTION OF ACTION general partners
The limited partners may get back their capital contribution
Prescription begins to run only upon dissolution of the partnership prescribed by law (Pineda, 2006).
when the final accounting is done.
ADVANTAGES OF A LIMITED PARTNERSHIP:
NOTES ON PARTNERSHIP AGENCY, TRUSTS, LEASE AND PRESCRIPTION
Kenneth and King C. Hizon _________________________________________________________________________________________________________________
File for record the certificate in the Office of the Securities
On the part of the general partners: They can secure capital and Exchange Commission.
from others for purposes of their business while retaining
the control and supervision of the partnership business. A limited partnership is formed if there has been
On the part of limited partner: The limited partner shares on substantial compliance in good faith with the foregoing
the profits without risk of personal liability (Pineda, 2006) requirements.

PURPOSE OF STATUTE AUTHORIZING LIMITED PARTNERSHIP: To COMPLIANCE WITH LAW


encourage those having capital to become partners with those
having skills, by limiting the liability of the former to the incidental A partnership transacting business is prima facie a general
amount actually contributed by them (Pineda, 2006). partnership and those who seek to avail themselves of the
protection of laws permitting the creation of a limited partnership
must show due compliance with such laws.
Article 1844. Two or more persons desiring to form a limited
partnership shall: Hence, to obtain the privilege of limited liability, one must conform
to the statutory requirements regulating the formation of limited
Sign and swear to a certificate, which shall state partnership. A limited partnership that has not complied with the
law is not considered as a limited partnership but a general
0 The name of the partnership, adding thereto partnership in which all the members are liable.
the word "Limited";
1 The character of the business; REQUISITES IN THE ESTABLISHMENT OF A LIMITED PARTNERSHIP:
2 The location of the principal place of
business; The required certificate containing all the 14 enumerated data,
3 The name and place of residence of each must be signed and sworn by all the partners, that is, both
member, general and limited partners being general and limited
respectively designated; The certificate must be filed with the Office of the SEC (Pineda,
4 The term for which the partnership is to 2006)
exist;
( f ) The amount of cash and a description of NOTE: Strict compliance is not required. Mere substantial
and the agreed value of the other property compliance in good faith will suffice (Pineda, 2006).
contributed by each limited partner;
5 The additional contributions, if any, to be DEFECTIVE CERTIFICATE
made by each limited partner and the times at
which or events on the happening of which they If the certificate of formation of a limited partnership is defective
shall be made; and shows on its face that the statutory requirements have not been
6 The time, if agreed upon, when the complied with, a court can of its motion hold that a limited
contribution of each limited partner is to be partnership has not been formed.
returned;
7 The share of the profits or the other XPN: If attaching CRs recognize and deal with a firm as a limited
compensation by way of income which each partnership, they will be estopped from insisting that there is no
limited partner shall receive by reason of his such partnership or that the terms of the partnership were not
contribution; sufficiently stated in the notice of its formation.
( j) The right, if given, of a limited partner to
substitute an assignee as contributor in his Article 1845. The contributions of a limited partner may be cash or
place, and the terms and conditions of the property, but not services.
substitution;
8 The right, if given, of the partners to admit NOTE: If he contributes services, he shall be considered an industrial
additional limited partners; and general partner. A limited partner who contributes services will
9 The right, if given, of one or more of the take active part in the management of the partnership. This means
limited partners to priority over other limited he will be exercising some controlling power in the business which is
partners, as to contributions or as to not supposed to be exercised by a limited partner (Pineda, 2006).
compensation by way of income, and the
nature of such priority; Article 1846. The surname of a limited partner shall not appear in
10 The right, if given, of the remaining general the partnership name unless:
partner or partners to continue the business on
the death, retirement, civil interdiction, insanity It is also the surname of a general partner, or
or insolvency of a general partner; and Prior to the time when the limited partner became such,
11 The right, if given, of a limited partner to the business has been carried on under a name in which
demand and receive property other than cash his surname appeared.
in return for his contribution.
A limited partner whose surname appears in a partnership name
contrary to the provisions of the first paragraph is liable as a
general partner to partnership creditors who extend credit to the
NOTES ON PARTNERSHIP AGENCY, TRUSTS, LEASE AND PRESCRIPTION
Kenneth and King C. Hizon _________________________________________________________________________________________________________________
partnership without actual knowledge that he is not a general insolvency of a general partner, unless the right so to do
partner. is given in the certificate.

SURNAME OF LIMITED PARTNER: Partnerships are required to have Article 1851. A limited partner shall have the same rights as a
a firm name. In a limited partnership, the surname of a limited general partner to:
partner shall not appear in the partnership name because he is
exempted from general liability. His liability is limited, that is why, he Have the partnership books kept at the principal place of
is referred to as a limited partner. Otherwise, he becomes a general business of the partnership, and at a reasonable hour to
partner (Pineda, 2006). inspect and copy any of them;
Have on demand true and full information of all things
Article 1847. If the certificate contains a false statement, one who affecting the partnership, and a formal account of
suffers loss by reliance on such statement may hold liable any party partnership affairs whenever circumstances render it just
to the certificate who knew the statement to be false: and reasonable; and
Have dissolution and winding up by decree of court. A
At the time he signed the certificate, or limited partner shall have the right to receive a share of
Subsequently, but within a sufficient time before the the profits or other compensation by way of income, and
statement was relied upon to enable him to cancel or to the return of his contribution as provided in articles
amend the certificate, or to file a petition for its 1856 and 1857.
cancellation or amendment as provided in article 1865.
POWER TO CONTRACT
REQUISITES FOR PARTYS KNOWLEDGE OF FALSE STATEMENT:
A limited partner has no power to bind the partnership by a
At the time of the signing of the certificate contract.
Subsequently, but within a sufficient time before the statement
was relied upon to enable him to cancel or amend the Article 1852. Without prejudice to the provisions of article 1848, a
certificate, or to file a petition for its cancellation or person who has contributed to the capital of a business conducted
amendment as provided in Art. 1865 (Pineda, 2006) by a person or partnership erroneously believing that he has
become a limited partner in a limited partnership, is not, by reason
Article 1848. A limited partner shall not become liable as a general of his exercise of the rights of a limited partner, a general partner
partner unless, in addition to the exercise of his rights and powers with the person or in the partnership carrying on the business, or
as a limited partner, he takes part in the control of the business. bound by the obligations of such person or partnership, provided
that on ascertaining the mistake he promptly renounces his
GR: A limited partner is not liable as a general partner interest in the profits of the business, or other compensation by
way of income.
XPN: If he takes part in the control of the business which
contemplates active participation in the business of the partnership, NOTE: A person advancing money to a limited partner and who deny
he becomes liable as a general partner (Pineda, 2006). that they are partners are within the protection of the provision. It
covers all cases where one has contributed to the capital of a
Article 1849. After the formation of a lifted partnership, additional business conducted by the partnership or person erroneously
limited partners may be admitted upon filing an amendment to the believing that he is a limited partner.
original certificate in accordance with the requirements of article
1865. Relate to 1848 which seems to be the only XPN to the right of a
partner to take advantage of the provisions of the article.
Article 1850. A general partner shall have all the rights and powers
and be subject to all the restrictions and liabilities of a partner in a Article 1853. A person may be a general partner and a limited
partnership without limited partners. However, without the partner in the same partnership at the same time, provided that
written consent or ratification of the specific act by all the limited this fact shall be stated in the certificate provided for in article
partners, a general partner or all of the general partners have no 1844.
authority to:
A person who is a general, and also at the same time a limited
Do any act in contravention of the certificate; partner, shall have all the rights and powers and be subject to all
Do any act which would make it impossible to carry on the restrictions of a general partner; except that, in respect to his
the ordinary business of the partnership; contribution, he shall have the rights against the other members
Confess a judgment against the partnership; which he would have had if he were not also a general partner.
Possess partnership property, or assign their rights in
specific partnership property, for other than a NOTE: A person may be both a general partner and a limited partner
partnership purpose; in the same partnership at the same time subject to the condition
Admit a person as a general partner; that this fact be stated in the certificate provided for in Art. 1844
Admit a person as a limited partner, unless the right so to (Pineda, 2006).
do is given in the certificate;
Continue the business with partnership property on the Right of such person: Such person shall have all the rights and
death, retirement, insanity, civil interdiction or powers and be subject to all restrictions of a general partner. Thus,
he is liable with his private property to the creditors of the
NOTES ON PARTNERSHIP AGENCY, TRUSTS, LEASE AND PRESCRIPTION
Kenneth and King C. Hizon _________________________________________________________________________________________________________________
partnership. As regards his contribution, he shall have the rights as a Other matters where some benefit is granted (Pineda, 2006)
limited partner as against the other members. If he was ordered to
rd
pay 3 persons, he would be entitled to recover what he has paid; Article 1856. A limited partner may receive from the partnership
further, he shall have priority over general partners in the return of the share of the profits or the compensation by way of income
their respective contributions (Pineda, 2006). stipulated for in the certificate; provided, that after such payment
is made, whether from property of the partnership or that of a
Article 1854. A limited partner also may loan money to and general partner, the partnership assets are in excess of all liabilities
transact other business with the partnership, and, unless he is also of the partnership except liabilities to limited partners on account
a general partner, receive on account of resulting claims against the of their contributions and to general partners.
partnership, with general creditors, a pro rata share of the assets.
No limited partner shall in respect to any such claim: Article 1857. A limited partner shall not receive from a general
partner or out of partnership property any part of his contributions
Receive or hold as collateral security any partnership until:
property, or
Receive from a general partner or the partnership any All liabilities of the partnership, except liabilities to
payment, conveyance, or release from liability if at the general partners and to limited partners on account of
time the assets of the partnership are not sufficient to their contributions, have been paid or there remains
discharge partnership liabilities to persons not claiming property of the partnership sufficient to pay them;
as general or limited partners. The consent of all members is had, unless the return of
the contribution may be rightfully demanded under the
The receiving of collateral security, or payment, conveyance, or provisions of the second paragraph; and
release in violation of the foregoing provisions is a fraud on the The certificate is cancelled or so amended as to set forth
creditors of the partnership. the withdrawal or reduction.
Subject to the provisions of the first paragraph, a limited
NOTE: The relationship between a limited partner and the partner may rightfully demand the return of his
partnership is not based on trust and confidence. A limited partner is contribution:
not prohibited from engaging in business for himself is not
prohibited from engaging in business for himself even if such 0 On the dissolution of a partnership; or
business will complete with the one being conducted by the 1 When the date specified in the certificate for
partnership (Pineda, 2006). its return has arrived, or
2 After he has six months' notice in writing to
SHARING PRO RATA WITH GENERAL CREDITORS: all other members, if no time is specified in the
certificate, either for the return of the
GR: A limited partner is entitled to a pro rata share of the contribution or for the dissolution of the
partnership assets together with the creditors of the partnership partnership.

XPN: Unless he is also a general partner In the absence of any statement in the certificate to the contrary or
the consent of all members, a limited partner, irrespective of the
TRANSACTIONS PROHIBITED OF LIMITED PARTNERS (Presumption nature of his contribution, has only the right to demand and
of Fraud): receive cash in return for his contribution.
A limited partner may have the partnership dissolved and its affairs
Receiving or holding as collateral security any partnership wound up when:
property
Receiving any payment, conveyance, or release from liability if it He rightfully but unsuccessfully demands the return of his
will prejudice the right of third persons (Pineda, 2006) contribution, or
The other liabilities of the partnership have not been
Article 1855. Where there are several limited partners the paid, or the partnership property is insufficient for their
members may agree that one or more of the limited partners shall payment as required by the first paragraph, No. 1, and
have a priority over other limited partners as to the return of their the limited partner would otherwise be entitled to the
contributions, as to their compensation by way of income, or as to return of his contribution.
any other matter. If such an agreement is made it shall be stated in
the certificate, and in the absence of such a statement all the LIABILITY AFTER WITHDRAWAL
limited partners shall stand upon equal footing.
If the assets are not sufficient to pay debts, the limited partner is
NOTE: The article applies only when there are several limited liable for all sums withdrawn by him, but insufficiency of assets must
partners. It finds no applicability if there is only one. be alleged in an action against him.

SCOPE OF PREFERENCES: The obligation of a limited partner who has withdrawn from the
partnership to CRs of the firm in which he was a partner can be
The return of contributions discharged by nothing less than payment, notwithstanding that at
Compensation by way of income the time of his withdrawal the assets left with the general partners
were insufficient to discharge the outstanding liabilities.
NOTES ON PARTNERSHIP AGENCY, TRUSTS, LEASE AND PRESCRIPTION
Kenneth and King C. Hizon _________________________________________________________________________________________________________________
When there is failure to comply with the requisites for the
Liability is limited to the capital contribution as long as it is left at the formation of limited partnership (Pineda, 2006)
risk of the business. When withdrawn, the interest presumably
earned must be included as part of the sum available to CRs. RESPONSIBILITIES OF A LIMITED PARTNER:

TIME WHEN RETURN OF CONTRIBUTION MAY BE DEMANDED: Difference between his actual contribution and that stated in
the certificate as having been made
On the dissolution of the limited partnership Unpaid contributions which he agreed to make at specified
On the arrival of the date specified in the certificate future time and on the conditions stated in the certificate
On the lapse of 6 months from notice in writing to all other (Pineda, 2006)
members if no time is specified for the date of the return
or dissolution (Pineda, 2006). NOTE: The liabilities of a limited partner may be waived by the
partnership if all the members of the partnership give their consent.
GR: Return of the contribution should be in cash If one disagrees, no waiver can be effected (Pineda, 2006).

XPN: He may receive his contribution in another form, if there is a Article 1859. A limited partner's interest is assignable.
statement to that effect in the certificate, or even if none, if all the
partners give their consent (Pineda, 2006). A substituted limited partner is a person admitted to all the rights
of a limited partner who has died or has assigned his interest in a
Article 1858. A limited partner is liable to the partnership: partnership.

For the difference between his contribution as actually An assignee, who does not become a substituted limited partner,
made and that stated in the certificate as having been has no right to require any information or account of the
made, and partnership transactions or to inspect the partnership books; he is
For any unpaid contribution which he agreed in the only entitled to receive the share of the profits or other
certificate to make in the future at the time and on the compensation by way of income, or the return of his contribution,
conditions stated in the certificate. to which his assignor would otherwise be entitled.

A limited partner holds as trustee for the partnership: An assignee shall have the right to become a substituted limited
partner if all the members consent thereto or if the assignor, being
Specific property stated in the certificate as thereunto empowered by the certificate, gives the assignee that
contributed by him, but which was not right.
contributed or which has been wrongfully
returned, and An assignee becomes a substituted limited partner when the
Money or other property wrongfully paid or certificate is appropriately amended in accordance with article
conveyed to him on account of his contribution. 1865.
The liabilities of a limited partner as set forth in
this article can be waived or compromised only The substituted limited partner has all the rights and powers, and
by the consent of all members; but a waiver or is subject to all the restrictions and liabilities of his assignor, except
compromise shall not affect the right of a those liabilities of which he was ignorant at the time he became a
creditor of a partnership who extended credit limited partner and which could not be ascertained from the
or whose claim arose after the filing and before certificate.
a cancellation or amendment of the certificate,
to enforce such liabilities. The substitution of the assignee as a limited partner does not
release the assignor from liability to the partnership under articles
When a contributor has rightfully received the return in whole or in 1847 and 1858.
part of the capital of his contribution, he is nevertheless liable to
the partnership for any sum, not in excess of such return with SUBSTITUTED LIMITED PARTNER: A person admitted to all the rights
interest, necessary to discharge its liabilities to all creditors who of a limited partner who has died or has assigned his interest in a
extended credit or whose claims arose before such return. partnership (Pineda, 2006)

EXCEPTIONS TO THE GENERAL RULE ON THE NON-LIABILITY: NOTE: Limited partners interest in the partnership is assignable. On
the other hand, a general partner cannot assign his interest in the
When he contributes services instead of only money or partnership as to make the assignee a new partner without the
property consent of the other partner/s (Pineda, 2006).
When his surname appears in the firm name
When there is a false statement in the certificate or articles of When may an assignee become a substituted partner?
partnership which he knows and failed to correct on time
When he participates and takes part in the control of the
business of the firm
When he commits fraud on the creditors of the partnership 0 If all the members of the partnership consent thereto; or
under Art. 1854
NOTES ON PARTNERSHIP AGENCY, TRUSTS, LEASE AND PRESCRIPTION
Kenneth and King C. Hizon _________________________________________________________________________________________________________________
When the assignor who is empowered in the Articles of business is conducted by the remaining general partners under a
Partnership gives the assignee the right to become a right stated in the certificate or even if not so stated, when all the
substituted limited partner. members have given their consent to the continuation of the
business (Pineda, 2006).
Yet, it is still required that the certificate or articles of partnership be
properly amended in accordance with Art. 1865. In any event, the certificate must be amended to reflect the
continuation of the business by the remaining general partners
After the amendment, the assignee becomes a substituted limited (Pineda, 2006).
partner.
Article 1861. On the death of a limited partner his executor or
Rights of substituted limited partner administrator shall have all the rights of a limited partner for the
purpose of setting his estate, and such power as the deceased had
To acquire any information or account of the partnership to constitute his assignee a substituted limited partner.
transactions; and
To inspect the partnership books (Pineda, 2006). The estate of a deceased limited partner shall be liable for all his
liabilities as a limited partner.
Liability of the substituted limited partner
The article applies if one who died is a limited partner.
He shall be subject to all restrictions and liabilities of the assigning
limited partner (Pineda, 2006). Rights of executor or administrator of the estate of the deceased
limited partner
XPN: Those liabilities he was ignorant at the time he became a
limited partner and could not be ascertained in the certificate or He shall acquire all the rights of a limited partner for the purpose of
th
articles of partnership (Art. 1859, 6 par.) (Pineda, 2006). settling the estate (Pineda, 2006).

The fact that the assignee has become a substituted limited partner Liability of the estate of deceased limited partner
does not relive the limited partner of all liabilities to the partnership
vis--vis a person who relied on a false statement in the certificate of It shall be liable for all his obligations or liabilities to the partnership
partnership. as a limited partner (Pineda, 2006).

Neither is the assignor relieved of his responsibility under Art. 1858 Article 1862. On due application to a court of competent
which states that the liabilities of a limited partner specially to all jurisdiction by any creditor of a limited partner, the court may
CRs who extended credit to the partnership or whose claims arose charge the interest of the indebted limited partner with payment
before the return of his capital (Pineda, 2006). of the unsatisfied amount of such claim, and may appoint a
receiver, and make all other orders, directions and inquiries which
Status and rights of an assignee who did not become a substituted the circumstances of the case may require.
limited partner
The interest may be redeemed with the separate property of any
He shall remain a mere assignee. Thus, he cannot require, as a general partner, but may not be redeemed with partnership
matter of right, information or account of the partnership property.
transactions or affairs, neither can he inspect the partnership books.
The remedies conferred by the first paragraph shall not be deemed
He has the right to receive the share of the profits or other exclusive of others which may exist.
compensation by way of income or the return of his contribution to Nothing in this Chapter shall be held to deprive a limited partner of
which his assignor would otherwise be entitled (Pineda, 2006). his statutory exemption.

Article 1860. The retirement, death, insolvency, insanity or civil The partners interest in the partnership consists of his share in the
interdiction of a general partner dissolves the partnership, unless profits and surplus.
the business is continued by the remaining general partners:
Rights of CRs of limited partners to charge the interest of the
Under a right so to do stated in the certificate, or indebted limited partner
With the consent of all members.
The CR may file a petition to charge the interest of the latter in the
This article applies to the retirement, death, insolvency, insanity or partnership with the payment of the unsatisfied amount of the CRs
civil interdiction of a general partner. The limited partnership is claim. This is a sort of a foreclosure of the interest of the indebted
dissolved by the retirement, death, insolvency, insanity or civil limited partner for the satisfaction of the creditors claim (Pineda,
interdiction of a general partner. 2006).

But if the partner involved is a limited partner, the presence of any Redemption of charged interest
of the said circumstances will not dissolve the partnership.
The charged interest may be redeemed with the separate property
XPN: The limited partnership is not dissolved even if a general of any general partner. It may not however be redeemed by any one
partner is involved in any of the above 5 circumstances provided the or more partners using partnership property, unless it is with the
NOTES ON PARTNERSHIP AGENCY, TRUSTS, LEASE AND PRESCRIPTION
Kenneth and King C. Hizon _________________________________________________________________________________________________________________
consent of all partners whose interests are not charged (Pineda,
2006). Those to general partners other than for capital and profits;

Charging of interest is not an exclusive remedy. Those to general partners in respect to profits;

Article 1863. In settling accounts after dissolution the liabilities of Those to general partners in respect to capital.
the partnership shall be entitled to payment in the following order:
It is notable that limited partners are given priority over general
Those to creditors, in the order of priority as provided by partners.
law, except those to limited partners on account of their
contributions, and to general partners; Winding up of the limited partnership affairs
Those to limited partners in respect to their share of the
profits and other compensation by way of income on It is the general and not the limited partners who have the duty and
their contributions; power to wind-up the partnerships affairs.
Those to limited partners in respect to the capital of their
contributions; Proportionate sharing by limited partners
Those to general partners other than for capital and
profits; If there is no agreement in the certificate, the limited partners shall
Those to general partners in respect to profits; share in the partnership assets and profits in proportion to the
Those to general partners in respect to capital. respective amounts of their claims.

Subject to any statement in the certificate or to subsequent Priority of claims among the limited partners
agreement, limited partners share in the partnership assets in
respect to their claims for capital, and in respect to their claims for The members of limited partners may include in the partnership
profits or for compensation by way of income on their contribution articles an agreement for priority of distribution on the winding up
respectively, in proportion to the respective amounts of such of partnership affairs. Such agreement becomes controlling as
claims. between the partners themselves. In the absence of such an
agreement, all limited partners shall stand on equal footing.
The article applies to liquidation of a limited partnership.
Creditors are given priority of payment over both limited and general
The article applies only after the limited partnership had been partners in case of insolvency of the partnership (Pineda, 2006).
dissolved.
Article 1864. The certificate shall be cancelled when the
The following are the causes of dissolution: partnership is dissolved or all limited partners cease to be such.

Retirement, death, insolvency, insanity or civil interdiction of a A certificate shall be amended when:
general partner;
When all limited partners ceased to be such; There is a change in the name of the partnership or in the
Expiration of the term or period of existence of the partnership; amount or character of the contribution of any limited
By agreement of all partners before the lapse of the period of partner;
existence; A person is substituted as a limited partner;
Misconduct of a general partner or fraud committed by a An additional limited partner is admitted;
general partner against limited partner/s; and A person is admitted as a general partner;
When the limited partner demanded the return of his A general partner retires, dies, becomes insolvent or
contribution but the same was unjustifiably denied. insane, or is sentenced to civil interdiction and the
Other causes: Art. 1830 and 1831. business is continued under article 1860;
There is a change in the character of the business of the
Settling of accounts/liabilities after dissolution of a limited partnership;
partnership There is a false or erroneous statement in the certificate;
There is a change in the time as stated in the certificate
Those to creditors, in the order of priority as provided by law, except for the dissolution of the partnership or for the return of
those to limited partners on account of their contributions, and to a contribution;
general partners; A time is fixed for the dissolution of the partnership, or
the return of a contribution, no time having been
The pertinent laws on concurrence and preference of credit shall be specified in the certificate, or
applicable. The members desire to make a change in any other
statement in the certificate in order that it shall
Those to limited partners in respect to their share of the profits and accurately represent the agreement among them.
other compensation by way of income on their contributions;

Those to limited partners in respect to the capital of their


contributions;
NOTES ON PARTNERSHIP AGENCY, TRUSTS, LEASE AND PRESCRIPTION
Kenneth and King C. Hizon _________________________________________________________________________________________________________________
EFFECT OF FAILURE TO AMEND After the certificate is duly amended in accordance with
this article, the amended certified shall thereafter be for
Failure to amend the certificate under this article and business is all purposes the certificate provided for in this Chapter.
continued after the time fixed, the limited partner is liable generally.
REQUISITES FOR THE AMENDMENT OF THE CERTIFICATE OF
Cancellation of Certificate or Articles of Partnership PARTNERSHIP:

Q: When shall the certificate be cancelled? The amendment must conform with Art. 1844 setting forth
clearly the change desired in the certificate. The
A: amendment must be in writing and under oath
When the partnership is dissolved; and It must be signed and sworn to by all the members including
When all limited partners cease to be such. There can be no the new members if some are added; in case of
limited partnership if there is no limited partner (Pineda, substitution, the assigning limited partner must also sign
2006). The amended certificate must be filed with the SEC (Pineda,
2006).
Amendment of certificate of articles of partnership
REQUISITES FOR THE CANCELLATION OF CERTIFICATE OF
The certificate or articles will not be cancelled but shall only be PARTNERSHIP:
amended in case any of the 10 changes and circumstances has
transpired or is present. 0 The instrument of cancellation must be signed by all the
members
The purpose of the cancellation or amendment is to put on inquiry 1 The instrument of cancellation must be recorded with the
all persons who may deal with the partners or with the partnership SEC. If the cancellation is by order of the court, a
itself about the status of the partnership so they cannot claim later certification of the final order of the court must be filed
that they were misled. with the SEC (Pineda, 2006).

Article 1865. The writing to amend a certificate shall: When is a certificate deemed amended or cancelled?

Conform to the requirements of article 1844 as far as It is deemed amended or cancelled by the filing of the amended
necessary to set forth clearly the change in the certificate certificate or the instrument of cancellation with the SEC (Pineda,
which it is desired to make; and 2006).
Be signed and sworn to by all members, and an
amendment substituting a limited partner or adding a Article 1866. A contributor, unless he is a general partner, is not a
limited or general partner shall be signed also by the proper party to proceedings by or against a partnership, except
member to be substituted or added, and when a limited where the object is to enforce a limited partner's right against or
partner is to be substituted, the amendment shall also be liability to the partnership.
he signed by the assigning limited partner.
LIMITED PARTNER IS A MERE CONTRIBUTOR: The article referred to
The writing to cancel a certificate shall be signed by all the limited as a mere contributor to stress the point that as a general
members. rule, he cannot be a proper party in a case for or against the
partnership. The reason for this is that a limited partner is not a
A person desiring the cancellation or amendment of a principal party in the partnership transactions. His liability is not to
certificate, if any person designated in the first and the creditors of the partnership but to the partnership itself (Pineda,
second paragraphs as a person who must execute the 2006).
writing refuses to do so, may petition the court to order a
cancellation or amendment thereof. Q: When can a limited partner be a proper party in a suit as such?

If the court finds that the petitioner has a right to have the writing If the object of the action is to enforce his individual rights against
executed by a person who refuses to do so, it shall order the Office the partnership as authorized in Art. 1851. He can be a defendant in
of the Securities and Exchange Commission where the certificate is an action filed against him by the partnership to enforce his liability
recorded, to record the cancellation or amendment of the to the latter (Pineda, 2006).
certificate; and when the certificate is to be amended, the court
shall also cause to be filed for record in said office a certified copy Article 1867. A limited partnership formed under the law prior to
of its decree setting forth the amendment. the effectivity of this Code, may become a limited partnership
under this Chapter by complying with the provisions of article
A certificate is amended or cancelled when there is filed for record 1844, provided the certificate sets forth:
in the Office of the Securities and Exchange Commission, where the
certificate is recorded: The amount of the original contribution of each limited
partner, and the time when the contribution was made;
A writing in accordance with the provisions of the first or and
second paragraph, or That the property of the partnership exceeds the amount
A certified copy of the order of the court in accordance sufficient to discharge its liabilities to persons
with the provisions of the fourth paragraph;
NOTES ON PARTNERSHIP AGENCY, TRUSTS, LEASE AND PRESCRIPTION
Kenneth and King C. Hizon _________________________________________________________________________________________________________________
not claiming as general or limited partners by an amount
greater than the sum of the contributions of its limited
partners.
A limited partnership formed under the law prior to the
effectivity of this Code, until or unless it becomes a
limited partnership under this Chapter, shall continue to
be governed by the provisions of the old law.

REFERENCES:

DE LEON, HECTOR S., The Law on Sales, Agency, and Credit Transactions, Rex
Bookstore, Inc., 2005
PINEDA, ERNESTO L., Partnership, Agency and Trusts, Central Book Publishing,
Co., Inc., 2006
TOLENTINO, ARTURO M., Commentaries and Jurisprudence on the Civil
Code of the Philippines, Vol. V., Central Book Publishing, Co., Inc.
1991
NOTES ON PARTNERSHIP AGENCY, TRUSTS, LEASE AND PRESCRIPTION
Kenneth and King C. Hizon _________________________________________________________________________________________________________________

Title X. - AGENCY Q: What is the purpose of agency?

CHAPTER 1 It is to extend the personality of the principal.


NATURE, FORM AND KINDS OF AGENCY
Who are the parties to the contract?
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.
(1709a) 0 Principalone whom the agent represents and from
whom he derives his authority; he is the person
Q: What is a contract of agency? represented; and
1 Agentone who acts for and represents another; he is the
It is a relationship which implies a power in an agent to contract with person acting in a representative capacity.
a third person on behalf of a principal.
CAPACITY OF THE PARTIES
It is this power to affect the principals contractual relations with
third persons that differentiates the agent from the EE, the servant, Any person who is capacitated to act in his own right may be a
and the independent contractor. principal.

What are the characteristics of a contract of agency? In case of an agent, since he assumes no personal liability, he does
not have to possess full capacity to act insofar as third persons are
The contract of agency is a: concerned.

0 Consensual contract; But persons who are absolutely incapacitated, such as insane
1 Principal because it can stand by itself without the need of persons cannot be agents. Insofar as his obligations to his principal
another contract; are concerned, agent must be competent to bind himself.
2 Nominate because it has its own name;
3 Unilateral if it is gratuitous because it creates obligations What are the acts that may be delegated to agents?
for only one of the partiesthe agent; or bilateral if it is
for compensation because it gives rise to reciprocal rights
and obligations; and
4 Preparatory because it is entered into as a means to an G.R: What a man may do in person, he may do thru another.
endcreation for other contracts.
XPN:
What are the essential elements of agency?
0 Personal actsif personal performance is required by law
or public policy or the agreement of the parties, the doing
of the act by a person on behalf of another does not
0 There is consent, express or implied, of the parties to constitute performance by the latter.
establish the relationship;
1 The object is the execution of a juridical act in relation to E.g. right to vote, making of a will, statements which are
third persons; required to be made under oath should be made
2 The agent acts as representative and not for himself; and personally.
3 The agent acts within the scope of his authority.
1 Criminal acts or acts not allowed by lawan attempt to
NATURE, BASIS AND PURPOSE OF AGENCY delegate to another authority to do an act which, if done
Agency is both a contract and a representation. by the principal would be illegal, is void.
As a contract, the following requisites must concur:
0 Consent of the contracting parties; E.g. aliens cannot purchase land through a Filipino agent.
1 Object which is the subject matter of the contract;
and What are the distinctions between agency and loan contracts?
2 Cause which is established.

As a representative relationthe agent renders some service or does


something in representation or on behalf of another.
Representation constitutes the basis of agency. AGENCY LOAN
The acts of the agent on behalf of the principal within the scope of his An agent is given funds by Barrower is given money for
authority produce the same legal effect as if they were personally
done by the principal. principal to advance the latters purposes of his own and he
The relation of an agent to his principal is fiduciary in character since it is Business must generally return it whether
based on trust and confidence. or not his own business is
successful;

Q: What is the difference between agency and lease of service?


NOTES ON PARTNERSHIP AGENCY, TRUSTS, LEASE AND PRESCRIPTION
Kenneth and King C. Hizon _________________________________________________________________________________________________________________
What is the difference between agency and negotiorum gestio?
A:

AGENCY LEASE OF SERVICE


The agent executes a juridical Lessor of services performs a AGENCY NEGOTIORIUM GESTIO
act on behalf of another material act for the benefit of In both cases, there is representation
another. Representation is expressly It is only without the authority
Basis is representation Basis is service, it is conferred; of the owner of the business but
employment; is without his knowledge;
Agent exercises discretionary The servant ordinarily performs Agent acts according to the Gestor acts according to the
powers only ministerial functions express will of the principal; presumed will of the owner by
exercising all the diligence of a
TOLENTINO: The legal possibility of an agency without good father of a family.
representation may be inferred from the provisions of Article 1883, A contract A quasi-contract
particularly the last paragraph: Implied agency is founded on There is no simultaneous
the lack of contradiction or consent, either express or
Art. 1883. If an agent acts in his own name, the opposition which constitutes the implied, but fiction or
principal has no right of action against the simultaneous agreement on the presumption of consent because
persons with whom the agent has contracted; part of the presumed principal of the benefits received.
neither have such persons against the principal. to the execution of the contract

In such case the agent is the one directly bound What is the difference between agency and brokerage?
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.
AGENCY BROKERAGE
A commission agent is engaged Has no relation with the thing he
The provisions of this article shall be in the purchase or sale for buys or sells; merely an
understood to be without prejudice to the
another of personal property intermediary between the
actions between the principal and agent. (1717)
which, for this purpose is placed purchaser and the vendor.
in his possession and at his
The existence of an agency is perfectly consistent with the disposal. His only office is to bring
circumstances that the agent acts exclusively in his own name. The
together the parties to the
true essence of the distinction in such case, between lease of
He maintains a relation not only transaction.
services and agency, lies in that the agent enters or is designed to
with his principal and the
enter into juridical relations, with or without representation of the
principal. purchaser or vendor, but also
with the property which is the
subject matter of the
What is the difference between agency and independent contract?
transaction.
A:
NO AGENCY IN IMPERSONATION: There is no agency in
impersonation.
AGENCY INDEPENDENT CONTRACT
Illustration: Thus, if Juan pretends to be Pedro, and enters into a
Agent is subject to the control Where one part undertakes to
contract with Jose, who thinks he is contracting actually with Pedro,
and direction of the principal accomplish a certain result
whom he represents. there is no agency. The element of representation is absent. On the
according to his own methods
part of Jose, there is no knowledge that the contract is on behalf of a
and without being subject to
person other than the one before him or with whom he is
other partys control except as to
negotiating. And on the part of Juan, he is not acting in anothers
the result of the workthe
name, but under another name. This is Juans own contract, binding
contract is one for a piece of
upon him, unless it is annulled on the ground of error or fraud on
work.
the part of Jose.
What is the difference between agency and partnership? ACTS SUSCEPTIBLE OF AGENCY:

GR: Agency is admissible in all contracts or acts

AGENCY PARTNERSHIP XPNs:


Agent acts only for his principal Partner acts not only for his co-
partners and the partnership but Entering into a marriage contract
also as principal of himself. Making of wills and testaments
The presence of the accused during trial of a criminal case
NOTES ON PARTNERSHIP AGENCY, TRUSTS, LEASE AND PRESCRIPTION
Kenneth and King C. Hizon _________________________________________________________________________________________________________________
As to extent of business covered:
NOTE: The spouses, as between themselves, can enter into a
contract of agency. General-one which comprises all the business of the principal;
or
CREATION OF AGENCY: The testimony of the person who drafted the Special-one which comprises one or more specific transactions.
contract that his purpose was to establish an agency does not
determine its nature; the parties did not perform the contract in As to authority conferred:
accordance with its terms and conditions with its terms and a
contract must be considered, not as the parties stipulated, but as
Couched in general terms-one which is created in general
they performed it. The mere use of the term agency in one clause terms and is deemed to comprise only acts of
cannot dominate the whole contract. administration;
Couched in specific terms-one authorizing only the
CAPACITY OF PARTIES: Both parties must have capacity to give performance of a specific act or acts.
consent. If any special capacity is required for the act entrusted to
the agent, it is the principal and not the agent who must have special As to its nature and effects:
capacity in addition to the general capacity to contract.
0 Ostensible or representative- one where the agent acts in
Ratio: It is the principal who will receive the benefits and incur the the name and representation of the principal;
obligations or losses arising therefrom.
1 Simple or commission- one where the agent acts for the
account of the principal but in his own name.
CAPACITY OF AGENT: No particular capacity is required for the
agent, so long as he has sufficient intelligence and freedom of will. What is the required form of agency?
But with respect to his obligations and responsibilities towards the
principal, the agent must have the capacity to bind himself.
There are no formal requirements governing the appointment of an
agent. It may be oral or written. It may even be implied from the
NOTE: An incapacitated agent can set up his incapacity against his circumstances.
principal, and such agent would be liable to the principal only in
cases of illicit acts and unjust enrichment. The law does not sanction
Art. 1870. Acceptance by the agent may also be express, or implied
such fraudulent acts.
from his acts which carry out the agency, or from his silence or
inaction according to the circumstances. (n)
RELATION OF PRINCIPAL AND AGENT: The relations of an agent to
his principal are fiduciary and in regard to the property forming the Q: What is the required form of acceptance by agent?
subject matter of an agency, he is stopped from acquiring or
asserting title adverse to that of the principal.
As a contract, there must be consent by both parties. It can be
express or implied.
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
Art. 1871. Between persons who are present, the acceptance of the
repudiate the agency, knowing that another person is acting on his
agency may also be implied if the principal delivers his power of
behalf without authority.
attorney to the agent and the latter receives it without any
objection. (n)
Agency may be oral, unless the law requires a specific form.
(1710a)
PRESUMPTION: This article presumes the acceptance of the agency;
but such presumption is only prima facie, and may be defeated by
What are the kinds of agency? proof to the contrary.

NOTE: As regards implied acceptance by agent, the law distinguishes


between cases:
0 As to the manner of its creation: Where persons are present; and
Where persons are absent.
Express-the agent has been actually authorized by the principal
either orally or in writing; An agency is impliedly accepted if the agent receives a power of
Implied- implied from the acts of the principal, from his silence attorney from the principal himself personally without any objection,
or lack of action or his failure to repudiate the agency, both being present.
knowing that another person is acting on his behalf
without authority. What is a power of attorney?

As to its character: It is a written authorization to an agent to perform specified acts in


behalf of his principal which acts, when performed, shall have
Gratuitous- one where the agent receives no compensation for binding effect on the principal.
his services; or
Compensated or onerous- one where the agent receives Art. 1872. Between persons who are absent, the acceptance of the
compensation for his services. agency cannot be implied from the silence of the agent, except:
NOTES ON PARTNERSHIP AGENCY, TRUSTS, LEASE AND PRESCRIPTION
Kenneth and King C. Hizon _________________________________________________________________________________________________________________
If by public advertisement, the agent as such with regard to any
When the principal transmits his power of attorney to the agent, person.
who receives it without any objection;
When the principal entrusts to him by letter or telegram a power of Q: What is the manner of revocation of agency?
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. A Power Of Attorney (POA) must be revoked in the same manner in
(n) which it was given.

NOTE: In the cases contemplated by this article, the acceptance of NOTE: If the agency has been entrusted for the purpose of
the agency is not compulsory; but the agent wants to refuse it, he contracting with specified persons, its revocation shall not prejudice
must act immediately, so that his silence may not be interpreted as the latter if they were not given notice thereof.
an acceptance, and so he may not incur responsibilities.
Art. 1874. When a sale of a piece of land or any interest therein is
If both the P and the A are absent, acceptance by the agent is not through an agent, the authority of the latter shall be in writing;
implied from his silence or inaction. Yet, in 2 cases under Art. 1872, otherwise, the sale shall be void. (n)
agency is implied.
NOTE: Sale for a piece of land or any interest thereon like usufruct,
Q: When is there an implied acceptance? mortgage, etc. through an agent is void unless the authority of the
agent is in writing.
If the agent writes a letter acknowledging receipt of power of
attorney but offers no objection to the creation of the agency. This article speaks only of an agency for sale of a piece of land or any
interest therein.
NOTE: His failure to give reply however does not mean that the
agency has been accepted unless the power of attorney is with Illustration: Where the owner of certain parcels of land left them in
respect to the business on which he is habitually engaged as an the care of his sister as his agent, and later, while absent, wrote to
agent or the acceptance could be inferred from his acts which carry her to sell one parcel of land which she did, it has been held that the
out the agency as when he begins to act under the authority latter containing the authority to sell was sufficient.
conferred upon him.
Art. 1875. Agency is presumed to be for a compensation, unless
In 1872, the principal transmits the power of attorney to the agent there is proof to the contrary. (n)
while in 1871 he personally delivers the power of attorney to the
agent. NOTE: The principal must pay the agent the compensation agreed
upon, or the reasonable value of the agents services if no
RECEIPT WITHOUT OBJECTION: Under the first paragraph, the mere compensation was specified. This presupposes however that the
fact that the agent does not answer refusing the agency, cannot be agent has complied with his obligation as such to the principal.
interpreted as an acceptance. The retention of the power of attorney
is not a clear proof of acceptance in this case as when it is delivered But a broker, not having quite succeeded in bringing the minds of the
personally; the failure to answer may be merely due to negligence buyer and seller to an agreement in regard to the terms of the sale,
on the part of the agent, or to his desire to deliberate on whether to is not entitled to the commission, nor if his exclusive authority to
accept or not. such has expired. To be entitled to commission, it is not sufficient for
him to find a buyer but to find one who will actually buy the
Under the second paragraph, the acceptance is implied from the property on the terms and conditions imposed by the owner.
failure to reply to the letter or telegram; therefore, in cases falling
outside of par.2. more than mere failure to reply is required. The EFFICIENT-AND-PROCURING CLAUSE: That special condition in a
court should consider all the special circumstances of each case to contract entitling the broker to the stipulated commission when the
determine whether there has been an acceptance or not. property is sold within a certain period following the expiration of
the agency agreement to a purchase procured by the broker during
Art. 1873. If a person specially informs another or states by public the life of such agency, does not justify a departure from the rule
advertisement that he has given a power of attorney to a third that the broker must be the efficient agent or procuring cause of the
person, the latter thereby becomes a duly authorized agent, in the sale.
former case with respect to the person who received the special
information, and in the latter case with regard to any person. The efficient-and-procuring clause is synonymous with the ready-
willing-and-able rule, and these words provide off the test in
The power shall continue to be in full force until the notice is determining whether the agent was the procuring cause of the sale.
rescinded in the same manner in which it was given. (n)
Art. 1876. An agency is either general or special.
What are the ways of giving notice of agency?
The former comprises all the business of the principal. The latter,
one or more specific transactions. (1712)

If by special information, the person appointed as agent is What are the classifications of agents?
considered such with respect to the person to whom it was
given;
NOTES ON PARTNERSHIP AGENCY, TRUSTS, LEASE AND PRESCRIPTION
Kenneth and King C. Hizon _________________________________________________________________________________________________________________
To make gifts, except customary ones for charity or those made to
Universal agent or one authorized to do all acts that the principal employees in the business managed by the agent;
may personally do, which he can lawfully delegate to another
the power of doing; To loan or borrow money, unless the latter act be urgent and
A general agent or one authorized to transact alld the business of indispensable for the preservation of the things which are under
the principal, or all business of a particular kind or in a administration;
particular place, or in other words to do all acts, connected with
a particular trade, business, or employment; To lease any real property to another person for more than one
A special or particular agent or one authorized to act with one or year;
more specific transactions or to act upon a particular occasion.
To bind the principal to render some service without
Art. 1877. An agency couched in general terms comprises only acts compensation;
of administration, even if the principal should state that he
withholds no power or that the agent may execute such acts as he To bind the principal in a contract of partnership;
may consider appropriate, or even though the agency should
authorize a general and unlimited management. (n) To obligate the principal as a guarantor or surety;

Q: What is an agency couched in general terms? To create or convey real rights over immovable property;

It includes only acts of administration and an express power is To accept or repudiate an inheritance;
necessary to perform any act of strict ownership even if the principal
states: To ratify or recognize obligations contracted before the agency;

0 That he withholds no power; Any other act of strict dominion. (n)


1 That the agent may execute such acts as he may consider
appropriate; or SPECIAL POWERS: The power of attorney, as required by this article,
2 That he authorizes a general or unlimited management. should expressly mention the act for which it is drawn. But such
special power can be included in a general power of attorney, either
Q: What is the meaning of acts of administration? by giving authority for all acts of a particular character or by
specifying therein the act or transaction for which a special power is
Those which do not imply the authority to alienate for the exercise needed.
of which an express power is necessary.
Illustration: When in a general power of attorney the agent is
Unless the contrary appears, the authority of the agent is presumed authorized to sell the principals immovable property, such agent is
to include all the necessary and usual means to carry out the agency empowered to sell any real property of the principal, without the
into effect. necessity of a special power to sell for every specific property.

Examples: Under what circumstances is a special power of attorney


necessary?
The right to commence suits to collect debts owing to the
principal The following are general acts of strict dominion or ownership and
To appoint servants or employees of a firm thus a special power of attorney is necessary for their execution
through an agent.
Art. 1878. Special powers of attorney are necessary in the following
cases: 0 To make payment;

To make such payments as are not usually considered as acts of Q: What is payment?
administration;
To effect novations which put an end to obligations already in It is the delivery of money or the performance in any other manner
existence at the time the agency was constituted; of an obligation.

To compromise, to submit questions to arbitration, to renounce the An act of ownership because it involves conveyance of ownership of money
right to appeal from a judgment, to waive objections to the venue or property.
But if payment is made in the ordinary course of management it is considered
of an action or to abandon a prescription already acquired; as mere act of administration.

To waive any obligation gratuitously; 2. To effect novation;

To enter into any contract by which the ownership of an immovable Q: What is novation?
is transmitted or acquired either gratuitously or for a valuable
consideration;
It is the extinction of an obligation through the creation of new one
which substitutes it by changing the object or principal
NOTES ON PARTNERSHIP AGENCY, TRUSTS, LEASE AND PRESCRIPTION
Kenneth and King C. Hizon _________________________________________________________________________________________________________________
conditions thereof, substituting a debtor, or subrogating another in 10. To bind the principal in a contract of partnership;
the right of the creditor.
A contract of partnership creates an obligation and the fulfillment of
0 To compromise; which requires an act of strict ownership.

What is a compromise? 0 To obligate the principal as guarantor or surety;

It is a contract whereby parties, by making reciprocal concessions, What is a contract of guaranty?


avoid a litigation or put an end to one already commenced.
It is one where the guarantor binds himself to fulfill the obligation of
Q: What is arbitration? the principal debtor in case the latter should fail to do so. If the
person binds himself solidarily, he is a surety and the contract is
It is where the parties submit their controversies to one or more called suretyship.
arbitrators for decision.
A contract of guaranty is unenforceable unless it is made in writing.
It is an act of ownership since they involve the possibility of
disposing of the thing or right subject of the compromise or To create or convey real rights over immovable property
arbitration. belonging to his principal without special power;

The same applies with respect to the authority of the agent to waive: To accept or repudiate an inheritance;

0 The right to appeal from a judgment; To ratify obligations contracted before the agency;
1 Objections to the venue of an action;
2 Prescription already acquired.
NOTE: Agent cannot effect novation of obligations existing at the
time of constitution of the agency unless he be especially authorized
1 To waive an obligation gratuitouslycondonation or to do so.
remission;
Similarly, he cannot ratify or recognize obligations contracted before
2 To convey or acquire immovable; the agency without special power from the principal.

3 To make gifts; Any other act of strict dominion; NOTE:

What are gifts or donation? Sale or purchase of personal property;

It is an act of liberality whereby a person disposes gratuitously of a A power of attorney is valid although no notary public intervened in
thing or right in favor of another who accepts it. its execution.

NOTE: But the making of customary gifts for charity, or those made Art. 1879. A special power to sell excludes the power to mortgage;
to employees in the business managed by the agent are considered and a special power to mortgage does not include the power to
as acts of administration. sell. (n)

0 To loan or borrow money; POWER TO SELL: A power to sell must be understood as for cash,
and not on credit, unless the latter is expressly authorized. If the sale
In loan of money, the barrower is bound to pay the creditor an equal amount is for cash the agent is also considered authorized to receive the
of the same kind and quality. price.
The agent is empowered to barrow money.
No. 7 refers to money and not to other fungible things.
By the nature of things, an agent cannot sell in a foreign country
0 To lease realty for more than 1 year; without making some kind of a contract, and if he had power to sell,
it would carry with it the authority to make and enter into the usual
In case of lease, the lessor gives to the lessee the enjoyment or use and customary contract for its sale.
of a thing for a price certain, and for a period which may be definite
or indefinite. POWER TO RAISE MONEY: If the power is to raise a sum of money
for which purpose the agent is authorized to sell a particular real
An unrecorded lease of real estate is not binding upon third persons. property, or to avail himself of any other means, the agent is
considered as employed to mortgage the property. In this case the
An agreement for the leasing of real property for a longer period real object of the agency is to raise the sum of money, and the sale is
than 1 year is unenforceable unless made in writing. merely one of the means indicated for attaining that object. But a
special power to mortgage real estate does not include the power to
To bind the principal to render service gratuitously; contract loans for the principal.

NOTE: The agent cannot sell or mortgage the property belonging to


the principal without special power;
NOTES ON PARTNERSHIP AGENCY, TRUSTS, LEASE AND PRESCRIPTION
Kenneth and King C. Hizon _________________________________________________________________________________________________________________
to escape liability to the principal if the latter demands that the cash
In the absence of special authority, the sale of mortgage will be price paid by him.
unenforceable against the principal as the agent acted beyond his
powers. Q: Distinguish between power and authority.

Art. 1880. A special power to compromise does not authorize Power is considered as the source or cause and the latter is the
submission to arbitration. (1713a) effect.

While the principal may have confidence in the agents judgment, NOTE: An agent with authority to do act has also the power to bind
the arbitrator may not possess the trust of the principal. the principal but the power may exist without authority.

Art. 1881. The agent must act within the scope of his authority. He So far as third persons are concerned, no distinction exists. An act
may do such acts as may be conducive to the accomplishment of within the power of the agent is deemed within the scope of his
the purpose of the agency. (1714a) authority even if the agent has in fact exceeded the limits of his
authority.
LIMITATION ON AUTHORITY: The powers and duties of an agent are
confined and limited to those which are specified and defined in his What are the different kinds of authority?
power of attorney, which limitation is a notice to, and is binding
upon, the person dealing with such agent.

EFFECT OF UNAUTHORIZED ACTS: Where an agent or 0 Express-when it is conferred by words;


representative, in entering into a contract on behalf of his principal, 1 Implied-when it is incidental to the transaction or
exceeds his authority, the contract is not an absolute nullity, but only reasonably necessary to accomplish the purpose of the
voidable at the instance of the party who has been improperly agency;
misrepresented. 2 Apparent or ostensible-conferred by conduct or silence.
Ostensible authority is another name for authority by
When the agent exceeds the scope of his authority, only the estoppel;
principal is prejudiced and the latter is the only one who can impugn 3 General- refers to all the business of the principal;
the formers act. The agent becomes personally liable for the 4 Special- when it is limited only to one or more specific
damages. transactions;
5 Authority by necessity-when it is demanded by virtue of
NOTE: But where the powers of attorney are forged by an agent, the existence of an emergency.
purporting to have been executed by the owners of certain
registered lands, and mortgages were made by such agent by virtue What are the requisites in order that the principal may be bound to
thereof, it was held that such powers of attorney were without force third persons by the act of the agent?
and effect, and the registration of the mortgages executed
thereunder were likewise null and void and could not in any way A:
prejudice the rights of the registered owners of the property in
question. 0 The agent must act within the scope of his authority; and
1 The agent must act on behalf of the principal.
Art. 1882. The limits of the agent's authority shall not be
considered exceeded should it have been performed in a manner What if the agent acts without the authority or in excess or beyond
more advantageous to the principal than that specified by him. the scope of authority?
(1715)
Such act shall be unenforceable, unless it is ratified, expressly or
Q: What is an authority of an agent? impliedly, by the person on whose behalf it has been executed,
before it is revoked by the other contracting party.
It is the power of the agent to affect the legal relations of the
principal by acts done in accordance with the principals NOTE: But the agent is not deemed to have exceeded the limits of
manifestation of consent to him. his authority should he perform the agency in a manner more
advantageous to the principal than that indicated by him. He is
NOTE: The condition of the agency can be improved but not made authorized to do such acts as may be conducive to the
worse. The agent, therefore, is not deemed to have exceeded his accomplishment of the purpose of the agency.
authority when he acts in a manner more advantageous to the
principal that that specified by the latter, because it is assumed that When is the principal bound by the acts of the agent beyond his
if the principal were the one acting, he would have also followed the powers?
more advantageous course.
A:
This article refers to an advantage which can be obtained without
modifying the conditions, the form, or the object of the agency. G.R: The principal is not bound by the acts of an agent beyond his
Thus, if an agent is empowered to sell for cash, and he sells on credit limited powers.
at a higher price, he cannot allege the advantage of the higher price
XPN:
NOTES ON PARTNERSHIP AGENCY, TRUSTS, LEASE AND PRESCRIPTION
Kenneth and King C. Hizon _________________________________________________________________________________________________________________
Hence, the principal does not have the right of action against the
Where the principals acts have contributed to deceive third third person nor the third person against him.
persons in good faith;
Where the limitations upon the power created by him could not Q: What is the exception to such rule?
have been known by third persons;
Where the principal has placed in the hands of the agent It is when the contract involves things belonging to the principal. In
instruments signed by him in blank; such case, the contract is considered as entered into between the
Where the principal has ratified the acts of the agent. principal and the third person.

Art. 1883. If an agent acts in his own name, the principal has no JUDGMENT AGAINST AGENT: A judgment, for or against an agent, in
right of action against the persons with whom the agent has no way binds the real party in interest. Am action is brought for a
contracted; neither have such persons against the principal. practical purpose, to obtain actual and positive relief. If the party
sues upon is not the proper party, any decision that may be rendered
In such case the agent is the one directly bound in favor of the against him would be futile, for it cannot be enforced or executed.
person with whom he has contracted, as if the transaction were his
own, except when the contract involves things belonging to the
principal.
CHAPTER 2
The provisions of this article shall be understood to be without OBLIGATIONS OF THE AGENT
prejudice to the actions between the principal and agent. (1717)
Art. 1884. The agent is bound by his acceptance to carry out the
SCOPE OF THIS ARTICLE: The rule contained is applicable only to agency, and is liable for the damages which, through his non-
cases where it is material to the third person to know with whom he performance, the principal may suffer.
is contracting. But there are cases where it is immaterial to the third
person to know with whom he contracts. Thus, when a person He must also finish the business already begun on the death of the
contracts with the driver of an ordinary vehicle for hire, he does not principal, should delay entail any danger. (1718)
trouble himself to find out who owns the vehicle.
What are the specific obligations of the agent?
PERSONAL LIABILITY OF AGENT: When the agent transacts business
in his own, it shall not be necessary for him to state the name of his
principal, and shall be directly liable, as if the business were for his
own account, to the persons with whom the transacts the same, said To carry out the agency in accordance with its terms;
persons not having any right of action against the principal nor the
To answer for the damages which through his nonperformance the
latter against them. principal may suffer;
To finish the business already begun on the death of the principal,
What are the different kinds of principal? should delay detail any danger;
To observe the diligence of a good father of a family in the custody
and preservation of the goods forwarded him by the owner in
case he declines n agency, until an agency is appointed;
0 Disclosed principal- where the other party thereto has To advance the necessary funds should there be a stipulation to that
notice that the agent is acting for a principal and of the effect;
principals identity; To act in accordance with the instructions of the principal;
1 Partially disclosed principal-if the other party has notice Not to carry out the agency if its execution would manifestly result in
that the agent is or may be acting for a principal but has no loss or danger to the principal;
notice of the principals identity;
To answer for damages should he prefer in case of conflict, his own
2 Undisclosed principal-if the other party has no notice that interests to those of the principal.
the agent is acting for a principal.
Not to loan to himself without the consent of the principal when he
has been authorized to lend at interest;
To what circumstances is Art. 1883 applicable?
To render an account of his transactions and to deliver to the
principal whatever he may have received by virtue of the
agency;
To distinguish goods by countermarks and designate the
0 Where the agent being authorized to act on behalf of the merchandise respectively belonging to each principal;
principal; To be responsible in certain cases for the acts of the substitute;
1 He acts instead in his own name To pay interest on funds he has applied to his own use;
To inform the principal, where an authorized sale of credit has been
NOTE: In such case, the agent is the one directly liable to the person made, of such sale;
with whom he had contracted as if the transaction were his own.
To bear the risk of collection, should he receive also on a sale, a
guarantee commission;
Accordingly, there is no representation of the principal when the To indemnify the principal for damages for his failure to collect the
agent acts in his own name. credits of his principal at the time that they become due;
NOTES ON PARTNERSHIP AGENCY, TRUSTS, LEASE AND PRESCRIPTION
Kenneth and King C. Hizon _________________________________________________________________________________________________________________
17. To answer for his fraud or negligence. NOTE: Persons dealing with the agent do so at their own risk and are
duty bound to investigate his authority because if the fact is done
NOTE: A person is free to refuse to be an agent but once he accepts outside the scope of his authority the principal is not bound. Yet,
the agency, he is bound to carry it out in accordance with its terms in they need not verify or investigate the instructions of the principal
good faith. since they concern only the P and the A.

Upon his failure to do so, he is liable for the damage which the It is the responsibility of the agent to obey the reasonable and lawful
principal may suffer. Having accepted the agency, when he was free instructions given to him by his principal.
to refuse it, the agent betrays the confidence reposed on him if he
does not fulfill the mandate. If the agent exceeds, violates or fails to act upon such instructions,
he will be liable to the principal for any loss or damage resulting
Obligation to finish business upon principals death therefrom.

NOTE: Although the death of the principal extinguishes the agency, Q: What is the rule where there are no specific instructions?
the agent has an obligation to conclude the business already begun
on the death of the principal. But the duty exists only should delay In the absence of the specific instructions of the P, the A shall do all
entail any danger. that a good father of a family would do as required by the nature of
the business.
Art. 1885. In case a person declines an agency, he is bound to
observe the diligence of a good father of a family in the custody Art. 1888. An agent shall not carry out an agency if its execution
and preservation of the goods forwarded to him by the owner until would manifestly result in loss or damage to the principal. (n)
the latter should appoint an agent or take charge of the goods. (n)
RESULT IN LOSS: In order that this article may apply, the possible loss
NOTE: This rule is based on equity. In such case, the owner must act or damage must not be a matter of appreciation; it is necessary that
as soon as practicable either: to anyone the transaction is undoubtedly prejudicial.

By appointing an agent; and NOTE: The agent is not bound in all cases to carry out the agency as
By taking charge of the goods. when its execution would manifestly result in the loss or damage to
the principal. Accordingly, the duty of the agent is to render service
Art. 1886. Should there be a stipulation that the agent shall for the benefit of the P and not to act to his detriment.
advance the necessary funds, he shall be bound to do so except
when the principal is insolvent. (n) Art. 1889. The agent shall be liable for damages if, there being a
conflict between his interests and those of the principal, he should
G.R: The principal must advance to the agent, should the latter prefer his own. (n)
request, the sums necessary for the execution of the agency.
NOTE: Agency is fiduciary in characteragent is required to observe
NOTE: Yet, they may stipulate that the agent shall advance the utmost good faith and loyalty towards his principal. The rule applies
necessary funds. In such case, the agent is bound to furnish such whether the agency is onerous or gratuitous.
funds except when the principal is insolvent.
Q: What is the basis for such rule?
Art. 1887. In the execution of the agency, the agent shall act in
accordance with the instructions of the principal. The reason for prohibiting the agent from engaging in self-dealing is
to shut the door against temptation on his part and to ensure that he
In default thereof, he shall do all that a good father of a family places the rights and welfare of his principal above his own in
would do, as required by the nature of the business. (1719) performing his agency.

Q: Distinguish between authority and instructions. Art. 1890. If the agent has been empowered to borrow money, he
may himself be the lender at the current rate of interest. If he has
Authority is the extent of the limitation of the agents power to been authorized to lend money at interest, he cannot borrow it
represent the principal. Instructions are directions which the without the consent of the principal. (n)
principal may give the agent to follow in the discharge of his duties
as such agent. NOTE: The agent cannot, without a special power of attorney, loan
or borrow money.
INTERPRATIONS OF INSTRUCTIONS: Instructions of the principal
must be interpreted in accordance with his presumed will and In the second sentence of the article, the A cannot barrow without
usages of trade. the consent of the P because the agent may prove to be bad debtor.
There is a possible conflict of interest. The transaction may thus be
EFFECT OF INSTRUCTIONS: The instructions of the principal to the prejudicial to the P.
agent form part of the agency; they constitute the means or the
orders carrying out the power granted; hence, to depart from them Art. 1891. Every agent is bound to render an account of his
is to exceed the authority conferred on the agent. 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.
NOTES ON PARTNERSHIP AGENCY, TRUSTS, LEASE AND PRESCRIPTION
Kenneth and King C. Hizon _________________________________________________________________________________________________________________

Every stipulation exempting the agent from the obligation to Q: What is a subagent?
render an account shall be void. (1720a)
He is a person to whom the agent delegates as his agent, the
NOTE: It is the duty of the A to account for and deliver to the P all performance of an act for the principal which the agent has been
the money and property which may have come into his hands by empowered to perform through his representative.
virtue of or as a result of the agency.
NOTE: Unless prohibited, the agent may appoint a subagent or
It is immaterial whether such money or property is the result of the substitute. The right of action against the substitute is an exception
performance or violation of the As duty since A cannot be permitted to the general rule that contracts are binding only between the
to derive advantage from his own neglect or violation of duty. contracting parties, assigns, and heirs.

SCOPE: This article, however, does not apply to over-payment by What are the different effects of substitution?
mistake. If a debtor, by mistake, pays to the agent more than what is
owing to the principal, such agent may keep the excess, because he
is the one against who an action may be brought by the payor to
recover the excess amount paid. 0 If the substitute is appointed by the agent against the
express prohibition of the P, the agent exceeds the limits of
DOMINGO v. DOMINGO his authority. In such case, the acts of the substitute shall
42 SCRA 131 be void.
1 If the substitution is authorized, the substitution has the
An agent who takes a secret profit in the nature of a bonus, gratuity effect of releasing the agent from his responsibility unless
or personal benefit from the vendee without revealing the same to the person appointed is notoriously incompetent or
his principal is guilty of a breach of his loyalty to the latter and insolvent.
forfeits his right to collect the commission that may be due him, 2 If the substitution is not authorized but not prohibited
even if the principal does not suffer any injury by reason of such the law recognizes the validity of the substitution if the
breach. same is beneficial to the P. If the substitution has
occasioned damage to the P, the A shall be primarily
OBLIGATION TO ACCOUNT responsible for the acts of the substitute as he himself
executed them. The P has also a right of action against the
SCOPE: The duty of the agent to account to his principal for all substitute.
money and property which may have come into his hands during and
by virtue of the agency embraces not only such money and property Art. 1894. The responsibility of two or more agents, even though
as may be received directly from the principal, but also that which they have been appointed simultaneously, is not solidary, if
comes into the agents hands as the result of his agency. solidarity has not been expressly stipulated. (1723)

TRANSMISSIBILITY: The obligation or the agent to render an account JOINT AGENCY


is transmissible to his heirs. The right of a principal to an accounting
is also transmissible to his heirs. This article has reference to the relation of the agents to the
principal; each agent is responsible for his own acts to the principal.
Art. 1892. The agent may appoint a substitute if the principal has It does not regulate joint agency in relation to third persons with
not prohibited him from doing so; but he shall be responsible for whom the agents may contract.
the acts of the substitute:
Under joint agency, several agents are appointed to act collectively.
When he was not given the power to appoint one; The declaration of one of them to a third person in relation to the
When he was given such power, but without designating the agency does not become effective until the others make the same
person, and the person appointed was notoriously incompetent or declaration to the same person or ratify the declaration already
insolvent. made by the first agent.

All acts of the substitute appointed against the prohibition of the In other words, whether they act together or separately, they are
principal shall be void. (1721) considered as a single unit; all must act towards the same end to
bind the principal. But the knowledge of a fact by one of them is
USE OF EMPLOYEES: The use of employees by the agent is different considered as knowledge of all.
form a substitution. The agent can make use of his employees in
carrying out the agency, unless this is expressly prohibited by the LIABILITY IS PERSONAL
principal, or excluded by the nature and purpose of the agency. The
agent, however, shall always be liable to the principal for the fault or If the agents are charged with a joint undertaking, so that one
negligence of such employees. cannot act without the others, and the agency is not performed due
to the omission of the agent, then he alone bears the entire
Art. 1893. In the cases mentioned in Nos. 1 and 2 of the preceding responsibility for the injury caused. But if each one can act
article, the principal may furthermore bring an action against the separately, then he is liable only for his own omission or fault.
substitute with respect to the obligations which the latter has
contracted under the substitution. (1722a)
NOTES ON PARTNERSHIP AGENCY, TRUSTS, LEASE AND PRESCRIPTION
Kenneth and King C. Hizon _________________________________________________________________________________________________________________
Art. 1895. If solidarity has been agreed upon, each of the agents is Art. 1896. The agent owes interest on the sums he has applied to
responsible for the non-fulfillment of agency, and for the fault or his own use from the day on which he did so, and on those which
negligence of his fellows agents, except in the latter case when the he still owes after the extinguishment of the agency. (1724a)
fellow agents acted beyond the scope of their authority. (n)
NOTE: The present article contemplates 2 distinct cases:
G.R: The presumption is that an obligation is joint.
Sums belonging to the P which the A applied to his own
XPN: If solidarity has been agreed upon, each of the agents becomes use; and
solidarily liable: Sums which the agent still owes the P after the expiration
of the agency.
For the non-fulfillment of the agency;
For the fault or negligence of his fellow agents provided the The agent who converted to his personal use the funds of the P is
latter acted within the scope of their authority. liable for interest as compensation or indemnity from the day on
which he did so.
SOLIDARY AGENCY
Q: Is it necessary that demand be made by the P?
The article governs solidarity in the relation of the agents to the
principal and not in relation to third persons. It is clear that if by provision of law the agent is bound to deliver to
the P whatever he may have received by virtue of the agency
Q: What is solidary agency? demand is no longer necessary.

It is one in which there being several agents for the same purpose, Art. 1897. The agent who acts as such is not personally liable to the
each one acts independently of the others, and can bind the party with whom he contracts, unless he expressly binds himself or
principal without the intervention of the others. exceeds the limits of his authority without giving such party
sufficient notice of his powers. (1725)
When a person appoints 2 agents independently, the consent of one
will not be required to validate the acts of the other, unless that NOTE: The agent is precluded from doing any positive act that could
appears positively to have been the principals intention. prevent performance on the part of his principal.

This governs a joint agency where the agency act collectively as a An agent who acts as such within the scope of his authority
unit in relation to third persons but where it is stipulated that they represents the P so that his contract is really the principals. The A is
shall be solidarily liable to the principal. not personally liable to the party whom he contracts.

Both Article 1894 and this article apply to a joint or collective agency In case the A acts in excess of his authority, the P is not bound unless
but are limited to the liability of the agents to the principal. The he ratifies the act.
relations of agents to third persons are governed by other principles.
When the A expressly binds himself, he thereby obligates himself
ACTS BEYOND POWERS personally and by his own act.

An act of one agent beyond the scope of the agency does not If he exceeds in his authority, the agent becomes personally liable
concern the other agents; they have no power to prevent it and they because by his wrong or omission he deprives the third person with
should be held liable for it. whom he contracts of any remedy against the P.

Yet, the mere fact that one agent oversteps the limits of his authority But if the A gave sufficient notice of his power to third persons
does not exempt the others from discharging the agency, nor does it dealing with him and such person nevertheless contract with him,
deprive the principal of the guaranty arising from the stipulated neither the P nor the A are bound.
solidarity.
Art. 1898. If the agent contracts in the name of the principal,
Illustrations: exceeding the scope of his authority, and the principal does not
ratify the contract, it shall be void if the party with whom the agent
Two agents are authorized solidarily to sell a parcel of land No. contracted is aware of the limits of the powers granted by the
1 at P10,000.00. One of the agents sells parcel land No. 2 principal. In this case, however, the agent is liable if he undertook
instead. The other agent cannot be held liable for this act. to secure the principal's ratification. (n)
But if parcel land No. 1 has been sold for P6,000 instead of
P10,000 this irregular performance of the agency makes NOTE: The agent is precluded from doing any positive act that could
both agents solidary liable to the principal for damages. prevent performance on the part of his principal. The effect of
The agents empowered to sell an immovable are authorized to representation is to bind the P as though he personally entered into
receive only part of the price. One agent collects the entire the contract. If the agent acts in excess of his authority, the A is the
price. The other agents are not liable to the principal for one personally liable unless there is subsequent ratification by the P.
the excess collected, because as to that excess the act is Yet, the A will not be liable if he gave notice of his powers to the
beyond the scope of the agency. person with whom he has contracted nor in case such person is
aware of the limits of the powers granted by the P.
NOTES ON PARTNERSHIP AGENCY, TRUSTS, LEASE AND PRESCRIPTION
Kenneth and King C. Hizon _________________________________________________________________________________________________________________
EXCESS OF AUTHORITY: The liability of an agent who has exceeded Art. 1902. A third person with whom the agent wishes to contract
the scope of his authority, if the principal does not ratify his act, on behalf of the principal may require the presentation of the
depends upon whether or not the third person knows the limits of power of attorney, or the instructions as regards the agency.
the agents power. If he knows such limits, he is to blame and he is Private or secret orders and instructions of the principal do not
not entitled to recover damages from the agent, unless the latter prejudice third persons who have relied upon the power of
undertook to secure the principals ratification. But if the third attorney or instructions shown them. (n)
person is unaware of the limits of the authority conferred, he has
been deceived, and the agent is liable for damages to him. This is NOTE: Ignorance of the agents authority is not an excuse.
implied under Art. 1897.
It is the duty of the third person to require the A to produce his POA
RATIFICATION: The acts of an agent beyond the scope of his to ascertain the scope of his authority.
authority does not bind the principal, unless, he ratifies them:
Expressly Q: Is the third person bound by the Ps private instructions?
Impliedly
The third person is chargeable with knowledge of the terms of the
Only the principal can ratify; the agent cannot ratify his own POA as written and the instructions disclosed to him. Yet he is not
unauthorized acts. And the principal must have knowledge of the bound by the secret orders and instructions of the P.
acts he is to ratify.
Art. 1903. The commission agent shall be responsible for the goods
NOTE: If the principal receives the benefits from the unauthorized received by him in the terms and conditions and as described in the
acts of the agent, it is evident that he tacitly ratifies them. consignment, unless upon receiving them he should make a written
statement of the damage and deterioration suffered by the same.
Art. 1899. If a duly authorized agent acts in accordance with the (n)
orders of the principal, the latter cannot set up the ignorance of the
agent as to circumstances whereof he himself was, or ought to Q: Who is a factor or commission agent?
have been, aware. (n)
He is one whose business is to receive and sell the goods for
Q: What is the effect of the ignorance of the agent? commission and who is entrusted by the P with the possession of
the goods to be sold.
If the P appoints an A who is ignorant, the fault is his alone and he
must suffer the consequences of his acts. Q: What is the liability of such agent as to the goods received?

Art. 1900. So far as third persons are concerned, an act is deemed He will be responsible for any damage or deterioration suffered by
to have been performed within the scope of the agent's authority, the same. To avoid liability, such agent should make a written
if such act is within the terms of the power of attorney, as written, statement of the damage or deterioration if the goods received by
even if the agent has in fact exceeded the limits of his authority him do not agree with the description in the consignment.
according to an understanding between the principal and the
agent. (n) Art. 1904. The commission agent who handles goods of the same
kind and mark, which belong to different owners, shall distinguish
Q: What is the effect of an unwritten authority? them by countermarks, and designate the merchandise
respectively belonging to each principal. (n)
Every person dealing with the A is under obligation, to make an
inquiry not only as to the existence of the agency but also as to the Art. 1905. The commission agent cannot, without the express or
nature and extent of authority of the agent. implied consent of the principal, sell on credit. Should he do so, the
principal may demand from him payment in cash, but the
Q: What if the authority is written? commission agent shall be entitled to any interest or benefit, which
may result from such sale. (n)
If the authority is in writing, the third party is not required to inquire
further than the terms of the written power of attorney. An act of NOTE: A commission agent can sell on credit only with the express or
the A within the terms of the POA within the scope of the agents implied consent of the P. Otherwise, the P has 2 alternative
authority although the agent has in fact exceeded the limits of his remedies:
actual authority.
He may require payment in cash and any interest or benefit
Art. 1901. A third person cannot set up the fact that the agent has from the sale shall belong to the A since the P cannot be
exceeded his powers, if the principal has ratified, or has signified allowed to enrich himself at the As expense; or
his willingness to ratify the agent's acts. (n) Ratify the sale on credit in which case it will have all the risks
and advantages to him.
NOTE: The third person cannot set up the fact that the A exceeded
his authority to disaffirm his contract not only after the P has ratified Art. 1906. Should the commission agent, with authority of the
the As acts but even before such ratification where he has signified principal, sell on credit, he shall so inform the principal, with a
his willingness to ratify. 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)
NOTES ON PARTNERSHIP AGENCY, TRUSTS, LEASE AND PRESCRIPTION
Kenneth and King C. Hizon _________________________________________________________________________________________________________________
To reimburse the A for all the advances made by him provided
Art. 1907. Should the commission agent receive on a sale, in the A is free from fault;
addition to the ordinary commission, another called a guarantee To indemnify the A for all the damages which the execution of
commission, he shall bear the risk of collection and shall pay the the agency may have caused the latter without fault or
principal the proceeds of the sale on the same terms agreed upon negligence on his part;
with the purchaser. (n) To pay the agent the compensation agreed upon or otherwise,
the reasonable value of the agents services.
Q: What is a guarantee commission?
NOTE: Representation is the essence of agency. It is not enough that
It is one where in consideration of an increased commission the the A should act within the scope of his authority, the A must also
factor or commission agent guarantees to the P the payment of act in a representative capacity.
debts arising through his agency.
LIABILITY FOR AGENTS ILLICIT ACTS: When the agent is in the
Art. 1908. The commission agent who does not collect the credits performance of an obligation of the principal, the fault of the agent
of his principal at the time when they become due and is attributable to the principal; this is culpa contractual. The rule is
demandable shall be liable for damages, unless he proves that he the same even if the illicit of the agent amounts to a crime.
exercised due diligence for that purpose. (n)
GR: But if the fault or crime committed by the agent is not in the
NOTE: The agent who has made an authorized sale on credit must performance of an obligation of the principal, the latter generally is
collect the credits due the P at the time they become due and not bound by the illicit act of the agent, even if it is done in
demandable. Otherwise, he shall be liable for damages unless he can connection with his functions.
show that the credit should not be collected notwithstanding the
exercise of due diligence on his part. XPNs:

Art. 1909. The agent is responsible not only for fraud, but also for When the delict or quasi-delict was committed by the agent
negligence, which shall be judged with more or less rigor by the because of defective instructions from the principal, or due
courts, according to whether the agency was or was not for a to the lack of necessary vigilance or supervision on his
compensation. (1726) part, the principal is liable because of his own negligence
When the agent secures a contract through fraud, or makes a
BREACH OF TRUST: The agent may not, without the permission of fraudulent alienation, or executes a simulated contract, all
the principal, directly or indirectly buy for himself what he has of these acts are imputable to the principal as if done by
commissioned to sell, or sell what he has been commissioned to buy. him, because the illicit act is inseparable from the
This prohibition ceases upon the termination of the agency. transaction executed for him
When the crime consists in the performance of an act which is
NOTE: The A is responsible to the P not only for fraud committed by within the powers of the agent, but becomes criminal only
him but also for negligence. because of the manner in which the agent has performed
it, then principal is liable to third persons who act in good
It is held that the failure of a subagent with whom film has been left faith.
for safekeeping to insure against loss by fire does not constitute
negligence or fraud on its part when it has received no instruction to Art. 1911. Even when the agent has exceeded his authority, the
that effect from its principal. principal is solidarily liable with the agent if the former allowed the
latter to act as though he had full powers. (n)

BASIS OF LIABILITY: The basis is the failure to adopt the necessary


CHAPTER 3 measures to prevent third persons from being deceived by the
OBLIGATIONS OF THE PRINCIPAL apparent authority of the agent. The liability extends only to third
persons who have lawfully supposed the existence of the authority.
Art. 1910. The principal must comply with all the obligations which
the agent may have contracted within the scope of his authority. Q: What is estoppel?

As for any obligation wherein the agent has exceeded his power, It is a bar which precludes a person from denying or asserting
the principal is not bound except when he ratifies it expressly or anything contrary to that which has been established as the truth by
tacitly. (1727) his own deed or representation.

What are the specific obligations of the P? Distinguish between apparent authority and authority by estoppel?

A:

0 To comply with all the obligations which the agent may Apparent authority Authority by estoppel
have contracted within the scope of his authority and in Authority by estoppel arises in
the name of the P; Apparent authority is that those cases where the P by his
1 To advance to the A, should the latter so request, the sums
necessary for the execution of the agency;
NOTES ON PARTNERSHIP AGENCY, TRUSTS, LEASE AND PRESCRIPTION
Kenneth and King C. Hizon _________________________________________________________________________________________________________________
which though not actually culpable negligence permits his In such case however, the agent is not entitled to the excess in case
granted, the principal agent to exercise powers not the things are sold to satisfy his claim and the proceeds thereof are
knowingly permits the agent to granted to him, even though the more than the amount due.
exercise or holds out as P may have no notice or
possessing. knowledge of the conduct of the Art. 1915. If two or more persons have appointed an agent for a
A. common transaction or undertaking, they shall be solidarily liable
to the agent for all the consequences of the agency. (1731)

Distinguish between implied agency and agency by estoppel? What are the 3 requisites for the application of the above article?

A:

IMPLIED AGENCY AGENCY BY ESTOPPEL There are 2 or more principals;


There is an actual agency; The authority of the agent is not The P have all concurred in the appointment of the same agent;
real but only apparent and
The principal alone is liable If the estoppel is caused by the The agent appointed for a common transaction or undertaking.
P, he is liable to any third person
who relied on the SOLIDARITY OF PRINCIPALS
misrepresentation; if the
estoppels is caused by the The article applies even when the appointments were made by the
agent, then only the agent is principals in separate acts, provided that they are for the same
transaction.
liable.

The solidarity arises from the common interest of the principals and
Art. 1912. The principal must advance to the agent, should the not from the act of constituting the agency.
latter so request, the sums necessary for the execution of the
agency.
By virtue of this solidarity, the agent can recover from any principal
the whole compensation and indemnity owing to him by others. But
Should the agent have advanced them, the principal must the parties may agree to negate such solidarity.
reimburse him therefor, even if the business or undertaking was
not successful, provided the agent is free from all fault.
The solidarity does not disappear by the mere partition affected by
the principals after the accomplishment of the agency.
The reimbursement shall include interest on the sums advanced,
from the day on which the advance was made. (1728)
If the undertaking is one in which several are interested, but only
The P must advance to the A upon his request the sums necessary for the some create the agency, only the latter are solidarily liable, without
execution of the agency. prejudice to the effects of negotiorum gestio with respect to others.
If the P fails to do so, the A will not be liable for the damage which the P may And if the power granted includes various transactions some of
suffer.
which are common and others are not, only those interested in each
transaction shall be liable for it.
Art. 1913. The principal must also indemnify the agent for all the
damages which the execution of the agency may have caused the
latter, without fault or negligence on his part. (1729) Art. 1916. When two persons contract with regard to the same
thing, one of them with the agent and the other with the principal,
and the two contracts are incompatible with each other, that of
The liability of the P for damages is limited only to that which the prior date shall be preferred, without prejudice to the provisions of
execution of the agency has caused the agent. Article 1544. (n)
PROFESSIONAL SERVICES
Art. 1544. If the same thing should have been sold to different
vendees, the ownership shall be transferred to the person who
The principal must reimburse the agent for amounts the latter may may have first taken possession thereof in good faith, if it should
have paid as reasonable compensation for professional services be movable property.
rendered by third persons in the execution of the agency.
Should it be immovable property, the ownership shall belong to
Art. 1914. The agent may retain in pledge the things which are the the person acquiring it who in good faith first recorded it in the
object of the agency until the principal effects the reimbursement Registry of Property.
and pays the indemnity set forth in the two preceding articles.
(1730)
Should there be no inscription, the ownership shall pertain to the
person who in good faith was first in the possession; and, in the
Q: Is the A authorized to retain the object of the agency in pledge?
absence thereof, to the person who presents the oldest title,
provided there is good faith. (1473)
If the P fails to reimburse or indemnify the A, the A has the right to
retain in pledge the things which are the object of the agency. This is
a pledge created by operation of law.
NOTES ON PARTNERSHIP AGENCY, TRUSTS, LEASE AND PRESCRIPTION
Kenneth and King C. Hizon _________________________________________________________________________________________________________________
Art. 1917. In the case referred to in the preceding article, if the Q: Are the modes mentioned exclusive?
agent has acted in good faith, the principal shall be liable in
damages to the third person whose contract must be rejected. If No, agency may also be extinguished by the modes of
the agent acted in bad faith, he alone shall be responsible. (n) extinguishment of obligations when applicable lime loss of the thing
and novation.
Art. 1918. The principal is not liable for the expenses incurred by
the agent in the following cases: Other causes include change in law affecting the subject matter or
transaction involved like if it makes illegal the required act; or
change in the conditions not anticipated by the parties like the
If the agent acted in contravention of the principal's instructions, outbreak of war, preventing or making impossible the
unless the latter should wish to avail himself of the benefits accomplishment of the purpose of the agency.
derived from the contract;
Death of principal
When the expenses were due to the fault of the agent;
Agency is terminated by the death of the principal, even if the
When the agent incurred them with knowledge that an agency is for a definite period, and the period has not yet expired.
unfavorable result would ensue, if the principal was not aware The authorization by a principal to another to furnish necessaries to
thereof; the formers grandson could not be made to extend after his death,
not only because the obligation to furnish support is personal and is
When it was stipulated that the expenses would be borne by the extinguished upon the death of the person obliged to give support
agent, or that the latter would be allowed only a certain sum. but also because death of a principal terminates the agency.
(n)
XPNs:

0 Article 1930; and


CHAPTER 4
MODES OF EXTINGUISHMENT OF AGENCY Art. 1930. The agency shall remain in full force
and effect even after the death of the principal,
Art. 1919. Agency is extinguished: if it has been constituted in the common
interest of the latter and of the agent, or in the
0 By its revocation; interest of a third person who has accepted the
1 By the withdrawal of the agent; stipulation in his favor. (n)
2 By the death, civil interdiction, insanity or insolvency of
the principal or of the agent; 1 Article 1931
3 By the dissolution of the firm or corporation which
entrusted or accepted the agency; Art. 1931. Anything done by the agent, without
4 By the accomplishment of the object or purpose of the knowledge of the death of the principal or of
agency; any other cause which extinguishes the agency,
5 By the expiration of the period for which the agency was is valid and shall be fully effective with respect
constituted. (1732a) to third persons who may have contracted with
him in good faith. (1738)
What are the different modes of extinguishing an agency?
Art. 1920. The principal may revoke the agency
A: at will, and compel the agent to return the
document evidencing the agency. Such
By agreement; revocation may be express or implied. (1733a)
By the subsequent acts of the parties which may be either: Revocation-when the agency is terminated by the principal;
Renunciation- when the same is done by the agent.
By the act of both parties or by mutual consent; or Confidence is the cardinal basis of the relation, it stands to reason that it
should cease when such confidence disappears.
By the unilateral act of one of them.
While the P may have the absolute power to revoke the A at anytime, he
must respond to damages in those cases wherein not having the
3. By operation of law. right to do so, he should discharge the agent.

Agency requires the existence and capacity of both the P and the A. Q: What are the kinds of revocation?
The death, civil interdiction, insanity, or insolvency of either party terminates
the agency. It may be express or implied as when the P appoints a new agent for
the same business and transaction or when the P manages the
Q: What is civil interdiction? business entrusted to the agent.

It is a form of disqualification which deprives the offender during the If the authority of the agent is in writing, the P can compel the A to
period of his sentence of the right to manage his property and return the same so as to prevent the A from making use of the
dispose of such property by any act or any conveyance inter vivos.
NOTES ON PARTNERSHIP AGENCY, TRUSTS, LEASE AND PRESCRIPTION
Kenneth and King C. Hizon _________________________________________________________________________________________________________________
power and thus avoid liability to third persons who may SCOPE OF THE ARTICLE: It is the duty of the principal on the
subsequently deal with the A on the faith of the instrument. termination of the agency to give due and timely notice thereof to
third persons to whom he has given special invitation to deal with his
POWER TO REVOKE agent and failure to do so renders him liable to them for whatever
may have been in good faith and without negligence sent to the
BASIS: It is the will of the person represented that may put an end to agent without knowledge, actual or constructive, of the termination
the representation. Otherwise, the representation would be of the agency.
converted into a true alienation of the personality, either in
perpetuity or for a definite period. The article also applies to cases where the authority of the agent has
been communicated to particular persons, even if they were not
rd
This is an XPN to the general rules of contract. indicated at the time the agency was created. If 3 persons have
knowledge of the revocation, this is equivalent to notification.
The agent has no power to oppose such termination even if there
was a definite period fixed for the agency. The rule applies whether Art. 1922. If the agent had general powers, revocation of the
the agency is gratuitous or remuneratory. agency does not prejudice third persons who acted in good faith
and without knowledge of the revocation. Notice of the revocation
INDEMNITY TO AGENT in a newspaper of general circulation is a sufficient warning to third
persons. (n)
GR: The principal is not liable for damages for having made use of his
power to revoke the agency. NOTE: Publication constitutes notice to third persons and this is true
whether or not they have read the newspaper concerned.
XPN: If the revocation was made in such a manner as to constitute
an abuse of right, the agent can recover damages from the principal. Under 1921, the notice must be personal; under 1922, it may be
The principal cannot revoke the agency in BF and as a means to personal.
avoid paying compensation to the agent.
APPLICATION OF THE ARTICLE
Stipulation on irrevocability
The article refers to agency in which the person with whom the
Parties may validly stipulate that the agency shall be irrevocable for a agent is to contract, is not specified.
certain period.
Art. 1923. The appointment of a new agent for the same business
There is no reason why it cannot become irrevocable by agreement or transaction revokes the previous agency from the day on which
so long as the agreement is according to the agency and not contrary notice thereof was given to the former agent, without prejudice to
to morals. The agreement may take 2 forms: the provisions of the two preceding articles. (1735a)

A renunciation of a right to revoke, in which case, the principal NOTE: Revocation does not become effective as between the P and
cannot revoke the agency; or the A until it is in same way communicated to the latter;
A mere obligation of the principal not to revoke, in which case
the agency may be revoked but the principal becomes Rights of third persons who acted in good faith and without
liable for breach of contract. knowledge of the revocation will not be prejudiced thereby.

Even an irrevocable power however, does not prevent the principal INCOMPATIBILITY OF POWERS
from executing the delegated act himself.
A new agency revokes an existing one only when 2 are incompatible
AGENCY IS NOT EXCLUSIVE with each other or when the principal makes known to the first
agent that his powers have ceased by the appointment of the new
An agency conferred to carry out certain transaction is not exclusive; agent.
it does not prevent the principal from concluding the transaction
himself or naming other persons with the same authority. agent Where there is no incompatibility, the new agency may only mean a
cannot prevent third persons from exercising their right to deal division of the agency and the 2 agencies can co-exist. Hence, an
directly with the principal, even when the agency is granted as agent may be appointed to buy lands in certain locality without
exclusive because the principal cannot renounce future acts. specification of the particular properties, his powers being limited to
the amount stated in his powers. If a second agent is appointed to
Art. 1921. If the agency has been entrusted for the purpose of buy lands in same locality, this is not necessarily incompatible with
contracting with specified persons, its revocation shall not the first agency, which is not thereby revoked.
prejudice the latter if they were not given notice thereof. (1734)
NOTICE TO THE FIRST AGENT
Accordingly, since the third persons have been made to believe that
the A is authorized to deal with them, they have a right to presume The grant of a new power of attorney to the new agent must be
that the representation continues in the absence of notification by made known to the first agent in order to revoke the power granted
the P. to the latter. Otherwise, it must be considered that the first agent
acted under a valid power of attorney which had not been legally
revoked.
NOTES ON PARTNERSHIP AGENCY, TRUSTS, LEASE AND PRESCRIPTION
Kenneth and King C. Hizon _________________________________________________________________________________________________________________
When the agency is created for the mutual interest of both the
EXCLUSIVE AGENCY P and the A.

In cases where the agency is for compensation, and the Agency coupled with interest
compensation depends upon the success of the transaction
entrusted to the agent, it is usual to stipulate that the agency shall NOTE: An agency coupled with interest cannot be terminated by the
be exclusive. Thus, the principal is deprived of the right to appoint a sole will of the P although it is so revocable after the interest ceases.
new agent for the same transaction whether jointly with the
exclusive agent or by way of revocation of his powers. This Yet, it is essential that the interest of the agent shall be in the subject
stipulation is valid provided that it is limited to the transaction or matter of the power conferred and not merely an interest in the
with respect to time; otherwise, it will be contrary to the revocability exercise of the power because it entitles him to compensation
of the agency. therefor.

Art. 1924. The agency is revoked if the principal directly manages Such as when the A parted with value or incurred liability at the Ps
the business entrusted to the agent, dealing directly with third request, looking to the exercise of the power as the means of
persons. (n) reimbursement or indemnity.

NOTE: Direct management of the business by the P himself; If the CONDITION IN BILATERAL CONTRACT
purpose is to avoid payment of his agents commission, the implied
revocation is deemed made in bad faith, and cannot be sanctioned Example: Ayel buys a piece of land from Bebeng, with part of the
without the commission which is due to the A. price on credit, but stipulating that he appoints Bebeng as agent, to
collect a certain amount from CJ and to apply the same to the
DIRECT INTERVENTION BY PRINCIPAL unpaid price. In this case, A cannot revoke the agency of B.

The direct intervention by the principal will revoke the agency only MEANS OF FULFILLMENT
when such intervention is incompatible with the agency.
If, in a contract of loan with a mortgage or pledge, the CR is
According to Sec. Tolentino, the rule under Argentine Code applies to appointed as an agent to sell the property given as security or to
our jurisdiction: even when there is incompatibility the agency still collect the fruits therefrom, the agency is irrevocable.
subsists if the principal expressly manifests that he has no intention
of revoking the agency. The express intention must prevail over that OTHER CASES OF IRREVOCABILITY
which is merely presumed by law.
When there is an express stipulation to that effect; and
Art. 1925. When two or more principals have granted a power of When the agency is for the benefit of the agent.
attorney for a common transaction, any one of them may revoke
the same without the consent of the others. (n) Stipulation of irrevocability:

Art. 1926. A general power of attorney is revoked by a special one Irrevocable agency is not perpetual. It must be limited to a particular
granted to another agent, as regards the special matter involved in transaction or to a determinate period because public order is
the latter. (n) against indefinite or irrevocable obligations.

NOTE: A specific power naturally prevails over the general power. EFFECT OF IRREVOCABLE AGENCY:

SUBSEQUENT GENERAL POWER Irrevocability of agency does not merely insure an indemnity to the
agent or third persons prejudiced by the revocation; except when
In the Argentine Code, it is expressly provided that the special power otherwise stipulated, it extends the agency even against the will of
of attorney is not revoked by a subsequent general power of the principal in the sense that the acts of the agent will bind the
attorney given to another agent, unless the latter refers also to the principal notwithstanding the untimely revocation.
act authorized under the special power. This is applicable in our
jurisdiction. Art. 1928. The agent may withdraw from the agency by giving due
notice to the principal. If the latter should suffer any damage by
Art. 1927. An agency cannot be revoked if a bilateral contract reason of the withdrawal, the agent must indemnify him therefor,
depends upon it, or if it is the means of fulfilling an obligation unless the agent should base his withdrawal upon the impossibility
already contracted, or if a partner is appointed manager of a of continuing the performance of the agency without grave
partnership in the contract of partnership and his removal from the detriment to himself. (1736a)
management is unjustifiable. (n)
NOTE: The A may withdraw from the agency at any time. This is
G.R: The P may revoke an agency at will. based on constitutional prohibition against involuntary servitude.

XPN: If the same is without just cause-the A has the duty to give notice to
the P and if the withdrawal is without just cause, to indemnify the P
When the agency is created not only for the interest of the P should the latter suffer damage by reason of such withdrawal.
but also for the interest of third person;
NOTES ON PARTNERSHIP AGENCY, TRUSTS, LEASE AND PRESCRIPTION
Kenneth and King C. Hizon _________________________________________________________________________________________________________________
If the same is with just cause- as when it is based on the NOTE: Presupposes that the A acted without knowledge of the death
impossibility of continuing with the agency without grave detriment of the principal or any other cause which extinguishes the agency.
to himself, or is due to a fortuitous event, the A cannot be held
liable. The law requires good faith not only as to third persons but also the
agent.
WHAT CONSTITUTE WITHDRAWAL
GOOD FAITH OF A THIRD PERSON
When an agent informs his principal that for reasons of health he is
rd
about to depart from the place where he is exercising his agency, This article extends to 3 persons contracting in GF with the agent,
abandons his property, turns it over to third party, renders his even if the agent has knowledge of the cause of revocation. Where
accounts, and asks his principal to execute a power of attorney to the revocation of power is unknown to a third person, there being a
third party, it is shown that he renounced his agency but must turn basis for confidence previously created by the Principal and on which
over any balance of money to the principal. the third person can rely, it is proper to impute the risk to the
principal. GF of a third person is sufficient basis in itself for his
Filing of complaint by an agent against his principal for the collection protection.
of a balance in his favor resulting from a liquidation of the agency
accounts between them, and his rendering of a final account of his DEATH OF PRINCIPAL
operations are equivalent to an express renunciation of the agency
and terminate the juridical relation between them. Law does not impose a duty on the heirs of the principal to notify
the agent of the death of the principal; but if the agent dies, his heirs
WAIVER OF RIGHT TO WITHDRAW must notify the principal thereof.

Agent may renounce his right to withdraw from the agency but even Art. 1932. If the agent dies, his heirs must notify the principal
in such case, the relationship may be terminated in case of an thereof, and in the meantime adopt such measures as the
impossibility of continuing the agency without serious injury to circumstances may demand in the interest of the latter. (1739)
himself.
WHEN NOTICE IS IMPOSSIBLE
When the heirs of the agent cannot give notice required by the
Art. 1929. The agent, even if he should withdraw from the agency article because the whereabouts of the principal is unknown, they
for a valid reason, must continue to act until the principal has had should consign the things object of the agency to the court.
reasonable opportunity to take the necessary steps to meet the
situation. (1737a) The law imposes upon the heirs of the deceased A not only the
obligation to notify the P to enable the latter reasonable opportunity
Art. 1930. The agency shall remain in full force and effect even after to take such steps as may be necessary to meet the situation but
the death of the principal, if it has been constituted in the common also to adopt such measures as the circumstance may demand for
interest of the latter and of the agent, or in the interest of a third the interest of the P.
person who has accepted the stipulation in his favor. (n)

G.R: Agency is terminated by the death of the P.


REFERENCES:
XPN:
PINEDA, ERNESTO L., Partnership, Agency and Trusts, Central Book Publishing,
If the agency has been constituted in the common interest of Co., Inc., 2006
the P and the A. TOLENTINO, ARTURO M., Commentaries and Jurisprudence on the Civil
Code of the Philippines, Vol. V., Central Book Publishing, Co., Inc.
If it has been constituted in the interest of third persons. 1991

COMMON INTEREST

This is illustrated by a case where a DR has authorized his CR to sell


certain properties of the DR upon non-payment of the debt. The
power of sale given in a mortgage has been held to be a power
coupled with interest which survives the death of the grantor.

BENEFIT OF THIRD PERSON

This is illustrated by a case where a DR in selling his land, authorizes


the buyer to deliver part of the purchase price to his CR.

Art. 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. (1738)
NOTES ON PARTNERSHIP AGENCY, TRUSTS, LEASE AND PRESCRIPTION
Kenneth and King C. Hizon _________________________________________________________________________________________________________________

TITLE V- TRUSTS TRUST v. STIPULATION POUR AUTRUI

CHAPTER 1 TRUST STIPULATION POUR AUTRUI


General Provisions As to origin
It can arise either by virtue of a It can arise only by virtue of a
Article 1440. A person who establishes a trust is called the trustor; contract or by a legal provision contract and never by operation
one in whom confidence is reposed as regards property for the of law
benefit of another person is known as the trustee; and the person As to object
for whose benefit the trust has been created is referred to as the The object of a trust is always a The object of a stipulation pour
beneficiary. specific property, whether real autrui could either be a specific
or personal, including an property or other things
CONCEPT OF TRUST (FIDEICOMMISSO): It is a fiduciary relationship undivided interest therein as in
created by agreement or by law where the trustor of the property co-ownership or choses in action
has the equitable title while the legal title is vested in another As to form
(trustee). It is either express or implied. It It is always express and must be
rd
continues to exist unless accepted by the 3 person
The trustee holds the property for the benefit of another repudiated before the grant stipulated in his
(beneficiary) who could be the trustor himself or a third person. favor is mutually revoked by the
parties (Pineda, 2006)
Trust is a fiduciary relationship involving a property whereby the
fiduciary holds it for the benefit of another (Pineda, 2006). TRUST v. TRUST RECEIPT

TRUST, defined: In its technical sense, a trust is defined as the right, TRUST TRUST RECEIPT
enforceable solely in equity, to be the beneficial enjoyment of The right to the beneficial It involves a security transaction
property, the legal title to which is vested in another, but the word enjoyment of a property but the intended to aid in financing
trust is frequently employed to indicate duties, relations, and lehal title to which is vested in importers and retail dealers who
responsibilities which are not strictly technical trusts (Pineda, 2006).
another. It is a legal relationship do not have sufficient funds or
which is fiduciary in nature resources to finance the
It is a legal relationship between one person having an equitable whereby a person called trustee importation or purchase of
ownership in property and another person owning the legal title to is holding the propeprty for the merchandise, and who may not
suhc property, the equitable ownership of the former, entitling him benefit of another called the be able to aqcuire credit except
to the performance of certain duties and the exercise of certain beneficiary through utilization, as collateral,
powers by the latter (Pineda, 2006).
of the merchandise imported or
purchased (Pineda, 2006)
CHARACTERISTICS OF TRUST:

It is a relationship Article 1441. Trusts are either express or implied. Express trusts are
created by the intention of the trustor or of the parties. Implied
It us a relationship of fiduciary character
trusts come into being by operation of law.
It is a relationship with respect to property, not one involving
merely personal duties
KINDS OF TRUST AS TO MANNER OF CREATION
It involves the existence of equitable duties inposed upon the
holder of the title to the property to deal with it for the
EXPRESS TRUST IMPLIED TRUST
benefit of another
As to Creation
It arises as a result of manifestation of intention to create the
relationship (Pineda, 2006) One created by the express One which is not created
agreement of the parties, or by expressly by the parties or by
PARTIES IN A TRUST: the intention of the trustor the trustor, but by operation of
law, there being a law creating it
Trustor who establishes the trust As to manner of creation
Trustee (fiduciary), the one in whom the confidence is reposed Created by the direct and the It is merely deducible from the
as regards the property for the benefit of another person positive acts of the parties, by nature of the transaction
some writing, deed or by words,
Beneficiary (cestui que trust) is the person for whose benefit
the trust has been created (Pineda, 2006) either expressly or inpliedly,
evincing an intention to create a
trust
NOTE: The cestui que trust need not be named at the time the trust
is created. It is enough that the cestui que trust is sufficiently certain As to proof needed when immovable or interest therein is involved
or identifiable (Pineda, 2006). Imprescriptible Prescribes after 10 years from
registration of the title;
otherwise barred
Prescription of action
Property cannot be acquired by Property can be acquired by
prescription because the prescription (Pineda, 2006)
NOTES ON PARTNERSHIP AGENCY, TRUSTS, LEASE AND PRESCRIPTION
Kenneth and King C. Hizon _________________________________________________________________________________________________________________
possession of the trustee is not If there is no substitute, and the trustor did not provide that the
adverse trust will be rendered ineffective in case of the death, resignation,
removal or refusal of the designated trustee to assume the
KINDS OF IMPLIED TRUSTS respobsibility, the court will appoint a new trustee (Pineda, 2006).

RESULTING TRUST CONSTRUCTIVE TRUST PREFERENCE IN THE DESIGNATION OF TRUSTEE BY THE COURT:
A resulting trust is a species of A constructive trust is one Between the mother and the uncle, the former is preferred to the
implied trust that is presumed created not by any word or trustee of the proceeds of the insurance policy in the absence of any
always to have been phrase, either expressly or showing that the former is incompetent (Pineda, 2006).
contemplated by the parties, the impliedly, evincing a direct
intention as to which can be intention to create a trust, but Article 1446. Acceptance by the beneficiary is necessary.
found in the nature of their one which arises in order to Nevertheless, if the trust imposes no onerous condition upon the
transaction although not satisfy the demands of justice. It beneficiary, his acceptance shall be presumed, if there is no proof
expressed in a deed or does not come about by to the contrary.
instrument of conveyance. A agreement or intention but in
resulting trust is based on the the main by operation of law, NO ACCEPTANCE, NO TRUST CREATED: It is essential that the
equitable doctrine that it is the construed against one who, by beneficiary accepts the trust. However, the acceptance in trust does
more valuable consideration fraud, duress or abuse of not have follow the stringent requisites of acceptance of a donation
than the legal title that confidence, obtains or holds the as this is not so provided. Even if the real property is involved, the
determines the equitable legal right to property which he acceptance need not be in a public instrument (Pineda, 2006).
interest in property. ought not, in equity and good
conscience, to hold (Pineda, XPN: There is a presumption of acceptance if the trust is purely
2006). gratuitous, that is, it imposes no condition whatsoever upon the
beneficiary.
Article 1442. The principles of the general law of trusts, insofar as
they are not in conflict with this Code, the Code of Commerce, the EXTINGUISHMENT OF AN EXPRESS TRUST
Rules of Court and special laws are hereby adopted.
Accomplishment of the aims of the trust
Expiration of the agreed term
Mutual agreement of all the parties
Happening of the resolutory condition if one had been imposed
CHAPTER 2
Total loss of the object of trust
Express Trusts
Annulment or rescissiion of the trust
Decision of the court declaring it as terminated
Article 1443. No express trusts concerning an immovable or any
interest therein may be proved by parol evidence. Merger of the rights of the trustor and the trustee, as when the
trustor waived his beneficiak rights in favor of the trustee,
or vice-versa
EXPRESS TRUST: Express trusts are those which are created by the
direct and positive acts of the parties, by some writing or deed, or Prescription which arises when there is an express repudiation
will, or by words evincing an intention to create a trust. of the trust, and continuous possession which is public,
adverse and peaceful in the concept of an owner for the
required period
PROOF NECESSARY TO ESTABLISH AN EXPRESS TRUST WHEN
PROPERTY IS IMMOVABLE AND MOVABLE: There must be a
ACQUISITIVE PRESCRIPTION AS A MODE OF ACQUIRING
statement or mention of a written instrument to evidence the trust.
OWNERSHIP:
No express trust over a realty can be proved by parol evidence
(Pineda, 2006).
EXPRESS TRUST IMPLIED TRUST
GR: A trustee cannot acquire by Same rule when it comes to the
Article 1444. No particular words are required for the creation of
an express trust, it being sufficient that a trust is clearly intended. prescriptiion the ownership of operation of prescription as a
property entrusted to him mode of acquisition
CREATION OF AN EXPRESS TRUST: What is important is that there
XPN: Provided the ff. requisites
must be a clear intent to establish it. There must direct and positive
are present:
acts of the parties, by some writing or deed, or will, or by words
1. The trustee has
evincing an intention to create a trust (Pineda, 2006).
performed
unequivocal acts if
Article 1445. No trust shall fail because the trustee appointed
repudiation amounting
declines the designation, unless the contrary should appear in the
instrument constituting the trust. to an ouster of the
cestui que trust
2. Such positive acts of
NOTE: If the designated trustee, upon whom confidence is reposed,
repudiation have been
has declined the appointment as such, the designated substitute-
made known to the
trustee, if there is any, and who accepts the appointment will take
over.
NOTES ON PARTNERSHIP AGENCY, TRUSTS, LEASE AND PRESCRIPTION
Kenneth and King C. Hizon _________________________________________________________________________________________________________________
ceatui que trust
The evidence thereon is BASIS OF IMPLIED TRUST: It is based on equity. It applies to cases
clear and conclusive where injustice would result if the legal title of the trustees will
The adverse possession of prevail over the equitable right of the beneficiary (Pineda, 2006).
the trustee together
with other elements of KINDS OF IMPLIED TRUSTS
prescription, must be
at least 10 years in the RESULTING TRUSTS CONSTRUCTIVE TRUSTS
concept of an owner. It Resulting trusts are based on the Constructive trusts are created
begins to run from equitable doctrine that valuable by the construction of equity in
the time the consideration and not legal title order to satisfy the demands of
beneficiary, or trustor determines the equitable title or justice and prevent unjust
gained knowledge of interest and are presumed enrichment. They arise contrary
the repudiation by the always to have been to intention against one who, by
trustee (Pineda, 2006). contemplated by the parties. fraud, duress or abuse of
They arise from the nature or confidence, obtains or holds the
ACTS WHICH WERE HELD INSUFFICIENT TO CONSTITUTE circumstances of the legal right to property which he
REPUDIATION: consideration involved in a ought not, in equity and good
transaction whereby one person conscience, to hold.
A mere silent possession without acts amounting to ouster thereby becomes invested with
Mere reciept of rents and profits by the trustee and the building legal title but is obliged in equity
Declaration of the property in the trustees name for taxation to hold his legal title for the
purposes does not constitute acts of repudiation benefit of another.

PRESCRIPTION OF ACTION FOR RECOVERY OF PROPERTY HELD IN Q: May an implied trust be converted into an express trust?
TRUST
Yes, if the implied trustee recognizes the right of the owner over the
EXPRESS TRUST IMPLIED TRUST property (Pineda, 2006).
GR: An action to recover a. Resulting trust:
property held in trust does not PROOF REQUIRED: While implied trusts may be proved by oral
prescribe. However, if there is GR: The action does not evidence, the evidence must be trustworthy and received by the
repudiation and no action had prescribe courts with extreme caution, and should not be made to rest on
been filed within 10 years from loose, equivocal or indefinite declarations. Trustworthy evidence is
the tine the beneficiary had XPN: There is repudiation required because oral evidence can easily be fabricated. In order to
been inforned of the establish an implied trust in real property by parol evidence, the
repudiation, the action for b. Constructive trust proof should be as fully convincing as if the acts giving rise to the
recovery will prescribe trust obligation are proven by an authentic document. An implied
It prescribes if no action is filed trust, in fine, cannot be established upon vague and inconclusive
within 10 years from the proof.
registration of the property in
the name of the trustee. NOTE: The enumerated causes of implied trusts are not excluisve
(Pineda, 2006).
NOTE: The 10 year prescriptive period applies only when the cestui
que trust is not in possesion of the property. Otherwise, there is no Article 1448. There is an implied trust when property is sold, and
prescription (Pineda, 2006). the legal estate is granted to one party but the price is paid by
another for the purpose of having the beneficial interest of the
property. The former is the trustee, while the latter is the
beneficiary. However, if the person to whom the title is conveyed is
a child, legitimate or illegitimate, of the one paying the price of the
CHAPTER 3
sale, no trust is implied by law, it being disputably presumed that
Implied Trusts
there is a gift in favor of the child.

Article 1447. The enumeration of the following cases of implied


CASE WHERE PURCHASER PAID FOR THE PRICE BUT THE LEGAL
trust does not exclude others established by the general law of
TITLE OR ESTATE IS GRANTED TO ANOTHER: The Article refers to an
trust, but the limitation laid down in article 1442 shall be
implied resulting trust as there is a clear intent to create a trust but
applicable.
short of the ordinary instrument to reflect it. There is a principle
recognized in law that a person who pays for something generally
IMPLIED TRUST: Implied trusts are those which, without being does so for his own ineterest and benefit (Pineda, 2006).
expressed, are deducible from the nature of the transaction as
matters of intent or, independently, of the particular intention of the
XPN: If the person who receives the legal title is a legitimate or
parties, as being superinduced on the transaction by operation of
illegitimate child of the one paying the price, there is no trust
law basically by reason of equity (Pineda, 2006).
implied by law. instead, there is a presumption that there is gift
NOTES ON PARTNERSHIP AGENCY, TRUSTS, LEASE AND PRESCRIPTION
Kenneth and King C. Hizon _________________________________________________________________________________________________________________
given in favor of the child. The reason is that the donation is void for that such positive acts or repudiation have been made known
being an indirect donation (Pineda, 2006). to the cestui que trust or other co-owners and
that the evidence thereon must be clear and convincing
NOTE: Even if there is already a legal presumption that there is a gift (Pineda, 2006)
granted to the child, there is still a need to follow the formalities of a
donation required by law (Pineda, 2006). Article 1450. If the price of a sale of property is loaned or paid by
one person for the benefit of another and the conveyance is made
XPNs: to the lender or payor to secure the payment of the debt, a trust
arises by operation of law in favor of the person to whom the
Article 1448. There is an implied trust when property is sold, money is loaned or for whom its is paid. The latter may redeem the
and the legal estate is granted to one party but the price property and compel a conveyance thereof to him.
is paid by another for the purpose of having the
beneficial interest of the property. The former is the Article 1451. When land passes by succession to any person and he
trustee, while the latter is the beneficiary. However, if the causes the legal title to be put in the name of another, a trust is
person to whom the title is conveyed is a child, legitimate established by implication of law for the benefit of the true owner.
or illegitimate, of the one paying the price of the sale, no
trust is implied by law, it being disputably presumed that NOTE: The article provides for a resulting trust there being a clear
there is a gift in favor of the child. intention to establish a trust. The law refers to inherited land. There
is no good reason why the principle cannot apply to personal
Where the actual contrary intention is proved (Pineda, 2006). properties (Pineda, 2006).

PURCHASE MONEY RESULTING TRUST: The trust created under the Article 1452. If two or more persons agree to purchase property
st
1 sentence of Art. 1448 is referred to as a purchase money resulting and by common consent the legal title is taken in the name of one
trust. of them for the benefit of all, a trust is created by force of law in
favor of the others in proportion to the interest of each.
Requisites:
NOTE: A resulting trust arises in the instant situation because of the
An actual payment of money, property or services or an intention to create one. The purchasers are co-owners of the
equivalent, consulting valuable consideration property. In the absence of any specific agreement to the contrary,
Such consideration must be furnished by the alleged beneficiary their shares are presumed equal (Pineda, 2006).
of a resulting trust (Pineda, 2006).
Article 1453. When property is conveyed to a person in reliance
NOTE: No implied trust is created when purchase is made in upon his declared intention to hold it for, or transfer it to another
violation of law (Pineda, 2006). or the grantor, there is an implied trust in favor of the person
whose benefit is contemplated.
Article 1449. There is also an implied trust when a donation is
made to a person but it appears that although the legal estate is NOTE: In this situation, an implied resulting trust is created because
transmitted to the donee, he nevertheless is either to have no of the declared intention of the grantee or to another person
beneficial interest or only a part thereof. (Pineda, 2006).

CO-OWNERSHIP IS A FORM OF A TRUST: A co-ownership is a form of Article 1454. If an absolute conveyance of property is made in
a trust, with each owner being a trustee for each other and order to secure the performance of an obligation of the grantor
possession of a co-owner shall not be regarded as adverse to other toward the grantee, a trust by virtue of law is established. If the
co-owners but in fact is beneficial to them. Mere actual possession fulfillment of the obligation is offered by the grantor when it
by one will not give rise to the inference that the possession was becomes due, he may demand the reconveyance of the property to
adverse because a co-owner is, after all, entitled to possession of the him.
property.
NOTE: An implied resulting trust is created in this situation. There is
NOTE: A mere silent possession by a co-owner, his receipt of rents, a clear intention to create a trust, although, it was not reflected in
fruits or profits from the property, the erection of buildings and the deed of conveyance. This is like a sale with the right to
fences and the planting of trees thereon and the payment of land repurchase, except that the right is not stated in the document. The
taxes, cannot serve as proof of exclusive ownership, if it is not borne seller is the benefiicary and the buyer, the trustee. When the seller
out by clear and convincing evidence that he exercised acts of offers to pay his obligation when due, the buyer must reconvey the
possession which unequivocably constituted an ouster or property (Pineda, 2006).
deprivation of the rights of the other co-owners.
Article 1455. When any trustee, guardian or other person holding a
The elements in order that a co-owners possession may be deemed fiduciary relationship uses trust funds for the purchase of property
adverse to the cestui que trust or the co-owner are: and causes the conveyance to be made to him or to a third person,
a trust is established by operation of law in favor of the person to
that he has performed unequivocal acts of repudiation whom the funds belong.
amounting to ouster cestui que trust or other co-owners
CASE WHERE FIDUCIARY USED TRUST FUNDS IN PURCHASING
PROPERTY IN HIS NAME: An impled constructive trust is created in
NOTES ON PARTNERSHIP AGENCY, TRUSTS, LEASE AND PRESCRIPTION
Kenneth and King C. Hizon _________________________________________________________________________________________________________________
this situtation to prevent unjust enrichment on the part of the
fiduciary (Pineda, 2006).

PERSONS COVERED BY THE ARTICLE:

trustee
guardian
agent
partner
confidential employee
persons holding a fiduciary position (Pineda, 2006)

Rationale behind the article: To prevent the fiduciart from


temptation of putting his own self-interest above that of his
principal whom he is supposed to protect. Further, the law is
intended to keep and encourage the fiduciary to remain honest, and
loyal to his principal (Pineda, 2006).

Article 1456. If property is acquired through mistake or fraud, the


person obtaining it is, by force of law, considered a trustee of an
implied trust for the benefit of the person from whom the property
comes.

NOTE: This trust is created to prevent unjust enrichment on the part


of the acquirer to the prejudice of the true owner. The mistake must
be committed by a third person. If made by a party, there is no trust
(Pineda, 2006).

NOTE: There can be an implied trust in the absence of mistake or


fraud (Pineda, 2006).

The article does not cover case of violation of a condition in


donation (Pineda, 2006).

Article 1457. An implied trust may be proved by oral evidence.

NOTE: As a rule, the burden of proving the existence of a trust is on


the party asserting its existence, and such proof must be clear and
satisfactorily show the existence of the trust and its elements. While
implied trusts may be proved by oral evidence, the evidence must
be trustworthy and received by the courts with extreme caution,
and should not be made to rest on loose, equivocal or indefinite
declarations. Trustworthy evidence is required because oral
evidence can easily be fabricated.

REFERENCES:

PINEDA, ERNESTO L., Partnership, Agency and Trusts, Central Book Publishing,
Co., Inc., 2006
TOLENTINO, ARTURO M., Commentaries and Jurisprudence on the Civil
Code of the Philippines, Vol. V., Central Book Publishing, Co., Inc.
1991
NOTES ON PARTNERSHIP AGENCY, TRUSTS, LEASE AND PRESCRIPTION
Kenneth and King C. Hizon _________________________________________________________________________________________________________________

TITLE VIII DEPOSIT LEASE


LEASE If the price is to be paid whether
or not the objects are actually
CHAPTER 1 kept in the premises or safe,
General Provisions there is a lease because deposit
is a real contract which is
ARTICLE 1642. The contract of lease may be of things, or of work perfetced only by delivery of the
and service. (1542) object.
When the owner of the place or
Distinguish between sale and lease. safe ha no obligation to take
care of the things kept therein,
the contract is likewise lease.
Hence, the locking up of an
PURCHASE AND SALE LEASE automobile ina garage, upon
There is transmission of Only the use or enjoyment of of paymnet of a fixed amount
ownershio of the thing sold the thing is transferred and only daily, without special
for a determinate period stipulations, or the use of a
Transmission is permanent safety deposit box in a bank, has
unless subject to a resolutory been held to be a lease.
condition
Q: Distinguish lease from simple loan.
In case of doubt, the intention of the parties should be the guide in
determining the contract entered into. RENT SIMPLE LOAAN
The owner of the property does The thing loaned becomes the
Contracts in the form of leases either with options to the buyer to not lose its ownership. He property of the obligor.
purchase for a small consideration at the end of the term, provided simply loses his control oveer
the so-called rent has been duly paid, or with stipulation that if the the property rented during the
rent throughout the term is paid, title shall thereupon vest upon the period of the contract.
lessee, are lessees in name only. The rents must be regarded as The relationship between the The relation between the parties
paymnet of the price in instllments since the due payment of the parties is that of landlord and is that of the obligor and
agrred amount results in the transfer if tilte to the lessee. tenant. obligee.

Distinguished lease from usufruct. ARTICLE 1643. In the lease of things, one of the parties binds
himself to give to another the enjoyment or use of a thing for a
price certain, and for a period which may be definite or indefinite.
However, no lease for more than ninety-nine years shall be valid.
USUFRUCT LEASE (1543a)
Always a real right A real right by exception
To constitute a usufruct, one Ownership is not required in LEASE OF THINGS
must be the owner of the thing order to give an object in lease
Owner allows the usufructuary Lessor places and maintains the The subject matter of lease must be within the commerce of men.
to use and enjoy the property lessee in the paymnet of the Otherwise, it is void.
thing
Includes all possible uses and May be limited to particular uses NOTE: The lease of a building includes the lease of the lot.
manner of enjoyment of the by the contract
property What are the special characteristics of a lease of things?
May be for an indefinite peruod Must be for a determionte
of time period; otherwise, the court
must fix seuch period in an
action brought for such purpose. 0 Its essential purpose is to transmit the use or enjoymnet of
a thing;
Distinguish lease from commodatum. 1 It is consensual;
2 It is onerous;
3 Its price is fixed in relation to the period of use or
enjoymnent; and
COMMODATUM LEASE 4 It is temporary.
Consist in the cession of the use of the thing to another
Essentially gratuitous onerous EXTENT OF ENJOYMENT

Distinguish lease from deposit. It is noy indispensable that the use or enjoyment granted to the
lessee be total or exclusive; within the freedom of contract
authorized by law, the parties may establish the terms they deemed
NOTES ON PARTNERSHIP AGENCY, TRUSTS, LEASE AND PRESCRIPTION
Kenneth and King C. Hizon _________________________________________________________________________________________________________________
convenient, subjecting the manner of use or enjoyment to
limitations and conditions.
A lease of things during the lifetime of one of the parties is
FORM OF RENT considered valid. When the lease is for such time as the lessor or
lessee may please, it is considered as one for lofe, ending upon the
Unlike in sale where it is required that the price must be in money or death of the party who could have terminated the contract.
its equivalent, the price in lease may be in money or in fruits or in
some other useful things. It may even be in some other prestation. BEYOND 99 YEARS

When it consists in fruits or products, it may be a determinate or Our Code, allows leases of property for more than 99 years.
fixed quantity or an aliquot part or percentage of the produce of the According to Sen. Tolentino, a lease made for more than 99 years
tenement. It may be variable at different periods within the duration shall be considered as terminated after the end of 99 years. After
of the lease. that period, it will be a lease for an indeterminate term.

When the price consists of a certain percentage of the fruits LEASE OF MOVABLES
obtaining from the thing, the contract is to be regarded as a tenancy
contract which is generally regarded as an important variation of the Code makes no special provisions for the lease of movables. In the
contract of lease. But under our law, land tenancy on shares is absence of special law, the provisions of the NCC are applicable to
regarded more as a partnership than as a lease contract. leases of personal property.

Amount of rent ARTICLE 1644. In the lease of work or service, one of the parties
binds himself to execute a piece of work or to render to the other
The price of lease must be serious or substantial. It should not be so some service for a price certain, but the relation of principal and
insignificant as to indicate an intention of liberality on the part of the agent does not exist between them. (1544a)
owner; otherwise, the contract would not be a lease but a
commodatum. CONTRACT FOR WORK

The price must be determined by the parties or at least susceptible By such contract, one of the parties binds himself to produce a result
fo determination under the contract. If the parties are not able to fix of work or labor and the other party to pay a remuneration.
the price, the contract is absolutely VOID.
The contract of surgeon to make an operation, that of an artist to
INCREASES OF RENT give a concert and that of a contractor to construct a building are
contracts for work.
Where there is no statute fixing a ceiling on rentals, the landowner
has a right to demand an increase thereof upon the expiration of the LEASE OF SERVICES
contract.
By such contract, one of the parties binds himself to render some
What are the factors in determining reasonableness of rental service that is his own activity or labor and the other party binds
increases of buildings? himself to pay some remuneration.

A: The party obligated to render service does not lease his person or his
power or energy for work but a free activity within the limits set
Location of the apartment incluing the neighborhood; forth by by the contract and by good faith.
The area per floor or storey;
Number of rooms, bedrooms, kitchen, closet, facilites provided Distinguish between lease and contract of work.
therefor;
Description of the buildig, its type and construction as well as
the age of the building.
LEASE OF SERVICE (LOCATIO LEASE OF WORK (LOCATIO
PERIOD OF LEASE OPERARUM) OPERIS)
The object of the contract is the The result is the object to be
The law excludes perpetual lease. There must always be a period serivce itslef and not the result delivered without considering
which may be definite or indefinite. whoch it produces the labor that produces it.
e.g: contract of carpenter e.g: contract of architect to build
When the period is indefinite, and the thing leased is a rural land, a house for another
article 1682 shall apply. Even if the result intended is not The risk is upon the promissor so
attained, without fault on the that if the result promised is not
If it is a rural land, article 1687 governs. part of the parties, the accomplished he is not entitled
remuneration is due for the to demand the compensation
Otherwise, these 2 articles should be applied by analogy. services remdered.
The direct object of the contract The lessors labor although an
In principle, if the thing is fruit-producing, article 1682 should govern is the lessors labor; the acts in important factor is not the direct
and if it is not fruit-producing, article 1687 should be applied. which such labor consists, object of the contract of the
NOTES ON PARTNERSHIP AGENCY, TRUSTS, LEASE AND PRESCRIPTION
Kenneth and King C. Hizon _________________________________________________________________________________________________________________
performed for the benefit of the contract not is immediately
lessee are taken into taken into consideration; CHAPTER 2
consideration immediately Lease of Rural and Urban Lands
The object which the parties
consider is not the labor but its SECTION 1
result, the complete and General Provisions
finsihed work
Law does not speak of risks for The price is stipulated taking Q: Distinguish between rural and urban tenements.
the workmen never assumes into consideration not the labor
them; workmen is paid for the but the fimished work; the price If the principal purpose is for habitation, it is urban, even if it has
labor he performs, whatwever is not payable until the work is gardens or orchards; and if the principal purpose is the direct
the result of the work assignes completed and accepted, amd exploitation of the soil, it is rural even if ut has some structures
to him, and even should it be the same cammot lawfully be thereon.
destroyed by accident demanded if the work is
destroyed before it is finished Article 1646. The persons disqualified to buy referred to in articles
and accepted. 1490 and 1491, are also disqualified to become lessees of the
things mentioned therein. (n)
PROFESSIONALS
CAPACITY OF FOREINERS
NOTE: These are leases of services.
Notwithstanding the contitutional prohibition on foreigners to
COMPENSATION acquire lands in the Philippines, they can lease real or immovable
property in the Philippines because Art. 1491 refers only to those
This may consist of money or some other thing or of fixed sum or persons who, by special relations they have with the property should
certain percentage of the product of the work. not be allowed to purchase.

Although no fixed amount may have been determiend as the Article 1647. If a lease is to be recorded in the Registry of Property,
consideration for the contract of hiring, the contract is nevertheless the following persons cannot constitute the same without proper
valid if the amiunt of the implied compensarion can be determined authority: the husband with respect to the wife's paraphernal real
by custom or frequent use in the place where the services were estate, the father or guardian as to the property of the minor or
rendered. ward, and the manager without special power. (1548a)

Hence, where there has been fixed for the services rendered by a EFFECT OF WANT OF SPECIAL POWER
physician to a sick person the latter is obliged to pay to the former a
reasonable and equitable compensation, the amount of which shall Under the NCC, the husband with respect to the property of his wife,
be fixed by the courts according to the uses and customs of the place the father and guardian with respect to the property of the child or
and the evidence in the case, with or without the testimony of minor, and an administrator with respect to property under his
experts. administration, cannot lease without special power, if the lease is to
be recorded in the Registry of Property. Hence, a lease executed by
ARTICLE 1645. Consumable goods cannot be the subject matter of a said persons is valid, if the lease is not to be recorded in the registry
contract of lease, except when they are merely to be exhibited or even withiut special power. But if the lease of real property is to be
when they are accessory to an industrial establishment. (1545a) for a period or more than 1 year, par. 8 of Art. 1878 of the new Code
requires a special power of attorney, irrespective of whether the
LEASE OF CONSUMMABLE GOODS lease will be recorded or not. It is submitted that this requirement
applies to the persons mentioned in this article.
GR: Consumable goods cannot be the subject matter of a contract of
lease. MANAGER UNDER THE NEW CODE: Applies to a judicial
administrator, an administrator of a deceaseds property, as well as
XPNs: one of conjugal property. It also applies to apply to the administrator
or manager of property owned in common and to an administrator
Lease of consumable property, not for the purpose of of patrimonial or private property of the State.
consuming it but for purposes of display or advertising
such as wine to be placed in a showcase of a store but not Article 1648. Every lease of real estate may be recorded in the
to be drunk. This is known as ad pompam et Registry of Property. Unless a lease is recorded, it shall not be
ostentationem. binding upon third persons. (1549a)
Lease of consumables which constitute accessories in the lease
of an industrial establishment such as the coal in a factory. LEASE IS A PERSONAL RIGHT: Lease is a personal right although its
inscription in the Registry of Property gives it a certain effect against
rd
3 person; but this does not modify the nature of the juridical
relation because the lease right has a life of its own independent of
the registration. The rights of the lessee are not altered by its
rd
registration; they are merely guaranteed as against 3 persons.
NOTES ON PARTNERSHIP AGENCY, TRUSTS, LEASE AND PRESCRIPTION
Kenneth and King C. Hizon _________________________________________________________________________________________________________________
GR: Writ of possession is issuable in foreclosure of mortgage, despite
possessesion of a lessee of the premises and the lease has not yet GR: The power to sublease
terminated. Exceptions are where the lease had been registered or
prior knowledge of the mortgagee of the existence and duration of XPN: Where there is an express prohibition
the lease.
NOTE: The prohibition, to be express, must be stated or declared
EFFECT OF ACTUAL NOTICE: Where the lesses contract of lease with positively, in clear and direct language. It cannot be left to inferences
the former owner was not recorded on the title, said contract cannot or implication.
bind the purchaser.
The term of the sublease, however, cannot exceed that of the lease,
But where a purchaser of land at the time of the purchase has full and so the sublease terminates upon the termination of the lease.
knowledge of the fact that the land has been leased to a third person
and is informed of the terms of such lease, he is bound to respect REMEDY: When the lessee subleases the property inspite of a
said lease, although it is not entered upon the certificate of title. prohibition to do so, he violates the contract, and the lessor can ask
for rescission and damages, or damages only, unnder Art. 1659.
DELIVERY OF TITLE: The landowner may be compelled by the court
to deliver the certificate of title to the lessee so that the lease can be WHEN DOES VIOLATION TAKE PLACE: Not upon the execution of the
recorded therein. contract of sublease but when the lessee places the thing at the
disposal of the sublessee.
Article 1649. The lessee cannot assign the lease without the
consent of the lessor, unless there is a stipulation to the contrary. The lessee cannot justify the breach of contract by proof that the
(n) sublease is solvent and of good standing.

ASSIGNMENT OF LEASE: The assignment of the lease by the lessee Article 1651. Without prejudice to his obligation toward the
would involve the transfer, not only of rights but also of obligations; sublessor, the sublessee is bound to the lessor for all acts which
hence, the consent of the lessor is necessary. It constitutes novation refer to the use and preservation of the thing leased in the manner
by a substitution of the person of one of the parties. The assignee stipulated between the lessor and the lessee. (1551)
becomes the lessee of the property by assignment, entitled to all the
rights of a lessee, and said rights are enforceable only against the LIABILITY OF LESSOR TO SUBLEASE: The lessor is liable to the lessee
owners of the property leased, and not against the assignors of the for such damages as may be caused to the latter by reason of breach
lease. of the contract by the lessor, but is not directly liable to the
sublessee, whose damages are included in whatvever damages the
TRANSFER OF RIGHTS: A mere transfer of rights of the lessee, and lessee may recover from the lessor, said lease, as sublessor, being
not of the contract itself, would not require the lessors consent, the one directly liable to the sublessee.
unless there is an express stipulation to the contrary.
Article 1652. The sublessee is subsidiarily liable to the lessor for
ASSIGNMENT OF THE LEASE v. SUBLEASE any rent due from the lessee. However, the sublessee shall not be
responsible beyond the amount of rent due from him, in
ASSIGNMENT OF THE LEASE SUBLEASE accordance with the terms of the sublease, at the time of the extra-
A transfer of a third person of Merely another contract of judicial demand by the lessor.
the rights and obligations arising lease, where the original lease
from the lease contract becomes in turn a lessor Payments of rent in advance by the sublessee shall be deemed not
In fact, a sale of the lessees Even when the lessor consents to have been made, so far as the lessor's claim is concerned, unless
rights, and when the lessor gives to the sublease, the original said payments were effected in virtue of the custom of the place.
his consent to it, the original lease contract subsists and is (1552a)
lessee is released from his binding on the lessee.
obligations under the contract OWNERS DEMAND ON SUBLESSEE TO PAY: It does not exempt the
The personality of the original There is a juxtaposition of 2 latter from his obligation to pay the sublessor (lessee) the rents
lessee disappears and there only leases which are 2 distinct which he failed to pay the sublessor.
remains the juridical relation juridical relations although
between the lessor and the related to each other This article does not annul the contractual relation between the
assignee, who becomes the new lessee and sublessee, but simply helps the owner of the property to
lessee collect the rentals of the same.
There is a succession of Sublessee does not have any ND
particular title to one contract direct action against the lessor RATIO FOR 2 PAR.: It is a precaution to avoid collusion between
lease on the contract with the lessee, the lessee and the sublessee, because with a supposed payment of
or vice-versa rents in advance by the sublessee and the insolvency of the lessee,
the lessors rights would be prejudiced.
Article 1650. When in the contract of lease of things there is no
TERMINATION OF SUBLEASE
express prohibition, the lessee may sublet the thing leased, in
whole or in part, without prejudice to his responsibility for the
performance of the contract toward the lessor. (1550) Under Art. 1606 of the said Code, when the lease ceases, the
sublease is also terminated, but when the extinguishment of the
NOTES ON PARTNERSHIP AGENCY, TRUSTS, LEASE AND PRESCRIPTION
Kenneth and King C. Hizon _________________________________________________________________________________________________________________
lease is due to non-payment of rents by the lessee, the sublease may DUTY TO MAKE REPAIRS: Since the lessor is bound to deliver and
maintain the contract by complying with what is incumbent upon keep the thing suitable for the use intended, he must remedy all
the lessee. defects which impede or impair such use, whether such defects
existed before the delivery or came into existence later.
Under Art. 1607, the termination of the lease by confusion or
merger in the rights of lessor and lesee, does not terminate the Repairs does not include reconstruction.
sublease, because the sublease is an independent contract and not
merely an accessory to the original lease. WAIVER: The lessee may, expressly or tacitly waive the right to
repairs to keep the thing suitable for the use intended, or to
EJECTMENT OF LESSEE: A judgment of eviction against a lessee affets particular kinds of repairs, in which case, the lessor is relieved of his
his sublessees, even if the latter are not sued in the ejectment case. duty to make such repairs.
The subkessees can only assert such right of possession as could
have been granted them by their sublessors, their right of possession A stipiulation that the thing shall be delivered to and returned by the
depending entirely upon that of the latter. lessee in the condition in which it is at the time, is a tacit waiver of
repairs.
Article 1653. The provisions governing warranty, contained in the
Title on Sales, shall be applicable to the contract of lease. LIABILITY: If the lessor, upon formal notification by the lessee to
make the necessary repairs undertook and completed the repairs,
In the cases where the return of the price is required, reduction the lessee has no right to cancel the lease contract for its unexpired
shall be made in proportion to the time during which the lessee term, in the absence of any provision in the contract to the contrary.
enjoyed the thing. (1553) It is only when the owner fails to perform his duty after due notice,
that the action would lie.
WARRANTY OF LESSOR: The warranties implied in contracts of
purchase and sale are also implied in contracts of lease. PEACEFUL, ADEQUATE POSSESSION: It is the duty of the lessor to
place the lessee in legal possession of the premises and to maintain
Under Arts. 1561 and 1566, the lessor is liable for the warranty of him in the peaceful possesison of the property during the entire
the thing leased against any hidden defects it may have, even when term of lease.
unknown to said lessor, but this liability for warranty of the thing
leased does not amount to an obligation to indemnify the tenant for The non-fulfillment by the lessor of this obligation, as when his non-
damages, which is only to be allowed when there is proof that the payment of the land tax results in the eviction of the lessee, releases
lessor acted with fraud amd in bad faith by concealing the defect in the ;essee from the obligation to pay what is stipulated in the
the thing leased and in not revealinhg it to the lessee. contract from the date he ceased to occupy the premises.

The duty to maintain the lessee in the peaceful and adequate


enjoyment of the lease for the duration of the contract is merely a
SECTION 2 warranty by the lessor that the lessee shall not be disturbed in his
Rights and Obligations of the Lessor and the Lessee legal, not physical possession.

Article 1654. The lessor is obliged: Article 1655. If the thing leased is totally destroyed by a fortuitous
event, the lease is extinguished. If the destruction is partial, the
To deliver the thing which is the object of the contract in such a lessee may choose between a proportional reduction of the rent
condition as to render it fit for the use intended; and a rescission of the lease. (n)

To make on the same during the lease all the necessary repairs in SCOPE OF THIS ARTICLE: This article refers to destruction, total or
order to keep it suitable for the use to which it has been devoted, partial, and to the deteriorations or damages, which must be
unless there is a stipulation to the contrary; repaired by the lessor under Art. 1654, par. (2). In case of
destruction, therefore, Art. 1654 is not applicable, the present article
To maintain the lessee in the peaceful and adequate enjoyment of governs, and under it the lessee is not entitled to ask that the thing
the lease for the entire duration of the contract. (1554a) lost be reconstructed totally or partially by the lessor. This is the rule
even when the thing is insured and the lessor has recovered on the
DELIVERY OF PROPERTY: When a lessee rents a building which turns policy.
out, however, to be occupied by another person, and the former
cannot obtain possession, his (lessees) cause of action is against the NOTE: The total destruction of a building, a room of which is leased
lessor for breach of contract in that the latter violated the obligation by a lessee, terminates the latters lease.
of delivering to him the peaceful possession of the leased premises.
PARTIAL DESTRUCTION: The lessee may choose between
CONDITION FOR USED INTENDED: The thing need not be in a proportional reduction of rents and rescission of the lease. The
condition that will satisfty every whim or caprice of the lessee. It is election is given by law to the lessee, not to the lessor. Once the
enough that it can be used by him from the moment of delivery. The choice of the lessee has been accepted by the lessor, however, the
parties may validly stipulate that the thingh will be delivered in the former cannot change it, because it becomes binding on both. If the
condition in which it might be at the time of perfectioon of the reductiion of rent is chosen, the reduction retroacts to the moment
contract. of partial destruction.
NOTES ON PARTNERSHIP AGENCY, TRUSTS, LEASE AND PRESCRIPTION
Kenneth and King C. Hizon _________________________________________________________________________________________________________________
It is submitted that rescission will be allowed by the court only whe
the destruction is substantial; but if it is insignifant, only a ILLICIT USE OF THE THING: The use of the thing for an illicit purpose
proportional reduction of rent will be decreed. invalidates the contract. If such use was stipulated, no action can be
maintained to enforce the contract, which shall be absolutely void. If
Article 1656. The lessor of a business or industrial establishment it was stipulated, but the lessee later devotes the thing to such illicit
may continue engaging in the same business or industry to which use, such as when he uses it for gambling or prostitution, the lessor
the lessee devotes the thing leased, unless there is a stipulation to may demand the termination of the contract.
the contrary. (n)
USE INFERRED FROM THE NATURE OF THINGS: When a thing by its
NOTE: When the lessor leases a part of a building for commercial nature is susecptible of various uses, the lessee may use it for any of
purposes, he may use the other parts, or lease them to others, for the purposes for which it may be suitable. The lessee need not to
the same purposes, unless there is a stipulation to the contrary. The limit himself to the use to which the thing was devoted at the time
lessor warrants only the peaceful and adequate enjoyment of the of the lease.
lease; he does not warrant the successful results of the business of
the lessee in the premises. NOTE: When the lease is for a commercial establishment dedicated
to a particular business, such as a bakery or a grocery, the lessee
Article 1657. The lessee is obliged: cannot change the pupose of such establishment.

To pay the price of the lease according to the terms stipulated; Article 1658. The lessee may suspend the payment of the rent in
case the lessor fails to make the necessary repairs or to maintain
To use the thing leased as a diligent father of a family, devoting it to the lessee in peaceful and adequate enjoyment of the property
the use stipulated; and in the absence of stipulation, to that which leased. (n)
may be inferred from the nature of the thing leased, according to
the custom of the place; NOTE: A tenant is released from the obligation to pay rents from the
time he is unlawfully dispossessed.
To pay expenses for the deed of lease. (1555)
FORCE MAJEURE: If force majeure or fortuitous event deprives the
PAYMENT OF RENT lessee of the use or enjoyment of the property, the situation would
be similar to total or partial destruction of the property, governed by
The obligation imposed upon the lessee to pay rent in the manner Art. 1655. The lessee may ask for the rescission of the contract, or
agreed upon arises only where the contract has been actually carried the suspension of the payment of rents during the period of
into effect by the delivery of the things leased to the lessee for the interruption.
purposes stipulated in the contract.
Article 1659. If the lessor or the lessee should not comply with the
Where the lessor has refused to accept the rent being paid by the obligations set forth in articles 1654 and 1657, the aggrieved party
lessee, the latter should make a monthly tender of payment and may ask for the rescission of the contract and indemnification for
notice of consignation for the monthly rentals. damages, or only the latter, allowing the contract to remain in
force. (1556)
WHO FIXES THE RENT: Only the owner has the right to fix the rent.
The court cannot determine the rent and compel the lessor or owner ALRTERNATIVE REMEDIES
to conform thereto and allow the lessee to occupy the premises on
the basis of the rent fixed by it. If the lessee disagrees with the rent Upon failure of the lessee to pay the stipulated rent at the time
fixed by the lessor, his duty is to vacate the premises; he has agreed upon, the lessor may elect between the remedies of:
absolutely no right to have the court fix the rent and continue Performance
occupyingh the premises pending judicial determination of said Resolution of the lease contract
rents.
NOTE: In either case, the lessee is entitled to such damages as are
INCREASE AND DECREASE OF RENTS: The owner of leased property appropriate to the particular remedy chosen, but may not, upon
ha no absolute right to increase the rents. Where the ground relied resolution of the contract, recover damages that are appropriate
upon for the increase of rent is the increase in assessment of the only where performance is demanded.
property, the rent will be increased in the proportion of the increase
in assessment. Where both parties defaulted in the performance of their
corresponding duties, but it could not be determined with
NOTE: A devaluation or depreciation of the currency justifies definiteness who of them committed the first infraction of the terms
increase in rentals. of the contract, the parties are in pari delicto and the contract is
deemed extinguished, with the parties suffering their respective
FAILURE TO PAY; INTEREST losses.

The tenant who fails to pay the rent, in the absence of some RESCISSION OF CONTRACT
agreement to the contrary, will entitle the lessor to evict the tenant
and recover the unpaid rent; and in addition to the rent due, the Where the lessee, in possession of land, fails to pay on time the
tenant is liable for the accrued legal interest thereon at the rate of 6 prooper rents, the lessor has a right to rescind the contract, recover
per cent per annum. the unpaid rents and eject the tenant from the land.
NOTES ON PARTNERSHIP AGENCY, TRUSTS, LEASE AND PRESCRIPTION
Kenneth and King C. Hizon _________________________________________________________________________________________________________________
CHANGES IN FORM AND SUBSTANCE: The lessee of a building under
A lessor may seek rescission of lease contract and ejectment of a long term lease has the right to make such changes as the business
lessee simultaneously in a single action for illegal detainer. established therein requires, provided thaty neither the value nor
the solidity of the building is impaired.
Where rescission is the action taken, the rule is that both demands
to pay rent and to vacate are necessary to make a lessee a deforciant Article 1662. If during the lease it should become necessary to
in order that an ejectment suit may be filed. Payment of the make some urgent repairs upon the thing leased, which cannot be
arrearages in rental after demand to pay and to vacate does not deferred until the termination of the lease, the lessee is obliged to
extinguish the cause of action for ejectment. tolerate the work, although it may be very annoying to him, and
although during the same, he may be deprived of a part of the
NOTE: Rescission will not be permitted for a slight or casual breach premises.
of the contract, but only for such breaches as are so substantial and
fundamental as to defeat the object of the parties in making the If the repairs last more than forty days the rent shall be reduced in
agreement. Neither can rescission be availed of by the wrongdoer, proportion to the time - including the first forty days - and the part
because the same is a remedy granted only to the injured party. of the property of which the lessee has been deprived.

NECESSITY OF JUDICIAL ACTION: A contract of lease is a bilateral When the work is of such a nature that the portion which the
one and should its resolution be sought it cannot be decided by one lessee and his family need for their dwelling becomes
party alone. A judicial action is necessary. uninhabitable, he may rescind the contract if the main purpose of
the lease is to provide a dwelling place for the lessee. (1558a)
ARTICLE 1191 and ARTICLE 1659 COMPARED
URGENT REPAIRS
ARTICLE 1191 ARTICLE 1659
Courts have the discretion to No such discretion is granted to A lessor cannot do anything which may disturb the lessee in the
refuse the resolution or the courts enjoyment of the thing leased. But he cannot be obliged to leave the
rescission of contracts in their thing to perish for lack of repairs during the term of the lease. So
judgment the circumstances of when urgent repairs are required, the lesssee will have to bear the
the case warrant the fixing of a inconvenience they may cause. The lessor has the burden of proving
term within which the obligor the urgency of the repair; if they are not really urgent, he will be
may fulfill or perform his liable for damages suffered by the lessor.
overdue obligation
NOTE: Modifications or improvements which the lessor may want to
RECOVERY OF DAMAGES make on the thing prior to the expiration of the lease, so as to insure
another lease, cannot be considered as urgent repairs.
An action which has for its object the recovery of damages is quite
different from an action for ejectment, which has for its purpose the REMEDIES OF LESSEE
recovery of the possession of the leased property. A breach of rental
contract entitles the other party to demand imdemnity for damages. If the repairs last more than 40 days, the lessee can ask for a
But an action for damages against an occupant of buildings, who proportionate reduction of rents. If the portion used by the lessee
unlawfully detains the same, will not lie in favor of a lessee of said becomes uninhabitable, even for a short time, he can ask for
buildings who has never entered into possession under his lease, rescission of the contract; but he cannot ask for the reduction of
because there is no privity between the parties. rents in this case if the repairs do not last more than 40 days.

ENFORCEMENT OF LEASE If the repars do not last for more than 40 days, and they do not make
the portion used by the lessee as adwelling uninhabitable, he has no
Where the lessor resumes possession of his leased property for its right at all to rescission, reduction of rents, or damages.
protection after the lessee has abandoned the same, the lessor has
still the right, if he elects, to hold the lessee responsible under his Article 1663. The lessee is obliged to bring to the knowledge of the
contract until the termination of the lease. proprietor, within the shortest possible time, every usurpation or
untoward act which any third person may have committed or may
Article 1660. If a dwelling place or any other building intended for be openly preparing to carry out upon the thing leased.
human habitation is in such a condition that its use brings
imminent and serious danger to life or health, the lessee may He is also obliged to advise the owner, with the same urgency, of
terminate the lease at once by notifying the lessor, even if at the the need of all repairs included in No. 2 of article 1654.
time the contract was perfected the former knew of the dangerous
condition or waived the right to rescind the lease on account of this In both cases the lessee shall be liable for the damages which,
condition. (n) through his negligence, may be suffered by the proprietor.

Article 1661. The lessor cannot alter the form of the thing leased in If the lessor fails to make urgent repairs, the lessee, in order to
such a way as to impair the use to which the thing is devoted under avoid an imminent danger, may order the repairs at the lessor's
the terms of the lease. (1557a) cost. (1559a)
NOTES ON PARTNERSHIP AGENCY, TRUSTS, LEASE AND PRESCRIPTION
Kenneth and King C. Hizon _________________________________________________________________________________________________________________

USURPATION OR UNTOWARD ACT; PURPOSE OF NOTICE Disturbance in Fact vs. Disturbance in Law

The purpose of requiring the lessee to bring to the knowledge of the DISTURBANCE IN FACT DISTURBANCE IN LAW
owner of the property leased every usurpation and untoward act Takes place when the enjoyment Takes place when by jurdicial or
which any third person may have committed or may be openly of the lease is physically reduced extra-judicial acts of third
preparing to carry out upon the thing leased, is to enable the owner or impeded, the intruder not person questions the right of the
to maintain his civil possession, by suit if necessary. claiming any right to the thing or lessee to enjoy the property or
to its enjoyment. the lease, and claims it for
RIGHT OF OWNER-LESSOR: Upon ouster of the tenant the owner himself by virtue of a right
may commence summary proceedings to recover possession. And pertaining to him.
summary possessory action will lie against him who disturbs another The lessor is not liable to the The lessor is liable to the lessee
in his possession whether acting in his own behalf or under direction lessee, who has a direct action for the disturbance in the
of another. against the intruder latters possession

The owner is entitled to defend his property from any aggression in Article 1665. The lessee shall return the thing leased, upon the
order to prevent serious injury to his interests, which would happen termination of the lease, as he received it, save what has been lost
if this was left to the tenant who has no interests and has no real or impaired by the lapse of time, or by ordinary wear and tear, or
right in the property leased. from an inevitable cause. (1561a)

NOTICE OF NEED OF REPAIRS: As during the peiod of the lease, the NOTE: At the expiration of the lease, the lessee is obliged to vacate
lessee maintains a relation more direct and proximate to the thing and return the premises leasedthe whole of the thing subject of
leased, he has the obligation to notify the lessor of the necessity of thr lease and not only a part thereofto the lessor, the owner of the
making the repairs for he cannot allege that he does not know them. land has the right to cause the building erected on his estate to be
It is not the duty of the lessor to constantly inspect the premises to taken down without incurring any obligation to return the estate in
see if there are repairs to be made. the same condition in which he received it, unless an agreement was
executed prior to the construction of the building.
The lessee, however, is not entitled to reimbursement for the costs
of repairs and improvements undertaken by him on the leased NOTE: The expenses incurred by the lessee in placing the thing at
premises without the lessors knowledge and consent, which was the disposal of the lessor, cannot be charged against the lessor,
required in their lease contract, which also stipulated that, even because it is his obligation to return the subject matter of the lease.
when the lessor had previously comsented thereto, they shall be for
the sole account of the tenant.
HOW RETURN MADE: This article does not, and no other legal
provision does, specify the manner in which the possession of leased
OWNER FAILS TO MAKE REPAIRS property should be returned. By its very nature, the relinquishment
of possession need no be accomplished by physical delivery or any
The remedy of tenants where lessor refuses to make an urgent other prescribed form.
repair of the leased premises is not to suspend rental payments but
to make the urgent repair themselves and charge the costs thereof In order to return the thing leased to the lessor, however, it is not
to lessor. enough that the lessee vacates it. It is necessary that he place the
thing at the disposal of the lessor, so that the latter can receive it
Article 1664. The lessor is not obliged to answer for a mere act of without any obstacle. He must return the keys and leave no sub-
trespass which a third person may cause on the use of the thing lessees or other persons in the property; otherwise, he shall
leased; but the lessee shall have a direct action against the continue to be liable for the payment of rents.
intruder.
EFFECT OF LESSORS LENIENCY: The owner may allow a defaulting
There is a mere act of trespass when the third person claims no tenant to remain in the rented property onee month, one year or
right whatever. (1560a) even more, and that consent, no matter how long it may last, makes
the tenants possession lawful.
TRESASS IN FACT
Article 1666. In the absence of a statement concerning the
If the act of trespass is not accompanied or preceded by anything condition of the thing at the time the lease was constituted, the
which reveals a really juridic intention on the part of the trespasser, law presumes that the lessee received it in good condition, unless
in such wise that the lessee can only distinguish the material fact, there is proof to the contrary. (1562)
stripped of all legal form or reason, the trespass is in fact only (de
mero hecho). The lessor is not liable for trespass of this kind, PRESUMPTION: In the absence of proof that when the lessees
although he is liable for trespasses in law (de derecho), pursuant to accepted the building leased, the same was uninhabited and
par. 3 of Art. 1654. Trespass in fact affects only the use of the inadequate for the use for which it was leased, the legal
property leased, and therefore, it is incumbent upon the lessee to presumption that the lessee received the thing leased in good
repel it. condition applies.

Article 1667. The lessee is responsible for the deterioration or loss


of the thing leased, unless he proves that it took place without his
NOTES ON PARTNERSHIP AGENCY, TRUSTS, LEASE AND PRESCRIPTION
Kenneth and King C. Hizon _________________________________________________________________________________________________________________
fault. This burden of proof on the lessee does not apply when the Continued possession of the premises by the lessee after the
destruction is due to earthquake, flood, storm or other natural expiration of the period of the lease, creates an implied new lease,
calamity. (1563a) the period of which is established nu Art. 1687 of the NCC.

DESTRUCTION OF PROPERTY: When leased property is destroyed by TERMINATION OF THE LEASE


fire, there arises a presumption against the lessee, which makes him
responsible to the owner for the resulting damages, in the absence The lease may terminate:
of proof that the loss happened without the lessees fault. By the expiration of the period
By the total loss of the thing
NOTE: Under the contractual stipulation whereby the lessee By the resolution of the right of the lessor, such as when the
undertakes to make the necessary repairs on the building leased, lessor is a usufructuary and the usufruct is terminated
failure by the lessee to make the repairs which causes the By the will of the purchaser or transferee of the thing
destruction of the building renders him liable to the lessor. By rescission due to non-performance of the obligation of one
of the parties
Article 1668. The lessee is liable for any deterioration caused by
members of his household and by guests and visitors. (1564a) NOTE: An agreement of the parties that either of them may
terminate tge lease on a 30-dat notice is valid. When the agreement
rd between the lessor and the lessee is that the lease is only temporary
BASIS OF LIABILITY: The liability of the lessee for the acts of 3
persons is based on the contract itself, under which the lessee has may be terminated when the former needs it for his business or
assumed the custody of the thing of which the lessor has been when his children need the same, the lease is terminated when the
dispossessed. There is no need of proving that he was negligent in condition happens and the lessee is notified accordingly.
selecting and supervising his household helpers, visitors and guests.
He is liable from the mere fact of having allowed them into the Article 1670. If at the end of the contract the lessee should
immovable leased. continue enjoying the thing leased for fifteen days with the
acquiescence of the lessor, and unless a notice to the contrary by
Article 1669. If the lease was made for a determinate time, it either party has previously been given, it is understood that there
ceases upon the day fixed, without the need of a demand. (1565) is an implied new lease, not for the period of the original contract,
but for the time established in articles 1682 and 1687. The other
LEASE FOR DEFINITE PERIOD terms of the original contract shall be revived. (1566a)

Where the lease is for a definite period, the tenancy expires with the NOTE: The 15-day clause of this article is not applicable to successive
term and no notice to quite is necessary. Upon the expiration of the renewals under Art. 1687. Thus, the lease of a dwelling house at a
term, the tenant thenceforth becomes a deforciant withholding the monthly rentak terminable upon 30 days written notice terminates
property unlawfully. at the expiration of thirty days from receipt of such notice, whether
or not such termination coincides, with a day on which rent is
NOTE: The court is completely devoid of authority to extend the payable.
lease after the period stipulated has expired.
TACIT RENEWAL
INCREASE OF RENT: At the end of the period of the lease, the
landlord has the right to increase the rent, and the tenant has the DURATION: When the tenant, with the acquiesence of the landlord,
option to pay the new rent or to vacate the premises in order to holds over after the expiration of the term the tacit renewal of the
avoid paying the higher rent. If he agrees to pay the new rent, he lease is not for the same term of that of the original contract but for
cannot be ejected until he defaults in said obligation. the periods established by Arts. 1682-1687, according to the
character of the property and the periods of payment of the rent.
EXTENSION: When a contract contains a provision that the term of However, there can be no renewal, if the lessor, before the
the lease may be extended for a further similar period, the extension expiration of the term, gives the lease a notice to vacate.
is to be understood as having been promised to the lessee, and the
latter, without need of further consent of the lessor, (unless he NOTE: Implied new lease revives only those terms of the original
breaks the terms of the contract), can continue the lease and occupy contract germane to the lesses right of enjoyment of possession of
the premises on notice to the lessor. leased premises. Special agreements foreign to right of occupancy
are excluded.
A stipulation that the lease is extendible for 6 years agreed upon by
both parties gives to the lessee the right to take additional period Article 1671. If the lessee continues enjoying the thing after the
or to quit upon the expiration of the term. In construing provisions expiration of the contract, over the lessor's objection, the former
of this character the tenant is favored, in case of uncertainty in the shall be subject to the responsibilities of a possessor in bad faith.
term of the lease, and not the landlord. Stipulatioons for the (n)
extension of the period of lease at the exclusive option of the lessee,
are valid. Article 1672. In case of an implied new lease, the obligations
contracted by a third person for the security of the principal
A covenant to renew a lease which makes no provision as to the contract shall cease with respect to the new lease. (1567)
terms of the renewal or extension implies an extension or renewal
upon the same terms as provided in the original lease contract. Article 1673. The lessor may judicially eject the lessee for any of
the following causes:
NOTES ON PARTNERSHIP AGENCY, TRUSTS, LEASE AND PRESCRIPTION
Kenneth and King C. Hizon _________________________________________________________________________________________________________________
action, upon failure of the lessee to comply with the terms and
When the period agreed upon, or that which is fixed for the conditions of the contract, is valid and binding.
duration of leases under articles 1682 and 1687, has expired;
Article 1674. In ejectment cases where an appeal is taken the
Lack of payment of the price stipulated; remedy granted in article 539, second paragraph, shall also apply, if
the higher court is satisfied that the lessee's appeal is frivolous or
Violation of any of the conditions agreed upon in the contract; dilatory, or that the lessor's appeal is prima facie meritorious. The
period of ten days referred to in said article shall be counted from
When the lessee devotes the thing leased to any use or service not the time the appeal is perfected. (n)
stipulated which causes the deterioration thereof; or if he does not
observe the requirement in No. 2 of article 1657, as regards the use SCOPE OF THE ARTICLE: The present article applies not only to the
thereof. lease of lands, but also to the buildings standing thereon, on the
principle that the accessory follows the principal.
The ejectment of tenants of agricultural lands is governed by
special laws. (1569a) Prior physical possession by the plaintiff of the property in litigation
in an unlawful detainer case is not indispensable for the issuance of
TERMINATION OF PERIOD: Upon the termination of the period of the writ of preliminary mandatory injunctionn where said plaintiff is
lease, the lessor is entitled to recover possession and dispose of the the vendee of the property. For the purpose of this article, it is
leased property to another lessee. enough that the plaintiff is the owner of the land and the defendant
is in temporary occupancy thereof whether under a lease contract,
INCREASE OF RENT: Where after the notice of increased rental, the or on mere tolerance or under a temporary permit. This article is
lessee elects to stay, he thereby merely assumes the obligation of applicable where after the termination of the lease contract, or the
paying the new rental, and could not be ejected until he defaults in revocation of the permit, the lessee or occupant unlawflly prolongs
said obligation. his occupation of the premises.

A lessor has the right to increase the rent from and after the HIGHER COURT- The issuance of the writ of preliminary mandatpry
expiration of the period of lease; and if the tenant thereafter injunction as authorized by the present article, in an ejectment case,
remains in possession without agreeing to the increase, he is bound is expressly vested in the appellate court, because the law employs
to pay the reasonable value of the use and occupation. the phrase higher court and it is the higher court with must satisffy
itself that the appeal is either frivolous or dilatory, in the case of the
REASONABLENESS OF RENT: It was held that the determination of lessee, or prima facie meritorious, in the case of the lessor.
what is to be paid for leasing municipal property lies within the
power and discretion of the city or municipal board, and unless the PERIOD OF 1O DAYS: The period of 10 days within which to file a
ordinance passed by the board on the matter is ultra vires or clearly petition for a writ of preliminary mandatory injunction should be
unreasonable, courts should not interfere with it. counted from the date when the petitioning party is notified of the
perfection of the appeal.
NON-PAYMENT OF RENT
Article 1675. Except in cases stated in article 1673, the lessee shall
Mere failure to pay rents, or a breach of contract to pay rents, does have a right to make use of the periods established in articles 1682
not render the possession of the lessee per se unlawful. It is not the and 1687. (1570)
failure of the lessee to pay rents as agreed upon in a contract, but
the failure of the lessee to pay rents after a demand therefor that Article 1676. The purchaser of a piece of land which is under a
entitles the lessor to bring an action of unlawful detainer. lease that is not recorded in the Registry of Property may terminate
the lease, save when there is a stipulation to the contrary in the
Failure or refusal of the lessor to receive the rent is not a valid contract of sale, or when the purchaser knows of the existence of
defense in ejectment cases; in such instances the debtor-lessee must the lease.
consign the amount due from him.
If the buyer makes use of this right, the lessee may demand that he
VIOLATION OF CONTRACT: The landlord has the right to terminate a be allowed to gather the fruits of the harvest which corresponds to
contract of lease under Art. 1673 of the NCC par. 3 which provides the current agricultural year and that the vendor indemnify him for
that the lessor may judicially eject the lessee for violaiton of any of damages suffered.
the conditions agreed upon in the contract.
If the sale is fictitious, for the purpose of extinguishing the lease,
The lessorsare not in law required to bring first an action for the supposed vendee cannot make use of the right granted in the
rescission, but could ask the court to do so and simultaneously seek first paragraph of this article. The sale is presumed to be fictitious if
the ejection of the lessee in a single action for illegal detainer. at the time the supposed vendee demands the termination of the
Definite or indefinite, the lessor has the right to terminate the lease, the sale is not recorded in the Registry of Property. (1571a)
contract of lease upon violation of its terms and conditions.
SCOPE OF THIS ARTICLE: Although this article makes express
EXTRAJUDICIAL REMEDY reference only to sales, its intent and reason justify its application to
any other form of alienation.
A stipulation in a lease contract authorizing the lessor to take
possession of the leased premises, without resorting to judicial
NOTES ON PARTNERSHIP AGENCY, TRUSTS, LEASE AND PRESCRIPTION
Kenneth and King C. Hizon _________________________________________________________________________________________________________________
the lessee, reserving to the lessee only the right to gather the fruits
SALE OF LEASED PROPERTY; RIGHT OF VENDEE: A contract of lease of the crop corresponding to the current agricultural year. The
of real property exeucted by the vendor, unless recorderd, ceases to lessee, however, may recover his damages from the vendor, his
have effect when the property is sold, in the absence of contrary lessor.
agreement. The purchaser of said property is not bound by an
unrecorded lease thereof which is not mentioned in the deed of The right granted to a lessee to gather the fruits of the crop
conveyance. The new owner may terminate both the lease and any corresponding to the current agricultuaral year, does not extend to
subleases made by the lessee. the gathering of fishers which require 2 years before they are of any
commercial value.
NOTE: The act of the new owner of giving notice of an increase of
rent, when the original period has expired, constitutes a notice of Article 1677. The purchaser in a sale with the right of redemption
termination of the original lease. cannot make use of the power to eject the lessee until the end of
the period for the redemption. (1572)
Upon purchase of the leased property, the lessee must pay to the
new owner, and if after due notice from the latter, he pays to the SCOPE AND LIMITATION: The provision of this article is not
former owner may still recover the amount of rent from him. applicable to a case where the vendor, on disposing of real property
under the right of repurchase, continues nevertheless in possession
APPLICATION OF THIS ARTICLE: The provisions of the present article thereof by virtue of a special agreement, not as owner, but as tenant
apply only to the leases for a fixed term, and not to those from of the purchaser by the payment of rent. The limitation contained in
month to month. Where the lease is on month to month basis, and said article refers to the tenant or lessee who has contracted with
the purchaser seeks to recover from the lease the property which the vendor and who has had no relation whatever with the
said lessee has leased from the vendor, the purchasers right is not purchaser under an agreement of redemption; such tenant is a third
based onn the present article, but on his right as the owner or person with respect to said vendor and purchaser, because, if the
vendee to recover possession from a tenant holding-over after the vendor should by redemption recover property, the lessee would
termination of the right to hold possession. again be entitled to the enjoyment of the lease; wherefore, the
limitation of the puchasers right is proper and just.
WHEN AVAILED OF: No special period for its exercise. It may be
asserted at any time before the action prescribes. But when a new VENODR AS LESSEE: But where the vendor remains in possession as
relation is created between the vendee and the lesee, thus, a tenant, and he fails to pay the agreed rent, he may be evicted by
excluding that which existed between the vendor and the lessee,the the vendee even before the period of redemption has expired. After
vendee cannot avail himself of the right granted by this article. the title has been consolidated in the vendee, the vendor-lessee may
also be ejected for breach of the lease agreement.
EFFECT OF ACTUAL NOTICE: A purchaser of land who has full
knowledge of the fact that the land has been leased to a third person Article 1678. If the lessee makes, in good faith, useful
and is informef of the terms of such lease at the time of the improvements which are suitable to the use for which the lease is
purchase, is bound to respect said lease, allthough it is not tendered intended, without altering the form or substance of the property
upon the certificate of title. The lease in effect become part of the leased, the lessor upon the termination of the lease shall pay the
contract of sale. lessee one-half of the value of the improvements at that time.
Should the lessor refuse to reimburse said amount, the lessee may
But where land registered in the name of the landlord is subject to remove the improvements, even though the principal thing may
an existing lease not recorded on the title, and the terms of the lease suffer damage thereby. He shall not, however, cause any more
are not known to a person dealing subsequently with the property, impairment upon the property leased than is necessary.
but who was informed that the lease was to terminate at a certain
time, it was held that the latters knowledge that a lessee was in With regard to ornamental expenses, the lessee shall not be
possession of the land was not sufficient to charge him with notice entitled to any reimbursement, but he may remove the ornamental
of the duration of the lease, which was longer than the period made objects, provided no damage is caused to the principal thing, and
known to him, for he had a right to rely on the certificate of title and the lessor does not choose to retain them by paying their value at
was not bound to make further inquiries. the time the lease is extinguished. (n)

PURCHASER IN FORECLOSURE: When an immovable is mortgaged, Article 1679. If nothing has been stipulated concerning the place
the puchaser thereof in foreclosure proceedings is not bound to and the time for the payment of the lease, the provisions or article
respect a lease which was recorded subsequent to yje registration of 1251 shall be observed as regards the place; and with respect to
the mortgage. the time, the custom of the place shall be followed. (1574)

RARTIFICATION: The termination of the existing lease is optional to PLACE OF PAYMENT OF RENT: The rent should be paid in the place
the vendee; if he does not make use of his right, the lease continues designated in the obligation. In the absence of an agreement
in force. The vendee may be barred from terminating the lease when between the parties as to the place of the payment, the rent is
he expressly accepts or ratifies it, or when he tacitly renounces his payable at the domicile of the lessees. And where the failure of the
right to terminate it by the collection of rents under the lease lessee to pay rent is attributable to the lessors omission or neglect
contract or by other similar acts. to collect at his domicile, the same cannot be a ground for their
ejectment.
RIGHT OF THE LESSEE TO GATHER FRUITS; RECOVER DAMAGES: The
law grants the purchaser of a leased estate the right to terminate
NOTES ON PARTNERSHIP AGENCY, TRUSTS, LEASE AND PRESCRIPTION
Kenneth and King C. Hizon _________________________________________________________________________________________________________________

SECTION 3 Article 1683. The outgoing lessee shall allow the incoming lessee or
Special Provisions for Leases of Rural Lands the lessor the use of the premises and other means necessary for
the preparatory labor for the following year; and, reciprocally, the
Article 1680. The lessee shall have no right to a reduction of the incoming lessee or the lessor is under obligation to permit the
rent on account of the sterility of the land leased, or by reason of outgoing lessee to do whatever may be necessary for the gathering
the loss of fruits due to ordinary fortuitous events; but he shall or harvesting and utilization of the fruits, all in accordance with the
have such right in case of the loss of more than one-half of the custom of the place. (1578a)
fruits through extraordinary and unforeseen fortuitous events, save
always when there is a specific stipulation to the contrary. OWNERSHIP OF FRUITS: This article does not determine the
ownership of the fruits existing on the tenement at the termination
Extraordinary fortuitous events are understood to be: fire, war, of the lease. It only requires the incoming lessee or lessor to permit
pestilence, unusual flood, locusts, earthquake, or others which are the outgoing lessee to do whatever is necessary for the gathering or
uncommon, and which the contracting parties could not have harvesting and enjoyment of the fruits in accordance with the
reasonably foreseen. (1575) customs of the place; this refers to the fruits which under the other
provisiobs pertain to the lessee.
RIGHT TO REDUCTION
Article 1684. Land tenancy on shares shall be governed by special
Requisites: laws, the stipulations of the parties, the provisions on partnership
and by the customs of the place. (1579a)
The land leased must be of rural character
More than of the fruits must have been lost REQUISITES OF TENANCY SHARES:
The loss must have occurred through extraordinary and
unforseen fortuitous event; and The parties are the landowner and the tenant
There must be no stipulation against the application of the The subject is agricultural land
article There is consent
The purpose is agricultural production
FORTUITOUS EVENT: Depradation of strangers is a fortuitous event There is personal cultivation
which constitutes a justification for the reduction of rental due from There is sharing of harvests
the lessee. The violence of robbers though not independent of
human will; and war, although dependent upon the will of the AGRICULTURAL LAND- a fishpond is also an agricultural land. Where
combatants; is caso fortuito. So is the will of a third person who the land is officially classified and assessed as residential, it cannot
prevents performance of the obligation. be considered agricultural. Where the land is within the poblacion,
the presumption is that is residential.
NOTE: Typhoons are not extra-ordinary fortuitous event events,
under the present article, because in the Philippines, it cannot be Article 1685. The tenant on shares cannot be ejected except in
said that they are uncommin and not be reasonably foreseen by the cases specified by law. (n)
contracting parties.
SECTION 4
PERCENTAGE OF REDUCTION: The rent stipulated should be reduced Special Provisions for the Lease of Urban Lands
in the same ration that the actual receipts are to the normal income
obtainable from the leased tenement. Article 1686. In default of a special stipulation, the custom of the
place shall be observed with regard to the kind of repairs on urban
XPN: Where by the terms of the contract of lease, the rent is fixed at property for which the lessor shall be liable. In case of doubt it is
an aliquot part of the crops, the tenant cannot demand a reduction understood that the repairs are chargeable against him. (1580a)
on account of loss of more than of the crop by fortuitous events,
and the failure to deliver the stipulated proportion of the crop Article 1687. If the period for the lease has not been fixed, it is
gathered entitles the landlord to evict the tenant. understood to be from year to year, if the rent agreed upon is
annual; from month to month, if it is monthly; from week to week,
Article 1681. Neither does the lessee have any right to a reduction if the rent is weekly; and from day to day, if the rent is to be paid
of the rent if the fruits are lost after they have been separated from daily. However, even though a monthly rent is paid, and no period
their stalk, root or trunk. (1576) for the lease has been set, the courts may fix a longer term for the
lease after the lessee has occupied the premises for over one year.
Article 1682. The lease of a piece of rural land, when its duration If the rent is weekly, the courts may likewise determine a longer
has not been fixed, is understood to have been for all the time period after the lessee has been in possession for over six months.
necessary for the gathering of the fruits which the whole estate In case of daily rent, the courts may also fix a longer period after
leased may yield in one year, or which it may yield once, although the lessee has stayed in the place for over one month. (1581a)
two or more years have to elapse for the purpose. (1577a)
APPLICATION: This article refers to a lessee, i.e, one who has a
EFFECT OF IMPROVEMENTS MADE: The duration of a lease depends contract of lease with the owner. It does not contemplate sublessees
upon the stipulation in the contract of rental and cannot be affected having no contractual relations with such owner, much less a mere
by the more or less valuable improvements voluntarily made by the occupant.
lessee upon the property.
NOTES ON PARTNERSHIP AGENCY, TRUSTS, LEASE AND PRESCRIPTION
Kenneth and King C. Hizon _________________________________________________________________________________________________________________
A tenancy from day to day, month to month, or year to year under Article 1688. When the lessor of a house, or part thereof, used as a
this article may arise in either of 2 ways: dwelling for a family, or when the lessor of a store, or industrial
establishment, also leases the furniture, the lease of the latter shall
If the parties say nothing in the contract of lease as to its be deemed to be for the duration of the lease of the premises.
duration and make no provision for its termination upon (1582)
notice, the duration is determined by the agreement as to
the period at which the rent is payable. If the tenant is
permitted to commence a new period, there is a tacit
renewal of the lease for a like term REFERENCE:
If at the expiration of a lease for a definite period, the tenant is
permitted to hold over for 15 days, i.e., if by the terms of TOLENTINO, ARTURO M., Commentaries and Jurisprudence on the Civil
the lease the period of its duration was 5 years, for Code of the Philippines, Vol. V., Central Book Publishing, Co., Inc.
1991
instance, and a monthly, quarterly, or yearly rental was
reserved, and upon its expiration the tenant, with the
acquiescence of the landlord, holds over for 15 days, this
does not bring about a tacit renewal of the lease for
another term of 5 years, but creates a tenancy, from
month to month, quarter to quarter, or from year to year,
as the case may be, governed thereafter, as to duration
and renewal by this article.

DURATION OF LEASE: Where the lease is for a definite period the


tenancy expires with the term and no notice to quit is necessary. But
when there is no agreement as to the duration of the lease and rent
is paid monthly, it is understood that it shall terminate without
necessity of special notice, upon the expiration of the term, even if
there has been no violation of the contract, unless prior thereto, the
extension of said term has been sought by appropriate action, and
judgment, is eventually granted therein granting relief.

A verbal contract of lease, however, without a definite period fixed,


wherein the lessees have agreed to pay monthly rentals, should be
considered as one existing from month to month, and beingh
renewed by tacit approval of the parties, until the lessor signified his
intention to terminate the lease.

FIXING LONGER PERIOD: The court may fix a longer term for such
the lease after the leasen has been in occupation of the premises for
a certain time. The action in this respect is not in accordance with
Art. 1197, but in accordance with the present article. This court
merely gives the court discretion to extend the period of the lease.

The discretionary power of the court to fix the duration of the


contract contemplates of a situation where neither of the parties
being at fault, the lessor decided to terminate the contract of lease.

DURATION LEFT TO THE LESSEE: The present article fixing the legal
terms for leases in which no conventional term is stipulated, has no
application to a lease whose termination is expressly left to the will
of the lessee.

NOTE: Art. 1197 is not applicable, however, where the duration of


the lease is left to the will of the lessor, because in a lease, the lessor
is the creditor and the lessee the debtor.

A stipulatioon authorizing the lessees to continue occupying the


leased premises indefinitely as long as they should faithfully fulfill
the obligation with respect to the payment of rentals, has been held
invalid, since that would have leave to the sole and exclusive will of
one of the contracting parties, the validity and fulfillment of the
contract, within the meaning of Art. 1308.
NOTES ON PARTNERSHIP AGENCY, TRUSTS, LEASE AND PRESCRIPTION
Kenneth and King C. Hizon _________________________________________________________________________________________________________________
PRESCRIPTION AS A MATTER OF DEFENSE: It must be explicitly
TITLE V relied upon in the pleadings. It cannot be availed of unless it is
PRESCRIPTION specially pleaded in the answer; and it must be proved or
established with the same degree of certainty as any essential
CHAPTER 1 obligation in the civil action.
General Provisions
Article 1107. Persons who are capable of acquiring property or
Prescription is generally used with reference to acquisition of a right rights by the other legal modes may acquire the same by means of
by the lapse of time. On the other hand, the word limitation as prescription.
applied to actions under the common law, has reference to the time
within which an action must be brought after the right of action has Minors and other incapacitated persons may acquire property or
accrued. rights by prescription, either personally or through their parents,
guardians or legal representatives. (1931a)
2 KINDS OF PRESCRIPTIONS:
CAPACITY FOR PRESCRIPTION
The acquisition of a right by the lapse of time, known as
acquisitive prescription or adverse possession and GR: Capacity to acquire property or rights by other legal modes is
usucapcion required for prescription.
The loss of a right of action by the lapse of time known as
extinctive prescription or limitation of actions. XPN: Minors and other incapacitated persons may also, under
certain circumstances, acquire by prescription. For them to acquire
Article 1106. By prescription, one acquires ownership and other by prescription, it is necessary that they must have discernment,
real rights through the lapse of time in the manner and under the because the intent to appropriate the thing as ones own is an
conditions laid down by law. essential element of the possession. When discernment is wanting,
they can acquire by prescription only throug their legal
In the same way, rights and conditions are lost by prescription. representatives.
(1930a)
When the prescription requires just title, the capacity to prescribe
BASIS OF PRESCRIPTION: By abandonment, negligence or will be the same capacity required for the particular title in question.
carelessness, owners provided with the most perfect title may be
deprived and dispossessed of their properties by usurpers who, by Article 1108. Prescription, both acquisitive and extinctive, runs
lapse of time specified by law, acquire the same by prescription. against:

ACQUISITIVE PRESCRIPTION EXTINCTIVE PRESCRIPTION Minors and other incapacitated persons who have parents,
Acquisitive prescription is based Based on the probability, born of guardians or other legal representatives;
on the assertion by a usurper of experience, that the alleged
an adverse right for such a long right which accrued in the Absentees who have administrators, either appointed by them
time, uncontested by the true distant past never existed or has before their disappearance, or appointed by the courts;
owner of the right, as to give the already been extinguished; or if
presumption that the latter has it exists, the inconvenience Persons living abroad, who have managers or administrators;
given up such right in favor of caused by the lapse of time
the former. should be borne by the party Juridical persons, except the State and its subdivisions.
negligent in the assertion of his
right. Persons who are disqualified from administering their property
Based on negligence or presumed abandonment by the owner of a have a right to claim damages from their legal representatives
right, whether patrimonial or remedial whose negligence has been the cause of prescription. (1932a)

EFFECT OF ACQUISITIVE PRESCRIPTION Article 1109. Prescription does not run between husband and wife,
even though there be a separation of property agreed upon in the
marriage settlements or by judicial decree.
Our law considers an obligation barred by extinctive prescription as a
natural one, and the same consideration can be given to the duty to
return the thing to its true owner after its has been acquired by Neither does prescription run between parents and children,
prescription. during the minority or insanity of the latter, and between guardian
and ward during the continuance of the guardianship. (n)
Whatever is paid or delivered due to the promptings of conscience
cannot be recovered. BETWEEN HUSBAND AND WIFE

RETROACTIVITY OF PRESCRIPTION: The acquisition of ownership or The law does not permit prescription to run between the spouses
during the marriage, because reasons of influence or affection may
other real rights through the prescription is retroactive; once the
often prevent one from bringing an action against the other. These
period is completed, the new owner is considered as having acquired
reasons exist even if there is a separation of property between them.
the thing or right from the moment the period began to run.
NOTES ON PARTNERSHIP AGENCY, TRUSTS, LEASE AND PRESCRIPTION
Kenneth and King C. Hizon _________________________________________________________________________________________________________________
Article 1110. Prescription, acquisitive and extinctive, runs in favor the State or any of its subdivisions not patrimonial in character
of, or against a married woman. (n) shall not be the object of prescription. (1936a)

Article 1111. Prescription obtained by a co-proprietor or a co- OBJECT OF PRESCRIPTION: Under Art. 530, only things susceptible of
owner shall benefit the others. (1933) being appropriated may be the object of possession. Since
possession is an essential element of prescription, it follows that
NEED FOR RATIFICATION: In the language used by the article, it things which are not susceptible of appropriation cannot be acquired
seems ratification is not necessary. This article will apply only when by prescription. Thus, common things, property of public dominion,
the prescription has a relation to the property owned in common. and the intransmissible rights, cannot be acquired by prescription.

For instance, if 3 persons own in common a parcel of land with an XPNS TO THE RULE: The following cannot be acquired by
area of 100 hectares, and the co-owner who is managing the land prescription:
occupies more than the area owned, then the excess may be
acquired by prescription for all, because there is no doubt that the Movables possessed through a crime
assertion of ownership over such excess is but an extention of the Lands registered under the Torrens System
co-ownership ober 100 hectares really owned by the 3 co-owners.
The co-owner in adverse possession clearly possesses in NOTE: Under Art. 1108, prescription does not run against the State
representation of the co-ownership. and its subdivisions. There is inconsistency between Art. 1108 and
the present article, as to prescription against the State and its
In order that he may acquire possession for the other co-owners, subdivisions. While under the present article, patrimonial property
they must ratify his act, pursuant to Art. 532. And because may be the object of prescription, under Art. 1108, prescription does
possession must be in the concept of an owner in order to ripen into not run against the State and its subdivisions (irrespective of the kind
ownership by prescription, it seems juridically incompatible wthat of property).
co-owners who do not ratify and may not even know the possessory
acts of another co-owner, should be considered also in possession in The intent of the law is to exclude patrimonial patrimony from the
the concept of owner. operation of acquisitive prescription, it is likewise clear that the
congress intended that only property not patrimonial in character
Article 1112. Persons with capacity to alienate property may should be free from prescription. Patrimonial property can be
renounce prescription already obtained, but not the right to acquired by prescription against the State or any of its subdivisions.
prescribe in the future.
Article 1114. Creditors and all other persons interested in making
Prescription is deemed to have been tacitly renounced when the the prescription effective may avail themselves thereof
renunciation results from acts which imply the abandonment of notwithstanding the express or tacit renunciation by the debtor or
the right acquired. (1935) proprietor. (1937)

RENUNCIATION IS UNILATERAL: Renunciation of prescription already CREDITORS MAY PLEAD PRESCRIPTION: A current creditor of a
acquired is a unilateral act, and does not require the acceptance of corporation may interpose the plea of prescription to prevent the
the person to be benefited by it. No formality is required for it; it corporation from payig prescribed debts ahead of the current
may even be tacit. creditor.

TACIT RENUNCIATION: Where a party acknowledges the correctness NOTE: But prescription pleaded by one creditor does not inure to
of a debt and promises to pay it after the same has prescribed and the benefit of another creditor.
with full knowledge and with full knowledge of the prescription, he
waives the benetif of prescription. Article 1115. The provisions of the present Title are understood to
be without prejudice to what in this Code or in special laws is
NOTE: A simple acknowledgment, which contains no new and established with respect to specific cases of prescription. (1938)
positive promise to pay the debt which has prescribed, such as a
promise to pay only , or even a part of payment, does not amount Article 1116. Prescription already running before the effectivity of
to a renunciation of the prescription. this Code shall be governed by laws previously in force; but if since
the time this Code took effect the entire period herein required for
RENUNCIATION VOID: A renunciation of prescription in advance is prescription should elapse, the present Code shall be applicable,
void. Thus, no renunciation can be made, at the time of entering into even though by the former laws a longer period might be required.
contract, of the right of pleading a prescription which may thereafter (1939)
be acquired.

RENUNCIATION BY REPRESENTATIVES: Only persons with capacity to


alienate property can renounce prescription already obtained. CHAPTER 2
Hence, an administrator or executor is without the power to Prescription of Ownership and Other Real Rights
renounce or waive prescription after it has been acquired in favor of
the estate he represents.
Article 1117. Acquisitive prescription of dominion and other real
rights may be ordinary or extraordinary.
Article 1113. All things which are within the commerce of men are
susceptible of prescription, unless otherwise provided. Property of
NOTES ON PARTNERSHIP AGENCY, TRUSTS, LEASE AND PRESCRIPTION
Kenneth and King C. Hizon _________________________________________________________________________________________________________________
Ordinary acquisitive prescription requires possession of things in former.
good faith and with just title for the time fixed by law. (1940a) In both cases, the possessor acts in recognition of the rights of the
owner.
REQUISITES OF ACQUISITIVE PRESCRIPTION:
NOTE: From the moment the possessor disgards the owner and
Capacity to acquire by prescription exercise rights in opposition to that of the latter, the possession is
A thing capable of acquisition by prescription converted into one in concept of owner and can be the basis of
Possession of the thing under certain conditions prescription.
Lapse of time provided by law
WHEN POSSESSION CONSIDERED PUBLIC: Public means the acts of
REQUISITES OF ORDINARY PRESCRIPTION: enjoyment are executed in such a manner as to be manifest or
visible to all, especially to the person against whom the possessopm
Possession of things in good faith is being adversely asserted. It must be known to the owner of the
With the just title for the time fixed by law thing. If the possession is publicly known, it is presumed that the
owner knows it, unless there is clear proof to the contrary.
CONVERSION OF POSSESSION:
PEACEFUL: When it is acquired and maintained without violence,
When the possession begins in good faith, but later on is converted physical or moral. The possession continues to be peaceful even if
into bad faith, how long should the prescription be, ordinary or the possessor should use such force as is reasonably necessary to
extra-ordinary? repel or prevent an actual or threatened unlawful physical invasion
of the property (Art. 429).
There are possible solutions:
UNINTERRUPTED: It is continuous when the possessor has never
0 The supervening bad faith erases the former possession in ceased to manifest with external acts his intention to exercise a right
good faith, and extra-ordinary prescription will run from over the thing, whcin presupposes that he has never in fact ceased
the date of possession in bad faith to exercise the right. It need no be absolute but only in relation to
1 The prescription will be extraordinary but the period will the nature of the right exercised. It is interrupted if there has been
be counted form the time the possession began no act of deprivation of enjoyment of the things by a third person or
2 The prescription will be extraordinary but the possession any other act which interrupts prescription.
in good faith shall be computed in the proportion that the
period of extraordinary prescription bears to that of Article 1120. Possession is interrupted for the purposes of
ordinary prescription. prescription, naturally or civilly. (1943)

NOTE: The last solution appears to be the most acceptable, because EFFECT OF INTERRUPTION: When prescription is uninterrupted, all
it reflects the difference betweenb the 2 kinds of prescription and the benefits acquired so far from the possession cease; when
gives the proper value to possession in good faith. prescption runs again, it will be entirely a new one. This distinguishes
interruption from suspension of prescription.
The first is inadmissible because it places a possessor who began in
goof faith in a worse position than the one who began in bad faith SUSPENSION OF PRESCRIPTION: In suspension, the past period is
included in the computation, being added to the period after
The second is likewise unacceptable because possession in good prescription is resumed.
faith and possession in bad faith are given identical effects.
Examples of suspension: when a child becomes insane, or a ward is
Article 1118. Possession has to be in the concept of an owner, placed under guardianship, the cases contemplated in Art. 1109.
public, peaceful and uninterrupted. (1941)
Article 1121. Possession is naturally interrupted when through any
Article 1119. Acts of possessory character executed in virtue of cause it should cease for more than one year.
license or by mere tolerance of the owner shall not be available for The old possession is not revived if a new possession should be
the purposes of possession. (1942) exercised by the same adverse claimant. (1944a)

CONCEPT OF OWNER Article 1122. If the natural interruption is for only one year or less,
the time elapsed shall be counted in favor of the prescription. (n)
Acts of a possessory character which are merely tolerated by bthe
possessor or which are due to his license, do not constitute Article 1123. Civil interruption is produced by judicial summons to
possession. the possessor. (1945a)

TOLERANCE v. LICENSE Article 1124. Judicial summons shall be deemed not to have been
issued and shall not give rise to interruption:
LICENSE TOLERANCE
A positive act of the owner in The passive acquiescense of the If it should be void for lack of legal solemnities;
favor of the holder of the thing owner to acts being performed
by another which appear to be If the plaintiff should desist from the complaint or should allow the
contrary to the rights of the proceedings to lapse;
NOTES ON PARTNERSHIP AGENCY, TRUSTS, LEASE AND PRESCRIPTION
Kenneth and King C. Hizon _________________________________________________________________________________________________________________
NOTE: While the registered owner who executed the title which is
(3) If the possessor should be absolved from the complaint. the basis for prescription, is not considered a third person, he is
however, regarded as a third person with respect to a title executed
In all these cases, the period of the interruption shall be counted by another who is not registered owner. When the title of first
for the prescription. (1946a) transferee of a real right over the things is considered as a third
person if his tilte is recorded.
Lacuesta v. Guerrero
The time for prescription to the prejudice of those who are not
The general rule declared in Article 1124 of the Civil Code is to the considered as third persons with recorded titles, shall be counted
effect that a suit brought and abandoned or decided against the from the commencement of the possession under title of ownership,
plaintiff, is considered as never having been commenced. although the title by virtue of which it is held may not have been
registered.
EFFECT OF RECOVERY OF POSSESSION: Under Articles 1121 and
1122, in case of natural prescription, the old possession loses all its REGISTERED LANDS: Adverse possession may not be allowed to
juridical effects, and even if the possession is reacquired, the old defeat the owners right to possessopn of land registered under the
possession cannot be tackled to the new possession for purposes of Torrens system; otherwise, loss of the land by prescription would be
prescription. indirectly approved, in violation of Sec. 46 of the Land Registration
Act. Neither can prescriprion be allowed against the registered
But in case of civil interruption, if the possession is recovered, it can owners hereditary successors because the latter merely step into
be connected to the time that has elapsed as if it were in fact the shoes of the decedent and merely the continuation of the
continuous, the period of interruption is to be counted for the personality of their predecessor in interest.
prescription.
NOTE: Laches, not prescription may be set up as to the registered
The use of the phrase period of interruption is misleading because land.
there is really no interruption, as shown by the opening paragraph.
The possession is deemed continuous. Article 1127. The good faith of the possessor consists in the
reasonable belief that the person from whom he received the thing
Article 1125. Any express or tacit recognition which the possessor was the owner thereof, and could transmit his ownership. (1950a)
may make of the owner's right also interrupts possession. (1948)
Article 1128. The conditions of good faith required for possession
RECOGNITION BY THE POSSESSOR: In order to interrupt in articles 526, 527, 528, and 529 of this Code are likewise
prescription, the recognition of the owners right mut be made by necessary for the determination of good faith in the prescription of
the possessor. The declaration of a third person that the property ownership and other real rights. (1951)
does not belong to the possessor, when such declaration has not
been authorized or ratfied by the possessor, does not interrupt the POSSESSION IN GOOD FAITH
possession of prescription.
Under the Civil Code, a prescriptive title to real state is not acquired
Article 1126. Against a title recorded in the Registry of Property, by the mere possession thereof, under claim of onwership, for a
ordinary prescription of ownership or real rights shall not take period of 10 years, unless it was originally acquired with just title
place to the prejudice of a third person, except in virtue of another and good faith. Good faith in this connection, while it is always to be
title also recorded; and the time shall begin to run from the presumed in the absence of proof to the contrary, requires a well-
recording of the latter. founded belief that the person from whom title was received was
himself the owner of the land with the right to convey. And unless
As to lands registered under the Land Registration Act, the the contrary is shown, the possessor of the land must be presumed
provisions of that special law shall govern. (1949a) to be in good faith.

RECORDED TITLES OF THIRD PERSONS: The owner of the thing at GOOD FAITH: The possessor muts believe that the title for his
the beginning of the prescriptive period is not considered as a third acquisition is sufficient; it is not enough that he knows of no defect
person within the meaning of this rule. But those who acquire their in it. This belief must be founded and there is sufficient basis when
right subsequently, relying on the registration of ownership in the he believes that the transferor was the owner of the thing anc could
Registry, must be considered as third persons, and they cannot be transmit the owneship thereof.
prejudiced by the period of possession prior to the date of their
acquisition. The good faith must exist, not only at the beginning of the
possession, but throughout the entitre period required for
The third, persons, however, must comply with the ff: prescription. The Code rejetcs Roman Law principle that supevening
That the acquisition is by onerous title bad faith does not prejudice the prescription, and follows the
That the acquisition is from one who, according to the Registry, contrary rule of the common law.
can transmit title
That the acquisition is registered Article 1129. For the purposes of prescription, there is just title
That such third person has no knowledge of the prescription when the adverse claimant came into possession of the property
through one of the modes recognized by law for the acquisition of
ownership or other real rights, but the grantor was not the owner
or could not transmit any right. (n)
NOTES ON PARTNERSHIP AGENCY, TRUSTS, LEASE AND PRESCRIPTION
Kenneth and King C. Hizon _________________________________________________________________________________________________________________
REVOCABLE TITLE- One in which the transferor has made a
Article 1130. The title for prescription must be true and valid. reservation by virtue of which the right of the possessor may
(1953) disappear, cannot serve as a basis for a prescription; but once the
reservation becomes ineffective, the period that has run can be
Article 1131. For the purposes of prescription, just title must be counted for the prescription.
proved; it is never presumed. (1954a)
Ex: a sale witht the right to repurchase
TITLE FOR PRESCRIPTION: For purposes of prescription, the title of
the possessor must be just, true, valid, and proved. NOTE: A voidable title, so long as it has not been annulled, can be
the basis of ordinary prescription.
JUST TITLE-An act which has for its purpose the transmission of
ownership, and which would have actually transferred ownership if When the title is subject to a suspensive condition, the period of
the grantor had been the owner. This vice or defect is the one cured prescription begins tot run from the fulfillment of the condition; if
by prescription. the condition is resolutory the period begins at once, without
prejudice to the effect of the resolution by the condition which may
Examples: later happen.
sale with delivery
exchange TITLE MUST BE PROVED: The requirement that just title must be
donation proved for purposes of prescription, is an exception to the general
succession rule embodied in article 541, which presumes a just title for every
dation in payment possessor in the concept of owner. The exception is based on the
offensive, and not merely defensive, character of prescription, which
However, the ff. do not constitute title: requires greater guarantees.
lease of things
loan Article 1132. The ownership of movables prescribes through
deposit uninterrupted possession for four years in good faith.
all contracts which do not transmit property rights
partition The ownership of personal property also prescribes through
compromise uninterrupted possession for eight years, without need of any
court decisions other condition.

Ratio: All the abovementioned are all declaratory of property rights With regard to the right of the owner to recover personal property
but do not transmit them. lost or of which he has been illegally deprived, as well as with
respect to movables acquired in a public sale, fair, or market, or
TRUE TITLE- The title for prescription must be true. To be true, the from a merchant's store the provisions of articles 559 and 1505 of
title must exist actually, and not merely in the mind of the possessor. this Code shall be observed. (1955a)
A legally non-existent title is without value. Thus, a will cannot be a
sufficient title if it has been revoked by an unknown subsequent will Article 1133. Movables possessed through a crime can never be
which is later discovered. So is a title that is absolutely simulated. acquired through prescription by the offender. (1956a)
But where there is only relative simulation, the true title hidden
behind the fictitious one will suffice. However, a simulated title, Article 1134. Ownership and other real rights over immovable
which conceals a prohibited act, cannot be the basis for prescription. property are acquired by ordinary prescription through possession
of ten years. (1957a)
FALSE TITLE:- One which does not exist but is believed by the
possessor to exist, may or may not be sufficient. The false belief may Article 1135. In case the adverse claimant possesses by mistake an
be based on an error of fact or of law: area greater, or less than that expressed in his title, prescription
If the mistake of fact refers to an act of a third person, the title shall be based on the possession. (n)
is sufficient for prescription;
if it refers to an act of a third person, the title is sufficient for CONSTRUCTIVE POSSESSION: The possession upon which
prescription prescription is based, is not limited to the area actually occupied, but
if it refers to an act of the possessor himself, it is not sufficient covers the area over which the possession is asserted.
if the error of law refers to the validity of the act, then the title
is not adequate The doctrine of constructive possession applies when the possession
if the mistake refers to a fact in the application of a rule of law, is under title calling for the whole. The actual possession of part of
there will be an adequate title the property is deemed to extend to the whole as shown by the
limits or boundaries described in the title. The actual possession of a
NOTE: If one buys from an insane party, believing that an insane part of the property may be through a tenant. It does not apply,
person can validly alienate property, the title is not sufficient; but if however, where the possession is without title.
he did not know that the vendor was insane, then the title is
sufficient. Article 1136. Possession in wartime, when the civil courts are not
open, shall not be counted in favor of the adverse claimant. (n)
NOTES ON PARTNERSHIP AGENCY, TRUSTS, LEASE AND PRESCRIPTION
Kenneth and King C. Hizon _________________________________________________________________________________________________________________
Article 1137. Ownership and other real rights over immovables also Statute of limitations: These are acts limiting the time withinwhich
prescribe through uninterrupted adverse possession thereof for actions shall be brought. It does not confer any right of action but
thirty years, without need of title or of good faith. (1959a) are enacted to restrict the period within which the right, otherwise
unlimited, might be asserted. They are not matters of substantive
WHEN TTILE VOID: Even when title of the possessor is void such as rights but are available only as defenses.
an oral donation of real property, he may acquire ownership by
prescription under the provisions of this title. The purpose of the statute is to protect the diligent and vigilant not
those who sleep on their rights. However, the basic prinicple most
Article 1138. In the computation of time necessary for prescription genereally relied upon by the authoritties is that statute of
the following rules shall be observed: limitations are statutes of repose, the object of which is to suppress
fraudulent and stale claims from springing up at great distances of
The present possessor may complete the period necessary for time and surprising the parties or their representatives when all the
prescription by tacking his possession to that of his grantor or proper vouchers and evidences are lost or the facts have become
predecessor in interest; obscure from the lapse of time or the defective memory or death or
removal of witness.
It is presumed that the present possessor who was also the
possessor at a previous time, has continued to be in possession The prescription of actions in CC contemplates civil actions and not
during the intervening time, unless there is proof to the contrary; criminal actions.

The first day shall be excluded and the last day included. (1960a) Prescription and laches: The defense of laches applies
independently of prescription. It is different from statute of
TACKING OF POSSESSION limitations.

In order that there cab be a tacking of possession, the present Prescription Laches
possessor must have obtained his possession from the previous Concerned with the fact of delay Concerned with the effect of
possessor. There must be privity between them. Tacking is possible delay
only when there is succession of rights between the predecessor and A matter of time A quesrtion of inequity of
the successor. A mere usurper cannot invoke the possession of any permitting a claim to be
previous possessor. enforced, this inequity being
founded on some change of
DIFFERENT CHARACTER OF POSSESSION: condition of the property or the
relation of parties.
When the predecessor is in good faith, and the successor is in Statutory Not statutory
bad faith, the latter can assert only extra-ordinary Applies to law Applies to equity
prescription. The more reaosonable view in computing the Based on fixed time Not
period is that the tacking of the possession should be
permitted in such case. The period should be computed in Article 1139. Actions prescribe by the mere lapse of time fixed by
the same manner as where the character of the possession law. (1961)
of a person changes while the period is running; that is,
the period of possession in good faith should be computed Leap year in period: Febraury 28 and 29 should be counted as
in the proportion that the period of extra-ordinary separate days not as one day.
prescription bears that of ordinary prescription.
If the possession of the predecessor was in bad faith and that of Effect of lapse of time: It has the effect of extinguishing the action.
the successor is in good faith, the present possessor can But there is no extinctive prescription unless the period provided by
claim under ordinary prescription, but in this case, the law expires. Mere delay in the enforcement of a claim does not
posession of the predecessor cannot be counted. The result in any reduction or loss of right, unless the full period required
period of bad faith possession cannot be availed of for by law for prescription has expired.
ordinary prescription. The present possessor in good faith,
however, should not be limited to ordinary prescriptioon.
Prescription to be pleaed: The bar of statute of limitations cannot be
The period of possession of the predecessor, although in
asserted as a defense unless it is specifically pleaded in the answer
bad faith, may have been so long that it would be
and proven with the same degree of certainty by which any essential
beneficial
allegation in the pleadings is established. Since it is a defense which
the DR alone can plead, and the obligation subsists until he avails
CHAPTER 3
himself thereof, the courts of justice cannot supply the defense if the
Prescription of Actions DR himself does not do so. It is thus error to permit proof of
prescription if it has not been defensively pleaded and such proof is
Prescription of actions or limitation of actions refer to the time objected to.
within which an action may be brought, or some act done, to
preserve a right. It is a legal and not a natural cause of the
The right may be waived or renounced. It is deemed waived if not
extinguishnent of obligations.
timely raised or pleaded before or during the hearing of the case.
Howerver, if it is apparent on the face of the complaint, it may be
favorably considered even after evidence is adduced.
NOTES ON PARTNERSHIP AGENCY, TRUSTS, LEASE AND PRESCRIPTION
Kenneth and King C. Hizon _________________________________________________________________________________________________________________
Article 1140. Actions to recover movables shall prescribe eight (2) Upon a quasi-contract. (n)
years from the time the possession thereof is lost, unless the
possessor has acquired the ownership by prescription for a less Article 1146. The following actions must be instituted within four
period, according to articles 1132, and without prejudice to the years:
provisions of articles 559, 1505, and 1133. (1962a)
Upon an injury to the rights of the plaintiff;
Article 1141. Real actions over immovables prescribe after thirty
years. Upon a quasi-delict;

This provision is without prejudice to what is established for the However, when the action arises from or out of any act, activity, or
acquisition of ownership and other real rights by prescription. conduct of any public officer involving the exercise of powers or
(1963) authority arising from Martial Law including the arrest, detention
and/or trial of the plaintiff, the same must be brought within one
Article 1142. A mortgage action prescribes after ten years. (1964a) (1) year. (As amended by PD No. 1755, Dec. 24, 1980.)

Not imprescriptible: The fact that a mortgage is registered does not Injury to rights: The 1-year period fixed by the rules of court within
make the action to foreclose it imprescriptible. which a petition for quo warranto should be filed, counted from the
date of ouster does not apply to a case where P is separated from his
Effect of interest: It is not possible to separate legally the interest or employment for unjustifibale causes. Such unjustified separation
any part thereof from the principal itself; hence, if the action to from employment is an injury to the rights of the P and the action
recover the mortgage debt itslef has prescribed, the action to may be brought within 4 years under this article.
recover the interest must also be prescribed.
Action on fraud: It prescribes in 4 years from discovery of the fraud.
Article 1143. The following rights, among others specified
elsewhere in this Code, are not extinguished by prescription: Upon a quasi-delict: where real property which belongs in
ownershio to D and over which he was amd has always been in
To demand a right of way, regulated in article 649; possession but by mistake of the cadastral clerk came to be titled in
1935 in the name of L, who had never claimed it and who knew all
To bring an action to abate a public or private nuisance. (n) along that he was not the owner thereof but had only a paper title
thereto, never bothered to disturb Ds pssession save only in 1948
Other Imprescritible actions: Among actions that have been held as when he sought to do so, therafter filing his reinvindicatory action to
imprescriptible are: recover the land from D in 1949, the counterclaim fro reconveyance
contained in the answer of D filed in 1951 should be held to have
Action by the government or government entity; been filed within the prescriptive period to recover on a quasi-delict
Action for mandamus; is 4 years.
Action to enforce an express trust, as long as the trustee does
not repudiate the trust; Article 1147. The following actions must be filed within one year:
Action to quiet title to property in ones possession;
Action or defense to declare a contract or judgment void ab For forcible entry and detainer;
initio; and
Action of the registered owner to recover his land. For defamation. (n)

Article 1144. The following actions must be brought within ten Article 1148. The limitations of action mentioned in articles 1140 to
years from the time the right of action accrues: 1142, and 1144 to 1147 are without prejudice to those specified in
other parts of this Code, in the Code of Commerce, and in special
Upon a written contract; laws. (n)

Upon an obligation created by law; Article 1149. All other actions whose periods are not fixed in this
Code or in other laws must be brought within five years from the
Upon a judgment. (n) time the right of action accrues. (n)

Implied trusts: When property is registered in anothers name, an Right to collect taxes: Limitations upon the right of the government
implied or constructive trust is created by law in favor of the true to assess and collect taxes will not be presumed in the absence of
owner. The action for reconveyance of the title to the rightful owner clear legislation to the contrary, and where the government has not
prescribes in 10 years from the issuance of the title. But if fraud has by express statutory provision provided a limitation upon its right to
been committed, and this is the basis of action, not implied trust, the assess unpaid taxes, such right is imprescriptible.
action will be barred after 4 years.
Article 1150. The time for prescription for all kinds of actions, when
Article 1145. The following actions must be commenced within six there is no special provision which ordains otherwise, shall be
years: counted from the day they may be brought. (1969) r

(1) Upon an oral contract; Time from which period computed: The principal and most
important point when we examine the character, conditions and
NOTES ON PARTNERSHIP AGENCY, TRUSTS, LEASE AND PRESCRIPTION
Kenneth and King C. Hizon _________________________________________________________________________________________________________________
consequences of prescription of actions under Code is the time from
which we are to compute the period fixed by law for the When the action is for partition, and reconveyance based on
extinguishment of the abandoned right of action. implied or constructive trusts, the time for prescription
begins to run from the date of issuance of the original
In cases where there is no special provision for such computation, certificate of title because the registration of an instrument
recourse must be had to the rule that the period must be counted in the office of the Register of Deeds constitutes
from the day on which the corresponding action could have been constructive notice to the whole world. The period begins
instituted. It is the legal possibility of bringing the action which to run from the time a possessor was made aware of a
determines the starting point for the computation. The period claim adverse to his own.
should not be made to retroact to the date of execution of the
contract. The period of prescription of the right of the nearest relative, as
intestate heir to some properties, to question the validity
Accrual of cause of action: It arises when that which should have of a purported will or donation mortis causa made by the
been done is not done or that which should not have been done is decedent, does not commence to run until a third person
done. claims a right under such instrument where in the
meantime the intestate heir has been in possession of the
Essential elements: properties and there was no occasion to seek judicial
annulment of the instrument.
Existence of a legal right in the P;
With a corresponding legal duty in the defendant; The prescriptive period within which to bring action to set aside
A violation or breach of that right or duty with consequential a simulated written deed of pacto de retro sale starts only
injury of damage to the plaintiff, for which he may when the alleged vendees made known their intention by
maintain an action for appropriate relief. overt acts not to hide by the true agreement, and not from
the date of execution of the contract.
From that moment, the period of prescription of action accrues or
begins to run. Article 1151. The time for the prescription of actions which have for
their object the enforcement of obligations to pay principal with
Prescriptive periods interest or annuity runs from the last payment of the annuity or of
the interest. (1970a)
When windows were opened in the building of a neighbor in
violation of law, the period of prescription for the action to OBLIGATIONS WITH INTEREST: The rule in this article that the period
close the same must be counted from the day they were of prescription in obligations with interest runs only from the last
opened. payment of interest, is applicable only to cases where the principal
debt is already due.
In an obligation to pay upon receipt of an inheritance by the
debtor, prescription beins to run from the date of suhc Where there is a period for the principal obligation which is not yet
receipt because when the obligation is subject to a due, payment of interest at stipulated intervals does not cause the
suspensive condition, prescription runs only from the running of interest at stipulated intervals does not cause the running
happening of the condition. of the period of prescription, which will commence only after the
maturity of debt.
But where the obligation is without date of maturity, or a note
is payable on demand, prescription begins to run from the But where the existence of a past due mortgage was recognized by
date of the note or obligation and not from demand. This payments of interest, prescription ran only from the past payment of
last rule does not apply to liability for the unpaid balance interest.
of a subscription to shares of a corporation; in this case,
the liability of the subscriber does not arise until call or Article 1152. The period for prescription of actions to demand the
demand for payment by the board of directors, and fulfillment of obligation declared by a judgment commences from
therefore, prescription would run only from such demand. the time the judgment became final. (1971)

When a contract provides for the payment of money within a WHEN JUDGMENT BECOMES FINAL:
year, with the privilege of extension for another year at the
option of the creditor, a delay by the debtor, or the failure Trial court Upon the expiration of the period for appeal,
of the creditor to insist upon payment, does not import a thereafter prescription begins to run
tacit renewal, and prescription will run from the end of the Supreme Court The true judgment is that entered by the clerk of
first year. or Court of court pursuant to the dispositive part of its
Appeals decision, and the period of prescription is
When an action is based on fraud, deceit, the period of therefore computed from the date such
prescription will begin to run on the date of the discovery judgment is entered. The period is 10 years
of the fraud or deceit. according to Art.1144

In case of quasi-delict, the prescriptive period starts from the Article 1153. The period for prescription of actions to demand
day the quasi-delict occurred or was committed. accounting runs from the day the persons who should render the
same cease in their functions.
NOTES ON PARTNERSHIP AGENCY, TRUSTS, LEASE AND PRESCRIPTION
Kenneth and King C. Hizon _________________________________________________________________________________________________________________
When prescription is interrupted by a judicial demand, the full
The period for the action arising from the result of the accounting period for the prescription must be reckoned from the
runs from the date when said result was recognized by agreement cessation of the interruption.
of the interested parties. (1972)
NOTE: Although an option is started within the prescriptive period, if
ACTION TO COMPEL ACCOUNTING the plaintiff desists in its prosecution or judgment is unconditionally
stayed for one reason or another, the running of the period of
The period of prescription of an action to compel an accounting by limitations is not suspended. The parties are exactly in the same
joint account partner begins to run from the date of retirement of position as if no action had been commenced at all.
the members from whom accounting is demanded. It begins to run
from the dissolutionof a partnership when the final accounting is WRITTEN EXTRA-JUDICIAL DEMAND: Since extinctive prescription is
done. based on presumed abandonment of a right, it is obvious that the
running of the period shall be interrupted when a demand is made
CURRENT ACCOUNTS: There is a distinction as to the time when the by the creditor upon the debtor before the lapse of the period fixed
period of prescription begins to run in mutual current accounts and by law. The burden of proof to show such demand is upon the
in simple current open accounts. In the former, the statute of creditor. The law requires that such demand be in writing, hence, a
limitatiions begins to run on the date of the last item; while in the verbal demand upon the debtor is not sufficient to interrupt or
latter, the statute begins to run from the date of each particular renew the prescriptive period.
item.
WRITTEN ACKNOWLEDGMENT OF DEBT:
When there is a mutual, open, and current account between 2
parties it is said that it implies that they have mutually consented In extinctive prescription, the interruption through
that each item shall not constitute an independent debt acknowldgment of the creditors right can take place only
immediately, to be paid or enforced at once but that the items when such acknowledgment is in writing.
occuring from time to time, in favor of the respective parties, shall There must always be a writing but the recognition of the debt
operate as mutual set-offs, and that the shifting balance, when may be either expressly stated therein or may be implied
either or both shall call for it, shall be the debt, and run for this therefrom. The law does not require express
reason the statute of limitations does not run during such a state of acknowledgment.
mutual dealings, but only from the date of the last item.
Examples:
When an accounting has been made betweeb the parties in their
current account dealings, the right of action accrues, and the period A promise to pay a debt can be considered in no other light but
of prescription begins to run, on the date when the last balance was an acknowledgment of its existence, and interrupts
struckm and not when the business relations terminated. prescription
The listing of a mortgage indebtedness by the debtor in his
Article 1154. The period during which the obligee was prevented by schedule of liabilities filed in insolvency proceedings, is
a fortuitous event from enforcing his right is not reckoned against sufficient acknowledgment of such indebtedness for the
him. (n) purpose of interrupting prescription.

EFFECT OF DESTRUCTION OF JUDICIAL RECORDS: All terms or Examples of insufficient acknowledgment:


periods fixed by law or regulations shall cease to run from the date
of destruction of the records of the case, and shall only begin to run Mere offer to compromise a suit upon a supposed debt
again onn the date when the parties or counsel shall have received Denial of the correctness of the account claiming that the same
notice to the effect that the records have been constituted. is exorbitant.

Article 1155. The prescription of actions is interrupted when they NOTE: The acknowledgment of the debt may be made by a legal
are filed before the court, when there is a written extrajudicial representative. Thus, a guardian, executor, or administrator, may
demand by the creditors, and when there is any written acknowledge a debt so as to interrupt prescription.
acknowledgment of the debt by the debtor. (1973a)
Effect of acknowledgement: By acknowledging a debt, a DR may
FILING OF ACTION IN COURT renew the obligation and interrupt the prescription, so as to make it
run only from the date of the acknowledgement. Thus, where a
The filing of an action interrupts extinctive prescription as to decedent attempted to make a will, which was not valid because of
the parties defendants therein. The interruption lasts its form, but which contained acknowledgment of a debt in favor of
during the pendency of the action. The prescription period another, it was held that prescription ran against the claim, not from
runs anew after the dismissal of the first action to revive the death of the decedent but from the date of the invalid will.
judgment.
Filing a motion for reconsideration continues the suspension of Effect of part payment: It cannot interrupt the period of
the running of the period of prescription, which runs again prescritpion. A partial payment before the period has elapsed is
after the court proceedings have been finally terminated. undoubtedly an implied acknowledgement of the debt. Our present
requires that the acknowledgement, in order to interrupt
prescription, must be written; hence, the legal impossibility of
NOTES ON PARTNERSHIP AGENCY, TRUSTS, LEASE AND PRESCRIPTION
Kenneth and King C. Hizon _________________________________________________________________________________________________________________
considering payment as an acknowledgement sufficient to interrupt
prescription.

Other causes not interrupting:

The death of DR does not interrupt the running of the statute of


limitations because the CR has at his disposal appropriate means for
the prosecution of an action to enforce the collection of his claim.

The transfer of the right to another person does not suspend the
running of the period of prescritpion because once it begins to run,
it never stops until legally interrupted.

The institution of criminal action cannot have the effect of


interrupting the institution of a civil action based on a quasi-delict.

An order to stay execution of a judgment does not suspend the


running of the prescription against it.

Confinement in jail is not one of the grounds by which prescription


of an action may be interrupted.

The extinction of the debt of one of various joint DRs does not
necessarily affect the debt of the others, and the acknowledgment
of the debt by him will not stop the running of the statute of
limitations as to them.

REFERENCE:

TOLENTINO, ARTURO M., Commentaries and Jurisprudence on the


Civil Code of the Philippines, Vol. V., Central Book Publishing,
Co., Inc. 1991