Business Organizations I Comparative Matrix GENERAL PARTNERSHIP 1. General Partner 2. Industrial Partner (Article 1867) LIMITED PARTNERSHIP 1.

General Partner 2. Industrial Partner 3. Limited Partner (Article 1843) AGENCY 1. Principal 2. Agent TRUST Article 1440 provides for the parties in a trust, namely: 1. Trustor The person who establishes a trust. 2. Trustee - The one in whom confidence is reposed as regards property for the benefit of another person. Basically, he holds the property in trust for the benefit of the beneficiary. 3. Beneficiary The person for whose benefit the trust has been created. *NB: The trustor may also be the beneficiary of the trust. It is the right to the beneficial enjoyment of property, the legal title to which is vested in another. (65 C.J. 212) It is a fiduciary relationship concerning property which obliges the person holding it to deal with the property for the benefit of another. (Pacheco v. Arro, 85 Phil. 505) The person holding, in view of his equitable title, is allowed to exercise certain powers belonging to the owner of the legal title. (54 Am. Jur. 21) The purpose of the establishment of a trust is to oblige a person to hold and manage certain property for the benefit of another person. The characteristics of a trust include the following: 1. Fiduciary relationship

PARTIES

DEFINITION

Two or more persons enter into a binding contract among themselves to contribute money, property, or industry, to a common fund. The top intention of such contract is to divide profits among themselves. They can also form a partnership to exercise a profession. (Article 1767)

A form of partnership formed by two or more By the contract of agency a persons having as members at least one general person binds himself to partners and one limited partners. (Article 1843) render some service or to do something in representation or on behalf of another, with Note: The limited partnerships formed under the the consent or authority of old law shall be governed by such unless they the latter. Art. 1868 comply with the requisites under Article 1867.

PRINCIPAL PURPOSE/NATURE

The partnership has a separate and distinct juridical personality from each of the partners. Even if the partnership failed to comply with the requirements of Article 1772 (1). (Article 1768) Exceptions: Those partnerships whose: 1. Articles were kept a secret from the public; and

Same

Representation Principles: A spring cannot rise higher than its source. All that the agent can do is what

2. Members may contract with third persons in his own name Have no juridical personality, and will be treated as a co - ownership. (Article 1775)

the principal has authorized. Acceptance of agent is necessary. His consent is necessary before he may be appointed as agent; before that, the principal may not compel him to represent. If the principal, by his acts and circumstances of his causing, makes it appear that a person is his agent, he cannot renounce that person as his agent. (Agency by estoppel.) The contract of agency may be terminated by the principal at will or when representation is no longer necessary.

2. Created either by law or by agreement (Art. 1441) 3. Legal title is held by one party and the equitable or beneficial title on another.

ELEMENTS

1. Mutual Consent bind themselves in a contract to contribute money, property, or industry 2. To contribute these to a common fund 3. Intent to divide the profits among themselves. Money, property, services (Article 1767)

Same

Consent Representation Authorization

Elements: Parties to the trust Subject matter of the trust

CONTRIBUTIONS

Only money or property

CONSIDERATION

Share in profits and compensation by way of income. (Articles 1767, 1797, 1798)

Share in profits and compensation by way of income. (Articles 1850, 1856, 1857)

Compensation is presumed until proven otherwise, Art. 1875

A trust may either be onerous or gratuitous.

PERSONALITY

The partnership has a separate and distinct juridical personality from eah of the partners. Even if the partnership failed to comply with the requirements of Article 1772 (1). (Article 1768) Exceptions: Those partnerships whose: 1. Articles were kept a secret from the public; and 2. Members may contract with third persons in his own name Have no juridical personality, and will be treated as a co - ownership. (Article 1775)

TYPES/KINDS

As to nature:
Commercial or Trade Partnership Professional or Non Trade Partnership (Article 1767)

Same as General Partnership

Express agency, Art. 1869 Implied agency, Art. 1869 General agency, Art.
18761877

As to duration:

1. Partnership at will 2. Partnership with a term or a particular undertaking (Article 1785) Rule on continuation of partnership when term has expired or the undertaking is finished: 1. If the partnership is continued without any express agreement, the rights and duties of the parnters remain the same. 2. If there is an express agreement, the rights and duties of the parties are in accordance to the agreement.

Special, Art. 18761878

Special powers of attorney necessary (Art. 1878) Special power to sell does not include power to mortgage and vice versa. Art. 1879 Special power to compromise is not the same as power to submit for arbitration. Art. 1880

Article 1441 provides that trusts may be either express or implied. Express trust one created by the intention of the trustor or of the parties. Implied trust one created by operation of law.

As to purpose:

1. The purpose for which the partnership was formed must be lawful; and 2. The partnership must be established for the common benefit or interest of the partners.

(Article 1770)

As to legality/existence:

1. De Facto Partnerhip - A partnership that has failed to comply with all the legal requirements for establishment. 2. De Jure Partnership - A partnership that has complied with all the legal requirements for establishment.

As to object:

The object of a partnership may either be universal or particular. (Article 1776) UNIVERSAL PARTNERSHIPS - A universal partnership refers to all the present property or to all the profits. (Article 1777)

Kinds of universal partnership:

1. Universal partnership of all properties. (Articles 1776, 1777, 1778, 1779) 2. Universal partnership of all profits. (Articles 1777, 1780, 1781) Important Notes: 1. Only the usufruct of any movable or immovable property passess to the partnership in a universal partnership of profits. 2. If the articles of universal partnership is silent, then the object of the partnership is that of a universal partnership of profits. PARTICULAR PARTNERSHIP A particular partnership may be likened to a joint venture (Heirs of Tan Eng Kee vs. CA, G.R. 126881) A particular partnership has for its object

determinate things, their use or fruits, or a specific undertaking, or the exercise of a profession or vocation. (Article 1783) As to liability: The liability of a partner may either be general or limited. A general partner is has unlimited liability. (Articles 1816, 1817, 1824, 1826, 1839) An industrial partner is not liable for the losses as among the partners, but is liable as to third persons. (Articles 1797, 1816, 1817) MANNER OF CREATION/FORM REQUIRED A general partnership can be constituted in any form (Article 1771) and begins from the moment the contract is executed unless otherwise stipulated. (Article 1784) Exceptions: 1. When immovable properties are contributed. (Article 1771 & 1773) a. In this case, there should be an inventory of the immovables contributed. (Article 1773) b. The inventory should be signed by the parties. (Article 1773) c. The inventory should be attached to the public instrument. (Article 1773) 2. Real rights are contributed. (Article 1771) 3. If capital is 3000 pesos or more. (Article 1772) Failure to comply with the requisites in 1772 does not affect the liability to third persons. (Article 1772) May be orally constituted unless form is required by law, Art. 1869 (2) Written form if agency is for conveyance of land, Art. 1874 Express Trusts: Express trusts over 5one5able or any interests therein must be written to be enforceable. No effect as to validity of the contract. (Art. 1443) An express trust over personal property through an oral agreement is enforceable and valid between the parties. No particular words are required for the creation of an express trust as long as the intention to create a trust is clear. (Art. 1444) The trust is still created even though the trustee refuses to be such, unless trustees acceptance is made a requisite in the instrument creating the trust. (Art. 1445) *NB: The rationale for this is that the Court will just appoint another trustee, unless otherwise stipulated in the trust instrument.

Special, Art. 18761878

1. Execute SPA listing specific authorized actions that agent may perform 2. Notarize SPA in the jurisdiction where he is 3. Apply notarized SPA in Philippine consulate for authentication

(Sec. 3, Rule 98, Rules of Court) Acceptance by the beneficiary is necessary. (Art. 1446) However, if the trust does not impose any onerous condition on the beneficiary, his acceptance shall be presumed, if there is no proof to the contrary. (Art. 1446)

Implied Trusts: Form Required An implied trust may be proved by oral evidence. (Art. 1457) Implied Trusts: Manner Created by Law 1. When a property is sold and the legal estate is granted to one party but the price is paid by another to enjoy beneficial interest over such property. The former is the trustee and the latter the beneficiary. (Art. 1448) *NB: However, if the person to whom title is granted is a child of the one paying the price, then no implied trust is created by law. It is disputably presumed that there is a gift in favor of the child. (Art. 1448) 2. When there is a seeming donation to another person but it appears that although the legal estate is granted to the 6one such done has either no beneficial interest over the property or has but only to a part thereof. (Art. 1449) 3. When the funds used to purchase property are the proceeds of a loan contracted by one person

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for the benefit of another and the property is delivered to the payor as security for the beneficiarys debt to the payor. A trust is created in favor of the beneficiary. Thus, if the latter acquires the funds, he may redeem the property from the payor and compel conveyance thereof. (Art. 1450) When land is inherited by an heir but he causes the legal title to be placed in another persons name. A trust is created for the benefit of the true owner, namely the heir. (Art. 1451) When 2 or more persons agree to purchase property and by common consent, the legal title is in only one of them but for the benefit of all. A trust is created in favor of the other owners who are not named in the proportion of their interests. (Art. 1452) When property is transferred or delivered to a person in reliance upon his declared intention to hold or transfer the same to another or to the grantor. A trust is created for the person whose benefit was contemplated/ (Art. 1453) When an absolute conveyance of property is made to secure the performance of the grantors obligation towards the grantee. A trust is created in favor of the grantor. If the grantor offers to fulfill his obligation on maturity date, the grantor may demand the return of the thing to him. (Art. 1454) When a trustee, guardian or

other person holding a fiduciary relationship uses funds to purchase property and causes the conveyance of the same to himself or to third persons. A trust is created in favor of the owner of the funds. (Art. 1455) 9. When property is acquired through mistake or fraud. A trust is created in favor of the person from whom the property is from and the acquirer is deemed the trustee. (Art. 1456) *NB: The fraud contemplated here is committed by a third person not a party to the contract of trust. Otherwise, no trust is created. Express Trust Express trusts are perfected by mere consent of all parties involved. Implied Trust Implied trusts are perfected upon the satisfaction of all the factual circumstances provided by law when creating the same. Express Trust An express trust is consummated when the undertaking for which it was created has already been completed or when the period fixed has already lapsed. Implied Trust An implied trust is consummated when the party for which the implied trust favors acquires the property held in trust. OBLIGATIONS OF THE TRUSTEE: Rule 98 of the Rules of Court

PERFECTION

By mere consent (Articles 1767, 1784)

Substantial Compliance in good faith of the requirements laid in Article 1844.

Consent, i.e. acceptance by the agent.

CONSUMMATION

See Dissolution and Winding Up

DUTIES/OBLIGATIO NS OF PARTIES

OBLIGATIONS OF THE PARTNERS AMONG THEMSELVES:

OBLIGATIONS OF PARTNERS AMONG THEMSELVES:

OBLIGATIONS OF PRINCIPAL: 1. Comply with obligations

1. Every partner is a debtor to the partnership for whatever he promised to contribute. 2. A partner warrants against eviction the properties he promised to contributes. 3. A partner is liable for the fruits of the property he promised to contribute if there was delay in the delivery, without need of demand. (Article 1786) 4. The value of the goods that a partner contributes must be appraised according to the stipulations in the contract, or according to experts, if there are not stipulations thereto. The appraised price would be the amount he contributes to the partnership. (Article 1787) 5. If the partner who promised to contribute money, fails to deliver it on the time promised, he will be liable for the interest and damages from the time of delay. 6. A partner is also liable for interest and damages if he used partnership money for his own use. (Article 1788) 7. An industrial partner can't engage in a business for himself, unless the partnership expressly permits him. If he does so without permission, the partnership may expel him or avail of the benefits he obtained from doing so. However, in both options, the partnership still has the right to damages against him. (Article 1789) 8. Partners should contribute equal shares to the capital, unless a contrary stipulation appears. (Article 1790) 9. If the partnership is in danger of losing business, a partner refuses to contribute more capital to save the venture, must sell his shares to the other partners, unless there is a contrary stipulation. However, this is with the exception of the industrial partner. (Article 1791) 10. If an authorized partner was able to collect a

Additional obligation / rights of the limited partner: 1. Right to have partnership books kept at principal place of business 2. Right to inspect/copy books at reasonable hour 3. Right to have on demand true and full info of all things affecting partnership 4. Right to have formal account of partnership affairs whenever circumstances render it just and reasonable 5. Right to ask for dissolution and winding up by decree of court 6. Right to receive share of profits/other compensation by way of income (Article 1851) 7. Right to receive return of contributions, or demand the return of his contribution provided the partnership assets are in excess of all its liabilities. ((Articles 1851, 1856, 1857) 8. The limited partner holds as trustee for the partnership the money, other properties, specific properties he contributed but was not delivered, has been wrongfully returned, or was wrongfully conveyed to him. 9. Even a limited partner rightfully received hs share in whole or in part, he is still liable to the partnership for any sum required to discharge the partnership liability if the claim arose before he received his share. (Article 1858) 10. A limited partner can assign his interest. (Article 1859) 11. A limited partner may also transact business with the partnership and can receive on account of resulting claims against the partnership, unless he is a limited partner. However, no limited partner cannot receive collateral security, nor a payment, conveyance, or release if at the time of such receipt the assets of the parrtnership are not enough to

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imposed by contracts entered into by his authorized agent in his behalf Art. 1910 Advance to agent sums necessary for the execution of agency upon the latters request, Art. 1912 Reimburse agent (with interest if applicable) if the latter had advance sums himself even if transaction was unsuccessful, Art. 1912 Indemnify agent for damages the latter may have suffered in the execution of the agency without fault on the latters part, Art. 1913 Bound to contract first signed in a situation where the object is the same thing but transacted to two different people by the principal and the agent respectively, Art. 1916 Not revoke agency if: a. bilateral contract depends on it b. it is the means of fulfilling a pre-existing contractual obligation c. partner, as agent, is appointed as manager and his removal is

1. File a bond. (Section 5) 2. Make an inventory of the real and personal property in trust. (Section 6[a]) 3. Manage and dispose of the estate and faithfully discharge his trust in relation thereto, according to law or according to the terms of the trust instrument as long as they are legal and possible. (Section 6[b]) 4. Render a true and clear account. (Section 6[c])

demandable sum of money from a person who both owed him and the partnership, he is obliged to apply the sum proportionally to his credits and the partnership's credits. However, there is no stipulation against applying the entire sum in favor of the partnership credit. Qualification: If a partner has multiple debts to one person, he can declare to which debt shall the collected amount be credited, but only in cases where the personal debt of the partner is more onerous to him than the partnership credit. (Article 1792) 11. If a partner has received his share, in whole or in part, ahead of the others, shall be obliged to return it to the partnership capital if the partnership becomes insolvent. (Article 1793) 12. Every partner is responsible to the parntership for the damages it suffered through his fault. This liability is not set - off even if the partnership profited or benefited through such industry. However, the Courts may temper his liabili+I13ty if the partnership realized unusual profits through the extraordinary efforts of the partner in other activities. 13. If a partner contributes a specific and determinate thing to the partnership, for purpose is only for the use of and enjoyment of the fruits, and such thing is not fungible, the risk shall be borne by the partner who owns it. If fungible things, or things that eventually deteriorates where contributed, or if they were contributed for the purpose of selling the same, the risk shall be borne by the partnership. However, if there is no stipulation, the things that were appraised in the inventory shall be borne by the partnership as well, and in such case, the claim shall be limited to the value at the time they were

answer for the liabilities. (Article 1854) unjustifiable Art. 1927 12. If there are several limited partners, they may agree among themselves who among them may have priority as to compensation by way of income OBLIGATIONS OF or any other matter. This agreement must be written AGENT: in the certificate. If there is no agreement, then all 1. Act within scope of his of them shall be on equal footing. (Article 1855) authority, Art. 1881 2. Carry out the agency as 13. Without the written consent or ratification of all accepted, Art. 1884 limited partners, a general partner cannot: 3. Finish the business already begun even on 1. Do any act in contravention of the certificate death of principal, Art. 1884 2. Do any act which would make it impossible to 4. Observe ordinary diligence in custody of carry on the ordinary business of the partnership goods forwarded by principal (in case of 3. Confess judgment against partnership declining the agency), 4. Possess partnership property/assign rights in Art. 1885 5. Advance necessary specific partnership property other than for funds if stipulated, partnership purposes unless principal is insolvent, Art. 1886 5. Admit person as general partner 6. Act in accordance of principals instructions 6. Admit person as limited partner unless or with ordinary authorized in certificate diligence as required by nature of business, Art. 7. Continue business with partnership property on 1887 death, retirement, civil interdiction, insanity or 7. Refrain from acts that insolvency of gen partner unless authorized in would cause damage or certificate. (Article 1850)" loss to principal, Art. 1888 8. Render account of transactions, Art. 1891 9. Deliver to principal what he received because of the agency, Art. 1891 10. If commission agent, then he is responsible to distinguish and mark

appraised. (Article 1795) 14. The partnership answers for all the expenses, including the interests, a partner may have incurred in the name of the partnership. The partnership shall also answer for the obligations a partner has contracted in good faith for the partnership's interest. Lastly, the partnership shall also answer for the consequences arising from the management of the partnership business. (Article 1796) 15. THe losses and profits shall be distributed in the following manner: 1. According to the agreement stipulated in the contract 2. If there was no stipulation as to losses, then it shall be distributed proportionately. 3. If there is no stipulation as to profits and losses, then the same shall be distributed in proportion to their contribution, but the industrial partner is not liable for any losses. 4. The share of the industrial partner must be the most equitable and just under the circumstances, absent any stipulation; and if he contributed capital, he shall also receive a share in proportion to his capital, on top of the just and equitable share he received for his industry. (Article 1797) 16. If a third person is designated by the partnership to distribute the profits among the partners, they cannot question the judgment of that person unless the division is manifestly unfair. If a partner has already carried out the decision of the third person, or has not impugned the decision within three months, he cannot complian anymore. The designation of losses and profits cannot be

goods of the same kind owned by different principals, Art. 1904 11. If commission agent and authorized to sell on credit, then he is responsible to inform principal, Art. 1906 12. Continue to act as agent until principal has reasonable opportunity to take necessary steps to meet the situation in the case of the formers valid withdrawal, Art. 1929 OBLIGATIONS OF AGENTS HEIRS: 1. Notify the principal of agents death and adopt provisional measures as the circumstances may demand in the interest of principal, Art. 1932

entrusted to any of the partners. (Article 1798) 17. There can be no stipulation that exempts a partner from sharing in the profits and losses. (Article 1799) 18. A partner who was appointed as manager in the articles of partnership may execute all acts of administration. No partner can oppose his acts unless the managing partner is in bad faith. The managing powers appointed to the managing partner cannot be revoked without just or lawful cause. Should the partners decide to revoke the powers of the managing partner, they should gather enough votes as to represent the majority. A power granted after the partnership is constituted may be revoked anytime, provided that a majority vote is cast. (Article 1800) 19. If two or more managing partners are appointed, the following rules are observed: 1. They will manage according to the specification agreed upon. 2. If there is no specification of their respective duties, all of them can execute all acts of administration. 3. If one of them oppose the acts of others, the decision of the majority shall prevail. 4. If there is a tie, the matter shall be decided by the partners owning the controlling interest. (Article 1801) 5. In a case where there is a stipulation that none of the managing partners shall act without the consent of the others, any act made by any of them is not valid unless everyone concurred unless there is imminent danger of grave or irreparable

injury to the partnership. (Article 1802) 20. If there is no stipulation as to how the management of the partnership is to be done, the following rules are observed: 1. All partners are considered agents of the partnership. 2. Any act of any partners shall bind the partnership, unless it is opposed by the other managing partners. Further, a partner cannot bind the partnership for an act he is not authorized to do so, and the third person knows the lack of authority of such partner. (Article 1818) 3. None of the partners may make make important alterations in the immovable property of the partnership. However, the intervention of the Court may be sought if the refusal to give consent will result to a manifest prejudice against the interest of the partnership. (Article 1803) 21. Every partner has the right to include another person in his share, but the associate is not admitted into the partnership unless all partners consent thereto. (Article 1804) 22. With regard to the partnership books, the following rules are observed: 1. The books shall be kept at the place agreed upon by the partners. 2. If there is no stipulation, then it shall be kept at the principal place of the business. All partners shall have the right to to access, inspect, and copy them at any reasonable hour. (Article 1805) 23. The relationship of partners between each other is fiduciary, that is why every partner shall

render, on demand, true and full information of all things affecting the partnership, to any partner or representative thereof. (Article 1806) 24. Every partner must account to the partnership for any benefit. A partner who obtained any profit, without the consent of the others, from any transactions connected to the partnership, must hold the profit as a trustee for the other partners. (Article 1807) 25. The capitalist partners can't engage in another business which is of the same nature of the partnership business, unless there is a stipulation to the contrary. If a capitalist partner engages in another business which has the same nature of the partnership business, and without consent, he must bring all the profits to the partnership business, but shall personally bear all the losses. (Article 1808) 26. Any partner can demand a formal accounting of the partnership affairs. (Article 1809) OBLIGATIONS WITH REGARD TO THIRD PERSONS: 1. Every partnership shall operate under a firm name. Those who include their names in the firm name, but they themselves are not partners, shall be liable to third persons as partners. (Article 1815) 2. The liability of all partners, except limited partners, extend to their personal properties, should the partnership assets fail to cover the contracts the partnership business entered into. Any partner may enter into a separate obligation to

OBLIGATIONS WITH REGARD TO THIRD PARTIES 1. The surname of a limited partner shall not appear in the firm name. If the surname of a limited partner appears in the firm name, he is liable as a general partner to partnership creditors who extended credit to the partnership provided that such creditors did not have knowledge the he was a limited partner. Exceptions: 1. Unless they have the same surname of a general partner. 2. If the firm name was established before the

perform a partnership contract. (Article 1816) 3. The partners cannot exempt themselves, through a stipulation, from liability as to third person, but they may settle the matter between themselves. (Article 1817) 4. Every partner is an agent of the partnership and binds the partnership with every act carried out for the interest of the partnership business. Exception: The partner is not authorized to act for the partnership in that matter, and the third person knows of the defect of authority of such partner. These two conditions must concur, and in such a case, the partner so acting is liable only in his personal capacity. Exception to the Exception: If the partners ratify the action of the unauthorized partner, then the act binds the partnership. Except when authorized, or the partnership business is abandoned by the partners, no partner can: 1. Assign partnership property in trust 2. Dispose of the goodwill of the business 3. Do any other act which would make it impossible for the partnership to carry out its business in its ordinary course. 4. Confess a judgment. 5. Enter into a compromise agreement. 6. Submit a partnership claim or liability to arbitration. 7. Renounce a partnership claim.

limited partner was admitted. (Article 1846) 2. If the certificate of limited partnership contains a false statement, any party to the false statement may be held liable by the person who suffered loss due to reliance of the false statement, provided that the party knew the falsity at the time he signed the certificate, and that the third person suffered loss before the certificate was amended, or there was a petition to amend the same. (Article 1847) 3. A limited partner and / or a contributor, is not a proper party to proceedings except when he is enforcing his right against the partnership. (Article 1866) PROPERTY RIGHTS Same

Any of the acts mentioned above will not bind the partnership if third persons have knowledge of the restriction. (Article 1818) 5. Any partner may convey title of any real property that belongs to the partnership and may recover such property unless: 1. The conveyance was binding in accordance to the first paragraph of Article 1818. 2. The property is now in the hands of a holder for value through a grantee, and such person had no knowledge of the defect in the authority of the grantee. Important Notes: 1. If title to real property is in the name of the partnership, a conveyance by a partner in his own name passes the equitable interest of the partnership, provided that the act was within the authority provided under Article 1818 (1). 2. If title to real property is under the name of one or more but not all partners, and the record does not disclose the rights of the partnership to such property, the partners whose names appear in the title may convey the title of the property. However, the partnership may recover such property if the acts of the partners who conveyed the title does not bind the partnership under Article 1818 (1), except when the purchaser of the assignee is a holder for value and had no knowledge of the restriction. 3. If title to the real property is under the

name of one or more, but not all partners, or in a third person in trust for the partnership, a conveyance may be executed by a partner and the equitable interest is passed, provided that it is within the authority provided by Article 1818 (1). 4. If the title to real property is under the name of all the partners, a conveyance by all all partners passess all their rights to such property. (Article 1819) 6. Any admission or representation by a partner concerning the partnership affairs, if done within his authority, is evidence against the partnership. (Article 1820) 7. When notice or knowledge operates as notice or knowledge to the partnership: 1. When notice is sent to a partner while he was an actual partner in the partnership. 2. When a partner acquires knowledge of the matter while he was a partner. 3. When any other partner who acquires knowledge about the matter could and should have communicated it to the acting partner. Exception: The situations mentioned above does not operate as notice or knowledge to the partnership if there was fraud committed by or with the consent of that partner who acquired knowledge or received notice. (Article 1821) 8. The partnership is also liable in the same extent

of the guilty partner, if a partner has caused loss or injury to a third person, along with any penalty incurred, provided that the guilty partner acted within his authority or under the ordinary course of the business. (Article 1822) 9. The partnership is liable and bounded to make good the loss: 1. If a partner misapplies the money or property of a third person he recieved within the scope of his apparent authority. 2. If a partner missapplies the money or property of a third person that the partnership acquired in the course of its business, while it was still in the custody of the partnership. If the money or property was misapplied after it was no longer under the custody of the partnership, the guilty partner is liable in his personal capacity and does not bind the partnership. (Article 1823) 10. All partners are solidarily liable with regard to loss, injury caused to third persons, or the misapplication of money and property belonging to third persons. Provided that the guilty partner did not act in bad faith. (Article 1824) 11. For both private and public manners, if a person represents himself, or a consents that another person represent him to anyone as a partner to an existing partnership, or a partner with other person who are not actual partners, he is liable to any person who extended credit to the actual or apparent partnership because of the representation made.

If a partnership liability results, the person who misrepresented is liable as if he was an actual partner. If no partnership liability results, the person who misrepresented is liable pro rate with the other persons who consented to such. If he acted alone, he is separately liable. A person who, with authority of his principal, misrepresents to be a partner in a an existing partnership, he is considered a partner in fact, and his acts bind his principal with respect to the persons relying on the misrepresentation. If all partners consent to the misrepresentation, a partnership obligation is created. In all other cases, only those who consented to such misrepresentation are bounded by the act of the partner in fact. (Article 1825) 12. The liability of a person admitted into an existing partnership covers all obligations and retroacts to the day the obligations were incurred. However, for the obligations that were incurred before his admission as a partner, his liability shall only be satisfied out of partnership properties, unless otherwise stipulated. (Article 1826) 13. The heirarchy of rights with regard to partnership properties: 1. Partnership Creditors 2. Private Creditors of each partners (Article 1827)

RIGHTS/POWERS OF Acts of administration (Article 1800) PARTIES PROPERTY RIGHTS The property rights of a partner are (Article 1810): 1. His right in a specific partnership property a. A partner has an equal right to possession which is not assignable and such right is limited to the share of what remains after partnership debts have been paid. (Article 1811) 2. His interest in the partnership a. A partner's interest in the partnership is his share of the profits and surplus. (Article 1812) 3. His right to participate in the management Important Notes: 1. A partner may convey his whole interest in the partnership and such conveyance does not dissolve the partnership. It only entitles the assignee to act in behalf of the assigning partner and to receive the profits the latter would otherwise be entitled. 2. In cases of fraud in management, the assignee may avail of the usual remedies available to the assigning partner. 3. In case a dissolution of partnership occurs, the assignee is entitled to receive the assignor's interest. (Article 1813)

PROPERTY RIGHTS Same

RIGHTS OF AGENT: 1. May retain in pledge the thing put under his custody by the principal if the latter fails to pay damages/for sums the former had advanced, Art. 1914 2. May withdraw from agency but with due notice to principal. Art. 1928 3. May withdraw without notice on the basis of impossibility of performance without grave detriment to himself, Art. 1928 RIGHTS OF PRINCIPAL: 1. No liability if agent contravenes his actions (exception: if avails of benefits derived from the contravening actions of agent), Art. 1918 (1) 2. Not to reimburse agent if expenses were agents fault, Art. 1918 (2) 3. Not to reimburse agent if agent knew of unfavorable result of his expense and the principal was not informed, Art. 1918 (3) 4. Not to reimburse agent if agreed that agent would bear expenses or if allowed only a certain sum, Art. 1918 (4) 5. Revoke the agency at will (expressly or impliedly), Art. 1920

The trust agreement defines the rights and powers of the parties to a trust. The law did not provide for any specific grant of rights or powers.

6. Compel agent to return document evidencing the agency, Art. 1920 7. To be indemnified by agent if the latter withdraws from agency without notice, Art. 1928 RIGHTS OF THIRD PARTIES: 1. If specific person to be contracted, then he is not to be prejudiced by revocation of agency, Art. 1921 2. If general person to be contracted and in good faith, then he is not prejudiced by revocation to which he has no knowledge of, Art. 1922 3. Not to be prejudiced by appointment of different agent, Art. 1923 4. Demand the continuance of agency if it was constituted for his interest (there is a stipulation pour autrui), Art. 1930 5. Bind the principal by acts of agent who acted as agent even if he did not know of principals death, Art. 1931 ASSIGNMENT OF RIGHTS No absolute prohibition for the assignment of rights over a trust agreement was provided by law. As such, the assignability or the absence thereof will be determined by the stipulations of the parties. In the absence of any express

REIMBURSEMENT

FOR EXPENSES

stipulation in the trust agreement wherein the trust estate shall bear the liabilities, the trustee bears the liabilities and expenses in his personal capacity. MULTIPLE AGENTS: 1. Bound to the contract first signed in a situation where the object is the same thing but transacted to two different people by the principal and the agent respectively, Art. 1916 NB: Art. 1916 may also be applied to a situation where the object is the same but transacted to two different third-parties by two different agents.

MULTIPLE RELATIONS (I.E, SUBPARTNERS/LIMI TED PARTNERS/MULTIPL E AGENTS, ETC.)

LIABILITY FOR NEGLIGENCE

LIABILITIES OF PRINCIPAL: 1. Solidarily liable with agent if the latter exceeded his authority but the former allowed the agent to act as though he had authority, Art.1911 2. Solidarily liable with other principal for the same agent undertaking the same business, Art. 1915 3. Liable to third parties who suffer damage by having his contract rejected in the situation contemplated in 1916, Art. 1917

Unless another degree of diligence is required under the agreement, generally, the trustee is expected to exercise reasonable diligence in the management and holding of the subject trust property for the beneficiary. In case of negligence, the trustee may be held personally liable for the loss suffered by the trust estate.

PERSONAL LIABILITY OF AGENT: 4. Liability for nonperformance, Art. 1884 5. Liable for the acts of substitute he may appoint, Art. 1892 6. Liable for fraud or negligence, to be judged by courts; rigor depends on whether compensation is given to agent or not, Art. 1909 PRESCRIPTION RULES (IF APPLICABLE) Express Trusts - No prescription is applicable in express trusts as the trustee does not hold the subject trust property in the concept of owner. - Prescription may set in if he repudiates the trust relationship. Implied Trusts - For resulting trusts, as there is intention to create the trust, generally, such do not prescribe. For constructive trusts, they are subject to prescription. Express Trusts Mutual agreement by all the parties Expiration of the term Fulfillment of the resolutory condition Rescission or annulment Loss of subject matter of the trust (physical loss or legal impossibility) Order of the court Merger

TERMINATION/EXTI NGUISHMENT

DissolutionChange in the relation of the

partners caused by any partner ceasing to be associated in the carrying on of the business; partnership is not terminated but continues until the winding up of partnership affairs is completed. (Article 1828)

WindingUpProcess of settling the business or

partnership affairs after dissolution.

Causes of Dissolution

Causes of dissolution

EXTINGUISHMENT 1. Revocation by principal, Art. 1919 (1) 2. Withdrawal by agent, Art. 1919 (2) 3. Death, civil interdiction, insanity, or insolvency of either principal or agent, Art. 1919 (3) 4. Dissolution of firm or corporation which entrusted or accepted agency, Art. 1919 (4)

1. Without violation of the agreement between the partners a. By termination of the definite term/ 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 c. By the express will of all the partners who have not assigned their interest/ charged them for their separate debts,either before or after the termination of any specified term or particular undertaking d. By the bona fide expulsion of any partner from the business in accordance with power conferred by the agreement 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 3. By any event which makes it unlawful for business to be carried on/for the members to carry it on for the partnership 4. Loss of specific thing promised by partner before its delivery 5. Death of any partner 6. Insolvency of a partner/partnership 7. Civil interdiction of any partner 8. Decree of court under art 1831 (Article 1830)

1. Same as the general partnership 2.. Death of a limted partner does not dissolve the parntership, instead the rights of the deceased partner is transferred to his assignee. (Article 1861)

5. Accomplishment of purpose of agency, Art. 1919 (5) 6. Expiration of period of contract of agency, Art. 1919 (6) 7. Agency automatically revoked when directly manages the business entrusted to the agent, dealing directly with third parties, Art. 1924 8. General power revoked if special one granted to another agent if and only in so far as the special matter is involved in the general matter, Art. 1926

Accomplishment of the purpose of the trust

Implied Trusts

9. When the partnership is declared unlawful by a judicial decree. (Article 1770)

Grounds for dissolution

Same

Grounds for Dissolution

1. Partner declared insane in any judicial proceeding or shown to be of unsound mind 2. Incapacity of partner to perform his part of the partnership contract 3. Partner guilty of conduct prejudicial to business of partnership 4. Willful or persistent breach of partnership agreement or conduct which makes it reasonably impracticable to carry on partnership with him 5. Business can only be carried on at a loss 6. Other circumstances which render dissolution equitable upon application by purchaser of partner's interest: After termination of specified term/particular undertaking Anytime if partnership at will when interest was assigned/charging order issued (Article 1831)

Effects of Dissolution
Dissolution terminates the authority of the partners to bind the partnership, except in the following matters: 1. Wind up partnership affairs 2. Complete transactions not finished (Article 1832)

Effects of dissolution
Same

Effects of dissolution with respect to partners

1. Authority of partners to bind partnership by new contract is immediately terminated when dissolution is not due to ACT, DEATH or

Effects of dissolution with respect to partners

Same

INSOLVENCY (ADI) of a partner; 2. If due to ADI, partners are liable as if partnership not dissolved, when the ff. concur: i. If cause is ACT of partner, acting partner must have knowledge of such dissolution ii. If cause is DEATH or INSOLVENCY, acting partner must have knowledge/ notice. (Article 1833)

Effects of dissolution with respect to nonpartners

1. Partner continues to bind partnership even after dissolution in ff. cases: (a) Transactions in connection to winding up partnership affairs/completing transactions unfinished (b) Transactions which would bind partnership if not dissolved, when the other party/obligee: (1) Situation 1 i. Had extended credit to partnership prior to dissolution ii. Had no knowledge/notice of dissolution, or (2) Situation 2 i. Did not extend credit to partnership ii. Had known partnership prior to dissolution iii. Had no knowledge/notice of dissolution/fact of dissolution not advertised in a newspaper of general circulation in the place

Effects of dissolution with respect to not partners

Same

where partnership is regularly carried on 2. Partner cannot bind the partnership anymore after dissolution: (a) Where dissolution is due to unlawfulness to carry on with business (except: winding up of partnership affairs) (b) Where partner has become insolvent (c) Where partner unauthorized to windup partnership affairs, except by transaction with one who: (1) Situation 1 i. Had extended credit to partnership prior to dissolution& ii. Had no knowledge/notice of dissolution, or (2) Situation 2 i. Did not extend credit to partnership prior to dissolution ii. Had known partnership prior to dissolution iii. Had no knowledge/notice of dissolution/fact of dissolution not advertised in a newspaper of general circulation in the place where partnership is regularly carried on. (Article 1834)

Discharge of Liability
Dissolution does not discharge existing liability of a partner, except by agreement between: 1. Partner and himself

Discharge of Liability
Same

2. Person/partnership continuing the business 3. Partnership creditors The individual property of a deceased partner is still liable for all the obligations the partnership incurred while he was still a partner, however, his separate debts must be satisfied first. (Article 1835)

Rights of a partner when dissolution not in contravention of agreement

Rights of a partner when dissolution not in contravention of agreement

Only applicable to general partners, and not to limited partners.

1. Apply partnership property to discharge liabilities of partnership (Article 1836) 2. Apply surplus, if any to pay in cash the net amount owed to partners 3. If dissolution was caused by expulsion of a partner, the expelled partner shall receive in cash only the net amount due him from the partnership credit. (Article 1837)

Rights of a partner when dissolution in contravention of agreement

1. Partner who did not cause dissolution wrongfully: a. Apply partnership property to discharge liabilities of partnership b. Apply surplus, if any to pay in cash the net amount owed to partners c. Indemnity for damages caused by partner guilty of wrongful dissolution d. Continue business in same name during agreed term e. Possess partnership property if business is continued 2. Partner who wrongly caused dissolution:

Rights of a partner when dissolution in contravention of agreement

Only applicable to general partners, and not to limited partners.

a. If business not continued by others -apply partnership property to discharge liabilities of partnership &receive in cash his share of surplus less damages caused by his wrongful dissolution b. If business continued by others -have the value of his interest at time of dissolution ascertained and paid in cash/secured by bond & be released from all existing/future partnership liabilities (Article 1837)

Rights of injured partner where partnership contract was rescinded on the ground of fraud or misrepresentation by one party.
1. Right to lien on surplus of partnership property after satisfying partnership liabilities 2. Right to subrogation in place of creditors after payment of partnership liabilities 3. Right of indemnification by guilty partner against all partnership debts & liabilities (Article 1838) SETTLEMENT OF ACCOUNTS BETWEEN PARTNERS

Rights of injured partner where partnership contract was rescinded on the ground of fraud or misrepresentation by one party.
Only applicable to general partners, and not to limited partners. (See settlement of accounts)

With regard to the assets of Partnership

1. Partnership property (including goodwill) 2. Contributions of the partners The order of the application of partnership assets 1. Partnership creditors 2. Partners as creditors 3. Partners as investors return of capital contribution 4. Partners as investors share of profits if any (Article 1839)

SETTLEMENT OF ACCOUNTS BETWEEN PARTNERS

With regard to the assets of Partnership

Priority in Distribution of Assets: 1. Those due to creditors, including limited partners. 2. Those due to limited partners in respect of their share in profits/compensation. 3. Those due to limited partners of return of capital contributed. 4. Those due to general partner other than capital & profits. 5. Those due to general partner in respect toprofits6. Those due to general partner for return

When business of dissolved partnership is

continued
1. Creditors of old partnership are also creditors of the new partnership which continues the business of the old one w/o liquidation of the partnership affairs 2. Creditors have an equitable lien on the consideration paid to the retiring /deceased partner by the purchaser when retiring/deceased partner sold his interest without final settlement with creditors (Article 1840) 3. Rights if retiring/estate of deceased partner: a. To have the value of his interest ascertained as of the date of dissolution b. To receive as ordinary creditor the value of his share in the dissolved partnership with interest or profits attributable to use of his right, at his option (Article 1841) The liability of a new partner who was admitted after the business of the dissolved partnership is continued, with regard to creditors of the dissolved partnership, does not extend to his personal properties unless there is a contrary stipulation. (Article 1840)

of capital contributed. (Article 1863)

When business of dissolved partnership is continued

Same

Persons authorized to wind up

1. Persons who were authorized by stipulation 2. Partners designated by the agreement 3. In absence of agreement, all partners who have not wrongfully dissolved the partnership 4. Legal representative of last surviving partner (Article 1842)

Persons authorized to wind up

Same

APPLICABLE LAW

1. Civil Code 2. Special Laws 3. Jurisprudence 4. General Principles of Law that are applicable 5. National Internal Revenue Code

1. Civil Code 2. Special Laws 3. Jurisprudence 4. General Principles of Law that are applicable 5. National Internal Revenue Code

1. Civil Code 2. Jurisprudence

TAXABILITY

National Internal Revenue Code Chapter 3: Tax on Individuals Section 24. Income Tax Rates: (2) Cash and/or Property Dividends - A final tax at the following rates shall be imposed upon the cash and/or property dividends actually or constructively received by an individual from a domestic corporation or from a joint stock company, insurance or mutual fund companies and regional operating headquarters of multinational companies, or on the share of an individual in the distributable net income after tax of a partnership (except a general professional partnership) of which he is a partner, or on the share of an individual in the net income after tax of an association, a joint account, or a joint venture or consortium taxable as a corporation of which he is a member or co-venturer: Six percent (6%) beginning January 1, 1998; Eight percent (8%) beginning January 1, 1999; Ten percent (10% beginning January 1, 2000. Provided, however, That the tax on dividends shall apply only on income earned on or after January 1, 1998. Income forming part of retained earnings as

Under Article 1442, the following are the applicable laws on trusts: Civil Code Code of Commerce Rules of Court Any special laws Any other principles of the general law of trusts consistent with the abovementioned Irrevocable trusts are treated as entities separate and distinct from the trustor. Thus, an irrevocable trust is subject to any applicable taxes on its investment income as well as its investors, if and when the trust income is subsequently distributed to them. (BIR Ruling No. 003-05) Revocable trusts are considered passthrough entities and are not, for tax purposes, considered separate from the owner-trustor. In a revocable trust, all the income of the trust would be taxed to the trustor-grantor and is to be included in its taxable income, except income subjected to final tax.

of December 31, 1997 shall not, even if declared or distributed on or after January 1, 1998, be subject to this tax. SEC. 26. Tax Liability of Members of General Professional Partnerships. - A general professional partnership as such shall not be subject to the income tax imposed under this Chapter. Persons engaging in business as partners in a general professional partnership shall be liable for income tax only in their separate and individual capacities. For purposes of computing the distributive share of the partners, the net income of the partnership shall be computed in the same manner as a corporation. Each partner shall report as gross income his distributive share, actually or constructively received, in the net income of the partnership.