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AGENCY, TRUST, PARTNERSHIP CIVIL LAW
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AGENCY, TRUST, PARTNERSHIP CIVIL LAW
Title is in the name of all the partners ............. 39 formation of partnership .............................48
3. Personal Property ............................... 39 On Application of Assignee or Purchases of
Leases ................................................... 39 Partner’s Interest......................................48
Borrowing Money ...................................... 39 BY OPERATION OF LAW ...............................48
Negotiable Instruments ............................... 39 Supervening Illegality .................................48
Pledges and Mortgages ............................... 39 Loss of Specific Thing Contributed ..................48
Collection and Enforcement of Claims ............. 39 Death of Partner .......................................48
B. ACTS NOT WITHIN APPARENT AUTHORITY ....... 39 Insolvency ..............................................49
GUARANTY AND SURETYSHIP ........................ 39 Civil Interdiction of a Partner........................49
PAYMENT OF PARTNER’S SEPARATE DEBT ........ 40 D. Limited Partnership ..................................49
SUBSCRIPTION TO STOCK ............................ 40 CHARACTERISTICS: ....................................49
GIFTS AND OTHER GRATUITOUS ACTS ............. 40 RIGHTS OF LIMITED PARTNERS ......................49
ACTS REQUIRING UNANIMOUS CONSENT .......... 40 LIABILITIES OF LIMITED PARTNER ...................50
ASSIGNMENT FOR BENEFIT OF CREDITORS ........ 40 To the Partnership ....................................50
As a trustee for the partnership .....................50
DISPOSAL OF GOODWILL ............................. 40
DISSOLUTION OF LIMITED PARTNERSHIP ...........50
OTHER ACTS MAKING IT IMPOSSIBLE TO CARRY ON
ORDINARY BUSINESS .................................. 40
CONFESSION OF JUDGMENT ......................... 40
COMPROMISE OF PARTNERSHIP CLAIM OR LIABILITY
........................................................... 41
SUBMISSION TO ARBITRATION ....................... 41
RENUNCIATION OF PARTNERSHIP CLAIM .......... 41
ABANDONMENT OF BUSINESS ........................ 41
KNOWN RESTRICTIONS ON AUTHORITY ............ 41
LIABILITY FOR WRONGFUL ACTS OR OMISSIONS . 41
1. Tortious Acts ........................................ 41
2. Criminal Acts........................................ 41
3. Fraud and Misrepresentation ..................... 42
4. Conversion and Misappropriation ................ 42
5. Admissions or Representations ................... 42
6. Notice or Knowledge ............................... 42
PARTNERSHIP LIABILITY BY ESTOPPEL ............. 42
INDIVIDUAL LIABILITY OF PARTNERS FOR
PARTNERSHIP ACTS ................................... 43
All Partners.......................................... 43
For Contracts .......................................... 43
For Torts and Delicts .................................. 43
For Workmen’s Compensation ....................... 43
Partner by Estoppel................................ 43
Incoming Partner ................................... 43
SUIT BY OR AGAINST PARTNERSHIP ................ 43
Capacity to Sue or be Sued .......................... 43
Joinder of Firm and Partners ........................ 44
Execution Against Partners’ Separate Property ... 44
VII. Dissolution ................................. 44
A. CONCEPTS AND DEFINITIONS ....................... 44
B. CAUSES OF DISSOLUTION ............................ 45
1. VOLUNTARY, EXTRAJUDICIAL AND WITHOUT
VIOLATION OF AGREEMENT .......................... 46
Expiration of term or undertaking .................. 46
In a partnership at will, by express will of any
partner .................................................. 46
Express will or mutual assent of all partners ...... 46
Expulsion of a partner pursuant to agreement .... 47
2. VOLUNTARY, EXTRAJUDICIAL & IN
CONTRAVENTION OF AGREEMENT .................. 47
3. JUDICIAL ............................................ 47
Who May Apply......................................... 47
C. Grounds ................................................ 47
INSANITY ................................................ 47
MISCONDUCT OR BREACH OF AGREEMENT ........ 48
OPERATION AT LOSS .................................. 48
OTHER CIRCUMSTANCES: ............................ 48
Dissensions, fraud and misrepresentations in
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AGENCY, TRUST, PARTNERSHIP CIVIL LAW
Agency, Trusts,
Partnership
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AGENCY, TRUST, PARTNERSHIP CIVIL LAW
PREPARATORY
AGENCY it is entered into as a means to an end, i.e., the
creation of other transactions or contracts.
I. Definition ONEROUS
Bar 2003 only if there is no stipulation to the contrary. The law
Art. 1868. presumes that the agency is for compensation. The
By the contract of agency a person binds himself to one, either the principal or the agent, who alleges
render some service or to do something in otherwise has the burden of proof.
representation or on behalf of another, with the
consent or authority of the latter. An agent may allege that the contract is gratuitous
because if he committed fault or negligence, he will
A. PURPOSE be judged with less severity. His liability will be
mitigated.
The purpose of agency is to extend the personality of
the principal through the facility of the agent. (11 BILATERAL (ONLY FOR AGENCY WITH
Manresa 434)
COMPENSATION)
It enables a man to increase the range of his individual An agency is unilateral, if it is gratuitous because it
and corporate activity by enabling him to be creates obligations for only one of the parties, i.e. the
constructively present in many places and to carry on agent; or
diverse activities at the same time. (Mechem, Outlines
of Agency, 3rd Ed., p. 5) Bilateral, if it is for compensation because it gives
rise to reciprocal rights and obligations.
WHAT ACTS MAY BE AUTHORIZED
NOMINATE
General Rule: Any act a man may do in person, he may
do thru another. it has its own name and is governed primarily by the
Civil Code.
Exceptions:
FIDUCIARY CHARACTER
1. Personal acts The relations of an agent to his principal are fiduciary
2. Criminal acts in character since they are based on trust and
3. Unlawful acts confidence, on a degree which varies considerably
from situation to situation.
B. CHARACTERISTICS
AGENCY AS A CONTRACT REPRESENTATIVE CHARACTER
The agent renders some service or does something “in
CONSENSUAL representation or on behalf of another.”
it is based on the agreement of the parties which is
perfected by mere consent. Representation constitutes the basis of agency. As it
is a personal contract of representation based on trust
An agency is consensual because the contract is and confidence reposed by the principal on his agent,
perfected by mere consent (Art. 1315). No other act is agency is generally revocable.
required to perfect the contract.
The acts of the agents within the scope of their
The contract is perfected upon the meeting of the authority, by legal fiction, are the acts of the
minds upon the object and the cause of the contract. principal. The actual or real absence of the principal
is converted into his legal or juridical presence and is
PRINCIPAL an essential element of a contract of agency.
it can stand by itself without need of another
contract. All preparatory contracts are principal
contracts as well.
C. ESSENTIAL ELEMENTS OF A CONTRACT
OF AGENCY
1. STATUTORY ELEMENTS
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AGENCY, TRUST, PARTNERSHIP CIVIL LAW
a. CONSENT AGENT
Consent of the parties to establish
the relationship, whether express or Other names: attorney, attorney-in-fact, proxy,
implied. delegate, and representative.
b. OBJECT
It is the execution of a juridical He who acts or stands for another. He is given full or
act in relation to third persons. partial discretion depending on the principal’s specific
c. REPRESENTATION command.
The agent acts as a representative
and not for himself. An agent may have his own agent, who is thus referred
d. LIMITATION to as sub-agent.
The agent must act within the
scope of his authority. CAPACITY OF AGENT
(Tuazon vs. Heirs of Bartolome, 463 His capacity is in general the same as in the law of
SCRA 408) contracts, that is, he must be able to bind himself,
but only insofar as his obligations to his principal are
concerned.
CONSENT OF BOTH PARTIES
A person may express his consent: An agent assumes NO PERSONAL LIABILITY.
1. By contract (Art. 1868), orally or in writing,
2. By conduct (Art. 1869) Even if the agent is a minor, the principal having
3. By ratification (Art. 1910) capacity assumes that the agency is valid. Provided he
4. By presumption or operation of law. (i.e. the is not in estoppel.
law presumes that a person has authority to act
for another in certain situations. For example, in Between persons who are present, when is acceptance
law, partners are considered as agents of the deemed implied?
partnership and of each other.) A: When the principal delivers his power of attorney
and the agent receives it without any objection. (Art.
Note: Only the consent of the principal and agent are 1871)
essential. Consent of the third person is not
necessary. The third person is not a party to the Is this presumption conclusive?
agency but a party to the contract entered into by the No. The presumption of acceptance may be rebutted
agent in representation of his principal. by contrary proof (such as a power of attorney).
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AGENCY, TRUST, PARTNERSHIP CIVIL LAW
agent, and he did not reply to the letter or has exceeded his authority and such third party
telegram has knowledge of the scope of the agent’s
authority. (Article 1898)
• All acts of the substitute appointed against the
Note: Mere silence of the agent does not imply prohibition of the principal (Article 1892)
acceptance of the agency if the letter or telegram is
not related to the business in which he is habitually AGENT’S AUTHORITY:
engaged as an agent.
The agent’s authority may be oral or written. It may
be in public or private writing.
OBJECT: EXECUTION OF A JURIDICAL ACT
Rule if the authority was made orally: The
If the purpose of the agency is not to establish rights requirements of an SPA in Art. 1878 and of a special
and obligations between the principal and a third authority in Rule 138 of the Rules of Court refer to the
person, it is no longer a contract of agency because nature of the authorization and not its form. The
the object of a contract of agency is the execution requirements are met if there is a clear mandate from
of a juridical act, one which would either create, the principal specifically authorizing the performance
modify or extinguish a juridical relationship. An of the act. Such mandate may either be oral or
example of a juridical act by an agent is when an written, the one valid thing that it shall be express.
agent pays. Payment extinguishes the debtor-creditor Importantly, if the SPA is not written, then it must
relationship. be established by evidence. (Lim Pin vs. Liao Tan,
115 SCRA 290)
CAUSE: PRESUMED TO BE FOR
Under Article 1403 (No.2, par. [e]) of the Civil Code,
COMPENSATION1
an oral agreement for the sale of real property or of
an interest therein is unenforceable even if there is no
If the agency is gratuitous, the cause is the liberality agent.
of the agent. If the agency is onerous, the cause, as
to the principal, is the promise of service of the If authority of the agent is not in writing and the
agent. As to the agent, the cause is the promise of agent entered into a contract of sale with a third
the thing. person, the status of the contract between the agent
and the third person may still be valid. As a rule, the
FORM: 1869, 1874, 1878 contract will be valid and binding as to the principal
(Article 1868). The principal may not be bound by the
General Rule: There is no law requiring a contract of
contract of sale if the sale is void.
agency to be in a particular form for it to be valid.
If a contract is a sale of an immovable property and
Exceptions: there are certain laws requiring the
the authority of the agent is not in writing, as a rule,
contract to be in a particular form:
the contract of sale is unenforceable because
whenever the ownership of an immovable property is
Those falling under the Statue of Frauds under
transmitted, a special power of attorney is required
Number 2 of Article 1403 of the Civil Code, which
(Article 1878). However, if the immovable property is
requires that they be in writing or else it is
a parcel of land, the contract of sale will be void
UNENFORCEABLE,
(Article 1874).
1. If a transaction falls under the cases requiring a
special power of attorney, absence of which shall D. DISTINGUISHED FROM OTHER
render it UNENFORCEABLE.2 CONTRACTS
NOTE: The following cases shall render the acts of the
PARTNERSHIP
agent VOID when there is no authority:
Esteban B. Bautista, Treatise on Philippine partnership
• When an agent, without written authority, sells a Law, pp. 55-56; Art. 1767
piece of land or any interest therein. Sale shall be
void. (Article 1874) Partnership Agency
• When the agent does not have a special power or A partner’s power to
An agent must submit
bind his co-partner is
a general and sufficient power to accept to the principal’s
Extent not subject to the co-
donation. Donation shall be void. (Article 745) right to control the
of partner’s right to
• When a third person transacts with the agent who agent’s conduct in
Control control, unless there is
regard to the subject
an agreement to that
of the agency.
effect.
1 Art 1875 Liability A partner acting as The ordinary agent
2 Duñgo v. Lopena
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AGENCY, TRUST, PARTNERSHIP CIVIL LAW
of the agent for the assumes no personal authorized to purchase office supplies, is in this
agent partnership binds not liability where he acts respect acting as an agent).
only the firm members within the scope of
but himself as well. his authority.
Partners are solidarily CONTRACT FOR A PIECE OF WORK
liable in a subsidiary Contract for a piece of work Agency
capacity. The assets of The independent contractor is
the partnership must be authorized to do the work
exhausted first. according to his own method, Agent is subject to control
The alleged owner or without being subject to the and direction of the
partner takes his other party’s control, except principal. (Shell Company
The profits belong to all agreed share of insofar as the RESULT of the v Firemen’s Insurance)
Sharing
the parties as common profits, not as owner work is concerned. (Fressel v
of
proprietors in agreed but as an agreed Uy Chaco and Sons)
profits
proportions. measure of Generally, the employer is not
compensation for his liable for the torts or injury
services or the like. inflicted by the independent
The agent or partner can bind the principal or his co-partner In general, the principal or
contractor or by the employees
only by such contracts as are entered into within the scope employer is liable for the
of such contractor.
of his authority. acts of the agent or
In general, both conceptions import the idea of a fiduciary servant within the scope
Employer is liable only if injury
relationship. of his authority or
is caused by his negligence or
employment applying the
the result of his interference in
doctrine of vicarious
Each partner is regarded as an agent of his co-partners the work of the independent
liability.
when he is acting and as principal of his co-partners contractor or the work is
when they are acting. intrinsically dangerous or a
nuisance.
Both contracts involve service.
A partnership is, in effect, a contract of mutual
agency.
NEGOTIORUM GESTIO
The contract of partnership and the contract of Arts. 2144-2145
agency are very much similar. It is important to Negotiorum Gestio Agency
distinguish the two in order to ensure that there is no Not only without the authority of
confusion. Representation is
the owner of the business but is
expressly conferred.
without his knowledge.
LEASE OF WORK OR SERVICE Acts according to the presumed Acts according to the
will of the owner by exercising express will of the
Art. 1644
“all the diligence of a good father principal
Lease of work or service Agency
of a family”
Basis is employment Basis is representation
Quasi-contract Contract
The lessor (like a servant)
The agent exercises In both cases, the officious manager/negotiorum gestor or
ordinarily performs only
discretionary powers. The agent represents the owner of the business or principal.
ministerial functions. Lease
agent is destined to execute
of services contemplate
juridical acts (creation,
only material (non-
modification or extinction of
LOANS
juridical) acts. (Nielson &
relations with third parties). Art. 1933
Co. v. Lepanto
(Nielson & Co. v. Lepanto Loan Agency
Consolidated Mining Co)
Consolidated Mining Co) A borrower is given money
An agent may be given
Only two persons are for purposes of his own and
Three persons are involved: funds by the principal to
involved: the lessor he must generally return it
the principal, the agent, and advance the latter's
(master or employer) and whether or not his own
the third person with whom business.
the lessee (servant or business is successful.
the agent has contracted. Something is given to the agent or borrower.
employee).
Lease of service relates
more to matters of mere SALE
manual or mechanical
Agency relates to commercial Art. 1458
execution, which the
or business transactions.
servant acts under the Bar 2000
direction and control of the Sale Agency to sell
master. The buyer receives the The agent receives the goods
In both agency and lease of services one of the parties binds goods as owner. (Ker & as the goods of the principal.
himself to render some service to the other party. (Nielson Co. v Lingad) (Ker & Co. v Lingad)
& Co. v. Lepanto Consolidated Mining Co) The agent delivers the
The buyer pays the price.
proceeds of the sale.
A person may be employed to perform the duties of The buyer, as a general The agent can return the
both agent and servant (i.e., bookkeeper who is also rule, cannot return the object in case he is unable
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AGENCY, TRUST, PARTNERSHIP CIVIL LAW
Brokerage
A broker has no relation with the
Agency
A commission agent is II. Classifications of Agency
thing he buys or sells. He is one engaged in the
merely an intermediary, purchase or sale for A. AS TO MANNER OF CREATION
negotiator or “middle man” another of personal Art. 1869
between the vendor and the property which for this
Agency may be express, or implied from the acts of
vendee with regard to the real purpose, is placed in his
property subject of their possession and at his the principal, from his silence of lack of action, or
transaction. disposal. his failure to repudiate the agency, knowing that
He has no concern over the another person is acting on his behalf without
custody or possession of the real authority.
property.
He maintains a relation
not only with his Agency may be oral, unless the law requires a
His only office is to bring specific form.
principal and the
together the parties to the
purchases or vendor,
transaction never acting in his
but also with the EXPRESS AGENCY
own name but in the name of
property which is the One where the agent has been actually authorized by
those who employed him. In
subject matter of the the principal, either orally or in writing.
effecting a transaction, he acts
transaction.
in a certain sense as the agent of
both parties. (Pacific IMPLIED AGENCY
Commercial Co. v Yatco) One which is implied from:
A broker earns his An agent receives 1. Principal’s act
pay/commission merely by commission upon the 2. Principal’s silence
bringing the buyer and the seller successful conclusion of
together to obtain a meeting of a transaction such as 3. Principal’s lack of action
the minds. sale. 4. Principal’s failure to repudiate the agency
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AGENCY, TRUST, PARTNERSHIP CIVIL LAW
General rule: Agency is not presumed. The relation When the negotiations thru the broker’s efforts have
between principal and agent must exist as a fact. reached such a stage that it would be unfair to deny
the commission earned, the principal cannot revoke
Exception: the authority he has given.
1. Agency may arise by operation of law.
2. Agency may arise to prevent unjust enrichment. There is evident bad faith if the principal breaks off
B. AS TO COMPENSATION from negotiations with a buyer brought by the agent
in order to deliberately deal later with the buyer
Art. 1875
personally. Justice demands compensation for the
Agency is presumed to be for a compensation, unless agent.
there is proof to the contrary.
A broker is entitled to commission on a sale effected
GRATUITOUS AGENCY by the owner to the person produced by the broker
One which the agent receives no compensation for his after the breaking of the original negotiations, if the
services. breaking up was a mere subterfuge, and a sale was in
fact brought about by what the broker had done. This
ONEROUS AGENCY is the doctrine of procuring cause.
One which the agent receives compensation for his
services.
C. AS TO EXTENT OF BUSINESS COVERED
Note: An agent may allege that the contract is Art. 1876
gratuitous because if he committed fault or An agency is either general or special.
negligence, he will be judged with less severity if the
contract was not for compensation. The former comprises all the business of the
principal. The latter, one or more specific
COMPENSATION transactions.
May be in the form of gratuitous use by the agent of GENERAL AGENCY
the principal’s real estate
One which comprises all the business of the principal
Absence of stipulation, the agent is entitled to
Bar 1992
compensation only after he has completely or
SPECIAL AGENCY
substantially completed his obligation as agent.
One which comprises one or more specific
transactions.
BROKER’S COMPENSATION
BROKER D. AS TO NATURE AND EXTENT OF THEIR
A duly registered and licensed natural person who, for AUTHORITY
a professional fee, commission or other valuable
consideration, acts as an agent of a party in a real
estate transaction to offer, advertise, solicit, list, UNIVERSAL AGENT
promote, mediate, negotiate or effect the meeting of One employed to do all acts that the principal may
the minds on the sale, purchase, exchange, mortgage, personally do, and which he can lawfully delegate to
lease or joint venture, or other similar transactions on another the power of doing.
real estate or any interest therein.3
GENERAL AGENT
If the broker does not succeed in bringing the mind of One employed to do all acts connected with a
the purchaser and the vendor to an agreement with particular trade, business or employment.
reference to the terms of a sale, he is not entitled to
a commission. SPECIAL AGENT
One authorized to act in one or more specific
So long as the sale is pushed thru, the broker is transactions, or to do one or more specific acts, or to
entitled to a commission, even if the sale had been act upon a particular occasion.
temporarily delayed due to the principal’s lack of
tact. E. AS TO SCOPE OF AUTHORITY
Bar 1992
3 Republic Act No. 9646
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AGENCY, TRUST, PARTNERSHIP CIVIL LAW
F. AS TO ITS NATURE AND EFFECTS The principal is Liable only if the third person
OSTENSIBLE OR REPRESENTATIVE AGENCY always liable. acted on the misrepresentation
One where the agent acts in the name and
The agent is not
representation of the principal It is only the agent who is liable,
personally liable.
never the alleged principal
SIMPLE OR COMMISSION AGENCY
One where the agent acts in his own name but for the If the estoppel is on the ground of negligence or fraud
account of the principal. on the part of the principal, the agency is allowed
upon the theory that, when one of two innocent
APPARENT OR OSTENSIBLE AGENCY persons must suffer loss, the loss should fall upon him
whose conduct brought about the situation.
Art. 1873
If a person specially informs another or states by One who clothes another with apparent authority as
public advertisement that he has given a power of his agent, and holds him out to the public as such,
attorney to a third person, the latter thereby cannot be permitted to deny the authority of such
becomes a duly authorized agent, in the former case person to act as his agent, to the prejudice of
with respect to the person who received the special innocent third parties dealing with such person in
information, and in the latter case with regard to good faith and in the honest belief that he is what he
any person. appears to be, for the following presumptions or
deductions, which the law expressly directs to be
The power shall continue to be in full force until the made from particular facts, are deemed conclusive.4
notice is rescinded in the same manner in which it
was given.
AGENCY BY ESTOPPEL VS IMPLIED AGENCY
At the time the transaction was made, the principal
has already revoked the agency but as far as the law is IMPLIED AGENCY AGENCY BY ESTOPPEL
concerned, the agency is still in full force and effect Agent is the true Agent is not a true agent; hence,
and the principal shall still be liable if he did not agent, with rights he has no rights as such.
inform the third person of the revocation. This is in and duties of an
order to avoid fraud. agent.
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AGENCY, TRUST, PARTNERSHIP CIVIL LAW
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AGENCY, TRUST, PARTNERSHIP CIVIL LAW
6. Advance the necessary Funds should there A. TO CARRY OUT THE AGENCY
be a stipulation to do so (Art. 1886, NCC)
REQUISITES:
7. Act in accordance with the instructions of the 1. The agent must act within the scope of his
principal, and in default thereof, to do all authority
that a good father of a family would do (Art. 2. The agent must act in behalf of the principal.
1887, NCC)
8. Not to carry out the agency of its execution TO ACT WITHIN THE SCOPE OF HIS
would manifestly result in loss or damage to AUTHORITY(ART. 1881)
the principal (Art. 1888, NCC)
DISTINCTION BETWEEN AUTHORITY AND THE
9. Answer for damages if there being a conflict
PRINCIPAL’S INSTRUCTIONS
between his interests and those of the
principal, he should prefer his own (Art.
Authority Instruction
1889, NCC)
Contemplates only a
Sum total of the powers private rule of guidance
10. Not to Loan to himself if he has been
committed to the agent by to the agent;
authorized to lend money at interest (Art.
the principal independent and
1890, NCC)
distinct in character
Relates to the
11. Render an Account of his transactions and to
subject/business with Refers to the manner or
deliver to the principal whatever he may
which the agent is mode of agent’s action
have received by virtue of the agency (Art.
empowered to deal or act
1891, NCC)
Limitations of authority Without significance as
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AGENCY, TRUST, PARTNERSHIP CIVIL LAW
are operative as against against those with LIABILITY OF TWO OR MORE AGENTS
those who have/charged neither knowledge nor
with knowledge of them notice of them In a joint obligation, each debtor is liable only for a
Contemplated to be made Not expected to be proportionate part of the debt. If it is solidary, each
known to third persons made known to those debtor is liable for the entire obligation. The
dealing with the agent whom the agent deals presumption is that an obligation is joint. This follows
the general principle respecting solidarity. The
The agent is NOT deemed to have exceeded the limits innocent agent has a right later on to recover from the
of his authority should he perform the agency in a guilty or negligent agent.
manner more advantageous to the principal than that
indicated by him since he is authorized to do such acts A person is NOT bound by the act of another when:
as may be conducive to the accomplishment of the
purpose of the agency. 1. The AGENT acts without or beyond the scope of
his authority in the PRINCIPAL’S name; and
WITH AUTHORITY WITHOUT AUTHORITY
Valid; principal Unauthorized and 2. The AGENT acts within the scope of his authority
IN but in his own name, except when the transaction
is bound; agent unenforceable, but
PRINCIPAL’S involves things belonging to the PRINCIPAL
BEHALF is not personally may be ratified
liable
Apply ARTICLE Valid, whether or not General rule: The principal is not bound by the acts of
1883, generally the subject matter an agent beyond his limited powers. Third persons
not binding on belongs to the dealing with an agent do so at their risk and are bound
principal; agent principal, provided to inquire as to the scope of his powers.
IN AGENT’S and third person that at the time
BEHALF are the only delivery is to be Exceptions:
parties, except made, the agent can 1. Where principal’s acts have contributed to
regarding things transfer legally the deceive a third person in good faith (Art. 1911);
belonging to the ownership of the
principal thing Bar 1994
2. Where the limitations upon the power created
An agent must act within the scope of his authority. A by him could not have been known by the third
act beyond the scope of authority given does no bind person (Art. 1900);
the principal. (Pacific Rehouse v. EIB, 2010)
3. Where the principal has placed in the hands of
DEATH OF THE PRINCIPAL the agent instruments signed by him in blank; and
General rule: The agent shall no longer carry out the 4. Where the principal has ratified the acts of the
agency upon the death of the principal because death agent.
is a mode of extinguishment of agency. This is also
based on the representative character of agency such General Rule: A third person may hold the agent who
that the death of one extinguishes the relationship. acted beyond the scope of his authority liable for
whatever damage he may have caused to the third
Exceptions: person.
2. If the agency has been constituted in the common 1. A third person cannot set up the fact that the
interest of the principal and of the agent, or in agent exceeded his powers if the principal has
the interest of a third person who has accepted ratified or has signified his willingness to ratify
the stipulation in his favor (Art. 1930); or the agent’s acts.
3. If the agent has done any act on behalf of the 2. If the third person was aware that the agent was
principal without knowledge of his death. The acting in excess of his authority, the contract is
act shall be fully effective with respect to third void and the agent cannot be held liable
persons who may have contracted with him in
good faith. (Art. 1931) Exception to exception: If the agent undertook to
secure the principal’s ratification and he fails to do
so, the agent is STILL liable
TO ACT ON BEHALF OF HIS PRINCIPAL
(Art. 1868) General Rule: The agent who acts as such is not
personally liable to the person with whom he
contracts (Art. 1897).
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AGENCY, TRUST, PARTNERSHIP CIVIL LAW
2. He exceeds the limits of his authority without Note: Every stipulation exempting the agent from the
giving the third person sufficient notice of his obligation to render an account shall be void (par. 2,
powers (Art. 1897); or Art. 1891, NCC)
3. The agent is liable not only for fraud, but If the agent fails to deliver and instead converts or
also for negligence (Art. 1909). appropriates for his own use the money or property
belonging to the principal, the agent is liable for
Despite the fact that the agent acted for himself, the estafa.
law gives the third person a cause of action against
the principal if the contract involves things belonging Exceptions to Article 1891:
to the principal because there might be a possible
collusion between the principal and the agent. Also, it 1. If the agent or broker acted only as a middleman
is usually the principal who has money. The third with the task of merely bringing together the
person may not recover anything from the agent, vendor and the vendee like a Broker (Domingo vs.
which is why the law permits the third person to have Domingo)
a cause of action against the principal. 2. If the agent or broker had informed the principal
of the gift or bonus or profit he received from the
DOCTRINE OF AGENCY BY NECESSITY purchaser and his principal did not object
An agency can NEVER be created by necessity; what is thereto.
created is an additional authority in an agent 3. Where a right of lien exists in favor of the agent.
appointed and authorized before the emergency
arose. The existence of agency or other unusual Note: The Article does NOT apply to the case of
conditions may operate to invest in an agent authority solutio indebiti for in such cases, recovery can be had
to meet the emergency, provided: (PURE) by the payor against the agent himself. Therefore,
the agent, for the meantime, can keep what had been
1. The agent’s enlarged authority is exercised given to him by error. (Paras, Civil Code of the
for the principal’s protection Philippines Annotated Special Contracts, p. 833, 18th
2. The agents is unable to communicate with ed.)
the principal
3. The means adopted are reasonable under the Note: The forfeiture of the commission will take place
circumstances EVEN IF the principal does not suffer any injury by
4. The emergency really exists reason of such breach of loyalty. It does not matter
that the agency was a gratuitous one, or that the
principal obtained better results, or that usage or
B. TO OBSERVE THE DILIGENCE OF A GOOD
custom allows the receipt of such a bonus. Indeed, an
FATHER OF A FAMILY ON ACCOUNT OF THE agent has an ABSOLUTE DUTY to make a full disclosure
GOODS RECEIVED BY HIM OWNED BY THE or accounting to his principal of all transactions and
PRINCIPAL material facts that may have some relevance with the
agency. (Domingo vs. Domingo)
RULE IF A PERSON DECLINES THE AGENCY
A person is of course free to refuse to be an agent;
E. TO BE RESPONSIBLE FOR THE ACTS OF
DUTY OF THE OWNER THE SUBSTITUTE
Upon the other hand, the owner must also act as soon Bar 1999
as possible: Art. 1892
a. By appointing an agent, or
The agent may appoint a substitute if the principal
b. By taking charge of the goods.
has not prohibited him from doing so; but he shall be
responsible for the acts of the substitute:
1. When he was not given the power to appoint
C. TO ADVANCE THE NECESSARY FUNDS one;
SHOULD THERE BE A STIPULATION TO DO 2. When he was given such power, but without
SO designating the person, and the person
Exception: The duty to advance shall not prosper if appointed was notoriously incompetent or
the principal is proven to be insolvent. insolvent.
All acts of the substitute appointed against the
prohibition of the principal shall be void. (1721)
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General rule: The agent must hold the property only in Note: Where the agent is not liable, the principal’s
the name of the principal. Where he violates that duty remedy is to proceed against the debtor. This article
by mingling the property with his own, he becomes a does not apply to a case where there is a guarantee
debtor of the principal and liable to him for any losses commission.
suffered as a result of the mingling.
GUARANTEE COMMISSION (DEL CREDERE COMMISSION) As for any obligation wherein the agent has
exceeded his power, the principal is not bound
1. One where, in consideration of an increased except when he ratifies it expressly or tacitly.
commission, the factor or commission agent
guarantees to the principal the payment of If the agent acts wherein the agent has exceeded his
debts arising through his agency. power, the principal is not bound except when he
ratifies it expressly or tacitly.
2. It is that commission given in return for the
risks the agent will have to bear in the TO ADVANCE TO THE AGENT THE SUMS NECESSARY
collection of credits. (Paras, Civil Code of the Art. 1912
Philippines Annotated Special Contracts, 18th
The principal must advance to the agent, should the
ed., 2016)
latter so request, he sums necessary for the
execution of the agency.
DEL CREDERE AGENT
The agent who guarantees payment of the customer’s
Should the agent have advanced them, the principal
account in consideration of a higher commission.
must reimburse him therefor, even if the business or
undertaking was not successful, provided the agent
The principal may sue the buyer in his own name
is free from all fault.
notwithstanding the del credere commission, so that
the latter amounts to no more than a guaranty.
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The reimbursement shall include all the sums wish to avail himself of the benefits derived from
advanced, from the day on which the advance was the contract;
made. 2. When the expenses were due to the fault of the
agent;
3. When the agent incurred them with knowledge
General rule: If it was stipulated that the agent should that an unfavorable result would ensue, if the
advance the necessary sums but the agent didn’t, he principal was not aware thereof;
will be liable.
Exception: The agent will not be liable if the principal When it was stipulated that the expenses would be
is insolvent. borne by the agent, or that the latter would be
allowed only a certain sum.
TO REIMBURSE THE AGENT THE SUMS ADVANCED
Art. 1912 LIABILITY WHEN THERE ARE 2 OR MORE PRINCIPALS:
SOLIDARY
The principal must advance to the agent, should the
Art. 1915
latter so request, he sums necessary for the
execution of the agency. If two or more persons have appointed an agent for a
common transaction or undertaking they should be
Should the agent have advanced them, the principal solidarily liable to the agent for all the consequences
must reimburse him therefor, even if the business or of the agency.
undertaking was not successful, provided the agent
is free from all fault.
Requisites:
The reimbursement shall include all the sums (1) There are two or more principals
advanced, from the day on which the advance was (2) The principals have all concurred in the
made. appointment of the same agent
(3) The agent is appointed for a common transaction
Art. 1918 or undertaking
The principal is not liable for the expenses incurred RIGHTS OF THIRD PERSONS IN INCOMPATIBLE
by the agent in the following cases: CONTRACTS WITH AGENT AND PRINCIPAL
The principal authorized the agent to enter into a
specific contract over a determinate thing. The agent
(1) If the agent acted in contravention of the entered into a contract over such thing with A but the
principal also entered into a similar contract with B
principal's instructions, unless the latter should wish
over the same thing. To determine who has a better
to avail himself of the benefits derived from the right, the contract entered into must be identified
contract; first. If it is a contract of sale, “priority in time,
priority in right” will not apply. Article 1544 is the
applicable rule.
(2) When the expenses were due to the fault of the
Art. 1544
agent;
If the same thing should have been sold to different
vendees, the ownership shall be transferred to the
person who may have first take possession thereof in
(3) When the agent incurred them without good faith, if it should be movable property.
knowledge that an unfavorable result would ensue,
if the principal was not aware thereof; Should it be immovable property, the ownership
shall belong to the person acquiring it who in good
faith first recorded it in the Registry of Property.
(4) When it was stipulated that the expenses would Should there be no inscription, the ownership shall
be borne by the agent, or that the latter would be pertain to the person who in good faith was first in
allowed only a certain sum. the possession; and, in the absence thereof, in the
person who presents the oldest title, provided there
is good faith.
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whether it enlarges or decreases the power of the reasonable opportunity to appoint a new agent in
agent under a prior power of attorney, must be held order to prevent damage and prejudice to the
to supplant and revoke the latter when the two are principal.
inconsistent. If the new appointment with limited
powers does not revoke the general power of NOTE: If the agent files a complaint against his
attorney, the execution of the second power of principal, then he is understood to have renounced
attorney would be a mere futile gesture. (De Buncio & the agency because his act was more expressive than
Co. v Ong Guan Gan ) words and could not have caused any doubt. [Valera
v.Velasco, G.R. No. L-28050 (1928)]
Art. 1925
When two or more principals have granted a power C. DEATH OF THE PRINCIPAL OR AGENT
of attorney for a common transaction, any one of
General Rule: Agency is extinguished upon the death
them may revoke the same without the consent of
of either principal or agent.
the others.
Exceptions:
As a rule, the appointment of an agent by two or more 1. The agency is coupled with interest;
principals for a common transaction or undertaking 2. The act of the agent was executed without
makes them solidarily liable for the acts of agent in the knowledge of the principal’s death; and
accordance with the agency, hence, any one of them the third person who contracted with the
can revoke the same without the consent of the agent is in good faith; or
others. 3. The agent does any act without the
knowledge of the principal’s death. Such
act shall be valid and fully effective with
B. WITHDRAWAL OF THE AGENT FROM THE respect to third persons who may have
AGENCY contracted with the agent in good faith. (Art.
1931)
Art. 1928
4. Unfinished business
The agent may withdraw from the agency by giving
due notice to the principal. If the latter should Art. 1884 par. 2
suffer any damage by reason of the withdrawal, the
agent must indemnify him therefor, unless the agent He must also finish the business already begun on
should base his withdrawal upon the impossibility of the death of the principal, should delay entail any
continuing the performance of the agency without danger.
grave detriment to himself.
If the Agent dies, the heirs must:
General rule: 1. Notify the principal
2. Adopt measures as the circumstance may
1. The agent must give notice to the principal demand in the interest of the principal.
2. Must indemnify the principal should the latter
suffer damages by reason of the withdrawal NOTE: If the agent dies, his heirs should inform the
principal of such death. However, if the principal dies,
Exception: The agent based his withdrawal from the his heirs have no obligation to notify the agent.
impossibility of continuing the performance of the
agency without grave detriment to himself. D. OTHER MODES OF EXTINGUISHMENT:
1. Novation
The fact that an agent institutes an action against his 2. Termination by mutual consent
principal for the recovery of the balance in his favor 3. Termination by the lawyer.
resulting from the liquidation of the accounts between
them arising from the agency, and renders a final
CANON 22, RULE 22.01, CODE OF
account of his operations, is equivalent to an express
PROFESSIONAL RESPONSIBILITY
renunciation of the agency, and terminates the
juridical relation between them. (Valera v. Velasco)
A lawyer may withdraw his services in any of
the following cases:
Art. 1929
The agent, even if he should withdraw from the 1. When the client pursues an illegal or
agency for a valid reason, must continue to act until immoral course of conduct in
the principal has had reasonable opportunity to take connection with the matter he is
the necessary steps to meet the situation. handling;
2. When the client insists that the
Even if the agent’s withdrawal is for a valid reason, he lawyer pursue conduct violative of
must continue to act until the principal shall have these canons and rules;
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Exceptions:
10 Austria vs CA
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TRUSTS
obligation based on an ownership, embracing a set
undertaking supported by a of rights and duties fiduciary
consideration which in character which may be
obligation may or may not created by a declaration
DONATION TRUST
A trust is an existing legal relationship
and involves the separation of legal and
equitable title; and except in the case
of a gift in trust, involves a disposition
of both legal and equitable ownership.
A gift is a
The beneficiary of a trust may demand
transfer of
performance of the obligation without
property.
having formally accepted the benefit of
the trust in a public document, upon
mere acquiescence in the formation of
the trust and acceptance under the
second paragraph of Art 1311 of the
NCC
CONTRACT TRUST
A contract is a legal A trust always involves an
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1. RESULTING TRUST
2. CONSTRUCTIVE TRUST
1. RESULTING TRUST
Trust raised by implication of law and presumed
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always to have been contemplated by the parties, the upon his declared intention to hold it for, or transfer
intention as to which is to be found in the nature of it to another or the grantor, there is an implied trust
their transaction, but not expressed in the deed or in favor of the person whose benefit is
instrument of conveyance (Articles 1448, 1449, 1451, contemplated.
1452, and 1453);
2. CONSTRUCTIVE TRUST
They are based on the equitable doctrine that
valuable consideration and not legal title determines Trust created to satisfy the demands of justice and
the equitable title or interest. (Osorio Pension prevent unjust enrichment to the prejudice of the
Foundation v. CA, 621 SCRA 606) true owner. (Articles 1450, 1454, 1455, and 1456).
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PARTNERSHIP
ARTICLES OF PARTNERSHIP
A written document stating the name, nature or
purpose and location of the firm, and defining, among
others, the powers, rights, duties, and liabilities of
I. Contract of Partnership the partners among themselves, their contributions,
the manner by which the profits and losses are to be
A. DEFINITION shared, and the procedure for dissolving the
Art. 1767. Civil Code partnership.
By the contract of partnership two or more persons
bind themselves to contribute money, property, or PARTNERSHIP FIDUCIARY IN NATURE
industry to a common fund, with the intention of Personal relation in which the element of delectus
dividing the profits among themselves. personae (choice of the person) exists, involving as it
does trust and confidence between the partners.
Two or more persons may also form a partnership for
the exercise of a profession. Unless otherwise provided in the partnership
agreement, no one can become a member of the
partnership association without the consent of all the
other associates.
B. ELEMENTS
ESSENTIAL ELEMENTS: Neither would the presence of a period for its specific
a. Meeting of minds duration or the statement of a particular purpose for
b. To form a common fund its creation prevent the dissolution of any partnership
c. With intention that profits (and losses) will be by an act or will of a partner.
divided among the contracting parties
Mutual agency arises and the doctrine of delectus
ESSENTIAL FEATURES: personae allows them to have the power, although not
1. There must be a valid contract necessarily the right to dissolve the partnership.
2. The parties must have legal capacity to enter into
contract The partner must however, act in good faith, not that
3. There must be mutual contribution of money, the attendance of bad faith can prevent the
property, or industry to a common fund dissolution of the partnership but that it can result in
4. There must be a lawful object a liability for damages.
5. The purpose or primary purpose must be to obtain
profits and divide the same among the parties PARTNERSHIP BY ESTOPPEL
A partnership liability may be imposed upon a person
C. CHARACTERISTICS under principles of estoppel where he holds himself
out, or permits himself to be held out, as a partner in
The contract of partnership is: an enterprise.
1. Consensual: Perfected by mere consent.
2. Nominate: Designated by a specific name There is no actual or legal partnership relation but
3. Bilateral/Multilateral: Entered into by two or merely a partnership liability imposed by law in favor
more persons of third persons.
4. Onerous: Certain contributions have to be
made. It is the substance and not the name of the
5. Principal, because it does not depend for its arrangement, which determines the legal relationship
existence or validity upon some other although the designation adopted by the parties
contracts; and should be considered as indicative of their intention.
6. Preparatory, because it is entered into as a
means to an end The existence and non-existence of a partnership must
be determined from the conduct of the parties, any
EXISTENCE OF A VALID CONTRACT documentary evidence bearing thereon, and the
Partnership is a voluntary relation created by testimony of the parties.
agreement of the parties
LEGAL CAPACITY
The contract may be oral or written, express or Under Art. 1782, persons who are prohibited from
implied from the acts and declarations of the parties, giving each other any donation or advantage cannot
subject to the provisions of Article 1771 to 1773 and enter into a universal partnership.
to the Statute of Frauds
There is no prohibition against a partnership being a
There must be a valid consideration (contribution) partner in another partnership
existing as between the partners.
Unless authorized by statute or by its charter, a
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AGENCY, TRUST, PARTNERSHIP CIVIL LAW
No partnership can arise as the contract is inexistent LAWFUL SUBJECT MATTER AND CAUSE
and void ab initio
Art. 1347. Civil Code
A partnership may be organized for any purpose All things which are not outside the commerce of
except that it may not engage in an enterprise for men, including future things, may be the object of a
which the law requires a specific form of business contract. All rights which are not intransmissible
organization. may also be the object of contracts.
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(2) Co-ownership or co-possession does not of itself What Article 1773 imposes as a requirement is the
establish a partnership, whether such-co-owners or making of an inventory and its being attached to the
co-possessors do or do not share any profits made by public instrument, not the execution of the public
the use of the property; xxx instrument.
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It does not extend to separate or joint acquisitions of A universal partnership of present property obviously
the partners through any means not requiring the involves greater transmission of rights or is more
exertion of human effort or intelligence, such as gifts onerous than universal partnership of profits.
or lottery prizes.
2. PARTICULAR PARTNERSHIP
Usufruct of future property does not pass to the
partnership, unless there is a stipulation to that Art. 1776
effect. As to its object, a partnership is either universal or
particular. As regards the liability of the partners, a
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are not fungible where only the use is PROHIBITION AGAINST ENGAGING IN COMPETITIVE
contributed BUSINESS
Specific and determinate things the Bar 2001
ownership of which is transferred to the Partnership 1. Capitalist Partner
partnership Cannot engage in business (within the same line of
Fungible things Partnership business with the partnership) unless partnership
Things contributed to be sold Partnership expressly permits him to do so. (Art. 1789)
Things bought and appraised in the
Partnership Consequences:
inventory
Specific and determinate things which 1. He may be required to bring to the common fund
are not fungible where only the use is Partner the profits he derived from the other business
contributed 2. He shall personally bear the losses
3. He may be ousted from the partnership,
OBLIGATIONS WITH RESPECT TO CONTRIBUTION OF especially if there is a warning
MONEY AND MONEY CONVERTED TO PERSONAL USE
(ART. 1788) 2. Industrial Partner
1. To contribute on the date fixed the amount Cannot engage in business (within the same line of
he has undertaken to contribute to the business with the partnership) for his own account,
partnership unless there is stipulation to the contrary. (Art. 1808
2. To reimburse any amount he may have taken
from the partnership coffers and converted Consequences:
to his own use 1. He can be excluded from the partnership
3. To pay for the agreed or legal interest, if he 2. The capitalist partners can avail of the benefit he
fails to pay his contribution on time or in case obtained from the business
he takes any amount from the common fund 3. The capitalist partners have the right to file an
and converts it to his own use action for damages against the industrial partner,
4. To indemnify the partnership for the damages in either case.
caused to it by the delay in the contribution
or conversion of any sum for his personal OBLIGATIONS WITH RESPECT TO
benefit MANAGEMENT
General Rule: All partners have equal rights in the
OBLIGATIONS WITH RESPECT TO CONTRIBUTION TO
PARTNERSHIP CAPITAL (ART 1790) management and conduct of the partnership business.
1. Partners must contribute equal shares to the
capital of the partnership unless there is Power of
managing
stipulation to the contrary. Vote of partners
Partner is partner is
2. Partners (capitalist) must contribute representing
additional capital in case of imminent loss to appointed irrevocable
controlling
the business of the partnership and there is
manager in the without
Articles of interest
no stipulation otherwise; refusal to do so just/lawful
Partnership necessary to
cause; Revocable
shall create an obligation on his part to sell revoke power
only when in bad
his interest to the other partners.
faith
Partner is Power is
B. FIDUCIARY DUTY appointed
revocable at any
manager after
A partnership is a fiduciary relation – one entered into constitution of time for any
and to be maintained on the basis of trust and Partnership cause
confidence. A partner must observe the utmost good In case of
faith, fairness, and integrity in his dealings with the 2 or more persons opposition,
others: entrusted with
decision of
management of
1. He cannot directly or indirectly use majority shall
partnership
partnership assets for his own benefit without Each may prevail; In case
2. He cannot carry on a business of the specification of execute all acts of a tie, decision
partnership for his private advantage duties/ of administration of the partners
3. He cannot, in conducting the business of the stipulation that
owning
each shall not act
partnership, take any profit clandestinely controlling
w/o the other’s
4. He cannot obtain for himself that he should consent interest shall
have obtained for the partnership prevail
5. He cannot avail himself of knowledge or Stipulated that Concurrence of Absence or
information which may be properly regarded none of the
all partners to disability of any
as the property of the partnership managing
partners shall act uphold validity of one cannot be
w/o the consent the act alleged unless
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AGENCY, TRUST, PARTNERSHIP CIVIL LAW
1. Apply sum collected to 2 credits in proportion Nature of Partner’s Right in Specific Partnership
to their amounts Property (Art. 1811)
2. If he received it for the account of
partnership, the whole sum shall be applied 1. Partners have equal rights to
to partnership credit possession,
2. Which are not assignable,
Requisites: 3. Such right is limited to the share of
1. There exists at least 2 debts, one where the what remains after partnership
collecting partner is creditor and the other, debts have been paid
where the partnership is the creditor; 4. Is not subject to attachment or
2. Both debts are demandable execution, except on a claim against
3. The partner who collects is authorized to the partnership.
manage and actually manages the partnership 5. It is not subject to legal support.
OBLIGATION OF PARTNER WHO RECEIVES SHARE OF Nature of Partner’s Interest in the Partnership
PARTNERSHIP CREDIT (A1812)– share in the profits and surplus.
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contract of guaranty or suretyship because normally, a 2. Dispose of the good-will of the business;
partnership is organized to carry on business for its 3. Do any other act which would make it
members; it is not usual for persons in business to impossible to carry on the ordinary business of a
assist other persons by making themselves answerable partnership;
for their debts. 4. Confess a judgment;
5. Enter into a compromise concerning a
To bind the partnership by such a contract, showing partnership claim or liability;
must be made, in the absence of ratification, that 6. Submit a partnership claim or liability to
authority to execute it was specially given for the arbitration;
purpose, or could be implied from the common course 7. Renounce a claim of the partnership.
of the firm’s business or from the previous course of
dealing between the parties.
ASSIGNMENT FOR BENEFIT OF CREDITORS
PAYMENT OF PARTNER’S SEPARATE DEBT
In the absence of evidence that the other partner or
A partner has no apparent or implied authority to use partners have abandoned the business, the
partnership property for the payment or to secure the partnership assets cannot, without their consent, be
payment of his separate debts or any other purely assigned to a trustee for the benefit of the firm’s
personal purpose. creditors by one partner.
Even in cases where the other partners give their An assignment made in violation of this rule is void.
consent to or ratify an application by a partner of firm
property to his own uses, partnership creditors may
DISPOSAL OF GOODWILL
have such application set aside for being in fraud of “Good will” of a business refers to the reasonable
them. expectation of its continues profitable operation, it
involves the name of the firm, its reputation for doing
SUBSCRIPTION TO STOCK business, the location, the number and character of
its customers, the former success of its business, and
As a general rule, one partner has no apparent or other elements which would be advantageous in the
implied authority to bind his firm by subscribing to the operation of the business.
stock of a corporation where the ownership of such
stock does not appear to be within the scope of the The prohibition refers to an agreement not to
firm business, or where there was no special authority continue and compete in the same business to which
to make such subscription. the good will is attached. Such a disposition is void,
unless the other partners ratify it or are incapable of
Ratification by the other partners would be necessary acting or have abandoned the business to the partner
to make the firm liable on it. making it.
Such subscription may be deemed within the scope of
the business of the firm if it is engaged in the sale of
OTHER ACTS MAKING IT IMPOSSIBLE TO
stocks. CARRY ON ORDINARY BUSINESS
An act of bankruptcy, such as an admission in writing
GIFTS AND OTHER GRATUITOUS ACTS made by one partner purportedly in behalf of his firm,
that it is unable to pay its debts and willing to be
The giving by a partner of firm property as gifts or of
firm services for free is inconsistent with the adjudged bankrupt on that ground.
partnership’s main purpose in carryon on its business,
The cancellation of a contract the performance of
namely, the making of profit.
which constitutes the entire business of the
partnership.
The donee of the firm property may thus be
compelled to account for it to the nonassenting
The act may be ratified by the other partners, either
partners.
expressly or by implication.
ACTS REQUIRING UNANIMOUS CONSENT
CONFESSION OF JUDGMENT
Art. 1818
A partner is expected to exert diligence and observe
xxx Except when authorized by the other partners or
utmost good faith in defending the interests of the
unless they have abandoned the business, one or
partnership in suits against it. He is not supposed to
more but less than all the partners have no authority
waive or give up defenses available to the firm.
to:
1. Assign the partnership property in trust for
A judgment resulting from such a transaction is void as
creditors or on the assignee's promise to pay the
to the non-assenting partners but valid as to the
debts of the partnership;
partner confessing. It will be binding on the other
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AGENCY, TRUST, PARTNERSHIP CIVIL LAW
1. TORTIOUS ACTS
RENUNCIATION OF PARTNERSHIP CLAIM
On the principle of mutual agency, the partnership, or
This is an act of strict dominion. every member of a partnership, is liable for torts
committed by one of the members acting within the
ABANDONMENT OF BUSINESS scope of the firm business, though they do not
participate in, ratify, or have knowledge of such torts.
The Code authorizes a partner, or any number of them
which is less than all, to do any or all of the foregoing
The test of liability is whether the wrong was
acts if the others have abandoned the business.
committed in behalf of the partnership and within the
reasonable scope of its business, and, if so committed,
KNOWN RESTRICTIONS ON AUTHORITY the partners are all liable as joint tortfeasors.
By agreement among the partners. If no agreement
exists, a partner may limit the authority of a co- Innocent partners will not be held responsible for the
partner to bind him and may exempt himself from tortious acts of a partner done outside the scope of
liability by giving notice that he is not bound by his the partnership.
partner’s act in some particular matters.
2. CRIMINAL ACTS
If the restriction refers to a matter within the scope Partnership can violate a criminal statute quite apart
of the partnership business, a third person dealing from the participation and knowledge of the partners
with the partner to whom the restriction is addressed as individuals, although its conviction cannot be used
is not required to inquire the power of the partner to to punish the individual partners, who might be
bind the firm. completely free of personal guilt, and can lead only to
a fine on its assets.
If such third person has knowledge or notice of
restriction, the partner’s act done in contravention If the partnership itself obtains the fruits of the
thereof will not bind the partnership. violations which are committed knowingly by its
agents within the scope of their employment, the
Art. 1818 business entity cannot be left free to break the law
xxx No act of a partner in contravention of a merely because owners (the partners) do not
restriction on authority shall bind the partnership to personally participate in the infraction.
persons having knowledge of the restriction.
A partnership may be held responsible for the
LIABILITY FOR WRONGFUL ACTS OR commission of a criminal act to the same extent as
the partner or partners committing the act.
OMISSIONS
Art. 1822 With respect to the partners, the absence of personal
Where, by any wrongful act or omission of any partner participation in the criminal act, one partner cannot
acting in the ordinary course of the business of the be held liable for the intentional criminal act of his
partnership or with the authority of co-partners, loss co-partner with the knowledge and consent of its
or injury is caused to any person, not being a partner members.
in the partnership, or any penalty is incurred, the
partnership is liable therefor to the same extent as Civil liability arising from such acts: The partnership
the partner so acting or omitting to act. and the partners are solidarily liable.
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The exception is when fraud on the partnership is Example of this is when a person, who, not being a
committed by or with the consent of the partner member of a partnership, includes his name in the
having such notice or knowledge or that partner is partnership’s firm name. (Art. 1815).
acting beyond his power.
Art. 1769
xxx Except as provided by Article 1825, persons who
are not partners as to each other are not partners as
to third persons; xxx
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JOINDER OF FIRM AND PARTNERS (1) When any new partner is admitted into an existing
Both the partnership and the separate partners may partnership, or when any partner retires and assigns
be joined as defendants in the same action under the (or the representative of the deceased partner
condition that the judgment should recognize or assigns) his rights in partnership property to two or
protect the right of the partners to prior exhaustion of more of the partners, or to one or more of the
the partnership property. partners and one or more third persons, if the business
is continued without liquidation of the partnership
EXECUTION AGAINST PARTNERS’ SEPARATE PROPERTY affairs; xxx
Where the partner’s liability for a partnership
obligation is only secondary or subsidiary, their right If two of the partners of a partnership got married,
to prior exhaustion of the partnership assets is the partnership will not be dissolved because a mere
deemed already satisfied where at the time the change in the relations does not dissolve the
judgment is executed against the partnership they are partnership. The change should result to the partner
unable to show that they possess any more assets. ceasing to be a partner.
This also hold true where the court finds that If no partner ceased to be associated in the business
partnership property no longer exists at the time the of the partnership, the partnership may still be
action is brought. dissolved when a person is admitted into the
partnership as a new partner.
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selling of all the property or assets and payment of admission of a new partner into an existing
partnership debts (winding up of the partnership partnership, the retirement of any partner who assigns
affairs). his rights in specific partnership property, and the
assignment by all partners or their representatives of
A contract in the usual way of carrying on the their rights in partnership property to one or more
business, not for the winding up of the partnership third persons who promise to pay this partnership
affairs, but entered into after the dissolution may still debts.
bind the partnership when the partner entering into
the contract has no knowledge of the dissolution
caused by the act, death or insolvency of a partner.
The third person must also have acted in good faith.
B. CAUSES OF DISSOLUTION
Bar 1993, 1995, 1997
Art. 1830
Dissolution is caused:
(1) Without violation of the agreement between the
partners:
(a) By the termination of the definite term or
particular undertaking specified in the
agreement;
(b) By the express will of any partner, who
must act in good faith, when no definite
term or particular is specified;
(c) By the express will of all the partners who
have not assigned their interests or suffered
them to be charged for their separate
debts, either before or after the
termination of any specified term or
particular undertaking;
(d) By the expulsion of any partner from the
business bona fide in accordance with such
a power conferred by the agreement
between the partners;
(3) In contravention of the agreement between the
partners, where the circumstances do not permit
a dissolution under any other provision of this
article, by the express will of any partner at any
time;
(4) By any event which makes it unlawful for the
business of the partnership to be carried on or for
the members to carry it on in partnership;
(5) When a specific thing which a partner had
promised to contribute to the partnership,
perishes before the delivery; in any case by the
loss of the thing, when the partner who
contributed it having reserved the ownership
thereof, has only transferred to the partnership
the use or enjoyment of the same; but the
partnership shall not be dissolved by the loss of
the thing when it occurs after the partnership has
acquired the ownership thereof;
(6) By the death of any partner;
(7) By the insolvency of any partner or of the
partnership;
(8) By the civil interdiction of any partner;
(9) By decree of court under the following article.
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INSANITY
The insanity of a partner does not of itself work a
dissolution.
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dissolution thereof only if insanity materially affects under Art. 1813 or its sale in consequence of its
the capacity of the partner to discharge the duties being subject to a charging order under Art. 1814
imposed by his contractual relation. does not of itself cause a dissolution.
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purporting to continue the partnership even after the engaging in separate prohibition)
death is to suspend the consequences of dissolution business of similar
(winding up and termination). nature
Retirement, death, Death of limited partner
Any partnership continuing the business pursuant to insolvency, insanity of does not have same
such an agreement must be regarded as a new general partner dissolves effect, maybe assigned
partnership. partnership to legal representatives
CHARACTERISTICS:
INSOLVENCY
Such insolvency must necessarily be one decreed by a 1. Formed by compliance with statutory
court. requirements
2. One or more general partners control the
It is from the moment of such a decree that all the business
property and effects of the partnership or of the 3. One or more general partners contribute to the
partner concerned are taken away from the partners capital and share in the profits but do not
or from the insolvent partner and become vested in participate in the management of the business
the assignee or trustee who shall thenceforth manage and are not personally liable for partnership
and dispose of the same for the benefit of the obligations beyond their capital contributions
creditors. 4. May ask for the return of their capital
contributions under conditions prescribed by law
The insolvent partner’s interest in the partnership 5. Partnership debts are paid out of common fund
passes to the assignee, and he then becomes and the individual properties of general partners.
incapable of performing his dues as partner because if
he cannot manage his own property, there is no 2 ESSENTIAL REQUIREMENTS FOR FORMATION OF
reason why he should be allowed to manage that of LIMITED PARTNERSHIP
the partnership. 1. Certificates or Articles of Limited Partnership,
which must be signed and sworn to.
CIVIL INTERDICTION OF A PARTNER
Civil interdiction deprives him, among other things, of 2. Certificates/Articles must be recorded with SEC.
the right to manage his property and of the right to
dispose of such property by any act of conveyance When General Partner needs consent of Limited partners
inter vivos. 1. Do any act in contravention of the certificate
2. Do any act which would make it impossible to
It is incongruous that he should be allowed to manage carry on the ordinary business of the partnership
partnership property, which may be considered the 3. Confess judgment against partnership
property of another or of which he is only a co-owner. 4. Possess partnership property/assign rights in
specific partnership property other than for
partnership purposes
5. Admit person as general partner
VII. Limited Partnership 6. Admit person as limited partner – unless
authorized in certificate
GENERAL Partners LIMITED Partners 7. Continue business with partnership property on
Liability is only up death, retirement, civil interdiction, insanity or
Personally liable for
limited to capital insolvency of gen partner unless authorized in
partnership obligations
contribution certificate
Absent any stipulation to
the contrary, all general
No participation in
partners have an equal
management RIGHTS OF LIMITED PARTNERS
right in the management
of the business 1. Right to have partnership books kept at principal
Contribute cash, Cash and property place of business
property or industry contribution ONLY 2. Right to inspect/copy books at reasonable hour
Proper party to 3. Right to have on demand true and full info of all
Not proper party things affecting partnership
proceedings by/against
by/against partnership 4. Right to have formal account of partnership affairs
partnership
Interest not assignable whenever circumstances render it just and
Interest is freely reasonable
without consent of other
assignable 5. Right to ask for dissolution and winding up by
partners
Name of partners may Names of partners MUST decree of court
appear in the firm name appear in the firm name 6. Right to receive share of profits/other
Prohibition against Allowable (no compensation by way of income
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MUTUAL
CONTRACT TRUST AUTHORITY
AND
CONFIDENCE
AGENCY YES YES YES
TRUSTS SOMETIMES SOMETIMES NO
PARTNERSHIP YES YES YES
CO-OWNERSHIP NO NO NO
CORPORATION NO NO NO
SEPARATE
REPRESENTATION JURIDICAL
ENTITY
AGENCY YES YES
TRUSTS NO NO
PARTNERSHIP YES YES
CO-OWNERSHIP NO NO
CORPORATION NO YES
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