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By the contract of partnership two or more persons bind
themselves to contribute money, property or industry to a
common fund, with the intention of dividing the profits
among themselves.
P ARTNERSHIP
Two or more persons may also form a partnership for the
exercise of a profession (Article 1767).
CHARACTERISTICS OF PARTNERSHIP (P2C2BON)
1. Principal
2. Preparatory
3. Commutative
4. Consensual
5. Bilateral
6. Onerous
7. Nominate
ESSENTIAL REQUISITES (C3OP-G)
1. There must be a valid contract;
a. The partnership relation is fundamentally contractual.
b. It is fiduciary in nature
c. The principle of estoppel applies
Note: The partnership relation is not the contract itself,
but the result of the contract.
No required form is necessary but the contract is
subject to the provisions of Articles 1771 (real
property=public instrument) & 1773 (real property
contribution=inventoried, signed by the parties and
attached to public instruments, otherwise, void) and to
the Statute of Frauds
The Articles of Co-Partnership is the written document
stating the name, nature or purpose and location of the
firm, and defining, among members, the powers, rights,
duties, and liabilities of the partners among themselves,
their contributions, the manner by which the profits and
losses are to be shared, and the procedure for
dissolving the partnership.
2. The parties must have legal capacity to enter into the
contract;
The essential elements (Cause, Object, &
Consideration) of a contract are still required.
Although a corporation cannot enter into a partnership
contract, it may however engage in a joint venture
(Aurbach v. Sanitary Wares Manufacturing Corporation,
GR No. 75875, December 15, 1989).
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There is no prohibition against a partnership being a
partner in another partnership (De Leon, Comments
and Cases on Partnership, Agency and Trusts, 2010
ed., p. 17).
3. There must be a mutual contribution of money,
property, or industry to a common fund;
a. Money – must be in legal tender. Checks, drafts,
promissory notes and other mercantile documents
are not money. There is no contribution of money
until they have been cashed.
b. Property – may be real, personal, corporeal or
incorporeal property. Thus, credit and goodwill may
be contributed.
c. Industry – means the active cooperation, the work of
the party associated, which may be either personal
manual efforts or intellectual, and for which he
receives a share in the profits (not merely salary) of
the business.
4. The object or purpose must be lawful. (Art. 1770);
5. The primary purpose must be to obtain profits to divide
the same among the parties; and
6. There must be at least one general partner.
It is also required that the articles of partnership must not
be kept secret among the members; otherwise, the
association shall have no legal personality and shall be
governed by the provisions of the Civil Code relating to
co-ownership (Art. 1775).
COMMON FUND
A partnership may be deemed to exist among parties who
agree to borrow money to pursue a business and to divide
the profits or losses that may arise therefrom, even if it is
shown that they have not contributed any capital of their
own to a “common fund,” as their contribution to such fund
could be an intangible like credit or industry ( Lim Tong
Lim v. Phil. Fishing Gear Industries, Inc., GR No. 136448,
November 3, 1999).
MERCANTILE VIEW OF THE NATURE OF A
PARTNERSHIP (Art. 1768)
A partnership has a juridical personality separate and
distinct from that of each of the partners even in case of
failure to comply with the requirements of Article 1772 (1).
Article 1768 provides that the partnership retains its
juridical personality even if it fails to register, so long as
the contract has the essential requisites (Sunga-Chan v.
Chua, G.R. No. 143340, August 15, 2001).
Partnership for the practice of Law
The right to practice law is not a natural or constitutional
right but a privilege or franchise. The use of a nom de
plume, assumed, or trade name in law practice is
improper.
RULES TO DETERMINE EXISTENCE OF A
PARTNERSHIP (Art. 1769)
1. General Rule: Persons who are not partners as to each
other are not partners as to third persons.
Exception: Partnership by estoppel
Example: If Atoy and Joey are not partners as to each
other, neither will they be partners with respect to Cath,
a third person. But if Atoy, with the consent of Joey,
represents to Cath that they are partners, then Atoy and
Joey will be considered partners as to Cath even if they
are not really partners (See De Leon, Comments and
Cases on Partnership, Agency and Trusts, 2010 ed., p.
20).
2. Co-ownership of a property does not of itself establish a
partnership, whether such co-owners or co-possessors
do or do not share any profits made by the use of the
property.
Reason: The law does not imply a partnership between
co-owners or co-possesors because of the fact that they
develop or operate a common property, since they may
rightfully do this by virtue of their respective titles or
common dominion over the property (De Leon,
Comments and Cases on Partnership, Agency and
Trusts, 2010 ed., p. 31).
Example: Atoy and Joey inherited from their father an
apartment which is leased to third persons. They are
merely co-owners and not partners.
Note: The property of a man and a woman who live
together as husband and wife shall be governed by the
rules on co-ownership.
The co-ownership of inherited properties is
automatically converted into an unregistered
partnership the moment the said common properties
and/or the income derived therefrom are used as a
common fund with intent to produce profits for the heirs
in proportion to their respective shares in the
inheritance as determined in a project partition (Oña vs.
Commissioner of Internal Revenue, G.R. No. L-19342,
May 25, 1972).
3. Sharing of gross returns alone does not indicate a
partnership, whether or not the persons sharing them
have a joint or common right or interest in any property
from which the returns are derived.
Reason: When a business is carried on in behalf of a
given person as a partner, he is conceived as being
interested in its failures as well as its successes; it is the
chance of gain or loss which characterizes a business.
Take note that in a partnership, the partners share
profits AFTER satisfying all of the partnership’s liabilities
(De Leon, Comments and Cases on Partnership,
Agency and Trusts, 2010 ed., p. 35).
Example: Atoy, owner of a passenger jeepney, agrees
with Jerick, a driver, that the latter shall have full control
and use of the jeepney to carry passengers, pay for
gasoline and oil, and shoulder the cost of repairs, and
that the gross receipts are to be divided between them.
No partnership is established as no sharing of profits is
contemplated.
Note: To regard the petitioners as having formed an
unregistered partnership would result in oppressive
taxation. Their original purpose was to divide the lots for
residential purposes, but they were compelled to resell
because of the high cost of construction. There must be
an unmistakable intention to form a partnership or joint
venture (Obillos v. CIR, et al, G.R. No. L-68118,
October 29, 1985; Pascual v. CIR G.R. No. 78133,
October 18, 1988).
4. Receipt of share in the profits is a prima facie evidence
that he is a partner in the business (Sharing in the NET
profits presupposes sharing in the losses).
HOWEVER, NO such inference will be drawn if such
profits were received in payment: (DWAIC)
a. As a debt by installments or otherwise;
b. As wages of an employee or rent to a landlord;
c. As an annuity to a widow or representative of a
deceased partner;
d. As interest on a loan, though the amount of payment
vary with the profits of the business; and
e. As the consideration for the sale of a goodwill of a
business or other property by installments or
otherwise.
TEST OF PARTNERSHIP EXISTENCE
1. Whether or not there is an agreement to contribute
money, property, or industry to a common fund; and
2. Whether or not there is intent of the contracting parties
to divide the profits among themselves.
Burden of Proof
The burden of proving the existence of a partnership rests
on the party having the affirmative of that issue.
INCIDENTS OF A PARTNERSHIP
1. The partners share in profits and losses;
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2. They have equal rights in the management and conduct
of the partnership business;
3. Every partner is an agent of the partnership, and
entitled to bind the other partners by his acts, for the
purpose of its business;
4. All partners are personally liable for the debts of the
partnership with their separate property EXCEPT that
limited partners are not bound beyond the amount of
their investment;
5. A fiduciary relation exists between the partners; and
6. On dissolution, the partnership is not terminated, but
continues until the winding up of partnership is
completed.
Note: These may be modified by stipulation of the
partners.
OBJECT OR PURPOSE
A partnership shall have a lawful object or purpose, and
must be established for the common benefit or interest of
the partners.
When an unlawful partnership is dissolved by a judicial
decree, the profits shall be confiscated in favor of the
State, without prejudice to the provisions of the Penal
Code governing the confiscation of the instruments and
effects of a crime (Art. 1770).
Note: The illegality of the object will not be presumed; it
must appear to be of the essence of the relationship.
EFFECTS OF UNLAWFUL PARTNERSHIP
1. The contract is void ab initio
2. The PROFITS shall be confiscated in favor of the
government
3. The instruments or tools and proceeds of the CRIME
shall be forfeited in favor of the government; and
4. The contributions of the partners shall not be
confiscated unless they fall under No. 3.
Note: A partnership is dissolved by operation of law upon
the happening of an 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.
A judicial decree is not necessary to dissolve an unlawful
partnership. However, it may sometimes be advisable that
a judicial decree of dissolution be secured for the
convenience of the parties.
Where a part of the business of a partnership is legal and
part illegal, an account of that which is legal may be had.
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The partners must be reimbursed the amount of their
respective contributions (De Leon, Comments and Cases
on Partnership, Agency and Trusts, 2010 ed., p. 59).
Where, without knowledge or participation of the partners,
the firm’s profits in a lawful business have been increased
by wrongful acts, the innocent partners are not precluded
as against the guilty partners from recovering their share
of the profits.
The happening of an event subsequent to the making of a
valid partnership contract which would render illegal the
business of the partnership will not nullify the contract.
Salient Features of Ordinary Partnership
1. Community of interest in profits and losses.
2. Community of interest in the capital employed.
3. Community of power in administration.
FORM OF PARTNERSHIP CONTRACT
General Rule: A partnership may be constituted in any
form (for VALIDITY and ENFORCEABILITY of the
contract among the parties, regardless of the value of the
contribution).
Exceptions:
1. If real property or real right is contributed
2. If it is covered by the Statute of Frauds.
Problem:
Today, Atoy and Joey orally agreed to form a partnership
one and one half years from today, each one to contribute
P1K. If at the arrival of the period, Joey refuses to go
ahead with the agreement, can Atoy enforce the
agreement?
No. Since the agreement is to be enforced after one year
from the making thereof, the same should be in writing
under the Statute of Frauds (Paras, Civil Code of the
Philippines, Volume V, 2008 ed., p. 564).
3. A limited partnership, however, cannot be constituted
orally. The requirements of the statute must be
followed; otherwise, the liability of the limited partners
becomes the same as that of general partners (De
Leon, Comments and Cases on Partnership, Agency
and Trusts, 2010 ed., p. 303).
Note: Partnership’s existence may be implied from the
acts or conducts of the parties, as well as other
declarations. In determining whether or not a particular
transaction constitutes partnership, as between the
parties, the intention should be ascertained (De Leon,
Comments and Cases on Partnership, Agency and
Trusts, 2010 ed., p. 63).
A. Personal Property
1. If Capital is Less than P3,000 – No special form is
required for its validity or existence (Art. 1772).
2. Where the contract of partnership has a capital of
3,000 pesos or more, in money or property - it shall
appear in a public instrument and must be recorded
in the Office of the Securities and Exchange
Commission. Failure to comply with the
requirements of the preceding paragraph shall not
affect the liability of the partnership and the
members thereof to third persons (Art. 1772 (2)).
to speak of (Litonjua, Jr. v. Litonjua, Sr., et al.,
G.R. Nos. 166299-300, December 13, 2005).
Art. 1773 applies also if aside from real property,
cash or personal property is contributed. The
inventory, however, need not include the
personalty (Paras, Civil Code of the Philippines,
Volume V, 2008 ed., p. 566).
c. Must be recorded with the Register of Deeds
where the immovable is located to bind third
persons.

Purpose of registration: To set a condition for the Partnership vs. Voluntary Association
issuance of licenses to engage in business or trade
Partnership Voluntary Association
and to give notice to third parties. It can be assumed
that the members themselves knew of the contents of Juridical Personality
their contract (Tolentino, Civil Code of the Has juridical personality Has no juridical personality
Philippines, Volume V, 1992 ed., p.326). Registration Purpose
is effective from the date the partnership papers are Always for profit Not always for profit
presented to and left for record in the SEC. Contribution of Members
There is contribution of There is no contribution of
B. Real Property capital. capital although fees are
Where immovable property or real rights are usually collected from the
contributed, regardless of the value thereof: members to maintain the
1. The CONTRACT ITSELF must be in writing in a organization.
public instrument Liability of Members
2. An inventory of the property contributed, signed by The partnership is the one Members are individually
the parties is attached to the public instrument liable liable for the debts of
(Article 1773). If there is no inventory – contract of corporation.
partnership is void and no juridical personality.
Moreover, to be effective against third parties, the
partnership must also be registered in the Registry
of Property of the province where the real property
Partnership and Co-ownership Distinguished (CJP3-
contributed is found. D2AFT)
Reason:
a. To show how much is due from each partner to Partnership Co-Ownership
complete his share and how much is due to Creation
each of them in case of liquidation. Always created by a Generally created by law,
b. The execution of a public instrument would be contract, either express or but may exist even without a
useless if there is no inventory of the property implied contract
contributed, because without its designation and
description, they cannot be subject to inscription Juridical personality
in the Registry of property. This will result in Has a juridical personality
fraud to those who contract with the partnership separate and distinct from Has no juridical personality
in the belief of the efficacy of the guaranty in that of each partner
which the immovables may consist (Tolentino, Purpose
Civil Code of the Philippines, Volume V, 1992
ed., p.326). Common enjoyment of a
Realization of profits
thing or right;
Note: The more important consideration is that the Power to act with third persons
real property was contributed, in which case an In general a partner may A co-owner cannot
inventory of the contributed property duly signed bind the partnership represent the co-ownership
by the parties should be attached to the public
instrument, or else there is legally no partnership Profits
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Must always depend upon Partnership Corporation

proportionate shares and Can exercise only the
May be stipulated upon
any stipulation to the May exercise any power powers expressly granted
contrary is VOID authorized by the partners by law or implied from
Duration those granted or incident
An agreement to keep the to its existence
No limitation upon the
thing undivided for more Management
duration is set by law
than 10 years is not allowed When management is not
Vested in the board of
Dissolution agreed upon, every partner
directors or trustees
Death or incapacity of a Death or incapacity of a co- is an agent of the partnership
partner dissolves the owner does not necessarily Effect of mismanagement
partnership dissolve the co-ownership The suit against a member
Agency or Representation of the board of directors or
A partner as such can sue a
As a rule, there is mutual As a rule, there is no mutual trustees who mismanages
co-partner who mismanages
agency representation must be in the name of the
corporation
Form
Right of succession
No public instrument is
In general there is no No such right Has such right
needed even if real property
required form (See
is the object of the co- Extent of liability to third persons
exceptions)
ownership
Transfer of interests Partners are generally liable Stockholders are liable
A partner may not dispose for partnership debts to third only to the extent of the
of his individual interest in persons shares subscribed by them
A co-owner can dispose of
the partnership so as to
his share without the
make the assignee a Transferability of interest
consent of the others
partner without unanimous Partner cannot transfer his
consent Stockholder has generally
interest in the partnership so
the right to transfer his
as to make the transferee a
shares without prior
partner without the
Partnership and Corporation Distinguished consent of the other
unanimous consent of all the
(CNJ–PMERET2–FDG) stockholders
existing partners
Term of existence
Partnership Corporation
Corporation may not be
Creation Partnership may be formed for a term in
Created by law or by established for any period of excess of 50 years
Created by mere agreement
operation of law time stipulated by the extendible to not more
Number of incorporators partners than 50 years in any one
instance
Requires at least five
At least two persons incorporators (except a Firm name
corporation sole) Corporation may adopt
Limited partnership is
Commencement of Juridical Personality any name provided it is not
required by law to add the
the same as or similar to
word “Ltd.” to its name
From the moment of From the date of issuance any registered firm name
execution of the contract of of the certificate of Dissolution
partnership incorporation by the SEC
May be dissolved at any time Can only be dissolved with
Powers by any or all of the partners the consent of the State
Governing Law

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 Partnership Corporation Requisites:
1. A community of interest in the performance of the
Governed by the contract Governed by the
subject matter;
and the Civil Code Corporation Code
2. A right to direct and govern the policy in connection
therewith;
Partnership and Conjugal Partnership of Gains 3. Duty to share profits and losses.
distinguished
Conjugal Partnership of Note: Under the Civil Code, a partnership may be
Partnership
Gains particular or universal, and a particular partnership may
Parties have for its object a specific undertaking. Hence, a joint
Created by voluntary Only between a man and a venture may be treated like any other contract, innominate
agreement of two or more woman. in nature to be regulated and governed primarily by the
persons belonging to stipulations of the parties thereto and suppletorily by the
either sex. general provisions of the Civil Code on obligations and
Governing Laws contracts, by rules governing the most analogous
Governed by the Governed by law. contracts and by the customs of the place.
stipulation of the parties.
Juridical Personality The main distinction in common law jurisdiction is that
Has juridical personality Has no juridical personality partnership contemplates a general business with some
Commencement degree of continuity, while joint venture is formed for the
Partnership begins from Commences precisely on execution of a single transaction and is thus of temporary
the moment of the the date of celebration of nature (Aurbach vs. Sanitary Wares Manufacturing
execution of the contract, the marriage, any Corporation, G.R. No. 75875, December 15, 1989).
unless otherwise stipulation to the contrary
stipulated. is void. CLASSIFICATIONS OF PARTNERSHIP: (OLDER-P2)
Purpose A.As to Object:
1. Universal partnership
To obtain profits To regulate property
a. Of all present property
relations
b. Of profits
Distribution of Profits
2. Particular partnership
According to agreement of Shares of spouses are
partners or in proportion to divided equally.
B.As to Liability of partners:
their respective capital
1. General partnership
contributions.
2. Limited partnership
Management
It is shared equally by all Although the administration C. As to Duration:
partners unless one or belongs to both spouses 1. Partnership at wil
more of them are jointly, the husband’s Note: A partnership that does not fix its term is a
appointed managers in the decision shall prevail in partnership at will. The birth and life of a partnership
articles of partnership. case of disagreement at will is predicated on the mutual desire and consent
of the partners. Verily, any one of the partners may,
Disposition of Shares at his sole pleasure, dictate the dissolution of the
The whole interest of a The share of each spouse partnership at will. He must, however, act in good
partner may be disposed cannot be disposed of faith, not that the attendance of bad faith can prevent
of without the consent of during the marriage even the dissolution of the partnership but that it can result
other partners with the consent of the in a liability for damages (Ortega, et al. v. CA, et al.,
other. G.R. No. 109248, July 3, 1995).
JOINT VENTURE 2. Partnership with a fixed period
An association of persons or companies jointly
undertaking some commercial enterprise; generally all D. As to legality of Existence:
contribute assets and share risks (Kilosbayan, 1. De jure partnership
Incorporated v. Guingona, Jr. GR. No. 118910 November 2. De facto partnership
16, 1995).
E.As to Representation to others:
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1. Ordinary or real partnership

2. Ostensible or partnership by estoppel Reason: A universal partnership of profits imposes less
obligations on the partners, since they preserve the
F.As to Publicity: ownership of their separate property.
1. Secret partnership
2. Notorious or open partnership The following persons cannot enter into universal
partnership:
G. As to Purpose: 1. Legally married spouses. However, spouses may
1. Commercial or trading enter into a particular partnership like the exercise of
2. Professional or non-trading a profession or vocation.
2. Common law spouses.
UNIVERSAL PARTNERSHIP 3. Parties guilty of adultery or concubinage.
A.Universal Partnership of All Present Property – One 4. Criminals convicted for the same offense in
wherein the partners contribute all the property which consideration of the same.
actually belong to them to a common fund, with the 5. A person and a public officer (or his wife,
intention of dividing the same among themselves, as descendants, ascendants) by reason of his office.
well as all the profits which they may acquire therewith
(Art. 1778). Reason: To allow them will be like permitting them to
do indirectly what the law expressly prohibits.
The following become the common property of all
partners: Profits acquired by their partners through chance (i.e.
1. Property which belonged to each of them at the time lottery) without employment of any physical or
of the constitution of the partnership. intellectual efforts are not included.
2. Profits which they may acquire from the property
contributed. Universal Partnership of all Present Property and of all
Profits distinguished
As a rule, aside from the contributed properties only the
Of all Present Property Of all Profits
PROFITS of the contributed COMMON PROPERTY
(not other profits) are included. Thus, should a partner Coverage
SUBSEQUENTLY acquire a property as remuneration All present property Property which the
for his work, such property and its fruits are not to be actually belonging to the partners owned at the
enjoyed by the universal partnership of all PRESENT partners are contributed time of the celebration
property (Paras, Civil Code of the Philippines, Volume to the partnership which of the contract shall
V, 2008 ed., p. 573). become common continue to pertain to
However, profits from other sources may become property of all the them. Only the usufruct
COMMON, only if there is a stipulation to such effect partners and the (use and fruits) shall
(Paras, Civil Code of the Philippines, Volume V, 2008 partnership. become common
ed., p. 573). property.
Profits
Future properties cannot be contributed. Thus, property Only profits derived from All profits acquired
subsequently acquired by (1) inheritance, (2) legacy or the property contributed through the “industry or
(3) donation cannot be included by stipulation except become common work” of the partners
the fruits thereof. property but not profits become common
arising from other property.
B.Universal Partnership of Profits – One which comprises property of the partners.
all that the partners may acquire by their industry or The latter profits,
work during the existence of the partnership and the however may by
usufruct of movable or immovable property which each stipulation be
of the partners may posses at the time of the considered as common
celebration of the contract (Art. 1780). property for the
enjoyment of all.
Articles of Universal Partnership entered into without
specification of its nature, only constitute a Universal PARTICULAR PARTNERSHIP (D-FUSE)
Partnership of Profits (Art. 1781).

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One which has for its object determinate things, their use
or fruits, or a specific undertaking, or the exercise of a
profession or vocation (Art. 1783).
In a universal partnership, the object is vague and
indefinite, contemplating a general business with some
degree of continuity. In particular partnership, the object is
well defined and limited, being confined to an undertaking
of a single, temporary or ad hoc nature (De Leon,
Comments and Cases on Partnership, Agency and
Trusts, 2010 ed., p. 87).
PROFESSIONAL PARTNERSHIP
Under Art. 1767, two or more persons may also form a
partnership for the exercise of A PROFESSION. A
“profession” has been defined as “a group of men
pursuing a learned art as a common calling in the spirit of
public service” (De Leon, Comments and Cases on
Partnership, Agency and Trusts, 2010 ed., p. 10).
A partnership that has for its object the exercise of A
PROFESSION is a particular partnership (Art. 1783). This
is one case where a partnership is composed entirely of
industrial partners (See Tolentino, Civil Code of the
Philippines, Volume V, 1992 ed., p.329).
KINDS OF PARTNERS
A.As to the NATURE of contribution:
1. Capitalist partner – contributes money or property.
2. Industrial partner – contributes only his industry or
personal service.
B.As to LIABILITY:
1. General partner – liability to third persons extends to
his separate property.
2. Limited partner – liability to third persons is limited to
his capital contribution.
C. As to MANAGEMENT:
1. Managing partner – manages the business or affairs
of the partnership;
2. Silent partner – does not take any active part in the
business although he may be known to be a partner.
3. Liquidating partner – takes charge of the winding up
of the partnership affairs upon dissolution.
D. As to EXPOSURE to public perception:
1. Ostensible partner – one who takes active part and
known to the public as a partner in the business,
whether or not he has actual interest in the firm.
2. Secret partner – takes active part in the business but
is not known to be a partner by outside parties nor
held out as a partner by the other partners.
3. Dormant partner – does not take active part in the
business and is not known or held out as partner.
E. As to MEMBERSHIP:
1. Real partner – one who is really a contributing
member of an existing legal partnership.
2. Partner by Estoppel – or quasi-partner. One who is
not really a partner but represents himself as one.
F.As to CONTINUATION of the business affairs after
dissolution:
A.Continuing partner – one who continues the
partnership business after the dissolution of the
partnership due to the reasons stated in Article 1840.
B.Discontinuing partner – one who does not participate
in the partnership business after its dissolution.
G. As to the VALUE of contribution:
1. Majority partner – one whose contribution represents
the majority or controlling interest;
2. Nominal partner – one whose contribution represents
only a minority interest.
H. As to the NATURE OF MEMBERSHIP:
1. Original partner – one who is a member of the
partnership from the time of its commencement as a
juridical person.
2. Incoming partner – one who becomes a member
subsequent to the establishment of the firm or one
who is about to be admitted by the consent of all the
members.
I. As to the state of SURVIVORSHIP:
1. Surviving partner – one who remains alive while one
of the partners dies or one who continues to be in the
partnership after its dissolution by reason of the death
of a partner.
2. Deceased partner – one who died while being a
member of the partnership.
J. As to the effect of EXPULSION:
1. Expelled partner – one who is expelled from the
partnership by the other partner/s for a valid cause.
2. Expelling partner – partner who caused the expulsion
of a partner for a valid cause.
Capitalist and Industrial Partner Distinguished (CP2L)
Capitalist Partner Industrial Partner
Contribution
Contributes money or
Contributes his industry
property
Prohibition to engage in other business
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Capitalist Partner Industrial Partner they were at such termination, so far as is consistent with
a partnership at will (Art. 1785, par. 1).
Cannot generally engage
in the same or similar Cannot engage in any A continuation of the business by the partners or such of
enterprise as that of his business for himself them as habitually acted therein during the term, without
firm any settlement or liquidation of the partnership affairs, is
prima facie evidence of a continuation of the partnership
Profits (Art. 1785 (2)).

Shares in the profits In a sense, a partnership is unlimited to its duration as no

according to agreement Receives a just and
thereon; if none, pro rata equitable share
to his contribution
Losses
Exempted as to losses as
between partners; but is
liable to third persons,
without prejudice to
reimbursement from the
capitalist partners
1.First, the stipulation as
to losses; Note: Only in the
2.If none, the agreement difference representing
as to profits; the net profits does the
3.If none, pro rata to industrial partner share.
contribution But if, on the contrary, the
losses exceeded the
income, the industrial
partner does not share in
the losses (Santos v. Sps.
Reyes, G.R. No. 135813,
October 25, 2001).
time limit is fixed by law. The term may be agreed upon
expressly, as when there is a definite period, or impliedly,
as when a particular enterprise is undertaken- it being
understood that the firm ends as soon as its purpose is
achieved (Paras, Civil Code of the Philippines, Volume V,
2008 ed., p. 580).
Note: A partnership with a fixed term is one which the
term of its existence has been agreed upon expressly or
impliedly. The expiration of the term or the
accomplishment of the particular undertaking will cause
the automatic dissolution of the partnership.
With such continuation, the partnership for a fixed term is
dissolved and a new one is created by implied agreement.
Kinds of Partnership at Will
1. When at the onset, there is no term express or implied
2. When it is continued by the habitual managers-
although the period has ended or the purpose has been
accomplished (This is prima facie evidence of the firm’s
continuation).
It is called “at will” because its continued existence
really depends upon the will of the partners, or even on
the will of any of them.

Anyone of the partners may dictate dissolution of the

O BLIGATIONS OF THE P ARTNERS partnership at will but he must act in good faith.

PARTNERSHIP TERM RELATIONS CREATED BY A CONTRACT OF

General Rule: A partnership begins from the moment of
the execution of the contract.
As a rule, even if contributions have not been made, the
form already exists, for partnership is a consensual
contract (Paras, Civil Code of the Philippines, Volume V,
2008 ed., p. 580).
Exception: Partners may stipulate some other date for the
commencement of the partnership.
When a partnership for a fixed term or particular
undertaking is continued after the termination of such term
or particular undertaking without any express agreement,
the rights and duties of the partners remain the same as
PARTNERSHIP
1. Relations among the partners themselves;
2. Relations of the partners with the partnership;
3. Relations of the partnership with third persons
with whom it contracts; and
4. Relations of the partners with such third persons.
OBLIGATIONS OF PARTNERS AMONG THEMSELVES
A.Obligation with respect to contribution of property
1. To contribute what had been promised (Art. 1786)
Note: In case of failure, the remedy is not rescission
but an action for specific performance with damages
and interest.

9
2. To warrant property contributed in case of eviction
(Art. 1786)
3. To deliver the fruits of the property from the time they
should have been delivered, without the need of any
demand (Art. 1786)
Reason: Without the contributions, the partnership is
useless (time is of the essence); failure to contribute
makes the partner ipso jure a debtor of the
partnership even in the absence of demand (De
Leon, Comments and Cases on Partnership, Agency
and Trusts, 2010 ed., p. 99).
Note: No demand is necessary to put the partner in
default.
The warranty referred to includes that of against
hidden defects; the contribution to the partnership is
an onerous contract of alienation, and the provisions
of the law on sales, so far as pertinent, should be
applied (Tolentino, Civil Code of the Philippines,
Volume V, 1992 ed., p.331).
4. When contribution is in goods, the amount thereof
must be determined by proper appraisal of the value
thereof at the time of contribution (Art. 1787)
Reason for appraisal: To determine how much has
been contributed (Paras, Civil Code of the
Philippines, Volume V, 2008 ed., p. 583).
Manner of Appraisal:
a. That which is prescribed by the contract.
b. In the absence of stipulation, by experts chosen by
the partners according to current prices.
After the appraisal, the partnership bears the risk or
gets the benefit of subsequent changes in its value.
Note: In case of immovable property, appraisal is
made in the inventory of said property.
5. To preserve the property with the diligence of a good
father of a family pending delivery to the partnership
(Art. 1163)
6. To indemnify for any damages caused by the
retention of the property or by delay in its contribution.
(Art. 1788 & 1170)
Even if no actual injury results, the liability exists
because Art. 1788 is absolute (Paras, Civil Code of
the Philippines, Volume V, 2008 ed., p. 585).
B.Obligations with respect to contribution of money and
money converted to personal use
1. To contribute on the date due the amount promised to
be given (Art. 1788)
Note: Liability arises from the commencement of
partnership unless otherwise stipulated.
2. To reimburse any amount he may have taken from
the partnership coffers and converted to his own
personal use (Art. 1788)
3. To pay the agreed or legal interest, if he fails to pay
(a & b) in due time (Art. 1788)
4. To indemnify the partnership for the damages caused
to it by the delay in the contribution (a, b & c)
Note: This double responsibility (interest and
damages) of a partner is in harmony with the principle
that every partner is responsible to the partnership for
damages suffered by it through his fault and is
justified by the nature of the contract of partnership.
Liability of Partner for failure to return partnership
money received:
a. Where fraudulent misappropriation committed –
partner is guilty of estafa
b. Where there was mere failure to return – partner
not guilty of estafa and the action is a civil one for
liquidation of the partnership and levy of its assets.
C. Obligation Not to Engage in Other Business for
Himself
1. Industrial partner – cannot engage in any business for
himself unless the partnership expressly permits him
to do so. The other partners have the remedy of
either excluding the erring partner from the firm or of
availing themselves of the benefits which he may
have obtained (Art. 1789).
Although Art. 1789 mentions only the capitalist
partners, the industrial partners are also entitled to
the remedy since they are equally prejudiced by the
act of their co-partner engaging in business for
himself (De Leon, Comments and Cases on
Partnership, Agency and Trusts, 2010 ed., p. 99).
Reason: To prevent conflict of interest and to ensure
compliance by said partner with his prestation (De
Leon, Comments and Cases on Partnership, Agency
and Trusts, 2010 ed., p. 99).
The prohibition applies to a capitalist-industrial
partner (Pineda, Partnership, Agency and Trusts, p.
58).
2. Capitalist partner – the prohibition extends only to any
operation which is of the same or similar kind of
business in which the partnership is engaged unless
 San Beda College of Law
2010 Centralized Bar Operations
there is a stipulation to the contrary. The test is the
possibility of unfair competition (Art. 1808).
A partner occupies a fiduciary position with respect to
his co-partners imposing duties of utmost good faith
and he may not carry on any other business in rivalry
with the business of the partnership whether in his
own name or for the account of another at the
expense of the partnership (De Leon, Comments and
Cases on Partnership, Agency and Trusts, 2010 ed.,
p. 153).
The violator can be ousted from the firm on the
ground of loss of trust and confidence. This would of
course result in the dissolution of the firm (Paras,
Civil Code of the Philippines, Volume V, 2008 ed., p.
615).
D. Obligation to Contribute Capital and Additional Capital
1. Contribution to Partnership Capital
General Rule: It depends upon the stipulation of
parties. In the absence of stipulation, the presumption
is that the contribution shall be in equal shares.
2. Contribution of Additional Capital.
General Rule: A partner is not bound to contribute
additional capital.
Exception: In case of an imminent loss of the
business, and there is no agreement to the contrary,
CAPITALIST partners are under obligation to
contribute an additional share to save the venture. If
he refuses to contribute, he shall be obliged to sell his
interest in the partnership to other partners (Art.
1791).
Requisites: (RIMA)
a. There is imminent loss of the business
b. Majority of the capitalist partners are of the opinion
that an additional contribution would save the
business.
c. Capitalist partner refuses deliberately (not due to
financial difficulty) to contribute
d. There is no agreement that even in case of an
imminent loss of the business the partners are not
obliged to contribute.
Note: Industrial partners are exempted as he is
already giving his entire industry.
E.Obligation of Managing Partner who Collects Debt –
Where a person is separately indebted to the
partnership and to the MANAGING partner at the same
time, any sum received shall be applied to the two
credits in proportion to their amounts even though he
may have given a receipt for his own credit only, except
11
where he received it entirely for the account of the
partnership, in which case the whole sum shall be
applied to the partnership credit only (Art. 1792). The
debtor is given the right to prefer payment of the credit
of the partner ONLY if it should be more onerous to him
(De Leon, Comments and Cases on Partnership,
Agency and Trusts, 2010 ed., p. 103).
Art. 1792 does not apply if the collecting partner is not a
managing partner. There is no basis for the suspicion
that the partner is in bad faith (Paras Civil Code of the
Philippines, Volume V, 2008 ed., p. 591).
Requisites for application of rule:
1. There exists at least two debts, one due to
partnership and one due to the managing partner.
2. Both debts are demandable
3. The partner who collects is authorized to manage and
actually manages the partnership.
Reason: to protect the interest of the partnership from
being subordinated by the managing partner’s own
interest (De Leon, Comments and Cases on
Partnership, Agency and Trusts, 2010 ed., p. 102).
F.Obligation of Partner Who Receives Share in
Partnership Credit – Such partner is obliged, if the
debtor should become insolvent, to bring to the
partnership capital what he received even though he
may have given receipt for his share only (Art. 1793).
Requisites:
1. A partner has received, in whole or in part, his
share of a partnership credit
2. The other partners have not collected their shares
3. The partnership debtor has become insolvent.
Reason: When a debtor becomes insolvent, the debt
in favor of the partnership becomes a bad debt and is
a loss which must be borne by all the partners
(Tolentino, Civil Code of the Philippines, Volume V,
1992 ed., p.335).
Credit Collected After Dissolution
The collecting partner need not bring the same to the
partnership capital. Art. 1793 presupposes that there
exists a partnership capital. Upon dissolution of the
partnership and the return to each principal of what
he contributed, the community of interest between
them disappears altogether (De Leon, Comments
and Cases on Partnership, Agency and Trusts, 2010
ed., p. 104).
G. Obligation of Partner for Damages to Partnership –
Every partner is responsible to the partnership for
 damages suffered by it through his fault and he cannot
compensate them with the profits and benefits which he
may have earned for the partnership by his industry.
However, the courts may equitably lessen this
responsibility if through the partner’s extraordinary
efforts in other activities of the partnership, unusual
profits have been realized (Art. 1794).
Take note that liquidation of the business must first be
effected to know the extent of the damage (Tolentino,
Civil Code of the Philippines, Volume V, 1992 ed.,
p.335).
H. Duty to Render Information – Partners shall render on
demand true and full information of all things affecting
the partnership to any partner or the legal
representative of any deceased partner of any partner
under legal disability (Art. 1806).
Even without demand, honesty demands the giving of
vital information; the refraining from all kinds of
concealment (Paras, Civil Code of the Philippines,
Volume V, 2008 ed., p. 564).
I. Obligation to account for any benefit and hold as trustee
unauthorized personal profits – Every partner must
account to the partnership for any benefit, and hold as
trustee for it any profits derived by him without the
consent of the other partners from any transaction
connected with the formation, conduct, or liquidation of
the partnership or form any use by him of its property
(Art. 1807).
Note: The partner cannot use or apply to his own
benefit partnership assets or results of the knowledge or
information gained by him as a partner to the detriment
of the partnership.
Exception: If the taking by the partner is with the
consent of all the other partners (Lim Tanhu vs.
Ramolete, G.R. No. L-400098, August 29, 1975).
By information is meant that which can be used for
partnership purposes, it is in the sense of a property
which the partnership has a valuable right.
The duty to account continues until the partnership
relation is terminated, i.e. the winding up of partnership
affairs is completed. The words “and hold as trustee” in
Art. 1787 indicate that the partnership can claim as its
own any property or money that can be traced. Thus,
should the partner be insolvent, the partnership claim
against him is a claim to specific property. In this case,
the partnership is not regarded as an ordinary creditor.
RISK OF LOSS OF THINGS CONTRIBUTED
1. Specific and determinate things which are not fungible-
The risk of loss is borne by the partner because he
remains the owner of the things;
2. Specific and determinate things the ownership of which
is transferred to the partnership- The risk of loss is for
the account of the partnership, being the owner;
3. Fungible things- The risk of loss is borne by the
partnership since use is impossible without the things
being consumed or impaired;
4. Things contributed to be sold- The partnership bears
risk of loss for there cannot be any doubt that the
partnership was intended to be the owner; and
5. Things brought and appraised in the inventory- The
partnership bears the risk of loss because the intention
of the parties was to contribute to the partnership the
price of the things contributed with an appraisal in the
inventory. There is thus an implied sale.
RESPONSIBILITY OF THE PARTNERSHIP TO
PARTNERS
1. To refund amounts disbursed by the partner in behalf of
the partnership plus the corresponding interest from the
time the expenses are made. This refers to loans and
advances made by the partner other than capital.
2. To answer for the obligations the partner may have
contracted in good faith in the interest of the partnership
business
3. To answer for risks in consequence of management.
Note: The partner must be free from all fault and he acted
within the scope of his authority.
RULES FOR DISTRIBUTION OF PROFITS AND
LOSSES
1. Distribution of profits
a. According to their agreement (but not iniquitously to
defeat Art. 1797) subject to Art. 1799
b. If none,
i. Share of capitalist partner shall be in proportion to
his capital contribution
ii. Industrial partner shall receive such share, which
must be satisfied first before the capitalist partners
shall divide the profits, as may be just and
equitable
2. Distribution of losses
a. Same as 1.a
b. If none, according to their agreement as to profits
c. No profit agreement, in proportion to his capital
contribution.
General Rule: A stipulation excluding a partner from any
share in the profits or losses is VOID ( Art. 1799) Note that
the stipulation only is void but the partnership subsists and
 San Beda College of Law
2010 Centralized Bar Operations
the profits/losses shall be apportioned as if there was no
stipulation on the same.
Exception: Art. 1797(2) excludes an industrial partner from
losses, but he is NOT exempted from liability insofar as
third persons are concerned. He may, however, recover
what he has given to third persons from the other
partners, for he is exempted by law from losses.
Note: In general, LIABILITY refers to responsibility
towards third persons, and LOSSES refers to
responsibility as among partners.
Problem: Atoy and Joey are partners, the former being an
industrial partner. During the first year of operation, the
firm made a profit of P20K. In the second year of
operation, a loss of P10K was sustained. Should the
agreement state that Atoy would get ½ of the profits, how
much is he entitled to receive?
Answer: 5K. Take note that the net profit for the two years
is only 10K. While it is true that an industrial partner does
not share in the losses, this only means that he will not
share in the NET LOSSES. It is understood that he shares
in the losses insofar as these can be accommodated in
the profits (Paras, Civil Code of the Philippines, Volume
V, 2008 ed., p. 598).
Designation by a third person of share in profits and
losses: If agreed by the partners, 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 a third person, or who has not impugned the
same within a period of 3 months from the time he had
knowledge thereof, complain of such decision (Art. 1798).
MANAGEMENT OF PARTNERSHIP
I. When the manner of management has been provided
for in the partnership agreement
A.When a managing partner has been appointed
1. Appointment as manager in the Articles of
Partnership (Art. 1800)
a. Power is irrevocable without just or lawful cause
i. To remove him for JUST cause, vote of
partners having controlling interest is
necessary
ii. To remove him without just cause or for unjust
cause, there must be unanimity including his
own vote
Reason for (2): This represents a change in
the will of the parties, requiring unanimity
b. Extent of power
13
i. If he acts in good faith, he may perform all acts
of administration, despite opposition of his
partners
ii. If in bad faith, he cannot.
2. Appointment as manager AFTER the constitution of
the partnership
a. Power to act may be revoked at any time for any
cause whatsoever
Reason: Such appointment is a mere delegation
of power, revocable at any time. Removal,
however, should also be done by the controlling
interest.
b. Extent of power: as long as he remains
manager, he can perform all acts of
administration, but if others oppose and he
persists, he can be removed
Note: The partner generally is not entitled to
compensation although in proper cases, the law may
imply a contract for compensation.
B.When two or more managing partners have been
entrusted with the management (Art. 1801)
1. Without specification of their respective duties and
without stipulation that one of them shall not act
without the consent of all the others
General Rule: Each one may execute all acts of
administration
Exceptions: If any such partner should oppose,
a. Decision of the MAJORITY of the managing
partners shall prevail
b. In case of a tie, decision of the partners having
the CONTROLLING INTEREST shall prevail,
provided that they are also managers (Paras,
Civil Code of the Philippines, Volume V, 2008
ed., p. 601).
The right to oppose is not given to non-managers
because in appointing their other partners as
managers, they have stripped themselves of all
participation in the administration.
In case of an irreconcilable deadlock, those who
vote against the contract shall prevail, the same
having been entered into without authority.
2. With stipulation requiring unanimity ofaction (Art.
1802)
General rule: Unanimous consent of ALL the
managing partners (even if one of the managers is
 absent or incapacitated) shall be necessary for the
validity of the acts and absence or disability of any
managing partner cannot be alleged
Exception: When there is an imminent danger of
grave or irreparable injury to the partnership
Note: The requirement of previous approval applies
only to execution of formal contracts in writing and
not to routine transactions, such as ordinary
purchases and sales for a firm engaged in the
buying and selling merchandise of all kinds, which
naturally come within the scope of the general
authority of the manager of a business (Tolentino,
Civil Code of the Philippines, Volume V, 1992 ed.,
p.342).
II. When manner of management has not been agreed
upon (Art. 1803)
A.All partners shall be considered managers and
agents. (They shall have equal rights. Whatever any
one of them may do alone binds the partnership
subject to Art. 1801)
B.Unanimous consent required for any important
alteration of immovable property, even if it may be
useful to the partnership. But if the refusal of consent
by the other partners is manifestly prejudicial to the
interest of the partnership, the court’s intervention
may be sought.
Reason: In comparison with personalty, immovable
property is of greater importance. In a proper case,
immovables should be returned to partners in the
same condition as when they are delivered to the
partnership (Paras, Civil Code of the Philippines,
Volume V, 2008 ed., p. 605). Any important alteration
in the immovable property of the partnership is an act
of strict dominion.
“Alteration” contemplates useful expenses, not
necessary ones.
In case of conflict, the rules provided by Art. 1801
shall govern
CONTRACT OF SUB-PARTNERSHIP (Art. 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.
One formed between a member of a partnership and a
third person for a division of profits owing to him from the
partnership enterprise
It is a partnership within a partnership distinct and
separate from the main or principal partnership
The sub-partners are partner inter se. Not being a
member of the partnership, he does not acquire the rights
of a partner nor is he liable for its debts.
RIGHTS OF A PARTNER (PRA3ID)
1. Property rights of a partner (Art. 1810) (SIM)
a. Specific partnership property
Example: Atoy and Joey each contributed a car to the
partnership. The two cars are specific partnership
property.
b. Interest in the partnership
Example: The partner’s share of the profits and
losses (without mentioning any specific property)
c. Management participation
2. Right to Reimbursement for amounts advanced to the
partnership and to indemnification for risks in
consequence of management (Art. 1796)
3. Right to Associate with another person in his share (Art.
1804)
4. Right of Access and inspection of partnership books
(Art. 1805)
Note: The partnership books shall be kept, subject to
the agreement between the
5. Right to true and full Information of all things affecting
the partnership (Art. 1806)
6. Right to a formal Account of partnership affairs under
certain circumstances (Art. 1809) (WAPO)
a. If he is wrongfully excluded from the partnership
business or possession of its property by his co-
partners;
b. If the right exists under the terms of any agreement;
c. If a partner has derived profits from any transaction
connected with the formation, conduct, or liquidation
of the partnership or from any use by him of its
property; or
d. Whenever other circumstances render it just and
reasonable. (e.g. if a partner has been assigned
abroad for a long period of time in connection with
partnership business)
Note: As long as the partnership exists, any of the
partners may demand an accounting of the
partnership business. Prescription of the said right
starts to run only upon the dissolution of the
partnership when the final accounting is done (Emilio
 San Beda College of Law
2010 Centralized Bar Operations
Emnace v. Court of Appeals. G.R. No. 126334,
November 23, 2001).
It is a personal action which may be commenced and
tried where the defendant resides or may be found, or
where the plaintiff resides, at the election of the latter.
7. Right to have partnership Dissolved under certain
conditions.
PROPERTY RIGHTS OF A PARTNER
1. Right to specific property (Art. 1811)
a. Contemplates tangible property
b. The specific partnership property belongs to the
partnership. The partners have no actual interest in it
until after dissolution.
c. The right over a specific partnership property is not
subject to attachment or execution except if the
based on a claim against the partnership itself.
A partner is co-owner with his partners of specific
partnership property.
Incidents of this co-ownership: (RAEL)
a. Equal right with other partners to possess specific
partnership property for partnership purposes
b. Not assignable, except in connection with the
assignment of rights of all partners in the same
property
c. Not subject to attachment or execution, except on a
claim against the partnership
d. Not subject to legal support
Reason: The property belongs to the partnership and
not to the partners. His interest in the partnership,
however, is subject to legal support.
Note: Any immovable property or an interest therein
may be acquired in the partnership name. The title
so acquired may be conveyed only in the partnership
name subject to the provisions of Article 1819 of the
Civil Code.
Partnership Capital and Partnership Property
distinguished
Partnership Capital Partnership Property
Susceptibility to change in value
Its value is constant. It is Its value varies from time
not affected by fluctuations to time in accordance
in the value of the property. with the fluctuations of
the market value of the
partnership assets.
Extent
15
It includes only the actual It includes not only the
capital contributed and original capital
promised to the contributed but also all
partnership. property subsequently
acquired on account of
the partnership.
Note: A partner’s interest in partnership property is
assignable under Art. 1840.
2. Interest in the partnership
a. A partner’s interest in the partnership is his share of
the profits and surplus. (Art. 1812)
b. Share in the profits (excess of returns over
expenditures in a transaction or series of
transactions) and surplus (assets of the partnership
after partnership liabilities are paid and the rights of
the partners among themselves are adjusted)
c. A partner’s interest is not a debt due from
partnership.
Effects of assignment of partner’s whole interest in the
partnership (Art. 1813)
A conveyance by a partner of his whole interest in the
partnership does not of itself dissolve the partnership.
Assignee does not necessarily become a partner. He
cannot:
a. Interfere in the management or administration
b. Require information and accounting
c. Inspect the partnership books
But the assignee is entitled to the following rights:
a. To receive in accordance with his contract the profits
which the assigning partner would otherwise be
entitled.
b. To avail himself of the usual remedies provided by
law in event of fraud in management
c. To receive the assignor’s interest in case of
dissolution
d. To require an account of partnership affairs but ONLY
in case the partnership is dissolved, and such
account shall cover the period from the date only of
the last account agreed to by all the partners
Remedies of separate judgment creditor of a partner (Art.
1814)
Charging order
Without prejudice to the preferred rights of partnership
creditors under Art. 1827, on due application of a partner,
the court which rendered the judgment, or any other court,
may charge the interest of the debtor partner with
payment of the unsatisfied amount of such judgment debt
with interest thereon;

And may then or later appoint a receiver of his share of
the profits, and of any other money due or to fall due to
him in respect of the partnership, and make all other
orders, directions, accounts and inquiries which the debtor
partner might have made, or which circumstances of the
case may require.
The interest charged may be redeemed at any time before
foreclosure, or in case of a sale being directed by the
court, may be purchased without thereby causing a
dissolution:
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 with the consent of all the partners whose
interests are not so charged or sold.
The partner shall not be deprived of his right under the
exemption laws, as regards his interest in the
partnership.
Example: Joe and Gil are partners. Joe personally owes
Flor a sum of money. Flor sues Joe and obtains a final
judgment in his favor. However, Joe has no money. Flor
may go to the same court (or any other court possessed
of jurisdiction) and ask that Joe’s interest the
partnership be “charged” for the payment to her of
whatever has not been paid by him with interest thereon
(Paras, Civil Code of the Philippines, Volume V, 2008
ed., p. 624).
Take note, however, that partnership creditors are
entitled to priority over partnership assets.
Redemption of interest charged (Art. 1814)
1. General partnership
a. With separate property of a partner; or
b. With partnership property, with the consent of all the
partners whose interests are not so charged or sold
2. Limited partnership (limited partner)
With separate property of any general partner but NOT
with partnership property
3. Right to participate in the management
FIRM NAME (Art 1815)
Every partnership shall operate under a firm name, which
may or may not include the name of one or more of the
partners.
Persons who, not being partners, include their names in
the firm name do not acquire the rights of a partner, but
under Art. 1815, they shall be subject to the liability of a
partner insofar as third persons without notice are
concerned. Such persons become partners by estoppel
(De Leon, Comments and Cases on Partnership, Agency
and Trusts, 2010 ed., p. 169).
General Rule: The partners any firm name desired.
Exception: They cannot use a misleading name i.e. that
which is identical or deceptively confusingly similar to that
of any existing partnership or corporation or to any other
name already protected by law or is patently deceptive or
confusingly similar to existing laws.
Use of names of deceased partners
The continued use of the name of a deceased partner is
permissible provided that the firm indicates in all its
communications that said partner is deceased.
OBLIGATIONS OF PARTNERS TO THIRD PERSONS
A.Liability for contractual obligations (Arts. 1816)
1. All partners, including industrial partners, are
personally liable with all their property. Their
individual liability is pro rata and subsidiary, unless
otherwise stipulated
After all partnership assets have been exhausted,
pro-rating is based on the number of partners and not
on the amount of their contributions to the common
fund, subject to adjustment among the partners (De
Leon, Comments and Cases on Partnership, Agency
and Trusts, 2010 ed., p. 170).
Note: Stipulation against liability laid down in Art.1816
shall be VOID except as among the partners (Art.
1817).
Article 1799 provides “A stipulation which excludes
one or more partners from any share in the profits or
losses is void”. Whereas, under Article 1817 the
partners, may stipulate among themselves that a
partner may be exempted from liability.
Reconciliation:
a. Justice Paras opined that insofar as capitalist
partners are concerned, it is permissible to stipulate
among them that a capitalist partner will be
exempted from liability IN EXCESS of the original
capital contributed; but will not be exempted insofar
as his capital is concerned.
b. The exemption of the industrial partner to pay
losses relates exclusively to the settlement of the
partnership affairs among the partners themselves
and has nothing to do with the liabilities of the
partners to third persons. Art. 1816 refers to
“liabilities” while Art. 1797 speaks of “losses”. There
is therefore no conflict between the two articles.
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(De Leon, Comments and Cases on Partnership,
Agency and Trusts, 2010 ed., p. 173).
2. Liability of partnership for acts of partners (Art. 1818)
a. Acts for apparently carrying on in the usual way the
business of the partnership
General Rule: Every partner is an agent of the
partnership. Act binds the partnership.
Exception: Partnership is not bound if:
i. Acting partner has in fact no authority and
ii. The third person knows that the acting partner
has no authority
b. Acts of Strict Dominion or Ownership
General Rule: Act does not bind the partnership.
Exception: Partnership is bound if:
i. The act is authorized by all the partners; or
ii. They have abandoned the business
c. Acts in contravention of a restriction on authority
Partnership is not liable to third persons having
actual or presumptive knowledge of the restrictions,
whether or not the acts are for apparently carrying
on in the usual business of the partnership.
One or more but less than all partners have no authority
to: (AGO-CESR)
1. Assign the partnership property in trust for creditors or
on the assignee’s promise to pay the debts of the
partnership.
Reason: the firm will be virtually dissolved.
2. Dispose of the Goodwill of the business
Reason: Goodwill is a valuable property.
3. Do any other act which would make it impossible to
carry on the Ordinary business of a partnership
Reason: This is evidently prejudicial tothe partnership.
4. Confess a judgment
Reason: If done before a case is filed, null and void; if
done later, the firm will be jeopardized.
5. Enter into a compromise concerning a partnership claim
or liability
Reason: This is an act of ownership and may be
equivalent to alienation.
6. Submit a partnership claim or liability to arbitration
Reason: This is also an act of ownership.
17
7. Renounce a claim of the partnership
Reason: How can a partner renounce a claim that does
not belong to him.
CONVEYANCE OF PROPERTY BELONGING TO
PARTNERSHIP (Art. 1819)
1. Title in partnership name, conveyance in partnership
name – the conveyance passes title to the property but
the partnership can recover the property unless (a) the
conveyance was in the usual way of business, or (b) the
buyer had no knowledge of the fact that the partner with
whom he is dealing has no authority or unless such
property has been conveyed by the grantee or a person
claiming through such grantee to a holder for value
without knowledge that the partner in making the
conveyance, has exceeded his authority
2. Title in partnership name, conveyance in partner’s
name – Buyer gets only the equitable interest of the
partnership provided the act is one with authority of the
partner and is in the usual course of business of the
partnership.
3. Title in name of one or more partners, conveyance in
name of partner or partners in whose name title stands
and the records does not disclose the right of the
partnership – passes title to the property but the
partnership may recover. The effect is same in
paragraph 1.
4. Title in the name of one or more or all partners, or in a
third person in trust for the partnership, conveyance in
partnership name or in a partner’s name- passes the
equitable interest provided the act is one with authority
of the partner and is in the usual course of business of
the partnership.
5. Title in name of all partners, conveyance in name of all
partners – passes title to the property.
ADMISSION BY A PARTNER
An admission or representation made by any partner
concerning partnership affairs within the scope of his
authority in accordance with this Title is evidence against
the partnership (Art. 1820).
Note: The above article is an EXCEPTION to the general
rule that a person is not bound by the act, admission,
statement, or agreement of another of which he has no
knowledge or to which he has not given his consent.
Before the partnership could be charged, its existence
should be proved.
INSTANCES WHERE KNOWLEDGE OF A PARTNER IS
CONSIDERED KNOWLEDGE OF THE PARTNERSHIP
1. Knowledge of the partner acting in the particular matter
acquired while a partner;
2. Knowledge of the partner acting in the particular matter
then present to his mind;
3. Knowledge of any other partner who reasonably could
and should have communicated it to the acting partner.
Note: Such knowledge operates as notice to or
knowledge of the partnership except in case of fraud on
the partnership, committed by or with the consent of
that partner.
4. Liability arising from partner’s tort or Breach of Trust
(Arts. 1822-23)
a. Where, by any wrongful act or omission of any
partner acting in the ordinary course of business of
the partnership or with authority of his co-partners,
loss or injury is caused to a non-partner or any
penalty is incurred.
b. Where one partner, acting within the scope of his
apparent authority, receives money or property of a
third person and misapplies it
c. Where the partnership, in the course of its business,
receives money or property and it is misapplied by
any partner while it is in the custody of the former.
Note: All partners are solidarily liable with the
partnership for any penalty or damage arising from a
partnership tort or breach of trust (Art. 1824). This is
an exception to Art. 1816.
The rule of respondeat superior (also called the rule
of vicarious liability) applies to the law of partnership
in the same manner as other rules governing the
agency relationship.
It is not only the partners are liable in solidum; it is
also the partnership (Art. 1824). The injured party
may proceed against the partnership or any partner,
Requisites of Art. 1822: (GOLAP)
1. The partner must be guilty of a wrongful act or
omission; and
2. He must be acting in the ordinary course of business or
with the authority of his co-partners even if the act is
unconnected with the business.
3. Loss or injury is suffered by a third person as a result of
the wrongful act or omission
4. The aggrieved third person is not a partner in the firm
5. There is no pre-existing contract between the
partnership and the third person; if there is, but it was
grossly and deliberately violated, this itself constitutes
quasi-delict.
Criminal Liability for criminal acts
A non-acting partner in a partnership engaged in a lawful
business is not criminally liable for the criminal acts of
another partner but he is criminally liable if the partnership
is involved in an unlawful enterprise with his knowledge or
consent.
MUTUAL AGENCY
Partnership is a contract of “mutual agency”; each partner
acts as a principal on his own behalf, and as an agent of
his co-partners and the partnership.
Principle of Delectus Personarum
A rule inherent in partnership wherein no one can become
partner without the consent of all the partners.
Requisites when a Partner Binds the Partnership
1. When he is expressly or impliedly authorized
2. When he acts in behalf and in the name of the
partnership
PARTNERSHIP BY ESTOPPEL
Arises when a person by any means represents himself or
consents to another representing him to anyone, as
partner in an existing partnership, or with one or more
persons not actual partners; he is liable to any such
person to whom such representation has been made, who
has, on the faith of such representation given credit to the
actual or apparent partnership (Art 1825).
If he has made such representation or consented to its
being made in a public manner, he is liable to such person
whether the representation has or has not been made or
communicated to such person so giving credit or with the
knowledge or the apparent partner making the
representation or consenting to its being made.
A person not a partner may become a partner by estoppel
and thus liable to third persons as if he were a partner
when by words or by conduct he:
1. Directly represents himself to anyone as a partner in an
existing partnership or in a non-existing partnership
(with one or more persons not actual partners); or
2. Indirectly represents himself by consenting to another
representing him as a partnership in an existing
partnership or in a non-existing partnership.
PARTNERSHIP LIABILITY
1. When partnership liability results – If all actual partners
consented to the representation, it is considered a
partnership liability. This is a case of a partnership by
estoppel.
2. When liability pro rata – when there is no existing
partnership and all those represented as partners
consented to the representation, or not all of the
partners of an existing partnership consented to the
 San Beda College of Law
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representation, the liability of all those who made and
consented to the representation is joint.
3. When liability separate – when there is no existing
partnership and not all but only some of those
represented as partners consented to the
representation, or none of the partners in an existing
partnership consented to such representation.
Note: Art. 1825 does not create a partnership as between
the alleged partners. The law only considers them
partners and the association as a partnership insofar as it
is favorable to third persons. However, partnership
liability is created only in favor of persons who on the faith
of such representation given credit to the partnership.
No preference is given to creditors who relied on the
existence of the fictitious partnership (Paras, Civil Code of
the Philippines, Volume V, 2008 ed., p. 652).
The question of liability is not what the parties intended
but whether third persons had a right to rely on their joint
credit.
Elements to establish liability as a partner on ground of
estoppel:
1. Proof by plaintiff that he was individually aware of the
defendant’s representations or that such
representations were made by others and not denied or
refuted by defendant
2. Reliance on such representations by the plaintiff
3. Lack of any denial or refutation of the statements by the
defendant.
Note: All persons who assume to act as a corporation
knowing it to be without authority to do so shall be liable
as general partners for all debts, liabilities, and damages
incurred or arising as a result thereof (Sec. 21,
Corporation Code)
LIABILITY OF INCOMING PARTNER FOR
PARTNERSHIP OBLIGATIONS (Art. 1826)
Liability is limited to his share in partnership property for
existing obligations but this liability extends to his separate
property for subsequent obligations.
Note: When the incoming partner has assumed the
obligation of retiring partner, he is liable directly to the old
partnership if the assumption was made primarily to
benefit the form creditors. This is because he partakes of
the benefits o the partnership property and an established
business.
PREFERENCE OF PARTNERSHIP CREDITORS IN
PARTNERSHIP PROPERTY
19
With respect to partnership assets, the partnership
creditors are entitled to priority of payment. However, the
private creditors of each partner may ask the attachment
and public sale of the share of the latter in the partnership
assets.
The purchaser at a public sale does not become a
partner.
D ISSOLUTION
Change in the relation of the partners caused by any
partner ceasing to be associated in carrying on the
businessp (Art. 1828).
Note: The dissolution of a partnership must not be
understood in the absolute and strict sense so that at the
termination of the object for which it was created the
partnership is extinguished (Testate of Mota v. Serra.
G.R. No. L-22825, February 14, 1925).
Dissolution does not automatically result in the termination
of the legal personality of the partnership, nor the relations
of the partners among themselves who remain as co-
partners until the partnership is terminated.
The partnership, although dissolved, continues to exist
until its termination, at which time the winding up of its
affairs should have been completed and the net
partnership assets are partitioned and distributed to the
partners (Ortega, et al. v. CA. et al., G.R. No. 109248,
July 3, 1995).
Winding Up
Process of settling the partnership business or affairs after
dissolution.
Termination
Point in time when all partnership affairs are wound up or
completed and is the end of the partnership life.
On dissolution, the partnership is not terminated, but
continues until the winding up of partnership affairs is
completed (Art. 1829).
CAUSES OF DISSOLUTION
A.EXTRAJUDICIAL dissolution (Art. 1830) - the parties
may agree to expand the grounds provided under Art
1830 but NOT to delimit them.
Causes:
1. WITHOUT violation of the agreement between the
partners:
 a. By the TERMINATION of the definite term or
particular undertaking specified in the agreement;
b. By the EXPRESS WILL OF ANY PARTNER, who
must act in good faith, when no definite term or
particular undertaking is specified;
Note: If the partner insists in leaving the partnership
in bad faith, the firm is dissolved, but he may be
responsible for damages
c. By the EXPRESS WILL OF ALL the partners who
have NOT assigned their interests or suffered them
to be charged for their separate debts, either
BEFORE OR AFTER the termination of any
specified term or particular undertaking;
The agreement must be unanimous. Majority alone
cannot dissolve the partnership without breach of
contract (De Leon, Comments and Cases on
Partnership, Agency and Trusts, 2010 ed., p. 218).
d. By the EXPULSION OF ANY PARTNER from the
business bona fide in accordance with such a
power conferred by the agreement between the
partners
If a partner is expelled in bad faith, there can also
be eventual dissolution as there would be apparent
lack of confidence, without prejudice to the liability
for damages
2. In CONTRAVENTION OF THE AGREEMENT
between the partners, where the circumstances do
not permit a dissolution under any other provision of
this article, by the express will of ANY partner at any
time;
This may be made even though the partnership was
entered for a definite term or particular undertaking.
The withdrawing partner shall be liable for damages
for unjustified dissolution. It is a power and not
necessarily a right to dissolve a partnership.
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;
Take note, however, that if the business or the object
had been unlawful from the very beginning, the firm
never had juridical personality.
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
loss of the thing when it occurs AFTER the
partnership has acquired the ownership thereof;
Reason: The partnership is dissolved because the
partner has NOT or is deemed to have not given his
contribution.
5. By the DEATH of any partner;
6. By the INSOLVENCY of any partner or of the
partnership;
Note: By the insolvency of the partner, his credit is
impaired, it would be impossible for him to pay for
partnership liabilities in case the partnership assets
have been exhausted. Insolvency of the partnership
results to inability to continue the business which
practically amounts to dissolution.
7. By the CIVIL INTERDICTION of any partner;
One who is without capacity to manage his own
property should not be allowed to manage
partnership property
8. By DECREE OF COURT under Art. 1831 (Art.1830)
B.JUDICIAL dissolution (Art. 1831) - when so decreed by
the court, the presiding judge may place the partnership
under receivership and direct an accounting to be made
towards winding up the partnership affairs.
The court shall decree dissolution, on application by or for
a partner, whenever: (BI2LGO)
1. A partner willfully or persistently commits a breach of
the partnership agreement, or otherwise conducts
himself in matters relating to the partnership
business0d3 that it is not reasonably practicable to
carry on the business in partnership with him;’
Reason: They defeat and materially affect and obstruct
the purpose of the partnership.
2. A partner has been declared insane in any judicial
proceeding or is shown to be of unsound mind;
Note: The partner may have been previously declared
insane in a judicial proceeding; otherwise, his insanity
must be duly proved. It must materially affect the
capacity of partner to perform his contractual duties as
such.
3. A partner becomes in any other way incapable of
performing his part of the partnership contract;
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Note: The incapacity must be lasting, from which the
prospect of recovery is remote.
4. The business of the partnership can only be carried on
at a loss;
5. A partner has been guilty of such conduct as tends to
affect prejudicially the carrying on of the business;
6. Other circumstances render that dissolution equitable.
Reason for necessity of court decree: In the instances
mentioned in Art. 1831, the facts may be so far open to
dispute as to make a necessary judicial determination
as to dissolution rather than allow them to be the
occasion for automatic dissolution by operation of law
(De Leon, Comments and Cases on Partnership,
Agency and Trusts, 2010 ed., p. 245).
2. With respect to third persons:
On the application of the purchaser of a partner’s interest:
1. After the termination of the specified term or particular
3. The partnership is generally bound by new contract
undertaking
2. At any time if the partnership was a partnership at will
when the interest was assigned or when the charging
order was issued.
EFFECTS OF DISSOLUTION
A.As to partner’s authority to act for the partnership
General Rule: Dissolution terminates all authority of any
partner to act for the partnership
Exceptions:
1. Acts necessary to wind up partnership affairs
2. Acts necessary to complete transactions begun but
unfinished
Qualifications to the General Rule:
1. With respect to the partners (in so far as partners are
concerned):
a. Dissolution is not by act, insolvency or death (AID)
of a partner: General Rule applies. Hence,
dissolution terminates the ACTUAL authority of a
partner to undertake NEW business for the
partnership (Art. 1832);
b. Dissolution is by act, insolvency or death of a
partner: Authority of partners inter se to act for the
partnership is NOT deemed terminated when the
dissolution is caused by the act, death, or
insolvency of partner. Thus, each partner is liable
to his co-partners for his share of any liability
created by any partner acting for the partnership as
if the partnership has not been dissolved.
Exceptions to letter b (Art. 1833):
21
i. The cause of dissolution is the ACT of a partner
and the acting partner had KNOWLEDGE of
such dissolution
ii. The cause of dissolution is the DEATH or
INSOLVENCY of a partner and the acting partner
had KNOWLEDGE or NOTICE of such
dissolution
Note: A person has knowledge of a fact not only
when he has actual knowledge but also when has
knowledge of such other facts as in circumstances
show bad faith. A person has notice of a fact when
the person who claims the benefit of notice (1)
states the fact to such person, or (2) delivers
through the mail or other means a written statement
of the fact to such person or to a proper person at
his place or business or residence.
although authority if acting partner is already
deemed terminated but the innocent partners can
recover from the guilty partners.
a. When partnership is bound to third persons after
dissolution (Art. 1834)
i. Act appropriate for winding up partnership
affairs
ii. Act for completing unfinished transactions
iii. Completely NEW transaction which would
bind the partnership if dissolution had not
taken place provided: the other party is in
good faith, meaning:
1. Previous creditor (had previously extended
credit) AND he had NO KNOWLEDGE or
NOTICE of the dissolution;OR
2. NOT a previous creditor AND the fact of
dissolution had not been published in a
newspaper of general circulation
b. When partnership is NOT bound to third persons
after dissolution
i. Where partnership was dissolved because it
was unlawful to carry on the business, except
when the act is for winding up
ii. Where the acting partner in the transaction
has become insolvent
iii. Where the partner is unauthorized to wind up,
except if the transaction is with third persons
in good faith (same circumstances as defined
above)
iv. Where act is NOT appropriate for winding up
or for completing unfinished transactions
 v. Completely NEW transaction which would 2. Dissolution is in contravention of the partnership
bind the partnership if dissolution had not agreement
taken place with third persons in bad faith a. Rights of a partner who has not caused the
dissolution wrongfully
Notice of Dissolution to creditors i. To have partnership property applied to discharge
1. Person had extended credit prior to dissolution – partnership liabilities
they must have knowledge or notice of dissolution. ii. To receive in cash his share of the surplus
2. Persons who had known of partnership existence – iii. To be indemnified for damages caused by the
publication is sufficient. partner guilty of the wrongful dissolution
iv. To continue the business in the same name during
Character of notice the agreed term of the partnership, by themselves
1. Prior dealer – notice must be actual. A prior dealer or jointly with others
is one who has extended credit on the faith of the v. To possess partnership property should they
partnership, through confidence in the solvency decide to continue the business
and probity of the partnership. b. Rights of a partner who has wrongfully caused the
2. Others – publication is sufficient. dissolution
i. Business is not continued by the other partners
Note: Dormant partner need not give notice. 1. To have partnership property applied to
discharge partnership liabilities
B.As to partner’s existing liability (Art. 1835)
2. To receive in cash his share of the surplus less
damages caused by his wrongful dissolution
General Rule: Dissolution does not automatically
discharge the existing liability of any partner
ii. Business is continued
1. To have the value of his interest in the
Exception: A partner may be relieved from all existing
partnership at the time of the dissolution, surplus
liabilities upon dissolution ONLY by an agreement
less damages caused by his wrongful dissolution
between:
to his co-partners, ascertained and paid in cash
1. Partner concerned
or secured by a bond approved by the court;
2. Other partners
2. To be released from all existing and future
3. Partnership creditors
liabilities
The individual property of a deceased partner shall be
Note: The value of the goodwill of the business is not
liable for all obligations of the partnership incurred
considered in ascertaining the value of the interest of the
while he was a partner, subject to prior payment of
guilty partners. Goodwill may be defined as the advantage
his separate debts.
which it has from its establishment or from the patronage
of its customers, over and above the mere value of its
Note: The consent of the creditors and partners to the
property and capital.
novation may be implied from their conduct.
Rights of a partner where partnership contract is
RIGHTS OF A PARTNER UPON DISSOLUTION (Art.
rescinded on the ground of fraud or misrepresentation
1837)
(Art. 1838): (LIS)
1. Dissolution is not in contravention of the partnership
1. Right of lien on, or retention of, the surplus of
agreement
partnership property after satisfying partnership
a. Have partnership property applied to discharge
liabilities for any sum of money paid or contributed by
partnership liabilities
him
b. Receive in cash his share of the surplus
2. Right of subrogation in place of the partnership creditors
after payment of partnership liabilities; and
Note: When dissolution is caused by expulsion, expelled
3. Right of indemnification by the guilty partner against all
partner may be discharge from all partnership liability in
debts and liabilities of the partnership
the same manner as above but he shall receive in cash
only the net amount due him from the partnership.
Until the partnership is annulled by a proper action in
court, the partnership relation exists.
If dissolution is proper, no partner is liable for any loss
sustained as a result of the dissolution.
MANNER OF WINDING UP
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1. Extrajudicial – by the partners themselves without the
intervention of the court
2. Judicial – under the control and direction of the court
upon proper cause shown by any partner, his legal
representative or his assignee
Persons Authorized to Wind Up (Art. 1836)
1. Partners designated by the agreement
2. In the absence of such agreement, all partners who
have not wrongfully dissolved the partnership
3. Legal representative of last surviving partner not
insolvent
Powers of Liquidating Partner
1. Make new contracts but mere for liquidation purposes.
2. Raise money to pay partnership debts
3. Incur obligations to complete existing contracts or
preserve partnership assets.
4. Incur expenses necessary in the conduct of litigation.
Assets of the Partnership (Art. 1839 (1))
1. Partnership property
2. Contributions of the partners necessary for the payment
of al liabilities.
Order of Payment in Winding Up (Art. 1839 (2))
1. Those owing to creditors other than partners
2. Those owing to partners other than for capital or profits
3. Those owing to partners in respect of capital
4. Those owing to partners in respect of profits
The partners shall contribute the amount necessary to
satisfy the liability.
An assignee for the benefit of creditors or any person
appointed by the court shall have the right to enforce the
contributions above specified.
Any partner or his legal representative shall have the right
to enforce the contributions specified above, to the extent
of the amount which he has paid in excess of his share of
the liability.
The individual property of deceased partner shall be liable
for the contributions above.
Partnership creditors shall have priority on partnership
property and separate creditors on individual property,
saving the rights of lien or secured creditors.
Doctrine of Marshaling of Assets (Art. 1839(9))
1. Partnership creditors have preference in partnership
assets
2. Separate or individual creditors have preference in
separate or individual properties
23
3. Anything left from either goes to the other
DISSOLUTION OF PARTNERSHIP BY CHANGE IN
MEMBERSHIP (Art. 1840)
The creditors of the old partnership are also creditors of
the continued partnership after dissolution when:
1. When any new partner is admitted into an existing
partnership, or when any partner retires and assigns (or
the representative of the deceased partner assigns) his
rights in partnership property to two or more of the
partners, or to one or more of the partners and one or
more third persons, if the business is continued without
liquidation of the partnership affairs;
2. When all but one partner retire and assign (or the
representative of a deceased partner assigns) their
rights in partnership property to the remaining partner,
who continues the business without liquidation of
partnership affairs, either alone or with others;
3. When any partner retires or dies and the business of
the dissolved partnership is continued as set forth in
Nos. 1 and 2 of this article, with the consent of the
retired partners or the representative of the deceased
partner, but without any assignment of his right in
partnership property;
4. When all the partners or their representatives assign
their rights in partnership property to one or more third
persons who promise to pay the debts and who
continue the business of the dissolved partnership;
a. When any partner wrongfully causes a dissolution
and the remaining partners continue the business
under the provisions of article 1837, second
paragraph, No. 2, either alone or with others, and
without liquidation of the partnership affairs;
b. When a partner is expelled and the remaining
partners continue the business either alone or with
others without liquidation of the partnership affairs.
5. The liability of a third person becoming a partner in the
partnership continuing the business, under this article,
to the creditors of the dissolved partnership shall be
satisfied out of the partnership property only, unless
there is a stipulation to the contrary.
6. When the business of a partnership after dissolution is
continued under any conditions set forth in this article
the creditors of the dissolved partnership, as against the
separate creditors of the retiring or deceased partner or
the representative of the deceased partner, have a prior
right to any claim of the retired partner or the
representative of the deceased partner against the
person or partnership continuing the business, on
account of the retired or deceased partner's interest in
the dissolved partnership or on account of any
consideration promised for such interest or for his right
in partnership property.
Nothing in this article shall be held to modify any right of
creditors to set aside any assignment on the ground of
fraud.
The use by the person or partnership continuing the
business of the partnership name, or the name of a
deceased partner as part thereof, shall not of itself make
the individual property of the deceased partner liable for
any debts contracted by such person or partnership.
Continuation of Partnership without liquidation
The remaining partners (and/or new partners) may
continue the business by simple taking over the business
enterprise and continuing the use of the old name.
The creditors of the dissolved and new partnership were
given equal rights in partnership property.
The creditors of dissolved partnership have an equitable
lien on the consideration paid to the retiring or deceased
partner by the purchaser (new partner) thereof.
When a corporation deemed a mere continuation of prior
partnership, the weight of authority supports the view that
such corporation is presumed to have assumed
partnership debts and is prima facie liable thereof.
However, when said obligation is of extraordinary value,
and the company was brought out not to continue its
business but to stop its operation in order to eliminate
competition, it cannot be said that the vendee assumed all
the obligations of the rival company (Phil. Airlines, Inc. vs.
Balinguit, 99 Phil. 486)
Art. 1840 treats more of a commercial partnership with
goodwill to protect rather than professional partnerships
with no saleable goodwill but whose reputation depends
on the personal qualifications of the individual members
(De Leon, Comments and Cases on Partnership, Agency
and Trusts, 2010 ed., p. 268).
RIGHTS OF RETIRING, OR OF ESTATE OF DECEASED
PARTNER WHEN BUSINESS IS CONTINUED (Art.
1841)
1. Have the value of the interest of the retiring or
deceased partner ascertained as of the date of
dissolution, i.e. retirement or death
2. Receive, as an ordinary creditor, an amount equal to his
share to the value of his share in the dissolved
partnership with interest, or, at his option, in lieu of
interest, the profits attributable to the use of his right.
Note: If the surviving partners continue the business
without the consent of the deceased partner’s estate, they
do so without any risk to the estate, if the estate consents,
it, in effect becomes a new partner and would be
answerable for all debts and losses after the death but
only to the extent of the decedent’s share in the
partnership’s assets (De Leon, Comments and Cases on
Partnership, Agency and Trusts, 2010 ed., p. 269).
PARTNER’S LIEN
Right of every partner to have the partnership property
applied to discharge partnership liabilities AND to have
the surplus assets, if any, distributed in cash to the
respective partners, after deducting what may be due to
the partnership from them as partners.
Note: Art. 1842 speaks of accounting to be done upon
dissolution of the partnership, while Art. 1809 refers to a
demand for accounting before dissolution by reason of the
circumstances mentioned in the article.
Persons liable to render an account
1. The winding up partners
2. The surviving partner
3. The person or partnership continuing the business.
Liquidation necessary for determination of partner’s share
1. Share in the profits
2. Share in the partnership
Note: No liquidation is necessary when there is already a
settlement or agreement as to what he shall receive (De
Leon, Comments and Cases on Partnership, Agency and
Trusts, 2010 ed., p. 273).
L IMITED P ARTNERSHIP
One formed by two or more persons having as members
one or more general partners and one or more limited
partners, the latter not being personally liable for
partnership debts (Art. 1843).
CHARACTERISTICS OF A LIMITED PARTNERSHIP
(C3RD)
1. Formed by substantial compliance in good faith with the
statutory requirements
2. One or more general partners control the business and
are personally liable to creditors
3. One or more limited partners contribute to the capital
and share in the profits but do not participate in the
management of the business and are not personally
liable for partnership obligations beyond the amount of
their capital contributions
4. The limited partners may ask for the return of their
capital contributions under the conditions prescribed by
law
5. The partnership debts are paid out of the common fund
and the individual properties of the general partners.
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2010 Centralized Bar Operations
ESSENTIAL REQUIREMENTS FOR THE FORMATION
OF A LIMITED PARTNERSHIP
1. A certificate or articles of limited partnership which
states the matters enumerated IN ARTICLE 1844,
which must be signed and sworn; and
2. Such certificate must be filed for record in the Office of
the Securities and Exchange Commission.
Note: A strict compliance with the legal requirements is
not necessary. It is sufficient that there is substantial
compliance in good faith (Jo Chun v. Pacific Commercial
Co. GR No. 19892. September 6, 1923).
However, a firm which fails to substantially comply with
the formal requirements of a limited partnership is a
general partnership only as to its relations to third
persons. The firm is a limited partnership, subject to all
rules applicable to such partnership; and as between the
partners they are bound by their agreement; and that all
the limited partner’s relations to his co-partners and their
obligations to him growing out of the relation remain
unimpaired.
A limited partnership cannot be constituted orally.
A partnership transacting business is, prima facie, a
general partnership and those who seek to avail
themselves of the protection of laws permitting the
creation of limited partnerships must show due
compliance with such laws.
A partnership cannot be a limited partner (De Leon,
Comments and Cases on Partnership, Agency and
Trusts, 2010 ed., p. 286).
Contributions of a limited partner: CASH or OTHER
PROPERTY, but NOT SERVICES (Art. 1845).
A check may be treated as an actual payment in cash
where the limited partner has money actually in the bank
to his credit, and he gives the general partner absolute
and final of the amount named therein, e.g. certified check
(De Leon, Comments and Cases on Partnership, Agency
and Trusts, 2010 ed., p. 287).
STATUS OF PARTNER WHERE THERE IS FAILURE TO
CREATE A LIMITED PARTNERSHIP
The one who has contributed to the capital erroneously
believing that he has become a limited partner in a limited
or general partnership is exempted from liability as a
general partner (Art. 1852).
Conditions for exemption from liability:
25
1. On ascertaining the mistake, he promptly renounces his
interest in the profits of the business or other
compensation by way of income (before the partnership
has become liable to third persons)
2. His surname does not appear in the partnership name
3. He does not participate in the management of the
business.
Note: An heir of a deceased partner ordinarily becomes a
limited partner for his own protection but he may elect to
become a general partner.
A partner may be a general partner and a limited partner
in the same partnership at the same time, provided that
this fact shall be stated in the certificate provided for in
Article 1844 (Art. 1853).
SURNAME of a limited partner shall not appear in the
partnership name unless:
1. It is also the name of a general partner, or
2. Prior to the time when the limited partner became
such, the business had been carried on under a name
in which his surname appeared (Art. 1846).
Violation of such will make the limited partner liable to
partnership creditors without, however, the rights of a
general partner.
LIABILITY FOR FALSITY IN CERTIFICATE
Requisites:
1. He knew the statements to be false at the time he
signed the certificate, or subsequently, but having
sufficient time to cancel or amend it or file a petition for
its cancellation or amendment.
2. The person seeking to enforce liability has relied upon
the false statement in transacting business with the
partnership; and
3. The person suffered loss as a result of reliance upon
false statement.
A limited partner contributing greater than that specified is
not liable for making a false statement.
A limited partner shall not be liable as a general partner,
unless he takes part in the control of the business. (Art.
1848) The limited partner takes part in the management of
the business if e.g. the business is carried on by board of
directors chosen by the limited partners (De Leon,
Comments and Cases on Partnership, Agency and
Trusts, 2010 ed., p. 281).
After the formation of the partnership, additional limited
partners may be admitted upon filing an amendment to
the original certificate in accordance with the requirements
of law.
 Limited partner is not a General partner is the
MANAGEMENT OF A LIMITED PARTNERSHIP proper party to proper party to
proceedings by or proceedings by or
General Rule: Limited partner has no management against a partnership against a partnership
powers
Unless:
Exception: A general partner in a limited partnership 1. He is also a general
however has no authority, without written consent or partner (his liability is to
ratification of all limited partners, to (Art. 1850) (CIC- the partners not to the
PAAC) creditors), or
1. Do any act in contravention of the certificate; 2. Where the object of the
2. Do any act which would make it impossible to carry on proceeding is to enforce
the ordinary business of the partnership; a limited partner’s right
3. Confess a judgment against the partnership; against or liability to the
4. Possess partnership property, or assign their rights in partnership
specific partnership property, for other than a Prohibition to engage in other business
partnership purpose; No such prohibition in the General partner is
5. Admit a person as a general partner; case of a limited partner prohibited from engaging
6. Admit a person as a limited partner, unless the right to who is considered a mere in a business which is of
do so is given in the certificate contributor to the the SAME kind of
7. Continue the business with the partnership property on partnership business in which the
the death, retirement, insanity, civil interdiction or partnership is engaged, if
insolvency of a general partner, unless the right to do so he is a capitalist partner,
is given in the certificate. or in ANY of business for
himself if he is an
Limited and General Partner/Partnership Distinguished: industrial partner
(R2EF-P2C2-TIME) Contribution
Limited Partner/ General Partner/ Limited partner must General partner may
Partnership Partnership contribute cash or property contribute money,
Rules governing dissolution and winding up to the partnership but not property or industry to
Governed by Art. 1863 Governed by Art. 1839 services the partnership
Creation
Right to participate in the management of partnership Limited partnership is General partnership, as a
created by the members general rule, may be
Limited partner has no General partners have an after the substantial constituted in any form
share in the management equal right in the compliance in good faith by contract or conduct of
of a limited partnership and management of the with the requirements set the partnership
renders himself liable to business (when the forth by law
partnership creditors as a manner of management Transferability of interest
general partner if he takes has not been agreed Limited partner’s interest is General partner’s interest
part in the control of the upon) freely assignable, with in the partnership may
business assignee acquiring all the not be assigned as to
rights of the limited partner make the assignee a new
subject to certain partner without the
Extent of liability qualifications consent of the other
Limited partner’s liability General partner is partners, although he
extends only to his capital personally liable for may associate a third
contribution partnership obligations person with him in his
Firm name share
Firm name must be No such requirement Inclusion of partner’s name in the firm name
followed by the word As a general rule, name Name of a general
limited of a limited partner must partner may appear in
Proper party to proceedings by or against the not appear in the firm the firm name
partnership name
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2010 Centralized Bar Operations

Members of the partnership A limited partner may have the partnership dissolved and
Composed of one or more Composed only of its affairs wound up when:
general partners and one general partners 1. He rightfully but unsuccessfully demands the return of
or more limited partners his contribution.
2. When his contribution is not paid although he is entitled
Effect of retirement, death, insanity or insolvency to its return because the other liabilities of the
Retirement, death, insanity Retirement, death, partnership have not been paid.
or insolvency of a limited insanity or insolvency of
partner does not dissolve a general partner Right of limited partner to cash in return for contribution
the partnership for his dissolves the partnership
executor or administrator General Rule: He has only the right to demand and
shall have the rights of a receive cash
limited partner for the
purpose of selling his Exceptions:
estate 1. When there is a stipulation to the contrary
2. Where all the partners consent.
RIGHTS OF A LIMITED PARTNER: (BIF2AR2)
1. To have the partnership books kept at the principal ALLOWABLE TRANSACTIONS OF A LIMITED
place of business of the partnership (Art. 1851) PARTNER (Art. 1854)
2. To inspect, at a reasonable hour, partnership books and 1. Transacting other business with the partnership
copy any of them (Art. 1851) 2. Receiving a pro rata share of the partnership assets
3. To demand true and full information of the things with the general creditors if he is NOT also a general
affecting the partnership (Art. 1851) partner
4. To demand a formal account of the partnership affairs 3. Granting loans to the partnership
whenever circumstances render it just and reasonable
(Art. 1851) In transacting a business with the partnership as a non-
5. To ask for dissolution and winding up by decree of court member, the limited partner is considered a non-partner
(Art. 1851) creditor
6. To receive a share in the profits or other compensation
by way of income provided: that the partnership assets Prohibited Transactions:
are in excess of partnership liabilities after such 1. Receiving or holding as collateral security any
payment (Art. 1856) partnership property; or
7. To receive the return of his contribution provided ( Art. 2. Receiving any payment, conveyance, or release from
1857): liability if the partnership assets are less than its
a. All the liabilities of the partnership have been paid OR liabilities.
the partnership assets are sufficient to pay
partnership liabilities Note: Violation of the prohibition will give rise to the
b. The consent of all the members (general and limited presumption that it has been made to defraud partnership
partners) has been obtained creditors

Exception: The prohibition is NOT ABSOLUTE, there is no such

When the return of the contribution may be rightfully prohibition if the partnership assets are sufficient to
demanded: discharge partnership liabilities to persons not claiming as
i. On the dissolution of the partnership general or limited partners.
ii. Upon the arrival of the date specified in the
certificate for the return PREFERRED LIMITED PARTNERS
iii. After he has given 6 months notice in writing to all This is made by agreement of partners as stated in the
other partners, if no time is specified in the certificate as to the:
certificate their for the return of the contribution or 1. Return of contributions
for the dissolution of the partnership 2. Compensation by way of income
3. Any other matter.
c. The certificate is cancelled or so amended as to set
forth the withdrawal or reduction. LIABILITIES OF A LIMITED PARTNER (Art. 1858)
1. Liability for unpaid contribution

27
 a. For the difference between his contribution as
actually made and that stated in the certificate as
having been made; AND
b. For any unpaid contribution which he has agreed in
the certificate to make in the future at the time and
the conditions stated in the certificate
2. Liability as trustee
a. Specific property stated in the certificate as
contributed by him, but which was not contributed or
which has been wrongfully returned; AND
b. Money or other property wrongfully paid or conveyed
to him on account of his contribution
Note: These liabilities can be waived or compromised only
by consent of ALL the members; but a waiver or
compromise shall NOT affect the right of a creditor of a
partnership who extended credit or whose claim arose
after the filling and before the cancellation or amendment
of the certificate, to enforce such liabilities.
SUBSTITUTED LIMITED PARTNER (Art. 1859)
A person admitted to all the rights of a limited partner who
has died or has assigned his interest in the partnership.
General Rule: He has all the rights and powers, and is
subject to all the restrictions and liabilities of his assignor.
Exception: Those liabilities which he was ignorant at the
time he became a limited partner AND which could not be
ascertained from the certificate.
Requisites in Order that the Assignee May Become a
Substituted Limited Partner
1. All the members must consent to the assignee
becoming a substituted limited partner, OR the limited
partner, being empowered by the certificate must give
the assignee the right to become a limited partner
2. The certificate must be amended in accordance with
Art. 1865
3. The certificate as amended must be registered in the
Securities and Exchange Commission
CAUSES OF DISSOLUTION OF A LIMITED
PARTNERSHIP
1. Retirement, death, insolvency, insanity, or civil
interdiction (CDI2R) of a GENERAL PARTNE
Note: Unless the business is continued by remaining
general partners (under a right so to do stated in the
certificate or with the consent of all members) (Art.
1860)
2. When all limited partners ceased to be such (Art. 1864,
par. 1)
3. Expiration of the term or period of existence of the
partnership (Art. 1844, par. 1)
4. By agreement of all partners before the lapse of the
period of existence;
5. Misconduct of a general partner or fraud committed by a
general partner against the limited partner/s
6. When the limited partner demanded the return of his
contribution but same was unjustifiably denie
Note: Not exclusive
The executor or administrator of the estate of the
deceased LIMITED PARTNER shall acquire all the
rights of a limited partner for the purpose of settling the
estate (Art. 1861).
The estate of the deceased limited partner shall be
liable for all his obligations or liabilities to the
partnership as a limited partner.
The creditors a limited partner may apply to the proper
court for an order charging the limited partner’s interest
in the partnership for the payment of any unsatisfied
amount of his claim. (Art. 1862)
LIQUIDATION OF A LIMITED PARTNERSHIP (Art. 1863)
Order of priority in the payment of the liabilities of the
limited partnership:
1. Those owing to creditors, in order of priority as provided
by law, except those to limited partners on account of
their contributions and to general partners.
2. Those owing to limited partners in respect to their share
of the profits and other compensation by way of income
on their contributions.
3. Those owing to limited partners in respect to the capital
of their contributions.
4. Those owing to general partners other than for capital
and profits.
5. Those owing to general partners in respect to profits.
6. Those owing to general partners in respect to capital.
CANCELLATION OF CERTIFICATE OR ARTICLES OF
PARTNERSHIP (Art. 1864)
1. When the partnership is dissolved.
2. When all the limited partners ceased to be such.
AMENDMENT OF CERTIFICATE OR ARTICLES OF
PARTNERSHIP (Art. 1865)
In case any of the ten enumerated changes and
circumstances in Art. 1864, par. 2 are present.
Must be signed and sworn to by all the members including
the new members if some are added; in case of
substitution, the assigning limited partner must also sign.
 San Beda College of Law
2010 Centralized Bar Operations
Cancellation or amendment must be recorded in the SEC.
A limited partner is a mere contributor, hence, he
CANNOT be a proper party in a case for or against the
partnership (Art. 1866).
1. Unless the action is to enforce his individual rights
against the partnership as authorized in Art. 1851.
2. He can be a defendant on an action filed against him by
the partnership to enforce his liability to the latter (Art.
1858)
A GENCY
A CONTRACT OF AGENCY is a contract whereby a
person (agent) binds himself to render some service or to
do something in representation or on behalf of another
(principal), with the consent or authority of the latter (Art.
1868).
CHARACTERISTICS OF AN AGENCY CONTRACT: (PF-
BORN-CP)
1. Preparatory
2. Fiduciary
3. Bilateral (but may be unilateral)
4. Onerous (generally)
5. Representative Relation
6. Nominate
7. Consensual
8. Principal
PARTIES TO THE CONTRACT OF AGENCY
1. Principal – one whom the agent represents and from
whom he derives authority;
2. Agent – one who acts for and represents another.
PURPOSE OF AN AGENCY
To extend the personality of the principal through the
facility of the agent. It enables the activity of man which is
naturally limited in its exercise by the impositions of his
physiological conditions to be legally extended by
permitting him to be constructively present in many
different places and to perform diverse juridical acts and
carry on many different activities through another when
physical presence is impossible or inadvisable at the
same time (11 Manresa 434).
ELEMENTS OF AN AGENCY (COC-RW)
1. Consent
a. Express or Implied
b. Any person or entity having juridical capacity and
capacity to act and not otherwise disqualified, may
enter into an agency
29
c. But as regards the party with whom the agent acts or
contracts, the legal capacity of the principal rather
than the agent, is of the greater import.
d. A principal must be capacitated or have a legal
capacity to enter into a contract. The agent’s capacity
is usually immaterial, he does not have to possess full
capacity to act for himself insofar as third persons are
concerned (De Leon, Comments and Cases on
Partnership, Agency and Trusts, 2010 ed., p. 332).
e. Insofar as his obligations to his principal are
concerned, the agent must be competent to bind
himself. The extent to which an agent is a fiduciary
and is subjected to duties and liabilities to his
principal depends upon his capacity (De Leon,
Comments and Cases on Partnership, Agency and
Trusts, 2010 ed., p. 333).
f. In an agent-principal relationship, the personality of
the principal is extended through the facility of the
agent. In so doing, the agent, by legal fiction,
becomes the principal, authorized to perform all acts
which the latter would have him do. Such a
relationship can only be effected with the consent of
the principal, which must not, in any way, be
compelled by law or by any court (Orient- Air
Services and Hotel Representatives vs. Court of
Appeals, G.R. No. 76931-33, May 29, 1991).
2. Object: execution of a juridical act in relation to a third
person.
a. May cover all acts pertaining to a business of the
principal (general agency) or one or more specific
transactions (special agency)
b. The extent of the agent’s authority to act, whether it
be a general or a special agency, depends on how
the agency is couched.
3. Cause: may be onerous or gratuitous but presumed for
compensation (Art. 1875)
4. The agent acts as representative of the principal.
5. The agent acts within the scope of his authority.
The agent may not be deprived of his right to
compensation by an unjustified revocation of the agency.
The agent must act as a representative and not for
himself, and he must act within the scope of his authority.
One factor which most clearly distinguishes agency from
other legal concepts is control (Victorias Milling Co., Inc.
v. CA, G.R. No. 117356, June 19, 2000; Amon Trading
Corp., et al. v. CA, et al., G.R. No. 158585, December 13,
2005).
ACTS WHICH MAY BE DELEGATED TO AN AGENT
 1. General – one which comprises all the business of
General Rule: What a man may do in person, he may do the principal
thru another. 2. Special – one which comprises one or more specific
transactions
Exceptions:
1. Personal acts Agency to Sell and Sale Distinguished
2. Criminal Acts / Acts not allowed by law if done by the Agency to Sell Sale
principal.
Agent receives the goods
The buyer receives goods
as the goods of the
Note: The relations of an agent to his principal are as owner
principal.
fiduciary in character since they are based on trust and
confidence. Agent delivers the proceeds
Buyer pays the price.
of the sale
KNOWLEDGE OF AGENT IS IMPUTED TO PRINCIPAL Agent can return the object
The buyer, as a rule, cannot
in case he is unable to sell
General Rule: The knowledge of the agent is imputed to return the object sold
it
the principal even though the agent never communicated
Bound to act according to The buyer can deal with the
such knowledge to the principal.
the instructions of his thing as he pleases being
principal. the owner.
Exceptions: (CAD)
1. Where the agent’s interest are adverse to those of the
principal; Agency and Lease of Services Distinguished
2. Where the agent’s duty is not to disclose the Agency Lease Of Services
information, as where he is informed by way of Principle of representation Principle of employment is
confidential information; and is applied. applied.
3. Where the person claiming the benefit of the rule
Extinguished at will of the Concurrence of parties is
colludes with the agent to defraud the principal
principal. necessary.
KINDS OF AGENCY (C2BANE) Agent exercises Employee exercises
A.As to manner of creation discretionary power ministerial functions only
1. Express Preparatory contract Principal contract
2. Implied
Agency and Trust distinguished
B.As to its character Agency Trust
1. Gratuitous
Basis
2. Compensated or onerous
Contract Contract or law
Title
C. As to extent of business covered:
1. General – comprises all the business of the principal Agent holds no title Trustee may hold title
2. Special – comprises one or more specific Extinguishment
transactions May be revoked anytime. Is terminated upon the
accomplishment its
D. As to authority conferred purpose.
1. Couched in general terms- one which is created in Property
general terms and is deemed to comprise only acts of May or may not involve a
administration; property.
2. Couched in specific terms
FORM OF ACCEPTANCE BY AGENT
E.As to its nature and effects A.Express
1. Ostensible / representative - agent acts in the name B.Implied
and in representation of the principal. 1. From his acts which carry out the agency
2. Simple / commission - agent acts in his own name but 2. From his silence or inaction according to the
for the account of the principal. circumstances.

F.As to extent of business covered

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FORMS OF AGENCY
A.Express
B.Implied
1. From the acts of the principal
2. From his silence or lack of action
3. Failure to repudiate the agency knowing that another
person is acting on his behalf without authority (Art.
1869).
4. If the principal delivers his power of attorney to the
agent and the latter receives it without any objection.
(Art. 1871)
Note: In an implied agency, the principal is still bound by
the acts of the agent just as in case of express agency
General Rule: There are no formal requirements
governing the appointment of an agent.
Exception: When the law requires a specific form (i.e.,
sale of a piece of land thru an agent: authority of the
agent shall be in writing, otherwise, the sale is void) (Art.
1874).
KINDS OF IMPLIED ACCEPTANCE
A.Between persons who are present (Art. 1871)
1. Principal delivers his power of attorney to the agent
and
2. Agent receives it without any objection
B.Between persons who are absent (Art. 1872)
General Rule: Acceptance cannot be implied from
silence of the agent
Exceptions:
1. Principal transmits his power of attorney to the agent,
who receives it without any objection;
2. Principal entrusts to him by letter or telegram a power
of attorney with respect to the business in which he is
habitually engaged as an agent, and he did not reply
to the letter or telegram
As a rule, agency is not presumed. A presumption of
agency may arise, however, in those few cases
where agency may arise by operation of law (i.e. Art.
1803) or to prevent unjust enrichment. (De Leon,
Comments and Cases on Partnership, Agency and
Trusts, 2010 ed., p. 400-401).
Authority of Attorney to appear on behalf of his client
The relation of attorney and client is, one of agency and
the ordinary rules of agency apply. The authority in an
action is presumed. An act performed within the scope of
a “general or implied authority” is regarded as an act of
the client.
Recognized exceptions:
31
1. Where reckless or gross negligence of counsel deprives
the client of due process of law
2. When its application will result in outright deprivation of
the client’s liberty or property
3. Where the interests of justice so require.
RULE ON AGENCY BY ESTOPPEL
One who clothes another with apparent authority as his
agent, and holds him out to the public as such, cannot be
permitted to deny the authority of such person in good
faith, and in the honest belief that he is what he appears
to be (Cuison v. CA, GR No.88531. October 26, 1993).
Estoppel to deny agency
1. Estoppel of agent – one professing to act as agent may
be estopped to deny agency both against the asserted
principal and third persons.
2. Estoppel of principal
a. As to agent – if he knows that another is acting as his
agent and fails to repudiate his acts or accepts the
benefits of them
b. As to sub-agent – to estop him, he must have known
or be charged with the knowledge of the fact of
transaction and terms of agreement between the
agent and sub-agent.
The applicability of the doctrine of apparent authority in
the field of hospital liability has been upheld in Irving v.
Doctor Hospital of Lake Worth Inc. In this case, it was said
that there does not appear to be any rational basis for
excluding the concept of apparent authority from the field
of hospital liability. In cases where it can be shown that a
hospital, by its actions, has held out a particular physician
as its agent and/or employee and that the patient has
accepted treatment from the physician in the reasonable
belief that it is being tendered in behalf of the hospital,
then the hospital will be liable for the physician’s
negligence.
Agency by Estoppel and Implied Agency distinguished
AGENCY BY ESTOPPEL IMPLIED AGENCY
Existence of Actual Agency
There is no agency at all, There is actual agency.
but the one assuming to The Principal alone is
act as agent has apparent liable.
or ostensible, although not
real, authority to represent
another.
Reliance by third persons
Reliance is necessary. Reliance is not
necessary
Nature of Authority
An apparent agent has Agent has actual
none of the rights of an authority to act on behalf General Agent Special Agent
agent, except where the of the principal.
Scope of Authority
principal’s conduct or
representations are such Authorized to do only acts
that the agent reasonably Usually authorized to do all in pursuance of particular
believed that the principal acts connected with the instructions or with
intended him to act as business or employment in restrictions necessarily
agent in the matter. which he is engaged. implied from the acts to be
Proof done
Should be restricted to To be proved from Extent by which agent may bind principal
cases where authority is deductions or inferences Binds his principal by an act Cannot bind his principal in
not real but apparent. from other facts. within the scope of his a manner beyond or outside
authority although it may be the specific acts which he is
NOTICE OF AGENCY contrary to his special authorized to perform on
1. By special information instructions behalf of the principal
2. By public advertisement
Continuity
Manner of Termination or Rescission – Notice/information Usually involves a single
Conducts a series of
or advertisement had been rescinded in the same manner transaction or a series of
transactions involving a
it is given (Art. 1873). transactions not involving
continuity of service.
continuity
General Rule: Agency is presumed to be for Construction of Instructions of Principal
compensation, unless there is proof to the contrary.
Statement of principal with
The promise of a gratuitous agent (agent without respect to the agent’s Authority of agent must be
compensation) is ordinarily not enforceable but the fact authority would ordinarily strictly pursued
that he is such has no effect upon his rights and duties regarded as advisory only
with reference to the principal and third persons. However, Termination of Authority
the fact that the agency was for compensation of not, shall
Apparent authority does not Mere revocation is effective
be considered by the court in determining the extent of
terminate by the mere to terminate the authority as
liability of agent for fraud or negligence.
revocation of his authority to third persons because
without notice to the third the third person has a duty
CLASSES AND KINDS OF AGENTS
party to inquire
1. Universal Agent – one employed to do all acts that the
principal may personally do, and which he can lawfully
delegate to another the power of doing. Note: Agency comprises all the business of the principal
2. General Agent – one employed to transact all the (Article 1876) but couched in general terms, it is limited
business of the principal, or all the business of a only to acts of administrations (Dominion Insurance Corp.
particular kind or in a particular place, or in other words v. CA, G.R. No. 129919, February 6, 2002).
to do all acts, connected with a particular trade,
business or employment. Acts of administration are those which do not imply the
3. Special or Particular Agent – one authorized to act in authority to alienate (De Leon, Comments and Cases on
one or more specific transactions, or to do one or more Partnership, Agency and Trusts, 2010 ed., p. 436).
specific acts, or to act upon a particular occasion.
SPECIAL POWER OF ATTORNEY (SPA)
An instrument in writing by which one person, as principal,
appoints another as his agent and confers upon him the
authority to perform certain specified acts or kinds of acts
on behalf of the principal.

Art. 1878 does not state that the special authority be in

writing (De Leon, Comments and Cases on Partnership,
General and Special Agent Distinguished: (SEC2T) Agency and Trusts, 2010 ed., p. 378). However, should
the law require that such special authority be in writing in
order for the same or the resulting contract to be valid or
 San Beda College of Law
2010 Centralized Bar Operations
enforceable, such requirement is absolute and
indispensable.
Note: It need not be notarized; except where it is executed
in a foreign country, it must be certified in accordance with
the Rules of Court.
Instances Where SPA is Necessary (Art. 1878)
(PECWEM-LLB-BOCARO)
1. To make payments as are not usually considered as
acts of administration;
2. To effect novations which put an end to obligations
already in existence at time the agency was constituted;
3. To compromise, submit questions to arbitration,
renounce the right to appeal from a judgment, waive
objections to the venue of an action or abandon a
prescription already acquired;
4. To waive any obligation GRATUITOUSLY;
5. To enter into any contract by which the ownership of AN
IMMOVABLE is transmitted or acquired either
gratuitously or for a valuable consideration.
Note: The authority of an agent to execute a contract of
sale of real estate must be conferred in writing and must
give him specific authority, either to conduct the general
business of the principal or to execute a binding
contract containing terms and conditions which are in
the contract he did execute. The express mandate
required by law to enable an appointee of an agency
(couched) in general terms to sell must be one that
expressly mentions a sale or that includes a sale as a
necessary ingredient of the act mentioned. For the
principal to confer the right upon an agent to sell real
estate, a power of attorney must so express the powers
of the agent in clear and unmistakable language. When
there is any reasonable doubt that the language so
used conveys such power, no such construction shall
be given to the document (332 Phil. 948 (1996)).
It has been repeatedly held that the absence of a
written authority to sell a PIECE OF LAND is ipso jure,
void, precisely to protect the interest of an unsuspecting
owner from being prejudiced by the unwarranted act of
another (Pahud, et al. v. CA, et al., G.R. No. 160346,
August 25, 2009) .
6. To make gifts, except customary ones for charity or
those made to employees in the business managed by
the agents;
7. To loan or borrow MONEY, unless the latter act be
urgent and indispensable for the preservation of the
things which are under administration;
8. To lease any real property to another person for more
than one year;
33
9. To bind the principal to render some service without
compensation;
10.To bind the principal in a contract of partnership;
11.To obligate the principal as guarantor or surety;
12.To create or convey real rights over immovable
property;
13.To accept or repudiate an inheritance;
14.To ratify or recognize obligations contracted before the
agency;
15.Any other act of strict dominion.
Note: A third person with whom the agent wishes to
contract on behalf of the principal may require the
presentation of the power of attorney or the instructions as
regards the agency; except private or secret orders and
instructions of the principal (Art. 1902).
The scope of the agent’s authority is what appears in the
written terms of the power of attorney. While third
persons are bound to inquire into the extent or scope of
the agent’s authority, they are not required to go beyond
the terms of the written power of attorney. Third persons
cannot be adversely affected by an understanding
between the principal and his agent as to the limits of the
latter’s authority. In the same way, third persons need not
concern themselves with instructions given by the
principal to his agent outside the written power of attorney
(Siredy Enterprises, Inc. v. CA, et al. GR No. 129039.
September 27, 2002).
SPA to sell does not include the power to mortgage; and
vice versa (Art. 1879).
A special power of attorney cannot be the basis of a valid
mortgage contract (Lao v. Villones-Lao, G.R. No. 126777,
April 29, 1999).
SPA to mortgage includes the power to allow the
extrajudicial foreclosure of the mortgaged property (Art.
1879).
SPA to compromise does not authorize submission to
arbitration (Art. 1880).
Effect of Lack of SPA Where One is Required:
Unenforceable
WHEN PRINCIPAL IS BOUND BY ACT OF AGENT
1. Agent must act within the scope of his authority ( Art.
1881); and
2. Agent must act in behalf of the principal
Note: The limits of the agent’s authority shall not be
considered exceeded should it have been performed in a
manner more advantageous to the principal than that
specified by him (Art. 1882).
Authority is the power of the agent to affect the legal
relations of the principal by acts done in accordance by
acts done in accordance with the principal’s manifestation
of consent to him.
WHEN A PRINCIPAL IS NOT BOUND BY THE ACT OF
THE AGENT
1. Agent acts without or beyond the scope of his authority
in the principal’s name; and
2. Agent acts within the scope of his authority but in his
own name (UNDISCLOSED PRINCIPAL), except when
the transaction involves a thing belonging to the
principal (Art. 1883).
Kinds of Authority
1. Actual
2. Express
3. Implied
4. Apparent or ostensible
5. Genera
6. Special
7. By necessity or operation of law
EFFECTS OF AGENT’S ACTS
1. With Authority
a. In principal’s name – valid; principal is bound; agent
not personally liable UNLESS he bound himself (Art.
1897);
b. In his own name – Apply Art. 1883; generally not
binding on the principal; agent and stranger are the
only parties, EXCEPT regarding things belonging to
the principal or when the principal ratifies the contract
or derives benefit therefrom.
2. Without Authority
a. In principal’s name – unauthorized & unenforceable
BUT may be ratified by the principal, in which case,
may be validated retroactively from the beginning
(Art. 1407);
b. In his own name – valid (in case of sale), whether or
not the subject matter belongs to the principal,
provided that at the time of delivery, the “agent” can
transfer legally the ownership of the thing. Otherwise,
he will be held liable for breach of warranty against
eviction; Art. 1883 does NOT apply.
Note: If not sale, ALWAYS invalid
Occasions When Principal is bound by the Acts of the
Agent beyond the Latter’s Powers (DL-BR)
1. Where the principal’s acts have contributed to deceive
the third persons;
2. Where the limitations upon the power created by him
could not have been known by the third person;
3. Where the principal has placed in the hands of the
agent instruments signed by him in blank
4. Where the principal has ratified the acts of the agent.
DOCTRINE OF AGENCY BY NECESSITY
By virtue of the existence of an emergency, the authority
of an agent is correspondingly enlarged in order to cope
with the exigencies or the necessities of the moment.
Requisites:
1. Real existence of an emergency
2. Inability of the agent to communicate with the principal
3. Exercise of the additional authority for the principal’s
own protection
4. Adoption of fairly reasonable means, premises duly
considered
Note: Agency can never be created by necessity; what is
created is additional authority in an agent appointed and
authorized before the emergency arose.
Kinds of Principal
1. Disclosed
2. Partially disclosed
3. Undisclosed
O BLIGATIONS OF THE A GENT
GENERAL OBLIGATIONS OF AN AGENT TO
PRINCIPAL (AOE)
1. To act with utmost good faith and loyalty for furtherance
of principal’s interests
2. To obey all lawful orders and instructions of principal
within the scope of the agency
3. To exercise reasonable care, skill and diligence
SPECIFIC OBLIGATIONS OF AN AGENT TO
PRINCIPAL (CAFO-A2DALAR–PD-IBIR)
1. To carry out the agency which he has accepted (Art.
1884)
2. To answer for damages which through his non-
performance the principal may suffer (Art. 1884)
3. To finish the business already begun on the death of
the principal should delay entail any danger (Art. 1884)
4. To observe diligence of a good father of a family in the
custody and preservation of the goods forwarded to him
by the owner in case he declines an agency, until an
agent is appointed (Art. 1885)
5. To advance the necessary funds should there be a
stipulation to do so (Art. 1886)
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Except: when the principal is insolvent
6. To act in accordance with the instructions of the
principal, and in default thereof, to do all that a good
father of a family would do (Art. 1887)
7. Not to carry out the agency if its execution would
manifestly result in loss or damage to the principal (Art.
1888)
8. To answer for damages if there being a conflict between
his interest and those of the principal, he should prefer
his own (Art. 1889)
9. Not to loan to himself if he has been authorized to lend
money at interest (Art. 1890)
10. To render an account of his transactions and to
deliver to the principal whatever he may have received
by virtue of the agency (Art. 1891)
Note: A stipulation exempting the agent from the
obligation to render an account shall be VOID (Art.
1891).
Obligation to account not applicable (MIL):
a. The duty embodied in Art. 1891 will not apply if the
agent or broker acted only as a middleman with the
task of merely bringing together the vendor and the
vendee, who themselves thereafter will negotiate on
the terms and conditions of the transaction (Domingo
vs. Domingo, G.R. No. L-30573, October 29, 1971).
b. Neither would the rule apply if the agent or broker had
informed the principal of the gift or bonus or profit he
received from the purchaser and his principal did not
object thereto. (Ibid.)
c. Where a right of lien exists in favor of the agent, the
rule is not also applicable.
i. The agent may, under Art.1914, retain in pledge
the things which are the object of the agency until
the principal effects the reimbursement and pays
the indemnity provided in Articles 1912 and 1913.
ii. A lawyer shall have a lien upon the funds,
documents and papers of his client and may retain
the same until his lawful fees and disbursements
have been paid (Sec. 37, Rule 138, Rules of
Court)
Note: An agent who takes a secret profit is guilty of breach
of his loyalty and forfeits his right to collect the
commission.
Report imports a statement of collections. Accounting
means settling of account of administration or agency
which includes payment.
An agent has both the physical and juridical possession
but he may not set up his right of possession as against
that of the principal until the agency is terminated.
35
Distinguished from possession of teller in bank.
AGENT BANK TELLER
Right to Possession
Has independent, Has no independent right,
autonomous right. payment to him is payment
to the bank itself. He is a
mere custodian.
In case of misappropriation
He is guilty of estafa. He is guilty of qualified
theft.
11.To be responsible in certain cases for the acts of the
substitute appointed by him (Art. 1892)
12.To pay interest on funds he has applied to his own use
(Art. 1896) - from the day on which he did so and on
those which he still owes after the extinguishment of the
agency.
13.To distinguish goods by countermarks and designate
the merchandise respectively belonging to each
principal, in the case of a commission agent who
handles goods of the same kind and mark, which
belong to different owners (Art. 1904)
14.To inform the principal, where an authorized sale of
credit has been made, of such sale (Art. 1906)
15.To bear the risk of collection, should he receive also
on sale, a guarantee commission (Art. 1907)
16.To indemnify the principal for damages for his failure to
collect the credits of his principal at the time that they
become due (Art. 1908)
17.To be responsible for fraud or negligence (Art. 1909)
A person who declines an agency is still bound to observe
diligence of a good father of a family.
SUB-AGENT
A person to whom the agent delegates as his agent the
performance of an act for the principal which the agent
has been empowered to perform through his
representative.
Note: The agent may appoint a substitute except when he
has been prohibited by the principal (Art. 1892).
INSTANCES WHEN AGENT SHALL BE RESPONSIBLE
FOR THE ACTS OF THE SUBSTITUTE:
1. He is not given the power to appoint;
2. He was given such power but without designating the
person, and the person appointed was notoriously
incompetent or insolvent.
In these two cases the principal MAY further bring an
action against the substitute with respect to the
obligations which the latter has contracted under the
substitution (Art. 1893).
 If the principal does not ratify the contract, it shall be
Note: All acts of the substitute appointed against the VOID if the party with whom the agent contracted is
prohibition of the principal shall be VOID. aware of the limits of the powers granted by the
principal. The agent is liable if he undertook to secure
EFFECT OF DEATH OF PRINCIPAL/AGENT the principal’s ratification (Art. 1898).
If the authority of the sub-agent proceeds from the
principal, the death of the agent who appointed him does 3. Acts of the agent prevents performance on the part of
not affect his authority. But where he acts under the the principal
authority, the death of the agent terminates his authority 4. When a person acts as an agent without authority or
even though the power of substitution is given in the without a principal
original power. 5. A person who acts as an agent of an incapacitated
principal unless the third party was aware of the
EFFECTS OF SUBSTITUTION incapacity at the time of the making of the contract
1. Substitution prohibited – all acts of the substitute shall 6. Fraud and negligence by agent (Art. 1909)
be void.
2. Substitution authorized – it has the effect of releasing PRESENTATION OF INSTRUCTIONS
the agent from his responsibility unless the person General Rule: He is bound to inquire as to the extent of
appointed is notoriously incompetent or insolvent. But if the agent’s authority.
the substitute is the person designated by the principal,
the consequences is the absolute exemption of the Exception: Private or secret orders or instructions of the
agent. principal.
3. Substitution not authorized, but not prohibited – if the
substitution has occasioned damage to principal, the Instructions Authority
agent shall be primarily responsible for the acts of the Directs the manner of The sum total of the
substitute. transacting the powers committed or
authorized business and permitted to the agent
JOINT AGENTS contemplates only a by the principal, may be
Agents appointed by one or more principals under such private rule of guidance limited in scope and
circumstances as to induce the inference that it was the to the agent and are such limitations are
principal’s intent that all should act in conjunction in independent and distinct themselves a part of the
consummating the transaction for which they were in character authority
appointed. Refers to the manner or Relates to the subject
mode of his action with with which the agent is
Their responsibility is JOINT; except if solidarity has been respect to matters which empowered to deal or
expressly stipulated (Art. 1894). in their substance are the kind of business or
within the scope of transactions upon which
If solidarity has been agreed upon, each agent is permitted action he is empowered to act
responsible for the: Limitations of authority
1. Non-fulfillment of the agency, and Without significance as
are operative as against
2. Fault or negligence of his fellow agents; except when against those dealing
those who have or are
the fellow agents acted beyond the scope of their with the agent with
charged with knowledge
authority (Art. 1895). neither knowledge nor
of them and ignorance
notice of them because
of the authority will not
Note: An innocent agent has a right later on to recover they concern only the
be any excuse (see Art.
from the guilty or negligent agent (Art. 1217[2]). principal and the agent.
1900).
Contemplated to be
INSTANCES WHEN AGENT MAY INCUR PERSONAL Not expected to be made known to the third
LIABILITY (Art. 1897): made known to those person dealing with the
1. Agent expressly binds himself with whom the agent agent. Third persons
The individual liability of the agent can be considered a deals must therefore verify or
further security in favor of the creditor and does not investigate the authority.
affect or preclude the liability of the principal; both are
liable. WHEN DEPARTURE FROM PRINCIPAL’S
INSTRUCTIONS JUSTIFIED: (SAI)
2. Agent exceeds his authority
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1. Sudden emergency – Where some unexpected
emergency or unforeseen event occurs which will admit
no delay for communication with the principal, the agent
is justified in adopting the course which seems best to
him under the circumstances.
2. Ambiguous instructions – Where instructions are
ambiguous, the agent is not chargeable with
disobedience or its consequences in case he makes an
honest mistake and adopts a construction different from
that intended by the principal. It is the duty of the
principal to couch his instructions in clear terms.
3. Insubstantial departure – An agent may not be said to
have breached the agency contract by reason of an
insubstantial departure from the principal’s instructions,
which does not affect the result.
EFFECT OF IGNORANCE OF AGENT
It is enough that the agent acts within the scope of his
authority and in accordance with the instructions of the
instructions of the principal, his ignorance is not his fault
alone.
SCOPE OF AGENT’S AUTHORITY AS TO THIRD
PERSONS (Art. 1900)
Includes not only the actual authorization conferred upon
the agent by his principal, but also that which was
apparently or impliedly delegated to him.
1. Where authority not in writing – very person dealing with
an assumed agent is put upon inquiry and must
discover upon his peril, if he would hold the principal
liable, not only the fact of the agency but the nature and
extent of the authority of the agent.
Note: If he does not make such inquiry, he is
chargeable with knowledge of the agent’s authority, and
his ignorance of that authority will not be any excuse
(Pineda v. CA, 45 SCAD 30, 226 SCRA 754).
2. Where authority in writing – such person is not required
to inquire further than the terms of the written power of
attorney.
METHODS OF BROADENING AND RESTRICTING
AGENT’S AUTHORITY (UNDIE)
1. By implication
2. By usage and custom
Except:
a. Where it is sought to vary the terms of an express
authorization;
b. Where it is sought thereby to dispose with a legal
requirement enacted for the principal’s benefit;
c. Where it is sought thereby to change a rule of law or
as to dispense with a formality required by law; and
d. Where it is sought to vary an essential quality of the
agency relationship.
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3. By necessity
Requisites:
a. The emergency really exists;
b. The agent is unable to communicate with the
principal;
c. The agent’s enlarged authority is exercised for the
principal’s protection; and
d. The means adopted are reasonable under the
circumstances.
4. By certain doctrines
a. Of apparent authority;
b. Of liability by estoppel; and
c. Of ratification.
5. By the rule of ejusdem generis.
Third party’s liabilities toward agent: (CBIT)
1. Where the agent contracts in his own name for an
undisclosed principal, in which case, the agent may sue
the third party to enforce the contract;
2. Where the agent possesses a beneficial interest in the
subject matter of the agency;
3. Where the agent pays money of his principal to a third
party by mistake or under a contract which proves
subsequently to be illegal, the agent being ignorant with
respect to its illegal nature; and
4. Where the third party commits a tort against the agent.
Principal’s responsibility where agent acted with improper
motives
General Rule: Motive of agent is immaterial.
Exceptions:
1. Where third person knows that the agent is acting for
his private benefit.
2. Where owner is seeking recovery of personal property
of which he has been unlawfully deprived.
Principal’s responsibility for agent’s misrepresentation
1. Within the scope of authority – principal is liable.
2. Beyond the scope of agent’s authority – principal is not
bound but he cannot take advantage of the contract
3. For the agent’s own benefit – If it within the scope of
authority, the weight of authority holds the principal
liable.
RATIFICATION BY PRINCIPAL
A third person cannot set up the fact that the agent has
exceeded his powers, if the principal has ratified, or has
signified his willingness to ratify the agent’s acts
(Art.1901).
FACTOR/ COMMISSION AGENT
One engaged in the purchase and sale for a principal of
personal property, which for this purpose, has to be
placed in his possession and at his disposal.
Note: If the commission agent received goods consigned
to him, he is responsible for any damage or deterioration
suffered by the same in the terms and conditions and as
described in the consignment (Art. 1903).
The commission agent who handles goods of the same
kind and mark, which belong to different owners, shall
distinguish them by countermarks, and designate the
merchandise respectively belonging to each principal (Art.
1904).
A commission agent can sell on credit only with the
express or implied consent of the principal. If such sale is
made without authority, the principal is given two
alternatives (Art. 1905):
1. He may require payment in cash, in which case any
interest or benefit from the sale on credit shall belong to
the agent since the principal cannot be allowed to
enrich himself at the agent’s expense;
2. He may ratify the sale on credit in which case it will
have all the risks and advantages to him.
If the commission agent is authorized to sell on credit, he
shall inform the principal with a statement of the names of
the buyers. With such statement, the sale shall be
deemed to be for cash as far as the principal is concerned
(Art. 1906).
Should the commission agent receive on a sale, in
addition to the ordinary commission, another one called a
guarantee commission, he shall bear the risk of collection
and shall pay the principal the proceeds of the sale on the
same terms agreed upon with the purchaser (Art. 1907).
The commission agent who does not collect the credits of
his principal at the time when they become due and
demandable shall be liable for damages, unless he proves
the exercise of due diligence for that purpose (Art. 1908).
Broker
A middleman or intermediary who, in behalf of others and
for a commission or fee, negotiates contracts/transactions
relating to real or personal property.
The brokers are entitled to their commission because they
were instrumental in the sale of the property. They were
the procuring cause (Tan v. Gullas, G.R. No. 143978,
December 3, 2002).
In the absence of an express contract between the broker
and his principal, the implication generally is that the
broker becomes entitled to the usual commissions
(Medrano, et al. v. CA. et al., G.R. No. 150678, February
18, 2005).
Factorage
Compensation of a factor or commission agent.
Ordinary Commission
Compensation for the sale of goods which are placed in
his possession or at his disposal.
GUARANTY COMMISSION (Del Credere) (Art. 1907):
Is one where, in consideration of an increased
commission, the factor or commission agent guarantees
to the principal the payment of debt arising through his
agency.
An agent with a del credere commission is liable to the
principal if the buyer fails to pay or is incapable of paying.
Either the principal or the del credere agent may sue the
buyer. The suit of one will bar the subsequent suit of the
other.
Doctrine of Procuring Cause
In order for an agent to be entitled to a commission, he
must be the procuring cause of the sale, which simply
means that the measures employed by him and the efforts
he exerted must result in the sale (Ramos v. CA, G.R. No.
25463, April 4, 1975).
However, for the purpose of EQUITY, an agent who is not
the efficient procuring cause is nonetheless entitled to his
commission, where he, notwithstanding the expiration of
his commission, nonetheless took diligent steps to bring
back together the parties, such that a sale was
consummated (Prats v. CA, GR No. 39822, January 31,
1978).
O BLIGATIONS OF THE
General ObligationsP
ofRINCIPAL
Principal to Agent
Duties and liabilities of the principal are primarily based
upon the contract and the validity of the contract between
them
SPECIFIC OBLIGATIONS OF PRINCIPAL TO AGENT
(CARIP)
1. To comply with all the obligations which the agent may
have contracted within the scope of his authority and in
the name of the principal (Art. 1910)
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2. To advance to the agent, should the latter so request, 3. Unrevoked acts

the sums necessary for the execution of the agency 4. Criminal acts
(Art. 1912) 5. Tortious acts
3. To reimburse the agent for what the latter has advanced
(plus interest), even if the business was not successful, Apparent authority and authority by estoppel distinguished
provided the agent was free from fault (Art. 1912)
4. To indemnify the agent for all the damages, which the Apparent Authority Authority by Estoppel
execution of the agency may have caused the latter Definition
without fault or negligence on his part (Art. 1913) That which though not Where the principal, by
5. To pay the agent the compensation agreed upon, or if actually granted, the his culpable negligence,
no compensation was specified, the reasonable value of principal knowingly permits his agent to
the agent’s services permits the agent to exercise power not
exercise or holds him granted to him, even
Note: Even when the agent has exceeded his authority, out as possessing. It is though the principal has
the principal is solidarily liable with the agent if the founded in the no notice or knowledge
former allowed the latter to act as though he had full conscious permission of of the conduct of the
powers (Art. 1911). acts beyond the powers agent.
granted.
LIABILITY FOR AGENT’S ILLICIT ACTS Basis
General Rule: Where the fault or crime committed by
Founded in conscious Based on negligence of
agent is not in the performance of an obligation of the
permission of acts the principal in failing
principal, the latter is not bound by the illicit act of the
beyond the powers properly to supervise
agent, even if it is not done in connection with his
granted the affairs of agent,
functions.
allowing him to exercise
powers not granted to
Exceptions:
him, and so justifies
1. Where the delict or the quasi-delict was committed by
others in believing he
the agent because of defective instructions from the
possesses the requisite
principal, or due to the lack of necessary vigilance or
authority.
supervision on his part, the principal is liable for his own
negligence;
Ratification and Estoppel distinguished
2. When the agent secures a contract through fraud, or
makes a fraudulent alienation, or executes a simulated Ratification Estoppel
contract, all of these acts are imputable to the principal Basis
as if done by him, because the illicit act is inseparable Rests on intention, Rests on prejudice
from the transaction executed for him. express or implied, rather than intention.
3. When the crime consists in the performance of an act regardless of prejudice
which is within the powers of the agent, but becomes to another.
criminal only because of the manner in which the agent Effect
has performed it, the principal is liable to third persons Is retroactive and makes Operates upon
who act in good faith (Tolentino, Civil Code of the the agent’s something which has
Philippines, Volume V, 1992 ed., p.426). unauthorized act good been done but after the
Note: Principal is still liable for mismanagement of from the beginning. misleading act and in
business by agent. reliance on it and may
only extend to so much
CONDITIONS FOR RATIFICATION (CK-ECB) of such act as can be
1. Principal must have capacity and power to ratify shown to be affected by
2. Principal must have had knowledge of material facts the stopping conduct.
3. Principal must ratify the acts in its entirety Substance
4. Act must be capable of ratification Confirmation of the Principal’s inducement
5. Act must be done in behalf of the principal unauthorized act or to another to act to his
contract after it has prejudice. Acts and
Acts that may be ratified been done or made. conduct amounting to
1. Valid/void acts Ratification may be an estoppel in pais may
2. Voidable acts

39
complete without any in some instances
elements of estoppel. amount to ratification.
Note: In implied agency, there is actual agency. The
principle alone is liable. In agency by estoppel, the
authority of the agent is not real but only apparent: (1) if
the estoppel is caused by the principal, he is liable to nay
third person who relied on the misrepresentation. (2) If it is
caused by the agent, then only the agent is liable.
AGENCY BY OPERATION OF LAW OR FROM
NECESSITY
An agency from necessity is created, or the ordinary
powers of an agent may be enlarged, when an emergency
occurs and an employee or an agent is unable to get in
touch with his employer (De Leon, p, 560)
Liability of Principal for Tort of Agent Rule:
The principal is civilly liable to third persons for torts of an
agent committed at the principal’s direction or in the
course and within the scope of the agent’s authority. The
agent is also liable with the principal and their liability is
solidary.
Three main factual situations:
1. Where third person damages or injures property or
interest of the principal in agent’s possession;
2. Where third person colludes with the agent to injure or
defraud the principal;
3. Where third person induces the agent to violate his
contract with the principal to betray the trust reposed
upon him by the principal.
Motivation-Deviation Test
The bounds of the agent’s authority are not the limits of
the principal’s tort liability, but rather the “scope of the
employment” which may or may not be within the bounds
of authority. Scope of employment is much wider than
scope of authority.
Requisites for vicarious liability:
1. Satisfactory evidence that the employee in doing the
act, in doing of which the tort was committed, was
motivated in part, at least, by a desire to serve his
employer; and
2. Satisfactory evidence that the act, in the doing of which
the tort is committed, was not an extreme deviation from
the normal conduct of such employee.
NATURE OF AGENT’S RIGHT OF LIEN (Art. 1914)
The agent may retain in pledge the things which are the
object of the agency until the principal effects this
reimbursement and pays the indemnity (Art. 1914). Unlike
contractual pledges, however, the agent is not entitled to
the excess in case the things are sold to satisfy is claim
and the proceeds thereof are more than the amount due
(De Leon, Comments and Cases on Partnership, Agency
and Trusts, 2010 ed., p. 602). Limited to subject matter of
agency
1. Requires possession by agent of subject matter.
2. Generally only in favor of agent
JOINT PRINCIPALS
Two or more persons who appoint an agent for a common
transaction or undertaking
Liability: Solidarily liable to the agent for all the
consequences of the agency (Art. 1915).
Requisites of Solidary Liability:
1. There are two or more principals
2. The principals have all concurred in the appointment of
the same agent; and
3. The agent is appointed for a common transaction or
undertaking
Note: Any one of them may revoke the agency (Art. 1925).
The rule in Art. 1945 applies even when the appointments
were made by the principals in separate acts, provided
that they are for the same transaction. The solidarity
arises from the common interest of the principals, and not
from the act of constituting agency (Constante Amor de
Castro v. CA, G.R. No. 115838, July 18, 2002).
RULES ON DOUBLE SALE BY PRINCIPAL AND AGENT
1. When two persons contract with regard to the same
thing, one of them with the agent and the other with the
principal, and the two contracts are incompatible with
each other, that of prior date shall be preferred, without
prejudice to Art. 1544 (double sale) (Art. 1916).
2. If the agent has acted in good faith, the principal shall
be liable in damages to the third person whose contract
must be rejected. If the agent is in bad faith, he alone
shall be responsible (Art. 1917).
INSTANCES WHEN PRINCIPAL IS NOT LIABLE FOR
THE EXPENSES INCURRED BY THE AGENT (Art.
1918):
1. If the agent acted in contravention of the principal’s
instructions, unless the latter should wish to avail
himself of the benefits derived from the contract;
2. When the expenses were due to the fault of the agent;
3. When the agent incurred them with knowledge that an
unfavorable result would ensure, if the principal was not
aware thereof;
4. When it was stipulated that the expenses would be
borne by the agent, or that the latter would be allowed
only a certain sum.
M ODES OF E XTINGUISHMENT OF
A GENCY
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(EDWARD)
1. Expiration of the period
2. Death, civil interdiction, insanity or insolvency of the
principal or of the agent
3. Withdrawal of the agent
Agent may withdraw by giving notice to the principal,
but must indemnify the principal for damages that he
may suffer by reason of such withdrawal.
4. Accomplishment of the object or the purpose of the
agency
5. Revocation
6. Dissolution of the firm or corporation, which entrusted or
accepted the agency.
Note: The list is not exclusive.
DEATH
General Rule: Agency is extinguished ipso jure upon the
death of either principal or agent.
Exceptions:
A.The agency is coupled with an interest. (Art. 1930)
1. If the agency has been constituted in the common
interest of the principal and the agent
Note: In an agency coupled with an interest, the
agent’s interest must be in the subject matter of the
power conferred and not merely an interest in the
exercise of the power because it entitles him to
compensation. When an agent’s interest is confined
in earning his agreed compensation, the agency is
not one coupled with an interest, since an agent’s
interest in obtaining his compensation as such agent
is an ordinary incident of the agency relationship (Lim
vs. Saban, G.R. No. 163720, December 16, 2004).
2. If it has been constituted in the interest of a third
person who has accepted the stipulation in his favor
B.The act of the agent was executed without knowledge
of the death of the principal and the third person who
contracted with the agent in good faith (Art. 1931).
Note: The power of sale in a deed of mortgagee
survives death of the principal (mortgagor) as it is
primarily an authority conferred upon the mortgagee for
the agent’s own protection. The right to foreclose exists
independently.
Anything done by the agent, without knowledge of the
death of the principal or of any other cause which
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extinguishes the agency, is valid and shall be fully
effective with respect to third persons who may have
contracted with him in good faith (Art. 1931).
Agent’s heirs have duty to notify the principal thereof and
in the meantime adopt such measures as the
circumstances may demand in the interest of the latter.
DISSOLUTION OF FIRM OR CORPORATION.
This is equivalent to death of a natural person.
ACCOMPLISHMENT OF OBJECT OR PURPOSE
It ipso facto terminates the agency even though it is
expressed to be irrevocable. An agency may also be
terminated by the non-accomplishment of the object or
purpose within a reasonable time.
EXPIRATION OF TERM
1. Time is specified – upon the arrival of the time agreed
upon.
2. Time not specified – at the end of a reasonable time.
Either party can terminate the relationship at will by
giving notice to the other.
3. Period implied – the period may be implied from the
terms of the agreement, the purpose of the agency, and
the circumstances of the parties.
LOSS OR DESTRUCTION OF SUBJECT MATTER
General Rule: Agency is terminated.
Exception:
1. If it is possible to be substituted by other.
2. Partial loss or destruction does not always terminate the
agency.
CHANGE OF CONDITIONS
General Rule: Where there is a basic change in the
circumstances surrounding the transaction, which was not
contemplated by the parties and which would reasonably
lead the agent to believe that the principal would not
desire him to act, the authority of agent.
Exceptions:
1. If the original circumstances are restored within a
reasonable period of time.
2. Where agent has reasonable doubts as to whether the
principal would desire him to act, his authority will not
be terminated if he acts reasonably.
3. Where the principal and agent are in close daily contact,
the agent’s authority to act will not terminate upon a
change of circumstances if the agent knows the
 principal is aware of the change and does not give him
new instructions.
REVOCATION OF AGENCY BY PRINCIPAL
General Rule: Agency is revocable at will of the principal,
regardless of the term of the agreement.
Exceptions (Art. 1927):
1. If a bilateral contract depends upon it;
Example: Joe wanted to make Gil his surety so Joe
made Gil his agent as a sort of inducement to safeguard
him from eventual loss (Paras, Civil Code of the
Philippines, Volume V, 2008 ed., p. 820).
2. If it is the means of fulfilling an obligation already
contracted;
Example: Joe is indebted to Gil for the purchase price of
a fountain pen. But Joe in the meantime has no money.
So he appoints Gil as his agent to collect from Renz
some money which Renz owes him, which money will in
turn be applied to the purchase price of the fountain
pen.
3. If a partner is appointed manager of a partnership and
his termination is unjustifiable; and
4. If it is created not only for the interest of the principal but
also for the interest of third persons, who have accepted
the stipulation in their favor
IMPLIED REVOCATION MAY BE EFFECTED:
1. By the act of the principal in appointing another agent
for the same business or transaction (Art. 1923);
2. By the act of the principal in directly managing the
business entrusted to the agent (Art. 1924); or
3. By the act of the principal in subsequently granting a
special power of attorney as regards the same business
to another agent, where he had previously granted a
general power of attorney to one agent (Art. 1926)
A special power is not revoked by a subsequent general
power of attorney given to another agent, unless the
latter refers also to the act authorized under the special
power (Tolentino, Civil Code of the Philippines, Volume
V, 1992 ed., p.436).
The agent also has the power to renounce the agency
relationship, subject to contractual obligations owing to the
principal.
EFFECT OF REVOCATION TO THIRD PERSONS
1. If the agent is authorized to contract with specified
persons, revocation will not prejudice such third persons
until is given to them.
2. If the agent is authorized to contract with public in
general, publication in a newspaper is sufficient.
General Rule: The principal may revoke an agency at will.
Exceptions: When the agency is coupled with interest.
AGENCY COUPLED WITH AN INTEREST
An agency wherein the agent has acquired some interest
of his own in the execution of the authority granted to him,
in addition to his mere interest in the contract of
employment with the resulting gains.
Note: Agency coupled with interest may be revoked for a
just cause (De Leon, Comments and Cases on
Partnership, Agency and Trusts, 2010 ed., p. 606).
AGENT MAY WITHDRAW FROM THE AGENCY
1. Must give notice to the principal
2. Must indemnify should the principal suffer damages by
reason of the withdrawal unless the agent should base
his withdrawal from the impossibility of continuing the
performance of the agency without grave detriment to
himself (Art. 1928).
Note: The agent, even if he should withdraw from the
agency for a valid reason, must continue to act until
principal has had reasonable opportunity to take the
necessary steps to meet the situation (Art. 1929).
T RUSTS
A legal relationship between one person having an
equitable ownership (trustor) in property and another
owning the legal title (trustee) to such property, the
equitable ownership of the former entitling him to the
performance of certain duties and the exercise of certain
powers by the latter for the benefit of the former or some
other persons (beneficiary=equitable interest).
Implies confidence in a relationship.
Founded in equity such that it cannot result from a
contract formed for an illegal purpose. Neither may a trust
be created for the purpose of evading a legal prohibition.
Example: there cannot be a trust created for the purpose
of obtaining homestead patents, in favor of a person
already disqualified to obtain additional homesteads.
Concept of Trust (Fideicomisso)
It is a fiduciary relationship created by agreement or by
law where the trustor of the property has the equitable title
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while the legal title is vested in another (trustee). The The beneficiary of a trust
trustee holds the property for the benefit of another may demand performance of
(beneficiary) who could be the trustor himself or a third the obligation without having
person (Pineda, Partneship, Agency and Trusts). formally accepted the benefit
of the trust in public
Note: The trustee is not an agent of the trust estate or of The donee must comply with
document, upon mere
the cestui que trust, but he acts for himself in the the legal requirements in
acquiescence in the
administration of the trust estate, although subject to the accepting donations.
formation of the trust and
terms of the trust and the law of trusts. acceptance under the
second paragraph of Art.
Exception: A trustee has been regarded as agent of 1311 (stipulations pour
beneficiaries of the trust at least for certain purposes, autrui).
such as for the purpose of imputing to the beneficiaries of
the trust notice given to the trustee. Trust and Debt Distinguished
Trust Debt
Persons Involved in a Trust Right of the Third Person
1. Trustor – the one who intentionally creates a trust The beneficiary of a trust has A creditor has merely a
2. Trustee – the person who holds the legal title to the a beneficial interest in the personal claim against the
trust property, for the benefit of another, and with trust property. debtor.
certain powers and subject to certain duties Existence of Fiduciary Relationship
3. Beneficiary or the cestui que trust – the person who has
There is a fiduciary There is no beneficiary
the equitable interest in the property and enjoys the
relationship between a relationship between a
benefit of administration by the trustee. He may be a
trustee and a beneficiary. debtor and creditor.
natural person or a legal entity. The trustor may
establish a trust with himself as the beneficiary (usual
Trust distringuished from Stipulation Pour Autrui
case).
Trust Stipulation Pour Autrui

As to Origin
It can arise either by virtue It can arise only by virtue of
of a contract or by legal a contract and never by
provision. operation of law.
Trust and Contract Distinguished As to Object
Trust Contract Is always a specific Could either be a specific
Always involves owner-ship, property, whether real or property or other things
A legal obligation based on personal, including an
embracing a set of rights and
an undertaking supported by undivided interest therein
duties fiduciary in character
a consideration, which as in co-ownership or
which may be created by a
obligation may or may not be choses in action
declaration without
fiduciary in character. As to Form
consideration.
Is either express or implied. Is always express and must
Trust and Donation Distinguished It continues to exist unless be accepted by the third
repudiated. person before the grant
Trust Donation stipulated in his favor is
There is a transfer of mutually revoked by the
An existing legal relationship property as well as the parties
and involves the separation disposition of both legal and
of legal and equitable title equitable ownership except Trust and Trust Receipt distinguished
in cases of gifts in trust.
Trust Trust Receipt
Definition
The right to the beneficial A commercial document
enjoyment of a property but which is connected to the
the legal title to which is importation of goods

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fiduciary enjoyment of a through letters of credit B. As to creation – from the viewpoint of the creative
property but the legal title force bringing them into existence, it may be either:
to which is vested in 1. Express trust – created by the intention of the trustor
another. or of the parties. It is created by the direct and
Nature positive acts of the parties, by some writing, deed,
Fiduciary Involves a security will or by words, either expressly or impliedly,
transaction intended to aid evincing an intention to create a trust.
in financing importers and Elements:
retail dealers who do not a. Competent trustor and trustee;
have sufficient funds or b. Ascertainable trust res; and
resources to finance the c. Sufficiently certain beneficiaries
importation or purchase of
merchandise, and who may 2. Implied trust – one which comes into being by
not be able to acquire credit operation of law. This may be either:
except through utilization, a. Resulting trust – one in which the intention to
as collateral, of the create a trust is presumed by law to exist from the
merchandise imported or transaction and facts of the case
purchased. b. Constructive trust – one imposed by law
irrespective of and even contrary to the intention
TRUST PROPERTY of the parties. It is designed to promote justice,
The property so held is referred to as the “trust property” frustrate fraud and prevent unjust enrichment.
of “trust res”, which is the subject matter of the trust.
Reason: no one shall be unjustly enriched at the
It must consist of property actually in existence in which expense of another
the trustor has a transferable interest or title although it
may, as a rule, be any kind of transferable property either Express Trust and Implied Trust Distinguished (CPR):
realty or personalty. But it cannot be a mere expectancy Express Trust Implied Trust
without right or interest or a mere interest in the As to creation
performance of a contract although such interest is in the Created by the intention of Come into being by
nature of a property right. the parties operation of law
As to proof of trust
The trust property is owned by two persons at the same An express trust over an An implied trust over an
time, the relation between the two owners being such that immovable property or any immovable or any interest
one of them is under an obligation to use his ownership interest therein cannot be therein may be proved by
for the benefit of the other. proved by parol evidence oral evidence
The ownership of the trustee is a mere matter of form As to prescription
rather than substance, and nominal rather than real. The Action must be made within In resulting trust: Action must
trustee is not a mere agent, but an owner. 10 years from knowledge of be made within 10 years
the repudiation, otherwise from knowledge of
Note: A trust is not void for indefiniteness if by its terms prescribed. repudiation, otherwise
the whole property will go to beneficiaries who are prescribed.
undetermined but will be determined at the termination of In constructive trust: It must
the trust, at the latest. It is not necessary to the creation of be made with 10 years from
a trust that the cestui que trust be named or even be in date of registration.
existence at the time of its creation. As to applicability of the Doctrine of Laches
An express repudiation In constructive trusts, even if
CLASSIFICATIONS OF TRUSTS made known to the there is no repudiation,
A. As to effectivity – from the viewpoint of whether they beneficiary is necessary in laches may bar an action to
become effective after the death of the trustor or during order that laches or enforce an implied trust
his life, it may be either: acquisitive prescription may
1. Testamentary trusts bar an action to enforce an Exception: if there is
2. Trusts inter vivos (sometimes called “living trusts”) express trust concealment
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Note: The principles of the general law of trusts, insofar as
they are not in conflict with this Code, the Code of
Commerce, the Rules of Court, and special laws are
hereby adopted (Art. 1442).
PROOF OF TRUST
General Rule: Trust whether express or implied may be
proved by parol or oral evidence.
Exception: An express trust over an immovable or any
interest therein (Art. 1443). This latter requirement is not
for validity but for purposes of proof.
Note: No particular words are required for the creation of
an express trust, it being sufficient that a trust is clearly
intended (Art. 1444).
No trust shall fail because the trustee appointed declines
the designation, unless the contrary should appear in the
instrument constituting the trust (Art. 1445).
NECESSITY OF ACCEPTANCE FOR THE CREATION
AND VALIDITY OF A TRUST RELATIONSHIP
1. Acceptance of the trustee
a. Not necessary to its existence and validity since if he
declines, the courts will appoint a trustee to fill the
office that he declines (see Sec. 3 Rule 98 of the
Rules of Court).
b. But a trustee’s acceptance of an express trust is
necessary to charge him with the office of the trustee
and the administration of the trust and to vest the
legal title in him.
c. As between the mother and the uncle, the former is
preferred to be the trustee of the proceeds of the
insurance policy in the absence of any showing that
the former is incompetent. (Cabanas vs. Pilapil, G.R.
No. L-25843, July 25, 1974).
2. Acceptance of the beneficiary
a. Essential to the creation and validity of a trust.
However, such acceptance is presumed if there is no
proof to the contrary and the trust does not impose
any onerous condition upon the beneficiary.
b. Even if real property is involved, the acceptance need
not be in a public instrument (Cristobal vs. Gomez,
G.R. No. L-27014, October 5, 1927, as cited in
Pineda).
EXTINGUISHMENT OF EXPRESS TRUST
1. Accomplishment of the purpose of trust
2. Expiration of the agreed term
3. Mutual agreement of all parties
4. Happening of the resolutory condition, if one had been
imposed.
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5. Total loss of the object of the trust
6. Annulment or rescission of the trust
7. Decision of court declaring the trust terminated
8. Merger of the rights of the trustor and the trustee, as
when the trustor waived his beneficial rights in favor of
the trustee, or vice versa
9. Prescription
REQUISITES OF A TRUSTEE TO CLAIM TITLE BY
PRESCRIPTION (PACK)
1. He has performed open and unequivocal acts of
repudiation
2. Such positive acts of repudiation have been made
known to the beneficiary or the cestui que trust
3. The evidence thereon should be clear and convincing
and
4. The period fixed by law has expired (10 years from the
time that the repudiation is made known to the
beneficiary in cases of express trust or resulting trust
while 10 years from the time a constructive trust arises).
Note: The reckoning point is repudiation of the trust by
the trustee because from that moment his possession
becomes adverse which gives rise to a cause of action.
A mere silent possession by the trustee unaccompanied
by acts amounting to an ouster of the cestui que trust
cannot be construed as an adverse possession. Mere
collection of the rents and profits by the trustee and
erecting fences and buildings adapted for cultivation of the
land held in trust are not equivalent to unequivocal acts of
ouster of the cestui que trust (Laguna v. Levantino, G.R.
No. L-47386, April 18, 1941; Valdez v. Olorga, G.R. No.
L-22571, May 25, 1973).
Respondents cannot rely on the fact that the Torrens title
was issued in the name of Epifanio and the other heirs of
Jose. It has been held that a trustee who obtains a
Torrens title over property held in trust by him for another
cannot repudiate the trust by relying on the registration.
(Sotto v. Teves, G.R. No. L-22571, May 25, 1973). The
rule requires a clear repudiation of the trust duly
communicated by the beneficiary. The only act that can be
construed as repudiation was when respondents filed the
petition for reconstitution in October 1993. And since
petitioners filed their complaint in January 1995, their
cause of action has not yet prescribed, laches cannot be
attributed to them.
TRUST PURSUIT RULE
Equity will pursue property that is wrongfully converted by
the fiduciary, or otherwise compel restitution to the
beneficiary. A trust will follow the property through all
changes in its state and form, provided its product or
proceeds are capable of identification.

IMPLIED TRUST
Those which, without being express, are deducible from
the nature of the transaction as matters of intention, or
which are superinduced on the transaction by operation of
law, as matters of equity independently of the particular
intention of the parties.
While implied trusts may be proved by oral evidence, the
evidence must be trustworthy and received by the courts
with extreme caution, and should not be made to rest on
loose, equivocal or indefinite declarations. The proof
should be as fully convincing as if the acts giving rise to
the trust obligation are proven by an authentic document
(Filipinas Port Services Inc. v. Go, G.R. NO. 161886,
March 16, 2007).
An action for reconveyance of a parcel of land based on
an implied or constructive trust prescribes in ten years,
the point of reference being the date of registration of
the deed or the date of the issuance of the certificate of
title over the property (Eulogio Pedrano vs. Heirs of
Benedictino Pedrano, G.R. No. 159666, December 4,
2007). Since such issuance operates as a constructive
notice to the whole world, the discovery of fraud is
deemed to have taken place at that time (Richard
Lopez vs. Court of Appeals, G.R. No. 157784,
December 16, 2008). BUT, this rule applies only when
the plaintiff (or person enforcing the trust) is not in
possession of the property, since if a person claiming to
be the owner thereof is in actual possession of the
property, the right to seek reconveyance, which in effect
seeks to quiet title to property, does not prescribe.

Resulting and Constructive Trust Distinguished Note: Discovery of the fraud must be deemed to have
Resulting Trust Constructive Trust taken place from the issuance of the certificate of title
“because registration of real property is considered a
Intention to create trust
constructive notice to all persons and it shall be counted
The trust is created from the time of such registering, filing or entering ”
irrespective of or even (Serna, et al. v. Fontanilla, et al., G.R. No. 124605, June
The intent of the parties to
contrary to the intention of 18, 1999).
create a trust is presumed
the parties to promote
or implied by law from the
justice, frustrate fraud and Kinds of Implied Trusts
nature of their transaction
to prevent unjust 1. Purchase money resulting trust (Art. 1448): When
enrichment. property is sold, and the legal estate is granted to one
Prescriptive period party but the price is paid by another party for the
purpose of having the beneficial interest of the property.
The 10 Year prescriptive
The 10 year prescriptive period shall be counted
To give rise to a purchase money resulting trust, it is
period shall be counted from the time that the
essential that there be:
from the time repudiation is constructive trust arises, i.e.
a. An actual payment of money, property or services or
made known to beneficiary. from the date of
an equivalent, constituting valuable consideration;
registration.
b. Such consideration must be furnished by the alleged
Examples beneficiary of a resulting trust.
Illustrated in Articles 1448, Illustrated in Articles 1450,
1449, 1451, 1452, 1453 1454, 1455, 1456
Exceptions:
Requisites before period of prescription may start in a. Where A pays the purchase money and title is
regard to an action based on an implied trust: conveyed by absolute deed to A’s child or to a person
1. The trustee has performed unequivocal acts of to whom A stands in loco parentis and who makes no
repudiation amounting to an ouster of the cestui que express promise, a trust does not result, the
trust. presumption being that a gift was intended;
2. Such positive acts of repudiation have been made know b. Where an actual contrary intention is proved;
to the cestui que trust; and c. Where the purchase is made in violation of an
3. Evidence thereon is clear and positive (Vda. De existing statute and in evasion of its express
Cabrera v. CA, GR No. 108547. February 3, 1997). provision, no trust can result in favor of the party who
is guilty of fraud (Tigno vs. Court of Appeals. GR No.
The 4-year prescriptive period under Art. 1391 applies 110115, October 8, 1997).
only if the fraud does not give rise to an implied trust,
and the action is to annul a voidable contract under Art. 2. Donations made to a person but the beneficial interest
1390. is vested in another. The donee is the trustee while the
designated third person is the beneficiary (Art. 1449).
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3. Purchase with borrowed funds and the conveyance is

made to lender to secure payment of debt (Art. 1450).
4. Legal title to land inherited by heir placed in the name of
another (Art. 1451).
5. Legal title to property purchased taken in one co-owner
(Art. 1452).
6. Conveyance under a promise to hold for, or transfer to
another (Art. 1453).
7. Absolute conveyance to a person to secure
performance of grantor’s obligation (Art.
1454).Purchase of property with use of trust funds (Art.
1455).
8. Acquisition of property through mistake or fraud (Art.
1456).

Note: Enumeration is NOT exclusive.

An implied trust may be converted to an express trust.

Other Examples of Implied Trust:

1. The registration of land under Torrens in the name of
one person do not bar evidence to show it was only
held in trust for another.
2. Certificate of registration of vehicle placed in the name
of a person although the price was not paid by him but
by another.
3. One arising from the agent’s willful violation of the trust
reposed in him by the principal by buying for himself the
property he was supposed to buy for the principal who
designated and appointed him to negotiate with the
owner.
4. In consonance with the trust fund doctrine in
Corporation Law, the assets of the corporation, as
represented by the capital stock, are regarded as “trust
fund” to be maintained unimpaired for the payment of
corporate creditors.

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