1 Current Aguda Reviewer PDF

AGENCY
AND
PARTNERSHIP
REVIEWER
Prof. Jesusa Aguda
With cases and commentaries
from Prof. R.J. Casis

U.P. College of Law
Jocs Dilag
WITH HELP FROM MIKE DE CASTRO
Law 173 – Agency and Partnership

Caveat Lector Last Updated:
Read to be informed and updated because most of the time you just don’t know what you don’t know. 27-May-15
Nature, Form, and
Philippine Jurisprudence provides that the legal relationship
is one where
- One party authorizes another to act for and in his
Kinds of Agency behalf in transactions with 3rd persons.2

- A fiduciary relationship analogous to a trust, where the
agent is estopped from acquiring or asserting a title
I. Purpose and Definition adverse to that of the principal with regard to the
subject matter of the agency.3
PURPOSE
CONTRACT
Generally, the contract of agency is created to allow a
person to act on behalf of another. Article 1868
By the contract of agency a person binds himself to render some
It is primarily a commercial relationship, although it can be service or to do something in representation or on behalf of
used even for non-commercial purposes. another, with the consent or authority of the latter.
- This type of relationship is helpful as it expands the Article 1709 (Old CC)
capacity of persons to engage in commercial By the contract of agency, one person binds himself to render
transactions some service, or to do something for the account or at the request
of another.
ACCOMPLISHMENT OF MORE TASKS
The underlying principle of the contract of agency is to Notes:
accomplish results by using the services of others.1 The Old Civil Code provision was less precise than the
current Article 1868.
MULTIPLE AND SIMULTANEOUS AREAS OF ACTIVITY - The old provision can admit of other relations (e.g.
A principal can be doing activities in multiple places at the independent contractor) apart from agency.
same time through his agents.
Agency is better than hiring more workers because agents Article 1305
can enter into contracts on behalf of his principal (thus A contract is a meeting of minds between two persons whereby
more work done) one binds himself, with respect to the other, to give something or
to render some service.
IMPROVED PERFORMANCE
Article 1318
The agent may be more adept at the skills required by the
There is no contract unless the following requisites concur:
principal’s business or he might have an established (1) Consent of the contracting parties;
network. (2) Object certain which is the subject matter of the contract;
- This allows the principal to focus on what he does best, (3) Cause of the obligation which is established.
improving performance of the business.
Notes:
MULTIPLE BUSINESSES Being a contract, agency requires consent, object and cause
More hands = more businesses at the same time - Consent is crucial, although some agency relationships
may arise by operation of law.
DEFINITION o Principal’s intention to appoint + agent’s intention to
As a juridical concept, the Civil Code refers to the contract of accept such appointment and to act upon it.
Agency to be either a legal relationship or a contract
- The object of an agency is the agent’s performance of
LEGAL RELATIONSHIP acts in representation of the principal. This is the
The Civil Code lays out certain provisions pertaining to the juridical basis of agency.
connection in law between the principal and the agent. - The cause of an agency is compensation. A person may
also request appointment as an agent to protect his
A Restatement of Agency defines it further as a: own interests.
- Fiduciary relationship between the principal and the
agent, where the agent is subject to the principal’s
control.
American Jurisprudence defines it as a
- Fiduciary relationship by which a party confides to
another the management of some business to be
transacted in the principal’s name and the other
assuming the business and rendering an account of it.
2 RALLOS V FELIX GO CHAN (1978)

1 EUROTECH V CUISON (2007) 3 SEVERINO V SEVERINO (1923)
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AGENCY AND PARTNERSHIP Reviewer || Profs. JLA Arellano-Aguda and RJ Casis 1 100
CHARACTERISTICS [COPBIN] CAPACITY OF THE PARTIES
1. Consensual, perfected by mere consent; THE PRINCIPAL
2. Bilateral/Unilateral, which depends on whether it is for Must have legal capacity to enter into contracs in his own
compensation or not; right. This will be based on whether the principal is a
3. Nominate, as it has its own designated name; natural or juridical person.
4. Principal, does not depend on another contract for
existence/validity; THE AGENT
5. Informal, as generally, it may be constituted orally; According to De Leon, the capacity of the agent is usually
6. Onerous, generally understood for compensation but immaterial as he assumes no personal liability for the
may also be gratuitous; and contracts he enters into. An agent derives his authority from
7. Preparatory because it is entered into as a means to an the principal, and a contract made by the agent is legally
end (i.e. creation of other transactions or contracts) viewed as a contract of the principal.
A/N: I DISSENT FROM THIS VIEW. HOW CAN YOU EVEN START
CONTRACTING AS AN AGENT IF YOU CAN’T EVEN ENTER INTO A CONTRACT
APEX MINING V SOUTHEAST MIND. GMC (2006) OF AGENCY? WHAT MR. DE LEON MIGHT BE PERTAINING TO IS THE LACK OF
O W N I N G 1 0 0 % O F T H E S U B S I D I A R Y D O E S N O T CAPACITY AFTER ACCEPTING THE CONTRACT OF AGENCY AND WHILE
RD
A U T O M A T I C A L L Y M E A N T H A T T H E P A R E N T I S A N CONTRACTING WITH 3 PERSONS (e.g. subsequent legal disability).
A G E N T O F T H E S U B S I D I A R Y B E C A U S E I T I S
E S S E N T I A L T H A T T H E P R I N C I P A L C O N S E N T S T H A T
T H E O T H E R P A R T Y , T H E A G E N T , S H A L L A C T O N I T S III. Elements of Agency
B E H A L F , A N D T H E A G E N T C O N S E N T S S O A S T O
A C T . Based on Article 1868:
This case involves the validity of MMC’s exploration permit 1. A person must bind himself to render some service or to
(EP133) covering a portion of the Diwalwal Gold Rush do something in representation or on behalf of another;
Area and the validity of MMC’s assignment of such permit 2. With the consent of the other person (principal).
F:
to SEM for 1 peso, allegedly a 100% subsidiary of MMC.
Under the rules, MMC could only assign to its duly Jurisprudence’s 4 essential elements of agency4:
designated agent. 1. There is consent, express or implied, of the parties to
I: WON EP 133 and its subsequent transfer is valid establish the relationship;
NO. See doctrine. The Court held that even though SEM is 2. The object is the execution of a juridical act in relation to
a 100% subsidiary corporation of MMC, there is no a third person;
R:
evidence showing that the former is a duly authorized 3. The agent acts as a representative and not for himself;
agent of the latter. 4. The agent acts within the scope of his authority.
ORIENT AIR SERVICES V CA (1991)

T H E C R E A T I O N O F A P R I N C I P A L -‐ A G E N T
CONSENT
R E L A T I O N S H I P C A N O N L Y B E E F F E C T E D W I T H T H E HOW GRANTED
C O N S E N T O F T H E P R I N C I P A L , W H I C H M U S T N O T ,
Consent may be given expressly or impliedly.
I N A N Y W A Y , B E C O M P E L L E D B Y L A W O R B Y A N Y
C O U R T . According to Orient Air, the creation of a principal-agent
American Air and Orient Air entered into an agreement relationship can only be effected with the consent of the
where the latter would be the exclusive sales agent of the principal, which must not, in any way, be compelled by law
former. The dispute here concerns the alleged delays of or by any court. 5
F:
the latter to remit certain sums to the former. The - Sir Casis comments that such declaration by the Court
contentious provision concerns the overriding might have been too much. It must be noted that such
commissions and their extent. consent may be conferred by operation of law.
WON Orient Air’s 3% overriding commission extends to - The fact that Congress has authority to compel such
I: total revenue of American Air and not merely that derived
consent can be seen in our Civil Code, where it already
from ticketed sales undertaken by Orient Air.
YES. The court ruled that Orient Air was justified in provides for instances where agency is created by
withholding its remittances since American Air still had operation of law.
R:
outstanding payments due to it in the form of overriding
commissions.
II. Parties to Agency

WHO ARE PARTIES TO THE CONTRACT
1. Principal (one represented)
2. Agent (one who acts for and represents another)
5 ORIENT AIR V CA (1991)
_______________________________________________________________
IMPORTANT FACTORS IN DETERMINING CONSENT OBJECT
The mere closeness of the relationship does not imply The basis of an agency is representation.8
consent nor does ownership by a corporation of another
If a person is called an ‘agent’ but is not given the power to
automatically make the subsidiary an agent of the
represent his principal, then he is not an agent nor is a
principal.6
contract of agency established.
Intention of the parties is important in determining the
existence of agency.7 BORDADOR V LUZ (1997)
T H E B A S I S F O R A G E N C Y I S R E P R E S E N T A T I O N
RALLOS V GO CHAN & SONS (1978) Bordadors sued Luz because Luz’s brother failed to remit
B Y T H I S L E G A L F I C T I O N , T H E A C T U A L O R R E A L F: payment for jewelry given to the latter, alleging that he
A B S E N C E O F T H E P R I N C I P A L I S C O N V E R T E D I N T O was Luz’s agent.
H I S L E G A L O R J U R I D I C A L P R E S E N C E I: WoN there was a contract of agency.
Concepcion and Gerundia Rallos executed a SPA in favor NO. There was no evidence that Luz
of their brother Simeon to sell their lot in their behalf. consented/authorized the brother. There was no showing
Simeon sold the lot to Felix Go Chan & Sons months after that Luz authorized the brother to act on her behalf
F: R:
Concepcion’s death. The administrator of Concepcion’s regarding the transaction questioned. Bordadors
estate (Ramon Rallos) moved to have the sale declared should’ve required the brother to show a written
unenforceable. authorization from Luz.
WON Simeon’s act is of selling Concepcion’s share after
I:
the latter’s death is enforceable against the latter’s estate
NO. See doctrine. Agency is basically personal, AGENT TO ACT AS REPRESENTATIVE
representative, and derivative in nature. The authority of The agent has an obligation to represent his principal’s
R: the agent to act emanates from the powers granted to interest and not his own.
him by his principal; his act is the act of the principal if - Sir: It is not an element for the establishment of the
done within the scope of the authority. contract of agency but a consequence of such. Further,
there may be an agency even without the agent acting.
VICTORIAS MILLING V CA (2000)
O N T H E P A R T O F T H E P R I N C I P A L , T H E R E M U S T B E AGENT ACTS WITHIN THE SCOPE OF
A N A C T U A L I N T E N T I O N T O A P P O I N T O R A N AUTHORITY
I N T E N T I O N N A T U R A L L Y I N F E R A B L E F R O M H I S This is another consequence of the agency relationship and
W O R D S O R A C T I O N S ; A N D O N T H E P A R T O F T H E not a condition for its existence since it is possible for an
A G E N T , T H E R E M U S T B E A N I N T E N T I O N T O
agency relationship to exist even without this element.
A C C E P T T H E A P P O I N T M E N T A N D A C T O N I T .
- Sir: If you look at Art. 1869, it provides for ‘ratification’ of
STM sold its rights (evidenced by a receipt) to 25k sugar an agent’s action by the principal in cases where it acts
bags bought from VMC to CSC. CSC wrote to VMC stating outside his authority (silence, inaction or failure to
that it was authorized by STM to withdraw the bags. repudiate).
F: When CSC tried to take the bags, VMC only allowed them
to withdraw 2k bags because STM already withdrew the
bags covered by the checks paid, alleging that CSC was A CASE ILLUSTRATING THE PROBLEM WITH THE
only STM’s agent. LAST 2 ELEMENTS OF AGENCY
I: WoN there was a contract of agency.
SPS. VILORIA V CONTINENAL AIRLINES (2012)
NO. There was not intent between STM and CSC to create
Husband bought 2 tickets of CAI from Holiday Travel
an agency. See doctrine. CSC’s letter stating that the
when he was informed by an EE of HT that there were no
receipt was “sold and endorsed” to it negates the
more available seats on the Amtrak. H later discovered
existence of an agency.
that this was false, and demanded a refund of the tickets.
The issue of agency is important in this case in order to
R: Content of letter by CAI: That the tickets may be used as a
determine whether STM can enforce its title against CSC
F: form of payment for the purchase of another Continental
because in an agency relationship, the agent is estopped
ticket.
from acquiring a title adverse to its principal. Since there
H wanted to use his ticket and his wife’s ticket in order to
is no agency relationship in this case, then CSC may
claim a ticket for MLA-LAX but this was refused.
validly claim its rights over the SLDRs.
Since the tickets were non-refundable and H failed to get
it re-issued, H filed a case for refund against CAI.
I: WoN there was a contract of agency between CAI and HT.
YES. The 4 essential elements of agency exist between
CAI and HT.
4 elements: (1) there is consent, express or implied of the
R:
parties to establish the relationship; (2) the object is the
execution of a juridical act in relation to 3rd persons; (3)
the agent acts as a rep and not for himself; & (4) the
6 APEX MINING V SOUTHEAST MINDANAO GOLD CORP (2006)
7 TUAZON V HEIRS OF RAMOS (2005) 8 BORDADOR V LUZ
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agent acts within the scope of his authority. o A corporate officer authorized to act for the
All 4 are present in this case, and this was never refuted corporation, as provided for in the Articles of
by CAI. Incorporation/By-Laws/Board Resolution.11
Nevertheless, the negligence of the agent of HT cannot be
imputed to CAI. Article 1874
In actions of quasi-delict, a principal can only be held When a sale of a piece of land or any interest therein is through
liable for a tort committed by its agent’s employees if it an agent, the authority of the latter shall be in writing; otherwise,
has been established by a preponderance of evidence that the sale shall be VOID.
the principal was also at fault or negligent or that the
principal exercise control and supervision over them.
There is no vinculum juris between the airline and its ANGELES V PNR (2006)
agent’s employees and therefore, CAI cannot be imputed Romualdez bought PNR’s scrap rails and wrote a
any liability on the negligence of the agent’s employee. letter to the latter informing it that Angeles is his
WHAT IF CAI HAD DISPUTED (3) AND (4)? WOULD THAT MEAN THAT lawful rep in the withdrawal of the rails. PNR
THERE WAS NO CONTRACT OF AGENCY? TAKE NOTE OF THE suspended the withdrawal and refused to refund the
SIR:
DIFFERENCE OF THE CONCEPT OF AGENCY AS A LEGAL purchase price — Angeles filed a case for specific perf
RELATIONSHIP AND AS A CONTRACT. + damages.
TC: Dismiss the case since heirs of Angeles are mere
DIFFERENCES BETWEEN AN AGENCY AND OTHER agents (not real party in interest) and therefore has no
F:
FORMS OF CONTRACT CAN BE FOUND AT THE END OF cause of action against PNR.
THE REVIEWER ON AGENCY (BASED ON PROF. CASIS’ Angeles: I am not an agent for 2 reasons:
OUTLINE) 1) In the letter, Romualdez did not call me an “agent”
and also used the words “waiver of rights,
interests…”
2) The authorization was not in the form of an SPA
IV. Forms of Contract of Agency and therefore, no intention to appoint me as an
Article 1869 (2) agent.
Agency may be oral, unless the law requires a specific form. I: WON Angeles has legal standing to sue.
NO. The following were the Court’s justification for
Note: considering Angeles as an agent:
1) The letter used the words “authorized” instead of
The difficulty here would be to establish/prove that an oral
“assigned”. And if you would read the whole letter,
contract of agency exists. it said that the waiver of rights was “for this
reason”, pertaining to the authorization as agent.
ORAL Also, according to the subsequent acts of Angeles
CASE SHOWING HOW AGENCY IS EASILY CREATED (being assigned as an authorized representative
AIR FRANCE V CA AND GANA (1983) and also by signing in a representative capacity)
Principal tells secretary to fix tickets. Secretary talks to prevents her from denying her agency.
travel agent and the latter tells the secretary that the 2) There is no required form for a valid power of
airline requires the Principal to pay differentials. The R: attorney. It may be in any form clearly showing on
F: its face the agent’s authority.
secretary failed to inform the Principal. The tickets were
dishonored. Principal then sues the airlines for the Primary Purpose of the letter: As evidence of the
inconvenience caused. authority to third parties and not to define the
WON there is an agency relationship between the authority.
I: principal and the secretary, and as such, notice to agent is Form: Unless required by statute, the power of
notice to principal. attorney is valid even without the intervention of a
YES. The Court did not explain why she was an agent but notary public.
just held that since the secretary was an agent, notice to Since Angeles is not an agent, she is therefore not a
R: agent is notice to principal, and therefore, the Ganas real party-in-interest. The relationship bet. the 3rd
should have paid the differentials in order to prevent such party and the principal is the same as if there was no
dishonour of the tickets. agent.
THINKS THAT THIS IS AN ASSIGNMENT CONTRACT
WRITTEN BECAUSE A PRINCIPAL DOES NOT WAIVE HIS/HER
G.R.: The law does not prescribe a particular form for a MA’AM
RIGHTS, INTERESTS, ETC. UNDER A CONTRACT OF
Power of Attorney9 AGENCY
E: The following must be in writing:
- Sale of land or any interest therein
- A corporation may only act through:
o A written authorization in the form of a Board
Resolution.10
9 ANGELES V PNR (2006)

10 AF REALTY V DIESELMAN 11 LITONJUA V ETERNIT
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JIMENEZ V RABOT (1918) ATTORNEY-IN-FACT ATTORNEY-AT-LAW
A P E R S O N M A Y B Y A G E N E R A L P O W E R O F DEFINTION
A T T O R N E Y A N A G E N T T O S E L L " A L L " T H E L A N D
The agent of the principal A member of the bar
P O S S E S S E D B Y T H E P R I N C I P A L , O R A L L T H A T H E
P O S S E S S E S I N A P A R T I C U L A R C I T Y , C O U N T Y , O R POWERS
S T A T E . Acts in representation of the Acts in representation of the
Jimenez “confided” 1 of his 3 parcels of land in principal, based on the client. Sec. 21 of Rule 138
Pangasisnan to his sister, Narcisa, whom was authorized powers granted to him in presumes that an attorney is
to sell “one of [his] parcels of land”. Narcisa sold it to the power of attorney. properly authorized to
Rabot. Jimenez then sued for the reconveyance of the represent his/her client.
F:
property, alleging that: WHAT IS NECESSARY TO BIND PRINCIPAL IN
1) Under Sec. 335 of CivPro, the authorization must COMPROMISE AGREEMENT
contain a particular description of the property; and
2) Sister acted outside the scope of her authority. A special power of attorney A special power of attorney
WON Nicolasa’s authority to sell was sufficient to bind
I: APPLICATION
Jimenez re: the sale to Rabot.
YES. Sale
First, the Court reiterated the doctrine that even if the Where one of the contracting parties obligates himself to
document was private, it can still bind the principal.
transfer the ownership of and to deliver a determinate
G.R.: Power of attorney conveying rights or interests over
real property must be in a public document. thing, and the other to pay a price certain in money or its
E: A private document is sufficient as established in equivalent.12
Thunga Chui v Bentec (1902). And also, under the
OESMAR V PARAISO DEVELOPMENT (2007)
R: law, the parties can be compelled to execute the
A C O N T R A C T T O S E L L A P I E C E O F L A N D S T I L L
contract in a public document.
R E Q U I R E S A W R I T T E N A N D S P E C I F I C
1. The requirement of sufficient description of the A U T H O R I Z A T I O N F R O M T H E P R I N C I P A L .
property is not applicable because what in question is
The siblings entered into a contract to sell with
the suffciency of the authorization. Nevertheless, the
respondents. Only Ernesto signed on the dotted line and
property is sufficiently described.
F: the rest signed on the margins. Later, some of the siblings
2. The act was within the scope of the authority granted
impugned the contract, arguing that Ernesto did not have
in the letter of authorization. See doctrine.
an SPA to sell the land.
I: WON the contract to sell is binding
COSMIC LUMBER V CA (1996) YES. The siblings sold the land themselves when they also
signed along the margins. Since they are privy to the
. F O R T H E P R I N C I P A L T O C O N F E R T H E R I G H T U P O N R:
contract, there is no need for any specific authorization to
A N A G E N T T O S E L L R E A L E S T A T E , A P O W E R O F
sign as an agent.
A T T O R N E Y M U S T S O E X P R E S S T H E P O W E R S O F
T H E A G E N T I N C L E A R A N D U N M I S T A K A B L E Land or any interest therein
L A N G U A G E . W H E N T H E R E I S A N Y R E A S O N A B L E Art. 1874 specifically pertains to “land” or “any interest”
D O U B T T H A T T H E L A N G U A G E S O U S E D C O N V E Y S
(e.g. usufruct, mortgage) and not real or immovable
S U C H P O W E R , N O S U C H C O N S T R U C T I O N S H A L L B E
G I V E N T H E D O C U M E N T .
property.
- It does not limit the transaction to the act of “selling”
Illegal Settler case. Agent was explicitly and exclusively but includes the act of “buying”.
authorized to institute any action in court to eject all
- It also pertains only to sale by an agent (where he signs
persons AND to enter into a compromise agreement,
insofar as it is protective of the rights and interests of the
the contract) and not sales made by the principal
corporation. Agent entered into a compromise where she personally or through a representative.13
F:
sold the lots to the squatters instead. The company only
EFFECT
found out about the compromise agreement when the
private respondent was enforcing the TC’s ruling on the Absence of authority of the agent to sell land in writing
agreement. Company now wants to annul the decision of makes the sale VOID.
the TC on the basis of a void compromise agreement. - It is not subject to ratification.
WON the compromise agreement was able to transfer - What is invalidated is the sale and not the agency
I:
ownership to private respondent. relationship.
NO. See doctrine. In this case, there is no showing of any
written authority granted to the agent to sell the land Sir: Contents of the SPA:
(which is required in sales of land). Also, the ability to - Name/Identity of the agent
compromise did not inferr any right to sell, since the act of - Proper description of the land
R: selling property is not protective of the rights and interests - Terms of the sale
of the corporation.
In effect, the court may annul the judgement on the basis
of lack of jurisdiction, since its ruling was based on a void
12
compromise agreement. Art. 1458
13 RODRIGUEZ V CA (1969)
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Take note of the case of Pahud v CA, where the Court carved person on his behalf acted without authority.
out an exception to the requirement of a specific and
written authorization for sales of land. Requisites to establish implied agency under Art. 1869:
1. The alleged principal should be aware of the acts of the
FORM IN CASE OF CORPORATION alleged agent;
AF REALTY V DIESELMAN (2002) 2. The alleged principal has had reasonable opportunity
A C O R P O R A T I O N G I V E S I T S C O N S E N T T H R O U G H A under the circumstances to repudiate the acts of the
W R I T T E N R E S O L U T I O N B Y I T S B O A R D O F alleged agent;
D I R E C T O R S 3. A third party has transacted with the alleged agent
The President contracted with an agent to find buyers for
without knowledge of the alleged agent’s lack of
a piece of land owned by the company. The agent sold the authority; and
F: 4. There were no facts/circumstances that should have
land to AF Realty. The President cancelled the offer, but
AF Realty insists that it has been perfected already. raised any suspicion on the part of the third person that
I: WON the sale is valid the agent was not authorized.
NO. Since neither the President nor the agent had
R: authority from the Board of Directors to sell the land (in Notes:
the form of a written resolution), the sale is void. “Without authority” may mean either that there is no
contract of agency or that the act is beyond the scope of the
LITONJUA V ETERNIT (2006) contract.
T H E I S S U A N C E O F A B O A R D R E S O L U T I O N I S A Article 1869 does not apply when both principal and agent
C O N D I T I O N S I N E Q U A N O N F O R A N A G E N T T O knew that there’s no contract of agency and no third person
B I N D A C O R P O R A T I O N . T H E D E C L A R A T I O N O F T H E
was prejudiced by the non-recognition of the agency. 14
A G E N T A L O N E I S N O T S U F F I C I E N T T O E S T A B L I S H
T H E F A C T O F A G E N C Y . IMPLIED CONSENT FROM THE ACTS OF THE AGENT
A Belgian company wanted to get out of the Philippines Article 1870
ASAP because of the EDSA revolution, so it instructed its Acceptance by the agent may also be express, or implied from his
agent to sell 8 parcels of land, without any Board acts which carry out the agency, or from his silence or inaction
F:
Resolution. The agent was able to sell the lands. according to the circumstances.
Subsequently, the Belgian company cancelled the sale.
Litonjua asserts that the sale has already been perfected. Article 1871
I: WON the sale is valid Between persons who are present, the acceptance of the agency
may also be implied if the principal delivers his power of attorney
R: NO. See doctrine. to the agent AND the latter receives it WITHOUT ANY
OBJECTION.
Article 1872
V. Kinds of Agency Between persons who are absent, the acceptance of the agency
CANNOT be implied from the silence of the agent, EXCEPT:
MANNER OF CREATION (1) When the principal transmits his power of attorney to the
Article 1869 (1) agent, who receives it without any objection;
(2) When the principal entrusts to him by letter or telegram a
Agency may be express, or implied from the acts of the principal,
power of attorney with respect to the business in which he is
from his silence or lack of action, or his failure to repudiate the
habitually engaged as an agent, and he did not reply to the
agency, knowing that another person is acting on his behalf without
letter or telegram.
authority.
Instances when an Implied Agency was created:
Note:
1. In cases when the principal is present:
This provision refers to the manner in which consent of
a. When the agent carries out the agency; or
either principal/agent may be manifested.
b. When the agent receives the power of attorney
EXPRESS AGENCY without any objection.
This is the manner in which agency is usually created. 2. In cases when the principal is absent:
a. When the agent carries out the agency;
It is manifested by the express act of principal authorizing b. When the agent receives a power of attorney without
the agent to act on his behalf and the express act of the objection; or
agent accepting such authority. c. When the agent receives a power of attorney through
IMPLIED AGENCY FROM ACTS OF PRINCIPAL a letter/telegram, with respect to the business in
which he/she is habitually engaged, and the agent
Manifested either through the principal’s: does not reply.
1. Acts;
2. Silence;
3. Lack of Action; or
4. Failure to repudiate the agency knowing that another 14 UNILAND RESOURCES V DBP (1991)
_______________________________________________________________
DE LA PEÑA V HIDALGO (1910) damage as a result on the delay on the part of the
Principal executed a power of attorney in favor of Federico agent.
to administer various properties in Manila. Federico
subsequently needed to leave the country for health AGENCY BY OPERATION OF LAW
reasons so he asked his principal to appoint another Article 1884 (2)
agent. Because of the former’s failure to appoint a new He must also finish the business already begun on the death of
F: agent, Federico provisionally turned over administration the principal, should delay entail any danger.
to his cousin Antonio and asked the principal to send a
new power of attorney. Principal never acted on such Article 1930
request. After 9 years, the principal now wants to collect The agency shall remain in full force and effect even after the
solely from Federico, on the ground that no agency death of the principal, if it has been constituted in the common
relationship existed between the former and Antonio. interest of the latter and of the agent, or in the interest of a third
I: WoN there was a contract of agency. person who has accepted the stipulation in his favor.
YES. IMPLIED AGENCY. There is an implied contract of
Article 1931
agency on the basis of awareness by the principal of the
R: fact of taking charge by Antonio of the administration and Anything done by the agent, without knowledge of the death of
the principal or of any other cause which extinguishes the agency,
silence/inaction for 9 years (when it could have issued a
is valid and shall be fully effective with respect to third persons
new power of attorney).
who may have contracted with him in good faith.
DIFFERENTIATION BETWEEN ARTICLES 1871 & 1872 Instances when agency will still continue despite
existence of a cause to extinguish such agency:
ART. 1871 ART. 1872
1. Despite knowledge of death of principal:
Principal is present Principal is absent a. If delay will entail any danger (to finish the business)
G.R. Agency must be E: In cases of transmittal of b. Agency coupled with an interest
accepted in the presence of power of attorney 2. Without knowledge of any cause for the extinction:
the principal a. Good faith belief of 3rd persons.
Elements: Elements (transmittal):
Note:
1. Agent personally 1. Principal transmits the
receives the power of power of attorney According to Ma’am Aguda, solutio indebiti can also be
attorney from the 2. Agent receives the considered as an agency by operation of law.
principal document without AGENCY BY ESTOPPEL
2. Agent must be aware of objection 1. Statutory Agency by Estoppel
the contents of the Elements (telegram): 2. Jurisprudential Agency by Estoppel
document 1. Principal sends the PoA
3. Agent received without through letter/telegram
any objection 2. Object of the agency is Article 1431
Through estoppel an admission or representation is rendered
a business the agent is conclusive upon the person making it, and cannot be denied or
habitually engaged in disproved as against the person relying thereon.
3. No reply was made by
the agent Article 1900
So far as third persons are concerned, an act is deemed to have
Notes: been performed within the scope of the agent's authority, if such
The above provisions most probably only apply to situations 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
wherein the principal expressly appoints/authorizes the to an understanding between the principal and the agent.
agent.
Article 1911
Remember that in order for an agent to impliedly consent to
Even when the agent has exceeded his authority, the principal is
an appointment, the agent must have knowledge of such solidarily liable with the agent if the former allowed the latter to
appointment. act as though he had full powers.
- E.g. If the alleged agent had no idea that the letter he
received from the alleged principal is a power of Article 1922
attorney, his/her inaction/silence will not amount to an If the agent had general powers, revocation of the agency does
not prejudice third persons who acted in good faith and without
implied acceptance. knowledge of the revocation. Notice of the revocation in a
Implied agency in this case is established when: newspaper of general circulation is a sufficient warning to third
persons.
- Agent fails to inform the principal of his rejection of the
agency relationship within a reasonable amount of time Definition of Estoppel
under the circumstances.
Through estoppel an admission or representation is
- Agent fails to inform the principal of his rejection of the rendered conclusive upon the person making it, and cannot
agency relationship prior to the principal suffering
_______________________________________________________________
be denied or disproved as against the person relying Instances of Apparent Authority based on estoppel being
thereon.15 manifested (in furtherance of requirements below)17:
It aims to prevent the possible damage/injury that the 1. The principal may knowingly permit the agent to hold
admission/representation can cause by imposing silence. himself out as having such authority, and the principal
becomes estopped to claim that the agent does not
Elements of Estoppel:16 have such authority.
1. Mislead: The actor who has knowledge, notice, or 2. The principal may clothe the agent with the indicia of
suspicion of the true facts, communicates something to authority as to lead a reasonably prudent person to
another in a misleading way, either by words, conduct or believe that the agent actually has such authority.
silence;
2. Reliance: The other in fact relies, and relies reasonably Requisites:18
or justifiably, upon that communication; 1. MANIFESTATION: The principal manifested a
3. Potential Damage: The other would be harmed representation of the agent’s authority or knowingly
materially if the actor is later permitted to assert any allowed the agent to assume such authority.
claim inconsistent with his earlier conduct; and 2. RELIANCE: Third person, in good faith, relied upon such
4. Expectation to act upon: The actor knows, expects or representation.
foresees that the other would act upon the information 3. DETRIMENT: Third person changed his position to his
given or that a reasonable person in the actor's position detriment.
* Similar to doctrine of apparent authority (based on US jurisprudence), which
would expect or foresee such action. requires proof of reliance.
STATUTORY AGENCY BY ESTOPPEL Doctrine of apparent authority for hospitals19

Article 1873 1. The hospital, or its agent, acted in a manner that would
If a person specially informs another OR states by public lead a reasonable person to conclude that the
advertisement that he has given a power of attorney to a third individual who was alleged to be negligent was an
person, the latter thereby becomes a duly authorized agent, in the employee/agent of the hospital;
former case with respect to the person who received the special
information, and in the latter case with regard to any person. 2. Where the acts of the agent created the appearance of
authority, the plaintiff must also prove that the hospital
The power shall continue to be in full force until the notice is had knowledge of and acquiesced in them; and
rescinded in the same manner in which it was given.
3. The plaintiff acted in reliance upon the conduct of the
2 Scenarios of Agency by Estoppel based on Article 1873: hospital or its agent, consistent with ordinary care and
1. Principal specially informs another: prudence
a. Agency is only established with respect to the person Doctrine of apparent authority for corporations20
who received the special information. 1. Corporate Officer/Agent acts without authority.
2. Principal states by public advertisement: 2. Corporation clothes the agent by holding him out to
a. Agency is established with respect to any person. appear as having authority by allowing him/her to
Notes: exercise the authority continuously, publicly and for a
The agency relationship only exists with respect to 3rd considerable time.
persons who received the special information. Other 3. Agent acts within the scope of the apparent authority.
persons not privy to such special information shall not 4. A third person relied in good faith to such apparent
benefit from/be affected by such. authority.
This provision shall not be applicable if the existence of the YUN KWAN BYUNG V PAGCOR (2009)
agency is not in issue: S E E E N U M E R A T I O N A B O V E F O R A G E N C Y B Y
- If the agent carries out the agency, the situation may E S T O P P E L .
fall under implied agency. PAGCOR entered into a Junket Agreement with ABS Corp
- If the agent has knowledge of the special information or (lease out tables for foreign players). Conditions include
public advertisement and he does not act or keeps that chips will be distinguished from the regular ones,
silent, there may be an implied agency too. ABS to assume sole responsibility, and PAGCOR will not
F: be free from any liability. Petitioner (Korean national)
cashed in chips worth USD 2.1M but was refused. Now it
JURISPRUDENTIAL AGENCY BY ESTOPPEL sues PAGCOR for collection. RTC dismissed the complaint
for being based on a void junket agreement.
Note: Petitioner’s arguments are laid out as issues.
This type of agency is based on the general doctrine of I: WON the Junket Agreement was valid. NO
estoppel established under several jurisprudence.
17 YUN KWAN BYUNG V PAGCOR (2009)

18 LITONJUA V ETERNIT (2006)
15
Article 1431 (Civil Code) 19 NOGALES V CAPITOL MEDICAL
16 PBCOM V CA (1998) 20 PHILIPPINE REALTY V LEY CONSTRUCTION
_______________________________________________________________
WON RA 9487 amending the charter save the day. NO Engr. Abcede, the project construction manager, sent a
WON there was an implied agency. NO letter to LC agreeing to such escalation. When the
WON there was agency by estoppel. NO construction finished, PR refused to reimburse LC.
WON there was ratification by PAGCOR of the acts of I: WON Engr. Abcede’s letter binds PR
ABS. NO YES. (See doctrine) The following facts support the
The courts will not enforce debts arising from illegal application of the doctrine:
gambling. 1. What the Board gave Engr. Abcede was only an
1) The franchise of PAGCOR disallowed the sharing of authority sufficient to finish the project. It never gave
R:
legislative franchise therefore the agreement with ABS him any authority to agree to any contract that will
is void. Because the agreement is void, the gambling escalate the price.
was illegal in nature. 2. There have been several similar past transaction by
2) RA 9487 was passed on 2007. The agreement was Engr. Abcede, which the Board never repudiated
signed in 1996. No retroactive effect.
3) No implied agency because there is no holding out to
R: the public of an agency relationship (A/N: Court IMPLIED AGENCY V. AGENCY BY ESTOPPEL
confused implied agency with agency by estoppel) IMPLIED AGENCY AGENCY BY ESTOPPEL
4) See doctrine. No agency by estoppel because there is
EXISTENCE OF AN ACTUAL AGENCY
no proof that PAGCOR knowingly permitted the agent
to hold himself out as an agent or that it clothed ABS There is an actual agency Agency only exists with
with an indicia of authority. This is seen by PAGCOR’s between the Principal and respect to third persons
placing of notices. Also, there was no showing that the Agent who relied on the
there was any reliance by petitioner from any act of representation of the
PAGCOR. principal
5) Void contracts cannot be ratified.
RELIANCE BY THIRD PERSONS
No reliance required Reliance on the conduct of
NOGALES V CAPITOL MEDICAL (2006)
the principal/agent is
Husband and Wife contracted with Dr. Estrada, an
independent doctor. Dr. Estrada advised them to proceed crucial
to CMC where he has staffing privilege. The wife died AGENT’S RIGHTS AND LIABILITIES
giving birth. The agent has all the rights The agent has no rights as
Acts/Conduct that show the application of the doctrine: and liabilities as provided against the principal, since
in the CC there is no real agency
1. Hospital’s manifestations:
F: a. That Dr. Estrada has staff privileges Notes:
b. CMC required the husband to sign consent forms Agency by estoppel is created to protect the interests of a
c. The referral of Dr. Estrada to CMC gave the third person.
impression that he was connected with the hospital.
2. Patient’s reliance: In an Agency by estoppel, no real agency exists.
a. They chose Dr. Estrada for his connection with CMC
b. The Sps. regarded CMC as the best The court keeps confusing the two terms, even though the
c. Husband consented to the hysterectomy civil code provides for different application.
AGENCY BY RATIFICATION
PHILIPPINE REALTY V LEY CONSTRUCTION (2011) Article 1910
A L T H O U G H A N O F F I C E R O R A G E N T A C T S The principal must comply with all the obligations which the
W I T H O U T , O R I N E X C E S S O F , H I S A C T U A L agent may have contracted within the scope of his authority.
A U T H O R I T Y , I F H E A C T S W I T H I N T H E S C O P E O F A N As for any obligation wherein the agent has exceeded his power,
A P P A R E N T A U T H O R I T Y W I T H W H I C H T H E the principal is not bound except when he ratifies it expressly or
C O R P O R A T I O N H A S C L O T H E D H I M B Y H O L D I N G tacitly.
H I M O U T O R P E R M I T T I N G H I M T O A P P E A R A S
H A V I N G S U C H A U T H O R I T Y , T H E C O R P O R A T I O N I S Article 1317
B O U N D T H E R E B Y I N F A V O R O F A P E R S O N W H O No one may contract in the name of another without being
D E A L S W I T H H I M I N G O O D F A I T H I N R E L I A N C E O N authorized by the latter, or unless he has by law a right to
S U C H A P P A R E N T A U T H O R I T Y , A S W H E R E A N represent him.
O F F I C E R I S A L L O W E D T O E X E R C I S E A P A R T I C U L A R A contract entered into in the name of another by one who has
A U T H O R I T Y W I T H R E S P E C T T O T H E B U S I N E S S , O R no authority or legal representation, or who has acted beyond
A P A R T I C U L A R B R A N C H O F I T , C O N T I N U O U S L Y his powers, shall be unenforceable, unless it is ratified, expressly
A N D P U B L I C L Y , F O R A C O N S I D E R A B L E T I M E . or impliedly, by the person on whose behalf it has been executed,
before it is revoked by the other contracting party.
PR and LC entered into a construction agreement, where
they agreed that there will be no escalation in the price. Article 1403
Because of spike in the prices of the materials, LC asked The following contracts are unenforceable, unless they are
F:
PR if it could advance the amount in consideration of an ratified:
escalation in the price afterwards. PR’s Board denied such (1) Those entered into in the name of another person by one who
request but this was not communicated to LC. Instead, has been given no authority or legal representation, or who has
_______________________________________________________________
acted beyond his powers; - Exception: When the principal is wilfully ignorant, there
(2) Those that do not comply with the Statute of Frauds as set will be ratification regardless of lack of knowledge of
forth in this number. In the following cases an agreement material facts.21
hereafter made shall be unenforceable by action, unless the
same, or some note or memorandum, thereof, be in writing,
and subscribed by the party charged, or by his agent; evidence, WOODCHILD V ROXAS (2004)
therefore, of the agreement cannot be received without the
I F A W R I T I N G I S R E Q U I R E D T O G R A N T A N
writing, or a secondary evidence of its contents:
(a) An agreement that by its terms is not to be performed A U T H O R I T Y T O D O A P A R T I C U L A R A C T ,
within a year from the making thereof; R A T I F I C A T I O N O F T H A T A C T M U S T A L S O B E I N
(b) A special promise to answer for the debt, default, or W R I T I N G
miscarriage of another; The Board authorized Roxas to sell to Woodchild Lot B-
(c) An agreement made in consideration of marriage, other 2. Roxas executed the sale of Lot B-2 to Woochild but
than a mutual promise to marry; also added the right of Woodchild to buy an additional 1
(d) An agreement for the sale of goods, chattels or things in square meter from Lot B-1, in case of insufficient right of
action, at a price not less than five hundred pesos, unless F: way. Roxas and Woodchild talked about the possible
the buyer accept and receive part of such goods and
chattels, or the evidences, or some of them, of such things
sale of 500 square meters from Lot B-1, but Roxas died
in action or pay at the time some part of the purchase before consummating such sale. Woodchild demanded
money; but when a sale is made by auction and entry is from the Corporation the sale of a portion of Lot B-1, but
made by the auctioneer in his sales book, at the time of the the latter rejected.
sale, of the amount and kind of property sold, terms of I: WON the agreement between Roxas and Woodchild is
sale, price, names of the purchasers and person on whose binding.
account the sale is made, it is a sufficient memorandum; NO, AS SUCH WAS DONE BEYOND THE AUTHORITY
(e) An agreement of the leasing for a longer period than one OF ROXAS AND THERE WAS ALSO NO RATIFICATION
year, or for the sale of real property or of an interest TO CURE SUCH.
therein; G.R.: Acts done beyond the scope of authority are not
(f) A representation as to the credit of a third person. binding on the corporation.
(3) Those where both parties are incapable of giving consent to a R: E: If the act was subsequently ratified by the corporation
contract. In this case, it is clear from the Board Resolution that
Article 1393 Roxas had no authority to sell any portion or right over
Lot B-1. As regards the issue of ratification, there is no
Ratification may be effected expressly or tacitly. It is understood
that there is a tacit ratification if, with knowledge of the reason written authorization that ratified the acts of Roxas. See
which renders the contract voidable and such reason having ceased, doctrine.
the person who has a right to invoke it should execute an act THE COURT SEEMED TO HAVE FORGOTTEN THE
which necessarily implies an intention to waive his right. REQUIREMENT FOR A SPECIFIC AND WRITTEN
AUTHORITY IN SELLING LAND OR ANY INTEREST
SIR: THEREIN (NO MENTION OF ART. 1874).
Definition of Ratification:
The adoption or confirmation by one person of an act
MA’AM: STICK WITH THE RULE THAT VOID
performed on his behalf by another without authority.
CONTRACTS CANNOT BE RATIFIED.
Rules on ratification:
G.R.: Acts done beyond the scope of authority are not SCOPE: GENERAL AND SPECIFIC
binding on the principal. Article 1876
E: If the act was subsequently ratified (express or An agency is either general or special.
implied) The former comprises all the business of the principal. The latter,
one or more specific transactions.
How ratification may be implied
If there is an execution of an act that necessarily implies an GENERAL AGENCY
intention to accept the act done beyond the scope of Two Interpretations:
authority. 1. General agent is one entrusted to take the principal’s
When ratification should be done place in all of his businesses
2. General agent is one who manages the entirety of a
It must be done before the contract entered under an act
particular business of the principal
done beyond the scope of an agent’s authority is revoked.
Note:
Note:
What is determinative of the general agency is continuity of
At the time of ratification, the principal must have full
service rather than extent of responsibility22.
knowledge of all material facts. Otherwise, there is no
ratification.
21 MANILA MEMORIAL V LINSANGAN

22
AmJur
_______________________________________________________________
SPECIAL AGENCY indispensable for the preservation of the things which are
The agent does not handle all of the business of the under administration;
principal but specific aspects/transactions of his business. (8) To lease any real property to another person for more than
one year;
It is sufficient that the listed authorized transactions (9) To bind the principal to render some service without
apparently cover all that is required to run the business of compensation;
the principal.23 (10) To bind the principal in a contract of partnership;
(11) To obligate the principal as a guarantor or surety;
UNIVERSAL AGENT (12) To create or convey real rights over immovable property;
One employed to do all acts that the principal may (13) To accept or repudiate an inheritance;
personally do, and which he can lawfully delegate to (14) To ratify or recognize obligations contracted before the
agency;
another the power of doing. The agency usually includes the (15) Any other act of strict dominion.
full power and authority to do and perform any and every
act that the principal may legally do and every power Article 1879
necessary to carry out the purposes for which it is granted. A special power to sell excludes the power to mortgage; and a
special power to mortgage does not include the power to sell.
It may also be defined as an unlimited general agent.
Article 1880
DOMINION INSURANCE V CA (2002) A special power to compromise does not authorize submission to
Insurer agent (as manager) paid the claims of the insured arbitration.
F: despite lacking authority under an instrument named
“special power of attorney”. Article 1874
I: WON the agent can recover from the principal When a sale of a piece of land or any interest therein is through an
YES, BUT NOT UNDER THE CONCEPT OF AN AGENT. agent, the authority of the latter shall be in writing; otherwise, the
1. The instrument only conferred a general agency, sale shall be VOID.
couched in general terms. This is because it enumerated
certain acts of administration. Power of Attorney
2. The disbursement is not an act of administration, and A power of attorney refers to the authorization in which one
therefore needs special authorization. Since there is no person, as principal, appoints another as his agent and
R: special authorization in this case, the agent cannot confers upon him the authority to perform certain specified
recover under the agency (for acting beyond his scope of acts or kinds of acts on his behalf.
authority [Art. 1918]).
3. Nevertheless, he can recover under the general law on It is not the name of the document but is the description of
obligations and contracts, where he can recover only the nature of the power granted to the agent.
insofar as the payment has been beneficial to the debtor-
principal. It may be written or oral, but must be express.
- If not written, it must be duly established by evidence24
- The written authorization itself is also been called a
AUTHORITY CONFERRED "letter of attorney."
Article 1877 Primary purpose = to evidence the authority of the agent.
An agency couched in general terms comprises only acts of Secondary purpose = to define the authority of the agent.
administration, even if the principal should state that he withholds
no power or that the agent may execute such acts as he may The person holding the POA is an "attorney-in-fact."
consider appropriate, or even though the agency should authorize a
general and unlimited management. GENERAL POWER OF ATTORNEY (COUCHED IN
GENERAL TERMS)
Article 1878 The Civil Code provides that generally, the Agency is limited
Special powers of attorney are necessary in the following cases: to acts of administration even if the principal should state
(1) To make such payments as are not usually considered as that he withholds no power or that the agent may execute
acts of administration;
(2) To effect novations which put an end to obligations already such acts as he may consider appropriate, or even though
in existence at the time the agency was constituted; the agency should authorize a general and unlimited
(3) To compromise, to submit questions to arbitration, to management.
renounce the right to appeal from a judgment, to waive
objections to the venue of an action or to abandon a Acts of Administration includes:
prescription already acquired; - Those acts that are usually done repeatedly and
(4) To waive any obligation gratuitously; without the need of express authorization as required
(5) To enter into any contract by which the ownership of an by the nature of the business.
immovable is transmitted or acquired either gratuitously or - Necessary and usual acts to carry out the agency into
for a valuable consideration;
(6) To make gifts, except customary ones for charity or those effect.25
made to employees in the business managed by the agent; - Acts not listed under the exceptions (Art. 1878)
(7) To loan or borrow money, unless the latter act be urgent and
24 LIM PIN V LIAO TAO (1982)

23 DOMINION INSURANCE V CA 25 MACKE V CAMPS (1907)
_______________________________________________________________
SPECIAL POWER OF ATTORNEY (COUCHED IN SPECIFIC LIM PIN V LIAO TAN (1982)
TERMS)
T H E R E Q U I R E M E N T S O F A S P A I N A R T 1 8 7 8 R E F E R
The Civil Code requires that the authority to execute certain T O T H E N A T U R E O F T H E A U T H O R I Z A T I O N , A N D
acts be expressly and specifically granted to the agent in N O T I T S F O R M . T H E S P A M A Y B E O R A L O R
order for such acts to be enforceable. W R I T T E N ; W H A T M A T T E R S I S T H A T T H E P R I N C I P A L
S P E C I F I C A L L Y A U T H O R I Z E S T H E A G E N T T O
Transactions covered under an agency couched in specific
P E R F O R M S U C H A C T / S .
terms (Acts of Strict Dominion/Ownership)
[PNoC-GoodWILL-RPG-CARS] Liao Tan leased to Lim Pin a parcel of land on a month to
month basis. However, Pin failed to pay the agreed
Payments not considered as acts of administration rentals. Because of failure to pay even after demand and
Novation of obligations already existing at the time of refusal to vacate the premises, a case for Unlawful
agency Detainer was filed against Pin. During the hearing, Pin’s
F:
Compromise, submit for arbitration, renunciation of right to son (Hung) was the one present who entered into the
compromise agreement with Tan. Pin filed for an MR on
appeal, waive objections as to venue, abandonment of
the judgement based on the compromise agreement,
prescription already acquired asserting that her son had no written authority to enter
into a compromise agreement.
Gifts, except customary ones for charity/to employees I: WON a written authority is required to compromise.
Waive obligations gratuitously NO. The rules unddderffer Art. 1878 and Rule 138 (ROC)
Immovable transferred gratuitously/for consideration refer to the nature of the authorization and not to its form.
Loan/Borrow money, unless urgent and indispensable for The only requirement is that the authorization be express.
preservation of the thing under administration As applied, it is shown that Pin repeatedly asked the court
Leasing of real property for more than a year to allow the increase in the amount of rentals and that
she could not decide on anything without first consulting
her son. Also, Hung willingly signed the agreement all
Render some service without compensation R: ghe while assisted by their counsel.
Partnership contract Even assuming that the agreement was made without
Guarantor/surety authority, such agreement was not null and void but
would be merely unenforceable, capable of being ratified.
Pin ratified such agreement when she filed an ex-parte
Create/convey real rights over immovable property motion to withdraw deposits in a consignation case
Accept/repudiate an inheritance pending before the same court and parties (it stated that
Ratify obligations contracted before the agency the parties entered into a compromise agreement).
Strict dominion acts GOZUN V MERCADO (2006)
T H E R E Q U I R E M E N T S A R E M E T I F T H E R E I S A C L E A R
M A N D A T E F R O M T H E P R I N C I P A L S P E C I F I C A L L Y
VELOSO V CA (1996) A U T H O R I Z I N G T H E P E R F O R M A N C E O F T H E A C T . I F
T H E S P E C I A L P O W E R O F A T T O R N E Y C A N B E T H E S P A I S N O T W R I T T E N , I T M U S T B E D U L Y
I N C L U D E D I N T H E G E N E R A L P O W E R W H E N I T I S E S T A B L I S H E D B Y E V I D E N C E .
S P E C I F I E D T H E R E I N T H E A C T O R T R A N S A C T I O N F O R
Mercado vied for a gubernatorial post in the 1995
W H I C H T H E S P E C I A L P O W E R I S R E Q U I R E D .
elections. Gozun received a request for posters and
Petitioner (Husband) filed a TRO to prevent the approved the price quotation. Also, Lilian Soriano
transfer of his exclusive property sold by his wife with (Mercado’s sister-in-law) got a “cash advance” of
F: an apparent General Power of Attorney, which he P253k from Gozun for the allowances of poll watchers.
F:
vehemently denied giving. He claims that his signature Mercado subsequently assailed the demand for
was falsified. payment of the cash advances on the ground that
WON the GPA is sufficient and valid to give the wife such amounts constituted donations that should have
I:
the power to sell the property aforementioned been accepted in writing and he also denies giving any
YES. The assailed power of attorney was valid and authority to loan money to Soriano.
regular on its face. It was notarized and as such, it I: WON Lilian was an agent of Mercado
carries the evidentiary weight conferred upon it with NO. An SPA is indeed required in order for an agent to
respect to its due execution. borrow money, unless it be urgent and indispensable
R:
There was no need to execute a separate and special for the preservation of the things which are under
power of attorney since the GPA had expressly administration. In this case, the acknowledgement
authorized the agent or attorney-in-fact the power to receipt signed by Mercado indicated that the money
R:
sell the subject property. was received “in behalf of Mrs. Annie Mercado.” Thus
MORAL OF THE STORY: BE CAREFUL WHO YOU Gozun failed to categorically state whether the loan
MA’AM was made on behalf of Mercado or his wife. Also, there
MARRY. :))
was no showing of the reason for the loan and in what
capacity it was received.
MORAL OF THE STORRY: DON’T MIX FRIENDSHIP
MA’AM
WITH MONEY.
_______________________________________________________________
OLAGUER V PURUGGANAN (2007) VICENTE V GERALDEZ (1973)
T H E P R O H I B I T I O N A G A I N S T A G E N T S P U R C H A S I N G I N A C T I O N O F B O A R D O F D I R E C T O R S I S N O T
P R O P E R T Y I N T H E I R H A N D S F O R S A L E O R R A T I F I C A T I O N
M A N A G E M E N T I S C L E A R L Y N O T A B S O L U T E . I T D O E S
HCC entered into a contract with the Banahaw Shale
N O T A P P L Y W H E R E T H E P R I N C I P A L C O N S E N T S T O Mining Association which gives the former the right to
T H E S A L E O F T H E P R O P E R T Y I N T H E H A N D S O F T H E extract minerals. However, the subject area of the
A G E N T O R A D M I N I S T R A T O R . agreement encroach three parcels of land belonging to
Olaguer executed an SPA in favor of Locsin, et. al., for them petitioners. A suit was filed but thereafter, petitioners
F:
to sell his shares of stock in Businessday, for the support of signified their willingness to sell to HCC their respective
his family, in the event that he should be detained by the properties and thus, the respective counsels of the parties
Marcos military. He also requested Locsin to buy the shares conferred and executed a Compromise Agreement. HCC
himself if it is necessary. Olaguer was detained and Locsin avers that it did not approve such CA nor did it give any
F: authorization to compromise.
bought the shares himself. When Olaguer was released from
detention, he claimed that the sale was invalid and exceeded I: WON the CA is valid.
the authority he granted to Locsin in the SPA, since an agent NO. No written authority from or any evidence to prove
is prohibited from buying the property which he administers that the lawyers’ respective clients allowed the lawyers to
or is supposed to sell (Art. 1491). enter into a compromise agreement. As a general rule, an
I: WON the sale was valid. agent or officer of the corporation has no power to
R:
YES. SC held that sale was valid and the prohibition on compromise or settle a claim by or against the
R: agent's purchasing the thing under administration does not corporation, except to the extent that such power is given
apply when the principal consents to such sale. to him either expressly or by reasonable implication from
the circumstances.
Effect of Absence of Specific Authorization:
Unenforceable Contract
Article 1878 does not provide the consequence for failure to COSMIC LUMBER V CA (1996)
W H E N A N S P A I S E X P L I C I T A N D E X C L U S I O N A R Y ,
comply with the requirement for specific authorization.
S U C H T H A T I T I S Q U A L I F I E D B Y “ T O E N T E R I N T O A
Jurisprudence provides that when the agent’s transaction C O M P R O M I S E A G R E E M E N T … I N S O F A R A S I T I S
falls under Article 1878 but without specific authorization, it P R O T E C T I V E O F T H E R I G H T S O F T H E
is unenforceable, as such transaction falls under Article C O R P O R A T I O N ” , T H E P O W E R T O S E L L L A N D
1403. C A N N O T B E I N F E R R E D
- But the absence of any specific and written authority on
the sale of land or any interest therein makes such sale MERCADO V ALLIED BANKING CORP (2007)
null and void A P O W E R O F A T T O R N E Y M U S T B E S T R I C T L Y
C O N S T R U E D A N D P U R S U E D .
DUÑGO V LOPENA (1962)
T H E A B S E N C E O F A S P E C I A L P O W E R O F A T T O R N E Y I F T H E S P A D E F I N E S C E R T A I N P O W E R S A N D D U T I E S ,
D O E S N O T A U T O M A T I C A L L Y V O I D T H E C O N T R A C T , T H E N A L L O T H E R P O W E R S A N D D U T I E S N O T
B U T I T I S O N L Y U N E N F O R C E A B L E U N T I L T H E Y A R E D E F I N E D A R E E X C L U D E D .
R A T I F I E D . Using an SPA, Julian obtained a loan secured by a mortgage
Three parcels of land were bought by the petitioner and on one of the properties in the SPA. He defaulted and when
Gonzales, and they executed real estate mortgages over F: the mortgage was being foreclosed, they contested the
the same. Upon their default, a compromise agreement validity of the REM, as the property in the SPA did not
F: was made, extending the period of payment. However this specify the one in the REM.
was signed only by Gonzales in behalf of Duñgo without a I: What is the status of the REM
SPA. Petitioner contests the validity of the compromise UNENFORCEABLE. Even though the TCT# on the SPA and
agreement for lack of his signature. the TCT# on the REM pertain to the same property, the
I: What is the status of the compromise agreement? TCT# in the SPA must be the one followed.
VALID BUT UNENFORCEABLE. The compromise R: Rationale: courts are disinclined to enlarge an authority
agreement was only unenforceable and not void for lack beyond what is expressly given and those which incidentally
of special power of atty. Upon its ratification by the flow therefrom as being usual and reasonably necessary for
subsequent execution of the Tri-party agreement, the the performance of such express powers.
R:
petitioner is estopped in assailing its validity. Also, since
the agreement was beneficial to the principal, the Court Effect of Specific Authorization
believes that the principal should not be heard to The powers and duties specified in a power of attorney are
repudiate the said agreement. limited only to those specified therein. All other powers are
excluded.
BPI V DE COSTER (1925)
Wife gave husband SPA but did not include approval to be
F: a surety for any transaction. When husband defaulted in a
loan, wife was impleaded.
I: WON SPA included surety
_______________________________________________________________
NO. It is clear from the SPA that there is no authority for property. They now assail the validity of the sale.
R: I: WON the sale was valid.
husband to bind the wife as a surety.
YES. Even though the instrument was called a GPA, it
R: contained provisions specifically allowing the husband to
INSULAR DRUG V PNB (1933) mortgage and to alienate the property to 3rd persons.
T H E A U T H O R I T Y T O C O L L E C T C H E C K S D O E S N O T
I N C L U D E T H E A U T H O R I T Y T O I N D O R S E T H E S A M E .
CLARIFYING THE TERMS
A N Y P E R S O N T A K I N G C H E C K S M A D E P A Y A B L E T O GENERAL OR SPECIAL AGENCY COUCHED IN
A C O R P O R A T I O N , T H R O U G H A N A G E N T , D O E S S O AGENCY GENERAL OR SPECIFIC
A T H I S P E R I L , A N D M U S T S U F F E R T H E TERMS
C O N S E Q U E N C E S I F T H E A G E N T W H O I N D O R S E S Scope of business Type of authority conferred
T H E S A M E I S W I T H O U T A U T H O R I T Y . Mutually exclusive terms; May exist in the same
Salesman was instructed to take the checks that he Cannot exist together instrument, regardless of
collected to Bank of India, Australia and China. He instead nomenclature
went to PNB and deposited it in his personal account,
F:
which PNB allowed. Subsequently, the spouses withdrew
the amounts deposited with PNB. When insular found out GENERAL POWER SPECIAL POWER
about this scheme, it demanded the amounts from PNB. Acts of Administration Acts of Strict Dominion
WON PNB is liable to give Insular the amounts the Sps.
I:
withdrew
YES. A salesman with authority to collect money CASE WHERE THE COURT CONFUSES GENERAL
belonging to his principal does not have the implied AGENCY AND AGENCY COUCHED IN GENERAL
R: authority to indorse checks received in payment. It is clear
TERMS
that the checks belonged to Insular and not to Foerster
(who is now dead) SIASAT V IAC (1985)
Respondent was authorized by the UFI through a
document stating that she could represent petitioners
HODGES V SALAS (1936) in dealing with any entity or org, private or gov’t. in
F:
A G E N T ’ S A U T H O R I T Y T O L O A N D O E S N O T I N C L U D E connection with the marketing of their products. P
T H E A U T H O R I T Y T O D I S P O S E T H E M O N E Y A S claims that there was no specific authorization given to
H E / S H E P L E A S E S R to transact with DECS.
I: WON respondent was authorized to represent UFI
T H E P R I N C I P A L I S B O U N D O N L Y I N S O F A R A S YES. R was a general agent. Based on the words used,
H E / S H E H A S B E N E F I T E D , D E S P I T E T H E A G E N T no restrictions were intended as to the manner the
E X C E E D I N G T H E B O U N D S O F H I S / H E R A U T H O R I T Y agency was to be carried out or in the place where it
was to be executed. The power granted to R was so
Defendants executed a SPA in favor of their brother-in- R:
broad that it practically covers the negotiations leading
law Yulo to get a loan and secure it with a mortgage on to, and
F:
their real property. Some of the proceeds of the loan were the execution of, a contract of sale of P’s merchandise
applied to Yulo’s personal obligations. with any entity or org.
WON defendants are liable for the whole amount of the
I: THE COURT CONFUSED THE CONCEPT OF GENERAL AGENCY AND
loan. NOTE: AGENCY COUCHED IN GENERAL TERMS. IT SHOULD HAVE USED
NO, AS YULO ACTED BEYOND THE AUTHORITY OF HIS THE LATTER
SPA. WRT a power of attorney of special character, it
cannot be interpreted as also authorizing the agent to
dispose of the money as he pleased, particularly when it PAHUD V CA (2006)
R: does not appear that such was the intention of the A S A L E O F A P I E C E O F L A N D , N O T W I T H S T A N D I N G
principals, and in applying part of the funds to pay his T H E A B S E N C E O F A S P E C I F I C A N D W R I T T E N
personal obligations, he exceeded his authority. Because A U T H O R I T Y , M A Y B E U P H E L D W H E N :
of this, the Sps. Salas are only liable for the proceeds of
1 . T H E P R I N C I P A L I S E S T O P P E D ( A D M I S S I O N I N
the loan not appropriated by Yulo.
P T C ) ; A N D
2 . T H E P R I N C I P A L H A S G I V E N I M P L I E D A U T H O R I T Y
BRAVO-GUEVARRA V BRAVO (2005) T H R O U G H H I S / H E R C O N T I N U I N G S I L E N C E
E V E N I F A D O C U M E N T I S T I T L E D A S A G P A , T H E 3/8 San Agustin siblings sold the land to Pahud. 1
R E Q U I R E M E N T O F A S P A I S M E T I F T H E R E I S A of these 3 acted as an agent of 4 other siblings
C L E A R M A N D A T E F R O M T H E P R I N C I P A L (Only 1 gave an SPA). During the case for judicial
S P E C I F I C A L L Y A U T H O R I Z I N G T H E P E R F O R M A N C E partition, the remaining co-heir did not agree to
O F T H E A C T . F: the compromise agreement so the latter was not
signed and was not considered by the Court.
Wife executed a GPA allowing the husband to mortgage,
Subsequently, the remaining co-heir sold the
sell or dispose the property. He mortgaged the said
F: property to Sps. Belarmino, who immediately
property and thereafter sold it to his son. When the sps.
constructed a building on the land.
died, one of the heirs wanted a judicial partition of the
_______________________________________________________________
I: WON the sale is valid EFFECTS OF AGENCY
YES. The Court still considered the 3/8 sale as void
but it considered the sale as valid on the basis of INTEGRATION AND EXTENSION
estoppel (see doctrine). In this case, there was Integration: Personality of the principal is merged with that
estoppel because the 3 siblings who did not give of the agent
R:
SPAs admitted during pre-trial that they sold the
land to Pahud. There was an implied agency Extension: Personality of the principal is reproduced in
because their continued silence led the Pahuds to the person of the agent
believe that they have given their consent.
EQUITABLE ESTOPPEL CANNOT SUPPLANT OR AUTHORITY TO ACT
CONTRAVENE THE LAW. ALSO THE FACT RELIED qui facit per alium facit per se (“he who does a thing by an
DISSENT: FOR THE CONCEPT OF ESTOPPEL WAS MADE agent is considered as doing it himself”)27 In essence, the
AFTER THE FACT. ESTOPPEL SHOULD NOT HAVE absence of principal is replaced by the agent.
BEEN APPLIED TO RATIFY THE SALE.
By legal fiction, the agent becomes the principal, authorized
to perform all acts which the latter would have him do.28
CHUA V IAC (1994) - But acts personal to the principal may not be delegated
D O C T R I N E to the agent. (E.g. Voting, signing of a will, declaration
Defendant executed a lease contract that included an under oath)
option to buy (10 years) with lessee Sy Tian On. The rights A principal becomes liable for obligations contracted by the
of the latter was subsequently sold to Chua Bok.
agent provided that the act is within the authority of the
Chua Bok, upon expiration of the 1st lease, entered into a
new lease (for 5 years) with the same option to buy with
agent.29
F: an attorney-in-fact without an SPA. Even after the AGENT NOT REAL PARTY-IN-INTEREST
expiration of the 2nd lease, the heirs of Chua remained in
Since the agent is only an extension of the personality of the
the continuous enjoyment of the property. Defendant then
subsequently sold the property to Sps. Go, which the heirs principal, the former shall not be liable to any 3rd party, nor
of Chua question as violative of their alleged option to may the 3rd party enforce any right against the agent.
buy. EXCEPTION: In criminal cases, where the agent is a direct
I: WON the sale was in violation of plaintiff’s option to buy
participant.30
NO. The Court held that the lease contract involved one
that leases property for more than 1 year and should UY AND ROXAS V CA (1999)
require an SPA. The Court did not explicitly rule that the A N A G E N T M A Y O N L Y B R I N G A N A C T I O N F O U N D E D
contract void but it upheld the CA’s ruling that it is void. O N A C O N T R A C T M A D E F O R H I S P R I N C I P A L I F H E
R: Also, according to Dizon v Magsaysay, a tacit renewal is I S A N A S S I G N E E O F T H E C O N T R A C T
limited only to the terms of the contract which are
germane to the lessee’s right of continued enjoyment of U&R (agents) sold 8 parcels of land to NHA. But NHA
the property and does not extend to alien matters, like the bought only 5 because the others were not suitable for a
option to buy the leased premises. F: housing project. U&R filed a complaint for damages for
the injury they suffered due to the termination of the
contract.
VI. Limitations and Effects of Agency I: WoN U&R are the proper parties to file the case.
NO. They are not real parties-in-interest. U&R are not
LIMITATIONS: parties to the contract of sale—they are mere agents of
1. An agent is subject to the principal’s control26; R: the owners. An agent may bring an action founded on a
contract made for his principal if his is an assignee of the
2. Some acts cannot be done through an agent, such as:
contract, which is not the case here.
a. Personal acts;
b. Criminal acts; or
c. Acts not allowed by law; ANGELES V PNR (2006)
RD
3. An agent is estopped from asserting interest adverse to G . R . W H E R E A G E N Y E X I S T S , T H E 3 P A R T Y ’ S
his principal; L I A B I L I T Y O N A C O N T R A C T I S T O T H E P R I N C I P A L
4. An agent must not act as an adverse party; A N D N O T T O T H E A G E N T .
5. An agent cannot acquire the properties under his/her E : W H E N T H E A G E N T I S C O N S T I T U T E D A S A N
administration without the consent of the principal; A S S I G N E E
6. An agent must not act for an adverse party; R bought PNR’s scrap rails and wrote a letter to the latter
7. An agent must not use or disclose secret information; F:
informing it that A is his lawful rep in the withdrawal of
the rails. PNR suspended the withdrawal and refused to
refund the purchase price—A filed a case for specific perf
27 EUROTECH V CUISON (2007)

28 ORIENT AIR V CA
29 PRUDENTIAL BANK V CA
26 VICTORIAS MILLING V CA (2000) 30 ONG V CA
_______________________________________________________________
+ damages. - Where the agent’s interests are advese to those of the
I: WoN A has legal standing to sue. principal.
NO. A is an agent, and therefore not a real party-in- - Where the agent’s duty is not to disclose the
interest. See Doctrine. The relationship bet. the 3rd party information, as where he is informed by way of
R:
and the principal is the same as if there was no agent. A
confidential information.
was also not an assignee.
- Where the person claiming the benefit of the rule
colludes with the agent to defraud the principal.
ONG V CA (2006)
T H E E X I S T E N C E O F T H E C O R P O R A T E E N T I T Y D O E S
N O T S H I E L D F R O M P R O S E C U T I O N T H E A G E N T W H O BAD FAITH OF THE AGENT IS BAD FAITH OF THE
PRINCIPAL
K N O W I N G L Y A N D I N T E N T I O N A L L Y C O M M I T S A
C R I M E A T T H E I N S T A N C E O F A C O R P O R A T I O N . CARAM V LAURETA (1981)
Case of double sale. Principal already sold the property.
O received in trust on behalf of ARMAGRI goods under the F: He now alleges that his agents does not know about such
obligation to account for it and/or remit the proceeds of sale, when the latter sold the property to another.
F:
the sale. Ong failed to do so, and so 2 counts for estafa I: WON the Principal is in bad faith
were filed against him. YES. The agents had actual and constructive knowledge
WoN O, being a mere agent, cannot be held criminally R: of the prior sale, and their bad faith is attributable to their
I:
liable. principal.
NO. O cannot escape punishment on account of being
merely an agent. O was the signatory to the trust receipts,
R: and he was not able to show proof to the contrary. He
cannot use the defense that he was only an agent of the
corporation, which is why he should not be held liable.
PNB V RITRATTO (2001)

A S U I T A G A I N S T T H E A G E N T I S N O T A S U I T
A G A I N S T T H E P R I N C I P A L .
PNB-IFL (subsidiary co of PNB) extended a LoCredit to R
secured by a REM. R defaulted, PNB-IFL via its atty-in-
F:
fact PNB sent R a notice of foreclosure. R filed for an
injunction against PNB, which was granted.
I: WoN PNB was the real party-in-interest.
NO. PNB is only a mere agent of PNB-IFL. See Doctrine.
Being a mere agent with limited powers and specific
R:
duties, PNB is not privy to the contract bet. PNB-IFL and
R—R has no cause of action against PNB.
NOTICE TO AGENT IS NOTICE TO PRINCIPAL
Theory of Imputed Knowledge

General Rule: Knowledge of the agent is knowledge of the
principal.
- BUT knowledge of the principal does not mean
knowledge of the agent.31
- Rationale: There is no obligation on the part of the
principal to inform the agent while the converse
provides otherwise.
Exception32:
When the conduct and dealings of the agent are such as to
raise a clear presumption that he will not communicate to
the principal the facts in controversy.
Examples of the exception (based on De Leon)
- If the agent is about to act in a way prejudicial to the
principal, then it is safe to presume that such act will
not be communicated to the principal.
31 SUNACE INT’L V NLRC (2006)

32 COSMIC LUMBER V CA (1996)
_______________________________________________________________
Obligations and
Notes:
Articles 1881 and 1888 must be read in harmony with other
provisions. (e.g. If the transaction requires an SPA as under
Liabilities of an Article 1878, then it may not be performed without specific

authority)
Agent CAC acts do not give plenary powers to the agent to do any
act. The principal may still challenge whether an act is
conducive or advantageous.
Obligations of the Agent to the Principal:
1. Act within the scope of authority; LIÑAN V PUNO (1915)
C O N T R A C T S O F A G E N C Y A S W E L L A S G E N E R A L
2. Act in accordance with instructions;
P O W E R S O F A T T O R N E Y M U S T B E I N T E R P R E T E D I N
3. Carry out the agency; A C C O R D A N C E W I T H T H E L A N G U A G E U S E D B Y T H E
4. Advance funds; P A R T I E S .
5. Not to carry out the agency;
6. Loyalty (to prefer the interest of the principal); T H E A C T S O F T H E P A R T I E S W I L L B E P R E S U M E D T O
7. Render an account/delivery to the principal; H A V E B E E N D O N E I N C O N F O R M I T Y W I T H A N D N O T
8. Pay for interest for the use of funds; and C O N T R A R Y T O T H E I N T E N T O F T H E C O N T R A C T .
9. Responsibilty for fraud & negligence; Liñan executed a power of attorney in favor of Puno. By
Liabilities of Agent virtue of the document, Puno sold Liñan’s parcel of land to
F: the other defendants for P800. Liñan alleges that the
1. When is the agent personally liable; document did not confer upon Puno the power to sell the
2. Solidary liability of agents to the principal; and land and prayed that the sale be declared void.
3. Responsibility for acts of substitutes I: When Puno was authorized to sell the land.
YES. The SC reversed and held that Puno was acting
R:
within the scope of his authority in selling Liñan’s land.
I. Obligations of the Agent to the
Principal ACT IN ACCORDANCE WITH INSTRUCTIONS
Article 1887
ACT WITHIN THE SCOPE OF AUTHORITY
In the execution of the agency, the agent shall act in accordance
Article 1881 with the instructions of the principal.
The agent must act within the scope of his authority. He may do
such acts as may be conducive to the accomplishment of the In default thereof, he shall do all that a good father of a family
purpose of the agency. would do, as required by the nature of the business.
Article 1882 Article 1885

The limits of the agent's authority shall not be considered In case a person declines an agency, he is bound to observe the
exceeded should it have been performed in a manner more diligence of a good father of a family in the custody and
advantageous to the principal than that specified by him. preservation of the goods forwarded to him by the owner until the
latter should appoint an agent or take charge of the goods.
‘CAC’ ACTS: Article 1899
Conducive If a duly authorized agent acts in accordance with the orders of
Acts must be conducive to the accomplishment of the the principal, the latter cannot set up the ignorance of the agent
purpose of agency. as to circumstances whereof he himself was, or ought to have
been, aware.
As long as the acts meet the standards of conduciveness,
they are considered as being performed within the scope of Definition of ‘Instructions’:
the authority. Instructions are private directions that are given by the
Advantageous principal to the agent as regards the manner or means of
performing his duties as an agent.
If the manner of performance is more advantageous to the
principal than that specified, such act shall still be valid. When ordinary diligence is warranted:
- E.g.: Sale for a higher price in case it entails payment of In cases where there are no instructions on how to carry on
less tax. the agency. It is measured as required by the nature of the
business.
Collateral
Collateral acts are those which are the natural and ordinary It also applies to persons who refuse the agency. The person
incidents of the main act or business authorized.33 They are is bound to hold and preserve the goods sent to him by the
impliedly within the authority of the agent. principal until an agent is appointed or the principal takes
charge.
33 GUINHAWA VS PEOPLE
_______________________________________________________________
When an agent is not liable for acting in accordance with Only ‘reasonable opportunity to take necessary measures’ is
instructions required; it is not necessary for the agent to wait until the
The principal cannot pin the blame on the agent if the latter measures have been implemented. (Art. 1929)
was following the former’s instructions and a third person The agent is excused from carrying out the agency if doing
was injured under circumstances which the principal was so will cause loss or damage to the principal. (Art. 1888)
aware of and the agent was not. This provision may be used as a defense by an agent who
fails to carry out the agency, provided s/he sufficiently
CARRY OUT THE AGENCY
proves that carrying out the agency will injure the principal.
Article 1884
The agent is bound by his acceptance to carry out the agency,
and is liable for the damages which, through his non-
performance, the principal may suffer. BRITISH AIRWAYS V CA (1998)
A N A G E N T I S R E S P O N S I B L E F O R A N Y N E G L I G E N C E
He must also finish the business already begun on the death of I N T H E P E R F O R M A N C E O F I T S F U N C T I O N A N D I S
the principal, should delay entail any danger. L I A B L E F O R D A M A G E S W H I C H T H E P R I N C I P A L M A Y
Article 1929 S U F F E R B Y R E A S O N O F S U C H N E G L I G E N T A C T .
The agent, even if he should withdraw from the agency for a Mahtani, through Gumar, bought tickets from BA going to
valid reason, must continue to act until the principal has had Bombay India. Since it had no direct flights, PAL was to
reasonable opportunity to take the necessary steps to meet the transport him from Manila to HK. Ticket indicated:
situation. “carriage to be performed hereunder by several successive
F:
carriers is regarded as a single operation”. Mahtani’s
Article 1888 pieces of luggage were diverted to HK because of PAL’s
An agent shall not carry out an agency if its execution would delay. Mahtani sued Gumar and BA, BA impleaded PAL in
manifestly result in loss or damage to the principal. a 3rd-party complaint but CA dismissed it.
WON BA (as principal) has a cause of action against its
Instances when the agent must carry out the agency I:
agent, PAL
1. Upon his acceptance to carry out the agency; YES. Indeed, BA was liable to Mahtani for the lost
2. Those businesses already begun prior to the death of the luggage. But as an agent, PAL is also responsible as it
principal, if delay of such entail any danger; or was negligent in its performance of its function and thus
3. Even if he should withdraw from the agency, until the liable for damages. See doctrine. The agency of PAL stems
principal has had reasonable opportunity to take the from the provision in the ticket that states that:
necessary steps to meet the situation. “4. x x x carriage to be performed hereunder by
several successive carriers is regarded as a single
R:
Note that during the carrying-out of the agency, the agent is operation.”
expected to exercise the degree of care and skill that is and from their membership in the International Air
reasonable under the circumstances. Transport Association, where they regard each other as
agents in the issuance of tickets.
Instance when an agent may opt not to carry out an Since Mahtani’s action is for breach of contract, it can only
agency sue BA. BA’s recourse (3rd party complaint) is just proper
When the execution of such would manifestly result in in order to avoid multiplicity of suits.
loss/damage to the principal.
ADVANCE FUNDS
When is an agent liable for damages to the principal? Article 1886
1. In cases of non-performance of tasks that causes Should there be a stipulation that the agent shall advance the
damage to the principal; or necessary funds, he shall be bound to do so except when the
2. In cases of negligence in the performance of tasks that principal is insolvent.
causes damage to the principal.34
General Rule:
Notes: It is the principal who advances funds necessary for the
“Business already begun” and “danger” are ambiguous. agency.
(Recall the example of an agent being able to sell 5 out of
An agent is bound to advance funds for the agency only if:
10 cars before the principal died.) The book interprets these
terms to mean that the agent must continue pending duties 1. There is a stipulation that the agent must advance
upon the principal’s death if non-continuation will result in funds; and
economic prejudice to the principal’s interest. 2. The principal is solvent.
The duties should be continued only to the extent that

economic prejudice is avoided. NOT TO CARRY OUT THE AGENCY
Article 1885
In case a person declines an agency, 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
34 BRITISH AIRWAYS V CA latter should appoint an agent or take charge of the goods.
_______________________________________________________________
registration and Sec. 38 of Land Reg Act
Article 1888 WON Guillermo has acquired a valid title over the
I:
An agent shall not carry out an agency if its execution would property.
manifestly result in loss or damage to the principal. NO. The current action is actually to compel the agent to
return the properties to the principal. This is due to the
LOYALTY fact that Guillermo never acquired title over the
R:
Article 1889
properties. See doctrine. This is bolstered by the fact that
he admitted in open court in Montelibano v Severino that
The agent shall be liable for damages if, there being a conflict
he was an administrator of the properties in question.
between his interests and those of the principal, he should prefer
his own.
AS TO DOUBLE SALES
If the agent has been empowered to borrow money, he may When two persons contract with regard to the same thing, one of
himself be the lender at the current rate of interest. If he has been them with the agent and the other with the principal, and the two
authorized to lend money at interest, he cannot borrow it contracts are incompatible with each other, that of prior date
without the consent of the principal. shall be preferred, without prejudice to the provisions of Article
1544.
Article 1491 (2)
The following persons cannot acquire by purchase, even at a Article 1917
public or judicial auction, either in person or through the In the case referred to in the preceding article, if the agent has
mediation of another: acted in good faith, the principal shall be liable in damages to the
third person whose contract must be rejected. If the agent acted
(2) Agents, the property whose administration or sale may have in bad faith, he alone shall be responsible.
been entrusted to them, unless the consent of the principal has
been given; Article 1544
If the same thing should have been sold to different vendees, the
IN GENERAL ownership shall be transferred to the person who may have first
Because agency is a fiduciary relationship, the agent is taken possession thereof in good faith, if it should be movable
bound to uphold the principal’s interests over his/her own, property.
in case a conflict of interest arises. Otherwise, the agent will Should it be immovable property, the ownership shall belong to
be liable for damages. the person acquiring it who in good faith first recorded it in the
Registry of Property.
Note: This provision does not say whether the agency
dissolves or the contract becomes invalid if the agent Should there be no inscription, the ownership shall pertain to the
prefers his own interest. person who in good faith was first in the possession; and, in the
absence thereof, to the person who presents the oldest title,
AS TO PROPERTY ADMINISTERED provided there is good faith.
Rules on purchase of principal’s property: Recap on rules on Double Sales:

G.R.: An agent entrusted with the administration/sale of a Immovable Properties:
property may not purchase it: - First to acquire it and register in good faith; then
§ Personally or through another person; - First to possess in good faith; then
§ Directly, at a public or judicial auction. - Oldest title in good faith.
E: If the principal has consented, there is nothing to Movable Properties:
stop the agent from buying the former’s property - First in possession in good faith.
Rationale: Requisites of applicability of Art. 1916
Agents are barred from acquiring their principals’ property 1. 2 contracts pertaining to the same thing;
because greed might induce them to carry out the agency 2. One of the party is the agent and the other is the
with ulterior motives. principal; and
3. 2 contracts are incompatible with each other.
The agent’s incapacity to buy his principal’s property rests in
the fact that the agent and the principal form one juridical Note:
person.35 Article 1544 has precedence over Article 1916. Thus, Article
SEVERINO V SEVERINO (1923) 1916 only takes effect if:
A G E N T I S N O T O N L Y E S T O P P E D F R O M D E N Y I N G 1. None of the buyers gained possession over the movable;
T H E P R I N C I P A L ’ S T I T L E B U T A L S O D I S A B L E D F R O M or
A C Q U I R I N G A N Y I N T E R E S T T H E R E I N A D V E R S E T O 2. None of the buyers recorded/possessed/had title over
T H E P R I N C I P A L D U R I N G T H E P E R I O D O F A G E N C Y the immovable.
Brother died, so Guillermo (agent and administrator) took Effect of agent’s good/bad faith in this situation:
F:
possession of land and registered it. Defense: Good Faith - Good faith: Principal is liable for damages to the
person covered by the rejected contract.
35 ARANETA, INC. V DE PATERNO
_______________________________________________________________
- Bad faith: Agent is liable to the third person, as well as When will Art. 1891 be inapplicable?38
to the principal based on Article 1889. 1. If the agent/broker acted only as a middleman with the
task of merely bringing together the vendor and vendee,
LEND TO / BORROW MONEY FROM THE AGENCY
who themselves thereafter will negotiate on the terms
RULE and conditions of the transactionl;
IF AUTHORIZED TO Agent may be the lender at the a. A middleman is an agent of both parties, or an agent
BORROW current rate of interest. of neither of them.
IF AUTHORIZED TO Agent cannot borrow without 2. If the agent/broker had informed the principal of the gift
LEND AT INTEREST consent. or bonus he received from the purchaser and his
Notes: principal did not object.
The rationale for the consent requisite for the agent to be
the borrower at interest is that there is a possibility that the MURAO V PEOPLE (2005)
agent will be a bad debtor, creating a conflict of interest. A L L P R O F I T S M A D E A N D A N Y A D V A N T A G E G A I N E D
B Y A N A G E N T I N T H E E X E C U T I O N O F H I S A G E N C Y
Even if agent is authorized to borrow money at a higher S H O U L D B E L O N G T O T H E P R I N C I P A L .
interest rate, he may only lend to the agency at the current Murao = Sole proprietor of LMICE
interest rate. Federico = Sales agent of fire extinguishers
Sir: What if the principal authorized the agent to lend Federico did not comply with the requirements for a
without interest? Maybe, one can argue that the intention of Dealership Agreement (50% disc.) so there was an issue
as to the amount of the commission. Company: 25%
the law is to protect the principal from a malicious agent. F:
usually for part-time agents.
And since the law prohibits lending at interest, which is an Federico entered into a transaction with Puerto Princesa,
onerous obligation, what more for a gratuitous obligation? where the latter paid directly to Huertazuela (Bank branch
manager). Federico asked for commission, but the bank
ACCOUNT/DELIVER refused, thus this estafa case.
Article 1891 I: WON Murao and Huertazuela are guilty of estafa
Every agent is bound to render an account of his transactions NO. Both elements of estafa are missing. A right to
AND to deliver to the principal whatever he may have received by commission does not make one an owner of the proceeds
virtue of the agency, even though it may not be owing to the but merely establishes a relationship between agent and
principal. principal. See doctrine. Since LMICE is the lawful owner of
the entire proceeds, then the petitioners who collected the
Every stipulation exempting the agent from the obligation to
payment on behalf of LMICE did not receive the same in
render an account shall be VOID. R:
trust, thus, the RTC correctly found that no fiduciary
relationship existed between petitioners and private
The law imposes upon the agent the absolute obligation to complainant Federico. A fiduciary relationship between
make a full disclosure or complete account to his principal the complainant and the accused is an essential element
of all his transactions and other material facts relevant to of estafa by misappropriation or conversion, without which
the agency, so much so that the law as amended does not the accused could not have committed estafa.
countenance any stipulation exempting the agent from
such an obligation and considers such an exemption as
DOMINGO V DOMINGO (1971)
void. 36 A N A G E N T M U S T H A V E U T M O S T G O O D F A I T H ,
OBLIGATIONS OF AN AGENT IN EVERY TRANSACTION: F I D E L I T Y , H O N E S T Y , A N D C A N D O R T O H I S / H E R
1. Render an account of the transactions; P R I N C I P A L .

2. Deliver to the principal whatever is received by virtue of
T H E A G E N T W H O T A K E S A S E C R E T P R O F I T I N T H E
the agency N A T U R E O F A B O N U S , G R A T U I T Y , O R P E R S O N A L
a. Regardless of relationship of object to principal B E N E F I T F R O M T H E V E N D E E , W I T H O U T R E V E A L I N G
Rationale: I T T O T H E P R I N C I P A L I S G U I L T Y O F B R E A C H O F H I S
L O Y A L T Y A N D F O R F E I T S H I S R I G H T T O A N Y
The goal of this provision is to prevent agents from
C O M M I S S I O N .
soliciting or accepting gifts from third persons, since they
will be legally required to give said gifts to the principal The principal authorized the agent to sell his lot. The
anyway. agent accepted a P1k gift from the buyer because the
F: former was successful in convincing his principal to agree
The law demands the utmost good faith, fidelity, honesty, to a lower selling price. The agent did not disclose this
candor and fairness on the part of the agent to his secret gift to his principal.
principal.37 I: Is the agent entitled to commissions?
NO. See doctrines. Ma’am: Isn’t the fact of giving a gift an
R: act of creating an agency relationship between Gregorio
and de Leon + conflict of interest?
36 DOMINGO V. DOMINGO (1971)

37 38
Id. Id. citing AmJur
_______________________________________________________________
PAY INTEREST Article 1904
Article 1896 The commission agent who handles goods of the same kind and
The agent owes interest on the sums he has applied to his own mark, which belong to different owners, shall distinguish them by
use from the day on which he did so, and on those which he still countermarks, and designate the merchandise respectively
owes after the extinguishment of the agency. belonging to each principal.
When is Art. 1896 applicable? Article 1905

The commission agent cannot, without the express or implied
The rule on Article 1890 must first be complied with consent of the principal, sell on credit. Should he do so, the
(consent of the principal is required in order for the agent to principal may demand from him payment in cash, but the
borrow money lent by the principal at interest). commission agent shall be entitled to any interest or benefit, which
may result from such sale.
Note:
If the agent uses agency funds for personal use without Article 1906
authorization, s/he can be compelled to pay interest, as Should the commission agent, with authority of the principal, sell
well as other penalties arising from acting without on credit, he shall so inform the principal, with a statement of the
names of the buyers. Should he fail to do so, the sale shall be
authorization.
deemed to have been made for cash insofar as the principal is
Instances when agent is liable to pay interest concerned.
1. Personal use of funds of the principal; or Article 1907
2. There are funds of the principal remaining with the Should the commission agent receive on a sale, in addition to the
agent after the extinguishment of the agency. ordinary commission, another called a guarantee commission, he
shall bear the risk of collection and shall pay the principal the
RESPONSIBILTY FOR FRAUD & NEGLIGENCE proceeds of the sale on the same terms agreed upon with the
purchaser.
Article 1909
The agent is responsible not only for fraud, but also for Article 1908
negligence, which shall be judged with more or less rigor by the The commission agent who does not collect the credits of his
courts, according to whether the agency was or was not for a principal at the time when they become due and demandable
compensation. shall be liable for damages, unless he proves that he exercised due
diligence for that purpose.
Notes:
The code is silent with respect to whom the agent is liabile. Commission Agents
It may either be to the principal or to third persons. Their business must be completely about possessing goods
Compensation is an important factor for determining the and selling them for commission.
severity of liability. If the agent acted for compensation, They are also known as “factor” or “commission merchants”
s/he may be required to pay more damages.
What is a guarantee commission?
METROBANK V CA (1991) It is one where, in consideration of an increased
A N A G E N T I S P R E V E N T E D F R O M R E C O V E R I N G commission, the factor or commission agent guarantees to
F R O M I T S P R I N C I P A L I F T H E D A M A G E W A S C A U S E D
the principal the payment of debts arising through his
B Y I T S O W N N E G L I G E N C E .
agency. The purpose of such is to compensate the agent for
Gomez opened an account with GS and deposited 38 the risks he will have to bear in the collection of the credit
treasury warrants (P1.75M). Gloria (GS’ casier) deposited it due to the principal.39
to Metrobank. Because of repeated inquiries by Gloria,
F:
Metrobank allowed GS to withdraw thrice (even before Obligations of Commission Agents
clearing). GS allowed in turn Gomez to withdraw. TWs 1. To be responsible for goods received;
were dishonoured. a. If they receive damaged goods, they should make a
I: Is GS liable to Metrobank?
written statement detailing such damage;
NO. Metrobank was extraordinarily careless in allowing
the withdrawal. The reason for the withdrawal was very
2. To properly segregate goods of the same kind and mark
R: that belong to different owners;
naïve (exasperation and also presumption of being
cleared after a week) 3. Not to sell on credit unless the principal consents;
4. If he validly sells on credit, to inform the consenting
SPECIFIC OBLIGATIONS OF COMMISSION principal with a statement of the names of buyers;
AGENTS 5. To bear the risk of collection and pay the principal the
Article 1903 proceeds of the sale if s/he receives a guarantee
The commission agent shall be responsible for the goods commission on top of his/her ordinary commission.
received by him in the terms and conditions and as described in
the consignment, unless upon receiving them he should make a
written statement of the damage and deterioration suffered by the
same.
39
De Leon citing Mechem
_______________________________________________________________
Liability of Commission Agents 3. Incompetence/insolvency is proven by history or
Commission agents are liable to the principal for damages record of failures in previous business ventures
arising from the non-collection of due and demandable similar to what he was appointed to as substitute.
credits.
VALIDITY OF ACTS OF SUBSTITUTE
- Unless the agent exercised due diligence.
VOID If principal prohibits appointment of substitute.
RESPONSIBILITY FOR ACTS OF VALID 1. Principal knows of substitution, but fails to
SUBSTITUTES repudiate agency (implied agency is
established).
Article 1892
2. Principal gives agent power to appoint
The agent may appoint a substitute if the principal has not
prohibited him from doing so; but he shall be responsible for the substitute.
acts of the substitute:
(1) When he was not given the power to appoint one;
(2) When he was given such power, but without designating the SUBSTITUTE AGENT: ALTERNATE NOT DELEGATE
person, and the person appointed was notoriously Substitute is agent of the principal; not agent of the agent.
incompetent or insolvent.
It is a designation of an alternate, NOT a delegation of the
All acts of the substitute appointed against the prohibition of agency.
the principal shall be VOID.
INTERNATIONAL FIRMS V LYRIC FILM (1936)
Article 1893 International leased a film to Lyric through International’s
In the cases mentioned in Nos. 1 and 2 of the preceding article, agent, Gabelman, for showing. After the exhibition it was
the principal may furthermore bring an action against the leased for, Albo, chief of film of Lyric asked where he could
substitute with respect to the obligations which the latter has return it. Because International did not have a safety vault,
contracted under the substitution Gabelman asked if the film could be deposited in Lyric’s
vault. Gabelman was informed that the film cannot be
What is a sub-agent? stored by Lyric because the latter’s insurance cannot cover
A sub-agent is a person employed or appointed by an agent F: it. O’Malley, Albo’s boss, and Gabelman entered into a
as his agent, to assis him in the performance of an act for verbal agreement whereby Lyric may exhibit the film
the principal which the agent has been empowered to elsewhere and the former agreed that the film may be
perform.40 stored in Lyric’s vault. Gabelman is replaced by Joseph,
who asked for the return of the film. But that could not be
SUMMARY OF RULES: done because it was about to be exhibited in Cebu. Before
PROHIBITED NOT AUTHORIZED it could have been shown, the bodega of Lyric burned
PROHIBIT
down.
VALIDITY OF Invalid Valid Valid
SUBSTITUTION
WON Lyric is responsible to International for the
I:
IS THE AGENT Yes Yes Only if: destruction by fire of the film "Monte Carlo Madness".
LIABLE? 1. There is no one NO. The verbal contract had between Bernard Gabelman
designated; and and Vicente Albo was a sub-agency or a submandate. The
2. The substitute was defendant company is not civilly liable for the destruction
notoriously incompetent by fire of the film in question because as a mere
or insolvent submandatary or subagent, it was not obliged to fulfill
ACTS OF THE Void Valid Valid more than the contents of the mandate and to answer for
SUBSTITUTE the damages caused to the principal by his failure to do
R:
so.
WHEN ALLOWED The fact that the film was not insured against fire does not
Law presumes that agent is allowed to appoint a substitute constitute fraud or negligence on the part of the
unless principal has prohibited agent from doing so. defendant company, the Lyric Film Exchange, Inc.,
because as a subagent, it received no instruction to that
RESPONSIBILITY FOR ACTS OF SUBSTITUTE effect from its principal and the insurance of the film does
G.R.: Principal is responsible for acts of substitute if the not form a part of the obligation imposed upon it by law.
agent validly appoints a substitute, according to the
authorization. BALTAZAR V OMBUDSMAN (2006)
E: Agent is responsible for acts of substitute if: A N A G E N T C A N N O T D E L E G A T E T O A N O T H E R T H E
1. Agent appoints substitute although “he was not S A M E A G E N C Y . A R E -‐ D E L E G A T I O N O F T H E A G E N C Y
W O U L D B E D E T R I M E N T A L T O T H E P R I N C I P A L A S
given power to appoint”;
T H E S E C O N D A G E N T H A S N O P R I V I T Y O F
a. Meaning agent is not expressly provided
C O N T R A C T W I T H T H E F O R M E R .
authority to appoint.
2. Agent is given power to appoint without By virtue of a SPA, Baltazar, alleged nephew of Mercado,
designating a person, yet agent appoints someone who is in turn an agent/atty-in-fact of fishpond owner
F: Regala, filed a criminal complaint vs respondents w/
notoriously incompetent or insolvent; or
Ombudsman for violation of RA 3019 in relation to an
agrarian case involving said fishpond.
40
De Leon I: WoN Baltazar was authorized to institute the criminal
_______________________________________________________________
case Instances where an agent is personally liable to the
NO. See Doctrine. The legal maxim potestas delegata non principal:
delegare potest (a power once delegated cannot be re-
1. For damages due to fraud or negligence;
delegated), while applied primarily in political law to the
exercise of legislative power, is a principle of agency. In
2. When the the agent exceeds his authority and the
R: principal has given his apparent authority on such act.
this case, Baltazar has no privity of contract with Regala,
owner of the fishpond and principal of Mercado. Also,
what is allowed under Art. 1892 is the substitution of an AGENT ACTING WITHIN THE SCOPE OF
agent, and not the delegation. AUTHORITY
Article 1899
If a duly authorized agent acts in accordance with the orders of
SERONA V PEOPLE (2002) the principal, the latter cannot set up the ignorance of the agent
Quilatan delivered jewelry to Serona so that the latter can as to circumstances whereof he himself was, or ought to have
sell them and get commission. Serona in turn delivered been, aware.
F: them to Labrador to sell on a commission basis. Labrador
was not able to pay so Serona was not also able to pay Article 1900
Quilatan. Serona was convicted of estafa. So far as third persons are concerned, an act is deemed to have
WON the agent may be held civilly liable for the acts of been performed within the scope of the agent's authority, if such
I: act is within the terms of the power of attorney, AS WRITTEN,
the sub-agent
YES. Quilatan did not prohibit Serona from appointing a even if the agent has in fact exceeded the limits of his authority
R: sub-agent. And according to the rules, the agent is according to an understanding between the principal and the
responsible for the acts of the substitute. agent.
What are acts within the scope of authority?

II. Liability of Agents - Authorized acts under a written/oral power of attorney;
- CAC Acts.
WHEN JOINTLY/SOLIDARILY LIABLE
Remember CAC Acts:
Article 1894
The responsibility of two or more agents, even though they have
- Conducive
been appointed simultaneously, is not solidary, if solidarity has - Advantageous
not been expressly stipulated. - Collateral
Article 1895 Notes:
If solidarity has been agreed upon, each of the agents is Acts of strict dominion (those under Art. 1878) must be
responsible for the non-fulfillment of agency, AND for the fault or expressly authorized by the principal, regardless if they are
negligence of his fellow agents, except in the latter case when the considered CAC acts.
fellow agents acted beyond the scope of their authority.
When there are both written and oral authorizations, only
Rules on Joint/Solidary Liability: the written authorizations shall bind 3rd persons.
G.R.: Two or more agents are jointly liable to the principal
for non-fulfillment of the agency or for any injury Article 1900 talks about an instance when the principal
resulting from fault or negligence. gave oral instructions/authority to the agent.
E: The agents are solidarily liable if solidarity is It is not applicable when the third person dealing with the
expressly stipulated or agreed upon for: agent is aware of the unwritten understanding between the
§ Non-fulfillment of agency; or principal and the agent.
§ Fault/Negligence of fellow agents.
The principal and the agent may both be held liable for a
EE: If the act constituting fault/negligence were made tort committed by an agent within the scope of his
beyond their scope of authority. authority.41
WHEN AGENT IS PERSONALLY LIABLE AUTHORITY OF CORPORATE OFFICERS
Rule on personal liability of agents to 3rd parties: Restatement of the rules on acts of corporate officers:
G.R.: An agent is not personally liable to the third party A corporate officer’s acts are considered binding under the
when he/she acts within his/her scope of authority. following instances:
E: If any of the conditions exist: - A written authorization in the form of a Board
1. Agent expressly binds him/herself; Resolution.42
2. Agent acted beyond the scope of his/her - A corporate officer authorized to act for the
authority; or corporation, as provided for in the Articles of
3. Agent was unable to secure principal’s Incorporation/By-Laws.43
ratification, with both the agent and 3rd party
knowing agent’s limitation. 41
De Leon
42 AF REALTY V DIESELMAN
43 LITONJUA V ETERNIT
_______________________________________________________________
- If the corporate officer is44: I: WON there was a valid contract of sale
o Intrusted with the general management and control; NO. A corporation is a juridical person separate & distinct
and from its stockholders/mems. Accordingly, its property is
o The act done is necessary/appropriate to the conduct R: not the property of its stockholders/mems & may not be
sold by the latter without express authorization from the
of the ordinary business of the corporation.
corporation’s board of directors.
- Authorized acts include powers that are45:
o Incidental to, or may be implied from, the powers
intentionally conferred; FRANCISCO V GSIS (1963)
o Added by custom and usage, as usually pertaining to I F A P R I V A T E C O R P O R A T I O N I N T E N T I O N A L L Y O R
the particular officer or agent; N E G L I G E N T L Y C L O T H E S I T S O F F I C E R S O R A G E N T S
o Apparent powers as the corporation has caused third W I T H A P P A R E N T P O W E R T O P E R F O R M A C T S F O R I T ,
persons to believe that it has been conferred. T H E C O R P O R A T I O N W I L L B E E S T O P P E D T O D E N Y
- Acts done under an apparent authority46. T H A T S U C H A P P A R E N T A U T H O R I T Y I S R E A L , A S T O
I N N O C E N T T H I R D P E R S O N S D E A L I N G I N G O O D F A I T H
W I T H S U C H O F F I C E R S O R A G E N T S .
BOARD OF LIQUIDATORS V HEIRS OF KALAW (1967) After failing to pay a loan, plaintiff Francisco’s mortgaged
A C O R P O R A T E O F F I C E R I N T R U S T E D W I T H T H E property was foreclosed by respondent GSIS. Plaintiff’s
G E N E R A L M A N A G E M E N T A N D C O N T R O L O F I T S father proposed that he would answer for part of the
B U S I N E S S H A S I M P L I E D A U T H O R I T Y T O M A K E A N Y balance, and the rest would be collected by GSIS from the
C O N T R A C T O R D O A N Y A C T W H I C H I S N E C E S S A R Y occupants of the mortgaged property. GSIS accepted in a
O R A P P R O P R I A T E T O T H E C O N D U C T O F T H E F:
telegram. After remitting payments for 4 months,
O R D I N A R Y B U S I N E S S O F T H E C O R P O R A T I O N . however, GSIS insisted that the telegram did not fully
Because of typhoons, Kalaw wanted a board approval of communicate the Board’s decision, which was to accept if
its contracts, as they would be unprofitable for the Francisco would answer for the expenses of the
corporation. Only on the 2nd meeting did the corporation foreclosure.
F: Whether the compromise offered by Atty. Francisco was
approved. Because of partial performance, several buyers I:
threatened to sue (some settled some filed). Settlement: validly accepted by, and was thus binding upon, GSIS
P1.3M. Board sued Kalaw for the settled amounts. YES. Nothing in the telegram hinted at any anomaly or
WON Kalaw had authority to enter into the contracts gave ground to suspect its validity, so the plaintiff cannot
I: be blamed for relying upon it. The offer had been validly
without board approval.
YES. See doctrine. The acts were incidental to his office R: accepted, since notice to the officer/agent of the
R: and also, he was historically allowed to act in such corporation is notice to the corporation. GSIS’ silence and
manner. receipt of the remittances only served to ratify its
acceptance of the proposal.
Not really an exception to the general rule. There was
SIR:
SAN JUAN V CA (1998) ratification in this case (Implied Authority).
A C O R P O R A T E O F F I C E R / A G E N T M A Y R E P R E S E N T
A N D B I N D T H E C O R P O R A T I O N I N T R A N S A C T I O N S
RD
W I T H 3 P E R S O N S T O T H E E X T E N T T H A T T H E AGENT ACTING OUTSIDE THE SCOPE OF
A U T H O R I T Y T O D O S O H A S B E E N C O N F E R R E D AUTHORITY
U P O N H I M , A N D T H I S I N C L U D E S :
Article 1897
( " ) P O W E R S W H I C H H A V E B E E N I N T E N T I O N A L L Y The agent who acts as such is not personally liable to the party
C O N F E R R E D , A N D A L S O S U C H P O W E R S A S , I N with whom he contracts, unless he expressly binds himself OR
T H E U S U A L C O U R S E O F T H E P A R T I C U L A R exceeds the limits of his authority without giving such party
B U S I N E S S , A R E I N C I D E N T A L T O , O R M A Y B E sufficient notice of his powers.
I M P L I E D F R O M , T H E P O W E R S I N T E N T I O N A L L Y
C O N F E R R E D ; Article 1898
( " ) P O W E R S A D D E D B Y C U S T O M A N D U S A G E , A S If the agent contracts in the name of the principal, exceeding
U S U A L L Y P E R T A I N I N G T O T H E P A R T I C U L A R the scope of his authority, and the principal does not ratify the
contract, it shall be VOID if the party with whom the agent
O F F I C E R O R A G E N T ; A N D
contracted is aware of the limits of the powers granted by the
( " ) S U C H A P P A R E N T P O W E R S A S T H E
principal. In this case, however, the agent is liable if he undertook
C O R P O R A T I O N H A S C A U S E D P E R S O N S D E A L I N G to secure the principal's ratification.
W I T H T H E O F F I C E R O R A G E N T T O B E L I E V E T H A T
I T H A S C O N F E R R E D . Article 1911
P entered into a sale agreement of a parcel of land with Even when the agent has exceeded his authority, the principal is
Nenita (Treasurer and 99% owner of Motorich). Sale did solidarily liable with the agent if the former allowed the latter to
F: act as though he had full powers.
not push through. P wants to compel Motorich to sell the
land to them. Article 1901
A third person cannot set up the fact that the agent has
44 BOARD OF LIQUIDATORS V HEIRS OF KALAW exceeded his powers, if the principal has ratified, or has signified
45 SAN JUAN V CA his willingness to ratify the agent's acts.
46 FRANCISCO V GSIS OR PHILREALTY V LEY
_______________________________________________________________
Article 1902 WON the Keeler rule (that the 3rd person must inquire)
A third person with whom the agent wishes to contract on I: applies only if the principal is the one being
behalf of the principal may require the presentation of the power sought to be held liable.
of attorney, or the instructions as regards the agency. Private or YES. Here, the Agent (NAMERCO) is the one being sued.
secret orders and instructions of the principal do not prejudice In any case, NAMERCO was held liable for damages under
third persons who have relied upon the power of attorney or 1897 which requires that (1) the agent exceeds his
instructions shown them. authority and (2) w/o giving sufficient notice to 3rd
R: persons. In fact, even before the contract was signed,
Expressly binds himself NAMERCO was awwared that ICC was having trouble
“Agent expressly binds himself” does not mean that principal booking shipping space and that ICC sent a cable
is not bound by the contract anymore. telegram instructing it to "sign only if it is willing to
assume sole responsibility."
In excess of authority
There are 2 possible results of such transactions:
- Unenforceable PHIL. PRODUCTS CO. V PRIMATERIA (1965)
T H E L I A B I L I T Y O F T H E A G E N T I S N E C E S S A R I L Y
o Remember that acts done in excess of authority are
P R E M I S E D O N T H E I N A B I L I T Y T O S U E T H E
unenforceable against the principal. P R I N C I P A L O R N O N -‐ L I A B I L I T Y O F S U C H
o Article 1897 provides a remedy to the third person by P R I N C I P A L .
making the agent personally liable instead.
o Article 1898 also provides another remedy to third Primateria Zurich, a foreign juridical entity, entered into an
agreement with Phil Products to buy copra in the
persons when the agent undertook to secure the Philippines thru its agents Alexander Baylin, Jose Crame,
principal’s ratification and failed. F: and Primateria Philippines (of which the agents were
- Void officers). They defaulted on their dues in the amount of
o The following are the requisites of a VOID P31k. The CFI ruled that Primateria Zurich was liable, but
transaction: absolved its agents.
1. Agent contracts in the name of the principal; WON Primateria Zurich’s agents may be held personally
2. Agent exceeds the scope of authority; I: liable for contracts transacted with 3rd persons in the
3. The third person was aware of such limitation; Philippines.
and NO. There is no proof that, as agents, they exceeded the
limits of their authority. In fact, the principal-Primateria
4. The principal does not ratify.
Zurich-who should be the one to raise the point, never
raised it, denied its liability on the ground of excess of
R:
WHEN PRINCIPAL IS ESTOPPED WITH THE AGENT authority. At any rate, the article does not hold that in
AGAINST 3RD PARTIES cases of excess of authority, both the agent and the
principal are liable to the other contracting party. See
Requisites to hold both principal and agent solidarily doctrine.
liable under Article 1911:
1. An agency relationship exists; DBP V CA (1994)
2. The agent acts in excess of authority; and T H E L I A B I L I T Y O F A N A G E N T W H O E X C E E D S T H E
3. The principal allowed the agent to act as though he had S C O P E O F H I S A U T H O R I T Y D E P E N D S U P O N
full powers. W H E T H E R T H E T H I R D P E R S O N I S A W A R E O F T H E
L I M I T S O F T H E A G E N T ’ S P O W E R S .
Notes:
This form of estoppel talks about an act of the agent that Dans applied for a loan with DBP. Considering his age
was beyond his/her authority that was allowed by the (76), DBP compelled him to obtain insurance with the
DBP MRI Pool. DBP handled Dans’ insurance and had him
principal, not about the actual agency relationship (which is
sign and submit an app form and health statement.
not in question anymore). Furthermore, DBP charged the premium against the loan
- This rule does not apply to agencies created by F:
he obtained. Dans died quickly after, but his family quickly
estoppel. learned that his insurance was not accepted by the MRI
Pool because he was over the age limit of 60 years old.
His Estate then filed for money and damages against both
NPC V NATIONAL MERCHANDISING (1982) DBP and DBP MRI Pool.
V A L I D E X C E P T I O N T O T H E D U T Y T O I N Q U I R E : I: WON DBP is liable against Dans’ estate for its acts.
RD
I F T H E 3 P E R S O N I S G O I N G A F T E R T H E A G E N T YES. Under Art. 1897 of CC, an agent is personally liable if
A N D N O T T H E P R I N C I P A L . he exceeds the limits of his authority without giving such
NPC bought 4k long tons of sulfur from ICC thru party sufficient notice of his powers. In this case, DBP
NAMERCO as agent. The contract was to deliver within 60 R: acted as an insurance agent for MRI Pool when it handled
days, or else ICC would be liable for damages. NAMERCO the application process of Dans. It then exceeded its
F: failed to deliver so NPC sued ICC and NAMERCO for authority by letting Dans apply despite full knowledge
damages. NAMERCO argued that NPC should have been that he was over the age limit.
put into inquiry and should have discovered at his own
peril the authority of the agent.
_______________________________________________________________
CERVANTES V CA (1999) VERSOZA V LIM (1923)
Cervantes was issued a round trip plane ticket by PAL for The steamship Ban Yek collided with the Perla, another
Manila-Honolulu-Los Angeles-Honolulu-Manila valid for 1 vessel. The owner and shipping agent of the Perla filed
F:
year from its date of issuance. 4 days before its expiration, suit against the owner and shipping agent of the Ban Yek
Cervantes used it and upon arrival to LA on the same day, for their tortious liability.
he immediately booked his return ticket & it was I: WON the shipping agent is solidarily liable with the owner
confirmed by 2 PAL employees for a flight beyond the one YES. The Court held that under the Spanish Code of
F:
year validity period of the ticket. He made arrangements Commerce where the term naviero meant owner or agent.
w/ PAL for him to board in San Francisco, instead of in LA. Also, the solidary liability of the agent was also present in
R:
On the day of the trip, he was barred from boarding, the Civil Code. Lastly, the tortious act which was the
hence this suit. He contends that the act of confirmation source of obligation negated the joint liability of the
by the 2 PAL employees operated to extend the validity of obligors under 1137 of the Civil Code.
his ticket.
WON the act of the two PAL agents in confirming subject
I: COUNTRY BANKERS V KEPPEL (2012)
ticket extended the period of validity of Cervantes' ticket
NO. Under Article 1898 of the NCC, the acts of an agent R A T I F I C A T I O N I N A G E N C Y I S T H E A D O P T I O N O R
beyond the scope of his authority do not bind the C O N F I R M A T I O N B Y O N E P E R S O N O F A N A C T
principal, unless the latter ratifies the same expressly or P E R F O R M E D O N H I S B E H A L F B Y A N O T H E R
impliedly. Furthermore, when the third person (herein W I T H O U T A U T H O R I T Y .
petitioner) knows that the agent was acting beyond his
R:
power or authority, the principal cannot be held liable for F O R O N E T O S U C C E S S F U L L Y C L A I M T H E B E N E F I T
the acts of the agent. If the said third person is aware of O F E S T O P P E L O N T H E G R O U N D T H A T H E H A S B E E N
such limits of authority, he is to blame, and is not entitled M I S L E D B Y T H E R E P R E S E N T A T I O N S O F A N O T H E R ,
to recover damages from the agent, unless the latter H E M U S T S H O W T H A T H E W A S N O T M I S L E D
undertook to secure the principal’s ratification. T H R O U G H H I S O W N W A N T O F R E A S O N A B L E C A R E
A N D C I R C U M S P E C T I O N .
BACALTOS COAL MINES V CA (1995) Unimarine contracted Keppel for dry docking and ship
E V E R Y P E R S O N D E A L I N G W I T H A N A G E N T I S P U T repair. Unimarine failed to pay so Keppel ran after the
U P O N I N Q U I R Y A N D M U S T D I S C O V E R U P O N H I S F: former’s surety (CBIC and Plaridel). CBIC alleged that the
P E R I L T H E A U T H O R I T Y O F T H E A G E N T . I F H E D O E S surety bond was issued by its agent, Quinain, in excess of
N O T M A K E S U C H I N Q U I R Y , H E I S C H A R G E A B L E W I T H his authority, based on the SPA.
K N O W L E D G E O F T H E A G E N T ' S A U T H O R I T Y , A N D H I S WON CBIC is estopped as to the reliance of 3rd persons
I:
I G N O R A N C E O F T H A T A U T H O R I T Y W I L L N O T B E A N Y on Quinain’s representation.
E X C U S E .
NO. First, the limits of the agent were clearly indicated in
the SPA. He can only transact with DPWH, the NPC and
Savellon was the COO of Bacaltos Coal Mines, which was other government agencies. Furthermore, the amount of
owned by German Bacaltos. BCM authorized Savellon "to the surety bond is limited to P500,000. Second, CBIC
acquire purchase orders, engage in trading, collect R: cannot be deemed to have ratified Quinain’s acts, as it did
receivables, substitute, and to execute and sign not have any knowledge of the material facts relating to
documents in connection with the other paragraphs" in the unauthorized acts of Quinain. Third, there is no
F:
the Coal Operating Contract. Savellon entered into a "Trip estoppel as well as there was no representation by CBIC
Charter Party Agreement" with SMC wherein the former that Quinain had authority to engage in such transactions.
will provide for 3 round trips to Davao. Only 1 trip was
made so SMC sued both Savellon and BCM for SP +
damages. AGENT ACTING IN HIS OWN NAME
WON Savellon (agent) had authority to enter into the Trip
Charter Agreement; Article 1883 (MUST BE MEMORIZED)
I: If an agent acts in his own name, the principal has no right of
What is the Degree of Diligence req'd for the 3rd person in
ascertaining the authority of the agent? action against the persons with whom the agent has contracted;
neither have such persons against the principal.
(1) NO, SAVELLON HAD NO AUTHORITY. (2) BCM IS
NOT LIABLE, (3) SMC IS NEGLIGENT. Had SMC (the 3rd In such case the agent is the one directly bound in favor of the
person here) exercised due diligence and prudence, it person with whom he has contracted, as if the transaction were
would have known that there is absolutely nothing on the his own, except when the contract involves things belonging to
R: Coal Operating Contract which authorized Savellon to the principal.
enter into Trip Charter Agreements. All powers given to The provisions of this article shall be understood to be without
Savellon must be germane to the Coal Operating prejudice to the actions between the principal and agent.
Contract. Moreover, SMC is also negligent for not
requiring proof of ownership of the vessel. “Acting in his own name”
THIS IS A BORDERLINE CASE BECAUSE THE SC SEEMS TO IMPLY THAT
- The agent does not disclose his/her identity as an
DUE DILIGENCE IMPLIES THAT THE PARTIES KNOW THE PROPER
SIR: agent (secret agent lol).
CONSTRUCTION OF ALL CONTRACTS. TAKE NOTE THAT, IN THIS
CASE, SMC HAS AN ENTIRE BATTALION OF LAWYERS. - Third persons believe that they are contracting with the
agent in the latter’s personal capacity.
- Also called an agency with an undisclosed principal.
_______________________________________________________________
Rules on agency with an undisclosed principal cause of action against it.
G.R.: If the agent acts in his own name, the principal has I: WON Jimena has a cause of action against GS Mining.
no right of action against the 3rd person; neither does YES. In transferring the mining claims without disclosing
the real owner, Lincallo effectively acted as Jimena's agent
such 3rd person against the principal.
wrt Jimena's share of the claims. The SC then used the
§ The contract is binding only between the agent and R: 1883 exception (GR: If agent acts in his own name,
the 3rd person. therefore the principal and the 3rd party have no right of
E: If the contract involves things belonging to the action against one another. E: if it involves things
belonging to the principal.)
principal, the contract is binding between the
principal and the 3rd person.
§ The code is silent on whether the 3rd person may ***PNB V AGUDELO (1933)
go after both or either the principal and agent. So T H E P R I N C I P A L I S N O T B O U N D B Y A
he can actually sue both.47 T R A N S A C T I O N , E V E N I F I T I N V O L V E D T H E I R
§ But the code provides for a remedy for the principal P R O P E R T I E S , I N A S M U C H A S T H E A G E N T A C T E D I N
to go after the agent for damages. See Awad v H I S O W N N A M E A N D B E Y O N D T H E S C O P E O F
Filma for illustration of the exercise of such H I S / H E R A U T H O R I T Y .
remedy. Paz and Murcia executed 2 SPAs for Mauro for the latter
EE: If the agent acts outside the scope of his/her to "sell, alienate, mortgage all their real estate." Instead,
Mauro obtained a loan from PNB and secured it with their
authority, the contract is binding only between the real properties. The mortgage deeds did not show any
agent and the 3rd person.48 F:
indication that Mauro was acting in his capacity as agent.
Rationale of Exception: Paz later acknowledged liability for the mortgage on 1 lot.
PNB wanted to apply the exception under 1883 (involves
The exception means that the agent’s representation yields property of principal) to make Paz liable.
to the principal’s true representation, and that, in reality and I: Is Paz as principal liable under the mortgage contracts?
in effect, the contract must be considered as entered into NO. The 1883 exception applies only if the agent acted
between the principal and the third person; and, within the scope of his authority. Else, the principal is not
consequently, if the obligations belong to the former, to him R: bound. When an agent negotiates a loan without express
alone must also belong the rights arising from the authority of his principal, then the principal will not be
contract.49 bound.
This is for the protection of 3rd persons against possible

collusion between the agent and the principal. BEAUMONT V PRIETO (1916)
A R T . 1 8 8 3 D O E S N O T P R E C L U D E T H E T H I R D
Unfair situation fixed by the Agudelo doctrine: P E R S O N F R O M R U N N I N G A F T E R B O T H T H E
It would be unfair to hold a principal liable only because a P R I N C I P A L A N D T H E A G E N T
thing belonging to the principal was involved in the contract Acting as agent of Legarda, Valdes making a formal letter
(in some way) but is not the object of the contract. (e.g. P offering an option to purchase L’s property for three
authorized A to sell his car. A subsequently leases it for 2 months. Borck impleaded Legarda and Valdez and prayed
years to another in his own name. In this case, P should be F: for them to issue documents relative to the property and
bound by the lease) to execute and instrument of conveyance in his favor.
Valdes questioned his being impleaded in the case stating
PNB v Agudelo carved out the exception to the exception (or that there is a misjoinder.
a modification of the exception to the general rule), that in I: WON both the Agent and the Principal may be sued
order to bind the principal in a transaction entered into by
an agent in his own name involving things belonging to the R: YES. See doctrine.
principal, such agent must have been authorized to enter
into the particular transaction.
AWAD V FILMA MERCANTILE CO. (1926)
GOLD STAR MINING V LIM-JIMENA (1968) Awad (Principal) delivered merchandise to Chua (Agent)
There was an agreement between Jimena and Lincallo in order for the latter to sell allegedly on its behalf. Chua,
that the former will advance the purchase price for certain F:
claiming that he owned the goods, sold them to Filma.
mining claims and that the latter will turn over ½ of Awad now asks for the price of the goods from Filma.
proceeds and lands. Instead, Lincallo assigned the mining I: WON Awad has a cause of action against Filma
F: rights to Goldstar without anything being said about NO. The SC dissmissed the claim, since the plaintiff failed
Jimena's share. Lincallo later entered into 3 other to show that Filma knew of the agency relationship and
contracts which paid handsome royalties bc of the mining R: the latter, is therefore in good faith and obtained good
claims. Jimena notified GS of his interests then sued both title to the merchandise. Awad is instead directed to
Lincallo and GS Mining. GS claims that Jimena has no pursue his claims against Chua.
47 BEAUMONT V PRIETO
48 PNB V AGUDELO
49 SYJUCO V SYJUCO (1920)
_______________________________________________________________
Obligations and
his payment to other taxes due Tan’s other clients.
I: WON Peh is liable for the tax.
YES. SC held that Peh was liable for the tax left unpaid
Liabilities of a
since it was proven that Tan was his agent and even if he
R:
was not, Peh deemed to have acquiesced to how his
checks were applied.
Principal COMMERCIAL BANK & TRUST V REPUBLIC ARMORED

I. Obligations of the Principal CAR (1963)
CBTCP granted credit accommodations to Defendant-
1. To comply with obligations to 3rd persons;
Appellants (DA). DA failed to pay. DA claimed that they
2. To advance funds; should be released from liability as the amounts drawn
3. To reimburse agents; F: formed part of the amounts misapplied and
4. To indemnify agents for damages; misappropriated by its former directors and officers as
5. To pay the compensation of agents. part of their scheme to wrest control of various
corporations owned by Damaso Perez.
COMPLY WITH THE OBLIGATIONS I: WON
YES. SC ruled that the mismanagement of the business
AGENT HAS CONTRACTED WITHIN THE SCOPE OF HIS by agents does not relieve the principal of its liability to 3rd
AUTHORITY persons. Under general rules and principles of law the
Article 1910 mismanagement of the business of a party by his agents
R:
The principal must comply with all the obligations which the does not relieve said party from the responsibility that he
agent may have contracted within the scope of his authority. had contracted to third persons, especially in the case at
bar where the written agreement contains no limitation to
As for any obligation wherein the agent has exceeded his power,
defendants-appellants' liability.
the principal is not bound except when he ratifies it expressly or
tacitly.
Article 1881 RATIFIED ACTS

The agent must act within the scope of his authority. He may do Article 1901
such acts as may be conducive to the accomplishment of the A third person cannot set up the fact that the agent has
purpose of the agency. exceeded his powers, if the principal has ratified, or has signified
his willingness to ratify the agent's acts.
Article 1883
If an agent acts in his own name, the principal has no right of Article 1910
action against the persons with whom the agent has contracted; The principal must comply with all the obligations which the
neither have such persons against the principal. agent may have contracted within the scope of his authority.
In such case the agent is the one directly bound in favor of the As for any obligation wherein the agent has exceeded his power,
person with whom he has contracted, as if the transaction were the principal is not bound except when he ratifies it expressly or
his own, except when the contract involves things belonging to tacitly.
the principal.
The provisions of this article shall be understood to be without Definition of Ratification:
prejudice to the actions between the principal and agent. The adoption or confirmation by one person of an act
performed on his behalf by another without authority.
Article 1897
The agent who acts as such is not personally liable to the party Recap on rules on ratification:
with whom he contracts, unless he expressly binds himself OR G.R.: Acts done beyond the scope of authority are not
exceeds the limits of his authority without giving such party binding on the principal.
sufficient notice of his powers.
E: If the act was subsequently ratified (express or
When is a principal bound by the acts of an agent? implied)
The following are the requisites of a valid and binding act of How ratification may be implied
an agent (general rule): If there is an execution of an act that necessarily implies an
1. The agent acted within his authority; and intention to accept the act done beyond the scope of
2. The agent acts in behalf of the principal. authority.
When ratification should be done
DY PEH V CIR (1969) It must be done before the contract entered under an act
A G E N T ’ S A C T S B I N D H I S P R I N C I P A L , W I T H O U T done beyond the scope of an agent’s authority is revoked.
P R E J U D I C E T O T H E L A T T E R S E E K I N G R E C O U R S E
A G A I N S T T H E F O R M E R I N A N A P P R O P R I A T E Notes:
C I V I L / C R I M I N A L A C T I O N . At the time of ratification, the principal must have full
Peh was assessed deficiency tax for alleged anomalies on knowledge of all material facts. Otherwise, there is no
F:
how he paid his taxes. Apparently, his agent, Tan, applied ratification.
_______________________________________________________________
Exception: When the principal is wilfully ignorant, there will ESTOPPED TO DENY
be ratification regardless of lack of knowledge of material **DOMINGO V ROBLES (2005)
facts.50 T H E R E G I S T E R E D O W N E R W H O P L A C E S I N T H E
H A N D S O F A N O T H E R A N E X E C U T E D D O C U M E N T O F
Is the act to be ratified necessary be one that is
T R A N S F E R O F R E G I S T E R E D L A N D E F F E C T I V E L Y
advantageous or for the benefit of the principal?
R E P R E S E N T S T O A T H I R D P A R T Y T H A T T H E H O L D E R
- Ma’am: Definition of agency, yes. But cases do not O F S U C H D O C U M E N T I S A U T H O R I Z E D T O D E A L W I T H
expressly requires such. Purely ratification of acts. T H E P R O P E R T Y .
PRIETO V CA (2012) Norma Domingo wanted to sell the lot owned by her
R A T I F I C A T I O N O R C O N F O R M A T I O N M A Y V A L I D A T E and her husband, w/ Bacani volunteering to act as
A N A C T D O N E I N B E H A L F O F A N O T H E R W I T H O U T her agent. Bacani was able to obtain the original of
A U T H O R I T Y F R O M T H E L A T T E R . T H E E F F E C T I S A S the owner’s duplicate of the TCT and receipts of
I F T H E L A T T E R D I D T H E A C T H I M S E L F . F: payment of real taxes. Norma later found out that the
lot was already sold to Robles, who claimed to have
Marcos and Susan executed a SPA authorizing Antonio to acquired the property from Bacani acting as the
borrow money from Far East, using as collateral their real agent of Norma. Norma sought to have the deed of
property. Antonio and his wife obtained several loans
sale nullified and the property reconveyed to her.
F: (P5M total) from Far East and executed several mortgage I: WON the sale was valid.
contracts over Marcos and Susan’s property. However,
YES. See doctrine. 6. In this case, the sale was
Antonio failed to pay hence Far East inititiated extra- admittedly made with Bacani’s aid, Norma’s agent,
judicial foreclosure proceedings of the mortgages.
who had with him the original of the owner's
I: WON the principal is bound by the contract duplicate of the TCT to the property, free from any
YES. The SPA shows that Antonio has authority and even liens or encumbrances. The signatures of Spouses
assuming that he exceeded the same, Marcos is still liable R: Domingo, the registered owners, appear on the Deed
R:
because of his letter of acknowledgment of Antonio’s act of Absolute Sale. Valentino Domingo met with
sent to the bank. Robles and received payment for the property. The
Torrens Act requires, as a prerequisite to registration,
the production of the owner's certificate of title and
MANILA MEMORIAL V LINSANGAN (2004)
the instrument of conveyance.
I F M A T E R I A L F A C T S W E R E S U P P R E S S E D O R
HANDING OUT OF A PRE-SIGNED DEED OF
U N K N O W N , T H E R E C A N B E N O V A L I D R A T I F I C A T I O N ,
ABSOLUTE SALE SHOULD NOT BE CONSIDERED AS
R E G A R D L E S S O F T H E P U R P O S E O R L A C K T H E R E O F I N MA’AM:
AN SPA TO SELL LAND. NEVERTHELESS, THIS IS
C O N C E A L I N G S U C H F A C T S A N D R E G A R D L E S S O F T H E
JURISPRUDENCE.
P A R T I E S B E T W E E N W H O M T H E Q U E S T I O N O F
R A T I F I C A T I O N M A Y A R I S E .
RURAL BANK OF MILAOR V OCFEMIA (2000)
* * T H I S P R I N C I P L E D O E S N O T A P P L Y I F T H E A P R I N C I P A L A C K N O W L E D G E S , B Y I T S O W N A C T S O R
P R I N C I P A L ’ S I G N O R A N C E O F T H E M A T E R I A L F A C T S F A I L U R E T O A C T , T H E A U T H O R I T Y O F I T S A G E N T
A N D C I R C U M S T A N C E S W A S W I L L F U L , O R T H A T T H E W H E N T H E F O R M E R F A I L S T O T A K E S O M E M E A S U R E S
P R I N C I P A L C H O O S E S T O A C T I N I G N O R A N C E O F T H E T O P R E V E N T T H E I N F R I N G E M E N T O R I N V A S I O N O F
F A C T S . I T S T I T L E A N D P O S S E S S I O N O V E R I T S P R O P E R T Y
Atty. Linsangan transacted with an agent of the T H A T W A S T H E O B J E C T O F A T R A N S A C T I O N .
petitioner about the sale of a memorial lot. The terms 7 lands of the Ocfemia Sps. were mortgaged to the
of the contract agreed upon were different from that bank and were subsequently foreclosed. The Bank sold
being offered by the petitioner. Respondent filed a 5 lands to Renato and Juanita Ocfemia. To be able to
F:
claim for damages when the contract was verbally register the said lands under their name, they asked for
cancelled. Petitioner said that the contract was the bank to give them a Board Resolution authorizing
cancelled because the agent had no authority to F:
the sale. The Bank did not give such, prompting the
represent the company. Ocfemias to file an action for mandamus and damages.
I: WON petitioner is bound by the contract Now the Bank interposes the defense that the old bank
NO. The agent acted beyond the scope of her authority manager acted beyond her authority, and such
R: and MMPCI did not ratify said agreement, as there were transaction must be considered void.
no facts indicating such ratification. WON the BOD may be compelled to issue a Board
“MATERIAL FACT” = I: Resolution confirming the sale made beyond the
NOTE: RELEVANT DETAILS TO COME UP WITH A SOUND DECISION TO manager’s authority
RATIFY YES. There was an implied ratification and estoppel.
First, when the Bank failed to file its answer regarding
the authority of Tena, it then admitted the due
R: execution of the said contract. Second, by its own
acts/failure to act, the Bank was estopped from
questioning the authority of Tena after the Ocfemias
occupied the land and paid its real taxes.
50 MANILA MEMORIAL V LINSANGAN

_______________________________________________________________
THE TRANSACTION INVOVLED A PARCEL OF LAND, AND the benefits derived from the contract;
THEREFORE THE STRICT REQUIREMENT OF ART. 1874 SHOULDV’E (2) When the expenses were due to the fault of the agent;
NOTE: BEEN FOLLOWED. BUT LOOKING AT THE FACTS OF THE CASE, THE (3) When the agent incurred them with knowledge that an
SC DID NOT RULE ON THE BASIS OF AGENCY BUT ON PROCEDURAL unfavorable result would ensue, if the principal was not
GROUNDS. 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
CUISON V CA (1993) sum.
O N E W H O C L O T H E S A N O T H E R W I T H A P P A R E N T
A U T H O R I T Y A S H I S A G E N T A N D H O L D S H I M O U T T O What to Advance?
T H E P U B L I C A S S U C H C A N N O T B E P E R M I T T E D T O Sums requested by the agent necessary for the execution of
D E N Y T H E A U T H O R I T Y O F S U C H P E R S O N , T O T H E
RD the agency.
P R E J U D I C E O F I N N O C E N T 3 P A R T I E S D E A L I N G
W I T H S U C H P E R S O N I N G O O D F A I T H A N D F O R What to Reimburse?
V A L U E . Sums advanced by the agent necessary for the execution of
Cuison was the sole proprietor of a business engaged in the agency:
the purchase and sale of newsprint, bond paper and - Including those unsuccessful businesses/undertakings,
scrap. Allegedly, one Tiu Huy Tiac (a manager of provided that the agent is free from fault.
F: Cuison) ordered the delivery of various paper products - Those in contravention of the principal’s instruction but
from Valiant to LT Trading. When Valiant was
the principal still wish to avail of the benefits derived
collecting from Cuison, the latter refused to pay,
denying any involvement in the transaction. therefrom.
WON Cuison (principal) is liable to Valiant for the acts Interest on such sums advanced, computed from the date
I:
of Tiac (agent). when the funds were advanced.
YES, as Cuison is estopped because of his
representations as to Tiac’s relationship with him. Advances/Expenses that are not reimburseable
First, Cuison introduced Tiac to Valiant’s manager as [CONTReFUSE]:
his manager. Second, it was known in the community
that Tiac was Cuison’s “kinakapatid”. Third, Cuison
- Acts of agents in CONTRavention with principal’s
made a categorical admission on the witness stand instructions (with exception);
R: - Expenses due to the Fault of the agent;
that Tiu was the manager. Based on the foregoing,
Cuison is therefore estopped from disclaiming liability - Expenses due to Unfavorable results, which was known
for the transaction. IT matters not whether the to happen by the agent, without the knowledge of the
representations are intentional/negligent so long as principal;
innocent third persons relied upon such - All expenses to be borne by the agent as Stipulated;
representations in good faith and for value. - Expenses in Excess of those allowed to be spent under
THE COURT HERE ACTUALLY TALKED ABOUT THE EXISTENCE OF
his/her authorization;
AN AGENCY RELATIONSHIP BETWEEN THE PRINCIPAL AND THE
NOTE: AGENTS. THEY SHOULD’VE TACKLED THE ISSUE OF WHETHER
- Expenses on acts outside the scope of authority of the
THERE WAS AN IMPLIED RATIFICATION OR ESTOPPEL IN GRANTING agent. (implied from the code)
AUTHORITY TO THE AGENT IN DOING THE SAID TRANSACTION.
Notes:
“Contravention of Instructions” = Manner on how to execute
ADVANCE / REIMBURSE the agency.
Article 1912 “Excess of authority” = Acts outside the scope of authority.
The principal must advance to the agent, should the latter so
request, the sums necessary for the execution of the agency. The following are instances wherein an agent may retain in
pledge things which are the object of the agency:
Should the agent have advanced them, the principal must 1. Agent advances funds for execution of the agency.
reimburse him therefor, even if the business or undertaking was
not successful, provided the agent is free from all fault.
2. Agent has suffered injury caused by execution of the
agency.
The reimbursement shall include interest on the sums advanced,
from the day on which the advance was made. The agent must be free from any fault or negligence in
order to be reimbursed for such funds/damages.
Article 1914
The agent may retain in pledge the things which are the object INDEMNIFY
of the agency until the principal effects the reimbursement and
Article 1913
pays the indemnity set forth in the two preceding articles.
The principal must also indemnify the agent for all the damages
Article 1918 which the execution of the agency may have caused the latter,
The principal is not liable for the expenses incurred by the agent without fault or negligence on his part.
in the following cases:
(1) If the agent acted in contravention of the principal's
instructions, unless the latter should wish to avail himself of
_______________________________________________________________
PROCURING CAUSE
Rule on indemnification:
G.R.: The Principal must indemnify all the damages Definition:
suffered by the agent in the execution of the agency. The broker must be the efficient agent or the procuring
E: If the Agent was in fault or was negligent in the cause of sale. The means employed by him and his efforts
execution. must result in the sale. He must find the purchaser, and the
sale must proceed from his efforts acting as broker.
Notes:
“Damages” = Includes physical and legal injuries A cause originating a series of events which, without break
in their continuity, result in the accomplishment of the
Equity suggests that it is sufficient that the agent sustained prime objective of the employment of the brokers – a sale.
injury during the agency, even if the injury was not a direct
consequence of it. MACONDRAY V SELLNER (1916)
H E I G H T O F I N J U S T I C E T O P E R M I T T H E P R I N C I P A L
COMPENSATE T O W I T H D R A W T H E A U T H O R I T Y O F T H E A G E N T
Article 1875 Plaintiff Macondray owned a parcel of land and acquired
Agency is presumed to be for a compensation, unless there is the services of defendant Sellner to find a buy and sell it a
proof to the contrary. certain price. All excess proceeds would belong to him as
commission. Defendant found a buy who would sell it at
Notes: an excess. However, during negotiations the buyer needed
Since agency is presumed to be for compensation, the F: time to examine the documents for him to accept the
principal must compensate agent even if this is not land. Plaintiff pressured defendant to close the deal asap.
Eventually, plaintiff set an ultimatum that if the price was
specified in the power of attorney.
not paid on a certain day, the sale is off. The defendant
Compensation is not an element of the agency contract tendered the price 2 days after the deadline. Plaintiff now
sues defendant for damages for an unauthorized sale.
If principal disputes that the agency was for a fee, the I: WON the plaintiff’s suit will prosper.
burden of proof is on him. As to amount, the agent may NO. SC held that plaintiff had no cause of action against
need to provide evidence. R: defendant and that the latter was already entitled to
- Otherwise, customary rates would apply. commissions resulting from a perfected sale.
DIFFERENCES AS TO COMPENSATION BETWEEN

AGENTS AND BROKERS BASED ON JURISPRUDENCE PHILIPPINE HEALTH CARE PROVIDERS V ESTRADA
AGENT BROKER (2008)
P R O C U R I N G C A U S E = A C A U S E O R I G I N A T I N G A
Receives a commission Earns his pay merely by
S E R I E S O F E V E N T S W H I C H , W I T H O U T B R E A K I N
upon the successful bringing the buyer and T H E I R C O N T I N U I T Y , R E S U L T I N T H E
conclusion of a sale51 seller together, regardless A C C O M P L I S H M E N T O F T H E P R I M E O B J E C T I V E O F
of sale52 T H E E M P L O Y M E N T O F T H E B R O K E R – A S A L E .
E1: Manotok Test: When Negotiating contracts
there is a close, proximate relative to property (for E V E N I F T H E B R O K E R W A S N O T A B L E T O
and causal connection commission) and to bring N E G O T I A T E , I F S H E W A S A B L E T O P E N E T R A T E T H E
between the agent’s efforts parties together54 M A R K E T , S H E W I L L B E E N T I T L E D T O C O M M I S S I O N .
and labor and the BROKERS. Principal engaged broker to promote and sell
principal’s sale of his its Maxicare plan. Years prior, the Principal has been
property, the agent is trying to “penetrate” Meralco, but only the broker was
entitled to commission.53 F: successful in getting Meralco to negotiate. Before
negotiations could start, the Principal interceded and
E2: Prats Doctrine: Where Entitled to commission if proceeded with the negotiations. Now, the broker is suing
the agent is “somehow they “set the sale in for her commissions.
instrumental” in bringing motion”55 I: Is the broker entitled to commission?
the parties together again Efforts were the foundation YES. The following circumstances show how she was the
in consummating the sale, of the negotiations or if procuring cause (was able to penetrate the Meralco
there can be payment to they laid the groundwork.56 market):
the agent on equitable 1. She was the first to offer to Meralco;
R:
considerations 2. Her connections were used;
3. She invited the Meralco executives to dinner;
4. She sent follow-up letters; etc.
Without her, there could have been no sale.
51 HAHN V CA (1997)
52
Id.
53 SANCHEZ V MEDICARD (2005)
54 TAN V GULLAS (2002)
55
Id.
56 PHCP V ESTRADA (2008)*
_______________________________________________________________
INFANTE V CUNANAN (1953) the deal went through.
G . R : A N A G E N T I S N O T E N T I T L E D T O T H E I: Is the agent entitled to commissions?
C O M M I S S I O N O F A S A L E T H A T H A P P E N E D A F T E R YES, BUT ONLY ON EQUITABLE CONSIDERATIONS. See
T H E R E V O C A T I O N O F A U T H O R I T Y doctrine. The agent in this case was “somehow
R:
instrumental” in bringing the parties together again and
E : I F T H E R E I S B A D F A I T H I N T H E R E V O C A T I O N O F finally consummating the transaction.
A N A G E N T ’ S A U T H O R I T Y B Y T H E P R I N C I P A L T O
A V O I D P A Y I N G T H E C O M M I S S I O N
MANOTOK BROTHERS V CA (1993)
AGENT. Principal asked agent to find a buyer. The agent W H E N T H E R E I S A C L O S E , P R O X I M A T E A N D
found a buyer that he introduced to the Principal but the C A U S A L C O N N E C T I O N B E T W E E N T H E A G E N T ’ S
Principal manifested that she was no longer interested in E F F O R T S A N D L A B O R A N D T H E P R I N C I P A L ’ S S A L E
F: selling her property. They then executed a document O F H I S P R O P E R T Y , T H E A G E N T I S E N T I T L E D T O
withdrawing the agent’s authority. Subsequently, the C O M M I S S I O N .
agent found out that the Principal actually went through
with the sale. AGENT. P authorized A to sell his land. A was able to
I: Is the agent entitled to commissions? negotiate the sale of land to the government. The
YES. See doctrine. In this case, there was bad faith as the F: government finally issued an ordinance appropriating
R: principal induced the agents to sign the deed of money for the purchase of A’s lot but it was signed only 3
cancellation. days after A’s authorization had already expired.
I: Is he entitled to a commission?
YES. An agent is entitled to commission when there is a
PRATS DOCTRINE AND MANOTOK TEST close, proximate and causal connection between the
PRATS MANOTOK R: agent’s efforts and labor and the principal’s sale of his
property even if the sale was consummated after the
PROCURING No Yes expiration of his authority.
CAUSE
AGENCY Yes Yes
EXPIRED UNILAND RESOURCES V DBP (1991)
TYPE OF P100k, by virtue of Commission, as A N U N A U T H O R I Z E D A G E N T O R O N E W H O I S N O T A N
PAYMENT equitable stipulated A G E N T A T A L L M A Y B E E N T I T L E D T O C O M M I S S I O N
considerations I F , D E S P I T E I T S L A C K O F A U T H O R I T Y , I T I N I T I A T E D
REQUIREMENT When the efforts [CPC] Close, A N D M A D E E F F O R T S T O B R I N G A B O U T T H E S A L E .
TO RECEIVE of the agent were proximate and T H I S I S G I V E N P U R E L Y O U T O F E Q U I T Y .
PAYMENT “somehow causal Uniland sought accreditation from DBP as a broker in
instrumental” in connection a sale of a warehouse property. DBP did not reply.
bringing them Still, Uniland informed its client of the availability of
F:
together and the property and the client made a successful bid for
finally the property. Uniland sought to collect the broker’s
fee from DBP.
consummating
I: Is Uniland entitled to commissions?
the transaction. YES. See doctrine. But in this case, Uniland is entitled
A/N: NOTE THAT THE PRATS CASE IS REALLY EXCEPTIONAL SINCE THE
AGENT IN THAT CASE WAS NOT THE PROCURING CAUSE AND THE R: to commission by way of equitable considerations,
CONSUMMATION OF THE SALE HAPPENED AFTER THE EXPIRATION OF THE and not as an agent.
AGENCY. NOT SURE IF THIS CAN BE A GOOD PRECEDENT
SINCE IT IS UP TO THE COURTS TO GRANT EQUITY
What is crucial is the effect of the agent’s efforts MA’AM:
COMPENSATION. A LOT OF CONJECTURES CAN BE
- Not whether such sale was consummated within the GLEAMED FROM THE FACTS OF THE CASE.
period of the authority of the agent
II. Liabilities of the Principal
PRATS V CA (1978)
A N A G E N T W H O W A S N O T T H E P R O C U R I N G C A U S E SOLIDARITY LIABILITY
O F T H E S A L E M A Y B E S T I L L A W A R D E D W I T H T H E Article 1911
C O M M I S S I O N I F H E W E R E “ S O M E H O W
Even when the agent has exceeded his authority, the principal is
I N S T R U M E N T A L ” I N B R I N G I N G T H E P A R T I E S solidarily liable with the agent if the former allowed the latter to
T O G E T H E R , E V E N I F T H E S A L E W A S act as though he had full powers.
C O N S U M M A T E D A F T E R T H E P E R I O D O F A G E N C Y
E X P I R E D . Article 1915
AGENT. The Principal tried to sell his land to SSS but he If two or more persons have appointed an agent for a common
transaction or undertaking, they shall be solidarily liable to the
failed. A year later, he gave the agent authority to sell the
agent for all the consequences of the agency.
F: lot within 60 days, which was later extended by 30 and 15
days. The agent failed despite writing, wining and dining
SSS executives. The Principal tried to negotiate again and
_______________________________________________________________
Extinguishment of
Requisites to hold both principal and agent solidarily
liable:
1. An agency relationship exists;
2. The agent acts in excess of authority; and
3. The principal allowed the agent to act as though he had Agency
full powers. Article 1919
When will principals be solidarily liable to an agent: Agency is extinguished:
(1) By its revocation;
If the principals have appointed an agent for a common (2) By the withdrawal of the agent;
transaction/undertaking. (3) By the death, civil interdiction, insanity or insolvency of the
principal or of the agent;
(4) By the dissolution of the firm or corporation which entrusted
or accepted the agency;
DE CASTRO V CA (2002)
(5) By the accomplishment of the object or purpose of the
S O L I D A R Y L I A B I L I T Y A R I S E S F R O M T H E C O M M O N agency;
I N T E R E S T O F T H E P R I N C I P A L S A N D N O T F R O M T H E (6) By the expiration of the period for which the agency was
A C T O F C O N S T I T U T I N G T H E A G E N C Y . constituted.
Petitioners are 2/4 co-owners of lots along EDSA.
One of the co-owners authorized respondent to sell
such lands for 5% commission through a [WARDICIDE] (parang pesticide hehe)
handwritten note. They were able to sell it to Times Withdrawal of agent
Transit Corporation, who bought it at P7M but they Accomplushment of the object/purpose of the agency
F:
were only paid P48k. Now they are suing for the Revocation of agency
collection of the remaining P304k. Petitioners Death of the principal/agent
refused to do so, asserting quantum meruit since Insanity of the principal/agent
there were other agents who helped in the Civil Interdiction of the principal/agent
negotiations. They also allege that because of the
Insolvency of the princpal/agent
failure to implead the other 2 co-owners, the
respondents cannot collect from them. Dissolution of the firm/corporation
WON all co-owners are solidarily liable to the Expiration of the period of the agency
I:
respondent.
YES, as all co-owners agreed to the agency
agreement. According to the records, the other co-
I. Revocation
R:
owners signed the note as well. This means that all 4 Types of Revocation:
of them were the agent’s principals.
RULES ON MANNER OF APPOINTMENT:
1. Express
1. PRINCIPALS MAY BE SOLIDARILY LIABLE EVEN IF THEY 2. Implied
APPOINT THE AGENT VIA SEPARATE ACTS PROVIDED THAT THE
Express Revocation:
APPOINTMENT IS FOR THE SAME TRANSACTION.
2. IF THERE ARE SEVERAL INTERESTED PARTIES IN THE 1. Oral/Written revocation to agent;
UNDERTAKING, ONLY THOSE WHO CREATE THE AGENCY ARE 2. Oral/Written revocation to 3rd parties;
OBITER: 3. Appointment of a new agent.
SOLIDARILY LIABLE.
SIR: NOT THE BEST CASE TO DEMONSTRATE THE PRINCIPLE. CF.

Implied Revocation:
RULES ON CO-OWNERSHIP: A CO-OWNER HAS NO RIGHT TO 1. Direct management by the principal.
ASSIGN AN AGENT WRT PROPERTY OWNED IN COMMON (ART 2. Special Agency revokes General Agency
491).
IN GENERAL
Article 1920
The principal may revoke the agency at will, and compel the
agent to return the document evidencing the agency. Such
revocation may be express or implied.
Article 1925
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 the others.
Rules on Revocation at will

G.R.: The principal may revoke the agent’s authority at will.
E: The agency is coupled with an interest.
_______________________________________________________________
Rationale: WHEN NOTICE IS REQUIRED
Agency is a personal contract of representation based on Rules on notice to 3rd parties:
trust and confidence. From the moment that confidence If the agency is created thru Art. 1873, the revocation of the
disappears, the principal has a perfect right to revoke the agency must be made in the same manner in which it was
power.57 given.
Notes: - If the agency is to transact with specific persons, the
The agency may be revoked even if the period has not yet revocation of the agency shall only take effect upon
expired.58 notice to the specific persons of the revocation.
- If the agency is to transact with the general public, all
Can an agent revoke the agency? persons knowing of such agency must have knowledge
- No. An agent can only terminate the contract of agency of the revocation to extinguish the agency.
only by renunciation and withdrawal. o This may be done through publication in a
As the principal has this absolute right to revoke the newspaper of general circulation.
agency, the agent can not object thereto; neither may he Notes:
claim damages arising from such revocation, unless it is “Agent had general powers” most probably refers to the
shown that such was done in order to evade the payment authority of an agent to deal with the general public.
of agent's commission.59
DANON V BRIMO & CO (1921)
The principal may be responsible for damages for revoking
W H E N N O T I M E F O R T H E C O N T I N U A N C E O F T H E
the agency if what is revoked is not only the authority (which C O N T R A C T I S F I X E D B Y I T S T E R M S , E I T H E R P A R T Y I S
may be revoked at anytime) but also the contract of A T L I B E R T Y T O T E R M I N A T E I T A T W I L L , S U B J E C T
employment, which would constitute a breach in the terms O N L Y T O T H E O R D I N A R Y R E Q U I R E M E N T S O F G O O D
of such.60 F A I T H .

The agency is revoked from the time of revocation and not
T H E R I G H T O F T H E P R I N C I P A L T O T E R M I N A T E H I S
after the return of the power of attorney.
A U T H O R I T Y I S A B S O L U T E A N D U N R E S T R I C T E D ,
- But in cases where the agent still used the power of E X C E P T O N L Y T H A T H E M A Y N O T D O I T I N B A D
attorney and the principal knows about such F A I T H , A N D A S A M E R E D E V I C E T O E S C A P E T H E
transaction, an implied agency is constituted. P A Y M E N T O F T H E B R O K E R ' S C O M M I S S I O N S .
WHEN NOT BINDING ON THIRD PERSONS BROKER. Principal instructed Agent 1 to find a buyer
of his factory. Agent 2 has already been looking for a
Article 1873 buyer. Agent 1 found a buyer but Agent 2 found
If a person specially informs another or states by public F:
another buyer for a higher price. The Principal went
advertisement that he has given a power of attorney to a third with the higher buyer. Nevertheless Agent 1 wanted
person, the latter thereby becomes a duly authorized agent, in his commission.
the former case with respect to the person who received the
I: Is Agent 1 entitled to the commission
special information, and in the latter case with regard to any
NO. First, the Court pointed out the fact that there is
person.
no showing that first supposed buyer had definitely
The power shall continue to be in full force until the notice is decided to buy the property. Because Agent 1’s
rescinded in the same manner in which it was given. services did not in any way contribute towards
bringing about the sale (not the efficient procuring
Article 1921 cause), he is not entitled to any commission.
If the agency has been entrusted for the purpose of contracting Furthermore, a broker is never entitled to
with specified persons, its revocation shall not prejudice the commissions for unsuccessful efforts.
latter if they were not given notice thereof. R:
Notwithstanding the agent’s devotion of his time and
Article 1922 labor, he will still get nothing if he fails in his
endeavor. And it will not matter even if what he has
If the agent had general powers, revocation of the agency does
done proves of use and benefit if he abandons the
not prejudice third persons who acted in good faith and without
knowledge of the revocation. Notice of the revocation in a agency or the principal terminates in good faith. But
newspaper of general circulation is a sufficient warning to third the agent may claim his commissions if the principal
persons. terminates the agency in order to complete the
contract without paying the agent. See Doctrine.
AGENCY HAS BEEN REVOKED UPON THE SALE OF
MA’AM:
THE PROPERTY (ART. 1919 [5])
DIOLOSA V CA (1984)
T H E A G E N C Y A G R E E M E N T , A S A V A L I D C O N T R A C T ,
57 REPUBLIC V EVANGELISTA M A Y O N L Y B E R E S C I N D E D O N T H E G R O U N D S
58
59
CMS LOGGING V CA S P E C I F I E D I N A R T . 1 3 8 1 A N D 1 3 8 2
Id.
60
De Leon citing Mechem F: Principal entered into an agreement wherein the
_______________________________________________________________
agent will serve as the spouses’ exclusive agent to KEELER RULES RALLOS REQUIREMENT
convey the lots of the principal. Principal, through a Obliges 3rd parties to inquire Obliges the principal to
letter, terminated the services of the agent, as they on the ENE (existence, notify 3rd parties regarding
want to reserve the unsold lots for their nature and extent) of such the revocation or the
grandchildren. Agent now sues the principals, stating
agency. agency.
that the agency was irrevocable until all the lots have
been sold and that the rescission contravenes the The agency’s existence is in There was an existing
agreement of the parties. question. agency.
WON the principal may terminate the agency without Usually invoked by the Usually invoked by the 3rd
I: principal party
paying for damages.
NO. See doctrine. Since there exists no ground to
R: rescind the contract, the principal is liable for Other Notes:
damages by virtue of a breach of contract. If there are 2 or more 3rd persons specified in the power of
WEIRD CASE SINCE IT IS NOT COUPLED WITH AN attorney, the revocation will only take effect upon notice of
MA’AM: each of the specified persons.
INTEREST
What if there were rumors about the revocation?
LUSTAN V CA (1997) - Rumors are not sufficient notice of revocation.
A B S E N T A V A L I D R E V O C A T I O N D U L Y F U R N I S H E D , - Keeler is about finding out about the existence of an
T H E A G E N C Y A G R E E M E N T S H A L L C O N T I N U E T O agency not finding out about the revocation, therefore,
H A V E F O R C E A N D E F F E C T A S A G A I N S T T H I R D there is no obligation on the part of 3rd persons to
P E R S O N S W H O H A D N O K N O W L E D G E O F S U C H inquire about the revocation.
R E V O C A T I O N O F A U T H O R I T Y
Lustan owns a piece of land which she leased to
Parangan. She executed 2 SPAs, the second one was used APPOINTMENT OF A NEW AGENT
by Parangan to secure 4 additional loans, 3 of which were Article 1923
without her knowledge and for his own benefit. She The appointment of a new agent for the same business or
F: signed a Deed of Pacto de Retro Sale when Parangan told transaction revokes the previous agency from the day on which
him that it would only evidence his loans extended to her, notice thereof was given to the former agent, without prejudice to
and later demanded the return of her certificate of title. the provisions of the two preceding articles.
Petitioner demanded the return of the SPAs but Parangan
argued that the property has been validly sold to him. Rules on appointment of a new agent:
What is the status of the “transfer”? The operative act here is the notice to the old agent, NOT
I: WON the property was validly mortgaged to PNB by virtue the appointment of a new agent.
of the SPAs.
IT WAS AN EQUITABLE MORTGAGE. Since Lustan was
- The old agency may be revoked even if notice was given
illiterate, she relied on Parangan’s assurance that the ahead of the appointment, unless the notice gave a
contract only evidences her indebtedness. With this, the specific date on when the old agency will be revoked.
contract entered into could not have been a valid sale but Take note that the requirement on notice of the revocation
only an equitable mortgage basing on the intention of the to 3rd persons still apply.
owner in signing the alleged deed of sale.
YES. SC ruled that the mortgages can be enforced against GARCIA V DE MANZANO (1919)
R: Narciso (principal) gave a GPA to his son and another one
Lustan. The fact that the loans were solely for Parangan’s
benefit does not invalidate the mortgages because 3rd to his wife a few months later. Son sold the dad’s ½
persons can secure mortgages to which they are not F: interest in a boat to Garcia and also mortgaged 3 parcels
parties. Her SPAs were also continuing, absent a valid of land to the same. The properties were foreclosed and
revocation duly furnished to Parangan. See doctrine. PNB now the wife is contesting the validity of the son’s acts.
cannot be prejudiced by the lack of express authority from I: WON the properties were validly mortgaged
Lustan for those last 3 loans. YES. The SC found that the son did not know of the GPA
given to the wife. This is proof that the son’s GPA was
THIRD PERSON IN GOOD FAITH WITHOUT KNOWLEDGE never revoked and therefore, all acts under such authority
R:
OF REVOCATION were validly made. Also, the court held that a power
authorizing the sale of real property necessarily carry with
Important Note: it the right to sell a half-interest in a small boat.
Principal has the duty to give due and timely notice to third
persons of the termination of the relationship.
- Principal shall be liable to third persons who transacted DIRECT MANAGEMENT BY THE PRINCIPAL
in good faith and without negligence.61 Article 1924
The agency is revoked if the principal directly manages the
business entrusted to the agent, dealing directly with third
persons.
61 RALLOS V YANGCO (1911)

_______________________________________________________________
Rules on direct management by the principal:
It is not unnatural for the principal to take part in the I F T H E N E W A P P O I N T M E N T W I T H L I M I T E D P O W E R S
management of his/her business. D O E S N O T R E V O K E T H E G E N E R A L P O W E R O F
A T T O R N E Y , T H E E X E C U T I O N O F T H E S E C O N D P O W E R
In identifying if there has been a revocation of the agency, O F A T T O R N E Y W O U L D B E A M E R E F U T I L E G E S T U R E .
the intent of the principal to revoke is very important. In 1931, Agent sold property to private respondents
CMS LOGGING V CA (1992) using his 1928 power of attorney as authority. DBCI
O N L Y W H E N T H E P R I N C I P A L B E L I E V E S T H A T T H E F: (creditor) levied such property but this was contested
A G E N T I S I N B R E A C H O F I T S C O N T A C T O F A G E N C Y
by the private respondents who asserted title over such
property.
A N D T H E F O R M E R D E C I D E S T O D E A L W I T H
WON the property was validly sold to private
C U S T O M E R S D I R E C T L Y W I L L T H E A G E N C Y B E I:
respondents
R E V O K E D U N D E R A R T . 1 9 2 4 .
NO. Apparently, the 1928 authorization did not
Principal allowed agent to sell and export the former’s expressly provide for the power to alienate such
logs and must handle exclusively all negotiations of all property. The defense of the Agent was that there
export sales. Principal found out that the agent had used R: exists a 1920 GPA that cured the defect. The SC
F:
Shinko Trading as an agent, so it sold and shipped logs dismissed such defense. See doctrine. Since the 1928
directly to several firms in Japan without the aid or authority was insufficient to sell the property, the
intervention of agent. property was validly levied and executed.
WON agent is entitled to commission for such sales made THE TWO CONTRACTS MUST BE IRRECONCILABLE IN
I:
to Japanese firms. ORDER TO APPLY THIS RULING. ARTICLE 1926 OF
NO, as the agency was extinguished because of NOTE:
THE NCC WILL STILL APPLY FOR PARTIAL
Principal’s direct management of the business. Since the INCONSISTENCIES.
Principal has an absolute right to revoke, its direct dealing
R:
with the Japanese firms serves as an implied revocation of
the agency agreement, which is not a valid subject of a WHEN AGENCY CANNOT BE REVOKED
claim for damages.
Article 1927
CF. CUISON (WHERE THE "KINAKAPATID" MANAGED IN THE
MORNING AND CUISON TOOK OVER EVERY AFTERNOON. IS THERE
An agency cannot be revoked if a bilateral contract depends
SIR: upon it, OR if it is the means of fulfilling an obligation already
IMPLIED REVOCATION EVERY AFTERNOON?) NO, BECAUSE THERE
contracted, OR if a partner is appointed manager of a partnership
WAS NO INTENT TO REVOKE.
in the contract of partnership AND his removal from the
management is unjustifiable.
SPECIAL REVOKES GENERAL IN PART Article 1930

Article 1926 The agency shall remain in full force and effect even after the
A general power of attorney is revoked by a special one granted death of the principal, if it has been constituted in the common
to another agent, as regards the special matter involved in the interest of the latter and of the agent, OR in the interest of a third
latter. person who has accepted the stipulation in his favor.
Notes: [Recap] Rules on Revocation at will

This provision only applies to general agencies being G.R.: The principal may revoke the agent’s authority at will.
replaced by a special agency (remember that these E: The agency is coupled with an interest.
agencies cannot exist at the same time). EE: If there is just cause to terminate the agency.62
- But the provision may also apply to general agencies Instances where the agency cannot be revoked
that have acts of strict dominion and special powers of (Agency Coupled with an Interest):
attorney, where the latter replaces the originally 1. When a bilateral contract depends upon the agency;
allowed acts of strict dominion. 2. If the agency is the means of fulfilling an existing
Also, this provision only applies if there is an incompatibility obligation;
between the two agencies. 3. If the removal of a managing partner is unjustifiable;
- The general agency may be partially revoked on the 4. Even after the death of the principal, where it has been
parts where it is incompatible with the special agency. constituted in the common interest of:
a. The principal and the agent; or
This provision applies to cases where the special agency is b. The principal and a third person who has accepted the
given to the original agent or to another agent. stipulation pour autrui.
DY BUNCIO V ONG GUAN GAN (1934) Done Rules on ‘Interest’?
T H E M A K I N G A N D A C C E P T I N G O F A N E W P O W E R O F
The agent’s interest must be the subject matter of the
A T T O R N E Y , W H E T H E R I T E N L A R G E S O R D E C R E A S E S
T H E P O W E R O F T H E A G E N T U N D E R A P R I O R P O W E R
agency.
O F A T T O R N E Y , M U S T B E H E L D T O S U P P L A N T A N D The interest must be specified in the power of attorney.63
R E V O K E T H E L A T T E R W H E N T H E T W O A R E
I N C O N S I S T E N T .
62 COLEONGCO V CLAPAROLS
_______________________________________________________________
If the agent’s interest is confined to compensation, or in the contractual duty which he owes his agent, the agent may
exercise of the power because of compensation, it is not an as a rule bring an appropriate action for the breach of that
agency coupled with an interest. duty. The agent may in a proper case maintain an action
at law for compensation or damages.
Rules on Agency coupled with an interest:
1. There is a mutual benefit between the principal and
agent/third persons; REPUBLIC V EVANGELISTA (2005)
W H E N A N A G E N C Y I S C O N S T I T U T E D A S A C L A U S E I N
2. Agency cannot be revoked while the interest still exists;
A B I L A T E R A L C O N T R A C T , T H A T I S , W H E N T H E
3. The interest must be in the subject matter of the power
A G E N C Y I S I N S E R T E D I N A N O T H E R A G R E E M E N T , T H E
concerned and not merely an interest in the exercise of A G E N C Y C E A S E S T O B E R E V O C A B L E A T T H E
power for compensation;64 and P L E A S U R E O F T H E P R I N C I P A L A S T H E A G E N C Y
4. If the agent’s interest is for compensation, then it is not S H A L L N O W F O L L O W T H E C O N D I T I O N O F T H E
an agency coupled with an interest. B I L A T E R A L A G R E E M E N T .
Calimlim gave Reyes a MOA to permit the latter in
LIM V SABAN (2004) hunting for treasures at Bulacan. Legaspi, the owner of
I N A N A G E N C Y C O U P L E D W I T H A N I N T E R E S T , T H E the land, executed a SPA in favour of Gutierrez to deal
A G E N T ’ S I N T E R E S T M U S T B E I N T H E S U B J E C T with the treasure hunting activities, to file charges and
M A T T E R O F T H E P O W E R C O N F E R R E D A N D N O T also to get a percentage of whatever may be found on
M E R E L Y A N I N T E R E S T I N T H E E X E R C I S E O F T H E F: his land. Gutierrez later filed a case for damages and
P O W E R B E C A U S E I T E N T I T L E S H I M T O injunction against the petitioners with the attorney he
engaged with (provides for a share in the proceeds of
C O M P E N S A T I O N . W H E N A N A G E N T ’ S I N T E R E S T I S
the treasure hunting activities). Petitioners filed a
C O N F I N E D T O E A R N I N G H I S A G R E E D
motion to dismiss, assailing Gutierrez’s authority, since
C O M P E N S A T I O N , T H E A G E N C Y I S N O T O N E
a deed of revocation was effected by Legaspi.
C O U P L E D W I T H A N I N T E R E S T , S I N C E A N A G E N T ’ S
WON the Deed of Revocation effectively revoked the
I N T E R E S T I N O B T A I N I N G H I S C O M P E N S A T I O N A S I:
agency
S U C H A G E N T I S A N O R D I N A R Y I N C I D E N T O F T H E NO. The agency was coupled with an interest. The
A G E N C Y R E L A T I O N S H I P . Court held that since the agency was inserted into a
bilateral agreement, the agency became coupled with
an interest, and therefore, cannot be unilaterally
VALENZUELA V CA (1990) revoked. The following powers were given to Gutierrez:
E X C E P T I O N T O T H E P R I N C I P L E T H A T A N A G E N C Y • the power to manage the treasure hunting activities
I S R E V O C A B L E A T W I L L : T H I S I S W H E N T H E in the subject land;
A G E N C Y H A S B E E N G I V E N N O T O N L Y F O R T H E • to file any case against anyone who enters the land
I N T E R E S T O F T H E P R I N C I P A L B U T F O R T H E without authority from Legaspi;
I N T E R E S T O F 3 R D P E R S O N S O R F O R T H E M U T U A L R: • to engage the services of lawyers to carry out the
I N T E R E S T O F T H E P R I N C I P A L A N D T H E A G E N T . agency; and
Because of the refusal of Valenzuela to share with • to dig for any treasure within the land and enter into
PHILAMGEN the huge commission from Delta Motors, agreements relative thereto
PHILAMGEN started reversing the commissions due to Moreover, the agreement by the agent with the
Valenzuela, placed agency transactions on a cash and attorney provided that the latter will get a share in the
F: carry basis and even spread news that Valenzuela had a proceeds of the treasure hunting activities. This shows
huge account with PHILAMGEN. The latter subsequently a bilateral contract that considered the agency
terminated the agency agreement. Valenzuela sued, agreement as an integral part thereof.
questioning the authority of PHILAMGEN to unilaterally THIS IS NOT A PROPER EXAMPLE OF A VALID INTEREST AS TALKED
cancel the agency agreement. ABOUT IN THE EXCEPTION. THE AGENT AND ATTY WERE STILL
I: WON PHILAMGEN may cancel the agency agreement NOTE:
PRINCIPALLY INTERESTED IN THE TREASURES THAT MAY BE
NO. It was an agency coupled with an interest. FOUND IN THE LAND.
PHILAMGEN cannot unilaterally revoke the agency
agreement because V has an interest on its continuation.
This is because by the termination, V would no longer be BACALING V MUYA (2002)
R: entitled to commission on the renewal of insurance T H E F I D U C I A R Y R E L A T I O N S H I P I N H E R E N T I N
policies of clients sourced from his efforts as agent. The O R D I N A R Y C O N T R A C T S O F A G E N C Y I S R E P L A C E D
principal may not defeat the agent’s right to B Y M A T E R I A L C O N S I D E R A T I O N , W H I C H B A R S T H E
indemnification by a termination of the contract of
R E M O V A L O R D I S M I S S A L O F T H E A G E N C Y O N T H E
agency. If a principal violates a contractual or quasi-
G R O U N D O F A L L E G E D L O S S O F T R U S T A N D
C O N F I D E N C E .
Petitioner was the owner of 3 parcels of land subdivided
into 110 lots, which were mortgaged to GSIS for a loan to
F: be used in the development of the subdivision project. She
later on sold these lands and executed an irrevocable SPA
63 DEL ROSARIO V ABAD in favor of Tong for the purpose of transferring the
64 LIM V SABAN
_______________________________________________________________
property in the latter’s name. Respondents are allegedly Rule on Damages:
the agricultural tenants of the petitioner who later on G.R.: The Agent must indemnify the principal for any
procured certificates of land transfer from DAR. Tong filed damages caused by the withdrawal.
a petition to cancel the CLTs and in CA level, petitioner
E: If the basis of the withdrawal is the impossibility of
revoked the SPA and questioned the interest of Tong to
file the case.
performing the agency without grave detriment to
WON Tong has an interest in litigating this petition for him/herself.
I:
review. VALERA V VELASCO (1928)
YES. Court held that the SPA could not be revoked at will
D I S A G R E E M E N T S B E T W E E N A N A G E N T A N D H I S
R: because it is one coupled with an interest because of
P R I N C I P A L W I T H R E S P E C T T O T H E A G E N C Y , A N D T H E
Tong’s interest in litigating the petition.
F I L I N G O F A C I V I L A C T I O N B Y T H E F O R M E R A G A I N S T
T H E L A T T E R F O R T H E C O L L E C T I O N O F T H E B A L A N C E
**COLEONGCO V CLAPAROLS (1964) I N F A V O R O F T H E A G E N T , R E S U L T I N G F R O M A
F O R A N A G E N C Y C O U P L E D W I T H A N I N T E R E S T T O L I Q U I D A T I O N O F T H E A G E N C Y A C C O U N T S , A R E
E X I S T , T H E A G E N C Y M U S T B E E S S E N T I A L T O F A C T S S H O W I N G A R U P T U R E O F R E L A T I O N S , A N D
P R O T E C T I N G T H E I N T E R E S T I N V O L V E D O R T H A T T H E T H E C O M P L A I N T I S E Q U I V A L E N T T O A N E X P R E S S
I N T E R E S T M U S T R E Q U I R E T H E A G E N C Y F O R I T T O B E R E N U N C I A T I O N O F T H E A G E N C Y , A N D I S M O R E
E X E R C I S E D . E X P R E S S I V E T H A N I F T H E A G E N T H A D M E R E L Y S A I D ,
" I R E N O U N C E T H E A G E N C Y . "
A N A G E N C Y , E V E N I F I R R E V O C A B L E , M A Y B E Federico appointed Miguel as his agent to manage the
R E V O K E D F O R J U S T C A U S E , S U C H A S A C T S I N B A D former’s usufruct of real property. Miguel brought suit
F A I T H , B R E A C H O F C O N F I D E N C E , O R B E T R A Y A L O F against Federico because of a misunderstanding after the
T R U S T . latter apparently owed the former P1,000. Miguel later on
Because of financial difficulties in his nail factory, bought the right of usufruct in a public auction after it was
levied to satisfy his claim when judgment was rendered in
Claparols entered into a financing agreement and a
contract of agency with Coleongco. After a string of F: his favor. Salvador, who was involved in a different case
against Federico, levied upon Federico’s right of
attempted sabotage aimed at acquiring the factory for
F: himself, Coleongco was relieved from his duty as agent. A redemption over the usufruct after judgment was
rendered in Salvador’s favor. After buying the right of
suit for breach of contract was filed by Coleongco against
redemption, he transferred it to Miguel. Federico assailed
Claparols, arguing that the SPA was important to protect
the sale of the right of usufruct to Miguel, invoking the
his interests in the financing agreement and therefore the
invalidity of sales to agents even through public auctions
agency cannot be revoked.
I: WON the sale to the agent was valid
I: WON the SPA can be revoked by Claparols
YES, as Miguel was not barred anymore by law from
YES, as there was just cause. The Court ruled that the
revocation was proper since even if the contract was made purchasing because of his withdrawal from the agency.
SC held that the agency relationship was terminated
irrevocable, he can still revoke it provided that there was
R: when Miguel brought suit against his principal. The filing
just cause. Furthermore, the SPA cannot be used to shield R:
of a civil action shows a rupture of relations, equivalent to
the perpetration of acts in bad faith, breach of confidence
or betrayal of trust by the agent. an express renunciation of the agency. Having terminated
the agency, his purchase of the usufruct was valid and
WHAT IS ‘JUST CAUSE’? IN THIS CASE, IT WAS THE BREACH OF thus title was vested on him.
SIR:
CONFIDENCE / BETRAYAL OF TRUST BY THE AGENT
SUING THE PRINCIPAL NOT NECESSARILY WITHDRAWS, ESPECIALLY
SIR: IF THE SUIT IS FOR CLARIFICATION OR NECESSITY OF GOING TO
II. Withdrawal COURT
Article 1928
The agent may withdraw from the agency by giving due notice to
the principal. If the latter should suffer any damage by reason of III. Death, Civil Interdiction, Insanity,
the withdrawal, the agent must indemnify him therefor, unless Insolvency of the Principal
the agent should base his withdrawal upon the impossibility of
continuing the performance of the agency without grave detriment Rationale:
to himself.
The juridical basis of agency is representation. If the
Article 1929 principal cannot enter into contracts, then the agent cannot
The agent, even if he should withdraw from the agency for a do so too.
valid reason, must continue to act until the principal has had
reasonable opportunity to take the necessary steps to meet the Rule on DICI of the Principal
situation. G.R.: Agency extinguished
“E”: If the agency is coupled with interest; or
Rules on Withdrawal/Renunciation of the Agency: If the agent had no knowledge of such and the 3rd
1. The agent may withdraw at any time by giving due person acted in good faith. (Arts. 1930, 1931).
notice.
2. The agent must continue the agency until the principal
had reasonable opportunity to take steps to meet the
situation.
_______________________________________________________________
Note: agency not being irrevocable, thus, it terminated upon
There is no obligation imposed by the Civil Code on the Tiburcio’s death, two years before the sale to Primitivo’s
heirs of the principal to notify the agent of the principal’s son. Primitivo, therefore, had no more authority to make
the sale.
death.
Civil interdiction deprives the offender during the period of
his sentence of the right to manage his property and CONTRACT BETWEEN AGENT WITHOUT
dispose of such property by any act or any conveyance inter KNOWLEDGE AND THIRD PERSONS IN
vivos. GOOD FAITH
Insolvency, as ruled upon by the courts, disqualifies the Article 1931
principal from having control over the subject matter of any Anything done by the agent, without knowledge of the death of
the principal or of any other cause which extinguishes the
agency. agency, is VALID and shall be fully effective with respect to third
persons who may have contracted with him in good faith.
DEATH OF THE AGENT
Article 1932 [Recap] Rule on DICI of the Principal
If the agent dies, his heirs must notify the principal thereof, and in G.R.: Agency extinguished
the meantime adopt such measures as the circumstances may “E”: If the agency is coupled with interest; or
demand in the interest of the latter. If the agent had no knowledge of such and the 3rd
Obligation of the agent’s heirs upon the death of the person acted in good faith. (Arts. 1930, 1931).
agent: Requisites:
1. To notify the principal of the death of the agent; and 1. The agent acts within his/her authority;
2. To adopt such measures as the circumstances may 2. The agent does not have knowledge of the DICI of the
demand in the interest of the latter. principal; and
3. The 3rd person acted in good faith.
Authority of the agent’s heirs to continue the agency
G.R.: The heirs cannot continue the agency, as the agency Notes:
is personal in nature. Because Art. 1931 is an exception to the general rule, it must
E: An agency is created (express, implied, by operation be strictly construed.
of law, estoppel, etc.)
According to Ma’am Regalado: Rumors = bad faith
Notes:
According to Sir Casis: Rumors ≠ bad faith
There is no responsibility under the code for the heirs of the
principal to notify the agent of the principal’s death.
HERRERA V LUY KIM GUAN (1961) IV. Other Modes
P’s dad executed a GPA to sell his land in favor of Kim
F: Guan. P is alleging that the transactions happened when DISSOLUTION OF THE FIRM OR
her dad was already dead. CORPORATION
I: WON the transactions were valid.
YES. No proof of date of actual death of dad, and
assuming that he did die, there was no proof that Kim ACCOMPLISHMENT OF THE PURPOSE OR
R:
Guan, as agent, knew of the death of his principal during
the transactions.
OBJECT
DEL ROSARIO V ABAD (1958) EXPIRATION OF THE PERIOD

M E R E S T A T E M E N T S O F I R R E V O C A B I L I T Y W I L L N O T
S U F F I C E : W H A T T H E A G E N C Y C O U P L E D W I T H A N
I N T E R E S T C O N S I S T S O F M U S T B E S T A T E D I N T H E
P O W E R O F A T T O R N E Y T H E I N T E R E S T M U S T B E
P E R T I N E N T .
Tiburcio obtained a loan from Primitivo, and as security,
mortgaged to the latter homestead land. Tiburcio also
executed a SPOA designated as “irrevocable” and
F:
“coupled with interest. The mortgage went unpaid even
after Tiburcio’s death 10 years later, so
Primitivo sold the land to his own son.
I: WON the sale was valid
SALE IS INVALID. The SPOA was not coupled with an
R: interest, because the mortgage was not the kind of
interest that would render the agency irrevocable. The
_______________________________________________________________
Distinguishing
- If one acts in representation of another, he is an agent
regardless of what he is called. The contract is of
agency even if it is called by another name.65
Agency from The fact that the parties may not be aware of all the
nuances of an agency relationship does not prevent the
other Contracts establishment of such relationship between them.
THE ELEMENT OF CONTROL

I. In General Notes:
The need to identify the type of contract should not be
Control is the clearest distinction of agency from other legal
interpreted to mean that once a contract is determined to
concepts. In agency, a person (the agent) agrees to act
be an agency contract, it could not also be another type of
under the control or direction of another (the principal).66
contract.
- A hybrid contract may exist i.e. Agency + ___________ A prime element of an agency relationship is the existence
of some degree of control by the principal over the conduct
Q: Based on the issue to be determined, does an agency and activities of the agent.67
relationship exist between the relevant parties?
- Sir argues that while control may be an important
Jurisprudence seems to have created a hierarchy and element or indicator of an agency relationship, it may
incompatibility among contracts. not be accurate to say that it is the main distinguishing
factor. It is more accurate to say that representation is
Incompatible Contracts: the distinguishing factor, based on Art. 1868.
Lessors of work/service
Intent should temper control in determining if a contract is
that of agency.
DETERMINED BY ACTS
DOLES V ANGELES (2006)
T H E E X I S T E N C E O F A G E N C Y I S D E T E R M I N E D B Y II. Distinguished from Negotiorum
T H E I N T E N T I O N O F T H E P A R T I E S A N D T H E Gestio
M A N N E R I N W H I C H T H E P A R T I E S D E S I G N A T E T H E
Article 2144
R E L A T I O N S H I P I S N O T C O N T R O L L I N G .
Whoever voluntarily takes charge of the agency or management
Angeles lent money in exchange for personal checks of the business or property of another, without any power from
through her capitalist, Pua (the principal). Doles referred the latter, is obliged to continue the same until the termination of
F: her friends to Angeles, all of whom borrowed money but the affair and its incidents, or to require the person concerned to
they issued checks bounced. Threatening to sue, Angeles substitute him, if the owner is in a position to do so. This juridical
thus forced Doles to issue 8 checks and a deed of sale relation does not arise in either of these instances:
over the latter's property.
1. When the property or business is not neglected or abandoned;
I: WON the sale is valid. 2. If in fact the manager has been tacitly authorized by the owner.
NO. The sale is void because there is no consideration for In the first case, the provisions of Articles 1317, 1403, No. 1, and
they were not parties to the loan. The sale is predicated on 1404 regarding unauthorized contracts shall govern.
a loan in which neither Doles nor Angeles were parties.
The real parties thereto were Pua, the capitalist, and In the second case, the rules on agency in Title X of this Book
Doles' friends. shall be applicable.
R:
WRT Doles' admission that she is re-lending, such
admission is not controlling because it is the nature of the
relation and not the designation by the parties which is DE LA PEÑA V HIDALGO (1910)
controlling. Whether the parties really understand the T H E A D M I N I S T R A T I O N A N D M A N A G E M E N T , B Y
nature of their relationship is irrelevant. V I R T U E O F A N I M P L I E D A G E N C Y , I S E S S E N T I A L L Y
D I S T I N G U I S H E D F R O M T H E M A N A G E M E N T O F
Notes: A N O T H E R ' S B U S I N E S S , I N T H I S R E S P E C T , T H A T
The nature of the acts of the parties or the nature of their W H I L E T H E F O R M E R O R I G I N A T E S F R O M A
relationship with each other determines the nature of their C O N T R A C T , T H E L A T T E R I S D E R I V E D O N L Y F R O M A
contract. Q U A S I -‐ C O N T R A C T .
The manner by which the parties call each other or refer to Principal executed a power of attorney in favor of Federico
to administer various properties in Manila. Federico
their contract does not determine the nature of the F:
subsequently needed to leave the country for health
contract. reasons so he asked his principal to appoint another
65 DOLES V ANGELES
66 VICTORIAS MILLING V CA
67
AmJur
_______________________________________________________________
agent. Because of the former’s failure to appoint a new (c) he is no in the company's payroll
agent, Federico provisionally turned over administration (2) Not a partnership:
to his cousin Antonio and asked the principal to send a (a) there is no parity of standing - there must be an
new power of attorney. Principal never acted on such equal proprietary interest and equal rights in the
request. After 9 years, the principal now wants to collect conduct of the business,
solely from Federico, on the ground that no agency (b) they did not hold themselves out as partners (the
relationship existed between the former and Antonio. neon sign merely indicated "Tourist World Services")
I: WoN there was a contract of agency. (3) Agency:
YES. IMPLIED AGENCY. There is an implied contract of (a) he solicited airline fares "in behalf of or in
agency on the basis of awareness by the principal of the representation of" TWS; and
R: fact of taking charge by Antonio of the administration and (b) he was entitled to 4% commission.
silence/inaction for 9 years (when it could have issued a Moreover, this is an agency coupled with an interest
new power of attorney). because Sevilla was personally obliged for operation and
made himself liable for rents and therefore cannot be
revoked arbitrarily.
III. Distinguished from Partnership
Article 1767
Notes:
By the CONTRACT OF PARTNERSHIP two or more persons bind A contract of partnership is a contract of agency, and it
themselves to contribute money, property, or industry to a differs from a pure agency in that while an agent acts only
common fund, with the intention of dividing the profits among for his principal, a partner act not only for his co-partners
themselves. and the partnership but also as principal of himself.68
Two or more persons may also form a partnership for the exercise - A partner is both an agent and the principal of a co-
of a profession. partner, depending on their roles in a transaction.
- A partnership then is in effect, a contract of mutual
agency.
PARTNERSHIP AGENCY
Because of this mutual agency, a partner can bind his co-
DEFINITION
partners in contracts made within the scope of authority.
2 or more persons binding A contract where one binds
themselves to contribute himself to render service or Take note of the role of a managing partner and an ordinary
money, property, or industry do something in partner in a partnership with regard to their scope of
to a common fund with the representation of another, authority.
intention to divide profits. with the latter’s authority.
IV. Distinguished from Service
AGENCY
Providers
There is mutual agency, The agent acts on behalf of
since a partner is an agent its principal and not for LESSORS OF SERVICES
of the other partners and of him/herself. Article 1644
the partnership. In the lease of work or service, one of the parties binds himself to
LIABILITY execute a piece of work or to render to the other some service for
The partnership is liable to Only the principal will be a price certain, but the relation of principal and agent does not
contracts entered into by the liable to 3rd parties. exist between them.
partners but the individual
partners are also liable in AGENCY LESSORS OF WORK/SERVICE
proportion to their share. There is representation There is no representation
Extinguishes at will by A concurrence by both parties is
the principal required to extinguish the
SEVILLA V CA (1988) contract
Sevilla ran the Manila branch of Tourist World Services Inc An agent exercises The lessee exercises ministerial
(TWS). He was entitled to 4% commission for each ticket discretionary powers powers only
sold and was solidarily liable for the payment of rents.
F: Later TWS learned that Sevilla is connected with a rival
A preparatory contract A primary contract
firm so it padlocked the branch office. Sevilla sued for
damages, arguing that it was a partnership. TWS argued NIELSON V LEPANTO (1968)
that it was an ER-EE rel.
A G E N C Y I S A P R E P A R A T O R Y C O N T R A C T A N D I T S
I: What is the relationship?
P U R P O S E I S T O E N T E R I N T O O T H E R C O N T R A C T S .
AGENCY.
I T S M O S T C H A R A C T E R I S T I C F E A T U R E I S T H E
(1) Not Employment:
P O W E R O F T H E A G E N T T O B R I N G A B O U T
(a) an EE cannot be made to part with his own money in
R: pursuance to the ER's business (here, Sevilla paid B U S I N E S S R E L A T I O N S B E T W E E N H I S P R I N C I P A L
RD
rent with his own money), A N D 3 P E R S O N S .
(b) there is no control wrt the means used to run the
branch and
68
De Leon
_______________________________________________________________
Lepanto and Nielson had a Management contract wherein V. Distinguished from Sale
the latter will (1) manage and operate the mining
Article 1458
properties of Lepanto in its behalf and (2) was authorized
F: By the contract of sale one of the contracting parties obligates
to enter into contracts for labor, supplies, etc, both of
himself to transfer the ownership and to deliver a determinate
which needed prior approval by Lepanto's BOD "at all
thing, and the other to pay therefor a price certain in money or its
times." Moreover, Lepanto had the right to terminate.
equivalent.
I: Is this an agency contract?
NO. The principal undertaking is the operation and dev't A contract of sale may be absolute or conditional.
of the mine and the mill; all other undertakings are but
R: necessary incidents. Moreover, Nielson cannot execute
juridical acts which would be binding on Lepanto because AGENCY TO SELL CONTRACT OF SALE
all are subject to prior approval by the Lepanto BOD. AS TO OWNERSHIP OF THE GOODS
Agent receives the goods as Buyer receives the goods as
INDEPENDENT CONTRACTOR property of the principal his/her own property
AS TO PAYMENT
Article 1713
By the contract for a piece of work the contractor binds himself Agent delivers the proceeds Buyer pays the purchase
to execute a piece of work for the employer, in consideration of a of the sale price
certain price or compensation. The contractor may either employ AS TO ABILITY TO RETURN
only his labor or skill, or also furnish the material.
Agent can return the goods Buyer cannot return the
if he/she cannot sell goods
CONTROL OVER THE THING
FRESSEL V MARIANO CHACO (1916)
Merrit and Uy Chaco had a construction contract wherein
An agent is bound to act Buyer can deal with the
Merrit was to build "a costly edifice." according to the instructions thing as he/she pleases
It was stipulated therein that Uy Chaco can, at any time, of the principal
take possession of the edifice and all of its materials.
F:
Fressel delivered some materials to Merrit. Uy Chaco later
Notes:
took possession of both the edifice and the materials Intention of the parties is important in distinguishing a sale
brought by Merrit. Fressel sought payment from Uy from an agency.69
Chaco, arguing that Merrit was merely an agent.
I: Is there an agency? ALBALADEJO V PHIL. REFINING CO. (1923)
NO, THIS IS AN INDEPENDENT CONTRACTORSHIP. Albaladejo is a limited partnership engaged in the
There is no agency because (1) Uy Chaco had no control business of buying and selling products such as copra
over Merritt and (2) Merritt may purchase from his own from Legaspi. It entered into several contracts of agencies
R: and subagencies in order to keep up with its growing
trusted sellers at his own prices. Merrit simply bought the
materials from Fressel without any intervention from Uy business in Legaspi. It entered into a contract with Visayan
Chaco. Refining, where the latter will be getting commission, that
the latter may advance funds and it will be refunded for
F:
operations-related costs.
SHELL V FIREMEN’S INSURANCE (1957) Because of business reverses, Albaladejo closed down its
Sison brought his ar to a Shell station operated by de la factory and liquidated its account with Visayan, which led
Fuente. In a nutshell, his car fell and was damaged mid- to a balance of P288.
F: repair. Sison and his insurance company sued both Shell Visayan now contends that it was the agent of Albaladejo
and de la Fuente, arguing that de la Fuente is merely an and therefore cannot be held to be liable to the amounts
agent. it spent for the transportation of the copra.
I: Is this an agency? I: WoN there was a contract of agency.
YES, THEREFORE SHELL MAY BE HELD LIABLE. In so R: NO. This is a contract of sale.
disposing, the SC looked at certain facts:
(1) the operator owed his position to Shell (which has the
power to terminate him)
(2) the station itself belonged to Shell, as with the QUIROGA V PARSONS HARDWARE (1918)
Tradename and the exclusive Shell products sold I T I S E N O U G H T O S H O W T H A T T H E R E I S A S A L E T O
R:
(3) the equipment also belonged to Shell S H O W T H A T I T I S N O T A N A G E N C Y .
(4) a Shell EE supervises de la Fuente and makes a
Quiroga and Parsons had a contract wherein the latter
periodic inspection
(5) it is Shell which fixes the price of the products sold will be the exclusive dealer of the former's beds in the
Therefore, the act of the agent is deemed to be the act of Visayas region, with the condition that he must not sell
F:
the principal other beds and that he must pay for the beds regardless
of whether he successfully sells them. In return, Parsons is
entitled to 25% commission.
I: Is there an agency?
69 TUAZON V HEIRS OF RAMOS (2005)

_______________________________________________________________
NO. THIS IS A CONTRACT OF SALE. The SC considered is insufficient as proof of independent merchantship.
(1) the fact that Parson must pay for the beds regardless
R: of whether he sells them and that (2) there are clauses to
the effect that one pays and the other delivers (typical of THE MAIN TEST TO DIFFERENTIATE BETWEEN AGENCY AND SALE
SIR:
sale). SEEMS TO BE THE ISSUE OF OWNERSHIP.
THERE MAY HAVE BEEN AN INTENTION TO CREATE AGENCY BASED
ON THE FF FACTS:
(1) EXCLUSIVITY AGREEMENT GONZALO PUYAT V ARCO AMUSEMENT (1941)
SIR: Arco operated cinemas while Gonzalo (GPSI) was the
(2) 25% COMMISSION
(3) PARSONS CANNOT SELL OTHER BEDS exlusive agent of Starr, an american firm which sold
(4) HE CANNOT SELL WHERE THERE ARE OTHER EXCLUSIVE AGENTS cinematograph equipment. Arco and GPSI had an
agreement wherein GPSI would order sound
reproducing equipment on Arco's behalf and Arco
AMERICAN RUBBER V CIR (1975) F:
would pay the price, 10% commission and all necessary
ARCO, which produces logs and lumber, had a letter expenses (total: $1700). Arco placed an identical order
agreement with SCLCO which allowed the latter to a year after. 3 years later, Arco discovered that the price
operate the former's forest concession. (1) The logs GPSI quoted was not the net price but the list price and
were stamped "timber of ARCO", and while SCLCO that GPSI got a massive discount. It therefore sought a
transports them from Basilan to Manila, (2) ARCO reduction/reimbursement in its suit against GPSI
F: reimburses the costs. Moreover, (3) SCLCO remits the wherein it argued that GPSI is it's (Arco's) agent
proceeds to ARCO after selling the logs and (4) I: Sale or Agency?
deducts a 5% commission after (5) billing a 5% sales SALE. (1) The contract is clear
tax as a separate item. The BIR assessed ARCO for (2) The stipulation that the "seller is bound despite
deficiency sales tax and surcharge, claiming that ARCO unforeseen events" does not mean that it is agency
is the principal while SCLCO is merely an agent. because (a) an agent must be exempted from all
I: Is there an agency? liability and (b) the Principal must indemnify the agent
YES. In determining WON there is agency, (1) the R: for all damages which the agent may incur in carrying
essence of the contract determines what law applies out the act,
and (2) only the acts must be considered in interpreting (3) There is no agency because GPSI cannot be agent of
R: both the buyer (Arco) and the seller (Starr)
the contract. Here, the SC considered the above-
numbered facts in establishing that there was indeed (4) the stipulated "commission" is merely an additional
agency. price
THE FACTS TEND TO SHOW THAT ARCO RETAINED OWNERSHIP
NOTE: AND THAT, THEREFORE, SCLCO WAS MERELY SELLING ARCO'S
NOTE: # 2 AND #3 ARE THE MOST IMPORTANT FACTS.
LOGS IN THE LATTER'S BEHALF.
CHUA NGO V UNIVERSAL TRADING (1950)

KER V LINGAD (1971) Ngo paid for 300 boxes of sunkist oranges from UTC,
E S S E N C E O F S A L E : T H E T R A N S F E R O F T I T L E O R which in turn ordered the oranges from Gabuardi. UTC
A G R E E M E N T T O T R A N S F E R I T F O R A P R I C E P A I D O R made a similar order for a lower price. Of the 6380 boxes,
P R O M I S E D F: 607 were lost and Ngo was not able to receive 120 of the
E S S E N C E O F A G E N C Y : T H E D E L I V E R Y T O A N A G E N T , boxes he ordered. Ngo sued UTC to recover the price. UTC
N O T A S H I S P R O P E R T Y , B U T A S T H E P R O P E R T Y , B U T argues that it is merely Ngo's agent and that it is therefore
A S T H E P R O P E R T Y O F T H E P R I N C I P A L , W H O not liable for the price.
R E M A I N S T H E O W N E R A N D H A S T H E R I G H T T O I: Sale or Agency?
C O N T R O L S A L E S , F I X T H E P R I C E , A N D T E R M S , SALE. There are 5 reasons:
D E M A N D A N D R E C E I V E T H E P R O C E E D S L E S S T H E (1) no commission
A G E N T ’ S C O M M I S S I O N U P O N S A L E S M A D E (2) UTC may "resell". It implies that it was sold to Ngo.
US Rubber Int'l (USRI) had an agreement with Ker & Co (3) UTC placed a 2nd order at a lower price. An agent
Ltd wherein the (1) latter will act as distributor of the R: cannot do that.
former's products in 7 provinces (and precluded from (4) UTC charged Ngo sales tax
selling elsewhere unless USRI consents), will (2) exert (5) Here it is the seller who's pressing the insurance Co for
every effort "to promote in every way the sales," that (3) the claims. If there was agency, the principal should be
F: the one doing it.
USRI has discretion wrt the terms and conditions of sale,
that (4) Ker merely holds the products on consignment,
and that (5) Ker must render a detailed monthly sales
report and inventory upon request. The BIR assessed Ker
with a P20k commercial brokers' percentage tax.
I: Is it an agency/brokerage or a sale?
AGENCY/BROKERAGE. The facts numbered above are
irreconcilably antagonistic to the idea of an independent
R: merchant. The essence of a sale is the transfer of
ownership. Here, no such transfer of ownership happens.
The disclaimer in the agreement that Ker is not an agent
_______________________________________________________________
VI. Distinguished from Brokerage jurisdiction.
AGENT BROKER Moreover, the fact that Hahn put up service centers at
his own expense does not mean that he is no longer an
Receives a commission Earns his pay merely by
agent because BMW still has control over Hahn thru
upon the successful bringing the buyer and itit's regular inspections.
conclusion of a sale70 seller together, regardless AGAIN, TAKE NOTE OF THE FACT THAT IN NO POINT DURING THE
of sale71 NOTE:
PROCESS DID HAHN BECOME THE OWNER OF THE CARS.
E1: Manotok Test: When Negotiating contracts
there is a close, proximate relative to property (for
and causal connection commission) and to bring VII. Distinguished from Loan
between the agent’s efforts parties together73
JAI-ALAI V BPI (1975)
and labor and the
Petitioner deposited checks, whose indorsements were
principal’s sale of his forged by Ramirez, with Respondent. Drawee-Banks then
property, the agent is paid Respondent. When it was found that the checks’
entitled to commission.72 F: indorsements were forged, Respondent returned the
value of the checks to drawee-bank and debited
E2: Prats Doctrine: Where Entitled to commission if
Petitioner’s account. Petitioner now contests the right of
the agent is “somehow they “set the sale in Respondent to debit its account.
instrumental” in bringing motion”74 WON the Respondent had the right to debit the
the parties together again Efforts were the foundation I:
Petitioner’s account
in consummating the sale, of the negotiations or if YES. Court held that because the indorsements were
there can be payment to they laid the groundwork.75 forged, under Sec 23 of NIL, ‘a forged signature in a
the agent on equitable negotiable instrument is wholly inoperative and no right
considerations to discharge it or enforce its payment can be acquired
through or under the forged signature except against a
Note: party who cannot invoke the forgery.’ The payment of
BMW = Bayerische Motoren Werke Aktiengesellschaft drawee-bank to Respondent was ineffective and
R:
therefore, the agency relationship between Petitioner and
HAHN V CA (1997) Respondent that arose from the deposit of the check, was
A N A G E N T R E C E I V E S A C O M M I S S I O N U P O N T H E not converted to a creditor-debtor relationship because in
S U C C E S S F U L C O N C L U S I O N O F A S A L E W H I L E A effect, no payment was received by the Respondents. The
B R O K E R E A R N S P A Y B Y M E R E L Y B R I N G I N G T H E Respondent acted within legal bounds when it debited
B U Y E R A N D T H E S E L L E R T O G E T H E R the Petitioner’s account.
For a long time, Hahn was the exclusive distributor of
BMWs in PH. The practice was that (1) he would take
orders and transmit these to BMW then (2) BMW fixes VIII. Distinguished from Bailment
the downpayment and the price, which the buyer pays
directly to BMW, then (3) title passes directly to the BAILMENT AGENCY
buyer from BMW, then (4) Hahn receives 14% DEFINITION
commission plus an additional 3% if the car is Property is entrusted to Agent acts in representation
registered, then (5) Hahn will be the one to perform another with authority to or on behalf of the principal
after-sales service at his own expense, which BMW
sell
reimburses and, finally, (6) all invoices and forms are by
F: LEVEL OF CONTROL
BMW.
Hahn executed a Deed of Assignment w/ SPA Bailor has limited control Principal has control over
transferring back to BMW the right to its trademark, over the bailee (only insofar the acts of the agent as
with the understanding that "business will be the bailment contract is regards the performance of
continued". Hahn found that BMW was planning to concerned) the agency contract.
transfer its exclusive dealership with CMC so he sued
for SP and damages. BMW argued that the Ct had no AS TO LOYALTY
jurisdiction because Hahn was simply a middle man The bailee owes no loyalty Agent must be loyal to the
and that, therefore, BMW could not be said to be doing nor obedience to the bailor principal
business in the Philippines. AS TO PERSONAL LIABILITY
I: Does TC have jurisdiction over BMW?
YES. The SC ruled that there was agency, based on the The bailee has NO power to The agent has the power to
R: numbered facts above. It is therefore deemed to be bind the bailor in personal bind the principal in
doing business in PH and the Ct therefore has liability personal liability
70 HAHN V CA (1997)
71
Id.
72 SANCHEZ V MEDICARD (2005)
73 TAN V GULLAS (2002)
74
Id.
75 PHCP V ESTRADA (2008)*
_______________________________________________________________
IX. Distinguished from Guardianship SAN DIEGO V NOMBRE (1964)
GUARDIANSHIP AGENCY Nombre, as judicial administrator of the estate, leased a
fishpond to Escanlar without prior judicial approval.
SOURCE OF AUTHORITY
Nombre was then replaced by a new administrator
The courts and not from the The principal (Campillanos) who sought to have the previous lease
ward F:
voided, so that he could lease the fishpond to petitioner
FOUNDATION OF RELATIONSHIP San Diego. Lower court declared that the contract in favor
of Escanlar was null and void, for want of judicial
Created irrespective of the Mutual consent of the
authority.
consent or capacity of the principal and agent WON a judicial administrator can validly lease property of
ward I:
the estate without prior judicial authority and approval.
CONTROL YES. Rule 85, Section 3, of the (old) Rules of Court
Guardians are not subject to Agents are subject to the authorizes a judicial administrator to administer the
the control of their wards control of the principal estate of the deceased not disposed of by will. Under this
provision, the executor or administrator has the power of
AS TO WHO IS REPRESENTED administering the estate of the deceased for purposes of
A guardian represents one An agent represents his/her liquidation and distribution. He may, therefore, exercise all
who has no capacity principal who has capacity acts of administration without special authority of the
Court. And where the lease has formally been entered
into, the court cannot, in the same proceeding, annul the
X. Distinguished from Trust R:
same, to the prejudice of the lessee, over whose person it
TRUST AGENCY had no jurisdiction. The proper remedy would be a
separate action by the administrator or the heirs to annul
TITLE AND CONTROL OVER THE PROPERTY
the lease. An executor or administrator shall have the
Trustee has title and control Principal retains title and right to the possession of the real as well as the personal
over the property, who acts control estate of the deceased so long as it is necessary for the
in his own name payment of the debts and the expenses of administration,
AS TO SUPERVISION OR CONTROL and shall administer the estate of the deceased not
disposed of by his will.
The trustee has discretion. Principal has constant
Guidance is limited supervision and control over
the agent
XI. Distinguished from Judicial

Administration
JUDICIAL AGENCY
ADMINISTRATION
SOURCE OF AUTHORITY
Court order Agency agreement
WHO IS REPRESENTED
The court, the estate, the Only the principal
heirs, and creditors
LAWS APPLICABLE
Rules on agency do not Specific rules on agency
apply
_______________________________________________________________
The Concept of
United States, 1916: the Uniform Limited Partnership Act
(ULPA) was completed.
Partnership II. Philippine Partnership Law

Prior to the new Civil Code, commercial or mercantile
I. Historical Background partnerships were governed by the Code of Commerce, and
non-commercial or civil partnerships by the old Spanish
ANCIENT ORIGINS Civil Code.85
Partnership is an ancient form of business organization.76
- The first people in primeval conditions gave mutual The new Civil Code superseded the old Civil Code and
protection and assistance to each other by associating repealed the Code of Commerce provisions on partnerships.
their skill and labor.77 The distinction between civil and commercial partnerships
was abolished.86
As a legal concept, its origin may be traced to the
agricultural portion of the Code of Hammurabi of Babylon. The Civil Code provisions are based mainly on the UPA and
This is believed to be the first code that recognized and ULPA. Hence, US case law interpreting these provisions is
regulated partnerships.78 highly persuasive.
General
Romans are credited with the development of the
partnership as a business organization because the
partnership laws in many jurisdictions are based on Roman
law. However, partnerships were also found in Jewish and
Chinese law.79 Principles
THE MIDDLE AGES I. Contract
Partnerships stimulated commerce by bringing together the Article 1767
financier and the merchant, and were exempted from By the CONTRACT OF PARTNERSHIP two or more persons bind
usury.80 themselves to contribute money, property, or industry to a
common fund, with the intention of dividing the profits among
There were special tribunals for the merchants’ legal affairs themselves.
because common law courts were slow, and foreigners had
Two or more persons may also form a partnership for the exercise
difficulty with their forms and procedures.81 of a profession.
The mercantile courts recognized two forms of
Article 1665 (Old Civil Code)
partnership.82
Partnership is a contract by which two or more persons bind
- Societas or general partnerships themselves to contribute money, property or industry to a
- Commenda or societe-en-commandite or limited common fund, with the intention of dividing the profits among
partnerships themselves
Eventually, mercantile causes found their way to England. Article 1318

There is no contract unless the following requisites concur:
THE MODERN ERA (1) Consent of the contracting parties;
England, 19th century: common law on partnership (2) Object certain which is the subject matter of the contract;
developed from a combination of rules from common law (3) Cause of the obligation which is established.
and the law merchant.83
Concept:
- Because of confusion and uncertainty, there was a
A Partnership is a contract between 2 or more persons
clamor for statutory restatement, which came in the
where they:
form of the Partnership Act of 1890.
- Bind themselves to contribute money, property or
United States, 1914: the Uniform Partnership Act (UPA) was industry; and
completed. This is said to be a codification of the common - Intend to divide the profits among themselves.
law.84
Natural and Juridical persons may be parties to a contract
of partnership.
- They must have legal capacity to enter into contracts.
76
77
Mersky - Jurisprudence and SEC rulings have imposed certain
Rowley requirements for juridical entities to be able to enter
78
Mersky
79
Rowley into partnerships.
80
Bromberg
81
Id.
82
Id.
83 85
Id. Bautista
84 86
Id. Id.
_______________________________________________________________
AS APPLIED IN PARTNERSHIPS TOCAO V. CA (2000)
CONSENT Agreement to contribute Money, Property, or A N O R A L C O N T R A C T O F P A R T N E R S H I P I S A S G O O D
Industry A S A W R I T T E N O N E .
OBJECT Business undertakin
CAUSE Division of profits W H E R E N O I M M O V A B L E P R O P E R T Y O R R E A L R I G H T S
A R E I N V O L V E D , W H A T M A T T E R S I S T H A T T H E
Characteristics of a Contract of Partnership P A R T I E S H A V E C O M P L I E D W I T H T H E R E Q U I S I T E S O F
Consensual A P A R T N E R S H I P .
- But not entirely correct, as the law requires certain The parties entered into a JV for the importation and
formalities under certain cases (limited partnerships) distribution of kitchenwares but the partnership
agreement was not reduced in writing. Tocao and Belo
Bilateral were the capitalists and Anay was the industrial partner.
- The fact that it is entered into by 2 or more persons F:
Once the business took off and became financially stable,
does not distinguish it from other contracts Tocao unilaterally excluded Anay. Anay filed a case to
collect her commissions and shares in the profits. Tocao
Preparatory
and Belo denied that a partnership existed.
Professional Partnerships87 I: Is there a partnership?
“Profession” is a group of men pursuing a learned art as a YES. See doctrine. This is based on the provisions of the
civil code and the fact that a contract of partnership is
service because it may incidentally be a means of consensual.
livelihood.88 In the case at hand, Belo acted as capitalist while Tocao
R:
Take note that the practice of a profession is not a as president and GM, and Anay as head of the marketing
business/enterprise, and thus, partners are individually department and later, VP for sales. Furthermore, Anay
was entitled to a percentage of the net profits of the
responsible for their own acts. business.
- Rationale: The practice of a profession is a personal
one and therefore, cannot be possessed by a juridical
entity. J.M. TUASON V BOLAÑOS (1954)
This is a suit to recover possession of land from Bolanos.
ELEMENTS Bolanos' defense is that Gregorio Araneta Inc cannot act
1. Two or more persons bind themselves to contribute F:
as the managing partner for JM Tuason Inc because it is
money, property, or industry to a common fund; and illegal for 2 corporations to enter into a partnership.
a. Or the fact of contribution89 I: Is there a partnership?
2. With the intention of dividing the profits among NO. THIS IS A JOINT VENTURE. A corporation has no
themselves power to enter into a partnership but it may enter into
R:
a. Or a joint interest in the profits90 joint ventures on the condition that the nature of the JV is
in line with the business authorized by its charter.
WOODHOUSE V. HALILI (1953)

A P E R S O N C A N N O T B E C O M P E L L E D B Y A C O U R T T O II. Common Fund
E N T E R I N T O A C O N T R A C T O F P A R T N E R S H I P . Usually, parties contribute their own capital/property to the
common fund, but partnerships may also be created among
Woodhouse and Halili agreed to enter into a partnership
to bottle and sell Mission brand soft drinks, but during parties without such.
operations, Halili refused to execute the partnership A partnership may exist prior to the creation of a common
F:
contract, saying Woodhouse had misrepresented himself fund.
as having the exclusive franchise agreement from Mission
- Note: “bind themselves TO contribute”
Corp.
WON false representation or fraud, if it existed, annuls the - In addition, the common fund need not even come from
I: the partners’ own funds but may be borrowed.
agreement to form the partnership
NO. SC held that plaintiff misrepresented to the - It may also be intangibles, in the form of
defendant the fact of the former’s exclusive franchise but credit/industry.91
this kind of fraud (dolo incidente) did not void the contract.
Depsite this, the defendant still cannot be compelled to Can the common fund come from stolen property?
R: carry out the agreement nor execute the partnership - Yes. The law does not require the funds to come from a
papers. The law recognizes the liberty of an individual to legal source.
do or not to do an act. The action falls within Acto
Personalisimo (a very personal act) which courts may not
compel compliance. LIM TONG LIM V PHILIPPINE FISHING GEAR (1999)
T H E C O N T R I B U T I O N T O T H E C O M M O N F U N D N E E D
N O T B E C A S H O R F I X E D A S S E T S ; I T C O U L D B E A N
87
De Leon I N T A N G I B L E L I K E C R E D I T O R I N D U S T R Y
88 IN THE MATTER OF THE PETITION FOR AUTHORITY TO CONTINUE USE OF FIRM
NAME “SYCIP, SALAZAR, ETC.” / “OZAETA, ROMULO, ETC.”
89 AFISCO V CA (1999)
90
Id. 91 LIM TONG LIM V PHILIPPINE FISHING GEAR (1999)
_______________________________________________________________
Chua, Yao and Lim purchased P532k worth of nets and - Sir: The code is specific that the partnership’s goal is to
P68k worth of floats from PH Fishing. They failed to be able to divide profits.
pay so PH Fishing sued the 3 as general partners
F:
because their corporation was non-existent. Lim claims GATCHALIAN V CIR (1939)
that he was a mere lessor and not a partner and that I N T E N T I O N T O D I V I D E P R O F I T S : S O L E P U R P O S E O F
he did not directly participate in the purchase. E Q U A L L Y D I V I D I N G T H E P R I Z E W H I C H T H E Y M A Y
I: Is there a partnership? W I N
YES. The boats, the nets and floats were purchased
15 people contributed to buy a P2 lotto ticket which later
and repaired with money borrowed from Lim's brother.
F: won P50k. The BIR assessed the 15 people for taxes,
Moreover, there was an agreement to divide the profits.
which it considered as a partnership.
R: Moreover, the fact that Lim sold the boats to pay for
I: Is there partnership?
the debts lends credence to the conclusion that he was
YES. Each of them put up the money to buy the lotto
a partner because no lessor in his right mind would sell
tixchet for the sole purpose of dividing equally the profits
his own boats to pay for the debt of the lesses.
R: if they win. There is therefore a partnership. Moreover,
THIS SHOWS THAT THE PARTNERS DID NOT CONTRIBUTE ANY Gatchalian appeared at the PCSO and got the check in
NOTE:
CAPITAL OF THEIR OWN TO THE COMMON FUND. favor of "Jose Gatchalian & Co."
PHILEX MINING V CIR (2008) IV. Separate Juridical Personality

T H E S C M A Y L O O K A T T H E F A C T T H A T T H E
P A R T I E S U N D E R T O O K T O C O N T R I B U T E F U N D S A N D When Personality Exists
T H A T T H E R E W A S S U B S T A N T I V E E Q U I V A L E N C E I N Article 1768
T H E I R C O N T R I B U T I O N S I N C O N C L U D I N G T H A T The partnership has a judicial personality separate and distinct
T H E R E I S A P A R T N E R S H I P . M O R E O V E R , A N from that of each of the partners, even in case of failure to
" O P T I O N A L C O N T R I B U T I O N " B E C O M E S B I N D I N G comply with the requirements of Article 1772, first paragraph.
W H E N I T C A N N O T B E W I T H D R A W N A F T E R I T W A S
C O N T R I B U T E D . Article 1772
Every contract of partnership having a capital of three thousand
Philex and Baguio Gold had a Management Contract pesos or more, in money or property, shall appear in a public
wherein the former will manage the operations of the instrument, which must be recorded in the Office of the Securities
latter while the latter will advance P11m. Philex "may" also and Exchange Commission.
advance up to P11m of its own money which it cannot
withdraw until termination of the agreement. After 11 yrs Failure to comply with the requirements of the preceding
of mismanagement, the operations ceased and the parties paragraph shall not affect the liability of the partnership and the
F: executed a "Compromise with Dation in Payment." Baguio members thereof to third persons.
admitted a P259m debt and, after partial payment, a Article 1775
P114m balance was left. Philex wrote off this P112m debt
Associations and societies, whose articles are kept secret
by charing it to allowances and reserves for 2 fiscal years. among the members, and wherein any one of the members may
Philex then deducted the P112m from its gross income as contract in his own name with third persons, shall have no
bad debt, which BIR disallowed on the theory that there juridical personality, and shall be governed by the provisions
was a partnership. relating to co-ownership.
I: Is there a partnership?
YES. Philex cannot therefore deduct such amount. The SC
looked at the Management Contract, which was a Power Aggregate Theory
of Attorney, and not the compromise agreement because A partnership is an aggregate of individuals and does not
the latter was a collateral document. The court took note constitute a separate legal entity.
that both of them undertook to contribute funds and that
R:
there was substantive equivalence (P11m for P11m). As for Entity Theory
Philex's claim that it was "not bound" to contribute and
that it was only optional, the court said it was a fact that it A partnership has an existence separate from the
contributed and that it cannot withdraw. It was therefore partners.
bound.
This is what we follow in Philippine Law.
Effects of Juridical Personality
III. Intention to Divide Profits 1. It may sue or be sued in its name or by its duly
Based on Gatchalian, “profits” may not always mean authorized representatives.92
business profits. It may be from other sources, such as a 2. It has a domicile.
game.
3. It has the power to contract.
- Thus, any group who pool resources together to fund 4. It has the ability to acquire and possess property, obtain
any legal activity that may result in funds that can be rights and incur obligations.
divided among them, may be considered a partnership 5. Property acquired by the partnership belongs to it and
What if the partnership will never make a profit?
92 TAI TONG CHUACHE V INSURANCE COMMISSION (1988)

_______________________________________________________________
not to the members in common. S H O W N T H A T T H E L E G A L F I C T I O N O F A D I F F E R E N T
6. The legal personality of the expiring partnership persists J U R I D I C A L P E R S O N A L I T Y I S B E I N G U S E D F O R
for the limited purpose of winding up and closing of the F R A U D U L E N T , U N F A I R , O R I L L E G A L P U R P O S E .
affairs of the partnership.93 The Sps Abrogar entered into an equitable mortgage with
AC Aguila & Sons Co (the proceeds of which they needed
When Juridical Personality does not exist: for hospital expenses). The agreement was to sell their
When the partnership’s articles are kept secret from its house for P200k which they could redeem within 30 days
members and the members may contract in their own F: for P230k. They failed to pay, so they were judicially
name. ejected. The husband died. The widow later sued Alfredo
Aguila to declare the Deed of Sale void for being a forgery.
VARGAS & COMPANY V CHAN (1915) Aguila's defense was that he was not a real party in
S U M M O N S N E E D N O T B E S E R V E D O N A L L T H E interest.
P A R T N E R S , T H E S U I T B E I N G A G A I N S T T H E Is a partner a real party in interest in a suit involving a
P A R T N E R S H I P I T S E L F A N D N O T T H E P A R T N E R S I:
contract where the partnership is the party?
In a separate suit to recover a sum of money against NO. Every action must be prosecuted or defended in the
Vargas & Co., the sheriff served summons on Jose name of the real party in interest. Here, it should have
Macapinlac, the managing agent. Vargas & Co argues been the partnership, and not its officer or agent, which
F: that summons should have been served on all the must be impleaded in any litigation involving property
R:
partners and that, without proper summons, the court registered in its name. Alfredo Aguila is not the
never acquired jurisdiction and the judgment was partnership. Moreover, it was not shown that the company
therefore void. is being used for fraudulent, unfair or illegal purposes
I: Was there a valid judgment? (which would justify piercing of the veil)
YES. The universal practice here is to serve summons on
the managing agent or other official of the company and
R: such actions are deemed to have been brought against
CAMPOS RUEDA V PACIFIC COMMERCIAL (1922)
the company in their company names and not against the S I N C E T H E J U R I D I C A L P E R S O N A L I T Y O F A L I M I T E D
individual partners. P A R T N E R S H I P I S D I F F E R E N T F R O M T H A T O F I T S
M E M B E R S , I T M U S T , O N G E N E R A L P R I N C I P L E ,
A N S W E R F O R , A N D S U F F E R , T H E C O N S E Q U E N C E
EVANGELISTA V CIR (1957) O F I T S A C T S A S S U C H A N E N T I T Y C A P A B L E O F
T H E I N T E N T I O N T O D I V I D E P R O F I T S C A N B E S E E N I N B E I N G T H E S U B J E C T O F R I G H T S A N D
T H E F O L L O W I N G F A C T S : ( 1 ) C R E A T E C F , ( 2 ) O B L I G A T I O N S .
H A B I T U A L I T Y , ( 3 ) N O T F O R P E R S O N A L U S E , ( 4 ) O N E The Limited Partnership was liable to Pacific for P1k. This
M A N A G E R F O R A L O N G T I M E A N D ( 5 ) T H E A L L E G E D was left unpaid for more than 30 days that led to the filing
P A R T N E R S D O N O T P R O V I D E A N Y S U F F I C I E N T F: of an application for a judicial decree judging it insolvent.
E X P L A N A T I O N . TC: Denied. No proof/allegation that the partners were
Siblings borrowed money from their father, pooled their insolvent.
own money and bought several real properties which they WON a LLP, which has failed to pay its obligation for more
rented out. One brother managed the properties. The CIR than 30 days, may be held to have committed an act of
F: I:
demanded income tax, real estate dealer's tax and insolvency, and thereby be adjudged insolvent against its
residence tax. The siblings argued that they were co- will.
owners and not partners. YES. Since partnerships in the PH are juridical entities
I: Is there a Partnership? separate from its members, they must answer for and
YES. There was (1) a common fund, which is not an issue suffer the consequence of its acts. In this case, the LLP
and (2) the intention to divide profits. Their intention to failed to pay its obligations with 3 creditors for a period of
divide profits can be seen in the following acts: R: more than 30 days, which failure constitutes, under our
(1) they created a common fund, (2) they invested in a Insolvency Law, one of the acts of bankruptcy upon which
series of transactions (there is habituality), (3) these were an adjudication of involuntary insolvency can be
R: predicated, this partnership must suffer the consequences
not for their personal use, (4) the business was handled
only by 1 brother for 15 years and (5) they provided no of such a failure, and must be adjudged insolvent.
explanation whatsoever.
Obiter: The Taxable Partnerships in the Internal Revenue
Code are not partnerships in the technical sense.
MENDIOLA V CA (2006)
C O -‐ O W N E R S H I P A N D J O I N T I N T E R E S T I S A N
THE FACTS HERE ARE NOT EXCLUSIVE. THERE MAY STILL BE
SIR: E S S E N T I A L E L E M N T O F P A R T N E R S H I P . W I T H O U T
PARTNERSHIP IF LESS THAN ALL ARE PRESENT.
I T , T H E R E I S N O P A R T N E R S H I P .
Pafcor (a US company), entered into a "Side Agreement"
AGUILA V CA (1999) with Mendiola wherein the latter will establish a
A P A R T N E R C A N N O T B E H E L D L I A B L E F O R T H E F: representative office in PH. Mendiola believed he was a JV
O B L I G A T I O N S O F T H E P A R T N E R S H I P U N L E S S I T I S part-owner with 50% equity but he was informed that he
isn't.
I: Is there an ER-EE relationship? Is there a partnership?
93 YU V NLRC (1993)
_______________________________________________________________
HE IS AN EMPLOYEE. Here, there was no co-ownership. SPECIFIC RULES
R:
Therefore there is no partnership.
PERSON NOT PARTNERS TO EACH OTHER NOT
PARTNERS TO THIRD PERSONS
V. Determination of Existence of Article 1769 (1)
In determining whether a partnership exists, these rules shall
Partnership and Difference from apply:
Other associations/contracts (1) Except as provided by Article 1825, persons who are not
Article 1769 partners as to each other are not partners as to third persons;
In determining whether a partnership exists, these rules shall
apply: Article 1825
When a person, by words spoken or written or by conduct,
(1) Except as provided by Article 1825, persons who are not
represents himself, or consents to another representing him to
partners as to each other are not partners as to third persons;
anyone, as a partner in an existing partnership or with one or
(2) Co-ownership or co-possession does not of itself establish a
more persons not actual partners, he is liable to any such persons
partnership, whether such-co-owners or co-possessors do or
to whom such representation has been made, who has, on the
do not share any profits made by the use of the property;
faith of such representation, given credit to the actual or apparent
(3) The sharing of gross returns does not of itself establish a
partnership, and if he has made such representation or consented
partnership, whether or not the persons sharing them have a
to its being made in a public manner he is liable to such person,
joint or common right or interest in any property from which
whether the representation has or has not been made or
the returns are derived;
communicated to such person so giving credit by or with the
(4) The receipt by a person of a share of the profits of a business
knowledge of the apparent partner making the representation or
is prima facie evidence that he is a partner in the business,
consenting to its being made:
but no such inference shall be drawn if such profits were
received in payment: (1) When a partnership liability results, he is liable as though he
(a) As a debt by installments or otherwise; were an actual member of the partnership;
(b) As wages of an employee or rent to a landlord; (2) When no partnership liability results, he is liable pro rata with
(c) As an annuity to a widow or representative of a deceased the other persons, if any, so consenting to the contract or
partner; representation as to incur liability, otherwise separately.
(d) As interest on a loan, though the amount of payment vary (3) When a person has been thus represented to be a partner in
with the profits of the business; an existing partnership, or with one or more persons not
(e) As the consideration for the sale of a goodwill of a actual partners, he is an agent of the persons consenting to
business or other property by installments or otherwise. such representation to bind them to the same extent and in
the same manner as though he were a partner in fact, with
Notes: respect to persons who rely upon the representation. When all
Sir: There is no specific rule on what factors to use. The the members of the existing partnership consent to the
representation, a partnership act or obligation results; but in
Evangelista case talks about collectively looking at all the
all other cases it is the joint act or obligation of the person acting
factors and that singularly, the circumstances will not make and the persons consenting to the representation.
the endeavour a partnership.
Rule on persons who are not partners:
IN GENERAL G.R.: Persons who are not partners are not partners to 3rd
NO ONE FACTOR persons.
No one factor, circumstance or test is alone determinative of E: Partnership by Estoppel.
the existene of the partnership. The facts and circumstances
CO-OWNERSHIP OR CO-POSSESSION
surrounding the case must stand upon its own merits.94
Article 1769 (2)
INTENT OF THE PARTIES In determining whether a partnership exists, these rules shall
One of the most important factors to take into consideration apply:
in determining whether a partnership exists between (2) Co-ownership or co-possession does not of itself establish a
purported partners is the intent of the parties. partnership, whether such-co-owners or co-possessors do or
do not share any profits made by the use of the property;
It looks at the mutually voluntary consent manifested by the
Article 484
terms of the parties’ agreement or their conduct under it.
There is co-ownership whenever the ownership of an undivided
- The parties must intend to create the relationship of thing or right belongs to different persons.
partnership.95
In default of contracts, or of special provisions, co-ownership shall
The written agreement may not override intent be governed by the provisions of this Title.
94 DALTON V AUSTIN, LAS VEGAS MACH V ROEMISCH

95 P&M CATTLE V HOLLER
_______________________________________________________________
PARTNERSHIP CO-OWNERSHIP SHARING OF GROSS RETURN DOES NOT ESTABLISH A
PARTNERSHIP
LEGAL PERSONALITY
Article 1769 (3)
Yes None In determining whether a partnership exists, these rules shall
CREATION apply:
Only created through Several means of creation (3) The sharing of gross returns does not of itself establish a
contract partnership, whether or not the persons sharing them have a
PURPOSE joint or common right or interest in any property from which
the returns are derived;
For Profit Collective enjoyment
MUTUAL REPRESENTATION Rationale:
Yes None To share gross returns is inconsistent with the idea of
TERM OF EXISTENCE community of interest in the business, joint ownership of the
May be for more than 10 May not stipulate indivision profits and joint sharing of he losses.96
years for more than 10 years (20 The partners must be interested in sharing both profits and
years for testator/donor) losses.
EXTINGUISHMENT
RECEIPT OF PROFITS PRIMA FACIE EVIDENCE OF BEING
Dissolves upon death of a Continues even if a co-owner A PARTNER
partners dies
Article 1769 (4)
DISPOSAL OF INTEREST In determining whether a partnership exists, these rules shall
Consent needed Consent not needed apply:
SHARING OF PROFITS (4) The receipt by a person of a share of the profits of a business
Profits may be stipulated Profits must always depend is prima facie evidence that he is a partner in the business,
on proportionate share but no such inference shall be drawn if such profits were
received in payment:
Notes: (a) As a debt by installments or otherwise;
(b) As wages of an employee or rent to a landlord;
This provision provides that a co-ownership of itself does (c) As an annuity to a widow or representative of a deceased
not establish a partnership but it doesn’t mean that a partner;
partnership may not be formed afterwards. (d) As interest on a loan, though the amount of payment vary
with the profits of the business;
Oña provides the rule on when a co-ownership may be (e) As the consideration for the sale of a goodwill of a
considered transformed into a partnership. business or other property by installments or otherwise.
OÑA V CIR (1972) Rationale:
F R O M T H E M O M E N T C O H E I R S / C O -‐ O W N E R S A L L O W E D
T H E I R I N C O M E S F R O M T H E I R R E S P E C T I V E S H A R E S
This presumption is based on the theory that persons who
O F T H E I N H E R I T A N C E A N D I N H E R I T E D P R O P E R T I E S take part of profits take part of that fund on which creditors
T O B E U S E D A S A C O M M O N F U N D , A N D T H E R E I S of the business rely for their payments.97
I N T E N T I O N O F D E R I V I N G P R O F I T T O B E S H A R E D B Y
Effect of this rule
T H E M P R O P O R T I O N A L L Y , T H E Y T H E R E F O R E F O R M
A N U N R E G I S T E R E D P A R T N E R S H I P F O R T A X
It shifts the burden of proof to the person opposing the
P U R P O S E S . existence of a partnership.
When Julia died, she left her husband and her 5 minor Note:
children a boatload of properties. There was a (1) judicial Isn’t the general rule that receipt of profits is prima facie
partition but (2) the properties remained under the evidence of being partner inconsistent with 1769 (2)?
management of the widower. He was able to (3) increase - NO. The 4th paragraph talks about a person being a
F: its value from P105k to P480k through the years, and (4)
partner or not in an existing partnership while the 2nd
the profits were invested in real properties and securities.
The CIR took notive and considered them an unregistered paragraph talks about the existence of a partnership.
partnership and thereafter assessed them for Corporate
Income Tax. LABOR UNION;
I: Is there a Partnership?
YES. There was originally a co-ownership but this later BUSINESS TRUST;
R: became an unregistered partnership. See doctrine. Take
note of the numbered facts because these are important. CONJUGAL PARTNERSHIP OF GAINS
(1) PARTITION WAS NOT NECESSARY (C.F. GATCHALIAN: THERE WAS
NO PARTITION THERE)
(2) HERE, THEY WERE ALREADY AWARE OF THEIR SHARES (C.F
SIR:
GATCHALIAN: THEY WEREN'T AWARE)
(3) THIS CASE IS APPLICABLE REGARDLESS IF IT IS A TAX CASE OR
96
NOT. Bautista
97
Id.
_______________________________________________________________
GOVERNING LAWS
CORPORATIONS
Civil code provisions from The corporation code
PARTNERSHIP CORPORATION
Article 1767 - 1867 primarily primarily governs
MEMBERS/CREATORS governs
The law requires two or At least 5 but not more than JURIDICAL PERSONALITY
more persons 15 natural persons The partnership has a The corporation has a
HOW CREATED separate juridical separate juridical
Mere agreement between personality personality
the parties will create the
partnership VOLUNTARY ASSOCIATIONS
Registred with the SEC, DTI, Mayor's office, and the BIR in Article 1775
order to formally be created Associations and societies, whose articles are kept secret among
CAPITAL CONTRIBUTION the members, and wherein any one of the members may contract
in his own name with third persons, shall have no juridical
Partners may contribute Paid-up capital must be at personality, and shall be governed by the provisions relating to
either money, property, or least P5,000. 25% of the co-ownership.
industry to a common fund authorized capital stock
must be subscribed into and JOINT VENTURES;
25% of the subscription
must be paid. JOINT TENANCY.
EXTENT OF LIABILITY PASCUAL V CIR (1988)
Partners are individually The trust fund doctrine T H E R E M U S T B E A C L E A R I N T E N T T O F O R M A
liable only after exhaustion limits the liability of the P A R T N E R S H I P , T H E E X I S T E N C E O F A J U R I D I C A L
of the partnership's assets. incorporators or P E R S O N A L I T Y D I F F E R E N T F R O M T H E I N D I V I D U A L
P A R T N E R S , A N D T H E F R E E D O M O F E A C H P A R T Y T O
General partners - Liable stockholders only to the
T R A N S F E R O R A S S I G N T H E W H O L E P R O P E R T Y .
pro rata to the extent of amount subscribed into.
his/her personal assets Stockholders can only be 1965. Pascual and Dragon bought 2 parcels of land. 1966.
Limited partners - Cannot personally liable if they act They bought 3 more parcels. 1968. They sold the first 2
be personally liable unless as sureties, or if the parcels. 1970. They sold the last 3 parcels. All in all they
F: realized a profit of P220k so they paid capital tax gains,
acts as a general partner. corporate veil is peirced
and availed themselves of tax amnesties. The BIR
because of fraudulent acts considered them as an unregistered partnership and
by directors, or for other required them to pay corporate income tax.
reasons. I: Is there a partnership?
PROFIT SHARING NO. There is no partnership because there is not character
All partners share in the Shareholders enjoy profits of habituality peculiar to business transactions.
Contrasted with Evangelista:
profits pro-ratedly to their through dividend
contribution or to an agreed declarations, which may be There: (1) They leased out the properties
proportion. in the form of cash, property, (2) Managed by 1 brother
or stocks. Unlike a (3) for 15 years
partnership, only
unrestricted retained R: Here: (1) none of the facts are present
earnings may be used to (2) co-ownership started in 1965 and ended in 1970
declare dividends. (3) these were isolated transactions
INCOME TAX Citing Evangelista: To be a partnership (1) it must be for
30% 30% profit, (2) there must be clear intent to form and (3) it
DISSOLUTION must have an independent judicial personality. Here there
Dissolved through an May be voluntary or was no clear intent to form and there was no unregistered
partnership with a distinct personality.
agreement, or through the involuntary.
NO IMPROVEMENTS WERE MADE (WHICH WOULD INDICATE THE
will of a partner, or when the Voluntary dissolution INTENTION TO SELL AT A HIGHER PRICE). THIS IS A BORDERLINE
life of the partnership ends. happens upon the majority SIR:
CASE. 2 TRANSACTIONS WERE CONSIDERED AS "ISOLATED
vote of the Board of TRANSACTIONS". WHAT NUMBER IS ENOUGH?
Directors and the 2/3 vote of
the stockholders. Notes:
Involuntary dissolution Sir: Nature and other circumstances surrounding
happens either by the transactions would be important in identifying the intention
expiration of the corporate to profit from such.
term or by an action by the
SEC.
_______________________________________________________________
OBILLOS V CIR (1985) T H E P R I M O R D I A L R E A S O N F O R I T S F O R M A T I O N ,
T H E R E M U S T B E A N U N M I S T A K A B L E I N T E N T I O N T O T H E N T H E R E I S A P A R T N E R S H I P .
F O R M A P A R T N E R S H I P B E F O R E I T C A N B E H E L D 41 local insurers entered into 2 Reinsurance Treaties with
T H A T T H E R E I S A P A R T N E R S H I P . a German Insurance Co. They created a pool on the same
The father completed payment on 2 lots and transferred F: day, which CIR assessed taxes on as a corporation. They
them to his 4 children (as co-owners) for their residence. now claim that the pool couldn't possibly have engaged in
Seeing that the construction costs were now too high, the reinsurance from which it could derive profit for itself.
F: children later resold the lots, treated the profit as capital I: Is the pool a partnership?
gain, and paid income tax. The CIR, on the theory that YES. Why? (1) There was a common fund consisting of
they were in reality an unregistered partnership, required money and other valuables in the name and credit of the
them to pay corporate income tax. pool, (2) the pool functions through an executive board
I: Is there a partnership? much like the BOD in corporations, (3) the pool is not itself
NO. 1) There was no intention to form a partnership (as R: a reinsurer but its work is indispensable, beneficial and
testified by the father) economically useful to the business of the companies and
(2) To consider them a partners would be to obliterate the the foreign insurer. Without it, they would not receive their
distinction between co-ownership and partnership premiums. Profit is still the primordial reason for its
(3) They were not engaged in any joint venture; this was formation.
an isolated transaction
R:
(4) Their original purpose: residential; they changed their
mind because of the high costs LITONJUA V LITONJUA (2005)
(5) The division of profit is merely incidental to the I F T H E A C T I O N A B L E D O C U M E N T O N W H I C H T H E
dissolution of the co-ownership. E X I S T E N C E O F A P A R T N E R S H I P I S V O I D O R
See doctrine. U N E N F O R C E A B L E , T H E N N O N E O F T H E
Cf. Ona v CIR: There, they were engaged in a JV for profit. “ P A R T N E R S ” A R E E N T I T L E D T O T H E I R S U P P O S E D
S H A R E I N T H E A S S E T S O F T H E A L L E G E D
P A R T N E R S H I P .
HEIRS OF JOSE LIM V JULIET LIM (2010) Aurelio and Eduardo are brothers. Aurelio sued Eduardo
T H E B E S T E V I D E N C E F O R A P A R T N E R S H I P ’ S F: and Yang for Specific Performance and accounting of his
E X I S T E N C E I S T H E C O N T R A C T O F P A R T N E R S H I P O R joint venture shares.
T H E A R T I C L E S O F P A R T N E R S H I P . I N I T S A B S E N C E , I: Can Aurelio recover his shares?
T H E E V I D E N C E O F T H E P A R T I E S M U S T B E W E I G H E D . NO. (1) A Joint Venture is a form of partnership. It is
There were two contending versions: The family claims therefore goverened by the law on partnership.
that it is the father who is the partner and that the son (2) If the partnership involves immovables worth more
only held in trust the partnership when the father died. R: than P3000, it must be written on a public document
F: The son's widow, on the other hand, claims that the son is (notarized)
the partner because he was given the contribution by the Here, the JV agreement was not notarized, therefore, the
father and that under his management, the business action states no cause of action.
flourished.
I: Who is the partner?
THE SON. AURBACH V SANITARY WARES (1989)
(1) The father gave the son the seed money W H E T H E R T H E P A R T I E S H A V E E S T A B L I S H E D A
(2) The son ran the affairs J O I N T V E N T U R E O R O T H E R R E L A T I O N D E P E N D S
(3) All properties were registered in the son's name U P O N T H E I R A C T U A L I N T E N T I O N W H I C H I S
(4) There was a testimony that the son did not receive D E T E R M I N E D I N A C C O R D A N C E W I T H T H E R U L E S
wages G O V E R N I N G T H E I N T E R P R E T A T I O N A N D
R: C O N S T R U C T I O N O F C O N T R A C T S .
(5) No one demanded periodic accounting (citing Heirs of
Tan Eng Kee) Saniwares, ASI and several Filipino investors entered into
(6) The heirs failed to show that the properties formed an agreement to engage in the manufacturing and selling
part of the estate of the father F: of vitreous china and sanitary wares. It was initially
(7) The father died when the partnership was barely 1 year successful but it deteriorated because of disagreements
old. If he was the partner, why was it not dissolved? over the BOD elections.
THE SON RAN THE PARTNERSHIP TO THE POINT THAT THE Is it a Corporation (as ASI argues) or is it a Joint Venture
PARTNERSHIP PROPERTIES WERE IN HIS OWN NAME. 1769 IS I:
SIR: (as some Filipino investors argue)?
IMPROPER BECAUSE THE ISSUE HERE IS NOT THE EXISTENCE OF A JOINT VENTURE. The SC considered the ff facts:
PARTNERSHIP BUT WHO THE REAL PARTNER IS. (1) it examined some important provisions, particularly
those for the protection of the minority
(2) there was testimonial evidence of one group
AFISCO V CA (1999) (3) the history of the organization
I F T H E W O R K O F A P O O L I S I N D I S P E N S A B L E , R:
(4) the unusual arrangement which governs its policy-
B E N E F I C I A L A N D E C O N O M I C A L L Y U S E F U L T O T H E making body
B U S I N E S S O F T H E A L L E G E D P A R T N E R S , A N D Because it was a JV, the Corporation Code cannot apply. A
W I T H O U T I T T H E Y W O U L D N O T H A V E R E C E I V E D Joint Venture is an organization for a temporary purpose.
T H E I R P R E M I U M S A N D W H E R E P R O F I T I S S T I L L The difference lies in whether there is continuity
_______________________________________________________________
(Corporation) or it is only for a single transaction (Joint
Venture). Moreover, a corporation may join a JV but not a COMMENCEMENT AND TERM
partnership. Article 1784
A partnership begins from the moment of the execution of the
contract, unless it is otherwise stipulated.
HEIRS OF TAN ENG KEE V CA (2000)
When Tan Eng Kee died, his common-law spouse and Article 1785
their children sued Tan Eng Lay (his brother) for When a partnership for a fixed term or particular undertaking is
accounting, liquidation and winding up of the alleged continued after the termination of such term or particular
F:
partnership. They claim that the brother converyed the undertaking without any express agreement, the rights and
partnership into a corporation to deprive them of their duties of the partners remain the same as they were at such
shares. termination, so far as is consistent with a partnership at will.
I: Is there a partnership?
A continuation of the business by the partners or such of them
NO. TAN ENG KEE WAS MERELY AN EMPLOYEE. JV as habitually acted therein during the term, without any
presupposes: (1) parity of tanding, (2) equal proprietary settlement or liquidation of the partnership affairs, is prima facie
interest and (3) exercise of equal rights evidence of a continuation of the partnership.
The SC cited Aurbach in that JV's are a form of
R: partnership. The best evidence of a partnership is the Rule on when a partnership begins:
contract of partnership or the articles of partnership. Next
G.R.: Partnership begins from perfection of the contract.
to that is that demand for periodic accounting. Here, the
SC found it odd that Kee never demanded for an E: A beginning period is agreed upon or the date on the
accounting in 40 years. Articles.
Rules on term of partnership:
STERN V DEPT. OF REVENUE (1974) The law does not limit the term the parties may agree to
I F T H E C L O S E R E L A T I O N S H I P B E T W E E N A L L E G E D stipulate.
P A R T N E R S S T E M S F R O M T H E I R M A R R I A G E A N D N O T - But there is a natural limit to the partnership (existence
F R O M A N Y B U S I N E S S M O T I V E , T H E R E I S N O of parties, nature of undertaking, etc.)
P A R T N E R S H I P . I . E . T H E C L O S E R E L A T I O N S H I P O F
P A R T N E R S M U S T S T E M F R O M B U S I N E S S M O T I V E . Partnerships may be classified into:
- Partnership for a term/undertaking; or
A husband and a wife ran an interior decorating business. - Partnership at will.
The title, the bank account, the selling permit and the
F:
employer's registration certificate were all in the company Absent any stipulation, the partnership shall exist until the
name. There was no written partnership agreement. They parties agree to dissolve/terminate it. (Partnership at will)
wanted to be taxed as a partnership, but they were taxed
as a single proprietorship. Continuation after the expiration of term/purpose
I: Is there a partnership? Continuation of the partnership may be done expressly or
NO. The SC of Wisconsin cited Skaar v Dept of Revenue: impliedly.
There are 4 elements in a partnership (not applicable in - Continuation without settlement or liquidation is prima
PH):
facie evidence of continuation of term.
(1) the intention to form a bona fide partnership
(2) there is community of interest Notes:
R:
(3) there is equal voice in the management
The rules set out by the SEC confuses things, so just place a
(4) there is sharing and distribution of profits and losses
Here, their close relationship stems from their marriage
date on the Articles of Partnership to be sure.
and not from any business motive. There is therefore no
bona fide intent to form a partnership.
LAWFUL PURPOSE AND COMMON
THE ELEMENTS ARE NOT APPLICABLE IN OUR JURISDICTION,
OBJECTIVE
THOUGH MOST OF OUR PROVIS ARE FROM THEIR, WE STILL DID NOT
SIR: Notes:
COMPLETELY COPY THE PROVISIONS FORM THE UPA. ALSO, WE USE
THE ENTITY THEORY NOT AGGREGATE THEORY. The purpose must be stated with sufficient clarity and
elucidation to define the scope of the contract.98
VI. Creation Partnerships are not required to disclose which of the

purposes is its primary purpose.99
[Recap] Elements of a Partnership:
LAWFUL PURPOSE
1. Two or more persons bind themselves to contribute
Article 1770
money, property, or industry to a common fund;
A partnership must have a lawful object or purpose, and must be
2. With the intention of dividing the profits among established for the common benefit or interest of the partners.
themselves; and
3. The purpose of the partnership must be lawful. When an unlawful partnership is dissolved by a judicial decree,
98 SEC OPINION TO SOLITARIO

99 SEC OPINION TO CENTRAL BANK
_______________________________________________________________
the profits shall be confiscated in favor of the State, without delicto).
prejudice to the provisions of the Penal Code governing the c. 3rd parties may only recover if they transacted with
confiscation of the instruments and effects of a crime. the partnership in good faith.
Article 1409 (1) i. Therefore, unlawful partnerships must be
The following contracts are inexistent and void from the classified into:
beginning: 1. Those with obviously unlawful purpose; or
2. Those which appear to have a lawful purpose.
(1) Those whose cause, object or purpose is contrary to law,
morals, good customs, public order or public policy; Note:
Article 1830 There are possible ways for a partnership with an illegal
Dissolution is caused: purpose be allowed to exist:
- If the law will allow the purpose to be voided but not
(3) By any event which makes it unlawful for the business of the
the partnership; or
partnership to be carried on OR for the members to carry it on in
partnership; - If there are 2 or more purposes, and 1 purpose is lawful.
SEC OPINON TO MS. CA REYES SANTOS (1989)
Concept:
W H I L E T H E P U R P O S E O F T H E P A R T N E R S H I P M A Y
“Lawful Purpose”: S E E M I N N O C U O U S , I T S M O D U S O P E R A N D I A N D
- The purpose must not be contrary to law, morals, good A C T U A L O B J E C T I V E M A Y B E D E E M E D I M M O R A L .
customs, public order or public policy.
- If the law requires a specific form of a business COMMON BENEFIT
organization, such as banking (only stock corportions), Article 1799
this must be followed. A stipulation which excludes one or more partners from any
When is an unlawful partnership dissolved? share in the profits or losses is VOID.
A judicial decree is not necessary to disolve a partnership. Notes:
A partnership is dissolved by operation of law upon the “Benefit” may be pecuniary in nature or not.
happening of an event that makes it unlawful to continue - Psychic rewards or some form of satisfaction.
the business. - But if the partners agree that benefit = profits, then all
partners must take share in such profits.
Effects of an unlawful partnership o A stipulation excluding a person from the profits
1. The contract is void ab initio. shall be void.
2. The profits shall be confiscated in favor of the But the waiver of the receipt of profits is valid. Such waiver
government. must not appear in the partnership agreement, or else it will
3. The instruments/tools and proceeds of the crime shall be a void stipulation.
be confiscated.
4. The contributions of the partners shall not be DELUAO V. CASTEEL (1968)
confiscated, as they can demand the return of such T H E D I S S O L U T I O N O F T H E P A R T N E R S H I P T A K E S
under the rules on quasi-contracts (solutio indebiti)100 P L A C E U P O N T H E O C C U R R E N C E O F T H E E V E N T
a. Sir: Since there are provisions on void contracts, such W H I C H M A K E S T H E C O N T I N U A T I O N O F T H E
laws must be followed. P A R T N E R S H I P ' S B U S I N E S S , O R T H E C A R R Y I N G O N
O F S U C H B U S I N E S S T H R O U G H P A R T N E R S H I P ,
b. Art. 1411 and 1412101 provides for rules where guilty
U N L A W F U L .
parties may not recover the sums contributed (in pari
Casteel applied for a fishpond permit, and he obtained
loans from his Uncle to build dikes and cultivate fish.
During the pendency of his appeal against the rejection of
100 ARBES V POLISTICO
101 his application, he entered into a Contract of Service with
Art. 1411: When the nullity proceeds from the illegality of the cause or object
of the contract, and the act constitutes a criminal offense, both parties being in his Aunt, which provided that his Aunt would administer
pari delicto, they shall have no action against each other, and both shall be the fishpond while he would manage it. After the
prosecuted. Moreover, the provisions of the Penal Code relative to the disposal Secretary of Agriculture and Natural Resources upheld
of effects or instruments of a crime shall be applicable to the things or the price Casteel's application, Casteel forbade his Aunt from
of the contract. F:
further administering the fishpond. The Aunt and Uncle
This rule shall be applicable when only one of the parties is guilty; but the sued Casteel for Specific Performance with the CFI. The
innocent one may claim what he has given, and shall not be bound to comply
with his promise.
CFI granted injunction in favor of the Aunt and Uncle,
Art. 1412: If the act in which the unlawful or forbidden cause consists does not
which eventually became permanent. Casteel appeals the
constitute a criminal offense, the following rules shall be observed: CFI's granting of an Injunction based on a contract of
(1) When the fault is on the part of both contracting parties, neither may recover partnership, which restored his Aunt to the Administration
what he has given by virtue of the contract, or demand the performance of the of a fishpond for the Secretary of Agriculture had granted
other's undertaking; him a permit.
(2) When only one of the contracting parties is at fault, he cannot recover what I: WON the injunction is proper
he has given by reason of the contract, or ask for the fulfillment of what has NO. SC held that the contract was one of partnership,
been promised him. The other, who is not at fault, may demand the return of R:
what he has given without any obligation to comply his promise. which was dissolved because its business became illegal
_______________________________________________________________
or could not be legally carried out through partnership, Litonjua v Litonjua (2005) and Torres v CA (1999)?
from the time the fishpond application was approved, - Sir: The ruling on Torres considered treating the
because the law generally prohibits transfer or sublease of agreement as an ordinary contract. Litonjua provides
a fishpond; and that assuming they could share the for a stricter application of Art. 1773 in relation to Art.
fishpond, the parties' actuations showed that they
1771.
withdrew from the partnership because they refused to
share. WHEN IMMOVABLE PROPERTIES ARE INVOLVED
Article 1773
ARBES V. POLISTICO (1929) A contract of partnership is VOID, whenever immovable property
This is an action to bring about liquidation of the funds is contributed thereto, if an inventory of said property is not
and property of the association called "Turnuhan Polistico made, signed by the parties, and attached to the public
instrument.
& Co." The present case is a continuation of the first case
in the TC where it was held that the Turnuhan was an
F:
unlawful partnership. As a result, the cash on hand of the
Notes:
partnership and other uncollected credits was ordered to Always read Art. 1773 in relation to Art. 1771.
be returned by the officers of the organization - This provision says that a contract of partnership is void
(defendants) to the plaintiffs. if the parties did not:
I:
WON the order is fatal for not including all persons having o Made an inventory;
an interest in this association as plaintiffs or defendants o Sign the inventory; or
NO. According to said article, no charitable institution is a o Attached the inventory to the public instrument in
necessary party in the present case of determination of Art. 1771.
the rights of the parties. The action which may arise from
- It is reasonable to infer that real rights must be
said article, in the case of unlawful partnership, is that for
the recovery of the amounts paid by the member from included in the inventory too.
those in charge of the administration of said partnership, WHEN THE CAPITAL IS AT LEAST 3 THOUSAND PESOS
R: and it is not necessary for the said parties to base their
action to the existence of the partnership, but on the fact Article 1772
that of having contributed some money to the partnership Every contract of partnership having a capital of three thousand
capital. And hence, the charitable institution of the pesos or more, in money or property, shall appear in a public
domicile of the partnership, and in the default thereof, instrument, which must be recorded in the Office of the Securities
those of the province are not necessary parties in this and Exchange Commission.
case. Failure to comply with the requirements of the preceding
paragraph shall not affect the liability of the partnership and the
FORM AND CONTRIBUTION members thereof to third persons.
Ways of forming a partnership: Article 1768

1. Express/Implied The partnership has a judicial personality separate and distinct
2. By estoppel from that of each of the partners, even in case of failure to
comply with the requirements of Article 1772, first paragraph.
GENERAL RULE ON FORMATION OF PARTNERSHIPS
Notes:
Article 1771
A partnership may be constituted in any form, except where
Non-compliance with notarization/SEC requirement will
immovable property or real rights are contributed thereto, in which not invalidate the partnership by virtue of 2nd clause of Art.
case a public instrument shall be necessary. 1768.
Rules on the formation of partnerships: ============================================

A/N: I’M INCLUDING THIS PORTION AS A SEPARATE INSIGHT (AS PROVIDED
G.R.: A partnership may be formed orally or in writing. BY PROF. CASIS) RE: THE POSSIBILITY OF ALLOWING CORPORATIONS TO BE
E: If the partnership involves the contribution of PARTNERS IN A PARTNERSHIP. DO NOTE THAT PROF. AGUDA BELIEVES
THAT CORPORATIONS CANNOT ENTER INTO PARTNERSHIPS BUT MAY
immovable property or real rights: ENGAGE IN JOINT VENTURES. IF YOU WANT TO ARGUE OTHERWISE, THIS
§ The partnership agreement must appear in a SECTION WILL BE HELPFUL.
public instrument, together with the inventory of
immovable properties. CORPORATIONS AS PARTNERS
If the partnership involves capital of at least P3k AND Notes:

it affects 3rd persons: The Civil Code does not distinguish between natural and
§ The partnership agreement must appear in a juridical persons when it comes to the creation of the
public instrument and registered with the SEC. partnership.
- But jurisprudence and SEC opinions have carved
Notes: requirements for juridical persons:
The requirement on notarization and registration with the
SEC is only important insofar as the partnership will not
prejudice 3rd parties.
_______________________________________________________________
Rule on Corporations*: transferred thru a deed of sale in Manuel’s name, who
G.R.: Corporations cannot enter into partnerships. entered certain transactions in pursuit of the project. For
E: When the following conditions are met102: whatever reason, the project failed. The sisters now claim
damages in the amount of 60% of their expectation in the
1. The articles/by-laws must authorize it to enter
profits. The RTC dismissed their complaint, and the CA
into partnerships; affirmed the dismissal, holding that in a partnership,
2. Such authority requires that all managers will partners must share not just in the profits but in the
manage the partnership; losses. In their petition for review, the sisters raise the
3. An agreement that all partners will be solidarily argument that there could be no partnership, because the
liable for all partnership obligations; and agreement involves transfer of land, and for failure of the
4. The business to be undertaken must be in line JVA to include an inventory of the immovable property
with the business of the corporation (or at the very contributed, said partnership must be void.
least, be part of its secondary purposes) I: WON the transaction is one of partnership
YES. The Court held that said provision is meant to
In case of foreign corporations, the following are protect third parties (w/o an inventory, the agreement
additional requirements: cannot be inscribed in the Register of Deeds, and the
1. The foreign partner is allowable under the contribute cannot prejudice third parties, resulting in
Foreigh Investments Act; fraud on the part of those who contract with the
R:
2. The foreign partner obtains a license to transact partnership). There being no third parties involved that
may be prejudiced, the alleged nullity of the partnership
business in the Philippines;
will not prevent the courts from considering the JVA an
3. That the liability of the partnership shall: oridinary contract from which the parties’ rights and
a. Not be limited to the contribution; and obligations to each other may be inferred and enforced.
b. Not terminate even after dissolution.
4. In case there is a resident agent, the resident
agent shall also be solidarily liable with the KIEL V. ESTATE OF SABERT (1924)
foreign corporation. A P A R T N E R S H I P M A Y E V E N B E C R E A T E D W I T H O U T
A N Y D E F I N I T E I N T E N T I O N ; T H E I N T E N T I O N O F T H E
Rationale for Restrictions: P A R T I E S B E I N G I N F E R R E D F R O M T H E I R C O N D U C T
In a partnership103: A N D D E A L I N G S W I T H E A C H O T H E R .
- The corporation will be bound by acts of persons not Sabert and Kiel agreed to develop Parang Plantation
authorized to manage it; and Company, but Kiel was deported during WWI. After Sabert
- The identity of the corporation is lost/merged with that F: organized another plantation company, Kiel tried to
of the partnership. secure a settlement from Sabert. Sabert died before an
agreement could be reached; hence, Kiel sued his estate.
Such arrangement would improperly allow corporate I: WON a copartnership exists.
property to become subject to risks not contemplated by YES. SC held that the testimony of Kiel's witnesses,
the stockholders when they originally invested in the together with documentary evidence, shows that Kiel and
corporation104. R: Sabert entered into a partnership. Thus, Kiel was entitled
to half the value of the improvements and personal
Note: property on the plantation land.
We integrated the ruling on Romulo, Mabanta in these
requirements, even if such case will only be discussed later
on in Limited Partnerships. AGAD V. MABOLO AND AGAD CO. (1968)
- That SEC Opinion broadened the requirement of the I F A N I M M O V A B L E O R R E A L R I G H T S T H E R E T O
B E C A M E P A R T O F T H E A S S E T S O F T H E
business undertaking.
P A R T N E R S H I P , I T I S N O T R E Q U I R E D T H A T A R T S . 1 7 7 1
Mendiola is the jurisprudence that created the requirements A N D 1 7 7 3 B E F O L L O W E D I F T H E S E W E R E N O T
for corporations to enter into partnerships. I N C L U D E D A S C O N T R I B U T I O N S F O R T H E C A P I T A L O F
T H E P A R T N E R S H I P .
============================================
The parties entered into a partnership to operate a
TORRES V. CA (1999) fishpond business wherein each contributed P1,000 as
T H E L A C K O F A N I N V E N T O R Y O F R E A L P R O P E R T Y capital. Mabato refused to render accounting and
W I L L N O T I P S O F A C T O R E L E A S E T H E C O N T R A C T I N G F: distribute profits that Agad is entitled to so the latter
P A R T N E R S F R O M T H E I R R E S P E C T I V E O B L I G A T I O N S brought this case. The argument of Mabato is that the
T O E A C H O T H E R A R I S I N G F R O M A C T S E X E C U T E D I N partnership contract is void for noncompliance with Arts.
A C C O R D A N C E W I T H T H E I R A G R E E M E N T . 1771 and 1773.
I: WON there is a need to comply with the Civil Code.
Antonio Tores and Emeteria Baring entered into a JVA NO. The court held that there is no need to comply
F:
with Manuel for the dev’t of a subdivision. Land was R: because there was no immovable nor a real right thereto
contributed to the capital of the partnership.
102 SEC OPINIONS TO LIBREA AND ROMULO, MABANTA

103 SEC OPINION TO LIBREA
104 MENDIOLA V CA
_______________________________________________________________
KIND OF PARTNERSHIP all the partners, as well as all the profits which they may acquire
therewith.
AS TO OBJECT
A stipulation for the common enjoyment of any other profits
1. Universal
may also be made; but the property which the partners may
2. Particular acquire subsequently by inheritance, legacy, or donation cannot be
included in such stipulation, except the fruits thereof.
AS TO LIABILITY OF THE PARTNERS
1. General Notes:
2. Limited This is akin to an Absolute Community of Property
AS TO DURATION This kind of partnership includes:
1. Partnership at will - All properties at the time of constituion of the
2. Partnership with a Fixed Term or Undertaking partnership;
AS TO LEGALITY OF EXISTENCE - All profits acquired using the property; and
1. Partnership De Jure - Profits from other sources, provided that they are
2. Partnership De Facto stipulated.
o Includes fruits of properties that are inherited, legacy
AS TO REPRESENTATION or received in donation.
1. Real Partnership
But it excludes:
2. Partnership by Estoppel
- Those received by gratuitous title such as:
AS TO PUBLICITY o Inherited properties;
1. Secret o Legacies and devises; and
2. Open o Donations.
AS TO PURPOSE UNIVERSAL PARTNERSHIP OF PROFITS

1. Commercial Article 1780
2. Professional A universal partnership of profits comprises all that the partners
may acquire by their industry or work during the existence of the
partnership.
AS TO OBJECT Movable or immovable property which each of the partners may
Article 1776 possess at the time of the celebration of the contract shall
As to its object, a partnership is either universal or particular. As continue to pertain exclusively to each, only the usufruct passing
regards the liability of the partners, a partnership may be general to the partnership.
or limited.
Article 1781
UNIVERSAL PARTNERSHIP Articles of universal partnership, entered into without
specification of its nature, only constitute a universal partnership
Article 1777 of profits.
A universal partnership may refer to all the present property or to
all the profits. Notes:
This is akin to a Conjugal Partnership of Gains
Types of Universal Partnerships:
1. Universal Partnership of Present Property This kind of partnership includes:
2. Universal Partnership of Profits - All profits that are earned through work/industry
during the partnership; and
Note: - Usufruct of their individual properties.
The difference lies with the extent of what is contributed to
the partnership. But it excludes:
- Properties at the time of constitution of the
PRESUMPTION: Universal Partnership of Profits partnership.
UNIVERSAL PARTNERSHIP OF PRESENT PROPERTY
Article 1778 PROHIBITED UNIVERSAL PARTNERSHIPS
A partnership of all present property is that in which the partners Article 1782
contribute all the property which actually belongs to them to a
Persons who are prohibited from giving each other any donation
common fund, with the intention of dividing the same among
or advantage cannot enter into universal partnership.
themselves, as well as all the profits which they may acquire
therewith. Article 739
Article 1779 The following donations shall be VOID:
(1) Those made between persons who were guilty of adultery or
In a universal partnership of all present property, the property
concubinage at the time of the donation;
which belongs to each of the partners at the time of the
(2) Those made between persons found guilty of the same
constitution of the partnership, becomes the common property of
criminal offense, in consideration thereof;
_______________________________________________________________
(3) Those made to a public officer or his wife, descedants and AS TO DURATION
ascendants, by reason of his office. ORTEGA V. CA (1995)
T H E " P U R P O S E " O F T H E P A R T N E R S H I P A S S T A T E D I N
Note: T H E A R T I C L E S O F P A R T N E R S H I P I S N O T T H E
These prohibitions only apply to univeral partnerships. They S P E C I F I C U N D E R T A K I N G R E F E R R E D T O I N T H E L A W .
may enter into particular partnerships. O T H E R W I S E , A L L P A R T N E R S H I P S , W H I C H
N E C E S S A R I L Y M U S T H A V E A P U R P O S E , W O U L D A L L
PARTICULAR PARTNERSHIPS B E C O N S I D E R E D A S P A R T N E R S H I P S F O R A D E F I N I T E
Article 1783 U N D E R T A K I N G .
A particular partnership has for its object determinate things,
Atty. Misa of the law firm Bito, Misa & Lozada informed
their use or fruits, or specific undertaking, or the exercise of a
profession or vocation.
the firm's partners that he is withdrawing and retiring
from the firm so he demanded for a proper liquidation of
Note: F: his interests. He subsequently filed with the SEC a petition
for dissolution and liquidation of partnership, which was
What is important to note is the extent and scope of the denied by the hearing officer but granted by the SEC en
business matter and object of the partnership, which may banc. The CA affirmed the SEC's decision.
be: I: WON the partnership is a partnership at will.
- Determinate things; YES. The hearing officer's basis for the denial was that the
- Specific undertaking; or R:
partnership was one for a specific undertaking based on
- Exercise of a profession/vocation the “Purpose” Clause in the firm's Articles but the Court
held otherwise.
CIR V SUTER (1969) AS TO LEGALITY OF EXISTENCE

W H E R E P A R T N E R S C O N T R I B U T E O N L Y F I X E D 1. Partnership De Jure
S U M S , T H E R E I S P A R T I C U L A R P A R T N E R S H I P . 2. Partnership De Facto
Suter (P20k), Spirig (P18k) and Carlson (P2k) formed a
limited partnership where only Suter was the general AS TO REPRESENTATION
partner. The year after, Suter and Spirig married and, Article 1825
feeling left out and lonely (third wheel syndrome), Carlon When a person, by words spoken or written or by conduct,
left and sold his share to the spouses. The CIR came in represents himself, or consents to another representing him to
F: and ruined the honeymoon by claiming that the marriage anyone, as a partner in an existing partnership or with one or
effectively dissolved the partnership. It argued that there more persons not actual partners, he is liable to any such
is a presumption that it was a universal partnership before persons to whom such representation has been made, who has,
the marriage and that the effect of the marriage is that on the faith of such representation, given credit to the actual or
they must now pay their individual income taxes and taxes apparent partnership, and if he has made such representation or
for the partnership before dissolution. consented to its being made in a public manner he is liable to
I: Is this a universal partnership? such person, WHETHER the representation has or has not been
made or communicated to such person so giving credit by OR with
R: NO. See Doctrine. the knowledge of the apparent partner making the representation
or consenting to its being made:
Why differentiate? (1) When a partnership liability results, he is liable as though he

were an actual member of the partnership;
The type of partnership identifies what kind of properties
(2) When no partnership liability results, he is liable pro rata
are promised to be contributed to the partnership, which is with the other persons, if any, so consenting to the contract
important to identify the extent of liability of the partners or representation as to incur liability, otherwise separately.
later on. When a person has been thus represented to be a partner in an
existing partnership, or with one or more persons not actual
AS TO LIABILITY OF THE PARTNERS partners, he is an agent of the persons consenting to such
representation to bind them to the same extent and in the same
GENERAL PARTNERSHIPS manner as though he were a partner in fact, with respect to
All of the partners are general partners. persons who rely upon the representation. When all the
members of the existing partnership consent to the
This is the default mode of a partnership. representation, a partnership act or obligation results; but in all
other cases it is the joint act or obligation of the person acting
The liability of partners are pro rata to their contribution and and the persons consenting to the representation.
agreements.
LIMITED PARTNERSHIPS
1 or more partners are general partners and 1 or more are
limited partners.
The liability of limited partners are generally limited to their
contributed amount only.
_______________________________________________________________
CONCEPT OF ESTOPPEL WHO MAY INVOKE
Estoppel is a bar which precludes a person from 1. Those who directly received such misrepresentation; or
denying/asserting anything contrary to that which has been 2. Any person who relied on the misrepresentation done in
established as the truth by his own deed/representation, a public manner.
either express/implied.105
Notes:
This provision does not create a partnership but only holds a Jurisprudence requires the 3rd person to exercise reasonable
person a partner by estoppel. prudence and good faith in relying to such
representation.106
WHEN IS PERSON A PARTNER BY ESTOPPEL?
- “WHETHER the representation has or has not been made or communicated to
1. There is a representation through words (oral/written) or such person so giving credit by OR with the knowledge of the apparent partner
conduct that a person is a partner in either an existing or making the representation or consenting to its being made:”
non-existent partnership; o Sir: Really confusing as to what it means, but it can be reconciled that the
2. The 3rd person gave credit to such representation; and idea is that the apparent partner consented to the fact of representation in
a public manner regardless if he had knowledge of the specific
3. There was no denial or refutation of such representation. advertisement .
MCDONALD V. NATIONAL CITY BANK OF NY (1956)
Ways of Representation:
W H E R E A P A R T N E R S H I P N O T D U L Y O R G A N I Z E D H A S
1. Direct Representation: B E E N R E C O G N I Z E D A S S U C H I N I T S D E A L I N G S W I T H
a. When a person represents him/herself to be a C E R T A I N P E R S O N S , I T S H A L L B E C O N S I D E R E D A S
partner. “ P A R T N E R S H I P B Y E S T O P P E L ” A N D T H E P E R S O N S
2. Indirect Representation: D E A L I N G W I T H I T A R E E S T O P P E D F R O M D E N Y I N G I T S
a. When another person represents another and the P A R T N E R S H I P E X I S T E N C E .
latter consents to such representation. An unregistered partnership entered into a mortgage
contract with a bank. At the same time, it sold the chattels
EFFECT OF PARTNERSHIP BY ESTOPPEL F: to third persons. When the bank foreclosed, the buyers
alleged that since the partnership was unregistered it could
When is the partnership liable?
not have validly entered into the chattel mortgege.
If all actual partners consented to such misrepresentation. WON an unregistered partnership has a domicile so that a
I:
In this case, the partner by estoppel is considered an agent chattel mortgage it registered is notice to the whole world
of the partnership and such act binds the partnership as if YES. The SC held that since the one who dealt with them
R: held himself out as a partner, they are estopped from
he/she was a partner. denying that there was no valid partnership.
When is liability only joint or pro rata?
If only some of the partners or non-partners agree to such
AS TO PUBLICITY
misrepresentation, they, together with the partner in 1. Secret
estoppel, are liable to the 3rd person. 2. Open
In this case, the partner by estoppel is considered an agent AS TO PURPOSE

of the consenting parties and such act binds the parties as if “Profession” is a group of men pursuing a learned art as a
the former is a partner of the latter. service because it may incidentally be a means of
livelihood.107
When is the partner by estoppel solely liable?
When none of the actual partners consented to such Take note that the practice of a profession is not a
misrepresentation. business/enterprise, and thus, partners are individually
responsible for their own acts.
Notes: - Rationale: The practice of a profession is a personal
Consent may be express/implied. one and therefore, cannot be possessed by a juridical
Technically, no partnership is created. The partnership only entity.
exists as to the 3rd person. A distinction between a professional and a commercial
Only general provisions on partnerships that do not partnership is the treatment of good will.
prejudice other 3rd persons will be applicable in a - In Professional Partnerships, such good will cannot be
partnership by estoppel. distributed as a firm asset on dissolution.108
- E.g. Rules on preference of credit will not apply if there The reputation of a professional partnership depends on the
are other creditors that are aware of the non-existence skill, training and experience of each individual member,
of the partnership.
WISCONSIN TELEPHONE V LEHMAN

106
IN THE MATTER OF THE PETITION FOR AUTHORITY TO CONTINUE USE OF FIRM

107
NAME “SYCIP, SALAZAR, ETC.” / “OZAETA, ROMULO, ETC.”

105 108
AmJur AmJur
_______________________________________________________________
and the personal and confidential relationship existing RAMNANI V. CA (1991)
between such member and the client.109 I N A S I T U A T I O N W H E R E T W O B R O T H E R S E N G A G E D
I N A B U S I N E S S V E N T U R E , W I T H O N E F U R N I S H I N G
VII. Kinds of Partners T H E C A P I T A L A N D T H E O T H E R C O N T R I B U T I N G H I S
1. Industrial Partner I N D U S T R Y A N D T A L E N T , J U S T I C E A N D E Q U I T Y
2. Capitalist Partner D I C T A T E T H E T W O S H A R E E Q U A L L Y T H E F R U I T O F
3. Managing Partner T H E I R J O I N T I N V E S T M E N T A N D E F F O R T S .
Ishwar sent money to his brother Choithram and
INDUSTRIAL PARTNER appointed him as attorney in fact to conduct business in
Article 1789 the Philippines. Later on, Choithram refused to make an
F:
An industrial partner cannot engage in business for himself, accounting and instead transferred the rights and
unless the partnership expressly permits him to do so; and if he interests of Ishwar to Choithram’s children even after the
should do so, the capitalist partners may either EXCLUDE HIM power of attorney had been revoked by Ishwar.
from the firm OR AVAIL THEMSELVES OF THE BENEFITS which I: What is the nature of the relationship.
he may have obtained in violation of this provision, WITH A PARTNERSHIP. The Court held that the relationship is
RIGHT TO DAMAGES in either case. one of partnership, where Ishwar was the capitalist and
Choithram was the industrial partner. As such Choithram
Article 1797 R:
was entitled to a share in the properties. However, due to
The losses and profits shall be distributed in conformity with the
the evident bad faith and malice of Choithram, he was
agreement. If only the share of each partner in the profits has
liable to pay damages to Ishwar.
been agreed upon, the share of each in the losses shall be in the
same proportion.
CAPITALIST PARTNER
In the absence of stipulation, the share of each partner in the
Article 1790
profits and losses shall be in proportion to what he may have
contributed, but the industrial partner shall not be liable for the Unless there is a stipulation to the contrary, the partners shall
losses. As for the profits, the industrial partner shall receive such contribute equal shares to the capital of the partnership.
share as may be just and equitable under the circumstances. If
Article 1797
besides his services he has contributed capital, he shall also
receive a share in the profits in proportion to his capital. The losses and profits shall be distributed in conformity with the
agreement. If only the share of each partner in the profits has
Notes from Sir: been agreed upon, the share of each in the losses shall be in the
same proportion.
‘Engage for himself’ = What if the new undertaking is done
as a capitalist/industrial partner? Well, the Code does not In the absence of stipulation, the share of each partner in the
distinguish. profits and losses shall be IN PROPORTION to what he may have
contributed, but the industrial partner SHALL NOT BE LIABLE
- Also, even if the business is done for others, the rule FOR THE LOSSES. As for the profits, the industrial partner shall
shall still apply. receive such share as may be JUST AND EQUITABLE under the
circumstances. If besides his services he has contributed capital,
‘Business’ = includes professions (like law). The prohibition he shall also receive a share in the profits in proportion to his
is absolute. E.g. The practice of law prevents an industrial capital.
partner from devoting his/her time to any other activities to
avoid any possible losses to the partnership. Article 1808
The capitalist partners cannot engage for their own account in
This provisions also serves as a justification to the exclusion any operation which is of the kind of business in which the
from losses of industrial partners. partnership is engaged, unless there is a stipulation to the
contrary.
EVANGELISTA & CO. V. ABAD SANTOS (1973)
A R T . 1 7 6 7 C C D O E S N O T S P E C I F Y T H E K I N D O F Any capitalist partner violating this prohibition shall bring to the
common funds any profits accruing to him from his transactions,
I N D U S T R Y T O B E C O N T R I B U T E D , T H U S , S E R V I C E S
AND shall personally bear all the losses.
W I T H O U T W H I C H T H E P A R T N E R S H I P C O U L D N O T
H A V E O P E R A T E D T H E I R B U S I N E S S M A Y B E CAPITALIST PARTNER INDUSTRIAL PARTNER
L E G I T I M A T E L Y C O N S I D E R E D A S C O N T R I B U T I O N T O Prohibition is limited to a Prohibition extends to all
T H E C O M M O N F U N D . kind of business in which the kinds of businesses.
Estrella, an industrial partner, filed a suit against the partnership is engaged.
petitioners for not giving her her share in the The partner shall bring to The partners may choose to
profits/dividends of the partnership. Petitioners assert that the common fund any either:
F:
she was not a partner, but only a profit-sharer, and since she profits derived therein. - Exclude the erring
is a judge of the City Court of Manila, she could not have The partner shall personally partner from the firm; or
contributed her industry to the partnership. bear the losses from the - Avail themselves of the
I: WON Estrella is an industrial partner. undertaking. benefits obtained
R: YES. See doctrine. therein.
The partners can sue for
damages.
109 LYON V LYON
_______________________________________________________________
MANAGING PARTNER
Article 1792 SCOPE OF AUTHORITY WHO MAY QUESTION
If a PARTNER AUTHORIZED TO MANAGE collects a
NO SPECIFICATION OF DUTIES OR AUTHORITIES
demandable sum which was OWED TO HIM IN HIS OWN NAME,
from a person who owed the partnership another sum also Acts of Administration Other managing partners
demandable, the sum thus collected shall be applied to the two Acts for the purpose… (majority vote).
credits in proportion to their amounts, even though he may have Acts FACOITUWB - In case of a tie, majority of all
given a receipt for his own credit only; but should he have given it Acts subsequently partners owning the
for the account of the partnership credit, the amount shall be authorized controlling interest.
fully applied to the latter.
AUTHORITY SPECIFIED
The provisions of this article are understood to be without Acts specified in the G.R.: No one
prejudice to the right granted to the other debtor by Article authority E: By anyone, if he/she should
1252, but only if the personal credit of the partner should be Acts of Administration act in bad faith.
more onerous to him.
Acts for the purpose… By a vote of majority of
Article 1800 Acts FACOITUWB controlling interest, but if
The partner who has been appointed manager in the articles of Acts subsequently authority was granted:
partnership may execute all acts of administration DESPITE the authorized - Upon constitution, they
opposition of his partners, unless he should act in bad faith; and must have a just/lawful
his power is irrevocable without just or lawful cause. The vote of cause.
the partners representing the controlling interest shall be
necessary for such revocation of power. - After the constitution,
they may do it at any
A power granted after the partnership has been constituted may time.
be revoked at any time.
Notes:
Article 1801
If two or more partners have been intrusted with the
Article 1802 will only apply if the partners agree that the
management of the partnership without specification of their Managing Partners may ony act with the consent of the
respective duties, OR without a stipulation that one of them other Managing Partners. (Unanimity of Action)
shall not act without the consent of all the others, each one may
separately execute all acts of administration, but if any of them The only time an Managing Partner may act without the
should oppose the acts of the others, the decision of the consent of the others is if there is an imminent danger of
majority shall prevail. In case of a tie, the matter shall be decided grave/irreparable injury to the partnership.
by the partners owning the controlling interest.
LITTON V. HILL & CERON (1939)
Article 1802 T H E P U B L I C N E E D N O T M A K E I N Q U I R E S A S T O T H E
In case it should have been STIPULATED that none of the A G R E E M E N T S H A D B E T W E E N T H E P A R T N E R S .
managing partners shall act without the consent of the others,
Litton sold and delivered to Carlos Ceron, who is one of the
the concurrence of all shall be necessary for the validity of the
acts, and the absence or disability of any one of them cannot be F: managing partners of Hill & Ceron, a certain number of
alleged, unless there is IMMINENT DANGER OF GRAVE OR mining claims for 1870 pesos.
IRREPARABLE INJURY to the partnership. WON Ceron individually entered into the transaction with
I:
the plaintiff
Concept of Managing Partners NO. Third persons, like the plaintiff, are not bound in
The term ‘manner of management’ pertains to the entering into a contract with any of the two partners, to
ascertain whether or not this partner with whom the
agreement among the partners that limits the authority of transaction is made has the consent of the other partner. Its
each partner to certain acts and providing Managing knowledge, is enough that it is contracting with the
Partners to execute acts of administration. partnership which is represented by one of the managing
R: partners. There is a general presumption that each
individual partner is an authorized agent for the firm and
that he has authority to bind the firm in carrying on the
partnership transactions. The presumption is sufficient to
permit third persons to hold the firm liable on transactions
entered into by one of members of the firm acting
apparently in its behalf and within the scope of his authority.
Other kinds of partners:

ACTIVELY KNOWN TO
TAKES PART? THE PUBLIC?
OSTENSIBLE PARTNER Yes Yes
SECRET PARTNER Yes No
SILENT PARTNER No Yes
DORMANT PARTNER No No
_______________________________________________________________
Obligations of
LIABILITY TO THE PARTNERSHIP
MONEY Amount of Money + Interest and
Damages from the:
the Partners - Time he/she should have complied

with the obligation.
- Time he converted the amount to his
I. Obligations of the Partners Among own use.
Themselves SPECIFIC AND The specific and determinate thing
1. To contribute DETERMINATE Warranty in case of eviction
2. To apply sums collected pro rata THINGS Fruits of the thing
3. To bring to partnership capital credit received GOODS Rule: Appraised according to the contract
4. To pay for damages of partnership
5. To share in the profits/losses In the absence: Shall be made by experts
6. To act as managers and agents of partnership chosen by the partners according to
7. To render true and full information current prices.
8. To account for benefits
Notes:
9. To not engage in another business
Since the partner is a debtor, the rules on Debtor-Creditor
TO CONTRIBUTE relationships apply.
st
Article 1786, 1 par. After the goods have been contributed, the partnership
Every partner is a debtor of the partnership for whatever he may bears the risk or gets the benefits of subsequent changes of
have promised to contribute thereto. value.
Article 1790 ADDITIONAL CAPITAL
Unless there is a stipulation to the contrary, the partners shall
contribute equal shares to the capital of the partnership. Article 1791
If there is no agreement to the contrary, in case of an imminent
SUM OF MONEY loss of the business of the partnership, any partner who refuses
to contribute an additional share to the capital, except an
Article 1788 industrial partner, to save the venture, shall he obliged to sell his
A partner who has undertaken to contribute a sum of money interest to the other partners.
and fails to do so becomes a debtor for the interest and
damages from the time he should have complied with his Rule on Contribution of Additional Capital
obligation.
G.R.: There is no obligation to contribute additional capital
The same rule applies to any amount he may have taken from
the partnership coffers, and his liability shall begin from the time E: There is an agreement
he converted the amount to his own use. In case of imminent loss
SPECIFIC AND DETERMINATE THINGS

Rule in cases of imminent loss of the business of the
nd partnership
Article 1786, 2 par.
He shall also be bound for warranty in case of eviction with
G.R.: If the partner refuses to contribute, he/she shall be
regard to specific and determinate things which he may have obliged to sell his/her interest to the other partners.
contributed to the partnership, in the same cases and in the same E: Industrial partners
manner as the vendor is bound with respect to the vendee. He shall
also be liable for the fruits thereof from the time they should BEAR RISK OF LOSS OF SPECIFIC AND DETERMINATE
have been delivered, without the need of any demand. THINGS
Article 1795
GOODS The risk of specific and determinate things, which are not
Article 1787 fungible, contributed to the partnership so that only their use
When the capital or a part thereof which a partner is bound to and fruits may be for the common benefit, shall be borne by the
contribute consists of goods, their appraisal must be made in partner who owns them.
the manner prescribed in the contract of partnership, and in the If the things contribute are fungible, or cannot be kept without
absence of stipulation, it shall be made by experts chosen by the deteriorating, or if they were contributed to be sold, the risk shall
partners, and according to current prices, the subsequent be borne by the partnership. IN THE ABSENCE OF
changes thereof being for account of the partnership. STIPULATION, the risk of the things brought and appraised in
the inventory, shall also be borne by the partnership, and in such
Rules on contribution: case the claim shall be limited to the value at which they were
If there is a stipulation/agreement on how much is to be appraised.
contributed, such agreement shall be followed.
In the absence of any stipulation, all partners shall equally
share in the contribution of the capital.
_______________________________________________________________
US V. CLARIN (1910)
Rule on risk of loss of specific and determinate things
T H E C R I M E O F E S T A F A D O E S N O T I N C L U D E M O N E Y
contributed R E C E I V E D F O R A P A R T N E R S H I P
WHO BEARS RISK
Larin gave Tarug P172 allegedly as contribution to the
IF NOT FUNGIBLE Partnership bears the risk business with Tarug, Clarin and de Guzman, where the
Claim shall be limited to profits were to be divided between Larin and them.
appraised value, Unless there F:
However his half of the profits weren’t delivered to him so
is a stipulation to the contrary he charged them of estafa. Clarin was sentenced to
IF NOT FUNGIBLE, BUT Partner bears the risk arresto mayor.
ONLY THEIR USUFRUCT I: WON Clarin should be criminally liable
FUNGIBLE, CANNOT BE Partnership bears the risk
R: NO. SC acquitted Clarin.
KEPT WITHOUT
DETERIORATING,
CONTRIBUTED TO BE TO APPLY SUMS COLLECTED PRO RATA
SOLD Article 1792
If a PARTNER AUTHORIZED TO MANAGE collects a
demandable sum which was OWED TO HIM IN HIS OWN NAME,
LOZANA V. DEPAKAKIBO (1960) from a person who owed the partnership another sum also
A S P R O P E R T I E S O F T H E P A R T N E R S H I P , T H E S A M E demandable, the sum thus collected shall be applied to the two
C O U L D N O T B E D I S P O S E D O F B Y T H E P A R T Y credits in proportion to their amounts, even though he may have
C O N T R I B U T I N G T H E S A M E W I T H O U T T H E C O N S E N T given a receipt for his own credit only; but should he have given it
O R A P P R O V A L O F T H E P A R T N E R S H I P O R O F T H E for the account of the partnership credit, the amount shall be
O T H E R P A R T N E R . fully applied to the latter.
Plaintiff and defendant entered into a contract of The provisions of this article are understood to be without
partnership. Both contributed certain equipment to the prejudice to the right granted to the other debtor by Article
partnership. Plaintiff sold a generator to another and 1252, but only if the personal credit of the partner should be
defendant also sold a generator to another. Plaintiff brought more onerous to him.
an action against defendant saying that he is the owner of
F: Article 1252
the generator he was selling and that defendant was
wrongfully detained the same. Defendant avers that the He who has various debts of the same kind in favor of one and
the same creditor, may declare at the time of making the
generator was contributed to the partnership. Lower court
payment, to which of them the same must be applied. Unless the
held that the partnership was void and plaintiff owns the parties so stipulate, or when the application of payment is made
property. by the party for whose benefit the term has been constituted,
I: WON Lozana owns the generator application shall not be made as to debts which are not yet due.
NO. SC said that the partnership is valid and plaintiff cannot
R: sell what he has contributed without approval of the If the debtor accepts from the creditor a receipt in which an
defendant. application of the payment is made, the former cannot complain
of the same, unless there is a cause for invalidating the contract.
LIWANAG V. CA (1997) Article 1292

W H E N M O N E Y O R P R O P E R T Y H A V E B E E N R E C E I V E D In order that an obligation may be extinguished by another
which substitute the same, it is imperative that it be so declared
B Y A P A R T N E R F O R A S P E C I F I C P U R P O S E , A N D H E
in unequivocal terms, or that the old and the new obligations be
L A T E R M I S A P P R O P R I A T E D I T , S U C H P A R T N E R I S on every point incompatible with each other.
G U I L T Y O F E S T A F A .
Rosales gave Liwanag and Tabligan money which was to be Rules on Application of Sums Received:
used to their business to purchase cigarettes for resale, with Condition to apply sums all to the partnership:
the agreement that if the cigarettes could not be sold, the
money would be returned to Rosales. After a few months, When a Managing Partner receives a demandable sum
F: Liwanag and Tabligan stopped reporting to Rosales, who for the account of the partnership.
could no longer obtain information regarding their business.
Rosales filed an estafa case against Liwanag, who was found
guilty. Liwanag argued, among others, that they had Conditions to apply sums to all the partners:
intended to enter into a contract of partnership. 1. The person receiving the sum is a Managing Partner;
I: WON Liwanag is guilty of estafa 2. The 3rd person owes the Partnership and Managing
YES. The SC held that even if there had been a contract of Partner a demandable sum;
R:
partnership, she would still have been guilty of estafa 3. The Managing Partner recieves the money under his
own account;
4. The 3rd person elects to apply the sum to his/her
debt to the Partnership at the time of making the
payment; and
5. The 3rd person’s debt to the Managing Partner is
more onerous than that to the Partnership.
_______________________________________________________________
Conditions to apply sums proportionately: Notes:
1. The person receiving the sum is a Managing Partner; “Damages” = Economic loss, moral loss (reputation).
2. The 3rd person owes the Partnership and Managing TO SHARE IN THE PROFITS/LOSSES
Partner a demandable sum;
Article 1797
3. The Managing Partner recieves the money under his
The losses and profits shall be distributed in conformity with the
own account. agreement. If only the share of each partner in the profits has
Notes: been agreed upon, the share of each in the losses shall be in the
same proportion.
Art. 1792 only applies to managing partners. In case the
partnership did not agree upon the manner of In the absence of stipulation, the share of each partner in the
management, all partners shall be considered as managing profits and losses shall be IN PROPORTION to what he may have
contributed, but the industrial partner SHALL NOT BE LIABLE
partners. (De Leon) FOR THE LOSSES. As for the profits, the industrial partner shall
receive such share as may be JUST AND EQUITABLE under the
TO BRING TO PARTNERSHIP CAPITAL circumstances. If besides his services he has contributed capital,
CREDIT RECEIVED he shall also receive a share in the profits in proportion to his
Article 1793 capital.
A partner who has received, in whole or in part, his share of a
Article 1798
partnership credit, when the other partners have not collected
theirs, shall be obliged, if the debtor should thereafter become IF the partners have agreed to intrust to a third person the
insolvent, to bring to the partnership capital what he received designation of the share of each one in the profits and losses,
even though he may have given receipt for his share only. such designation may be IMPUGNED ONLY when it is
MANIFESTLY INEQUITABLE. In no case may a partner who has
begun to execute the decision of the third person, OR who has
Rule on received capital credit not impugned the same within a period of three months from
G.R.: No need to return the capital credit to the the time he had knowledge thereof, complain of such decision.
partnership. The designation of losses and profits cannot be intrusted to one
E: The following conditions must be present: of the partners.
1. Debtor becomes insolvent; and
Article 1799
2. The other partners have not collected their share
A stipulation which excludes one or more partners from any
in the credit. share in the profits OR losses is VOID.
Note:
Purpose: To uphold the purpose of the partnership to divide
the profits. Since debtor is insolvent, no more amounts can RULE ON PROFIT/LOSS SHARING
be claimed from debtor. IF THERE IS AN P/L are distributed according to the
AGREEMENT agreement.
Note that the only time a partner may know how much his
IF THERE IS AN Sharing of P/L shall be in the same
share is, is when they dissolve their partnership.
AGREEMENT AS proportion.
TO PAY FOR DAMAGES TO THE
SHARING OF
Article 1794
PROFITS ONLY
Every partner is responsible to the partnership for damages
suffered by it through his fault, and he cannot compensate
IF THERE IS NO Sharing of P/L shall be in proportion to
them with the profits and benefits which he may have earned AGREEMENT their contribution.
for the partnership by his industry. However, the courts may Industrial partners shall:
equitably lessen this responsibility if through the partner's - Share in the profits as may be just
extraordinary efforts IN OTHER ACTIVITIES of the partnership, and equitable.
unusual profits have been realized. - Not be liable to the losses.
Rule on Liability for damages - If they contributed capital, they
shall receive profit on the capital.
Every partner is responsible to the partnership for damages
IF The sharing shall be determined by the
suffered by it through his fault.
DESIGNATION 3rd person.
The erring partner cannot compensate them with the profits OF SHARE IS
and benefits which he may have earned for the partnership INTRUSTED TO
by his industry. A 3RD PERSON
Remedy of erring partner When can a 3rd persons designation be impugned?
He/she my petition the courts to equitably lessen this Only when it is manifestly inequitable.
responsibility if through the partner's extraordinary efforts
It must be done before:
IN OTHER ACTIVITIES of the partnership, unusual profits
- Execution of the decision; or
have been realized.
_______________________________________________________________
- The end of 3 months from the time he had knowledge Article 1818
thereof. Every partner is an agent of the partnership FOR THE
PURPOSE OF ITS BUSINESS, and the act of every partner,
Void stipulations including the execution in the partnership name of any instrument,
Exclusion of one or more partners from profits/losses. FOR APPARENTLY CARRYING ON IN THE USUAL WAY THE
BUSINESS OF THE PARTNERSHIP (FACOITUWB) of which he is
Designation of losses/profits to one of the partners. a member binds the partnership, UNLESS the partner so acting
has in fact no authority to act for the partnership in the particular
MORAN V. CA (1984) matter, AND the person with whom he is dealing has knowledge
E V E N W I T H A N A S S U R A N C E M A D E B Y O N E O F T H E of the fact that he has no such authority.
P A R T N E R S T H A T T H E Y W O U L D E A R N A H U G E
A M O U N T O F P R O F I T S , I N T H E A B S E N C E O F F R A U D , An act of a partner which is not apparently for the carrying on
T H E O T H E R P A R T N E R C A N N O T C L A I M A R I G H T T O of business of the partnership in the usual way does not bind
the partnership unless authorized by the other partners.
R E C O V E R T H E H I G H L Y S P E C U L A T I V E P R O F I T S
Petitioner and respondent entered into a partnership Except when authorized by the other partners OR unless they
have abandoned the business, one or more but less than all the
whereby each would contribute 15k to print and sell posters.
partners have no authority to:
The respondent contributed 10k but petitioner flaked on his
undertakings. He, however, managed to print only 2k (out of (1) Assign the partnership property in trust for creditors or on
F:
the 95k) posters. Respondent filed a complaint for a sum of the assignee's promise to pay the debts of the partnership;
money. CFI ruled in favor of respondent. On appeal, the CA (2) Dispose of the good-will of the business;
added amounts that it found the petitioner liable such as (3) Do any other act which would make it impossible to carry on
expected profits and commissions due. the ordinary business of a partnership;
I: WON the petitioner was liable for expected profits (4) Confess a judgment;
(5) Enter into a compromise concerning a partnership claim or
NO. The SC reversed the CA findings that petitioner was liability;
R:
liable for expected profits and commissions. (6) Submit a partnership claim or liability to arbitration;
(7) Renounce a claim of the partnership.
PIONEER INSURANCE V. CA (1989) No act of a partner in contravention of a restriction on authority

shall bind the partnership to persons having knowledge of the
P E R S O N S W H O A T T E M P T , B U T F A I L , T O F O R M A
restriction.
C O R P O R A T I O N A N D W H O C A R R Y O N B U S I N E S S
U N D E R T H E C O R P O R A T E N A M E O C C U P Y T H E
Manner of Management was not agreed upon:
P O S I T I O N O F P A R T N E R S I N T E R S E . H O W E V E R , S U C H
A R E L A T I O N D O E S N O T N E C E S S A R I L Y E X I S T , F O R
Each partner is an agent of the partnership.
O R D I N A R I L Y P E R S O N S C A N N O T B E M A D E T O Their acts will bind the partnership, but subject to the rule
A S S U M E T H E R E L A T I O N O F P A R T N E R S , A S B E T W E E N on objections by other partners.
T H E M S E L V E S , W H E N T H E I R P U R P O S E I S T H A T N O
P A R T N E R S H I P S H A L L E X I S T , A N D I T S H O U L D B E In cases where an act of the partner is an important
I M P L I E D O N L Y W H E N N E C E S S A R Y T O D O J U S T I C E alteration of an immovable, the other partners must
B E T W E E N T H E P A R T I E S . consent.
Pioneer executed a surety bond in favor of JDA in behalf of - But if such consent is witheld + the refusal to consent is
Lim for the price of 2 airplanes and spare parts. Pioneer manifestly prejudicial to the interest of the partnership:
reinsured the Surety Bond for 295k. Private respondents o Partner may seek the court’s intervention.
gave funds as contribution to a new corporation proposed by
Lim to expand his business. Lim defaulted on the
F: installments. Pioneer foreclosed on the mortgage and filed BACHRACH V LA PROTECTORA (1918)
for judicial foreclosure w/a preliminary writ of attachment A civil partnership, by the name of La Protectora, was
against respondents. Respondents filed a crossclaim against formed in 1913. Its President, Barba, was authorized by its
Lim stating that they weren’t privies to the contract and to members to purchase two automobile trucks from Bachrach.
recover the money they paid to Lim. TC held Lim liable to F: The defendants failed to pay so Bachrach foreclosed the
pay. CA reversed. chattel mortgage and instituted a case in the Manila CFI to
I: WON a de facto partnership existed. recover the unpaid balance. The lower court rendered
judgment against all of the defendants.
R: NO. SC ruled that no de facto partnership existed. I: WON the partners are individually liable
YES. The SC affirmed the lower court’s ruling and declared
R:
TO ACT AS MANAGERS AND AGENTS OF defendants severally liable.
PARTNERSHIP
Article 1803 STRATEMEYER V WEST
When the manner of management has not been agreed upon, West and Falconer formed a partnership which is engaged
the following rules shall be observed: in the purchase and resale of farms. Falconer contracted
(1) All the partners shall be considered agents and whatever F: with Stratemeyer for the sale of grain storage bins.
any one of them may do alone shall bind the partnership, Stratemeyer assumed Falconer was contracting in behalf
without prejudice to the provisions of Article 1801. of the partnership. Later, Stratemeyer sued West (the
_______________________________________________________________
other partner) for breach of the contract. West argued These obligations start from the formation of the
that (1) there was no privity of contract and that (2) there is partnership even up to after dissolution.
no evidence of either express authority or holding out.
Even so, West admitted that there was indeed an existing Even though Art. 1806 talks about an ‘on demand’
partnership. obligation, the partners are nevertheless expected to notify
I:
WON Proof of express authority is necessary in a every partner of information affecting the partnership.
partnership
NO. The US SC looked at two facts in this case: TO ACCOUNT FOR BENEFITS
(1) West readily admitted that there indeed was a Article 1807
partnership and
EVERY PARTNER must account to the partnership for any
(2) there is evidence that Falconer contracted pursuant to benefit, AND hold as trustee for it any profits derived by him
R:
his responsibilities without the consent of the other partners from any transaction
Therefore, proof of express authority is unnecessary as connected with the formation, conduct, or liquidation of the
there is already a presumption that the partner was partnership OR from any use by him of its property.
expressly authorized.
PANG LIM & GALVEZ V LO SENG (1921)

COOK V BRUNDIDGE P A R T N E R S A R E R E Q U I R E D T O E X H I B I T T O W A R D S
I F T H E P O W E R I S O N E W H I C H I S U S U A L L Y
E A C H O T H E R T H E H I G H E S T D E G R E E O F G O O D F A I T H .
E X E R C I S E D B Y P A R T N E R S I N A L I K E B U S I N E S S T H E R E L A T I O N B E T W E E N P A R T N E R S I S E S S E N T I A L L Y
T H E R E F O R E A L L T H E M E M B E R S O F T H E F I R M M U S T F I D U C I A R Y , B E C A U S E I N L A W , T H E Y A R E
B E S U P P O S E D T O H A V E I N T E N D E D T O C O N F E R
C O N S I D E R E D A S C O N F I D E N T I A L A G E N T S O F E A C H
S U C H P O W E R O N E A C H O T H E R .
O T H E R . I T I S A C C E P T E D A S F U N D A M E N T A L I N
I F T H E P O W E R I S H A B I T U A L L Y E X E R C I S E D B Y A E Q U I T Y T H A T O N E P A R T N E R C A N N O T A P P L Y
P A R T N E R A N D A C Q U I E S C E D I N B Y T H E O T H E R E X C L U S I V E L Y T O H I S O W N B E N E F I T T H E R E S U L T S O F
P A R T N E R S , I T I S F A I R T O C O N C L U D E T H A T T H E T H E K N O W L E D G E A N D I N F O R M A T I O N G A I N E D I N T H E
P A R T N E R S I N T E N D E D T H E P O W E R T O B E C H A R A C T E R O F P A R T N E R .
E X E R C I S E D . Lo Seng and Pang Lim are partners, under the firm name
For alleged breaches of the fiduciary duties of one of the of Lo Seng & Co., a distillery business. The land and
F: materials they use are owned by Lo Yao. Pang Lim
partners, several clients sued the firm for damages. F:
withdrew from the partnership and sold his interest to Lo
I: WON the partner's receipt of funds was FACOITUWB Seng. Later, he and Benito Galvez bought the land and
YES. The Court held that the extent of authority of a improvements from Lo Shui, atty in fact of Lo Yao.
partner is determined essentially by the same principles WON Pang Lim may terminate the lease and obtain rights
I:
as those measuring the scope of the authority of an agent. the partnership has been benefitting from in bad faith
See Doctrine. By the acceptance of Lyon of the funds in NO. SC held that lease cannot be terminated for Pang
R: the form of a check payable to “Warren Lyon as Attorney R: Lim, as former partner, is in bad faith of trying to benefit
for” Betty Cook et al, it would appear that Lyon was acting from the interests he has already sold to Lo Seng.
within the scope of his apparent authority, such that it was
apparently carrying on in the usual way the business of
the law firm. LIM TANHU V RAMOLETE (1975)
A P A R T N E R H A S N O O B L I G A T I O N T O A C C O U N T T O
A N Y O N E F O R P R O P E R T I E S A C Q U I R E D A F T E R
TO RENDER TRUE AND FULL INFORMATION D I S S O L U T I O N O F P A R T N E R S H I P I N A B S E N C E O F
Article 1806 P R O O F H E V I O L A T E D T R U S T O F D E C E A S E D P A R T N E R
Partners shall render on demand true and full information of all D U R I N G E X I S T E N C E O F P A R T N E R S H I P .
things affecting the partnership to any partner or the legal Common law wife of deceased partner filed a case of
representative of any deceased partner or of any partner under legal accounting with damages against other partners claiming
disability. F:
that she is entitled to 1/3 of the proceeds. CFI judge ruled
in her favor.
Obligation to render information: WON the properties were acquired using partnership
1. A true and full information of all things affecting the I:
funds thereby entitling Tan put 1/3 share
partnership ONLY ON DEMAND. NO. SC reversed the judgment for lack of evidence and
2. Accounting for benefits received pertaining to the castigating both the judge and the plaintiff for procedural
partnership or related to the use of partnership property. maneuvering employed during the trial. See doctrine. The
3. Hold in trust any profits derived without consent. R: defendants have no obligation to account to anyone for
such acquisitions in the absence of clear proof that they
Notes: had violated the trust of Po Chuan during the existence of
This provision pertains to the fiduciary relationship among the partnership.
partners that involves trust and confidence. Thus, all
confidential information received by a partner must be
disclosed to all.
_______________________________________________________________
CATALAN V GATCHALIAN (1959) and for the corresponding INTEREST, from the time the expense
Catalan and Gatchalian are partners in business. They are made; it shall also answer to each partner for the
mortgaged their 2 lots to secure a loan, which they failed OBLIGATIONS he may have contracted in good faith in the
to pay. The mortgage was foreclosed, and the properties interest of the partnership business, and for RISKS IN
F: CONSEQUENCE of its management.
were sold to Dr. Marave. Catalan, on his own behalf and
using his private funds, redeemed the properties and
claimed those as his own. Obligation of a partnership for acts by a partner
I: WON Catalan may buy the lots. 1. Refund amounts disbursed on behalf of the partnership
NO. SC held that Catalan's redemption of properties did + interests;
R:
not make him the absolute owner of the lands, because 2. Answer for obligations contracted in good faith + in the
Art. 1807 of NCC states that every partner becomes a interest of the partnership business;
trustee for the partnership. 3. Answer the risks in consequence of its management.
Notes:
TO NOT ENGAGE IN ANOTHER BUSINESS ‘Good faith in the interest of the partnership business’ will still
Article 1789 require that the partner act that will be binding to the
An industrial partner cannot engage in business for himself, partnership.
unless the partnership expressly permits him to do so; and if he
should do so, the capitalist partners may either EXCLUDE HIM MARTINEZ V ONG PONG CO (1909)
from the firm OR AVAIL THEMSELVES OF THE BENEFITS which A R T I C L E 1 6 8 8 ( N O W 1 7 9 6 ) , W H I C H P R O V I D E S T H A T
he may have obtained in violation of this provision, WITH A T H E P A R T N E R S H I P I S L I A B L E T O E V E R Y P A R T N E R
RIGHT TO DAMAGES in either case. F O R T H E A M O U N T S H E M A Y H A V E D I S B U R S E D O N
A C C O U N T O F T H E S A M E A N D F O R T H E P R O P E R
Article 1808 I N T E R E S T F R O M T H E T I M E T H E E X P E N S E S A R E
The capitalist partners cannot engage for their own account in M A D E , D O E S N O T A P P L Y W H E N N O O T H E R M O N E Y
any operation which is of the kind of business in which the T H A N T H A T C O N T R I B U T E D A S C A P I T A L I S I N V O L V E D .
partnership is engaged, unless there is a stipulation to the
contrary. Plaintiff delivered P1,500 to defendants, where the latter
undertook to invest the money in a store, the profits and
Any capitalist partner violating this prohibition shall bring to the losses of which are to be divided with the plaintiff in equal
common funds any profits accruing to him from his transactions, shares. Plaintiff sued defendants to render an accounting.
AND shall personally bear all the losses.
Ong Pong Co’s defense was that the partnership only
F:
suffered losses, which included the P1,500. CFI ordered
Ong Pong Co to return P750 (1/2 of the initial P1.5k
EVANGELISTA V ABAD SANTOS capital) + P90 profits, and computed legal interest from
A R T . 1 7 6 7 C C D O E S N O T S P E C I F Y T H E K I N D O F the time the business terminated and on which he ought
I N D U S T R Y T O B E C O N T R I B U T E D , T H U S , S E R V I C E S to have returned the amount.
W I T H O U T W H I C H T H E P A R T N E R S H I P C O U L D N O T I: WON Art 1688 (now 1796) applies.
H A V E O P E R A T E D T H E I R B U S I N E S S M A Y B E NO. SC deleted the award of P90 representing profits
L E G I T I M A T E L Y C O N S I D E R E D A S C O N T R I B U T I O N T O and, finding Article 1688 (now 1796) inapplicable,
T H E C O M M O N F U N D . R: reckoned the computation of legal interest from the filing
Estrella, an industrial partner, filed a suit against the of the complaint (date of judicial demand) instead of from
petitioners for not giving her her share in the the termination of the business.
profits/dividends of the partnership. Petitioners assert
F:
that she was not a partner, but only a profit-sharer, and
since she is a judge of the City Court of Manila, she could AGUSTIN V INOCENCIO (1907)
not have contributed her industry to the partnership. B O R R O W I N G O F M O N E Y F O R W O R K D O N E W I T H I N
I: WON Estrella is an industrial partner T H E S C O P E O F T H E A S S O C I A T I O N , W H I C H W A S
YES. Petitioners have admitted the genuineness and due N E C E S S A R Y T O C A R R Y O U T I T S E X P R E S S O B J E C T ,
execution of the documentary evidence presented, and W I T H T H E A C Q U I E S C E N C E I F N O T A F F I R M A T I V E
such indubitably show that Estrella is an industrial C O N S E N T O F H I S A S S O C I A T E S , W A S W I T H I N T H E
partner, since all the docs bear the imprint of their P O W E R S O F T H E M A N A G I N G P A R T N E R A N D
R: knowledge and consent. This is further confirmed by the C O N S T I T U T E S A D E B T F O R W H I C H A L L T H E
fact that up to the filing of the Petitioners’ answer to the A S S O C I A T E S A R E L I A B L E .
complaint on 8 Feb 1964, or over the period of 8 years, The partnership (without capital) decided to build a casco
they did nothing to correct the alleged false agreement in and contributed P800 from its profits and borrowed
the Amended Articles. F: P3500 from Inocencio’s late wife for funding. Inocencio
advanced P2000 to complete the work. He now files a
case to collect the money.
II. Obligation of the Partnership to the I: WON the partnership was liable for the sum
Partners YES. SC held that the associates (partners) were liable to
Article 1796 Inocencio for the money advanced (as creditor) and for the
R:
The partnership shall be responsible to every partner for the money borrowed from his wife (as successor-in-interest to
AMOUNTS he may have disbursed on behalf of the partnership the debt upon her death).
_______________________________________________________________
III. Rights of the Partners Rule on Subpartnership:
1. To share in the profits A partner (even if he/she is the managing partner) may
2. To associate with another associate/partner with another with respect to his/her share
3. To access, inspect, copy partnership books Such associate/subpartner is not automatically admitted as
4. To have a formal account a new partner unless allowed by all partners.
5. Property rights
MACHUCA V CHUIDIAN (1913)
TO SHARE IN PROFITS One of the heirs(Vicente Buenaventura) of the partners of
Article 1797 Messrs. Chuidian, Buenaventura & Co. assigned a 25%
The losses and profits shall be distributed in conformity with the share of the part pertaining to him in all that may be
agreement. If only the share of each partner in the profits has obtained by whatever right in whatever form from the
F:
been agreed upon, the share of each in the losses shall be in the liquidation of the partnership to Garcia. And Garcia
same proportion. assigned the share to Machuca. Machuca is now claiming
his purported share against the partnership while its
In the absence of stipulation, the share of each partner in the liquidation is pending. The lower court held for him.
profits and losses shall be in proportion to what he may have
WON Machuca was entitled to receive his claim over the
contributed, but the industrial partner shall not be liable for the I:
losses. As for the profits, the industrial partner shall receive such
partnership pending liquidation.
share as may be just and equitable under the circumstances. If NO. SC held otherwise because the clause 19 of the
besides his services he has contributed capital, he shall also partnership agreement stipulated that upon dissolution,
receive a share in the profits in proportion to his capital. R: outside parties were to be satisfied first, funds allotted for
the Chuidan minors second, and whatever is to be left is to
Article 1799 be paid to each one of those who had put in money.
A stipulation which excludes one or more partners from any
share in the profits or losses is VOID.
TO ACCESS, INSPECT, COPY PARTNERSHIP
Rules on sharing of profits/losses: BOOKS
Article 1805
IF THERE IS AN P/L are distributed according to The partnership books shall be kept, subject to any agreement
AGREEMENT the agreement. between the partners, at the principal place of business of the
IF THERE IS AN Sharing of P/L shall be in the partnership, and every partner shall at any reasonable hour have
AGREEMENT AS TO same proportion. access to AND may inspect and copy any of them.
THE SHARING OF
Article 1806
PROFITS ONLY
Partners shall render on demand true and full information of all
IF THERE IS NO Sharing of P/L shall be in things affecting the partnership to any partner or the legal
AGREEMENT proportion to their contribution. representative of any deceased partner or of any partner under legal
Industrial partners shall: disability.
- Share in the profits as may
be just and equitable. Rule on where to keep partnership books:
- Not be liable to the losses. G.R.: It must be kept at the principal place of business of
- If they contributed capital, the partnership.
they shall receive profit on E: The partners agree as to where the partnership books
the capital. shall be kept.
IF DESIGNATION OF The sharing shall be determined
Rights of the partners:
SHARE IS INTRUSTED by the 3rd person.
- Access to the partnership books.
TO A 3RD PERSON
- To inspect and copy any of the partnership books.
Notes: - To demand true and full information of all things
What is “just and equitable”? affecting the partnership.
- Sir: Looking at the old rules, one might argue that it is
Limitation to such right:
equal to the share of the partner with the smallest
contribution. Must only be exercised during reasonable hours.
“Reasonable hour” pertains to business days throughout the
TO ASSOCIATE ANOTHER year, and not an arbitrary period.
Article 1804
Every partner may associate another person with him in his
share, but the associate shall not be admitted into the partnership
without the consent of ALL the other partners, even if the partner
having an associate should be a manager.
_______________________________________________________________
PARDO V LUMBER CO. AND FERRER (1925) Notes:
T H E G E N E R A L R I G H T G I V E N B Y T H E S T A T U T E M A Y Provision applicable only during the lifetime of the
N O T B E L A W F U L L Y A B R I D G E D N E I T H E R B Y T H E partnership
E X E C U T I V E O F F I C E R S N O R T H E B O A R D O F
D I R E C T O R S FUE LEUNG V IAC (1989)
P R E S C R I P T I O N O F T H E R I G H T T O D E M A N D A N
Ferrer, as Secretary of Hercules Lumber, refused to permit
A C C O U N T I N G B E G I N S T O R U N O N L Y U P O N T H E
Pardo or his agent to inspect the records and business
D I S S O L U T I O N O F T H E P A R T N E R S H I P W H E N T H E
transactions of the Company pursuant to a Board
F I N A L A C C O U N T I N G I S D O N E .
Resolution specifying the period within which
F: stockholders are permitted to examine the books and Respondent filed a complaint for recovery of sum of
other documents of the Company. Action for mandamus money (22% of annual restaurant profits) against
to compel the corp to let petitioner examine its books petitioner. The lower courts ruled that they were partners.
despite its by-law provision imposing certain dates for Petitioner asserts that the prescription period to render an
F:
inspection. accounting had lapsed since the complaint was filed on
I: WON the board resolution is valid July 13, 1978 or after the lapse of 22 years, 9 months and
NO. The court held that the by-law provision is void for 12 days from establishment. During the period, no written
removing the right of stockholder to examine the books of demands were ever made by private respondent.
the corporation. The law qualifies this right to be I: WON the period for accounting has lapsed.
R: exercised at reasonable hours only, meaning that the NO. Court ruled that respondent had the right to demand
corporation can't impose arbitrary periods for the exercise an accounting since the prescriptive period within which
of such rights, which if not, will bar the stockholder from R: the private respondent may demand an accounting exists
doing so. as long as the partnership exists, as shown under Articles
1806, 1807 and 1809. See doctrine.
TO HAVE A FORMAL ACCOUNT

EMNACE V CA (2001)
Article 1809
A N A C T I O N F O R A C C O U N T I N G O F T H E P A R T N E R S H I P
Any partner shall have the right to a formal account as to
I S A N A C T I O N I N P E R S O N A M .
partnership affairs:
Partners Emnace, Tabanao and Divinagracia decided to
(1) If he is wrongfully excluded from the partnership business or dissolve their partnership when Divingracia withdrew from
possession of its property by his co-partners;
the partnership. Emnace failed to submit to Tabanao's
(2) If the right exists under the terms of any agreement;
(3) As provided by article 1807;
heirs any statement of assets and liabilities of the
(4) Whenever other circumstances render it just and reasonable. partnership, render an accounting, and to turn over the
F: 1/3 share of Tabanao from the total assets of the
Article 1842 partnership despite demand. The heirs filed an action for
The right to an account of his interest shall accrue to any accounting, payment of shares, division of assets and
partner, or his legal representative as against the winding up damages. Emnace filed a motion to dismiss for failure to
partners or the surviving partners or the person or partnership pay the correct docket fees, prescription, improper venue,
continuing the business, at the date of dissolution, in the absence and lack of jurisdiction.
of any agreement to the contrary. I: WON prescription has set
NO. SC ruled that since no final accounting has been
Rules on Formal Account R: made the action has not prescribed. Thus, any partner
G.R.: A partner does not have a right to a formal may ask for the accounting of the partnership.
accounting.
E: [ WeR is DJ Dolot.]
If the partner is Wrongfully Excluded from: PROPERTY RIGHTS
- The partnership business; or Article 1810
- If the partner is wrongfully excldued from The property rights of a partner are:
possession of partnership property. (1) His rights in specific partnership property;
(2) His interest in the partnership; and
The Right exists under the partnership agreement. (3) His right to participate in the management.
In cases where another partner Derives any benefit
without the consent of the partners from:
CAPITAL IN PARTNERSHIP PARTNERSHIP PROPERTY
- Any transaction connected with the formation,
conduct, or liquidation of the partnership; or Has a fixed value in the The value varies over time
books
- The use of partnership property.
Includes the contributed Includes property
Whenever circumstances render it Just and capital and any changes contributed and those later
reasonable. made to it acquired/disposed
The partnership is Dissolved.
_______________________________________________________________
RIGHTS TO SPECIFIC PARTNERSHIP PROPERTY the usual remedies.
Article 1811 In case of a dissolution of the partnership, the assignee is
A partner is co-owner with his partners of specific partnership entitled to receive his assignor's interest and may require an
property. account from the date only of the last account agreed to by all the
partners.
The incidents of this co-ownership are such that:
(1) A partner, subject to the provisions of this Title and to any Article 1814
agreement between the partners, has an equal right with his Without prejudice to the preferred rights of partnership creditors
partners to possess specific partnership property for under Article 1827, on due application to a competent court by
partnership purposes; but he has no right to possess such any judgment creditor of a partner, the court which entered the
property for any other purpose without the consent of his judgment, or any other court, may charge the interest of the
partners; debtor partner with payment of the unsatisfied amount of such
(2) A partner's right in specific partnership property is not judgment debt with interest thereon; AND may then or later
assignable except in connection with the assignment of rights appoint a receiver of his share of the profits, and of any other
of all the partners in the same property; money due or to fall due to him in respect of the partnership, and
(3) A partner's right in specific partnership property is not subject make all other orders, directions, accounts and inquiries which
to attachment or execution, except on a claim against the the debtor partner might have made, or which the circumstances of
partnership. When partnership property is attached for a the case may require.
partnership debt the partners, or any of them, or the The interest charged may be redeemed at any time before
representatives of a deceased partner, cannot claim any right foreclosure, or in case of a sale being directed by the court, may
under the homestead or exemption laws; be purchased without thereby causing a dissolution:
(4) A partner's right in specific partnership property is not subject
to legal support under Article 291. (1) With separate property, by any one or more of the partners; or
(2) With partnership property, by any one or more of the partners
Rules on Specific Partnership Property: with the consent of all the partners whose interests are not so
Has an equal right to possess such for partnership charged or sold.
Nothing in this Title shall be held to deprive a partner of his right, if
purposes. any, under the exemption laws, as regards his interest in the
- The partners may agree otherwise or the law provides partnership.
some restrictions on the use of partnership property.
The right is unassignable.
CLEMENTE V GALVAN (1939)
- Unless everyone having the same right assigns the
A P A R T N E R ' S R I G H T I N A S P E C I F I C P A R T N E R S H U P
same. P R O P E R T Y I S N O T A S S I G N A B L E B E C A U S E I T I S
- Take note of Art. 1819 on the rules on conveyance of I M P O S S I B L E T O D E T E R M I N E T H E E X T E N T O F H I S
partnership property. B E N E F I C I A L I N T E R E S T I N T H E P R O P E R T Y U N T I L
A F T E R T H E L I Q U I D A T I O N O F P A R T N E R S H I P A F F A I R S .
The right is not subject to attachment/execution for
personal debts. Clemente, a member of the partnership Galvan y Compania,
- Except if there is a claim against the partnership. petitioned for the dissolution of the partnership. He also
- If the property is attached, the partners/legal reps sought to compel Galvan, who is the managing partner, to
render an accounting and to deliver to him (Clemente) his
cannot invoke homestead/exemption laws.
share. Pending dissolution, a receiver was appointed.
The right is not subject to legal support. Through Clemente's petition, an order was issued by the
Court for the receiver to deliver to Clemente certain
Notes: F:
machines but actual possession was not obtained because
This rule creates juridical inconsistency with the rules on co- although the keys to the place where the machines were
ownership. US has already amended such rules to conform kept had been delivered to Clemente, he was prevented
with the entity theory. from entering the premises by Galvan. Clemente
subsequently mortgaged the properties in question to the
INTEREST IN THE PARTNERSHIP intervenor in this case but the lower court later on declared
Article 1812 such mortgage null & void..
I: WON Clemente could mortgage the properties
A partner's interest in the partnership is his share of the profits
and surplus.
NO. SC affirmed. See doctrine. As property of the
partnership, the same could not be disposed of or
Article 1813 mortgaged even by the partner who contributed the same
A conveyance by a partner of his whole interest in the without the consent or approval of the partnership or of the
partnership DOES NOT of itself dissolve the partnership, OR, as other partners. The evidence of record shows that the
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against the other partners in the absence of agreement, entitle machines originally belonged to Galvan and from him were
the assignee, during the continuance of the partnership, to transferred to the partnership. This being the case, said
interfere in the management or administration of the partnership machines belong to the partnership and not to him, and
business or affairs, or to require any information or account of shall belong to it until partition is effected according to the
partnership transactions, or to inspect the partnership books; but result thereof after the liquidation.
it merely entitles the assignee to receive in accordance with his
contract the profits to which the assigning partner would
otherwise be entitled. However, in case of fraud in the
management of the partnership, the assignee may avail himself of
_______________________________________________________________
Author’s Note: - If similar, the partnership must use another name or
Articles 1812 – 1814 contemplates only of the expected add one/more distinctive words to it (unless the
share of the profits and surplus in the partnership and not registered name is coined or unique, and unless the
actually that share that would constitute the running of the board consents)
business, which is why such transfer does not contemplate a
It must have:
dissolution of the partnership.
- General Partnership: “Company” or “Co.”
FIRST NATIONAL BANK V DISTRICT COURT - Llimited Partnership: “Limited” or “Ltd.”
FNB sued (and won) 5 defendants to collect $182k. The - Professional Partnership: MAY have “Company”,
District Court entered orders charging partnership “Associates” or “Partners”
interests in 3 partnerships wherein the defendants were
partners. The orders had a proviso stating "upon due First names are not allowed to appear in the firm name.110
application... any party may apply for further Business/Trade Names different from the firm name is
F:
modification." For 2 years, no payments were made so
allowed, provided that111:
FNB moved for an exparte hearing for execution and sale
(DC granted). The debtors moved to stay the sale, - Only 1 trade name is registered; and
arguing that the sale is void because there was no notice - Such trade name is indicated in the Articles of
and hearing (as req'd by the UPA). Partnership.
I: WON the ex parte order for execution is proper
NO. The ex parte order for execution is improper because Rules on surnames as firm names:
it was issued without due application to modify the DC's The names of the partners are not required to appear in the
earlier order charging the partnership interests. In other firm name.
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words, partnership property may only be charged with the
payment of a judgment debt "after due application with If a non-partner includes his/her name in the firm name:
notice and hearing." - Liable as a partner.
IMPLIED: THERE IS A WAY TO EXECUTE ON SPECIFIC PARTNERSHIP If a limited partner includes his/her name in the firm name:
SIR:
PROPERTY AFTER ALL. - Liable as a general partner.
- Unless:
o The limited partner’s surname is the same as that of
IV. Obligations of the Partners with a general partners’;
regard to Third Person o The name has been used prior to the limited
partner’s joining the firm; or
rd
LIABLE FOR INCLUSION OF NAME A FIRM GR o 3 person extending credit to the partnership has no
NAME knowledge that the person is just a limited partner.
Article 1815 Notes:
Every partnership shall operate under a firm name, which may or Corporation’s name, upon dissolution, cannot be used
may not include the name of one or more of the partners. within 3 years from approval of such dissolution by SEC.112
Those who, not being members of the partnership, include their
names in the firm name, shall be subject to the liability of a
Unless approved by partners who represent the majority
partner. JO CHUNG CANG V. PACIFIC COMMERCIAL (1923)
Article 1846 P A R T N E R S O F A G E N E R A L P A R T N E R S H I P M A Y B E
The surname of a limited partner shall not appear in the H E L D L I A B L E T O C R E D I T O R S I N I N S O L V E N C Y
partnership name unless: P R O C E E D I N G S E V E N I F T H E F I R M N A M E D O E S N O T
(1) It is also the surname of a general partner, or I N C L U D E A N Y O F T H E P A R T N E R S ’ N A M E S .
(2) Prior to the time when the limited partner became such, the Five persons signed a document constituting Teck Seing &
business has been carried on under a name in which his Co., purportedly a limited partnership. The firm later
surname appeared. applied for insolvency. The Creditors moved for an order
A limited partner whose surname appears in a partnership name F:
to essentially hold the members liable in solidum. The CFI
contrary to the provisions of the first paragraph is liable as a
initially granted the motion but reversed itself when Teck
general partner to partnership creditors who extend credit to the
partnership without actual knowledge that he is not a general Seing opposed.
partner. WON the partners are liable even though their names are
I:
not in the firm name
Rule 3.02 (Code of Professional Responsibilities) YES. SC remanded the case to the CFI for further
In the choice of a firm name, no false, misleading or assumed proceedings consistent with the Creditors’ motion, after
name shall be used. The continued use of the name of a R: holding that that the members should be liable as
deceased partner is permissible provided that the firm indicates partners in a general partnership even if the firm name
in all its communications that said partner is deceased. did not include any one of their names, because they
Rules on Firm Names:

It must not be identical, misleading or confusingly similar to 110 SEC OPINION TO MILTON CHRISTOPHER
111 SEC CIRCULAR 5, AS AMENDED (S2008)
another. 112 SEC. 15A, SEC CIRCULAR 5
_______________________________________________________________
intended to form a general partnership and substantially It shall allow the ‘exempted partner’ to recover from the
complied with the essential requisites. others.
Note:
JOINTLY LIABLE FOR PARTNERSHIP ‘PRO RATA’ = Does not mean pro-rated to their contribution
but actually means equal sharing in the liability.113
OBLIGATIONS
Article 1816 The phrase ‘under its signature and by a person authorized’
ALL PARTNERS, including industrial ones, shall be liable pro rata does not limit the acts that bind the partnership to only
with all their property and after all the partnership assets have authorized acts. The rule on acts FACOITUWB and acts
been exhausted, for the contracts which may be entered into in subsequently ratified/authorized shall also bind the
the name and for the account of the partnership, under its partnership and make partners indivually liable under the
signature and by a person authorized to act for the partnership.
However, any partner may enter into a separate obligation to
abovementioned rules.
perform a partnership contract.
DISCHARGE OF LIABILITIES
Any stipulation against the liability laid down in the preceding The dissolution of the partnership does not of itself discharge
article shall be VOID, except as among the partners. the existing liability of any partner.
A partner is discharged from any existing liability upon
dissolution of the partnership by an agreement to that effect
LIABILITY LOSS between himself, the partnership creditor and the person or
Talks about the Happens when the partners partnership continuing the business; and such agreement may
responsibility of a partner to settle among themselves be inferred from the course of dealing between the creditor
satisfy any obligation to 3rd the payment of losses. having knowledge of the dissolution and the person or
persons, when partnership partnership continuing the business.
property is insufficient. The individual property of a deceased partner shall be liable for
E.g. E.g. all obligations of the partnership incurred while he was a
A 3rd person’s claim is After a 3rd person’s claim partner, but subject to the prior payment of his separate debts.
enforceable against the has been satisfied, an
personal property of a industrial partner may claim Rule on partner’s liabilities
partner (industrial or not). from the capitalist partners G.R.: Dissolution does not, by itself, discharge any existing
the value of the claim liability of any partner.
against him, since he should E: A partner is discharged from liabilities if:
not be liable for any losses 1. There is an agreement* to that effect; and
(unless there is a stipulation 2. The agreement is between the following:
to the contrary). • The partner leaving
• The partnership creditor
[RECAP] Rule on liability/losses to be suffered by • The person(s)/partnership continuing the
industrial partners. business
An industrial partner is not liable for any losses, unless there
is a stipulation to the contrary. * The agreement may be expressed/implied from the course of dealing between
the creditor (who has knowledge of the dissolution) and the continuing
An industrial partner is liable to unsatisfied claims of third partner(s)/partnership.
persons. Rule on deceased partner’s liabilities
The partners may not stipulate that an industrial partner The individual property of a deceased partner must satisfy
shall not be liable for any losses. first the deceased’s separate debts before paying
partnership obligations.
When is a partner liable with his/her property?
1. The partner’s liability is PRO RATA when the ff. Rules on Dissolution caused by expulsion bona fide:
conditions concur: The expelled partner may be discharged from liabilities
a. The partnership is bound in a contract; either by:
b. The partnership’s assets have been exhausted; and - Payment; or
c. The claim is still unsatisfied. - Express/Implied agreement among the partner,
2. A partner obligated him/herself to perform the partnership and creditors.
obligation in the partnership contract.
After being discharged from liabilities, he/she may claim
What is the effect of a stipulation excluding a partner the net amount due him from the partnership.
from liability?
It shall not prevent any 3rd person from enforcing an
unsatisfied claim.
113 ISLAND SALES V UNITED PIONEERS (1975)
_______________________________________________________________
COMPANIA MARITIMA V. MUNOZ (1907) PACIFIC COMMERCIAL CO. V. ABOITIZ (1926)
I N D U S T R I A L P A R T N E R S C A N N O T B E R E L I E V E D F R O M A R T . 1 4 1 O N L O S S E S R E L A T E S T O T H E
L I A B I L I T Y T O T H I R D P E R S O N S F O R T H E D E B T S O F D I S T R I B U T I O N O F L O S S E S A M O N G T H E P A R T N E R S
T H E P A R T N E R S H I P T H E M S E L V E S I N T H E S E T T L E M E N T O F T H E
P A R T N E R S H I P A F F A I R S . I T D O E S N O T P E R T A I N T O
On the 31st day of March, 1905, the defendants Francisco
Muñoz, Emilio Muñoz, and Rafael Naval formed on ordinary L I A B I L I T I E S -‐ P A R T N E R S H I P O B L I G A T I O N S T O T H I R D
general mercantile partnership under the name of Francisco P A R T I E S .
Muñoz & Sons for the purpose of carrying on the mercantile Partnership failed to pay a loan it obtained from petitioner
F:
business in the Province of Albay which had formerly been so the chattel mortgage was foreclosed. However it was not
carried on by Francisco Muñoz. Francisco Muñoz was a enough to cover the entire debt so this case was brought to
capitalist partner and Emilio Muñoz and Rafael Naval were recover the deficiency. The lower court held that the
industrial partners. F: judgment be satisfied first from the assets of the
WOn Emilio Muñoz was a general partner, and as such liable partnership, then the general partners, then the industrial
I: to third persons for the obligations contracted by the partner. The latter appealed the ruling of the lower court
partnership. and alleged that as an industrial partner, he should not be
YES. It is admitted that if in this case there had been a liable to pay the debt of the partnership.
capitalist partner who had contributed only P100 he would WON an industrial partner can be liable for the obligations
be liable for this entire debt of P26,000. I:
of the partnership
Our construction of the article is that it relates exclusively to YES. The court differentiated loss and liability of the
the settlement of the partnership affairs among the partners partnership. It affirmed the ruling of the lower court. See
themselves and has nothing to do with the liability of the doctrine. When a partnership is liable to pay a debt to a third
R: partners to third persons; that each one of the industrial person, it does not necessarily mean that the business has
partners is liable to third persons for the debts of the firm; R:
been operating at a loss. It only means that there may be
that if he has paid such debts out of his private property outstanding credits for which the assets of the partnership
during the life of the partnership, when its affairs are settled (money and its properties) are not sufficient to pay for these
he is entitled to credit for the amount so paid, and if it debts.
results that there is not enough property in the partnership
to pay him, then the capitalist partners must pay him.
AGENTS OF THE CO-PARTNERS AND THE
ISLAND SALES, INC. V. UNITED PARTNERS (1975)
PARTNERSHIP
When Union Pioneers General Construction defaulted in Article 1803
their payment to Island Sales Inc for a motor vehicle, Island When the manner of management has not been agreed upon,
Sales sued the partners of Union for the balance. The the following rules shall be observed:
complaint was dismissed against Lumauig, one of the (1) All the partners shall be considered agents and whatever any
F: one of them may do alone shall bind the partnership, without
partners. Daco and Sim, on MR from the judgment, argued
that since there are 5 general partners, their liability should prejudice to the provisions of Article 1801.
(2) None of the partners may, without the consent of the others,
not exceed 1/5, regardless of whether or not the complaint
make any important alteration in the immovable property of
was dismissed against Luamuuig. the partnership, EVEN IF it may be useful to the partnership.
WON the dismissal of the complaint in favor of one of the But if the refusal of consent by the other partners is
general partners increases the joint and subsidiary liability of manifestly prejudicial to the interest of the partnership, the
I:
each of the remaining partners for the obligations of the court's intervention may be sought.
partnership.
NO. There were 5 general partners when the promissory Article 1818
note was executed on behalf of the partnership. Every partner is an agent of the partnership for the purpose of its
The liability of the partners is pro rata. business, and the act of every partner, including the execution in
The liability of DACO is limited to one-fifth of the obligations the partnership name of any instrument, FOR APPARENTLY
R:
of the company. CARRYING ON IN THE USUAL WAY THE BUSINESS OF THE
The fact that the complaint against Lumauig was dismissed PARTNERSHIP of which he is a member binds the partnership,
at the instance of the plaintiff does not unmake Lumauig as unless the partner so acting has in fact no authority to act for the
general partner in the defendant company. partnership in the particular matter, AND the person with whom he
is dealing has knowledge of the fact that he has no such authority.
An act of a partner which is not apparently for the carrying on of
CO-PITCO V. YULO (1907) business of the partnership in the usual way does not bind the
Yulo and Palacios were partners. Co-Pitco ordered Yulo to partnership unless authorized by the other partners.
F:
pay the entire debt of said partnership.
I: WON Yulo is liable for the entire debt of the partnership Except when authorized by the other partners or unless they have
abandoned the business, one or more but less than all the
NO. SC held that this was a civil partnership; hence, Yulo partners have no authority to:
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was only liable pro rata i.e. half the debt.
(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) Enter into a compromise concerning a partnership claim or Presumptions (after ascertaining partnership):
liability; Every partner is a general partner.
(6) Submit a partnership claim or liability to arbitration;
(7) Renounce a claim of the partnership. Every partner is an authorized agent of the partnership.
No act of a partner in contravention of a restriction on authority
shall bind the partnership to persons having knowledge of the Notes:
restriction. If the act of a partner is not for the purpose of the business,
the person is acting on his/her personal capacity, and not as
RULE ON MUTUAL AGENCY an agent of the partnership.
(When is an act binding?): The presumption that a partner is authorized to bind the
Acts for the purpose of the partnership’s business partnership is not unlimited. It is still incumbent for 3rd
persons to inquire on acts such as those falling under Art.
Acts FACOITUWB
1818.
- Unless such act is done without authority/in
contravention of a restriction + 3rd persons aware of There is a duty on the part of the partnership to inform 3rd
such. persons of restrictions on the authority of its partners.116
Non-FACOITUWB acts only if: CONVEYANCE OF PROPERTY IN PARTNERSHIP NAME
- Authorized by the other partners; or Article 1819
- Ratified by the other partners (under rules of agency) Where title to real property is in the partnership name, any
partner may convey title to such property by a conveyance
ACTS OF STRICT DOMINION FOR PARTNERSHIPS executed in the partnership name; but the partnership may
G.R.: All partners must authorized such acts. recover such property unless the partner's act binds the partnership
E: When the person(s) is/are authorized to do such acts; under the provisions of the first paragraph of article 1818, or
or unless such property has been conveyed by the grantee or a person
When the partners have abandoned the business. claiming through such grantee to a holder for value without
knowledge that the partner, in making the conveyance, has
[ADD C SER] exceeded his authority.
Assign the partnership property in trust for Where title to real property is in the name of the partnership, a
creditors/payment of debts conveyance executed by a partner, in his own name, passes the
Dispose of good-will equitable interest of the partnership, provided the act is one
Do any act that would make it impossible to carry on the within the authority of the partner under the provisions of the
ordinary business. first paragraph of Article 1818.
Confess a judgement Where title to real property is in the name of one or more but
Submit a partnership claim/liability to arbitration not all the partners, and the record does not disclose the right of
Enter into a compromise concerning partnership the partnership, the partners in whose name the title stands may
convey title to such property, BUT the partnership may recover
claim/liabilty such property if the partners' act does not bind the partnership
Renounce a claim under the provisions of the first paragraph of Article 1818,
UNLESS the purchaser or his assignee, is a holder for value,
Manner of Management was not agreed upon: without knowledge.
Each partner is an agent of the partnership.
Where the title to real property is in the name of one or more or
Their acts will bind the partnership, but subject to the rule all the partners, or in a third person in trust for the partnership,
on objections by other partners. a conveyance executed by a partner in the partnership name, or
in his own name, passes the equitable interest of the partnership,
In cases where an act of the partner is an important provided the act is one within the authority of the partner under the
alteration of an immovable, the other partners must provisions of the first paragraph of Article 1818.
consent. Where the title to real property is in the name of all the partners
- But if such consent is witheld + the refusal to consent is a conveyance executed by all the partners passes all their rights
manifestly prejudicial to the interest of the partnership: in such property.
o Partner may seek the court’s intervention.
Rules on Real Property in the Partnership Name
DUTIES OF 3RD PERSONS:
To inquire on the existence of a partnership agreement.114 WHEN IS TITLE Any partner may convey it, executing
To ascertain if acts are FACOITUWB. TRANSFERRED? under the partnership name.
- Act may have been habitual + acquiesced or power also WHEN IS ONLY Any partner conveying it, executing
usually exercised by partners in a like business.115 EQUITABLE under his/her own name, provided
INTEREST that it is for the purpose of the
TRANSFERRED? business/FACOITUWB.
WHEN IS At all instances, except…
114 STRATEMEYER V WEST

116
115 COOK V BRUNDIDGE AmJur
_______________________________________________________________
PROPERTY Rules on Real Property entrusted to a 3rd person for the
RECOVERABLE? partnership
WHEN IS - Such sale was for the purpose of
PROPERTY the business/FACOITUWB WHEN IS TITLE The Code is silent (probably only
UNRECOVERABLE? Provided: The buyer did not know TRANSFERRED? partnership authorized
of the lack of authority of the conveyances only).
partner. WHEN IS ONLY Any partner may convey it,
- If the grantee (3rd person) EQUITABLE executing under his/her own name
conveyed it to a holder for value, INTEREST OR partnership name, provided
the latter not having any TRANSFERRED? that it is for the purpose of the
knowledge of such lack/excess of business/FACOITUWB.
authority. WHEN IS PROPERTY The Code is silent too (but probably
RECOVERABLE? no recovery)
Note:
WHEN IS PROPERTY
What if the partners authorized a partner to execute the
UNRECOVERABLE?
instrument under the former’s own name, will it transfer
title?
- Author: No. Property in the partnership name may only Notes:
be transferred under the partnership name. Remember to apply the rules on manner of management
first to identify if the partner acting has default authority to
execute under the partnership name.
Rules on Real Property in the Name of one or more
Partners but not all The rules on recovery only talks about situations falling
under the 1st paragraph of Art. 1818. It is safe to assume that
WHEN IS TITLE All partner-owners must convey it, non-FACOITUWB conveyances that were authorized (acts
TRANSFERRED? executing it under their name AND falling under the 2nd paragraph) were not contemplated to
the records does not disclose the be included.
right of the partnership.
BOUND BY ADMISSION/REPRESENTATION
WHEN IS ONLY Any partner may convey it,
EQUITABLE executing under his/her own name Article 1820
INTEREST OR partnership name, provided An admission or representation made by any partner concerning
partnership affairs WITHIN THE SCOPE OF HIS AUTHORITY in
TRANSFERRED? that it is for the purpose of the accordance with this Title is evidence against the partnership.
business/FACOITUWB.
WHEN IS PROPERTY Only if the act is not for the
RECOVERABLE? purpose of the Rule on Admission/Representation
business/FACOITUWB, except… Such act must be made by a partner within his/her scope of
WHEN IS PROPERTY Purchaser/Assignee was unaware authority.
UNRECOVERABLE? of the lack/excess of authority. BOUND BY NOTICE TO PARTNER
Note:
Article 1821
- The concept here is that the partners are acting as co- Notice to any partner of any matter relating to partnership
owners, hence the similarity with the rules on affairs, and the knowledge of the partner acting in the
transferring property in co-ownership. particular matter, acquired while a partner OR then present to
his mind, and the knowledge of any other partner who
reasonably could and should have communicated it to the
Rules on Real Property in the Name of all Partners, acting partner, operate as notice to or knowledge of the
partnership, except in the case of fraud on the partnership,
committed by or with the consent of that partner.
WHEN IS TITLE All partners must convey it,
TRANSFERRED? executing under the partnership
Conditions for matters to be notice to the partnership:
name/their name.
WHEN IS ONLY Any partner may convey it, 1. A partner acquires knowledge in such a way that:
EQUITABLE executing under his/her own name a. He/she acted in the particular matter while a partner;
INTEREST OR partnership name, provided b. He/she acted in the particular matter then present to
TRANSFERRED? that it is for the purpose of the his mind; or
business/FACOITUWB. c. The partner reasonably could and should have
WHEN IS PROPERTY The Code is silent (so probably no communicated such to the partners; and
RECOVERABLE? recovery). 2. Notice to the partner is related to partnership affairs;
WHEN IS PROPERTY
UNRECOVERABLE?
_______________________________________________________________
GOQUIOLAY V. SYCIP (1960 AND 1963) SOLIDARILY LIABLE FOR WRONGFUL ACTS
I T I S N E C E S S A R Y F O R T H E T H I R D P E R S O N T O AND OMISSIONS AND BREACH OF TRUST
A S C E R T A I N I F T H E M A N A G I N G P A R T N E R W I T H Article 1822
W H O M H E C O N T R A C T S H A S P R E V I O U S L Y O B T A I N E D Where, by any wrongful act or omission of any partner acting in
T H E C O N S E N T O F T H E O T H E R , A S T H I S I S P R E S U M E D the ordinary course of the business of the partnership OR with
Tan An Sin and Goquiolay were partners in a firm dealing the authority of co-partners, LOSS OR INJURY is caused to any
with real estate. The former was to act as managing person, not being a partner in the partnership, OR any PENALTY
partner while the other was a co-partner without a voice. IS INCURRED, the partnership is liable therefor to the same
extent as the partner so acting or omitting to act.
The partnership bought 3 lots while managing partner
bought 46 lots in his individual capacity, with Yutivo Article 1823
F: advancing the downpayment and amortizations. All the The partnership is bound to make good the loss:
lots were mortgaged to Banco Hipotecario. Banco (1) Where one partner acting within the scope of his apparent
demanded payment but Yutivo et.al. paid to cancel the authority RECEIVES MONEY OR PROPERTY of a third person
mortgages. Now they are claiming with the estate of the and MISAPPLIES IT; and
deceased managing partner the expenses they incurred in (2) Where the partnership in the course of its business receives
redeeming the properties. money or property of a third person AND the money or
WON the sale of the partnership properties by the widow property so received is MISAPPLIED BY ANY PARTNER while
I:
was valid. it is in the custody of the partnership.
YES. The acts, as appraised by the Court, are enough to
R: consider her as a managing partner in such partnership, Article 1824
which allows her to sell the partnership properties. All partners are liable solidarily with the partnership for
everything chargeable to the partnership under Articles 1822 and
1823.
SANTIAGO SYJUCO V. CASTRO (1989)
W H E R E T H E T I T L E T O R E A L P R O P E R T Y I S I N T H E CONDITIONS TO HAVE PARTNERS SOLIDARILY LIABLE
N A M E S O F A L L T H E P A R T N E R S A C O N V E Y A N C E TO 3RD PERSONS WITH THE PARTNERSHIP:
E X E C U T E D B Y A L L T H E P A R T N E R S P A S S E S A L L T H E I R Wrongful act/ommission
R I G H T S I N S U C H P R O P E R T Y . T H E T E R M
“ C O N V E Y A N C E ” I N C L U D E S A M O R T G A G E .
1. Any wrongful act/ommission by a partner acting in
either:
Lims could not pay their loan to Syjuco and so the latter a. The ordinary course of business; or
sought to judicially foreclose the properties mortgaged. The b. With the authority of co-partners; and
Lims instituted a total of 4 cases, with 3 more in the interim
F:
in order to prevent the foreclosure. The SC ruled in favor of
2. Such act/ommission either:
Syjuco twice. However, the Lims instituted a 5th case, this a. Causes loss or injury to a 3rd person; or
time as a partnership and not as co-owners. b. Incurs penalty to the partnership.
WON the foreclosure is null and void since the properties
I: Loss of money/property belonging to 3rd persons
now belonged to the partnership
NO. The Court held that the partnership, being composed of 1. Money/property is received by:
the heirs themselves, is estopped from claiming that the a. A partner acting within the scope of his/her apparent
mortgage was null and void since partnership property in the authority; or
R: name of the partners conveyed by all partners will transfer b. The partnership in the course of its business; and
all interest. For the final time SC ruled in favor of the Syjucos 2. A partner misapplies it:
and ordered an investigation on the Lims' underhanded a. After receiving such; or
tactics. b. While such is in the custody of the partnership.
CONGCO V. TRILLANA (1909) ART. 1816 ART. 1824

Congco filed a complaint for payment of debt against Partners are liable jointly. Partners are solidarily liable.
Trillana for the latter’s debt owing to a dissolved Liability arises from the Liability arises from
partnership. Trillana sought to extinguish his obligation insufficiency of partnership wrongful acts/omissions by
F:
from the partnership by presenting a doc where Lawa, the property to satisfy a claim. a partner.
manager of the partnership, stated that he no longer had
outstanding debts. Notes:
I: WON Trillana is liable. Art. 1822: Sufficiently broad to cover anything (Delicts, QD,
YES. Court held that the doc has no force and effect since QC, etc.)
Lawa was not authorized to execute such doc. Payment
R: must be made to the person in whose favor an obligation MUÑASQUE V. CA (1985)
is constituted, or to another authorized to receive it in his G R : T H E L I A B I L I T Y O F P A R T N E R S I S J O I N T I N
name. T R A N S A C T I O N S E N T E R E D I N T O B Y T H E
P A R T N E R S H I P .
E : I F A T H I R D P A R T Y T R A N S A C T S W I T H T H E
P A R T N E R S H I P , H E C A N H O L D T H E P A R T N E R S
S O L I D A R I L Y L I A B L E U N D E R 1 8 2 2 O R 1 8 2 3 .
_______________________________________________________________
Galan and Munasque are partners in "Galan & CONCEPT
Munasque." They have a contract to remodel a portion of Estoppel is a bar which precludes a person from
Tropical's building and payment was to be done in 4 denying/asserting anything contrary to that which has been
installments. The 1st installment was paid, but the 2nd established as the truth by his own deed/representation,
was refused by Munasque because Galan allegedly used either express/implied.117
the 1st payment for personal use. Tropical changed the
name of the payee to "Galan & Munasque" and this This provision does not create a partnership but only holds a
F:
enabled Galan to encash the check. Meanwhile, person a partner by estoppel.
Munasque finished construction using his own money,
and he sued Galan and Tropical for the payment and for WHEN IS PERSON A PARTNER BY ESTOPPEL?
damages. The suppliers sued both Galan and Munasque 1. There is a representation through words (oral/written) or
to recover their payment. TC held that both must pay the conduct that a person is a partner in either an existing or
suppliers while CA changed the ruling from "joint and non-existent partnership;
severally" to joint only. 2. The 3rd person gave credit to such representation; and
I: Is their liability joint? 3. There was no denial or refutation of such representation.
NO. THEY ARE SOLIDARILY LIABLE. See doctrine. The
R: law protects a third person in good faith relying on the Ways of Representation:
authority of a partner, whether or not that authority is real. 1. Direct Representation:
a. When a person represents him/herself to be a
partner.
LIABILITY DUE TO ESTOPPEL 2. Indirect Representation:
Article 1825 a. When another person represents another and the
When a person, by words spoken or written or by conduct, latter consents to such representation.
anyone, as a partner in an existing partnership or with one or EFFECT OF PARTNERSHIP BY ESTOPPEL
more persons not actual partners, he is liable to any such
persons to whom such representation has been made, who has, When is the partnership liable?
on the faith of such representation, given credit to the actual or If all actual partners consented to such misrepresentation.
apparent partnership, and if he has made such representation or
consented to its being made in a public manner he is liable to
- In this case, the partner by estoppel is considered an
such person, WHETHER the representation has or has not been agent of the partnership and such act binds the
made or communicated to such person so giving credit by OR with partnership as if he/she was a partner.
the knowledge of the apparent partner making the representation
or consenting to its being made: When is liability only joint or pro rata?
If only some of the partners or non-partners agree to such
(1) When a partnership liability results, he is liable as though he
were an actual member of the partnership; misrepresentation, they, together with the partner in
(2) When no partnership liability results, he is liable pro rata estoppel, are liable to the 3rd person.
with the other persons, if any, so consenting to the contract - In this case, the partner by estoppel is considered an
or representation as to incur liability, otherwise separately. agent of the consenting parties and such act binds the
When a person has been thus represented to be a partner in an parties as if the former is a partner of the latter.
existing partnership, or with one or more persons not actual
partners, he is an agent of the persons consenting to such When is the partner by estoppel solely liable?
representation to bind them to the same extent and in the same When none of the actual partners consented to such
manner as though he were a partner in fact, with respect to misrepresentation.
persons who rely upon the representation. When all the
members of the existing partnership consent to the Notes:
representation, a partnership act or obligation results; but in all Consent may be express/implied.
other cases it is the joint act or obligation of the person acting
and the persons consenting to the representation. Technically, no partnership is created. The partnership only
exists as to the 3rd person.
Section 21 (Corporation Code)
Corporation by estoppel. - All persons who assume to act as a Only general provisions on partnerships apply that do not
corporation knowing it to be without authority to do so shall be prejudice other 3rd persons.
liable as general partners for all debts, liabilities and damages - E.g. Rules on preference of credit will not apply if there
incurred or arising as a result thereof: Provided, however, That are other creditors that are aware of the non-existence
when any such ostensible corporation is sued on any transaction
entered by it as a corporation or on any tort committed by it as
of the partnership.
such, it shall not be allowed to use as a defense its lack of
corporate personality.
WHO MAY INVOKE
On who assumes an obligation to an ostensible corporation as 1. Those who directly received such misrepresentation; or
such, cannot resist performance thereof on the ground that there 2. Any person who relied on the misrepresentation done in
was in fact no corporation.
a public manner.
117
AmJur
_______________________________________________________________
Notes: estoppel.
Jurisprudence requires the 3rd person to exercise reasonable I: Is Weiner liable as a partner by estoppel?
prudence and good faith in relying to such representation.118 R: NO. See Doctrine.
- “WHETHER the representation has or has not been NOTE THAT IN PH, THE USE OF A LTD PARTNER'S NAME IN THE
made or communicated to such person so giving credit SIR: PARTNERSHIP'S NAME EXPOSES HIM TO LIABILITY AS A GENERAL
by OR with the knowledge of the apparent partner PARTNER.
making the representation or consenting to its being
made:”
o Sir: Really confusing as to what it means, but it can be reconciled that HUNTER V CROYSDIL
the idea is that the apparent partner consented to the fact of Crawford (the financial backer) and Croysdil (the sales
representation in a public manner regardless if he had knowledge of manager) represented themselve as partners to the
the specific advertisement.
partners of Quinco Tool Products to secure the latter's
West Coast distributorship. The Quinco partners lent
ANFENSON V BANKS F: them money, but they later found that there really wasn't
any partnership between Crawford and Croysdil. Quinco
O S T E N S I B L E P A R T N E R S H I P C A N N O T B E
sued to recover the amount. Crawford claims that the
E S T A B L I S H E D B Y T E S T I M O N Y O F G E N E R A L
representation made referred to a future and not to a past
R E P U T A T I O N . T H E R E I S N O P R E S U M P T I O N O F
or present, business.
P A R T N E R S H I P F R O M R E P U T A T I O N A L O N E . I: Is there an existing partnership?
Penfield bought the Bank of Kelley from Starr and ran it YES. The circumstances strongly suggest that a
for 8 yrs. One summer, the bank issued a circular/booklet partnership relationship was already mature.
tagging Mr Banks (Penfield's father-in-law and a rich (1) In the letter to Quinco: "We are ready to start
farmer) as a partner. Mr Banks never transacted with nor functioning"
R:
for the bank.In fact, when he found out about the booklet, (2) They already selected a name
F:
he went to the bank to ask and his son-in-law apologised (3) They already decided where to ship the goods
and said he would "straighten things up." Penfield (4) Crawford told Croysdil to decine on the original
absconded. The depositors sued Mr Banks on the theory stocking order.
that he held himself out and did not repudiate the
booklet.
I: Is Mr. Banks liable? WISCONSIN TELEPHONE V LEHMAN
NO. Ostensible partnership cannot be established by F O R T H E R E T O B E P A R T N E R S H I P B Y E S T O P P E L ,
testimony of general reputation. There is no presumption T H E T H I R D P E R S O N M U S T S H O W T H A T H E R E L I E D
of partnership from reputation alone. O N T H E R E P R E S E N T A T I O N A N D T H A T H E W O U L D
There are 2 instances when equitable estoppel applies H A V E C H A N G E D H I S A C T I O N I F H E H A D K N O W N
(not favored in law): T H E T R U E F A C T S .
(1) by positive acts and declarations and
Walter (the father) and Wayne (son) did business as "WR
(2) silence when he is duty bound to speak
Lehman & Son" but the son later withdrew. Wayne started
Here, the holding out was Penfield's alone. The plaintiffs
his own business under the name "WR Lehman & Son -
were relying on Mr Bank's reputation. As regards the
Dairy Cattle" in a building in his father's farm. Wayne had
R: argument that Mr Banks should have known the
F: a telephone line under his own name which he later
reputation and contradicted it, like a careful and prudent
requested to be listed under "WR Lehman & Son." At the
man would, the court said that
end of the ff year, bills remained unpaid and the Tel Co
GR: No man is to be held responsible for the truth or
sued W.R. Lehman & Son on the theory that Wayne had
falsity of a rumor concerning him
apparent authority.
E: He has given rise thereto by his own conduct OR it
I: Was there a partnership by estoppel?
came to his knowledge in such a manner that he should
NO. There is no showing that the Tel Co would have
meet it with denial
stopped providing services if it had known the true facts.
Here, Mr Banks did everything a reasonable man would by R:
In other words, the Tel Co was not able to prove reliance
going to the source and forbidding the use of his name.
(estoppel = representation + reliance + damage).
BROWN V GERNSTEIN
T H E U S E O F A P E R S O N ' S N A M E I N A B U S I N E S S , E V E N LIABILITY OF NEW PARTNERS
W I T H T H A T P E R S O N ' S K N O W L E D G E , I S T O O Article 1826
S L E N D E R A T H R E A D T O W A R R A N T C O N S E N T . A person admitted as a partner into an existing partnership is
liable for all the obligations of the partnership arising before his
The Sps Brown hired Gerstein as their lawyer in the
admission as though he had been a partner when such obligations
foreclosure of their property. Gerstein uses "Gerstein & were incurred, EXCEPT that this liability shall be satisfied only out
Weiner" as the firm name, but Weiner has never met the of partnership property, UNLESS there is a stipulation to the
F:
Browns. Despite assurances, the Sps Brown were contrary.
foreclosed. They sued Gerstein for malpractice and under
a consumer law. The also included Weiner as a partner by
118 WISCONSIN TELEPHONE V LEHMAN

_______________________________________________________________
Rule on liability of New Partners:
Notes:
Rule: A New Partner is also liable for all obligations of
the partnership before his/her admission to the Partnership creditors have preference over separate
partnership. creditors in the liquidation of partnership property.
Limit: Such obligation shall be satisfied only out of

partnership property. VIUDA DE CHAN V. PENG (1929)
Exception: If there is a stipulation to the contrary. B O T H T H E P A R T N E R S H I P A N D T H E S E P A R A T E
P A R T N E R S T H E R E O F M A Y B E J O I N E D I N T H E S A M E
PARTNERSHIP INTEREST CHARGED FOR A C T I O N , T H O U G H T H E P R I V A T E P R O P E R T Y O F T H E
L A T T E R C A N N O T B E T A K E N I N P A Y M E N T O F T H E
PERSONAL DEBT
P A R T N E R S H I P D E B T S U N T I L T H E C O M M O N
Article 1814 P R O P E R T Y O F T H E C O N C E R N I S E X H A U S T E D
Without prejudice to the preferred rights of partnership creditors
under Article 1827, on due application to a competent court by Leoncia incurred debts which she failed to pay. She filed a
any judgment creditor of a partner, the court which entered the motion to dismiss the insolvency proceedings against her
judgment, or any other court, may charge the interest of the F: on the ground that that they should have been brought
debtor partner with payment of the unsatisfied amount of such against the partnership "Lao Liong Naw & Co.," of which
judgment debt with interest thereon; AND may then or later she was only a member.
appoint a receiver of his share of the profits, and of any other WON the court should dismiss the proceedings against
money due or to fall due to him in respect of the partnership, and Leoncia and the proceedings should have been brought
make all other orders, directions, accounts and inquiries which
I:
against the partnership since the debts incurred were the
the debtor partner might have made, or which the circumstances of partnership’s debts.
the case may require. NO. Since the partnership has no visible assets, the
The interest charged may be redeemed at any time before partners individually must, jointly and severally, respond
foreclosure, or in case of a sale being directed by the court, may for its debts. As the appellee is one of the partners and
be purchased without thereby causing a dissolution: R:
admits that she is insolvent, the court can see no reason
(1) With separate property, by any one or more of the partners; for the dismissal of the proceedings against her. See
or doctrine.
(2) With partnership property, by any one or more of the
partners with the consent of all the partners whose interests
are not so charged or sold.
Nothing in this Title shall be held to deprive a partner of his right, if
any, under the exemption laws, as regards his interest in the
partnership.
Article 1827
The creditors of the partnership shall be preferred to those of
each partner as regards the partnership property. Without
prejudice to this right, the private creditors of each partner may
ask the attachment and public sale of the share of the latter in
the partnership assets.
_______________________________________________________________
Dissolution and
After agreeing to dissolve their partnership, Idos issued
four checks to Alarilla. He was able to encash all but one,
which Idos initially failed to pay. Alarilla filed a case for
Winding Up
violation of BP 22 against Idos, who argued that the
F:
checks had merely been issued as assurance of Alarilla’s
share in the partnership and were not supposed to be
deposited until the remaining goods had been sold and
Phases in ending the Partnership: the receivables collected.
Winding-‐UP WON the checks were issued as assurance of partnership
I:
Dissolu(on & Termina(on share
Liquida(on YES. Since the partnership had not been terminated, the
parties remained co-partners. The check was thus issued
R:
by one partner to another, and not as payment from a
I. Meaning of Dissolution debtor to a creditor.
Article 1828
The dissolution of a partnership is the change in the relation of
the partners caused by any partner ceasing to be associated in II. Causes of Dissolution
the carrying on as distinguished from the winding up of the
business. MAJOR CATEGORIES:
1. By Agreement
Article 1829
2. By Operation of Law
On dissolution the partnership is not terminated, but continues
until the winding up of partnership affairs is completed.
3. By Judicial Decree
By Agreement (6 causes):
1. Without violating the partnership agreement under the
ROJAS V MAGLANA (1990)
following circumstances (4 causes):
A P A R T N E R S H I P M A Y B E D I S S O L V E D U N I L A T E R A L L Y
B Y A N Y O F T H E P A R T N E R S . S H O U L D T H E R E B E N O
a. Termination of the specified definite
J U S T C A U S E F O R T H E W I T H D R A W A L , T H E term/undertaking
W I T H D R A W I N G P A R T N E R S H A L L B E L I A B L E F O R b. By the express will of ANY PARTNER acting in good
D A M A G E S ; H O W E V E R , I N N O C A S E M A Y H E B E faith, in cases where the partnership did not specify
C O M P E L L E D T O R E M A I N I N T H E P A R T N E R S H I P . any definite term/undertaking
Rojas and Maglana created a partnership called EDE
c. By the express will of ALL PARTNERS who have not
(partnership at will). They later decided to accept assigned their interests OR not suffering from any
Pahamotang as an industrial partner and executed charging orders, either before/after the termination
another partnership agreement where they used the same of a definite term/undertaking
name, for the same objective, but they fixed the term to d. By the expulsion of ANY PARTNER, granted that the
F:
30 years. Pahamotang would later leave and sell his Articles of Partnership confers such power and done
interest to Rojas and Maglana. Rojas later abandoned the bona fide
partnership and entered into a management contract with 2. Violating the partnership agreement under the following
another corporation. Maglana dissolved the partnership circumstances (2 causes):
so Rojas sued to recover his shares.
a. In cases where there is a specified definite
I: What is the nature of the partnerships?
THE 2ND PARTNERSHIP (ACCEPTING PAHAMOTANG) term/undertaking:
DID NOT DISSOLVE THE 1ST PARTNERSHIP. Except for i. By the express will of ANY PARTNER at any time,
the fact that they accepted an industrial partner and set a regardless of good/bad faith
R: b. In cases of Partnerships at Will:
fixed period, everything else remained the same.
Moreover, the supplementary articles (of the 2nd i. By the express will of ANY PARTNER in bad faith
partnership) were never registered.
THE PROBLEMS WITH THIS CASE: By Operation of Law (7 causes)
(1) THE CC DEFINES DISSOLUTION AS "ANY CHANGE IN RELATIONS." 1. By any event that makes it UNLAWFUL to:
THERE WAS A CHANGE HERE (AT WILL -> FIXED TERM) a. Carry on the business of the partnership
THE WAY TO SAVE THE CASE IS TO NOTE THAT (A) THERE IS NO b. Carry on the business in partnership
SIR: DISSOLUTION IF THE 2ND PARTNERSHIP IS CONSIDERED AS A 2. When a specific thing:
SEPARATE PARTNERSHIP AND (B) THE RENEWALS OF THE LICENSES a. Promised to be contributed, PERISHES before it is
ARE CONSTRUED IN FAVOR OF THE 2ND PARTNERSHIP
delivered
(2) REGISTRATION IS NOT DETERMINATIVE IN THE EXISTENCE OF A
PARTNERSHIP.
b. Having its ownership reserved and only the
use/enjoyment is transferred to the partnership, is
LOST
IDOS V. CA (1998) i. There is no dissolution if the loss happened after
T H E B E S T E V I D E N C E T H A T T H E P A R T N E R S H I P H A D the partnership acquired ownership over the thing
N O T Y E T B E E N T E R M I N A T E D W A S T H E U N S O L D BY “DICI”
G O O D S A N D U N C O L L E C T E D R E C E I V A B L E S 3. By the DEATH of any partner
_______________________________________________________________
4. By the INSOLVENCY of any partner or of the partnership WITHOUT VIOLATING THE AGREEMENT
5. By the CIVIL INTERDICTION of any partner
Article 1830 (1)
By Judicial Decree (6 causes) Dissolution is caused:
Upon application by a PARTNER: (1) Without violation of the agreement between the partners:
(a) By the termination of the definite term or particular
1. A partner is either: undertaking specified in the agreement;
a. Declared to be INSANE; or (b) By the express will of any partner, who must act in good
b. Is shown to be of UNSOUND MIND; faith, when no definite term or particular is specified;
2. A partner becomes incapable of performing his part; (c) By the express will of all the partners who have not
3. A partner has been GUILTY OF SUCH CONDUCT as assigned their interests OR suffered them to be charged
tends to affect prejudicially the carrying on of the for their separate debts, either before or after the
termination of any specified term or particular undertaking;
business; (d) By the expulsion of any partner from the business bona
4. A partner either: fide in accordance with such a power conferred by the
a. Wilfully/persistently commits a breach of the agreement between the partners;
agreement; or
b. CONDUCTS HIMSELF in matters relating to the Article 1813
partnership business that it is NOT REASONABLY A conveyance by a partner of his whole interest in the
partnership does not of itself dissolve the partnership, or, as
PRACTICABLE TO CARRY ON the business in against the other partners in the absence of agreement, entitle
partnership with him; the assignee, during the continuance of the partnership, to
5. The business of the partnership can ONLY BE CARRIED interfere in the management or administration of the partnership
ON AT A LOSS; business or affairs, or to require any information or account of
6. OTHER CIRCUMSTANCES render a dissolution partnership transactions, or to inspect the partnership books; but
equitable, such as: it merely entitles the assignee to receive in accordance with his
contract the profits to which the assigning partner would
a. Exclusion by a co-partner from participating in the otherwise be entitled. However, in case of fraud in the
conduct of business; management of the partnership, the assignee may avail himself
b. Refusal of a co-partner to render an accounting; of the usual remedies.
c. Appropriation by a co-partner of partnership property
In case of a dissolution of the partnership, the assignee is
for his own use; entitled to receive his assignor's interest AND may require an
d. A partner guilty of fraud in the partnership affairs; account from the date only of the last account agreed to by all
e. Gross misconduct of a partner;119 the partners.
f. Fraudulent retention/disposition of funds collected
for the partnership;120 IN CONTRAVENTION OF THE AGREEMENT
g. A partner undermining the partnership interest by Article 1830 (2)
competing with its business;121 Dissolution is caused:
h. A partner deviating from the terms of the implied
(2) In contravention of the agreement between the partners,
agreement;122 where the circumstances do not permit a dissolution under
i. When there are quarrels and disagreements of such any other provision of this article, by the express will of any
a nature and to such extent that all confidence and partner at any time;
cooperation between parties has been destroyed;123
or Note:
j. A partner’s misbehaviour materially hinders a proper In cases of dissolutions that violate the partnership
conduct of the partnership business.124 agreement, the partnership is indeed dissolved but the
erring partner is liable to the other partners for damages.
Upon the application by the PURCHASER under Article
1813/1814 either: BY OPERATION OF LAW
1. After the termination of the specified term/undertaking Article 1830 (3-7)
2. At any time, if the partnership was a partnership at will Dissolution is caused:
(3) 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;
(4) 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
119
120
SCHROER V SCHROER loss of the thing when it occurs after the partnership has
Am Jur acquired the ownership thereof;
121
Am Jur (5) By the death of any partner;
122 HANES V GIAMBRONE
123 OWEN V COHEN
(6) By the insolvency of any partner or of the partnership;
124
Id. (7) By the civil interdiction of any partner;
_______________________________________________________________
Notes: against the other partners in the absence of agreement, entitle
What if a partner dies and the remaining partners decide to the assignee, during the continuance of the partnership, to
not dissolve the partnership and continue such. Is this interfere in the management or administration of the partnership
business or affairs, or to require any information or account of
possible? partnership transactions, or to inspect the partnership books; but
- YES. They can stipulate to continue the business of the it merely entitles the assignee to receive in accordance with his
partnership but note that they cannot prevent the contract the profits to which the assigning partner would
dissolution, which means that a liquidation of the first otherwise be entitled. However, in case of fraud in the
partnership should be done. management of the partnership, the assignee may avail himself
of the usual remedies.
In case of a dissolution of the partnership, the assignee is
BERNEAZA V. DEQUILLA (1922) entitled to receive his assignor's interest AND may require an
B E F O R E L I Q U I D A T I O N I S M A D E , I T I S I M P O S S I B L E T O account from the date only of the last account agreed to by all
D E T E R M I N E W H A T R I G H T S O R I N T E R E S T S , I F A N Y , the partners.
T H E D E C E A S E D / P A R T N E R H A D .
Article 1814
Balbino and Perpetua formed a partnership for the
Without prejudice to the preferred rights of partnership creditors
purpose of exploiting a fishpond. Among the stipulations under Article 1827, on due application to a competent court by
in the partnership contract was that Domingo to succeed any judgment creditor of a partner, the court which entered the
F: to all her rights and interests in the fishpond. After judgment, or any other court, may charge the interest of the
Perpetua died, Domingo demanded the delivery of part of debtor partner with payment of the unsatisfied amount of such
the fishpond. Balbino refused which prompted Domingo judgment debt with interest thereon; and may then or later
to file this suit for recovery. appoint a receiver of his share of the profits, and of any other
WON Domingo has any right to maintain an action for the money due or to fall due to him in respect of the partnership, and
I:
recovery of one-half of the said fish pond. make all other orders, directions, accounts and inquiries which
NO. The Court held that the partnership was dissolved by the debtor partner might have made, or which the circumstances
the death of Perpetua and that its status was that of it of the case may require.
being under liquidation. Hence, the rights of the partners The interest charged may be redeemed at any time before
R: to the partnership property could not yet be determined. foreclosure, or in case of a sale being directed by the court, may
Domingo then could not establish a right of action. There be purchased without thereby causing a dissolution:
was also no showing that a new partnership continued (1) With separate property, by any one or more of the partners;
after the death of Perpetua. or
(2) With partnership property, by any one or more of the partners
BY DECREE OF COURT with the consent of all the partners whose interests are not so
Article 1830 (8) charged or sold.
Dissolution is caused: Nothing in this Title shall be held to deprive a partner of his right,
if any, under the exemption laws, as regards his interest in the
(8) By decree of court under the following article.
partnership.
Article 1831
On application by or for a partner the court shall decree a
dissolution whenever: LICHAUCO V. LICHAUCO (1916)
(1) A partner has been declared insane in any judicial A partnership was duly organized under the name F.
proceeding or is shown to be of unsound mind; Lichauco Hermanos. The articles of association provided that
(2) A partner becomes in any other way incapable of the partnership can’t be dissolved except by the consent and
performing his part of the partnership contract; agreement of 2/3 of its partners and in the event of the
(3) A partner has been guilty of such conduct as tends to affect death of any of the latter, the heirs of the deceased, if they
prejudicially the carrying on of the business; be minors or otherwise incapacitated, shall be represented in
(4) A partner wilfully or persistently commits a breach of the the association by their legal representatives or if 2/3 of the
partnership agreement, or otherwise so conducts himself in surviving partners agree thereto, participation of the
matters relating to the partnership business that it is not deceased partner may be liquidated. The partnership was
reasonably practicable to carry on the business in found to be unprofitable so it was discontinued by the
partnership with him; F:
defendant. No accounting was made by the defendant to his
(5) The business of the partnership can only be carried on at a
associates. According to the defendant, dissolution is
loss;
(6) Other circumstances render a dissolution equitable.
absolutely prohibited except under par 10 (consent of 2/3 of
partners) so, part of the capital and assets can’t be lawfully
On the application of the purchaser of a partner's interest under returned to and distributed between the plaintiffs who
Article 1813 or 1814: constitute only 1/5 of the total no. of partners as required
(1) After the termination of the specified term or particular under par. 10. No lawful liquidation and distribution of
undertaking; capital and assets of any company or associtation can ever
(2) At any time if the partnership was a partnership at will when take place except upon dissolution thereof. TC rendered
the interest was assigned or when the charging order was judgment in favor of plaintiffs.
issued. WON TC erred in rendering judgment in favor of plaintiffs
Article 1813 w/o first decreeing a dissolution of the association and final
I:
liquidation of its assets in accordance w/ par10 of the
A conveyance by a partner of his whole interest in the
partnership does not of itself dissolve the partnership, or, as articles of association
_______________________________________________________________
NO. SC agreed with the TC. A provision of articles of absolved Serra from any liability and held that the contract
partnership which prohibits the dissolution of the of partnership was terminated by virtue of the novation by
partnership except by the consent and agreement of 2/3 of change of debtor.
the partners, denies the right of a less no. of the partners to I: WoN there was a merger of rights of debtor and creditor
effect a dissolution of the partnership through judicial NO. The SC reversed and held that Salvador Serra is
intervention or otherwise, but it in no wise limits or restricts R: indebted to the plaintiffs in the amount of P113, 046.06 with
the rights of the individual partners in the vent that the interest at 10% from the date of the filing of the complaint.
R:
issolution of the partnership is effected not by any act of
theirs but by the express mandate of law. It would be absurd
to hold that the partnership could never be dissolved and TERMINATION OF AUTHORITY TO ACT FOR
liquidated w/o the consent of 2/3 of its partners THE PARTNERSHIP
notw/standing that it had lost all its capital, or had become
bankrupt, or that the enterprise for w/c it had been Article 1832
organized had been concluded utterly abandoned. Except so far as may be necessary to wind up partnership affairs or
to complete transactions begun but not then finished, dissolution
terminates all authority of any partner to act for the
III. Consequences of Dissolution partnership:
1. Continuation of pending businesses until winding-up. (1) With respect to the partners:
2. Termination of authority to act for partnership. (a) When the dissolution is not by the act, insolvency or
3. Discharge of liabilities. death of a partner; or
(b) When the dissolution is by such act, insolvency or death
4. Optional election to continue the business. of a partner, in cases where article 1833 so requires;
(2) With respect to persons not partners, as declared in Article
CONTINUES UNTIL WINDING UP 1834.
Article 1829
On dissolution the partnership is not terminated, but Article 1833
CONTINUES until the winding up of partnership affairs is Where the dissolution is caused by the act, death or insolvency
completed. of a partner, each partner is liable to his co-partners for his share
of any liability created by any partner acting for the partnership
Article 1785 as if the partnership had not been dissolved unless:
When a partnership for a fixed term or particular undertaking is (1) The dissolution being by act of any partner, the partner acting
continued after the termination of such term or particular for the partnership had knowledge of the dissolution; or
undertaking without any express agreement, the rights and (2) The dissolution being by the death or insolvency of a partner,
duties of the partners remain the same as they were at such the partner acting for the partnership had knowledge or notice
termination, so far as is consistent with a partnership at will. of the death or insolvency.
A continuation of the business by the partners or such of them
as habitually acted therein during the term, without any Article 1834
settlement or liquidation of the partnership affairs, is prima facie After dissolution, a partner can bind the partnership, except as
evidence of a continuation of the partnership. provided in the third paragraph of this article:
(1) By any act appropriate for winding up partnership affairs or
Notes: completing transactions unfinished at dissolution;
The partners may agree that the dissolution will not cause (2) By any transaction which would bind the partnership if
the liquidation.125 dissolution had not taken place, provided the other party to
the transaction:
TESTATE ESTATE OF MOTA V. SERRA (1926) (a) Had extended credit to the partnership prior to dissolution
T H E D I S S O L U T I O N O F A F I R M D O E S N O T R E L I E V E AND had no knowledge or notice of the dissolution; or
A N Y O F I T S M E M B E R S F R O M L I A B I L I T Y F O R (b) Though he had not so extended credit, had nevertheless
E X I S T I N G O B L I G A T I O N S , A L T H O U G H I T D O E S S A V E known of the partnership prior to dissolution, AND, having
T H E M F R O M N E W O B L I G A T I O N S T O W H I C H T H E Y no knowledge or notice of dissolution, the fact of
H A V E N O T E X P R E S S L Y O R I M P L I E D L Y A S S E N T E D , dissolution had not been advertised in a newspaper of
general circulation in the place (or in each place if more
A N D A N Y O F T H E M M A Y B E D I S C H A R G E D F R O M O L D
than one) at which the partnership business was regularly
O B L I G A T I O N S B Y N O V A T I O N O F O T H E R F O R M O F carried on.
R E L E A S E .
The liability of a partner under the first paragraph, No. 2, shall
A partnership contract for the construction of a railroad line be satisfied out of partnership assets alone when such partner
was entered into between the plaintiffs and defendant. Serra had been prior to dissolution:
entered into a contract of sale with Whitaker et al whereby (1) Unknown as a partner to the person with whom the contract is
he sold Hacienda Palma to the latter. Afterwards, Whitaker made; and
F: et al bought from the plaintiffs the one-half of the railroad (2) So far unknown and inactive in partnership affairs that the
line pertaining to the latter. Serra, as well as Whitaker et al., business reputation of the partnership could not be said to
failed to pay one-half of the amount expended by the have been in any degree due to his connection with it.
plaintiffs upon the construction of the railroad line so the The partnership is in no case bound by any act of a partner after
plaintiffs instituted the present action. The trial court dissolution:
(1) Where the partnership is dissolved because it is unlawful to
carry on the business, unless the act is appropriate for winding
125 MARA V STILINOVICH up partnership affairs; or
_______________________________________________________________
(2) Where the partner has become insolvent; or WHY DIFFERENTIATE LIABILITY TO PARTNERS AND TO
(3) Where the partner has no authority to wind up partnership 3RD PERSONS?
affairs; except by a transaction with one who: AS TO PARTNERS AS TO 3RD PERSONS
(a) Had extended credit to the partnership prior to
This is the internal Regardless of the partners’
dissolution AND had no knowledge or notice of his want
of authority; or agreement as to how agreement, the partnership
(b) Had not extended credit to the partnership prior to partners would be sharing in and partners shall satisfy 3rd
dissolution, AND, having no knowledge or notice of his the profits/losses. persons’ claims.
want of authority, the fact of his want of authority has not E.g. E.g.
been advertised in the manner provided for advertising Because the partnership 3rd person D can claim from
the fact of dissolution in the first paragraph, No. 2 (b).
was dissolved not by AID, the partnership and from
Nothing in this article shall affect the liability under Article 1825 of Partner A’s acts will not individual partners his claim,
any person who, after dissolution, represents himself or consents to make others liable. regardless of the dissolution
another representing him as a partner in a partnership engaged in If the partnership was held as among them.
carrying business.
liable to 3rd persons, the
Article 1825 other partners may go after
When a person, by words spoken or written or by conduct, A for indemnification.
anyone, as a partner in an existing partnership or with one or WITH RESPECT TO PARTNERS:
more persons not actual partners, he is liable to any such NO AUTHORITY TO BIND AUTHORITY REMAINS TO
persons to whom such representation has been made, who has, PARTNERS BIND PARTNERS
on the faith of such representation, given credit to the actual or EFFECT
apparent partnership, and if he has made such representation or
consented to its being made in a public manner he is liable to
Acting partner is solely All partners are liable, as if
such person, whether the representation has or has not been liable no dissolution happened
made or communicated to such person so giving credit by or with Acts of a partner necessary
the knowledge of the apparent partner making the to wind-up partnership
representation or consenting to its being made: affairs or to complete
(1) When a partnership liability results, he is liable as though he pending transactions.
were an actual member of the partnership;
(2) When no partnership liability results, he is liable pro rata with
Dissolution was not caused Dissolution was caused by
the other persons, if any, so consenting to the contract or by an Act, Insolvency or AID.
representation as to incur liability, otherwise separately. Death (AID) of a Partner.
Dissolution is caused by an act, but partner acting:
When a person has been thus represented to be a partner in an
existing partnership, or with one or more persons not actual Had knowledge Had NO knowledge
partners, he is an agent of the persons consenting to such Dissolution is by insolvency/death, but partner acting:
representation to bind them to the same extent and in the same Had knowledge/notice Had NO knowledge/notice
manner as though he were a partner in fact, with respect to
persons who rely upon the representation. When all the WITH RESPECT TO THIRD PERSONS:
members of the existing partnership consent to the NOT BINDING TO 3RD BINDING TO 3RD PERSONS
representation, a partnership act or obligation results; but in all PERSONS
other cases it is the joint act or obligation of the person acting and Absolute Rule: Acts of a partner necessary
the persons consenting to the representation.
If the partner transacting to wind-up partnership
Author’s Note: with a 3rd person has affairs or to complete
Upon dissolution of the partnership, always differentiate the become insolvent. pending transactions.
liability of a partner acting on behalf of the partnership as The Partnership was The act is appropriate for
regards co-partners and 3rd persons. In order to do so, dissolved because it is winding-up partnership
identify the following: unlawful to carry on the affairs.
business, unless ->
1. Cause of the dissolution; Acts by a partner without Any transaction of a partner
2. Role of the partner in the business; authority to wind-up (with or without authority to
3. Notice of the cause of the dissolution to the acting partnership affairs, unless - wind-up) with a 3rd person
partner and to 3rd parties; and >. who had:
4. Nature of the act of the acting partner. 1. Extended credit to the
REMEMBER: Acts by a partner with 3rd partnership prior to
ARTICLE 1833: AID (ACTS, INSOLVENCY, DEATH)
ARTICLE 1834: persons having dissolution; and
ST
1 PAR: UNFINISHED OR AS IF NO DISSOLUTION;
ND
knowledge/notice of the 2. No knowledge/notice of
2 PAR: DORMANT PARTNER; dissolution. the dissolution.
RD
3 PAR: GENERAL KNOWLEDGE OF DISSOLUTION/LACK OF AUTHORITY
Acts by partner with 3rd Any transaction of a partner
persons who haven’t (with or without authority to
extended credit prior to wind-up) with a 3rd person
dissolution. who had:
_______________________________________________________________
1. Nevertheless known of contend that the CM may no longer be annulled because it
rd
Acts by partner with 3 the partnership prior to had been judicially approved in a Civil Case and said CM had
persons having knowledge dissolution; been ordered foreclosed in a Civil Case of the same court. On
of the partnership after 2. No knowledge/notice of the question of whether a court may nullify a final judgment
of another court of co-equal, concurrent and coordinate
dissolution. dissolution; and
jusridiction, this Court originally ruled that: A court has no
3. The fact of dissolution power to interfere with the judgments of a court of
had not been advertised concurrent or coordinate jurisdiction having equal power to
in a newspaper of grant the relief sought.
general circulation in the
place (or in each place if DISCHARGE OF LIABILITIES
more than one) at which Article 1835
the partnership business The dissolution of the partnership does not of itself discharge
was regularly carried on. the existing liability of any partner.
Note: A partner is discharged from any existing liability upon

A Partner’s act done after dissolution must still follow the dissolution of the partnership by an agreement to that effect
between himself, the partnership creditor and the person or
general rules on binding acts in order to bind the partnership continuing the business; and such agreement may
partnership. be inferred from the course of dealing between the creditor
having knowledge of the dissolution and the person or
The rules and liabilities under Partnership by Estoppel are partnership continuing the business.
more superior than the above rules.
The individual property of a deceased partner shall be liable for
LIABILITY TO THIRD PERSONS all obligations of the partnership incurred while he was a
G.R.: The partnership shall be liable (partnership assets partner, but subject to the prior payment of his separate debts.
first then personal assets).
E: The liability of a partner shall be satisfied only from Rule on partner’s liabilities
the partnership assets alone if, prior to the G.R.: Dissolution does not, by itself, discharge any existing
dissolution: liability of any partner.
1. The transaction would have bound the E: A partner is discharged from liabilities if:
partnership if not for the dissolution;
2. The partner is unknown to the 3rd person as a 1. There is an agreement* to that effect; and
partner; and 2. The agreement is between the following:
3. The partner is unknown and inactive in the • The partner leaving
partnership affairs; (Dormant Partner). • The partnership creditor
- The business reputation of the partnership • The person(s)/partnership continuing the
could not be said to have been in any degree business
due to his connection with it. * The agreement may be expressed/implied from the course of dealing between
the creditor (who has knowledge of the dissolution) and the continuing
Note: partner(s)/partnership.
This rule on Dormant Partners is an exception to the pro- Rule on deceased partner’s liabilities
rata liability rule. Remember that this will only apply during The individual property of a deceased partner must satisfy
dissolution AND with transactions entered into subsequent first the deceased’s separate debts before paying
to the dissolution. partnership obligations.
SINGSON V. ISABELLA SAWMILL (1979) Rules on Dissolution caused by expulsion bona fide:
Garibay, Tubungbanua and Margarita formed the The expelled partner may be discharged from liabilities
partnership “IS”. Margarita subsequently left the partnership
either by:
but the defendants did not inform their creditors or the
public of such withdrawal. IS still continued with the two - Payment; or
remaining partners. Garibay and Tubungbanua executed a - Express/Implied agreement among the partner,
F: CM in favor of Margarita which the plaintiff-creditors sought partnership and creditors.
to annul for being in fraud of creditors. Plaintiffs also pray
that Garibay, Tubungbanua, together with Margarita be
After being discharged from liabilities, he/she may claim
solidarily liable to pay them. Defendants allege that the net amount due him from the partnership.
Margarita is no longer part of the partnership and that the
plaintiffs, except Oppen, knew of the dissolution of IS. ELECTION TO CONTINUE THE BUSINESS
WON Isabella Sawmill/Margatira ceased to be liable to their
I: Dissolution Not Due to Wrongful Causes
creditors
NO. SC held that Margarita is still liable to the creditors At the point of dissolution, the retiring partner makes an
since the latter were not aware of her withdrawal from the election to either: 126
R:
partnership but the remaining partners shall reimburse her
for whatever she pays the creditors. The defendants also
126 LANGE V BARTLETT
_______________________________________________________________
1. Force the business to wind up; or Notes:
- At which point, he receives the value of his interest at The interest on his/her interest may be its value or the value
the date of liquidation, thereby sharing in both profits of the profits attributable to the use of his/her right in the
and losses until termination. property of the dissolved partnership.
- Partnership property will be applied to discharge
Creditors shall have priority on any claim by the partner.
liabilities and any surplus will be paid to the partners.
2. Permit the business to continue. *** YU V NLRC (1993)
I T I S U N N E C E S S A R Y T O D E T E R M I N E W H I C H U N D E R
- This means that he will claim as creditor the value of
T H E 6 P A R A G R A P H S U N D E R 1 8 4 0 T H E C A S E F A L L S
his interest at dissolution + either legal interest or
S O L O N G A S T H E ( 1 ) T H E B U S I N E S S W A S
profits from the date of dissolution. C O N T I N U E D A N D ( 2 ) T H E R E W A S N O L I Q U I D A T I O N .
Dissolution Due to Wrongful Causes
Y E S , N O N E E D T O M E M O R I Z E A R T . 1 8 4 0
All the partners must elect to continue the business. They
must also: Lea (GP), Rhodora (GP), Chiu (LP), Chen (LP), and Chang
- Indemnify the guilty partner for present/future (LP) were partners in a Ltd partnership called "Jade
liabilities + value of the interest of the guilty partner at Mountain Ltd." The two GP's and Chang sold their
F: interests amounting to 82% to Co and Zapanta. The
time of dissolution less damages is either:
business was continued under the same name but was
o Secured by a court-approved bond; or moved from Makati to Mandaluyong. All employees
o Paid in cash. continued except Yu, so Yu sued for illegal dismissal.
WON the new partnership continuing the business can be
Notes: I:
made liable to the creditors of the dissolved partnership
“Unless otherwise agreed” = Pertains to the discharging of YES. See doctrine. Here, the business was simply
liabilities or in essence, the partnership’s liquidation.127 continued without a winding up or payment of the
R: partnership's debts. Therefore, under 1840, the creditors
What if they want to expel a partner, can they agree to?
of the dissolved partnership are also the creditors of the
How? partnership continuing the business.
- Sir: Yes, by paying or securing a bond for the value of
THE PURPOSE OF THE ENUMERATION UNDER 1840 IS PRECISELY TO
the interest. SIR:
LIMIT ITS APPLICATION. (PULLS HAIR OFF SCALP)
The election to continue the business necessarily creates a
new contract/agreement of partnership among the
continuing partners. LAGUNA TRANSPORTATION V. SSS (1960)
T H E C O N C E P T O F L E G A L E N T I T Y C A N N O T B E
RIGHT OF RETIRING/DECEASED PARTNER I N V O K E D T O S U B V E R T P O L I C Y
Article 1841 Laguna Transportation Co., Inc., a corporation, was
When any partner retires or dies, AND the business is continued required by the SSS to remit contributions. It claimed that
under any of the conditions set forth in the preceding article, or in it was not covered under the law because it had only been
Article 1837, second paragraph, No. 2, without any settlement of F:
in operation for 2 years (the law requires corporations to
accounts as between him or his estate and the person or register as SSS members when they have been in
partnership continuing the business, unless otherwise agreed, he operation for at least 2 years).
or his legal representative as against such person or partnership WON Laguna Transportation Co., Inc. is covered by the
may have the value of his interest at the date of dissolution I:
law and required to register as a member of SSS
ascertained, and shall receive as an ordinary creditor an amount
YES. SC held that Laguna Transportation Co., Inc. is
equal to the value of his interest in the dissolved partnership with
liable, because while it had only been registered a
interest, or, at his option or at the option of his legal
representative, in lieu of interest, the profits attributable to the corporation for less than 2 years, it had actually been in
use of his right in the property of the dissolved partnership; business as a common carrier, as a partnership, for more
R:
provided that the creditors of the dissolved partnership as than 5 years already. In this case, the Court disregarded
against the separate creditors, or the representative of the the concept of separate and distinct personality and held
retired or deceased partner, shall have priority on any claim the corporation liable for SSS remittances, covering the
arising under this article, as provided Article 1840, third period it operated its business as a partnership.
paragraph.
Note:
Right to the value of interest with interest at dissolution: Ma’am: Laguna Transport is an example of assumption of
The following conditions must be met: liabilities of an old partnership by a new corporation (not a
1. The partner retires/dies; partnership) that took upon itself to continue the business
2. The business is continued, as allowed by law; of the old partnership. So whatever the form of the new
3. There is no settlement of accounts between him/her and company is (partnership, corporation, sole proprietorship),
the person(s)/partnership continuing the business; and such new company is presumed to have assumed the
4. There is no stipulation to the contrary. liabilities of the dissolved partnership.
127 ORTEGA V CA (1995)

_______________________________________________________________
RIGHTS OF PARTNERS UPON DISSOLUTION present or future partnership liabilities.
(3) A partner who has caused the dissolution wrongfully shall
Rights of Innocent Partners have:
- Damages from the guilty partner(s); (a) If the business is not continued under the provisions of the
- Be discharged from liabilities using partnership second paragraph, No. 2, all the rights of a partner under
the first paragraph, subject to liability for damages in the
property; second paragraph, No. 1 (b), of this article.
- Receive any surplus in cash; (b) If the business is continued under the second paragraph,
- Continue the business (either by themselves or jointly No. 2, of this article, the right as against his co-partners
with others) AND possess the partnership property if and all claiming through them in respect of their
they: interests in the partnership, to have the value of his
o All agree to continue the business; interest in the partnership, less any damage caused to
his co-partners by the dissolution, ascertained and paid
o Pay the value of the guilty partner(s)’ interest OR to him in cash, or the payment secured by a bond
secure the payment by a bond approved by the court, approved by the court, and to be released from all
less any damages recoverable; and existing liabilities of the partnership; but in ascertaining
o Indemnify him against all present or future the value of the partner's interest the value of the good-
partnership liabilities. will of the business shall not be considered.
Rights of guilty partners EFFECT OF RESCISSION

- If the partnership is continued:
o He/she receives the value of his interest at the time RIGHT TO LIEN OR RETENTION, STAND IN PLACE OF
of dissolution less any damages, paid in cash/court- CREDITOR, TO BE INDEMNIFIED
approved bond; Article 1838
Where a partnership contract is rescinded on the ground of the fraud or
o He/she is released from all existing and future misrepresentation of one of the parties thereto, the party entitled to rescind is,
liabilities to the partnership. without prejudice to any other right, entitled:
- If the partnership is not continued: (1) To a lien on, or right of retention of, the surplus of the partnership
o Have the partnership liquidated first then receive property after satisfying the partnership liabilities to third persons for any
sum of money paid by him for the purchase of an interest in the partnership
his/her share in the surplus less damages. and for any capital or advances contributed by him;
(2) To stand, after all liabilities to third persons have been satisfied, in the place
of the creditors of the partnership for any payments made by him in
RIGHT TO DAMAGES FOR/CONTINUE BUSINESS ON respect of the partnership liabilities; and
WRONGFUL DISSOLUTION (3) To be indemnified by the person guilty of the fraud or making the
representation against all debts and liabilities of the partnership.
Article 1837
When dissolution is caused in any way, except in contravention of Rights of a Defrauded Partner:
the partnership agreement, each partner, as against his co- 1. Lien/Retention of surplus;
partners and all persons claiming through them in respect of
their interests in the partnership, unless otherwise agreed, may 2. To stand in place of creditors ONLY FOR PAYMENTS
have the partnership property applied to discharge its liabilities, PERSONALLY MADE BY HIM in resepct of partnership
AND the surplus applied to pay in cash the net amount owing to liabilities; and
the respective partners. But if dissolution is caused by expulsion 3. To be indemnified against all liabilities/debts paid by
of a partner, bona fide under the partnership agreement AND if him.
the expelled partner is discharged from all partnership rd
liabilities, either by payment or agreement under the second In essence, a defrauded partner must not suffer any losses. But 3 persons may
still go after him for unsatisfied claims to the partnership. This provision just
paragraph of Article 1835, he shall receive in cash only the net
provides a remedy for a defrauded partner against a guilty partner.
amount due him from the partnership.
When dissolution is caused in contravention of the partnership Notes:
agreement the rights of the partners shall be as follows: This provision is applicable in instances where a partner was
(1) Each partner who has not caused dissolution wrongfully induced to join the partnership on the ground of
shall have: fraud/misrepresentation.
(a) All the rights specified in the first paragraph of this
article, and PRIMELINK V LAZATIN-MAGAT (2006)
(b) The right, as against each partner who has caused the Primelink and Lazatin entered into a JVA to develop 2
dissolution wrongfully, to damages for breach of the parcels of land. Lazatin will contribute 2 parcels while
agreement. Primelink will contribute money, property, labor and
(2) The partners who have not caused the dissolution F: personnel. Primelink failed to immediately secure the
wrongfully, if they all desire to continue the business in the Development Permit from Tagaytay City so Lazatin sued
same name either by themselves or jointly with others, may do for rescission and damages. TC awarded to Lazatin the
so, during the agreed term for the partnership and for that possession of the improvements.
purpose may possess the partnership property, provided they Can the possession of improvements be awarded to a
secure the payment by bond approved by the court, or pay any I:
partner if there is rescission?
partner who has caused the dissolution wrongfully, the value YES. The SC argued along the ff lines:
of his interest in the partnership at the dissolution, less any (1) GR: The relation of the parties in Joint Ventures is
damages recoverable under the second paragraph, No. 1 (b) R:
governed by their agreement
of this article, and in like manner indemnify him against all E: If silent, the general principles of partnership apply
_______________________________________________________________
(2) Citing 1838: If the partnership contract is rescinded PERIOD FOR WINDING-UP
because of fraud, the party entitled to rescind is also No period required/no deadline for completion of winding-
entitled to a right of retention and lien over the surplis of up.
the partnership property.
However, an aggrieved partner may apply for judicial relief
in case of unreasonable delay.
RIGHT TO ACCOUNT
Article 1842
V. Settling of Accounts and Liquidation
The right to an account of his interest shall accrue to any Article 1839
partner, or his legal representative as against the winding up In settling accounts between the partners after dissolution, the
partners or the surviving partners or the person or partnership following rules shall be observed, subject to any agreement to
continuing the business, at the date of dissolution, in the absence the contrary:
of any agreement to the contrary.
(1) The assets of the partnership are:
(a) The partnership property,
(b) The contributions of the partners necessary for the
IV. Right to Wind-up payment of all the liabilities specified in No. 2.
(2) The liabilities of the partnership shall rank in order of
“Winding-Up” payment, as follows:
Everything that happens in between dissolution and (a) Those owing to creditors other than partners,
termination. (b) Those owing to partners other than for capital and profits,
(c) Those owing to partners in respect of capital,
“Liquidation” (d) Those owing to partners in respect of profits.
Transformation of assets to cash. (3) The assets shall be applied in the order of their declaration in
No. 1 of this article to the satisfaction of the liabilities.
Article 1836 (4)The partners shall contribute, as provided by article 1797, the
Unless otherwise agreed, the partners who have not wrongfully amount necessary to satisfy the liabilities.
dissolved the partnership OR the legal representative of the last (5)An assignee for the benefit of creditors or any person
surviving partner, not insolvent, has the right to wind up the appointed by the court shall have the right to enforce the
partnership affairs, provided, however, that any partner, his legal contributions specified in the preceding number.
representative or his assignee, UPON CAUSE SHOWN, may (6)Any partner or his legal representative shall have the right to
obtain winding up by the court. enforce the contributions specified in No. 4, to the extent of
the amount which he has paid in excess of his share of the
Types of Winding-Up liability.
(7) The individual property of a deceased partner shall be liable
1. Judicial for the contributions specified in No. 4.
2. Extrajudicial (8) When partnership property and the individual
properties of the partners are in possession of a court for
Who may ask for a Judicial Winding-Up (must show cause) distribution, partnership creditors shall have priority on
1. Any partner; partnership property and separate creditors on individual
2. Any partner’s legal representative; or property, saving the rights of lien or secured creditors.
3. An assignee of a partner’s share. (9)Where a partner has become insolvent or his estate is
insolvent, the claims against his separate property shall rank
Who may ask for an Extrajudicial Winding-Up in the following order:
1. Innocent partners; (a) Those owing to separate creditors;
(b) Those owing to partnership creditors;
2. The legal representative of the last surviving partner; or (c) Those owing to partners by way of contribution.
3. A withdrawing/resigning partner.128
When will they lose the right? PAYMENT SOURCES
If there is a stipulation to that effect; or Partnership Assets (in paying claims, this is the order of
There is an assignment of the right to wind-up to another. exhaustion)
1. Partnership property; and
THE LIQUIDATING PARTNER 2. Contributions of the partners necessary for the payment
Partners who have the right to wind-up may appoint 1 or of all liabilities.
more of them as liquidating partners.
Preference of Payment
If the liquidating partner dies = authority reverts back to 1. Creditors that are not Partners;
those who had the right to wind-up. 2. Partners’ claims that are not for capital/profits;
Appointment of liquidating partner/s may be: 3. Partners’ capital; and
4. Partners’ profits (surplus).
1. Express or
2. Implied or presumed from the acts of the partner with Special Rules:
the knowledge of co- partners. Partners/Legal Representatives shall have the right to
enforce contributions.
128 LANGE V BARTLETT For Assignees:
_______________________________________________________________
- They may enforce the other partners to contribute (just E N J O Y P R E F E R E N C E O V E R T H O S E O F T H E P A R T N E R S ;
like a normal partner). A N D I T I S S E L F -‐ E V I D E N T T H A T A L L M E M B E R S O F T H E
P A R T N E R S H I P A R E I N T E R E S T E D I N I T S A S S E T S A N D
For deceased partners: B U S I N E S S , A N D A R E E N T I T L E D T O B E H E A R D I N T H E
- The individual property of a deceased partner shall be M A T T E R O F T H E F I R M ' S L I Q U I D A T I O N A N D T H E
liable for contributions. D I S T R I B U T I O N O F I T S P R O P E R T Y .
For partnership/individual property in the possession of a Albaran et.al. wished to withdraw from the partnership
Court for distribution: they formed with Magdusa. Magdusa gave them a
- Partnership creditors have priority on Partnership computation of their shares but refused to pay them. No
dissolution or liquidation took place. When Albaran
property;
brought the matter to the court, Magdusa alleged that
- Separate creditors have priority on Individual property F:
they were mere employees. The CFI dismissed their
- But secured creditors will still have priority over complaint as it did not implead all the partners. The CA
unsecured ones. reversed stating that because th action was for a claim
against Magdusa personally, no other partners had to be
For insolvent partners/estates: impleaded.
- The following shows a special order preference on WON the action us one for the recovery of a sum of money
payment of liabilities: in which Magdusa is personally liable and does not
1. Separate creditors; I:
necessitate the dissolution and liquidation of the
2. Partnership creditors; partnership
3. Liabilities to partners. NO. The SC reversed the CA holding that dissolution and
R: liquidation are necessary in order to determine the shares
RIGHT OF CREDITORS of each of the partners.
Article 1827
The creditors of the partnership shall be preferred to those of BONNEVIE V. HERNANDEZ (1954)
each partner as regards the partnership property. Without
W H E N A P A R T N E R R E T I R E S F R O M T H E F I R M , H E I S
prejudice to this right, the private creditors of each partner may
ask the attachment and public sale of the share of the latter in E N T I T L E D T O T H E P A Y M E N T O F W H A T M A Y B E D U E
the partnership assets. H I M A F T E R A L I Q U I D A T I O N . B U T C E R T A I N L Y N O
L I Q U I D A T I O N I S N E C E S S A R Y W H E R E T H E R E I S
Notes: A L R E A D Y A S E T T L E M E N T O R A N A G R E E M E N T A S T O
Partnership creditors have preference over separate W H A T T H E R E T I R I N G P A R T N E R S H A L L R E C E I V E .
creditors in the liquidation of partnership property. A secret partnership wc was later on converted to a
corporation was formed by herein parties. Before
VILLAREAL V RAMIREZ (2003) incorporation, the partnership bought properties from
I T I S T H E P A R T N E R S H I P T H A T M U S T P A Y T H E Meralco w the intention of conducting electric business in
E Q U I T Y , A N D O N L Y A F T E R T H E C R E D I T O R S O F T H E the province. Some partners withdrew from the
P A R T N E R S H I P A R E P A I D . T H E E X A C T A M O U N T O F F: partnership whereby they were reimbursed of their
E Q U I T Y C A N N O T B E D E T E R M I N E D U N T I L ( 1 ) A L L contributions, partnership was also dissolved. Partnership
P A R T N E R S H I P A S S E T S A R E L I Q U I D A T E D A N D ( 2 ) was finally incorporated as Bicol Electric Co. 2 years after
T H E P A R T N E R S H I P C R E D I T O R S A R E A L L P A I D . dissolution, these ex-partners sued Hernandez for their
Luzviminda, Carmelito and Jesus formed a partnership share in the profit from the Meralco transaction. Lower
where each of them contributed P250k. Ramirez later court ruled against them.
joined and also contributed P250k. Jesus withdrew later WON the withdrawing partners are entitled to a share of
I:
F: and was refunded P250k. In the same month, Luz and the profits from the Meralco transaction
Carmelito decided to close down the restaurant without NO. SC affirmed. No profits were derived from the
telling Ramirez beforehand. Ramirez sued to collect the Meralco transaction and more importantly, ex-partners no
R:
P250k he contributed. longer have any further interest in the partnership after
Is a partner entitled to the exact amount of the they withdrew and were reimbursed. See doctrine.
I:
contribution he gave from the other partners?
NO. It is the partnership that must pay the equity, and
only after the creditors of the partnership are paid. The
exact amount of equity cannot be determined until (1) all
R:
partnership assets are liquidated and (2) the partnership
creditors are all paid. Capital does not remain static
during the life of the partnership.
MAGDUSA V. ALBARAN (1962)

A P A R T N E R ' S S H A R E C A N N O T B E R E T U R N E D
W I T H O U T F I R S T D I S S O L V I N G A N D L I Q U I D A T I N G T H E
P A R T N E R S H I P , F O R T H E R E T U R N I S D E P E N D E N T O N
T H E D I S C H A R G E O F T H E C R E D I T O R S , W H O S E C L A I M S
_______________________________________________________________
Limited II. Purpose of Limited Partnerships
Partnerships Purpose:
The main purpose of limited partnerships is to permit a
form of business enterprise, other than a corporation, in
I. Source of Limited Partnership Law which persons can invest money without becoming liable
Notes: for the debts of the firm.
The Civil Code provisions on Limited Partnerships were ALL - Individuals are able to make investments without the
taken from the Uniform Limited Partnership Act (ULPA) of accompanying risks and liabilities of running the
the US. business directly.
- The General Partner gets to secure capital from others
Because of this, US jurisprudence interpreting the ULPA while still retaining control.
should be highly persuasive in this jurisdiction.
GENERAL PARTNER LIMITED PARTNER

EXTENT OF LIABILITY Responsible in-solido for the debts and Liable only to the capital contribution.
obligations of the firm, without regard to capital Not personally liable if the statute has
contribution. been complied with.
RIGHT TO PARTICIPATE IN If manner of management not agreed upon, all No participation at all
MANAGEMENT partners have an equal right in the business
CONTRIBUTION Money, property or industry. Only cash or property.
PROPER PARTY IN Proper party Not proper party unless:
PROCEEDINGS - He is also a general partner; or
- Where the object of the proceedings is
to enforce a limited partner’s right
against or liability to the partnership
ASSIGNMENT OF INTEREST May only be assigned with the consent of the Interest is freely assignable.
other partners.
NAME IN THE FIRM NAME May appear Must not appear
PROHIBITION TO ENGAGE There are prohibitions. No such prohibition.
IN OTHER BUSINESS
EFFECT OF RETIREMENT, Dissolves the partnership Different effects
DEATH OR INSOLVENCY
Article 1844
The Limited Partner
Two or more persons desiring to form a limited partnership shall:
The limited partner has a position analogous to a corporate (1) Sign and swear to a certificate, which shall state -
shareholder, provided that: (a) The name of the partnership, adding thereto the word
- He/she does not hold him/herself out as a general "Limited";
partner; or (b) The character of the business;
- He/she does not actively participate in the business (c) The location of the principal place of business;
(d) The name and place of residence of each member, general
The limited partner becomes entitled to share in the profits and limited partners being respectively designated;
and losses of the partnership, though his/her share of the (e) The term for which the partnership is to exist;
(f) The amount of cash and a description of and the agreed
losses will not exceed the amount of capital initially
value of the other property contributed by each limited
contributed by him/her to the enterprise. partner;
(g) The additional contributions, if any, to be made by each
limited partner and the times at which or events on the
happening of which they shall be made;
(h) The time, if agreed upon, when the contribution of each
III. Definition and Formation limited partner is to be returned;
(i) The share of the profits or the other compensation by way
Article 1843
of income which each limited partner shall receive by
A limited partnership is one formed by two or more persons reason of his contribution;
under the provisions of the following article, having as members (j) The right, if given, of a limited partner to substitute an
one or more general partners AND one or more limited partners. assignee as contributor in his place, and the terms and
The limited partners as such shall not be bound by the conditions of the substitution;
obligations of the partnership. (k) The right, if given, of the partners to admit additional
_______________________________________________________________
limited partners; SEC OPINION TO ROMULO, MABANTA
(l) The right, if given, of one or more of the limited partners to A F O R E I G N C O R P O R A T I O N M A Y E N T E R I N T O A
priority over other limited partners, as to contributions or P A R T N E R S H I P W I T H P H C O R P S , W I T H T H E P H
as to compensation by way of income, and the nature of C O R P S A S L I M I T E D P A R T N E R S A N D T H E F O R E I G N
such priority;
C O R P A S T H E M A N A G I N G P A R T N E R .
(m) The right, if given, of the remaining general partner or
partners to continue the business on the death, retirement, A foreign corporation tried to enter into a Ltd partnership
civil interdiction, insanity or insolvency of a general F: with several PH Corporations, with the foreign Corp as GP
partner; and and the PH Corps as limited partners.
(n) The right, if given, of a limited partner to demand and I: Is it allowed?
receive property other than cash in return for his
contribution. R: YES. See below.
(2) File for record the certificate in the Office of the Securities and
Exchange Commission.
[Recap] Rule on Corporations:
A limited partnership is formed if there has been substantial G.R.: Corporations cannot enter into partnerships.
compliance in good faith with the foregoing requirements.
E: When the following conditions are met129 :
1. The articles/by-laws must authorize it to enter
Requirements for the formation: into partnerships;
1. The Certificate or Articles of Partnership, duly signed 2. Such authority requires that all managers will
and sworn to; and manage the partnership;
2. The filing for record of such Certificate/AOP in the Office 3. An agreement that all partners will be solidarily
of the SEC liable for all partnership obligations; and
4. The business to be undertaken must be in line
Effect of failure to file the certificate: with the business of the corporation (or at the very
All the partners will be liable to creditors, since the least, be part of its secondary purposes)
registration acts as a protection to third persons.
- The certificate’s function is to give third persons notice In case of foreign corporations, the following are
of the essential feature of the limited partnership. additional requirements:
1. The foreign partner is allowable under the Foreigh
Notes: Investments Act;
Because of the requirements under 1843 and 1844, a 2. The foreign partner obtains a license to transact
Limited Partnership cannot be created impliedly, informally, business in the Philippines;
or by estoppel. 3. That the liability of the partnership shall:
- The whole point in the creation of the ULPA is to fix a. Not be limited to the contribution; and
some of the problems arising from the UPA, so the b. Not terminate even after dissolution.
provisions must be strictly construed. 4. In case there is a resident agent, the resident agent shall
There are no rules on what constitute substantial also be solidarily liable with the foreign corporation.
compliance.
- BUT a general/particular partnership may be formed in V. The Certificate
case of failure to comply with these requirements.
Notes:
The GATE PASS for partners to enter into a limited
IV. Corporation as Partner partnership. (Enad, 2014)
COMPLETE RULES ON CORPORATIONS CERTIFICATE OF LIMITED LIMITED PARTNERSHIP
PARTNERSHIP AGREEMENT
In cases where the Corporation wants to be a General Document which is filed as Document which contains
Partner a public record and which the complete agreement
The Articles of Incorporation or By-laws must allow the may not embody the among the parties
corporation to enter into partnerships; and complete agreement
The business to be undertaken must be in line with the among the parties
business of the corporation, or at least be in the secondary May be relied upon by 3rd Does not prejudice 3rd
purposes. persons persons
Public instrument Private instrument
In cases where the Corporation wants to be a Limited
Partner
There are no conditions, as the contribution is treated as a
corporate investment.
129 SEC OPINIONS TO LIBREA AND ROMULO, MABANTA

_______________________________________________________________
LIABILITY FOR FALSE STATEMENTS Office of the Securities and Exchange Commission where the
certificate is recorded, to record the cancellation or amendment
Article 1847 of the certificate; and when the certificate is to be amended, the
If the certificate contains a false statement, one who suffers loss court shall also cause to be filed for record in said office a
by reliance on such statement may hold liable any party to the certified copy of its decree setting forth the amendment.
certificate who knew the statement to be false:
A certificate is amended or cancelled when there is filed for
(1) At the time he signed the certificate, or record in the Office of the Securities and Exchange Commission,
(2) Subsequently, but within a sufficient time before the where the certificate is recorded:
statement was relied upon to enable him to cancel or amend
the certificate, or to file a petition for its cancellation or (1) A writing in accordance with the provisions of the first or
amendment as provided in Article 1865. second paragraph, or
(2) A certified copy of the order of the court in accordance with
A partner is liable for false statements if: the provisions of the fourth paragraph;
(3) After the certificate is duly amended in accordance with this
1. There is a false statement in the certificate; article, the amended certified shall thereafter be for all
2. The partner knew about the false statement; purposes the certificate provided for in this Chapter.
3. A third party relies on the false statement; and
4. The third party suffers a loss because of such reliance. Grounds for Cancellation:
1. The partnership is dissolved;
CANCELLATION AND AMENDMENT 2. All limited partners cease to be such.
Article 1864
The certificate shall be cancelled when the partnership is Grounds for Amendment:
dissolved OR all limited partners cease to be such. 1. Change in the name of partnership;
2. Change in the amount/character of the contribution of
A certificate shall be amended when:
(1) There is a change in the name of the partnership OR in the any limited partner;
amount or character of the contribution of any limited 3. A persons is substituted as a limited partner;
partner; 4. An additional limited partner is admitted;
(2) A person is substituted as a limited partner; 5. A general partner retires, dies, insolvent, Insane, civil
(3) An additional limited partner is admitted; interdiction AND the other partners continue the
(4) A person is admitted as a general partner; business;
(5) A general partner retires, dies, becomes insolvent or insane,
or is sentenced to civil interdiction AND the business is 6. Change in the character of the business ;
continued under Article 1860; 7. False/erroneous statements in the certificate;
(6) There is a change in the character of the business of the 8. Change in the time for the dissolution of the partnership;
partnership; 9. Change in the time for the return of a contribution;
(7) There is a false or erroneous statement in the certificate; 10. There was an intended time in the dissolution/return of
(8) There is a change in the time as stated in the certificate for contribution, but such time is not specified in the
the dissolution of the partnership OR for the return of a
contribution; certificate;
(9) A time is fixed for the dissolution of the partnership, or the 11. The members desire to make any change in the
return of a contribution, no time having been specified in the certificate to accurately represent their agreements.
certificate, or;
(10) The members desire to make a change in any other
statement in the certificate in order that it shall accurately VI. The Partnership Name
represent the agreement among them. Article 1846
Article 1865 The surname of a limited partner shall not appear in the
The writing to amend a certificate shall: partnership name unless:
(1) Conform to the requirements of Article 1844 as far as (1) It is also the surname of a general partner, or
necessary to set forth clearly the change in the certificate (2) Prior to the time when the limited partner became such, the
which it is desired to make; and business has been carried on under a name in which his
(2) Be signed and sworn to by all members, and an amendment surname appeared.
substituting a limited partner or adding a limited or general A limited partner whose surname appears in a partnership name
partner shall be signed also by the member to be substituted contrary to the provisions of the first paragraph is liable as a
or added, and when a limited partner is to be substituted, the general partner to partnership creditors who extend credit to the
amendment shall also be signed by the assigning limited partnership without actual knowledge that he is not a general
partner. partner.
The writing to cancel a certificate shall be signed by all
members. When is a named Limited Partner liable as a General
A person desiring the cancellation or amendment of a certificate, Partner?
if any person designated in the first and second paragraphs as a 1. A creditor extended credit to the partnership; and
person who must execute the writing refuses to do so, may
petition the court to order a cancellation or amendment thereof.
2. He/She had no knowledge of the Partner’s limited
liability.
If the court finds that the petitioner has a right to have the writing
executed by a person who refuses to do so, it shall order the
_______________________________________________________________
VII. The Limited Partner L P H A S M A T E R I A L I N T E R E S T I N S U C C E S S +
S E R V I C E D O E S N O T A M O U N T T O C O N T R O L = N O T
CONTRIBUTION L I A B L E A S G P
Article 1845 McRea (GP) and Rowlett (LP) formed a partnership for the
The contributions of a limited partner may be cash or property, sale and repair of automobiles. Rowlett sometimes acted
BUT NOT SERVICES. as foreman, but always under McRea's control. Moreover,
F:
he gave advice to McRea. Silvola, their accountant, sued
Silvola to recover his wages. He claims that Silvola is
LIABILITY liable as a GP because he took control as foreman.
I: Is Rowlett liable as a GP?
IN GENERAL NO. The fact that a limited partner is interested in the
Article 1848 success of the partnership to the extent of rendering
A limited partner shall not become liable as a general partner services does not in and of itself charge a limited partner
unless, in addition to the exercise of his rights and powers as a with the liability of a general partner. A LP does not forfeit
limited partner, he takes part in the control of the business. R: his right to make suggestions or express opinions as to the
advisability of transactions when his suggestion was
sought by the GP. The law does not impose silence on the
Rule on the exercise of control by Limited Partners
LP who has a material interest in the success especially
A Limited Partner is liable as a General Partner if he/she when his opinion was sought by the GP.
takes part in the CONTROL of the business.
- Interest in the success of the business is insufficient.
- Control must relate to the day-to-day functions or GAST V PETSINGER
operations of the business. T H E D E T E R M I N A T I O N O F T H E D E G R E E O F
P A R T I C I P A T I O N M U S T B E M A D E O N A N A D H O C
B A S I S . T H E K E Y Q U E S T I O N I S T H E C O N T R O L T H A T
DELANEY V FIDELITY LEASE A P A R T N E R H A S I N T H E D A Y -‐ T O -‐ D A Y F U N C T I O N S
T H E P E R S O N A L L I A B I L I T Y W H I C H A T T A C H E S T O A N D O P E R A T I O N S O F T H E B U S I N E S S . T H E
L I M I T E D P A R T N E R W H E N H E T A K E S P A R T I N T H E D E T E R M I N A T I O N O F C O N T R O L I S A F A C T U A L
C O N T R O L A N D M A N A G E M E N T O F A L I M I T E D Q U E S T I O N .
P A R T N E R S H I P C A N N O T B E E V A D E D M E R E L Y B Y LNG Services is a Ltd Partnership where Petsinger is the
A C T I N G T H R U A C O R P O R A T I O N . only GP. Gast is the Project Engr and he sued to recover
F:
Fidelity is a Ltd partnership which leases restaurant backwages. His claim was that the LPs were also acting as
locations. It has 22 individual partners and 1 Corporate GP and should therefore be liable as GP.
and General Partner (Interlease Inc.). Three of Interlease I: Are the LPs liable as GPs?
Inc's officers (Crombie, Kahn and Sanders) are among the REMANDED TO DETERMINE (1) WON THE ADVICE OF
22 LPs of Fidelity. Delaney sued Fidelity, Interlease and all R: GARWIN AND APT (2 LPS) INFLUENCED OR
F: CONTROLLED THE DECISIONS OF THE GP. See Doctrine.
of its LPs for breach. Delaney claims that Crombie, Kahn
and Sanders were personally liable because they
participated in the management and control of the limited Note:
partnership. The 3's defense is that they were only acting Sir: Based on Delaney, stockholders are not liable unless
thru a corporation so the corporation is liable. they did exercise control.
I: Are the three (3) LP's liable?
YES. The personal liability which attaches to limited TO THE PARTNERSHIP
partner when he takes part in the control and Article 1858
management of a limited partnership cannot be evaded A limited partner is liable to the partnership:
merely by acting thru a corporation. If corporate fiction is (1) For the difference between his contribution as actually
R:
used to circumvent the law (here, the liability of LP's who made and that stated in the certificate as having been
participate in mgt), then the veil will be pierced. Strict made; and
compliance is required if a limited partner wants to avoid (2) For any unpaid contribution which he agreed in the
liability as a general partner. certificate to make in the future at the time and on the
conditions stated in the certificate.
A limited partner holds as trustee for the partnership:
SILVOLA V ROWLETT (1) Specific property stated in the certificate as contributed by
T H E F A C T T H A T A L I M I T E D P A R T N E R I S him, but which was not contributed or which has been
I N T E R E S T E D I N T H E S U C C E S S O F T H E wrongfully returned, and
P A R T N E R S H I P T O T H E E X T E N T O F R E N D E R I N G (2) Money or other property wrongfully paid or conveyed to him
S E R V I C E S D O E S N O T I N A N D O F I T S E L F C H A R G E A on account of his contribution.
L I M I T E D P A R T N E R W I T H T H E L I A B I L I T Y O F A
The liabilities of a limited partner as set forth in this article can
G E N E R A L P A R T N E R . T H E L A W D O E S N O T I M P O S E
be waived or compromised only by the consent of ALL
S I L E N C E O N T H E L P W H O H A S A M A T E R I A L MEMBERS; but a waiver or compromise shall not affect the right of
I N T E R E S T I N T H E S U C C E S S E S P E C I A L L Y W H E N H I S a creditor of a partnership who extended credit or whose claim
O P I N I O N W A S S O U G H T B Y T H E G P . arose after the filing and before a cancellation or amendment of the
certificate, to enforce such liabilities.
_______________________________________________________________
When a contributor has rightfully received the return in whole or
in part of the capital of his contribution, he is nevertheless liable IN COMMON WITH A GENERAL PARTNER
to the partnership for any sum, not in excess of such return with Article 1851
interest, necessary to discharge its liabilities to all creditors who A limited partner shall have the same rights as a general
extended credit or whose claims arose before such return. partner to:
(1) Have the partnership books kept at the principal place of
A Limited Partner’s liability to the partnership: business of the partnership, and at a reasonable hour to
Contribution difference (Stated – Actual Contribution) inspect and copy any of them;
(2) Have on demand true and full information of all things
Unpaid contribution to be made in the future affecting the partnership, and a formal account of
partnership affairs whenever circumstances render it just and
A Limited Partner shall hold in trust the following: reasonable; and
Specific Property contributed but has not been actually (3) Have dissolution and winding up by decree of court.
contributed A limited partner shall have the right to receive a share of the
Specific Property contributed but was wrongfully returned profits or other compensation by way of income, and to the
return of his contribution as provided in Articles 1856 and 1857.
Money/Other property wrongfully paid/conveyed to
him/her Rights in common:
Notes: 1. Have the partnership books kept a the principal place of
The liabilities of a limited partner may only be waived by business at a reasonable hour
ALL MEMBERS; 2. To inspect and copy any of the partnership books
- But such waiver shall not affect a partnership creditor 3. Have on demand a true and full information of all things
who extended credit/claims arose AFTER the filing of a affecting the partnership
case to enforce the liability and BEFORE the 4. Have on demand a formal account of partnership affairs
cancellation/amendment of the certificate. whenever circumstances render it just and reasonable
5. Have dissolution/winding-up by decree of court
A valid return of capital contribution shall not affect the
liability of the limited partner to partnership creditors who
extended credit/cliams arose before the return; LOAN MONEY FROM/TRANSACT BUSINESS WITH
- But such liability is limited only to the amount of the PARNTERSHIP
conribution returned with interest. Article 1854
A limited partner also may loan money to and transact other
ADDITIONAL LIMITED PARTNERS business with the partnership, and, unless he is also a general
Article 1849 partner, receive on account of resulting claims against the
partnership, with general creditors, a pro rata share of the assets.
After the formation of a limited partnership, additional limited
No limited partner shall in respect to any such claim:
partners may be admitted upon filing an amendment to the
(1) Receive or hold as collateral security and partnership
original certificate in accordance with the requirements of Article
property, or
1865.
(2) Receive from a general partner or the partnership any
payment, conveyance, or release from liability if at the time
the assets of the partnership are not sufficient to discharge
RIGHTS OF A LIMITED PARTNER partnership liabilities to persons not claiming as general or
1. Have the partnership books kept a the principal place of limited partners.
business at a reasonable hour The receiving of collateral security, or payment, conveyance, or
2. To inspect and copy any of the partnership books release in violation of the foregoing provisions is a fraud on the
creditors of the partnership.
3. Have on demand a true and full information of all things
affecting the partnership Allowable transactions by the Limited Partner:
4. Have on demand a formal account of partnership affairs 1. Loan money to the partnership
whenever circumstances render it just and reasonable 2. Transact other business with the partnership
5. Have dissolution/winding-up by decree of court 3. Receive a pro rata share in the assets with general
6. Right to receive a share of the profits/compensation by creditors, if he/she is not a general partner.
way of income
7. Return of his contribution Acts in fraud of creditors:
8. Loan money from/transact business with the 1. Receiving/holding as collateral any partnership
partnership property;
9. Assignment of interest 2. Receiving any payment, conveance, or release from
10. Immunity from suit from partnership liability if the partnership assets are not enough to
discharge liabilities to third persons.
_______________________________________________________________
RETURN OF CONTRIBUTION TO DISSOLVE
Article 1857 (pars. 1 – 3) Article 1857 (last paragraph)
A limited partner shall not receive from a general partner or out A limited partner may have the partnership dissolved and its
of partnership property any part of his contributions until: affairs wound up when:
(1) All liabilities of the partnership, except liabilities to general (1) He rightfully but unsuccessfully demands the return of his
partners and to limited partners on account of their contribution, or
contributions, have been paid OR there remains property of (2) The other liabilities of the partnership have not been paid, or
the partnership sufficient to pay them; the partnership property is insufficient for their payment as
(2) The consent of all members is had, unless the return of the required by the first paragraph, No. 1, AND the limited
contribution may be rightfully demanded under the provisions partner would otherwise be entitled to the return of his
of the second paragraph; and contribution.
(3) The certificate is cancelled or so amended as to set forth the
withdrawal or reduction. Rules on Dissolution by Limited Partners:
Subject to the provisions of the first paragraph, a limited partner G.R.: They may not dissolve and wind-up at any time
may rightfully demand the return of his contribution: E: They rightfully but unsuccessfully demand the return
(1) On the dissolution of a partnership; or of contribution; or
(2) When the date specified in the certificate for its return has The liabilities of the partnership is unpaid/assets are
arrived, or
(3) After he has six months' notice in writing to all other insufficient AND the Limited Partner would otherwise
members, if no time is specified in the certificate, either for the be entitled to the return
return of the contribution or for the dissolution of the
partnership. SHARE OF PROFITS
In the absence of any statement in the certificate to the contrary Article 1856
OR the consent of all members, a limited partner, irrespective of A limited partner may receive from the partnership the share of
the nature of his contribution, has only the right to demand and the profits or the compensation by way of income stipulated for
receive cash in return for his contribution. in the certificate; provided that after such payment is made,
whether from property of the partnership or that of a general
Article 1855 partner, the partnership assets are in excess of all liabilities of the
Where there are several limited partners the members may partnership except liabilities to limited partners on account of
agree that one or more of the limited partners shall have a their contributions and to general partners.
priority over other limited partners as to the return of their
contributions, as to their compensation by way of income, or as to Requisite for a L Partner to receive his share in the profits:
any other matter. If such an agreement is made it shall be stated
in the certificate, and in the absence of such a statement all the
There is sufficient property to pay the liabilities to third
limited partners shall stand upon equal footing. persons after the payment of share in profits.
ASSIGNMENT OF INTEREST
Requisites for a Limited Partner to receive his Article 1859
contributions: A limited partner's interest is assignable.
1. All liabilities to third persons have been paid OR there is A substituted limited partner is a person admitted to all the
sufficient property to pay them; rights of a limited partner who has died or has assigned his
2. Consent of all members is had; interest in a partnership.
3. The certificate is cancelled/amended, setting forth the
An assignee, who does not become a substituted limited partner,
withdrawal/reduction. has no right to require any information or account of the
partnership transactions or to inspect the partnership books; he
When consent of all members not required:
is only entitled to receive the share of the profits or other
1. On the dissolution of the partnership; compensation by way of income, or the return of his
2. When the date of the return of the contributions has contribution, to which his assignor would otherwise be entitled.
arrived;
An assignee shall have the right to become a substituted
3. After 6 mos. notice to all other members, given that no limited partner if all the members consent thereto OR if the
time has been set for the return of assignor, being thereunto empowered by the certificate, gives the
contribution/dissolution of the partnership. assignee that right.
Form of return of contribution: An assignee becomes a substituted limited partner when the
certificate is appropriately amended in accordance with Article
G.R.: Cash
1865.
E: Other forms as provided in the certificate; or
Other forms as agreed upon by all members The substituted limited partner has all the rights and powers,
and is subject to all the restrictions and liabilities of his
Priority of return of contribution/compensation/any assignor, except those liabilities of which he was ignorant at the
other matter: time he became a limited partner and which could not be
ascertained from the certificate.
G.R.: All limited partners stand in equal footing
E: Priority as stated in the certificate The substitution of the assignee as a limited partner does not
release the assignor from liability to the partnership under
Articles 1847 and 1848.
_______________________________________________________________
Type of Assignees: CHARGING INTEREST
1. Mere assignee Article 1862
a. This is the default type of assignment of interest On due application to a court of competent jurisdiction by any
b. Rights available: creditor of a limited partner, the court may charge the interest of
i. Entitled to receive the share in the profits the indebted limited partner with payment of the unsatisfied
ii. Entitled to receive compensation by way of amount of such claim, AND may appoint a receiver, AND make
income all other orders, directions and inquiries which the
iii. Entitled to receive the return of contribution circumstances of the case may require.
2. Substituted limited partner The interest may be redeemed with the separate property of
a. Requisites: any general partner, but may not be redeemed with partnership
i. The assignor assigns his/her interest to the property.
assignee; The remedies conferred by the first paragraph shall not be
ii. Either: deemed exclusive of others which may exist.
1. All of the members consent to such Nothing in this Chapter shall be held to deprive a limited partner
assignment; or of his statutory exemption.
2. The assignor has been given the right to
assign a substituted limited partner in the On due application by any creditor of the limited partner,
certificate. the court may:
iii. The certificate is amended to reflect such 1. Charge the interest of the limited partner for payment of
assignment. the unsatisfied amount of the claim;
b. Rights and Liabilities: 2. Appoint a receiver; and
i. He/She has all the rights and liabilities of his/her 3. Make all other orders, directions, and inquiries
assignor warranted by the circumstances.
ii. Is not liable for liabilities he/she was ignorant at
the time of being a substitute limited partner + Rules on redemption of interest by creditors:
such could not be ascertained from the certificate. May be redeemed from separate properties of general
c. The assignor shall not be released from liabilities partners.
under Arts. 1847 and 1848. May not be redeemed from partnership property.
IMMUNITY FROM SUIT AGAINST THE PARTNERSHIP
Article 1866
A contributor, unless he is a general partner, is not a proper party VIII. Person Erroneously Believing he is a
to proceedings by or against a partnership, except where the Partner
object is to enforce a limited partner's right against or liability Article 1852
to the partnership.
Without prejudice to the provisions of Article 1848, a person who
has contributed to the capital of a business conducted by a
Rules on immunity from suit: person or partnership erroneously believing that he has become
G.R.: A limited partner is not a proper party to proceedings a limited partner in a limited partnership, is not, by reason of his
E: If the object of the suit is to enforcement a Limited exercise of the rights of a limited partner, a general partner with
Partner’s right/liability to the partnership the person or in the partnership carrying on the business, or
bound by the obligations of such person or partnership, provided
EFFECT OF DEATH that on ascertaining the mistake he promptly renounces his
interest in the profits of the business, or other compensation by
Article 1861 way of income.
On the death of a limited partner his executor or administrator
shall have all the rights of a limited partner for the purpose of Rules on persons erroneously believing to be limited
settling his estate, AND such power as the deceased had to
constitute his assignee a substituted limited partner. partners
G.R.: Not a general partner and therefore, not bound by
The estate of a deceased limited partner shall be liable for all
obligations.
his liabilities as a limited partner.
E: Upon ascertaining the mistake, he does not promptly
Notes: renounce his interest in the profits/compensation
The estate’s executor/administrator shall have all the rights His actions amount to taking part in the control of
of a limited partner ONLY for the purpose of settling the the business.
estate. IX. General Partner
The estate shall absorb the liabilities of the limited partner. Article 1850
A general partner shall have all the rights and powers and be
subject to all the restrictions and liabilities of a partner in a
partnership without limited partners. However, without the written
consent or ratification of the specific act by all the limited partners,
a general partner or all of the general partners have no
_______________________________________________________________
authority to: Ways to dissolve a Limited Partnership [DIRICI]:
(1) Do any act in contravention of the certificate; 1. Death;
(2) Do any act which would make it impossible to carry on the 2. Insolvency;
ordinary business of the partnership; 3. Retirement;
(3) Confess a judgment against the partnership; 4. Insanity; and
(4) Possess partnership property, or assign their rights in specific 5. Civil Interdiction of General Partners
partnership property, for other than a partnership purpose;
(5) Admit a person as a general partner; When the partnership is not dissolved even in the present
(6) Admit a person as a limited partner, unless the right so to do
of DIRICI:
is given in the certificate;
(7) Continue the business with partnership property on the When the right to continue the business is stated in the
death, retirement, insanity, civil interdiction or insolvency of a certificate; or
general partner, unless the right so to do is given in the
certificate. When all the partners agree to continue the business.
NAJIM V DE MESA (1987)
Rules on Powers of General Partners:
I T I S T H E W I T H D R A W A L O F A G P , N O T T H E L P ,
General Partners are allowed to do acts of administration W H I C H D I S S O L V E S T H E L I M I T E D P A R T N E R S H I P . N O
without the consent/ratification of limited partners. P R O V I S I O N I N C I V I L C O D E T H A T T A L K S A B O U T A
General Partners need the written consent/ratification of all D I S S O L U T I O N W H E N A L I M I T E D P A R T N E R L E A V E S .
the limited partners to do acts of strict dominion. De Mesa (GP), Najim (LP and Greenberg (LP) formed a Ltd
partnership under the name "Intl Skill Devt Co." Their
The following are acts of strict dominion: business is the recruitment and overseas placement of
1. Do any act in contravention of the certificate; F: workers. Najim formally withdrew 1 yr later because of De
2. Do any act that would make it impossible to carry on the Mesa's alleged failure to account. Najim also advertised
business of the partnership; on a newspaper and sent notices to clients that the
3. Confess a judgement; partnership had been dissolved.
4. Possess partnership property for other than partnership WON The withdrawal of a Limited Partner (Najim)
I:
dissolved the partnership
purposes;
5. Assign rights in specific partnership property for other R: NO. See Doctrine.
than partnership purposes;
6. Admit a person as a general partner; SEC JUST RELIED ON THAT PROVISION. THINKS THAT DISSOLUTION
SIR:
7. Admit a person as a limited partner; PROVISION APPLIES.
a. Unless allowed in the certificate;
8. Continue the business with partnership property on
DIRIC of a general partner; XII. Preference of Credits
a. Unless allowed in the certificate. Article 1863
In settling accounts after dissolution the liabilities of the
partnership shall be entitled to payment in the following order:
X. Limited and General Partner (1) Those to creditors, in the order of priority as provided by law,
except those to limited partners on account of their
Article 1853
contributions, and to general partners;
A person may be a general partner and a limited partner in the (2) Those to limited partners in respect to their share of the
same partnership at the same time, provided that this fact shall profits and other compensation by way of income on their
be stated in the certificate provided for in Article 1844. contributions;
A person who is a general, and also at the same time a limited (3) Those to limited partners in respect to the capital of their
partner, shall have all the rights and powers and be subject to all contributions;
the restrictions of a general partner; except that, in respect to his (4) Those to general partners other than for capital and profits;
contribution, he shall have the rights against the other members (5) Those to general partners in respect to profits;
which he would have had if he were not also a general partner (6) Those to general partners in respect to capital.
Subject to any statement in the certificate or to subsequent
agreement, limited partners share in the partnership assets in
XI. Dissolution respect to their claims for capital, and in respect to their claims
Article 1860 for profits or for compensation by way of income on their
contribution respectively, in proportion to the respective amounts
The retirement, death, insolvency, insanity or civil interdiction of
of such claims.
a general partner dissolves the partnership, unless the business is
continued by the remaining general partners:
(1) Under a right so to do stated in the certificate, OR
(2) With the consent of all members.
_______________________________________________________________
Summary of Rights, Obligations and
Liabilities
NO MANNER OF MANAGEMENT AGREED UPON MANNER OF MANAGEMENT AGREED UPON
RIGHTS To oppose any act of To make important Managing Partners Other Partners
any partner. alteration to immovable To bind the partnership. To break the ties in
properties, provided To oppose any act of any decision making.
he/she had consent of all. partner. To question bad faith acts
To do acts of of a Managing Partner
administration without To revoke granted
interference. authority.*
To make important
alteration to immovable
properties.
Common to both
To bind the To access true and full To access partnership Right to specific
partnership. information on all things books. partnership property*.
To share in the profits affecting the partnership. To a formal account of all To convey partnership
and surplus*. partnership affairs. property.
To associate another.
ACTS BINDING Managing Partners

THE Acts of Administration
PARTNERSHIP
Common to both
Authorized acts
Acts for the purpose of the partnership’s business
Acts FACOITUWB, unless such act is done without authority/in contravention of a restriction + 3rd persons
aware of such lack of authority.
Non-FACOITUWB acts only if:
- Authorized by the other partners; or
- Ratified by the other partners (under rules of agency)
OBLIGATIONS Not to make Managing Partners

important alterations To apply certain sums
without the consent of received to the
the others. partnership.**
Not to act when
unanimity of action is
stipulated.*
Common to both
To contribute to the To be responsible for To share in the losses.* To share jointly in the
capital.* damages caused through To render true and full liability to partnership
To contribute his/her fault. information on all things contracts.*
additional capital.* Bear risk of loss on affecting the partnership. To share solidarily in the
To bring to specific/determinate To account for benefits liability due to wrongful
partnership capital things contributed. received. acts/omissions.
credit received.**
*Subject to agreement
**Conditional
Difference between General and
Limited Partnerships
GENERAL PARTNERSHIP LIMITED PARTNERSHIP
MANNER OF CREATION
The mere agreement to create a partnership is enough to The strict requirements under the code must be followed in
constitute a general partnership. order to create the limited partnership.
COMPOSITION
Is composed of 2 or more persons. Must be composed of at least 1 general and 1 limited partner.
PARTNERSHIP NAME
Every partnership shall operate under a firm name, which may The surname of a limited partner shall not appear in the
or may not include the name of one or more of the partners. partnership name unless:
Those who, not being members of the partnership, include (1) It is also the surname of a general partner, or
their names in the firm name, shall be subject to the liability (2) Prior to the time when the limited partner became such, the business
of a partner. has been carried on under a name in which his surname appeared.
A limited partner whose surname appears in a partnership
name contrary to the above is liable as a general partner to
partnership creditors who extend credit to the partnership
without actual knowledge that he is not a general partner.
DISSOLUTION
The dissolution of a partnership may be categorized into 3: The retirement, death, insolvency, insanity or civil interdiction
By Agreement of a general partner dissolves the partnership, unless the
By Operation of Law business is continued by the remaining general partners:
By Judicial Decree (1) Under a right so to do stated in the certificate, OR
(2) With the consent of all members.
Note that the death of a limited partner does not dissolve a
limited partnership.
PREFERENCE OF CREDITS
(a) Those owing to creditors other than partners, (a) Those to creditors, in the order of priority as provided by
(b) Those owing to partners other than for capital and profits, law, other than partners;
(c) Those owing to partners in respect of capital, (b) Those to limited partners in respect to their share of the
(d) Those owing to partners in respect of profits. profits and other compensation by way of income on their
contributions;
(c) Those to limited partners wrt their capital contributions;
(d) Those to general partners other than for capital and
profits;
(e) Those to general partners in respect to profits;
(f) Those to general partners in respect to capital.
SPECIAL THANKS AND ACKNOWLEDGEMENTS

CONTRIBUTORS
Michael de Castro and Julie Ann Enad for their additional notes and digest making skills.
RESOURCES
A2016 and A2017 Digests
Romel J. Casis, Analysis of Philippine Agency Law and Jurisprudence (2011)
Romel J. Casis, Analysis of Philippine Partnership Law and Jurisprudence (2011)
Hector S. De Leon and Hector M. De Leon, Comments and Cases on Partnerships, Agency and Trusts (8th ed. 2010)
Arturo M. Tolentino, Commentaries and Jurisprudence on the Civil Code of the Philippines (Volume V, 1992)
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AGENCY

Law 173 – Agency and Partnership

Kinds of Agency behalf in transactions with 3rd persons.2

2 RALLOS V FELIX GO CHAN (1978)

ORIENT AIR SERVICES V CA (1991)

II. Parties to Agency

9 ANGELES V PNR (2006)

STATUTORY AGENCY BY ESTOPPEL Doctrine of apparent authority for hospitals19

17 YUN KWAN BYUNG V PAGCOR (2009)

21 MANILA MEMORIAL V LINSANGAN

24 LIM PIN V LIAO TAO (1982)

27 EUROTECH V CUISON (2007)

PNB V RITRATTO (2001)

NOTICE TO AGENT IS NOTICE TO PRINCIPAL

Theory of Imputed Knowledge

31 SUNACE INT’L V NLRC (2006)

Liabilities of an Article 1878, then it may not be performed without specific

Article 1882 Article 1885

The duties should be continued only to the extent that

Rules on purchase of principal’s property: Recap on rules on Double Sales:

36 DOMINGO V. DOMINGO (1971)

When is Art. 1896 applicable? Article 1905

What are acts within the scope of authority?

This is for the protection of 3rd persons against possible

Principal COMMERCIAL BANK & TRUST V REPUBLIC ARMORED

Article 1881 RATIFIED ACTS

50 MANILA MEMORIAL V LINSANGAN

DIFFERENCES AS TO COMPENSATION BETWEEN

SIR: NOT THE BEST CASE TO DEMONSTRATE THE PRINCIPLE. CF.

Rules on Revocation at will

61 RALLOS V YANGCO (1911)

SPECIAL REVOKES GENERAL IN PART Article 1930

Notes: [Recap] Rules on Revocation at will

DEL ROSARIO V ABAD (1958) EXPIRATION OF THE PERIOD

other Contracts establishment of such relationship between them.

THE ELEMENT OF CONTROL

69 TUAZON V HEIRS OF RAMOS (2005)

CHUA NGO V UNIVERSAL TRADING (1950)

XI. Distinguished from Judicial

Partnership II. Philippine Partnership Law

Eventually, mercantile causes found their way to England. Article 1318

WOODHOUSE V. HALILI (1953)

PHILEX MINING V CIR (2008) IV. Separate Juridical Personality

92 TAI TONG CHUACHE V INSURANCE COMMISSION (1988)

94 DALTON V AUSTIN, LAS VEGAS MACH V ROEMISCH

VI. Creation Partnerships are not required to disclose which of the

98 SEC OPINION TO SOLITARIO

Ways of forming a partnership: Article 1768

Rules on the formation of partnerships: ============================================

If the partnership involves capital of at least P3k AND Notes:

102 SEC OPINIONS TO LIBREA AND ROMULO, MABANTA

AS TO PURPOSE UNIVERSAL PARTNERSHIP OF PROFITS

CIR V SUTER (1969) AS TO LEGALITY OF EXISTENCE

Why differentiate? (1) When a partnership liability results, he is liable as though he

In this case, the partner by estoppel is considered an agent AS TO PURPOSE

WISCONSIN TELEPHONE V LEHMAN

IN THE MATTER OF THE PETITION FOR AUTHORITY TO CONTINUE USE OF FIRM

NAME “SYCIP, SALAZAR, ETC.” / “OZAETA, ROMULO, ETC.”

Other kinds of partners:

the Partners - Time he/she should have complied

SPECIFIC AND DETERMINATE THINGS

LIWANAG V. CA (1997) Article 1292