CIVIL LAW REVIEWER TABLE of CONTENTS

AGENCY
Table of Contents

Chapter I. Nature, Form, and Kinds of Agency

.......................................................................341
I. Definition [Art. 1868, CC] ..................341
II. Purpose .............................................341
III. Characteristics [CNPPBF].................342
IV. Essential Elements............................342
V. Determination of Existence of Agency
342
VI. Agency v Similar Contracts ...............343
VII. Kinds .............................................344

Chapter II. Obligations of the Agent...........348

I. To Carry Out the Agency ..................348
III. To Advance the Necessary Funds [Art.
1886, CC]...................................................349
IV. To Act in Accordance with Principals
Instructions.................................................349
V. To Prefer Interest of Principal Over
Personal Interest........................................349
VI. To Render Accounts and Deliver Things
Received by Virtue of the Agency..............349
VII. To Be Responsible for Substitutes350
VIII. To Pay Interest .............................350 340
IX. To Answer for His Negligence or Fraud

AGENCY
[Art. 1909, CC] ...........................................350
X. Special Obligations of Factor/
Commission Agents ...................................350

Chapter III. Liabilities of the Agent .............352

I. Liability to Third Persons...................352
II. Liability to the Principal .....................352
III. Liability of Two or More Agents.........353

Chapter IV. Obligations of the Principal ...354

I. To Comply with the obligations
contracted by the agent .............................354
II. To Advance the Necessary Sums and
Reimburse the Agent .................................355
III. To Indemnify the Agent for Damages355
IV. To Pay the Agents Compensation ...356
V. To Be Solidarily Liable ......................356

Chapter V. Extinguishment of Agency......357

Extinguishment of Agency [EDWARD] ......357
I. Expiration of the period for which it was
constituted..................................................357
II. Death, civil interdiction, insanity,
insolvency ..................................................357
III. Withdrawal of the agent ....................357
IV. Accomplishment of the object of the
agency .......................................................357
V. Revocation ........................................357
VI. Dissolution of the firm/corp. Which
entrusted/accepted the agency..................358
CIVIL LAW REVIEWER Chapter I. NATURE, FORM, and KINDS of AGENCY

Chapter I. Nature, Form, and Kinds of

AGENCY & PARTNERSHIP TEAM

AGENCY & PARTNERSHIP

Agency
Prof. Roberto N. Dio
Faculty Editor
I. DEFINITION
Genevieve E. Jusi
Lead Writer II. PURPOSE
III. CHARACTERISTICS
Joyce Anne C. Roldan
Writer IV. ESSENTIAL ELEMENTS
V. DETERMINATION OF EXISTENCE
CIVIL LAW VI. AGENCY V SIMILAR CONTRACTS
Kristine Bongcaron VII. KINDS
Patricia Tobias
Subject Editors
I. Definition [Art. 1868, CC]
ACADEMICS COMMITTEE By the contract of agency,
Kristine Bongcaron 1. a person (agent) binds himself
Michelle Dy 2. to render some service or to do something in
Patrich Leccio representation or on behalf of another
Editors-in-Chief (principal),
PRINTING & DISTRIBUTION 3. with the consent or authority of the latter.
Kae Guerrero
II. Purpose
DESIGN & LAYOUT The purpose of agency is to extend the
Pat Hernandez principals personality.
Viktor Fontanilla The personality of the principal is extended
Rusell Aragones through the facility of the agent. In so doing,
Romualdo Menzon Jr. the agent, by legal fiction, becomes the
Rania Joya principal, authorized to perform all acts
which the latter would have him do. The 341
LECTURES COMMITTEE
relationship can only be effected with the

AGENCY
Michelle Arias
consent of the principal, which must not, in
Camille Maranan
Angela Sandalo
any way, be compelled by law or by any
Heads court. (Litonjua, Jr. v. Eternit Corp.)
Katz Manzano Mary Rose Beley
Sam Nuez Krizel Malabanan What acts may be authorized
Arianne Cerezo Marcrese Banaag 1. General Rule: What a man may do in
Volunteers person, he may do thru another.
2. Exceptions
MOCK BAR COMMITTEE a. Personal acts
Lilibeth Perez b. Criminal acts
c. Unlawful acts
BAR CANDIDATES WELFARE
Dahlia Salamat Theory of Imputed knoweldge
1. General Rule: For knowledge of agent to be
LOGISTICS imputed to the principal, there must be:
Charisse Mendoza a. Actual notice to the agent;
b. The notice must pertain to a matter of
SECRETARIAT COMMITTEE fact and not of law; and
Jill Hernandez c. The fact must be within the scope of the
Head agents authority.
Loraine Mendoza Faye Celso
2. Exceptions
Mary Mendoza Joie Bajo a. Agents interests are adverse to those of
Members the principal;
b. Agents duty is not to disclose
information;
c. 3rd person claiming the benefit of the
rule colludes with agent to defraud
principal.
CIVIL LAW REVIEWER
NoteThe theory of imputed knowledge
ascribes the knowledge of the agent, to the
principal, not the other way around. The
knowledge of the principal cant be imputed to its
agent. (Sunace Internatl Mgt. Services v. NLRC,
2006)
III. Characteristics [CNPPBF]
1. Consensual: perfected by mere consent
2. Nominate: has its own name
3. Preparatory: purpose is the execution of a
juridical act in relation to a third person
4. Principal: can stand by itself without need of
another contract
5. Bilateral: gives rise to reciprocal rights and
obligations
6. Fiduciary: since it is based on trust and
confidence
IV. Essential Elements
Essential Elements [CORS] (Rallos v Felix Go
Chan, 1978)
1. Consent, express or implied, of the parties
to establish the relationship
2. Object is the execution of a juridical act in
relation to a third person
3. Agent acts as a Representative and not for
himself
4. Agent acts within the Scope of his authority
Intent to establish agency essential
General Rule
1. On the part of the principal there must be an
intention to appoint or an intention naturally
inferable from his words or actions; and
2. On the part of the agent, there must be an
intention inferable from words or deeds to
accept the appointment and act on it.
Exception
1. Agency by estoppel; and
2. Agency by operation of law
Agency by Estoppel
1. The principal manifested a representation of
the agents authority or knowlingly allowed
the agent to assume such authority;
2. The third person, in good faith, relied upon
such representation;
3. Relying upon such representation, such third
person has changed his position to his
detriment. (Litonjua vs. Eternit Corporation,
G.R. No. 144806)
Apparent Authority
It imposes liability, not as the result of the
reality of a contractual relationship, but
rather because of the actions of a principal
or an employer in somehow misleading the
Chapter I. NATURE, FORM, and KINDS of AGENCY
public into believing that the relationship or
the authority exists.
The principal is bound by the acts of his
agent with the apparent authority which he
knowingly permits the agent to assume, or
which he holds the agent out to the public as
possessing. The question in every case is
whether the principal has by his voluntary
act placed the agent in such a situation that
a person of ordinary prudence, conversant
with business usages and the nature of the
particular business, is justified in presuming
that such agent has authority to perform the
particular act in question. (Professional
Services Inc. vs. Agana, G.R. No. 126297)
One who clothes another with apparent
authority as his agent, and holds him out to
the public as such, cannot be permitted to
deny the authority of such person to act as
his agent, to the prejudice of innocent third
parties dealing with such person in good
faith. (Macke v Camps, 1907)
Capacity of the parties
The principal must be capacitated to give
consent. 342
AGENCY
The agent must have the capacity to enter
into contracts although he/she may not have
the capacity to enter into the particular
contract subject of the agency
However, as between the principal and the
agent, the agent can set up his incapacity
provided he is not estopped. [Paras, Civil
Code of the Philippines Annotated]
V. Determination of Existence of Agency
Designation by partiesis not controlling.
Fact of existence
If relations that constitute agency exist, there
is agency regardless of whether or not the
parties understood the exact nature of the
relation.
No presumption of existence
1. General Rule: Agency must exist as a fact.
2. Exceptions:
a. When agency arises ipso jure
b. To prevent unjust enrichment
Intention of the parties to create
The nature of the contract depends on the
intention of the parties as gathered from
CIVIL LAW REVIEWER Chapter I. NATURE, FORM, and KINDS of AGENCY

their words and actions and the 3. Subagents

circumstances of the case. Agents of the agent The employees of the
can be controlled by contractor are not the
As between principal and 3rd person, the principal employees of the
however, agency may exist without the employer of the
contractor
express consent of the agent.
Lease of Service
Keeler Rule (Harry Keeler Electric v
Agency Lease of Service
Rodriguez, 1922)
1. Against the principal, the third party has the 1. Basis
Basis is Basis is employment
obligation to determine existence and scope
representation
of agency and has the burden of proof in 2. Purpose
case the principal denies it Execution of a juridical Execution a piece of
2. Against the agent, the third person deals act in relation to a work or rendering of
with him at his own peril. A third person may third person service
require the presentation of the POA or the 3. Authorized Acts
principals instructions as regards the The agent is destined Lease of services
agency (Art. 1902) to execute juridical contemplate only
3. The person dealing with the agent must also acts (creation, material acts.
act with ordinary prudence and reasonable modification or
diligence. If he knows or has good reason to extinction of relations
with third parties)
believe that the agent is exceeding his
4. Discretion
authority, he cannot claim protection.
Agent exercises Lessor ordinarily
discretionary powers. performs only
ministerial functions.
VI. Agency v Similar Contracts 5. Parties
3 parties: Principal, 2 parties: Lessor and
Partnership agent and the 3rd lessee. 343
1. An agent acts not for himself, but for his person with whom the

AGENCY
agent contracts
principal; a partner can act for himself, for
his firm, and for his partners
2. Parity of Standing Test Lease of Property
A partnership generally presupposes a Agency Lease of Property
parity of standing between the partners, in 1. Control
The agent acts under Lessee is not
which each party has an equal proprietary
the control and controlled by the
interest in the capital or property contributes instruction of the lessor
& where each party exercises equal rights in principal.
the conduct of the business. (Sevilla v CA,
1988) 2. Things involved
Agency may involve Lease of property only
Independent Contractor (IC) things other than involves property
Agency IC property
1. Control
The agent acts under The IC is authorized to 3. Binding power
the control and do the work according Agent can bind the Lessee cannot bind
instruction of the to his own method, principal the lessor
principal. without being subject
to the other partys
control, except insofar Agency to Sell v Sale
as the result of the Agency to Sell Sale
work is concerned 1. Ownership of goods
Agent receives the Buyer receives the
goods as the goods of goods as owner
2. Liability for tort the principal
Principal is liable for Employer not liable for
torts committed by the torts committed by the 2. Payment
agent within the scope independent Agent delivers Buyer pays the price
of his authority. contractor. proceeds of the sale to
the principal
CIVIL LAW REVIEWER Chapter I. NATURE, FORM, and KINDS of AGENCY

3. Return of goods VII. Kinds

Generally, the agent generally, buyer
can return the goods cannot return the As to Manner of Creation
in case he is unable to goods bought 1. Express
sell them to a third a. Agent has been actually authorized by
person the principal
4. Discretion b. Agency may be oral or in writing, unless
Agent exercises Lessor ordinarily the law requires a specific form. [Art.
discretionary powers. performs only 1869, CC]
ministerial functions. 2. Implied
5. Parties a. On the part of the principal:
Agent in dealing with Buyer can deal with
From his acts
thing received is the thing as he
bound to act according pleases, being the
his silence or lack of action;
to the instructions of owner. his failure to repudiate the agency
his principal; knowing that another person is
acting on his behalf without authority
Agency to Buy v Sale [Art. 1869, CC]
Agency to Buy Sale b. On the part of the agent:
1. Ownership of goods from his acts which carry out the
The agent acquires The buyer acquires agency;
ownership in behalf of ownership for himself. from his silence or inaction
the principal according to the circumstances [Art.
2. Changes in price 1870, CC]
Generally, any change Buyer cannot adjust
in the price should be the price already Acceptance of the Agency
borne by the principal agreed upon. Between persons who are present
3. Payment
Principal delivers his power of
The agent pays the Buyer pays the price
attorney to the agent; and
purchase price in
behalf of the principal Agent receives it without 344
objection [Art. 1871, CC]

AGENCY
Guardianship Between persons who are absent:
Agency Guardianship General Rule: Acceptance
1. Person represented cannot be implied from the
Agent represents a A guardian represents silence of the agent
capacitated person an incapacitated Exceptions
person. i. when the principal transmits
2. Source of authority his POA to the agent, who
Agent is appointed by Guardian is appointed receives it without any
the principal and can by the court or by law. objection;
be removed by the ii. when the principal entrusts to
latter. him by letter or telegram a
3. Control POA with respect to the
The agent acts under Guardian is not subject
business in which he is
the control of the to the directions of the
principal. ward but must act for habitually engaged as an
the benefit of the latter. agent, and he did not reply to
4. Discretion the letter [Art. 1872, CC]
Agent exercises Lessor ordinarily
discretionary powers. performs only c. Agency by estoppel
ministerial functions. If a person specially informs another
5. Binding power or states by public advertisement
Agent can make the Guardian has no that he has given a power of
principal personally power to impose attorney to a third person, the latter
liable. personal liability on the becomes a duly authorized agent,
ward.
even if previously there was never a
meeting of minds between them.
The power shall continue to be in
full force until the notice is rescinded
in the same manner in which it was
given. [Art. 1869, CC]
CIVIL LAW REVIEWER
d. In Litonjua, Jr. v. Eternit Corp. (2006),
the following must be present for agency
by estoppels to exist:
the principal manifested a the
representation of the agents
authority or knowingly allowed the
agent to assume such authority;
the third person, in good faith, relied
upon such representation;
relying upon such representation,
such third person has changed his
position to his detriment.
As to Formalities
General Rule
Agency may be oral or in writing [Art. 1869,
CC]
Exceptions
a. When the law requires a specific form
[Art. 1869, CC]
b. Sale of a piece of land or any interest
therein
When a sale of a piece of land or any
interest therein is through an agent, the
authority of the latter shall be in writing;
otherwise, the sale shall be void. [Art.
1874, CC]
It is not necessary that the real property
to be sold be precisely described in the
written authority of the agent. It is
sufficient if the authority is so expressed
as to determine without doubt the limits
of the agents authority. [Jimenez v
Rabot, 1918]
As to Cause or Consideration
Agency may be onerouse or gratuitous
a. General RuleAgency is presumed to
be for compensation [Art. 1875, CC]
b. ExceptionThere is proof to the
contrary [Art. 1875, CC]
As to Extent of Business Covered
1. Universal
A universal agent is one authorized to
do all acts for his principal which can
lawfully be delegated to an agent.
[Siasat v. IAC (1985)]
2. General
It comprises all the business of the
principal [Art. 1876, CC]
3. Special
It comprises one or more specific
transactions [Art. 1876, CC]
Chapter I. NATURE, FORM, and KINDS of AGENCY
General Agency Special Agency
1. Scope of authority
All acts connected with Specific acts in
business or pursuance of particular
employment in which he instructions or with
is engaged. restrictions necessarily
implied from the act to be
done.
2. Nature of service authorized
Involves continuity of No continuity of service.
service.
3. Extent to which agent may bind principal
May bind his principal by Cannot bind his principal
an act within the scope of in a manner beyond or
his authority although it outside the specific acts
may be contrary to the which he is authorized to
latters special perform.
instructions.
4. Termination of authority
Apparent authority does Duty imposed upon the
not terminate by the mere 3rd party to inquire
revocation of his authority makes termination of the
without notice to the 3rd relationship as between
party. the principal and agent
effective as to such 3rd
party, unless the agency
has been entrusted for
the purpose of
contracting with such 3rd
party. 345
5. Construction of principals instructions
AGENCY
Merely advisory in nature. Strictly construed as they
limit the agents authority.
As to Authority Conferred
1. Agency may be couched in general or
specific terms
a. Couched in general terms [Art. 1877,
CC]
If couched in general terms, it comprises
only acts of administration, EVEN IF:
the principal states that he withholds
no power; or
he states that the agent may
execute such acts as he may
consider appropriate; or
the agency should authorize a
general and unlimited management
b. Couched in specific termsauthorizing
only the performance of specific act/acts
2. Power of Attorney
Definition
Written authorization to an agent to
perform specified acts in behalf of his
principal which acts, when performed,
shall have binding effect on the principal
[2 Am. Jur. 30]
Purpose
Not to define the agents authority, but to
evidence such authority to 3rd parties
CIVIL LAW REVIEWER
Interpretation
General Rule: Power of Attorney should
be strictly construed
Exception: When strict construction will
destroy the very purpose of the power
Special Power of Attorney
A special power of attorney is an
authority granted by the principal to the
agent where the act for which it is drawn
is expressly mentioned. [Strong v.
Repide, 1906]
A special power can be included in a
general power of attorney, either by
giving authority for all acts of a particular
character or by specifying therein the
act/transaction for which a special power
is needed. [Tolentino]
3. When special powers are necessary [Art.
1878, CC] (PNC-WIG-LLB-PORIRS):
a. to make such Payments as are not
usually considered acts of administration
b. to effect Novations which put an end to
obligations already in existence at the
time the agency was constituted
a. Compromise, to submit questions to
arbitration, to renounce the right to
appeal from a judgment, to waive
objections to the venue of an action or to
abandon a prescription already acquired
b. to Waive any obligation gratuitously
c. to enter into any contract by which the
ownership of an Immovable is
transmitted or acquired either
gratuitously or for a valuable
consideration
d. to make Gifts, except customary ones
for charity or those made to employees
in the business managed by the agent;
e. to Loan or borrow money, unless the
latter act be urgent and indispensable
for the preservation of the things which
are under administration
f. to Lease any real property to another
person for more than one year
g. to Bind the principal to render some
service without compensation
h. to bind the principal in a contract of
Partnership
i. to Obligate the principal as a guarantor
or surety
j. to create or convey Real rights over
immovable property
k. to accept or repudiate an Inheritance
l. to Ratify or recognize obligations
contracted before the agency
m. any other act of Strict dominion
Chapter I. NATURE, FORM, and KINDS of AGENCY
Note
a. Art. 1878 refers to the nature of the
authorization, not to its form. Even if a
document is titled as a general power of
attorney, the requirement of special
power of attorney is met if there is a
clear mandate from the principal
specifically authorizing the performance
of the act (Bravo-Guerrero v Bravo,
2005)
b. What SPA to sell/mortgage does not
include [Art. 1879, CC]
A special power to sell excludes the
power to mortgage;
Special power to mortgage does not
include the power to sell.
c. A special power to compromise does not
authorize submission to arbitration. [Art.
1880, CC]
d. The power to legally compel the
payment of debts owing to the principal
is an express grant of the right to bring
suit for the collection of such debts.
(Germann & Co v Donaldson, 1901)
e. A power of attorney to loan and borrow
money and to mortgage the principals
property does not carry with it or imply
that that the agent has a legal right to 346
make the principal liable for the personal
AGENCY
debts of the agent. (BPI v De Coster,
1925)
f. Unless the contrary appears, the
authority of an agent must be presumed
to include all the necessary and usual
means of carrying the agency into effect.
(Macke v Camps, 1907)
g. If agent is empowered to borrow
moneythe agent may be the lender at
the current rate of interest.
h. If agent is empowered to lend money at
interestthe agent cannot borrow the
money without the consent of the
principal
i. Effect of lack of SPA where one is
required It is neither accurate not
correct to conclude that the absence of
SPA (where one is required by law)
renders the contract entered into by
virtue of said SPA void. The contract is
merely unenforceable. (Dungo v
Lopena, 1962, citing Art. 1403(1), CC)
As to Nature and Effects
1. Ostensible or Representativeagent acts in
the name and representation of the principal
2. Simple or Commissionagent acts in his
own name but for the principals account
3. Agency by Estoppelthere is no agency,
and the alleged agent seemed to have
CIVIL LAW REVIEWER Chapter I. NATURE, FORM, and KINDS of AGENCY

apparent or ostensible, but not real, As to Kinds of Principal

authority to represent another 1. Principal may be:
a. Disclosed
Apparent Authority Agency by Estoppel b. Partially disclosedthird persons are
Though not actually Where the principal, by unaware of principals identity
granted, principal his acts or omission, c. Undisclosedagent acts in his own
knowingly permits or permits his agent to name
holds out the agent as exercise powers not 2. General Rule [Art. 1883, CC]
possessing the granted to him, even If the principal is undisclosed (agent acts in
necessary powers to act though the principal may
in a certain way. have no notice or
his own name):
knowledge of the conduct a. the agent is the one directly bound in
of the agent. favor of the person with whom he has
contracted, as if the transaction were his
Implied Agency Agency by Estoppel own
Principal alone is liable. If caused by the principal, b. the principal has no right of action
he is responsible. If against the persons with whom the
caused by the agent, he agent has contracted; neither have such
is responsible. Provided, persons against the principal.
rd
3 person in good faith. Exception [Art. 1883, CC]
a. When the contract involves things
4. When the principal ratifies the acts of the belonging to the principal
agent b. Exception qualified by National Bank v
a. Conditions for ratification (CaP-DECK) Agudelo, 1933
i. The principal must have Capacity For the principal to be bound by the
and Power to ratify act of an agent who contracted in
ii. The act must be Done in behalf of his [agents] own name, it is not
the principal sufficient that the contract involved
iii. He must ratify the acts in its Entirety things belonging to the principal. 347
iv. The act must be Capable of The agent should also have acted

AGENCY
ratification within his scope of authority.
v. He must have had Knowledge of [National Bank v Agudelo, 1933;
material facts. Rural Bank of Bombon v CA, 1992]
b. Effects of ratification
i. With respect to the agent: It relieves 3. Agent may still be sued even if principal is
the agent from liability. He may also undisclosed and contract involved things
recover compensation belonging to the principal.
ii. With respect to the principal: He Even if the principal is undisclosed and
assumes responsibility for the the contract involved things belonging to
unauthorized act, as fully as if the the principal, the third person who
agent had acted under original contracted with the agent has a right of
authority; but he is not liable for acts action not only against the principal but
outside the authority approved by also against the agent, when the rights
his ratification. and obligations which are the subject
iii. With respect to 3rd persons: They matter of the litigation cannot be legally
are bound by ratification. They and juridically determined without
cannot question agents authority. hearing both of them. In such case, the
agent being a necessary party to the full
Ratification Estoppel and complete determination of the case
Rests on intention Rests on prejudice which originated from his act should be
Affects the entire Affects only relevant included in the case as defendant.
transaction from the parts of the transaction. [Beaumont v Prieto, 1921]
beginning.

The substance of The substance of

ratification is confirmation estoppel is the principals
of unauthorized acts or inducement to another to
conduct after it has been act to his prejudice.
done.
CIVIL LAW REVIEWER
Chapter II. Obligations of the Agent
I. TO CARRY OUT THE AGENCY
II. TO ACT WITHIN THE SCOPE OF HIS
AUTHORITY
III. TO ADVANCE NECESSARY FUNDS
IV. TO ACT IN ACCORDANCE WITH
INSTRUCTIONS
V. TO PREFER PRINCIPALS INTEREST OVER
PERSONAL INTEREST
VI. NOT TO LOAN TO HIMSELF WITHOUT
PRINCIPALS CONSENT
VII. TO RENDER ACCOUNT AND DELIVER
THINGS RECEIVED BY VIRTUE OF AGENCY
VIII. TO BE RESPONSIBLE FOR SUBSTITUTES
IX. TO PAY INTEREST
X. TO ANSWER FOR HIS FRAUD/NEGLIGENCE
XI. SPECIAL OBLIGATIONS OF
FACTOR/COMMISSION AGENTS
I. To Carry Out the Agency
Obligation to carry out the agency he
accepted [Art. 1884, CC]
1. The agent is bound by his acceptance to
carry out the agency own
2. He shall be liable for damages that the
principal may suffer due to his non-
performance [Art. 1884, CC]
Exception: An agent shall not carry out an
agency if its execution would manifestly result in
loss or damages to the principal. [Art. 1888, CC]
Obligation to finish business began on
principals death [Art. 1884, CC]
The agent must finish the business already
begun on the death of the principal, should
delay entail any danger
Obligation should he decline the agency [Art.
1885, CC]
1. He is bound to observe the diligence of a
good father of a family in the custody and
preservation of the goods forwarded to him
by the owner until the latter should appoint
an agent or take charge of the goods
2. However, the owner must act as soon as
practicable either by appointing an agent or
by taking charge of the property
Obligation to continue agency should he
withdraw [Art. 1929, CC]
The agent, even if he should withdraw from
the agency for a valid reason, must continue
to act until the principal has had reasonable
opportunity to take the necessary steps to
meet the situation.
Chapter II. OBLIGATIONS of the AGENT
II. To Act Within the Scope of His
Authority [Art. 1881, CC]
Authority is the power of the agent to affect the
legal relations of his principal by acts done in
accordance with the principals manifestations of
consent.
When agent acting within the scope of his
authority
1. When he is performing acts which are
conducive to the accomplishment of the
purpose of the agency [Art. 1881, CC]
2. If the agency has been performed in a
manner more advantageous to the principal
than that specified by him [Art. 1882, CC]
3. Insofar as third persons, when the agents
act is within the terms of the power of
attorney, as written, even if the agent has in
fact exceeded the limits of his authority
according to an understanding between the
principal and the agent. [Art. 1900, CC]
Note:
rd
1. A 3 person with whom the agent wishes to
contract on behalf of the principal may
require the presentation of a power of
attorney or the principals instructions [Art. 348
1902, CC]
AGENCY
2. The scope of the agents authority is what
appears in the written terms of the power of
attorney. While third persons are bound to
inquire into the extent or scope of the
agents authority, they are not required to go
beyond the terms of the written power of
attorney. [Siredy Enterprises, Inc. v CA,
2002]
Effect when agent acts within the scope of
his authority
1. General Rule The agent who acts as such
is not personally liable to the party with
whom he contracts
2. Exceptions
a. If he expressly bound himself [Art. 1897,
CC]
b. If he exceeds the limits of his authority
without giving such party sufficient
notice of his powers [Art. 1897, CC]
c. If he acted in his own name; except if
the contract involves things belonging to
the principal [Art. 1883, CC]
CIVIL LAW REVIEWER Chapter II. OBLIGATIONS of the AGENT

III. To Advance the Necessary Funds V. To Prefer Interest of Principal Over

[Art. 1886, CC]
General Rule
The agent is bound to advance necessary
funds, should there be a stipulation to do so.
Exception
When the principal is insolvent
IV. To Act in Accordance with Principals
Instructions
Obligation to act in accordance with
principals instructions
In the execution of the agency, the agent
shall act in accordance with the instructions
of the principal. [Art. 1887, CC]
Obligation in the absence of instructions
Agent shall do all that a good father of a
family would do, as required by the nature of
the business [Art. 1887, CC]
When private orders and instructions not
binding to third persons
Private or secret orders and instructions of
the principal do not prejudice third persons
who have relied upon the power of attorney
or instructions shown them. [Art. 1902, CC]
Personal Interest
Rule in case of conflict of interest
1. General Rule
The agent shall be liable for damages if,
there being a conflict between his
interests and those of the principal, he
should prefer his own. [Art. 1889, CC]
2. Exceptions
a. The principal waives the benefit of the
rule, provided he does so with full
knowledge of the facts.
b. The interests of the agent are superior,
ex., agency coupled with an interest.
Agent prohibited from purchasing property
of principal
1. General Rule
The agent cannot acquire by purchase,
even at a public or judicial auction,
either in person or through the mediation
of another property whose
administration or sale may have been
entrusted to them.
2. Exception
The principal has consented to the 349
purchase. [Art. 1491(2), CC]

AGENCY
Effect when agent acts in accordance with
principals orders VI. To Render Accounts and Deliver
Principal cannot set up the ignorance of the Things Received by Virtue of the
agent as to circumstances whereof he Agency
himself was, or ought to have been aware
[Art. 1899, CC] Obligation to account and deliver [Art. 1891,
CC]
Authority v Instructions Every agent is bound to:
Authority Instructions 1. render an account of his transactions; and
The sum total of the Only a private rule of 2. deliver to the principal whatever he may
powers committed or guidance to the agent have received by virtue of the agency, even
permitted to the agent though it may not be owing to the principal.
Relates to the subject Refers to the manner
(biz/transaction) with or mode of agents
Effect of failure to comply
which the agent is action with respect to
empowered to deal or matters within the If he fails to do so or uses the
act. permitted scope of money/property for his own use, the agent is
action. liable for estafa [Art. 315, RPC]
Limits of authority to Binding only on the
operate vs those who principal and agent Contrary stipulation void
have/are charged with Every stipulation exempting the agent from
knowledge of them. the obligation to render an account shall be
void [Art. 1891, CC]

When not applicable (LIM)

1. A right of Lien exists in favor of the agent.
2. The agent or broker Informed the principal of
the gift or bonus or profit he received from
the vendee, and the principal did not object.
CIVIL LAW REVIEWER
3. If the agent or broker acted only as a
Middleman with the task of merely bringing
together the vendor and vendee (Domingo v
Domingo)
VII. To Be Responsible for Substitutes
The agent shall be responsible for the acts of
his substitute:
1. when he was not given the power to appoint
one; or
2. when he was given such power, but without
designating the person, and the person
appointed was notoriously incompetent or
insolvent.
The agent may appoint a substitute if the
principal has not prohibited him from doing so.
All acts of the substitute appointed against the
prohibition of the principal shall be void
Principal may also bring an action against the
substitute with respect to the obligations which
the latter has contracted under the substitution.
[Art. 1893, CC]
VIII. To Pay Interest
The agent owes interest on:
1. the sums he has applied to his own use from
the day on which he did so
2. those which he owes after the
extinguishment of the agency
IX. To Answer for His Negligence or
Fraud [Art. 1909, CC]
The agent is responsible not only for fraud, but
also for negligence
Liability shall be judged with more or less rigor
by the courts, according to whether the agency
was or was not for a compensation
X. Special Obligations of Factor/
Commission Agents
Definition
one whose business is to receive & sell
goods for a commission, and is entrusted by
the principal with its possession [Mechem
on Agency]
Obligations of a commission agent
1. For goods received [Art. 1903, CC]
a. He shall be responsible for the goods
received by him in the terms and
conditions and as described in the
consignment
Chapter II. OBLIGATIONS of the AGENT
b. To avoid liability, he should make a
written statement of the damage and
deterioration suffered by the same upon
receiving them
2. When handling goods of the same kind and
mark with different owners [Art. 1904, CC]
He should distinguish the goods by
countermarks, and designate the
merchandise respectively belonging to
each principal.
3. Not to sell on credit without express consent
[Art. 1905, CC]
The commission agent cannot, without
the express or implied consent of the
principal, sell on credit.
Should he do so:
a. the principal may demand from him
payment in cash
b. but the commission agent shall be
entitled to any interest or benefit,
which may result from such sale
4. To inform the principal of sale made on
credit, if authorized to do so [Art. 1906,
CC]
a. Should the commission agent, with
authority of the principal, sell on credit,
he shall so inform the principal, with a
statement of the names of the buyers 350
b. Should he fail to do so, the sale shall be
AGENCY
deemed to have been made for cash
insofar as the principal is concerned.
5. To indemnify principal for damages for
failure to collect the credits of his principal
when they fall due [Art. 1908, CC]
General Rule:
The commission agent who does not
collect the credits of his principal at the
time when they become due and
demandable shall be liable for damages
Exception
If he proves that he exercised due
diligence for that purpose
6. When he receives a guarantee commission
(del credere commission) [Art. 1907, CC]
a. Bear the risk of collection
b. Pay the principal the proceeds of the
sale on the same terms agreed upon
with the purchaser
Ordinary Agent v Commission Agent
Ordinary Agent Commission Agent
Acts for and in Acts in his own name or
behalf of the in that his principal.
principal.
Need not have Must be in possession
possession of the of the goods of the
goods of the principal.
principal.
CIVIL LAW REVIEWER Chapter II. OBLIGATIONS of the AGENT

Broker v Commission Agent (Pacific

Commercial v Yatco, 1939)
Broker Commission Agent
Has no custody or Engaged in the
possession of the purchase and sale, for
thing he disposes; a principal, of personal
merely acts as an property which has to
intermediary between be placed in his
the sellers and the possession and
buyer. disposal.
Maintains no relation Has a relation with the
with the thing which principal (buyers or
he purchases or sells. sellers) and the
property which is the
object of the
transaction.

351

AGENCY
CIVIL LAW REVIEWER
Chapter III. Liabilities of the Agent
I. LIABILITITY TO THIRD PERSONS
II. LIABILITY TO THE PRINCIPAL
III. LIABILITY OF TWO OR MORE AGENTS
I. Liability to Third Persons
Agent not personally liable as a general
rule
General Rule
An agent who acts as such is not personally
liable to the party with whom contracts [Art.
1897, CC]
Exceptions
1. When he acts in his own name, except when
the contract involves things belonging to the
principal [Art. 1883, CC]
2. If he expressly binds himself [Art. 1897, CC]
3. If he exceeds the limits of his authority
without giving such party sufficient notice of
his powers [Art. 1897, CC]
NoteWhen an agent contracts in his
own name and without the express
authority of his principal, the obligation
so contracted by him is personal and is
not binding on his principal. [PNB v.
Agudelo]
BUT Third persons cannot set up the
fact that the agent has exceeded his
powers if the principal has ratified, or
has signified his willingness to ratify the
agents acts [Art. 1901, CC]
4. Under Art. 1898, CC
a. Agent contracts in the name of the
principal;
b. He exceeds the scope of his authority;
c. The party with whom he contracted with
is aware of the limits of his powers; AND
d. The agent undertook to secure the
principals ratification.
Note Under Art. 1898, CC, the contract
shall be void if the principal does not ratify
the contract and the party with whom the
agent has contracted is aware of the limits of
the powers granted by the principal.
Agent liable for damages to third persons
under Art. 1916 & 1917, CC
1. When two persons contract with regard to
the same thing, one of them with the agent
and the other with the principal;
Chapter III. LIABILITIES of the AGENT
2. the two contracts are incompatible with each
other
3. the agent acted in bad faith
4. agent shall be liable for damages to third
person whose contract must be rejected
II. Liability to the Principal
Agent is liable for damages
1. Due to non-performance of agency
The agent is liable for the damages which,
thru his non-performance, the principal
may suffer [Art. 1884, CC]
2. For preferring personal interest to that of
principal
The agent shall be liable for damages if,
there being a conflict between his interests
and those of the principal, he should
prefer his own. [Art. 1889, CC]
3. Damages due to his withdrawal [Art. 1928,
CC]
The agent must indemnify the principal for
any damage that the principal may suffer
by reason of the withdrawal of the agent;
Exception: The agent should base his
withdrawal upon the impossibility of
continuing the performance of the agency 352
without grave detriment to himself.
AGENCY
Liability of agent for acts of substitute under
Art. 1892, CC
The agent shall be responsible for the acts of the
substitute:
1. when he was not given the power to appoint
one; or
2. when he was given such power, but without
designating the person, and the person
appointed was notoriously incompetent or
insolvent.
Principal may bring an action against the
substitute with respect to the obligations which
he has contracted under the substitution. [Art
1893, CC]
All acts of the substitute appointed against the
prohibition of the principal is void. [Art 1893, CC]
Responsibility for fraud or negligence
The agent is responsible not only for fraud,
but also for negligence, which shall be
judged with more or less rigor by the courts,
according to whether the agency was or was
not for compensation. [Art. 1909, CC]
CIVIL LAW REVIEWER Chapter III. LIABILITIES of the AGENT

Interest under Art. 1896, CC

The agent owes interest on:
1. the sums he has applied to his own use from
the day on which he did so
2. those which he owes after the
extinguishment of the agency
a. If he converted for personal use, his
liability is without prejudice to a criminal
action that may be brought against him.
b. If for the sum he owes after
extinguishment, demand is not
necessary because the agent is required
to deliver to the principal whatever he
may have received by virtue of the
agency. [Art 1891, CC]

Liablity of Commission Agents

1. For any damage or deterioration of the
goods in the terms and conditions and as
described in the consignment

Exception: Upon receiving the goods, the

agent makes a written statement of the
damage and deterioration suffered [Art
1903, CC]

2. For commingling goods belonging to

different owners [Art 1904, CC] 353
3. For selling on credit without the express or

AGENCY
implied consent of the principal [Art 1905,
CC]

III. Liability of Two or More Agents

Liability is joint as a general rule [Art. 1894,
CC]
General Rule: Responsibility of two or more
agents, even though they have been appointed
simultaneously, is joint

Exception: Solidarity is expressly stipulated

Liability of two or more agents [Art. 1895,

CC]
If solidarity has been agreed upon, each of the
agents is responsible for:
1. the non-fulfillment of agency; and
2. for the fault or negligence of his fellows
agents, except: When the fellow agents
acted beyond the scope of their authority in
case of fault or negligence.
CIVIL LAW REVIEWER
Chapter IV. Obligations of the Principal
I. TO COMPLY WITH THE OBLIGATIONS
CONTRACTED BY THE AGENT
II. TO ADVANCE NECESSARY SUMS AND
REIMBURSE THE AGENT
III. TO INDEMNIFY AGENT FOR DAMAGES
IV. TO PAY THE AGENTS COMPENSATION
V. BE SOLIDARILY LIABLE
General Rule: THE ACT OF THE AGENT IS
THE ACT OF THE PRINCIPAL
Principal is bound by the acts of his agent.
He has an obligation to deal fairly and in
good faith with his agent
SPECIFIC OBLIGATIONS OF THE PRINCIPAL
[CARICS]
3. to Comply with the obligations contracted by the
agent
4. To Advance necessaty sums and Reimburse the
agent
5. To Indemnify agent for damages
6. To pay the agents Compensation
7. be Solidarily liable
I. To Comply with the obligations
contracted by the agent
Obligations principal is bound to comply
with
1. obligations which the agent may have
contracted within the scope of his authority
[Art. 1910, CC]
Note: Principal is directly liable to creditor for
debt incurred by agent acting within the
scope of his authority. That the agent also
bound himself personally does not relieve
principal from liability if the debt was
incurred for his benefit. [Tuason v. Orozco]
2. obligations which the agent may have
contracted beyond the scope of his authority
but were ratified expressly or tacitly by the
principal [Art. 1910, CC]
Note: Conditions for ratification (CaP-DECK)
a. The principal must have Capacity and
Power to ratify.
b. The act must be Done in behalf of the
principal
c. He must ratify the acts in its Entirety
d. The act must be Capable of ratification
e. He must have had Knowledge of
material facts.
Chapter IV. OBLIGATIONS of the PRINCIPAL
3. When an agent acts in his own name, but
the contract involves things belonging to the
principal, the contract must be considered
as entered into between the principal and
the third person. [Art. 1883, CC; Sy-Juco
and Viardo v Sy-Juco, 1920]
4. The principal is solidarily liable with the
agent who has exceeded his authority if the
former allowed the latter to act as though he
had full power. [Art. 1911, CC]
5. If two persons contract simultaneously with
agent & principal for the same thing:
a. Contract of prior date prevails
b. If applicable, follow the rule on double
sales in Art. 1544, CC. [Art. 1916, CC]
Liability of Principal for Tort of Agent [Art.
1910, CC]
The principal is civilly liable to third persons
for torts of an agent if he commit such in the
course and within the scope of the agency.
Agents negligence or disobedience to the
principal does not relieve him from liability,
even if he had no knowledge about the tort.
Agent and principal are solidarily liable to
third persons. 354
AGENCY
Liability of Joint Principals: Solidary [Art
1915]
Each principal may be sued by the agent for
the entire amount due, not just for
proportionate shares.
Any of the principals may revoke the agency
Requisites of Solidary Liability:
a. Two or more principals
b. All principals concurred in the
appointment of the same agent
c. Agent was appointed for a common
undertaking
Rules on Double Sale by Principal and Agent
[Art. 1916-1917]
General Rule:
1. When two persons contract with regard to
the same thing, one of them with the agent
and the other with the principal
2. two contracts are incompatible with each
other
3. the agent acted in good faith
4. the principal shall be liable for damages to
the third person whose contract must be
rejected
In case of double sale, which contracts are
incompatible with each other, that of PRIOR
CIVIL LAW REVIEWER
DATE shall be preferred, without prejudice to Art
1544.
Art. 1544 provides that:
a. If the same movable property is sold to
different persons, ownership is
transferred to whoever first took
possession in good faith.
b. If it be immovable, ownership belongs to
the person who in good faith first
recorded it in the Registry of Property.
c. If there is no inscription, ownership shall
belong to the person who, in good faith
was first in possession; and in the
absence of such, to the one who
presents the oldest title, provided there
is good faith.
Principal not liable in the following cases
1. Void or inexistent contracts under Art. 1409,
CC
2. Sale of a piece of land or any interest
therein & the authority of the agent is not in
writing [Art. 1874, CC]
3. Acts of the substitute appointed against the
prohibition of the principal [Art. 1892, CC]
4. Art. 1898, CC
Requisites:
a. agent contracts in the name of the
principal
b. he exceeds the scope of the his
authority
c. the principal does not ratify the contract
d. the party with whom the agent
contracted is aware of the limits of the
powers granted by the principal; and
i. the agent did not undertake to
secure the principals ratification
5. Agent has no authority or acted beyond the
scope of his authority [Arts. 1403(1); 1910,
CC; Dungo v Lopena, 1962]
6. When the agent acts in his own name,
persons with whom the agent has
contracted have no right of action against
the principal, except when the contract
involves things belonging to the principal.
[Art. 1883, CC]
7. Unenforceable contracts under Art. 1403,
CC
II. To Advance the Necessary Sums and
Reimburse the Agent
Obligation to advance sums [Art. 1912, CC]
The principal must advance to the agent,
should the latter so request, the sums
necessary for the execution of the agency.
Chapter IV. OBLIGATIONS of the PRINCIPAL
Obligation to reimburse [Art. 1912, CC]
1. Should the agent have advanced sums, the
principal must reimburse him even if the
business or undertaking was not successful,
provided the agent is free from all fault.
2. The reimbursement shall include interest on
the sums advanced, from the day on which
the advance was made.
Exceptions to obligation to reimburse
[Art.1918] (FCKS)
1. When the expenses were due to the Fault of
the agent;
2. If the agent acted in Contravention of the
principal's instructions, unless the latter
should wish to avail himself of the benefits
derived from the contract;
3. When the agent incurred them with
Knowledge that an unfavorable result would
ensue, if the principal was not aware
thereof;
4. When it was Stipulated that the expenses
would be borne by the agent, or that the
latter would be allowed only a certain sum.
Note: Under Art. 1236(2), CC:
whoever pays for another may demand
from the debtor what he has paid, except 355
that if he paid without the knowledge or
AGENCY
against the will of the debtor, he can recover
only insofar as the payment has been
beneficial to the debtor.
Agents right to retain in pledge object of
agency should principal fail to reimburse him
1. The agent may retain in pledge the things
which are the object of the agency until the
principal:
a. effects the reimbursement set forth in
Art. 1912, CC; and
b. pays indemnity set forth in Art. 1913, CC
2. But agent is not entitled to the excess in
case the thing was sold to satisfy his claim,
and the proceeds are more than his claim
[Arts. 2115, 2121, CC]. Also he must
possess the thing lawfully in his capacity as
agent [2 C.J.S. 457]
III. To Indemnify the Agent for Damages
Obligation to pay indemnity for damages
[Art. 1913, CC]
The principal must indemnify the agent for
all the damages which the execution of the
agency may have caused the latter, without
fault or negligence on his part.
CIVIL LAW REVIEWER Chapter IV. OBLIGATIONS of the PRINCIPAL

The agents has the right to retain in pledge the act as though he had full powers. [Art. 1911,
object of the agency should principal fail to pay CC]
the indemnity set forth in Art. 1913, CC.
With person who appointed an agent with
IV. To Pay the Agents Compensation him for a common transaction
If two or more persons have appointed an
agent for a common transaction or
Agency is presumed to be for a compensation,
undertaking, they shall be solidarily liable to
unless there is proof to the contrary. [Art. 1875,
the agent for all the consequences of the
CC]
agency. [Art. 1915, CC]
General Rule on Commission
The agent must be the efficient procuring
cause in order to be entitled to
compensation [Inland Realty v. Court of
Appeals]. His efforts must have resulted in
finding a ready, able and willing buyer of the
goods.

But for equity purposes, commission may be

granted if the agent, even if he is not the
procuring cause, nonetheless took diligent
steps to bring back the parties which led to
the consummation of the sale [Prats v. Court
of Appeals]

Compensation of Brokers
Since the brokers only job is to bring
together the parties to a transaction, it 356
follows that if the broker does not succeed in

AGENCY
bringing the mind of the purchaser and the
vendor to an agreement with reference to
the terms of a sale, he is not entitled to a
commission. [Rocha v Prats, 1922]

Doctrine of Procuring Cause

When a party is not the efficient
procuring cause in bringing about a sale,
he is not entitled to the stipulated
brokers commission. [Inland Realty v
CA, 1997]

If the principal breaks off from negotiations

with a buyer brought by the agent in order to
deliberately deal later with the buyer
personally, this is evident bad faith. In such
case, justice demands compensation for the
agent. [Infante v Cunanan, 1953]

V. To Be Solidarily Liable

With agent, if agent acted beyond scope of

authority and principal allowed him to act as
though he had full powers
Even when the agent has exceeded his
authority, the principal is solidarily liable with
the agent if the former allowed the latter to
CIVIL LAW REVIEWER
Chapter V. Extinguishment of Agency
I. EXPIRATION OF THE PERIOD FOR WHICH IT
WAS CONSTITUTED
II. DEATH, CIVIL INTERDICTION, INSANITY,
INSOLVENCY
III. WITHDRAWAL OF THE AGENT
IV. ACCOMPLISHMENT OF THE OBJECT OF THE
AGENCY
V. REVOCATION
VI. DISSOLUTION OF THE FIRM/CORPORATION
WHICH ENTRUSTED/ACCEPTED THE
AGENCY
Extinguishment of Agency [EDWARD]
1. Expiration of the period for which it was
constituted
2. Death, civil interdiction, insanity, insolvency
3. Withdrawal of the agent
4. Accomplishment of the object of the agency
5. Revocation
6. Dissolution of the firm/corp. Which
entrusted/accepted the agency
I. Expiration of the period for which it
was constituted
If created for fixed period, expiration of the
period extinguishes agency even if the
purpose was not accomplished
If no time is specified, Art. 1197 shall apply.
The courts may fix the period as under the
circumstances have been probably
contemplated by the parties.
Period may be implied from terms of
agreement, purpose of agency, and the
circumstances of the parties
II. Death, civil interdiction, insanity,
insolvency
Death extinguishes agency
General Rule: Death extinguishes agency
Exceptions:
1. Agency coupled with an interest
a. Interest common to principal and agent;
or
rd
b. Interest of a 3 person who has
accepted the stipulation in his favor. [Art.
1930, CC]
2. Anything done by the agent, without
knowledge of the death of the principal or of
any other cause which extinguishes the
agency, is valid and fully effective with
rd
respect to 3 persons who may have
Chapter V. EXTINGUISHMENT of AGENCY
contracted with him in good faith. [Art. 1931,
CC]
3. Agent must finish business already begun
on the death of the principal, should delay
entail any danger. [Art. 1884, CC]
Obligation of heirs of agent upon agents
death [Art. 1932, CC]
1. They must notify the principal of the agents
death
2. They should adopt such measures as the
circumstances may demand in the interest
of the principal in the meantime.
3. The law does not impose a duty on the
principals heirs to notify the agent of the
principals death. [Rallos vs Felix Go Chan]
III. Withdrawal of the agent
1. General Rule: Agent may withdraw from the
agency by giving due notice to the principal
[Art. 1928, CC]
But: If the principal should suffer any
damage by reason of the withdrawal, the
agent must indemnify him;
Exception: If the agent based his withdrawal 357
upon the impossibility of continuing
AGENCY
performance of the agency without grave
detriment to himself. [Art. 1928, CC]
2. The agent, even if he should withdraw from
the agency for a valid reason, must continue
to act until the principal has had reasonable
opportunity to take the necessary steps to
meet the situation. [Art. 1929, CC]
IV. Accomplishment of the object of the
agency
Between principal and agent, the fulfilment
of the purpose for which agency was
created ipso facto terminates agency even if
it be expressly made irrevocable. If the
purpose has not been accomplished, the
agency continues indefinitely for as long as
the intent to continue is manifested through
words or actions of the parties
V. Revocation
Principal may revoke the agency at will as a
general rule
General Rule:
The principal may revoke the agency at will,
and compel the agent to return the
document evidencing the agency. Such
CIVIL LAW REVIEWER
revocation may be express or implied. [Art.
1920, CC]
Exceptions:
1. The right of the principal to terminate the
authority of his agent is absolute and
unrestricted, except only that he may not do
so in bad faith [Danon v Brimo, 1921]
2. Agency is coupled with an interest [Art.
1927, CC]
a. A bilateral contract depends upon it
b. It is the means of fulfilling an obligation
already contracted;
c. Partner is appointed manager of a
partnership in the contract of partnership
and his removal from the management
is unjustifiable.
Note:
1. Powers of attorney falling under 1927
cannot be revoked at the pleasure of the
principal, but may be revoked for a just
cause, such as when the attorney-in-fact
betrays the interest of the principal.
(Coleongco v Claparols, 1964)
2. A mere statement in the power of attorney
that it is coupled with an interest is not
enough. In what does such interest consist
must be stated in the power of attorney. (Del
Rosario v Abad, 1958)
3. Irrevocability of the contract cannot affect
3rd persons and is obligatory only on the
principal who executed the agency. (New
Manila Lumber v Republic, 1960)
Revocation may be express or implied
1. Expressprincipal clearly and directly
makes a cancellation of the authority of the
agent in writing or orally
2. Implied
a. The appointment of a new agent for the
same business or transaction revokes
the previous agency from the day on
which notice thereof was given to the
former agent, without prejudice to the
provisions Art. 1921 and Art. 1922, CC
[Art. 1923, CC]
b. The agency is revoked if the principal
directly manages the business entrusted
to the agent, dealing directly with third
persons. [Art. 1924, CC]
c. A general power of attorney is revoked
by a special one granted to another
- end of Agency -
Chapter V. EXTINGUISHMENT of AGENCY
agent, as regards the special matter
involved in the latter [Art. 1926, CC]
d. In all three cases, there is implied
revocation only where the new
appointment is incompatible with the
previous one.
When revocation makes principal liable for
damages
1. If there is a period stipulated in the agency
contract, the agent may still revoke the
agents authority at will; but principal will be
liable for damages.
2. No period fixed: principal liable if the agent
can prove the former acted in bad faith.
rd
Effect of revocation with respect to 3
persons [Arts. 1921-1922,CC]
Agency to contract Agency to contract
with specific with general public
persons
rd
Wont prejudice 3 Wont prejudice those
persons until notice is in good faith & w/o
given them. knowledge.
Notice must be Notice must be
personal. published (Arts. 1873,
1922).
358
Revocation in case of solidary principals
AGENCY
[Art. 1925, CC]
When two or more principals have granted a
power of attorney for a common transaction,
any one of them may revoke the same
without the consent of others.
Notice of Revocation as against third
persons
1. If agent had general powers:
Revocation DOES NOT prejudice third
persons who acted in good faith and
without knowledge of the revocation
Notice of revocation in a newspaper of
general circulation is a sufficient warning
to third persons
2. If agency is for the purpose of contracting
specified persons: to prejudice persons
specified, they must be given actual notice.
VI. Dissolution of the firm/corp. Which
entrusted/accepted the agency
CIVIL LAW REVIEWER TABLE of CONTENTS

PARTNERSHIP
Table of Contents

Chapter I. Nature, Creation, Kinds of III. Right to Lien or Retention, to Stand in

Partnership ...................................................361
I. Essential Features ............................361
II. Characteristics ..................................362
III. Distinctions ........................................362
IV. Rules to Determine Existence...........363
V. How Partnership is Formed ..............363
VI. Partnership Term ..............................363
VII. Kinds of Partnerships....................363
Chapter II. Obligations of the
Partnership/Partners Among Themselves 366
CRRAMP-LS..............................................366
I. Make Contributions as Promised ......366
III. Manage the Partnership....................367
IV. Render Full Information.....................368
V. Account for benefits ..........................368
VI. Reimburse expenses ........................368
VII. Liable for Partnership Contracts ...368
VIII. Solidarily Liable with Partnership.369
Place of Creditor, to be Indemnified .......... 377
IV. Right of Retiring/Deceased Partner (Art.
1841, CC) .................................................. 377
V. Right of Account (Art. 1842, CC) ...... 378
Chapter VIII. Rules on Settlement (Art. 1839,
CC)................................................................. 379
Chapter IX. Limited Partnership ................ 380
I. Definition ........................................... 380
II. Forming/Amending a Limited
Partnership (Art. 1844, CC) ....................... 381
III. Limited Partner.................................. 382
IV. General Partner ................................ 384
V. Dissolution ........................................ 384
VI. Settling Accounts for Dissolution ...... 385

Chapter III. Obligations of the

Partnership/Partners as to Third Persons.370
LANN .........................................................370
I. Operate Under a Firm Name (Art. 1815,
CC) 370 360
II. Bound by Partnership Admission......370

PARTNERSHIP
III. Bound by Notice Partner ...................370
IV. Liable for Acts of the Partnership......370

Chapter IV. Rights of Partners ...................371

I. Share in Losses and Profits ..............371
II. Associate Another in His Interest......371
III. Access to Partnership Books ............371
IV. Obtain Formal Account .....................371
V. Property Rights .................................371
VI. Convery Real Property (Art. 1819, CC)
372

Chapter V. Rights of the Partnership ........374

I. Acquire Immovables..........................374
II. Preference of Creditors .....................374

Chapter VI. Dissolution and Winding Up ..375

I. Definitions .........................................375
II. Causes for Dissolution ......................375
III. Consequences of Dissolution ...........375
IV. Partners Liability...............................376

Chapter VII. Rights of Partners Upon

Dissolution....................................................377
I. Right to Wind Up ...............................377
II. Right to Damages for or to Continue
Business on Wrongful Dissolution .............377
CIVIL LAW REVIEWER Chapter I. NATURE, FORM, and KINDS of AGENCY

Chapter I. Nature, Creation, Kinds of

AGENCY & PARTNERSHIP TEAM

AGENCY & PARTNERSHIP

Partnership
Prof. Roberto N. Dio
Faculty Editor
I. ESSENTIAL FEATURES
Genevieve E. Jusi
Lead Writer II. CHARACTERISTICS
III. DISTINCTIONS
Joyce Anne C. Roldan
Writer IV. RULES TO DETERMINE EXISTENCE
V. HOW PARTNERSHIP IS FORMED
CIVIL LAW VI. PARTNERSHIP TERM
Kristine Bongcaron VII. CLASSES OF PARTNERS
Patricia Tobias VIII.KINDS OF PARTNERSHIPS
Subject Editors

ACADEMICS COMMITTEE
Art. 1767. By the contract of partnership two or
Kristine Bongcaron
more persons bind themselves to contribute
Michelle Dy
Patrich Leccio money, property, or industry to a common fund,
Editors-in-Chief with the intention of dividing the profits among
themselves.
PRINTING & DISTRIBUTION Two or more persons may also form a
Kae Guerrero partnership for the exercise of a profession.
(1665a)
DESIGN & LAYOUT
Pat Hernandez
Viktor Fontanilla
Rusell Aragones
I. Essential Features
Romualdo Menzon Jr. 1. A mutual contribution of money, property, or
Rania Joya industry to a common fund;
2. With the intention of dividing profits among
LECTURES COMMITTEE
themselves
Michelle Arias Note: The object must be for profit and
Camille Maranan not merely for common enjoyment; 361
Angela Sandalo otherwise only a co-ownership has been

PARTNERSHIP
Heads
formed.
Katz Manzano Mary Rose Beley 3. The parties must have legal capacity.
Sam Nuez Krizel Malabanan
Arianne Cerezo Marcrese Banaag Exception: corporation cannot become a
Volunteers partner on grounds of public policy.
4. It has a separate juridical personality (Art.
MOCK BAR COMMITTEE 1768, CC) apart from the separate
Lilibeth Perez personality of each of the member.
Note: Associations and societies, whose
BAR CANDIDATES WELFARE articles are kept secret among the
Dahlia Salamat members, and wherein any one of the
members may contract in his own name
LOGISTICS with third persons, shall have no
Charisse Mendoza
juridical personality, and shall be
governed by the provisions relating
SECRETARIAT COMMITTEE to co-ownership. (Art. 1775, CC)
Jill Hernandez
Head
Although not a juridical entity, it may still
be sued by third persons under the
Loraine Mendoza Faye Celso
common name it uses. (Sec. 15, Rule 3,
Mary Mendoza Joie Bajo
Members Rules of Court)
CIVIL LAW REVIEWER Chapter I. NATURE, FORM, and KINDS of AGENCY

5. Has a lawful object (Art. 1770, CC) Partnership Corporation

a. A partnership must have a lawful object Based on delectus Not based on delectus
or purpose, and must be established for personam* personam
the common benefit or interest of the May be established May not be formed for a
partners. for any period of period exceeding 50 years
Note: When an unlawful partnership time stipulated
May be dissolved at May be dissolved only with
is dissolved by a judicial decree, the
anytime by the will of the consent of the state
profits shall be confiscated in favor any or all partners
of the State, without prejudice to the Governed by the Governed by the Corporation
provisions of the Penal Code Civil Code Code
governing the confiscation of the
instruments and effects of a crime *Delectus personam: the right of partners to
exercise their choice and preference as to the
II. Characteristics admission of any new members to the
1. Fiduciary partnership, and as to the persons to be so
2. Nominate designated by a specific name admitted, if any.
3. Consensual perfected by mere consent
4. Bilateral/Multilateral entered into between Partnership Co-ownership
two or more persons Creation Always General,
5. Principal - existence does not depend on created by a created by law,
another contract contract may exist even
6. Onerous money, property or industry must without a
be contributed contract
1. Preparatory other contracts essential in Juridical Has a Has no juridical
the carrying out of its purposes can be Personality separate, personality
entered into distinct
juridical
III. Distinctions personality
Purpose Realization of Common
profits enjoyment of a
Partnership Corporation
Created by operation of law
thing or right 362
Created by mere
Duration No limitation An agreement

PARTNERSHIP
agreement of the
parties; upon the to keep the
May be organized by Requires at least 5 duration is set thing
only two persons incorporators; by law undivided, not
Juridical personality Personality commences from exceeding ten
commences from SECs issuance of the years, shall be
the moment of certificate of incorporation valid. (Art. 494,
execution of the CC)
contract of
Transfer of Need A co-owner can
partnership
Interests unanimous dispose of his
May exercise any Can exercise such powers
power authorized by expressly granted by law or consent of share without
the partners as long incident to its existence partners to the consent of
as it is not contrary make the others
to law, etc. assignee of
If no agreement as Power to do business is interest a
to mgt. - every vested in the board of partner
partner is an agent directors/ trustees Power to A partner may A co-owner
of the partnership act with bind the cant represent
A partner as such Suit against the board/director Third partnership the co-
may sue a co- who mismanages must be
partner who brought in the corp.s name
Persons ownership
mismanages Dissolution Death or Death or
Has no right of Has right of succession incapacity of a incapacity of a
succession partner co-owner does
The partners are The stockholders are liable to dissolves the not dissolve the
liable personally and the extent of the shares partnership co-ownership
subsidiarily for subscribed by them Representa- There is There is no
partnership debts tion mutual agency mutual agency
CIVIL LAW REVIEWER
Partnership Co-ownership
Profits Must be Must always
stipulated depend upon
upon proportionate
shares and any
stipulation to
the contrary is
void.
IV. Rules to Determine Existence
Art. 1769. In determining whether a partnership
exists, these rules shall apply:
1. General Rule: Persons who are not partners
to each other are not partners as to third
persons
Exception: partnership by estoppel.
2. Co-ownership or co-possession and sharing
of gross returns DO NOT establish a
partnership
3. Prima facie evidence of partnership: receipt
of a share of the business profits
Except if received in payment as:
a. A debt by instalment or otherwise;
b. As wages to an employee or rent to a
landlord;
c. An annuity to a widow or representative
of a deceased partner;
d. As Interest on a loan, though the
amount of payment vary with the profits
of the business; and
e. As the consideration for the sale of
goodwill of a business or other property
by instalment or otherwise.
V. How Partnership is Formed
1. Form of Contract
General Rule: The contract may be
constituted in any form (Art. 1771, CC)
Exceptions
a. Where immovable property or real rights
are contributed (Art. 1771, CC)
i. The contract must appear in a public
instrument (1771)
ii. It must have an inventory of such
immovable property signed by the
parties and attached to the
instrument (1773)
b. Where the capital is at least P3,000, in
money or property
i. The contract must appear in a public
instrument which must be recorded
Chapter I. NATURE, FORM, and KINDS of AGENCY
in the Securities and Exchange
Commission (SEC). (Art. 1772, CC)
ii. FAILURE to comply with this
requirement shall NOT affect the
liability of the partnership and the
members to third persons.
VI. Partnership Term
Commencement of the partnership
1. General Rule: A partnership begins from the
moment of the execution of the contract
2. Exception: When otherwise agreed upon by
the parties (Art. 1784, CC)
A Partnership may either be for
1. Fixed term or particular undertaking
2. at will
Extension of Life of Partnership
1. By express renewal of the agreement
2. By implied renewalRequisites:
a. A partnership is for a fixed term or
particular undertaking
b. It is continued after the termination of
such term or particular undertaking
without any express agreemen
Note: Prima facie evidence of continuation
a. Continuation of the business by the
partners without any settlement or
liquidation of the partnership affairs 363
(1785)
PARTNERSHIP
b. Effect: The rights and duties of the
partners remain the same as they were
at such termination, so far as is
consistent with a partnership at will
(1785)
VII. Kinds of Partnerships
As to legality of existence
1. De jure has complied with all the
necessary requisites for lawful
establishment (Arts. 1772, 1773, CC)
2. De facto failed to comply with the
requisites
As to its object
1. Universal (Art. 1777, CC)
a. As to all present property (Art. 1778,
CC)
Partners contribute all their properties to
a common fund with the intention of
dividing them among themselves as well
as all the profits they may acquire
Includes all properties which belonged
to each partner at the time of the
CIVIL LAW REVIEWER Chapter I. NATURE, FORM, and KINDS of AGENCY

constitution of the partnership

Partners may stipulate that all may enjoy

all other profits made except those
properties which may be acquired
subsequently through inheritance,
legacy or donation

b. As to profits (Art. 1780, CC)

Partners contribute all that they may
acquire by their industry or work during
the existence of the partnership

Does not include properties which each

partner may possess at the time of the
celebration of the contract

Articles of Universal Partnership

If the Articles of a universal partnership
do not state its nature, it only constitutes
a universal partnership of profits. (Art.
1781, CC)

Persons prohibited to enter into a universal

partnershipThose persons who are
prohibited from giving donation (Art. 133
and 739, CC):
a. Between husband and wife
b. Those guilty of adultery or concubinage
c. Those guilty of a criminal offense, if the
partnership was entered into in
consideration of the same
364

PARTNERSHIP
d. A person and a public officer (or his
wife, descendants, ascendants) by
reason of his office

2. Particular (Art. 1783, CC)

The object may be determinate things, their
use or fruits, or specific undertaking or the
exercise of a profession or vocation.
CIVIL LAW REVIEWER Chapter I. NATURE, FORM, and KINDS of AGENCY

c. On the faith of the misrepresentation,

rd
As to partners liability the 3 person gave credit to the
1. General actual/apparent partnership.
2. Limited d. The person representing or consenting
to the representation is liable:
General Limited as an actual member if a
All partners are general Formed by two or more partnership liability results
partners liable for partners, with one or pro rata with other persons when no
partnership obligations more general partners partnership liability results (Art.
pro rata with all their and one or more limited 1825, CC)
property after exhaustion partners
of partnership assets
2. No real partnership is created by estoppel. It
rd
Industrialist Partner v Capitalist Partner is only insofar as 3 persons are involved
and for the purpose of protecting them that
Industrialist Capitalist
the principal of estoppel is recognized.
Partner Partner
Contribution Contributes his Contributes
3. As to liability resulting from the
industry money or
representation:
property
a. when all the members consent,
Prohibition to Cannot engage Cannot partnership obligation results
engage in in any business engage in b. if not all consent, only a joint obligation
other for himself the same or of the one representing and of those
business similar who consented results
enterprise
Profits Receives a just Shares in Note: Corporation by estoppel
and equitable profits All persons are liable as general partners
share according to (Sec. 21, Corp. Code). A de facto
agreement partnership is created.
thereon; if
none, pro
rata to his
contribution 365
Losses Exempted as to 1. stipulation

PARTNERSHIP
losses as as to losses
between
partners but it 2. if none,
is liable to 3rd the
persons without agreement
prejudice to as to profits
reimbursement
from the 3. if none,
capitalist pro rata to
partners contribution

Partnership by Estoppel
1. Requisites of Partner By Estoppel:
a. The person
represents himself as a partner of
an existing partnership or of two or
more persons not actual partners, or
consents to another representing
him as a partner of an existing
partnership or of two or more
persons not actual partners
b. Third person relied on the
misrepresentation, unaware of the
deception.
CIVIL LAW REVIEWER
Chapter II. Obligations of the
Partnership/Partners Among Themselves
I. MAKE THE CONTRIBUTIONS AS PROMISED
II. PAY DAMAGES
III. MANAGE THE PARTNERSHIP
IV. RENDER FULL INFORMATION
V. ACCOUNT BENEFITS
VI. REIMBURSE EXPENSES
VII. LIABILITY FOR PARTNERSHIP CONTRACTS
VIII. SOLIDARY LIABILITY WITH PARTNERSHIP
CRRAMP-LS
1. Make Contributions as promised
2. Render full information
3. Account benefits
4. Manage the partnership
5. Pay damages
6. Liability for partnership contracts
7. Solidary liability with partnership
I. Make Contributions as Promised
A partner is a debtor: for whatever he had
promised to contribute thereto (Art. 1786, CC)
When promised contribution is property: in
general
1. Partner is a warrantor in case of eviction
with regard to specific and determinate
things he may have contributed (Art. 1786,
CC)
Note: If breached
Partnership may recover indemnity from
contributing partner.
2. Liable for fruits from the time they should
have been delivered without need of any
demand (Art. 1786, CC)
3. Other duties of contributing partners:
a. to preserve the property with the
diligence of a good father of a family
(Art. 1163, CC)
b. to indemnify the partnership for
damages caused to it by delay in
contribution of property (Art. 1170, CC)
4. Risk of loss of things contributed (Art. 1795,
CC)
a. Borne by the partner who owns them
If they are not fungible, so that only
their use and fruits may be for the
common benefit
b. Borne by the partnership
If the things contributed are:
i. fungible;
ii. cannot be kept without deteriorating;
Chapter II. OBLIGATIONS of the PARTNERSHIP
iii. if they were contributed to be sold
But in the absence of stipulation, the risk
of things brought and appraised in the
inventory, shall also be borne by the
partnership, and in such case the claim
shall be limited to the value at which
they were appraised.
When promised contribution is goods (Art.
1787, CC)
1. Appraisal must be made in a manner
prescribed in the contract of partnership
2. In the absence of stipulation
a. Made by experts chosen by the partners
b. Made by experts chosen by the partners
When promised contribution is immovable
property (Art. 1771-1773, CC)
1. An inventory of the property is signed by the
parties, and attached to the public
instrument
2. The public instrument must be filed with the
SEC if the capital is more than P3,000.00.
When promised contribution is a sum of
money
Sanctions:
1. Partner becomes the firms debtor for
interest and damages from the time of his
failure to contribute or from time of
conversion (Art. 1788, CC)
366
PARTNERSHIP
2. When money or property has been received
by a partner for a specific purpose and he
later misappropriated it, such partner is
guilty of estafa. (Liwanag v CA, 2008)
Bring to partnership capital credit received
Equal contribution by general partners:
capitalist partners shall contribute equal
shares to the capital of the partnership (Art.
1790, CC).
Obligation of capitalist partner to contribute
additional capital
1. To contribute additional capital in case of
imminent loss, requisites:
a. There is an imminent loss of the
business
b. There is a need to contribute additional
capital to save the venture
c. Capitalist partner refuses deliberately to
contribute an additional share
d. There is no agreement to the contrary
2. If refused to contribute: the partner must sell
his interest in the partnership to the other
partners (Art. 1791, CC)
3. Industrial partner is exempted from
contributing.
CIVIL LAW REVIEWER
Obligation of managing partner who is also a
creditor of the same partnership debtor
1. Requisites:
a. 2 separate credits, both demandable,
b. one credit is owed to the partnership,
c. the other to the collecting partner whos
a managing partner.
2. Managing partner should:
a. If issued receipt for own account only
apply the sum to the 2 credits in
proportion to their amounts
b. Issued receipt for partnerships account
apply whole sum to partnerships
credit (Art. 1792, CC)
When the partner who has received, in whole
or in part, his share of a partnership credit
Partner shall give to the partnership what he
received if:
1. a debtor made a partial payment of his debt
to the partnership
2. a partner received his share of the credit
and the others havent
3. the debtor later becomes insolvent, (Art.
1793, CC).
4. Cf. 1792: in 1793 theres only 1 debt where
the partnership is the creditor
II. Pay Damages
Liability for damages due to partners fault
The damages cannot be compensated with
the profits and benefits he may have earned
for the partnership by his industry (Art.
1794, CC).
Mitigation of liability
The courts may equitably lessen his
responsibility if through his extraordinary
efforts in other activities unusual profits have
been realized (Art. 1794, CC)
Before a partner may sue another for
alleged fraudulent management and
resultant damages, a liquidation must first
be effect to determine the extent of the
damage. Without liquidation of partnership
affairs, partner cannot claim damages.
(Soncuya v. De Luna)
III. Manage the Partnership
General Rules
1. Right of management is primarily governed
by agreement of the partners as provided in
the articles of partnership (Art. 1800, CC)
Chapter II. OBLIGATIONS of the PARTNERSHIP
2. Right to manage may either be:
a. exercised by all the partners, or
b. limited to a certain number of partners
called managing partners
If a specific person has been appointed as
manager (Art. 1800, CC)
1. If right is conferred in the articles of
partnership
a. Manager may execute all acts of
administration despite the opposition of
other partners unless he is in bad faith
b. Power is irrevocable without just or
lawful cause.
Note: The vote of the controlling
interest of the partners is necessary
for revocation.
2. If power is granted after constitution of
partnership, it may be revoked at anytime
If two or more partners are appointed as
managers
1. Without specification of their duties or
without a stipulation of how each one will
act-- (Art. 1801, CC)
a. Each one may separately execute all
acts of administration
b. If opposed, decision of majority prevails
c. In case of a tie, the matter is to be
decided by the controlling interest.
2. If there is a stipulation that managers must
act jointly (Art. 1802, CC)
367
PARTNERSHIP
a. The concurrence of all managers is
necessary for validity of the acts
b. Their absence or disability cannot be
alleged as a defense unless there is
imminent danger or grave or irreparable
injury to the partnership.
If the manner of management has not been
agreed upon (Art. 1803, CC)
1. All partners are considered agents and the
act of anyone bind the partnership without
prejudice to Art. 1801
2. To make important alterations in the
immovable property of the partnership, even
if useful, need the consent of all the partners
If refusal to give consent is manifestly
prejudicial to the partnership, the courts
intervention may be sought
Every partner is considered an agent (Art.
1818, CC)
General Rule:
Every partner is considered an agent of the
partnership for the purpose of its business
and any act of the agent for apparently
CIVIL LAW REVIEWER
carrying on the usual business of the
partnership binds the partnership.
Exception:
If the partner has no authority to act; AND
the third person dealing with him knew that
the partner had no authority
If the acts are not for carrying out the
business of the partnership(Art. 1818, CC)
General Rule:
Acts of the partner not apparently for
carrying out the business of the partnership
do not bind the partnership.
Exceptions:
When authorized by other partners; OR other
partners have abandoned the business
Acts not usual in the business of partnership
(Art. 1818, CC) [ADD-CRES]
1. Assign the partnership property in trust for
creditors or on the assignee's promise to
pay the debts of the partnership;
2. Dispose of the good-will of the business;
3. Do any other act which would make it
impossible to carry on the ordinary business
of a partnership;
4. Confess a judgment;
5. Renounce a claim of the partnership.
6. Enter into a compromise concerning a
partnership claim or liability;
7. Submit a partnership claim or liability to
arbitration;
IV. Render Full Information
Duty to give information:
1. On demand, to give true and full information
of all things affecting the partnership to any
partner or their legal representatives (Art.
1806, CC).
2. Voluntary disclosure of material facts within
his knowledge relating to/affecting
partnership affairs (Art. 1821, CC).
V. Account for benefits
Duty to account (Art. 1807, CC)
Every partner must:
1. Account to the partnership for any benefit;
AND
2. Hold as trustee for it any profits derived by
him without the consent of the other partners
from any transaction connected with the
formation, conduct or liquidation of the
partnership
Chapter II. OBLIGATIONS of the PARTNERSHIP
VI. Reimburse expenses
The partnership is responsible to every
partner for:
1. Amounts disbursed on behalf of the
partnership plus interest from the time the
expense is made
2. Obligations contracted in good faith in the
interest of the business
3. Risks in consequence of management
VII. Liable for Partnership Contracts
Liability of partnership and partners for
partnership contracts-- (Art. 1816, CC)
1. All partners shall be liable pro rata with all
their property but
The private property of the partners
cannot be seized for satisfaction of
partnership debts until all the
partnership assets have been exhausted
2. For the contracts which may be entered into:
a. in the name and for the account of the
partnership
b. under its signature and
c. by a person authorized to act for the
partnership.
The exemption of an industrial partner from
paying losses relates exclusively to the
settlement of the partnership affairs among the
368
partners themselves, and not to the partners
rd
PARTNERSHIP
subsidiary liability to 3 persons (La Compania
Maritima v Munoz, 1907).
While the liability of the partners is joint in
transactions entered into by the partnership, a
rd
3 person who transacted with the partnership
can hold partners solidarily liable for the whole
rd
obligation if the 3 persons case falls under
Arts. 1822-1823 (Muasque v. CA, 1985)
However, any party may enter into a separate
obligation to perform a partnership contract.
(Art. 1816, CC)
Stipulation against pro-rata liability void
1. General Rule: Stipulation against pro rata
liability is void
2. Exception:such stipulation is valid among
the partners (Art. 1817, CC)
Art. 1817 vs. 1799
it is permissible to stipulate among partners
that a capitalist partner will be exempted
from liability in excess of the original capital
contributed; but wont be exempted insofar
as his capital is concerned (Paras).
CIVIL LAW REVIEWER Chapter II. OBLIGATIONS of the PARTNERSHIP

Liability of a newly-admitted partner The liability of partners under the Workmens

1. Obligations contracted before his admission:
liable only up to his share in the partnership
property unless theres a contrary stipulation
(Art. 1826, CC).
2. Obligations contracted after admission:
liable as an ordinary original partner
Compensation Act also solidary. If their
responsibility was merely joint and one became
insolvent, the amount awarded would only be
partially satisfied, which is contrary to the laws
purpose (Liwanag v. Workmens
Compensation Commission, 1959)

Liability of outgoing partner

1. When he gives notice of his retirement or
withdrawal, hes freed from liability on
contracts entered into thereafter but still
liable on existing incomplete contracts
2. He is liable for goods sold and delivered
after his retirement/withdrawal if the sale
was pursuant to a contract made before
such retirement/withdrawal

VIII. Solidarily Liable with Partnership

The partnership and the partner are solidarily

liable in the following cases
1. Vicarious liability, requisites:
a. the partner committed a wrongful
act/omission;
b. he acted in the ordinary course of the
partnership business or with the
authority of the co-partners even if the
act wasnt connected with the
partnership business;
rd
c. loss/injury is caused to a 3 person by 369
the wrongful act/omission;

PARTNERSHIP
rd
d. 3 person is not a partner (Art. 1822,
CC);
2. Misappropriation of one partner (Art. 1824,
CC)
a. partner acts within the scope of his
apparent authority
b. when partner in the course of business,
receives money or property and the
same is misapplied by the partner while
in the custody of the said partner.

Exceptions are without prejudice to the guilty

partner being liable to the other partners, but as
far as third partners are concerned, the
partnership is answerable.

Liability for money misappropriated covers

1. Interest
2. Damages

Extent of liability
firm is liable to the same extent as the
partner (Art. 1822, CC) and all partners are
solidarily liable with the firm (Art. 1824, CC)
CIVIL LAW REVIEWER
Chapter III. Obligations of the
Partnership/Partners as to Third Persons
I. OPERATE UNDER A FIRM NAME
II. BOUND BY PARTNERSHIP ADMISSION
III. BOUND BY NOTICE TO PARTNER
IV. LIABLE FOR ACTS OF THE PARTNERSHIP
LANN
1. Liable for acts of the Partnership
2. Bound by partnership Admission
3. Operate under a Firm name
4. Bound by Notice to partner
I. Operate Under a Firm Name (Art.
1815, CC)
The firm name may or may not include the name
of one or more of the partners.
Persons, not being members of the partnership,
who include their names in the firm name, are
liable as partners (Art. 1825, CC)
Use of deceased partners name in law firm
permissible as long as its indicated in the firms
communications that the partner is deceased
(Rule 3.02, CPR)
Limited partners surname shall not appear
in the firm name unless
1. It is also the surname of a general partner
2. Before the limited partner became such, the
business had been carried on under a name
in which his surname appeared (Art. 1846,
CC)
II. Bound by Partnership Admission
Requisites to be admissible against the
partnership
1. it must be connected with partnership affairs
2. it is within the scope of the partners
authority (Art. 1820, CC)
3. it is made during the firms existence
Exception: when a partner
admissions for himself only
purporting to act for the partnership
Admission by a former partner not admissible in
evidence against the partnership. (Congco vs.
Trillana, 1909)
Chapter III. OBLIGATIONS as to THIRD PERSONS
III. Bound by Notice Partner
Notice to the partner relating partnership
affairs
Knowledge acquired by a partner who is
acting in a particular matter (acting partner),
acquired while he was still a partner or then
present in his mind
Knowledge of a partner who reasonably
could and should have communicated it to
the acting partner (Art. 1821, CC)
Exception: In case of fraud on the
partnership, committed by or with the
consent of the partner (Art. 1821)
IV. Liable for Acts of the Partnership
All partners, including the industrial partner,
are liable pro rata with their own properties
after partnership properties have been
exhausted (Art. 1816, CC)
1. General Rule: liability is joint
2. However, liability is solidary in the following:
a. Wrongful acts and omissions causing
loss to a non-partner.
b. Conversion or misappropriation of funds
committed in the usual course of
business or consented to by all partners
Any stipulation against this liability is void as
against third persons but valid among the
partners (Art. 1817, CC)
370
PARTNERSHIP
An industrial partner is liable to third persons
but as between the partners, he is not liable
for losses (Art. 1797, CC)
Partners are individually liable after
partnership assets are exhausted
Contracts for which partners are liable pro
rata with their individual property
1. those entered into in the name and account
of the partnership
2. entered into under its signature
3. entered into by a person authorized to act
for the partnership
Exception: partner may enter into a
separate obligation to perform a
partnership contract.
makes
without
CIVIL LAW REVIEWER Chapter IV. RIGHTS of PARTNERS

Stipulation excluding one or more partners from

Chapter IV. Rights of Partners any share in the profits or losses is void. (Art.
1799, CC)
I. SHARE IN LOSSES AND PROFITS
II. ASSOCIATE ANOTHER IN HIS SHARE
III. ACCESS PARTNERSHIP BOOKS II. Associate Another in His Interest
IV. OBTAIN FORMAL ACCOUNT Every partner may associate another person
V. PROPERTY RIGHTS with him in his share, but the associate shall not
VI. CONVEY REAL PROPERTY be admitted into the partnership without the
consent of all the other partners, even if the
BASCOP partner having an associate should be a
1. Access to partnership Books manager. (Art. 1804, CC)
2. Associate another in his share
3. Share in losses and profits
4. Convey real property III. Access to Partnership Books
5. Obtain formal account
6. Property rights Partnership books: open to inspection of all the
partners at a reasonable hour (Art. 1805, CC).

I. Share in Losses and Profits The books shall be kept at:

1. The place agreed upon
The distribution shall be in conformity with the 2. If without agreement, at principal place of
agreement. (Art. 1797, CC) business (Art. 1805, CC)
PROFITS LOSSES
Reasonable hours on business days throughout
With According to According to
agreement the year, not merely during some arbitrary period
agreement agreement
Without 1. Share of 1. If sharing of
of a few days chosen by the managing partners
agreement capitalist partner profits is (Pardo v. Lumber Co., 1924)
is in proportion stipulated - apply
to his capital to sharing of IV. Obtain Formal Account
contribution losses

2. Share of 2.If no profit Any partner shall have the right to a formal 371
purely industrial sharing account as to partnership affairs

PARTNERSHIP
partner is not stipulated - 1. If he is wrongfully excluded from the
fixed - as may losses shall be business/possession of the property by his
be just and borne according co-partners
equitable under to capital 2. If the right exists by agreement
the contribution 3. When the partner derives any profit as
circumstances
provided in Art. 1807
3.Purely
4. Whenever other circumstances render it just
industrial partner and reasonable (Art. 1809, CC)
not liable for
losses The right of a partner to demand an accounting
exists as long as the partnership exists. The
If the partners agreed to entrust to a third prescription period begins to run only upon the
person the designation of the share in profits dissolution when the final accounting is done
and losses (Art. 1798, CC) (Fue Leung v. IAC,1989).
Designation may only be impugned if
manifestly inequitable
Even if manifestly inequitable, the V. Property Rights
designation cannot be impugned in the
following instances: Property rights (Art. 1810, CC)
a. The aggrieved partner has already 1. In the specific partnership property
begun to execute the decision 2. In the partnership, and
b. If he has not impugned within three 3. To participate in the management
months from the time he had knowledge
of it
CIVIL LAW REVIEWER Chapter IV. RIGHTS of PARTNERS

Partnership capital vs. partnership Rights of the What assignees

property transferee or cannot do
Capital Property assignee
With a constant value Value varies, in To receive in Interfere in the
accordance with market accordance with his management;
value contract the profits
Includes only the actual Includes the contribution accruing to the
capital contributed and and all property later assigning partner
promised to the acquired on the To avail of the usual Require any information
partnership partnerships account remedies provided by or account
law in the event of
Partners are co-owners of specific fraud in the
management
partnership property: the incidents are
To receive the Inspect any of the
1. A partner has an equal right with his co- assignors interest in partnership books.
partners to possess specific property for case of dissolution;
partnership purposes may require an account
if excluded from this, can seek a formal from the date only of
accounting (Art. 1809, CC) or judicial the last account agreed
dissolution (Art. 1831, CC) to by all the partners.
2. A partners right in specific property cant be
assigned except when all partners assign Enforcement of a judgment vs. a debtor-
their rights in that property partners interest (Art. 1814, CC)
3. A partners right in specific property is not The judgment creditor may:
subject to attachment/execution except on a 1. Apply for an order charging the partners
claim against the partnership interest with payment of the unsatisfied
4. A partners right in specific property is not amount of the final judgment with interest
subject to support payment (Art.1811, CC) 2. Have a receiver appointed
3. Have the court make an order as the
Property used by the partnership: a partner circumstances render it necessary
may
1. contribute only the use of property Redemption
2. allow partnership to use his separate A partner or more may redeem the interest 372
property charged at any time before the foreclosure with:

PARTNERSHIP
3. hold the title to partnership property in his 1. their separate property
own name without having it belong to him 2. with partnership property, with the consent
of all partners whose interests are not
Property acquired by a partner with charged/sold (Art. 1814, CC)
partnership funds
General Rule: partnership property VI. Convery Real Property (Art. 1819, CC)
Exceptions:
1. contrary intention appears
Title in Conveyance passes title but
2. property was acquired after dissolution but partnership partnership can recover unless:
before winding up name: 1. The partner who sold it
Any partner was carrying on in the
Partners interest in the partnership may convey usual way the business of
his share in the profits and surplus (Art. 1812, under the partnership hence
CC). This may be assigned, attached, subject to partnership binding the partnership; or
payment of support as there was already a name
liquidation of the partnership affairs. The 2. Buyer had no knowledge
of the lack of authority of
assignee is only entitled to the profits assigned.
the seller
Conveyance of partners entire interest Title in Conveyance does not pass title
It does not dissolve the partnership (Art. 1813, partnership but only equitable interest.
CC) name: Provided that: The partner who
Conveyance in sold it was carrying on in the
partner's name usual way the business of the
partnership hence binding the
partnership
CIVIL LAW REVIEWER Chapter IV. RIGHTS of PARTNERS

Title in the Conveyance passes title but

name of one or partnership can recover unless:
more but not all 1. he partner who sold it was
the partners and carrying on in the usual
the record does way the business of the
not disclose the partnership hence binding
right of the the partnership; or
partnership - 2.
The partners in 3. Buyer had no knowledge
whom the title of the lack of authority of
stands may the seller
convey
Title in the Conveyance does not pass title
name of one or but only equitable interest.
more or all Provided that: The partner who
partners or in sold it was carrying on in the
third person in usual way the business of the
trust for the partnership hence binding the
partnership - partnership
Conveyance in
partner's name
or in partners
name
Title in the Passes all their rights in such
names of all the property
partners
Conveyance by
all partners

373

PARTNERSHIP
CIVIL LAW REVIEWER Chapter V. RIGHTS of the PARTNERSHIP

Chapter V. Rights of the Partnership

I. ACQUIRE IMMOVABLES
II. PREFERENCE OF CREDITORS

I. Acquire Immovables
An immovable property or any interest
therein may be acquired in the partnership
name, and title so acquired can only be
conveyed in the partnership name (Art.
1774, CC).
Cf Art. 1819: see table

II. Preference of Creditors

Preference: partnership creditors preferred
to creditors of individual partners (Art. 1827,
CC).
Remedy of private creditors of partners:
seek the attachment/public sale of the
shares

374

PARTNERSHIP
CIVIL LAW REVIEWER
Chapter VI. Dissolution and Winding Up
I. DEFINITIONS
II. CAUSES FOR DISSOLUTION
III. CONSEQUENCES OF DISSOLUTION
IV. PARTNERS LIABILITY
I. Definitions
Dissolution (Art. 1828, CC)
Change in the partners relation caused by
any partner ceasing to be associated in the
carrying on of the business
Winding Up (JBL Reyes)
Process of liquidation of partnership affairs,
between dissolution and termination
Termination (JBL Reyes)
When all the affairs of the partnership are
liquidated and the partnership is definitely
ended. It is the final settlement of accounts
of the partnership
Effect of dissolution
Partnership continues until winding up is
completed (Art. 1829, CC).
Effect of dissolution on the partners
1. they cannot evade prior obligations
2. Generally, they are spared from new
obligations to which they didnt consent,
unless these are essential for the winding up
(Testate Estate of Mota v. Serra, 1925)
II. Causes for Dissolution
Voluntary
1. without violation of the agreement between
the partners (Art. 1830, CC)
a. termination of the term or particular
undertaking
b. express will of any partner in good faith,
when the partnership is at will
c. express will of all partners who have not
assigned their interests or suffered them
to be charged
d. bona fide expulsion of any partner in
accordance with the agreement
2. in contravention of the agreement, by
express will of one partner
effects partner is liable for damages;
other partners may continue the
business
Involuntary (Grounds)
1. business becomes unlawful
2. specific thing promised perishes before
delivery to the partnership, the use and
Chapter VI. DISSOLUTION and WINDING UP
enjoyment of which has been transferred to
the partnership
3. death of a partner
4. insolvency of any partner or the partnership
5. civil interdiction of any partner
Judicial
1. Decree of court upon application (Art. 1831,
CC)
a. application by partner (grounds)
insanity of any partner
incapacity of any partner to perform
his part of the contract
partner guilty of conduct prejudicial
to the partnership business
wilfull breach of agreement by any
partner
business can only be carried out
with loss
b. application by purchaser of partnership
interest may be allowed in the following
cases:
termination of term or undertaking
partnership is at will and interest of
partnership is assigned
III. Consequences of Dissolution
Except as necessary for winding up, dissolution
terminates all authority of the partners to act for
the partnership (Art. 1832, CC) 375
PARTNERSHIP
Partnership is not bound by any act of a
partner when
1. dissolution is not by the act, insolvency or
death of a partner
2. dissolution is by such act, insolvency or
death and the partners acting have
knowledge thereof
3. acts not connected with winding up
Partnership is not bound with respect to
third persons (Art. 1834, CC)
1. business becomes unlawful
2. partner dealing with third party becomes
insolvent
3. partner has no authority to wind up
Partner can bind the partnership even after
dissolution (Art. 1834, CC)
1. acts appropriate to winding up
2. third person is in good faith and without
knowledge of dissolution:
a. third person who extended credit to the
partnership
b. third person who knew the existence of
the partnership
CIVIL LAW REVIEWER Chapter VI. DISSOLUTION and WINDING UP

IV. Partners Liability 5. Not only the retiring partners but also the
new partnership itself which continued the
business of the dissolved one, are liable for
If partner transacts business with third
the debts of the prior partnership. A
persons notwithstanding death or insolvency rd
withdrawing partner remains liable to a 3
of a co-partner, liability shall be satisfied out
party creditor of the old partnership
of partnership assets alone if
(Singsong vs. Isabela Sawmill, 1979).
1. Partner was unknown as partner to third
person
2. Partner is unknown and inactive in
partnership affairs

A partner still has existing liabilities to the

partnership at the time of the dissolution
(Art. 1835, CC)
1. Dissolution does not discharge a partner
2. Discharged only by agreement among
partner, creditor and the person or
partnership continuing the business
3. In case of death:
Individual property is liable for obligation
of the partnership incurred while he was
a partner, subject to prior payments of
individual debts.

Liability of partner or partnership continuing

the business (Art. 1840,CC)
1. Contemplates seven situations:
a. When any partner is admitted into an
existing partnership
b. When any partner retires and assigns
his rights in partnership property to two 376
or more partners or third persons

PARTNERSHIP
c. When all but one partner retire and
assign their rights to the remaining
partner
d. Any partner retires or dies without any
assignment of his right in partnership
property
e. All the partners or their representatives
assign their rights in partnership
property to one or more third persons
who promise to pay the debts and who
continue the business of the dissolved
partnership
f. Any partner wrongfully causes a
dissolution
g. When a partner is expelled

2. When applicable: a partnership is dissolved

due to change in membership but the
remaining partners continue the business
without liquidation.
3. Effect: unpaid old creditors of the dissolved
partnership automatically become creditors
of the new partnership.
4. New partners liability: satisfied out of
partnership property only, unless with a
contrary stipulation
CIVIL LAW REVIEWER Chapter VII. RIGHTS of PARTNERS upon DISSOLUTION

A partner who has caused the dissolution

Chapter VII. Rights of Partners Upon wrongfully shall have the right to
Dissolution 1. If the business is not continued
a. Each partner may have the partnership
I. RIGHT TO WIND UP
property applied to the payment of the
II. RIGHT TO DAMAGES FOR/TO CONTINUE
BUSINESS ON WRONGFUL DISSOLUTION firms debt
III. RIGHT TO LIEN OR RETENTION, TO STAND b. Surplus is applied to payment in cash of
IN PLACE OF CREDITOR, TO BE the net amount owed to the respective
INDEMNIFIED partners subject to payment of damages
IV. RIGHT OF RETIRING/DECEASED PARTNER 2. If the business is continued
V. RIGHT TO ACCOUNT a. the right as against his co-partners and
all claiming through them in respect of
I. Right to Wind Up their interests in the partnership,
b. to have the value of his interest in the
partnership, less any damage caused to
Who has the right to wind up?
his co-partners by the dissolution,
1. By agreement
ascertained and paid to him in cash, or
2. If there is no agreement
the payment secured by a bond
a. Partners who have not wrongfully
approved by the court,
dissolved the partnership
c. to be released from all existing liabilities
b. The legal representative of the last
of the partnership; but in ascertaining
surviving partner, not insolvent
the value of the partner's interest the
value of the good-will of the business
Any partner, his legal representative or his
shall not be considered.
assignee, upon cause shown, may obtain
winding up by the court.
III. Right to Lien or Retention, to Stand in
II. Right to Damages for or to Continue Place of Creditor, to be Indemnified
Business on Wrongful Dissolution
Where a partnership contract is rescinded
on the ground of the fraud or
General Rule 377
misrepresentation of one of the parties
1. Each partner may have the partnership
thereto, the party entitled to rescind is,

PARTNERSHIP
property applied to the payment of the firms
without prejudice to any other right, entitled:
debt
a. To a lien on, or right of retention of, the
2. Surplus is applied to payment in cash of the
surplus of the partnership property after
net amount owed to the respective partners
satisfying the partnership liabilities to
third persons for any sum of money paid
Each partner who has not caused
by him for the purchase of an interest in
dissolution wrongfully shall have the right, as
the partnership and for any capital or
against each partner who has caused the
advances contributed by him;
dissolution wrongfully, to damages for
b. To stand, after all liabilities to third
breach of the agreement.
persons have been satisfied, in the
place of the creditors of the partnership
The partners who have not caused the
for any payments made by him in
dissolution wrongfully, if they all desire to
respect of the partnership liabilities; and
continue the business in the same name
c. To be indemnified by the person guilty of
either by themselves or jointly with others,
the fraud or making the representation
may do so, during the agreed term for the
against all debts and liabilities of the
partnership and for that purpose may
partnership.
possess the partnership property, provided
a. they secure the payment by bond
approved by the court, or IV. Right of Retiring/Deceased Partner
b. pay any partner who has caused the (Art. 1841, CC)
dissolution wrongfully, the value of his
interest in the partnership at the Factual Situation
dissolution, less any damages 1. any partner retires or dies, and
recoverable 2. the business is continued without any
c. In like manner indemnify him against all settlement of accounts as between him or
present or future partnership liabilities.
CIVIL LAW REVIEWER Chapter VII. RIGHTS of PARTNERS upon DISSOLUTION

his estate and the person or partnership

continuing the business

Rights
1. he or his legal representative as against
such person or partnership may have the
value of his interest at the date of dissolution
ascertained
2. either:
a. receive as an ordinary creditor an
amount equal to the value of his interest
in the dissolved partnership with
interest; or,
b. at his option or at the option of his legal
representative, receive in lieu of interest,
the profits attributable to the use of his
right in the property of the dissolved
partnership;

The provision shall not apply if there is an

agreement between the parties.

V. Right of Account (Art. 1842, CC)

The right to an account of his interest shall

accrue to any partner, or his legal
representative as against
1. the winding up partners or the surviving
partners or
2. the person or partnership continuing the 378
business,

PARTNERSHIP
When right accrues
At the date of dissolution, in the absence of
any agreement to the contrary.
CIVIL LAW REVIEWER Chapter VIII. RULES on SETTLEMENT

Chapter VIII. Rules on Settlement (Art.

1839, CC)

The rules for distribution will not apply if there is

a contrary agreement between the partners.

Rule of preference in the payment of

partnership liabilities
1. those owed to creditors other than partners
2. those owed to partners other than capital
and profits
3. those owed to partners in respect of capital
4. those owed to partners in respect of profits

When assets are insufficient to satisfy

liabilities
1. If refuses to contribute a petition in court
may be filed for its enforcement.
2. If partner is dead contribution may be
enforced against his private property
through the administrator

Doctrine of Marshalling of Assets

If there are claims over both partnership assets
and partners individual properties, both in
custody of the court for distribution:
1. Partnership creditors are preferred with
regard to partnership property
2. Individual creditors are preferred with
respect to individual properties of partners.
3. Anything left from either goes to the other.
379

PARTNERSHIP
Order in case of insolvency of a partner or
his estate (in case of death)
1. Separate creditors
2. Partnership creditors
3. Partners who gave contributions

Liquidation needed
The business profits cant be determined by
taking into account the result of 1 transaction
instead of all the transactions had, thus the need
for a general liquidation before a partner may
claim a specific sum as his share of the profits
(Sison v. McQuaid, 1953).

No return of shares without dissolution and

liquidation
Because the firms outside creditors have
preference over the firms assets and the firms
property cant be diminished to their prejudice
(Magdusa v. Albaran, 1962).
CIVIL LAW REVIEWER Chapter IX. LIMITED PARTNERSHIP

Chapter IX. Limited Partnership Characteristics

1. Complied with the statutory requirement of
I. DEFINITION form (Art. 1844 CC)
II. FORMING/AMENDING A LIMITED 2. The business is controlled by one or more
PARTNERSHIP general partners who are personally liable to
III. LIMITED PARTNER creditors (Arts. 1848, 1850 CC)
A. CONTRIBUTION 3. One or more limited partners contribute to
B. LIABILITIES OF A LIMITED PARTNER the capital and share in the profits but do not
1. TO THE PARTNERSHIP manage the business
2. AS TRUSTEE FOR THE 4. The limited partners are not personally liable
PARTNERSHIP for obligations beyond their contribution
3. LIABILITIES TO PARTNERSHIP (Arts. 1845, 1848, 1856 CC)
CREDITORS AND OTHER 5. Obligations or debts are paid out of
PARTNERS partnership assets and the general partners
i. CONTRIBUTES SERVICES separate assets
ii. SURNAME IN FIRM NAME 6. Limited partners may get back their capital
iii. FALSE STATEMENT contributions subject to conditions
iv. CONTROL OF BUSINESS prescribed by law (Arts. 1844, 1857 CC)
v. PROHIBITED TRANSACTIONS
vi. NON-COMPLIANCE WITH Advantages of limited partnerships
REQUISITES FOR 1. For general partners: secure capital from
FORMATION others while retaining control and
4. LIABILITIES TO SEPARATE supervision of the business
CREDITORS 2. For limited partners: share in the profits
C. RIGHTS OF LIMITED PARTNERS without the risk of personal liability
1. COMMON RIGHTS OF LIMITED
AND GENERAL PARTNERS General Limited Partner
2. LOAN MONEY AND TRANSACT Partner
BUSINESS Extent of Personally Only to the
3. RETURN OF CONTRIBUTION liability liable for extent of his
partnership capital
4. SHARE OF PROFITS
obligations contributions 380
5. ASSIGN INTERESTS
Right to If manner of No participation

PARTNERSHIP
6. EFFECT OF DEATH OF A LIMITED participate in mgt. not agreed in management
PARTNER management upon, all
7. PERSON ERRONEOUSLY general
BELIEVING HES A LIMITED partners have
PARTNER an equal right in
IV. GENERAL PARTNER business mgt
V. DISSOLUTION Contribution Cash, property Cash or
VI. SETTLING OF ACCOUNTS AFTER or industry property only,
DISSOLUTION not industry
Proper party Proper party to Not proper party
to proceedings to proceedings
I. Definition proceedings by/against by/against
by or against partnership partnership
Limited Partnership the unless:
partnership 1. he is also a
1. formed by two or more persons; general partner
2. in accordance with the requirements of law; 2. where the
and object of the
3. composed of one or more general partners proceedings is
and one or more limited partners (Art. 1843, to enforce a
CC). limited partner's
right against or
Limited partners are not bound by the liability to the
partnerships obligations (Art. 1843, CC). partnership
Name in firm Name may Name must
name appear in firm appear in firm
name name
CIVIL LAW REVIEWER Chapter IX. LIMITED PARTNERSHIP

General Limited Partner General Limited

Partner Partnership Partnership
Prohibition to Prohibited No prohibition Dissoluti Rules governing Rules governing
engage in on and are Art. 1828-1842 are Art. 1860-1863
other Winding
business Up
Effect of Dissolves the Different effect;
retirement partnership rights II. Forming/Amending a Limited
death insanity transferred to
or insolvency legal rep. Partnership (Art. 1844, CC)
Assignability Not assignable Assignable
of interest in Two or more persons desiring to form a
partnership partnership shall
1. Sign and swear to a certificate which shall
General Limited state the following items enumerated in Art.
Partnership Partnership 1844
Creation May be constituted Partners must: 2. File for record the certificate in the Office of
in any form, except (1) Sign and swear
Securities and Exchange Commission
where immovable to a certificate
property or real which shall state
rights are the items A limited partnership is formed if there has been
contributed, a enumerated in Art. substantial compliance in good faith with Art.
public instrument 1844 and 1844
shall be necessary
(2) File for record When the cert. of partnership may be
the certificate in the amended (CSAAG CFCTM)
Office of the 1. Change in partnership name or in the
Securities and
amount/character of contribution of any
Exchange
Commission limited partner
Compos Only general 1/more general 2. Substitution of a limited partner
ition partners partners and 3. Additional limited partner is admitted
1/more limited 4. Admission of a general partner
partners 5. General partner retires, dies, becomes 381
Firm Must contain the Name must include insolvent or insane, or under civil interdiction

PARTNERSHIP
name word Company the word Limited and the business is continued:
(SEC Memo Circ. (SEC Memo Circ. a. Under a right so to do stated in the
#14-00) unless its #14-00) certificate, or
a professional
b. With the consent of all members
partnership
6. Change in the character of business
7. False/erroneous statement in the cert.
Every partnership 8. Change in the time as stated in the cert. for
shall operate under The surname of a the dissolution of the partnership or return of
a firm name, which limited partner shall a contribution
may or may not not appear in the 9. Time is fixed for dissolution or return of a
include the name of partnership name contribution
one or more of the unless: 10. The Members want to change a statement in
partners.
the cert. to make it more accurate (Art.
(1) It is also the
surname of a 1864, CC)
general partner, or
Requirements to amend
(2) Prior to the time 1. Must be in writing, under oath, and set forth
when the limited clearly the change desired
partner became 2. Signed and sworn to by all the members,
such, the business including the new members and assigning
has been carried on members
under a name in
3. The cert., as amended, must be filed in the
which his surname
appeared. SEC (Art. 1865, CC)
CIVIL LAW REVIEWER
When the certificate shall be cancelled
1. When the partnership is dissolved
2. When all limited partners cease to be such
(Art. 1864, CC)
Requirements to cancel
1. Must be in writing
2. Signed by all the members
3. Filed with the SEC; if cancellation is court-
ordered, a certified copy of the order shall
also be filed (Art.1865, CC)
III. Limited Partner
Who may be limited partners
1. A partnership no
2. A general partnership may be changed into
a limited one, and a partner in the former
general partnership may be a limited partner
in the limited partnership formed.
Contribution
May be cash or property, but not services.
Liabilities of a Limited Partner
General rule: He is not liable as a general
partner. His liability is limited to the extent of
his contribution to the partnership.
Liabilities to the partnership (Art. 1858, CC)
1. Difference between his actual contribution
and that stated in the certificate as having
been made
2. Unpaid contributions which he agreed to
make at specified future time and on the
conditions stated in the certificate
Liabilities as Trustee for the Partnership
1. Specific property which he committed but
did not contribute, or which he contributed
but was wrongfully returned to him
2. Money or property wrongfully paid or
conveyed to him
Liabilities of a limited partner can be waived
or compromised only by the consent of all
the members. However, this too shall not
affect the right of the creditor who:
a. Extended credit; or
b. Whose claim arose after the filing and
before a cancellation or amendment of
the certificate.
Even if a limited partner rightfully received
back his contribution to capital, he remains
liable to the partnership for any sum
necessary to discharge the liabilities of the
partnership to creditors who:
a. Extended credit or
Chapter IX. LIMITED PARTNERSHIP
b. Whose claims arose before such return.
Liabilities to partnership creditors and other
partners
1. Contributes services (Art. 1845, CC); Effect
a. The limited partner:
o Will be considered an industrial and
general partner; or
o If the certificate states that hes a
limited partner, he will be a general
partner and limited partner at the
same time.
b. He divests himself of the privilege of
limited liability and will be exposed to all
the liabilities of a general partner.
2. Surname in firm name (Art.1846, CC)
General rule: the surname of a limited
partner shall not appear in the partnership
name
If used in firm name, he is liable as a
general partner to creditors who did
not know that he is not a general
partner.
3. False statement (Art. 1847, CC)
If a person suffers loss by reliance on the
false statement in the certificate, he may
hold liable any party to the certificate who
knew the statement to be false:
a. At the time he signed the certificate, or
b. Subsequently but within a sufficient time
before the reliance to enable him to
amend or cancel the certificate
4. Control of business (Art. 1848, CC)
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PARTNERSHIP
a. He becomes liable as a general partner
without acquiring the rights of one.
b. Control here contemplates active
participation in the business and not just
having the option to exercise control.
5. Prohibited Transactions (Art. 1854, CC)
a. Prohibited transactions of limited
partners:
Receiving or holding as collateral
security any partnership property
Receiving any payment,
conveyance, or release from liability
rd
if it will prejudice the rights of 3
persons
b. If prohibited acts are performed
Presumption of fraud on the
creditors.
But the law does not absolutely
prohibit the taking as collateral
security of the property, as the
prohibitions are modified by the
requirement of sufficient assets to
discharge the partnership
obligations.
CIVIL LAW REVIEWER
6. Non-compliance with requisites for formation
(Art. 1844 par.2, CC)
If there is no substantial compliance:
The partnership becomes a general
rd
partnership with respect to 3
persons
The members are liable as general
partners.
Liabilities to separate creditors
1. Right of creditors of a limited partner to
petition a court of competent jurisdiction to:
a. Charge the interest of the indebted
limited partner with the payment of the
unsatisfied amount of the claim
b. Appoint a receiver to preserve the
interest
c. Make all other orders as the
circumstances would require
2. The interest may be redeemed with the
separate property of any general partner but
not with partnership property. (Art. 1862,
CC)
This is different from the rule in general
partnership where the interest can also
be redeemed with partnership property.
(Art. 1814, CC)
Rights of Limited Partners
1. Common rights of limited and general
partners (Art. 1851, CC)
a. Demand that partnership books be kept
at the principal place of business
b. Inspect and copy any of the books
c. Demand true and full info of all things
affecting the partnership
d. Demand a formal account whenever
circumstances render it just and
reasonable
e. Resort to the court for the dissolution
and winding up of the business
f. Receive a share of the profits or other
compensation by way of income
g. Demand the return of his contribution
provided assets are more than the
liabilities
2. Loan money and transact business (Art.
1854, CC)
a. Limited partner allowed to loan money,
transact business because the
relationship between the limited partner
and partnership is not based on trust
and confidence. There is no conflict of
interests.
b. Unless he is also a general partner, he
is entitled to a pro rata share of the
partnership assets together with the
general creditors.
Chapter IX. LIMITED PARTNERSHIP
3. Return of contribution (Art.1857,CC)
a. Conditions for return:
All liabilities to non-partner creditors
had been paid, or there are
sufficient assets to satisfy them, or
All members consent, unless the
limited partner desiring the return
has lawfully demanded the return of
his contribution, or
The certificate had been cancelled
or amended as to reflect the
withdrawal or reduction of
contribution.
b. When return may be demanded:
On the dissolution of the partnership
On the arrival of the date specified
in the certificate
On the lapse of 6 months from
notice in writing to all other
members if no time is specified
c. General rule: return of contribution is in
cash, except:
if there is a statement to that effect
in the certificate or all partners
consent
d. Dissolution, upon petition of limited
partner:
When he rightfully but
unsuccessfully demands the return
of his contribution
The other liabilities of the
partnership have not been paid pr
383
PARTNERSHIP
property is insufficient for payment
and the limited partner would
otherwise be entitled to the return of
his contribution
e. In case of several limited partners:
Members may agree to give priority
to one or more limited partners, and
This must be stated in the certificate
of partnership. The preference
covers
o Return of contributions;
o Compensation; and
o Other matters where some
benefit is granted (Art. 1855,
CC).
f. In the absence of such statement, all the
limited partners shall stand upon equal
footing.
4. Share of profits (Art. 1856, CC)
When the assets exceed liabilities
(except those to limited and general
partners), a limited partner may recover
his share in the profits or compensation
by way of income stipulated in the
certificate.
5. Assign interests (Art. 1859, CC)
a. A limited partners interest is assignable.
CIVIL LAW REVIEWER
b. Substituted limited partner: a person
admitted to all the rights of a limited
partner who has died or assigned his
interest in a partnership
He has all the rights and powers of
a limited partner
Subject to all restrictions and
liabilities of his assignor except:
o those he was ignorant of when
he became a limited partner and
could not be ascertained in the
certificate
c. An assignee who does not become a
substituted limited partner has:
No right to require any information
or account of partnership
transactions
No right to inspect partnership
books
Only entitled to receive the
assignors share of the profits or
other compensation by way of
income
Only entitled to the return of the
assignors contribution
d. The assignee shall have the right to
become a substituted limited partner if
All the members consent, or
The assignor is empowered in the
articles of partnership, and he gave
the assignee the right to be a
substituted limited partner.
In either case, it is still required that the
certificate be amended (Art. 1865, CC)
and registered with the SEC.
e. That the assignee has become a
substituted limited partner does not
relieve the assignor from liabilities to the
partnership under Art. 1858, as a
trustee, or for false statement in the
certificate.
6. Effect of death of a limited partner (Art.
1861, CC)
a. Rights of executors or administrators:
All the rights of a limited partner for
the purpose of settling the estate
If the deceased had assigned his
interest in the partnership, the
executor or administrator may
constitute the assignee a substituted
limited partner if the deceased was
empowered to do so
b. The deceased limited partners estate is
liable for all the deceaseds obligations
and liabilities to the partnership as a
limited partner
Chapter IX. LIMITED PARTNERSHIP
7. Person erroneously believing he is a limited
partner (Art. 1852, CC)
a. A person who has contributed capital
erroneously believing that he has
become a limited partner:
Does not become a general partner,
or
Become bound by the obligations of
the partnership, if:
o he exercises the rights of a
limited partner
o on ascertaining his mistake he
promptly renounces his interest
in the profits of the business
IV. General Partner
A general partner shall have all the rights and
powers and is subject to all the restrictions and
liabilities of a partner in a partnership without
limited partners.
General partners cannot, without the written
consent or written ratification of all limited
partners, do the ff. (ACAP-ACA)
1. Any act in contravention of the certificate
2. Confess judgment
3. Any act which would make it impossible to
carry on the partnership business
4. Possess partnership property, or assign
their rights in specific partnership property 384
for other than a partnership purpose
PARTNERSHIP
5. Admit a person as a general partner
6. Continue the business with partnership
property on the death, retirement, insanity,
civil interdiction or insolvency of a general
partner, unless the power is granted in the
certificate
7. Admit a person as a limited partner, unless
the right is granted in the certificate (Art.
1850, CC)
V. Dissolution
When a limited partnership may be
dissolved
1. The misconduct of a general partner
2. Fraud on the limited partner by the general
partner
3. The retirement, death, insolvency, insanity,
or civil interdiction of a general partner,
except: if the business is continued by the
remaining general partners
a. Under a right stated in the certification
b. When all members consented to the
continuation (Art. 1860, CC)
4. When all the limited partners ceased to be
such (Art. 1864, CC)
CIVIL LAW REVIEWER Chapter IX. LIMITED PARTNERSHIP

5. End of the term for which it was to exist (Art.

1844, CC)
6. By mutual consent of the partners before the
end of the firms original term
7. When the limited partner demanded the
return of his contribution but was
unjustifiably denied (Art. 1857, CC)
8. The causes in Arts. 1830 and 1831.

If dissolved by expiration of the fixed term, the

notice of dissolution need not be given since the
papers filed in the SEC are notice to the world.

If dissolved by express will of the partners, the

certificate should be cancelled, and dissolution is
not effected until there has been compliance
with this requirement.

VI. Settling Accounts for Dissolution

Order of priority in the payment of liabilities

(Art. 1863, CC)
1. Those owed to creditors, in the order of
priority provided by law (Arts. 2236-2251,
CC), except those to limited partners on
account of their contribution and to general
partners
2. Those to limited partners in respect to their
share of the profits and other compensation
by way of income in their contributions 385
3. Those to limited partners in respect of their

PARTNERSHIP
capital contributions
4. Those to general partners other than for
capital and profits
5. Those to general partners in respect to
profits
6. Those to general partners in respect to
capital

General partners have the duty and power to

wind up the partnerships affairs
If there is no agreement, the limited partners
shall share in the partnership assets and
profits in proportion to the respective
amounts of their claims (Art. 1863, CC)

- end of Partnership -