LECTURE NOTES ON PARTNERSHIPS Articles 1767-1867, NCC

b. A limited partner cannot contribute industry (Art. 1*+,!. the value of industry increases over time, hence it runs counter to the concept of a limited partnership. '. The ob-ect and purpose must be lawful and it must be established for the common benefit or interests of all partners. .hen an unlawful partnership is dissolved by -udicial decree, the profits shall be confiscated in favor the /tate, without pre-udice to the application of the 0evised 1enal 2ode governing the confiscation of the instrument and effects of a crime (Art. 1773!. a. 4ence, it means that ob-ect&purpose must be within the commerce of man, not contrary to law, morals, good customs, public order or public policy b. .hen a partnership is formed for an unlawful purpose, the contract is void ab initio. 5o partnership is actually formed. c. 5ote that while Article 1+36, 522 is the basis to hold it as void ab initio, there is no need for a -udicial decree to dissolve a partnership that does not exist. The provision applies to an instance where unlawfulness is in dispute or occurs at a later stage. +. There must be an intention to divide profits among the partners since it is for their benefit. ,. There must be A7782T)9 /92)8T)/ $ desire to formulate an active union with and among people in whom mutual confidence and trust exists. . A -uridical person is created, separate and distinct from that of the persons composing it, even in case of failure to comply with the re:uirements of Article 177( (Art. 17 *! a. The primary effects of having a -uridical personality would be to allow it to ac:uire property, which when so ac:uired in

STATUTORY DEFINITION - By a 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. (Article 17 7! 1. There can be no non"profit partnership

CHARACTERISTICS OF A CONTRACT OF PARTNERSHIP 1. #enerally $ since it is a contract it is% a. consensual $ perfected by consent b. bilateral&multilateral $ entered into by two or more persons c. nominate $ designated by a specific name d. onerous $ contributions are given e. principal $ its existence does not depend on the life of another contract f. preparatory $ to carry into effect its purposes, other contracts have or may have to be entered unto (1771"7'! (. There must be a contribution of money, property or industry to a common fund. a. intellectual )f industry is contributed, it must be physical or

the partnership name can only be conveyed in the partnership name (Article 177+! and it can sue and be sued under the partnership name. b. The creation of a -uridical person ta;es place even if there is no compliance with Article 177( which re:uires every contract of partnership having a capital of 141 '333.33 in money or property to appear in a public instrument recorded with the /82 because failure does not affect liability to third persons. 1urpose is to set a condition for the issuance of a license. c. 4owever, no such personality will result if the articles (of societies or associations! are ;ept secret among the members and anyone of the members may contract in his own name with third persons. They are to be governed by the provisions on co"ownership (Article 177,! OTHER CRITERIA E ISTENCE TO DETERMINE PARTNERSHIP

b. The =828)>80 )/ A 1A0T580 B? 8/T9118<. )f a partnership exists and consents, there is a partnership by estoppel (. 2o"ownership or co"possession does not by itself establish a partnership whether such co"owners or co"possessors do or do not share in any of the profits made by the use of the property a. 5ote the rulings in 1A/2@A< vs. 29AA)//)9580 (1 3 / 3! where a series of transactions were considered )/9<AT8= T0A5/A2T)95/ and did not result in a holding that there is a partnership and in 8>A5#8<)/TA vs. 29<<82T90 97 )5T805A< 08>85@8 (13( 1 1+3! where a series of transactions were considered as indicative of 4AB)T@A<)T? .)T4 )5T85T T9 #A)5 and resulted in a holding that there is a partnership. '. /haring of gross returns does not of itself establish a partnership whether or not the persons sharing them have a -oint or common interest in any property from which they are derived. a. 0ules ( and ' $ =9 59T A88T T48 20)T80)A T4AT% there must be intention to create a partnershipB there is a common fund obtained from contributionsB there is -oint interest in the profits +. 4owever, receipt by a person of a share of the profits of a business is 10)AA 7A2)8 evidence that he is a partner 8C281T% (a! debt by installment or otherwise $ creditor receives part of the profits of the business in settlement of his credit (b! wages of an employee or rent to a landlord $ employee receives wages depending on level of profit or a fixed percentage thereof (c! as an annuity to a widow or representative of a deceased partner $ in lieu of immediate dissolution, the widow or representative will receive an annuity

1. 8xcept as provided in Article 1*(, persons who are not partners as to each other are not partners as to third persons. a. #enerally, if you are not partner there is no partnership except if you or an entity may be considered as% 1A0T580 )5 8/T9118< $ when a person represents himself by words spo;en or written or by conduct or consents to another representing him as a partner in an existing partnership to anyone, he is liable to such persons to whom the representation is made if such person acted or gave credit to such or if the representation is made in a public manner, he is liable to such persons whether the representation has or has not been made and relied upon. The liability is li;e that of an actual partner if partnership liability results. )f there is no partnership liability he is liable pro"rata with other persons consenting to the contract or representation.

(d! as interest on a loan, through the amount of the payment varies with the profits of the business" interest payments are ta;en or paid out from the profits (e! as consideration for the sale of goodwill or other property" payment is ta;en out of profits. DISTIN!UISHIN! A PARTNERSHIP FROM" #OINT $ENTURE 1. )t has no firm name or separate personality, while a partnership has a firm name and is considered separate and distinct from the partners composing it (. 1articipants are free to transact separately in their own names and be individually liable therefore, while in a partnership, partners cannot transact under their own names '. Activity is usually limited to a single transaction though it may ta;e a longer period to complete, while in a partnership, there are several transactions of a certain ;ind. (5ote% Tan 8ng Dee vs. 2A, '+1 /20A 7+3" a -oint venture appears to be a particular partnership due to the fact that a partnership can have for its ob-ect a specific underta;ing (Article 17*'!, the /upreme 2ourt distinguished between a -oint venture and a partnership when it held that while a corporation cannot be a partner, it may enter into a -oint venture! $OLUNTARY OR!ANI%ATIONS 1. )t has no -uridical personality, while a partnership has -uridical personality (. )t may be organiEed for any lawful purpose, while a partnership is always organiEed for profit '. 2ontributions are collected to maintain the organiEation, while in a partnership, contributions go to capital +. There is individual liability, while in a partnership individual liability is not primary

CON#U!AL PARTNERSHIP OF !AINS 1. Arises by agreement between spouses, while a partnership is created by voluntary agreement of two or more partners (. #overned by law, while a partnership is primarily governed by the stipulations in the contract '. 4as no -uridical personality, while a partnership has -uridical personality +. 2ommences upon marriage, while a partnership commences upon execution of the agreement, unless otherwise stipulated ,. /hares of spouses in profits is e:ual, while in a partnership it is according to the agreement or in proportion to contributions . Aanagement generally is vested in both spouses, while in a partnership it is vested in all partners unless they designate a managing partner 7. 1urpose is to regulate property relations between spouses, while in a partnership it is to obtain profits *. /hare of a spouse cannot be disposed while in partnership, the interest of a partner may be disposed. CO-O&NERSHIP 1. )t is created by law, while a partnership is created by contract (. )t has no -uridical personality, while a partnership has -uridical personality '. 1urpose is common en-oyment of a right&property, while in a partnership it is realiEation of profit +. An agreement to ;eep a thing undivided in co"ownership for more than 13 years is not allowed (Article +6+!, while a partnership has no fixed duration ,. A co"owner may feely dispose of his interest, while a partner cannot freely dispose so as to ma;e his assignee a partner, unless consented to by all
3

. A co"owner cannot generally represent a co"ownership, hence any -udgment against a co"owner is not a -udgment against the co" ownership, while in a partnership, in the absence of a stipulation, a partner can represent the partnership and a -udgment so issued is generally one against the partnership 7. =eath of a co"owner does not necessarily result in dissolution of the co"ownership, while death of a partner results in dissolution of the partnership. &HO CAN 'ECOME PARTNERS 1. Any person who is capacitated to enter into contracts (. A married woman may enter into a contract of partnership but the consent of the other spouse is re:uired because it is an act of dominion or an encumbrance of community or con-ugal property , unless court authority is obtained. '. A partnership in the absence of a prohibition. A corporation cannot enter into a contract of partnership as it is contrary to public policy as it can be bound by its partners and not by an act of its B9A0= as re:uired by /ection (' of the 2orporation 2ode ,. Aliens $ can be partners sub-ect to restrictions on ownership&leases and engaging in nationaliEed or partially nationaliEed businesses. IN &HAT FORMS MAY A CONTRACT OF PARTNERSHIP 'E E ECUTED A partnership may be constituted in any form except where immovable property or real rights are contributed, in which case a public instrument is necessary (Article 1771! )n such a case, an inventory of the immovable property so contributed must be made and attached to the public instrument. 7ailing in which, the contract of partnership is void. (Article 177'!.

5ote though that while partnerships with capital of 141 ',333.33 or more are re:uired to be in a public instrument and duly registered with the /82, non compliance shall not affect liability to third persons (Article 177(! )t is however re:uired that the articles of partnership be written if what is to be constituted is a <)A)T8= 1A0T580/4)1 (Article 1*++! &HAT ARE THE (INDS OF PARTNERSHIPS 1. As to ob-ect $ it is universal or particular

a. A particular partnership is one which has for its ob-ect a determinate thing, their use or fruits, or specific underta;ings, or the exercise of a profession or a vocation (Article 17*'!. b. A universal partnership has two ;inds. A universal partnership of A<< 108/85T 109180T? or 97 1097)T/ (Article 1777!. b.1 A U)i*ers+l P+rt)ers,i- ./ All Prese)t Pr.-ert0 is one where all partners contribute A<< 109180T? which actually belong to them to a common fund with the intention of dividing the same as well as all profits which they may ac:uire therewith (Article 177*!. b.( All present property belonging to the partners at the time of constitution becomes the common property of all partners as well as all the profits which they may ac:uire therewith. They can also stipulate on the common en-oyment of any other profits from other sources B@T, property which the partners may subse:uently ac:uire by inheritance, legacy, or donation cannot be included in such stipulation except the fruits thereof (Article 1776!

b.' The property to be ac:uired by inheritance, legacy or donation cannot be the ob-ect of a stipulation as (1! contracts regarding successional rights are not allowed. ((! 2ontributions must be determinate, ;nown and certain ('! since it implies a donation, future properties cannot be donated b.+ A U)i*ers+l P+rt)ers,i- ./ Pr./its is one where which is comprised of all that the partners may ac:uire by their industry or wor; during the existence of the partnership (Article 17*3!. 4ence, if not so ac:uired by their industry or wor;, it does not pertain to the partnership b., Aovables or immovables which each of the partners possess at the time of the celebration of the contract shall continue to pertain exclusively to each, only the usufruct shall pass. b. )f there is no specification of nature (presupposes a writing!, the partnership shall be considered a universal partnership of profits (Article 17*1!. The reason is because it is less onerous that a universal partnership of all present property. )f what is desired is that it be a universal partnership of all present property, reformation under Article 1',6 is the proper remedy. PERSONS PROHI'ITED FROM UNI$ERSAL PARTNERSHIP ENTERIN! INTO A

OTHER (INDS OF PARTNERSHIPS 1artnerships may be distinguished as to <iability (#eneral"<imited!, 0epresentation (9rdinary"1artnership by 8stoppel! and =uration (1artnership for a /pecific @nderta;ing&.ith a 1eriod" At .ill! &HEN DOES THE RELATIONSHIP AS PARTNERS 'E!IN )t begins from the moment of the execution of the contract unless a different period is stipulated. 4ence, there can be no partnership if the intention is to create in the future. a. Agreement to form a partnership does not create a partnership. )f there are conditions to be fulfilled or a certain period is to lapse or to arrive, the partnership is not formed even if one party without waiting for the fulfillment of the condition or arrival of the term, has already advanced his contribution. b. Also if they orally agree to form a partnership 1 F year from today. )t is merely an agreement to form a partnership $ T4808 )/ 59 1A0T580/4)1 ?8T. A</9, since it is orally constituted and is not a partnership, the /tatute of 7rauds apply, hence it cannot be enforced (Article 1+3', 1ar. ("a!. 5ote that it cannot be obliged because the obligation is to =9 not to #)>8, it is a personal act that cannot be compelled (.oodhouse v. 4alili <"+*11"Guly '1,16,'! c. The rules are thus as follows% (1! )f there is no contrary stipulation, the partnership commences to have existence on the date of execution of the contract ((! )f a contract states that it is to be effective at a certain date, the partnership is to begin on the stipulated date. ('! )f a contract states that contributions are still to be given on a particular date. There is a partnership as they have bound themselves

1ersons who are prohibited from giving each other donations or advantage li;e (a! husband and wife (b! those guilty of adultery or concubinage (c! those guilty of the same criminal offense if the partnership was entered into in consideration of the same. This prohibition exists because a universal partnership is virtually a donation, thus persons should not be allowed to do indirectly what they cannot do directly.

to contribute (+! )f contract states that we become partners on the date the contributions are given there is no partnership yet. &HEN DOES A PARTNERSHIP END #enerally $ it ends on the expiration of the fixed term or the accomplishment of a particular underta;ing. )7 )T =98/ 59T 85= 95 T48 BA/)/ 97 8)T480 T.9 )t becomes a H1A0T580/4)1 AT .)<<I (Article 17*,! a. There is also a partnership at will (1! when there is no term, express or implied $ hence, there is an agreement that it will continue to exist as long as they will it to exist ((! 1artners or such of them who have so acted, habitually continues the business without settlement or li:uidation of the partnership affairs. /@24 A2T is prima facie evidence of the continuation of the partnership. 2onse:uently, the rights and duties of the partners remain the same as they were at such termination &HAT HAPPENS &HEN PERSONS DECIDE AND DO FORM A PARTNERSHIP The formation of a partnership gives rise to the following relationships% (1! The persons who have decided to form the partnership become partners as to each other. 2onse:uently, they now have to comply with their obligations to be able to exercise their rights as partners ((! 0elationship between the partner and the partnership $ refers to the obligations of a partnership to the partner ('! 0elationship between the partner and third persons $ refers to the obligations of the partners to third persons (+! 0elationship between the partnership and third persons $ refers to the conduct of the business of the corporation SPECIFIC O'LI!ATIONS OF PARTNERS

1. =@T? T9 295T0)B@T8" 8very partner is a debtor of the partnership for whatever he may have promised to contribute thereto. 4e shall also be bound for warranty in case of eviction with regard to specific and determinate things in some cases and in the same manner as the vendor may be found with respect to the vendee. 4e shall also be liable for the fruits thereof from the time they should have been delivered without need of demand (Article 17* !. a. 4ence, after the execution of the contract, a partner must (1! deliver what he has promised to contribute, no demand is necessary because time is of the essence as without the contribution the partnership cannot function ((!. =eliver the fruits of the specific and determinate things that he promised to contribute , if any, accruing from the time they must have been delivered ('! To warrant against eviction for the ob-ects already delivered. 8viction arises whenever by final -udgment based on a right prior to the sale or an act imputable to the partner. The partnership is deprived of the things contributed in whole or in part. This however may be suppressed, increased or diminished by the partners. b. The remedy if a partner fails to contribute is bring an action for collection because the defaulting partner is a =8BT90 c. 1roperties to be contributed are considered properties of the partner until A2T@A< or 295/T0@2T)>8 delivery has been had, it being the operative act to convey ownership d. The specific rules that govern the contributions are% (1! )f it consists of goods, they must be appraised in the manner prescribed (a! in the articles of partnership (b! by experts chosen at current prices, with charges for the account of the partnership (Article 17*7!. 59T4)5# 49.8>80 1094)B)T/ T48 1A0T580/ 709A A#088)5# 95 T48 >A<@AT)95 ((! )f what is contributed is A958?, a partner who fails to contribute is liable for interest and damages from the time he should have complied (Article 17**! , the same Article also applies to amounts that a partner may have converted to his own use ('! )f what is contributed is
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)5=@/T0?, the partner&s so contributing cannot engage in any other business unless he is 8C108//<? allowed to do so by the capitalist partner&s. )f he does so without consent, he (a! can be excluded from the firm (b! the firm can avail of the benefits which he obtained, plus damages, if any (Article 17*6!. The article applies whether or not there is competition as all his industry must be given to the partnership d.1 DISTIN!UISHIN! CAPITALIST1INDUSTRIAL PARTNERS 21 2ontribution money or 1roperty 1rohibition as to engaging in business 1rofits generally can engage as long no competition (Article 1*3*! by agreement or pro"rata to contribution there being no agreement stipulation or agreement as to profits if 5958" prorata 'ET&EEN )1 industry cannot engage without consent

B8<95#/ T9 T48 1A0T580/4)1 ('! )f things contributed is 7@5#)B<8 or cannot be ;ept with deteriorating "ris; of loss is borne by the partnership as ownership is transferred upon delivery otherwise use is impossible (+! )f thing is contributed to be sold" partnership bears ris; as it cannot be sold unless ownership has passed to it (Article 176,! f. @nless there is a contrary stipulation, a partner shall contribute an e:ual share to the capital of the partnership. 2onse:uently, there may be une:ual contributions. )f however, there is no proof as to the extent of the contribution, the presumption is that they contributed e:ually (Article 1763! g. A partner may also be obliged to contribute an additional amount, there being no stipulation to the contrary, in case of an imminent loss. )f he refuses (it must be deliberate! the partner is obliged to sell his interest to the other partners. The 08A/95 is that his apparent lac; of interest should warrant that he leave the partnership. The 8C281T)95 is that it does not apply to an industrial partner&s because he has already given his entire industry. (. =@T? T9 208=)T T9 T48 7)0A 1A?A85T AA=8 A =8BT90 .49 9.8/ 4)A A5= T48 7)0A A5= T9 /4A08 4)/ 0828)1T 97 1A0T580/4)1 208=)T A<08A=? 29<<82T8= a. )f a partner authoriEed to manage collects a demandable sum, which was owed to him in his own name, from a person who owed the partnership another sum also demandable, the sum thus collected shall be applied to the two credits in proportion to their amounts, even though he may have given a receipt for his own credit onlyB but should he have given it for the account of the partnership credit, the amount shall be fully applied to the latter.The provisions of this article are understood to be without pre-udice to the right granted to the debtor by article 1(,(, but only if the personal credit of the partner should be more onerous to him. (Article 176(!
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a -ust and e:uitable share

<osses

exempt as between partners but liable to 'rd persons sub-ect to reimbursement (Article 1*1 !

e. 0is; of loss is borne as follows% (1! 1rior to delivery, it is borne by the partner ((! )f what is contributed is the use or fruits of specific or determinate things, it is borne by the partner&s who own them $ 59T A11<)2AB<8 T9 A @5)>80/A< 1A0T580/4)1 97 A<< 108/85T 109180T?, AT T48 95/8T 109180T?

1. The re:uisites for the application of the article are% (a! There are two debts from the same debtor (b! Both debts are due and demandable (c! The collecting partner is a managing partner )7 59T T4808 )/ 59 BA/)/ 790 T48 /@/1)2)95 T4AT T48 1A0T580 )/ A2T)5# 790 4)/ 9.5 B8587)T. A</9, 48 =98/ 59T 922@1? 90 )/ )5 A 19/)T)95 T9 #)>8 1087808528. (. The rules of application are% (a! )f the partner gives credit for the firm, it is the firms credit that is extinguished (b! )f partner gives receipt for his debt, the amount collected shall be applied in proportion (c! By way of exception, the debtor may exercise the right of application if the debt to partner is more onerous to him. b. A partner receiving in whole or in part of his share of partnership credit, shall, if the other partners have not collected their share and the debtor becomes insolvent, bring to the partnership capital what he may have received even if he gave receipt for his share only (Article 176'! 1. The provision applies to any partner. )f however, the firm is dissolved, the obligation does not exist. '. =@T? T9 1A? 790 =AAA#8/ 2A@/8= B? 4)/ 7A@<T

1. The damages cannot be offset because a partner has a duty to secure benefits. /ince it is a duty (it has to be done! compensation cannot ta;e place as compensation presupposes two persons who are reciprocally debtor and creditors of each other. (. The obligation to pay damages also exists in relation to the liability arising from conversion of amounts ta;en from partnership coffers and is computed from the time the partner converts it to his own use (Article 17**!. +. 9B<)#AT)95 T9 A229@5T 790 A5= 49<= A/ T0@/T88 A5? @5A@T490)J8= 1097)T/ a. 8very partner must account for any benefit and hold as trustee any profits derived by him without consent of the others from any transaction connected with the formation, conduct or li:uidation of the partnership or from any use by him of partnership property without consent (Article 1*37! 1. The reason for the obligation is that a partner has a fiduciary obligation not to abuse the trust and confidence bestowed upon each other. (. The article covers the period from formation to li:uidation. 1rofits are unauthoriEed if they are realiEed without the consent of the partnership. ,. 9B<)#AT)95 59T T9 85#A#8 )5 B@/)58//

a. 8very partner is liable for damages suffered by the partnership through his fault. )n so being responsible, it cannot be compensated with the profits and benefits which he may have earned for them with his industry. 49.8>80, courts may e:uitably lessen his responsibility if through the partners 8CT0A90=)5A0? efforts in other partnership activities, unusual 1097)T/ have been realiEed (Article 176+!.

a. The obligation applies specifically to a capitalist partner who engages in a business similar to or li;e the business the partnership is engaged in @5<8// (1! )t is expressly stipulated that he can engage in business ((! when other partners expressly or impliedly allow him to do so ('! partnership ceases to engage in the competing business (+! participation in other business is that of a limited partner (Article 1*3*!

b. The 87782T 97 85#A#)5# )5 B@/)58// is that (1! he shall bring to the partnership all profits he obtained ((! he shall bear all the losses, if any ('! he can also be ousted from the firm for loss of trust and confidence SPECIFIC RI!HTS OF A PARTNER 1. 109180T? 0)#4T/ 97 A 1A0T580

a. The property rights of a partner are (1! right to specific partnership property ((! his right to his interest ('! right to participate in management b. A partnerKs right to specific partnership property ma;es him a co"owner of all partnership property (Article 1*11!. The incidents of such are% (1! partners, sub-ect to provisions of law and any agreement between partners has an 8L@A< right with his co"partner to possess /182)7)2 1A0T580/4)1 property for 1A0T580/4)1 1@019/8/, but he has no right to possess them for any other purpose without the consent of the partners ((! a partner cannot assign his rights to specific partnership property except in connection with an assignment of rights of all the partners. Any assignment in violation is >9)= as the value of the interest cannot be determined until after li:uidation. ('! a partnerKs right is not sub-ect to attachment or execution $ 8C281T on a claim against the partnership. 5either can the partners claim ( or the representatives of a deceased partner! claim any right under homestead or exemption laws under /ection 1(, 0ule '6 of the 0ules of 2ourt because it is property of the partnership. )t cannot be attached because to allow it would be to let the partner do what he cannot do (assign it! directly (+! the right is not sub-ect to legal support (Article 1*11!. c. A partnerKs interest consists of his share in the profits and surplus (Article 1*1(!. 1rofit referring to his share of the net income from business, surplus referring to his share of assets after settlement of debts and liabilities.

c.1 A partnerKs interest may be conveyed to another (Article 1*1'!. The effects are (1! 1artnership may either remain, if it is the intention of the partners concerned not to withdraw on account of the change of partners 90 dissolved, but the mere conveyance does not by itself dissolve the partnership, hence there is a need for action on the part of the partners as such constitutes a change in the relations of the partners as the conveying partner shall cease to be associated in carrying on of business ((! Assignee does not become a partner in the absence of any agreement to the contrary. 2onse:uently, the assignor is still recogniEed as the partner with the right to demand accounting and settlement ('! Assignee cannot interfere in management or administration of partnership business or affairs (+! Assignee cannot demand information, accounting or inspection of boo;s c.( The rights of the assignee are (1! To receive whatever profits the assignor would have obtained. 4e is not considered an outside creditor who is preferred, so he can have no better right than the assignor $ partner ((! 4e can avail of the usual remedies in case of fraud" interfere in management, inspect boo;s, re:uire information or accounting ('! )n case of dissolution, he may demand an accounting but only from the date of the last accounting (+! 4e may as; for annulment of the assignment if he has induced though any of the vices of consent or that he has incapable of giving it. c.' A partnerKs interest may also be charged (Article 1*1+!. )t applies without pre-udice to Article 1*(7 giving preference to partnership creditors. The manner of charging is as follows% (1! due application with a court of competent -urisdiction by a -udgment creditor of a partner $ A9T)95 790 8C82@T)95 ((! court charges the interest of the debtor partner with the payment of the unsatisfied amount of the -udgment debt plus interest 90 an order is given to the partnership&partners to refrain from paying the partner (c! the court may appoint (then or later! a receiver for partnerKs share of the profits or any money due or to fall due to him. The receiver may perform all acts that the court may authoriEe him to do (d! the court may ma;e all other orders, directions, accounts and in:uiries which the debtor may have made or which circumstances of the case re:uire.
9

)7 T48 )5T808/T )/ /9 24A0#8= )T AA? B8 08=88A8= (meaning the charge is extinguished! B87908 79082<9/@08 ( when sub-ected to a mortgage!, 90 )5 2A/8 97 /A<8 @195 90=80 97 T48 29@0T, )T AA? B8 1@024A/8= .)T49@T T4808B? 2A@/)5# =)//9<@T)95 (partner may become insolvent, which is a cause for dissolution! .)T4% (1! with separate property $ by one or more of the partners ((! .ith partnership property by one or more of the partners, with the consent of the partner&s whose interest has not been charged or sold B@T $ nothing shall be held to deprive a partner of his right, if any, under exemption laws as regards his interest $ )T 4)/ 9.5 109180T? c.+ The =8T80A)5AT)95 97 1097)T&<9// )/ A/ 79<<9./% (1! )n conformity with the agreement and if only share of the profits have been agreed upon, it will be distributed in the same proportion ((! )n the absence of an agreement ,it shall be in proportion to what they may have contributed B@T 790 A5 )5=@/T0)A< 1A0T580 (a! he is not liable for the net loss (b! he receives a -ust and e:uitable share of the profits. )n addition, if he contributes a sum, he receives a proportionate share of profits ('! they can agree to entrust it to a third person not a partner. 4owever, the designation can be impugned if it is manifestly ine:uitable, except when (a! the aggrieved partner has began to execute the designation (b! the designation was not impugned within three months from time he had ;nowledge. 5ote that a 1A0T580 B8587)T8= 2A5 )A1@#5 as long as the designation is manifestly e:uitable. there being no distinction (Articles 1767, 176*!. )n determining the share in profit or loss, note that any stipulation excluding one or more partners in the profit or loss is void (Article 1766!. An exception is the )5=@/T0)A< 1A0T580 as stated in Article 1767. d. 0ight to participate in management is exercised by becoming a managing partner or consenting to the appointment of one or more of the partners as managing partners.

d.1 An appointment as managing partner can be done by means of a designation in (1! Articles of 1artnership" (a! it is generally irrevocable without -ust or lawful cause. )f there is cause, the vote of the partners holding controlling interest is necessary. )f there is no cause, the vote of all, including the managing partner is necessary, as it parta;es of the nature of a change in the contract (b! 4e can perform all acts of administration. )n case of opposition, if he acts in good faith, he can proceed to act. )f he is in bad faith he can ousted ((! /ubse:uent to the Articles, in another instrument or orally" (a! it is revocable at any time, with or without cause, as it is a mere delegation (b! 4e can perform all acts of administration. )n case of opposition, he can be ousted if he continues to act (Article 1*33!. d.( There can be T.9 90 A908 AA5A#80/% (a! )f there is no designation and unanimity is not re:uired (1! each may execute acts of administration ((! any of the managers may oppose, if there is an opposition ma-ority governs. )f there is a tie, it is to be resolved by the partner holding controlling interest as he stands with the most to lose. 59T8 not all partners can oppose, as those who have appointed cannot oppose as they have stripped themselves of the right to participate in management by voting to appoint a managing partner&s (Article 1*31! (b! )7 @5A5)A)T? )/ 08L@)08=% (1! neither of the managers may act without the consent of the other ((! the concurrence of all shall be necessary for the validity of acts ('! the absence or disability of one cannot be alleged to defeat the agreement 8C281T $ if there is imminent danger of grave or irreparable in-ury to the partnership but the re:uirement should be held to apply only to those acts that are not routine or are underta;en casually in the regular course of business operations (Article 1*3(!. d.' )7 T4808 A08 59 A119)5T8= AA5A#80/ 90 T48 AA5580 97 AA5A#8A85T )/ 59T A#088= @195 % (1! all partners are considered agents of the partnership and any one of them can bind the firm except when opposed. )n such case, the provisions of Article 1*31 will apply ((! none of the partners may,
10

without the consent of the others, ma;e any important alteration on the immovable property of the partnership even if it be @/87@<. )f the refusal is manifestly pre-udicial, court intervention may be sought (Article 1*3'!. (. A 1A0T580 4A/ A 0)#4T T9 A//92)AT8 a. A partner is allowed to associate another person with him in his share, but the associate cannot be admitted into the partnership without the consent of all the partners, even if the one having an associate is the managing partner (Article 1*3+! b. An A//92)AT8 -ust shares in the 58T 1097)T/ as it does not constitute and an assignment of interest '. )5/182T )5790AAT)95 B99D/ A5= 08290=/, 08L@)08

a. A partner has the right to a formal account if (1! 4e is wrongfully excluded from the partnership business or possession of its property by the other partners ((! )f the right exists under the terms of the agreement ('! As provided in Article 1*37 if a partner derives unauthoriEed profits (+! .henever circumstances render it -ust and reasonable, li;e when a traveling partner returns (Article 1*3 !. T4)/ 0)#4T )/ T9 B8 8C802)/8= 95<? )7 A5? 97 T48 2)02@A/TA528/ A08 108/85T B? .4)24 T4808 )/ A228// T9 B99D/ A<08A=? ,. 0)#4T T9 =)//9<>8 T48 1A0T580/4)1

a. 1artnership boo;s shall be ;ept sub-ect to any agreement between the partners at the principal place of business of the partnership and any partner shall at any reasonable hour have access to and may inspect or copy them (Article 1*3,!. 0easonable hour refers to any hour during a business day throughout the year not -ust any day which the managing partner may arbitrarily set. b. 1artners are obligated to render on demand, true and full information of all things affecting the partnership to any partner or legal representative of a deceased partner or any partner under a legal disability (Article 1*3 !

a. A 1artner has an absolute right to cause the dissolution of the partnership for any reason (Article 1*'3! sub-ect to the liability for damages (Article 1*'7! and loss of the right to participate in winding up (Article 1*' ! O'LI!ATIONS OF THE PARTNERSHIP TO THE PARTNERS @pon the creation of the partnership, the partnership shall be responsible for% (a! all amounts that a partner may have disbursed on behalf of the partnership and for the corresponding interest from the time the expenses were made (b! answer to each partner for obligations he may have entered into good faith in the interest of the partnership business and for ris;s in the conse:uence of management (Article 176 !, and (c! in relation to Articles 1*3+ and 1*3,, it must allow an associate and maintain boo;s and records. O'LI!ATIONS OF PARTNERSHIP AND OF THE PARTNERS &ITH RE!ARDS TO THIRD PERSONS

+.

0)#4T T9 A 790AA< A229@5T

11

1.

9180AT8 @5=80 A 7)0A 5AA8

obligation to perform a partnership contract under Article 176 $ those entered into in good faith (Article 1*1 !. 1. T4)/ <)AB)<)T? 08780/ T9 T4AT )52@008= )5 7A>90 97 '0= 180/95/, hence, an industrial partner is not exempt. (. A withdrawing partner is not liable for those contracted after his withdrawal. /ubse:uent to withdrawal, he is not liable as it is presumed that the partnership has ta;en all liabilities into account before allowing withdrawal. '. Any stipulation against the liability laid down shall be void, except as among partners (Article 1*17!. a. 5ote that the partners can therefore agree as to the extent of their liabilities, but such will not affect third persons. b. Thus, it is possible for a capitalist partner to be exempt from liability. ?8/, if liability will extend only to the contribution, the provisions of Article 1766 stipulation excluding a partner from profit or less is not violated.

a. 8very partnership must operate under a firm name which may or may not include the name of one or more partners. Those not being partners who include their names in the partnership name shall be sub-ect to the liability of a partner. 1. 5ote the use of the phrase% Hmay or may not include the name of one or more partnersI indicates that not all partners are re:uired to have their names appear in the firm name if it were otherwise, HallI should have been utiliEed. (. )f a person allows his name to be utiliEed in the firm name but he is not a partner, all liabilities of a partner will be imposed on him. '. )f it is a limited partnership, the <)A)T8= 1A0T580K/ 5AA8 /49@<= 59T A118A0 (Article 1*+ ! unless he has the same name as a general partner or prior to his becoming a limited partner the business was carried out under a name in which his surname appeared. 08<8>A528 $ so third persons may ;now who they are dealing with $ )T )/ T48 5AA8 97 T48 G@=)2)A< 85T)T? T4AT )/ 208AT8= @195 8C82@T)95 97 T48 295T0A2T&A0T)2<8/ 97 1A0T580/4)1. 5ote that if in the course of its business operations it changes itKs name, it retains all its rights under the old name (. <)AB)<)T? 97 1A0T580/4)1 A5= 1A0T580/

a. All partners including industrial ones are liable pro"rata with all their property, after all partnership assets are exhausted, 790% (a! contracts entered into in the name of the partnership and for its account under its signature by a person authoriEed to act for the partnership. 5ote that , any partner may enter into a separate

+. T48 <)AB)<)T? .)<< A11<? when the act of the partner is considered as A11A085T<? 2A00?)5# 95 )5 T48 @/@A< .A? T48 B@/)58// 97 T48 1A0T580/4)1 as every partner is an agent of the partnership for the purpose of its business and every act, including the execution in the partnership name of any instrument binds the partnership 8C281T .485% (a! partner so acting has in fact no authority to act for the partnership in the particular matter, and (b! person with whom he deals has ;nowledge of the fact that he has no such authority.

12

A5? 9T480 A2T 59T A11A085T<? 790 T48 2A00?)5# 95 97 T48 B@/)58// 97 T48 1A0T580/4)1 =98/ 59T B)5= @5<8// A@T490)J8= B? T48 1A0T580/ @sual way $ depends on the nature of the partnership business and if it is essential or reasonably necessary to the furtherance of partnership business ,. T48 <)AB)<)T? .)<< 59T A11<? 90 T48 1A0T580/4)1 )/ 59T B9@5= .485% (a! partner has no authority and it is ;nown to third person with whom he contracts (b! act is not apparently carrying on in the usual way the business of the partnership (c! acts are the following $ 8C281T .485 A@T490)J8= B? A<< 90 T48 B@/)58// )/ ABA5=958=, 958 90 A908 B@T <8// T4A5 A<< 97 T48 1A0T580/ 4A>8 59 A@T490)T? T9 (1! Assign property in trust for creditors or on assigneeKs promise to pay debts of the partnership ((! dispose of the goodwill ('! do any act which ma;es it impossible to carry on the ordinary business of the partnership (+! confess -udgment (,! enter into a compromise concerning a partnership claim or liability ( ! submit a partnership claim or liability to arbitration (7! renounce a partnership claim (d! no act with the partner in contravention of a restriction or authority shall bind the firm to persons having ;nowledge of the restriction b. as follows% As regards dealings regarding immovables, the rules are

is one within the authority of a partner under Article 1*1*. )f not applicable, no interest will pass. The remedy of the buyer is reformation of the contract. '. )f property is in the name of one or more of the partners but not all and the records do not disclose the right of the partnership, the partners named may convey title but it may be recovered if the partners act does not bind as provided by Article 1*1* unless the purchaser or his assignee is a holder for value without ;nowledge +. )f property is in the name of one or more or all or a third person in trust, a conveyance executed by a partner in the partnership name or his own name passes e:uitable interest, provided the act is within the authority of the partner as laid down in Article 1*1*. ,. .hen all partners are named as owners, a conveyance executed by all passes all rights to the property c. )n enforcing the liability of the partnership and the partners, note that% 1. An admission or representation made by any partner convening parnership attains within the scope of his authority in accordance with this title is evidence against the partnership (Article 1*(3!. 5ote that )T A@/T 2952805 1A0T580/4)1 A77A)0/ and )T A@/T B8 .)T4)5 T48 /2918 97 4)/ A@T490)T?. (. (a! Admissions made before dissolution are binding only if the partners has authority to act on the matter (b! Admissions made after dissolution are binding only if necessary to wind up the affairs&business as dissolution terminates all authority to act (c! Admissions made after one ceases to be partner are not binding (d! 1revious admission after one ceases to be a partner, if made within scope of authority of the partner and during its existence is binding provided existence if partnership is proven by other evidence.
13

1. )f property is in the partnership name, any partner may convey it in the partnership name. )t is recoverable unless Article 1*1* applies or the grantee or person claiming through such grantee has conveyed the property to a holder for value without ;nowledge that the partner so conveying has exceeded his authority $ T)T<8 1A//8/ (. )f property is in partnership name is conveyed by a partner in his own name $ 8L@)TAB<8 T)T<8 1A//8/ provided it

'. 59T)28 (a! to a partner relating to partnership affairs (b! ;nowledge of a partner acting on a particular matter (he is managing partner or assigned a particular tas;! ac:uired .4)<8 A 1A0T580 90 T485 108/85T T9 4)/ A)5= (c! Dnowledge of a partner (A2L@)08= .4)<8 A<08A=? A 1A0T580! who reasonably (so situated as to be able to give notice! could and should have communicated it to the acting partner, shall operate as notice to or ;nowledge of the partnership 8C281T, in case of fraud on the partnership committed by or with the consent of the partner (Article 1*(1!. d. The partnership is liable to the same extent as the partner acting or omitting to act for loss or in-ury to any person, not a partner, or any penalty incurred for (1! .rongful act, or ((! 9mission in the ordinary course of business or with the authority of his co" partners (Article 1*((!. This extends to liability for T90T/ and )5G@0)8/ T9 8A1<9?88/. The is 59T <)AB<8 though for (1! wrongful act or omission which was not done within the scope of the partnership business ((! act or omission is not wrongful ('! although wrongful, partner is not held liable (+! act is committed after the firm is dissolved and was not in connection with the process of winding up e. The partnership is also bound to ma;e good the loss arising from (1! a partner misapplying money or property received from third person while acting within the scope of his apparent authority. There is 59 <)AB)<)T? if without authority ( Apparent Authority is that which appears to a third person as the basis for the partner to accept money or property! ((! where the partnership in the course of its business receives money or property from a third person and the money or property so received is misapplied by any partner while in the custody of the partnership (Article 1*('! 1. @nder Article 1*(+, all partners are solidarily liable with the partnership for everything chargeable to the partnership under Articles 1*(( and 1*('. 4ence, the partner or firm can be held liable.

f. )f the partnership&partner consents to a representation made by a person by words, spo;en or written, by conduct that he is a A 1A0T580 )5 A5 8C)/T)5# 1A0T580/4)1 90 A/ A 1A0T580 .)T4 958 90 A908 180/95/ 59T 1A0T580/, it&they will be liable to any such persons upon whom the representation was made who on the faith of which has given credit to the actual or apparent partnership. )f the representation was made or consented to its being made in public manner, there is liability even if the representation has not been made directly or communicated to the person giving credit or with the ;nowledge of the apparent partner ma;ing the representation or consenting to its being made (Article 1*(,!. .485 A 180/95 )/ T4@/ 08108/85T8= T9 B8 A 1A0T580 )5 A5% existing partnership or with one or more persons not partners, he (person ma;ing representation! is an agent of the person consenting to such representation to find them to the same extent or in the same manner as though he were a partner in fact which respect to persons who rely on the representation. ARE PERSONS &HO 'ECOME PARTNERS INCURRIN! LIA'ILITIES LIA'LE FOR THEM AFTER

A person admitted as a partner into an existing partnership is liable for all obligators of the partnership arising before his admission as though he was a partner at the time they were incurred, except that the liability shall be satisfied out of partnership property only unless there is a contrary stipulation (Article 1*( !. )t is so because, a person who enters into a partnership is presumed to have exercised the reasonable diligence to verify the status of its affairs. )n effect, a new firm is created and should not affect partnership creditors as per Article 1*+3 which provides that the creditors of the old firm are still the creditors of the new firm continuing the business. &HAT IS THE PREFERENCE EN#OYED 'Y PARTNERSHIP CREDITORS
14

2reditors of the partnership are preferred as regards partnership property, A<T49@#4 it is without pre-udice to the right of private creditors of each partner to as; for the attachment and public sale of the share with the partner in partnership assets.

charged for their separate debts, either before or after termination of the term or particular underta;ing. 4ere, there must be an express desire to dissolve which is manifested orally, written or by words or acts indicating an intention to dissolved and with unanimity of the concerned partners (+! expulsion in good faith in accordance with such power conferred by agreement of the partners b. )n contravention of the agreement of the partners where circumstances do not permit a dissolution under any provision of this article, by express will of any partner at any time. This refers to the )5=878A/)B<8 right of a partner to cause dissolution but this action is not without /A52T)95 as there is liability for damages ( Article1*'7! and loss of right to participate in winding up ( Article 1*' ! c. By any event which ma;es it unlawful for the business of the partnership to be carried on or for the members to carry it on in the partnership. 59T8 under Article 1773, if business is unlawful from the beginning there is nothing to dissolve d. .hen a specific thing, which a partner had promised to contribute perishes before delivery. )n any case by the loss, when the partner who contributed it had reserved ownership having -ust transferred use or en-oyment. B@T, dissolution does not result through loss if it occurs after the partnership has ac:uired ownership. B@T 59 =)//9<@T)95 922@0/ )7 (1! partners agree to substitute ((! thing contributed is generic e =eath of a partner means that the partnership continues to li:uidation, but a stipulation allowing a substitute is allowable. )f the partnership continues, the partnership so continuing the business is to be regarded as a new partnership f. )nsolvency of the partner or the partnership. A -udicial decree is not necessary as the fact that assets are less than liabilities is sufficient

DISSOLUTION AND &INDIN! UP DISSOLUTION DEFINED )s the charge in the relation of the partners caused by a partner ceasing to be associated with the carrying on of the business as distinguished from winding up (Article 1*(*!. )t designates the point in time when the partners cease to carry on the business together. The partnership is not considered terminated, as it continues until all or the winding up of partnership affairs is completed (Article 1*(6!. This is the process of .)5=)5# @1 or the settlement of affairs after dissolution. EFFECT ON O'LI!ATIONS Those that are validly contracted have to be paid and cannot be avoided. 9bligations that are new 2A559T B8 295T0A2T8= unless it is essential to winding up partnership business. CAUSES OF DISSOLUTION a. .ithout violation of the agreement of the partners (1! by the termination of the definite term or underta;ing specified in the agreement ((! by the express will of the partner who must act in good faith when no particular term or underta;ing is specified (dissolution of a partnership at will! 4ere, good faith must attend the dissolution and that ade:uate notice is given to all partners ('!by express will of all partners who have not assigned their interest or suffered then to be

15

g. contract

2ivil )nterdiction as it results in incapacity to enter into

h. By decree of the court in cases where Article 1*'1 applies upon application by a partner or by one acting in his behalf in the following cases% (1! partner has been declared insane in a -udicial proceeding or is shown to be of unsound mind. An action for dissolution at which time is insanity is proven is allowed ((! a partner in anyway becomes incapable of performing his part of the partnership contract. This refers to any inability that will render a partner incapable ('! a partner has been guilty of such conduct as tends to affect pre-udicially the carrying on of the business. This encompasses failure to act in the appropriate manner for the benefit of the partnership or negligent actions. (+! a partenr willfully or persistently commits a breach of the partnership agreement or otherwise conducts himself in matters relating to the partnership business that it is not reasonably practicable to carry on the business of the partnership with him. 8xamples% fraud or misuse of partnership assets (,! the partnership can only be carried on at a loss ( ! other circumstances that will render dissolution e:uitable. As opposed to prevailing situation, dissolution is preferred (7! on application of the purchaser of a partnerKs interest under Articles 1*1' and1*1+ (a! after termination of period or expiration of a particular underta;ing, or ((! at any time, if the partnership is one at will when the interest was assigned or charged. )5 T48/8 )5/TA528/, dissolution comes into being upon finality of -udgment in cases where -udicial intervention is had. &HAT HAPPENS &HEN THERE IS DISSOLUTION =issolution terminates all authority of a partner to act for the partnership. This means that the general agency between partners is automatically terminated. The partners cannot create any new obligation for the partnership and partners are 59T <)AB<8 790 <)AB)<)T)8/ 8C281T (1! as between partners ( meaning they must contribute! (a! The act is necessary to wind up partnership affairs (b! )t is necessary to complete transactions began but not then finished

(Article 1*'(! (c! .hen the dissolution is by act, insolvency or death (A)=! of a partner (each partner is liable to his co"partners for his share of liability as if the partnership had not been dissolved @5<8// (1! dissolution be by act, the partner acting for the partnership had ;nowledge of the dissolution ((! dissolution being by death or insolvency, the partner acting had ;nowledge or notice of the death or insolvency (Article 1*''!. a. .)T4 08/182T T9 9T480/ or persons not partners, a partner can bind the partnership (1! )n any act appropriate for winding up partnership affairs or completing transactions unfinished at dissolution ((! Any act which would bind the partnership if dissolution had not ta;en place, 109>)=8=, the other party to the transaction (a! had extended credit (previous creditor! to the partnership prior to dissolution and had no ;nowledge or notice of dissolution (b! though no credit (new creditor! is extended had nevertheless ;nown of the partnership prior to dissolution, and having no ;nowledge or notice of dissolution, the fact of dissolution not having been advertised in a newspaper of general circulation in the place (each place where the partnership conducts its business if more than 1! at which partnership business is carried out (Article 1*'+! B@T in both instances, the liability of a partner under the provision shall be satisfied out of partnership assets alone if such partner prior to dissolution is (1! un;nown as a partner to the person with whom the contract is made ((! so far un;nown or inactive in partnership affairs that the business reputation of the partnership could not be said to have been in any degree due to his connection with it. (T48 9BG82T )/ T9 108>85T 70A@= 95 9T480 1A0T580/! 8xample% Dnown partner with no means to pay will use the others to settle their share of liability. B@T @5=80 T48 79<<9.)5#, the partnership is not bound when (1! the partnership is dissolved because it is unlawful to carry on the business except when the act is appropriate for winding up ((! the partner acting has become insolvent ('! where the partner has no
16

authority to wind"up partnership affairs (must be in connection with the process of winding"up! except by a transaction with one who must be connection with (a! extends credit prior to dissolution and had no ;nowledge or notice of his want of authority (b! had not extended credit prior to dissolution and having no ;nowledge or notice of the want of authority, the fact of his want of authority has not been advertised in a newspaper of general circulation in the place of business <A/T<?, nothing in Article 1*'+ shall affect the liability of any person under Article 1*(, if any person who after dissolution represents himself or consents to another representing himself as a partner in a partnership engaged in carrying on the business. A8A5/ $ if a stranger represents himself A7T80 =)//9<@T)95 to be a partner although he is not one, is still liable as a partner by estoppel. .485 )/ A 1A0T580 295/)=808= A/ 4A>)5# 59 <)AB)<)T? @nder Article 1*',, the dissolution of the partnership does not of itself discharge the liabilities of any partner. The =)/24A0#8 $ is effective only upon agreement to such effect between the partner, creditor and the person or partnership continuing the business, if any. The agreement can be one that is orally constituted as it can be inferred from the course of the dealing between the creditor having ;nowledge of the dissolution and the person or partnership continuing the business The individual property of a deceased partner shall be liable for partnership obligations incurred while a partner, but sub-ect to prior payment of his separate debts. 0)#4T/ 97 1A0T580/ @195 =)//9<@T)95

1. The partners can participate in the process of winding up (collating assets paying creditors, delivering and distributing profit&surplus! the affairs of the partnership as long as (a! they have not wrongfully dissolved the partnership (b! he is the legal representative of the last surviving partner, not insolvent, or (c! any partner, his legal representative or assignee, upon cause, may obtain winding up from the court (Article 1*' ! B@T a designation as contained in the A0T)2<8/ or a subse:uent agreement is binding. (. (a! )f dissolution is caused in any manner other than in contravention of the agreement , a partner or person claiming rights under them and @5<8// 9T480.)/8 A#088=, shall have the right to have 1A0T580/4)1 109180T? A11<)8= T9 =)/24A0#8 <)AB)<)T)8/ A5= T48 /@01<@/ applied to pay in cash the 58T amount owing to respective partners (b! if it be through 8C1@</)95, and the partner expelled is discharged from all partnership liabilities either by payment or agreement (Article 1*',! he shall receive in cash the net amount due him (c! )f the dissolution be in contravention of the agreement, a partner who has not caused dissolution shall have the right to " <)L@)=AT)95, 1A?A85T, =AAA#8/ 790 B08A24 97 A#088A85T. They can also continue the business in the /AA8 5AA8 either by themselves or with others during the agreed term of the partnership and possess partnership property 109>)=8= " they secure payment by bond approved by the court or pay to the partner who has wrongfully caused dissolution, the value of his interest less damages and in the li;e manner indemnify him for present or future liabilities B@T for ascertaining the interest, the value of the #99=.)<< is not to be included as conse:uence of his action&bad faith. The partner who has caused dissolution is entitled to (a! if the business is not continued, he is entitled to li:uidation and payment but sub-ect to payment of damages (b! if the business is continued, he has the right against partners or those claiming rights under them in respect to their interest, to have his interest in the partnership <8// damage ascertained and paid to him in cash and be released from all existing liabilities. )f payment cannot be made, to secure it by bond (Article 1*'7!.
17

59T8% That in the enforcement of their rights, a right to an account accrues against winding"up partners&surviving partners&persons or partnership continuing the business at the =AT8 97 =)//9<@T)95 in the absence of a contrary stipulation (Article 1*+(! '. )f the partnership is dissolved on account of the exercise of the right to rescind (properly annulment as fraud or misrepresentation are not grounds for rescission! the partnership contract on the ground of fraud or misrepresentation, without pre-udice to his other rights shall have the following rights% (a! lien or right of retention of the surplus, after paying partnership liabilities for the sum paid by him to purchase interest or capital or advances contributed (b! to stand, after all liabilities to third persons are paid or satisfied, in place of creditors for any payment made by him in respect to partnership liabilities (c! to be indemnified by the person guilty of fraud or misrepresentation against all debts or liabilities of the partnership 0@<8/ T9 /8TT<8 A229@5T/ A7T80 =)//9<@T)95 /@BG82T T9 A5? A#088A85T T9 T48 295T0A0? 5ote though that any agreement must give way to the preferred right of partnership creditors 8C281T when it involves property of deceased partner used to pay liabilities, in which case his separate creditors are preferred. (1! partnership A//8T/ are partnership property, contribution of partners necessary to pay liabilities ((! 90=80 97 1A?A85T of liabilities $ partnership creditors, partners other than for capital&profit, partner capital, then partner profits ('! A11<)2AT)95 97 A//8T/ shall be partnership properties, followed by contributions to settle liabilities (+! partners must contribute as provided by Article 1767 (proportion of profit&loss! the amount necessary to satisfy liabilities in accordance with the agreement or pro"rata (,! an assignee for the benefit of creditors or any person appointed by the court shall have the

right to enforce contributions in items 1 to + ( ! any partner or legal representative shall have the right to enforce contributions specified in item + to the extent of what he has paid in excess of his share (7! the individual property of a deceased partner is liable for the contribution in item + /@BG82T to the condition that the liabilities where incurred while a partner and that his separate debts are paid (5ote% Art. 1*',! (*! when partnership property and individual properties are in the possession of the court for distribution" partnership property" partnership creditors are preferred, individual property" individual creditors are preferred )5 B9T4 )5/TA528/ saving the right of liens for secured creditors (6! when a partner is insolvent or his estate is insolvent, claims against his property shall ran; as follows% separate creditors, then partnership creditors, then partnership contributions (Article 1*'6! PREFERENCES OF PARTNERSHIP CREDITORS 5ote that partnership creditors have the right to have their credits preferred in payment and that creditors do not lose their preferred rights upon dissolution as they are also considered as creditors of the partnership&person continuing the business in the following instances% 1. A new partner is admitted into an existing partnership, or when any partner retires and assigns (or the representative of the deceased partner assigns! his right to partnership property to two or more partners&one or more of the partners& one or more third persons, if business is continued without li:uidation of the partnership affairs (. All but one partner retires or assigns (or the representative of the deceased partner assigns! their rights in partnership property to the remaining partner without li:uidation of partnership affairs, either alone or with others '. 1artner retires&dies and the business of the dissolved partnership is continued as set forth in 5os. 1 and ( of this article with the consent of the retired partners or the representative of the deceased partner but without assignment of his right to partnership property

18

+. All partners or their representatives assign their rights to partnership property to one or more third persons who promise to pay debts and continue the business of the dissolved partnership ,. .hen a partner wrongfully dissolves the partnership and the remaining partners continue the business under Article 1*'7, (nd paragraph either alone or with others and without li:uidation of the partnership affairs . A partner is expelled and the remaining partners continue the business either alone or with others without li:uidation of partnership affairs. 59T8% AB/8528 97 <)L@)=AT)95 T48 <)AB)<)T? 97 A T4)0= 180/95 B829A)5# A 1A0T580 in the partnership continuing the business under this article shall be satisfied out of partnership property only, unless there is a stipulation to the contrary. 1087808528 is also given to creditors of the dissolved partnership as against creditors of a retiring&deceased partner or his representative to any claim which the retiring&deceased partner may have against the person partnership continuing the business on account of said partnerKs interest or on account of any consideration promised for such interest or for his right to partnership property. A8A5)5# that is a partner retires&dies, his claim for the payment of his interest cannot defeat the preference of partnership creditors. 59T4)5# in Article 1*+3 shall be held to modify any right of creditors to set aside any assignment on the ground of fraud. The use of a person or partnership continuing the business of the 1A0T580/4)1 5AA8 or T48 5AA8 of a deceased partner as part thereof, shall 59T B? )T/8<7 ma;e the individual property of the deceased partner liable for any debts contracted by such person or partnership. This constitutes an exception to Article 1*1, as the situation presupposes dissolution and business is continued under any of the above"mentioned instances.

.hen any partner =)8/&08T)08/, and the business is continued under Article 1*+3 or 1aragraph ( of Article 1*'7 (partners who do not cause dissolution! without settlement of accounts as between him&his estate and the person&partnership continuing the business, the partner or his legal representative shall have the right to (1! to have the value of his interest at the date of dissolution ascertained and he shall receive as an ordinary creditor an amount e:ual to the value of his interest, with interest 90 at his&legal representativeKs 91T)95 the profits attributable to the use of his right in the property in lieu of his interest 109>)=8= that partnership creditors are nevertheless preferred (Article 1*+1! LIMITED PARTNERSHIPS DEFINED )s one formed by two or more persons under the provisions of Article 1*++ having as members one or more general partners and one or more limited partners. The limited partners as such shall not be bound by the obligators of the partnership (Article 1*+'! 1. )f all want to be limited partners, the remedy is to form a corporation (. The existence of a general partner is the assurance to creditors that if partnership property be insufficient, their credits may still be satisfied out of personal property of the general partner. A</9 for management purposes and to enable and encourage persons with capital not desiring to engage in a particular business to invest and become partners with those possessed with business s;ill and to en-oy profits without liability as a general partner. STATUTORY RE2UIREMENTS The members must sign and swear to a certificate stating the following (a! 5AA8 of the partnership, adding H<T=I. )f not appended it is
19

presumed to be a general partnership. @nder Article 1*+ , the name of a limited partner must not appear unless (1! it is also the name of a general partner ((! 1rior to the time when he became a limited partner, the business has been carried under name carrying his surname. )f a limited partner name appears, he is liable as general partner to partnership creditors who extend credit without actual ;nowledge that he is not a general partner (b! 24A0A2T80 97 T48 B@/)58// (c! <92AT)95 97 T48 10)52)1A< B@/)58// (d! 5AA8 A5= 08/)=8528 97 8A24 A8AB80, #8580A< A5= <)A)T8= 1A0T580/ B8)5# 08/182T)>8<? =8/)#5AT8=. 5ote that under Article 1*,', a person can be both a general partner or limited partner at the same time provided such fact is stated in the certificate. As such, he shall have the rights and powers of a general partner and be sub-ect to all restrictions 8C281T that with respect to his contribution he shall have the right against all other members which he would have if he were not also a general partner. A8A5/ $ that if he is held answerable by third persons, he is entitled to recover what he has paid from general partner. A</9, he would have preference in the distribution of partnership assets to the extent of his contribution (e! T80A 790 .4)24 T48 1A0T580/4)1 )/ T9 8C)/T. There can be no limited partnership as will as 1aragraph 6, Article 1* + states that there is need to amend the certificate when no time for dissolution is fixed, if not done, there is liability for a false statement under Article 1*+7 (f! AA9@5T 97 2A/4, =8/20)1T)95 97 A5= A#088= >A<@8 97 T48 109180T? 295T0)B@T8= B? A <)A)T8= 1A0T580. 5ote the prohibition on industry. )f services are contributed, the limited partner is an industrial partner and the value of service that he contributes increases, thus it runs counter to the concept of limited (Article 1*+,! ( g! additional contributions to be given by limited partners, the time or event at which they will be made (h! the time if agreed, when the contribution of a limited partner will be returned (i! the share of profits or other compensation by way of income which a limited partner will receive by reason of his contribution (-! the right, if given of a limited partner to substitute an assignee as contributor in his place

and its terms and conditions (;! the right if given of the partners to admit other limited partner 59T8" admission becomes effective upon the filing of an amendment to the original certificate (Article 1*+6! as there is a need to designate who the limited partners are. )f there is no amendment there is a false statement (l! the right if given of one or more limited partners to priority over other limited partners to their contribution, compensation by way of income and the nature of such priority. @nder Article 1*,,, if not contained, the presumption is that they stand on e:ual footing (m! the right if given, of the remaining general partner to continue the business on the =eath,0etirement, )nsolvency, )nsanity or 2ivil )nterdiction of a general partner (n! the right if given, of a limited partner to demand and receive property other than cash in return of his contribution /aid certificate or articles must be filed for the record with the /82. 59T8 T4AT (1! )t must be duly sworn to as one who suffers loss by reliance on a statement may hold a party who ;new the statement to be false at (a! the time it is signed (b! subse:uently, but within a sufficient time before the statement is relied upon, to enable him to 2A528< or AA85= or to file a 1etition for its 2A528<<AT)95&AA85=A85T under Article 1* , may bring an action for damages (Article 1*+7! ((! )f not filed with the /82, it is presumed to be a general partnership, but the liability as a #eneral 1artner applies to third persons as between them the limited liability stays ('! /ubstantial compliance in #99= 7A)T4 gives rise to the formation of a limited partnership but the absence of the following will bar it (a! 2ertificate is not sworn to as it is necessary to impress upon the partners that the contents of the Articles are true and correct so that third persons are not misled (b! )tKs articles are not registered (c! The identity of <imited 1artners is not disclosed )f a limited partnership is formed under the law effective prior to the 522 (2ode of 2ommerce&old 2ivil 2ode!, it may become a limited partnership under the 5ew 2ivil 2ode by complying with Article 1*++. 7urther, it must set forth the (a! amount of original contribution of each limited partner and time contribution was made (b! that the
20

property of the partnership exceeds the amount sufficient to discharge liabilities to persons not claiming as #eneral 1artners or <imited 1artners by an amount greater than the sum of the contributions of <imited 1artners. )f they donKt do anything, they continue to be governed by old law under which they were formed (Article 1* 7!. .4AT A08 0)#4T/, 19.80/, <)AB)<)T)8/ 97 1A0T580/ 08/T0)2T)95/ A5=

1. A #eneral 1artner has the (a! 0ight and power to control the affairs of the partnership, as such he is the sole person who can act for the partnership in consideration of his personal liability for debts without limitation (b! 8xcept with the written consent or ratification of the specific act by all <imited 1artners, he cannot perform the following (because they are acts of dominion and cannot be considered essential or in the ordinary course of business! (1! do any act in contravention of the agreement, this refers to other business ((! do any act that would ma;e it impossible to carry on the ordinary business of the partnership ('! confess -udgment (+! possess partnerhsip property or assign rights to specific partnership property other than for partnership purpose (,! admit a person as a #eneral 1artner ( ! admit a <imited 1artner unless expressly allowed in the certificate (7! continue the partnership with partnership property on the =0))) of a #eneral 1artner unless allowed in the certificate (Article 1*,3!. )n the same manner as a limited partner, he shall also have the right to (1! have partnership boo;s ;ept at the principal place of business of the partnership, and at a reasonable hour, to inspect and copy them ((! have on demand, true and full information of all things affecting the partnership, and a formal account of partnership affairs whenever circumstances render it -ust and e:uitable, and ('! have dissolution and winding up by decree of the court (Article 1*,1! (. A <imited 1artner on the other hand, is (a! 5ot bound by partnership obligations unless he (1! participates in management under

Article 1*+* ((! allows his name to be used under Article 1*+ ('! he is also a general partner under Article 1*,' and (+! he is liable under Article 1*,( when he contributes capital to a business erroneously believing that he has become a limited partner is not by reason of such exercise of his rights as a limited partner, a general partner with the person or partnership carrying on the business or is bound by their obligations 109>)=8= That on ascertaining the mista;e, he promptly renounces his interest in the profits of the business or compensation by way of income and creditors are not pre-udiced. A8A5)5#" that since he has not been designated as a limited partner, he appears as a general partner. 4ence, he is so liable unless he renounces. 5ote though that this provision is without pre-udice to Article 1*+*. A8A5)5#% that if the limited partner has already participated in management, he cannot avail of the provisions of Article 1*,( to limit his liability by renouncing. )f the exceptions =9 59T A11<?, a limited partner is liable only up to the extent of his contributions. (b! a limited partner also has the rights prescribed under Article 1*,1 as discussed, and in addition, the right to receive a share of the profits or other compensation by way of income, and to the return of contributions as per Article 1*, and 1*,7.

.485 )/ A <)A)T8= 1A0T580 85T)T<8= T9 0828)>8 4)/ /4A08 97 T48 1097)T/ 90 29A185/AT)95 B? .A? 97 )529A8 A limited partner is entitled to his share of the profits&compensation by way of income on the date stipulated in the certificate. /aid amounts may come from the property of the partnership or that of the general partner. 109>)=8=, that after payment, partnership assets are in excess of liabilities except liability to both limited and general partners for their contributions (Article 1*, ! .485 A08 295T0)B@T)95/ /@119/8 T9 B8 08T@058=

21

The contributions of a limited partner as coming from partnership property or that of a general partner cannot be returned @5<8// (a! all partnership liabilities except liabilities to (contributions of! general or limited partners, have been paid or assets set aside to satisfy them (b! the consent of all members is had unless return has been rightfully demanded. )T )/ 0)#4T7@<<? =8AA5=8=% (1! on the dissolution of the partnership ((! when the date stated in the certificate for its return has arrived ('! when months written notice has been given to all members, if no time is stipulated for return or dissolution. (c! 2ertificate is amended or cancelled to reflect withdrawal or reduction. 49. 1A)= $ a limited partner, in the absence of a contrary stipulation or the consent of all members, shall, irrespective of the nature of his contribution, have the right to demand and receive 2A/4 in return for his contribution )5 A==)T)95 $ a limited partner has the right to have the partnership dissolved and its affairs wound"up when (1! he rightfully but unsuccessfully demands the return of his contribution ((! other liabilities have not been paid or partnership property is insufficient for their payment A5= the limited partner is or would otherwise be entitled to the return of his contribution (Article 1*,7! 0)#4T T9 T0A5/A2T B@/)58// .)T4 T48 1A0T580/4)1 A limited partner may (1! <oan money to the partnership, 90 ((! transact other business with the partnership and ('! unless he is also a general partner, receive on account of resulting claims against the partnership, together with general creditors, a pro"rata share or assets (59T8 T4AT .485 48 T0A5/A2T/ B@/)58//, the limited partner is treated as a non"member creditor! B@T )5/97A0 A/ 2<A)A/ A#A)5/T T48 1A0T580/4)1 $ 48 2A559T% (1! receive or hold as collateral any partnership property, 90 ((! receive from a general partner or the partnership, any 1A?A85T, 295>8?A528, 90 08<8A/8 709A <)AB))T?, if at that time, the assets of the partnership are not sufficient to discharge liabilities to persons not claiming as general or limited partners. 48528, the

receiving of collateral, security, payment or conveyance or release , in violation of the provision is 70A@= on creditors of the partnership (Article 1*,+!.

0)#4T T9 A//)#5 )5T808/T A limited partnerKs interest is assignable. The effects of an assignment is to (a! constitute the assignee as a /ubstituted <imited 1artner (/<1!. This occurs when the assignee is admitted to all the rights of a limited partner who has died (/ee Article 1* 1 giving the executor or administrator of the deceased partner the right to exercise all rights as a limited partner to settle his estate and such power as the deceased had to constitute an assignee as a /<1! or has assigned his interest in the partnership (the assignor partner must have the right to constitute the assignee as a /<1!. As a conse:uence, he has all the rights of a limited partner and is sub-ect to all liabilities and restrictions on the A//)#590 8C281T, those which he was ignorant of at the time he became a limited partner and which could not be ascertained from the certificate. B@T, the A//)#590 is not released from liability under Articles 1*+7 (7alse statements! and 1*,*, The 87782T)>)T? )/ 95 AA85=A85T 97 280T)7)2AT8, 90 (b! he is a mere assignee. As such he has no right to re:uire information or an account&s of partnership transactions or to inspect the boo;s. 48 4A/ 0)#4T T9 $ (1! receive his share of profits or compensation by way of income 90 the return of contribution, to which the assignor would otherwise be entitled. 48 2A5 B829A8 A /<1, if (a! all the members consent 90 (b! the assignor is given the right by or in the certificate to constitute him as a /<1. )t is possible that if A//)#590 does not desire, the assignee cannot be a /<1 (Article 1*,6!. B@T, the constitution of the assignee as a /<1 becomes effective only, in both cases .485 T48 280T)7)2AT8 )/ AA85=8=. 5ote% )f no consent is given, =)//9<@T)95 AA? TAD8 1<A28

22

.4)<8 T48 )5T808/T )/ A//)#5AB<8, )T AA? A</9 B8 24A0#8=. The procedures is as follows% (a!due application of a court of competent -urisdiction but exemption laws apply (b! court may then appoint a receiver, ma;e any orders, directions or in:uiries. )5 T48 )A1<8A85TAT)95 97 T48 24A0#)5# 90=80, the (a! the limited partner cannot interpose that prior resort has been had to other remedies as it is not deemed exclusive (b! the interest may be redeemed with the separate property of any general partner but not with partnership property (as it constitutes an untimely return of contribution and gives a limited partner a concession that is inconsistent with limited liability!. =issolution may result by the express will if the members whose interest have not been charged (Article 1* (! A <)A)T8= 1A0T580 A</9 4A/ T48 0)#4T 59T T9 B8 )A1<8A=8= A/ A 1A0T? T9 A5 A2T)95 A/ contributor unless he is a general partner cannot be a proper party in a proceeding by or against the partnership except when the ob-ect is to enforce the limited partner right against or liability of the partnership (Article 1* !.

T48 <)AB)<)T)8/ 97 A <)A)T8= 1A0T580 may be .A)>8= or 29A109A)/8= with the consent of all members, but the waiver or compromise shall not affect creditors who extend credit or whose claim arose after the filing and before a cancellation or amendment of the certificate, to enforce such liabilities. A limited partner is also liable, if he has rightfully received the return in whole or in part of his contribution, to the partnership for any sum, not in excess of what he received, with interest, necessary to discharge liabilities to all creditors who extend credit or whose claim arose before such return (Article 1*,*!. This applies to all transactions validly incurred but not considered at the time the return is made =)//9<@T)95 The grounds&causes for dissolution as provided for by Articles 1*'3 and 1*'1 apply. The additional grounds are those provided for under Article 1*,7 (when the limited partner rightfully demands for return of contributions but is unsuccessful, or, there is non"payment of liabilities! and Article 1* 3, upon the =0))) of a general partner, which as a rule dissolves the partnership @5<8//, the business is continued by the remaining general partner under (a! right granted in the certificate , 90 (b! consent of all members is obtained T48 90=80 97 /8TT<)5# A229@5T/ )/% (1! creditors in the order provided for by law, except those owing general or limited partners by way of contribution ((! those owned to limited partners in respect to their share of profits and other compensation by way of income on their contribution ('! limited partnerKs contributions (+! general partner other than for capital or profits (,! general partnerKs profits ( ! general partnerKs capital. /ub-ect to agreements, a limited partner shares in proportion to his contribution (Article 1* '!. .485 A@/T T48 280T)7)2AT8 B8 2A528<<8= 90 AA85=8=
23

&HAT ARE THE LIA'ILITIES OF LIMITED PARTNERS A limited partner is liable to the partnership for (1! the difference between his contribution as actually made and that stated in the certificate as having been made ((! the unpaid contribution which he agreed in the certificate to ma;e in the future, at the time and on the conditions stated in the certificate. 48 A</9 49<=/ A/ T0@/T88 (1! specific property stated in the certificate as contributed but has not been contributed or was wrongfully returned ((! money or other property wrongfully paid or conveyed to him on account of his contribution.

The certificate is to be cancelled when the partnership is to be dissolved or limited partners cease to be such. )t is to be amended when% (1!change in name, character of the partnership or contribution of a limited partner ((! a person is substituted as a limited partner ('! an additional limited partner is admitted (+! a person is admitted as a general partner (,! a general partner =0))) and business is continued ( ! there is a change in the character of the business (7! there is a false or erroneous statement contained in the certificate (*! there is a change in time for dissolution or return of contribution (6! the time for dissolution or return of contribution is fixed (13! the members desire a change in order to accurately represent their agreement (Article 1* +!. A5? .0)T)5# T9 AA85= /4A<< (1! conform to Article 1*++ and as far as necessary must set forth clearly the change in the agreement&certificate ((! it must be signed and sworn to by all members, and if amendment is to add a partner (he must sign! or if it pertains to a /<1 (assigning partner and substitute must sign!. )7 )T )/ T9 B8 2A528<<8=, it should be signed by all partners. A person desiring cancellation or amendment may petition the court to order cancellation&amendment if the person designated refuses to execute the writing. )f found meritorious, the court will order the /82 to cause cancellation or amendment T48 280T)7)2AT8 )/ AA85=8= 90 2A528<<8= .485 (1! The writing in compliance with Articles 1* + and 1* , is filed with the /82, and ((! )7 29@0T A2T)95 )/ )5)T)AT8=, a copy of the 90=80 of the court must be filed also. The Amended certificate then ta;es the place of the original certificate. 59T8% that the /82 has discretion to pass upon compliance with Article 1*++.

Civil Law; Agency; The right of a broker to his commission for finding a suitable buyer for the sellers property even though the seller himself consummated the sale with the buyer recognized by the Court. )n Aacondary M &co. v. /ellner, the court recogniEed the right of the bro;er to his commission for finding a suitable buyer for the sellerKs property even though the seller himself consummated the sale with the buyer. The court held that it would be in the height of in-ustice to permit the principal to terminate the contract of agency to the pre-udice of the bro;er when he had already reaped the benefits of the bro;erKs efforts. Same; Same; The sellers withdrawal in bal faith of the brokers authority cannot un ustly deprive the brokers of their commission as the sellers duly constituted agents. )n )nfante v. 2unanan, et al., the 2ourt upheld the right of the bro;ers to their commission although the seller revo;ed their authority to act in his behalf after they found a buyer for his properties and negotiated the sale directly with the buyer whom he met through the bro;erKs effort. The 2ourt ruled that the sellerKs withdrawal in bad faith of the bro;erKs authority cannot un-ustly deprive the bro;ers of their commissions as the sellerKs duly constituted agents. Same; Same; Agency Coupled with an !nterest; An agency is deemed as one coupled with an interest where it is established for the mutual benefit of the principal and of third persons" and it cannot be revoked by the principal so long as the interest of the agent or of a third person subsists. @nder Article 16(7 of the 2ivil 2ode, an agency cannot be revo;ed if a bilateral contract depends upon it, or if it is the means of fulfilling an obligation already contracted, or if a partner is appointed manager of a partnership in the contract of partnership and his removal from the management is un-ustifiable. /tated differently, an agency is deemed as one coupled with an interest where it is established for the mutual benefit of the principal and of the agent, of for the interest of the principal and of third persons, and it cannot be revo;ed by the principal so long as the interest of the agent or of a third person subsists. )n an agency coupled with an interest, the agentKs interest must be in the sub-ect matter of the power conferred
24

A!ENCY

and not merely an interest in the exercise of the power because it entitles him to compensation. .hen an agentKs interest is confined to earning his agreed compensation, the agency is not one coupled with an interest, since an agentKs interest in obtaining his compensation as such agent is an ordinary incident of the agency relationship. N1O

1A0T)8/ T9 A 295T0A2T 97 A#852? 1. Pri)ci-+l $ one who has permitted or directed another to act for his benefit and sub-ect to his direction and control. 4e is the one whom the agent represents and from whom he derives authority. 4e is the one primarily concerned with the contract 2A1A2)T? .)/8 $ he must be able to give legally effective consent and the act to be performed must be delegable (whether or not the act can be done by the person himself. )f ?8/ $ it is delegable 8C281T $ if it is strictly personal. 8xample% swear under oath, execute a will or exercise a profession. 10)52)1A</ $ can be natural or artificial&-uridical persons, foreigners&aliens. (. A3e)t $ he who act or stands for another, usually he is given full or partial discretion, at times he acts under a specific command. 2A1A2)T? .)/8, he must have the capacity to bind himself to the principal, with third persons, it is not necessary as it is the principal who is bound, he assumes no personal liability 5AT@08 97 A 295T0A2T 97 A#852? )t is a fiduciary relationship, as a conse:uence of which% (a! no ac:uisitive prescription exists in favor of the agent as his possession is in the capacity as agent not owner (b!agent cannot deny the title of the principal (c!agent cannot represent conflicting interests (d! agent is obligated to render and give proper information and full disclosure AA5580 97 295/T)T@T)95 97 A 295T0A2T 97 A#852? A contract of agency can be constituted 8C108//<? or )A1<)8= from the acts of the principal, silence, lac; of action or failure to repudiate and in all cases ;nowing that the other person is acting on
25

5ature, 7orms and Dinds of Agency /TAT@T90? =87)5)T)95 By a contract of agency, a person binds himself to render some service or do something in representation or in behalf of another, with the consent or authority of the latter (Article 1* *! 5ote that by going by the definition, agency includes relationships li;e master"servant, employer, employees or lessor $ independent contractor, such is however is )5290082T as agency pertains to the performance of a -udicial act (one that binds a person to an obligation! in the performance of which discretion may be exercised, while in the other relationship what is done in behalf of the other is purely ministerial. A59T480 =87)5)T)95 $ it is a relationship by which two parties whereby one party called the 10)52)1A<, authoriEes another, called the A#85T to act for and in his behalf. .4AT A08 T48 8//85T)A< 08L@)/)T8/ 97 A 295T0A2T 97 A#852? 1. There is consent, express or implied of the parties to establish the relationship (. The ob-ect is the execution of a -uridical act in relation to a third person '. The agent acts as a representative and not for himself +. The agent acts within the scope of his authority

his behalf without authority (Article 1* 6!, )5 /@24 2A/8/, burden of proof is on the party claiming or alleging agency. There is no presumed agency except under Art. 1*3' as between partners when the manner of management has not been agreed upon and when lawyers appear before the court.

by public advertisement (Article 1*7'!. The power of attorney shall remain in full force until notice of rescission is made in the manner notice of constitution is given, or by actual ;nowledge, such is sufficient to ma;e rescission effective. )5 08<AT)95 T9 A0T. 1*7' " if the principal leads another to believe that a certain person is his agent but it is not in fact true and such representation is acted upon $ that creates an A#852? B? 8/T9118<. 5ote however that such can also be created by the supposed agent. =)/T)5#@/)4)5# B8T.885 Agency by 8stoppel and )mplied Agency. )n the former, the agent is not a true agent, the supposed principal or agent is the one liable always depending upon who gave rise to the agency by estoppel. )n the latter, the agent is true agent and it is the principal who is liable. A#852? )/ 108/@A8= T9 B8 790 29A185/AT)95 @5<8// T4808 )/ 10997 T9 T48 295T0A0? .hen there is no compensation mentioned, there is still a contract of agency. The absence or presence of compensation not being a necessary or essential re:uirement (Article 1*7,!. 5either does the agent have to prove that the agency is for compensation. (INDS OF A!ENCY Agency is either #eneral (when it comprises all of the business of the principal! or /pecial (when it comprises one or more specific transactions!. 2onse:uently, if one is appointed as a #eneral Agent, he shall be authoriEed to conduct a series of transactions )nvolving continuity of service. )f one is appointed as a /pecial Agent , he shall be authoriEed to conduct a single&series of transactions not involving continuity of service (Article 1*7 ! HO& CONSTRUED

A/ T9 790A A contract of agency can be orally constituted unless the law re:uires it to be written. The law re:uires it to be written under Articles 1*7+ (sale of land or any interest shall be in writing, otherwise the sale is void! Article 1*7* (when a special power of attorney is re:uired! and in relation thereto, Articles 1*76 and 1**3

49. )/ )T 180782T8= A contract of agency is perfected by A2281TA528, which can be express or implied from acts that carry out the agency or silence or inaction according to circumstances (Article 1*73 )t can also be implied Hbetween persons presentI when the principal delivers his power of attorney to the agent who receives it without ob-ection such is prima facie proof of acceptance (Article 1*71! A5= as between persons who are absent it cannot be implied from the silence of the agent 8C281T% (1! if the principal transmits his power of attorney to the agent who receives it without ob-ection ((!when the principal entrusts to him by letter or telegram, a power of attorney with re:uest to the business in which he is habitually engaged in as an agent and he did not reply to the letter or telegram (Article 1*7(! A/ T9 T4)0= 180/95/ $ it is perfected when a person specifically informs another or states by public advertisement that he has given a power of attorney to a third person, the latter becomes an agent insofar as (a! person to whom specific information is given, (b! anyone if it be

26

)f it is couched in general terms, it only comprises of acts of administration, even if the principal should state that he withholds no power or that the agent may execute such acts as he may deem appropriate or even if agency should authoriEe a general or unlimited management (Article 1*7 !. Acts of administration are those that are necessary in the day to day affairs of the business of the principal. 295/8L@85T<?, )7 .4AT )/ T9 B8 180790A8= )/ 59T A5 A2T 97 A=A)5/T0AT)95, A /182)A< 19.80 97 ATT9058? )/ 08L@)08= )5 T48 79<<9.)5# )5/TA528/% (1! to ma;e payments as not usually considered acts of administration ((! to effect novations which put an end to obligations already in existence at the time the agency was constituted ('! to compromise submit :uestions to arbitration, to renounce the right to appeal, to waive ob-ections to venue or to abandon prescription already ac:uired (+! to waive any obligation gratuitously (,! to enter into a contract by which ownership over an immovable is transmitted or ac:uired gratuitously or for valuable consideration ( ! to ma;e gifts, except customary ones for charity or those made to employees in the business managed by the agent (7! to loan or borrow money, unless the latter act be urgent and indispensable for the preservation of the things which are under administration (*! to lease real property to another for a period exceeding one year (6! to bind the principal to render service without compensation (13! to bind the principal in a contract of partnership (11! to obligate the principal as a guarantor or surety (1(! to create real rights or convey real rights over immovable property (1'! to accept or repudiate an inheritance (1+! to ratify obligations contracted before the agency (1,! any other act of strict dominion (Article 1*7*! There is need for a /pecial 1ower of Attorney to give the agent a clear mandate specifically authoriEing the performance of an act as the acts are classified as (a! acts of strict dominion or ownership (b! gratuitous contracts, or (c! contracts where personal trust or confidence is of the essence. )f an act of the agent re:uires a special power of attorney, its absence renders the contract unenforceable. 5ote% A #8580A< 19.80 97 ATT9058? 295TA)5)5#

A@T490)JAT)95 790 A2T/ .4)24 08L@)08/ A /182)A< 19.80 97 ATT9058? )/ A<<9.8= (>eloso vs. 2A , ( 3 /20A ,6'!. )n relation to Article 1*7*, note that (1! a special power of attorney to sell excludes the power to mortgage, and a special power of attorney to mortgage does not include the power to sell (Article 1*76! as the real ob-ect is to dispose of the property, if however the power given is to raise money for which an agent may sell property or avail of all other means $ then a mortgage would be valid ((! a special power of attorney to compromise does not authoriEe submission to arbitration. The principal trusts the -udgment of the agent but not the -udgment of the arbitrator. 0@<8/ T4AT #9>805 T48 180790AA528 B? T48 A#85T 97 T48 A#852? There being a contract of agency, the general obligations and scope of power of the agent are% (a! 4e must act within the scope of his authority (Article 1**1!. 4e may do such acts as may be conducive to the accomplishment of the purpose of the agency. A@T490)T? =87)58=" The right of the agent to effect legal relations with his principal by the performance of acts effectuated by and in accordance with the principalKs manifestation of consent. D)5=/ 97 A@T490)T? (a! 8xpress $ the authority is clearly defined and is spelled out in terms that the agent fully understands what is to be done (b! )mplied $ only the general nature of the authority is defined, but is deemed to include acts necessary to accomplish the purpose (c! #eneral $ the agentKs discretion is complete (d! /pecial $ particular instructions are given (e! Apparent" when the agent or a third person is led to believe by the principal that he is an agent. A@T490)T? A/ =)/T)5#@)/48= 709A 19.80" authority may be considered as the cause while power is the effect. Authority given by the principal to the agent is the one that empowers the agent, who can now act.

27

(b! The limits of an agentKs authority shall not be considered exceeded should it have been performed in a manner more advantageous to the principal than that specified by him (Article 1**(!. The conditions of the agency can be improved, but not made worse. The agent cannot be said to have exceeded the scope of his authority because it is presumed that if it were the principal so acting, he would have followed the more advantageous course. 2<8A0<?, )T )/ 19//)B<8 T4AT T48 19.80 97 T48 A#85T B8 B09A=80 T4A5 T48 10)52)1A< it should be characteriEed by the fact that it is more advantageous to the principal. )7 A5 A#85T )/ 295/T0A)58= T9 A2T B8?95= T48 A@T490)T? #)>85 4)A. )T 2A5 B8 G@/T)7)8= )7 )T )/ 295/)=808= A5 A#852? B? 5828//)T?. This refers to the concept that the agentKs authority is correspondingly enlarged to cope with the necessities or exigencies of the moment $ B@T T4)/ /49@<= A<.A?/ 108"/@119/8 T4AT A5 A#852? )/ A<08A=? )5 8C)/T8528. The conditions are (1! real existence of an emergency ((! inability to communicate with the principal ('! exercise of additional authority is for principalKs protection (+! he adopts family reasonable means, premises duly considered, and (,! authority ceases the moment the emergency no longer demands it (c! )f an agent acts in his own name, the principal has no right of action against the persons with whom the agent contracted, neither have such persons against the principal. )n such is the case, the agent is directly responsible to the persons with whom he contracted as if the transaction has his own except when the contract involves things belonging to the principal. )t is also without pre-udice to actions between the principal and the agent. (Article 1**'!. This is an A#852? .)T4 A5 @5=)/2<9/8= 10)52)1A<. This will apply only when there is a contract of agency as the agent here .A/ A@T490)J8= B@T A2T8= )5 4)/ 9.5 5AA8, as opposed to an agency by estoppel. 4ere the agent is liable alone as the fact of representation disappears insofar as the third person and the principal. Applying 1**1 )n this four instances the effects are%

1. Acts in principalKs behalf of authority $ valid $ principal is bound (. Agent acts with authority but in his behalf $ valid $ principal is not bound except if 1**( applies '. HAgentI without authority but in behalf of the principal $ unenforceable $ but principal can ratify. Art. 1+3' $ paragraph ) Those entered into in the name of another person by one who has given a authority or legal representative or who has cited beyond his powers. +. HAgentI without authority in his behalf $ valid $ provided at the time of delivery he can deliver O'LI!ATIONS OF THE A!ENT ). 2A00? 9@T T48 A#852? Art. 1**+ $ the agent is bound by his acceptance to carry out the agency $ )7 48 =98/ 59T $ he is liable through non" performance for damages that may be sustained by his principal. 4e must also $ finish business already began on the death of the principal $ should delay enPP any damages 1</. 59T8% That if he carries PPP the agency in good faith and in accordance with is authority but damages still result. 4e is not liable. B@T $ under Art. 1*** $ the agent shall not carry out the agency if its execution would manifestly result in loss or =AAA#8 Aanifestly $ execution will definitely damage the principal )f the A#85T =82<)58/ (or Art. 1*73, 71, or 7( does not apply! A. 9bserve the diligence of a good father of the family in the custody and preservation of the goods forwarded to him.
28

@5T)<% the principal shall have appointed an agent, or the principal shall have as soon as practicable ta;en charge of )f the A#85T exercises the re:uire diligence $ loss PPP have to be borne by the 9.580&10)52)1A< )7 48 A2281T/ $ Art. 1**7 The agent in the execution shall act. a. in accordance with the instructions of the principal ()nstructions as opposed to authority are the specific acts to be underta;en to carry out the agency! )5 /9 #)>)5# )5/T0@2T)95/ $ the principal must ma;e his terms clear and PPPPPPPPP, if it be susceptible to two meanings, adoption in good family does not cause liability for loss in constituting the instructions they shall be construed as Ha plain non ac:uainted with the ob-ect and attending reasonably to the language used, has in fact construed. b. )5 =87A@<T 97 )5/T0@2T)95/ $ he shall do all that a good father of the family will do as re:uired by the nature of the business. (That which an ordinary prudent man would exercise as regards his own property! he must careful $ agent is responsible not also fraud, but also for negligence which shall be -udged with more or less PPP by costs depending or whether agency was or was not for compensation. )5 A==)T)95, )5 2A00?)5# 9@T T48 A#852? Art. 1** $ if there be a stipulation that the agent shall advance the necessary funds, he shall be found to do so except of the principal is insolvent. " this applies whether the agency is gratuitous or onerous. " if PPPPP the agent $ (Art. 161*! (see 161( A</9! " actual in contravention of being authority unless he avails himself of the benefits. " expenses are due to his PP

" incurred the expenses with ;nowledge that an unfavorable result will ensure " or, it is stipulated that expenses are to be PPP by him " when even if he (A#85T! advances the amount no right for a reimbursement exists )). A#85T /49@<= 59T 08108/85T PP Art. 1**6 $ the A#85T is liable for damages, if there is a conflict between his interests and that of the principal he should prefer his own. ))). )7 48 )/ A@T490)J8= T9 <85= 90 B9009. A958? (1*63! " if he is authoriEed to borrow, he may be the lender at the current rate " if he has been authoriEed to lend money at interest, he cannot borrow it without the consent of the principal $ as there is a damages that the interest of the principal will be -eopardiEed )>. 9B<)#AT)95 T9 085=80 A5 A229@5T 97 4)/ T0A5/A2T)95/ " =8<)>80 T9 T48 10)52)1A< .4AT8>80 48 AA? 4A>8 0828)>8= B? >)0T@8 97 T48 A#852?, 8>85 )7 )T )/ 59T 9.)5# T9 T48 10)52)1A< Any stipulation exempting him from rendering an accounting is void. " 7ailure to account or return without -ustifiable reason shall be ground for prosecution under Art. '1, par 1 ( ! of the 01< for estafa >. 5AT@08 97 <)AB)<)T? 97 T48 A#85T T9 T48 10)52)1A< Art. 1*6+ $ the responsibility of two or more agents, even though they have been appointed. /imultaneously, is 59T /9<)=A0?, if solidarily has not been expressly agreed upon. <iability is -oint.
29

But Art. 1*6, $ if solidarily has been agreed upon each of the agents is responsible for the non"fulfillment of the agency and for the PPP and negligence of his PP agents except in the latter case the agent acted beyond the scope of their authority. )f the co"agent PP beyond the scope of his authority $ no liability is imposed on the other agent. 1rincipal can sue either agent without pre-udice to any action&s for recovery between them. )5 A==)T)95 Art. 1*6 $ of the agent 4as% converted and applied PPP to his own use, or ones PP after the agency is extinguished 48 )/ <)AB<8 790 )5T808/T 95 T48 /A)= AA9@5T/ .)T49@T 108/@PPP T9 A 109/82@T)95 790 8/TA7A )7 /9 .A00A5T? 2A5 T48 A#85T A119)5T A /@B/T)T@T8 Art. 1*6( $ The agent is allowed to appoint a substitute of the principal has not prohibited from doing so, but if he does appoint, the agent shall be responsible for all the acts of the substitute if% a. he has not given the power to appoint one b. he was given the power to appoint but without designating the person and the person appointed was notoriously incompetent or insolvent A</9, all the actKs of the substitute shall be void if it is counter to the principalKs prohibition to appoints. Article 1*6' $ in cases where there is no power to appoint or the person appointed is incompetent or insolvent. The principal may bring an action against the substitute with regards to the obligation which has been contracted under substitution. 8xecution on the 0ule of priPP Art. 1'11 $ contracts ta;e effect between the parties only )5/97A0 A/ <)AB)<)T)8/ T9 T4)0= 180/95/

Article 1*67 $ agent is not personally liable to the party with whom he contracts $ @5<8// a. 4e expressly binds himself in which case the principal is still liable. b. 4e exceeds the PP of his authority without giving such party sufficient notice of his powers but if party is aware then he is estopped from claiming otherwise Art. 1*6* $ if the agent contracts in the name of the principal exceeding the scope of his authority A5= the principal does not ratify the contract is >9)=, if the party is aware of the PP of the power granted by the principal. )f the agent undertoo; to secure ratification and it is not given, the agent is liable even if the third party is aware or unaware. 08L@)/)T8/ 790 >A<)= 0AT)7)2AT)95 1. contract is one which would have been valid or legal had the agent been authoriEedB (. principal must be existing and legally competent at the PP of ratificationB '. contract must purport to be in the principalKs behalfB +. same formalities re:uired for ratification as original authoriEationB ,. principal must have full ;nowledge of the factsB Art. 1*66 $ if the duly authoriEed agent acts in accordance with the order of the principal the principal cannot set up the ignorance of the agent as to circumstances whereof he himself was on ought to have been aware. e.g. agent was to adopt to a situation that is foreseen principal cannot say PP in attribute to agent if he was aware 0@<8/ 29>80)5# T4)0= 180/95/ Art. 1633 $ they can consider an act performed by the agent to be within the scope of granted authority, if it is within the terms of the .0)TT85 19.80 97 ATT9058?, even if in fact it has been

30

exceeded according to an understanding between the principal and agent. Art. 1633 $ has no application of the agency is not written 95 T48 9T480 4A5= $ under Art. 1631" a third person cannot set up the fact that the agent has exceeded his power of the principal has% a. ratified the act or b. has expressed a willingness to ratify c. to ensure that the agent acts with his authority Art. 163( $ a second person has the right and the agent the obligation to% a. re:uire&present the power of attorney or b. re:uire&present the instructions )f there are private or secret orders or instructions, third parties will not be pre-udiced if they have relied on what has been shown to them. Art. 163' $ 163* $ 2ommission Agent Agent is a bro;er or a penchant who has the option with actions in his own name or that of the principal for which purpose $ goods are placed in his PPP of PP, engaged in purchase and sale of proposed property. Art. 163' $ he shall be responsible for the goods received by him in the terms and conditions and as described in the consignment unless upon receiving them he should ma;e a written statement of the damage and deterioration. Art. 163+ $ if he handles goods of the same ;ind and wor;, which belong to different owners, he should distinguish then by countermar;s and designate the merchandise belonging to each principal. '. 4e cannot sell the goods on credit without the express or implied consent of the principal. )f he sells on credit, the principal can

demand cash but the agent shall be entitled to any benefit or interest (B@T 10)52)1A< 2A5 0AT)7? /A<8!. )f he sells on credit with the authority of the principal, he shall inform the principal with a statement of the names of the buyers. /hould he fail, the sale shall be deemed to have been made in cash insofar as the principal is concerned T4)/ )/ T9 108>85T A#85T 709A /A?)5# T4AT A 2A/4 /A<8 .A/ 95 208=)T (Articles 163, and 163 !. +. )f the agent is entitled to a #@A0A5T88 29AA)//)95 (in addition to the ordinary commission! he shall bear the ris; of collection and shall pay the principal the proceeds of the sale on the terms agreed upon with the purchaser (Article 1637!. 4ere the )5/9<>852? 97 T48 =8BT90 )/ 59T A =8785/8. ,. )f the commission agent does not collect the credits of his principal when they become due and demandable, he is liable for damages unless he proves he exercised due diligence (Article 163*!.

O'LI!ATIONS OF THE PRINCIPAL 1. T9 29A1<? comply with all obligations that the agent may have contracted .)T4)5 T48 /2918 97 4)/ A@T490)T?. As for any obligation contracted when his power is exceeded, the principal is not bound 8C281T if he 0AT)7)8/ expressly or tacitly (Article 1613!. )f the agent exceeded his authority the principal is /9<)=A0)<? <)AB<8 with the agent )7 48 A<<9.8= the latter to act as if he had full powers (Article 1611!. (. T9 A=>A528 , )7 T48 A#85T 08L@)08/, the /@A/ necessary to execute the agency. )f it is not advanced, the principal must reimburse the agent even if the business or underta;ing was unsuccessful 109>)=8=, the agent is free from any fault or negligence, to include )5T808/T form the day on which the advance is made (Article 161(!.

31

59T8% That under Article 161* $ the principal is not liable for expenses incurred by the agent in (+! instances% (a! Agent acted in contravention of the principalKs instructions, unless he chooses to avail himself with the benefits (b! 8xpenses are due to the agentKs fault (c! .hen they are incurred by the agent with ;nowledge that an unfavorable result would ensue, if the principal not aware thereof (d! .hen it has been stipulated that the agent would bear the expense or that the latter would only be allowed a certain sum. '. T9 )5=8A5)7? the agent for damages which the execution of the agency may have caused the agent, who is without fault or negligence (Article 161'!. To enforce payment of the sums due under 1aragraphs ((! and ('!, the agent may retain in 1<8=#8 the things which are the ob-ect of the agency until the principal effects reimbursement and payment of the indemnity. This is an 8C281T)95 T9 T48 =@T? T9 =8<)>80 @5=80 A0T)2<8 1*61. .4AT )/ 5AT@08 97 T48 <)AB)<)T? 97 T48 10)52)1A< )5 2A/8/ .4808 ( 90 A908 180/95/ 4A>8 A119)5T8= A5 A#85T 790 A 29AA95 T0A5/A2T)95 90 @5=80TAD)5# The liability of the principal )/ /9<)=A0? $ for all conse:uences of the agency (Article 161,! .4AT 4A1185/ .485 T.9 180/95/ 295T0A2T 08#A0=/ T48 /AA8 T4)5#, 958 .)T4 T48 10)52)1A<, T48 9T480 .)T4 T48 A#85T .hen ( persons contract with regards the same thing, one of them with the agent, the other with the principal and the ( contracts are incompatible with each other. T4AT 97 T48 10)90 =AT8 10878008=, unless Art. 1,++ applies% A9>AB<8/ $ first to ta;e

possession in good faith, )AA9>AB<8 $ first in good faith records it in the registry of property. 59 )5/20)1T)95 $ first having possession in good faith, and in its absence, person who presents the oldest title, provided there is good faith (Article 161 !. )f the agent acted in good faith, the principal must be held for damages suffered by the person whose contract is re-ected (Article 1617!. )f he is in bad faith, he alone shall be responsible .4AT A08 T48 A9=8/ 295T0A2T 97 A#852? 97 8CT)5#@)/4)5# T48

The contract of agency is extinguished by (a! 0evocation (b! .ithdrawal of the agent (c! =eath, civil interdiction, insanity or insolvency of the agent (d! =issolution of the firm or corporation entrusted with or accepting the agency (e! Accomplishment of the ob-ect or purpose of the agency (f! 8xpiration of the period for with the agency was constituted (Article 161*! 9ther ;nown causes are termination by mutual consent, novation, loss of the sub-ect matter, outbrea; of war if inconsistent with agency. 08>92AT)95 (1! 0evocation is underta;en by the principal at will and he may compel the agent to return the document evidencing the agency. )t may be done (a! 8C108//<?, or (b! )A1<)8=<? (Article 16(3! ((! )mplied revocation ta;es place when% (a! a new agent is appointed for the same business or transaction which becomes effective on the day notice thereof was given without pre-udice to Articles 16(1 and 16(( (Article 16('!, (b! when the principal directly manages the business entrusted to the agent by dealing directly with third persons (Article 16(+!, and (c! grant to another agent of a special power of attorney revo;es a general power of attorney as regards the special matter involved in the special power of attorney (Article 16( !.
32

.49 2A5 08>9D8 )7 T4808 A08 T.9 90 A908 10)52)1A</ )f two or more principals have granted a power of attorney for a common transaction, any one of them may revo;e without the consent of the others (Article 16(,!. This is due to their solidary liability. 87782T)>)T? 97 08>92AT)95 )n A<< )5/TA528/, the revocation is effective only when% (1! 5otice has been given to specified persons, in cases where the agency has been entrusted for the purpose of contracting with third persons (Article 16(1!, 90 ((! )f the agent had general powers, revocation will not pre-udice third persons who acted in good faith and without ;nowledge of the revocation. 5otice of the revocation in a newspaper of general circulation is sufficient warning to third persons. (Article 16((! .485 T4808 2A5 B8 59 08>92AT)95 (1! )t is coupled with interest, but a mere statement that it is coupled with an interest is not sufficient $ )5T808/T )5 T48 /@BG82T AAT80 )/ 08L@)08= ((! )n cases mentioned under Article 16(7 (a! when a bilateral contract depends on the agency. 8xample% A buys a parcel of land from B by installment. To pay balance, A appoints 2 to sell another property if he cannot pay the balance and deliver the proceeds to B. (b! if the agency is a means of fulfilling an obligation already contracted. 8xample% )n a contract of loan with a mortgage. )f the mortgagor is unable to pay, the mortgagee is constituted as the mortgagorKs attorney in fact to sell the property given as security upon foreclosure(c! a partner is appointed as a managing partner and his removal is un-ustified under Article 1*33 ('! .hen there is a waiver by the principal as to revocation

(+!

.hen the principal is obliged not to revo;e

(,! 0evocation is underta;en in bad faith. 4ere there is actual revocation but third parties will not be pre-udiced. .)T4=0A.A< )t is the agent who may withdraw from the agency by giving notice to the principal B@T if the principal suffers any damage due to the withdrawal, the agent must indemnify him @5<8// $ the basis of withdrawal is impossibility of carrying or continuing the agency without grave detriment to himself (Article 16(*!. 49.8>80, despite notice and withdrawal for a valid reason, the agent must continue to act until the principal has had reasonable opportunity to ta;e necessary steps to need the situation (Article 16(6!. T4)/ )/ T9 108>85T =AAA#8 T9 T48 10)52)1A< =8AT4 97 T48 10)52)1A< 90 T48 A#85T (1! As a general rule, the death of the principal extinguishes the agency but if 59T /9 if it has been constituted in% (a! 29AA95 )5T808/T 97 T48 10)52)1A< A5= A#85T. 8xample% A borrows from B and entrusts an item to B, which he can sell if the debt is not paid, the agency shall remain even if A should die. The common interest being the payment of the loan. (b! T48 )5T808/T 97 A T4)0= 180/95 .49 4A/ A2281T8= T48 /T)1@<AT)95 )5 4)/ 7A>90. 8xample% A sells property to B and appoints B as his agent to pay 2 from the proceeds of the sale. The agency will exist even if A dies (Article 16'3! ((! Anything done by the agent without ;nowledge of the death of the principal or any other cause that will extinguish the agency, is valid and shall be fully effective with respect to third persons who may have contracted with him in good faith (Article 16'1!.

33

('! )f the A#85T =)8/, it extinguishes the contract of agency. 2onse:uently (a! his heirs must notify the principal, and (b! adopt measures as the circumstances may demand in the interest of the principal (Article 16'(!. .hen notice is impossible, consignment is the remedy.

only, a stipulation pour autri can refer to both specific things or other things. )/ 29"9.580/4)1 A T0@/T )n the cases of /otto vs. Teves (* /20A 1,+! and 2astrillo vs. 2A (13 /20A ,+6!, the /upreme 2ourt held that a co"ownership is a form of trust, with each co"owner being a trustee for each of the others, thus he may not any act pre-udicial to the interest of his co"owners and an agreement to preserve property in co"ownership is an express trust. .49 A08 T48 1A0T)8/ T9 A T0@/T

notesrsr.busorgn.pc'

TRUST .4AT )/ A T0@/T " )t is a fiduciary relationship concerning property which obliges the person holding it to deal with the property for the benefit of another. 7rom the beneficiaryKs viewpoint, it is the right to beneficial en-oyment of property, the legal title over which is vested in another .4AT A08 T48 24A0A2T80)/T)2/ 97 A T0@/T The characteristics of a trust are (1! it is a fiduciary relationship ((! it is created by law or by agreement (Article 1++1! ('! legal title is held by one, while e:uitable&beneficial title is held by another =)/T)5#@)/48= 709A 9T480 <8#A< 08<AT)95/4)1/ 1. 7rom #uardianship&8xecutorship, a trustee has legal title, not so for a guardian&executor (. 7rom a stipulation pour autri ((a stipulation in a contract in favor of a person not a party to the contract, the parties thereto not being under any legal obligation to grant a benefit!, (a! a trust exists because of a legal provision or a contract, a stipulation pour autri arises only in case of contracts (b! a trust refers to specific property

The parties to a trust are (1! Trustor $ the person who establishes the trust ((! Trustee $ the person in whom confidence is reposed as regards property for the benefit of another person ('! Beneficiary $ the person for whose benefit the trust has been created. 4e is the Hcestui :ue trustI. )/ 19//)B<8 T9 4A>8 ( 1A0T)8/ 95<?, if the beneficiary and trustor are one and the same (Article 1++3!. .4AT A08 T48 8<8A85T/ 97 A T0@/T The elements of a trust are% (1! 1arties ((! Trust property (trust estate or sub-ect matter of the trust!

D)5=/ 97 T0@/T/ The ;inds of trusts are% (1! 8C108// $ one created by the direct and positive acts of the parties by writing deed, will or by words evidencing an intention to create a trust. )t is shown by the intention of the trustor or the parties. 5o particular form is re:uired ((! )A1<)8= $ one created by operation of law. The D)5=/ 97 )A1<)8= T0@/T/ A08 (1! 0esulting trust $ where a person ma;es or causes to be made a disposition of property under circumstances which raise an inference that he does not intend the person holding or ta;ing the
34

property to have beneficial interest. (Article 1++*! ((! 2onstructive trust $ imposed where a person holding title to property is sub-ect to an e:uitable duty to convey to another on the ground that he could be un-ustly enriched if he were permitted to retain it (Art. 1++7"1+, !. A/ =)/T)5#@)/48= 709A /9<@T)9 )5=8B)T) where something is received when there is no right to demand it or is unduly delivered through mista;e or there is a payment by reason of mista;e in the construction or application of a doubtful or difficult :uestion of law, T)T<8 =98/ 59T 1A//, )5 A 295/T0@2T)>8 T0@/T, T)T<8 1A//8/. A11<)2AT)95 97 <A./ 5ote that the principles of the general law of trusts, insofar as they are not inconsistent with the 2ivil 2ode, the 2ode of 2ommerce, the 0ules of 2ourt and special laws are hereby adopted (Article 1++(!. .e may also draw freely from @nited /tates or @nited Dingdom precedents. 790A 97 8C108// T0@/T/ 5o particular words are re:uired for the creation of an express trust, it being sufficient that a trust is clearly intended (Article 1+++!. 2onse:uently, an express trust is created by the direct and positive acts of the parties as manifested by some writing or deed or will, or by words evidencing an intention to create a trust. B@T no express trust concerning an immovable or any interest therein may be proven by parol evidence (Article 1++'! 49.8>80, if the trust be )A1<)8=, it can be proven by parol evidence (Article 1+,7! 1A09< 8>)=8528 $ if terms of an agreement has been reduced to writing, it is considered as containing all such terms, thus, as between parties and their successors no terms other than the writing is allowed, 8C281T (a! mista;e is of fact (b! mista;e is common or mutual to both, and (c! evidence of the mista;e is clear and convincing

48528, as far as express trusts are concerned, there is no specified form. The trust may be constituted orally or in written form, 49.8>80, (1! if an express trust is over an immovable $ it must be written to be enforceable B@T 95<? 790 8579028AB)<)T? 59T 790 >A<)=)T? as the law does not so preclude the creation of an express trust orally. This article can thus be considered as part of the statute of frauds ((! by implication, if the sub-ect is a movable, it may be constituted orally and if so, it is valid and enforceable 08L@)/)T8/ 97 A5 8C108// T0@/T The re:uisites of an express trust are% (1! a competent trustor $ one who is capacitated to convey property ((! a competent trustee $ one who can hold property and enter into contract. 59T8% no trust shall fail because the trustee appointed declines the designation, unless the contrary appears in the instrument creating the trust (Article 1++,!. This applies even if trust is already subsisting or the trustee becomes incapacitated. The 08A/95 being that to permit it to fail would render nugatory or negate the trustorKs intention to create a trust. The primary consideration being the dispositon of beneficial interest not the appointment of trustee. 295/8L@85T<?, a court will have to appoint a trustee unless the terms of the document provide for the appointment of a successor. ('! a competent beneficiary $ one who is capacitated to receive gratuitously from the trustor (5ote those who cannot be donees and those who cannot be a legatee or devisee" Articles 7'6, 13(7, 13(*, 522!. 59T8 that the beneficiary is re:uired to accept the trust to ma;e the trust effective (Article 1++ !. The acceptance may be 8C108// 90 )A1<)8= 90 108/@A8= only if no onerous condition is imposed on the beneficiary, except if there is proof to the contrary or he did not accept (+! Ascertainable trust res (,!There must be present a clear and complete disposition of property ( Aindanao =evelopment Authority vs. 2A 11' /20A +(6! 49. )/ A T0@/T A=A)5)/T808=

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A trust is to be administered in accordance with the provisions of 0ule 6* of the 0ules of 2ourt, which re:uires the trustee to (1! file a bond ((! render a true and clear account ('! ma;e an inventory (+! manage and dispose of the estate faithfully in accordance with the law and the terms of the trust agreement. 49. A08 8C108// T0@/T/ 85=8= An express trust is ended by (1! mutual agreement ((! expiration of the term ('! fulfillment or a resolutory condition which extinguishes the obligation (+! recission or annulment (,! loss of the sub-ect matter ( ! order of the court (7! merger (*! accomplishment of the purpose 8CAA1<8/ 97 )A1<)8= T0@/T/ The enumeration of implied trusts does not exclude those established by general law but the limitation laid down in Article 1++( that it not be contrary to the 2ivil 2ode, 2ode of 2ommerce, 0ules of 2ourt, and /pecial <aws shall be applicable ( Article 1++7!. 1. 08/@<T)5# T0@/T/

to have no beneficial interest or only part thereof (Article 1++6!. 8xample% Blind Trusts c. .hen land passes by succession to any person and he causes legal title to be put in the name of another, a trust is established by implication of law for the benefit of the true owner (Article 1+,1!. d. )f two or more persons agree to purchase property and by common consent, legal title is ta;en in the name of one if them for the benefit of all, a trust is created by force of law in favor of the others in proportion to the interest of each re:uisites (Article 1+,(!. 0e:uisites are% (1! two or more agree to purchase ((! there is consent that one should ta;e title in his name (5ito vs. 2A, ((, /20A (,1! e. When property is conveyed to a person in RELIANCE upon his declared intention to held it for, or transfer it to another, or the grantor, there is an implied trust in favor of the person whose enefit is contemplated !Article "#$%&. (. 295/T0@2T)>8 T0@/T/

a. .hen property is sold and the legal estate is granted to one party but the price is paid by another for the purpose of having beneficial interest over the property. 8xample% A buys property from B, but title is put in 2Ks name. 49.8>80, if the title is conveyed to a child $ legitimate or illegitimate of the one paying the price, no trust is implied, it being disputably presumed, that there is a gift in favor of the child (Article 1++*!. A</9, a document expressing a different intent does not create a trust. 8xample% A pays for a lot but title is put in BKs name. )f A is shown to have paid because he is paying B, there is no T0@/T b. .hen a donation is made to a person but it appears that although legal estate is transmitted to donee, he nevertheless is either

a. )f the price of the property is loaned or paid by one person for the benefit of another and the conveyance is made to the lender or payor to secure the payment of a debt, a trust arises by operation of law or favor of the person to whom the money is loaned or for whom it is paid (Article 1+,3!. b. )f an absolute conveyance is made in order to secure the performance of an obligation of the grantor toward the grantee, a trust by virtue of law is established. )f fulfillment of the obligation is offered by the grantor when it becomes due, he may demand reconveyance of the property to him (Article 1+,+!.

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c. .hen any trustee, guardian or other person holding a fiduciary relationship uses trusts funds for the purchase of property and causes the conveyance to be made to him, a trust is established by operation of law in favor of the person to whom the funds belong (Article 1+,,!. d. )f property is ac:uired through mista;e or fraud, the person obtaining it is by force of law considered a trustee of an implied trust for the benefit of the person from whom the property comes (Article 1+, !. )f what is concerned is the ac:uisition by fraud of an immovable, it cannot be ac:uired by prescription under Article11''. As far as movables, if possessed through a crime, they can never be ac:uired through prescription by the offender 2A5 T0@/T88 A2L@)08 109180T? /@BG82T 97 T48 T0@/T B? 108/20)1T)95 The trustee cannot ac:uire the property sub-ect of the trust by prescription unless the trust has been repudiated. The re:uisites of repudiation are% (1! the trustee has performed une:uivocal acts amounting to the ouster of the cestui :ue trust ((! the acts of repudiation are made ;nown to the cestui :ue trust ('! the evidence of repudiation are clear and conclusive (>A<=8J vs. 9<A0#A , ,1 /20A ,71! 08<AT8= G@0)/10@=8528 1. An action for reconveyance of a parcel of land based on an implied&constructive trust prescribes in 13 years from registration of the deed&issuance of title. This applies only when the person see;ing reconveyance is not in actual possession $ as the action for reconveyance is actually an action to :uiet title which does not prescribe. (/88% 48)0/ 97 9<>)#A vs. 2A ((7 /20A ''3, >=A =8 2AB080A vs. 2A ( 7 /20A ''6, AA5A5#A5 vs. 2A, #.0. 11,76+, Gune 13, 1666!

(. A resulting trust is imprescriptable unless repudiated (9K<A29 vs 29 249 24)<, ((3 /20A , ! '. A buyer at auction sale to enforce a widowKs obligation holds the share of the other heirs in trust ( 598< vs. 2A (+3 /20A 7*! +. 1rescriptive period of 13 years from repudiation runs from the moment possession becomes adverse ( 4@A5# vs. 2A (' /20A +(3!. 0econveyance of registered land based on an implied trust is 13 years (A0AAA85T9 vs. 2B, 6 /20A 17*! ,. An action for reconveyance based on an implied or constructive trust prescribes in ten years from the alleged fraudulent registration or date of issuance of a certificate of title (2risostomo v. #arcia, Gr. +*1 /20A +3(! /ee 1ascual v 2A, +36 /20A 13,, /ee also /ps. Alfredo v /ps. Borras, +3+ /20A 1+, 0esulting trust is presumed to have been contemplated by the parties, the intention as to which is to be found in the nature of their transaction but not expressed in the deed itself. A constructive trust is created, not by any word evincing a direct intention to create a trust, but by operation of law in order to satisfy the demands of -ustice and to prevent un-ust enrichment. An implied trust was created in favor of respondent when petitioners transferred the properties to their names in violation of the trust placed in them as overseers. (Be-oc vs. 2abreros, + + /20A 7*!

N1O

<im v /aban, ++7 /20A ('(

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