UST Golden Notes 2011 - Partnership and Agency

PARTNERSHIP
PARTNERSHIP 6. Principal its life does not depend on

theexistenceofanothercontract
I.CONTRACTOFPARTNERSHIP 7. Preparatorybecauseitisenteredinto
as a means to an end, i.e. to engage in
A.DEFINITION business
8. Fiduciary it is based on trust and
Q:Whatispartnership? confidence

A:Acontractwherebytwoormorepersonsbind Q: Jose entered into a verbal agreement with
themselves to contribute money, property, or Franciscotoformapartnershipforthepurchase
industrytoacommonfund,withtheintentionof ofcascoesforaproposedboatrentalbusiness.It
dividingtheprofitsamongthemselves. wasagreedthatFranciscowouldbuythecascoes
and each partner is to furnish such amount of
Note: Two or more persons may also form a money as he could, and that the profits will be
partnership for the exercise of a profession. (Art. divided proportionately. After Francisco
1767,NCC) purchasedacascowiththemoneyadvancedby
Jose, they undertook to draft the articles of
B.ELEMENTS partnership and embody the same in an
authentic document. However, they did not
Q: What are the essential elements of a come to an agreement. So, Francisco returned
partnership? the money advanced by Jose, which the latter
received with an express reservation of all his
A: rightsasapartner.
1. Agreement to contribute money, 1. Was there a partnership formed
propertyorindustrytoacommonfund betweenJoseandFrancisco?
(mutual contribution to a common 2. If such partnership existed, was it
stock);and terminated by the receipt of Jose of
2. Intention to divide the profits among themoneyheadvanced?
thecontractingparties(jointinterestin
the profits). (Evangelista v. Collector of A:
Internal Revenue, G.R. No. L9996, Oct. 1. Yes. Both elements in a contract of
15,1987). partnership exist: a) mutual
contributiontoacommonstock,andb)
Q:Whataretherequisitesofapartnership? a joint interest in the profits. If the
contractcontainsthesetwoelements,a
A:ICJ partnershiprelationresults,andthelaw
1. Intentiontocreateapartnership itself fixes the incidents of this relation
2. Common fund obtained from if the parties fail to do so. In this case,
contributions therewasmoneyfurnishedbyJoseand
3. Jointinterestindividingtheprofits(and received by Francisco for the purchase
losses) of the cascoes and there was also an
intention to divide the profits
Q:Whatarethecharacteristicsofapartnership? proportionately between them. Thus,
there is a partnership by virtue of the
A:BONCCPP verbal agreement between Jose and
1. Bilateral it is entered into by two or Francisco.
more persons and the rights and
obligations arising therefrom are 2. No. There was no clear intent on the
reciprocal partofJose,inacceptingthemoney,to
2. Onerouseachofthepartiesaspiresto relinquish his rights as a partner.
procure for himself a benefit through (Fernandez v. Dela Rosa, G.R. No. 413,
thegivingofsomething Feb.2,1903)
3. Nominate it has a special name or
designationinourlaw Q: Chim was the owner and manager of a
4. Consensual perfected by mere lumberyard.VicenteandTingparticipatedinthe
consent profitsandlosses.Acontractofsawinglumber
5. Commutativetheundertakingofeach was entered into by Chim, acting in his own
of the partners is considered as the name,with Frank. At the time thecontract was
equivalentofthatoftheothers
331
ACADEMICSCHAIR:LESTERJAYALANE.FLORESII UNIVERSITYOFSANTOTOMAS
VICECHAIRSFORACADEMICS:KARENJOYG.SABUGO&JOHNHENRYC.MENDOZA
VICE C HAIRFORA DMINISTRATIONANDF INANCE : JEANELLE C. LEE Facultad de Derecho Civil
VICECHAIRSFORLAYOUTANDDESIGN:EARLLOUIEM.MASACAYAN&THEENAC.MARTINEZ
UST GOLDEN NOTES 2011

made, they were the joint proprietors and ofthepriceandthatanequaldivisionshouldbe
operatorsofthesaidlumberyardengagedinthe madebetweenthemofthelandthuspurchased.
purchase and sale of lumber under the name Despite Catalinosdemand foran equaldivision
and style of Chim. In an action to recover the between them, Ceferino refused to do so and
balanceunderthecontractfiledbyFrankagainst even profited from the fruits of the land. Are
Chim, Vicente and Ting, the latter two alleged theypartnersorcoowners?
that they are not Chims partners. Did Chim,
VicenteandTingformapartnership? A:Theyarecoownersbecauseitdoesnotappear
thattheyenteredintoanycontractofpartnership
A: No. A simple business was formed by Chim but only for the sole transaction of acquiring
exclusively in his own name and under his jointlyorbymutualagreementofthelandunder
personal management and he effected every theconditionthattheywouldpayoftheprice
transactioninhisnameandinthenamesofother ofthelandandthatitbedividedequallybetween
personsinterestedintheprofitsandlossesofthe them. (Gallemit v. Tabiliran, G.R. No. 5837, Sept.
business.Whathasbeenformedisanaccidental 15,1911)
partnershipofcuentasenparticipacion.
COMMONFUND
Note: Under the Code of Commerce, cuentas en
participacion means a sort of an accidental Q: May a partnership be formed even if the
partnership constituted in such a manner that its commonfundiscomprisedentirelyofborrowed
existence was only known to those who had an orloanedmoney?Whatwouldbetheliabilityof
interest in the same, there being no mutual thepartnersinsuchacase?
agreement between the partners, and without a
corporatenameindicatingtothepublicinsomeway A: Yes. A partnership may be deemed to exist
that there were other people besides the one who among parties who agree to borrow money to
ostensibly managed and conducted the business, pursue a business and to divide the profits or
governed under article 239 of the Code of losses that may arise therefrom, even if it is
Commerce.(Bournsv.Carman,G.R.No.L2880,Dec. shownthattheyhavenotcontributedanycapital
4,1906) of their own to a "common fund." Their
contribution may be in the form of credit or
INTENTTOCREATEAPARTNERSHIP industry, not necessarily cash or fixed assets.
Being partners, they are all liable for debts
Q: Henry and Lyons are engaged in real estate incurred by or on behalf of thepartnership. (Lim
business and are coowners of a parcel of land. Tong Lim v. Philippine Fishing Gear Industries,
Henry,withtheconsentofLyons,mortgagedthe Inc.,G.R.No.136448,Nov.3,1999)
propertytoraisethefundssufficienttobuyand
developtheSanJuanEstate.Lyonsexpressedhis SHAREINPROFITSANDLOSSES
desire not to be part of the development
project, but Henry, nevertheless, pursued the Q: Mariano and Isabelo entered into a
business alone. When the business prospered, partnership agreement wherein they are to
Lyons demanded for a share in the business. Is contribute P15,000 each for the purpose of
LyonsentitledtothesharesinSanJuanEstate? printing 95,000 posters. Isabelo was unable to
printenoughposterspursuanttotheagreement,
A:No.Lyonshimselfmanifestedhisdesirenotto thus he executed in favor of Mariano a
be part of the development project. Thus, no promissorynoteinanamountequivalenttothe
partnership was formed. The mortgage of the unrealizedprofitduetoinsufficientprinting.The
land was immaterial to the existence of the whole amount became due but Isabelo
partnership. It is clear that Henry, in buying the defaultedpayment.IsMarianoentitledtofilea
San Juan Estate, was not acting for any casefortherecoveryoftheunrealizedprofitof
partnership composed of himself and Lyons, and thepartnership?
the law cannot be distorted into a proposition
whichwouldmakeLyonsaparticipantinthisdeal A:No.Theessenceofapartnershipistosharein
contrary to his express determination. (Lyons v. the profits and losses, thus, Mariano should
Rosenstock,G.R.No.35469,Mar.17,1932) shoulderthelosseswithIsabelo.(MoranJr.,v.CA,
G.R.No.L59956,Oct.31,1984)
Q: Catalino and Ceferino acquired a joint
tenancy over a parcel of land under a verbal Q: To form a lending business, it was verbally
contract of partnership. It was stipulated that agreedthatNoynoywouldactasfinancierwhile
eachofthesaidpurchasersshouldpayonehalf CoryandKriswouldtakechargeofsolicitationof
332 CIVILLAWTEAM:
ADVISER:ATTY.ELMERT.RABUYA;SUBJECTHEAD:ALFREDOB.DIMAFELIXII;
ASST.SUBJECTHEADS:KARENFELIZG.SUPNAD,LAMBERTOL.SANTOSIII;MEMBERS:PAULELBERTE.AMON,ALSTONANARNA,OZANJ.
FULLEROS,CECILIOM.JIMENO,JR.,ISMAELSARANGAYA,JR.;CONTRIBUTORS:LOISERAEG.NAVAL,MONICAJUCOM

PARTNERSHIP
membersandcollectionofloanpayments.They is a partner, but not when received as

agreed that Noynoy would receive 70% of the paymentfor:
profitswhileCoryandKriswouldearn15%each. a. Debtasinstallment
Thepartiesexecutedthe'ArticlesofAgreement' b. Wages
whichformalizedtheirearlierverbalagreement. c. Annuity
Later,NoynoyfiledacomplaintagainstCoryand d. Interestinaloan
Kris for misappropriation of funds allegedly in e. Considerationforthesaleofa
their capacitiesas Noynoys employees. In their goodwill
answer, Cory and Kris asserted that they were
partners and not mere employees of Noynoy. Note: in subparagraphs a e, the profits in the
What kind of relationship existed between the business are not shared as profits of a partner as a
parties? partner, but in some other respects or for some
otherpurpose.
A: A partnership was formed among the parties.
The "Articles of Agreement" stipulated that the Q: Distinguish partnership from co
signatoriesshallsharetheprofitsofthebusiness ownership/copossession.
in a 701515 manner, with Noynoy getting the
lion's share. This stipulation clearly proved the A:
establishmentofapartnership.(Santosv.Spouses COOWNERSHIP/
PARTNERSHIP
Reyes,G.R.No.135813,Oct.25,2001) COPOSSESSION
Intenttoderiveprofits
Q:Joseconveyedhislotsinfavorofhisfoursons Theprofitsmustbe
in order for them to build their residences. His derivedfromthe
sons sold the lots since they found the lots operationofthe Thecoownerssharein
impractical for residential purposes because of businessorundertaking theprofitsderived
high costs of construction. They derived profits bythemembersofthe incidenttothejoint
associationandnot ownership.
from the sale and paid income tax. The sons
merelyfromproperty
were required to pay corporate income tax and
ownership.
income tax deficiency, on the theory that they
Existenceoffiduciaryrelationship
formed an unregistered partnership or joint
Thereisawelldefined
venturetaxableasacorporation.Didthesiblings Thereisnofiduciary
fiduciaryrelationship
formapartnership? relationshipbetween
betweenthemas
theparties.
partners.
A:No.Theoriginalpurposewastodividethelots Remedyfordispute
for residential purposes. If later, they found out Theremedyforadispute
thatitisnotfeasibletobuildtheirresidenceson Theremedywouldbe
ordifferencebetween
the lots, they can dissolve the coownership by anaction,asfor
themwouldbeanaction
reselling said lots. The division on the profit was instance,fornon
fordissolution,
merely incidental to the dissolution of the co performanceofa
termination,and
ownership which was in the nature of things a contract.
accounting.
temporary state. (Obillos, Jr. v. CIR, G.R. No. L Intent
68118,Oct.29,1985) Theremustbean
Thereisnointentto
unmistakableintention
formapartnership.
C.RULESTODETERMINEEXISTENCE toformapartnership.

Q:Whataretherulestodeterminetheexistence Q: A and B are coowners of an inherited
ofpartnership? properties.Theyagreedtousethesaidcommon
propertiesandtheincomederivedtherefromas
A: a common fund with the intention to produce
1. Personswhoarenotpartnersastoeach profitsfortheminproportiontotheirrespective
other are not partners as to third shares in the inheritance as determined in a
persons. project of partition. What is the effect of such
2. Coownership/copossession does not agreementontheexistingcoownership?
ofitselfestablishapartnership.
3. Sharing of gross returns does not of A: The coownership is automatically converted
itselfestablishapartnership. intoapartnership.Fromthemomentofpartition,
4. Receipt of a person of a share in the A and B, as heirs, are entitled already to their
profitsisaprimafacieevidencethathe respective definite shares of the estate and the
incomethereof,foreachofthemtomanageand
333

dispose of as exclusively his own without the c.In the absence of profit
intervention of the other heirs, and, accordingly, agreement, in proportion to his
hebecomesliableindividuallyforallthetaxesin capitalcontribution
connectiontherewith.
Q:Whatistheruleregardingastipulationwhich
If,aftersuchpartition,anheirallowshissharesto excludes a partner in the sharing of profits and
be held in common with his coheirs under a losses?
singlemanagementtobeusedwiththeintentof
making profit thereby in proportion to his share, A:
therecanbenodoubtthat,evenifnodocument GR:Stipulationisvoid.
orinstrumentwereexecutedforthepurpose,for
tax purposes, at least, an unregistered XPN:Industrialpartnerisnotliableforlosses
partnership is formed. (Ona v. Commissioner of [Art. 1797(2), NCC]. However, he is not
Internalrevenue,45SCRA74[1972]) exempted from liability insofar as third
personsareconcerned.
Q:Whatarethetypicalincidentsofpartnership?
Note:Lossisdifferentfromliability
A: If,besideshisservicestheindustrialpartnerhas
1. Thepartnersshareinprofitsandlosses. contributedcapital,heshallalsoreceiveashare
(Arts.1767,179798) intheprofitsinproportiontohiscapital.
2. They have equal rights in the
management and conduct of the
partnershipbusiness.(Art.1803) D.HOWPARTNERSHIPISFORMED
3. Every partner is an agent of
partnership, and entitled to bind the Q:Howarepartnershipsformed?
other partners by his acts, for the
purposeofitsbusiness.(Art.1818) A: It is created by agreement of the parties
4. Allpartnersarepersonallyliableforthe (consensual).
debts of the partnership with their
separateproperty(Arts.1816,182224) Note: There is no such thing as a partnership
exceptlimitedpartners. created by law or by operation or implication of
5. A fiduciary relationship exists between law alone. (De Leon, Comments and cases on
thepartners.(Art.1807) Partnership,AgencyandTrust,p.13,2005ed.
6. On dissolution, the partnership is not
terminated, but continues until the Q: What are the formalities needed for the
windingupofpartnershipiscompleted. creationofapartnership?
(Art1828)
A:
Q: What are the rules regarding distribution of GR:Nospecialformisrequiredforitsvalidity
profitsandlosses? orexistence.(Art.1771,NCC)

A: XPN: If property or real rights have been
1. Distributionofprofits contributedtothepartnership:
a. Thepartnersshareintheprofits 1. Personalproperty
accordingtotheiragreement a. LessthanP3,000maybeoral
b. Intheabsenceofsuch: b. P3,000ormoremustbe:
i. Capitalistpartnerin i. inapublicinstrument;and
proportiontohiscontribution ii. registered with SEC (Art.
ii. Industrialpartnerwhatis 1772,NCC)
justandequitableunderthe
circumstances Note: Even if the partnership
isnotregisteredwithSEC,the
2. Distributionoflosses partnership is still valid and
a. The partners share in the losses possesses a distinct
accordingtotheiragreement personality (Paras, Civil Code
b. In the absence of such, according of the Philippines Annotated,
th
totheiragreementastoprofits Volume5,p.412,19696 ed)
2. Realpropertyorrealrightsmustbe:
334 CIVILLAWTEAM:

PARTNERSHIP
a. in a public instrument (Art. 1771, mustregisterwithSEC.However,thisregistration

NCC) requirement is not mandatory. Article 1768 NCC
b. withaninventoryofsaidproperty explicitlyprovidesthatthepartnershipretainsits
i. signedbytheparties juridicalpersonalityevenifitfailstoregister.The
ii. attached to the public failure to register the contract of partnership
instrument(Art.1773,NCC) does not invalidate the same as among the
partners,solongasthecontracthastheessential
Note: Everything must be requisites, because the main purpose of
complied with; otherwise, registrationistogivenoticetothirdparties,andit
partnershipisvoidandhasno can be assumed that the members themselves
juridical personality even as knew of the contents of their contract. Non
between the parties (Art. compliance with this directory provision of the
1773,NCC) lawwillnotinvalidatethepartnership.
iii. registered in the Registry of
Property of the province, A partnership may be constituted in any form,
where the real property is except where immovable property of real rights
found to bind third persons are contributed thereto, in which case a public
(Paras,p.412) instrument shall be necessary. Hence, based on
the intention of the parties, a verbal contract of
3. Limited partnership must be partnershipmayarise.(SungaChanv.Chua,G.R.
registered as such with SEC, otherwise, No.143340,Aug.15,2001)
it is not valid as a limited partnership
but may still be considered a general Note: Registration is merely for administration and
partnership with juridical personality licensing purposes; hence, it shall not affect the
(Paras, Civil Code of the Philippines liabilityofthepartnershipandthemembersthereof
th tothirdpersons.[Art.1772,(2),NCC]
Annotated, Volume 5, p. 412, 1969 6
ed)
Q: A partnership was entered into between

Mauricio and Severino to operate a fishpond.
Q: If the requirements under Art. 1773, as
Neitherpartnercontributedafishpondorareal
regards contribution of real property to a
right over any fish pond. Their capital
partnership,hasnotbeencompliedwith,whatis
contributions were in cash in the amount of
thestatusofthepartnership?
P1,000each.Whilethepartnershipcontractwas
A: It is void. Nonetheless, a void partnership doneinapublicinstrument,noinventoryofthe
underArt.1773,inrelationtoArt.1771NCC,may fishpondtobeoperatedwasattachedinthesaid
still be considered by the courts as an ordinary instrument. Is there a valid contract of
contract as regards the parties thereto from partnership?
whichrightsandobligationstoeachothermaybe
A: Yes. There is a valid contract of partnership
inferred and enforced. (Torres v. CA, G.R. No.
despitethelackofinventory.Thepurposeofthe
134559,Dec.91999)
partnership was not to engage in the fishpond
Note:Torresv.CAdoesnotinvolvethirdpersons. business but to operate a fishpond. Neither said
fishpond nor a real right to any fish pond was
Q: What must be done in order that the contributedtothepartnershiporbecomepartof
partnership may be effective as against third the capital thereof. (Agad v. Mabato, G.R. No. L
persons whenever immovable property is 24193,June28,1968)
contributed?
E.PARTNERSHIPTERM
A:Tobeeffectiveagainst3rdparties,partnership
must be registered in the Registry of Property of Q:Whatisapartnershipwithafixedterm?
theprovincewheretherealpropertycontributed
islocated.(Art.1771,NCC) A:Itisoneinwhichthetermofitsexistencehas
beenagreeduponbythepartnerseither:
Q:Cantherebeapartnershipbasedonaverbal 1. Expresslythereisadefiniteperiod
agreement, and without such agreement being 2. Impliedly a particular enterprise or
registeredwithSEC? transactionisundertaken

A: Yes. Article 1772 NCC requires that Note:Themereexpectationthatthebusinesswould
partnerships with a capital of P3,000 or more besuccessfulandthatthepartnerswouldbeableto
335

recouptheirinvestmentisnotsufficienttocreatea CLASSIFICATIONSOFPARTNERSHIP
partnershipforaterm.
Q:Statetheclassificationsofpartnership.
Q: Can the partners fix any term in the A:Asto:
partnershipcontract? 1. Object
a. Universalpartnership
A: Yes. The partners shall be bound to remain i. of all present property (Art.
undersuchrelationforthedurationoftheterm. 1778, NCC) comprises the
following:
Q: What is the effect when the fixed term has propertywhichbelonged
expired? toeachofthepartnersat
the time of the
A: The expiration of the term fixed or the constitution of the
accomplishment of the particular undertaking partnership
specified will cause the automatic dissolution of profits which they may
thepartnership. acquirefromallproperty
contributed
Q:Whendoesapartnershipcommencetoexist? ii. ofallprofits(Art.1780,NCC)
comprises all that the
A: A partnership commences from the time of partnersmayacquirebytheir
execution of the contract if there is no contrary industry or work during the
stipulation as to the date of effectivity of the existenceofthepartnership
same. b. Particular partnership It is one
which has for its object,
NOTE: Registration to SEC is not essential to give it determinate things, their use and
juridicalpersonality. fruits, or a specific undertaking or
the exercise of a profession or a
There is no time limit prescribed by law for the vocation.(Art.1783,NCC)
lifeofapartnership.

2. Liabilityofpartners
Q:Whatisafuturepartnership?
a. General partnership One where
all partners are general partners
A: It is a kind of partnership where the partners
whoareliableevenwithrespectto
may stipulate some other date for the
their individual properties, after
commencementofthepartnership.Personswho
the assets of the partnership have
enter into a future partnership do not become
beenexhausted(Paras,p.411)
partners until or unless the agreed time has
b. Limited partnership One formed
arrivedorthecontingencyhashappened.
by 2 or more persons having as
NOTE: It is a partnership created by implied members one or more general
agreement, the continued existence of which will partners and one or more limited
depend upon the mutual desire and consent of the partners, the latter not being
partners. personallyliablefortheobligations
ofthepartnership.
Q:Whenisapartnershipatwillterminate?
3. Duration
A: It may be lawfully terminated at any time by a. Partnership at will Partnership
theexpresswillofallthepartnersoranyofthem. for a particular undertaking or
venture which may be terminated
Q:Howisapartnershipatwilldissolved? anytimebymutualagreement.
b. Partnership with a fixed period
A: Any one of the partners may dictate a Thetermforwhichthepartnership
dissolutionofapartnershipatwill. is to exist is fixed or agreed upon
or one formed for a particular
Note: The partner who wants the partnership
undertaking.
dissolved must do so in good faith, not that the

attendance of bad faith can prevent thedissolution
4. Legalityofexistence
of the partnership, but to avoid the liability for
damagestootherpartners. a. Dejurepartnership
b. Defactopartnership

336 CIVILLAWTEAM:

PARTNERSHIP
5. Representationtoothers cannot enter into a universal

a. Ordinaryorrealpartnership partnership.(Art.1782,NCC)
b. Ostensible or partnership by 2. Personssufferingfromcivilinterdiction
estoppel When two or more 3. Persons who cannot give consent to a
persons attempt to create a contract:
partnershipbutfailtocomplywith a. Minors
thelegalpersonalitiesessentialfor b. Insanepersons
juridical personality, the law c. Deafmuteswhodonotknowhow
considers them as partners, and towrite
the association is a partnership
insofar as it is favorable to third Q:Whatistheprincipleofdelectuspersonae?
persons,byreasonoftheequitable
principle of estoppel (MacDonald A:Thisreferstotherulethatisinherentinevery
et. al. v. Natl. City Bank of New partnership, that no one can become a member
York, G.R. No. L7991, May 21, of the partnership association without the
1956) consentofallthepartners.

6. Publicity Note:Evenifapartnerwillassociateanotherperson
a. Secret partnership Partnership in his share in the partnership, the associate shall
thatisnotknowntomanybutonly not be admitted into the partnership without the
astoitspartners. consent of all the partners, even if the partner
b. NotoriousoropenpartnershipIt havinganassociateshouldbeamanager(Art.1804,
is known not only to the partners, NCC).
buttothepublicaswell.
Q: May a corporation enter into a partnership
7. Purpose withanothercorporation?
a. Commercial or trading One
formed for the transaction of A: As a rule, it is illegal for two corporations to
business. enter into a partnership. Nevertheless, a
corporation may enter into a joint venture with
b. Professional or nontrading One anotherifthenatureoftheventureisinlinewith
formed for the exercise of a thebusinessauthorizedbyitscharter.(Tuasonv.
profession Bolaos,G.R.No.L4935,May28,1954)

Q:Whatarethedifferentkindsofpartnership Q:Whatarethedifferentkindsofpartners?
undertheSpanishCivilCode?
A:
A: 1. CapitalistContributesmoneyor
1. Sociedad Anonima similar to propertytothecommonfund
anonymouspartnership 2. Industrial Contributes only his
2. SociedadColectivawhichisgeneralor industryorpersonalservice
rd
collectivepartnership 3. General One whose liability to 3
3. Sociedad de Cuentas en Participacion persons extends to his separate or
jointaccountpartnership personalproperty
rd
4. SociedadMercantileRegularColectiva 4. Limited One whose liability to 3
mercantilepartnershipcompany persons is limited to his capital
5. SociedadLeonilapartnershipbywhich contribution
theentireprofitsshouldbelongtosome 5. Managing Manages the affairs or
ofthepartnersinexclusionoftherest businessofthepartnership
6. Liquidating Takes charge of the
Q:Whomaybepartners? winding up of partnership affairs upon
dissolution
A: 7. Partner by estoppel Is not really a
GR: Any person capacitated to contract may partnerbutisliableasapartnerforthe
rd
enterintoacontractofpartnership. protectionofinnocent3 persons
XPNs: 8. Continuing partner Continues the
1. Personswhoareprohibitedfromgiving business of a partnership after it has
each other any donation or advantage been dissolved by reason of the
admissionofanewpartner,retirement,
337

death or expulsion of one of the theusufruct ifthereisastipulationtosuch
partners contributed) effect
9. Surviving partner Remains after a Astopropertiessubsequently
partnership has been dissolved by acquired:
deathofanypartner GR: Propertiessubsequently
10. Subpartner Is not a member of the acquiredbyinheritance,legacy
partnership; contracts with a partner ordonation,cannotbeincluded
with reference to the latter's share in inthestipulation
thepartnership
XPN:Onlyfruitsthereofcanbe
11. Ostensible Takes active part and
includedinthestipulation(Art.
known to the public as partner in the
1779,NCC)
business

12. Secret Takes active part in the
Q:IftheArticlesofUniversalPartnershipfailto
business but is not known to be a
specifywhetheritisoneofallpresentproperty
partnerbyoutsideparties
orofprofits,whatshallbethenatureofsuch?
13. SilentDoesnottakeanyactivepartin

thebusinessalthoughhemaybeknown
A: Articles of Universal Partnership entered into
tobeapartner
without specification of its nature only
14. DormantDoesnottakeactivepartin
constitutesauniversalpartnershipofprofits(Art.
the business and is not known or held
1781,NCC),becauseitimposeslesserobligations
outasapartner
on the partners, since they preserve the

ownershipoftheirseparateproperty.
Q: What are the relations created by a contract

ofpartnership?
PARTICULARPARTNERSHIP

A:
Q:Whatisparticularpartnership?
1. PartnersPartners

2. PartnersPartnership
rd A: It is one which has for its object, determinate
3. Partnership3 persons with whom it
things, their use and fruits, or a specific
contracts
undertaking or the exercise of a profession or a
4. Partners3rd persons with whom
vocation.(Art.1783,NCC)
partnershipcontracts.

Q:J,PandBformedalimitedpartnershipcalled
F.UNIVERSALVS.PARTICULAR;
Suter Co., with P as the general partner and J
GENERALVS.LIMITED
and B as limited partners. J and B contributed

P18,000andP20,000respectively.Later,JandB
UNIVERSALPARTNERSHIP
got married and P sold his share of the

partnership to the spouses which was recorded
Q: Distinguish the classes of universal
in the SEC. Has the limited partnership been
partnership.
dissolvedbyreasonofthemarriagebetweenthe

limitedpartners?
A:

ALLPROFITS ALLPRESENTPROPERTY
A: No. The partnership is not a universal but a
Whatconstitutescommonproperty
particular one. As provided by law, a universal
Onlyusufructof Allpropertiesactually
thepropertiesof belongingtothepartnersare
partnershiprequireseitherthattheobjectofthe
thepartners contributedtheybecome association must be all present property of the
becomecommon commonproperty partners as contributed by them to a common
property (ownedbyallofthepartners fund,orallelsethatthepartnersmayacquireby
andthepartnership) their industry or work. Here, the contributions
Astoprofitsascommonproperty were fixed sums of money and neither one of
Allprofits Astoprofitsfromothersources: them were industrial partners. Thus, the firm is
acquiredbythe GR:Asidefromthecontributed not a partnership which the spouses are
industryofthe properties,theprofitsofsaid forbiddentoenterinto.Thesubsequentmarriage
partnersbecome propertybecomecommon cannotoperatetodissolveitbecauseitisnotone
commonproperty property of the causes provided by law. The capital
(whetherornot contributions were owned separately by them
theywere XPN:Profitsfromother before their marriage and shall remain to be
obtainedthrough sourcesmaybecomecommon separate under the Spanish Civil Code. Their
338 CIVILLAWTEAM:

PARTNERSHIP
individual interest did not become common Q:Whoisageneralpartner?

property after their marriage. (Commissioner of
Internal Revenue v. Suter, G.R. No. L25532, Feb. A:Onewhoseliabilitytothirdpersonsextendsto
28,1969) his separate property; he may be either a
capitalist or an industrial partner. (De Leon,
Q:Whendoesapartnerbindthepartnership? CommentsandCasesonPartnership,Agency,and
A: Trust,p.77,2005ed)
1. When he is expressly or impliedly
authorized Q:Whataretheobligationsofapartner?
2. Whenheactsinbehalfandinthename
ofthepartnership A:
1. Obligationsamongthemselves
GENERALPARTNERSHIP 2. Obligationstothirdpersons

Q:Whatisgeneralpartnership? Q:Whatisthebasisforsuchobligations?

A: One where all partners are general partners A: These obligations are based on trust and
who are liable even with respect to their confidence of the partners since partnership is
individual properties, after the assets of the grounded on the fiduciary relationship of the
partnership have been exhausted (Paras, Civil partnersandaswelltothirdpersons.
Code of the Philippines Annotated, Volume 5, p.
th
411,19696 ed)
Q:Whatarethedistinctionsbetweenageneralandalimitedpartner/partnership?
A:
GENERAL LIMITED
ExtentofLiability
Personallyliableforpartnershipobligations Liabilityextendsonly tohiscapitalcontributions
RightinManagement
Whenmannerofmanagementisnotagreedupon,
allgeneralpartnershaveanequalrightinthe Noparticipationinmanagement
managementofthebusiness
Contribution
Contributecash,propertyorindustry Contributecashorpropertyonly,notindustry
IfProperPartyto ProceedingsByorAgainstPartnership
Not proper party to proceedings by/against partnership,
unless:
Properpartytoproceedingsby/againstpartnership 1. Heisalsoageneralpartner;or
2. Where the object of the proceeding is to enforce a
limitedpartnersrightorliabilitytothepartnership
AssignmentofInterest
Interestisnotassignablewithoutconsentofother
Interestisfreelyassignable
partners
FirmName
GR: Namemustnot appearinfirmname

XPNs:
1. Itisalsothesurnameofageneralpartner;
Namemayappearinfirmname 2. Prior to the time when the limited partner became
such,thebusinesshadbeencarriedonunderaname
inwhichhissurnameappeared.
ProhibitiontoEngageinOtherBusiness
Prohibitedinengaginginbusiness Noprohibition againstengaginginbusiness
EffectofDeath,Insolvency,Retirement,Insanity
Retirement,death,insolvency,insanityofgeneral Doesnothavesameeffect;rightsaretransferredtolegal
partnerdissolvespartnership representative
Creation
Asarule,itmaybeconstitutedinanyform,by Createdbythemembersaftersubstantialcompliancein
339

contractorconductofthepartnership goodfaithoftherequirementssetforthbylaw
Composition/Membership
Composedofoneormoregeneralpartnersandoneor
Composedonlyofgeneralpartners
morelimitedpartners

G.PARTNERSHIPBYESTOPPEL H.PARTNERSHIPV.JOINTVENTURE

Q:Whoisapartnerbyestoppel? Q:Whatisajointventure?

A:Onewho,bywordsorconductdoesanyofthe A:Anassociationofpersonsorcompaniesjointly
following: undertaking some commercial enterprise;
1. Directlyrepresentshimselftoanyoneas generally,allcontributesassetsandsharerisks.It
apartnerinanexistingpartnershiporin requires a community of interest in the
anonexistingpartnership performance of the subject matter, a right to
2. Indirectly represents himself by direct and govern the policy in connection
consentingtoanotherrepresentinghim therewith, and a duty which may be altered by
as a partner in an existing partnership agreementtosharebothinprofitsandlosses.
orinanonexistingpartnership
Partnership JointVenture
Q: What are the elements before a partner can Transactionsenteredinto
beheldliableonthegroundofestoppel?
Thedurationofa
Limitedtotheperiodin
A: partnershipgenerally
whichthegoodsare
1. Defendant represented himself as relatestoacontinuing
soldortheprojectis
partner or is represented by others as businessofvarious
carriedonorasingle
such, and did not deny/refute such transactionsofacertain
transaction.
representation. kind.

2. Plaintiffreliedonsuchrepresentation.
Nature
3. Statementofdefendantisnotrefuted.
Permanent,partnersare

interestedincarryingon
Q:Whataretheliabilitiesincaseofestoppel?
togetherofageneraland
continuingbusinessofa
A: particularkind. Temporary,althoughit
WhenPartnershipisLiable maycontinuefora
Ifallactualpartnersconsentedtothe Note:Aparticular numberofyears.
representation,thentheliabilityofthepersonwho partnershiphasalimited
representedhimselftobeapartnerorwho andtemporaryoradhoc
consentedtosuchrepresentationandtheactual nature,beingconfinedto
partnerisconsideredapartnershipliability asingleundertaking.
FirmNameandLiablities
WhenLiabilityisPRORATA
Theremustbea
When there is no existing partnership and all those partnershiporfirmname
represented as partners consented to the Afirmnameisnot
underwhichthe
representation, then the liability of thepersonwho necessary,thusthe
partnershipshalloperate.
represented himself to be a partner and all who participatingpersons
Thenamesofthe
madeandconsentedtosuchrepresentation,isjoint cantransactbusiness
partnersmayappearin
orprorata undertheirownname
thefirmnameandthe
andcanbeindividually
WhenLiabilityisSEPARATE actofthepartnerswill
liabletherefore.
Whenthereisnoexistingpartnershipandnotallbut makethepartnership
only some of those represented as partners liable.
consented to the representation, or none of the Corporationaspartner
partnership in an existing partnership consented to Corporationcannotenter Corporationscan
such representation, then the liability will be intoapartnership engageinajoint
separate contract,thusitcannot venturewithothers
beapartnerbyreasonof throughacontractof

publicpolicy;otherwise agreementifthenature
peopleotherthanits oftheventureinline
officersmaybeableto withthebusinessofthe
bindit(Albano,CivilLaw corporationanditis

340 CIVILLAWTEAM:

PARTNERSHIP
Reviewer,1998,p.570) authorizedinits ofPetitionforAuthoritytoContinueUse

charter. of Firm Name Sycip, Salazar, etc. /
Ozeata Romulo, etc., 92 SCRA 1
LegalPersonality [1979], citing H.S. Drinker, Legal Ethics
A partnership acquires [1953],pp45.)
personality after
following the requisites Q: What is prohibited in the firm name of a
required by law. e.g. Art. partnershipforthepracticeoflaw?
17711773,NCC
Ajointventurehasno
A:Intheselectionanduseoffirmname,nofalse,
legalpersonality.
Note: SEC registration is misleading, assumed, or trade names should be
not required before a used.(CanonsofProfessionalEthics)
partnershipacquireslegal
personality. (Art. 1768, J.MANAGEMENTOFTHEPARTNERSHIP
NCC)
Q: What are the modes of appointment of a
manager?
I.PROFESSIONALPARTNERSHIP
A:
Q:Whatisaprofessionalpartnership? Appointmentthrough
AppointmentOther
theArticlesof
A: It is a partnership formed by persons for the ThanintheArticles
Partnership
sole purpose of exercising their common Powerisirrevocable
profession, no part of the income of which is withoutjustorlawful
derivedfromengaginginanytradeorbusiness. cause

Q:Inaprofessionalpartnership,whoisdeemed Note:Voterequiredfor
engagedinthepracticeofprofession? removalofmanager Powertoactisrevocable
1. For just cause anytime,withorwithout
A: It is the individual partners and not the Vote of the cause(shouldbedoneby
partnership. Thus, they are responsible for their controlling thecontrollinginterest)
ownacts. partners
(controlling
financialinterest)
Q: What is prohibited in the formation of a
2. Without cause or
professionalpartnership? for unjust cause
Unanimousvote
A:Partnershipbetweenlawyersandmembersof ExtentofPower
other profession or nonprofessional persons 1. If he acts in good
should not be formed or permitted where any faith,hemaydoall
partofthepartnershipsemploymentconsistsof acts of Aslongasheisa
the practice of law. (Canons of Professional administration manager,hecanperform
Ethics) (despite allactsofadministration
opposition of his (ifothersoppose,hecan
Q:Whatarethecharacteristicsofapartnership partners) beremoved)
forthepracticeoflaw? 2. If he acts in bad
faith,hecannot
A:
a. A duty of public service, of which the
emolumentisabyproduct
b. Arelationasanofficerofcourttothe
administrationofjustice
c. A relation to clients in the highest
fiduciarydegree
d. A relationship to colleagues at the bar
characterized by candor, fairness, and
unwillingness to resort to current
business methods of advertising and
encroachment on their practice, or
dealingwiththeirclients.(IntheMatter
341

Q:Whatistherulewheretherearetwoormore firm. (Tai Tong Chuache & Co. v. Insurance
managers? Commissioner,G.R.No.L55397,Feb.29,1988)
A:
Withoutspecificationoftheirrespectiveduties Note:Ifrefusalofpartnerismanifestlyprejudicialto
andwithoutstipulationrequiringunanimityof theinterestofpartnership,courtsinterventionmay
action besought.
GR: Each may separately execute all acts of
administration (unlimited power to Q: What are the remedies available to the
administer) creditorsofapartner?

XPN:Ifanyofthemanagersopposes,decision A:
ofthemajorityprevails 1. Separate or individual creditors should
first secure a judgment on their credit;
Note:IncaseoftieDecisionofthecontrolling and
interest(whoarealsomanagers)shallprevail 2. Applytothepropercourtforacharging
order subjecting the interest of the
Nature debtorpartner in the partnership for
GR:Unanimousconsentofallthemanaging thepaymentoftheunsatisfiedamount
partnersshallbenecessaryforthevalidityofthe of the judgment debt with interest
actsandabsenceorinabilityofanymanaging thereon.
partnercannotbealleged.

XPN:Wherethereisanimminentdangerofgrave
orirreparableinjurytothepartnership.

Q: What is the rule when the manner of

managementhasnotbeenagreedupon?

A:

1. All partners shall be considered

managersandagents

2. Unanimous consent is required for

alterationofimmovableproperty

Q:AzucenaandPedroacquiredaparcelofland

andabuilding.AzucenaobtainedaloanfromTai

Tong Co., secured by a mortgage which was

executed over the land and building. Arsenio,

representative of Tai Tong, insured it with

Travellers Multi Indemnity Corporation. The

buildingandthecontentsthereofwererazedby

fire. Travellers failed to pay the insurance.

Hence, Azucena and Pedro filed a case against

TravellerswhereinTaiTongintervenedclaiming

entitlement to the proceeds from Travellers.

Whoisentitledtotheproceedsofthepolicy?

A:TaiToingisentitledtotheinsuranceproceeds.

Arseniocontractedtheinsurancepolicyonbehalf

of Tai Tong. As the managing partner of the

partnership, he may execute all acts of

administration including the right to sue debtors

of the partnership in case of their failure to pay

their obligations when it became due and

demandable. Or at the very least, Arsenio is an

agent of the partnership. Being an agent, it is

understoodthatheactedforandinbehalfofthe

342 CIVILLAWTEAM:

PARTNERSHIP
Q:Whataretheeffectsoftheactsofpartners?
A:
ACTSOFAPARTNER EFFECT
Withbindingeffectexcept:

1. Whenthepartnersoactinghasinfactnoauthorityto

actforthepartnershipintheparticularmatter,and
Actsforapparentlycarryingonintheusualwaythe
2. Thepersonwithwhomheisdealinghasknowledgeof
businessofthepartnership
thefactthathehasnosuchauthority
Donotbind partnershipunlessauthorizedbyother
Actsnotintheordinarycourseofbusiness
partners(par.2,Art.1818,NCC)
Actsofstrictdominionorownership:
1. Assigning partnership property in trust for
GR:Oneormorebutlessthanallthepartnershaveno
creditors;
authority
2. Disposingofgoodwillofbusiness;

3. Doinganactwhichwouldmakeitimpossibleto
XPNs:
carryontheordinarybusinessofpartnership;
1. authorizedbytheotherpartners;or
4. Confessingajudgment;

5. Entering into a compromise concerning a
2. p
partnershipclaimorliability;
3. artners have abandoned the business (par. 2, Art.
6. Submitting partnership claim or liability to
1818,NCC)
arbitration;
7. Renouncingclaimofpartnership
Partnershipisnotliable to3rdpersonshavingactualor
Actsincontraventionofarestrictiononauthority
presumptiveknowledgeoftherestriction
Q:Whatistheeffectofconveyanceofarealproperty?
A:
TYPEOFCONVEYANCE EFFECT
Conveyancepassestitlebutpartnershipcanrecoverunless:

1.
a. Conveyancewasdoneintheusualwayofbusiness,and
Titleinthepartnershipsname; b. The partner so acting has the authority to act for the
Conveyanceinpartnershipname partnership;or
2. The property which has been conveyed by the grantee or a
person claiming through such grantee to a holder for value
without knowledge that the partner, in making the
conveyance,hasexceededhisauthority
Conveyancedoesnotpasstitlebutonlyequitableinterest,
provided:
Titleinthepartnershipsname;
1. Conveyancewasdoneintheusualwayofbusiness,or
Conveyanceinpartner'sname
2. The partner so acting has the authority to act for the
partnership
Conveyancepassestitlebutthepartnershipmayrecoversuch
propertyifthepartnersactdoesnotbindthepartnership:
Titleinthenameof1ormorepartners,and
1. The partner so acting has no authority to act for the
therecorddoesnotdisclosetherightofthe
partnership,and
partnership;Conveyanceinnameof
2. The person with whom he is dealing has knowledge of the
partner/sinwhosenametitlestands
fact unless the purchaser of his assignee, is a holder for
value,withoutknowledge
Titleinnameof1ormoreorallpartnersor
Conveyancewillonlypassequitableinterest,provided:
3rdpersonintrustforpartnership;
1. Theactisonewithintheauthorityofthepartner,and
Conveyanceexecutedinpartnershipname
2. Conveyancewasdoneintheusualwayofthebusiness
orinnameofpartners
Titleinthenamesofallthepartners;
Conveyancewillpassalltherightsinsuchproperty
Conveyanceexecutedbyallthepartners
343

II.RIGHTSANDOBLIGATIONSOFPARTNERSHIP shouldhavebeencontributeduptothe
timeofactualdelivery
Q:Whataretheresponsibilitiesofapartnership
topartners? 4. Preserve said property with the
diligence of a good father of a family,
A: pendingdeliverytothepartnership
1. Refund the amounts disbursed by
partnerinbehalfofthepartnershipplus 5. Indemnify the partnership for any
corresponding interest from the time damagecausedtoitbytheretentionof
the expenses are made (e.g. loans and the same or by the delay in its
advances made by a partner to the contribution
partnership aside from capital
contribution) Q: Who bears the risk of loss of things
2. Answer for obligations a partner may contributed?
have contracted in good faith in the
interestofthepartnershipbusiness A:
3. Answer for risks in consequence of its WHOBEARSTHE
KINDOFPROPERTY/THING
management(Art.1796) RISK?
Specificanddeterminatethings
III.RIGHTSANDOBLIGATIONSOFPARTNERS whicharenotfungiblewhere partners
AMONGTHEMSELVES onlytheuseiscontributed

Specificanddeterminatethings
Q: What are the obligations of partners among
theownershipofwhichis
themselves?
transferredtothepartnership

A: Fungiblethings(Consumable) partnership
1. Contributionofproperty(Art.1786)
2. Contribution of money and money Thingscontributedtobesold
convertedtopersonaluse(Art.1788) Thingsbroughtandappraisedin
3. Prohibition in engaging in business for theinventory
himself(Art.1789)
4. Contributeadditionalcapital(Art.1791) Q: What is the effect if a partner fails to
5. Managing partner who collects debt contribute the property which he promised to
(Art.1792) delivertothepartnership?
6. Partner who receives share of
partnershipcredit(Art.1793) A:
7. Damagestopartnership(Art.1794) 1. Partners become ipso jure a debtor of
8. Renderinformation(Art.1806) the partnership even in the absence of
9. Accountableasfiduciary(Art.1807) anydemand(Art.1786,NCC)
2. Remedy of the other partner is not
CONTRIBUTIONOFPROPERTY rescissionbutspecificperformancewith
damagesfromdefaultingpartner
Q: What are the obligations of partners with
respecttocontributionofproperty? CONTRIBUTIONOFMONEYANDMONEY
CONVERTEDTOPERSONALUSE
A:ToCAFPI
1. Contribute at the beginning of the Q:Whataretherulesregardingcontributionof
partnership, or at the stipulated time, moneytothepartnership?
the money, property or industry which
hemayhavepromisedtocontribute A:CRIP
1. To Contribute on the date fixed the
2. Answer for eviction in case the amount the partner has undertaken to
partnership is deprived of the contributetothepartnership
determinatepropertycontributed 2. To Reimburse any amount the partner
may have taken from the partnership
3. AnswertothepartnershipfortheFruits coffersandconvertedtohisownuse
of the property the contribution of 3. To Indemnify the partnership for the
which he delayed, from the date they damages caused to it by delay in the
344 CIVILLAWTEAM:

PARTNERSHIP
contribution or conversion of any sum 3. Partner who collects is authorized to

forthepartnerspersonalbenefits manage and actually manages the
4. To Pay for the agreed or legal interest, partnership
if the partner fails to pay his
contributionontimeorincasehetakes PARTNERWHORECEIVESSHAREOF
anyamountfromthecommonfundand PARTNERSHIPCREDIT
convertsittohisownuse
Q:Whatistheobligationofapartnerwho
CONTRIBUTEADDITIONALCAPITAL receivesshareofpartnershipcredit?

Q:Whataretherulesregardingobligationsto A:Tobringtothepartnershipcapitalwhathehas
contributetopartnershipcapital? received even though he may have given receipt
forhisshareonly.
A:
1. Partners must contribute equal shares Note:Requisites:
to the capital of the partnership unless 1. Apartnerhasreceivedinwholeorinpart,
thereisstipulationtocontrary hisshareofthepartnershipcredit
2. Capitalist partners must contribute 2. Other partners have not collected their
shares
additional capital in case of imminent
3. Partnershipdebtorhasbecomeinsolvent
loss to the business of the partnership

when there is no stipulation to the
Q:Mayapersonwhohasnotdirectlytransacted
contrary; Refusal to do so shall create
in behalf of an unincorporated association be
anobligationontherefusingpartnerto
held liable for a contract entered into by such
sellhisinteresttotheotherpartners
association?

Q: What are the requisites before capitalist
A:Yes.Theliabilityforacontractenteredintoon
partners are compelled to contribute additional
behalf of an unincorporated association or
capital?
ostensible corporation may lie in a person who
may not have directly transacted on its behalf,

A:
butreapedbenefitsfromthatcontract.(LimTong
1. Imminent loss of the business of the
Limv.PhilippineFishingGearIndustriesInc.,G.R.
partnership
No.136448,Nov.3,1999)
2. Majorityofthecapitalistpartnersareof

the opinion that an additional
PROHIBITIONINENGAGINGINBUSINESS
contribution to the common fund

wouldsavethebusiness
Q: What are the rules regarding the prohibition
3. Capitalistpartnerrefusesdeliberatelyto
toengageinanotherbusiness?
contribute (not due to financial

inability)
A:
4. Thereisnoagreementtothecontrary
INDUSTRIALPARTNER CAPITALISTPARTNER
Prohibition
MANAGINGPARTNERWHOCOLLECTSDEBT
Cannotengagein
Cannotengagein
business(withsame
Q: What are the obligations of managing businessforhimself
kindofbusinesswith
partners who collect his personal receivable unlessthepartnership
thepartnership)forhis
fromapersonwhoalsoowesthepartnership? expresslypermitshimto
ownaccount,unless
doso
thereisastipulationto
A:
thecontrary
1. Apply sum collected to 2 credits in Remedy
proportiontotheiramounts Capitalistpartnersmay:
Capitalist partner, who
2. If he received it for the account of 1. Exclude him from
violatedshall:
partnership, the whole sum shall be thefirm
1. Bring to the
appliedtopartnershipcredit 2. Avail themselves of
common fund any
the benefits which
profits accruing to
Note:Requisites: he may have
him from said
1. Atleast2debts,onewherethecollecting obtained
transaction;and
partner is creditor and the other, where 3. Damages, in either
2. Bears all losses
thepartnershipisthecreditor case (Art. 1789,
(Art.1808,NCC)
2. Bothdebtsaredemandable NCC)
345

Q:JoeandRudyformedapartnershiptooperate other partners from any transaction connected
a car repair shop in Quezon City. Joe provided withtheformation,conduct,orliquidationofthe
thecapitalwhileRudycontributedhislaborand partnership or from any use by him of its
industry. Onone side of their shop, Joe opened property.(Art.1807,NCC)
and operated a coffee shop, while on the other
side, Rudy put up a car accessories store. May RIGHTSOFGENERALPARTNERS
theyengageinsuchseparatebusinesses?Why?
Q:Whatarethepropertyrightsofapartner?
A: Joe, the capitalist partner, may engage in the A:SIM
restaurant business because it is not the same 1. RightinSpecificpartnershipproperty
kindofbusinessthepartnershipisengagedin.On 2. Interestinthepartnership(shareinthe
the other hand, Rudy may not engage in any profitsandsurplus)
other business unless their partnership expressly 3. RighttoparticipateintheManagement
permits him to do so because as an industrial
partner he has to devote his full time to the Q: What is the nature of a partner's right in
business of the partnership (Art. 1789, NCC). specificpartnershipproperty?
(2001BarQuestion)
A:
DAMAGESTOPARTNERSHIP 1. Equal right to possession for
partnershippurposes
Q:Whatistherulewithregardtotheobligation 2. Right is not assignable, except in
of a partner as to damages suffered by the connectionwithassignmentofrightsof
partnershipthroughhisfault? allpartnersinthesameproperty
3. Right is limited to his share of what
A: remains after partnership debts have
GR: Every partner is responsible to the beenpaid
partnership for damages suffered by it 4. Right is not subject to attachment or
throughhisownfault.Thesedamagescannot executionexceptonaclaimagainstthe
be offset by the profits or benefits which he partnership
may have earned for the partnership by his 5. Rightisnotsubjecttolegalsupport
industry.
Q: What are the effects of assignment of
XPN:Ifunusualprofitsarerealizedthrough partnerswholeinterestinthepartnership?
extraordinaryeffortsoftheguiltypartner,the
courtsmayequitablymitigateorlessenhis A:
liabilityfordamages.(Art.1794,NCC) 1. Rightswithheldfromtheassignee:
Such assignment does not grant the
DUTYTORENDERINFORMATION assigneetherightto:
a. Tointerfereinthemanagement
Q:Whatisthedutyofthepartnerswithrespect b. To require any information or
toinformationaffectingthepartnership? account
c. Toinspectpartnershipbooks
A: They shall render on demand true and full
informationofallthingsaffectingthepartnership 2. Rightsofassigneeonpartnersinterest:
to: a. To receive in accordance with his
1. thepartner;or contracttheprofitsaccruingtothe
2. legalrepresentativeofanydeceasedor assigningpartner
legally disabled partner. (Art. 1806, b. To avail himself of the usual
NCC) remedies provided by law in the
eventoffraudinthemanagement
ACCOUNTABLEASFIDUCIARY c. Toreceivetheassignorsinterestin
caseofdissolution
Q: How are partners accountable to each other d. To require an account of
asfiduciary? partnershipaffairs,butonlyincase
the partnership is dissolved, and
A:Everypartnermustaccounttothepartnership suchaccountshallcovertheperiod
for any benefit, and hold as trustee for it any from the date only of the last
profitsderivedbyhimwithouttheconsentofthe
346 CIVILLAWTEAM:

PARTNERSHIP
account agreed to by all the IV.OBLIGATIONSOFPARTNERSHIP/PARTNERS

partners TOTHIRDPERSONS

Q:Whataretheeffectsofconveyanceofa Q: What are the obligations of partners with
partnerofhisinterestinthepartnership? regardto3rdpersons?

A: A:
1. Conveyance of his whole interest 1. Everypartnershipshalloperateundera
partnership may either remain or be firm name. Persons who include their
dissolved names in the partnership name even if
2. Assigneedoesnotnecessarilybecomea theyarenotmembersshallbeliableas
partner;hecannot: apartner
a. interfere in the management or 2. All partners shall be liable for
administration;or contractual obligations of the
b. demand information, accounting partnershipwiththeirproperty,afterall
and inspection of the partnership partnership assets have been
books. exhausted:
a. Prorata
Note:Buttheassigneehasthefollowingrights: b. Subsidiary
1. receive in accordance with his contract 3. Admission or representation made by
the profits which the assigning partner any partner concerning partnership
wouldotherwisebeentitled affairswithinthescopeofhisauthority
2. avail himself of the usual remedies isevidenceagainstthepartnership
provided by law in event of fraud in 4. Noticetopartnerofanymatterrelating
management
topartnershipaffairsoperatesasnotice
3. receive assignors interest in case of
topartnershipexceptincaseoffraud:
dissolution
a. Knowledgeofpartneractinginthe
4. requireandaccountofpartnershipaffairs
but only in case the partnership is
particular matter acquired while a
dissolved, and such account shall cover partner
the period from the date only of the last b. Knowledgeofthepartneractingin
accountagreedtobyalltheparties the particular matter then present
tohismind
c. Knowledge of any other partner
CRIMINALLIABILITYFORMISAPPROPRIATION:
who reasonably could and should
ESTAFA
have communicated it to the
actingpartner
Q: Rosa received from Jois money, with the
5. Partners and the partnership are
express obligation to act as Jois agent in rd
solidarily liable to 3 persons for the
purchasing local cigarettes, to resell them to
partner'stortorbreachoftrust
several stores, and to give Jois the commission
6. Liability of incoming partner is limited
correspondingtotheprofitsreceived.However,
to:
Rosa misappropriated and converted the said
a. His share in the partnership
amount due to Jois to her personal use and
propertyforexistingobligations
benefit. Jois filed a case of estafa against Rosa.
b. His separate property for
Can Rosa deny liability on the ground that a
subsequentobligations
partnershipwasformedbetweenherandRosa?
7. Creditorsofpartnershiparepreferredin
partnership property & may attach

A: No. Even assuming that a contract of
partner'sshareinpartnershipassets
partnership was indeed entered into by and

betweentheparties,whenapartnerreceivesany
Note: On solidary liability. Art. 1816 should be
moneyorpropertyforaspecificpurpose(suchas
construed together with Art. 1824 (in connection
that obtaining in the instant case) and he later withArts.1822and1823).Whiletheliabilityofthe
misappropriates the same, is guilty of estafa. partnersismerelyjointintransactionsenteredinto
(Liwanagv.CA,G.R.No.114398,Oct.24,1997) by the partnership, a third person who transacted
with said partnership may hold the partners
solidarilyliableforthewholeobligationifthecaseof
thethirdpersonfallsunderArticles1822and1823.
(Munasquev.CA,G.R.No.L39780,Nov.11,1985)

347

V.DISSOLUTION c. a partner has been guilty of such
conduct as tends to affect
Q: Distinguish dissolution, winding up and prejudiciallythecarryingonofthe
termination. business
d. a partner willfully or persistently
Dissolution Windingup Termination commits a breach of the
Achangeinthe partnershipagreement
Pointintime
relationofthe e. thebusinessofthepartnershipcan
whenall
partners Settlingthe onlybecarriedonataloss
partnership
causedbyany partnership f. other circumstances render a
affairsare
partnerceasing businessor dissolutionequitable
woundupor
tobe affairsafter
completed;the
associatedin dissolution Q:Whataretheeffectsofdissolution?
endofthe
carryingonthe
partnershiplife
business.
A:

1. Partnershipisnotterminated
Q:Whatarethecausesofdissolution?
2. Partnership continues for a limited

purpose
A:
3. Transaction of new business is
1. Withoutviolatingtheagreement:
prohibited (De Leon, Comments and
a. Terminationofthedefinitetermor
Cases on Partnership, Agency, and
specificundertaking
Trust,p.229,2005ed)
b. Expresswillofanypartneringood

faith, when there is no definite Note: The dissolution of a partnership must not be
termandnospecifiedundertaking understood in the absolute and strict sense so that
c. Express will of all partners (except at the termination of the object for which it was
those who have assigned their createdthepartnershipisextinguished,pendingthe
interests or suffered them to be windingupofsomeincidentsandobligationsofthe
charged for their separate debts) partnership,butinsuchcase,thepartnershipwillbe
either before or after the reputedasexistinguntilthejuridicalrelationsarising
termination of any specified term outofthecontractaredissolved.(TestateofMotta
orparticularundertaking v.Serra,G.R.No.L22825,Feb.14,1925)
d. Expulsion of any partner in good
faithofamember Dissolution does not automatically result in the
2. Violatingtheagreement termination of the legal personality of the
3. Unlawfulnessofthebusiness partnership,northerelationsofthepartnersamong
4. Loss themselves who remain as copartners until the
partnershipis terminated. (De Leon, Comments and
a. Specific thing promised as
CasesonPartnership,Agency,andTrust,p.29,2005
contribution is lost or perished
ed)
beforedelivery

b. Lossofaspecificthingcontributed
Q: What is the effect of dissolution on the
beforeorafterdelivery,ifonlythe
authorityofapartner?
useofsuchiscontributed

A:
Note: The partnership shall not be
GR: The partnership ceases to be a going
dissolvedbythelossofthethingwhenit
occurs after the partnership has acquired concern
theownershipthereof.
XPN:Thepartnerspowerofrepresentationis
5. Deathofanyofthepartners confinedonlytoactsincidenttowindingupor
6. Insolvency of any partner or of the completing transactions begun but not then
partnership finished.(Art.1832,NCC)
7. Civilinterdictionofanypartner
8. BydecreeofcourtunderArt.1831,NCC Note: Subject to the qualifications set forth in
Articles 1833 and 1834 in relation to Article
a. apartnerhasbeendeclaredinsane
1832,NCC:
orofunsoundmind
1. In so far as the partners themselves are
b. a partner becomes in any other
concerned The authority of any partner
way incapable of performing his tobindthepartnershipbyanewcontract
partofthepartnershipcontract is immediately terminated when the
348 CIVILLAWTEAM:

PARTNERSHIP
dissolution is not by the Act, Insolvency, Q: After the dissolution of a partnership, can a
orDeathofapartner(AID). partnerstillbindthepartnership?
2. When the dissolution is by the act,
insolvency, or death, the termination of A:
authority depends upon whether or not GR: Yes. A partner continues to bind
the partner had knowledge or notice of partnership even after dissolution in the
dissolution(Art.1833,NCC). followingcases:
1. Transactions to wind up partnership

Q:Thearticlesofcopartnershipprovidethatin
affairs/complete transactions
case of death of one partner, the partnership
unfinishedatdissolution;
shallnotbedissolvedbutshallbecontinuedby
2. Transactions which would bind
thedeceasedpartnersheirs.WhenH,apartner,
partnership if not dissolved dissolution
died,hiswife,W,tookoverthemanagementof
hadnottakenplace,providedtheother
some of the real properties with permission of
party/obligee:
the surviving partner, X, but her name was not
a.
included in the partnership name. She
i. Had extended credit to partnership
eventuallysoldtheserealpropertiesafterafew priortodissolution;and
years. X now claims that W did not have the ii. Had no knowledge/notice of
authoritytomanageandsellthosepropertiesas dissolution;or
shewasnotapartner.Isthesalevalid? b.
i. Didnotextendcredittopartnership;
A:Yes.Thewidowwasnotamereagent,because ii. Had known partnership prior to
she had become a partner upon her husband's dissolution;and
death,asexpresslyprovidedbythearticlesofco iii. Had no knowledge/notice of
partnership, and by authorizing the widow to dissolution/fact of dissolution not
managepartnershippropertyXrecognizedheras advertisedinanewspaperofgeneral
a general partner with authority to administer circulation in the place where
andalienatepartnershipproperty.Itisimmaterial partnershipisregularlycarriedon.
thatW'snamewasnotincludedinthefirmname,
sincenoconversionofstatusisinvolved,andthe XPNs: Partner cannot bind the partnership
articlesofcopartnershipexpresslycontemplated anymoreafterdissolutionwheredissolutionis
the admission of the partner's heirs into the duetounlawfulnesstocarryonbusiness
partnership.(Goquiolayv.Sycip,G.R.No.L11840,
Dec.16,1963) XPNtoXPN:Windingupofpartnershipaffairs
1. Partnerhasbecomeinsolvent
Q: What is the liability of a partner where the 2. Actisnotappropriateforwindingupor
dissolution is caused by the act, death or forcompletingunfinishedtransactions
insolvencyofapartner? 3. Completely new transactions which
would bind the partnership if
A: dissolution had not taken place with
GR: Each partner is liable to his copartners thirdpersonsinbadfaith.
for his share, of any liability created by any 4. Partner is unauthorized to wind up
partner for the partnership, as if the partnership affairs, except by
partnershiphadnotbeendissolved. transactionwithonewho:
a.
XPNs:Partnersshallnotbeliablewhen: i. Had extended credit to partnership
1. the dissolution, being by act of any priortodissolution;
partner, the partner acting for the ii. Had no knowledge or notice of
dissolution;or
partnership had knowledge of the
b.
dissolution;or
i. Did not extend credit to partnership
2. the dissolution, being by the death or
priortodissolution;
insolvency of a partner, the partner
ii. Had known partnership prior to
acting for the partnership had dissolution;and
knowledge or notice of the death or iii. Had no knowledge/notice of
insolvency(Art.1833,NCC) dissolution/fact of dissolution not
advertisedinanewspaperofgeneral
circulation in the place where
partnershipisregularlycarriedon.

349

Q: Does the dissolution of a partnership Engaging in new business necessary for winding up
dischargeexistingliabilityofapartner? such as contracting with a demolition company for
the demolition of the garage used in a used car
A: partnership (Paras, Civil Code of the Philippines
GR:No. Annotated,Volume5,p.485,19696thed)

XPN:Saidliabilityisdischargedwhenthereis Q:Whoarethepersonsauthorizedtowindup?
anagreementbetween:
1. Partnerhimself; A:
2. Person/scontinuingthebusiness;and 1. Partnersdesignatedbytheagreement
3. Partnershipcreditors 2. Intheabsenceofsuch,allpartnerswho
have not wrongfully dissolved the
Q: What is the order of priority in the partnership
distributionofassetsduringthedissolutionofa 3. Legal representative of last surviving
limitedpartnership? partnerwhoisnotinsolvent

A: In setting accounts after dissolution, the Q:Whatarepartnershipassets?
liabilities of the partnership shall be entitled to
paymentinthefollowingorder: A:
1. Those to creditors, in the order of 1. Partnershipproperty
priority as provided by law, except 2. Contributionsofthepartnersnecessary
thosetolimitedpartnersonaccountof for the payment of all liabilities [Art.
their contributions, and to general 1839(2),NCC]
partners
2. Those to limited partners in respect to Q:Whatistheorderofpaymentinwindingup?
their share of the profits and other
compensation by way of income on A:
theircontributions 1. Those owing to creditors other than
3. Those to limited partners in respect to partners
thecapitaloftheircontributions 2. Thoseowingtopartnersotherthanfor
4. Those to general partners other than capitalorprofits
forcapitalandprofits 3. Those owing to partners in respect of
5. Those to general partners in respect to capital
profits 4. Those owing to partners in respect to
6. Those to general partners in respect to profits[Art.1839(2),NCC]
capital(Art.1863,NCC)
Q:Whatisthedoctrineofmarshallingofassets?
Note: Subject to any statement in the certificate or
to subsequent agreement, limited partners share in A:
the partnership assets in respect to their claims for 1. Partnership creditors have preference
capital, and in respect to their claims for profits or inpartnershipassets
for compensation by way of income on their 2. Separate or individual creditors have
contribution respectively, in proportion to the preference in separate or individual
respectiveamountsofsuchclaims. properties
3. Anything left from either goes to the
WINDINGUP other.

Q: What takes place during the winding up of Q: What are the rights of a partner where
thepartnership? dissolution is not in contravention of the
agreement?
A: It is during this time after dissolution that
partnership business or affairs are being settled. A: Unless otherwise agreed, the rights of each
(De Leon, Comments and Cases on Partnership, partnerareasfollows:
Agency,andTrust,p.229,2005ed) 1. To have the partnership property
applied to discharge the liabilities of
Note:Examplesofwindingup: partnership;and
1. Payingpreviousobligations 2. To have the surplus, if any, applied, to
2. Collectingassetspreviouslydemandable pay in cash the net amount owing to
therespectivepartners.
350 CIVILLAWTEAM:

PARTNERSHIP
Q: What are the rights of a partner where 3. Right of indemnification by the guilty
dissolution is in contravention of the partner against all debts and liabilities
agreement? ofthepartnership.

A: The rights of a partner vary depending upon Q: How are the accounts settled between
whetherheistheinnocentorguiltypartner. partners?

1. Rights of partner who has not caused A:
thedissolutionwrongfully: 1. Assetsofthepartnershipinclude:
a. To have partnership property a. Partnership property (including
applied for the payment of its goodwill)
liabilitiesandtoreceiveincashhis b. Contributionsofthepartners
shareofthesurplus 2. Orderofapplicationoftheassets:
b. Tobeindemnifiedforthedamages a. First, those owing to partnership
caused by the partner guilty of creditors
wrongfuldissolution b. Second, those owing to partners
c. To continue the business in the other than for capital and profits
samenameduringtheagreedterm suchasloansgivenbythepartners
of the partnership, by themselves oradvancesforbusinessexpenses
orjointlywithothers c. Third,thoseowingforthereturnof
d. To possess partnership property the capital contributed by the
shouldtheydecidetocontinuethe partners
business d. Fourth, the share of the profits, if
any,duetoeachpartner
2. Rights of partner who has wrongfully
causedthedissolution: Q: A partnership was formed with Magdusa as
a. If the business is not continued by the manager. During the existence of the
the other partners, to have the partnership,twopartnersexpressedtheirdesire
partnership property applied to towithdrawfromthefirm.Magdusadetermined
discharge its liabilities and to the value of the partners share which were
receive in cash his share of the embodied in the document drawn in the
surpluslessdamagescausedbyhis handwriting of Magdusa but was not signed by
wrongfuldissolution all of the partners. Later, the withdrawing
b. Ifthebusinessiscontinued: partners demanded for payment but were
i. To have the value of his refused. Considering that not all partners
interest in the partnership at intervenedinthedistributionofallorpartofthe
the time of the dissolution, partnershipassets,shouldtheactionprosper?
less any damage caused by
the dissolution to his co A: No. A partners share cannot be returned
partners,ascertainedandpaid without first dissolving and liquidating the
in cash, or secured by bond partnership, for the return is dependent on the
approvedbythecourt;and discharge of creditors, whose claims enjoy
ii. To be released from all preference over those of the partner, and it is
existing and future liabilities selfevident that all members of the partnership
ofthepartnership areinterestedinitsassetsandbusiness,andare
entitled to be heard in the matter of the firms
Q:Whataretherightsofinjuredpartnerwhere liquidation and distribution of its property. The
partnershipcontractisrescinded? liquidation prepared by Magdusa not signed by
the other partners is not binding on them.
A: (Magdusa v. Albaran, G.R. No. L17526, June 30,
1. Right of a lien on, or retention of, the 1962)
surplus of partnership property after
satisfying partnership liabilities for any Q:Whatispartnerslien?
sum of money paid or contributed by
him; A: The right of every partner to have the
2. Right of subrogation in place of partnership property applied, to discharge
partnership creditors after payment of partnership liabilities and surplus assets, if any,
partnershipliabilities;and distributed in cash to the respective partners,
351

after deducting what may be due to the Q:Whoarethepersonsrequiredtorenderan
partnershipfromthemaspartners. account?

Q:Canapartnerdemandforhisshareduringthe A:
existenceofapartnership? 1. Windinguppartner;
2. Survivingpartner;and
A: No. A share in a partnership can be returned 3. Person or partnership continuing the
only after the completion of the latter's business
dissolution, liquidation and winding up of the
business. Q: Emnace and Tabanao decided to dissolve
their partnership in 1986. Emnace failed to
Since the capital was contributed to the submit the statement of assets andliabilitiesof
partnership,nottopartners,itisthepartnership thepartnership,andtorenderanaccountingof
that must refund the equity of the retiring the partnership's finances. Tabanaos heirs filed
partners.Sinceitisthepartnership,asaseparate against Emnace an action for accounting, etc.
anddistinctentitythatmustrefundthesharesof Emnace counters, contending that prescription
the partners, the amount to be refunded is hassetin.Decide.
necessarilylimitedtoitstotalresources.Inother
words, it can only pay out what it has in its A: Prescription has not yet set in. Prescription of
coffers,whichconsistsofallitsassets.(Villarealv. the said right starts to run only upon the
Ramirez,G.R.No.144214,July14,2003) dissolution of the partnership when the final
accounting is done. Contrary to Emnaces
Q:Whataretheeffectswhenthebusinessofa protestations,prescriptionhadnotevenbegunto
dissolvedpartnershipiscontinued? runintheabsenceofafinalaccounting.Theright
to demand an accounting accrues at the date of
A: dissolution in the absence of any agreement to
1. Creditors of old partnership are also thecontrary.Whenafinalaccountingismade,it
creditors of the new partnership who is only then that prescription begins to run.
continues the business of the old one (Emnacev.CA,G.R.No.126334,Nov.23,2001)
without liquidation of the partnership
affairs. Q: Pauline, Patricia and Priscilla formed a
2. Creditors have an equitable lien on the businesspartnershipforthepurposeofengaging
consideration paid to the in neon advertising for a term of five (5) years.
retiring/deceased partner by the Pauline subsequently assigned to Philip her
purchaser when retiring/deceased interest in the partnership. When Patricia and
partner sold his interest without final Priscillalearnedoftheassignment,theydecided
settlementwithcreditors. todissolvethepartnershipbeforetheexpiration
3. Rights of retiring/estate of deceased ofitstermastheyhadanunproductivebusiness
partner: relationshipwithPhilipinthepast.Ontheother
a. To have the value of his interest hand, unaware of the move of Patricia and
ascertained as of the date of Priscillabutsensingtheirnegativereactiontohis
dissolution;and acquisition of Paulines interest, Philip
b. Toreceiveasordinarycreditorthe simultaneously petitioned for the dissolution of
value of his share in the dissolved thepartnership.
partnershipwithinterestorprofits Is the dissolution done by Patricia and Priscilla
attributable to use of his right, at without the consent of Pauline or Philip valid?
hisoption. Explain.

Note: The right to demand on accounting of the A: Under Art 1830(1)(c), NCC, the dissolution by
value of his interest accrues to any partner or his Patricia and Priscilla is valid and did not violate
legalrepresentativeafterdissolutionintheabsence the contract of partnership even though Pauline
ofanagreementtothecontrary. andPhilipdidnotconsentthereto.Theconsentof
Paulineisnotnecessarybecauseshehadalready
Prescriptionbeginstorunonlyuponthedissolution assigned her interest to Philip. The consent of
of the partnership, when the final accounting is Philip is also not necessary because the
done.
assignment to him of Paulines interest did not

makehimapartner,underArt.1813,NCC.

352 CIVILLAWTEAM:

PARTNERSHIP
Does Philip have any right to petition for the compliance in good faith (Jo Chun v. Pacific
dissolution of the partnership before the CommercialCo.,G.R.No.19892,Sept.6,1923).
expirationofitsspecifiedterm?Explain.
Q:Doesalimitedpartnershiphaveapersonality
A: No, Philip has no right to petition for separateanddistinctfromthatofthepartners?
dissolution because he does not have the Whataretheconsequencesofsuch?
standingofapartner.(Art.1813,NCC)(1995Bar
Question) A: Yes. The personality of a limited partnership
beingdifferentfromthatofitsmembers,itmust,
VI.LIMITEDPARTNERSHIP on general principle, answer for, and suffer, the
consequenceofitsactsassuchanentitycapable
A.DEFINITION of being the subject of rights and obligations. If
the limited partnership failed to pay its
Q:Whatislimitedpartnership? obligations, this partnership must suffer the
consequences of such a failure, and must be
A:Oneformedbytwoormorepersonshavingas adjudged insolvent. (Campos Rueda & Co. v.
members one or more general partners and one Pacific Commercial Co., et. al, G.R. No. L 18703,
or more limited partners, the latter not being Aug.28,1922)
personallyliableforpartnershipdebts(Art.1843)
Q: When is the certificate or articles of limited
Q:Whatarethecharacteristicsoflimited partnershipcancelled?
partnership?
A:
A: 1. Whenthepartnershipisdissolved
1. It is formed by compliance with the 2. Whenallthelimitedpartnersceasedto
statutoryrequirements besuch
2. One or more general partners control
thebusinessandarepersonallyliableto Q: When may a certificate or articles of limited
creditors partnershipbeamended?
3. One or more limited partners
contribute to the capital and share in A:
theprofitsbutdonotparticipateinthe 1. Itmustfallunderthefollowingchanges
management of the business and are andconditions:
not personally liable for partnership a. There is a change in the name of
obligations beyond their capital the partnership or in the amount
contributions orcharacterofthecontributionof
4. The limited partners may ask for the anylimitedpartner
return of their capital contributions b. Apersonissubstitutedasalimited
underconditionsprescribedbylaw partner
5. Partnership debts are paid out of c. An additional limited partner is
common fund and the individual admitted
propertiesofgeneralpartners d. A person is admitted as a general
partner
B.HOWLIMITEDPARTNERSHIPIS e. A general partner retires, dies,
FORMED/AMENDED becomes insolvent or insane, or is
sentenced to civil interdiction and
Q: What are the essential requirements for the the business is continued under
formationoflimitedpartnership? Article1860
f. There is a change in the character
A: ofthebusinessofthepartnership
1. Certificate of articles of limited g. There is a false or erroneous
partnership which states the matters statementinthecertificate
enumeratedinArt.1844,NCC,mustbe h. There is a change in the time as
signedandsworn;and stated in the certificate for the
2. Certificate must be filed for record in dissolution of the partnership or
theofficeoftheSEC. forthereturnofacontribution
i. A time is fixed for the dissolution
Note: Strict compliance with legal requirements is ofthepartnership,orthereturnof
notnecessary.Itissufficientthatthereissubstantial
353

a contribution, no time having Q:Whendoesageneralpartnerneedconsentor
beenspecifiedinthecertificate ratificationofallthelimitedpartners?
j. The members desire to make a
change in any other statement in A:Whenhe:
thecertificateinorderthatitshall 1. does any act in contravention of the
accurately represent the certificate;
agreement among them (Art. 2. does any act which would make it
1864,NCC) impossible to carry on the ordinary
businessofthepartnership;
2. Must be signed and sworn to by all of 3. confesses judgment against
the members including the new partnership;
members if some added; in case of 4. possesses partnership property /
substitution, the assigning limited assigns rights in specific partnership
partnermustalsosign property other than for partnership
purposes;
3. MustberecordedintheSEC 5. admitspersonasgeneralpartner;
6. admits person as limited partner
LIMITEDPARTNER unlessauthorizedincertificate;or
7. continues business with partnership
Q:Whataretheliabilitiesofalimitedpartner? property on death, retirement, civil
interdiction, insanity or insolvency of
A: generalpartnerunlessauthorizedinthe
ASCREDITOR ASTRUSTEE certificate.
Specificpropertystatedas
Deficiencyin
contributedbutnotyet PARTNERSHIPTORT
contribution
contributed/wrongfullyreturned Q:Whenisthereapartnershiptort?
Money/otherproperty
Unpaid
wrongfullypaid/conveyedtohim A:Where:
contribution
onaccountofhiscontribution 1. by any wrongful act or omission of any
partner,actingintheordinarycourseof
Q: What transactions are allowed or prohibited business of the partnership or with
inalimitedpartnership? authority of his copartners, loss or
injuryiscausedtoanyperson,notbeing
A: apartnerinthepartnership;
1. Allowed 2. one partner, acting within the scope of
a. Grantingloanstopartnership his apparent authority, receives money
b. Transacting business with or property from a third person, and
partnership misappliesit;or
c. Receiving pro rata share of 3. the partnership, in the course of its
partnership assets with general business, receives money or property,
creditorsifheisnotalsoageneral anditismisappliedbyanypartnerwhile
partner itisinthecustodyofthepartnership.

2. Prohibited Note: Partners are solidarily liable with the
a. Receiving/holding partnership partnershipforanypenaltyordamagearisingfroma
propertyascollateralsecurity partnershiptort.
b. Receiving any payment,
conveyance,releasefromliabilityif C.RIGHTSANDOBLIGATIONSOFALIMITED
rd
itwillprejudicerightof3 persons PARTNER

Note:Violationoftheprohibitionwillgiverisetothe Q: What are the specific rights of a limited
presumption that it has been made to defraud partner?
partnershipcreditors.
A:To:
The prohibition is not absolute because there is no 1. havepartnershipbookskeptatprincipal
prohibitionifthepartnershipassetsaresufficientto placeofbusiness;
discharge partnership liabilities to persons not 2. inspect/copy books at reasonable
claimingasgeneralorlimitedpartners.
hours;

354 CIVILLAWTEAM:

PARTNERSHIP
3. have on demand true and full

information of all things affecting Note: In the absence of such statement in the
partnership; certificate,evenifthereisanagreement,alllimited
4. have formal account of partnership partners shall stand on equal footing in respect of
affairs whenever circumstances render thesematters.
itjustandreasonable;
5. ask for dissolution and winding up by Q: What are the requisites for return of
decreeofcourt; contributionofalimitedpartner?
6. receive share of profits/other
compensationbywayofincome;and A:
7. receive return of contributions, 1. All liabilities of the partnership have
provided the partnership assets are in been paid or if they have not yet been
excessofallitsliabilities. paid, the assets of the partnership are
sufficienttopaysuchliabilities;
Q:Whoisasubstitutedlimitedpartner? 2. The consent of all the members
(generalandlimitedpartners)hasbeen
A:Apersonadmittedtoalltherightsofalimited obtained except when the return may
partner who has died or assigned his interest in berightfullydemanded;and
thepartnership 3. The certificate of limited partnership is
cancelledoramended
Q: What are the rights and liabilities of a
substitutedlimitedpartner? Q: When is the return of contribution of a
limitedpartneramatterofright?
A:
GR: He has all the rights and powers and is A: When all liabilities of the partnership, except
subjecttoalltherestrictionsandliabilitiesof liabilities to general partners and to limited
hisassignor. partners on account of their contributions, have
been paid or there remains property of the
XPN: Those liabilities which he was ignorant partnership sufficient to pay them and the
of at the time that he became a limited certificate is cancelled or so amended as to set
partner and which could not be ascertained forththewithdrawalorreduction:
fromthecertificate 1. onthedissolutionofthepartnership;
2. uponthearrivalofthedatespecifiedin
Q:Whataretherequirementsfortheadmission thecertificateforthereturn;or
ofasubstitutedlimitedpartner? 3. aftertheexpirationof6monthnoticein
writing given by him to the other
A: partners if no time is fixed in the
1. All the members must consent to the certificate for the return of the
assigneebecomingasubstitutedlimited contribution or for the dissolution of
partner or the limited partner, being thepartnership.
empoweredbythecertificatemustgive
the assignee the right to become a Note: Even if a limited partner has contributed
limitedpartner; property, he has only the right to demand and
2. The certificate must be amended in receivecashforhiscontribution.Theexceptionsare:
1. When there is stipulation to the contrary
accordancewithArt.1865,NCC;and
inthecertificate;or
3. The certificate as amended must be
2. Whenallthepartners(generalandlimited
registeredintheSEC. partners)consenttothereturnotherthan
intheformofcash
Q: What is the basis of preference given to
limitedpartnersoverotherlimitedpartners? Q:Whataretheliabilitiesofalimitedpartner?

A: Priority or preference may be given to some 1. Tothepartnership
limitedpartnersoverotherlimitedpartnersasto
the: A:Sincelimitedpartnersarenotprincipalsinthe
1. returnoftheircontributions; transaction of a partnership, their liability as a
2. their compensation by way of income; rule,istothepartnership,nottothecreditorsof
or the partnership. The general partners cannot,
3. anyothermatter.
355

however waive any liability of the limited the interest in the partnership of the debtor
partnerstotheprejudiceofsuchcreditors. partner for the payment of his obligation. (De
Leon, Comments and cases on Partnership,
2. To the partnership creditors and other AgencyandTrust,p.13,2005ed)
partners
2. A limited partner is liable for Q: What are the requisites for waiver or
partnership obligations when he compromiseofliabilities?
contributed services instead of only
moneyorpropertytothepartnership A:Thewaiverorcompromise:
3. Whenheallowshissurnametoappear 1. ismadewiththeconsentofallpartners;
inthefirmname and
4. Whenhefailstohaveafalsestatement 2. does not prejudice partnership
in the certificate corrected, knowing it creditorswhoextendedcreditorwhose
tobefalse claims arose before the cancellation or
5. Whenhetakespartinthecontrolofthe amendmentofthecertificate.
business
6. When he receives partnership property Q: When may a limited partner have the
as collateral security, payment, partnershipdissolved?
conveyance, or release in fraud of
partnershipcreditors A:
7. When there is failure to substantially 1. When his demand for the return of his
comply with the legal requirements contributionisdeniedalthoughhehasa
governing the formation of limited righttosuchreturn;or
partnerships 2. When his contribution is not paid
although he is entitled to its return
3. Toseparatecreditors because the other liabilities of the
partnership have not been paid or the
A: As in a general partnership, the creditor of a partnership property is insufficient for
limited partner may, in addition to other theirpayment.
remedies allowed under existing laws, apply to
the proper court for a charging order subjecting

SUMMARYOFRIGHTSANDOBLIGATIONSOFPARTNERS

GENERALPARTNER LIMITEDPARTNER
Rights
1. To have partnership books kept at
principalplaceofbusiness
1. Rightinspecificpartnershipproperty
2. To inspect/copy books at reasonable
2. Interestinthepartnership(shareintheprofitsandsurplus)
hours
3. Righttoparticipateinthemanagement
3. To have on demand true and full
4. Righttoassociateanotherpersonwithhiminhissharewithout
information of all things affecting
theconsentofotherpartners(subpartnership)
partnership
5. Right to inspect and copy partnership books at any reasonable
4. Tohaveformalaccountofpartnership
hour.
affairs whenever circumstances
6. Right to a formal account as to partnership affairs (even during
renderitjustandreasonable
existenceofpartnership)
5. Toaskfordissolutionandwindingup
a. if he is wrongfully excluded from partnership business or
bydecreeofcourt
possessionofitspropertybyhiscopartners.
6. To receive share of profits/other
b. ifrightexistsunderthetermsofanyagreement.
compensationbywayofincome
c. asprovidedinArt.1807,NCC
7. To receive return of contributions,
d. wheneverthecircumstancesrenderitjustandreasonable.
providedthepartnershipassetsarein
excessofallitsliabilities
Obligations
Obligationsof partnersamongthemselves Tothepartnership

1. Contributionofproperty Sincelimitedpartnersarenotprincipalsin
2. Contributionofmoneyandmoneyconvertedtopersonaluse thetransactionofapartnership,their
3. Prohibitioninengaginginbusinessforhimself liabilityasarule,istothepartnership,not
4. Contributeadditionalcapital tothecreditorsofthepartnership.The
356 CIVILLAWTEAM:

PARTNERSHIP
5. Managingpartnerwhocollectsdebt generalpartnerscannot,howeverwaive
6. Partnerwhoreceivesshareofpartnershipcredit anyliabilityofthelimitedpartnerstothe
7. Damagestopartnership prejudiceofsuchcreditors.
8. Renderinformation
9. Accountableasfiduciary
Obligationsofpartnersto3rd persons
1. Everypartnership shall operateunder a firm name. Persons who

includetheirnamesinthepartnershipnameeveniftheyarenot Tothepartnershipcreditorsandother
membersshallbeliableasapartner partners
2. All partners shall be liable for contractual obligations of the
partnership with their property, after all partnership assets have 1. A limited partner is liable for
beenexhausted: partnership obligations when he
a. Prorata contributed services instead of only
b. Subsidiary moneyorpropertytothepartnership
3. Admission or representation made by any partner concerning 2. When he allows his surname to
partnership affairs within the scope of his authority is evidence appearinthefirmname
againstthepartnership 3. When he fails to have a false
4. Notice to partner of any matter relating to partnership affairs statementinthecertificatecorrected,
operatesasnoticetopartnershipexceptincaseoffraud: knowingittobefalse
a. Knowledgeofpartneractingintheparticularmatteracquired 4. When he takes part in the control of
whileapartner thebusiness
b. Knowledgeofthepartneractingintheparticularmatterthen 5. When he receives partnership
presenttohismind property as collateral security,
c. Knowledge of any other partner who reasonably could and payment, conveyance, or release in
shouldhavecommunicatedittotheactingpartner fraudofpartnershipcreditors
5. Partnersandthepartnershiparesolidarilyliableto3rdpersonsfor 6. When there is failure to substantially
thepartner'stortorbreachoftrust comply with the legal requirements
6. Liabilityofincomingpartnerislimitedto: governing the formation of limited
a. Hisshareinthepartnershippropertyforexistingobligations partnerships
b. Hisseparatepropertyforsubsequentobligations
7.Creditorsofpartnershiparepreferredinpartnershipproperty&may
attachpartner'sshareinpartnershipassets
Toseparatecreditors

Otherobligations
Asinageneralpartnership,thecreditorof

alimitedpartnermay,inadditiontoother
5. Duty to render on demand true and full information affecting
remediesallowedunderexistinglaws,
partnership to any partner or legal representative of any
applytothepropercourtforacharging
deceasedpartnerorofanypartnerunderlegaldisability.
ordersubjectingtheinterestinthe
6. Dutytoaccounttothepartnershipasfiduciary.
partnershipofthedebtorpartnerforthe
paymentofhisobligation.
357

AGENCY the name and representation of
theprincipal
Q:Whatiscontractofagency? b. Simple or commission agent acts
in his own name but for the
A:Bycontractofagencyapersonbindshimselfto accountoftheprincipal
render some service or to do something in
representation or on behalf of another, with the Q: What are the essential elements of an
consentorauthorityofthelatter.(Art.1868NCC) agency?

Q: What are the characteristics of a contract of A:CORS
agency? 1. Consent (express or implied) of the
partiestoestablishtherelationship;
A:BUNCPP 2. TheObjectistheexecutionofajuridical
1. Bilateral If it is for compensation actinrelationtothirdpersons;
becauseitgivesrisetoreciprocalrights 3. TheagentactsasaRepresentativeand
andobligations notforhimself;and
2. Unilateral If gratuitous, because it 4. The agent acts within the Scope of his
creates obligations for only one of the authority.
parties
3. Nominate Q: Are there any formal requirements in the
4. Consensual It is perfected by mere appointmentofanagent?
consent
5. Principal A:
6. Preparatory It is entered into as a GR: There are no formal requirements
meanstoanend governingtheappointmentofanagent.

Q:Whataretheclassificationsofagency? XPN:Whenthelawrequiresaspecificform.

A: i.e.whensaleoflandoranyinteresttherein
1. Astomannerofcreation isthroughanagent,theauthorityofthelatter
a. Express agent has been actually must be in writing; otherwise, the sale shall
authorized by the principal, either bevoid(Art.1874,NCC)
orallyorinwriting
b. Implied agency is implied from Q:Whoarethepartiestoacontractofagency?
the acts of the principal, from his Distinguish.
silence or lack of action or his
failure to repudiate the agency, A:
knowing that another person is 1. Principal One whom the agent
acting on his behalf without represents and from whom he derives
authority authority; he is the one primarily
concernedinthecontract.
2. Astocharacter 2. Agent One who represents the
a. Gratuitous agent receives no principalinatransactionorbusiness.
compensationforhisservices
b. Onerous agent receives Note:Fromthetimetheagentactsortransactsthe
compensationforhisservices business for which he has been employed in
representationofanother,athirdpartyisaddedto
3. Astoextentofbusinessoftheprincipal the agency relationship the party with whom the
a. Generalagencycomprisesallthe business is transacted. (De Leon, Comments and
businessoftheprincipal Cases on Partnership, Agency, and Trust, p. 352,
b. Special agency comprises one or 2005ed)
morespecifictransactions
Q: What is the nature of the relationship
4. Astoauthorityconferred betweenprincipalandagent?
a. Couchedingeneraltermsagency
is created in general terms and is A: It is fiduciary in nature that is based on trust
deemed to comprise only acts in andconfidence.

358 CIVILLAWTEAM:

AGENCY
Q:Whatarethequalificationsofaprincipal? Q:Whataretherequisitesfortheexistenceof
agencybynecessity?
A:
1. Naturalorjuridicalperson A:
2. Hemusthavecapacitytoact 1. Realexistenceofemergency
2. Inability of the agent to communicate
Note:Ifapersoniscapacitatedtoactforhimselfor withtheprincipal
hisownright,hecanactthroughanagent. 3. Exercise of additional authority is for
theprincipalsprotection
Insofarasthirdpersonsareconcerned,itisenough 4. Adoption of fairly reasonable means,
that the principal is capacitated. But insofar as his premisesdulyconsidered
obligationstohisprincipalareconcerned,theagent
mustbeabletobindhimself. Q:Whatistheruleregardingdoubleagency?

Q:Whatisthetermjointprincipals? A:
GR:Itisdisapprovedbylawforbeingagainst
A: Two or more persons appoint an agent for a publicpolicyandsoundmorality.
common transaction or undertaking. (Art. 1915,
NCC) XPN:Wheretheagentactedwithfull
knowledgeandconsentoftheprincipals.
Q:Whataretherequisitesforsolidaryliabilityof
jointprincipals? Q: A granted B the exclusive right to sell his
brandofMaongpantsinIsabela,thepriceforhis
A: merchandise payable within 60 days from
1. Therearetwoormoreprincipals; delivery, and promising B a commission of 20%
2. They have all concurred in the on all sales. After the delivery of the
appointmentofthesameagent;and merchandisetoBbutbeforehecouldsellanyof
3. Agent is appointed for a common them,BsstoreinIsabelawascompletelyburned
transactionorundertaking.(DeLeon,p. withouthis fault, together with all of A'spants.
604,2005ed) MustBpayAforthelostpants?Why?

Q:Whatarethekindsofagents? A:ThecontractbetweenAandBisasalenotan
agency to sell because the price is payable by B
A: upon60daysfromdeliveryevenifBisunableto
1. Universal agent one employed to do resell it. If B were an agent, he is not bound to
all acts which the principal may pay the price if he is unable to resell it. As a
personally do, and which he can buyer,ownershippassedtoBupondeliveryand,
lawfully delegate to another the power under Art. 1504, NCC, the thing perishes for the
ofdoing owner. Hence, B must still pay the price. (1999
2. General agent one employed to BarQuestion)
transactallbusinessoftheprincipal,or
allthebusinessofaparticularkindorin Q: Is mere representation of an alleged agent
aparticularplace,doallactsconnected sufficient to prove the existence of a principal
with a particular trade, business or agentrelationship?
employment
3. Special or particular agent one A: No. The declarations of the agent alone are
authorized to do act in one or more generally insufficient to establish the fact or
specific transactions or to do one or extent of agency. It is a settled rule that the
more specific acts or to act upon a persons dealing with the assumed agent are
particularoccasion bound at their peril, if they would hold the
principals liable, to ascertain not only the fact of
Q:Canagencybecreatedbynecessity? agency but also the nature and extent of
authority, and in case either is controverted, the
A:No.Whatiscreatedisadditionalauthorityin burden of proof is upon them to establish it.
anagentappointedandauthorizedbeforethe (SpousesYuv.PanAmericanWorldAirways,Inc.,
emergencyarose. G.R.No.123560,Mar.27,2000)

359

Q: A foreign manufacturer of computers and a A: The making of customary gifts for charity, or
Philippine distributor entered into a contract those made to employees in the business
whereby the distributor agreed to order 1,000 managed by the agent are considered acts of
units of the manufacturer's computers every administration.
month and to resell them in the Philippines at
the manufacturer's suggested prices plus 10%. Q: P granted to A a special power to mortgage
All unsold units at the end of the year shall be theformersrealestate.Byvirtueofsaidpower,
bought back by the manufacturer at the same A secured a loan from C secured by a mortgage
pricetheywereordered.Themanufacturershall onsaidrealestate.IsPpersonallyliableforsaid
holdthedistributorfreeandharmlessfromany loan?
claim for defects in the units. Is the agreement
oneforsaleoragency? A: No. A special power to mortgage property is
limited to such authority to mortgage and does
A: The contract is one of agency not sale. The not bind the grantor personally to other
notionofsaleisnegatedbythefollowingindicia: obligations contracted by the grantee in the
(1)thepriceisfixedbythemanufacturerwiththe absence of any ratification or other similar act
10%markupconstitutingthecommission;(2)the thatwouldestopthegrantorfromquestioningor
manufacturer reacquires the unsold units at disowning such other obligations contracted by
exactly the same price; and (3) warranty for the thegrantee.
units was borne by the manufacturer. The
foregoing indicia negate sale because they A.TOBINDPRINCIPAL
indicatethatownershipovertheunitswasnever
intendedtotransfertothedistributor.(2000Bar Q: When is the act of an agent binding to the
Question) principal?

II.POWERS A:
1. When the agent acts as such without
Q:Whatarethekindsofagencyastoextentof expressly binding himself or does not
powersconferred? exceed the limits of his authority. (Art.
1897)
A:Anagencymaybecouchedingeneraltermsor 2. If principal ratifies the act of the agent
couchedinspecificterms. which exceeded his authority. (Art.
1898)
Q:Whatisanagencycouchedingeneralterms? 3. Circumstances where the principal
himself was, or ought to have been
A: One which is created in general terms and is aware.(Art.1899)
deemed to comprise only acts of administration 4. If such act is within the terms of the
(Art.1877,NCC). powerofattorney,aswritten.(Art.1900
&1902)
Q:Whenisanexpresspowernecessary? 5. Principalhasratified,orhassignifiedhis
willingnesstoratifytheagentsact.(Art
A: It is necessary to perform any act of strict 1901)
ownership.
Q: Does knowledge of a fact by an agent bind
Q:Whatismeantbyactsofadministration? theprincipal?

A: Those which do not imply the authority to A:
alienate for the exercise of which an express GR: Knowledge of agent is knowledge of
powerisnecessary. principal.

Q:Whenispaymentanactofadministration? XPNs:
1. Agents interests are adverse to those
A:Whenpaymentismadeintheordinarycourse oftheprincipal;
ofmanagement. 2. Agents duty is not to disclose the
information (confidential information);
Q: When are making gifts an act of or
administration? 3. Where the person claiming the benefit
of the rule colludes with the agent to
360 CIVILLAWTEAM:

AGENCY
defraud the principal. (De Leon, Q:Whatisdoctrineofapparentauthority?

Comments and Cases on Partnership,
Agency,andTrust,p.367,2005ed) A: The principal is liable only as to third persons
who have been led reasonably to believe by the
Q:Whataretheeffectsoftheactsofanagent? conductoftheprincipalthatsuchactualauthority
exists,althoughnonehasbeengiven.
A:
1. Withauthority Q: What are the distinctions between apparent
a. Inprincipalsnamevalid authorityandauthoritybyestoppel?
b. In his own name not binding on
the principal; agent and stranger A:
are the only parties, except ApparentAuthority AuthoritybyEstoppel
regarding things belonging to the Ariseswhentheprincipal,
principal or when the principal Thatwhichisthough byhisculpablenegligence,
ratifies the contract or derives notactuallygranted, permitshisagentto
benefittherefrom theprincipal exercisepowersnot
knowinglypermitsthe grantedtohim,even
2. Withoutauthority agenttoexerciseor thoughtheprincipalmay
a. Inprincipalsnameunauthorized holdshimoutas havenonoticeor
possessing knowledgeoftheagents
and unenforceable but may be
conduct
ratified, in which case, may be
Foundedinconscious Foundedontheprincipals
validated retroactively from the
permissionofacts negligenceinfailing
beginning
beyondthepowers properlytosupervisethe
b. In his own name valid on the granted affairsoftheagent
agent,butnotontheprincipal
Q: Can an agent maintain an action against
Q: What are the distinctions between authority personswithwhomtheycontractedonbehalfof
andtheprincipalsinstructions? hisprincipal?

A: A:No.Agentsarenotapartywithrespecttothat
AUTHORITY INSTRUCTIONS
contractbetweenhisprincipalandthirdpersons.
Contemplatesonlya
As agents, they only render some service or do
Sumtotalofthepowers privateruleofguidance
somethinginrepresentationoronbehalfoftheir
committedtotheagent totheagent;
principals.Therenderingofsuchservicedidnot
bytheprincipal independentand
distinctincharacter make them parties to the contracts of sale
Relatestothe executedinbehalfofthelatter.
subject/businesswith
whichtheagentis Referstothemanneror The fact that an agent who makes a contract for
empoweredtodealor modeofagentsaction his principal will gain or suffer loss by the
act performance or nonperformance of the contract
Limitationsofauthority Withoutsignificanceas by the principal or by the other party thereto
areoperativeasagainst againstthosewith doesnotentitlehimtomaintainanactiononhis
thosewhohave/charged neitherknowledgenor ownbehalfagainsttheotherpartyforitsbreach.
withknowledgeofthem noticeofthem An agent entitled to receive a commission from
Contemplatedtobe Notexpectedtobe his principal upon the performance of a contract
madeknowntothird madeknowntothose which he has made on his principal's account
personsdealingwiththe withwhomtheagent does not, from this fact alone, have any claim
agent deals againsttheotherpartyforbreachofthecontract,
either in an action on the contract or otherwise.
Q:Whenistheprincipalboundbytheactualor Anagentwhoisnotapromiseecannotmaintain
apparentauthorityoftheagent? an action at law against a purchaser merely
because he is entitled to have his compensation
A:Theprincipalisboundbytheactsoftheagent oradvancespaidoutofthepurchasepricebefore
on his behalf, whether or not the third person payment to the principal. (Uy v. CA, G.R. No.
dealingwiththeagentbelievesthattheagenthas 120465,Sept.9,1999)
actual authority, so long as the agent has actual
authority,expressorimplied.

361

SUMMARYOFRULES;ACTSOFANAGENT

Inbehalfoftheprincipal,withinthescopeofauthority
1. Bindsprincipal;
2. Agentnotpersonallyliable

Withoutorbeyondscopeofauthority
Contractisunenforceableasagainsttheprincipalbutbindstheagenttothethirdperson

Bindingontheprincipalwhen:
1. Ratifiedor
2. Theprincipalallowedtheagenttoactasthoughhehadfullpowers

Withinthescopeofauthoritybutintheagentsname
1. Notbindingontheprincipal;
2. Principalhasnocauseofactionagainstthe3rdpartiesandviceversa

Note:Whenthetransactioninvolvesthingsbelongingtotheprincipal:
Remedyoftheprincipaldamagesforagentsfailuretocomplywiththeagency

Withinthescopeofthewrittenpowerofattorneybutagenthasactuallyexceededhisauthorityaccording
toanunderstandingbetweenhimandtheprincipal
1. Insofaras3rdpersonsareconcerned(notrequiredtoinquirefurtherthanthetermsofthewritten
power,agentactedwithinscopeofhisauthority;
2. Principalestopped

Withimpropermotives
Motiveisimmaterial;aslongaswithinthescopeofauthority,valid

Withmisrepresentationsbytheagent
1. Authorizedprincipalstillliable
2. Beyondthescopeoftheagentsauthority
GR:Principalnotliable

XPN:Principaltakesadvantageofacontractorreceivesbenefitsmadeunderfalserepresentationofhis
agent

Mismanagementofthebusinessbytheagent
1. Principalstillresponsiblefortheactscontractedbytheagentwithrespectto3rd persons;
2. Principal,however,mayseekrecoursefromtheagent

Tortcommittedbytheagent
Principalcivillyliablesolongasthetortiscommittedbytheagentwhileperforminghisdutiesinfurtherance
oftheprincipalsbusiness

Agentingoodfaithbutprejudices3rd parties
Principalisliablefordamages

B.EXCEPTION

Q:Whenistheactofanagentnotbindingtothe
principal?

A:Ifanagentactsinhisownname.Insuchcase,
theagentistheonedirectlyboundinfavorofthe
person with whom he has contracted, as if the
transactionwerehisown.(Art.1883,NCC)

362 CIVILLAWTEAM:

AGENCY
III.EXPRESSVS.IMPLIEDAGENCY Q:Distinguishagencyfromleaseofservices.

Q:Distinguishexpressandimpliedagency. A:
AGENCY LEASEOFSERVICES
A: Agentrepresentsthe Workerorlessorof
principal servicesdoesnot
EXPRESSAGENCY IMPLIEDAGENCY representhisemployer
Astodefinition Relationshipcanbe
Onewheretheagent Generally,relationship
terminatedatthewill
hasbeenactually canbeterminatedonly
Onewhichisimpliedfrom ofeitherprincipalor
authorizedbythe atthewillofboth
theactsoftheprincipal, agent
principal,eitherorally
Agentexercises Employeehasministerial
orinwriting
discretionarypowers functions
Astoauthority

Whenitisincidentaltothe
transactionorreasonably
Q:Distinguishagencyfromtrust.
necessarytoaccomplishthe
Whenitisdirectly purposeoftheagency,and A:
conferredbywords therefore,theprincipalis AGENCY TRUST
deemedtohaveactually Agentusuallyholds Trusteemayholdlegal
intendedtheagentto notitleatall titletotheproperty
possess Agentusuallyactsin
Trusteemayactinhis
thenameofthe
ownname
Q:Distinguishagencyfromguardianship. principal
Trustusuallyendsbythe
Agencyusuallymay
A: accomplishmentofthe
beterminatedor
AGENCY GUARDIANSHIP purposesforwhichitwas
revokedanytime
Agentrepresentsa Guardianrepresentsan formed
capacitatedperson incapacitatedperson Agencymaynotbe
Agentderives Trustinvolvescontrol
Guardianderivesauthority connectedatallwith
authorityfromthe overproperty
fromthecourt property
principal Trusteedoesnot
Agentisappointedby Agenthasauthority
Guardianisappointedby necessarilyoreven
theprincipalandcan tomakecontracts
thecourt,andstandsin possesssuchauthorityto
beremovedbythe whichwillbebinding
locoparentis bindthetrustororthe
latter onhisprincipal
cestuiquetrust
Agentissubjectto Guardianisnot subjectto
directionsofthe thedirectionsoftheward, Agencyisreallya Trustmaybetheresultof
principal butmustactforthewards contractualrelation acontract,itmayalsobe
benefit createdbylaw
Agentcanmakethe Guardianhasnopowerto
principalpersonally imposepersonalliability
liable ontheward IV.AGENCYBYESTOPPEL

Q: Distinguish agency from judicial Q:Whenisthereanagencybyestoppel?
administration.
A: When one leads another to believe that a
A: certain person is his agent, when as a matter of
AGENCY JUDICIALADMINISTRATION fact such is not true, and the latter acts on such
Agentisappointed JudicialAdministratoris misrepresentation, the former cannot disclaim
bytheprincipal appointedbythecourt liability,forhehascreatedanagencybyestoppel.
Representsnotonlythe (Paras, Civil Code of the Philippines Annotated,
Representsthe th
Vol.V,p.558,6 ed)
courtbutalsotheheirsand
principal
creditorsoftheestate
Agentdoesnotfile JudicialAdministratorfilesa Q:Whataretherulesregardingestoppelin
abond bond agency?
Agentiscontrolled Hisactsaresubjectto
bytheprincipal specificordersfromthe A:
thrutheagreement court 1. Estoppel of agent One professing to
act as agent for another may be
363

estopped to deny his agency both as liable
against his asserted principal and the
third persons interested in the
transactioninwhichheengaged. V.GENERALvs.SPECIALAGENCY

2. Estoppelofprincipal Q:Distinguishageneralagentfromaspecial
a. AstoagentOnewhoknowsthat agent?
another is acting as his agent and
fails to repudiate his acts, or A:
accepts the benefits, will be GeneralAgent SpecialAgent
estopped to deny the agency as ScopeofAuthority
againsttheother. Specificactsin
b. As to subagent To estop the Allactsconnectedwith pursuanceofparticular
principal from denying his liability thebusinessor instructionsorwith
to a third person, he must have employmentinwhichhe restrictionsnecessarily
known or be charged with isengaged impliedfromtheactto
knowledge of the fact of the bedone
transaction and the terms of the NatureofServiceAuthorized
agreementbetweentheagentand Involvescontinuityof
Nocontinuityofservice
subagent. service
c. As to third persons One who ExtenttowhichtheAgentmayBindthePrincipal
knowsthatanotherisactingashis Maybindhisprincipalby
Cannotbindhisprincipal
anactwithinthescope
agent or permitted another to inamannerbeyondor
ofhisauthorityalthough
appearashisagent,totheinjuryof outsidethespecificacts
itmaybecontrarytothe
third persons who have dealt with whichheisauthorizedto
lattersspecial
theapparentagentassuchingood perform
instructions
faith and in the exercise of TerminationofAuthority
reasonable prudence, is estopped Apparentauthoritydoes Dutyimposeduponthe
todenytheagency. notterminatebymere thirdpartytoinquire
revocationofhis makesterminationofthe
3. Estoppel of third persons A third authoritywithoutnotice relationshipeffective
person, having dealt with one as agent tothethirdparty uponrevocation
maybeestoppedtodenytheagencyas ConstructionofPrincipalsInstruction
against the principal, agent, or third Strictlyconstruedasthey
Merelyadvisoryin
personsininterest. limittheagents
nature
authority
4. Estoppel of the government The
government is neither estopped by the Q:Whoisafactor/commissionagent?
mistake or error on the part of its
agents. A: It is one engaged in the purchase and sale of
personal property for a principal, which, for this
Q:Distinguishimpliedagencyfromagencyby purpose,hastobeplacedinhispossessionandat
estoppel. hisdisposal.

A: Q:Whoisabroker?
IMPLIEDAGENCY AGENCYBYESTOPPEL
Astoliabilitybetweenprincipalandagent A: He is a middleman or intermediary who in
Ifcausedbytheagent,he behalf of others and for a commission or fee
Agentisatrueagent,
isnotconsideredatrue negotiates contracts/transactions relating to real
withrightsandduties
agent,hence,hehasno orpersonalproperty.
ofanagent
rightsassuch
Astoliabilitytothirdpersons Q:Whatisfactorage?
1. If caused by the
principal, he is liable, A: It is the compensation of a factor or
1. The principal is
but only if the 3rd commissionagent.
alwaysliable
person acted on the
2. Theagentisnever
misrepresentation;
personallyliable
2. If caused by the agent
alone,onlytheagentis
364 CIVILLAWTEAM:

AGENCY
Q:Whatisordinarycommission? cannotbeadmittedinevidenceunlessitiscertified
as such in accordance with the foregoing provision
A: It is the compensation for the sale of goods of the rules by a secretary of embassy or legation,
which are placed in the agents possession or at consulgeneral,consul,viceconsul,orconsularagent
hisdisposal or by any officer in the foreign service of the
Philippinesstationedintheforeigncountryinwhich
Q:Whatisguarantycommission? the record is kept of said public document and
authenticated by the seal of his office. (Medina v.
Natividad,G.R.No.177505,Nov.27,2008)
A:Itisthefeewhichisgiveninreturnfortherisk

that the agent has to bear in the collection of The failure to have the special power of attorney
credits. (executedinaforeigncountry)authenticatedisnot
merelyatechnicalityitisaquestionofjurisdiction.
VI.AGENCYCOUCHEDINGENERALTERMS Jurisdiction over the person of the real partyin
interestwasneveracquiredbythecourts.(Ibid.)
Q:Whatisanagencycouchedingeneralterms?
Q:Whenisaspecialpowernecessary?
A:Onewhichiscreatedingeneraltermsandis
deemedtocompriseonlyactsofadministration A:CALLMOSPRINGCOW
(Art.1877,NCC).
1. to Create or convey real rights over
VII.AGENCYREQUIRINGSPECIALPOWEROF immovableproperty;
ATTORNEY 2. ConveyorAcquireimmovable
3. to Loan or borrow money, unless the
Q:Whatisspecialpowerofattorney(SPA)? latter act be urgent and indispensable
forthepreservationofthethingswhich
A: It is an instrument in writing by which one areunderadministration;
person,asprincipal,appointsanotherashisagent 4. to Lease any real property to another
and confers upon him the authority to perform personformorethanoneyear;
certainspecifiedactsorkindsofactsonbehalfof 5. to Make such Payments as are not
the principal; primary purpose is to evidence usually considered as acts of
agents authority to third parties within whom administration;
theagentdeals. 6. to Obligate principal as guarantor or
surety
Q: Should SPA be in writing and notarized in 7. to bind the principal to render some
ordertobevalid? Servicewithoutcompensation;
8. to bind the principal in a contract of
A:No.SPAisnotrequiredtobeinwritingand Partnership;
neednotbenotarizedinordertobevalid.(De 9. to Ratify obligations contracted before
Leon,CommentsandCasesonPartnership, theagency
Agency,andTrust,p.443,2005ed) 10. toAcceptorrepudiateanInheritance
11. EffectNovation
Q:Istheinterventionofanotarypublicrequired 12. to make Gifts, except customary ones
forthevalidityofanSPA? forcharityorthosemadetoemployees
inthebusinessmanagedbytheagent
A: 13. Compromise, Arbitration and
GR: A power of attorney is valid although no ConfessionofJudgment
notary public intervened in its execution. 14. anyOtheractofstrictdominion
(Barrettov.Tuason,G.R.Nos.L36811,36827, 15. Waiveanobligationgratuitously
36840, 36872, Mar. 31, 1934) (De Leon, p.
443,2005ed) Q:Whatarethelimitationstoaspecialpowerof
attorney?
XPN: When SPA is executed in a foreign
country, it must be certified and A:
authenticatedaccordingtotheRulesofCourt, 1. A special power to sell excludes the
particularlySec.25,Rule132. powertomortgage
2. A special power to mortgage does not
Note: When the special power of attorney is include the power to sell (Art. 1879,
executed and acknowledged before a notary public NCC)
or other competent official in a foreign country, it
365

3. A special power to compromise does 3. When the agent incurred them with
not authorize submission to arbitration knowledge that an unfavorable result
(Art.1880,NCC) would ensue, if the principal was not
awarethereof;or
VIII.AGENCYBYOPERATIONOFLAW 4. When it was stipulated that the
expenseswouldbebornebytheagent,
Q: When is an agency created by operation of orthatthelatterwouldbeallowedonly
law? acertainsum.

A: When the agent withdraws from the agency Q:Whatistheliabilityoftheprincipalregarding
for a valid reason, he must continue to act until contractsenteredintobytheagent?
theprincipalhashadareasonableopportunityto
takethenecessarystepsliketheappointmentof A:
a new agent to remedy the situation caused by GR: The principal must comply with all the
thewithdrawal.(Art.1929,NCC) obligations which the agent may have
contractedwithinthescopeofhisauthority.
IX.RIGHTSANDOBLIGATIONSOFPRINCIPAL
XPN:Wheretheagentexceededhisauthority.
Q: What are the obligations of the principal to
theagent? XPNtotheXPN:Whentheprincipalratifiesit.

A:To: Note: Even if the agent has exceeded his authority,
1. comply with all obligations which the theprincipalissolidarilyliablewiththeagentifthe
agent may have contracted within the formerallowedthelattertoactasthoughhehadfull
scopeofhisauthority(Art.1910,NCC); powers(Art.1911,NCC)
2. advancetotheagent,shouldthelatter
so request, the sums necessary for the Q: CX executed a special power of attorney
execution of the agency (Art. 1912, authorizing DY to secure a loan from any bank
NCC); and to mortgage his property covered by the
3. reimburse the agent for all advance owners certificate of title. In securing a loan
madebyhim,providedtheagentisfree from M Bank, DY did not specify that he was
fromfault(Ibid.); actingforCXinthetransactionwiththebank.Is
4. indemnify the agent for all damages CXliableforthebankloan?
whichtheexecutionoftheagencymay
have caused the latter without fault or A: While as a general rule the principal is not
negligenceonhispart(Art.1913,NCC); liableforthecontractenteredintobyhisagentin
and case the agent acted in his own name without
5. paytheagentthecompensationagreed disclosinghisprincipal,suchruledoesnotapplyif
upon, or if no compensation was the contract involves a thing belonging to the
specified, the reasonable value of the principal.Insuchcase,theprincipalisliableunder
agents services. (De Leon, Comments Art. 1883, NCC. The contract is deemed made in
and Cases on Partnership, Agency, and his behalf. (SyJuco v. SyJuco, G.R. No. L13471,
Trust,pp.545555,2005ed) Jan.12,1920)(2004BarQuestion)

Q: Is the principal liable for the expenses Q: What is the liability of the principal for tort
incurredbytheagent? committedbytheagent?

A: A:
GR:Yes. GR: Where the fault or crime committed by
the agent is not in the performance of an
XPNs: obligation of the principal, the latter is not
1. If the agent acted in contravention of boundbytheillicitactsoftheagent,evenifit
the principal's instructions, unless isdoneinconnectionwiththeagency.
principal derives benefits from the
contract; XPNs:
2. When the expenses were due to the 1. Where the tort was committed by the
faultoftheagent; agent because of defective instructions
from the principal or due to lack of
366 CIVILLAWTEAM:

AGENCY
necessaryvigilanceorsupervisiononhis preservationofthegoodsforwardedto
part;or himbytheownerincasehedeclinesan
2. When the tort consists in the agency,untilanagentisappointed(Art.
performance of an act which is within 1885,NCC)
the powers of an agent but becomes 5. advance the necessary Funds should
criminal only because of themanner in there be a stipulation to do so (Art.
which the agent has performed it; the 1886,NCC)
principal is civilly liable to 3rd persons 6. Act in accordance with the instructions
whoactedingoodfaith. of the principal, and in default thereof,
to do all that a good father of a family
Q:Whenistheprincipalnotboundbytheactof woulddo(Art.1887,NCC)
theagent? 7. Not to carry out the agency of its
execution would manifestly result in
A: loss or damage to the principal (Art.
1. GR:Whentheactiswithoutorbeyond 1888,NCC)
the scope of his authority in the 8. Answer for damages if there being a
principalsname. conflictbetweenhisinterestsandthose
of the principal, he should prefer his
XPNs: own(Art.1889,NCC)
a. Where the acts of the principal 9. not to Loan to himself if he has been
have contributed to deceive a 3rd authorized to lend money at interest
personingoodfaith (Art.1890,NCC)
b. Where the limitation upon the 10. render an Account of his transactions
power created by the principal andtodelivertotheprincipalwhatever
couldnothavebeenknownbythe he may have received by virtue of the
rd
3 person agency(Art.1891,NCC)
c. Where the principal has placed in 11. Distinguish goods by countermarks and
thehandsoftheagentinstruments designate the merchandise respectively
signedbyhiminblank belonging toeach principal, in the case
d. Where the principal has ratified of a commission agent who handles
theactsoftheagent goodsofthesamekindandmark,which
belong to different owners (Art. 1904,
2. Whentheactiswithinthescopeofthe NCC)
agents authority but in his own name, 12. be Responsible in certain cases for the
except when the transaction involves actsofthesubstituteappointedbyhim
thingsbelongingtotheprincipal. (Art.1890,NCC)
13. Payinterestonfundshehasappliedto
Note:Thelimitsoftheagentsauthorityshallnotbe hisownuse(Art.1896,NCC)
consideredexceededshouldithavebeenperformed 14. Inform the principal, where an
in a manner more advantageous to the principal authorized sale of credit has been
thanthatspecifiedbyhim. made,ofsuchsale(Art.1906,NCC)
15. Bear the risk of collection and pay the
RESPONSIBILITIESANDOBLIGATIONSOFAN principaltheproceedsofthesaleonthe
AGENT same terms agreed upon with the
purchaser, should he receive also on
Q:Whatarethespecificobligationsofanagent sale, a guarantee commission (Art.
totheprincipal? 1907,NCC)
16. Indemnifytheprincipalfordamagesfor
A:CAFOFANALADRIPBIR his failure to collect the credits of his
1. Carry out the agency which he has principal at the time that they become
accepted due(Art.1908,NCC)
2. Answer for damages which through his 17. be Responsible for fraud or negligence
nonperformance the principal may (Art. 1909, NCC; De Leon, Comments
suffer and Cases on Partnership, Agency, and
3. Finish the business already begun on Trust,pp.478479,2005ed)
the death of the principal should delay
entailanydanger Note: Every stipulation exempting the agent from
4. Observe the diligence of a good father the obligation to render an account shall be void
of a family in the custody and (par.2,Art.1891,NCC)
367

Q: In case of breach of loyalty, is the agent still XPN:Ifitsexecutioncouldmanifestlyresultin
entitledtocommission? lossordamagetotheprincipal

A:No,Theforfeitureofthecommissionwilltake Q: What are the instances when the agent may
place regardless of whether the principal suffers incurpersonalliability?
any injury by reason of such breach of loyalty. It
does not even matter if the agency is for a A:
gratuitous one, or that the principal obtained 1. Agentexpresslyboundhimself;
betterresults,orthatusageandcustomsallowa 2. Agentexceedshisauthority;
receiptofsuchabonus. 3. Acts of the agent prevent the
performance on the part of the
Note:Anagenthasanabsolutedutytomakeafull principal;
disclosure or accounting to his principal of all 4. When a person acts as agent without
transactionsandmaterialfactsthatmayhavesome authorityorwithoutaprincipal;or
relevance with the agency. (Domingo v. Domingo, 5. A person who acts as an agent of an
G.R.No.L30573,Oct.29,1971) incapacitated principal unless the third
person was aware of the incapacity at
Q: When is the obligation to account not thetimeofthemakingofthecontract.
applicable?
Q:Whatisthescopeoftheagentsauthorityas
A: tothirdpersons?
1. Iftheagentactedonlyasamiddleman
with the task of merely bringing A: It includes not only the actual authorization
togetherthevendorandvendees; conferredupontheagentbyhisprincipalbutalso
2. If the agent informed the principal of that which is apparent or impliedly delegated to
the gift/bonus/profit he received from him.
the purchaser and his principal did not
objectthereto;or Q: Is the third person required to inquire into
3. Where a right of lien exists in favor of theauthorityoftheagent?
theagent.
A:
Q: What is the responsibility of two or more 1. WhereauthorityisnotinwritingEvery
agentsappointedsimultaneously? person dealing with an assumed agent
must discover upon his peril, if he
A: wouldholdtheprincipalliable,notonly
GR:Jointlyliable. the fact of the agency but the nature
and extent of the authority of the
XPN:Solidarityhasbeenexpresslystipulated. agent.
Each of the agents becomes solidarily liable 2. Where authority is in writing 3rd
for: personisnotrequiredtoinquirefurther
1. thenonfulfillmentoftheagency;or thanthetermsofthewrittenpowerof
2. faultornegligenceofhisfellowagent. attorney.

XPN to the XPN: When one of the other Note:Athirdpersonwithwhomtheagentwishesto
agentsactsbeyondthescopeofhisauthority contract on behalf of the principal may require the
innocentagentisnotliable. presentation of the power of attorney or the
instructionsasregardstheagency.
Note: An innocent agent has a right later on to
recoverfromtheguiltyornegligentagent.
Q: What is the rule with regard to the
Q:Whatistherulewithregardtotheexecution advancementoffundsbytheagent?
oftheagency?
A:
A: GR: There must be a stipulation in the
GR: The agent is bound by his acceptance to contract that the agent shall advance the
carryouttheagency,andisliablefordamages necessaryfunds
which, through his nonperformance, the
principalmaysuffer. XPN:Whentheprincipalisinsolvent.

368 CIVILLAWTEAM:

AGENCY
RIGHTSOFAGENTS commission of a crime, he cannot escape

punishment on the ground that he simply acted
Q:Whataretheinstanceswhentheagentmay asanagentofanotherparty.(Ongv.CA,G.R.No.
retaininpledgetheobjectoftheagency? 119858,Apr.29,2003)

A:
1. If principal fails to reimburse the agent X.IRREVOCABLEAGENCY
the necessary sums, including interest,
which the latter advanced for the Q:Whenisagencyirrevocable?
execution of the agency (Art. 1912,
NCC);or A:
2. If principal fails to indemnify the agent 1. Ifabilateralcontractdependsuponit
for all damages which the execution of 2. if it is the means of fulfilling an
theagencymayhavecausedthelatter, obligationalreadycontracted
without fault or negligence onhis part. 3. ifpartnerisappointedmanagerandhis
(Art.1913,NCC) removal from the management is
unjustifiable.(Art1927)
Q: What is the rule where two persons deal 4. if it has been constituted in the
separatelywiththeagentandtheprincipal? common interest of the principal and
theagent(Art.1930)
A:Ifthetwocontractsareincompatiblewitheach 5. Stipulationpouratrui
other, the one of prior date shall be preferred.
Thisissubjecthowevertotheruleondoublesale Q: How may the agent withdraw from the
underArt.1544,NCC. agency?

Note:Rulesofpreferenceindoublesale A: The agent may withdraw from the agency by
1. Personal property possessor in good giving due notice to the principal. If the latter
faith should suffer any damage by reason of the
2. Realproperty withdrawal, the agent must indemnify him
a. Registrantingoodfaith therefor, unless the agent should base his
b. Possessoringoodfaith withdrawal upon the impossibility of continuing
c. Person with the oldest title in good the performance of the agency without grave
faith(Art.1544,NCC)
detrimenttohimself.(1736a)
If agent acted in good faith, the principal shall be

liable for damages to the third person whose NOTE: The agent, even if he should withdraw from
contractmustberejected.Ifagentisinbadfaith,he the agency for a valid reason, must continue to act
aloneshallbeliable.(Art.1917,NCC) untiltheprincipalhashadreasonableopportunityto
takethenecessarystepstomeetthesituation.
PROHIBITEDACTSOFANAGENT

Q:Whataretheprohibitedactsofanagent? XI.MODESOFEXTINGUISHMENT

A: Q: What is presumption of continuance of
1. Personalacts agency?
2. Criminalorillegalacts
A: It means that when once shown to have
Note:e.g.: existed, an agency relation will be presumed to
1. Righttovote havecontinued,intheabsenceofanythingwhich
2. Makingofawill showsitstermination.
3. Underoathstatements
4. Attendingboardmeetingsofcorporations.
(DeLeon,p.358,2005ed)

Q: Can a person acting as an agent escape
criminal liability by virtue of the contract of
agency?
A: No. The law on agency has no application in

criminalcases.Whenapersonparticipatesinthe
369

Q: What are the essential elements for 3. a partner is appointed manager of a
continuanceofagency? partnership and his termination is
unjustifiable
A:Bothprincipalandagentmustbe: 4. itiscreatednotonlyfortheinterestof
1. Present theprincipalbutalsofortheinterestof
2. Capacitated thirdpersons
3. Solvent (De Leon, Comments and Cases
on Partnership, Agency, and Trust, p. XPN to the XPN: When the agent acts to
610,2005ed) defraudtheprincipal.

Q:Cantheheirscontinuetheagency? Q:Whatarethekindsofrevocation?

A: A: Revocation may either be express or implied.
GR:No. (De Leon, Comments and Cases on Partnership,
Agency,andTrust,p.625,2005ed)
Ratio: The agency calls for personal services
onthepartoftheagentsinceitisfoundedon Q:Howisagencyimpliedlyrevoked?
afiduciaryrelationship;rightsandobligations
intransmissible. A:Principal:
1. appoints a new agent for the same
XPNs: business or transaction (Art. 1923,
1. Agency by operation of law, or a NCC);
presumedortacitagency 2. directly manages the business
2. Agency is coupled with an interest in entrustedtotheagent(Art.1924,NCC);
the subject matter of the agency (e.g. or
powerofsaleinamortgage) 3. after granting general power of
attorney, grants a special one to
Q: What are the modes of extinguishing an another agent which results in the
agency? revocationoftheformerasregardsthe
special matter involved in the latter.
A:EDWARD (Art.1926,NCC)
1. Expirationoftheperiod
2. Death, civil interdiction, insanity or Q: How is agency revoked when the agent has
insolvencyofprincipaloroftheagent beenappointedbytwoormoreprincipals?
3. Withdrawalbytheagent
4. Accomplishment of the object or the A:Anyoneoftheprincipalsisgrantedtherightto
purposeoftheagency revoke the power of attorney without the
5. Revocation consentoftheothers.
6. Dissolution of the firm or corporation
which entrusted or accepted the Q:Isnoticeofrevocationnecessary?
agency.
A:
Note: The list is not exclusive; May also be 1. As to the agent Express notice is not
extinguished by the modes of extinguishment of necessary; sufficient notice if the party
obligationsingeneralwhenevertheyareapplicable, to be notified actually knows, or has
likelossofthethingandnovation. reason to know, a fact indicating that
his authority has been
REVOCATION terminated/suspended; revocation
without notice to the agent will not
Q:Isacontractofagencyrevocable? renderinvalidanactdoneinpursuance
oftheauthority
rd
A: 2. As to 3 persons Express notice is
GR: Yes. Agency is revocable at will by the necessary
principal. a. As to former customers Actual
notice must be given to them
XPNs:Itcannotberevokedif: because they always assume the
1. abilateralcontractdependsuponit continuance of the agency
2. itisthemeansoffulfillinganobligation relationship
alreadycontracted
370 CIVILLAWTEAM:

AGENCY
b. As to other persons Notice by A: No.Eduardo and Zenaida entered into a

publicationisenough partnership with regard to the NIA project. Also,
Eduardo was present when Zenaida contracted
Note: There is implied revocation of the previous withManuel.UnderArt.1818,NCC,everypartner
agencywhentheprincipalappointsanewagentfor isanagentofthepartnershipforthepurposeof
the same business or transaction, provided there is itsbusinessandeachonemayseparatelyexecute
incompatibility.Buttherevocationdoesnotbecome allactsofadministration,unless,underArt.1801,
effective as between the principal and the agent NCC,aspecificationoftheirrespectivedutieshas
untilitisinsomewaycommunicatedtothelatter. beenagreedupon,orelseitisstipulatedthatany
oneofthemshallnotactwithouttheconsentof
Q:Whatistheeffectofthedirectmanagement all the others. (Mendoza v. Paule, G.R. No.
bytheprincipal? 175885,Feb.13,2009)

A: DEATH
GR:Theagencyisrevokedfortherewouldno
longer be any basis for the representation Q: What is the effect of death of a party to the
previously conferred. But the principal must contractofagency?
act in good faith and not merely to avoid his
obligationtotheagent. A:
GR:Theagencyisterminatedbythedeathof
XPN: The only desire of the principal is for the principal even if the agency is for a
him and the agent to manage the business definiteperiod.
together.
XPNs:
Q:RichardsoldalargeparceloflandinCebuto 1. If it has been constituted in common
Leo for P100 million payable in annual interest of the principal and the agent
installmentsoveraperiodoftenyears,buttitle or in the interest of the third person
willremainwithRicharduntilthepurchaseprice who accepted the stipulation in his
is fully paid. To enable Leo to pay the price, favor;or
Richard gave him a powerofattorney 2. Anythingdonebytheagentwithoutthe
authorizing him to subdivide the land, sell the knowledgeofthedeathoftheprincipal
individual lots, and deliver the proceeds to or on any other cause which
Richard,tobeappliedtothepurchaseprice.Five extinguishes the agency is valid and
years later, Richard revoked the power of shall be effective on third persons who
attorney and took over the sale of the may have contracted with him in good
subdivision lots himself. Is the revocation valid faith.
ornot?Why?
Q:Isthesaleofthelandbytheagentafterthe
A: The revocation is not valid. The power of deathoftheprincipalvalid?
attorneygiventothebuyerisirrevocablebecause
it is coupled with an interest the agency is the A:Article1931,NCCprovidesthatanactdoneby
means of fulfilling the obligation of the buyer to theagentafterthedeathoftheprincipalisvalid
paythepriceoftheland(Art.1927,NCC).Inother andeffectiveifthesetworequisitesconcur:
words, a bilateral contract (contract to buy and 1. that the agent acted without the
sell the land) is dependent on the agency. (2001 knowledgeofthedeathoftheprincipal;
BarQuestion) and
2. that the third person who contracted
Q: Eduardo executed a SPA authorizing Zenaida with the agent himself acted in good
to participate in the prequalification and faith.
biddingofaNIAprojectandtorepresenthimin
all transactions related thereto. It was granted Goodfaithheremeansthatthethirdpersonwas
to them. Zenaida leased Manuels heavy not aware of the death of the principal at the
equipment to be used for the NIA project. timethathecontractedwithsaidagent.(Rallosv.
Manuel interposed no objection to Zenaidas FelixGoChan,G.R.No.L24332,Jan.31,1978)
actuations. Eduardo later revoked the SPA
allegingthatZenaidaactedbeyondherauthority
in contracting with Manuel under the SPA.
Decide.
371

CHANGEOFCIRCUMSTANCESSURROUNDING
TRANSACTION

Q:Whatistheeffectofachangeofcircumstance
surroundingthetransaction?

A:
GR:Theauthorityoftheagentisterminated.

XPNs:
1. If the original circumstances are
restored within a reasonable period of
time, the agent's authority may be
revived;
2. Wheretheagenthasreasonabledoubts
as to whether the principal would
desire him to act, his authority will not
beterminatedifheactsreasonably;or
3. Where the principal and agent are in
close daily contact, the agent's
authoritytoactwillnotterminateupon
a change of circumstances if the agent
knows the principal is aware of the
change and does not give him new
instructions. (De Leon, pp. 616617,
2005ed)

WITHDRAWALBYTHEAGENT

Q:Cantheagentwithdrawfromtheagency?

A: Yes. The agent may renounce or withdraw
fromtheagencyatanytime,withouttheconsent
of the principal, even in violation of the latters
contractualrights;subjecttoliabilityforbreachof
contractorfortort.

Q: What are the kinds of withdrawal by the
agent?

A:
3. Without just cause The law imposes
upon the agent the duty to give due
noticetotheprincipalandtoindemnify
the principal should the latter suffer
damagebyreasonofsuchwithdrawal.
4. With just cause The agent cannot be
heldliable.
372 CIVILLAWTEAM:

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PARTNERSHIP

PARTNERSHIP 6. Principal its life does not depend on

membersandcollectionofloanpayments.They is a partner, but not when received as

a. in a public instrument (Art. 1771, mustregisterwithSEC.However,thisregistration

5. Representationtoothers cannot enter into a universal

individual interest did not become common Q:Whoisageneralpartner?

Reviewer,1998,p.570) authorizedinits ofPetitionforAuthoritytoContinueUse

contribution or conversion of any sum 3. Partner who collects is authorized to

may not have directly transacted on its behalf,

account agreed to by all the IV.OBLIGATIONSOFPARTNERSHIP/PARTNERS

partnership property & may attach

1. Transactions to wind up partnership

3. have on demand true and full

1. Everypartnership shall operateunder a firm name. Persons who

defraud the principal. (De Leon, Q:Whatisdoctrineofapparentauthority?

RIGHTSOFAGENTS commission of a crime, he cannot escape

If agent acted in good faith, the principal shall be

A: No. The law on agency has no application in

b. As to other persons Notice by A: No.Eduardo and Zenaida entered into a

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