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PARTNERSHIP
By the contract of 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
GENERAL RULE: No special form is required for
the validity or existence of the contract of
partnership.
EXCEPTIONS:
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])
2. Where the contract is by its terms not to be
performed within a year from the making
thereof, such partnership contract is covered by
the statute of 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
the
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])
3. there must be mutual contribution of money,
property and industry to a common fund
NOTE: A partnership of a civil nature was formed
because Gatchalian & Co. put up money to buy a
sweepstakes ticket for the sole purpose of
dividing equally the prize which they may win as
they did in fact in the amount of P50,000.
(Gatchalian vs. CIR 67 PHIL 666 [1939])
Where the father sold his rights over 2
parcels of land to his 4 children so they can build
their residences, but the latter after 1 year sold
them and paid the capital gains, they should not
be treated to have formed an unregistered
partnership and taxed corporate income tax on
the sale and on dividend income tax on their
shares of the profits from the sale. (Obillos Jr.
vs. CIR [1985])
4. the object must be lawful; and
certificate of
incorporation
by
the
Securities
and Exchange
Commission
4. Powers
Partnership
may Corporation
exercise any power can exercise
authorized by the only
the
partners (provided powers
it is not contrary to expressly
law, morals, good granted
by
customs,
public law
or
order, public policy) implied from
those
granted
or
incident
to
its existence
5. Management
When management The power to
is not agreed upon, do business
every partner is an and manage
agent
of
the its affairs is
partnership
vested in the
board
of
directors or
trustees
6. Effect of mismanagement
A partner as such The
suit
can sue a co- against
a
partner
who member
of
mismanages
the board of
directors or
trustees who
mismanages
must be in
the name of
the
corporation
7. Right of succession
Partnership has no Corporation
right of succession
has right of
succession
8. Extent of liability to third
persons
Partners are liable Stockholders
personally
and are
liable
subsidiarily
only to the
(sometimes
extent of the
solidarily)
for shares
a)
1. shares in the
profits
according to
agreement
thereon;
2. if none, pro
rata to his
contribution
4. as to
1. first,
the
stipulation as
to losses;
2. if none, the
agreement as
to profits;
3. if none, pro
rata
to
contribution
OBLIGATIONS
THEMSELVES:
OF
receives
a
just
and
equitable
share
losses
exempted as
to losses (as
between
partners); but
is liable to
third persons,
without
prejudice to
reimburseme
nt from the
capitalist
partners
PARTNERS
AMONG
2.
3.
4.
5.
6.
7.
A.
c)
Criminal
liability
of
partnership
Partnership liability does not extend to
criminal liability where the wrongdoing is
regarded as individual in character. But
where the crime is statutory, especially when
it involves a fine rather than imprisonment,
criminal liability may be imposed
DISSOLUTION
Change in the relation of the partners caused
by any partner ceasing to be associated in
carrying on the business. (Article 1828)
It is the point in time when the partners
cease to carry on the business together. It
represents the demise of a partnership.
c.
WINDING UP
Process of settling the partnership business
or affairs after dissolution.
e.
f.
TERMINATION
Point in time when all partnership affairs are
wound up or completed and is the end of the
partnership life.
CAUSES OF DISSOLUTION
1. Extrajudicial dissolution (ART 1830) - the
parties may agree to expand the grounds
provided under Art 1830 but NOT to delimit
them. The causes enumerated are as
follows:
a.
Without
violation
of
the
agreement between the partners
i.
By the termination of the
definite term or particular
undertaking specified in the
agreement;
ii.
By the express will of any
partner, who must act in good
faith, when no definite term or
particular
undertaking
is
specified;
iii.
By the express will of all
the partners who have not
assigned their interest or suffered
them to be charged for their
separate debts, either before or
after the termination of any
specified term or particular
undertaking;
iv.
By the expulsion of any
partner from the business bona
fide in accordance with such
power
conferred
by
the
agreement between the partners;
b.
In contravention of the agreement
between the partners, where the
circumstances do nor permit a dissolution
under any other provision of this article
by the express will of any partner at any
time.
d.
g.
published in a newspaper of
general circulation
b) When partnership is NOT bound to third
persons after dissolution
1) Where partnership was dissolved
because it was unlawful to carry on
the business, except when the act is
for winding up
2) Where the acting partner in the
transaction has become insolvent
3) Where the partner is unauthorized to
wind up, except if the transaction is
with third persons in good faith
(under the same circumstances as
defined above)
4) Where act is NOT appropriate for
winding up partnership affairs or for
completing unfinished transactions
5) completely NEW transaction which
would bind the partnership if
dissolution had not taken place with
third persons in bad faith
B. As to partners existing liability
GENERAL
RULE:
Dissolution
does
not
automatically discharge the existing liability of
any partner
EXCEPTION: A partner may be relieved from all
existing liabilities upon dissolution ONLY by an
agreement between:
1. Partner concerned
2. Other partners
3. Partnership creditors
Note: The consent of the partnership
creditors and the other partners to the
novation may be implied from their conduct.
RIGHTS OF A PARTNER UPON DISSOLUTION
1. Where dissolution is NOT in contravention
of the partnership agreement
a) To have partnership property applied to
discharge partnership liabilities
b) To receive in cash his share of the surplus
2. Where dissolution is in contravention of
the partnership agreement
a) Rights of a partner who has not caused
the dissolution wrongfully
1) To have partnership property applied
to discharge partnership liabilities
2) To receive in cash his share of the
surplus
3) To be indemnified for damages caused
by the partner guilty of the wrongful
dissolution
4) To continue the business in the same
name during the agreed term of the
partnership, by themselves or jointly
with others
Limited
partner
must
contribute
cash or property to
the partnership but
not services
General
partner may
contribute
money,
property or
industry to
the
partnership
General
partner
is
the proper
party
to
proceedings
by or against
a
partnership
5. Transferability of interest
Limited
partners
interest is freely
assignable,
with
assignee acquiring
all the rights of the
limited
partner
subject to certain
qualifications
General
partners
interest
in
the
partnership
may not be
assigned as
to make the
assignee
a
new partner
without the
consent
of
the
other
partners,
although he
may
associate a
third person
with him in
his share
6. Inclusion of partners name in
the firm name
As a general rule,
name of a limited
partner must not
appear in the firm
Name of a
general
partner may
appear
in
name
the
name
firm
7. Prohibition to engage in
other business
No such prohibition
in the case of a
limited partner who
is considered a
mere contributor to
the partnership
General
partner
is
prohibited
from
engaging in
a
business
which is of
the
SAME
kind
of
business in
which
the
partnership
is engaged,
if he is a
capitalist
partner, or
in ANY of
business for
himself if he
is
an
industrial
partner
LEASE OF
SERVICES
1. Principle of
employment
is
applied.
2. Concurrence
of
parties
is
necessary.
3.
Employee
exercise
ministerial
functions only.
1. Principle of
representation is
applied.
2. Extinguished
at will of the
principal.
3. Agent exercise
discretionary
power to attain
an end for which
he
was
appointed.
4.
Preparatory 4.
Principal
Contract
Contract
AGENCY TO SELL
1. Agent receives
the goods as the
goods of the
principal.
2. Agent delivers
the proceeds of
the sale
3. Agent can
return the object
in case he is
unable to sell
the same
SALE
1. The buyer
receives goods as
owner
2. Buyer pays the
price.
3. the buyer, as a
rule,
cannot
return the object
sold
can
the
he
the
PURPOSE OF AGENCY
The purpose of agency is to extend the
personality of the principal through the
facility of the agent. It enables the activity
of man which is naturally limited in its
exercise by the impositions of his
physiological conditions to be legally
extended by permitting him to be
constructively present in many different
places and to perform diverse juridical acts
and carry on many different activities
through another when physical presence is
impossible or inadvisable at the same time.
(11 Manresa 434)
ELEMENTS OF AGENCY
A. Consent
Any person or entity having juridical capacity
and capacity to act and not otherwise
disqualified, may enter into an agency.
But as regards the party with whom the
agent acts or contracts, the legal capacity of
the principal rather than the agent, is of the
greater import.
B. Object
the services to be undertaken by the agent
may cover all acts pertaining to a business of
the principal (general agency) or one or
more specific transactions (special agency)
the extent of the agents authority to act,
whether it be a general or a special agency,
depends on how the agency is couched.
C. Cause
May be onerous or gratuitous but presumed
for compensation
NOTE: The agent may not be deprived of his
right to compensation by an unjustified
revocation of the agency
KINDS OF AGENCY
1. as to manner of creation
a) express- one where the agent has
been actually authorized by the
principal, either orally or in writing;
b) implied- one which is implied from the
i.
acts of the principal- from
his silence or lack of action, or his
failure to repudiate the agency
2. Criminal Acts or Acts not allowed by lawThere can be no agency in the perpetration of a
crime or unlawful act.
Examples:
a)
An alien principal using an agent
to acquire lands;
b) Persons who, because of their position
and relation with the persons under their
charge or property under control, are
prohibited from acquiring said property and
cannot do so through an agent.
FORM OF AGENCY
Agency may be express or implied from the
acts of the principal, from his silence or lack
of action, or his failure to repudiate the
agency, knowing that another person is
acting on his behalf without authority.
(Article 1869)
NOTE: In an implied agency, the principal is still
bound by the acts of the agent just as in case of
express agency
GENERAL RULE: There are no formal
requirements governing the appointment of an
agent. The agents authority may be oral or
written. It may be in a public or private writing.
EXCEPTION: When the law requires a specific
form
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
Special
Agent
1. Scope of Authority
Usually
authorized to do
all acts connected
with the business
or employment in
which
he
is
engaged.
Authorized
to do only
acts
in
pursuance of
particular
instructions
or
with
restrictions
necessarily
implied from
the acts to
be done
2. Continuity
Conducts a series
of
transactions
involving
a
continuity
of
service.
Usually
involves
a
single
transaction
or a series of
transactions
not involving
continuity
3. Extent by which agent may
bind principal
Binds his principal Cannot bind
by an act within his principal
the scope of his in a manner
authority
beyond
or
although it may outside the
be contrary to his specific acts
special
which he is
instructions
authorized
to perform
on behalf of
the principal
4. Termination of Authority
Apparent
Mere
authority does not revocation is
terminate by the effective to
mere revocation terminate
of his authority the authority
without notice to as to third
the third party
persons
because the
third person
has a duty to
inquire
5. Construction of Instructions
of Principal
Statement of Authority
of
principal with agent
respect to the must be strictly
agents
pursued
authority
would
ordinarily
regarded
as
advisory only
SPECIAL POWER OF ATTORNEY (SPA)
An instrument in writing by which one
person, as principal, appoints another as his
agent and confers upon him the authority to
perform certain specified acts or kinds of
acts on behalf of the principal.
NOTE: It need not be notarized; except where
it is executed in a foreign country, must be
certified in accordance with the Rules of Court.
INSTANCES WHERE SPA IS NECESSARY
(ART 1878) (PECWEM- LLB- BOCARO)
1. To make such payments as are not usually
considered as acts of administration;
2. To effect novation which put an end to
obligations already in existence at time the
agency was constituted;
3. To compromise, to submit questions to
arbitration, to renounce the right to appeal
from a judgment, to waive objections to the
venue of an action or to abandon a
prescription already acquired;
4. To waive any obligation gratuitously;
5. To enter into any contract by which the
ownership of an immovable is transmitted or
acquired either gratuitously or foe a valuable
consideration;
6. To make gifts, except customary ones for
charity or those made to employees in the
business managed by the agents;
7. To loan or borrow money, unless the latters
act be urgent and indispensable for the
preservation of the things which are under
administration;
8. To lease any real property to another person
for more than one year;
9. To bind the principal to render some service
without compensation;
10. To bind the principal in a contract of
partnership;
11. To obligate the principal as guarantor or
surety;
12. To create or convey real rights over
immovable property;
13. To accept or repudiate an inheritance;
14. To ratify or recognize obligations contracted
before the agency;
15. Any other act of strict dominion.
NOTE: a third person with whom the agent
wishes to contract on behalf of the principal
may require the presentation of the power of
1.
Real existence of an emergency
2.
Inability of the agent to communicate
with the principal
3.
Exercise of the additional authority for
the principals own protection
4.
Adoption of fairly reasonable means,
premises duly considered
NOTE: Agency can never be created by
necessity; what is created is additional
authority in an agent appointed and authorized
before the emergency arose.
GENERAL
OBLIGATIONS
OF
AGENT
TO
PRINCIPAL:
1. To act with utmost good faith and loyalty for
furtherance of principals interests
2. To obey all lawful orders and instructions of
principal within the scope of the agancy
3. To exercise reasonable care, skill and
diligence
SPECIFIC OBLIGATIONS OF AGENT TO PRINCIPAL
1. To carry out the agency which he has
accepted
2. To answer for damages which through his
performance the principal may suffer
3. To finish the business already begun on the
death of the principal should delay entail any
danger
4. To observe diligence of a good father of a
family in the custody and preservation of the
goods forwarded to him by the owner in case
he declines an agency, until an agent is
appointed
5. To advance the necessary funds should there
be a stipulation to do so
6. To act in accordance with the instructions of
the principal, and in default thereof, to do
all that a good father of a family would do
7. Not to carry out the agency if its execution
would manifestly result in loss or damage to
the principal
8. To answer for damages if there being a
conflict between his interest and those of
the principal, he should prefer his own
9. Not to loan to himself if he has been
authorized to lend money at interest
10. To render an account of his transactions and
to deliver to the principal whatever he may
have received by virtue of the agency
11. To distinguish goods by countermarks and
designate the merchandise respectively
belonging to each principal, in the case of a
commission agent who handles goods of the
same kind and mark, which belong to
different owners
BROKER
A middleman or intermediary who, in behalf
of others and for a commission or fee,
negotiates contracts/transactions relating to
real or personal property.
Factorage
Compensation of a factor or commission
agent.
Ordinary Commission
Compensation for the sale of goods which are
placed in his possession or at his disposal.
Guaranty Commission (Del credere)
Fee that is given in return for the risk, which
the agent has to bear in the collection of
credits.
An agent with a del credere commission is
liable to the principal if the buyer fails to
pay or is incapable of paying.
GENERAL OBLIGATIONS OF PRINCIPAL TO
AGENT
Duties and liabilities of the principal are
primarily based upon the contract and the
validity of the contract between them
2.
TRUSTS
TRUST
A legal relationship between one person
having an equitable ownership in property
and another owning the legal title to such
property.
CLASSIFICATIONS
1. Effectivity - from the viewpoint of whether
they become effective after the death of the
trustor or during his life, it may be either:
a. testamentary trusts
b. trusts inter vivos (sometimes called
living trusts)
2. Creation - from the viewpoint of the
creative force bringing them into
existence, it may be either:
a) Express trust - created by the intention
of the trustor or of the parties
b) Implied trust - one which comes into
being by operation of law. This may be
either:
1) Resulting trust - one in which the
intention to create a trust is presumed
by law to exist from the transaction
and facts of the case
2) Constructive trust - one imposed by law
irrespective of and even contrary to the
intention of the parties. It is designed
to promote justice, frustrate fraud and
prevent unjust enrichment.
Persons involved in the creation of a trust:
1. Trustor - the one who intentionally creates a
trust
2.
The
beneficiary of a
trust
may
demand
performance of
the
obligation
without having
formally
accepted
the
benefit of the
trust in public
document, upon
mere
acquiescence in
the formation of
the trust and
acceptance
under
the
second
paragraph
of
article
1311(stipulations
pour autrui).
CONTRACT
A
legal
obligation based
on
an
undertaking
supported by a
consideration,
which obligation
may or may not
be fiduciary in
character.
DONATION
There
is
a
transfer
of
property as well
as
the
disposition
of
both legal and
equitable
ownership
except in cases
of gifts in trust.
2. The donee
must
comply
with the legal
requirements in
accepting
donations.
RESULTING
CONSTRUCTIVE
TRUST
TRUST
1. Intention to create trust:
The intent of The trust is created
the parties to irrespective of or
create a trust even contrary to the
is presumed intention
of
the
or implied by parties to promote
law from the justice,
frustrate
nature
of fraud and to prevent
their
unjust enrichment.
transaction
2. Prescriptive period:
The 10 year The
10
year
prescriptive
prescriptive period
period shall shall be counted
be counted from the time that
from
the the
constructive
time
trust arises.
repudiation is
made known
to
beneficiary.
3. Examples:
Illustrated in Illustrated in Articles
Articles 1448, 1450, 1454, 1455,
1449, 1451, 1456
1452, 1453
enforce an express
NOTE: An action for reconveyance of a
trust.
parcel of land based on an implied or
constructive trust prescribes in ten years,
KINDS
the point of reference being the date of
OF IMPLIED TRUSTS
registration of the deed or the date of the
1. Purchase money resulting trust (Article 1448)
issuance of the certificate of title over the
There is a resulting trust when property is
property. BUT, this rule applies only when
sold, and the legal estate is granted to one
the plaintiff (or person enforcing the trust) is
party but the price is paid by another party
not in possession of the property, since if a
for the purpose of having the beneficial
person claiming to be the owner thereof is in
interest of the property.
actual possession of the property, the right
To give rise to a purchase money resulting
to seek reconveyance, which in effect seeks
trust, it is essential that there be:
to quiet title to property, does not prescribe.
a)
an actual payment of money, property
or services or an equivalent, constituting
valuable consideration;
b) and such consideration must be furnished
by the alleged beneficiary of a resulting
trust.
EXCEPTIONS:
a) Where A pays the purchase money and
title is conveyed by absolute deed to As
child or to a person to whom A stands in loco
parentis and who makes no express promise,
a trust does not result, the presumption
being that a gift was intended;
b) Where an actual contrary intention is
proved;
c) Where the purchase is made in violation
of an existing statute and in evasion of its
express provision, no trust can result in favor
b)
Such positive acts of repudiation
have been made know to the cestui que
trust; and
c)
Evidence thereon is clear and
positive. (Vda. De Cabrera vs. Court of
Appeals 267 SCRA 339 [1997].)
NOTE: The enumeration is not exclusive.
Other examples of implied trust:
1. The registration of land under torrens in the
name of one person do not bar evidence to
show it was only held in trust for another.
2. Certificate of registration of vehicle placed
in the name of a person although the price
was not paid by him but by another.
3. One arising from the agents willful violation
of the trust reposed in him by the principal
by buying for himself the property he was
supposed to buy for the principal who
designated and appointed him to negotiate
with the owner.
4. In consonance with the trust fund doctrine in
Corporation Law, the assets of the
corporation, as represented by the capital
stock, are regarded as trust fund to be
maintained unimpaired for the payment of
corporate creditors.