Centralized Bar Operations Partnership Memory Aid

150 2005 CENTRALIZED BAR OPERATIONS
PARTNERSHIP
2. Where the contract is by its terms not to

PARTNERSHIP
be performed within a year from the
By the contract of partnership
making thereof, such partnership
two or more persons bind themselves to
contribute money, property or industry
to a common fund, with the intention of
dividing the profits among themselves.
Two or more persons may also
form a partnership for the exercise of a
profession. (Art. 1767)
 A partnership has a
juridical personality which is
separate and distinct from that of
the partners.
 A partnership may sue and be sued
in its name or by its duly
authorized representatives. A
managing partner of the partnership
may execute all acts of
administration including the right
to sue debtors of the
partnership in the case of their
failure to pay their obligation when
it becomes demandable. (Tai Tong
Chuache & Co. vs. Insurance
Commission 158 SCRA 336 [1988])
FORM OF PARTNERSHIP CONRTRACT

No special form is
required for the validity or existence of
the contract of partnership.
1. Where immovable property or real

rights are contributed, the partnership
contract shall be void unless:
a. It is reduced to writing in a
public instrument (Art. 1771).
b. An inventory of the property
contributed is made, signed by the
parties and attached to the public
instrument. (Art.1773).
 A partnership contract
which states that the partnership
is established to operate a fishpond
is not rendered void because
no inventory of the fishpond was
made (where it did not clearly appear
in the articles of partnership that
the real property had been
contributed by anyone of the
partners). (Agad vs. Mabolo and
Mabolo Agad and Co., 23 SCRA
1223[1968])
2005 CENTRALIZED BAR OPERATIONS EXECUTIVE COMMITTEE AND SUBJECT CHAIRPERSONS
Maricel Abarentos (Over-all Chairperson), Ronald Jalmanzar (Over-all Vice Chair), Yolanda Tolentino(VC-Acads), Jennifer
Ang(VC- Secretariat), Joy Inductivo (VC-Finance), Elaine Masukat (VC-EDP), Anna Margarita Eres (VC-Logistics) Jonathan
Mangundayao (Political Law), Francis Benedict Reotutar (Labor Law), Romuald Padilla (Civil Law), Charmaine Torres (Taxation Law),
Mark David Martinez (Criminal Law), Garny Luisa Alegre (Commercial Law), Jinky Ann Uy (Remedial Law), Jackie Lou Bautista (Legal
Ethics)
San Beda College of Law 151
contract is covered by the statute of MEMORY AID IN CIVIL LAW

frauds and thus requires a written
agreement to be enforceable.
3. Where the contract of partnership
has a capital of 3,000 pesos or more,
in money or property, it shall appear
in a public instrument and must be
recorded in the Office of the
Securities and Exchange Commission.
However, a partnership has a juridical
personality even in case of failure to
comply with this requirement.
Requisites:
1. intention to create a partnership
2. common fund obtained from the
contributions
3. joint interest in the profits
Essential Features:
1. there must be a valid contract;
2. the parties must have legal
capacity to enter into the
contract;
NOTE: With regard to number 2 (legal

capacity of contracting parties),
individuals not legally incapacitated
to contract and partnerships may
enter into a contract of partnership.
With respect to corporations, the
court held in Aurbach vs. Sanitary
Wares Manufacturing Corporation 180
SCRA 130 [1989] that although a
corporation cannot enter into a
partnership contract, it may however
engage in a joint venture with others.
A joint venture has been generally
understood to mean an organization
formed for some temporary purpose.
There is nothing against one
corporation being represented by a
natural or juridical person in a suit in
court, for the true rule is that
“although a corporation has no power
to enter a partnership, it may
nevertheless enter into a joint
venture with another where the
nature of that venture is in line with
the business authorized by the
charter. (JM Tuazon and Co., Inc vs.
Bolanos 95 PHIL 106 [1954])
CIVIL LAW COMMITTEE

 CHAIRPERSON: Romuald Padilla  ASST.CHAIRPERSON: Vida Bocar, Joyce Vidad  EDP: Alnaiza Hassiman,
Dorothy Gayon
 SUBJECT HEADS: Christopher Rey Marasigan (Persons and Family Relations), Alejandro Casabar(Property), Ma. Rhodora
Ferrer(Wills and Succession), Ian Dominic Pua(Obligations and Contracts), Sha Elijah Dumama(Sales and Lease), John Stephen
Quiambao(PAT), Christopher Cabigao(Credit Transactions), Ligaya Alipao(Torts and Damages), Anthony Purganan(LTD),
Ma. Ricasion Tugadi (Conflicts of Law)
3. there must be mutual contribution of assignee a partner

money, property and industry to a without unanimous
common fund consent
6. Power to act with third persons
NOTE: A partnership of a civil nature In the absence of A co-owner cannot
stipulation to the represent the co-
was formed because Gatchalian & Co.
contrary, a partner ownership
put up money to buy a sweepstakes may bind the
ticket for the sole purpose of dividing partnership
equally the prize which they may win as 7. Dissolution
they did in fact in the amount of Death or incapacity Death or incapacity
P50,000. (Gatchalian vs. CIR 67 PHIL 666 of a partner results of a co-owner does
[1939]) in the dissolution of not necessarily
Where the father sold his rights over partnership dissolve the co-
2 parcels of land to his 4 children so they ownership
can build their residences, but the latter 8. Agency or representation
As a rule, there is As a rule, there is no
after 1 year sold them and paid the
mutual agency mutual
capital gains, they should not be treated representation
to have formed an unregistered (although it is
partnership and taxed corporate income enough for a co-
tax on the sale and on dividend income owner to bring an
tax on their shares of the profits from action for ejectment
the sale. (Obillos Jr. vs. CIR [1985]) against a stranger)
4. the object must be lawful; and 9. Profits
5. the primary purpose must be to May be stipulated Must always depend
obtain profits upon upon proportionate
shares and any
KEY: CJP3 - D2AFT stipulation to the
contrary is VOID
Partnership Co-ownership (Art.485)
1. Creation 10. Form
Always created by a Generally created by May be in any from No public instrument
contract, either law, but may exist except when real is needed even if
express or implied even without a property is real property is the
contract contributed (here a object of the co-
public instrument is ownership
2. Juridical personality required)
Has a juridical Has no juridical
personality separate personality
KEY: CNJ – PMERET2 - FPG
and distinct from
that of each partner Partnership Corporation
3. Purpose 1. Creation
Realization of Common enjoyment Created by mere Created by law
profits of a thing or right; agreement of the or by operation
does not necessarily parties of law
involve sharing of 2. Number of incorporators
profits May be organized by at Requires at
least two persons least five
4. Duration incorporators
No limitation upon An agreement to (except a
the duration is set keep the thing corporation
by law undivided for more sole)
than 10 years is not
allowed 3. Commencement of juridical
5. Transfer of interests personality
A partner may not A co-owner can Acquires juridical Acquires
dispose of his dispose of his share personality from the juridical
individual interest in without the consent moment of execution of personality from
the partnership so of the others the contract of the date of
as to make the partnership issuance of the
certificate of

Ethics)
incorporation by 10. Term of existence

the Securities partnership may be corporation may
and Exchange established for any not be formed
Commission period of time for a term in
4. Powers stipulated by the excess of 50
Partnership may Corporation can partners years extendible
exercise any power exercise only to not more
authorized by the the powers than 50 years in
partners (provided it is expressly any one
not contrary to law, granted by law instance
morals, good customs, or implied from 11. Firm name
public order, public those granted or limited partnership is corporation may
policy) incident to its required by law to add adopt any name
existence the word “Ltd.” To its provided it is
5. Management name not the same as
When management is The power to do or similar to any
not agreed upon, every business and registered firm
partner is an agent of manage its name
the partnership affairs is vested 12. Dissolution
in the board of may be dissolved at any can only be
directors or time by any or all of the dissolved with
trustees partners the consent of
the State
6. Effect of mismanagement 13. Governing Law
governed by the governed by the
A partner as such can The suit against contract and the Civil Corporation
sue a co-partner who a member of Code Code
mismanages the board of
directors or
trustees who
mismanages JOINT VENTURE
must be in the  It is hardly distinguishable from
name of the partnership, since their elements are
corporation similar, i.e. community of interest in
the business, sharing of profits and
7. Right of succession losses, and a mutual right of control.
 The main distinction in common
Partnership has no right Corporation has law jurisdiction is that
of succession right of
partnership contemplates a
succession
general business with some
8. Extent of liability to third persons degree of continuity, while joint
Partners are liable Stockholders are venture is formed for the execution
personally and liable only to of a single transaction and is thus of
subsidiarily (sometimes the extent of temporary nature
solidarily) for the shares  In Kilosbayan, Incorporated
partnership debts to subscribed by vs.Guingona, Jr 232 SCRA 110 [1994],
third persons them the court defined a joint venture as
9. Transferability of interest an association of persons or
Partner cannot transfer Stockholder has companies jointly undertaking some
his interest in the generally the
commercial enterprise; generally all
partnership so as to right to transfer
make the transferee a his shares contribute assets and share risks. Its
partner without the without prior requisites are:
unanimous consent of consent of the a. A community of interest in
all the existing partners other the performance of the
because the partnership stockholders subject matter;
is based on the principle because b. A right to direct and govern
of delectus personarum corporation is the policy in connection
not based on
therewith;
this principle
c. Duty to share profits and
losses.
Ethics)
MEMORY AID IN CIVIL LAW
NOTE: Under the Civil Code, a (e) as the consideration for the sale
partnership may be particular or of a goodwill of a business or
universal, and a particular partnership other property by installments or
may have for its object a specific otherwise.
undertaking. Hence, a joint venture
may be treated like any other contract, CLASSIFICATION OF PARTNERSHIP
innominate in nature to be regulated and 1. as to object:
governed primarily by the stipulations of a) universal partnership
the parties thereto and suppletorily by i. universal partnership of all
the general provisions of the Civil Code present property
on obligations and contracts, by rules ii. universal partnership of
governing the most analogous contracts profits
(e.g. law on partnership), and by the b) particular partnership
customs of the place.
2. as to liability of partners:
Other Similar Contracts a) general partnership
1. Collaboration- the act of working b) limited partnership
together in a joint project.
2. Association- act of a number of 3. as to duration:
persons uniting together for some special a) partnership at will
purpose or business. b) partnership with a fixed
period
RULES TO DETERMINE EXISTENCE OF
PARTNERSHIP (ART 1769) 4. as to legality of existence:
1. GENERAL RULE: Persons who are a) de jure partnership
not partners as to each other are not b) de facto partnership
partners as to third persons.
EXCEPTION: partnership by 5. as to representation to others:
estoppel a) ordinary or real partnership
2. Co-ownership of a property does not b) ostensible or partnership by
itself establish a partnership, even estoppel
though the co-owners share in the
profits derived from the incident of 6. as to publicity:
joint ownership. a) secret partnership
3. Sharing of gross returns alone does b) notorious or open partnership
not indicate a partnership, whether
or not the persons sharing them have 7. as to purpose:
a joint or common right or interest a) commercial or trading
in any property from which the b) professional or non-trading
returns are derived.
4. Receipt of share in the profits is a UNIVERSAL PARTNERSHIP
strong presumptive evidence of 1. A universal partnership of all
partnership. However, no such present property is one wherein the
inference will be drawn if such partners contribute all the property
profits were received in payment: which actually belong to them to a
(a) as a debt by installments or common fund, with the intention of
otherwise; (b) as wages of an dividing the same among themselves, as
employee or rent to a well as all the profits which they may
landlord; acquire therewith.
(c) as an annuity to a widow or
representative of a deceased  In a universal partnership of
partner; al present property, the property
(d) as interest on a loan, though the which belongs to each of the partners
amount of payment vary with the at the time of the constitution
profits of the business; and of the partnership, becomes the
common property of all the partners,
as well as
CIVIL LAW COMMITTEE
Dorothy Gayon
the profits which they may acquire GENERAL PARTNERSHIP

therewith. A partnership consisting of
A stipulation for the common general partners who are liable pro rata
enjoyment of any other profits may also and subsidiarily and sometimes solidarily
be made; but the properties which the with their separate property for
partners may acquire subsequently by partnership debts.
inheritance, legacy or donation cannot
be included in such stipulation, except LIMITED PARTNERSHIP
the fruits thereof. One formed by two or more
persons having as members one or more
 Where the articles of partnership general partners and one or more limited
do not specify the nature of the partners, the latter not being personally
universal partnership, whether it is liable for the obligations of the
one of “present property” or of partnership.
“profits” only, it will be presumed
that the parties intended merely a PARTNERSHIP AT WILL
partnership of profits. NOTE: Future A partnership wherein no time is
properties cannot be contributed. specified and is not formed for a
Thus, property particular undertaking or venture and
subsequently acquired by (1) which may be terminated at anytime by
inheritance, (2) legacy or (3) donation mutual agreement of the partners, or by
cannot be included by stipulation except the will of anyone partner alone; or one
the fruits thereof. for a fixed term or particular
undertaking but has been continued by
2. A universal partnership of profits is the partners after termination of such
one which comprises all that the term or particular undertaking without
partners may acquire by their industry or express agreement.
work during the existence of the
partnership and the usufruct of movable PARTNERSHIP WITH A FIXED TERM
or immovable property which each of A partnership wherein the term
the partners may posses at the time of for which the partnership is to exist is
the celebration of the contract. fixed or agreed upon or one formed for a
particular undertaking, and upon the
 Movable or immovable expiration of the term or completion or
property which each of the partners may the particular enterprise, the
posses at the time of the partnership is dissolved, unless
celebration of the contract shall continued by the partners.
continue to pertain exclusively to
each, only the usufruct passing to the OTHER KINDS OF PARTNERSHIP
partnership. 1. De Jure Partnership- one which has
complied will all the legal
NOTE: Persons who are prohibited from requirements for its establishment.
giving each other any donation or 2. De Facto Partnership- one which
advantage cannot enter into a universal has failed to comply with all the
partnership. (Art. 739, Art. 87, Family legal requirements for its
Code) establishment.
Profits acquired by their partners 3. Ordinary or real partnership- one
through chance (i.e. lottery) without which actually exists among the
employment of any physical or partners and also as to third persons.
intellectual efforts are not included. 4. Ostensible partnership or
partnership de facto- one which in
PARTICULAR PARTNERSHIP reality is not a partnership, but is
A particular partnership is one considered a partnership only in
which has for its object determinate relation to those who, by their
things, their use and fruits, or a specific conduct or admission, are precluded
undertaking, or the exercise of a to deny or disprove its existence.
profession or vocation.
Ethics)
5. Secret partnership- one wherein the b) Secret partner- one who takes
existence of certain persons as active part in the business by is not
partners is not avowed or made known to be a partner by outside
known to the public by any of the parties nor held out as a partner by
partners. the other partners. c) Dormant
6. Open or notorious partnership- one partner- one who does not take
whose existence is avowed or made active part in the business and is not
known to the public by the members known or held out as partner.
of the firm.
7. Commercial or trading partnership- KEY: CP2L
one formed for the transaction of Capitalist Partner Industrial
business. Partner
8. Professional or non-trading 1. as to contribution
partnership- one formed for the contributes money contributes his
exercise of a profession. or property industry (mental
or physical)
CLASSIFICATION OF PARTNERS
2. as to prohibition to engage in
1. as to CONTRIBUTION:
other business
a) Capitalist partner- one who Cannot generally cannot engage in
contributes money or property to the engage in the same any business for
common fund. or similar enterprise himself
b) Industrial partner- one who as that of his firm
contributes only his industry or
personal service. 3. as to profits
1. shares in the receives a just
2. as to LIABILITY: profits according and equitable
a) General partner- one whose to agreement share
liability to third persons extends to thereon;
2. if none, pro rata
his separate property, he may either
to his
be a capitalist or industrial partner. contribution
b) Limited partner- one whose 4. as to losses
liability to third persons is limited to 1. first, the exempted as to
his capital contribution. stipulation as to losses (as
losses; between
3. as to MANAGEMENT: 2. if none, the partners); but is
a) Managing partner- one who agreement as to liable to third
manages the business or affairs of profits; persons, without
the partnership; he may be 3. if none, pro rata prejudice to
to contribution reimbursement
appointed in the articles of from the
partnership or after constitution of capitalist
the partnership. partners
b) Silent partner- one who does not
take any active part in the business
although he may be known to be a OBLIGATIONS OF PARTNERS AMONG
partner. THEMSELVES:
c) Liquidating partner- one who
takes charge of the winding up of I. Obligation with respect to
the partnership affairs upon contribution of property
dissolution. a) To contribute what had been
promised
4. Miscellaneous: b) To answer for eviction in case
a) Ostensible partner- one who the partnership is deprived of
takes active part and known to the determinate property
public as a partner in the business, contributed
whether or not he has actual interest
in the firm.
CIVIL LAW COMMITTEE

Dorothy Gayon
c) To answer to the partnership for partner and the partnership and to

the fruits of the property the insure faithful compliance by said
contribution of which is delayed, partner with his prestation
from the date they should have (Evangelista & Co. vs. Abad Santos,
been contributed to the time of 51 SCRA 416, 1973)
actual delivery
d) To preserve the property with 2. Capitalist partner- The prohibition
the diligence of a good father of extends only to any operation which
a family pending delivery to the is of the same kind of business in
partnership which the partnership is engaged
e) To indemnify the partners for unless there is a stipulation to the
any damages caused to it by the contrary.
retention of the same or by
delay in its contribution. IV. Obligation to Contribute Additional
Capital
II. Obligations with respect to As a general rule, a capitalist
contribution of money and money partner is not bound to contribute to the
converted to personal use partnership more than what he agreed to
a) To contribute on the date due contribute but in case of an imminent
the amount he has undertaken to loss of the business, and there is no
contribute to the partnership agreement to the contrary, he is under
b) To reimburse any amount he may obligation to contribute an additional
have taken from the partnership share to save the venture. If he refuses
coffers and converted to his own to contribute, he shall be obliged to sell
personal use his interest in the partnership to other
c) To pay the agreed or legal partners.
interest, if he fails to pay his
contribution on time or in case V. Obligation of Managing Partner who
he takes any amount from the Collects Debt
common fund and converted to Where a person is separately
his own personal use indebted to the partnership and to the
d) To indemnify the partnership for managing partner at the same time, any
the damages caused to it by the sum received by the managing partner
delay in the contribution or the shall be applied to the two credits in
conversion of any sum for his proportion to their amounts, except
personal benefit. where he received it entirely for the
account of the partnership, in which
III. Obligation Not to Engage in Other case the whole sum shall be applied to
Business for Himself the partnership credit only.
1. Industrial partner- cannot engage in
any business for himself unless the Requisites for the application of the
partnership expressly permits him to rule:
do so. The other partners have the 1) There exists two debts, one where
remedy of either excluding the the collecting partner is creditor,
erring partner from the firm or of the other, where the partnership is
availing themselves of the benefits creditor.
which he may have obtained. 2) Both debts are demandable
Note: The prohibition is absolute and 3) The partner who collects is
applies whether the industrial authorized to manage and actually
partner is to engage in the same manages the partnership.
business in which the partnership is
engaged or in any kind of business. It VI. Obligation of Partner Who Receives
is clear that the reason for the Share in Partnership Credit
prohibition exists in both cases, A partner who receives, in whole
which is to prevent any conflict of or in part, his share in the partnership,
interest between the industrial when the others have not collected

Ethics)
theirs, shall be obliged, if the debtor 3. Right to associate with another

should thereafter become insolvent, to person in his share
bring to the partnership capital what he 4. Right of access and inspection of
received even though he may have given partnership books
receipt for his share only. 5. Right to true and full information of
all things affecting the partnership
Requisites for application of rule: 6. Right to a formal account of
1) A partner has received, in whole or partnership affairs under certain
in part, his share in the partnership circumstances
credit NOTE: The ten year period to
2) The other partners have not demand an accounting by a partner
collected their shares. begins at the dissolution of the
3) The partnership debtor has become partnership.
insolvent. 7. Right to have partnership dissolved
under certain conditions.
VII. Obligation of Partner for Damages
to Partnership RULES FOR DISTRIBUTION OF PROFITS
Every partner is responsible to the AND LOSSES
partnership for damages suffered by it 1. Distribution of profits
through his fault. He cannot compensate a) According to their agreement
them with the profits and benefits which (but not inequitously to defeat
he may have earned for the partnership Art.1799)
by his industry. b) If none,
1) Share of capitalist partner
VIII. Duty to Render Information shall be in proportion to his
Partners shall render on demand capital contribution
true and full information of all things 2) Industrial partner shall
affecting the partnership to any partner receive such share as may be
or the legal representative of any just and equitable under the
deceased partner of any partner under circumstances
legal disability. 2. Distribution of losses
a) According to their agreement as
IX. Obligation to account for any to losses (but not inequitously to
benefit and hold as trustee defeat Art.1799)
unauthorized personal profits b) If none, according to their
Every partner must account to agreement as to profits
the partnership for any benefit, and hold c) If none, in proportion to his
as trustee for it any profits derived by capital contribution, but the
him without the consent of the other purely industrial partner shall
partners from any transaction connected not be liable for the losses
with the formation, conduct, liquidation
of the partnership or form any use by A stipulation excluding
him of its property. a partner from any share in the profits or
losses is VOID (Article 1799)
RIGHTS OF A PARTNER: Article 1797(2) excludes an
1. Property rights of a partner industrial partner from losses. Thus, a
a) His rights in the specific stipulation excluding an industrial
partnership property partner from losses is VALID, but he is
b) His interest in the partnership NOT exempted from liability insofar as
c) His right to participate in the third persons are concerned.
management NOTE: In general, LIABILITY refers to
2. Right to reimbursement for amounts responsibility towards third persons, and
advanced to the partnership and to LOSSES refers to responsibility as among
indemnification for risks in partners
consequence of management
CIVIL LAW COMMITTEE

Dorothy Gayon
CONTRACT OF SUB-PARTNERSHIP 3. assignee cannot interfere in the

 One formed between a member of management or administration of
a partnership and a third person for the partnership business or affairs
a division of profits owing to him 4. assignee cannot demand
from the partnership enterprise. information, accounting and
 It is a partnership within inspection of the partnership books
a
partnership distinct and separate Remedies of separate judgment
from the main or principal creditor of a partner
partnership.  Application for a charging
order after securing judgment on his
NOTE: In the absence of unanimous credit to subject the interest of the
consent of all the partners, a sub- debtor partner with payment of
partner does not become a member of unsatisfied amount of the judgment
the partnership. Hence, a sub-partner debt
does not acquire the rights of a partner
nor is he liable for its debts Redemption of interest charged
1. General partnership
PROPERTY RIGHTS OF A PARTNER a) with separate property of a
1. Right to specific partnership partner; or
property b) with partnership property, with
 contemplates tangible property the consent of all the partners
 The specific partnership whose interests are not so
property belongs to the partnership charged or sold
as a separate juridical personality. 2. Limited partnership (interest of
The partners have no actual interest limited partner)
in it until after dissolution. a) with separate property of any
 equal right with other partners general partner but NOT with
topossess specific partnership property partnership property
for partnership purposes
 not assignable, except in 3. Right to participate in the
connection with the assignment of management
rights of all partners in the same
property MANAGEMENT OF PARTNERSHIP
 not subject to attachment I. When the manner of management
orexecution, except on a claim against has been provided for in the
the partnership partnership agreement
 not subject to legal support
A. When a managing partner has
NOTE: Any immovable property or an been appointed
interest therein may be acquired in the 1) Appointment in the articles of
partnership name. The title so acquired partnership
may be conveyed only in the partnership a. Power is irrevocable without
name subject to the provisions of Article just or lawful cause
1819 of the Civil Code. i. to remove him for JUST
2. Interest in the partnership cause, vote of partners
 share in the profits and surplus representing controlling
 A partner actually owns his interest is necessary
ii. to remove him without just
respective share.
cause or for an UNJUST cause,
there must be unanimity
Effects of conveyance by a partner of including his own vote
his interest in the partnership b. Extent of power
1. conveyance of his whole interest – i. if he acts in good faith, he
partnership may either remain or be may do all acts of
dissolved ADMINISTRATION, despite
2. assignee does not necessarily opposition of his partners
become a partner ii. if in bad faith, he cannot.

Ethics)
2) Appointment other than in the b) Unanimous consent required for

articles of partnership alteration of immovable property
a. Power to act may be revoked
at any time, with or without OBLIGATIONS OF PARTNERS TO THIRD
just cause PERSONS
b. Extent of power: as long as he I. Liability for contractual obligations
remains manager, he can perform (ART 1816)
all acts of administration, but if 1. All partners, including industrial
others oppose and he persists, he partners, are personally liable
can be removed with all their property. Their
individual liability is pro rata and
B. When two or more managing subsidiary, unless otherwise
partners have been entrusted stipulated
with the management of 2. Liability of partnership for acts
partnership of partners
1)Without specification of their a) Acts for apparently carrying
respective duties and without on in the usual way the
stipulation requiring unanimity of business of the partnership
action Act binds
Each managing the partnership.
partner may execute all acts of Partnership is
administration not bound if:
If any of the i. acting partner has in fact
managing partners should no authority and
oppose, ii. the third person knows
a) Decision of the majority that the acting partner
has no authority
of the managing partners
b) Acts of Strict Dominion or
shall prevail
b) In case of a tie, decision Ownership (acts which are
not apparently for carrying
of the partners
on in the usual way the
representing the
business of the partnership)
controlling interest shall
prevail Act does
not bind the partnership.
2) With stipulation requiring Partnership is
unanimity of action bound if:
Unanimous i. the act is authorized by all
the partners; or
consent of all the managing
ii. they have abandoned the
partners shall be necessary for business
the validity of the acts and c) Acts in contravention of a
absence or inability of any restriction on authority
managing partner cannot be i. Partnership is not liable to
alleged third persons having actual
When there is an or presumptive knowledge
imminent danger of grave or of the restrictions
irreparable injury to the
partnership, partner may act II. Liability arising from partner’s tort
alone without the consent of the (ART 1822) or Breach of Trust (ART
partner who is absent or under 1823)
disability 1. Where, by any wrongful act or
omission of any partner acting in
II. When manner of management has the ordinary course of business
not been agreed upon of the partnership or with
a) All partners shall be considered authority of his co-partners, loss
managers and agents or injury is caused to any person,
CIVIL LAW COMMITTEE

Dorothy Gayon
not being a partner in the PRINCIPLE OF DELECTUS PERSONARUM

partnership (Article 1822)  A rule inherent in every
2. Where one partner, acting within partnership wherein no one can
the scope of his apparent become a member of the
authority, receives money or partnership without the consent of
property of a third person and all the partners.
misapplies it (Article 1823)
3. Where the partnership, in the NOTE: This element of delectus
course of its business, receives personae is true only in case of a general
money or property and it is partner, but NOT as regards a limited
misapplied by any partner while partner.
it is in the custody of the
partnership (Article 1823) MUTUAL AGENCY
 Partnership is a contract of
NOTE: All partners are solidarily liable “mutual agency”, each partner acting
with the partnership for any penalty or as a principal on his own behalf,
damage arising from a partnership tort and as an agent of his co-partners
or breach of trust and the partnership.
III. Criminal liability of partnership Requisites When A Partner Binds The

 Partnership liability does not extend Partnership
to criminal liability where the 1. when he is expressly or impliedly
wrongdoing is regarded as individual authorized
in character. But where the crime is 2. when he acts in behalf and in the
statutory, especially when it involves name of the partnership
a fine rather than imprisonment,
criminal liability may be imposed PARTNERSHIP BY ESTOPPEL
 Arises when a person, by words
LIABILITY OF STOCKHOLDERS IN A spoken or written or by conduct,
DEFECTIVELY FORMED CORPORATION represents himself or consents to
 It is ordinarily held that persons w o
h another representing him to anyone,
attempt but fail to form a as partner in an existing partnership,
corporation and carry on business or with one or more persons not
under the corporate name occupy actual partners; he is liable to any
the position of partners inter se. such person to whom such
Thus where persons associate representation has been made, who
themselves together under articles has, on the faith of such
to purchase property to carry on a representation given credit to the
business, and their organization is so actual or apparent partnership. (Art
defective as to come short of 1825)
creating a corporation within the
statute, they become in legal effect NOTE: Art. 1825 does not create a
partners inter-se. partnership as between the alleged
 Exception: One who takes no part partners. A contract, express or implied
except to subscribe for stock in a is essential to the creation of
proposed corporation, which was partnership. The law considers them
never legally formed, does not partners and the association as a
become a partner with other partnership insofar as it is favorable to
subscribers who engage in business third persons. However, partnership
under the name of the pretended liability is created only in favor of
corporation, so as to be liable as persons who on the faith of such
such in an action for settlement of representation given credit to the actual
the alleged partnership and or apparent partnership
contribution. (Pioneer Insurance &
Surety Corporation vs. Court of
Appeals, 175 SCRA 668 [1989].)

Ethics)
DISSOLUTION debts, either before or

 Change in the relation of after the termination of any
thepartners caused by any partner specified term or particular
ceasing to be associated in carrying undertaking;
iv. By the expulsion of any
on the business. (Article 1828)
partner from the business
 It is the point in time when bona fide in accordance
thepartners cease to carry on with such power conferred
the business together. It represents by the agreement between
the demise of a partnership. the partners;
b. In contravention of the
NOTE: The dissolution of a partnership agreement between the
must not be understood in the absolute partners, where the
and strict sense so that at the circumstances do nor permit a
termination of the object for which it dissolution under any other
was created the partnership is provision of this article by the
extinguished. (Testate of Mota vs. express will of any partner at
Serra, 47 PHIL 464, 1926.) Dissolution any time.
does not automatically result in the c. By any event which makes it
termination of the legal personality of unlawful for the business of the
the partnership, nor the relations of the partnership to be carried on or
partners among themselves who remain for the members to carry it on in
as co-partners until the partnership is partnership.
terminated. d. When a specific thing, a partner
had promised to contribute,
WINDING UP perishes before its delivery. Or
 Process of settling the where the partner only
partnership business or affairs after contributed the use or
dissolution. enjoyment of the thing and has
reserved ownership thereof, its
TERMINATION loss, before or after delivery
 Point in time when all dissolves the partnership.
partnership affairs are wound up or e. By the death of any partner;
completed and is the end of the f. By the insolvency of any partner
partnership life. or the partnership;
g. By the civil interdiction of any
CAUSES OF DISSOLUTION partner;
1. Extrajudicial dissolution (ART
1830) - the parties may agree to 2. Judicial dissolution (ART 1831) -
expand the grounds provided under when so decreed by the court, the
Art 1830 but NOT to delimit them. presiding judge may place the
The causes enumerated are as partnership under receivership and
follows: direct an accounting to be made
a. Without violation of the towards winding up the partnership
agreement between the partners affairs.
i. By the termination of the On application by or for any partner,
definite term or particular the court shall decree a dissolution
undertaking specified in whenever:
the agreement; a. A partner has been declared
ii. By the express will of any
insane in any judicial proceeding
partner, who must act in
good faith, when no or is shown to be of unsound
definite term or particular mind;
undertaking is specified; b. A partner becomes in any other
iii. By the express will of all way incapable of performing his
the partners who have not part of the partnership contract;
assigned their interest or c. A partner has been guilty of such
suffered them to be conduct as tend to affect
charged for their separate
CIVIL LAW COMMITTEE
Dorothy Gayon
prejudicially the carrying on of b) Dissolution is by act, insolvency

the business; or death of a partner:
d. A partner willfully or persistently Authority of
commits a breach of the partners inter se to act for the
partnership agreement, or partnership is NOT deemed
otherwise so conducts himself in terminated. Thus, each partner
matters relating to the is liable to his co-partners for his
partnership business that it is share of any liability created by
not reasonably practicable to any partner acting for the
carry on the business in partnership as if the partnership
partnership with him. has not been dissolved
e. The business of the partnership
can only be carried on in a loss;
f. Other circumstances render a 1) The cause of dissolution is
dissolution equitable. the ACT of a partner and the
On application of the purchaser of a acting partner had
partner’s interest under Article 1813 KNOWLEDGE of such
or 1814: dissolution
a. After the termination of the 2) The cause of dissolution is
specified term or particular the DEATH or INSOLVENCY of
undertaking; a partner and the acting
b. At any time if the partnership partner had KNOWLEDGE or
was a partnership at will when NOTICE of such dissolution
the interest was assigned or 2. With respect to persons not
when the charging order was partners (third persons)
issued. a) When partnership is bound to
third persons after dissolution
EFFECTS OF DISSOLUTION 1) Act appropriate for winding
A. As to partner’s authority to act for up partnership affairs
the partnership 2) Act appropriate for
Dissolution terminates completing unfinished
all authority of any partner to act for the transactions
partnership 3) Completely NEW transaction
which would bind the
1. Acts necessary to wind up partnership if dissolution had
partnership affairs not taken place provided:
2. Acts necessary to complete the other party is in good
transactions begun but not then faith, meaning:
finished i. Previous creditor (had
Note: Thus, dissolution terminates previously extended
the ACTUAL authority of a partner to credit) AND he had NO
undertake NEW business for the KNOWLEDGE or NOTICE
partnership of the dissolution, OR
ii. NOT a previous creditor
QUALIFICATIONS TO THE GENERAL AND the fact of
RULE: dissolution had not been
1. With respect to the partners (in so published in a newspaper
far as partners themselves are of general circulation
concerned) b) When partnership is NOT bound
a) Dissolution is not by act, to third persons after dissolution
insolvency or death of a partner: 1) Where partnership was
General Rule applies. Hence, dissolved because it was
dissolution terminates the unlawful to carry on the
ACTUAL authority of a partner to business, except when the
undertake NEW business for the act is for winding up
partnership

Ethics)
2) Where the acting partner in 2) To receive in cash his share

the transaction has become of the surplus
insolvent 3) To be indemnified for
3) Where the partner is damages caused by the
unauthorized to wind up, partner guilty of the
except if the transaction is wrongful dissolution
with third persons in good 4) To continue the business in
faith (under the same the same name during the
circumstances as defined agreed term of the
above) partnership, by themselves
4) Where act is NOT or jointly with others
appropriate for winding up 5) To possess partnership
partnership affairs or for property should they decide
completing unfinished to continue the business
transactions b) Rights of a partner who has
5) completely NEW transaction wrongfully caused the dissolution
which would bind the 1) If the business is not
partnership if dissolution had continued by the other
not taken place with third partners
persons in bad faith i. To have partnership
property applied to
B. As to partner’s existing liability discharge partnership
liabilities
Dissolution does not
ii. To receive in cash his share
automatically discharge the existing of the surplus less damages
liability of any partner caused by his wrongful
A partner may be relieved dissolution
from all existing liabilities upon 2) If the business is continued
dissolution ONLY by an agreement i. To have the value of his
between: interest in the partnership
1. Partner concerned at the time of the
2. Other partners dissolution, surplus less
3. Partnership creditors damages caused by his
wrongful dissolution to his
Note: The consent of the partnership
co-partners, ascertained
creditors and the other partners to and paid in cash or secured
the novation may be implied from by a bond approved by the
their conduct. court; AND
ii. To be released from all
RIGHTS OF A PARTNER UPON existing and future
DISSOLUTION liabilities
1. Where dissolution is NOT in NOTE: The value of the
contravention of the partnership goodwill of the business is
agreement not considered in
a) To have partnership property ascertaining the value of the
applied to discharge partnership interest of the guilty
liabilities partners.
b) To receive in cash his share of
the surplus RIGHTS OF A PARTNER WHERE
2. Where dissolution is in PARTNERSHIP CONTRACT IS RESCINDED
contravention of the partnership ON THE GROUND OF FRAUD OR
agreement MISREPRESENTATION
a) Rights of a partner who has not (NOTE: The following are the rights of
caused the dissolution wrongfully the partner entitled to rescind)
1) To have partnership property 1. Right of LIEN on, or RETENTION of,
applied to discharge the surplus of partnership property
partnership liabilities after satisfying partnership liabilities
CIVIL LAW COMMITTEE

Dorothy Gayon
for any sum of money paid or

contributed by him DOCTRINE OF MARSHALLING OF ASSETS
2. Right of SUBROGATION in place of (Article 1839(8))
the partnership creditors after 1. Partnership creditors have
payment of partnership liabilities; preference in partnership assets
and 2. Separate or individual creditors have
3. Right of INDEMNIFICATION by the preference in separate or individual
guilty partner against all debts and properties
liabilities of the partnership 3. Anything left from either goes to the
other
MANNER OF WINDING UP
1. Extrajudicial – by the partners PARTNER’S LIEN
themselves without the intervention  Right of every partner to have
of the court the partnership property applied
2. Judicial – under the control and to discharge partnership liabilities
direction of the court upon proper AND to have the surplus assets, if
cause shown by any partner, his any, distributed in cash to the
legal representative or his assignee respective partners, after deducting
what may be due to the partnership
PERSONS AUTHORIZED TO WIND UP from them as partners.
1. partners designated by the
agreement LIMITED PARTNERSHIP
2. in the absence of such agreement,  One formed by two or more persons
all partners who have not wrongfully having as members one or more
dissolved the partnership general partners and one or more
3. legal representative of last surviving limited partners, the latter not being
partner not insolvent personally liable for partnership
debts.
ORDER OF PAYMENT IN WINDING UP
1. General Partnership (ART 1839 (2)) NOTE: The Supreme Court, declared a
a) those owing to creditors other firm to be a general partnership in a
than partners case where it appears that the inclusion
b) those owing to partners other of “Ltd.” (limited) in the firm was only a
than for capital or profits subterfuge resorted to by the partners in
c) those owing to partners in order to evade liability for possible
respect of capital losses, while assuming their enjoyment
d) those owing to partners in of advantages to be derived from the
respect of profits relation. Jo Chung Cang vs. Pacific
2. Limited Partnership (ART 1863) Commercial Co. 45 PHIL 142 [1923]). In
a) those owing to creditors, except other words if the parties intended a
those to limited partners on general partnership, they are general
account of their contribution, partners although their purpose is to
and to general partners avoid the creation of such a relation.
b) those owing to limited partners
in respect of their share of the Characteristics of Limited Partnership
profits and other compensation 1. Limited partnership is formed by
by way of income substantial compliance in good faith
c) those owing to limited partners with the statutory requirements
in respect of their capital 2. One or more general partners control
contributions the business and are personally
d) those owing to general partners liable to creditors
other than for capital and profits 3. One or more limited partners
e) those owing to general partners contribute to the capital and share
in respect of profits in the profits but do not participate
f) those owing to general partners in the management of the business
in respect of capital and are not personally liable for

Ethics)
partnership obligations beyond the 5. Transferability of interest

amount of their capital contributions
4. The limited partners may ask for the Limited partner’s General
return of their capital contributions interest is freely partner’s
under the conditions prescribed by assignable, with interest in the
assignee acquiring all partnership
law the rights of the limited may not be
5. The partnership debts are paid out partner subject to assigned as to
of the common fund and the certain qualifications make the
individual properties of the general assignee a new
partners partner without
the consent of
General the other
Limited partners,
Partner/
Partner/Partnership although he
Partnership may associate a
1. Extent of liability third person
Limited partner’s General with him in his
liability extends only to partner is share
his capital contribution personally
6. Inclusion of partner’s name in the
liable for firm name
partnership
obligations As a general rule, name Name of a
2. Right to participate in the of a limited partner general partner
management of partnership must not appear in the may appear in
Limited partner has no General firm name the firm name
share in the partners have
management of a an equal right 7. Prohibition to engage in other
limited partnership and in the business
renders himself liable to management of
partnership creditors as the business No such prohibition in General
a general partner if he (when the the case of a limited partner is
takes part in the control manner of partner who is prohibited from
of the business management considered a mere engaging in a
has not been contributor to the business which
agreed upon) partnership is of the SAME
3. Contribution kind of business
Limited partner must General in which the
contribute cash or partner may partnership is
property to the contribute engaged, if he
partnership but not money, is a capitalist
services property or partner, or in
industry to the ANY of business
partnership for himself if
he is an
4. Proper party to proceedings by or industrial
against the partnership partner
Limited partner is not a General 8. Effect of retirement, death, insanity

proper party to partner is the or insolvency
proceedings by or proper party to
against a partnership proceedings by Retirement, death, Retirement,
Unless: or against a insanity or insolvency of death, insanity
1. he is also a general partnership a limited partner does or insolvency of
partner, or not dissolve the a general
2. where the object of partnership for his partner
the proceeding is to executor or dissolves the
enforce a limited administrator shall have partnership
partner’s right the rights of a
against or liability to limited partner for the
the partnership purpose of selling his
estate
CIVIL LAW COMMITTEE

Dorothy Gayon
9. Creation As to third persons or creditors

Limited partnership is General guilty of estoppel, the firm shall not be
created by the members partnership, as treated as a general partnership despite
after substantial a general rule, lack of substantial compliance to the
compliance in good may be requirements of a limited partnership. If
faith with the constituted in
creditors deal with the firm as a limited
requirements set forth any form by
by law contract or
partnership, they will be estopped from
conduct of the insisting that there is no such
partnership partnership, or that the terms of the
partnership were not sufficiently stated
10. Members of the partnership in the notice of its formation. (40 Am.
Composed of one or Composed only Jur. 476.)
more general partners of general
and one or more limited partners CONTENTS OF THE CERTIFICATE OR
partners ARTICLES OF LIMITED PARTNERSHIP
11. Firm name
1. Name of the partnership, adding
Firm name must be No such
requirement thereto the word “limited;”
followed by the word
Limited 2. Character of the business;
12. Rules governing dissolution and 3. Location of the principal place of
winding up business;
Governed by Art. 1839 Governed by 4. Name and place of residence of each
Art. 1863 member, general and limited
partners being respectively
ESSENTIAL REQUIREMENTS FOR designated;
FORMATION OF LIMITED PARTNERSHIP 5. Term for which the partnership is to
1. A certificate or articles of limited exist;
partnership which states the matters 6. Amount of cash and description of
enumerated in Article 1844, which and the agree value of the other
must be signed and sworn; property contributed by each limited
2. Such certificate must be filed for partner;
record in the Office of the Securities 7. Additional contributions to be made
and Exchange Commission. by each limited partner and the
times at which or events on the
NOTE: A strict compliance with the legal happening of which they shall be
requirements is not necessary. It is made;
sufficient that there is substantial 8. Time, if agreed upon, when to
compliance in good faith. If there is no contribution of each limited partner
substantial compliance, the partnership is to be returned;
becomes a general partnership as far as 9. Share in the profits or other
third persons are concerned, in which all compensation by way of income
the members are liable as general which each limited partner shall
partners. (Jo Chung Cang vs. Pacific receive by reason of his
Commercial Co., 45 PHIL 142 [1923].) contribution;
However, a firm which fails to 10. Right, if given, of a limited partner
substantially comply with the formal to substitute an assignee as
requirements of a limited partnership is contributor in his place, and the
a general partnership only as to its terms and conditions of the
relations to third persons. The firm is a substitution;
limited partnership, subject to all rules 11. Right, if given, of the partners to
applicable to such partnership; and as admit additional partners;
between the partners they are bound by 12. Right, if given, of one or more of the
their agreement; and that all the limited limited partners to priority over
partner’s relations to his co-partners and other limited partners, as to
their obligations to him growing out of contributions or as to compensation
the relation remain unimpaired. by way of income, and the nature of
such priority;

Ethics)
13. Right, if given, of the remaining 4. Possess partnership property, or

general partner or partners to assign their rights in specific
continue the business on the death, partnership property, for other
retirement, civil interdiction, that a partnership purpose;
insanity or insolvency of a general 5. Admit a person as a general
partner; and partner;
14. Right, if given, of a limited partner 6. Admit a person as a limited
to demand and receive property partner, unless the right to do so
other than cash in return of his is given in the certificate
contribution. 7. Continue the business with the
partnership property on the
LIABILITY FOR FALSE STATEMENT IN death, retirement, insanity, civil
CERTIFICATE interdiction or insolvency of a
Any partner to the certificate general partner, unless the right
containing a false statement is liable to to do so is given in the
one who suffers loss by reliance on such certificate.
certificate provided the following  A limited partner is liable as
requisites are present: a general partner for the
1. He knew the statement to be false firm’s obligations if he takes
at the time he signed the part or interferes in the
certificate, or subsequently having management of the business.
sufficient time to cancel or amend
it or file a petition for its RIGHTS OF A LIMITED PARTNER
cancellation or amendment, he KEY: BIF2AR2
failed to do so; 1. To have the partnership books kept
2. The person seeking to enforce at the principal place of business of
liability has relied upon the false the partnership
statement in transacting business 2. To inspect, at a reasonable hour,
with the partnership; partnership books and copy any of
3. The person suffered a loss as a them
result of reliance upon such false 3. To demand true and full information
statement. of the things affecting the
partnership
MANAGEMENT OF LIMITED 4. To demand a formal account of the
PARTNERSHIP partnership affairs whenever
 A general partner in a circumstances render it just and
limited partnership is vested with the reasonable
entire control of the firm’s 5. To ask for dissolution and winding up
business and has all the rights and by decree of court
powers and is subject to all the 6. To receive a share in the profits or
liabilities and restrictions of a other compensation by way of
partner in a general partnership. income
 A general partner in a provided: that the partnership
limited partnership however has assets are in excess of partnership
no authority, without written liabilities after such payment
consent or ratification of all limited 7. To receive the return of his
partners, to: contribution provided:
1. Do any act in contravention of a) All the liabilities of the
the certificate; partnership have been paid
2. Do any act which would make it OR the partnership assets
impossible to carry on the are sufficient to pay
ordinary business of the partnership liabilities
partnership; b) The consent of all the
3. Confess judgment against the members (general and
partnership; limited partners) has been
obtained
CIVIL LAW COMMITTEE

Dorothy Gayon
SUBSTITUTED LIMITED PARTNER

When the return of the  A person admitted to all the rights
contribution may be of a limited partner who has died of
rightfully demanded: has assigned his interest in
1) On the dissolution of the the partnership.
partnership
2) Upon the arrival of the RAL RULE: He has all, the rights
date specified in the and powers, and is subject to all the
certificate for the return restrictions and liabilities of his assignor.
3) After he has given 6 Those liabilities which he
months notice in writing was ignorant at the time he became a
to all other partners, if limited partner AND which could not be
no time is specified in ascertained from the certificate.
the certificate their for
the return of the REQUISITES IN ORDER THAT THE
contribution or for the ASSIGNEE MAY BECOME A SUBSTITUTED
dissolution of the LIMITED PARTNER
partnership 1. All the members must consent to the
c) The certificate is cancelled assignee becoming a substituted
or so amended as to set limited partner, OR the limited
forth the withdrawal or partner, being empowered by the
reduction certificate must give the assignee
the right to become a limited
LIABILITIES OF A LIMITED PARTNER partner
1. Liability for unpaid contribution 2. The certificate must be amended in
a) For the difference between his accordance with Art.1865
contribution as actually made 3. The certificate as amended must be
and that stated in the certificate registered in the Securities and
as having been made; AND Exchange Commission
b) For any unpaid contribution
which he has agreed in the ALLOWABLE TRANSACTIONS OF A
certificate to make in the future LIMITED PARTNER
at the time and the conditions  Being merely a contributor to
stated in the certificate thepartnership is not prohibited from:
2. Liability as trustee 1. granting loans to the partnership
a) Specific property stated in the 2. transacting other business with the
certificate as contributed by partnership
him, but which was not 3. receiving a pro rata share of the
contributed or which has been partnership assets with the general
wrongfully returned; AND creditors if he is NOT also a general
b) Money or other property partner
wrongfully paid or conveyed to
him on account of his NOTE: In transacting a business with the
contribution partnership as a non-member, the
limited partner is considered a non-
NOTE: These liabilities can be waived or partner creditor
compromised only by consent of all the
members; but a waiver or compromise PROHIBITED TRANSACTIONS OF A
shall NOT affect the right of a creditor of LIMITED PARTNER
a partnership who extended credit or 1. receiving or holding as collateral
whose claim arose after the filling and security any partnership property; or
before the cancellation or amendment of 2. receiving any payment, conveyance,
the certificate, to enforce such or release from liability if it will
liabilities. prejudice the partnership creditors

Ethics)
NOTES: 3. Agent can return 3. the buyer, as a

 Violation of the prohibition will give the object in case he rule, cannot return
rise to the presumption that it has is unable to sell the the object sold
same
been made to defraud partnership
4. Bound to act 4. The buyer can
creditors
according to the deal with the thing
 The prohibition is NOT ABSOLUTE, instructions of his as he please being
there is no such prohibition if the principal. the owner.
partnership assets are sufficient to
discharge partnership liabilities to PURPOSE OF AGENCY
persons not claiming as general or  The purpose of agency is to extend
limited partners. the personality of the principal
through the facility of the agent. It
AGENCY enables the activity of man which is
naturally limited in its exercise by
the impositions of his physiological
CONTRACT OF AGENCY conditions to be legally extended by
 A contract whereby a person (agent) permitting him to be constructively
binds himself to render some service present in many different places and
or to do something in representation to perform diverse juridical acts and
or on behalf of another (principal), carry on many different activities
with the consent or authority of the through another when physical
latter. (Article 1868) presence is impossible or inadvisable
at the same time. (11 Manresa 434)
 The parties to the contract are:
1. Principal- one whom the agent ELEMENTS OF AGENCY
represents and from whom he A. Consent
derives authority; he is the  Any person or entity having juridical
person represented. capacity and capacity to act and not
2. Agent- one who acts for and otherwise disqualified, may enter
represents another; he is the into an agency.
person acting in a representative  But as regards the party with
capacity. whomthe agent acts or contracts, the
legal capacity of the principal rather
than the agent, is of the greater
AGENCY LEASE OF import.
SERVICES
1. Principle of 1. Principle of
representation is employment is
B. Object
applied. applied.
2. Extinguished at 2. Concurrence of
 the services to be undertaken by
will of the principal. parties is necessary. theagent
3. Agent exercise 3. Employee exercise  may cover all acts pertaining to a
discretionary power ministerial functions business of the principal (general
to attain an end for only. agency) or one or more specific
which he was transactions (special agency)
appointed.  the extent of the agent’s
4. Preparatory 4. Principal Contract authority to act, whether it be a
Contract general or a special agency,
depends on how the agency is
AGENCY TO SELL SALE couched.
1. Agent receives the 1. The buyer
goods as the goods of receives goods as C. Cause
the principal. owner
 May be onerous or gratuitous
2. Agent delivers the 2. Buyer pays the
butpresumed for compensation
proceeds of the sale price.
NOTE: The agent may not be deprived
of his right to compensation by an
unjustified revocation of the agency
CIVIL LAW COMMITTEE
Dorothy Gayon
KINDS OF AGENCY ACTS WHICH MAY BE DELEGATED TO AN

1. as to manner of creation AGENT
a) express- one where the agent
has been actually authorized person, he may do thru another.
by the principal, either orally
or in writing; 1. Personal acts- if personal
b) implied- one which is implied performance is required the doing of
from the an act by a person on behalf of
i. acts of the principal- from another does not constitute
his silence or lack of action, performance by the latter.
or his failure to repudiate a) Voting during an election;
the agency knowing that
b) Making a will;
another person is acting on
c) Making statements which are
his behalf without authority.
ii. Acts of the agent- when he required to be done under oath;
carries out the agency, or d) A member of the board of
from his silence or inaction directors or trustees in a
according to the corporation cannot validly act as
circumstances. such by proxy
e) An agent cannot delegate to
2. as to its character a sub-agent the performance of
a) gratuitous- one where the acts which he has been
agent receives no appointed to perform in person.
compensation for his services. 2. Criminal Acts or Acts not allowed by
b) compensated or onerous- law- There can be no agency in the
one where the agent receives perpetration of a crime or unlawful act.
compensation for his services. Examples:
a) An alien principal using an
3. as to extent of business covered agent to acquire lands;
a) general- one which comprises b) Persons who, because of their
all the business of the position and relation with the
principal; persons under their charge or
b) special- one which comprises property under control, are
one or more specific prohibited from acquiring said
transactions. property and cannot do so through
an agent.
4. as to authority conferred
a) couched in general terms- FORM OF AGENCY
one which is created in  Agency may be express or im plie
d
general terms and is deemed from the acts of the principal, from
to comprise only acts of his silence or lack of action, or his
administration; failure to repudiate the agency,
b) couched in specific terms- knowing that another person is
one authorizing only the acting on his behalf without
performance of a specific act authority. (Article 1869)
or acts.
NOTE: In an implied agency, the
5. as to its nature and effects principal is still bound by the acts of the
a) ostensible or agent just as in case of express agency
representative- one where
the agent acts in the name There are no formal
and in representation of the requirements governing the appointment
principal. of an agent. The agent’s authority may
b) simple or commission- one be oral or written. It may be in a public
where the agent acts in his or private writing.
own name but for the When the law requires a
account of the principal. specific form
Ethics)
IMPLIED AGENCY BY and he did not reply to the letter

ACCEPTANCE ESTOPPEL or telegram
1. De Jure Agent 1. Not really an
agent
habitually engaged as an agent,
2. Binds the 2. Only the
principal for acts purported agent is
within the scope liable.
of his authority.
Example: Sale of a piece of land or

any interest therein through an
agent:
NOTES:
 authority to sell must be in
writing;otherwise the sale is VOID
(Art.1874)
 the sale itself should be in writing
in order to be enforceable.
 The authority of an agent to execute a
contract of sale of real estate must
be conferred in writing and must
give him specific authority, either to
conduct the general business of the
principal or to execute a binding
contract containing terms and
conditions which are in the contract
he did execute. (Dizon et al. vs. CA
et al., GR 124741, January 28, 2003)
FORM OF ACCEPTANCE BY AGENT

 Acceptance by the agent may also
be express or implied from his
acts which carry out the agency, or
from his silence or inaction
according to the circumstances
Kinds of Implied Acceptance

1. Where persons are present
 Acceptance may be implied if:
a. principal delivers his power of
attorney to the agent and
b. agent receives it without any
objection
2. Where persons are absent
Acceptance cannot
be implied from silence of the agent
1. principal transmits his power of

attorney to the agent, who
receives it without any
objection;
2. principal entrusts to him by
letter or telegram a power of
attorney with respect to the
business in which he is
CIVIL LAW COMMITTEE
Dorothy Gayon
RULE ON AGENCY BY ESTOPPEL MEMORY AID IN CIVIL LAW

 One who clothes
another withapparent authority as
his agent, and holds him out to
the public as such, cannot be
permitted to deny the
authority of such person in
good faith, and in the honest
belief that he is what he appears
to be. (Cuison vs. CA, GR.88531,
October 26, 1993)
CLASSES AND KINDS OF AGENTS

1. Universal Agent- one employed to
do all acts that the principal may
personally do, and which he can
lawfully delegate to another the
power of doing.
2. General Agent- one employed to
transact all the business of the
principal, or all the business of a
particular kind or in a particular
place, or in other words to do all
acts, connected with a particular
trade, business or employment.
3. Special or Particular Agent- one
authorized to act in one or more
specific transactions, or to do one
or more specific acts, or to act
upon a particular occasion.
General Agent Special Agent
1. Scope of Authority
Usually authorized to Authorized to

do all acts connected do only acts in
with the business or pursuance of
employment in which particular
he is engaged. instructions or
with
restrictions
necessarily
implied from
the acts to be
done
2. Continuity
Conducts a series of Usually involves

transactions involving a single
a continuity of transaction or a
service. series of
transactions not
involving
continuity

Ethics)
3. Extent by which agent may bind 4. To waive any obligation gratuitously;

principal 5. To enter into any contract by which
Binds his principal by Cannot bind his the ownership of an immovable is
an act within the principal in a transmitted or acquired either
scope of his authority manner beyond
gratuitously or foe a valuable
although it may be or outside the
contrary to his special specific acts consideration;
instructions which he is 6. To make gifts, except customary
authorized to ones for charity or those made to
perform on employees in the business managed
behalf of the by the agents;
principal 7. To loan or borrow money, unless the
4. Termination of Authority latter’s act be urgent and
Apparent authority Mere revocation indispensable for the preservation of
does not terminate by is effective to the things which are under
the mere revocation terminate the
administration;
of his authority authority as to
without notice to the third persons 8. To lease any real property to
third party because the another person for more than one
third person has year;
a duty to 9. To bind the principal to render some
inquire service without compensation;
5. Construction of Instructions of 10. To bind the principal in a contract of
Principal partnership;
Statement of Authority of agent 11. To obligate the principal as
principal with must be strictly guarantor or surety;
respect to the pursued
agent’s authority
12. To create or convey real rights over
would ordinarily immovable property;
regarded as 13. To accept or repudiate an
advisory only inheritance;
14. To ratify or recognize obligations
SPECIAL POWER OF ATTORNEY (SPA) contracted before the agency;
 An instrument in writing by 15. Any other act of strict dominion.
which one person, as principal,
appoints another as his agent and NOTE: a third person with whom the
confers upon him the authority to agent wishes to contract on behalf of the
perform certain specified acts or principal may require the presentation
kinds of acts on behalf of the of the power of attorney or the
principal. instructions as regards the agency;
NOTE: It need not be notarized; except except private or secret orders.
where it is executed in a foreign
country, must be certified in accordance NOTE: The scope of the agent’s
with the Rules of Court. authority is what appears in the written
terms of the power of attorney. While
INSTANCES WHERE SPA IS NECESSARY third persons are bound to inquire into
(ART 1878) (PECWEM- LLB- BOCARO) the extent or scope of the agent’s
1. To make such payments as are not authority, they are not required to go
usually considered as acts of beyond the terms of the written power
administration; of attorney. Third persons cannot be
2. To effect novation which put an end adversely affected by an understanding
to obligations already in existence at between the principal and his agent as
time the agency was constituted; to the limits of the latter’s authority. In
3. To compromise, to submit questions the same way, third persons need not
to arbitration, to renounce the right concern themselves with instructions
to appeal from a judgment, to waive given by the principal to his agent
objections to the venue of an action outside the written power of attorney.
or to abandon a prescription already (Siredy Enterprises, Inc. vs. CA, et al.
acquired; GR 129039, September 27, 2002)
CIVIL LAW COMMITTEE

Dorothy Gayon
NOTES: EFFECTS OF AGENT’S ACTS

 SPA to sell does not include 1. With Authority
thepower to mortgage; and vice versa. a. in principal’s name – valid;
 SPA to mortgage includes the power principal is bound; agent not
to allow the extrajudicial foreclosure personally liable unless he bound
of the mortgaged property. himself (Article 1897)
b. in his own name – Apply Article
 SPA to compromise does not
1883; generally not binding on
authorize submission to arbitration
the principal; agent and
 SPA for an agent to institute stranger are the only parties,
a
n
yaction in court to eject all persons except regarding things
in the principal’s lots so that belonging to the principal or
the principal could take when the principal ratifies the
material possession thereof, and contract or derives benefit
for this purpose, to appear at the therefrom.
pre-trial and enter into any
2. Without Authority
stipulation of facts and/or a. in principal’s name –
compromise agreement but only unauthorized and
insofar as this is protective of the unenforceable but may be
rights and interests of the ratified, in which case, may be
principal in the property, does not validated retroactively from the
grant any power to the agent to sell beginning (Article 1407)
the subject property nor a portion b. in his own name – valid, whether
thereof. (Cosmic Lumber Corp vs. CA or not the subject matter
265 SCRA 168) belongs to the principal,
provided that at the time of
EFFECT OF LACK OF SPA WHERE ONE IS delivery, the “agent” can
REQUIRED: UNENFORCEABLE transfer legally the ownership of
the thing. Otherwise, he will be
When principal bound by act of agent held liable for breach of
1. Agent must act within the scope of warranty against eviction;
his authority Article 1883 does NOT apply
2. Agent must act in behalf of the
principal OCCASIONS WHEN PRINCIPAL IS BOUND
BY THE ACTS OF THE AGENT BEYOND
NOTE: The limits of the agent’s THE LATTER’S POWERS
authority shall not be considered
exceeded should it have been performed
General Rule: The principal is not bound
in a manner more advantageous to the
by the acts of the agent beyond his
principal than that specified by him.
limited powers.
Exceptions:
When a person NOT bound by act of
1. Where the principal’s acts have
another
contributed to deceive the third person
1. Latter acts without or beyond the in good faith;
scope of his authority in the former’s 2. Where the limitations upon the
name; and power created by him could not have
2. Latter acts within the scope of his been known by the third person;
authority but in his own name 3. Where the principal has placed in
(UNDISCLOSED PRINCIPAL), except the hands of the agent instruments
when the transaction involves a signed by him in blank (Strong vs.
thing belonging to the principal. In Gutierrez Repide 6 PHIL 680 [1906])
such case, the contract is deemed as 4. Where the principal has ratified the
entered between the principal and acts of the agent.
the third person.

Ethics)
Doctrine of Agency by Necessity 7. Not to carry out the agency if its

 By virtue of the existence of execution would manifestly result in
a
n
emergency, the authority of an agent is loss or damage to the principal
correspondingly enlarged in order to 8. To answer for damages if there being
cope with the exigencies or the a conflict between his interest and
necessities of the moment those of the principal, he should
 Requisites: prefer his own
1. Real existence of an emergency 9. Not to loan to himself if he has been
2. Inability of the agent to authorized to lend money at interest
communicate with the principal 10. To render an account of his
3. Exercise of the additional transactions and to deliver to the
authority for the principal’s own principal whatever he may have
protection received by virtue of the agency
4. Adoption of fairly reasonable 11. To distinguish goods by countermarks
means, premises duly considered and designate the merchandise
respectively belonging to each
NOTE: Agency can never be created by principal, in the case of a
necessity; what is created is additional commission agent who handles goods
authority in an agent appointed and of the same kind and mark, which
authorized before the emergency arose. belong to different owners
12. To be responsible in certain cases for
GENERAL OBLIGATIONS OF AGENT TO the acts of the substitute appointed
PRINCIPAL: by him
1. To act with utmost good faith and 13. To pay interest on funds he has
loyalty for furtherance of principal’s applied to his own use
interests 14. To inform the principal, where an
2. To obey all lawful orders and authorized sale of credit has been
instructions of principal within the made, of such sale
scope of the agancy 15. To bear the risk of collection, should
3. To exercise reasonable care, skill he receive also on sale, a guarantee
and diligence commission
16. To indemnify the principal for
SPECIFIC OBLIGATIONS OF AGENT TO damages for his failure to collect the
PRINCIPAL credits of his principal at the time
1. To carry out the agency which he has that they become due
accepted 17. To be responsible for fraud or
2. To answer for damages which negligence
through his performance the
principal may suffer NOTE: A stipulation exempting the agent
3. To finish the business already begun from the obligation to render an account
on the death of the principal should shall be VOID.
delay entail any danger Knowledge of agent is
4. To observe diligence of a good father knowledge of principal.
of a family in the custody and
preservation of the goods forwarded 1. Agent’s interests are adverse to
to him by the owner in case he those of the principal
declines an agency, until an agent is 2. Agent’s duty is not to disclose the
appointed information (confidential
5. To advance the necessary funds information)
should there be a stipulation to do so 3. Where the person claiming the
6. To act in accordance with the benefit of the rule colludes with the
instructions of the principal, and in agent to defraud the principal
default thereof, to do all that a good
father of a family would do

Ethics)
SUB-AGENT Instances when agent may incur

 A person to whom the agent personal liability:
delegates, as his agent, the 1. When the agent expressly binds
performance of an act for the himself
principal which the agent has been NOTE: The individual liability of the
empowered to perform through his agent can be considered a further
representative. security in favor of the creditor and
does not affect or preclude the
NOTE: The agent may appoint a liability of the principal; both are
substitute (sub-agent) except when he liable
has been prohibited by the principal. 2. When agent exceeds his authority
(ART 1892) 3. When agent by his acts prevents
performance on the part of the
Instances when agent shall be principal
responsible for the acts of the 4. When a person acts as an agent
substitute: without authority or without a
1. when he was not given the power to principal
appoint; or 5. A person who acts as an agent of an
2. when he was given such power but incapacitated principal unless the
without designating the person, and third party was aware of the
the person appointed was incapacity at the time of the making
notoriously incompetent or of the contract
insolvent.
3. in these two cases the principal may FACTOR/COMMISSION AGENT
further bring an action against the - one engaged in the purchase and sale
substitute with respect to the for a principal of personal property,
obligations which the latter has which for this purpose, has to be placed
contracted under the substitution. in his possession and at his disposal.
NOTE: All acts of the substitute  If the commission agent received
appointed against the prohibition of the goods consigned to him, he is
principal shall be VOID. responsible for any damage or
deterioration suffered by the same
JOINT AGENTS in the terms and conditions and as
 Agents appointed by one or more described in the consignment.
principals under such circumstances  The commission agent who
as to induce the inference that it handles goods of the same kind and
was the principal’s intent that all mark, which belong to different
should act in conjunction in owners, shall distinguish
consummating the transaction for them by countermarks, and
which they were appointed. designate the merchandise
 Their responsibility is JOINT; respectively belonging to each
except if solidarity has been principal.
expressly stipulated.  A commission agent can sell
 If solidarity has been agreed upon, on
credit only with the express or
each agent is responsible for the: implied consent of the principal. If
a. non-fulfillment of the agency such sale is made without authority,
b. fault or negligence of his fellow the principal is given two
agents; except when the fellow alternatives:
agents acted beyond the scope i. He may require payment in cash,
of their authority. in which case any interest or
benefit from the sale on credit
shall belong to the agent since the
NOTE: innocent agent has a right later principal cannot be allowed to
on to recover from the guilty or enrich himself at the agent’s
negligent agent (ART 1217(2)) expense;
ii. He may ratify the sale on credit in
which case it will have all the
CIVIL LAW COMMITTEE

Dorothy Gayon
risks and advantages to him.

Ethics)
 If the commission agent is 2. To advance to the agent, should the

authorized to sell on credit, he shall latter so request, the sums necessary
inform the principal with a for the execution of the agency
statement of the names of the 3. To reimburse the agent for what the
buyers. With such statement, the latter has advanced (plus interest),
sale shall be deemed to be for cash even if the business was not
as far as the principal is concerned. successful, provided the agent was
 The commission agent who does free from fault
n
ot collect the credits of his principal 4. To indemnify the agent for all the
at the time when they become due damages, which the execution of the
and demandable shall be liable agency may have caused the latter
for damages, unless he proves without fault or negligence on his
the exercise of due diligence for part
that purpose. NOTE: The agent may retain in
pledge the things which are the
BROKER object of the agency until the
 A middleman or intermediary principal effects this reimbursement
who, in behalf of others and and pays the indemnity.
for a commission or fee, 5. To pay the agent the compensation
negotiates contracts/transactions agreed upon, or if no compensation
relating to real or personal was specified, the reasonable value
property. of the agent’s services
Factorage LIABILITY OF PRINCIPAL FOR TORT OF

 Compensation of a factor AGENT RULE: The principal is civilly
orcommission agent. liable to third persons for torts of an
agent committed at the principal’s
Ordinary Commission direction or in the course and within the
 Compensation for the sale of scope of the agent’s authority.
goods which are placed in his Reason for liability: The rule is based
possession or at his disposal. upon the principle that he who does an
act through another does it himself.
Guaranty Commission (Del credere)
 Fee that is given in return for CONDITIONS FOR RATIFICATION
therisk, which the agent has to bear in 1. principal must have capacity and
the collection of credits. power to ratify
 An agent with a del credere 2. principal must have had knowledge
commission is liable to the principal of material facts
if the buyer fails to pay or is 3. principal must ratify the acts in its
incapable of paying. entirety
4. act must be capable of ratification
GENERAL OBLIGATIONS OF PRINCIPAL 5. act must be done in behalf of the
TO AGENT principal
 Duties and liabilities of the
principal are primarily based ESTOPPEL BY PRINCIPAL
upon the contract and the Even when the agent has
validity of the contract between exceeded his authority, the principal is
them solidarily liable with the agent if the
former allowed the latter to act as
SPECIFIC OBLIGATIONS OF PRINCIPAL though he had full powers.
TO AGENT (CARIP)
1. To comply with all the obligations JOINT PRINCIPALS
which the agent may have  Two or more persons who appoint
contracted within the scope of his an agent for a common transaction
authority and in the name of the or undertaking.
principal
CIVIL LAW COMMITTEE

Dorothy Gayon
 Liability: solidarily liable to 3. Withdrawal of the agent

theagent for all the consequences of  agent may withdraw by giving
the agency. notice to the principal, but must
 Requisites of solidary liability: indemnify the principal for
1. There are two or more principals damages that he may suffer by
2. The principals have all concurred reason of such withdrawal.
in the appointment of the same 4. Accomplishment of the object or the
agent; and purpose of the agency
3. The agent is appointed for a 5. Revocation
common transaction or 6. Dissolution of the firm or
undertaking corporation, which entrusted or
NOTE: Any one of them may revoke the accepted the agency.
agency
Instances when death of principal does
RULES ON DOUBLE SALE BY PRINCIPAL not terminate agency
AND AGENT 1. If the agency has been constituted in
1 When two persons contract with the common interest of the principal
regard to the same thing, one of and the agent
them with the agent and the other 2. If it has been constituted in the
with the principal, and the two interest of a third person who has
contracts are incompatible with each accepted the stipulation in his favor
other, that of prior date shall be
preferred, without prejudice to Revocation of Agency by Principal
Article 1544(double sale).
2 If the agent has acted in good faith, will of the principal, regardless of the
the principal shall be liable in term of the agreement.
damages to the third person whose
contract must be rejected. If the 1. If a bilateral contract depends upon
agent is in bad faith, he alone shall it;
be responsible. 2. If it is the means of fulfilling an
obligation already contracted;
Instances when principal is not liable 3. If a partner is appointed manager of
for the expenses incurred by the a partnership and his termination is
agent: unjustifiable; and
1. if the agent acted in contravention 4. If it is created not only for the
of the principal’s instructions, unless interest of the principal but also for
the latter should wish to avail the interest of third persons, who
himself of the benefits derived from have accepted the stipulation in
the contract; their favor
2. when the expenses were due to the
fault of the agent; Agency coupled with an interest
3. when the agent incurred them with
 An agency wherein the agent has
knowledge that an unfavorable
acquired some interest of his own in
result would ensure, if the principal
the execution of the authority
was not aware thereof;
granted to him, in addition to his
4. when it was stipulated that the
mere interest in the contract of
expenses would be borne by the
employment with the resulting
agent, or that the latter would be
gains.
allowed only a certain sum.
 The agency becomes merely a part
of another obligation or agreement,
MODES OF EXTINGUISHMENT OF
or an incidental element thereof so
AGENCY (EDWARD)
it cannot be unilaterally revoked.
1. Expiration of the period
NOTE: However, in Coleongco vs.
2. Death, civil interdiction, insanity or
Claparals (10 SCRA 577), the SC made a
insolvency of the principal or of the
sweeping statement that coupled with
agent
an interest or not, the authority (agency)
Ethics)
can certainly be revoked for a just

cause.
TRUST CONTRACT
Implied Revocation may be effected: Always involves A legal obligation
1. By the act of the principal in owner-ship, based on an
appointing another agent for the embracing a set of undertaking
same business or transaction; rights and duties supported by a
fiduciary in consideration,
2. By the act of the principal in directly
character which may which obligation
managing the business entrusted to be created by a may or may not be
the agent; or declaration without fiduciary in
3. By the act the principal in consideration. character.
subsequently granting a special TRUST DONATION
power of attorney as regards the 1. An existing legal There is a transfer
same business to another agent, relationship and of property as well
where he had previously granted a involves the as the disposition of
general power of attorney to one separation of legal both legal and
agent. and equitable title equitable ownership
except in cases of
gifts in trust.
TRUSTS
2. The beneficiary 2. The donee must
of a trust may comply with the
TRUST
demand legal requirements
 A legal relationship between o ne performance of the in accepting
person having an equitable obligation without donations.
ownership in property and another having formally
owning the legal title to such accepted the
property. benefit of the trust
in public document,
CLASSIFICATIONS upon mere
1. Effectivity - from the viewpoint of acquiescence in the
formation of the
whether they become effective after
trust and
the death of the trustor or during his acceptance under
life, it may be either: the second
a. testamentary trusts paragraph of article
b. trusts inter vivos (sometimes 1311(stipulations
called “living trusts”) pour autrui).
2. Creation - from the viewpoint of the
creative force bringing them into Persons involved in the creation of a
existence, it may be either: trust:
a) Express trust - created by the 1. Trustor - the one who intentionally
intention of the trustor or of the creates a trust
parties
b) Implied trust - one which comes 2. Trustee - the person who holds the
into being by operation of law. legal title to the trust property for
This may be either: the benefit of another and with
1) Resulting trust - one in which certain powers and subject to
the intention to create a trust certain duties
is presumed by law to exist
from the transaction and facts 3. Beneficiary or the cestui que trust
of the case - the one who has the equitable
2) Constructive trust - one interest in the property and enjoys
imposed by law irrespective of the benefit of administration by the
and even contrary to the trustee. He may be a natural person
intention of the parties. It is or a legal entity. The trustor may
designed to promote justice, establish a trust with himself as the
frustrate fraud and prevent beneficiary (usual case).
unjust enrichment.
CIVIL LAW COMMITTEE
Dorothy Gayon
the
ELEMENTS OF EXPRESS TRUST
1. Competent trustor and trustee;
2. Ascertainable trust res; and
3. Sufficiently certain beneficiaries.
TRUST PROPERTY
The concept of a trust arises from or is
the result of a fiduciary relation
between the trustee and the cestui que
trust as regards certain property- real,
personal, funds or money, choses in
action held by the trustee. (Pacheco vs.
Arro, 85 PHIL 505 )
 The trust property is owned by two

or more persons at the same time, the
relation between the two owners being
such that one of them is under an
obligation to use his ownership for the
benefit of the other.
 The trustee is not a mere agent
but an owner. But his ownership is a
mere matter of form rather than
substance, and nominal rather than real.
PROOF OF TRUST
or implied may be proved by parol or

oral evidence
immovable property or any interest

therein. This latter requirement
however is not for validity but only for
purposes of proof.
NOTES:
 Trusts cannot be established
n
i violation of law. Trust is founded
in equity such that it cannot
result from a contract formed for an
illegal purpose.
 Neither may a trust be created
forthe purpose of evading a legal
prohibition. Example: there cannot
be a trust created for the purpose of
obtaining homestead patents, in
favor of a person already disqualified
to obtain additional homesteads.
Necessity of Acceptance to the

creation and validity of trust
relationship
1. Acceptance of the trustee
 The acceptance of the trustee is
n
ot necessary to its existence
and validity since if he declines,
Ethics)
repudiation takes place when the
courts will appoint a trustee to fill adverse party registers the land.
the office that he declines. (see Sec.3
Rule 98 of the Rules of Court). NOTE:
But a trustee’s acceptance of the trust
is necessary to charge him with the
office of the trustee and
the administration of the
trust and to vest
the legal title in him.
2. Acceptance of the beneficiary

 The acceptance by the
beneficiary is essential to the
creation and validity of a
trust. However, such acceptance
is presumed if there is no proof to
the contrary and the trust does
not impose any onerous condition
upon the beneficiary.
Requisites for a Trustee to claim title

by prescription:
1. He has performed open and
unequivocal acts of repudiation
2. Such positive acts of repudiation
have been made known to the
beneficiary or the cestui que trust
3. The evidence thereon should be
clear and convincing and
4. The period fixed by law has expired.
(10 years from the time that the
repudiation is made known to the
beneficiary in cases of express trust
or resulting trust while 10 years
from the time a constructive trust
arises).
 In order that a trustee may sue or

be sued alone, it is essential that
his trust should be express, that
is a trust created by the direct
and positive acts of the parties, by
some writing deed or will,
or by proceedings in court. Rule
3, sec 3 does not apply in cases of
implied trust that is, a trust which
may be inferred merely by the
acts of the parties or from other
circumstances. (PAL vs. Heald
Lumber Co.)
NOTES:
 the 10-year prescriptive
period in case of implied trust
begins to run from the date the
trustee repudiates the express
trust. In the case Sps. Pascual, et
al. vs. CA, et al. GR 115925,
August 15, 2003, it was held that
CIVIL LAW COMMITTEE
Dorothy Gayon
 the 4-year prescriptive period 2. As to proof of trust

under Article 1391 applies only if the An express trust over An implied trust
fraud does not give rise to an an immovable property over an immovable
implied trust, and the action is to or any interest therein or any interest
cannot be proved by therein may be
annul a voidable contract under
parol evidence proved by oral
Article 1390. evidence.
3. As regards repudiation of trust
TRUST PURSUIT RULE An express repudiation In constructive
 Equity will pursue property that made known to the trusts, even if
is wrongfully converted by the fiduciary, beneficiary is there is no
or otherwise compel restitution to necessary in order that repudiation, laches
the beneficiary. A trust will follow laches or acquisitive may bar an action
the property through all changes in its prescription may bar to enforce an
state and form, provided its an action to enforce an implied trust.
product or proceeds are capable of express trust.
identification.
KINDS OF IMPLIED TRUSTS
IMPLIED TRUST 1. Purchase money resulting trust
 Are those, without being express, (Article 1448) – There is a resulting
are deducible from the nature of the trust when property is sold, and the
transaction as matters of intention, or legal estate is granted to one party
which are superinduced on the but the price is paid by another
transaction by operation of law, as party for the purpose of having the
matters of equity independently of the beneficial interest of the property.
particular intention of the parties.  To give rise to a purchase
money resulting trust, it is essential
RESULTING CONSTRUCTIVE that there be:
TRUST TRUST a) an actual payment of money,
1. Intention to create trust: property or services or an
The intent of The trust is created equivalent, constituting valuable
the parties to irrespective of or even consideration;
create a trust contrary to the b) and such consideration must be
is presumed or intention of the parties furnished by the alleged beneficiary
implied by law to promote justice, of a resulting trust.
from the frustrate fraud and to
nature of their prevent unjust EXCEPTIONS:
transaction enrichment.
a) Where A pays the purchase
2. Prescriptive period:
money and title is conveyed by
The 10 year The 10 year
absolute deed to A’s child or to a
prescriptive prescriptive period
person to whom A stands in loco
period shall be shall be counted from
parentis and who makes no express
counted from the time that the
promise, a trust does not result, the
the time constructive trust
presumption being that a gift was
repudiation is arises.
intended;
made known
b) Where an actual contrary
to beneficiary.
intention is proved;
3. Examples: c) Where the purchase is made in
Illustrated in Illustrated in Articles violation of an existing statute and
Articles 1448, 1450, 1454, 1455, 1456 in evasion of its express provision, no
1449, 1451, trust can result in favor of the party
1452, 1453 who is guilty of fraud. (Tigno vs.
Court of Appeals 280 SCRA 262
EXPRESS TRUST IMPLIED TRUST [1997])
1. As to creation
Created by the Come into being by
intention of the parties operation of law.

Ethics)
2. Donations made to a person but the Requisites before period or

beneficial interest is vested in prescription may start in regard to
another. The donee is the trustee an action based on an implied
while the designated third person is trust:
the beneficiary. (ART 1449). a) the trustee has performed
3. Purchase with borrowed funds and unequivocal acts of repudiation
the conveyance is made to lender to amounting to an ouster of the cestui
secure payment of debt. ART 1450 ) que trust.
4. Legal title to land inherited by heir b) Such positive acts of repudiation
placed in the name of another. have been made know to the cestui
(Article 1451) que trust; and
5. Legal title to property purchased c) Evidence thereon is clear and
taken in one co-owner. (ART 1452) positive. (Vda. De Cabrera vs. Court
6. Conveyance under a promise to hold of Appeals 267 SCRA 339 [1997].)
for, or transfer to another. (ART
1453) NOTE: The enumeration is not exclusive.
7. Absolute conveyance to a person to
secure performance of grantor’s Other examples of implied trust:
obligation. 1. The registration of land under
8. (ART 1454) torrens in the name of one person do
9. Purchase of property with use of not bar evidence to show it was only
trust funds (ART 1455) held in trust for another.
10. Acquisition of property through 2. Certificate of registration of vehicle
mistake or fraud. (ART 1456). placed in the name of a person
although the price was not paid by
NOTE: An action for reconveyance of him but by another.
a parcel of land based on an implied 3. One arising from the agent’s willful
or constructive trust prescribes in violation of the trust reposed in him
ten years, the point of reference by the principal by buying for
being the date of registration of the himself the property he was
deed or the date of the issuance of supposed to buy for the principal
the certificate of title over the who designated and appointed him
property. BUT, this rule applies only to negotiate with the owner.
when the plaintiff (or person 4. In consonance with the trust fund
enforcing the trust) is not in doctrine in Corporation Law, the
possession of the property, since if a assets of the corporation, as
person claiming to be the owner represented by the capital stock, are
thereof is in actual possession of the regarded as “trust fund” to be
property, the right to seek maintained unimpaired for the
reconveyance, which in effect seeks payment of corporate creditors.
to quiet title to property, does not
prescribe.
CIVIL LAW COMMITTEE

Dorothy Gayon

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150 2005 CENTRALIZED BAR OPERATIONS

2. Where the contract is by its terms not to

FORM OF PARTNERSHIP CONRTRACT

1. Where immovable property or real

contract is covered by the statute of MEMORY AID IN CIVIL LAW

NOTE: With regard to number 2 (legal

CIVIL LAW COMMITTEE

3. there must be mutual contribution of assignee a partner

2005 CENTRALIZED BAR OPERATIONS EXECUTIVE COMMITTEE AND SUBJECT CHAIRPERSONS

incorporation by 10. Term of existence

MEMORY AID IN CIVIL LAW

the profits which they may acquire GENERAL PARTNERSHIP

MEMORY AID IN CIVIL LAW

CIVIL LAW COMMITTEE

c) To answer to the partnership for partner and the partnership and to

2005 CENTRALIZED BAR OPERATIONS EXECUTIVE COMMITTEE AND SUBJECT CHAIRPERSONS

MEMORY AID IN CIVIL LAW

theirs, shall be obliged, if the debtor 3. Right to associate with another

CIVIL LAW COMMITTEE

CONTRACT OF SUB-PARTNERSHIP 3. assignee cannot interfere in the

2005 CENTRALIZED BAR OPERATIONS EXECUTIVE COMMITTEE AND SUBJECT CHAIRPERSONS

MEMORY AID IN CIVIL LAW

2) Appointment other than in the b) Unanimous consent required for

CIVIL LAW COMMITTEE

not being a partner in the PRINCIPLE OF DELECTUS PERSONARUM

III. Criminal liability of partnership Requisites When A Partner Binds The

2005 CENTRALIZED BAR OPERATIONS EXECUTIVE COMMITTEE AND SUBJECT CHAIRPERSONS

MEMORY AID IN CIVIL LAW

DISSOLUTION debts, either before or

prejudicially the carrying on of b) Dissolution is by act, insolvency

2005 CENTRALIZED BAR OPERATIONS EXECUTIVE COMMITTEE AND SUBJECT CHAIRPERSONS

MEMORY AID IN CIVIL LAW

2) Where the acting partner in 2) To receive in cash his share

CIVIL LAW COMMITTEE

for any sum of money paid or

2005 CENTRALIZED BAR OPERATIONS EXECUTIVE COMMITTEE AND SUBJECT CHAIRPERSONS

MEMORY AID IN CIVIL LAW

partnership obligations beyond the 5. Transferability of interest

Limited partner is not a General 8. Effect of retirement, death, insanity

CIVIL LAW COMMITTEE

9. Creation As to third persons or creditors

2005 CENTRALIZED BAR OPERATIONS EXECUTIVE COMMITTEE AND SUBJECT CHAIRPERSONS

MEMORY AID IN CIVIL LAW

13. Right, if given, of the remaining 4. Possess partnership property, or

CIVIL LAW COMMITTEE

SUBSTITUTED LIMITED PARTNER

2005 CENTRALIZED BAR OPERATIONS EXECUTIVE COMMITTEE AND SUBJECT CHAIRPERSONS

MEMORY AID IN CIVIL LAW

NOTES: 3. Agent can return 3. the buyer, as a

MEMORY AID IN CIVIL LAW

KINDS OF AGENCY ACTS WHICH MAY BE DELEGATED TO AN

IMPLIED AGENCY BY and he did not reply to the letter

Example: Sale of a piece of land or

FORM OF ACCEPTANCE BY AGENT

Kinds of Implied Acceptance

1. principal transmits his power of

RULE ON AGENCY BY ESTOPPEL MEMORY AID IN CIVIL LAW

CLASSES AND KINDS OF AGENTS

General Agent Special Agent

Usually authorized to Authorized to

Conducts a series of Usually involves

2005 CENTRALIZED BAR OPERATIONS EXECUTIVE COMMITTEE AND SUBJECT CHAIRPERSONS