October 23, 2015
enterprise have been completed,
DISSOLUTION AND WINDING UP
-is the cessation of the operations of the partnership however,
not necessarily means the partnership is moving towards the
death of the partnership.
-e xtinguishment of the old partnership and accepting new
partners, re newing partners or changing the # of memb ership
3 Stages
1. Dissolution
-is the change in the relation of the partners caused by any
partner ceasing to be associated in the carryin g on of the
business. (Art. 1828.)
-B re aking of a contract of privity between and among the
partners and they cease to carry on the business,
-S tart of the demise of a partnership
Effects:
GR: the partners can no longer enter in to a new contract
which will bind the partnership,
Exc:
Acts which a partner can perform and they will still bind the
partnership:
1. Acts necessary for the winding up;
2. Acts which are necessary to complete and to fulfill
unfinished contracts
2. Winding up
-is the actual process of settling the business or partnership
affairs after dissolution, in volving the collection and distribution
of partnership assets, payment of debts, and determination of
the value of each partners interest in the partnership.
Winding up is the process of settling business affairs after
dissolution (Idos v CA 296 SCRA 194)
- it is commenced by the dissolution of the contract of
partnership between and among the partners and concluded
upon the completion of the liquidation of the partnership
affairs.
-it could take years
-liq uidation: determination and selling of assets, in cluding the
in terest of the share of the partners
-p ayment of debts, collection of re ceivables, distribute the
contribution, and if there is profit and suprlus
-p artners cannot enter into the business, waiting until finally all
the contracts are finished
-The partners can enter into contracts to fullfill or terminate
subsisting contracts
e.g. Vehicles as partnership assets you cannot distribute the
vehicles to the partners , or entering into contracts for the
demolition of a building
3. Termination
-is that point in time when all partnership affairs are completely
wound up and finally settled. It signifies the end of the
partnership life.
, , , Partnership, Agency and Trust: Finals
-Time when all the matters pertaining to the business
Causes of Dissolution
Rationale as to the classification to the causes of dissolution:
Partnership is a contract; the re medy will depend on the
causes, i.e. re scission, breach of contract
A. Dissolution Ips o Jure
1. Without violation of the agreement Art. 1830 (1)- Voluntary,
Rescission of the contract
Art. 1830. Dissolution is caused:
1) Without violation of the agreement between the partners:
a) By the termination of the definite term or particular undertaking
specified in the agreement;
-P artnership with a particular undertaking or with a fixed
period--- upon the arriva l of the period or fulfilment of the
undertaking
-a utomatically the partnership is dissolved
-the partners may decide to continue despite the expiration of
the term or the fulfilment of the purpose or undertaking, the
partner may decide to continue
-there is a change of the classification of the partnership from
a fixed term to a specific undertaking to a partnership at will,
and such partnership may be dissolved at any time
Art. 1830. Dissolution is caused:
1) Without violation of the agreement between the partners:
b) By the express will of any partner, who must act in good faith,
when no definite term or particular undertaking is specified;
A partnership at will may be dissolved by the express will of
any partners (Art. 1830 Par b), even without the consent, as
lo ng the partner acts in good faith
e.g. Partner A is being excluded from a contract, he may ask
for dissolution as there is lo ss of trust and confidence, there is
a destruction of the fiduciary re lation of the partnership
If done in bad faith, you do not like the appearance of your
partner, no re ason for dissolution---wrongful dissolution
Wrongful dissolution or done in bad faith
-if the acts are contrary to equity and ju stice or it may duly
cause harm and injury upon the partnership
e.g. Partner A knows an in formation so vital and uses that in fo,
if Partner A leaves the partnership he may earn higher profits,
and you created another partnership because of such
in formation---acting in bad faith
Remedy of the Partnership
Partner A may be lia ble for damages, profits gained by Partner
A from the new partnership may be claimed by the old
partnership which should have been for the old partnership
Art. 1830. Dissolution is caused:
1) Without violation of the agreement between the partners:
c) By the express will of all the partners who have not assigned their
interests or suffered them to be charged for their separate debts,
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 either before or after the termination of any specified term or
particular undertaking;
-there is no form that is needed, they can already state orally
or in writin g the dissolution of the partnership
Q: Is there dissolution by mutual consent?
A: Yes, Partner A is going to with draw from the partnership,
and if upon the le arning the decision to with draw and the
partners did not object, in effect they are agreeing that the
partnership be dissolved.
This can be done before the period or before the fulfillment of
the particular undertaking, although there is violation of the
agreement, because there is MUTUAL
CONS ENT/AGREEMENT.
e.g. 2. When a Partner binds all the interest of the other
partners in the partnership, there is a conversion to sole
proprietorship, there is a mutual agreement of the dissolution
When dissolution through mutual agreement--- Unanimous
consent from all of the partners
All of the partners should consent to the dissolution
If the in terest was charged or assigned--- do not need to give
consent
e.g. Partnership ABCDE, dissolution through mutual
agreement
As in terest over the partnership was attached,
Bs in terest was charged and to be paid to creditors
C,D,E should give their consent
A,B need not to give their consent
If A and Bs in terest were not charged, A, B should also give
their consent
Art. 1830. Dissolution is caused:
1) Without violation of the agreement between the partners:
d) By the expulsion of any partner from the business bonafide in
accordance with such a power conferred by the agreement between
the partners;
Expulsion- you are going to re move a partner, must be done in
good faith, there is a valid re ason
e.g. malversation of funds, commission of a tort, there is a
solidary liability of the partner
How should expulsion be made?
Made strictly in accordance with the power given in the
agreement, in the Articles of Partnership, there shall be the
grounds for expulsion
Who may expel a partner?
The power may be vested in one partner,
not necessarily the managing partner,
If the managing partner committed the infraction,
they can expel him and there is a provision in the Article s of
Partnership
If the expulsion is done in bad faith
Remedy: He may ask his in terest over the partnership and
damages,
, , , Partnership, Agency and Trust: Finals
Note: Partnership by estoppel
Solidary lia bility is when there is tort or malversation
Contractual liability---joint and solidary lia bility
Art. 1930 Par 1. a, b, c
The partners who cause the dissolution has no fault, there will
be no lia bility arising from the dissolution
Right of the Innocent Partner: may participate in the winding
Expelled partner: Not participate in the winding up
2. With Violation of agreement Art. 1830 (2)-Voluntary
-B re ach of contract, the withdrawal is with out ju stifiable cause,
the partner may ask liability or damages from the partner who
cause dissolution
Art. 1830 (2) In contravention of the agreement between the partners, where the
circumstances do not permit a dissolution under any other provision of this
article, by the express will of any partner at any time;
When it comes to dissolution,
GR: A partner may ask or has the power to withdraw in the
partnership, at anytime even before the expiration of the term
or before the fulfillment of the undertaking
Power with draw may be with or with out consent, or with or
with out ju stifiable cause
Exc: If the circu mstances do not permit dissolution it will be
contravention or violation of the agreement
Effect if violation of the agreement:
! The partner may ask for damages
! The in nocent partners may continue the partnership
business, even with out going through liquidation or
termin ation; they may even admit new partners
! The guilty partner may not be active in the winding up to the
partnership affairs
! The guilty partner may not be compelled to re main the
partnership, even if the partnership assets is not enough
Power to Dissolve Right to Dissolve
An inherent right Right which may be re moved
Anytime the partner may seek or taken away fro m a partner,
dissolution e.g. a partner whos interest
was charged or attached
3. Force Majeure or outside the will Art. 1830 (3-7) Involuntary
-Reason is beyond the control of the partners
-This does not bring up any liability among partners
Art. 1830
(3) By any event which makes it unlawful for the business of the partnership to
be carried on or for the members to carry it on in partnership;
Dissolution when the business becomes unlawful
-in itially the business was la wful, but because of supervening
events the partnership business becomes unlawful e.g.
passage of a law,
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if the object of the partnership becomes ille gal, the partners
are now prohibited from continuing the partnership business
automatic
If the partnership is illegal from the start the partnership is void
ab initio--- the partnership has no juridical personality
4) When a specific thing, which a partner had promised to contribute to the
partnership, perishes before the delivery; in any case by the loss of the thing,
when the partner who contributed it having reserved the ownership thereof, has
only transferred to the partnership the use or enjoyment of the same; but the
partnership shall not be dissolved by the loss of the thing when it occurs after
the partnership has acquired the ownership thereof;
Dissolution due to the loss of a specific thing
-n ot a generic thing
-the contribution should be a specific thing
If before the delivery the specific thing was lo ss, the
partnership is dissolved, as if the partner did not contribute
anything
If after delivery, then the partnership is still subsisting, the
ownership is now with the partnership, it will be the partnership
who will bear the lo ss.
If the object is a universal partnership of profits, the
contribution is the use or enjoyment of the thing, before or
after the delivery, automatically the partnership is dissolved,
bec the ownership still belongs to the partner and as if the
partner did not contribute anything
5) By the death of any partner;
Dissolution due to the death of the partner
-this will change the composition of the partnership even with
or without knowledge
How is this made?
Total dissolution---decides to discontinue the partnership and
proceeds to liquidation and termination
Partial dissolution---
a. When the partners themselves decided to continue with the
partnership
b. When they continue the partnership with the heirs of the
deceased or the executor,
the deceased partner is still part of the partnership
re presented by his heirs or executor
Rules
1. If it is the heir or executor is included, s/he is considered as
a general partner, their lia bility is simila r to the deceased
partner
The contracts that are entered makes them liable too,
2. If there is a stipulation the partners decide to continue by
themselves and there is a stipulation despite the death,
in solvency the partnership will not be dissolved,
The lia bility of the estate of the deceased shall only be up to
the extent of contribution for contracts entered into after
dissolution, cannot go to the personal assets of the heirs or
executor
if there is no stipulation, considered as a new partnership
same as rules in # 2
Who will liq uidate the partnership affairs?
, , , Partnership, Agency and Trust: Finals
The surviving partners or the appointed partner or person who
will liq uidate, not the executor
6) By the insolvency of any partner or of the partnership;
Rationale: Good standing, the partner should be able to pay
his credit and not operating at a loss.
Why is the in solvency of a partner a ground for dissolution?
In the instance the partnership assets are not enough to pay
for the creditors there is recourse to personal assets, if the
partner is also insolvent, who shall pay the credit
Why is the in solvency of a partnership a ground for dissolution?
If it is the partnership is in solvent, and all assets partnership
assets are exhausted, the partnership cannot continue its
business, as if no contribution is le ft
Q: Is there a need for a court decree?
A: No, because as long the liabilities are more than the assets,
you are now considered as at a lo ss and sufficient to declare
to be insolvent. The court decree is for liq uidation purposes
7) By the civil interdiction of any partner;
Civil Interdiction- a penalty in a criminal conviction, you are not
allowed enter into contract and not allowed to manage your
properties, no consent to enter into contracts
Why is this a ground?
You cannot enter into contracts
When can a partner limit the grounds for dissolution?
Partners CANNOT limit or decrease the grounds for
dissolution even if provided in the Articles of Partnership.
B. Dissolution Court Decree Art. 1830 (8)- 1831-E xtra judicial
-a lso constitutes a breach of contract and an action for
re scission
There are circu mstances beyond the will of a partner; there is
a need for the courts to decide
Art. 1830 (8) By decree of court under the following article.
Who may file for dissolution?
a. A partner for any of the reasons from Art. 1831 Par. 1-6
b. The purchaser of a partners interest in the partnership that
has been assigned or charged, provided that the period has
expired or if the firm was a partnership at will when the in terest
was assigned or charged.
Art. 1831. On application by or for a partner the court shall decree a dissolution
whenever:
1) A partner has been declared insane in any judicial proceeding or is shown to
be of unsound mind;
Reason for making insanity a cause: The partner will be
in capacitated to give consent to enter into contracts.
The in sanity must materially affect the capacity of the partner
to perform his contractual duties as a partner.
Q: Is there a need for judicial declaration?
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A: There may or may not be a ju dicial decree, if he enters into
a contract during his lu cid interval
If there is a court decree of insanity, in itially there is no effect
to the partnership, it is now up to the partners to petition the
court
If during the pendency of the case, do you need to wait for a
ju dicial decree?
The fact of his being of unsound mind must be duly proved.
The partner can no longer perform his duties in the partnership.
The partner can file a petition and prove in the proceedings.
Why is it not a dissolution ip so ju re?
Even if the partner is in sane, s/he still has a property, and this
property continues to earn profits and thus there is a need for
a court decree
2) A partner becomes in any other way incapable of performing his part of the
partnership contract;
What kind of in capacity?
Permanent incapacity.
A partner impliedly undertakes to advance the success of the
partnership of which he is a memb er by devoting to it, with in
re asonable limits, his time , effort, and ability.
His co-partners are entitled to his contribution and if, for any
re ason, he fails to fulfill his duties they are thereby deprived, in
greater or less degree, according to the extent of his failure, of
the benefits of the contract which they have made, and of the
fruits thereof to which they are le gitimately entitled.
e.g. when the partner enters the government service which
would prohibit him from participating in the firm; or when he
will have to stay abroad for a lo ng time .
3) A partner has been guilty of such conduct as tends to affect prejudicially the
carrying on of the business;
Misconductconduct prejudicial to the carrying on of the
business (e.g., in veterate drunkenness)
Other re medy:
Include in the Article s of Partnership the power to expel the
partner who is guilty of gross misconduct and a ground for
dissolution ip so ju re
4) A partner wilfully or persistently commits a breach of the partnership
agreement, or otherwise so conducts himself in matters relating to the
partnership business that it is not reasonably practicable to carry on the
business in partnership with him;
Persistent breach of the partnership agreement
Managing partner continuously ignoring the duties as provided
in the Articles of Partnership.
e.g., keeping and re ndering false accounts, misu se or
misa ppropriation of partnership funds, failure to call for a
meeting,
non-compliance of duties, they defeat and materially affect and
obstruct the purpose of the partnership.
5) The business of the partnership can only be carried on at a loss;
Purpose of the partnership is for the generation of profits, and
despite effort there is lo ss, mig ht as well declare dissolution
, , , Partnership, Agency and Trust: Finals
6) Other circumstances render a dissolution equitable.
On the application of the purchaser of a partner s interest under Article 1813 or
1814:
1) After the termination of the specified term or particular undertaking;
How can this dissolution be made by the third person?
After the expiration of the term, before the expiration the third
person may not ask for dissolution
2) At any time if the partnership was a partnership at will when the interest was
assigned or when the charging order was issued.
If at will, he may ask for dissolution if the in terest was charged
or attached
Time of Dissolution
It is understood that a firm whose dissolution is petitioned for
in court becomes a dissolved partnership at the time the
ju dicial decree becomes a final judgment, final and executory.
Q: Can the partnership still enter into contracts which will bind
the partnership?
A: Yes, the reckoning period of the dissolution is upon the
finality of the ju dgement, bec what if the court decided that
there was no valid ground for dissolution, therefore, the
partnership may still enter in to contracts.
October 28, 2015
Effe cts of Dissolution
What is changed is the contractual relationship between and
among the partners, because during dissolution the business
venture is considered as finished.
There is no business to speak of
Art. 1832. Dissolution extinguishes the rig ht of the partners the
power and rig ht to represent the partnership. The power to be
an agent of the partnership is automatically taken away.
The partners can no longer enter in to contracts that will bind
the partnership.
Upon dissolution, the partnership ceases to be a going
concern and the partners power of representation is confined
only to acts incident to winding up or completing transactions
begun but not then finished.
Dissolution does not undermine existing obligations. It does
not also extinguish liabilities already incurred by the
partnership. The partnership must abide with the obligations
towards third persons.
Completion or performance of existing contracts and
settlement of partnership are considered as integral part of the
partnership. Therefore, if there are contracts entered into by
the partnership prior to the dissolution they have to finish
these existing obligations.
Exceptions provided in Art. 1832, the transactions that will still
bind the partnership
Outline in the book of Villanueva, on the effects of dissolution
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GR: if there is dissolution, the force and effect of the contracts
entered into are still valid and binding upon the partnership,
with out prejudice to the partners who may decide to continue
to with the partnership business.
A. Effect of Dissolution among partners Inte r Se (A rt 1837)
he is discharged by the agreement of the continuing
partners, expelled partner and partnership creditors
These two conditions must exist
3. Dissolution caused in violation of the contracts
-there is a breach of contract

1. Dissolution without violation (Art 1830, Par. 1, a-c)
ART. 1830. Dissolution is caused:
(1) Without violation of the agreement between the partners:
(a) By the termination of the definite term or particular
undertaking specified in the agreement;
(b) By the express will of any partner, who must act in good
faith, when no definite term or particular undertaking is
specified;
(c) By the express will of all the partners who have not
assigned their interests or suffered them to be charged for
their separate debts, either before or after the termination of
any specified term or particular undertaking;
Rights of Innocent partner
a. To have partnership property applied for the payment of its
lia bilities and to receive in cash his share of the surplus;
b. To be in demnified for damages caused by the partner guilty
of wrongful dissolution;
c. To continue the business in the same name during the
agreed term of the partnership, by themselves or jo intly with
others; and
d. To possess partnership property should they decide to
continue the business and use the partnership assets, may or
may not go through dissolution

-the dissolution means there is the termination of the contract

Rights of partner who has wrongfully caused the
or beyond the control of the partners
dis solution:
-d issolution caused by death, insolvency or court decree
1. If the business is not continued by the other partners:
Right of a partner who will ask for dissolution
Partnership Lien
a. to have the partnership property applied to
--share in the surplus property, if any, in proportion to his
discharge its lia bilities and to re ceive in cash his
in terest in the property
share of the surplus le ss damages caused by his
wrongful dissolution;
in cludes:

a. Ask for the partnership assets to be applied on partnership

2. If the business is continued:
lia bilities
b. Right to the surplus have to be given
a. To have the value of his in terest in the partnership
at the time of the dissolution, less any damage
Right of every partner
caused by the dissolution to his co-partners,
a. Demand for the partnership affairs be wound up
ascertained and paid in cash or secured by bond
b. If there is dissolution and the partners continue with the
approved by the court; and
partnership business, they cannot insist the other partners to
continue and not wound up---
b. To be re leased from all existing and future
They may liq uidate only the interest of the partner who will
lia bilities of the partnership.
le ave the partnership
Established goodwill, is usually considered part of the
Possible Effect: The interest given to this partner might more
property and assets of the firm, in the absence of a contract,
than the partnership assets, bec in the long run the lia bilities
express or implied, to the contrary.
shall also be accounted for. Therefore, if the liabilities are
bigger than assets then the in terest might also decrease the
The goodwill of a business is a proper subject of sale.
amount of remaining assets.
However, a saleable goodwill can exist only in a commercial
partnership. It cannot arise in a professional partnership, such
The bigger amount is sort of a re ward for the partner, although
as partnership of attorneys or physicians, the re putation of
in sisted for the partnership; let the other partners continue with
which depends on the in dividual skill or personal qualifications
the partnership business.
of its members.
2. Dissolution by expulsion
4. Dissolution caused by Rescission due to fraud or
-there is expulsion bona fide, there is a reason/right in
misrepresentation (Art. 1838)
pursuance to an agreement
-the dissolution is through a court decree since there is a
Effect:
violation of the agreement, only the court can decide if the
-e xpelled partner shall receive in cash the net amount due to
agreement was in duced through fraud or misrepresentation
him iff:
a. There is dissolution by expulsion bona fide and;
Under Art. 1838
b. He is discharged from partnership liabilities by:
paying his lia bility or accdg to Art, 1835,

, , , Partnership, Agency and Trust: Finals 5

ART . 1838. Where a partnership contract is rescinded on the ground of the fraud
or misrepresentation of one of the parties thereto, the party entitled to rescind is,
without prejudice to any other right, entitled:
(1) To a lien on, or right of retention of, the surplus
of the partnership property after satisfying the partnership liabilities to
third persons for any sum of money paid by him for the purchase of
an interest in the partnership and for any capital or advances
contributed by him;
(2) To stand on, after all liabilities to third persons have been
satisfied, in the place of the creditors of the partnership for any
payments made by him in respect of the partnership liabilities; and
(3) To be indemnified by the person guilty of the fraud of making the
representation against all debts and liabilities of the partnership.
If the partner was induced to enter in to a contract through
fraud or misrepresentation the contract is voidablehave to
go to court
Any transactions entered in to by the partnership, before the
court decides the validity of the contract, shall be valid and
binding upon the partnership and the partners.
What is the rig ht of the partner?
Right to rescission
1. Right over the Partnership Lien
2. Right to be subrogated to the rig ht of partnership creditors,
he may be the one to claim from the partnership to money he
paid in behalf of the partnership
3. Right to be in demnified
B. Effect on Liabilities existing at the time of the
dis solution of the partnership
-e xisting obligations (Art. 1835)
ART . 1835. The dissolution of the partnership does not of itself discharge the
existing liability of any partner.
A partner is discharged from any existing liability upon the dissolution
of the partnership by an agreement to that effect between himself, the
partnership creditor and the person or partnership continuing the business; and
such agreement may be inferred from the
course of dealing between the creditor having knowledge of the dissolution and
the person or partnership continuing the business.
The individual property of a deceased partner shall be liable for all
obligations of the partnership incurred while he was a partner, but subject to the
prior payment of his separate debts.
Unlim ited Liability of a Partner
-a partner shall be liable jointly with the other partners for
partnership debts which cannot be settled by partnership
assets, personal assets shall be lia ble
Deceased partner
the individual property of a deceased partner shall be liable for
all obligations of the partnership in curred while he was a
partner.
Note: that the individual cre ditors of the deceased partner are
to be preferred over partnership creditors with respect to the
separate property of said deceased partner.
EXAMPLE (De Leon):
If A, B, and C are partners and A re tires, all three (A, as well
as B and C) continue to be personally liable for partnership
debts existing at the time of As re tirement.
Similarly, if A dies, his in dividual estate is available to
partnership creditors, subject, however, to the claims of As
personal creditors. Even an agreement among A, B, and C
, , , Partnership, Agency and Trust: Finals
whereby B and C promised to assume the partnership debts
does not release A, unless the creditors assent to such
substitution of debtors, either by express agreement (novation)
or by agreement inferable from course of dealing.
The partner can also be discharged of his liability even to
the extent of his personal assets if there is concurrence of
the partner who is asking for dissolution, the partnership
creditor and the remaining partners.
Q: Why is there is a need for the concurrence of these three?
A: There should always be consent, if you are going to re move
a partner of his lia bility and the partnership assets are not
enough, and one of the partners are not able to pay, this
partnership creditor will be at lo ss. The re maining partners will
have more burden in the payment of partnership lia bilities.
The discharge may be implied read last sentence of 2nd Par. of
Art. 1835, underlined.
October 30, 2015
C. Effect on liabilities on transactions made after
dis solution (Arts. 1832, 1833, 1834)
1. Winding up (1836, 1839)
2. New business
3. Continued with the partnership (1840-1842)
ART . 1832. Except so far as may be necessary to wind up partnership affairs or
to complete transactions begun but not then finished, dissolution terminates all
authority of any partner to act for the partnership.
(1) With respect to the partners:
(a) When the dissolution is not by the act, insolvency
or death of a partner; or
(b) When the dissolution is by such act, insolvency or death of a
partner, in cases where Article
1833 so requires;
(2) With respect to persons not partners, as declared in article 1834.
GR: After dissolution, all transactions entered in to will not bind
the partnership
Read Art. 1834
Exceptions, the partnership will be bound:
1. Acts necessary to wind up
2. Acts necessary to complete the transaction
3. a. Although unauthorized partner to enter into any
transaction, and previous creditor does not have knowledge or
notice of the la ck of authority
b. New creditor who has no knowledge of the lack of
authority, even if the la ck of authority was published
GR: Completely New Business during will not bind the
partnership, exc:
If at the time he entered into the transaction he had no
knowledge of the dissolution of the partnership,
When Is the FIRM Not BOUND? (P aras)
1. where the firm was dissolved because it was UNL AWFUL to
carry on the business (as when its objects were later declared
by la w to be outside the commerce of man)
EXCEPT when the act is for WINDING UP
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2. where the partner that acted in the transaction has become
INSOLVENT
3. where the partner is UNAUTHORIZED to wind up
EXCEPT if the transaction is with a customer in good faith.
It is understood that if after dissolution a stra nger will
re present himself as a partner although he is not one, he will
be a partner by estoppel.
If the Dissolution is not by Act, Insolvency and Death
Causes: Dissolution w/o violation of contract in c. mutual
consent, by re ason of expulsion, the business was declared
unlawful, there is loss of specific thing, by court decree
It is presumed that by the time of dissolution, the partners had
knowledge of the fact of dissolution--- the partner will be
considered in bad faith, the liabilities shall be for the sole
account of the partner in bad faith.
If the Dissolution is by Act, Ins olvency and Death
Causes of Dissolution by Act: Dissolution w/ violation of the
agreement, civil in terdiction (the person committed the crime,
you need to wait for the promulgation of the decision)
-these acts will still bind the partnership provided, there is no
knowledge
Dissolution by re ason of acts---partner has knowledge
personally
Dissolution by in solvency or deathnotice may suffice, e.g.
court notice, lenient since death or insolvency is an ordinary
occurrence
Third party creditors
-they will always consider the transaction as valid and binding
1834 Par. 2
(2) By any transaction which would bind the partnership
if dissolution had not taken place, provided the other party to the transaction:
(a) Had extended credit to the partnership prior to dissolution and
had no knowledge or notice of the dissolution;
(b) Though he had not so extended credit, had nevertheless known
of the partnership prior to dissolution, and having no knowledge or
notice of dissolution, the fact of dissolution had not been advertised
in a newspaper of general circulation in the place (or in each place if
more than one) at which the partnership business was regularly
carried on.
When the 3rd person is dealing with partnership in cash, or
when he is merely purchasing the goods/customer? Will he
bind the partnership if he had no knowledge of dissolution?
-n ot considered as creditors
eg. the partnership sold you a defective cellphone
Lim ited Liability
-you do not go to the personal assets of the partners
-u nknown partners: secret, dormant partners
When are creditors considered in bad faith?
1. Partnership is dissolved since it is unlawful
2. When he enters in to a partner who is insolvent
For purposes of 3rd persons
Did he have knowledge to the dissolution?
, , , Partnership, Agency and Trust: Finals
Yes No
Was the transaction
for purposes winding up?
No Yes
3rd persons will
not be bound
3rd persons will be bound
Business is continued with out liq uidation,
effects of dissolution was w/o vio lation of the agreement---
determine if the partner is in nocent or the partner who caused
the dissolution (see page 6)
Art. 1840. In the following cases creditors of the dissolved partnership are also
creditors of the person or partnership continuing the business:
(4) When all the partners or their representatives assign their rights
in partnership property to one or more third persons who promise to
pay the debts and who continue
the business of the dissolved partnership;
When the rig hts of the partner is assigned or purchased by a
third person, that 3rd person must give a promise to pay the
debts of the partnership
w/o promise: the partnership creditors may not ru n after the 3rd
person to whom the rig hts were assigned.
Rationale: When the partners sold their in terest to this 3rd
person , The third person becomes a sole proprietor, because
upon acquisition, the 3rd person did not acknowledge that the
partnership had no debt.
The 3rd person may be liable even w/o promise if the sale of
the in terest was made to defraud creditors.
ex. Corporation was made as a cloak against creditors
In re 1841. Dissolution due to retirement or death and
bus ine ss is continued
The re tiring partner or the legal re presentative of the deceased
partner shall have the right:
1. To have the value of the in terest of the re tiring partner or
deceased partner in the partnership ascertained as of the date
of dissolution (i.e., date of re tirement or death); and
2. To receive thereafter, as an ordinary creditor, an amount
equal to the value of his share in the dissolved partnership
with interest, or, at his option, in lie u of interest, the profits
attributable to the use of his rig ht.
Winding up
7
 For the purpose of winding up the concern, however, the
-p ro cess of settling partnership affairs after dissolution liq uidating partner has the same general power to bind the firm
- can be done ju dicially and extrajudicially as he had before, and he may bind the partnership by
-ju dicially- directed and controlled by the court upon proper borrowing money to meet its accruing liabilities, and may sell
cause its real estate to raise money to
pay its debts.
Authorized to wind up
3. Incur obligations to complete existing contracts or preserve
A. If there is an agreement: Liquidating partner partnership assets
A liq uidating partner has power to in cur obligations
B. If there is no agreement/appointment: necessary to the completion of existing contracts, and
1. Innocent Partners to in cur debts or other obligations necessary for the
if you with drew-you do not have the rig ht to wind up re asonable preservation of partnership assets or in procuring a
2. Not Insolvent Partner favourable market for their disposal.
3. Determine the la st surviving partner as lo ng as not insolvent
4. Legal representative if no last surviving partner, not 4. Incur expenses necessary in the conduct of litigation
necessarily an heir Where a liq uidating partner is confronted with the necessity
5. Appointment of a re ceiver for purposes of liq uidating the of litigation in order to perform his duty in winding up the
partnership affairs of the partnership, he has power to employ an attorney,
with resultant obligations, to prosecute and defend the action
or to incur other expenses necessary in the conduct of such
LP- Liquidating partner litigation.
A,B, and C are Partners
Art. 1839 Distribution of Partnership Assets
Scene 1
A died Rules in the payment of lia bilities, distribution of assets, etc
B is appointed LP
With out liquidation, partnership accounts cannot be
Scene 2 determined
A/C may liq uidate as surviving partners
B withdrew w/o justifiable cause Art. 1809: There can be no formal accounting except when
there is 1. dissolution, 2. there is an agreement, 3. expulsion of
Scene 3 partner, 4. to determine the profits that have been accrued by
A died the partnership
B died
C survived-liquidate as lo ng as in solvent Q: When there is liq uidation, should all assets be converted
if C is insolvent go to court in to cash?
A: No, properties can also be used to pay for partnership
Scene 4 lia bilities, but it shall be directed with the power of the courts.
A died
B died If property is included in the assets, the court may determine
C last surviving partner but died---go to le gal representative of the manner how to distribute the properties.
C
Q: When Liquidation is not re quired?
Scene 5 A: When there has already been an agreement as to the
A died manner of distribution.
B died
C la st surviving partner but died and in solvent ---leg al The Assets of the Partnership
re presentative of non-insolvent partner a) The partnership property (in cluding goodwill).

The legal re presentative may question the other le gal re p is b) The contributions of the partners, which are made to pay off
not qualified to liquidate the partnership liabilities.

Powers of liquidating partner Rules in the dis tribution (De Leon)

1. Make new contracts .
For the purpose of win ding up the
partnership, a liq uidating partner is sole agent of the
partnership, but mere ly for that one specific purpose. Thus,
with out express authorization, he cannot make new contracts
or create new lia bilities, as by giving promissory notes binding
on the firm nor can he extend the time for the payment of
existing obligations to the firm, or make acknowledgments of
the validity of claims against the firm.
1. those owing to partnership creditors;
2. those owing to partners other than for capital and profits
such as lo ans given by the partners or advances for business
expensespartner creditor (they should be placed in a
subordinate position to outside creditors for otherwise they
may prefer their own in terests);
3. those owing for the re turn of the capital contributed by the
partners

2. Raise money to pay partnership debts Q:Wh y is there a need to re turn the capital?

, , , Partnership, Agency and Trust: Finals 8

A: Capital is still considered as a debt to the partner.
NB An industrial partner, who has not contributed
money or property at all is, in the absence of stipulation, not
entitled to participate in the capital.; and
4. if any partnership assets re main, they are distributed as
profits to the partners in the proportion in which profits are to
be shared.
- the general rule is: Partnership assets to partnership
creditors, individual assets to in dividual creditors; anything le ft
from either goes to the other.
-It in volves the ra nking of assets in a certain order toward the
payment of outstanding debts.
-the court will still apply this rule
-n either class of creditors may tre spass the claims of another
Ins olvent Partner

If a partner is insolvent, how will his in dividual properties be

Q: Uncertain profits for a certain period? distributed?
A: If, during the liquidation of a firm, the profits for a certain period of
time cannot be exactly determined because no evidence or insufficient a) First, give to the in dividual or separate creditors.
evidence thereof is available, the court should determine the profit for
b) Then, to the partnership cre ditors.
the period by finding the average profits during the period BEFORE
and AFTER the period of time in question (Paras). c) Then, those owing to the other partners by way of
contribution.
# The distribution must always be in order or must be in
sequence. e.g

Q:If there are profits earned after dissolution, will it still be A, B, C Partners
distributed as profits to the partners?
A: It depends, if the profits are by re ason of transactions Scene 1
during the partnership---considered as profits Contribution Profits from 15K
if there is violation---not profits A 10 K P 3,750
B 20 K P 3,700
e.g. stock market investments, income of the partnership, C 10 K P 3,750
addl capital and distributed accdg to contributions made Total= 40K

Art. 1839 Par 4: Additional Contribution Assets= P100K

Q: All liabilities were all paid, but no capital will be distributed? Liabilities
A: Still demand contribution to complete the balance, to X=10 K
distribute the partnership capital, contributions are from Y=20 K
personal assets of the partners. X+Y= 30K
B=15 K

If the assets are insufficient (i.e., there is an overall loss), the 100K- 30K-15 K= 55 K- 40K (Capital)= 15 K
deficit is a capital loss which requires contribution like any
other lo ss. Scene 2
If Assets= P100K; Liabilities=P180
If the partnership assets are in sufficient, the other partners Deficit of P80K
must contribute more money or property. Who can enforce
these contributions? Contribution Additional Contribution for P80K
A 10 K P 20K
a) In general, any assignee for the benefit of the creditor; or B 20 K P 40K
any person appointed by the court C 10 K P 20K
(like a receiver). Total= 40K
Reason: Said enforced contributions may be considered as
partnership assets, and should therefore be available to the The Additional contribution shall depend on the % of
creditors. contribution

b) Any partner or his le gal representative to the extent of the Scene 3

amount which he has paid in excess of the share of the liability. If B died, the addl P40K shall be from his Estate

If any of the partners does not pay his share of the lo ss, the
re maining partners have to pay but they can sue the non-
paying partner for indemnification. Subject to reimbursement Scene 4
C owes Y=50K
The individual property of a deceased partner shall be lia ble C personal assets=P50K
for his share of the contributions necessary to satisfy the
lia bilities of the partnership incurred while he was a partner. if C=80K
lia bility to Y= 50K
excess 30K shall be used to pay-off contribution to partnership
Doctrine of Marsh alling Assets lia bility.

, , , Partnership, Agency and Trust: Finals 9

November 4, 2015
Limited Partnership
Art. 1843. A limited partnership is one formed by two or
more persons under the provisions of the following article, having as
members one or more general partners and one or more limited
partners. The limited partners as such shall not be bound by the
obligations of the partnership.
They are willing to invest in the partnership
They do not want to be in volved in the mgmt of the partnership
Cha racteristics of the liability in a limited partnership
1. They shall be liable but has limited obligation
-they are still liable with partnership obligations but is limited
up to the extent of his contribution
-takes away the features of general partnership such as
mutual agency, delectus personae and manage properties
Composition of Ltd Partnership
-a t le ast 1 gen partner and 1 ltd partner
-Never have two Ltd partners sin ce,
a. Who shall manage the partnership?
b. How will the partnership pay partnership liabilities?
c. Mgmt of the partnership.
Ltd partner
-make his contribution
-n o services
Q:Ma y a partner be both General and Ltd?
A: Yes following the conditions:
a. It must be stated in the Certificate, absence of such
statement, he shall only be considered as a general partner
Effect of both Gen and Ltd Partner?
w/ re spect to liability---liable until his personal assets as a
general partner
as a ltd partner- has the right to demand for the re turn of his
contribution even before dissolution as long as thi is in dicated
in the Certificate
e.g. A, B, and C Partners
A=GP; B= LP; C= GP/LP
In management, A & C
In case of payment of contractual lia bility to 3rd persons, A & C
to the extent of their personal lia bility,
C may re cover from A what he has paid beyond his
contribution
B his liability only up to his contribution
Return of contribution, LP may demand any time if stipulated,
if there is no stipulation, during dissolution, LP shall be given
first.
If partnership assets are not enough, you cannot demand addl
contribution from LP,
, , , Partnership, Agency and Trust: Finals
2. Ltd partnership is formed through a formal proceeding re Art.
1844
Requisites in the Formation of a Limited Partnership
Two important things are needed:
a) The signing under oath of the re quired certificate of
Partnership (with all the enumerated items), and
b) The filing for re cord of the certificate in the Office of the
Securities and Exchange Commission.
ART . 1844. Two or more persons desiring to form a limited partnership shall:
(1) Sign and swear to a certificate, which shall state:
(a) The name of the partnership, adding thereto the word Limited ;
(b) The character of the business;
(c) The location of the principal place of business;
(d) The name and place of residence of each member, general and
limited partners being respectively designated;
(e) The term for which the partnership is to exist;
(f) The amount of cash and description of and the agreed value of
the other property contributed by each limited partner;
(g) The additional contributions, if any, to be made by each limited
partner and the times at which or events on the happening of which
they shall be made;
(h) The time, if agreed upon, when the contribution of each limited
partner is to be returned;
(i) The share of the profits or the other compensation by way of
income which each limited partner shall receive by reason of his
contribution;
(j) The right, if given, of a limited partner to substitute an assignee as
contributor in his place, and the terms and conditions of the
substitution;
(k) The right, if given, of the partners to admit additional limited
partners;
(l) The right, if given, of one or more of the limited partners to priority
over other limited partners, as to contributions or as to compensation
by way of income, and the nature of such priority;
(m) The right, if given, of the remaining general partner or partners to
continue the business on the death, retirement, civil interdiction,
insanity or insolvency of a general partner; and
(n) The right, if given, of a limited partner to demand and receive
property other than cash in return of his contribution.
(2) File for record the certificate in the Office of the Securities and Exchange
Commission.
A limited partnership is formed if there has been substantial compliance in good
faith with the foregoing requirements.
General Partnership-Articles of Partnership
Ltd Partnership- Certificate of Partnership
Indicate all of the rights, if the partner is a general or ltd
partner. If no in dication, general partner
Purpose for filing with the SEC:
1. Notice to the public that they are limited partnership
2. Actual or constructive notice to possible creditors
Q: When do you file your certificate?
A: With in reasonable time
10
Instances when the partnership converts to a general
partnership
1. Failure to submit the Certificate to the SEC
2. There is no substantial compliance with provisions in Art.
1844
Q: What is the condition that must be followed when they are
re gistering is the SEC?
A: At the time of the filing, all statements must be true.
# When there is false statement in the Certificate of
Partnership- not converts the partnership to a general
partnership but decides upon the lia bility of the partner
who cause the false statement with respect third persons,
the lia bility of such limited partner becomes a general
partner
Effect if a third person suffers lo ss re lies on the Statement of
the Ltd partner?
The 3rd person may run after the ltd partner for damages, and
if this ltd partner knew that there is false statement and the
Certificate of Partnership is already submitted without
amendment or cancellation with in reasonable time .
Q: Can there be an additional ltd. partner?
A: Yes, as provided in Art. 1849, even after a limite d
partnership has already been formed, the firm may still admit
new limited partners, provided there is a proper amendment to
the certificate. This amendment must be signed and sworn into
partners inc the newly admitted ltd partner. This must also be
fled with the SEC.
Emphasis:
Art. 1844
(j) The right, if given , of a limited partner to substitute an assignee as
contributor in his place, and the terms and conditions of the
substitution;
(k) The right, if given, of the partners to admit additional limited
partners;
(l) The right, if given , of one or more of the limited partners to priority
over other limited partners, as to contributions or as to compensation
by way of income, and the nature of such priority;
(m) The right, if given , of the remaining general partner or partners to
continue the business on the death, retirement, civil interdiction,
insanity or insolvency of a general partner; and
(n) The right, if given , of a limited partner to demand and receive
property other than cash in return of his contribution.
If there is no specification of these rights
these cannot be given to the ltd partnership.
Q: How do you avoid a false statement in your Certificate of
Partnership?
A: Amend your Certificate of Partnership
Gro unds for amendment of Partnership
Re Art. 1864
A certificate shall be amended when:
(1) There is a change in the name of the partnership or in the amount
or character of the contribution of any limited partner;
(2) A person is substituted as a limited partner;
, , , Partnership, Agency and Trust: Finals
(3) An additional limited partner is admitted;
(4) A person is admitted as a general partner;
(5) A general partner retires, dies, becomes insolvent or insane, or is
sentenced to civil interdiction and the business is continued under
article 1860;
(6) There is change in the character of the business of the
partnership;
(7) There is a false or erroneous statement in the certificate;
(8) There is a change in the time as stated in the certificate for the
dissolution of the partnership or for the
return of a contribution;
(9) A time is fixed for the dissolution of the partnership, or the return
of a contribution, no time having been specified in the certificate; or
(10) The members desire to make a change in any other statement in
the certificate in order that it shall accurately represent the
agreement among them.
Requirements for amendment and cancellation of
certificate
Amendment
(a ) The amendment must be in writing;
(b ) It must be signed and swo rn to by all the memb ers
in cluding the new members,
and the assigning limited partner in case of substitution or
addition of a limite d or general partner; and
(c) The certificate, as amended, must be filed for re cord in the
Securities and Exchange Commission.
Cancellation of a certificate must also be in writin g
and signed by all the memb ers and filed with the Office of the
Securities and Exchange Commission.
If the cancellation is ordered by the court, certif ed copy of
such order shall be filed with the Commission.
The approval by the Commission of the amendment or
cancellation is not required.
Art. 1850 Rights, Powers and Obliga tions of a General
Partner in a Ltd Partnership
Art. 1850. A general partner shall have all the rights and powers and
be subject to all the restrictions and liabilities of a partner in a
partnership without limited partners.
However, without the written consent or ratification of the specific act
by all the limited partners, a general partner or all of the general
partners have no authority to:
(1) Do any act in contravention of the certificate;
(2) Do any act which would make it impossible to carry on
the ordinary business of the partnership;
(3) Confess a judgment against the partnership;
(4) Possess partnership property, or assign their rights in
specific partnership property, for other than a partnership
purpose;
(5) Admit a person as a general partner;
(6) Admit a person as a limited partner, unless the right so to
do is given in the certificate;
(7) Continue the business with partnership property
on the death, retirement, insanity, civil interdiction or
insolvency of a general partner, unless the right so to do is
given in the certificate
Same as in a general partnership however,
A general partner without written consent or ra tification by the
Ltd Partners cannot perform these seven (7) acts in Art. 1850
as they are acts of Dominion.
Outside of these six (6) the ltd partners cannot act with these
acts of dominion.
Q: Who is now considered as a Ltd Partner?
11
A: If you are designated in the Certificate.
Nov . 6, 2015
If the partner erro neously believed that he is a ltd partner?
When giving his contribution, he is made to believe he is a ltd
partner when:
a. giving his contribution but in the Certification his name was
re moved or his ltd partner status is not re flected
b. he is identified in the Certification but he is treated as a
general partner, and he believes he is a ltd partner
In the event he commits the act of a Ltd partner,
a. He does not become personally lia ble
b. He cannot be bound by the obligations entered in to by the
partnership
A Ltd Partner may be liable (A rt. 1855)
1. When he comes to know of the mista ke and did not make
any action, such as re nouncing his right
2. When 3rd persons are prejudiced,
A person who has contributed capital to a partnership,
erro neously believing that he has become a limited partner, as
when his name appears in the certificate as a general partner
or he is not designated as a limite d partner, is not personally
lia ble as a general partner by reason of his exercise of the
rig hts of a limited partner, provided (De Leon):
(a ) On ascertaining the mistake, he promptly renounces his
in terest in the profits of the business or other compensation by
way of income (Art. 1852.);
(b ) His surname does not appear in the partnership name(Art.
1846.); and
(c) He does not particip ate in the management of the business.
(A rt. 1848.)
Obliga tions or Limitations of a Ltd Partner
1. Art. 1845, a Ltd partner may only contribute money or
property
-h e may not contribute services as he may be considered as a
general/industrial partner
Q: When should he contribute the money and property?
A: Before the partnership is formed or
Prio r or at the time of the execution of the Certificate
If there is a specified period, e.g. The Ltd partner shall give his
contribution on Dec. 2015, and the Certificate is already filed?
This is will constitute as false statement
Art. 1858 Allows future contribution but the Ltd Partner but
becomes a trustee, for any unpaid of deficient contribution
Art. 1858. A limited partner is liable to the partnership:
(1) For the difference between his contribution as actually made and that stated
in the certificate as having been made, and
(2) For any unpaid contribution which he agreed in the certificate to make in the
future at the time and on the conditions stated in the certificate.
A limited partner holds as trustee for the partnership:
(1) Specific property stated in the certificate as contributed by him, but which
was not contributed or which has been wrongfully returned, and
, , , Partnership, Agency and Trust: Finals
(2) Money or other property wrongfully paid or conveyed to him on account of his
contribution.
The liabilities of a limited partner as set forth in this
article can be waived or compromised only by the consent of all members; but a
waiver or compromise shall not affect the right of a creditor of a partnership who
extended credit or whose claim arose after the fi ling and before a cancellation
or amendment of the certificate, to enforce such liabilities.
When a contributor has rightfully received the return in whole or in part of the
capital of his contribution, he is nevertheless liable to the partnership for any
sum, not in excess of such return with interest, necessary to discharge its
liabilities to all creditors who extended credit or whose claims arose before such
return.
2. Partnership name should have Ltd
Should there be a name of General Partner be in cluded?
Need not be included. What is important there is the word
Limited or Ltd.
Surname of a Ltd Partner
ART. 1846. The surname of a limited partner shall not appear in the
partnership name unless:
(1) It is also the surname of a general partner, or
(2) Prior to the time when the limited partner became such, the
business had been carried on under a name in which his surname
appeared.
A limited partner whose surname appears in a partnership name
contrary to the provisions of the first paragraph is liable as a general
partner to partnership creditors who extend credit to the partnership
without actual knowledge that he is not a general partner.
GR: A Ltd Partners surname shall not appear in the partnership name
Exc:
1. Also a surname of a general partner, e.g. siblings
2. Before the conversion from a general partnership to a ltd
partnership, the name was included
Rationale as to non-inclusion: A ltd partner is merely an investor, he
should be invisible to the partnership
Effect where surname of limited partner appears in partnership
name.
Determine the knowledge of a third person
If the 3rd person had no knowledge and he relied that the ltd
partner is a general partner,
The ltd partner will be liable as a general partner
If the 3rd person knew that the name appearing in the
partnership name is a ltd partner--- the ltd partner incurs no
lia bility and his personal assets are avoided
3. Art. 1848 He cannot participate in the control or
management of the partnership business
-removed of the rig ht to be mutual agents of the partners
In order to hold them liable as general partner, any indications
of performing acts of general partner, will automatically
re move them from their position as ltd partners but only to
lia bilities with respect to third persons bec Certificate of
Partnership which is the contract of the partners.
Rights of Ltd Partners (Art. 1851)
-very limited
De Leon
1) To require that the partnership books be kept at the
principal place of business of the partnership;
12

2) To inspect and copy at a reasonable hour partnership books
or any of them;
3) To demand true and full information of all things affecting
the partnership;
4) To demand a formal account of partnership affairs
whenever circumstances render it just and re asonable;
5) To ask for dissolution and winding up by decree of court
when
a. He demanded for the return of his contribution but
was refused;
b. The assets are not enough for the lia bility or the
partnership business is operating at loss
Before going to court, what must the Ltd partner do first?
Must go to the other partners and ask for consent to through
dissolution
6) To Lend Money and Transact Other Business With the Firm
(Art. 1854). A partner is not prohibited from:
a) Granting loans to the partnership;
b) Transacting other business with it; and
c) Receiving a pro ra ta share of the partnership assets with
general creditors if he is not also a general partner.
The limite d partner is prohibited fro m:
a) Receiving or holding as collateral security any partnership
property; or
b) Receiving any payment, conveyance, or release from
lia bility if it will prejudice the right of third persons.
Note: while the limited partner is prohibited to receive or hold
as COLLATERAL SECURITY any partnership property, but
the ltd partner is not prohibited from buying partnership assets
which are being sold in order pay off the lia bilities of the
partnership.
Ex. A, B, C Partners
C ltd partner who loaned the partnership with 10K
Assets= 50K
Liabilities to other creditors= 70K
Even if Cs lo an is due and demandable, this will constitute
fraud to 3rd persons
7) To re ceive a share of the profits or other compensation by
way of income which must be stipulated in the Certification
(A rt. 1856);
Subject to the condition that partnership assets will exceed of
partnership liabilities
Compensation by way of income
-a ny arra ngement, re flected in the certification, that in the
event if the assets are more than liabilities the ltd partner may
re ceive
-d one in a re gular basis and paid for his lo yalty in the
partnership
-merely a bonus
, , , Partnership, Agency and Trust: Finals
8) To receive the re turn of his contribution provided the
partnership assets are in excess of all its lia bilities (Art. 1857).
Ltd Partner may only ask for the return of his contribution
when:
1. All lia bilities of the partnership, except liabilities to general
partners and to limited partners on account of their
contributions, have been paid or there remains property of the
partnership sufficient to pay them;
2. The consent of all memb ers is had, unless the return of the
contribution may be rightfully demanded; and
3. The certificate is cancelled or so amended as to set forth
the with drawal or re duction.
Reason as to this right: Ltd partner is only an in vestor. An
in vestor at any time can get the contribution for the partnership
Art. 1855 When there are several ltd partners
ART . 1855. Where there are several limited partners, the members may agree
that one or more of the limited partners shall have a priority over other limited
partners as to the return of their contributions, as to their compensation by way
of income, or as to any other matter. If such an agreement is made, it shall be
stated in
the certificate, and in the absence of such a statement all the limited partners
shall stand upon equal footing.
By an agreement of all the members (general and limited partners)
stated in the certificate, priority or preference may be given to some
limited partners over other limited partners as to the:
1) return of their contributions;
2) their compensation by way of income; or
3) any other matter.
In the absence of such statement in the certificate, even if there is an
agreement, all the limited partners shall stand on equal footing in
respect of these matters.
Q: Conditions in order the differences to be valid
A: This must consented to the partners and must be reflected in the
Certification
9. Demand for the Return of his Contribution (Art. 1857 (2))
ART . 1857. A limited partner shall not receive from a general partner or out of
partnership property any part of his contributions until:
(1) All liabilities of the partnership, except liabilities to general partners and to
limited partners on account of their contributions, have been paid or there
remains property of the partnership sufficient to pay them;
(2) The consent of all members is had, unless the return of the contribution may
be rightfully demanded under the provisions of the second paragraph; and
(3) The certificate is cancelled or so amended as to set forth the withdrawal or
reduction.
Condition for the partner to demand the re turn of his
contribution:
When re turn of contribution a matter of right (De Leon)
Re Par. 2
1) On the dissolution of the partnership; or
2) Upon the arrival of the date specified in the certificate for
the re turn; or
13
3) After the expiration of the 6 months notice in writin g given
by him to the other partners if no time is fixed in the certificate
for the re turn of the contribution or for the dissolution of the
partnership.
# There must be also be compliance with Par. 1
Under the first paragraph, the following conditions must exist
before the contribution of a limited partner can be re turned to
him:
(1) All liabilities of the partnership have been paid or if they
have not yet been paid, the assets of the partnership are
sufficient to pay such lia bilities. As in Article 1856, lia bilities to
limite d partners on account of their contributions and to
general partnership are not considered;
(2) The consent of all the members (general and limite d
partners) has been obtained except when the return may be
rig htfully demanded; and
(3) The certificate is cancelled or so amended as to set forth
the with drawal or re duction of the contribution.
If these conditions are met, you may now demand return of
contribution based on Par. 2
If no dissolution, go to court so your contribution will be
re turned
10. Right of limite d partner to cash in return for contribution.
Under the third paragraph, even if a limite d partner has
contributed property, he has only the right to demand and
re ceive cash for his contribution. The exceptions are:
1) When there is stipulation to the contrary in the certificate; or
2) Where all the partners (general and limited) consent to the
re turn other than in the form of cash.
11. A limited partner may assign his in terest in the partnership
to another person (Art. 1859)
-like a general partner,
In a ltd partnership, the assignee becomes a substituted
limite d partner compared to a general partner
Subs tituted Ltd Partner
-He is a person admitted to all the rights of a limite d partner
who has died or has assigned his interest in a partnership.
-a ny person, may be a personal creditor of a ltd partner
The following are the requisites in order that the assignee
may become a substituted limite d partner:
1) [All the memb ers must consent to the assignee becoming a
substituted limited partner] or [the limited partner, being
empowered by the certificate, must give the assignee the right
to become a limited partner];
2) The certificate must be amended in accordance with Article
1865
a)The amendment must be in writin g;
, , , Partnership, Agency and Trust: Finals
b) It must be signed and swo rn to by all the memb ers in cluding
the new memb ers,
and the assigning limited partner in case of substitution or
addition of a limite d or general partner; and
c) The certificate, as amended, must be filed for re cord in the
Securities and Exchange Commission;
3) The certificate as amended must be re gistered in the
Securities and Exchange Commission.
Rights of assignee of limited partner who becomes a
substitute d ltd partner
# The assignee acquires all the rights of the limited partner
only when he becomes a substituted limited partner. (Read
Rights of Ltd Partner)
He may in spect the goods, ask for an accounting, ask for
dissolution, return of contribution, Share of profits
# He may not be compelled to assume the liabilities of a ltd
partner as to his unpaid contribution
e.g. Ltd Partner: I will contribute P50K but only gave P30K,
the Substituted Ltd Partner is not compelled to pay the P20K
# He may not be made lia ble for the lia bilities of a ltd partner
that he did not know of at the time he became a substituted
ltd partner
# He may not be made lia ble for the liabilities which he was
ig norant and cannot be made certain
e.g. There no statement in the Certificate that there are addl
contributions, etc.
Rights as a mere assignee (De Leon)
# The assignee is only entitled to receive the share of the
profits or other compensation by way of in come
# He has the rig ht for the re turn of the contribution to which the
assignor would otherwise be entitled.
# His rig hts are similar to those of a person to whom a partner
conveyed his whole interest in the partnership. (A rt. 1813.)
# He has no rig ht to require any in formation or account of
partnership transactions or to inspect the partnership books.
Lia bilities of a Ltd Partner (A rt. 1858)
1. He shall be lia ble for unpaid contributions and shall be
considered as debtor,
a. He shall be liable for the difference between his contribution
as actually made and that stated in the certificate as having
been made
b. For any unpaid contribution which he agreed in the
certificate to make in the future at the time and on the
conditions stated in the certificate.
14
2. Liable as a trustee for:
a. Specific property stated in the certificate as contributed by
him, but which was not contributed
b. Specific property which has been wrongfully returned, and
c. Money or other property wrongfully paid
d. Money or property conveyed to him on account of his
contribution.
E.g. there was a re turn of contribution and it was
re turned to him wrongfully, he has the duty to give it
to the correct partner
3. He will be liable to the partnership for the contribution
la wfully received by him, to pay creditors who extended credit
or whose claim arose before such re turn
Ex. A, a limited partner, received the return of his contribution
on the date stated in the certificate. It was discovered that the
re maining assets were insufficient to pay two creditors, X and
Y. Xs claim arose before the re turn; Ys claim arose after the
re turn. Should A be compelled to give back what he had
re ceived?
ANS.: distinguish:
(a ) Xs claim should be satisfied out of what has been returned
to A.
Reason: Xs claim arose before the return. If there is a balance,
it should be returned to A. If there is a deficit, A is not lia ble for
this because he is only a limite d partner.
(b ) Ys claim does not have to be satisfied from what has been
re turned to A as contribution.
Reason: His claim arose after the return. Ys claim should be
directed against the general partners.
The se liabilities may be waived or compromise, the ltd
partner may be removed from his lia bility when:
1) The waiver or compromise is made with the consent of all
the partners; and
2) The waiver or compromise does not prejudice partnership
creditors who extended credit or whose claims arose before
the cancellation or amendment of the certificate.
Determine when the waiver will be prejudice the 3rd person
creditors,
If there will be prejudice despite consent---The ltd partner is
still made liable
Q: Are ltd partners bound, like gen partners, fiduciary
re lationship ince trust and confidence?
A: NO, Since Ltd Partners are mere investors they are
stra ngers to the partnership,
# the Ltd Partner may enter into business which is in
competition with the partnership bec there is no fiduciary
re lation, he must not be a general partner in the competing
partnership
, , , Partnership, Agency and Trust: Finals
Dissolution of a Ltd Partnership
- like a General Partnership
ART. 1860. The retirement, death, insolvency, insanity, or civil
interdiction of a general partner dissolves the partnership, unless the
business is continued by the remaining general partners:
(1) Under the right so to do stated in the certificate; or
(2) With the consent of all the members.
This article presupposes that there are 2 or more GP/2 or
more LP
1 LP, 1 GP= death of 1 GP= automatic dissolution
The partners may continue as long as:
a. Stated in the Certification
b. There is consent of all the member
Insanity- not necessary to go to court
If the partnership is continued, there must be:
ART. 1864. The certificate shall be cancelled when the
partnership is dissolved or all limited partners cease to be
such.
A certificate shall be amended when:
(5) A general partner retires, dies, becomes insolvent
or insane, or is sentenced to civil in terdiction and the
business is continued under article 1860;
Cancel: when the partnership is dissolved or all limite d
partners cease to be such as death
Amend: The business partnership is continued
# Remedy to go to court in the event that cancellation
or amendment is not in cluded in the certification---
Direct the SEC to record the cancellation or
amendment
If the cancellation is ordered by the court, certified
copy of such order shall be filed with the Commission.
Q: In Ltd Partnership and there is winding up, can the Ltd
Partners still continue with the Partnership?
A: They have the rig ht to continue with the operations
Q: Who has the right to wind up?
A: GP but if the death of GP, le gal re presentative of the GP
and never the Ltd Partner
Ltd can never wind up--- Wind ing up is an act of mgmt.
If the dissolution is due to the will of the partners: there should
be cancellation of the certificate
Rights of Creditors (Art. 1862)
15
# The creditor of a limite d partner may apply to the proper court
for an order charging the limite d partners interest in the
partnership for the payment of any unsatisfied amount of his
claim, Action for collection of sum of money.
# The in terest so charged may be re deemed with the separate
property of any general partner but not with partnership
property, through:
a. The court may charge the interest; or
b. Appoint a receiver the person in charge to get the interest
of the ltd partner and apply it to the liability to the 3rd party,
c. Redeem by any or all of the general partners, with the separate
property of a partner
*the ltd partner cannot redeem the charged interest ltd
*partnership property cannot be used to redeem the charged interest
Compared to a charged in a gen partnership:
The interest of the debtor partner charged with the payment of
the unsatisfied amount of the judgment debt may be re deemed
with partnership property with the consent of all the partners
whose interests are not so charged.
The limite d partners right under the exemption laws is also
preserved under this article since his interest in the partnership
(see Art. 1812.) is actually his property.
Q: In filing a suit, are ltd partners allowed to be parties in a suit
or file a case against the parties or partnership?
A: Art. 1866. A ltd partner cannot be made a partner. A creditor
ru n after a ltd partner if he going to file a suit. The creditor
shall ru n after the gen partner
ART . 1866. A contributor (ltd partner) , unless he is a general partner, is not a
proper party to proceedings by or against a partnership, except where the object
is to enforce a limited partner s right against or liability to the partnership.
GR: Ltd Partner cannot be made a plaintiff or defendant
Exc: when LP will enforce his rig ht against a partnership
Art. 1863. In settling accounts after dissolution the liabilities of the partnership
shall be entitled to payment in the following order:
1) Those to creditors, in the order of priority as provided by law except those to
limited partners on account of their contributions, and to general partners;
2) Those to limited partners in respect to their share of the profits and other
compensation by way of income on their contributions;
3) Those to limited partners in respect to the capital of their contributions;
4) Those to general partners other than to capital and profits;
5) Those to general partners in respect to profits;
6) Those to general partners in respect to capital.
Art. 1863: Order of Preference
1. a. Partnership Creditors
b. LP who are creditors
3. LP as to their profits and compensation
4. LP as to their capital contribution
4. General Partners for advance payments or lo ans
5. GP for their profits
6. GP for their capital contribution
LP are preferred bec they are in vestor
ART . 1867. (excess provision)
, , , Partnership, Agency and Trust: Finals
A limited partnership formed under the law prior to the effectivity of this Code,
may become a limited partnership under this Chapter by complying with the
provisions of Article 1844, provided the certificate sets forth:
(1) The amount of the original contribution of each limited partner, and the time
when the contribution was made; and
(2) That the property of the partnership exceeds
the amount sufficient to discharge its liabilities to persons not claiming as
general or limited partners by an amount greater than the sum of the
contributions of its limited partners.
A limited partnership formed under the law prior to the effectivity of this Code,
until or unless it becomes a limited partnership under this Chapter, shall
continue to be governed by the provisions of the old law.
Agency
Art. 1868. By the contract of agency a person binds himself to render
some service or to do something in representation or on behalf of
another, with the consent or authority of the latter.
There is a person who binds himself to act in behalf of another
person.
He will only act for and in behalf of the principal as long there
is the consent or authority of the principal
Employer-Employee- not an agency, one of the important
characteristics of an agency is control. An agent acts with out
the control of the Prin cipal
There is also a ju ridical act in volved in an agency
Art 1317: A person is prohibited from entering a contract in the
name of another person without the authority of another
person--- effect of the contract: unenforceable contract
Effect of contract of agency:
An agent is given the power to contract with 3rd persons in
behalf of the partner.
Employee, Independent Contractor, Service
--- Does not bind the Employer, Servant
---No agency to talk about
Doc trine of Representation
-A cts of the agent on behalf of the principal with in the scope of
the authority given have the same legal effects and
consequences as though the principal had been acting in the
given situation.
-The acts of the agent will have the same legal effects as if the
principal was the one doing the act
Imp ortance of Agency
It enables a man to in crease the ra nge of his in dividual and
corporate activity by enabling him to be constructively present
in many places and to carry on diverse activities at the same
time .
16
You are allowing a person to represent by not physically,
Orient Air Services v. Court of Appeals ,
le gally for you to be present in another place and enter in to a courts have no authority to compel the principal to reinstate a contract of agency
transaction validly it has terminated with the agent

Orient Air Service and Hotel Representative v CA Rallos v. Felix Go Chan & Sons Realty Corp
The purpose of every contract of agency is the ability, by legal fiction, to extend Agency is basically personal, representative, and derivative in nature.
the personality of the principal through the facility of the agent; but the same can
only be effected with the consent of the principal.
# Whatever the nomenclature of the contract as long as it will fall
Litonjua, Jr. v. Eternit Corp under the la w of agency--- la w on agency will apply
the personality of the principal is extended through the facility of the agent. In so
doing, the agent, by legal fiction, becomes the principal, authorized to perform all Manila Memorial Parks Cemetery v Linsangan
acts which the latter would have him do. Whatever the parties name the contractual relationship when it has the essential
elements of a contract of agency it will be governed by the law on agency.
Doles v. Angeles
it is not necessary that the principal personally encounter the third person with
whom the agent interacts. Art. 1869 Agency may be express, or implied from the acts of
the principal, from his silence or la ck of action, or his failure to
Eurotech Industrial Technologies, Inc. v. Cuizon re pudiate the agency, knowing that another person is acting
The underlying principle of the contract of agency is to accomplish results by
using the services of others.
on his behalf with out authority.

Act of Agent=Act of Principle Agency may be oral, unless the la w re quires a specific form.

Individual and Corporate Activities- agency not limited to ART. 1870. Acceptance by the agent may also be express, or
commercial activity includes personal transactions implied from his acts which carry out the agency, or from his
silence or in action according to the circu mstances.
The contract of agency is:
1) consensual
-because it is based on the agreement of the parties which is ART. 1875. Agency is presumed to be for a compensation,
perfected by mere consent unless there is proof to the contrary
GR: there are no solemnities required in a contract of agency,
it can be orally There may or may not be compensation,
With or with out compensation, in a contract of agency the
2) principal agent assumes responsibility to carry out the agency and
-because it can stand by itself with out need of another contract; in curs liability when he fails to do so

3) nominate, because it has its own name; Cons equences of Age ncy

4) a. unilateral, A. The contract entered in to the agent with 3rd persons

- if it is gratuitous because it creates obligations for only one of pertains to the principal, and not the agent who is considered
the parties, i.e., the agent; or as stranger, although it was the agent who entered into the
b. bilateral contract.
- if it is for compensation because it gives rise to re ciprocal
rig hts and obligations Effects:

5) onerous 1. The liabilities shall pertain to the principal and not the agent
-the agent expects compensation from the principal for his
services; and 2. The agent has neither rights to the contract
-h e cannot claim rig hts over the contract
5) preparatory
-because it is entered in to as a means to an end, i.e., the 3. Has no le gal standing to sue due to such contract
creation of other transactions or contracts. -the agent cannot sue unless duly authorized by the principal.
e.g. in the filing of cases, there is a need for a SPA, for the
agent to re present you in court. 4. The agent is not personally lia ble to the party.

6) fiduciary 5. The agent purchases a property in bad faith, then principal

-trust and confidence is also a purchaser in bad faith

Severino v Severino B. All acts that the principal may do in person, he may o
It creates a legal relationship of representation by the agent in behalf of the through an agent
principal. The powers of the agent are derived from the principal.

Exceptions:
7) re vocable
Personally to be performed by him
-a principal or an agent cannot be legally made to be in a
1. Right to Vote
re lationship when they choose to terminate
2. Authorize to make a will
-in tertwined with the fiduciary character of an agency
3. Statements re quired to be made under oath, eg. Jurat
Republic v. Evangelista, Personally before me
the agency may be revoked by the principal at will, since it is a personal contract 4. Cannot delegate to attend a board meeting, if you are board
of representation based on trust and confidence reposed by the principal on his
agent.
memb er or board of trustee

, , , Partnership, Agency and Trust: Finals 17

5. Cannot delegate sub-agency
6. Criminal acts, the acts committed by the agent
There can be no agency in the perpetration of a
crime or an unlawful act when:
a) an alien cannot purchase a la nd through a Filipino
agent.
b) Persons who, because of their position and
re lation with the persons under their charge or
property under their control, are prohibited from
acquiring said property, cannot acquire the same
through the mediation of another.
(1) The gu ardian, the propert y of the person or persons who may be
under his gu ardianship;
(2) Agents, the propert y whose admin istration or sale may have been
intrusted to them, unless the con sent of the princ ipal has been given;
(3) Executors and admin istrators, the property of the estate under
admin istration;
(4) Public officers, and employees, the prop erty of the State or of any
su bdivision thereof, or of any governm ent-owned or -controlled
corporat ion or institut ion;
(5) Justices, jud ges, prosecuting attorneys, clerks of su perior and
inferior cou rt s, and ot her offi cers and employees con nected wit h the
admin istration of just ice,
c) The law on agency governing civil cases has no
application in criminal cases. When a person
participates in the commission of a crime, he cannot
escape punishment on the ground that he simp ly
acted as an agent of another party.
C. A suit against an agent in his personal capacity cannot be
considered as a suit against the principal.
Notice to the agent is deemed a notice to the principal even if
the principal was not aware. Knowledge of the agent is
knowledge of the principal.
Three exceptions to the rule imputing knowledge of agent to
the principal:
1) Where the agents in terests are adverse to those of the
principal;
2) Where the agents duty is not to disclose the information, as
where he is in formed by way of confidential in formation; and
3) Where the person claiming the benefit of the ru le colludes
with the agent to defraud the principal.
Nov. 11, 2015
Essential elements of agency
1) There is consent, express or implied, of the parties to
establish the re lationship
Consent between the agent and principal, the agent must
in tend to accept the authority and act on it.
Litonjua, Jr. v. Eternit Corp.,
held that consent of both the principal and the agent is necessary to create an
agency: The principal must intend that the agent shall act for him; the agent
must intend to accept the authority and act on it, and the intention of the parties
must find expression either in words or conduct between them.
2) The object is the execution of a ju ridical act in re lation to
third persons;
, , , Partnership, Agency and Trust: Finals
3) The agent acts as a representative and not for himself ; and
4) The agent acts within the scope of his authority.
Art. 1883: Agent acting in the name of the principal, if Agent
acts in his own name, the principal has no action against the
third person and the agent
Art. 1898 The agent must act within his scope of authority, if
acts beyond his authority (vo idable contract) unless ra tified by
the principal.
Parties in a Contrac t of Age ncy
1. Principal
one whom the agent re presents and from whom he derives
his authority; he is the person re presented.
Who can be an agent?
1. Natural Persons
2. Juridical Persons
Q: Entity with out Juridical Personality, can they be Principals?
A: No, they have no legal existence, they cannot sue and be
sued
2. Agent.
one who acts for and represents another; he is the person
acting in a representative capacity. The agent has derivative
authority in carrying out the principals business.
Generally they must have the legal capacity to enter in to an
agency
# With re spect to a principal, there is need for a special
capacity. That power/capacity must come from the
principal not the agent
Q: Must the agent be always capacitated to enter in to any
contract in order to bind the principal?
A: Generally, an agent must also be able to bind himself. But it
is with re spect to obligations toward the principal, he has the
capacity.
Instances when the capacity of an agent will not matter an still
be binding to the principal
a. A minor can never be a principal bec. he lacks the capacity
but he may be an agent.
e.g. a 17-year old boy wants to sell his car, the contract will be
voidable until the boy ratifies or turns 18.
An adult appoints a minor to sell a car, the minor was able to
sell the vehicle, since there was consent--- the tra nsaction will
be binding.
Q: When does incapacity of an agent or principal will not bring
about the contract of agency?
A: In Art. 1919 (3) The contract of agency will be automatically
be extinguished.
Art. 1919. Agency is extinguished:
(3) By the death, civil in terdiction, in sanity or insolvency of the
principal or of the agent during the term of the agency.
18
# A contract of agency is a preparatory contract, an agent
will enter into a contract with a third person. That 3rd
person is now included as one of the parties in a contract
of agency.
Obje ct of the Contrac t of Agency
-S ervice, You enter into a contract of agency you want an
agent to act in your behalf, while the agent performs the act.
Consideration/Commission
-a dded element
ART. 1875. Agency is presumed to be for always
compensation, unless there is proof to the contrary
Q: Who has the burden to prove that it is a gratuitous act?
A: The principal has the burden to show that agent allowed
himself to perform the service gratuitously
Compensation is mostly commission, e.g. brokers
# Presumed that contract of agency is for commission,
because it is a commercial contract, since the
purpose is for profits
Kinds of agency.
Agency may be classifi ed as follows:
(1) As to manner of its creation (Art. 1869):
a) express.
one where the agent has been actually authorized by the
principal, either orally or in writing;
b) implied.
one which is implied from the acts of the principal, from
his silence or lack of action, or his failure to repudiate the
agency knowing that another person is acting on his behalf
without authority (Ibid.),
or from the acts of the agent which carry out the agency, or
from his silence or inaction according to the circumstances.
(Art. 1870.)
# There was implied agency by the acts of an agent
Art. 1871: if the principal delivers his power of attorney to the
agent and the latter re ceives it with out any objection and the
agent starts to perform the acts in the contract of agency.
Art. 1872: Between persons who are absent (not face-to-face,
maybe through phones), the acceptance of the agency cannot
be implied from the silence of the agent, except:
1) When the principal transmits his power of attorney
to the agent, who re ceives it without any objection;
2) When the principal entrusts to him by letter or
telegram a power of attorney with respect to the
business in which he is habitually engaged as an
agent, and he did not re ply to the letter or telegram.
(2) As to its character:
a) gratuitous. one where the agent receives no
compensation for his services (Art. 1875.); or
b) compensated or onerous. one where the agent
receives compensation for his services. (Ibid.)
, , , Partnership, Agency and Trust: Finals
(3) As to extent of business covered:
a) general. one which comprises all the business of the
principal (Art. 1876.); or
b) special. one which comprises one or more specific
transactions. (Ibid.)
4) As to authority conferred:
a) couched in general terms.
one which is created
in general terms and is deemed to comprise only acts of
administration (Art. 1877.);
b) couched in specific terms.
one authorizing only the performance of a specific act or
acts.
(5) As to its nature and effects:
a) ostensible or representative. one where the agent acts
in the name and representation of the principal (Art. 1868.);
b) simple or commission. one where the agent acts in his
own name but for the account of the principal.
(6) As to form
a) Oral
b) Written
(7) As to whether is cover matters
a) Atty-at-law- licensed to practice law, to represent the
principal on legal matters, when a client will a give a SPA to
the lawyer to represent a client
not all Atty-Client Relationship is a contract of agency, eg.
Drafting a deed of sale
b. Atty-in-fact authorized to act on juridical relation that
have nothing to do with legal matters, do not constitute
practice of law, not licensed to practice law
Power of Attorney
- is an in strument in writing by which one person, as principal,
appoints another as his agent and confers upon him the
authority to perform certain specified acts or kinds of acts on
behalf of the principal.
It is the general rule that a power of attorney must be strictly
construed and strictly pursued. Under his rule, the in strument
will be held to grant only those powers which are specified and
defined, and the agent may neither go beyond nor deviate
from the power of attorney.
e.g. sell the property, cannot mortgage
When the agent performs acts beyond the power of the
attorney, the act will bind the principal if the la tter will not
re pudiate or ratifies,
If not ratified, the agent will be solely lia ble for his acts
19

Age ncy by estoppel
One who clothes another with apparent authority as his agent,
and holds him out to the public as such, cannot be permitted
to deny the authority of such person to act as his agent to the
prejudice of in nocent third parties dealing with such person in
good faith and in the honest belief that he is what he appears
to be.
Requisites of an Agency by Estoppel:
1. The principal manifested a representation of the agent
2. By the acts of the principal, a 3rd person is led to believe that
this principal allowed an agent
3. 3rd person in good faith relied on the representation and
entered in to a contract
How is an agency by estoppel formed?
1. ART. 1873. If a person specially in forms another or states by
public advertisement that he has given a power of attorney to
a third person, the latter thereby becomes a duly authorized
agent, in the former case with respect to the person who
re ceived the special information, and in the latter case with
re gard to any person.
The power of the agent shall continue to be in full force until
the notice is re scinded in the same manner in which it was
given.
Q: When will be notice of re vocation be considered?
A: When there is special agency, Revocation will not prejudice
3rd persons if they were not given notice that P re voked the
agency. The 3rd person never re ceived notice that the agency
was revoked. The transaction entered in to will still be binding.
2. ART. 1911. Even when the agent has exceeded his authority,
the principal is solidarily liable with the agent if the former
allowed the la tter to act as though he had full powers.
Ex. The P allowed the A to enter into a mortgage, as if giving
the full power to enter in to a transaction. As far 3rd person/
mortgage is concerned, the A has full authority.
3. Notice that P appointed an A through publication
-Revocation shall also be made through publication,
newspaper is sufficient.
If publication made through circulars or magazines, it shall
only be known within the office or establishment, i.e. school
publication--- agency known in the school, outside the school it
may not be re ad. If the re vocation is made in a magazine, the
A is still authorized to enter into transaction
Q: When will acts of an agent bind the principal despite
re vocation entered in to a contract with a 3rd person?
A: 3rd person acted in good faith and he had no notice of the
re vocation. The 3rd person entered into a transaction through
publication and acted in good faith
Effect of Agency by Estoppel created by the Principal himself:
If P knows that P is acting in excess of his authority and
begins to re ceive benefits,
, , , Partnership, Agency and Trust: Finals
P cannot deny the agency, and he is bound by the lia bilities
and obligations that arose from the ageny.
Effect of Agency by Estoppel created by the Agent himself:
Agent shall be made lia ble both to the Principal and 3rd person.
November 20, 2015
As to extent of business covered
1. Universal agency Pertains to everything that an agent can
do for a principal, the principal will appoint an agent for
everything. It is similar to general agency
2. General agency - pertains more particularly to the business
of the principal the agent can bind the principal for all acts
with in the scope of his authority.
Note: In a general agency, usually it will take a characteristic
of a transaction which are of a continuous character. It is
usually a series of transactions overtime and involving a
continuity of service.
For example: You are now appointed as a general agent
because you are in the business of re al estate, and you are
continuously re appointed by this principal to transact business
with respect to the sale and purchase of the property.
3. Special agency the principal will appoint an agent to
perform a specific acts for a specific purpose only and
therefore, the acts which an agent must perform must be duly
with in or in accordance with the specific in structions or under
the limita tions given by the principal.
- It in volves a single transaction or a series of transaction but
not in volving a continuity of service.
For example: you are appointed to sell a re al property, implied
therein is the authority or power to determine the price,
process transactions for the documentation of the sale and
eventually for the transfer. This is a series of transaction but it
does not show continuity of the service to a principal.
As to authority conferred
1. Couched in general terms one which is created in general
terms and it is deemed to comprise only acts of administration.
Therefore, if you are given general power you are deemed to
perform acts which are with in the re gular course of business of
the principal
2. Couched in specific terms one authorizing only the
performance of a specific act or acts
- it covers a situation where it is outside of the re gular
business of a principal
- it covers an act of dominion
Note: The Determining factor in order to know if the agency is
couched in general terms or couched in specific terms is the
extent of the power conferred. Therefore, the rule is that
unless it is expressly stated when an agency is constituted, it
only covers the powers to execute acts of administration.
- Special agency must specify what the agent must perform, if
it is not specified then it is only for acts of administration that
an agent must perform.
- Whenever it is clear that the agent has been duly
designated or appointed by the principal in the absence of
limitin g conditions it is deemed that the agents has full powers
to pursue any act in the name of the principal which are in the
ordinary course of business.
Now usually a power of attorney would be given.
20
Q: What are the terms that will be stated in a general power of
attorney and despite this statement, it will still be deemed that
the acts of administration are still going to be performed by the
agent?
A: In a general power of attorney even if there are statements
stated there that the principal does not with holds any powers
or that the agents may execute all acts which he considered
appropriate or authorizes general and limited management,
this does not mean that the agent can already perform acts of
dominion. So kahit nakalagay dun I will authorize you to
re present me and no powers will be with held from you as my
agent still this does not allow the agent to perform acts of
dominion for and in behalf of the principal without specifically
being stated in that power of attorney or in a separate
in strument issu ed where that power is given to him specifically
to perform.
Q: Does the third party for the person with whom the agent is
contracting with; does he have any obligation with re spect to
contract of agency in order to safeguard himself?
A: with re spect to third persons, he has to exercise due
diligence to ask an agent to show that he in deed was duly
authorized and to show him that document. The third person in
order to be considered as a person who acted in good faith in
transacting with an agent and therefore relying on the
statement that indeed that agent is duly authorized cannot re ly
on mere statements that the agent was acting in behalf of the
principal, there must be a proof presented.
Note: the best evidence is a power of attorney or any
document which clearly authorizes him to re present the
principal
Q: What is a Special power of attorney?
A: Special Power of attorney is an instrument in writin g where
it mandates the specific authorization that the agent must
perform.
Q: How do you construe a SPA?
A: SPA only involves an act of dominion therefore it must be
strictly in terpreted in the language of the SPA. Therefore, kung
sinabi ng SPA mo I authorized you to sell my property that
will be the only act that the agent must perform.
Note: According to Art. 1879, the authorization to sell does not
give the agent the rig ht to mortgage. The agent cannot go
beyond the meaning or the language of the SPA
Article 1879. A special power to sell excludes the power to
mortgage; and a special power to mortgage does not include
the power to sell.
Veloso vs CA
SPA even if not notarized is still a valid document, therefore it
will be valid with respect to the principal and the agent.
Pineda vs CA
The execution by the principals of special powers of attorney,
which clearly appeared to be in prepared forms and only had
to be filled up with their names, residence s, dates of execution,
dates of acknowledgment and others, excludes any in tent to
grant a general power of attorney or to constitute a universal
agency.
Q: May general power of attorney includes a special power of
attorney in the same document itself?
A: Yes, therefore once it is there, it makes now the agent to
perform strict acts of dominion which is now clearly stated in
your General power of attorney.
, , , Partnership, Agency and Trust: Finals
Note: Nos. 1 to 14 in Art. 1878 are actually the instances where
the agent can perform acts of dominion and no. 15 actually
encompasses everything that is not enumerated in nos, 1 to 14.
Article 1878. Special powers of attorney are necessary in the
following cases:
(1) To make such payments as are not usually considered as
acts of administration;
- If this payments are made in the ordinary course of business
it is considered as an act of administration.
For example: SPA is not necessary if the payment is made in
merch andise bought if the principal is engaged in business of
buy and sell. But if the principal is engaged in a business of
buy and sell of cellphones, and the agent is authorized to
make a payment for a machine bought, SPA is necessary.
(2) To effect novations which put an end to obligations already
in existence at the time the agency was constituted;
Novation is the extinction of an obligation through the creation
of a new one which substitutes it by changing the object or
principal conditions thereof, substituting a debtor or
subrogating another in the rig hts of the creditor. Note that the
obligations thereof must already be in existence at the time the
agency was constituted
Villa Monna vs Garcia Bosque
The agent had no power to enter into new sales arra ngement
with a buyer or to novate the terms of the original sale
because when he was authorized to enter in to a transaction
with a third person therefore allowing to operate the principal,
he did not however specifically give him the rig ht to novate a
previous transaction therefore if this new transaction entered
in to which changes the terms of the original obligations it will
be considered as novation of previous transaction
(3) To compromise, to submit questions to arbitration, to
re nounce the right to appeal from a ju dgment, to waive
objections to the venue of an action or to abandon a
prescription already acquired;
- include here confession of judgments
- Confession of ju dgments although it is not stated in this
article stands in the same footing as that of t ocompromise.
Compromise is a contract whereby the parties, by making
re ciprocal concessions, avoid litigation or put an end to one
already commenced.
Arbitration is where the parties submit their controversies to
one or more arbitrators for decision
Article 1880. A special power to compromise does not
authorize submission to arbitration.
If your SPA only gives the power to compromise therefore the
agent is not authorized to submit their dispute to arbitration or
vice versa.
Note: De le on: this 5 powers must be specified otherwise the
other power should not be exercised
Villanueva: the grant of a special power to compromise would
mean that the implied power of the agent to renounce the right
to appeal from a ju dgment of a lower court if it will be essential
at arriving to a compromise is allowed.
(4) To waive any obligation gratuitously;
-This simp ly refers to condonation or remission. The agent
cannot waive a right belonging to the principal with out valuable
consideration or even for a nominal consideration.
21
(5) To enter in to any contract by which the ownership of an
immovable is transmitted or acquired either gratuitously or for
a valuable consideration;
-it is intended to convey that there can never be an implied
power on the part of an agent to transmit or acquire ownership
over an immovable property whether gratuitously or onerously,
therefore if it is with respect to an immovable property whether
to sell or to acquire that power can never be implied from a
different act whether an agent was duly authorized.
- Therefore if it is with respect to personal property, Art. 1878
par. 5 Is not applicable because if it is the sale or purchase of
personal property it maybe implied fro m different powers
granted to an agent and therefore, it will be implied as an act
of administration on the part of the agent if it would be shown
that the sale of personal property is the usual act of the
principal
e.g aalis na sa pilipinas ung principal, in the process of going
out kelangan niyang ibenta la hat ang kanyang personal
property and he allows an agent somebody to sell his
properties from him, even with out a SPA since now this
become with the regular or usual business of the principal
pwede niyang ibenta yun but only with respect to personal
property, therefore with respect to personal properties since
hindi siya mahuhulog sa 14 in stances if it is not in the re gular
course of business of the principal, therefore kelangan ng SPA,
mahuhulog siya ngayon sa no. 15 which is any other act of
strict dominion.
- Specifically Art. 1874 provides the sale of an immovable,
hence if the agent sells or is authorized to sell the immovable
property of the principal, it must strictly be in a SPA otherwise
if the agent would sell a immovable property without that SPA,
then the sale becomes void, not merely voidable or
unenforceable.
-A rt. 1878 par. 5 speaks of purchase of an immova ble as well
as sale of other rights or in terest over an immovable
-Witho ut an SPA and you purchase a property or you sell the
in terest over an immovable then the effect of that sale or
purchase is now unenforceable and maybe ratified by the
principal.
- Donations of property can also fall under Art. 1878
Pahud Vs CA
The issu e in volved in this case is the sale by a co-heir of a
portion of their property but the authorization was merely
verbal. Therefore if we apply Art. 1874 since it is a sale of an
immovable property it should be a void transaction but the
Supreme Court ruled that the sale was valid and enforceable.
Reason: Because the authority of an agent to execute a
contract of sale of re al property must be confirmed in writin g
and must give him specific authority so therefore there is a
need for an SPA. However the express mandate required by
the la w to enable an appointee of an agency couched in
general terms to sell must be one that expressly mentions the
sale or that it in cludes sale as a necessary ingredient of the
act mentioned. Applying both Art. 1874 and 1878 par. 5 the
void aspect is only with respect to the principal precisely to
protect his interest of the unsuspecting owner from being
prejudiced from the unwarranted act of another. That sale of
the co-heir over a portion of the property where the authority is
verbal was valid and enforceable with respect to the third
person especially that the principal acknowledged the sale
made by the agent even if the authority given is merely verbal.
The power to sell includes the following implied rights if the
agent is authorized to sell an immovable property:
1. To find a purchaser or to sell directly
, , , Partnership, Agency and Trust: Finals
2. To deliver the property
3. To make the usual re presentation and property
e.g. that they are free from encumbrance
4. To execute the necessary transfer documents
5. To fix the terms of the sale including the time , the place,
the mode of delivery, the price of goods, the mode of payment
unless there are set conditions as stipulated by the principal
6. To sell for cash unless the principal allows him to accept
payment in cre dit in the absence of special qualification or
authority
7. To receive the price unless authorized not to receive.
Note: The power to sell does not include the power to barter or
exchange and the power to mortgage or pledge.
On the other hand the power to mortgage does not include
the power to sell, the power to execute a second mortgage
and the power to mortgage for personal benefits of the agent
or for the benefit of the third person.
For instance: the agent is authorized to mortgage the property
for the principal instead of giving the proceeds to the principal
the agent gave it to another person, therefore the transaction
is void.
Art. 1491 par. 2 states that an agent cannot validly purchase
the property of the principal. If the sale is made and the agent
is the one who bought the property the sale is void unless
there is an authorization coming from the principal allowing the
agent to buy, especially if the agent is given the leeway to
determine the price.
If an agent is authorized to sell an immovable property, it is for
his r safety or protection to tell the principal that he/ she may
be the exclusive agent to sell the property because it can be
that the principal can appoint several agents. Therefore, there
is a need to execute contract of exclusive agency. This will
protect the agent because it will remo ve the chance for the
other agents to re ap the benefits of his/ her hard work.
With re spect to a contract of exclusive agency, it is also better
that the principal will specify the area where that agent will be
allowed to transact the obligation.
Note: The power to re voke is deemed implied in the right given
to a principal, so anytime the principal can in voke that power
to re voke. But in a contract of exclusive agency the principal
agrees not to exercise the power to re voke during a certain
period. Hence, if the principal re vokes the right or authority
given to the agent the principal will be lia ble for damages.
(6) To make gifts, except customary ones for charity or those
made to employees in the business managed by the agent;
Gift or donation is an act of lib erality whereby a person
disposes gratuitously of a thing or right in favour of another
who accepts it. (Art. 725)
GR: An agent with out special power from the principal cannot
make gifts especially if it cash.
Exception: 1. if it is given as customary gifts for charity, if it is
customary it now becomes a regular course of the business of
the principal therefor there is no need for an SPA.
2. Those made to employees in the business managed by the
agent.
Note: Failure to secure an SPA with re spect to the giving of
gifts will re nder the contract unenforceable not because on the
la w of agency but because on the law of donation.
Reason: Because every act of donation constitutes a solemn
contract.
22
(7) To lo an or borrow money, unless the latter act be urgent
and in dispensable for the preservation of the things which are
under administration;
If the agent is allowed to borrow money it might be that the
agent will borrow money beyond the capability of the principal.
If the agent is also allowed to lend, it might be that the agent
will be le nding without determining the capability of the debtor
to pay the lo an. Hence, it might be that the principal will not be
paid of the debts that mig ht due him.
Gozun vs Mercado
A special power of attorney is necessary for an agent to
borrow money unless it is urgent and indispensable for the
preservation of the things which are under administration.
Rural bank of Caloocan vs CA
The authority to borrow is not implied from the special power
to mortgage. Therefore there should be a showing of the
authority granting the agent to borrow.
Art. 1890 states that if an agent has been empowered to
borrow money, he may himself be the lender at the current
ra te of interest. If he has been authorized to lend money at
in terest, he cannot borrow it with out the consent of the
principal.
(8) To le ase any re al property to another person for more than
one year;
Leasing of real property becomes an act of strict ownership
because a lease for more than one year creates a right in re m.
If less than one year it is still considered an act of
administration, therefore the agent need not to secure an SPA
from the principal.
A le ase of personal property for more than one year need not
to secure an SPA since it is still consider as an act of
administration.
Effect of the contract of lease entered in to for more than one
year: It would re nder the contract unenforceable unless made
in writing.
(9) To bind the principal to re nder some service without
compensation; (Involuntary servitude)
It becomes therefore an act of dominion because it is
gratuitous. There is no need for an SPA if he would re nder
service for compensation.
(10) To bind the principal in a contract of partnership;
A contract of partnership creates an obligation the fulfilment of
which re quires an act of strict ownership. This act of strict
ownership includes the obligation to contribute money,
property or in dustry to a common fund with the in tention of
deriving profits. Therefore, if the agent already binds the
principal contribute money, property or industry to a common
fund for the purpose of deriving profits, this principal now
becomes a partner in a partnership and therefore, it might be
in contradiction with the fiduciary character of the partnership.
There might be no delictus personae there because the agent
who binds the partner might not be a partner considered by
the partnership. Therefore the principal must give specific
authority for the agent to bind him in such contract.
(11) To obligate the principal as a guarantor or surety;
By the contract of guaranty, the guarantor binds himself to
fulfill the obligation of the principal debtor in case the la tter
should fail to do so. If the person binds himself solidarily, he is
a surety and the contract is called suretyship.
, , , Partnership, Agency and Trust: Finals
(12) To create or convey real rig hts over immovable property;
(13) To accept or repudiate an inheritance;
(14) To ra tify or re cognize obligations contracted before the
agency;
(15) Any other act of strict dominion.
Nov. 25, 2015
How should the power given to an agent be in terpreted?
4 ELEMENTS ON THE CONTRACT OF AGENCY:
1. Consent
2. Object
3. The agent must act within the scope of his authority
and
4. The agent must act in behalf of the principal
The main elements of the contract of agency are the first two;
How the agent should perform is described by the la st two
elements. Therefore, these la st two elements are the
fundamental principles of a true agency.
WHAT IS AN AUTHORITY?
-The rig ht of an agent to effect the le gal relations of the
principal by the performance of acts in accordance with the
principals manifestation of consent to him.
This is when an authorization is given to an agent; this is the
start of the legal relations between the principal and agent
where agent must perform acts in accordance to the will of the
principal.
Kinds of Authority:
Express when it is directly conferred by words, either orally
or in writin g
Implied when it is in cidental to the transaction or re asonably
necessary to accomplish the main purpose of the agency
Apparent or Ostensible when it is conferred by words,
conduct or even by silence of the principal which causes a
third person re asonably to believe that a particular person,
who may or may not be the principals agent has actual
authority to act for the principal. Another name for authority by
estoppels.
General when it re fers to all business of the principal
Special when it is limited only to one or more specific
transactions
Emergency or authority by necessity or by ope ration of
law - an authority which is demanded by necessity or by virtu e
of the existence of an emergency or unexpected situation that
re quires prompt action by the agent and the principal cannot
be reached in sufficient time for advice or in struction.
For example:
A principal directed an agent to keep things or books put it in a
n area and an in struction to put it there and do not bring it out,
nagkasunog. There is no way for an ganet to contact the
23
principal and therefore there is a need for him to act.
Otherwise, kung di niya ila labas yung goods ng principal then
masusunog yun and it will re sult to the detriment of the
principal.
Now if there is a need to say the goods of the principal or for
the benefit of the principal the agent may or has the authority
to violate the instructions given by the principal therefore, this
is an emergency authority, he can now bring out the goods
from that building where the principal directed the agent to
keep specifically the goods.
SUMMARY OF THE EFFE CTS OF THE ACTS OF THE
AGENT BAS ED FROM THE FUNDAMENTAL PRINCIPLES:
1. If the agent acts with authority and in behalf of the
principal, therefore the acts are valid and the principal
is bound and the agent is not personally liable
UNL ESS he binds himself to be solidarily lia ble with
the principal.
-if he acts with in the scope of his authority and in
re presentation of his principal, therefore if there are lia bilities
arising from transactions entered by an agent the principal will
be the one who will be solely lia ble and the agent will not have
re sponsibility UNLESS he binds himself.
2. if the agent acts within the authority but in behalf of himself
or for himself
For example he was favoring himself or he favors his interest
over that of the principal or he will act or transact the business
in his favor or interest; the transaction will benefit him not the
principal
Effect under article 1883 the acts or contracts entered in to are
generally not binding on the principal therefore the agent and
the third persons are the only parties lia ble in the transaction
except if the thing belongs to the principal
3. If the agent acts without authority but in behalf of the
principal or for the benefit of the principal
While the acts are unenforceable, it may be ra tified by the
principal therefore; once it was ratified it will already be binding
on the principal.
4. If the agent is acting outside or without authority and
in his own behalf, but the act here is valid whether or
not the subject matter belongs to the principal.
Provided however that at the time of the delivery of the
goods that was the subject of the transaction, the agent
can transfer legally the ownership of the thing however,
since it is to the prejudice of the principal, the principal
can still run after the agent for damages.
What happens if the agent does not have possession of
the goods at the time of delivery therefore, he will not only
be liable to the principal but also to the third persons for
damages that will be in curred.
OBLIGATIONS OF AN AGENT
2 main obligations of an agent:
1. The duty of diligence
, , , Partnership, Agency and Trust: Finals
2. The duty of loyalty
*Once authority is given to an agent, the agent has right to
decline the agency at anytime. However, there are instances
when goods are given to the agent for safe-keeping.
For example a vehicle was given to you for safe-keeping but
you decline but still the vehicle is in your possession.
Under Article 1885, if the agent will decline the obligation
therefore there is no contract of agency.
But what happen to the goods that were given to the agent?...
The agent should return immediately return the property.
What happens when he cannot immediately deliver to the
principal or re turn the goods to the principal that was given to
the agent for purposes of the acts that should supposedly be
performed by the agent?
A: He is bound to observe the diligence of a good father of
family if goods are delivered to him to take custody or
preserve the thing.
But for how lo ng? Under Article 1885, it must only cover a
re asonable period because the duty of a principal is also to
take hold of the goods immed iately if he cannot authorize
another person to be his agent to perform the acts for which
his agent declined. This is also because there was no contract
of agency in the first place because he declined.
Reasonable time until such time that the principal may look
for another agent
*This is only with re spect to goods given to him; if there is no
goods, then automatically the agent would not have any
obligation since there is no contract of agency when he
declined.
However, if the agent accepts the appointment, the two main
obligations of an agent arises.
Duty of diligenc e -when the agent accepts the appointment of
the principal a contract of agency arises and at that point the
agent is le gally bound to carry out the terms of an agency. In
other words, once an agent accepts the appointment he is
obliged to comply with the duty of diligence and care.
Duty of Loy alty - The contract of agency is fiduciary in
character therefore; there must be trust and confidence not
only on the side of the agent but also in the side of the
principal.
Trust and confidence on the part of the principal because he
must trust the capability of the agent to perform according to
his in structions.
Also, trust and confidence on the part of the agent, because
he must trust the principal to give him all the authority that is
necessary in order for him to carry out the agency.
More particulary, the agent has the duty to act with utmost
good faith and lo yalty for the benefit of the principal.
Aside from the duty to obey diligently the agent must act with in
the scope of his authority provided in Article 1881. Therefore,
24
he must always know the extent of his authority. If there is a
doubt as to the extent of his authority, there is no problem in
clarifying the matter to the principal.
However, if there is no cle ar in dication on the scope of
authority, he must always act for the benefit or in terest of the
principal under article 1882. He must perform in a manner
advantageous to the principal to the principal and as provided
in Article 1888 where an agent shall not carry out an agency if
its execution would manifestly result in a lo ss or damage to the
principal.
So kapag hindi clear ang extent ng authority ng agent, the
agent must always see to it that whatever he does for the
principal or how he executes the authority given to him must
always be for the benefit of the principal and he must take into
account that no damage must be in curred by the principal in
the performance of the acts that were authorized to be
performed by him.
How does an agent perform the duty of diligence?
Provided in Article 1887 where the agent must act in
accordance with the instructions of the principal so kung ano
yung sinabi ng principal that is how the agent must act.
For example: the principal will say, sell my property for cash
basis only therefore the agent must lo ok for a buyer that he
can pay him in cash. If he sells the property on a credit basis
that is now going out with the in structions given by the
principal and therefore the agent may in cur liability in the
performance of his agency.
WHAT IS AN INSTRUCTION?
It is a private direction which the principal may give the agent
in regard to the manner of performing his duties as an agent.
What must an agent obey?
-A ll re asonable and la wful in structions given to him by the
principal even if he thinks they are capricious or unwise.
For example:
An agent is allowed to in vest the money of the principal in
these specific stocks only then walang magagawa yung agent,
he cannot look for another. Unless if he does look for another
and if the acts of the agent are ratified.
However, if the instructions are outside the scope of the
agency relationship or it may subject him to an unreasonable
damage, lo ss or in jury to himself or the in structions call for the
performance of illegal acts, the agent may not follow the
in structions or decline the in structions given to him.
If therefore the agent acts within the scope of his authority
even if contrary to the in structions given by the principal, the
principal will still be lia ble to third persons unless the third
person knows the limitation of the authority of the agent.
If therefore the agent acts outside his authority he will be lia ble
to the principal for damages and the principal will not be lia ble
to the third persons.
, , , Partnership, Agency and Trust: Finals
If there is a slight deviation from the in structions given by the
principal to the agent, therefore, the acts will still be binding on
the part of the principal or he is still lia ble.
In default of this in struction or if there is no specific instruction,
the agent must do all a good father of a family will do,
therefore he must make sure that the acts will not do damage
on the part of the principal. He must act in good faith and with
due diligence.
WHEN IS DEVIATION FROM THE INSTRUCTIONS
JUSTIFIED?
-When there is a sudden emergency and there is no chance
for communication with the principal and the act could not be
delayed;
-if there is ambiguous in structions
For example: the in structions of the principal is to sell the
property in cash, there was no specific in struction that he
cannot sell it on an installment basis so in this instance, the
agent will not be liable if he chooses between two possible
in terpretations of the instruction of the principal and the agent
makes an honest mistake and adopts an in struction different
from that given by the principal
-if there is insubstantial departure from the instruction which
will not affect the re sult
For example: the principal will say pay my lia bility on this day
but the liability is not yet due one week after and the agent
was only able to pay one day before due date so ok pa rin to.
The re sult will still be the same.
EFFE CT IF AN AGENT REFUSES TO FOLLOW
INSTRUCTIONS:
1. The agent becomes personally lia ble for damages
arising from a breach of his duty of obedience to the
principal;
2. Since the agent had not been given the principals
consent to the contract or the transaction entered in to
with a third party, the principal is not personally
bound by the terms of such transaction and the third
person cannot run after the principal UNLESS ra tified
by the principal
Under Article 1889 an agent shall be lia ble for damages if the
agent in case of conflict between his in terest and those of the
principal, the agent will prefer his own in terest. In other words,
he is now acting for himself not for the benefit of the principal.
If you are an agent your no. 1 duty is not only to follow the
in structions of the principal but also must keep the in terest of
the principal in the contract. Lahat ng gagawin niya must be
for the benefit of the principal therefore if he now chooses to
act for his own or puts his interest before the in terest of the
principal then Article 1889 will apply and therefore the agent
will be lia ble for damages because he is specifically violating
his duty of lo yalty to the principal.
The effect on the contract and transactions entered in to and if
there is a conflict between the principal and the agent chooses
to put his interest ahead of the in terest of the principal, Article
1889 does not declare the contract as void but place the agent
lia ble for damages suffered by the principal.
25
CLAWBACK DOCTRINE
When the director or officer violates his duty of loyalty to the
corporation, he is bound to disgorge to the corporation all the
profits and earnings he obtained from his breach of duty even
when he used his own capital or funds for the transaction.
This is a doctrine of corporation that can also be applied on
the la w of agency
Point of view of corporate la w:
A director or officer if he enters into transactions which is
against the in terest of the corporation and he earns profits out
of that transaction, he must re turn or give to the corporation
any profit he made out of that transaction.
Application of Clawback Doctrine in agency:
Similarly in the contract of agency, if the agent will act against
the interest of the principal or puts his interest before the
in terest of the principal and he earns profits out of that any
transactions entered in to when his in terest was made before
the interest of the principal, any profits that he made out of
that transaction or even any properties that he was able to
acquire out of this transaction, he has the duty to give it to the
principal. The principal therefore has the right to demand that
the agent should turn over to him whatever property, business
has been acquired by the agent.
A guilty agent may therefore forfeit the commission that
otherwise should be due him as his penalty for his violation of
his duty of lo yalty.
Therefore, in the case of Sing Juco and Sing Bengco v.
Sunyantong 43 Phil 589, the confidential employee knowing his
principal was negotiating with the owner of some land for the
purchase thereof he was able to buy said property but he
named it in the name of his wife . The SC held that the agent
committed an act of disloyalty and in fidelity to his principal
thereof he becomes lia ble for damages and the agent was
made to transfer the property back to the principal under the
terms and conditions offered to the original buyer.
*It is stated that the interest of the principal must be
considered before that of the agent but if this will put the agent
in to harm then the agent has all the rig ht to decline or not to
perform the exact in structions given to him by the principal.
WHAT ARE THE ACTS WHICH ARE AGAINST THE DUTY
OF LOYALTY
*Under Article 1883, if the agent acts with his own name
therefore even if with in the scope of his authority or those
pertaining to the matters or business of the principal, it is clear
that the agent breach his duty of lo yalty therefore, the principal
has no rig ht of an action with whom the agent has contracted
and vice versa.
*Under Article 1491, the agent is prohibited from buying the
property entrusted to him by the principal for re gistration or
management with out the principals consent. If the principal
gave his consent, he can buy it.
If he buys it with out the consent, he is now disloyal and lia ble
for damages
, , , Partnership, Agency and Trust: Finals
*Under Article 1890, where the agent is empowered to borrow
money. Under Article 1878 par. 7 there is a need for Special
power of Attorney when the agent is allowed to borrow or to
le nd money.
When the agent is allowed to borrow money he may be a
le nder at the current rate, however, he cannot become the
le nder without the principals consent.
$ If there is a violation of this article, what is the effect?
-If the agent was the le nder and he charged higher than the
current ra te of in terest, the difference between the current rate
of in terest and the in terest that he charged will be return to the
principal.
$ If it is the agent becomes the lender with out the
consent of the principal, what is the effect?
-the agent will be liable for the current in terest that the
principal would have earned had it been lend out to a third
party and also for damages that the principal may have suffer.
*In all of these acts, there is a duty or obligation of an agent to
re nder an account as provided in Article 1891.
-Where the agent is bound to re nder an account of his
transactions and deliver to the principal whatever he may have
re ceived by virtu e of the agency even though it may not be
owing to the principal or because of the acts of disloyalty, the
agent was able to gain out of the transactions he entered into
for himself or he bought a property of a principal with out his
consent or he lend or borrow money outside the in struction of
the principal or lesser than the current rate of interest, the
agent always has the duty to make an account. After making
an account, he must return to the principal whatever benefits
he received out of this tra nsaction.
-The duty to account and to turn over to the principal all profits
and gains re ceived in pursuit of the agency is an integral part
of the agents fiduciary duty of lo yalty therefore; there is that
prohibition in par. 2 of Article 1891 where if you exempt the
agent from performing his duty to account it would be void.
Nov. 27, 2015
When the agent commits acts of disloyalty,
obliged for the agent to render an accounting
benefits the agent will dervive out of this disloyal act, he is
obliged to surrender the same to the principle
Domingo v Domingo
Agent who takes a secret profit, in the nature of bonuses,
gratuity or personal benefit from the vendee with out remitting
the same to the principal, is also guilty of breach of agency, it
an act of disloyalty and he may still be liable for damages.
A must notify P that he is receiving secret profits, then he will
not be obliged to return the secret profit
26

Acts when the accounting of an agent is not re quired
1. if the agent or broker acted only as a middleman with the
task of merely bringing together the vendor and the vendee,
the act of broker is refer a purchaser
2. If the agent or broker had in formed the principal of the gift or
bonus or profit he received from the purchaser and his
principal did not object thereto.
3. Where a right of lie n exists in favor of the agent, the rule is
not also applicable.
a) The agent may, under Article 1914, retain in pledge
the things which are the object of the agency until the
principal effects the re imbursement and pays the
expenses he brought
b) A lawyer shall have a lien upon the funds,
documents and papers of his client and may re tain
the same until his lawful fees and disbursements
have been paid.
Q: What happens if the principal dies, does it automatically
re moved the obligation to re nder an accounting?
A: The right still subsist, the legal rep or heirs may demand the
re nder of acctg of the profits received by the A.
Specific Obliga tions of an Agent
1. To finish the business already begun on the death of the
principal, should delay entail any danger Art. 1884 (2).
e.g. when a P dies the contract of Agency automatically is
extinguished, however, if he does not continue his obligation
and if due to stoppage, damages may be in curred.
The contract of agency will only be extinguish until the object
of the transaction is completed or finished.
2. To advance the necessary funds should there be a
stipulation to do so (A rt. 1886).
As a ru le, the principal must advance to the agent, should the
la tter so re quest, the sums necessary for the execution of the
agency.
The contract of agency, however, may stipulate or agree that
the agent shall advance the necessary funds.
Art. 1919 (3) The agent is bound to furnish such funds except
when the principal is insolvent. The exception is based on the
principals obligation to re imburse the agent.
Incidentally, the in solvency of the principal is a ground for
extinguishment of agency.
3. Liability of the Agent for Interest (1896)
When the agent is liable for interest:
a. The agent who converted to his personal use the funds of
the principal is liable for interest by way of compensation or
in demnity which shall be computed from the day on which he
did so;
, , , Partnership, Agency and Trust: Finals
b. The agent who is found to owe the principal sums after the
extinguishment of the agency is liable for in terest from the
date the agency is extinguished.
4.To be re sponsible in certain cases for the acts of the
substitute appointed by him.
# An agent may be able to appoint a substitute or a sub-
agent as long as there is consent from the Prin cipal
If the designation required the special skills of the agent, he
may not appoint an agent or a sub agent.
Effects when an agent appoints a substitute:
A. In pursuant to the instruction of the principal
-the sub-agent shall also be an agent of the principal, privity
exist b/w the subagent and the principal
-the agent does not bear liability when the sub-agent acts with
fraud or negligence
B. When there was permission by the principal but there was
no designation
-the agent is left to decide who shall be the sub-agent
-if the substitute was notoriously incompetent or insolvent at
the time of the appointment, the P may hold the A primarily
lia ble or he can even run after the substitute and the A agent
may be subsidiarily liable with the sub-agent
- if the substitute not was notoriously incompetent or insolvent
at the time of the appointment---agent is not liable
C. When there was no prohibition on the agent to appoint a
sub-agent
-there was no specification whether the agent may or may not
appoint a sub-agent, he appoints a sub-agent, there is valid
appointment
-the agent will be lia ble on the acts of the sub-agent and to the
3rd person,
-the P will be not be liable for the acts of the sub-agent
If the sub-agent violates the instruction of the Agent and the
Prin cipal, the P may hold both A and SA lia ble
D. When the sub-agent was appointed against the prohibition
of the Prin cipal
-the A will be personally liable for the acts sub-agent,
Contracts entered in to will be VOID as the agents exceeds his
authority
Effect to the sub-agent when the agent will die :
If the authority of the sub-agent proceeds from the principal,
the death of the agent who appointed him does not affect his
authority.
If sub-agent is a substitute for the agent and acts under
authority from him and to whom he is accountable, the death
of the agent terminates his authority even though the power of
substitution is given in the original power.
Any transaction entered in to will not bind the principal.
27
5. The agent is responsible to the principal not only for fraud
committed by him but also for negligence.
-the agent must always in form the principal all the transactions
entered in to and the events that transpired
-A was able to sell the property on instalment basis, the 3rd
person will not be able to pay the purchase price, the 3rd
person in bad faith wants to sell the property and A knows
such information, A should notify such to P,
Failure of A to notify P, this might a failure on to act with due
diligence. If the A was not notify P with due promptness, A will
be liable bec P will be suffering damages.
If fraud is committed by the agent, A will always be lia ble.
If there is negligence, simple negligence only,
Depend whether the agency was entered in to gratuitously or
onerously
Gra tuitous-mitigated liability, due to the gratuitous character
Onerous-he did not took due care of the in terest of the
principal, heavier liability
Gro ss negligence- sole lia bility of agent
# P may still be liable for the tort committed agent, as lo ng
as the Tort was committed in pursuance of the agency.
The P is also civilly liable.
# If the tort was in tentional caused by the agent, the P is not
lia ble.
Rule on Multiple Agency
-the P may appoint several A for a single tra nsaction or in a
single transaction, or for the business of P
ART . 1894. The responsibility of tw o or more agents, even though they have
been appointed simultaneously, is not solidary, if solidarity has not been
expressly stipulated.
GR: if there is no agreement the lia bility of each agent is jo int,
only proportion of the liability
Exc:
1. there is an agreement to solidary lia bility
2. when there is :
a. non-fulfillment of the agency
b. fault/ negligence of a fellow agent,
if the fellow agent acted with out authority sole liability
Municipality of Iloilo v Evangelista
the consent of the one will not be required to validate the acts of the other
unless that appears positively to have been the principal's attention
e.g. I am selling my house, I am appointing everybody to be
my agent to sell my house but if one of you will act please
in form the others
If there is the in tention of the Principal, the act of one must be
with the consent of others
With out in tention, there is no need for the consent
Comm ission Agent
-is one whose business is to re ceive and sell goods for a
commission and who is entrusted by the principal with the
, , , Partnership, Agency and Trust: Finals
possession of goods to be sold, and usually selling in his own
name.
-there must be an established place of business,
e.g. souvenir shop, get them from a supplier and the supplier
will pay you for a commission to sell, as if you are selling it as
your product
Compared to a re gular agent: need not have possession of the
goods of his principal
Distinction Between a Commission Agent and a Broker
A commission agent is one A broker, upon the other
engaged in the purchase and hand, maintains no relation
sale for a principal of with the thing which he
personal property, which for purchases or sells. He is
this purpose, has to be supposed to be merely a go-
placed in his possession and between, an intermediary
at his disposal. He has a between the seller and the
re lation not only with his buyer. As such, he does not
principal, and the buyers have either the custody or the
or sellers, but also with the possession of the thing that
property which constitutes the he disposes of. His only
object of the transaction. function is, therefore, to bring
the parties to the transaction.
Specific Obliga tions of a Comm ission Age nt
1. To take custody of the goods
-take possession of the goods so you can sell
-when a commission agent re ceives the goods assigned to
him he is re sponsible for damage or deterioration suffered by
the same as described in the consignment.
The commission agent must check if the actual goods
re ceived and the one described in the consignment are the
same.
If he received damaged goods during his possession, he will
be liable for damages that will be caused to these products,
To avoid liability, the commission agent should make a written
statement of the damage or deterioration if the goods re ceived
by him do not agree with the description in the consignment.
2. Not to comingle simila r goods belonging to different
principals.
ART. 1904. The commission agent who handles goods of the same
kind and mark, which belong to different owners, shall distinguish
them by countermarks, and designate the merchandise respectively
belonging to each principal.
He must not comingle the property of the principal and his property
3. Cannot sell on credit without the authorization of the Principal
A commission agent can sell on credit only with the express or
implied consent of the principal. If such sale is made without
authority, the principal is given two alternatives:
1) He may require payment in cash, in which case,
any in terest or benefit from the sale on credit shall
belong to the agent since the principal cannot be
allowed to enrich himself at the agents expense; or
28

e.g the Commission agent (CA) may sell the cellphone of the
Prin cipal for P15K, P18K on credit the P3K shall be given to
the CA
2) He may ra tify the sale on credit but he will have all
the risks and advantages to him.
4. To inform the principal of all pre-authorized sale on credit
-CA shall only sell on cash basis, if he sells on credit, he must
in form the P by giving all the names of the buyer,
If A does not give the names to P, it is presumed that the sale
is on cash.
As far the buyer is concerned, he shall only pay when the
credit becomes due and demandable.
5. To collect credits of the principal
A commission agent who has made an authorized sale on
credit must collect the credits due the principal at the time they
become due and demandable.
If he fails to do so, he shall be lia ble for damages unless he
can show that the cre dit could not be collected notwithstanding
the exercise of due diligence on his part.
6. He shall bear the risk of collection under del credence
commission set up
Guarantee commission
(a lso called del credere commission)
is one where, in consideration of an in creased commission,
the factor or commission agent guarantees to the principal the
payment of debts arising through his agency.
The purpose of the guarantee commission is to compensate
the agent for the risks he will have to bear in the collection of
the credit due the principal.
The Commission Agent
1. shall bear the risk of collection and;
2. shall pay the principal the proceeds of the sale on the same
terms agreed upon with the purchaser.
e.g. He will sell a property worth P100K, 10% commission, and
5% del credence commission,
he bears the risk of commission,
if the payment is monthly,
the CA must demand payment, if 2nd month was not able pay,
the CA must pay the 10K, the amount not paid, the CA may
demand payment from the 3rd person
The CA cannot put the defense the debtor had no property,
bec this is the risk of the CA
CA may sue in his name against the debtor
Obliga tions of Age nt with respect to 3rd person
1. The agent shall act in accordance with the instructions of
the principal.
, , , Partnership, Agency and Trust: Finals
In default thereof, he shall do all that a good father of a family
would do, as required by the nature of the business.
If contrary to the instruction, he acted in excess or lack of
authority
Art. 1900 So far as third persons are concerned, an act is
deemed to have been performed within the scope of the
agents authority, if such act is with in the terms of the written
power of attorney, even if the agent has in fact exceeded the
limits of his authority according to an understanding between
the principal and the agent.
As to 3rd persons transacting in good faith, the written
in structions of the principal are the binding powers of the
agent and it cannot be overcome by non-written instructions of
the principal, not made known to him
# If there are secret instruction, it will not binding on the 3rd
person. This is not in the power of attorney.
If the power of attorney is reduced in writing it constitutes the
highest form of authority of the extent and limita tions of the
powers of the agent, 3rd persons should contract based on the
power of attorney
Art. 1902 A third person with whom the agent wish es to
contract on behalf of the principal may re quire the presentation
of the power of attorney, or the instructions as re gards the
agency.
If the authority is not put in writing, the 3rd party deals with
such agent is not supposed to presume that agent is duly
authorized, always ask the authority of the agent.
Toyota Shaw Inc v CA
A third person with whom the agent wishes to contract on behalf of the principal
may require the presentation of the power of attorney, or the instructions as
regards the agency.
Bacaltos v CA
If third persons does not make such an inquiry, he
is chargeable with knowledge of the agents authority, and his ignorance of that
authority will not be an excuse.
Litonjua v Fernandez
Persons dealing with an assumed agent are bound at their peril, and if they
would hold the principal liable, to ascertain not only the fact of agency but also
the nature and extent of authority, and in case either is controverted, the burden
of proof is upon them to prove it.
The 3rd person is made aware of the limitations of the agent.
He may refuse if he cannot be in contact with the principal.
Yu Eng Cho v Pan American
The fact that one is dealing with an agent, whether the agency be general or
special, should be a danger signal.
The mere representation or declaration of one that he is authorized to act on
behalf of another cannot of itself serve as proof of his authority to act as agent or
of the extent of his authority as agent.
ART. 1901. A third person cannot set up the fact that the agent
has exceeded his powers, if the principal has ra tified, or has
signified his willingness to ra tify the agents acts.
Ratification shall re troact from the beginning, as if all the acts
of the agent are with in his scope of authority
Obliga tions of an Agent
29

1. The agent who acts as such is not personally liable to the
party with whom he contracts
2. The principal must comply with all the obligations which the
agent may have contracted within the scope of his authority.
GR: The principal shall only be lia ble if the A acts with in the
scope of his authority, the agent shall not be personally lia ble.
When an agent is personally liable
a. the agents expressly binds himself personally liable
b. when the agent is guilty of fraud or negligence, both P and
A shall be solidarily lia ble,
Remedy: P sue for damages against A.
c. Agent acts with out or excess of his authority
Consequences:
a. The contract shall be void.
b. P will not be lia ble but A
c. If an agent acts in his own name, the principal has no right
of action against the persons with whom the agent has
contracted; neither have such persons against the principal.
Exc when the P may be held liable and the A is acting on his
own,
when the property in volved is owned by the principal.
Reason: To avoid possible collusion between the P and 3rd
person.
d. When the agent by his acts prevents the performance on
the part of the Prinicipal.
e. When the agents with out a principal
f. The agent acts from an incapacitated principal
e. when there in an in tentional tort
Obliga tions of the Principal
1. The principal must comply with all the obligations which the
agent may have contracted within the scope of his authority.
The P will not bound by contracts with out the authority
contracted by the agent
When will P be bound when the agent acts outside the scope
of his authority and shall be lia ble?
a. When the P ra tifies expressly or tacitly;
b. When P allowed alleged as though he had full powers, an
agency by estoppel is created;
c. When P revoked the agency, and 3rd party acted in good
faith and had no notice of revocation
Commercial Bank & Trust Co. vs. Republic Armored Car Service
the mismanagement of the business of a party by his agents does not relieve
said party from the responsibility that he had contracted to third persons.
Cuison vs. Court of Appeals
the agent defrauded the principal in not turning over the proceeds of the
transactions to the latter cannot in any way relieve nor exonerate him from
liability to the third person who relied on his agents authority.
, , , Partnership, Agency and Trust: Finals
Manila Remnant v CA
The duty of the P is to notify the public to protect or inform the public that the
agent is not duly authorized to act in his behalf.
Failure to protect the public, the P becomes liable 3rd persons.
P has the duty to check the transactions, the P may protect
the public by publication in a newspaper of general circu lation
as it is a sufficient notice that the agency was revoked.
Specific Obliga tions of Principal
1. Payment of Agents Commission that was duly agreed upon
If there was no agreement, on the le gal basis that the agent
has complied with all his obligation, re asonable value of the
services of the agent performed.
2. To advance to the agent, should the latter so re quest, the
sums necessary for the execution of the agency.
e.g. There was a start of an agency but P did not pay any
amount.
If there is an agreement that agent uses his money, subject for
re imbursement
The principal is not lia ble for the expenses in curred by the
agent in the following cases:
1) If the agent acted in contravention of the principals
in structions, unless the latter should wish to avail himself of
the benefits derived from the contract;
2) When the expenses were due to the fault of the agent;
3) When the agent in curred them with knowledge that an
unfavorable re sult would ensue, if the principal was not aware
thereof;
4) When it was stipulated that the expenses would be borne by
the agent, or that the latter would be allowed only a certain
sum.
3. To indemnify the agent for all the damages which the
execution of the agency may have caused the la tter with out
fault or negligence on his part
-if A suffers damage in the performance of his duties and
applies even if the agency is gratuitous
-failure to re imbursement, remedy of A:
The agent may retain in pledge the things which are the object
of the agency until the principal effects the re imbursement and
pays the indemnity
The agent is not entitled to the excess in case the things are
sold to satisfy his claim.
The A must have possession, custody or disposing power,
actual or constructive possession.
Multiple Principals
-2 or more Prin cipals for a common
ART. 1915. If two or more persons have appointed an agent
for a common transaction or undertaking, they shall be
solidarily liable to the agent for all the consequences of the
agency.
30
Requisites 2) He must have had knowledge or had reason to know of
material or essential facts about the transaction;
1) There are two or more principals;
3) He must ratify the acts in its entirety;
2) The principals have all concurred in the appointment of the
same agent; and 4) The act must be capable of ra tification; and

3) The agent is appointed for a common transaction or 5) The act must be done in behalf of the principal.
undertaking.
December 3, 2015
e.g. Principal A, B, C, co-owned property
Appoint Agent Z Extinguishment of Age ncy: (1919)
A: Sell my property which is a certain portion 1. By its revocation;
B: This portion 2. By the with drawal of the agent;
C: This portion 3. By the death, civil interdiction, insanity or in solvency
of the principal or of the agent;
4. By the dissolution of the firm or corporation which
A B C
entrusted or accepted the agency;
5. By the accomplishment of the object or purpose of
If one of the transaction will fail, the liability will only b by A, as the agency;
there is no common transaction 6. By the expiration of the period for which the agency
was constituted.
ART. 1916. When two persons contract with regard to the same thing,
one of them with the agent and the other with the principal, and the Other Modes of Extinguishment:
two contracts are incompatible with each other, that of prior date shall
1. Mutual Withdrawal of the parties when they both
be preferred
that they are going to with draw the agency.
2. The happening of a supervening event that makes
ille gal or impossible the purpose for which the agency
is in stituted.
3. War once there is war between two countries,
automatic civil interaction will already be suspended
Double Sale
(e .g. Russia and Turkey)
4. Novation
Purchaser 5. Occurrence of a specific event e.g. Prin cipal will
authorize an agent to act for and in behalf of his
Principal to B agent while he is in the United States. Pagbalik nya,
Agent to C he can already perform the duties which he gave to
the agent.
# Immovable property the ownership shall belong to the 6. Loss or Destruction of a specific thing will not
person acquiring it who in good faith first recorded it in the automatically extinguish an agency because if the
Registry of Property principal will be able to change the subject matter and
the 3rd person with whom the agent is transacting with
If no inscription/registration--- the 1st one who took agrees the change in the subject matter, then if the
possession in good faith subject matter can be changed, the agency may
continue. In case of partial lo ss or destruction, if
Both re gistered---- the oldest title again the 3rd person with whom the agent is
transacting with agrees that with respect only with the
# Movable Property- the ownership shall be transferred to portion which have not loss, pwede syang
the person who may have first taken possession thereof in magtransact, then to that portion which have not lo ss,
good faith the contract of agency will continue.

# The P shall be liable to the 3rd person and A is in good faith.

If A is in bad faith, he shall be lia ble
Ratification
is the adoption or affirmance by a person of a prior act which
did not bind him, but which was done or professed to be done
on his account thus giving effect to the acts as if originally
authorized
the following conditions must be fulfilled for ratification to be
effective:
1) The principal must have the capacity and power to ra tify;
A. Revocation;
By act of the parties.
On the part of the principal or at his will because of
the fiduciary nature of the agency.
It must be for valid re ason. Otherwise, it will
tantamount to breach of contract and the principal
may be lia ble for damages to the agent.
If the principal re vokes the agency constituted as
irrevocable or re voke it anytime before the period has
arrived, then he will also be liable for breach of
contract and damages.
If there is no time given for the agent to perform his
duties as an agent, in [Danon vs. Brimo (44 Phil 133),

, , , Partnership, Agency and Trust: Finals 31

 the principal is at liberty to terminate at will the
agency subject only to the requirement of good faith.
If the authority is in writing, the principal may demand
for the return of the document which he gave. He has
to ask the agent to re turn the power of attorney he
gave him or the authority because it will prevent the
agent from entering in to transaction still using the
said document. Because if the person to whom the
agent transacted to is an in nocent 3rd person (he
does not know the re vocation of authority by the
principal), then the transaction will bind the principal;
he must comply with the terms of the agreement.
Under Art. 1925, if there are multiple principals,
because of the nature of the lia bility of the principal
which is solidary, therefore, the act of one revoking
the agency will be considered as the act of all of the
principals.
Kinds of re vocation:
1. Express the principal himself will tell the agent
that he is revoking the agency. If, under art. 1921,
the agency has been entrusted for the purpose
of contracting with specified persons, that
specific person must re ceive personally or must
be in formed personally of the revocation by the
principal. Otherwise, if he is not informed, and he
enters in to a transaction with the agent, the
transaction will still be valid. Therefore,
re vocation will not prejudice that person if he was
not given notice of revocation. Under art. 1922, if
the agent has been given a general power of
attorney, then in order to bind the public with
whom an agent will enter into a transaction with,
publication in newspaper in a general circulation
will suffice to give notice to all persons who may
or may not have read of the notice.
2. Imp lied will be seen through the actuations with
the principal.
a. Art. 1923 provides for the new
appointment of an agent for the same
business or transaction. The
appointment of a new agent must be
in compatible with the appointment of
previous agent because there are
in stances when the appointment of an
agent will not be compatible. For
example, the principal will appoint an
agent to manage a business and
another to sell a certain property; these
two agents can continue with the
performance of their agency with out
affecting the duties of each other.
Therefore, their agencies are still
compatible. However, if you agent was
authorized to manage the business and
another to manage again the business,
with the appointment of a new agent to
manage the same business, it is as if it
is impliedly re voking the authority of the
previous agent. Therefore, they are not
in compatible. It is without prejudiced to
the rights of 3rd persons who are not
aware or notified of such situation
unless there is a publication in a
newspaper in general circu lation.
b. Art. 1924 When the principal directly
manages the business. There is a
, , , Partnership, Agency and Trust: Finals
condition of in compatibility. With the
acts authorized to be performed by the
principal because if an agent deals with
3rd persons which acts are not
in compatible with the authority given will
not be considered as implied re vocation
on the authority given to the agent.
Therefore, if the principal starts deal
with 3rd persons, if it is in compatible with
the authority given to the agent, then
there is implied revocation. For example,
the agent is authorized to sell the goods
of the principal, then the principal also
sold the goods he authorized the agent
to sell, it is now an implied revocation of
the authority given to the agent.
However, with respect to a 3rd person
who did not know of the revocation,
then as far as he is concerned, the
transaction entered into with an agent
will still be considered as valid. Thus, 3rd
person must be notified. With respect to
an agent, if the agent is also not notified
or does not know that the principal is
already entering to the same transaction
with 3rd persons, the agency as to him is
still in existence as far as he is
concerned. Thus, the agent must still be
in formed of the re vocation.
c. Art. 1926 A SPA revokes a GPA. The
agent was given in itially a GPA. Then
la ter on, another agent was given SPA
to act for the principal. For example, an
agent was given a GPA to manage the
business of the principal, and la ter on
he appoints another agent for the
purposes of buying stocks, making an
in ventory, then with respect to the
aspect of the in ventory or the buying of
the stock for the business, it can be
considered as impliedly revoked from
the GP authorized to be performed by
the agent who has given GPA.
Therefore, only that part where the
agent was given a SPA will re voke the
GPA. In the case of Dy Buncio vs. Ong
Guan Gan (60 Phil 696), SC The making
and accepting of a new power of
attorney, whether it enlarges or
decreases the power of the agent under
a prior power of attorney, must be held
to supplant and re voke the latter when
the two are inconsistent. There must be
in consistency from the acts of the new
agent given SPA and the old agent
given GPA to say that there is an
implied revocation. What are impliedly
re voked are matters covered by the
SPA because SP prevails over GP.
Ins tances where the agency is irrevocable:
1. If a bilateral contract depends upon an agency
there is a need for the agency to be in existence in
order for the bilateral contract to be valid. (Art. 1927)
2. If agency is the means of fulfilling an obligation
already contracted. (A rt. 1927)
32
 3. If a partner is appointed manager of a partnership in
the contract of partnership and his removal from the
management is unjustifiable. (A rt. 1927)
4. When the agency is created not only for the in terest
of the principal but also for the interest of third
persons.
5. If there has been a waiver of the principal. If the
principal will ratify the acts of an agent who acted
outside of the authority or in the excess of his
authority, if there is ra tification, then whatever acts
that were ratified will no lo nger be revoked or will
already be an irrevocable agency.
6. When the principal is obliged not to re voke. In the
contract of agency it was stated that it is an
irrevocable agency. But he may still re voke the
agency but he will be liable for breach of contract and
damages.
7. When re vocation is done in bad faith.
B. Withdrawal of the agent;
By act of the parties.
On the part of the agent.
1928:
- The agent may renounce or withdraw from the
agency at anytime. However, his reason for
with drawing must be a valid reason. Otherwise, if
he just withdraws for no apparent reasons, then
he will be in violation/breach of contract and
in demnify the principal.
- Valid reasons for the withdrawal:
1. Imp ossibility of continuing the performance
of the agency without grave detriment to
himself.
2. If there is a fortuitous event.
3. Agent sues the principal for monetary debts.
Because if the agent will sue the principal,
the fiduciary re lationship will now be lo st
[Valera vs. Velasco (51 phil 655)].
- If the agent will with draw, he has to give due
notice to the principal.
- If by reason of the withdrawal, the principal
would have suffered damages, then the agent
must in demnify the principal.
1929:
- If the agent will with draw for a valid re ason or for
preventing further damage to the principal, his
duty is to continue to act for and in behalf of the
principal until such time that the principal is given
an opportunity to re medy the situation because
of the with drawal.
- Once the agent will notify again, he still have the
duty to take possession of the property and
perform his duties as an agent.
C. Death, civil interdiction, insanity or ins olvency of
the princ ipal or of the agent;
By operation of law.
a. Death
o Death of the principal or agent shall be
considered as a cause for the
extinguishment of the agency. If it is the
death of the principal, even if the agent is
willing to continue as the agent, because of
the death of the principal, it is automatically
extinguished because the agent no longer
, , , Partnership, Agency and Trust: Finals
has anybody to bind in a ju ridical
re lationship (Wala nang i-bibind yung agent.
o Exemption that the agency will continue
despite the death of the principal. (1930):
1. When it is constituted in the common
in terest of the principal and the agent
the agent himself has interest over the
property.
Perez vs. PNP (17 scra 833)
- The power of attorney is constituted in the contract of a re al
estate. Where the mortgagee, upon default of the mortgagor to
pay may effect the sale of the mortgaged property through
extrajudicial foreclosure. In this in stance, your agent is the
mortgagee, the principal mortgages his property and the agent
become the mortgagee. Therefore, if the principal would not
be able to pay any of his obligation, the agent in the
personality of a mortgagee is authorized to foreclose the
property. Therefore, the agent has an interest in the subject
matter. Despite the death of the principal, the agent can still
ru n after the mortgaged property. Otherwise, the agent shall
be prejudiced.
2. When it is constituted in the interest of a
3rd person who has accepted the
stipulation in his favor.
E.g. Principal has an in debtedness to a certain person. He
authorizes his agent to sell his property and gives an
in struction that the proceeds of the sale will be used to pay the
3rd person. Upon his death, this in struction will remain because
it is constituted for the in terest of a third person. So even if the
principal died, the agent still has the duty to pay the 3rd person
out of the proceeds of the sale which the agent has entered
in to.
Q: What are the effects of act done by an agent who acts
with out the knowledge of the principals death? At the time of
that he had entered into a transaction, he do not have any
knowledge of the principals death. A: Under Art. 1931, in acts
of an agent who did not know of the death of a principal shall
be valid and shall be fully effected with re spect to 3rd persons.
But there is a condition that the 3rd person must be a person in
GF. He should not also know the death of the principal.
Rallos vs. Felix Gochan & Sons Reality Corp.
- The la ck of knowledge of death of the principal must exist at
the time of the contract with both the agent and the 3rd party.
- The la ck of knowledge of death of the principal must apply
both to the agent and the 3rd person. If one of them knew the
death of the principal, and he still entered in to the transaction,
then that transaction will be considered as void. It will not bind
even with the estate of the principal.
If the agent dies:
$ Pedalgo? vs. CA (131 S 371)
- A contract of agency establishes a purely personal
re lationship between the principal and the agent. Therefore, if
the agent dies, the agency is extinguished and his rig hts and
obligations arising from the contract of agency are not
transmissible to his heirs. Except for commissions which he is
entitled into it will form part of his estate.
$ 1932.
- The heirs of that agent is given the authority to inform the
principal. The duty is to inform the principal and to take
33
measures in the meantime so that the property of the principal
will not be damaged. What measure are given to the heirs to
take?
1. Take possession of the property in order to safeguard it for
the purpose of the principal. If they will not be able to contact
the principal and notify him of the death of the agent and they
are not capable of taking possession of the property, then they
have the option to,
2. Surrendering the property to the court in order for the court
to take possession of the property and safeguard the property
for the benefit of the principal.
- Gives us the situation where the person not part of an
obligation is now given an obligation to hold possession by
another party when in the first place, he should not be part of
the contract and that the death supposedly extinguishes the
contract of agency.
- The duty of the heirs arises from a presumed agency/tacit
agency/agency by operation of law.
- If the heirs will take possession of the property, they may
only hold possession for a temporary duration because once
the principal comes to know the death of the agent, he also
has an obligation to look for another agent who will take over
the agency or for him to take back possession of the property.
$ Agency coupled with interest
- Death of the agent will not terminate the agency and may
subsequently be exercised by his personal representative or
heirs.
- e.g. in a mortgage, the agent is allowed to foreclose a
property but he dies, since it is coupled with an interest, the
heirs or the representative may enforce the rig ht of the agent
and have his mortgage foreclose in the event the principal was
not able to pay his obligation.
b. Civil in terdiction or in sanity of the principal or the
agent
It will termin ate the agency because they will no
lo nger have any capacity to enter any contract.
c. Insolvency
It is insolvency only on the part of the principal
because he will already lo se control of the subject
matter of the agency.
% Multi-a gents
- The death of one or more but not all will not termin ate the
agency.
- However, if the in tention of the principal is to consider all of
these agents as a group or as a whole (one cannot act without
the consent of the other agents), the death of one or more will
extinguish the agency.
D. By the dis solution of the firm or corporation
which entrusted or accepted the agency;
By operation of law.
During the dissolution, the partner or a board memb er
cannot act anymore or enter into new transaction
which shall be considered as a new business or a
going concern of the corporation except if it is for
purposes of liq uidation or winding up. The contract of
agency still exists if it is for liquidation or winding up.
E. By the accomplishment of the object or purpose
of the agency;
By the agreement of the parties.
, , , Partnership, Agency and Trust: Finals
Once it is accomplished, it will automatically
extinguish the agency.
F. By the expiration of the period for whic h the
agency was constitute d.
By agreement of the parties.
When agency is given for a certain period of time and
that time arise, then automatically it shall be
extinguished.
Duty of an agent which he will still perform despite of the
extinguishment of the agency
To keep confidential such matters when the nature of
such matters or in formation is confidential.
o If an agent re ceives in formation with his
duties as an agent which he thinks might be
advantageous to him, he is not allowed to
termin ate the agency and make use such
in formation to benefit himself. He cannot
also distribute this information which he also
came about during the agency. An agent
cannot legally termin ate an agency in order
to take advantage of the principals condition
or to profit by in formation resulting fro m his
agency.
TRUST
Preliminaries
The provisions on trust are based on American law
and jurisprudence.
Purpose of trust is to hold in possession a property
for the benefit of another person.
As lo ng as it is not in conflict the NCC, the Code of
Commerce, the Rules of Court and special la ws, the
la w on trust will prevail (1442).
Essence of trust is equity whether it be express or
implied trust.
22 SCRA 231 there can be no trust, whether
express or implied, that can be held valid and
enforceable when it is contrary to la w, morals, and
public policy.
In other courts, the application of trust principles on
given transactions covering proprietary provisions are
mandated not by specific reference to statutory
provisions of the la w, but by seeking equitable
34
 solutions to render justice to the parties involved or
affected by the transaction. Application of the law on
trust will be more of a common sense application.
Because what you have to determine is, is the act of
the trustee in violation NCC, the Code of Commerce,
the Rules of Court and special laws. If it is in
violation, there can be no trust. You have also to see
if the acts of the trustee will cause injustice to another
person, when he holds in possession a property
which should belong to another person.
Trust is really to further social justice and equity
among the parties in volve.
What is Trust?
Trust is a fiduciary relationship concerning property
which obliges the person holding it to deal with the
property for the benefit of another person, and the
person holding such property in lieu of his equitable
title is allowed to exercise certain powers belonging
to the owner of the legal title. The rig ht to beneficial
use and enjoyment of the property, the le gal title of
which is vested in another. Therefore, in a trust, a
trustor (one who owns the property) will give the le gal
title to another person (trustee) and this trustee will
hold the property for the benefit of another person
(b eneficiary) who holds equitable title.
Tolentino: the legal relationship between one person
having an equitable ownership in property and
another person owning a legal title to such property,
equitable ownership of the former entitling him to the
performance of certain duties and exercises certain
powers over it.
Nature of Trust
1. It does not create a separate juridical entity. The
trustee will not have a separate personality he does
not own totally the property; he will only hold such
property for and in behalf of a third person
(b eneficiary) who has equitable title and who will
eventually own that property.
2. It divorces the naked title of the trustee from the rest
of the tru stees estate. A trustee cannot jo in such
property he holds in trust to the re st of his estate or
properties.
3. It is anchored on splitting or intention to split the
naked title and the beneficial title.
Essence of Trust
The fiduciary relationship or the enforcement of equity
principles is built upon property relations. Alluring
trust re lationship based only on the meeting of the
minds and the trustee does not even begin to assume
fiduciary duties towards the beneficiary until and
unless the title to the res is tra nsferred to him. In
order for the trustee to begin his duty as a trustee, he
is able to transact matters concerning the property.
Cha racteristics of a trust
Morales vs. CA (274 S 282):
1. It is a relationship.
2. It is a re lationship of a fiduciary character.
Because there has to be trust and confidence
especially on the part of the trustee because the
trustor has to have trust and confidence that the
trustee will perform his duties for the benefit of
the beneficiary. He will therefore not act for
, , , Partnership, Agency and Trust: Finals
himself and take possession fully of the property
ousting the beneficiary of the property.
3. It is a relationship with re spect to property not
one merely in volving personal duties. Movable or
immovable property are the subject of a trust.
4. It in volves the existence of equitable duties
imposed upon the holder of the title to the
property to deal with it for the benefit of another.
5. It arises as a re sult of a manifestation of intention
to create the relationship. It is essential to
consider the in tention of the trustor. You have to
determine if in deed the trustor re ally had the
in tention to put a property which he owns in a
trust re lationship for the benefit of either of
himself or a third person. Article 1444 states that
no particular words are needed for the creation
of an express trust. However, it is important that
trust is really intended in order to say that there
was really a trust that was created.
Parties to a trus t
1. Trustor the person who intentionally creates or
establishes a trust. He transfers le gal ownership of
the property or asset to a person for the benefit of the
3rd person who owns equitable title. A tru stor can be
both a trustee and a beneficiary.
2. Trustee a person in whom confidence is re posed as
re gards the property placed in trust. He holds the
le gal title in trust for the benefit of another. It may be
a natural person or a ju ridical person. He has certain
duties relating to the re s or the trust property with
re spect to the person for whose benefit the trust was
created. He is allowed to enter in to transaction
re garding the property in trust. A trustee can never be
a beneficiary at the same time (h ere, you are mixin g
both the equitable title and the naked title) it will
already extinguish the trust.
3. Beneficiary (cestique trust ) the person for whose
benefit the trust is created. He has equitable title or
in terest in the property. He may either be a juridical
or a natural person. He may also be several persons
composed of several beneficiaries. It is important that
he must be named or identified or in existence at the
time of the creation. He must already be determined
by the time the trust relationship will be termin ated.
Future children are allowed to be beneficiaries. He
may specify the beneficiaries as a class of persons
who are re adily id entified (e xample: hold this in trust
for 3rd year section c of the school of la w).
Nature of owne rship in trust
Trust is an in stance of duplicate ownership where
properties owned by persons at the same time.
One of the owners has le gal title with the obligation to
use said ownership for the benefit of another who has
equitable title.
The nature of the ownership of a trustee is that he
does not any right of enjoyment of the trust property.
Therefore, his ownership is merely a matter of form
ra ther than substance and it is nominal ra ther than
re al.
o In the case of Advent Capital and Finance
Corporation vs. Alcantara (664 S 224), SC
stated that trustee is a person to whom the
property of someone else is fictitiously
attributed by the law to the extent that the
35
 rig hts and powers thus vested shall be used
by him in behalf of the owner.
o While he has legal title, he is not re ally the
owner of such property. He holds it for the
benefit of another.
The nature of the ownership of the beneficiary is that
since he has equitable title, his in terest on the
property may be transferred. He may sell or dispose
his interest which a trustee has no rig ht to do. It may
also be touched by creditors of the beneficiary. He
may also receive income from the assets of the trusts.
For example, the property is being re nted out.
Classification of Trust
I. As to effectivity
a. Testamentary trust one which is to take
effect upon the trustors death. This is
usually in cluded in the will of the trustor and
does not have a separate trust deed.
b. Inter Vivos trust one which is established
effective during the owners life. Once
created, legal title passes to the trustee with
the duty to administer the property for the
benefit of the beneficiary. The grantor
executes a trust deed, and once the trust
is created, legal title to the trust property
passes to the named trustee with duty to
administer the property for the benefit of the
beneficiary.
II. Revocability
a. Revocable - one which can be re voked or
cancelled by the trustor or another in dividual
given the power.
b. Irrevocable - one which may not be
termin ated during the specified term of the
trust.
III. Creation
a. Express - one which can come in to
existence only by the execution of an
in tention to create it by the trustor or the
parties. Though there is no particular form
re quired to create a trust, the intention of the
trustor is to enter into a trust relationship.
b. Imp lied - one which comes into being by
operation of la w. It is further classified in to:
i. Resulting trust - one in which the
in tention to create a trust is implied
or presumed in la w.
ii. Constructive trust (trust ex
maleficio/trust ex delicto/de son tort)
- one imposed by la w irrespective
of, and even contrary to, any such
in tention for the purpose of
promoting justice, frustrating fraud,
or preventing unjust enrichment.
Express Trust
Essentially a contractual in character because it can
only be constituted through contractual in tention on
the part of the trustor to dispose of his property by
dividing his full ownership between the trustee and
the beneficiary.
Generally requires the full acceptance of the naked
title and fiduciary obligations on the part of the tru stee
and the concomitant obligations that go with it.
, , , Partnership, Agency and Trust: Finals
Under Art. 1441, it is created by in tention of the
trustor or the parties. It is created by the direct and
positive act of the trustor by some writin g, deed, will
or oral declaration showing an in tention to create a
trust.
Under Art. 1444, there is no particular words that is
needed in order for the express trust to be created. It
is important that it is clearly in tended by the direct
and positive acts of the trustor that he is entering in to
a trust relations.
Elements: (Mindanao Development Authority vs. CA,
113 S 429, and Canezo vs. Lotas, 538 S 242)
1. There must be a competent tru stor and trustee. The
trustor must be capacitated to convey property. The
trustee must be capacitated to hold property and to enter
in to contracts.
2. There must be an ascertainable trust re s. There must be
a property which is actually in existence and which the
trustor has transferrable in terest or title. It cannot be a
mere expectancy with out rig ht or interest or a mere
in terest in the performance of the contract. Suppose the
trustor will inherit a property which will be given to another
and hold it for the benefit of the trustors children since
this is a mere expectancy, there will be no trust. The
trustor must at least be able to enter into a transaction
with the property.
3. There must be a sufficiently certain beneficiaries. They
have to be id entified. They must be capacitated to receive
gratuitously from the trustor.
Characteristics:
1. It is nominate and principal. But it is governed by equity
principles.
2. It is unilateral and gratuitous. It is only the tru stee
assumes obligations to hold it in trust for the benefit of the
beneficiary everything happens with the trustee because
the trustor merely gives the trustee such property. Once a
trust re lation has been created, the trustee has the
obligation to take possession of the property, to manage
and administer such property for the benefit of the
beneficiary. It is gratuitous because it is supported with
the consideration of liberality. Thus, trust re lationship
imposes no burden upon the beneficiary; he merely
re ceives such property.
3. It is a preparatory contract. It is a medium established by
the trustor to allow full authority and discretion on the part
of the trustee to enter in to various juridical acts to earn
in come or to achieve other goals for the benefit of the
beneficiary. The trustee is given the discretion to manage
and administer the property.
4. It constitutes fiduciary duties on the trustee. He must act
for the in terest of the beneficiary and he must be loyal to
the beneficiary.
5. Acquisitive prescription is unavailing to the trustee. A
trustee will not in voke the statute of limita tion or
prescription against the beneficiary. (1) trustee does not
take possession of the re s despite the number of years
that he is in possession of the property, (2) the beneficiary,
once the trust is still in existence, has the rig ht to ru n after
that property in trust, (3) the trustee cannot set up the
defense that there is already prescription on the part of
the beneficiary to take possession and ownership over the
property.
Rules on enforceability:
1. It must be clearly shown to have been in tended (1444).
Though there is no particular form re quired, the in tention
must be shown. An express trust will never be presumed
36
 to exist. The party who claims the rig ht under a trust
arra ngement must prove the existence thereof. He must
prove it by clear, satisfactory and convincing evidence
that trust is re ally the intention of the trustor. An express
trust cannot be proven by parol evidence (p arole evidence
ru le when no evidence may be in troduce that would
seek to modify the terms of a writte n agreement).
Especially if the subject of the trust is an immovable
property, it must be contained in writin g. When it is
contained in writing, parole evidence cannot be used to
prove that there was an express trust because the best
evidence to prove that there is an express trust is the
writin g that the trustor executed for the benefit of the
beneficiary.
2. There must be conveyance of the re s to the trustee.
There must be a definite property that will be transferred
to the trustee to create an obligation on the part of the
trustee to manage such property. If a trust relationship is
created before the delivery of the title over the trust, there
will be no valid contract of trust at the time the contract
is created, the property must, at the same time , be
delivered to the trustee. If there was promise to create
trust relationship but no property is given at most, what
is created is a contract of do ut facias (the trustor has
contractually bound himself to deliver and to transfer title
over the trust property to the trustee, and the trustee has
bound himself to accept delivery and manage the property
to be delivered for the interest of the beneficiary).
3. Express trust over immovables must be in writing. It is
under Art. 1443 in which No express trusts concerning an
immovable or any in terest therein may be proved by parol
evidence. In 577 scra 509, the re quirement in 1443 is only
for purposes of proving that there is an express trust.
However, if there is no writing, the express trust is still
considered as valid. If you do not comply with 1443 and
express trust is entered in to with re spect to an immovable
property but as lo ng as it will still be proven that it is the
in tention of the trustor, it will be considered as trust. If the
property is on movable, then parol evidence may be given
to prove the existence of an express trust. To affect 3rd
persons, an express trust must be embodied in a public
document and must be re gistered in the registry of deeds
to inform the public that the property is being kept for the
benefit of the trustee.
Different Kinds of Express Trust:
A. Inte r Vivos Trust
B. Testamentary Trust
C. Cha ritable Trus t one designed for the benefit of a
segment of a public or the public in general. One
created for charitable, educational, re ligious or
scie ntific purpose.
D. Public ly regulated trust the state provides the
vehicle by which institutions are allowed to administer
la rge fund for the benefit of the public. GSIS, SSS,
and PAG-IBIG. E.g. Retirement Benefits.
E. Accumulation Trust one that will accumulate
in come to be re invested by the trustee in the trust for
the period of time specified.
F. Spendthrift Trust one established when the
beneficiary need to be protected, because of his
in experience or immaturity from his imprudent
spending habits or simply because the beneficiary is
spendthrift. Income will be paid to the beneficiary only
when actually necessary. Under some circumstances,
, , , Partnership, Agency and Trust: Finals
the trustee will pay directly the creditor for obligations
of the beneficiary.
G. Sprinkling Trust one that gives the trustee the
rig ht to determine the in come beneficiaries who
should receive in come each year and the amount
thereof. Income that is not distributed in any given
year is added to the corpus, as in an accumulation
trust. It is a discretionary tru st if it gives the trustee
the discretion to pay or not to pay the income or
principal.
Right and Obligations of the Parties
A. Trustor is the one who disposes the full ownership of
the designated trust property. He must have legal
capacity to convey the property as compared to
implied trust where capacity is not required. He must
have an intention of disposing his property to a trust
re lationship. The in tent is controlling.
B. Trustee must have legal capacity to accept the trust.
He may always decline especially if he will have
obligations that have to be performed.
In Article 1445, No trust shall fail because the tru stee
appointed declines the designation, unless the
contrary should appear in the instrument constituting
the trust.
o In the case of an express trust, acceptance
of trust by a trustee is necessary to charge
him with the office of the trustee and the
administration of the trust and to vest the
le gal title in him. However, his acceptance of
the trust is not necessary to its existence
and validity, since if he declines the trust,
the courts will appoint a trustee to fill the
office that he declines.
o One designated or appointed as trustee may
decline the responsibility and thereby be free
from any le gal or equitable duty or liability in
the matter. Unless a contrary intention
appears in the in strument constituting the
trust (A rt. 1145.), declination or re fusal or
disqualification of a trustee does not operate
to defeat or void the trust; nor does it
operate to vest le gal as well as equitable
title in the beneficiary.
o Renunciation of a trust after its acceptance
can only be by re signation or re tirement with
court approval or at le ast, with agreement of
beneficiaries and on satisfaction of all legal
lia bilities growing out of the acceptance of
the trust. A contract to renounce, for a
pecuniary consideration, the right to act as a
trustee has generally been re cognized to be
against public policy. When a person
administering property in the character of
trustee inconsistently assumes to be holding
in his own right, this operates as
re nunciation of the trust and the
beneficiaries in the property are entitled to
maintain an action to declare their right and
re move the unfaithful trustee.
Obligations of the trustee:
1. He must carry out the trust using the diligence of
the good father of the family. In any act that he
will perform in the exercise of his duties, he
should not be negligent. He must be lo yal to the
affairs and the in terest of the beneficiary. He
37
 cannot appropriate for himself any opportunity
that should pertain to the beneficiary. He has the
duty to account to the beneficiary the affairs of
the trust. He cannot convert the use the property,
in come, fruits and proceeds for his benefit.
2. He is prohibited from donating the trust property.
He is not the owner of the property; therefore, he
cannot dispose such property to another person
even through donation.
3. He cannot use funds of the trust to acquire
property for himself. When he entered in to
transaction re garding the trust property, this
property earns in come. Such income he will hold
will be kept in trust for the beneficiary. If he
claimed the property for himself, what will be
created is a constructive implied tru st (Art. 1455).
4. If he is also appointed as an administrator of the
estate of a trustor, under rule 98 of the rules of
court, the his duties shall include the following:
a. To file a bond with the court. It will
answer for whatever damages that the
trust property will be liable to.
b. To make and return to court an
in ventory of all re al and personal estate
he holds in trust which comes to his
possession and knowledge.
c. He can manage and dispose of the
estate and discharge this trust in
re lation thereto according to the la w and
the will of the testator.
d. He must render an account at least
once a year until his tru st is fulfilled.
e. Upon expiration, he must settle his
account in court and deliver all estate
re maining in his hands.
5. He does not assume generally personal liability
of the trust. The payment for damages will come
from the trust fund. However, if the trustee acted
with fraud or gross negligence, the trustee
becomes personally lia ble for his own separate
properties.
6. He is entitled to a reasonable compensation.
Especially in an express trust, he can account
re asonable compensation. In constructive implied
trust, there is no compensation because there is
no intention to form trust relation in the latter.
May a trustee sue and be sued?
o In order that a trustee may sue or be sued
alone, it is essential that his trust be express,
that is, a trust created by the direct and
positive acts of the parties, by some writin g,
deed, or will or by proceedings in court.
C. Beneficiary
Under Article 1446, Acceptance by the beneficiary is
necessary. Nevertheless, if the trust imp oses no
onerous condition upon the beneficiary, his
acceptance shall be presumed, if there is no proof to
the contrary.
o Acceptance of or assent to the trust by the
beneficiary is essential to the creation and
validity of a trust.
o The trust being beneficial to the beneficiary,
his acceptance is presumed if there is no
proof to the contrary. However, if the trust
imposes some onerous condition,
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acceptance must be shown. Such
acceptance may be express or implied.
Beneficiary need not have legal capacity. Even a
minor can be a beneficiary.
How an express trust is terminated
1. When there is destruction of the property. The
destruction of the corpus will automatically extinguish
trust.
2. Revocation by the trustor. GR: Express Trust is
irrevocable. EXC: Reserved Power to re voke in the
deed of trust.
3. Achievement of the objective or the happening of the
condition.
4. Expiration of the term of the period fixed. E.g. the
subject of the trust must be given to the person upon
re aching the age of majority.
5. By mutual agreement of the parties.
6. Death or legal incapacity of the trustee. Unless
otherwise expressly stipulated in the trust in strument,
death, in sanity, insolvency or civil interdiction of the
trustee does not terminate the trust (Art. 1445). Court
can appoint new trustee to take over the duties of the
deceased, insane, in solvent, or civilly in terdicted
trustee.
7. By order of the court. When all of the properties of
the deceased has been disposed in case the trustee
is the administrator of the properties of the deceased,
the court can order the extinguishment of the trust.
8. By Merger or confusion of the legal title and beneficial
title with the same person. When the trustee became
the beneficiary.
IMPLIED TRUST
In Ramos vs. Ramos (61 S 284), Implied trust is
defined and characterized as those which, with out
being express, are deducible from the nature of the
transaction as matters of in tent, or which are super-
in duced on the transaction by operation of law, as
matters of equity, independently of the particular
in tention of the parties.
o While there might be no express in tent on
the part of the trustor to create a trust, it
would be in ferred from the nature of
transaction they entered in to as well as the
acts that the person will perform which will
show that there has been a trust that was
created.
Founded on equity. There will be in justice that would
re sult if the title will prevail over the equitable rig ht of
the beneficiary.
It is not created for proprietary but imp osed by la w or
in ferred from the conduct of the parties.
The intention to create trust is presumed by la w or
from the nature of the tra nsaction.
In constructive implied trust, no such in tention at all
can be drawn from the nature of the transaction. The
purpose, however, is to achieve equity demanded by
the state. It is to avoid unjust enrichment, damages,
etc.
May be proved and enforced by parol evidence.
However, it still must measure up to the rule that a
trust must be proven by clear, satisfactory and
convincing evidence.
No fiduciary re lationship will exist between the trustee
and the beneficiary. An express trust and a resulting
38
 trust, however, since there is still an intent to create
trust, fiduciary relationship is created between the
trustee and the beneficiary except when it is subject
to laches, defenses of prescription or previous clear
re pudiation by the trustee. A constructive trust, no
re pudiation is needed and is subject of prescription.
Resulting Trust
In Ramos vs. Ramos (supra), it is broadly defined as
a trust which is ra ised or created by the act or
construction of law. In its more re stricted sense, it is a
trust ra ised by implication of la w and presumed
always to have been contemplated by the parties, the
in tention as to which is to be found in the nature of
their transaction, but not expressed in the deed or
in strument of conveyance.
Art. 1448:
o There is an implied trust when property is
sold, and the le gal estate is granted to one
party but the price is paid by another for the
purpose of having the beneficial in terest of
the property.
! The person in his name the
property is registered is considered
as the trustee while the person who
paid shall be the beneficiary.
! It is based on the implied intention
of the tru stor-beneficiary and the
acceptance of the obligation of the
trustee who is fully aware that the
property is re gistered in his name
for which he never paid the price.
o In Morales vs. CA, it is also called purchase
money resulting trust.
o If the title is named in the name of a child, it
will not be considered that a re sulting trust
was created because it was considered as a
gift that is given to a child. The child can
either be a legitimate or an ille gitimate child.
It is a disputable presumption it can be
shown that parent had placed the property
bought by them in the name of the child to
impose an obligation on the part of the child
to administer the same for the benefit of the
parent especially if the child re aches the age
of majority.
o The exception to the establishment of an
implied resulting trust are the following
(Morales vs. CA:
1. Person to whom the title is conveyed is
a child, le gitimate or ille gitimate, of the
one paying the price of the sale.
2. Actual contrary intention which was
proven. E.g. when one who paid the
purchase price did so as a loan or as an
advance in whose name the property is
transferred (it shall be called a
constructive trust).
3. When the purchase price is made in
violation of an existing statute, in cluding
morals and public order, etc.
Art. 1449:
o There is also an implied trust when a
donation is made to a person but it appears
that although the le gal estate is transmitted
to the donee, he nevertheless is either to
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have no beneficial in terest or only a part
thereof.
! The donor became the beneficiary
under an implied trust agreement.
o Similar to a fideicommissary substitution
the testator designates a person as an heir
charging him to deliver to another person the
whole or part of the property.
Art. 1451:
o When la nd passes by succession to any
person and he causes the le gal title to be
put in the name of another, a trust is
established by implication of la w for the
benefit of the true owner.
! Where a person who has acquired
la nd by inheritance causes the
le gal title to be placed in the name
of another, a re sulting trust is
presumed in la w in favor of the true
owner, the heir.
o Does not apply if the real property is
unregistered land and no title has been
issu ed in the name of the co-owners but
only possession and enjoyment of real
property (jurisprudence).
Art. 1452:
o If two or more persons agree to purchase
property and by common consent the legal
title is taken in the name of one of them for
the benefit of all, a trust is created by force
of law in favor of the others in pro-portion to
the in terest of each.
! Co-ownership will arise.
o Resulting trust will be created when despite
co-ownership, they placed the title in the
name of one owner.
o A trust arises by implication of la w in favor of
the others in proportion to the in terest of
each.
Art. 1453:
o When property is conveyed to a person in
re liance upon his declared in tention to hold it
for, or transfer it to another or the grantor,
there is an implied trust in favor of the
person whose benefit is contemplated.
o The trust established by virtue of this article
is based on the promise or representation of
the grantee to hold the property conveyed
for, or transfer it to another or the grantor.
o The grantee is estopped from asserting
ownership in himself by denying his
re presentation as against the person for
whose benefit the implied trust is created.
Constructive Trust
In a case, constructive trust is characterized as one
imposed by law, and there neither promise nor
fiduciary re lations.
o The so-called trustee does not recognize
any trust, and has no in tention to hold the
property for the beneficiary.
It is constructive trust because by the acts of the
person, he should not own that property or hold the
property. He has no right over the property because
such right belongs to another person. It is not created
by any words, either expressly or impliedly, evincing
39
 a direct intention to create a trust but by the
construction of equity in order to satisfy the demands
of ju stice and prevent unjust enrichment.
It does not arise by agreement or in tention but by
operation of law against one who, by fraud, duress, or
abuse of confidence obtains or holds the le gal rig ht to
property which he ought not, in equity and good
conscience, to hold. E.g. Over Insurance by Double
Insurance he is only allowed to re ceive the value of
the property; if he was able to re ceive more than the
value of the property, he must hold it in trust for the
in surance companies.
PNB vs. CA:
o Constructive trustee is not considered for all
purposes as a trustee.
! He does not have the duty of
management and all those fiduciary
obligations ordinarily demanded
from the trustee.
! His only obligation is to surrender
the property to the person who
should rig htly own that property.
o There is neither a promise nor any fiduciary
re lation to speak of and the so-called trustee
neither accepts any trust nor intends holding
the property for the beneficiary.
Art. 1450:
o If the price of a sale of property is loaned or
paid by one person for the benefit of another
and the conveyance is made to the lender or
payor to secure the payment of the debt, a
trust arises by operation of la w in favor of
the person to whom the money is lo aned or
for whom it is paid.
! E.g. A buys a la nd in his own name
from B with money borrowed from
or paid by C. There is no trust here.
The relation between A and C is
that of debtor and creditor.
! If the property is conveyed to C to
secure the amount advanced, an
implied tru st is created by operation
of la w. C becomes the trustee and
A, the beneficiary. But it is only
after A reimburses C of the
purchase price that the former can
compel conveyance of the
purchased property from the la tter.
o The beneficiary is empowered to redeem the
property and compel conveyance to him
once it has been paid.
! Beneficiary is the one who bought
the money and the trustee is the
one who lent the money.
o Similar to an equitable mortgage
arra ngement. However, in an equitable
mortgage, the property is still le ft with the
borrower but under art. 1450, the property is
taken by the le nder.
o An agreement between the parties whereby
the property purchased shall be considered
sold to the trustee in case the beneficiary
fails to reimburse him is tantamount to a
pactum commissorium, which is expressly
prohibited by Article 2088 of the Civil Code
for in such case there would be automatic
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appropriation of the property by the trustee
in the event of failure of the beneficiary to
pay the lo an.
Art. 1454:
o If an absolute conveyance of property is
made in order to secure the performance of
an obligation of the grantor toward the
grantee, a trust by virtue of la w is
established. If the fulfillment of the obligation
is offered by the grantor when it becomes
due, he may demand the re conveyance of
the property to him.
o Provides for a situation when absolute
conveyance of property is effect as a means
to secure the performance of an obligation of
the grantor to the grantee.
o If fulfillment of the obligation is offered by the
grantor when it becomes due, he may
demand re conveyance of the property to him
simila r to Art. 1450.
Art. 1455:
o When any trustee, guardian or other person
holding a fiduciary relationship uses trust
funds for the purchase of property and
causes the conveyance to be made to him
or to a third person, a trust is established by
operation of la w in favor of the person to
whom the funds belong.
o Gives a situation when trust fund is used to
purchase a property which is registered in
the trustees name.
! A trustee has no rig ht to use
property/funds of the trust for his
benefit.
Art. 1456:
o If property is acquired through mistake or
fraud, the person obtaining it is, by force of
la w, considered a trustee of an implied trust
for the benefit of the person from whom the
property comes.
! The beneficiary is the person from
whom the property comes from.
o E.g. In a public auction, in order to settle the
properties of a widow were sold. If all of their
property is sold in a public auction, half of
the property is the conjugal property, it
belongs to the heirs. If one buys such
property, there will be a constructive trust.
Therefore, the half portion which belongs to
the heirs, he must hold in trust.
o If it is by fraud, the trustee re gistered it in his
name not showing that that property is being
held in trust for a beneficiary, the trustee has
the obligation to return it to the beneficiary.
Prescription of Trust
A. Express trust
GR: not susceptible to acquisitive prescription.
Therefore, an action for re conveyance filed by a
beneficiary against a trustee will not prescribe as lo ng
the property stands in the name trustee as long as
the trustee is still holding that property for and in
behalf of the beneficiary, there will be no prescription.
EXC: (Cortes et al. v. Oliva, 33 Phil. 480)
40
 1. He has performed unequivocal acts of
re pudiation amounting to an ouster of the cestui
que trust;
2. That such positive acts of re pudiation have been
made known to the cestui que trust; and
3. That the evidence thereon should be clear and
conclusive.
o There shall now be prescription. The period
shall be 10 years from the re pudiation by the
trustee.
B. Imp lied Trust
Ramos vs. Ramos (61 S 284), the rules of prescription
and la ches with re spect to implied trust were la id
down. The following are the rules:
1. The ru le of imp re scriptibility of the action to
re cover property held in trust may possibly apply
to re sulting trusts as lo ng as the trustee has not
re pudiated the trust.
2. The rule of imprescriptibility was misapplied to
constructive trusts. With re spect to constructive
trust, prescriptibility of action is settled. The
prescription period is 10 years from the time the
rig ht of action accrues either on the re gistration
of the title or from the actual discovery of the
fraud.
3. Prescription may supervene an implied trust.
4. Whether trust is resulting or constructive, its
enforcement may be barred by la ches.

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