1|PARTNERSHIP, AGENCY AND TRUST
GENERAL PROVISIONS
1767:
PARTNERSHIP a contract wherein 2 or more persons bind
themselves to contribute money, property, or industry to
common fund, with the intention of dividing the profits
among themselves.
CHARACTERISTICS: (8)
1. Consensual perfected by mere consent upon express
/ implied agreement of 2 or more persons
2. Nominate has a special name / designation in our law
3. Bilateral entered into by 2 or more persons and the
rights and obligations arising therefrom are always
reciprocal
4. Onerous each of the parties aspires to procure for
himself a benefit through the giving of something
5. Commutative undertaking of each of the partners is
considered as the equivalent of that of the others
6. Principal doesnt depend for its existence or validity
upon other contracts
7. Preparatory entered into as a means to an end
8. Contract of agency
ELEMENTS: (3)
1. There must be meeting of the minds
2. To form a common fund
3. With intention that profits (and losses) will be divided
among the contracting parties.
ESSENTIAL FEATURES: (6)
1. EXISTENCE OF A VALID CONTRACT:
Form evidenced by the terms of contract either oral or
written, express or implied from the acts and declarations of
the parties; no formality is required unless it falls within the
Statute of Frauds
Articles of Partnership states the name, nature / purpose,
location of firm, defining the powers, rights, duties, and
liabilities of each partner
REQUISITES:
1. Consent and capacity of contracting parties
2. Object which is the subject matter of the contract
3. Cause which is established
4. There must be valid consideration between partners
DELECTUS PERSONAE where mutual agency arises;
allows them to have the power, not necessarily the right, to
dissolve partnership (in good faith); involves trust and
confidence between partners.
No one can become a member without the consent of
all the other partners; has a fiduciary nature
The presence of a period for a specific duration or
statement of a particular purpose for its creation cannot
prevent the dissolution of a partnership by an act or will
of a partner
Principle of Estoppel a partnership liability can be
imposed upon a person under estoppel where he holds
himself out, or permits himself to be held out, as a
partner in an enterprise; there is no actual or legal
partnership relation but merely a partnership liability by
law in favor of 3rd persons.
In case there is no written agreement between parties,
the existence or non-existence of the partnership must
be determined from the conduct of the parties
2. LEGAL CAPACITY OF PARTIES TO ENTER INTO A
CONTRACT:
A partner may be a human being, a partnership, corporation,
or joint venture.
Individuals should have necessary legal capacity.
The following cannot give their consent:
1. Unemancipated minors
2. Insane or demented persons
3. Deaf-mutes who cant write
4. Persons who are suffering from civil interdiction
5. Incompetents who are under guardianship
6. Persons who are prohibited from giving each other
donation or advantage cannot enter into a universal
partnership
A married woman can enter into a partnership
without husbands consent but the latter may object
under certain conditions
Partnership no prohibition against a partnership being a
partner in another partnership
Corporations unless authorized by statute or by its
charter, it has no capacity to enter into a contract of
partnership
Can enter into a joint venture with another when the
nature of the venture is in line with the business
authorized by its charter
3. CONTRIBUTION OF MONEY, PROPERTY OR INDUSTRY
TO COMMON FUND:
Existence of proprietary interest:
1. Money currency which is legal tender in the PH;
checks, drafts, promissory notes payable to order are
not considered money.
2. Property real / personal, corporeal / incorporeal; credit
or promissory note are considered property
3. Industry active cooperation; services
A limited partner cannot contribute mere industry or
services
Should be distinguished from a lessor of services
(who is subject to the supervision of the other
partners)
Proof of contribution proof is necessary with the
intention of dividing the income / profits obtained
4. THERE MUST BE LAWFUL OBJECT:
Effect of illegality no partnership can arise as the contract
is inexistent and void ab initio
5. PURPOSE IS TO OBTAIN PROFITS AND DIVIDE THE
SAME AMONG PARTIES:
Very reason of existence the idea of pecuniary profit or
gain should be principal, but not necessarily exclusive aim.
2|PARTNERSHIP, AGENCY AND TRUST

Sharing of profits: 3. SHARING OF GROSS RETURNS:

Not presumptive evidence of partnership sharing of
Not necessarily in equal shares only necessary that gross returns has been held not to constitute even prima
there be intention to divide the profit among the facie evidence of relation
members (joint interest in the profits)
However, if there is evidence of mutual management
A stipulation excluding one or more partners from any and control, a partnership may result, even though the
participation in the profits is VOID. agreement calls for a portion of gross returns
Profit-sharing is merely presumptive and not
conclusive, even if cogent, evidence of partnership 4. RECEIPT OF SHARE IN THE PROFITS:
Sharing of losses:
Strong presumptive evidence of partnership prima
A community in losses is necessary corollary of a facie evidence but not a conclusive evidence (will still
participation in profits depend on the main purpose)
Not necessary to agree upon a system of sharing losses, Basic test of partnership whether inter se or as to 3rd
but if only the share of each partner in the profits has persons, is whether the business is carried out on in
been agreed upon, share of each in the losses shall be in behalf of the person sought to be liable
the SAME PROPORTION Profit-sharing as owner not merely the sharing of
Stipulation excluding one or more partners from and profits, but sharing of them as co-owner of the business,
share in profits and losses is VOID that makes one a partner
One must have interest with another in the profits if a
1768:
business as profits
No such inference shall be drawn if such profits were
PARTNERSHIP, A JURIDICAL PERSON entity separate received in payment:
from its aggregate individual partners o As a debt by installments or otherwise
o As wages of employee / rent to a landlord
1. May enter into contracts o As an annuity to a widow / representative of a
2. Acquire and possess property of all kinds in its name deceased partner
3. Incur obligations o Interest on a loan, though the amount of payment
4. Bring civil or criminal actions vary with the profits of the business
o As the consideration for the sale of good-will of a
Organizing a partnership is NOT an absolute right it is a
business or other property by installments or
privilege which may be enjoyed only under such terms as the
otherwise
state may deem necessary to impose
Burden of proof and presumption rests on the party
1769: having affirmative of that issue
RULES IN DETERMINING EXISTENCE OF PARTNERSHIP:
PARTNERSHIP LABOR UNION
1. PERSONS WHO ARE NOT PARTNERS AS TO EACH Purpose to enable its Assn of employees which
OTHER ARE NOT PARTNERS AS TO 3 RD PERSONS: members, as principals, to exists in whole or in part for
conduct a lawful business the purpose of collective
XPN: Partnership by estoppel where persons by their and no one may become a bargaining or dealing with
acts, consent, or representations have misled 3 rd partner without consent of employers concerning
persons or parties into believing that they are indeed all its partners terms and conditions of
partners in a non-existing partnership, such persons employment
become subject to liabilities of partners to all who, in
good faith, deal with them in their apparent relations.
PARTNERSHIP BUSINESS TRUST
2. CO-OWNERSHIP / CO-POSSESSION: All of the members are Legal relationship between
principals and are agents beneficiary and trustee, the
Doesnt itself establish partnership of each other equitable ownership of the
former entitling him to the
There is co-ownership whenever the ownership of an
performance of certain
undivided thing or right belongs to different persons
duties and the exercise of
2 or more persons may become co-owners without a
certain powers by the latter;
contract but they cannot be partners in the absence of a Trustee only a principal
contract (co-ownership is not equal to partnership) and not an agent
Partners become co-owners of the right to use property,
not the property itself
If the parties are merely co-owners, there is no fiduciary
relationship between them
If the parties are partners, REMEDY is:
o Action for dissolution, termination and accounting
If the relationship is that of co-owner, REMEDY is:
o Action for non-performance of contract
3|PARTNERSHIP, AGENCY AND TRUST

AS TO: PARTNERSHIP CO-OWNERSHIP Disposition of Whole interest of Needs consent

Shares partner may be of the other
Creation Always created by a Created by law; can disposed w/o the
contract exist without a consent of the
contract others
Juridical Has separate none
Personality juridical personality
and distinct from AS TO: PARTNERSHIP CORPORATIONS
that of each other
Purpose Realization of profits Common Creation Created by Created by law
enjoyment of the voluntary
thing or right; agreement of 2
doesnt necessarily or more partners
involves profit- Number of Organized by At least 5
sharing incorporators only 2 persons incorporators
Duration No limitation Agreement to keep
the thing undivided Commencement From the Date of issuance
for more than 10 of Juridical moment of of certificate of
years is not Personality execution of incorporation by
allowed contract, unless SEC
Disposal of Partner may not Co-owner may otherwise
Interests dispose individual freely do so stipulated
interest Powers May exercise Can exercise only
Power to May bind the Cannot represent power powers expressly
act with 3rd partnership authorized by granted by law or
persons partners as long implied from
as legal those granted or
Effect of Death of partner Does not incident to its
death results to dissolution necessarily existence
dissolve co- Management If not agreed Vested in the
ownership upon, every board of directors
partner is an or trustees
agent of the
AS TO: PARTNERSHIP CONJUGAL
partnership
PARTNERSHIP
OF GAINS Effect of Partner can sue a Suit must be
mismanagement co-partner against the
Parties Created by Created by future
corporation
voluntary spouses
agreement of 2 or Right of No right of Has such right
more partners Succession succession
Governing Law By stipulation of By law
Extent of liability (except ltd. Liable only to the
parties
to 3rd persons Partners) extent of shares
personally and
Juridical Has juridical Has none subsidiarily
personality personality (sometimes
solidarily)
Commencement From the moment From date of Transferability Cannot transfer Has the right to
of execution of celebration of of interest interest transfer
contract, unless marriage,
otherwise stipulation to Term of Any period of Not to exceed 50
stipulated contrary is VOID Existence time stipulated years, extendible
Purpose Obtain profits Regulate by partners to not more than
property 50 years in any
relations of H&W one instance
during marriage Firm name Ltd. Is required in May adopt any
Distribution of Divided according Equally divided a limited firm name
profits to agreement / in partnership
proportion to Dissolution Dissolved at any Can only be
respective capital time by the will of dissolved with
contributions any / all of the the consent of the
Management Equal sharing Joint partners State
unless one of administration; Governing law Civil Code Corporation Code
them are in case of
appointed disagreement,
managers husbands
decision will
prevail
4|PARTNERSHIP, AGENCY AND TRUST
1770:
OBJECT OR PURPOSE OF PARTNERSHIP:
ESSENTIAL ELEMENTS: (2)
1. Legality of the object
2. Community of benefit or interest in the partners
EFFECTS OF UNLAWFUL PARTNERSHIP: (4)
1. Contract is void ab initio and the partnership never
existed before the law
2. Profits shall be confiscated in favor of the govt
3. Instruments or tools and proceeds of the crime shall
also be forfeited in favor of the govt
4. Contributions of the partners shall not be confiscated
unless they fall under no. 3.
Juridical decree is not necessary to dissolve an unlawful
partnership
RIGHT TO RETURN CONTRIBUTION WHERE PARTNERSHIP
IS UNLAWFUL:
Partners must be reimbursed of the amount of their
respective contributions
EFFECTS OF PARTIAL ILLEGALITY OF PARTNERSHIP:
1. Where the part of the business is legal and part illegal,
legal part may be had
2. Innocent partners are not precluded as against the guilty
partners from recovering their share of profits
1771:
FORM OF PARTNERSHIP CONTRACT:
GR: no special form is required for the validity or existence of
the contract; contract may be made orally or in writing
XPN: where contribution is immovable property or real
rights, PUBLIC INSTRUMENT is necessary, otherwise VOID.
Transfer of real property to the partnership must be duly
registered in the Registry of property of the province or
city where property is located to affect 3rd persons
1772:
REGISTRATION OF PARTNERSHIP:
Partnership with capital of 3,000 or more: (2)
1. Contract must appear in a public instrument
2. Must be recorded or registered with SEC
Failure to do so will not prevent formation of
partnership or affect liability
Purpose:
1. For the issuance of licenses to engage in business
or trade
2. So that tax liabilities cannot be evaded
3. Public can also determine their membership and
capital before dealing with them
1773:
CONTRIBUTION OF IMMOVABLE PROPERTY:
REQUIREMENTS: (2)
1. Contract must be in a public instrument
2. Inventory of property contributed must be made, signed
by the parties, and attached to the public instrument
Absence of these will render contract VOID
Intended primarily for 3rd persons, a de facto partnership
o estoppel may exist
WHEN INVENTORY IS NOT REQUIRED: (2)
1. When immovable property is possessed or owned by the
partnership but not contributed by any of the partners
2. Personal property
IMPORTANCE OF INVENTORY: (2)
1. To show how much is due from each partner to
complete his share in the common fund
2. How much is due to each of them in case of liquidation
1774:
ACQUISITION / CONVEYANCE OR PROPERTY immovable
property may only be acquired and conveyed in the
partnership name
1775:
SECRET PARTNERSHIPS W/O JURIDICAL PERSONALITY
it is essential that the partners are fully informed not only of
the agreement but of all matters affecting the partnership.
For the protection of members and 3 rd persons from
fraud and deceit
A member wo transacts for a secret partnership in his
own name becomes personally bound to 3 rd persons
unaware of the existence of such association
A person may be held liable as a partner or partnership
liability may result of 3rd persons by estoppel
1776:
CLASSIFICATIONS OF PARTNERSHIP:
1. AS TO EXTENT: (2)
a. UNIVERSAL PARTNERSHIP: (2)
i. Universal partnership of all present property
ii. Universal partnership of profits
b. PARTICULAR PARTNERSHIP
2. AS TO LIABILITY: (2)
a. GENERAL PARTNERSHIP consists of general
partners who are liable PRO RATA and subsidiarily,
sometimes solidarily with their separate property for
partnership debts (equally liable)
b. LIMITED PARTNERSHIP formed by 2 or more
general partners + one or more limited partners,
latter not being personally liable for the obligations
of the partnership
3. AS TO DURATION: (3)
a. PARTNERSHIP AT WILL no time is specified and
is not formed for a particular undertaking or venture
5|PARTNERSHIP, AGENCY AND TRUST
b. PARTNERSHIP WITH A FIXED TERM existence is
fixed or agreed upon or formed for a particular
undertaking
4. AS TO LEGALITY: (2)
a. DE JURE PARTNERSHIP complied with all legal
requirements for its establishment
b. DE FACTO PARTNERSHIP failed to comply
5. AS TO REPRESENTATION TO OTHERS: (2)
a. ORDINARY / REAL PARTNERSHIP one which
actually exist among the partners and also to 3rd
persons
b. OSTENSIBLE / BY ESTOPPEL in reality is not a
partnership, but has partnership liability
6. AS TO PUBLICITY: (2)
a. SECRET PARTNERSHIP existence to certain
persons as partners is unknown to public / any of
the partners
b. OPEN / NOTORIOUS existence is known to public
7. AS TO PURPOSE: (2)
a. COMMERCIAL / TRADING for transaction of
business
b. PROFESSIONAL / NON-TRADING exercise of
profession
KINDS OF PARTNERS: (10)
1. Capitalist partner contributes money / property to
common fund
2. Industrial partner contributes only industry / service
3. General partner (real partner) liability to 3rd persons
extends to his separate property; can be either capitalist
or industrial
4. Limited partner (special partner) limited to his capital
contribution
5. Managing partner manages affairs or business;
appointed
6. Liquidating partner takes charge of the winding up of
partnership affairs upon dissolution
7. Partner by Estoppel (nominal partner) not really a
partner, not being a party to a partnership agreement,
but is liable as a partner for protection of 3rd persons
8. Continuing partner continues business after it has
been dissolved by reason of admission of new partner,
retirement, death expulsion of one or more partners
9. Surviving partner remains after a partnership has
been dissolved by death of any partner
10. Subpartner not being a member of a partnership,
contracts with a partner with reference to a latters share
in the partnership
1777 1779:
UNIVERSAL PARTNERSHIP OF ALL PRESENT PROPERTY:
The following may become the common property of all
partners: (2)
1. Property which belonged to each of them at the time of
constitution of partnership
2. Profits which they may acquire from the property
contributed
Future properties cannot be contributed
GR: property acquired by inheritance, legacy or donation
cannot be included by stipulation
XPN: fruits thereof
Profits from other sources will become common
property only if there is a stipulation
1780:
UNIVERSAL PARTNERSHIP OF PROFITS:
1. Partners retain their ownership over their present and
future property
2. What is owned by the partnership are the profits,
income, use of usufruct of the same
Profits acquired through chance (lottery) are not
included
GR: fruits of property subsequently acquired do not belong
to the partnership
XPN: if included by express stipulation
GR: profits acquired by industry or work during existence of
partnership as well as usufruct of present properties belong
to partnership as a matter of right
XPN: if excluded by express stipulation
1781:
PRESUMPTION IN FAVOR OF UNIVERSAL PARTNERSHIP
OF PROFITS when articles of partnership do not specify
whether partnership is of present property or of profits
only, presumption is that partnership was intended merely
for a partnership OF PROFITS
Only applicable to universal partnerships
1782:
LIMITATIONS IN FORMING A PARTNERSHIP:
Persons who are prohibited from giving each other donation
or advantage cannot enter into a UNIVERSAL partnership,
otherwise VOID:
1. Between persons guilty of adultery or concubinage at
the time of donation
2. Made between persons found guilty of the same
criminal offense, in consideration thereof
3. Made to a public officer or his wife, descendants and
ascendants, by reason of his office
Husband and wife may enter into a PARTICULAR
PARTNERSHIP:
Where partners retained their separate interests
capital contributions were separately owned and
contributed before marriage
1783:
PARTICULAR PARTNERSHIP:
Scope of subject matter limited and well-defined, being
confined to an undertaking of a single, temporary or ad hoc
nature.
Examples:
6|PARTNERSHIP, AGENCY AND TRUST
o Acquisition of an immovable property for the
purpose of reselling it at a profit
o Professional partnership
o Joint venture created for a temporary or limited
purpose
OBLIGATIONS OF
PARTNERS:
RELATIONS CREATED BY A CONTRACT OF PARTNERSHIP:
1. Relations among the partners themselves
2. Relations of the partners with the partnership
3. Relations of the partnership with 3rd persons with whom
it contracts
4. Relations of the partners with such 3 rd persons
1784:
COMMENCEMENT AND TERM OF PARTNERSHIP:
GR: commences from the time of execution of the contract
XPN: when there is contrary stipulation
Registration in the SEC is not essential to give it juridical
personality
Necessary that all essential requisites are present
Partners may stipulate some other date for the
commencement makes the partnership inchoate or
unperformed, thus not yet consummated, havent
started yet
1785:
CONTINUATION OF PARTNERSHIP BEYOND FIXED TERM:
Term of existence has been agreed upon expressly
(when there is a definite period) or impliedly ( when a
particular enterprise of transaction is undertaken)
Automatic dissolution upon expiration of term or
accomplishment of undertaking
Can be extended expressly (written or oral agreement)
or impliedly (by mere continuation of business after
termination of such term or undertaking without any
settlement / liquidation) rights and duties remain the
same
With such continuation, partnership for a fixed term or
particular undertaking is dissolved, and a new one is
created by implied agreement
Particular partnership is dissolved, partnership at will is
created
Any one of the partners can dissolve the partnership but
IN GOOD FAITH
Mere hope / expectation is not equal to partnership
1786:
OBLIGATIONS WITH RESPECT TO CONTRIBUTION OF
PROPERTY:
1. CONTRIBUTE at the beginning of the partnership /
stipulated time the money, property or industry he
promised to contribute
2. ANSWER for eviction in case the partnership is deprived
of the determinate property contributed
3. ANSWER to the partnership for the fruits of the property
the contribution of which he delayed, from the date they
should have been contributed up to the time of the
actual delivery
4. PRESERVE property with diligence of a good father of a
family pending delivery to the partnership
5. INDEMNIFY partnership for any damage caused to it by
the retention of the same or by delay of contribution
EFFECT OF FAILURE TO CONTRIBUTE PROPERTY
PROMISED makes the partner ipso jure a debtor of the
partnership even in the absence of any demand
REMEDIES:
1. ACTION for specific performance with damages and
interests from the defaulting partner from the time he
should have complied with his obligation
2. RESCISSION or annulment of partnership contract on
the ground of fraud or misinterpretation committed by
one of the parties
LIABILITY OF PARTNER IN CASE OF EVICTION:
Eviction takes place whenever by final judgment based
on a right prior to the sale or an act imputable to the
vendor, the vendee is deprived of the whole or a part of
the thing purchased
LIABILITY OF PARTNER FOR FRUITS OF THE PROPERTY IN
CASE OF DELAY no demand is necessary to put partner in
default
LIABILITY OF PARTNER FOR FAILURE TO PERFORM
SERVICE:
GR: partner is generally not liable
XPNS: (3)
1. If a partner neglects or refuses without reasonable
cause and the partnership suffered loss
2. If partner is compelled to make good the loss, each
member of the firm, including himself, will receive his
proportion of the amount in the distribution of the
partnership assets and in no just sense can this be
regarded as compensation for the service individually
rendered.
3. If under the circumstances of the case the proper
measure of the damages or loss is the value of the
services wrongfully withheld, then defendant should be
charged this value
1787:
APPRAISAL OF GOODS OR PROPERTY CONTRIBUTED:
Necessary when capital or part thereof of the
contribution consists of goods; to determine how much
has been contributed by the partners
1. If there is no stipulation share of each partner in
the profits and losses is in proportion to contribution
2. Appraisal is made:
a. First, in the manner prescribed by the
contract of partnership
b. Second, in the absence of stipulation, by
experts chosen by the partners
c. According to prices
7|PARTNERSHIP, AGENCY AND TRUST
3. After the goods have been contributed, partnership
bears the risk or gets the benefit of subsequent
changes in their value
In case of immovable property appraisal is made in
the inventory of said property
1788:
IN CASES WHERE: (2)
1. Delayed contribution of money
2. Partnership money converted to the personal use of the
partner
OBLIGATIONS OF PARTNERS UNDER THESE CASES: (4)
1. CONTRIBUTE on the date due the amount he has
undertaken to contribute
2. REIMBURSE any amount he may have taken and
converted for own use
3. PAY the agreed / legal interest, if he fails to pay
contribution on time or when he uses common fund for
personal use
4. INDEMNIFY the partnership for the damages caused by
the delay or conversion
LIABILITY OF GUILTY PARTNER FOR INTEREST &
DAMAGES:
GR: He is liable for interest and damages from the time
contribution was due or from the time he converted amount
for his own use
XPN: unless there is a stipulation fixing a different time
LIABILITY FOR FAILURE TO RETURN MONEY RECEIVED:
1. Where fraudulent misappropriation committed
partner is guilty of ESTAFA
2. Where there was mere failure to return no ESTAFA
REMEDY: civil case arising from the partnership
contract for a liquidation of partnership and levy on
its assets if there should be any
1789:
OBLIGATIONS OF AN INDUSTRIAL PARTNER:
GR: He cannot engage in business for himself
XPN: unless he is expressly permitted to do so
REMEDIES OF PARTNERS FOR HIS VIOLATION: (2)
1. EXCLUDE him from firm (with right to damages)
2. AVAIL themselves of the benefits which he may have
obtained in violation (with right to damages)
Partnership acquires an EXCLUSIVE RIGHT to avail of
the industrial partners services; engaging in business
for himself is prejudicial to the interest of the other
partners
Action for specific performance to compel partner to
performed promised work or service is not applicable
will amount to involuntary servitude
Mere toleration by partnership will not exempt the
industrial partner from liability
PROHIBITIONS AGAINST ENGAGING IN BUSINESS:
1. As regards an industrial partner prohibition is
absolute and applies whether to engage in same
business or any kind of business
2. As regards capitalist partner prohibition extends only
to any operation which is of the SAME KIND of business
which partnership is engaged in
XPN: stipulation to the contrary
1790:
EXTENT OF CAPITAL CONTRIBUTION:
GR: Partners shall contribute equal shared to the capital of
partnership
XPN: Unless there is a stipulation to the contrary
Not applicable to I.P. unless he also contributed capital
aside from services
1791:
OBLIGATION OF CAPITALIST PARTNER TO CONTRIBUTE
ADDITIONAL CAPITAL:
GR: Partner is not bound to share more than agreed
XPN: If there is no agreement to the contrary and there is
imminent loss, he is under obligation to: (2)
1. CONTRIBUTE additional share
2. If he refuses to contribute, SELL his interest to other
partners
REQUISITES: (4)
1. There is imminent loss in the business
2. Majority of the capitalist partners think that additional
contribution would save the business
3. A capitalist partner refuses deliberately to contribute
additional share (dahil kupal lang talaga siya)
4. There is no agreement that even in case of imminent
loss, they are not obliged to contribute
1792:
OBLIGATION OF MANAGING PARTNER WHO COLLECTS
DEBT (WHEN THERE ARE TWO CREDITS):
REQUISITES: (3)
1. There exists at least 2 debts:
a. One from partnership
b. Another from a particular partner
2. Both debts are demandable
3. Partner who collects is authorized to manage and
actually manages the partnership
The sum received but the managing partner shall be
APPLIED to both credits in proportion to their amounts
o XPN: where he received it specifically for the
partnership only, the whole sum should be applied
to partnership credit
Does not apply where collecting partner for his own
credit only is NOT authorized to manage
Where the manner of management has not been agreed
upon and all the partners participate in the management
8|PARTNERSHIP, AGENCY AND TRUST
of partnership, then every partner shall be considered a
managing partner
In the 2nd paragraph of the provision:
GR: Partnership credit should always be prioritized
XPN: debtor is given the right to prefer payment of the debt
to partner if it should be more onerous to him (has higher
interest rate)
1793:
OBLIGATION OF PARTNER WHO RECEIVES SHARE OF
PARTNERSHIP CREDIT (ONLY ONE CREDIT):
There is only one credit in favor of the partnership
Regardless whether the collecting partner is authorized
to manage or not
REQUISITES: (3)
1. A partner has received his share of partnership credit (in
whole or in part)
2. Other partners have not collected their shares
3. Partnership debtor has become insolvent
That collecting partner will be obliged to bring to the
partnership capital what he received even though it was
originally just intended for him he should share
collected money with the rest of the partner creditors
CREDIT COLLECTED AFTER DISSOLUTION:
Is this rule still applicable?
1. Yes based on the principle of community and
equality which ought to exist among all the partners
2. No it would not be just for the person who was
diligent in collecting the money to suffer in the
negligence of the other partners; and dissolution
also dissolves obligation of each partner to one
another
1794:
OBLIGATION OF PARTNER FOR DAMAGES TO
PARTNERSHIP:
Any person guilty of negligence or fault in the fulfillment
of his obligation shall be liable for damages
Partners fault must be determined in accordance with
the nature of obligation and circumstances of the
person, time and place
COMPENSATION OF DAMAGES W/ PROFITS EARNED BY
GUILTY PARTNER:
GR: Damages caused by a partner to the partnership cannot
be offset by the profits or benefits which he may have earned
for the partnership by his industry
1. Partner has the obligation to secure benefits for
partnership
2. Has the obligation to exercise diligence in the
performance of his obligation as a partner
3. Obligation to repair the injury
XPN: If unusual profits are realized through the extraordinary
efforts of the partner at fault, the courts may equitably
mitigate or lessen his liability for damages
1795:
RISK OF LOSS OF THINGS CONTRIBUTED: (5)
1. BORNE BY PARTNER Specific and determinate things
which are NOT FUNGIBLE where only use is contributed
2. BORNE BY PARTNERSHIP Specific and determinate
things the ownership of which is transferred to the
partnership
3. BORNE BY PARTNERSHIP Fungible things or thing
which cannot be kept without deteriorating even if they
are contributed only for the use of the partnership
4. BORNE BY PARTNERSHIP Things contributed to be
sold
5. BORNE BY PARTNERSHIP Things brought and
appraised in the inventory
1796:
RESPONSIBILITY OF THE PARTNERSHIP TO THE
PARTNERS: (3)
1. REFUND amounts disbursed by the partner in behalf of
the partnership (loans / advances) plus interest from the
time the expenses are made (not from the date of
demand)
2. ANSWER for the obligations the partner may have
contracted in good faith in the interest of the business
3. ANSWER for the risks in consequence of its
management
XPN: unless there is a stipulation to the contrary
A mere agent is not personally liable
o PROVIDED: he is free from all fault (acted within the
scope of his authority)
A mere agent is not given the right of retention if he is
not reimbursed or indemnified
GR: No partner is entitled to compensation for his services
without the consent of all the partners
XPN: If it can be implied from the circumstances that the
parties intended a partner to receive additional
compensation where the partners work was beyond normal
partnership functions
1797:
RULES FOR DISTRIBUTION OF PROFITS & LOSSES
(AMONG PARTNERS):
DISTRIBUTION OF PROFITS:
1. Partners share the profits according to their agreement
2. If there is no agreement:
a. Proportionate to capital contribution
b. Industrial partner will first receive his share before
the capitalist partners; amount is not fixed as long
as it is just and equitable under the circumstances
DISTRIBUTION OF LOSSES:
1. Distributed according to agreement
2. If there is no agreement:
a. Proportionate to profit-sharing ratio
b. Industrial shall not be liable for losses
3. If no profit-sharing is stipulated:
a. Losses shall be borne by the partners in proportion
to their capital contributions
9|PARTNERSHIP, AGENCY AND TRUST
b. Purely industrial partners will not be liable for losses
1798:
RD
DESIGNATION BY A 3 PERSON OF SHARE IN PROFITS &
LOSSES:
DELEGATION TO A 3RD PERSON delegation is made
through common consent
3rd person is not a partner
To guarantee utmost impartiality in the distribution of
shares of profits and losses
His designation is generally binding unless manifestly
inequitable (lantarang pandaraya?)
A partner who has begun to execute the decision of the
3rd person / fails to impugn the same W/IN 3 MONTHS
from the time he had knowledge of it can no longer
complain
1799:
STIPULATION EXCLUDING A PARTNER FROM ANY SHARE
IN PROFITS / LOSSES:
Law does not allow a stipulation excluding one or more
partners from any share in the profits and losses
Even if stipulation is void, partnership is still valid
Profits and losses shall be apportioned as if stipulation
did not exist
Stipulation expressly stipulating that there shall be no
liability for losses / party does not intend to share in the
losses factor in determining that no partnership exists
Where the one excluded from profit / loss-sharing is not
intended to become a partner, stipulation is valid
Industrial partner is excluded from loss-sharing
Unequal sharing is valid unless it is so gross as to
exclude partners from shares
1800:
RIGHTS & OBLIGATIONS W/ RESPECT TO MANAGEMENT:
Each partner in a general partnership has equal voice in
management of business.
KINDS OF APPOINTMENTS: (2)
1. Appointment as manager in the articles of partnership
appointed by common agreement:
Can execute all acts of administration
notwithstanding the opposition of the other
partners, unless he acts in bad faith
His power is revocable:
a. Only upon just and lawful cause
b. Upon the vote of the partners representing the
controlling interest
2. Appointment as manager after the constitution of the
partnership:
Can be revoked at any time for any cause
Merely a simple contract of agency
SCOPE OF POWER OF A MANAGING PARTNER:
GR: a partner appointed as manager has all the powers of a
general agent as well as all incidental powers necessary to
carry out the object of the partnership in the transactions of
its business
XPN: when the powers of the manager are specifically
restricted
COMPENSATION FOR SERVICES RENDERED:
GR: Partner is not entitled to compensation other than his
share of profits
XPN: Where law provides a contract for compensation:
1. A partner engaged by his co-partners to perform
services not required of him in fulfillment of duties
2. Where there is extraordinary neglect on the part of
one partner to perform his duties toward the firms
business, imposing entire burden on the remaining
partner
3. One partner may employ his co-partner to do work
for him outside and independent of co-partnership
and become personally liable therefor
1801:
RESPECTIVE DUTIES OF 2 / MORE MANAGING PARTNERS
NOT SPECIFIED:
Each one may separately perform acts of administration:
If one / more managing partners shall oppose the acts
of others, the decision of majority will prevail
Right to oppose can be exercised only by those
entrusted with the management of the partnership and
not just by any partner
In case of tie: decided by the vote of the partners owning
the controlling interest, that is, more than 50% of the
capital investment
When partnership DO NOT SPECIFY respective duties:
one partner has no more powers than the others in the
conduct and management of the firms business
If partnership SPECIFIES: decision of the partner
concerned shall prevail, but should act in GOOD FAITH
REQUISITES: (3)
1. 2 / more partners have been appointed as managers
2. No specification of their respective duties
3. No stipulation that one of them shall not act without the
consent of all the others
1802:
STIPULATION OF UNANIMITY IN ACTION:
GR: If it is stipulated that none of the managing partners shall
act without the consent of others, CONCURRENCE OF ALL
shall be necessary for validity of the acts, absence or
disability of any one of them cannot be alleged
XPN: there is imminent danger of grave or irreparable injury
to the partnership
XPN to the XPN: When one of the managers opposes
to the proposed act
Consent of managing partners is not necessary in
routine transactions
Written authority refers to formal and unusual written
contracts
10 | P A R T N E R S H I P , A G E N C Y A N D T R U S T

1803:
RULES WHEN MANNER OF MANAGEMENT HAS NOT BEEN
AGREED UPON:
All partners have equal rights in the management of
partnership affairs
Whatever any one of them may do alone shall bind
partnership
In case of timely opposition of the partner, the matter
shall first be decided by the majority vote
In case of a tie: matter will be decided by the vote of the
partners representing the controlling interest
1806:
DUTY TO RENDER INFORMATION:
True and full information to every partner /
representative of deceased partner / partner under legal
disability upon request or demand
Also under the duty of voluntary disclosure of material
facts relating to or affecting partnership affairs
No concealment, just GOOD FAITH
Does not arise with respect to information in the
partnership books

UNANIMOUS CONSENT IS REQUIRED FOR ALTERATION OF 1807:

IMMOVABLE PROPERTY: PARTNER ACCOUNTABLE AS FIDUCIARY:

Consent need not be express DUTIES: (7)

It may be presumed from the fact of knowledge of the
alteration without interposing any objection 1. Act for common benefit
If refusal to give consent is MANIFESTLY PREJUDICIAL: 2. Begins during formation of partnership, continues even
o REMEDY: court intervention after dissolution, until termination
3. Account for commissions and discounts received in
acquiring property for future partnership
1804: 4. Account for secret & similar profits
CONTRACT OF SUBPARTNERSHIP: REMEDY: Petition for judicial dissolution of
partnership
SUBPARTNER is 3rd person that a partner may have with 5. Make full disclosure of information belonging to the
him in his share without the consent of partnership
SUBPARTNERSHIP partnership formed BETWEEN a 6. Not acquire interest / right adverse to the partnership
member of the partnership and a 3 rd person for division of 7. Account for earnings accruing even after termination
profits

Distinct and separate from the main or principal

1808:
partnership PROHIBITION AGAINST PARTNER ENGAGING IN
Does not affect the composition, existence, or BUSINESS:
operations of the firm Capitalist RELATIVELY prohibited to engage in the
Subpartner does not become a member of the same / similar line of business
partnership, even though the agreement is known to the Industrial ABSOLUTELY prohibited to engage in the
other members of the firm same / similar line of business
Subpartner does not acquire rights of the partner, nor is
he liable for its debts REMEDIES: (3)

1. Bring to common fund all profits accrued during his own

1805: transactions
KEEPING PARTNERSHIP BOOKS: 2. Bear for all the losses
3. Be evicted
Shall be kept, subject to any agreement, between the
partners Obligation of UTMOST GOOD FAITH
o Primarily rests on managing / active partner

o Or particular partner given record-keeping duties

Kept at the principal place of business 1809:
Every partner shall have access at any reasonable hour RIGHT OF PARTNER TO A FORMAL ACCOUNT:
o Business days throughout the year
GR: Necessary incident when partnership is dissolved
o Even after dissolution
To inspect and copy any of them XPNS: (4)
o To enable the partners to have true and full
information of all things affecting partnership 1. Wrongfully excluded in the partnership / right to
possession to property
2. Right exist in the terms of agreement
3. Provided in 1807
4. Just and reasonable circumstances

PRESCRIPTION only upon dissolution of partnership when

final accounting is done

Commenced and tried where defendant resides / where

plaintiff resides at the election of latter
11 | P A R T N E R S H I P , A G E N C Y A N D T R U S T

Personal action / action in personam 4. Not subject to attachment / execution

Nature performance of a personal duty on his part XPN: claims against partnership; representatives of
deceased partner cannot claim under homestead /

1810: 5.
exemption laws
Not subject to legal support
EXTENT OF PROPERTY RIGHTS OF A PARTNER:

PRINCIPAL RIGHTS: (3) 1812:

1. Specific partnership property NATURE OF PARTNERS INTEREST:
2. Interest in the partnership
3. Participate in the management
Undistribute Undistributed
RELATED RIGHTS: (5) d shares of shares of
PROFITS + INTEREST
1. Reimbursement of advanced amounts and SURPLUS
indemnification of risks as consequences of (Net income) (Excess of
management
assets
2. Access and inspection of partnership books
3. True and full information affecting partnership affairs Liabilities)
4. Formal accounting
5. Dissolution under certain conditions

PARTNERSHIP PROPERTY PARTNERSIP BY: (2)

CAPITAL
1. Agreement
Variable Constant
2. Proportion to contribution
Depends on market value Depends on agreement Industrial partner just & equitable under the circumstances

All original contribution +

subsequently acquired
Aggregate of the
individuals contributions 1813:
+/- upon partnerships EFFECT OF ASSIGNMENT OF PARTNERS WHOLE
unanimous consent INTEREST:

Conveyance by a partner of his whole interest w/o

GR: Property used, when there is no express agreement, will dissolution is permitted, but Assignee CANNOT: (3)
not be partnership property
1. INTERFERE in management
XPN: Implied (intent of the partners): 2. REQUIRE information / account
3. INSPECT partnership books
1. Property is listed as asset in partnership books
2. Income generated by property is RECEIVED by REMEDIES: (2)
partnership
1. Dissolution not intended when assigning partner
3. Taxes are also paid by partnership
neglects his duties
2. Dissolution intended when conveyance of interest
XPN to the XPN: repair & maintenance of property only
operates as dissolution
GR: Property acquired in own name using partnership funds
RIGHTS OF ASSIGNEE OF PARTNERSHIP INTEREST: (4)
is presumed partnership property
1. RECEIVE in accordance w/ his contract of profits
XPNS: (2)
accruing to assigning partner
1. Stipulation to the contrary 2. AVAIL of usual remedy in the event of fraud
2. If after dissolution but before termination, it will be a 3. RECEIVE the assignors interest in case of fraud
SEPARATE property, but said partner will be liable for the 4. REQUIRE account of partnership affairs, but only when
funds used partnership is dissolved

1811: 1814:
NATURE OF PARTNERS RIGHT IN SPECIFIC REMEDIES OF SEPARATE JUDGMENT CREDITOR OF A
PARTNERSHIP PROPERTY: PARTNER: (2)

INCIDENTS OF CO-OWNERSHIP (TANGIBLE PROPERTY): 1. CHARGING ORDER:

Condition: claims of partnership creditors must be
1. Equal rights to possess specific partnership property for satisfied first
partnership purposes Then secure judgment on his credit and then apply
2. No right to possess if for other purpose w/o consent of to proper court for a C.O. subjecting the interest of
partners debtor w/ payment of the unsatisfied amount of
3. Not assignable such judgment + interest
XPN: in connection w/ assignment of rights of all
partners in the same property
12 | P A R T N E R S H I P , A G E N C Y A N D T R U S T

2. Other remedies in Art. 1814 of judgment if debt remains Paragraph 2:

unsatisfied, notwithstanding issuance of C.O.
GR: Act of partner, not apparently carrying usual way of
Appointment of receiver
business = DOESNT BIND PARTNERSHIP
Sale of interest
Etc. XPN: when authorized by other partners

1815: Paragraph 3:

GR: 1 / more partners have no authority to:

REQUIREMENT OF A FIRM NAME:

FIRM name, title, style under which a company transacts 1. Assign the property in trust for creditors / assignees
business promise to pay the debts of partnership
2. Dispose of the goodwill of the business
IMPORTANCE to distinguish partnership which has a 3. Do any act which would make it impossible to carry on
distinct and separate juridical personality from individuals or the ordinary business
other partnerships 4. Confess a judgment
5. Enter into a compromise concerning a partnership claim
RIGHT TO CHOOSE NAME can choose any name
/ liability
XPNS: (2) 6. Submit a partnership claim / liability to arbitration
7. Renounce claim of partnership
1. Use of misleading name
2. Use of names of deceased partners - unless the firm XPNS: (2)
indicates in all its communications that said partner is
1. When authorized by other partners
deceased
2. Unless theyve abandoned the business
LIABILITY FOR INCLUSION OF NAME persons who are not
Paragraph 4:
partners but include their names in the firm name do not
acquire partners right, only the liabilities insofar as 3 rd Partner is not liable to 3rd persons having actual /
persons without notice are concerned. presumptive knowledge of restrictions (BF), W/N apparently
carrying usual way of business
1816:
LIABILITY FOR CONTRACTUAL OBLIGATIONS: 1819:
CONVEYANCE OF REAL PROPERTY BELONGING TO THE
All partners, including industrial ones, shall be liable PRO PARTNERSHIP:
RATA (equally / jointly) with all their property and after all the
partnership assets have been exhausted, for contracts Paragraph 1:
entered by partnership
Title in partnership name
Partners become personally liable only after all the Conveyance in partnership name
partnership assets have been exhausted
EXAMPLE:
Industrial partner will have to pay but can recover
amount from capitalist partners A, B, C = X & Co.
o XPN: unless there is an agreement to the contrary
o He cannot be relieved from liability to 3rd persons A sold land to D w/o express authority:

Liability responsibility to 3rd persons X & Co. can recover if:

Loss in terms of money among partners 1. Conveyance was not in the usual way of business
2. D had knowledge of lack of authority (BF)

1817: Paragraph 2:
STIPULATION AGAINST LIABILITY: Title in partnership name
rd
Any stipulation against the liability to 3 persons / creditors Conveyance in partners name
(1816) is VOID, except among partners. A sold land to D in his own name:

1818: D only gets the EQUITABLE INTEREST IF selling land is their

business
POWER OF PARTNER AS AGENT OF PARTNERSHIP:
D will not be entitled to E.I. if: (2)
Paragraph 1:
1. Selling land is not their usual course of business
GR: Every partner is an agent of the partnership for 2. D had knowledge of As lack of authority (BF)
apparently carrying the usual way of business = BINDS
PARTNERSHIP EQUITABLE INTEREST right / interest in property which is
imperfect & unenforceable at law but which, under equitable
XPNS: (2) principles, is convertible to a legal right / title
1. Partner had no authority to act such Paragraph 3:
2. 3rd person had knowledge of lack of authority (bad faith)
13 | P A R T N E R S H I P , A G E N C Y A N D T R U S T
Title in 1 / more partners
Conveyance in the name of partner/s in whose name
title stands
If land belongs to X & Co., but registered As and record
doesnt disclose X & Co.s right, title is conveyed to D
Paragraph 4:
Title in 1 / more / all partners / 3 rd persons
Conveyance executed in partnership name /
partners name
If A is trustee of partnership, sells land to D:
D will only get E.I.
Paragraph 5:
Title in the name of ALL partners
Conveyance in all partners
Passes all the rights in such property
INNOCENT PURCHASERS W/O NOTICE:
1. May acquire a valid title has the right to presume that
possession / interest of the partnership is consistent w/
record title
2. No need for actual / constructive notice of any trust
1820:
ADMISSION BY A PARTNER:
GR: Person is not bound by the act, admission, statement /
agreement of another which he has no knowledge / consent
XPN: virtue of particular relation between them
1. A borrowed 50K from B, said that he was acting for C
and money was for C, but in fact C never authorized A:
NOT admissible against C
2. C admitted to D (a 3rd person) of an act made by A with
his consent:
Statement by D in a litigation by B against C is
ADMISSIBLE
3. A, agent of C, acting within scope of authority:
Any act / statement is ADMISSIBLE against C, who
is the principal
4. A acted in his own name, B loaned on a personal credit
of A
As admission is NOT BINDING on the partnership
EXISTENCE OF PARTNERSHIP:
1. Partnership relation must be shown and proof of fact
must be made by independent evidence
2. Acts / statements / admissions while acting within
scope of authority are ADMISSIBLE
1821:
NOTICE TO, OR KNOWLEDGE OF, A PARTNER OF MATTER
OF AFFECTING PARTNERSHIP AFFAIRS:
GR: Notice to a partner is as good as notice to the
partnership
CASES OF KNOWLEDGE: (3)
1. Knowledge of a partner acting in the particular matter
acquired while a partner (present, not before he became)
2. Knowledge of partner acting in the particular matter then
present to his mind
3. Knowledge of any partner who could and should have
communicated it to acting partner
4. In case of fraud deliberately did not communicated,
not imputable to partnership
1822 1824:
LIABILITY ARISING FROM PARTNERS WRONGFUL ACT OR
OMISSION: (2)
1. A partner is guilty of a wrongful act or omission in the
ordinary course of business
2. With the authority of co-partners, loss or injury is caused
to any person, or penalty is incurred
Partnership is LIABLE to the same extent as the partner
so acting or omitting to act
PARTNERSHIP IS BOUND TO MAKE GOOD THE LOSS
(BREACH OF TRUST): (2)
1. Where a partner acts within the scope of his apparent
authority receives money or property of a 3rd person and
misapplies it
2. Where the partnership receives money / property of a 3rd
person and these are misapplied by any partner while in
custody of the partnership
All partners are LIABLE SOLIDARILY with the partnership for
everything chargeable to the partnership
1825:
PARTNER/SHIP BY ESTOPPEL:
ESTOPPEL bar which precludes a person from denying /
asserting anything contrary to that which has been
established as a truth by his own deed / representation;
either express or implied
GR: Persons who are not partners as to each other are not
partners to 3rd persons
XPN: one may be liable as a partner even though he is not a
partner in fact
CIRCUMSTANCES: (2)
1. DIRECTLY represents himself to anyone as a partner in
an existing / non-existing partnership
2. INDIRECTLY represents himself by consenting to
another representing him as a partner in an existing /
non-existing partnership
LIABILITIES: (3)
A. PARTNERSHIP LIABILITY RESULTS:
14 | P A R T N E R S H I P , A G E N C Y A N D T R U S T

If all actual partners consented to the representation,

then the liability of the person who represented himself 2. INCOMING:
to be a partner / who consented to such is considered a Not personally liable for existing partnership obligations
partnership liability XPN: Stipulation to the contrary
Liable for goods delivered to the partnership after his
B. LIABILITY PRO RATA: admission
When there is no existing partnership and all those
represented as partners consent to the representation /
not all of the partners of an existing partnership
1827:
consented PREFERENCE OF PARTNERSHIP CREDITORS:
Person who represented himself to be a partner / On partnership assets, partnership creditors are entitled to
consented + all those who made and consented to the priority of payment
representation
REMEDY OF PRIVATE CREDITORS:
C. LIABILITY SEPARATE:
When there is no existing partnership and not all of those Ask for the attachment and public sale of the share of
represented as partners consented to the the partner in the partnership assets
representation / none of the partners in an existing
partnership consented to such
Liability is only to the person who represented himself
DISSOLUTION & WINDING
ELEMENTS OF ESTOPPEL: (3)
UP:
1. Proof by plaintiff that he was individually aware of 1828:
the defendants representations as to his being EFFECTS OF CHANGE IN MEMBERSHIP:
partner / that representations were made by others
and not denied / refuted by defendant END OF PARTNERSHIP, 3 STAGES:
2. Reliance on such representation by plaintiff
1. DISSOLUTION change in the relation of partners
3. Lack of any denial / refutation of the statements by
caused by any partner ceasing to be associated in the
the defendant
carrying on of a business; doesnt mean business must
CORPORATION BY ESTOPPEL all persons who assume to cease to exist for the partners
act as a corporation knowing it to be w/o authority to do so 2. WINDING UP actual process of settling the
shall be liable as general partners for all debts, liabilities and partnership affairs after dissolution; involves collection
damages incurred & distribution of partnership assets, payment of debts
and determination of the value of each partners interest
PROVIDED: transaction entered into a corporation in the partnership
3. TERMINATION all partnership affairs are completely
1826: wound up and finally settled; signifies end of partnership
life
LIABILITY OF INCOMING PARTNER FOR PARTNERSHIP
OBLIGATIONS:

INCOMING PARTNER admitted to an existing partnership

Liable for all obligations existing at the time of his
admission
GR: Liability is limited to his share in the partnership property
XPN: Stipulation to the contrary
CREDITORS:
1. Existing and subsequent creditors have equal rights
against partnership property + separate property of
1829:
EFFECTS OF DISSOLUTION:
1. Partnership not terminated
2. Partnership continues for a limited purpose
Make good all outstanding engagements, settling all
accounts, collecting all property, means and assets
3. Transaction of new business is prohibited
No new partnership should be undertaken but
affairs should be liquidated and distribution made to
those entitled to the partners interest

2.
previously existing partners
Only subsequent creditors have rights against separate
1830:
property of incoming / newly admitted partners CAUSES OF DISSOLUTION: (EXTRAJUDICIAL)

1. Dissolution effected without violation of partnership

If incoming partner assumed obligation of retiring agreement (GF):
partner = he is liable directly to the old partnership
TERMINATION of definite term / particular
creditors such that these creditors have the right of
undertaking
action against incoming partner
EXPRESS WILL of ANY partner (act in GF)
LIABILITY OF OUTGOING / INCOMING PARTNERS: EXPRESS WILL of ALL partners (express / implied;
unanimous)
1. OUTGOING: EXPULSION of any partner
Liability on existing incomplete contracts continues Should be in good faith
Liable for goods sold and delivered after retirement
15 | P A R T N E R S H I P , A G E N C Y A N D T R U S T
If done in bad faith, partner can claim damages
May be vested in 1 partner exclusively
2. Dissolution effected in contravention of partnership
agreement:
Partner can withdraw any time without consent of
others if there is sufficient reason; expressly
withdrawing
Delectus Personae allows the partners to have
power, although not necessarily the right, to dissolve
partnership
3. Business becomes unlawful involuntarily; i.e.
appointment of a position; conflict of interest; contrary
to law to continue business
4. Loss of a (specific) thing:
a. Loss BEFORE delivery:
Partnership is dissolved; no contribution as to
the thing to be contributed cannot be substituted
with another
b. Loss AFTER delivery:
Partnership is not dissolved; but it assumes the
loss of thing having acquired ownership; may
contribute additional capital to save venture
c. Where only use / enjoyment contributed:
Partner who reserved ownership cannot fulfill his
undertaking to make available the use of the
specific thing contributed
Partner bears loss; considered in default w/
respect to his contribution
5. Death of any partner deceased partner ceases to
be associated in the carrying of business
GR: ipso facto dissolution of partnership
XPN: clause in the articles of partnership providing for the
continuation of the firm even after death of one the partners
6. Insolvency of any partner/ship:
Adjudged by the court: LIQUIDATION ORDER
Insolvency renders property in the hands of the
partners liable for the satisfaction of the partnership
obligation resulting in their inability to continue the
business
REMEDY: reconveyance by assignee / liquidator of
properties pursuant to order of court after
termination of insolvency proceedings = has the
effect of restoring partnership to its status quo
7. Civil Interdiction of any partner:
Capacity is limited; cannot validly give consent no
right to manage his property and dispose of such by
any act / conveyance inter vivos
8. Decree of Court:
Right to Expel:
GR: a partner cannot be expelled due to mere
derelictions
XPNS:
1. Partner guilty of extreme / gross faults
2. Industrial partner engaging in business for
himself
3. Power expressly given by agreement
expel in good faith
1831:
GROUNDS BY COURT: (JUDICIAL DISSOLUTION)
1. Application by a partner:
a. Insanity
b. Incapacity (permanent)
c. Misconduct and persistent breach of partnership
agreement (permanent mischief)
d. Business can be carried out only at a loss
e. Other circumstances:
Abandonment of business
Fraud in the management of business
Refusal w/o justifiable cause to render
accounting of partnership affairs
2. Application by a purchaser of a partners interest:
a. After the termination of a specified term / particular
undertaking
b. Any time if Partnership was at will when the interest
was assigned / when the charging order was issued
1832:
EFFECT OF DISSOLUTION ON AUTHORITY OF PARTNER:
GR: Dissolution terminates all authority of any partner to act
for the partnership
1. With respect to the partners:
a. When the dissolution is NOT by the act, insolvency /
death of a partner
b. When dissolution is BY ACT (1833), insolvency /
death of a partner
2. With respect to persons not partners in 1834
XPN: if necessary to wind up partnership affairs / complete
unfinished transactions / acts which would bind the
partnership if dissolution has not taken place
1833:
RIGHT OF PARTNER TO CONTRIBUTION FROM CO-
PARTNERS:
GR: If dissolution is caused by act, death / insolvency of a
partner, each partner is liable to his co-partners for his share
of any liability created by any partner acting for the
partnership as if it has not been dissolved
XPNS:
1. Dissolution being BY ACT of any partner, the acting
partner for the partnership had knowledge of the
dissolution
2. Dissolution being BY THE DEATH / INSOLVENCY of a
partner, the acting partner for the partnership had
knowledge of the death / insolvency
UNIFORM PARTNERSHIP ACT:
Actual knowledge of the fact
o Knowledge of such other facts as in the
circumstances that show bad faith
Notice of fact:
o When person who claims the benefit of notice:
States the fact to such person
Delivers thru mail / other means of
communication a written statement of the fact to
16 | P A R T N E R S H I P , A G E N C Y A N D T R U S T

such person / to a proper person to his place of

business / residence 1836:
Applies only if partner binds partnership; if not; MANNER OF WINDING UP:
only the acting partner is personally liable
1. JUDICIAL through the court upon cause shown by any

1834: 2.
partner, his legal rep / assignee
EXTRAJUDICIAL partners themselves w/o court
POWER TO BIND DISSOLVED PARTNERSHIP TO 3 RD intervention
PERSONS:
Nature of action for liquidation personal; could either be at
1. By an act appropriate for winding up affairs / completing the place of residence of P/D
unfinished transaction at dissolution
2. By any transaction which would bind the partnership if PERSONS AUTHORIZED: (4)
dissolution had not taken place, provided the other party: 1. Persons designated by agreement
a. Extended credit to partnership prior dissolution and 2. If none, all partners who have not wrongfully dissolved
had no knowledge / notice of such the partnership
b. Though didnt extend credit, had known partnership 3. Legal representative (executor / admin) of last surviving
prior to dissolution and had no knowledge of such partner (if all others are dead), not insolvent
because it wasnt advertised in the newspaper of 4. Receiver appointed by court
general circulation
Duty of liquidating surviving member/s of firm;
Will be satisfied out of partnership assets alone if: (2)
Legal representative of the deceased partner has no right to
1. Partner is unknown to the person with whom contract is interfere with the business
made
2. Dormant partner so far unknown and inactive POWER FOR LIQUIDATING PARTNER (PURPOSE OF
WINDING UP): (4)
PARTNERSHIP DOES NOT BIND:
1. MAKE new contracts
1. Where partnership is dissolved because it was unlawful 2. RAISE money to pay partnership debts
to carry on business 3. INCUR obligations to complete existing contracts /
2. Partner becomes insolvent preserve assets
3. Partner had no authority to wind up affairs 4. INCUR expenses necessary in the conduct of litigation
XPN: transaction with: (3)
One who extended credit prior to dissolution
and had no knowledge / notice of his want of 1837:
authority RIGHT OF PARTNER TO APPLICATION OF PARTNERSHIP
Didnt extend credit / had no knowledge of his PROPERTY ON DISSOLUTION:
lack of authority not advertised
GR: Rights of each partner in dissolution w/o violation (not
Character of notice required actual notice and thru in contravention) to the partnership: (2)
advertisement in a newspaper
1. To have partnership property applied to discharge the
liabilities of the partnership
1835: 2. To have surplus, if any, applied to pay in cash the net
EFFECT OF DISSOLUTION ON PARTNERS EXISTING amount owing to the respective partners
LIABILITY:
XPN: unless otherwise agreed
Dissolution of partnership is not equal to discharge of
If dissolution is caused by expulsion bona fide:
existing liability of partner
1. Expelled partner may be discharged from all liabilities
XPN: when there is said agreement between:
either by payment / agreement with him, the creditors
1. Himself and other partners
2. Partnership creditors 2. Can only receive in cash the net amount due him
3. Other partners
If dissolution is proper, no partner is liable for any loss
Consent is implied from their conduct
RIGHTS WHEN DISSOLUTION IS IN CONTRAVENTION:
Deceased Partners estate:
1. PARTNER WHO IS INNOCENT: (4)
Individual property of deceased partner is liable for all
a. Have the partnership property applied as payment
obligation of partnership incurred while he was still a
of its liabilities and to receive in cash his share of the
partner
surplus
With respect to his separate property priority is given b. Be indemnified for the damages caused by the guilty
to individual creditors over partnership creditors partner
c. Continue business in the same name during the
agreed term of partnership, by themselves / jointly
w/ others
d. Possess property should they decide to continue
business
17 | P A R T N E R S H I P , A G E N C Y A N D T R U S T

Owing for the return of capital contributed by the

2. PARTNER WHO IS GUILTY: (2) partners
a. If business is NOT CONTINUED: If any asset is left, shall be contributed as profits to
i. Have the partnership property applied to partners proportionally
discharge liabilities and receive in cash his share
of the surplus less damages caused by his 3. Loans and advances by partners:
wrongful dissolution Capital contributions are returnable only on
b. If business is CONTINUED: dissolution
i. Have value of interest in the partnership at the Loans are payable at maturity
time of dissolution, less damages Accumulated profits may be withdrawn at any time
ii. Be released from all existing and future liabilities by majoritys consent
GOOD WILL: L & A = amounts paid into the partnership in excess of a
partners capital contribution
Advantage w/c it has from the establishment / from
patronage of its customers, over and above the mere 4. Capital contributed by partners:
value of its property and capital If assets are insufficient to repay capital
Includes advantages derived from partners holding investments, the deficit is a capital loss w/c requires
themselves out as carrying on the business identified w/ contribution
the name of a particular firm Return of amount equivalent to capital contribution
of each partner shall be increased by his share of
GOOD WILL AS PART OF ASSETS includes all assets
undistributed profits / decreased by his share of net
applicable to the payment of debts
losses
FIRM NAME AS PART OF GOOD WILL firm name is an Industrial:
element of the partnership enterprise, substantial asset, GR: not entitled to any of firm capital on
passes w/ sale of partnership property and good will dissolution
XPN: if there is an agreement
EXISTENCE OF SALEABLE GOOD WILL good will is proper
Total capital contribution is not equal to gross
subject of sale if in commercial partnership; not applicable
assets to be distributed to the partners during
to professional partnership
dissolution

1838: 5. Rights of partner where assets are insufficient:

RIGHT TO RESCISSION: A partner / his legal rep (to the extent of amount w/c
he has paid in excess of his share of liability)
If contract is thru fraud / misrepresentation = annullable / Assignee, for the creditors benefit
voidable Any person appointed by court
If already annulled:
o REMEDY of injured party RESTITITUTION Will have the right to enforce the contributions
of the partners
If not yet annulled:
o Partnership relations still exist and injured partner is If any partner does not pay, others will have to
still liable for all obligations to the 3rd persons pay

RIGHTS OF THE INJURED PARTNER: (3) REMEDY: can sue non-paying partner for
indemnification
1. RIGHT TO A LIEN on / retention of the surplus of
partnership property after satisfying liabilities for any
6. Liability of deceased partners individual property
sum of money paid / contributed by him
Liable for his share of contribution necessary to
2. RIGHT TO SUBROGATION in the place of creditors after
satisfy the liabilities of the partnership incurred
payment of liabilities
while he was a partner
3. RIGHT TO INDEMNIFICATION by guilty partner against
all debts and liabilities of the partnership
7. Priority of payments:
DOCTRINE OF MARSHALLING ASSETS:
1839: a. Partnership property pay first the partnership
PRIORITY SYSTEM FOR DISTRIBUTION OF PARTNERSHIP creditors
PROPERTY / SETTLING ACCOUNTS: b. Individual property pay first separate creditors

1. Assets of partnership: 8. Distribution of insolvent partners property:

Partnership property (including good will) PRINCIPLE OF EQUITY:
Contributions of partners for payment of all a. Owing to separate creditors
liabilities b. Owing to partnership creditors
c. Owing to partners thru contribution
2. Order of application of assets:
Owing to partnership creditors REMEDY OF SEPARATE CREDITOR: Can execute
Owing to partners other than for capitals and profits against asset of the firm only to the extent of the
such as loans / advances interest of the partner in firm assets
18 | P A R T N E R S H I P , A G E N C Y A N D T R U S T
1840:
CAUSES OF DISSOLUTION BY CHANGE IN PARTNERSHIP:
(7)
1. New partner is admitted
2. A partner retires
3. A partner dies
4. A partner withdraws
5. A partner is expelled
6. Other partners assign their rights to a sole remaining
partner
7. All partners assign their rights in partnership property to
a 3rd person
Partnership can be dissolved w/o undergoing liquidation 1.
can elect to continue business w/o interruption 2.
Old and new creditors have equal rights in partnership
creditors of dissolved partnership continues with new
partnership
GR: liability of new / incoming partner is satisfied out of
partnership property only
XPN: stipulation to the contrary
When retiring / deceased partner sold interest to
partnership without final settlement with creditors, such
have equitable lien on the consideration paid to the
retiring / deceased partner by purchaser
CONTINUATION OF DISSOLUTION OF PARTNERSHIP BY
ANOTHER COMPANY:
1. Deemed mere continuation prior partnership
2. Obligation of company bought out considered assumed
by vendee
EXEMPTIONS FROM LIABILITY OF INDIVIDUAL PROPERTY
OF DECEASED PARTNER: (2)
1. Debts contracted by the person / partnership w/c
continues the business using the partnership name /
deceased partners name as part thereof
2. Commercial partnership w/ good will proper subject
of sale
1841:
RIGHTS OF RETIRING PARTNER / ESTATE OF DECEASED
WHEN BUSINESS IS CONTINUED: (2)
1. To have value of the interest of the retiring partner /
deceased partner in the partnership ascertained as the
date of dissolution
2. Receive as an ordinary creditor, amount equal to value
of his share in the dissolved partnership with interest /
at his option, in lieu of interest, the profits attributable to
the use of his right
Partnership creditors have PRIOR RIGHT vs. separate
creditor of the retired / deceased partner
If surviving partners continue w/o consent of the
deceased partners estate, they do so w/o any risk to the
estate
If estate consents it, becomes new partner and be liable 4.
for all debts and losses after death, but only to the extent
of the decedents share in the assets
1842:
ACCRUAL & PRESCRIPTION OF PARTNERS RIGHT TO
ACCOUNT HIS INTEREST: (2)
1. Right to demand accounting of value of interest accrues
to any partner / legal rep after dissolution
XPN: when there is agreement to the contrary
2. Prescription starts upon dissolution of partnership when
final accounting is done
PERSON LIABLE TO RENDER ACCOUNT:
Right of partner may be exercised against: (3)
Winding up partner
Surviving partner
3. Person / partnership continuing business
LIQUIDATION NEEDED FOR DETERMINATION OF
PARTNERS SHARE: (2)
1. SHARE OF PROFITS general liquidation before a
member may claim a specific sum as share of profits
2. SHARE IN THE PARTNERSHIP partners share cannot
be returned w/o first dissolving and liquidating
partnership, for the firms outside creditors have
preference over the assets of the enterprise and firms
property cannot be diminished to their prejudice
WHEN NOT NEEDED:
GR: when partnership is dissolved, the partner / his legal rep
is entitled to payment of what may be due after a liquidation
XPN: when there is already a settlement / agreement as to
what he shall receive
LIMITED PARTNERSHIP:
1843:
LIMITED PARTNERSHIP:
Formed by 2 / more persons, 1 / more are general
partners, and 1 / more are limited partners.
The limited partners shall NOT BE BOUND by the
obligations of the partnership.
Liability to 3rd persons of 1 / more members are limited
to a fixed amount, capital contribution / amount they
have invested are limited
Investors
This is the XPN to the GR that all partners are liable pro
rata w/ all property for partnership debts
CHARACTERISTICS: (5)
1. Formed by compliance w/ statutory requirements
2. 1 / more general partners control the business and are
personally liable to creditors
3. 1 / 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 the obligation beyond the amount contributed
Limited partners may ask for return of their capital
contribution
19 | P A R T N E R S H I P , A G E N C Y A N D T R U S T

5. The debts are paid out of common fund and of the

individual properties of general partners 1845:
LIMITED PARTNERS CONTRIBUTION:
PURPOSE OF LTD. PARTNERSHIP: (3)
ONLY MONEY OR PROPERTY, NOT INDUSTRY:
1. Secure capital from others for ones business but still
retain control If he contributes industry, he becomes a general partner,
2. Share in profits of a business w/o risk of personal not exempt from personal liability
liability Gen + ltd partner at the same time is allowed:
3. Associated as partners with those having business skill o PROVIDED: stated in the cert / arts. Of partnership
Industrial + ltd is NOT allowed
GENERAL PARTNER LIMITED PARTNER
Personally liable for Extends only to capital GR: promissory notes, post-dated checks, bonds are not
partnership obligation contribution considered ltd partners contribution

XPN: certified check / managers check

Can contribute money, Can only contribute
property industry money / property, not Contribution should be paid BEFORE formation of
industry partnership
Interest may not be Freely assignable o XPN: additional contribution
assigned

Name may appear in the

firm name
Name cannot appear
Prohibited from engaging No prohibition
in a similar business
(capitalist)
1844:
REQUIREMENTS OF A LIMITED PARTNERSHIP: (2)
1. Sign and swear to a certificate / articles of limited
partnership: (14)
a. Name of partnership with the word limited
b. Character of business
c. Location of principal place of business
d. Name & place of residence of each member, both
gen & ltd. Partners
e. Term of partnerships existence
f. Amount of cash and description of and agreed value
of the other property contributed by each ltd partner
g. Additional contribution if any, to be made by each
ltd partner and when they shall be made
h. Time, if agreed, when contributions are to be
returned
i. Share of the profits / other compensation by way
of income w/c each ltd partner will receive because
of contribution
2. File for record the certificate in the office of SEC
Ltd partnership is formed if substantial compliance
with requirements + good faith
If not: liability becomes that of general partners as to
3rd persons only
If certificate is defective: ltd partner is not formed
o XPN: when creditors recognize them as ltd
partnership, they are estopped from insisting that
ltd partnership did not exist
Failure to extend term / renew: becomes general
partners
WHO MAY BECOME A LTD PARTNER?
A partnership cannot be a ltd partner
General partner/ship can become a ltd partner/ship
1846:
WHEN SURNAME OF LTD PARTNER APPEARS IN
PARTNERSHIP NAME:
GR: Surname of ltd partner shall not appear in the firm name
XPNS: (2)
1. Also a surname of a general partner
2. Prior to the time when the ltd partner became such, the
business had been carried on under a name wherein his
surname appeared
If name appears in contrary: he will be liable as ltd
partner to 3rd persons IF they had no knowledge that he
was not a general partner
1847:
LIABILITIES FOR FALSE STATEMENT IN CERTIFICATE:
REQUISITES: (3)
1. Partner KNEW of the false statement when he signed the
contract or subsequently, but having sufficient time to
cancel / amend it / file petition for cancellation /
amendment but did not do so
2. Person aggrieved RELIED UPON false statement in
transacting with the partnership
3. Person aggrieved SUFFERED LOSS for reliance
Loss if capital contribution was LESS than
specified (and not the other way around)
REMEDY: Does not make ltd partner a general partner
even to 3rd persons (can only be sued for damages)
1848:
LIABILITY OF LTD PARTNER FOR PARTICIPATING IN
MANAGEMENT OF PARTNERSHIP:
GR: Ltd partner is not liable to become a general partner
XPN: if he takes part in the control of business: (4)
1. Business is carried on by a board of directors
chosen by ltd partners
20 | P A R T N E R S H I P , A G E N C Y A N D T R U S T

2. Term of the contract between parties, an appointee AS TO: GEN. LIMITED

of the ltd partner becomes the directing manager of PARTNERSHIP PARTNERSHIP
the firm COMPOSITION General partners Gen + ltd
3. Ltd partner purchases entire property of the only
partnership taking title for himself and carries
business in his own name
4. Makes / is a party to a contract w/ creditors of an CONSTITUTION In any form Contained in the
insolvent firm w/ respect to disposal of firms assets cert of ltd
in payment of firms debts partnership, duly
signed by all
XPN to the XPN: taking part in the management partners &
because he settles its affairs after dissolution sworn, recorded
in SEC
FIRM NAME Operate under a limited
1849: firm name
ADMISSION OF ADDL LTD PARTNERS:

REQUISITES TO ADMISSION: (3)

1. Proper amendment to the certificate
2. Signed and sworn by ALL partners including the new ltd
partners
3. Filed in SEC
1850:
RIGHTS, POWERS & LIABILITIES OF A GENERAL PARTNER:
GR: general partner has the rights and powers & be subject
to ALL restrictions and liabilities of a partnership w/o ltd
partners
XPN: when there is NO COSENT / ratification by ALL ltd
partners, general partners cannot: (7)
1. DO ANY ACT in contravention of the certificate
2. DO ANY ACT w/c would make it impossible to carry on
the ordinary business of partnership
3. CONFESS a judgment against the partnership
4. POSSESS partnership property / assign rights in specific
partnership property for other than partnership purpose
5. ADMIT a person as general partner
6. ADMIT a person as ltd partner
XPN: right to do so is in the certificate
7. CONTINUE the business w/ property on the death,
retirement, insanity, civil interdiction / insolvency of a
general partner
XPN: right to do so is in the certificate
DISSOLUTION & They both have differences, formal
WINDING UP and procedural
1852:
STATUS OF PARTNER WHERE THERE IS FAILURE TO
CREATE LTD PARTNERSHIP:
A person who contributed capital ERRONEOUSLY
believing that he has become a ltd partner, when his
name appears as a gen partner / is not designated as ltd
partner IS NOT LIABLE AS GENERAL PARTNER
o PROVIDED: (3)
1. On ascertaining mistake, he promptly
renounces his interest in the profits of the
business / other compensation by way of
income:
before partnership becomes liable to 3rd
persons who has considered him a general
partner
not necessary when no creditor is
prejudiced
only profits / compensation not yet paid
over, no obligation to return profits already
received
2. Surname does not appear in partnership name
3. Doesnt participate in the management of the
business

GR: an heir of a gen. partner admitted as partner,

1851: ORDINARILY becomes a ltd partner to avoid liability in
RIGHTS OF A LTD PARTNER: (7) excess of value of inheritance (personal assets)

1. REQUIRE partnership books be kept at a principal place XPN: if he choose to elect to become a gen. partner
of business
WAIVED: in the event of the death of a partner the
2. INSPECT and copy at a reasonable hour
partnership shall be continued and the deceased partner
3. DEMAND true & full information of all things affecting
shall be represented by his heirs and assignees in said
the partnership
partnership as general partners
4. ASK for dissolution and winding up by decree of court
5. RECEIVE a share of profits / other compensation thru
income 1853:
6. RECEIVE the return of his contribution GENERAL + LTD PARTNER:
PROVIDED: partnership assets are in excess of all its
liabilities Gen + ltd partner in the same partnership, at the same time
is allowed:

PROVIDED: stated in the certificate

21 | P A R T N E R S H I P , A G E N C Y A N D T R U S T

1. Rights and powers are those of a general partner still
liable to 3rd persons
2. With respect to his contribution as a ltd partner, he has
a right of a ltd partner entitled to recover from the gen
partners what he has paid to 3rd persons and in settling
accounts after dissolution, he shall have priority over
gen. partners in the return of their respective
contributions
1854:
LOAN & OTHER BUSINESS TRANSACTIONS W/ LTD
PARTNERSHIP:
ALLOWABLE TRANSACTIONS: (3)
1. Granting loans to the partnership
2. Transacting other business with it
3. Receiving pro rata share of partnership assets w/ gen.
creditors if he is also not a gen. partner
PROHIBITED: (2)
1. Receiving / holding as collateral security any partnership
property
2. Receiving any payment, conveyance / release from
liability if it will prejudice the right of 3 rd persons
Violation of prohibition = presumption of FRAUD
Doesnt prohibit absolutely the taking of collateral
security by a ltd partner of any partnership property
PREFERENTIAL RIGHTS:
Ltd partner is considered non-partner creditor
3rd persons are preferred insofar as partnership assets
are concerned
1855:
PREFERRED LTD PARTNERS:
2. Consent of all members has been obtained except when
return may be rightfully demanded
3. Certificate is cancelled / amended to set forth the
withdrawal / reduction of contribution
WHEN RETURN IS A MATTER OF RIGHT: (3)
1. On the dissolution of partnership
2. Upon the arrival of the date specified in the
certificate for return
3. After expiration of the 6 months notice in writing
given to other partners If no time is fixed in the
certificate for the return of contribution / dissolution
of partnership
RIGHT OF LTD PARTNER TO CASH IN RETURN FOR
CONTRIBUTION:
GR: even if ltd partner has contributed property, he has only
the right to demand and receive CASH for his contribution
XPNS: (2)
1. When there is stipulation to the contrary in the cert
2. When all partners consent to the return other than cash
WHEN LTD PARTNER MAY HAVE PARTNERSHIP
DISSOLVED: (2)
1. Dissolution by partners ltd partner must ask the other
partners to have the partnership dissolved, if they refuse,
remedy is no. 2
2. Dissolution by judicial decree additional grounds upon
petition of ltd partner (2)
a. When demand for return of his contribution is
denied although has a right to such return
b. Contribution is not paid although he is entitled to its
return because the other liabilities of the partnership
have not been paid / the partnership property is
insufficient for payment

All gen + ltd partners may agree, as stated in the cert, that
priority / preference be given to some ltd partners over
1858:
others as to: LIABILITIES FOR UNPAID CONTRIBUTION OF A LTD
PARTNER: (2)
1. Return of their contributions
2. Compensation by way of income 1. For the difference between his actual contribution & that
3. Any other matter stated in the certificate he made
2. Unpaid contribution w/c he agreed in the certificate to
If not in the cert = all ltd partners shall stand on equal footing make in the future at the time and on the conditions
stated in the certificate
1856: LIABILITY AS TRUSTEE: (4)
COMPENSATION OF LTD PARTNER:
1. Specific property stated in the certificate as contributed
Creditors have priority over ltd partners rights by him but which he had not contributed
(partnership assets partnership liabilities = excess) 2. Specific property of partnership w/c had been
In determining partnership liabilities, exclude: (2) wrongfully returned to him
o Liabilities to ltd partners for contribution 3. Money wrongfully paid / conveyed to him on account of
o Gen partners W/N for contribution his contribution
4. Other property wrongfully paid / conveyed to him

1857: REQUISITES FOR WAIVER / COMPROMISE OF LIABILITIES:

CONDITIONS BEFORE A CONTRIBUTION OF A LTD (2)
PARTNER CAN BE RETURNED: (3)
1. With compensation made w/ consent of all partners
1. All partnership liabilities have been paid / if not paid, 2. w/c does not prejudice partnership creditors who
partnership assets are still sufficient to pay such extended credit / whose claims arose before
liabilities cancellation / amendment of
22 | P A R T N E R S H I P , A G E N C Y A N D T R U S T
ltd partner is liable for the return of contribution
lawfully received by him to pay creditors who
extended credit
such liability cannot exceed sum received by him w/
interest
1859:
EFFECT OF CHANGE IN THE RELATION OF LTD PARTNERS:
SUBSTITUTED LTD PARTNER person admitted to all the
rights of a ltd partner who has died / assigned his interest in
the partnership
REQUISITES: (3)
1. All members must consent to the assignee becoming a
SLP / ltd partner being empowered by that cert, must
give the assignee the right to become a ltd partner
2. Certificate must be amended
3. Amended certificate must be registered with SEC
ASSIGNEE WHO ISNT A SLP (LIMITATIONS): (2)
1. Has no right to require information / account of the
partnership transactions or inspect books
2. Only entitled to receive share of profits / other
compensation by way of income / return of his
contribution
LIABILITY OF SLP / ASSIGNOR: (3)
1. Liable for all liabilities of his assignor
a. XPN: only those of w/c he was ignorant at that time
he became a ltd partner and w/c couldnt be
ascertained from the certificate
2. Liable to persons who suffered damage by reliance on
false statement in the certificate
3. Liable to creditors who extended credit / whose claims
arose BEFORE substitution
1860:
EFFECT OF RETIREMENT, DEATH, ETC. OF A GEN
PARTNER:
GR: retirement, death, insolvency, insanity / civil interdiction
of a gen. partner DISSOLVES partnership
XPN: when continued by remaining gen partners: (2)
1. Under the right to do so as stated in the certificate
2. w/ consent of all members
1861:
RIGHT OF EXECUTOR ON DEATH OF LTD PARTNER: (2)
1. Executor / administrator shall ACQUIRE ALL RIGHTS for
the purpose of settling affairs of the ltd partner
2. Right to CONSTITUTE the deceaseds assignee as SLP
a. Only if deceased partner is empowered to do so in
the certificate
b. Estate of the deceased ltd partner is liable for all his
liabilities contracted while he was still a ltd partner
1862:
RIGHTS OF CREDITORS OF LTD PARTNERS: (2)
Creditors may apply to the proper court for an order charging
the ltd partners interest in the partnership for payment of
any unsatisfied amount: (CHARGING ORDER)
1. Interest so charged can be redeemed w/ separate
property of any general partner but not with partnership
property
2. Interest of debtor partner charged w/ payment of
unsatisfied amount of the judgment debt can be
redeemed w/ partnership property w/ consent of all the
partners whose interest are not charged
1863:
DISSOLUTION OF A LTD PARTNERSHIP:
PRIORITY IN THE DISTRIBUTION OF ASSETS: (6)
1. Due to CREDITORS, including ltd partners, except those
on account of their contributions, in the order of priority
2. Due to LIMITED PARTNERS in respect to their SHARE
OF PROFITS and other compensation through income
on their contribution
3. Due to LIMITED PARTNERS for RETURN OF CAPITAL
contribution
4. LOANS due to GENERAL PARTNERS other than for
capital and profits
5. Due to GENERAL PARTNERS in respect to PROFITS
6. Due to GENERAL PARTNERS for RETURN OF CAPITAL
contribution
CAUSES OF DISSOLUTION OF LTD PARTNERSHIP: (6)
1. Misconduct of gen. partner
2. Fraud by gen. partner to the ltd partner
3. Retirement, death, etc. of gen. partner
4. All ltd partners ceased to be such
5.
6.
Expiration of term
Mutual consent of partners before expiration of firms
original term
SUIT FOR DISSOLUTION:
1. When there is MISCONDUCT of gen partner / there is
INSOLVENCY:
a. REMEDY of ltd partner bring SUIT FOR
DISSOLUTION of firm, an accounting, appointment
of receiver (misconduct)
b. REMEDY of creditors same (insolvency)
2. When ltd partner rightfully but unsuccessfully demands
the return of his contribution:
a. REMEDY: he can have partnership DISSOLVED and
affairs wound up
b. XPN: liabilities to gen partners and to ltd partners on
account of their contributions
NOTICE OF DISSOLUTION: (2)
1. When NOT needed when firm is dissolved by the
EXPIRATION of term fixed in the certificate
2. When NEEDED when by express will of the partners,
certificate shall be cancelled before expiration
When ltd partnership has been dissolved, gen
partners have the power to wound up affairs
23 | P A R T N E R S H I P , A G E N C Y A N D T R U S T
It is not the ltd partner / representative of deceased
partners obligation to collect firms assets
Representatives of gen partners succeed gen
partners, not ltd partners
PROPORTIONAL SHARING:
When assets are insufficient to pay claims
In absence of any statement as to share of profits w/c
each partner shall receive by reason of contribution
(pro-rata)
PRIORITY CLAIMS OF LTD PARTNERS:
Ltd partners may have an agreement in the certificate as
to priority, otherwise equal footing
1864:
WHEN CERTIFICATE IS CANCELLED: (2)
1. When partnership is dissolved other than by reason of
expiration of term
2. All ltd partners ceases to be such
WHEN CERTIFICATE IS AMENDED: (10)
1. Change in the name of partnership / amount / character
of contribution of any ltd partner
2. A person is substituted as ltd partner
3. Additional ltd partner is admitted
4. A person is admitted as gen partner
5. Change in the character of business
6. False/erroneous statement in the certificate
7. Gen partner retires, dies, becomes insolvent or insane,
or sentenced to civil interdiction and business is still
continued
8. Change in the time as stated in the certificate for
dissolution or for return of contribution
9. A time is fixed for dissolution or return of contribution,
no time having been specified in the certificate
10. Members desire to make a change in any other
statement in the certificate in order that it shall
accurately represent the agreement among them
1865:
REQUIREMENTS FOR AMENDMENT OF CERTIFICATE: (3)
1. In writing
2. Signed & sworn to by all members (old & new), assigning
ltd partner in case of substitution / addition of ltd / gen
partner
3. Amended certificate filed for record with SEC
Effectively amended UPON filing with SEC
REQUIREMENTS FOR CANCELLATION OF CERTIFICATE: (3)
1. In writing
2. Signed & sworn to by all members
3. Filed for record with SEC
If cancellation is ORDERED BY COURT certified copy
of such order shall be filed with SEC
Approval by commission of amendment / cancellation
NOT REQUIRED
1866:
CONTRIBUTOR (STANGER):
A ltd partner whose liability is ltd to his interest in the
firm w/o any right & power to participate in the
management and control of the business
There is no fiduciary relationship w/ other partners
o Not prohibited from engaging in business for
himself / similar business
o Can transact w/ partnership for ordinary purposes
He is liable to partnership, not to creditors of the
partnership
GR: a contributor is NOT A PROPER PARTY to proceedings
by / against the partnership
XPNS: (2)
1. If he is also a general partner
2. Where the object is to enforce a ltd partners right vs.
liability of partnership
NATURE OF LTD PARTNERS INTEREST: (5)
1. His contributions to the firm is NOT A LOAN, he is not a
creditor
2. It is NOT a mere investment
3. He is an owner, but has NO PROPERTY RIGHT in firms
assets; just a co-owner w/ his partners of the
partnership property; tenancy in partnership
4. Ltd partners interest is in PERSONAL PROPERTY, thus
immaterial whether firms assets consist of realty /
tangible / intangible personalty
5. The nature amounts to a share in the assets after
liabilities have been deducted and a balance struck;
interest is a CHOSE IN ACTION therefore intangible
personal property
1867:
PROVISIONS FOR EXISTING LTD PARTNERSHIPS:
A ltd partnership formed PRIOR TO EFFECTIVITY of this
code shall continue to be governed by the old law unless:
1. Complies w/ Art. 1844
2. Provided in the certificate:
a. Amount of original contribution of each member at
the time when it was made
b. Partnership property exceeds the amount sufficient
to discharge its liabilities to persons not claiming as
gen / ltd partners by an amount greater than the
sum of the contribution of its ltd partners
END OF MIDTERMS, BITCHES.
24 | P A R T N E R S H I P , A G E N C Y A N D T R U S T
1868:
AGENCY a person binds himself (1) to render service or (2)
to do something in representation or on behalf of another,
with the consent or authority of the latter (principal).
It is a FIDUCIARY RELATIONSHIP which implies a power
in an agent to contract with a 3rd person on behalf of the
principal
Ex: A hires B to supervise and to act for him in all matters
connected with the business
TERM USED IN OTHER SENSES:
1. Used to denote the place at which the business is
transacted
2. In the sense of instrumentality by which a thing is done
3. Refer to the exclusive right of a person to sell a product
of another in a specific territory.
CHARACTERISTICS:
1. CONSENSUAL based on the agreement of the parties
which is perfected by mere consent
2. PRINCIPAL can stand by itself w/o the need of another
contract
3. NOMINATE it has its own name
4. UNILATERAL if it is gratuitous because it creates
obligations for only one of the parties or BILATERAL if
it is for compensation which gives rise to reciprocal
rights and obligations
5. PREPARATORY entered into as a means to an end
NATURE:
It is essential that minds of the parties meet in making
it.
The principal must intend that the agent shall act for him
The agent must intend to accept the authority and act
on it
Such intention must manifest expressly or implied
In acting for the principal, the agent, by legal fiction,
becomes a principal authorized to perform all acts
which the latter would have him do.
Is based upon a consideration or operation of law or
gratuitously
Even without a contract or consideration, there can still
be agency or agency powers (in the exercise of govtal
functions, local govts or municipal corporations acts as
agents for the sovereign state)
Legal consequences of agency may attach where one
person acts for another without authority or in excess of
his authority, and the latter subsequently ratifies it.
BASIS:
Basis is representation
Agent renders service in representation of another
PURPOSE:
To extend the personality of the principal through the
facility of the agent to render some service or do
something
PARTIES:
1. PRINCIPAL one whom the agent represents and from
who he derives the authority; person represented
2. AGENT one who acts for and represents another; the
person acting in a representative capacity; has the
derivative authority in carrying out the principals
business
3. THIRD PARTY the party whom the business is
transacted
ELEMENTS:
1. There is consent, express or implied, of the parties to
establish relationship
2. The object is the execution of a juridical act in relation to
3rd persons
3. The agent acts as a representative and not for himself
4. The agent acts within the scope of his authority
5. Parties must be competent to act as principal and agent;
consideration is not required
3RD PARTY PRINCIPAL AGENT RELATIONSHIP
(THREESOME.)
A 3rd partys liability is to the principal and not to the
agent
Liability to such 3rd party is enforceable against the
principal, not the agent
The relationship of the 3rd party with whom the agent
has contracted, to the principal, is the same as that in a
contract as if there was no agent.
GR: Agent has neither rights nor liabilities as against the 3 rd
party (since he is not the real party)
XPN: where he is constituted as an assignee (agent in his
own behalf, can sue on a contract made for his principal, as
an assignee)
CAPACITY OF THE PARTIES:
PRINCIPAL must be capacitated or have the legal capacity
to enter into contract in his own right
Either a natural or juridical person
Voluntary association of persons which is not a legal
entity has no legal existence and cannot sue or be sued;
no capacity to appoint an agent
GR: An agent who assumes to contract in the name of the
principal WITHOUT contractual capacity renders himself
liable to 3rd persons (Agency by estoppel)
XPNS:
1. Where acts of an agent done for an incompetent
principal is RATIFIED by the latter after acquiring
capacity
2. Where he was ignorant of the principals incapacity
AGENT since he doesnt assume personal liability, he
doesnt have to possess full capacity to act for himself
insofar as 3rd persons are concerned. But he must be
competent to bind himself.
He derives his authority from the principal and a contract
made by the agent is legally viewed as a contract of the
principal.
Where one knowingly and without dissent permits another
to act as his agent, the capacity of the latter will be
conclusively presumed.
25 | P A R T N E R S H I P , A G E N C Y A N D T R U S T

DELEGATION: 2. Agent will be chargeable as trustee for all the profits of

the transaction, and is responsible for any loss
GR: What a man may do in person, he may do thru another sustained by the principal through such action,
(delegation) 3. Agent cannot recover compensation from either
XPNS: principal

1. Personal Acts if personal performance is required by
law or public policy or agreement of the parties
a. Right to vote
b. Making a will
c. Statements under oath
d. A member of the board of directors when attending
meetings
e. An agent cannot delegate to sub-agent the
performance of acts which he has been appointed
to perform in person
2. Criminal Acts / Acts not allowed by law an attempt to
delegate to another authority to do an act which, if done
by the principal would be illegal, is void.
Where 2nd principal is aware of the dual employment but 1st
principal is not, the latter has the right to affirm or rescind
the transaction and recover damages from the 2 nd principal
and agent
If double employment is with knowledge and consent of 1 st
principal, such is bound but he cannot recover from the
other.
Agent must not use or disclose secret information:
GR: Duty not to use or divulge confidential information
obtained in the course of his agency for his own benefit to
the principals injury or expense

NATURE OF RELATIONS BETWEEN PRINCIPAL & AGENT: XPN: After termination of agency. Provided, he must still not
use it to injure the principal
Relations fiduciary in character based on trust and
confidence on a degree which varies depending on the Agent must give notice of material facts agent must
situation make known to his principal every and all material facts;
Agent estopped from asserting interest adverse to his principal may also not keep from the agent any material
principal he cannot be allowed to create in himself an fact
interest (asserting or acquiring a title) in opposition to
that of his principal (CESTUI QUE TRUST) REMEDY: agent may be held liable for damages for any
By accepting agency, agent does not: loss suffered or injury incurred as a result of such breach
o Lose any prior claim which he himself may have to THEORY OF IMPUTED KNOWLEDGE knowledge of the
the property with which he deals agent is imputed to the principal even though the agent
o Nor is he estopped to assert that money or property never communicated such knowledge to the principal.
in his hands was not received by him as agent for
the principal GR: Knowledge of principal cannot be imputed to his agent.
o Or that the principal parted with his interest in the
XPNS:
property subsequent to the delivery to him as agent
Agent must not act AS an adverse party agents 1. Agents interest are adverse to those of the principal
cannot ac so as to bind their principals, where they have 2. Agents duty is not to disclose the information, as
an adverse interest in themselves. where he is informed by way of confidential
information
GR: an agent cannot acquire by purchase, even at public or
3. Person claiming the benefit of the rule colludes with
judicial auction, either in person or thru the mediation of
the agent to defraud the principal
another, the property whose administration or sale has been
entrusted to him AGENCY VS. LOAN:
XPNS: As to: AGENCY: LOAN:
1. Unless the principal consents Relationship Principal Agent Lender
2. After termination of such agency borrower
3. Or other properties different from those he has been
commissioned to sell Money Money advanced
REMEDY: principal may recover damages for the wrongful is expressly
sale regarded as loan;
lender has no
Agent must not act FOR an adverse party (dual interest or
employment): concern in the
manner of its
GR: cannot serve 2 masters conduct
Purpose of Given funds by Given money for
XPNS: Money the P to advance own purposes
1. Both consent business
2. He is a middleman with no independent initiative

REMEDIES: AGENCY VS. LEASE SERVICE:

1. Either principal may rescind / repudiate the transaction As to: AGENCY: LEASE SERVICE:
involved
26 | P A R T N E R S H I P , A G E N C Y A N D T R U S T

Applied Principle of Principle of As to: AGENCY: NEGOTIORUM

Principles representation employment GESTIO:
Representation Expressly Without authority
Extinguishment At the will of the Concurrence of conferred and knowledge
principal parties is of the owner
necessary Control of Agent acts Gestor acts to
Powers of Agent exercise Employee Principal according to the the presumed
parties discretionary exercise express will of will of owner by
power to attain ministerial principal exercising all the
an end for which functions only diligence of a
he was good father of a
appointed family
Kind of contract Preparatory Principal Nature Agency is a Quasi-contract
contract contract contract

AGENCY VS. BROKERAGE:

AGENCY VS. INDEPENDENT CONTRACT:
BROKER one who is engaged for others on a commission;
As to: AGENCY: INDEPENDENT
CONTRACT: a negotiator between other parties, never acting in his own
Powers Agent is subject IC is not subject name but in the name of those who employed him.
to control and to the control of BROKERAGE trade or occupation of the broker
direction of the employer in a
principal contract for As to: AGENCY: BROKERAGE:
piece of work
except only as to Parties Commission Broker has no
the result of the agent engaged relation with the
work in the purchase thing he buys or
Principals Employer is liable Employer not of sale for sells; merely an
liabilities for the torts or liable for the torts another of intermediary or
injury inflicted by or injury by IC to personal negotiator
agent upon 3rd 3rd persons / property which between the
persons / employees of for this purpose, purchaser and
employees of such contractor is placed in his vendor
such contractor possession and
at his disposal
Commission Receives Earns his pay
AGENCY VS. PARTNERSHIP: commission merely by
upon successful bringing buyer
As to: AGENCY: PARTNERSHIP: transaction and seller
together even if
Control by the Agent must Not applicable;
no sale is made
Principal submit to the XPN: when there
principals right is such
to control agreement AGENCY VS. SALE:
Liability of the Agent assumes Binds himself
Agent no personal and the firm As to: AGENCY: SALE:
liability where he members
acts within the Ownership of Agent receives it Buyer receives
scope of Goods as goods of the goods as owner
authority principal
Sharing of Where owner / Profits belong to Agent delivers Buyer pays the
Profits partners takes all the parties as the proceeds of price
agreed share of common the sale
profits, not as proprietors in
Return of goods Agent can return Buyer cannot
owner but as an agreed portion
the object if not return sold
agreed measure
sold goods
of compensation
for his services Bound to act Buyer can deal
according to the with the thing as
instructions of he please being
AGENCY VS. NEGOTIORUM GESTIO (management of the his principal the owner
business affairs of an absentee:

There is representation in both but juridical relations are

different.
27 | P A R T N E R S H I P , A G E N C Y A N D T R U S T

AGENCY VS. BAILMENT: Not required Required to file a

bond
As to: AGENCY: BAILMENT:
Control of Principal has Has no control
Employer control over the
agent
over the Bailee
beyond what is 1869:
given him by KINDS OF AGENCY:
contract
Bailee cannot 1. As to CREATION:
bind bailor in a. EXPRESS agent has been actually authorized by
personal liability principally, either orally or in writing
and owes neither b. IMPLIED implied from the acts of the principal,
loyalty nor from his silence or lack of action, or his failure to
obedience to the repudiate the agency knowing that another person
bailor is acting on his behalf without authority or from the
Bailee is vested acts of the agent which carry out the agency, or from
with ostensible his silence or inaction according to the
authority to sell / circumstances
make binding
contracts with AGENCY BY RATIFICATION may produce the effect of an
respect to the express or implied agency
subject matter of
the bailment AGENCY BY ESTOPPEL OR IMPLICATION Where principal
cannot deny the existence of an agency after 3 rd parties have
had dealings with supposed agent
AGENCY VS. GUARDIANSHIP:
Agency may exist by operation of law.
As to: AGENCY: GUARDIANSHIP:
2. As to CHARACTER:
Source of From principal Acts for and on a. GRATUITOUS agent receives no compensation
Authority behalf of his for his services
ward, doesnt b. ONEROUS agent receives compensation
derive his
authority so to 3. As to EXTENT OF BUSINESS COVERED:
act from ward
a. GENERAL one which comprises all the business
Principal and Guardian and
of the principal
agent is founded ward created
b. SPECIAL one which comprises one or more
upon consent of irrespective of
specific transactions only
the parties the consent or
capacity of the 4. As to AUTHORITY CONFERRED:
ward a. COUCHED IN GENERAL TERMS created in general
Agents are Guardians are terms and is deemed to comprise only acts of
subject to control not subject to administration
of principals direction of their b. COUCHED IN SPECIFIC TERMS one authorizing
wards only the performance of a specific act/s
Agent is the Legal guardian is 5. As to NATURE AND EFFECTS:
appointee of the substituted by a. OSTENSIBLE / REPRESENTATIVE agent acts in
principal, power law the name and representation of the principal
may at any time b. SIMPLE / COMMISSION agent acts in his own
be abrogated or name but for the account of the principal
modified
Agent represents Guardian REQUIREMENT OF CERTAIN FORMALITIES WHEN:
one who has represents one 1. Form is required for the validity of the contract
capacity to who has no such
2. Required to make the contract effective against 3 rd
contract for capacity
persons
himself where he
3. Required for the purpose of proving the existence of a
present
contract such as those in Statute of Frauds

APPOINTMENT OF AGENT not essential that an agent

AGENCY VS. JUDICIAL ADMINISTRATION:
should be appointed directly by principal, but appointment
As to: AGENCY: JUDICIAL may be made through another
ADMINISTRATION:
An agent appointed by the directors of a corporation to act
Judicial
administrator is FOR THE CORP. is an agent of the corporation and not of the
appointed by court directors.

Liabilities Only answerable Answerable to

to principal heirs and creditors
of the estate
28 | P A R T N E R S H I P , A G E N C Y A N D T R U S T
PRESUMPTION OF AGENCY:
GR: Agency is not presumed; relation between P & A must
exist as a fact; whatever statements or communications
made by the parties between them (supposed P & A), if
anything thereto appears contrary to their contention, the
latter will always prevail.
XPNS:
1. Where agency may arise by operation of law
2. To prevent unjust enrichment
AUTHORITY OF ATTY TO APPEAR ON BEHALF OF HIS
CLIENT:
SEC. 21: Authority of attorney to appear presumed to be
properly authorized to represent any cause in which he
appears, and no written power of attorney is required to
authorize him to appear in court for his client, but presiding
judge may, on motion of either party or on reasonable
grounds, require an attorney to produce / prove his authority,
and to disclose his employer.
REMEDY: If attorney willfully appears in court for a person
without being employed may be punished for CONTEMPT
XPN: by leave of court
SEC. 22: Attorney who appears in lower court presumed to
represent client on appeal attorney who appears de parte
in case before a lower court shall be presumed to continue
representing his client on appeal
XPN: he files a formal petition withdrawing his appearance
in the appellate court
SEC. 23: Authority of attorneys to bind clients has the
authority in case by any agreement in relation thereto made
in writing, and in taking appeals, and in all matters of ordinary
judicial procedure.
SCOPE OF AUTHORITY an act performed by counsel
within the scope of a general or implied authority is regarded
as an act of the client
Consequently, the mistake of negligence of counsel may
result in the rendition of an unfavorable judgment against
the client.
XPNS:
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 clients liberty / property
3. Where the interests of justice so requires
1870:
FORM OF ACCEPTANCE BY AGENT may be oral, written
or implied
1871 1872:
KINDS OF IMPLIED ACCEPTANCE:
1. WHERE PERSONS ARE PRESENT (Personally delivers
power of attorney):
a. Principal delivers his PoA to agent
b. Agent receives it without any objection
2. WHERE PERSONS ARE ABSENT (Transmits power of
attorney):
GR: Acceptance cannot be implied from silence of agent
XPNS:
1. Principal transmits his PoA to the agent, who receives it
without any objection
2. Principal entrusts to him any letter or telegram of PoA
with respect to the business in which he is HABITUALLY
ENGAGED as an agent, and he did not reply to the letter
or telegram
1873:
WAYS OF COMMUNICATION OF EXISTENCE OF AGENCY:
1. If by SPECIAL INFORMATION, the person appointed as
agent is considered with such respect to the person to
whom it was given.
2. If by PUBLIC ADVERTISEMENT, the agent considered as
such with regard to any person. This can be through
newspaper, radio, posters, billboards, etc.
MANNER OF REVOCATION OF AGENCY in the same
manner it was given.
If agency has been entrusted for the purpose of
contracting with specified persons, its revocation shall
not prejudice the latter if they were not given notice
thereof.
If agent had general powers, revocation of agency does
not prejudice 3rd persons who acted in good faith
without the knowledge of revocation.
Notice of revocation in a newspaper of general
circulation is sufficient warning to 3rd persons
AGENCY BY ESTOPPEL:
1. Estoppel of AGENT one professing to act as agent for
another may be estopped to deny his agency both as
against his asserted principal and the 3rd persons
interested in the transaction in which he engaged
2. Estoppel of PRINCIPAL:
a. As to agent one who knows that another is acting
as his agent and fails to repudiate his acts, or
accepts the benefits of them, will be estopped to
deny the agency as against such other.
b. As to sub-agent he must have known or be
charged with knowledge of the fact of transaction
and the terms of agreement between agent and
sub-agent
c. As to 3rd persons one who knows that another is
acting as his agent or permitted another to appear
as his agent, to the injury of 3rd persons who have
dealt with the apparent agent as such in good faith
and in the exercise of reasonable prudence
3. Estoppel of 3RD PERSONS having dealt with one as
an agent can be estopped to deny agency as against
the principal, agent, or 3rd persons in interest.
XPN: Where he has withdrawn from the contract made
with the unauthorized agent before receiving any
benefits.
29 | P A R T N E R S H I P , A G E N C Y A N D T R U S T

4. Estoppel of the GOVERNMENT neither estopped by

the mistake or error on the part of its agents. But may be 1875:
estopped through affirmative acts of its officers acting AGENCY PRESUMED TO BE WITH COMPENSATION:
within the scope of their authority.
XPN: Unless there is a proof to the contrary
AGENCY BY ESTOPPEL VS. IMPLIED AGENCY:
The agent does not have to prove that the agency is for
As to: AGENCY BY IMPLIED compensation. But, the prima facie presumption that the
ESTOPPEL AGENCY: agency is for a compensation may be contradicted by
Existence of There is no There is actual contrary evidence.
Actual Agency agency at all, but agency; principal
the one alone is liable BROKER Negotiate contracts relative to property in behalf
assuming to act of others and for a compensation/fee
as agent has
apparent WHEN BROKER IS ENTITLED TO COMPENSATION:
authority to Whenever he brings to his principal a party who is able
represent and willing to take the property, and enter into a valid
another
contract upon the terms named by the principal,
Reliance by 3rd Can be invoked Such reliance is
although the particulars may be arranged and the matter
persons only by a 3rd not necessary;
negotiated and completed between the principal and the
person who in principal is liable
purchaser directly
good faith relied
on the conduct of However, a broker is never entitled to commission for
the principal in unsuccessful efforts. The risk of failure is his. The
supposedly reward comes only with his success.
authorizing
PROCURING CAUSE a cause originating a series of events
agent; principal is
which without break in their continuity, result in the
liable
accomplishment of the prime objective of the employment
Nature of There is no agent Agent is a real
of the broker.
authority at all, no rights of agent with all the
an agent rights and GR: The broker or agent is not entitled to commission until
liabilities he has successfully done the job given to him, especially
where his authority has already expired.
If estoppel is caused by principal he is liable to any 3rd XPNs:
person who relied on the misrepresentation
If estoppel is caused by agent only the agent is liable 1. Where notwithstanding the expiration of his authority, the
If estoppel is on the ground of negligence / fraud on the agent took diligent steps to bring back together the parties
principals part agency is allowed when one of the 2 such that a sale was finalized and consummated between
innocent persons must suffer loss, loss should fall upon them.
the person guilty.
2. The brokers right to commission has always been
recognized, although the owner has revoked his authority
1874: and directly initiated with the buyer whom he met through
SALE OF LAND THROUGH AGENT: the brokers efforts.

GR: The agents authority may be oral or written.
XPN: The authority of an agent for a sale of a piece of land
(not any other real estate) shall be in writing otherwise it shall
be void.
Includes only of an agency for sale of a piece of land or
any interest therein.
A written SPA is needed not only to protect the interest
of the unsuspecting owner from being prejudiced by the
unwarranted act of another but also to caution the buyer
to assure himself of the specific authorization of the
putative agent.
The sale shall be considered merely voidable as it may
be ratified by the principal later.
Does not a real estate broker whose authority is limited
to finding prospective purchases and does not extend to
making a contract to pass title.
3. When the broker was the sufficient procuring cause in
bringing the sale.
LAW ON DOUBLE AGENCY:
GR: An agent acting at once for both contracting parties
assumes double agency. Disapproved by law for being
against public policy and sound morality.
XPN: Where the agent acted with full knowledge and
consent of the principals
RIGHT OF AGENT TO COMPENSATION IN CASE OF DOUBLE
AGENCY:
1. WITH knowledge of BOTH principals recovery can be
had from both principals
2. WITHOUT the knowledge of BOTH principals the agent
can recover from neither
3. WITH knowledge of ONE principal as to the principal
who knew of that fact and as to the agent, they are in
pari delicto and the courts shall leave them as they were,
the contract between them being void as against public
policy and good morals
30 | P A R T N E R S H I P , A G E N C Y A N D T R U S T

FACTORS AFFECTING THE AMOUNT OF ATTYS FEES: with the instructions or

business or with
Note: lawyers should avoid charges which over-estimate employment in restrictions
their advice and services as well as those which undervalue which necessarily
them. he is engaged. implied from
the acts to be
The following shall be considered:
done
A. The time and labor requires the difficulty and novelty Extent by which Binds his Cannot bind his
B. Whether the acceptance of employment in the particular agent may bind principal by principal in a
case would prejudice the lawyers appearance for others principal an act within the manner beyond
C. Customary charges of the bar for similar services scope of his or outside the
D. Amount involved in the controversy and the benefits authority specific acts
resulting to the client from the services. although it may which he is
be authorized to
E. Contingency or the certainty of the compensation and
contrary to his perform on
F. The character of the employment, whether casual or for
special behalf of the
an established and constant client
instructions principal
Section 12: CANONS it should never be forgotten that the Termination of Apparent Mere revocation
profession is a branch of the administration of justice and Authority authority is effective to
not a mere money-making trade. does not terminate the
terminate by authority as to
the mere third persons
1876: revocation because the
GENERAL AGENCY comprises all the business of the of his authority third person has
principal without notice to a duty to
the inquire
SPECIAL AGENCY one or more specific transactions third party
Construction of Statement of Authority of agent
CLASSES & KINDS OF AGENTS: Instructions of principal with must be strictly
Principal respect to the pursued
1. UNIVERSAL AGENT employed to do all acts that the
agents authority
principal may personally do, and which he can lawfully
would ordinarily
delegate to another the power of doing.
regarded as
Includes full power and authority to do and perform
advisory only
any and every act that I (principal) may legally do
and every power necessary to carry out the
purposes for which it is granted.
2. GENERAL AGENT employed to transact all the 1877:
business of his principal, or do all acts connected with a COUCHED IN GENERAL TERMS:
particular trade, business or employment
3. SPECIAL / PARTICULAR AGENT authorized to act in May be a general / special agency
one or more specific transactions Includes only acts of administration
Authorized to do only a particular act / series of acts Express power is necessary to perform any ACT OF
of very limited scope STRICT OWNERSHIP even If principal states that:
o He withholds no power
SPECIAL TYPES OF AGENTS: o Agent may execute such acts as he may consider
1. Attorney at law to represent clients in legal appropriate
proceedings o He authorizes a general / unlimited management
2. Auctioneer to sell property for others to the highest What matters is the extent of the power/s conferred
bidder at a public sale upon the agent / atty-in-fact
3. Broker to act as intermediary between 2 other parties ACTS OF ADMINISTRATION do not imply the authority to
such as insurance broker and real estate broker alienate for the exercise of which an express power is
4. Factor to receive and sell goods for a commission, necessary; the authority of an agent is presumed to include
being entrusted with the possession of the goods all the necessary and usual means to carry out the agency
involved in the transaction into effect
5. Cashier In Bank to represent a banking institution in

6.
its financial transactions
Attorney In Fact one who is given authority by his 1878:
principal to do a particular act not of a legal character SPA - An instrument in writing by which one person, as
principal, appoints another as his agent and confers upon
GENERAL VS. SPECIAL AGENT:
him the authority to perform certain specified acts or kinds
As to: GENERAL SPECIAL of acts on behalf of the principal.
AGENT AGENT
NOTE: It need not be notarized; except where it is executed
Scope of Usually Authorized to
in a foreign country, must be certified in accordance with the
authority authorized to do do only acts in
Rules of Court.
all acts pursuance of
connected particular
31 | P A R T N E R S H I P , A G E N C Y A N D T R U S T
Act must done must be legally identical with that authorized
to be done.
INSTANCES WHEN SPA IS NECESSARY (Acts of Strict
Dominion):
1. To make such PAYMENTS as are not usually considered
as acts of administration;
PAYMENT delivery of money / performance in any
other manner of an obligation; act of ownership
because it involves the conveyance of ownership of
money / property.
When payment is made in the ordinary course of
management, it is considered a mere act of
administration
SPA to make payment is implied from the authority
to buy a designated piece of land at a certain price
2. To effect NOVATION which put an end to obligations
already in existence at time the agency was constituted;
NOVATION extinction of an obligation through the
creation of a new one which substitutes it by
changing the object or principal conditions thereof,
substituting a debtor, or subrogating another in the
right of the creditor
3. To COMPROMISE, to submit questions to arbitration, to
renounce the right to appeal from a judgment, to waive
objections to the venue of an action or to abandon a
prescription already acquired;
A judgment based on compromise entered into by
an attorney without specific authority is null and
void
COMPROMISE contract whereby the parties, by
making reciprocal concessions, avoid a litigation or
put an end to one already commenced
ARBITRATION where parties submit their
controversies to one or more arbitrators for decision
Both are acts of ownership because they involve the
possibility of disposing of the thing / right
Same with CONFESSION OF JUDGMENT cannot
be done without the knowledge of client
4. To WAIVE any obligation gratuitously;
CONDONATION / REMISSION agent cannot waive
a right belonging to the principal without valuable
consideration / even for a nominal consideration.
He cannot bind the principal who is the obligee
unless especially authorized to do so
5. To enter into any contract by which the ownership of an
IMMOVABLE is transmitted or acquired either
gratuitously or for a valuable consideration;
6. To make GIFTS, except customary ones for charity or
those made to employees in the business managed by
the agents;
GIFT / DONATION act of liberality whereby a
person disposes gratuitously of a thing / right in
favor of another who accepts it.
Making of customary gifts for charity / those made
to employees in the business managed by the agent
are considered acts of administration
7. To LOAN / BORROW money, unless the latters act be
urgent and indispensable for the preservation of the
things which are under administration;
LOAN borrower is bound to pay to the creditor an
equal amount of the same kind and quality
This is not ordinarily an incident to a general
managerial agency
Power to borrow cannot be interpreted as also
authorizing him to use the money as he pleases
Authority to borrow money for principal is not
implied from SPA to mortgage real estate
Only refers to money and not to other fungible
things
8. To LEASE any real property to another person for more
than one year;
LEASE OF THINGS lessor gives to the lessee the
enjoyment or use of a thing for a price certain, and
for a period definite / indefinite
Unrecorded lease of real estate is not binding upon
3rd persons
Requirement of SPA extends to renewal or
extension of lease of real property to another
Will only be enforceable if in writing
9. To bind the principal to RENDER SOME SERVICE without
compensation;
If service is for compensation, power may be
implied
10. To bind the principal in a CONTRACT OF PARTNERSHIP;
CONTRACT OF PARTNERSHIP partners bind
themselves to contribute money, property or
industry to a common fund with the intention of
dividing the profits among themselves
It creates obligations which requires act of strict
ownership
Principal must personally have trust and confidence
in the proposed partners
11. To obligate the principal as GUARANTOR OR SURETY;
CONTRACT OF GUARANTY / SURETYSHIP
guarantor / surety binds himself to fulfill the
obligation of the principal debtor in case the latter
fails to do so.
Contingent commitment cannot be interpreted to
mean guaranty = cannot be inferred from the use of
vague / general words
Unenforceable unless in writing
12. To create or CONVEY real rights over immovable
property;
13. To accept or repudiate an INHERITANCE;
Any person having free disposal of his property may
accept or repudiate an inheritance
Act of strict dominion, therefore the need for SPA
14. To RATIFY or recognize obligations contracted before
the agency;
15. Any OTHER act of strict dominion
Sale / purchase of personal property act of strict
dominion; except if merely an act of administration
32 | P A R T N E R S H I P , A G E N C Y A N D T R U S T

a. The ambit of the principals liability for the agents torts

1879:
SCOPE OF AUTHORITY TO SELL / TO MORTGAGE:
1. SPA to SELL excludes the power to mortgage
2. SPA to MORTGAGE excludes the power to sell
Sale proscribed by a SPA to mortgage under Art. 1879 is
a voluntary and independent contract, not an auction
sale resulting from extrajudicial foreclosure of a real
estate mortgage
Absence of express authorization to sell contemplates
the sale for cash and not for credit
EXCLUSIVE AGENT TO SELL principal may endeavor to
sell through his own efforts
EXCLUSIVE POWER OF SALE principal may not compete
with the agent
1880:
SCOPE OF SPA TO COMPROMISE / SUBMIT TO
ARBITRATION:
1. Agent is not authorized to submit to arbitration because
while the principal may have confidence in the agents
judgment, the arbitrator designated may not possess
the trust of the principal.
2. Authority to submit to arbitration excludes the power to
compromise because principal does not have the trust
in the agents judgment in making a settlement
b. Where he has apparent or ostensible authority upon
which the third party relied. Apparent or ostensible
authority is proclaimed authority; and
c. An agent, provided he be a general agent and not a
special agent possesses the power in respect to matters
incidental to that type of general agency, although the
agents contract was in point of fact unauthorized
d. The authority to so act will generally carry with it by
implication the authority to do all the collateral acts
which are the natural and ordinary incidents of the main
act or business authorized.
KINDS OF AUTHORITY:
(1) ACTUAL when it is actually granted, and it may be
express or implied. It is the authority that the agent does,
in fact, have.
(2) EXPRESS when it is directly conferred by words
(3) IMPLIED when it is incidental to the transaction or
reasonably necessary to accomplish the main purpose
of the agency
(4) APPARENT OR OSTENSIBLE. when it is conferred by
words, conduct or even by silence of the principal (see
Art. 1869.) which causes a third person reasonably to
believe that a particular person, who may or may not be
the principals agent, has actual authority to act for the
principal. This specific type of authority is another name
for authority by estoppel or a species of the doctrine of
estoppel.

1881: (5) GENERAL when it refers to all the business of the

principal
AUTHORITY OF THE AGENT: (6) SPECIAL when it is limited only to one or more specific
transactions and
The agent must act within the scope of his authority. He may
(7) AUTHORITY BY NECESSITY / OPERATION OF LAW
do such acts as may be conducive to the accomplishment
when it is demanded by necessity42 or by virtue of the
of the purpose of the agency.
existence of an emergency. The agency terminates
AUTHORITY is the power of the agent to affect the legal when the emergency has passed.
relations of the principal by acts done in accordance with the
WHEN PRINCIPAL BOUND BY ACT OF AGENT.
principals manifestation of consent to him.
In order that the principal may be bound by the act of the
AUTHORITY VS POWER
agent as to third persons and as to the agent himself:
AUTHORITY POWER
(1) As to considered the the effect REQUISITES:
existence source or cause
(a) The agent must act within the scope of his authority; and
(2) As to scope depends upon the if he has the legal
purpose of the ability to bind the (b) The agent must act in behalf of the principal.
agency and if it is principal to a
not a violation of third person OCCASIONS WHEN PRINCIPAL IS BOUND BY THE ACTS OF
his duty to the although the act THE AGENT BEYOND THE LATTERS POWERS
principal constitutes a GR: The principal is not bound by the acts of the agent
violation of his
beyond his limited powers.
an agent with duty to the
authority to do an principal XPNs:
act has also the the power to bind
power to bind the the principal may 1. Where the principals acts have contributed to deceive
principal exist without the the third person in good faith;
authority 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
An act within the power of the agent is deemed within the instruments signed by him in blank
scope of his authority even if the agent has, in fact, exceeded 4. Where the principal has ratified the acts of the agent.
the limits of his authority or he has no authority whatever to
do so as in the following cases: WHEN A PERSON NOT BOUND BY ACT OF ANOTHER
33 | P A R T N E R S H I P , A G E N C Y A N D T R U S T
A person, therefore, is not bound by the act of another in the
following instances:
1. The latter acts without or beyond the scope of his
authority in the formers name; and
2. The latter acts within the scope of his authority but in his
own name, except when the transaction involves things
belonging to the principal.
One who acts in his own behalf without authority from
another, or in the name of a non-existent principal, naturally
binds himself alone.
GR: An act which is unauthorized is therefore, unenforceable,
whether or not the party with whom the agent contracted
was aware of the limits of the agents power,
XPN: the principal ratifies the transaction before it is
revoked by the other contracting party or is in estoppel to
deny the agents authority
1882:
The limits of the agents authority shall not be considered
exceeded should it have been performed in a manner more
advantageous to the principal than that specified by him.
WHERE ACTS IN EXCESS OF AUTHORITY MORE
ADVANTAGEOUS TO PRINCIPAL:
The agent is not deemed to have exceeded the limits of his
authority should he perform the agency in a manner more
advantageous to the principal than that indicated by him
since he is authorized to do such acts as may be conducive
to the accomplishment of the purpose of the agency.
LIABILITY OF PRINCIPAL/AGENT FOR ACTS OF AGENT
BEYOND HIS AUTHORITY OR POWER:
GR: the principal is not bound by the acts of an agent beyond
his limited powers. In other words, third persons dealing with
an agent do so at their risk and are bound to inquire as to the
scope of his powers.
XPNs:
a. Where his (principals) acts have contributed to deceive
a third person in good faith;
b. Where the limitations upon the power created by him
could not have been known by the third person;
c. Where the principal has placed in the hands of the agent
instruments signed by him in blank and
d. Where the principal has ratified the acts of the agent.
TO WHOM IS THE LIABILITY OF THE AGENT:
The agent who exceeds his authority is personally liable
either to the principal or to the third party, in the absence of
ratification by the principal.
(a) If the principal is liable to the third party on the ground
of apparent authority, the agents liability is to the
principal.
(b) If the principal is not liable to the third person because
the facts are such no apparent authority is present, then
the agents liability is to the third party.
(c) If the agent personally assumes responsibility for the
particular transaction, if the principal defaults he, in
effect, also becomes obligated as a co-principal.
ACTION MUST BE BROUGHT BY AND AGAINST PRINCIPAL:
(1) An action is not properly instituted when brought in the
name of an attorney-in-fact (aporado) and not in the
name of the principal, the real party-in-interest, and in
such case the complaint must be dismissed not upon
the merits, but on the ground that is has been improperly
instituted
(2) When the principal is bound by the act of the agent, the
action must be brought against the principal, not against
the agent. The bringing of the action against the agent
cannot have any legal effect except that of notifying the
agent of the claim.
1883:
KINDS OF PRINCIPAL:
(1) Disclosed principal. if at the time of the transaction
contracted by the agent, the other party thereto has
known that the agent is acting for a principal and of the
principals identity
(2) Partially disclosed principal. if the other party knows
or has reason to know that the agent is or may be
acting for a principal but is unaware of the principals
identity.
(3) Undisclosed principal. if the party has no notice of
the fact that the agent is acting as such for a principal.
GR: The agent is the one directly liable to the person with
whom he had contracted as if the transaction were his own
((a) being authorized to act on behalf of the principal, (b) acts
instead in his own name).
An agent who enters into a contract in his own name without
disclosing the identity of his principal renders himself
personally liable even though the third person knows that he
is acting as agent, unless it affirmatively appears that it was
the mutual intention of the parties to the contract that the
agent should not be bound.
XPN: when the contract involves things belonging to the
principal
REMEDY:
a. PRINCIPAL: The foregoing is without prejudice to the
principals right to demand from the agent damages for his
failure to comply with the agency. Action against the agent.
b. THIRD PERSONS: has a right of action not only against
the principal but also against the agent
1884:
OBLIGATIONS OF AGENT TO PRINCIPAL:
1. CARRY OUT AGENCY:
Once he accepts agency, he is bound to carry it in
accordance with its terms in good faith and follow
instructions of principal;
He is expected to exercise the degree of care and
skill that is reasonable.
If duty is fulfilled, he is not personally liable
XPN: if he expressly binds himself
2. ANSWER FOR DAMAGES:
Upon failure to do so, he is liable for the damage
which the principal may suffer
But principal must prove his damages and amount
thereof
34 | P A R T N E R S H I P , A G E N C Y A N D T R U S T

3. FINISH BUSINESS UPON PRINCIPALS DEATH:
It is agents obligation
Duty exists only should delay entail any danger
Agency will remain in full force even after the death
of P if it has been constituted in the common
interest of the latter and of the agent, or in the
interest of the 3rd person who has accepted the
stipulation in his favor
If agent uses PoA after the death of P, agent has the
obligation to deliver the amount collected by him by
virtue of said power to the administrator of the
estate of the principal
15. To bear the risk of collection, should he receive also on
sale, a guarantee commission
16. To indemnify the principal for damages for his failure to
collect the credits of his principal at the time that they
become due
17. To be responsible for fraud or negligence
NOTE: A stipulation exempting the agent from the obligation
to render an account shall be VOID.
GR: Knowledge of agent is knowledge of principal.
XPNs:

GR: Agent has to act with utmost good faith and loyalty
because of the fiduciary relationship (demanding conditions
of trust and confidence)
XPN: When no fiduciary relationship exists; when agent is
bound merely as an instrument, a servant.
1. Agents interests are adverse to those of the principal
2. Agents duty is not to disclose the information
(confidential information)
3. Where the person claiming the benefit of the rule
colludes with the agent to defraud the principal

GR: If he fails to comply with Ps instructions, he becomes

liable for any loss the P incurs even though he acted in good
1885:
OBLIGATION OF PERSON WHO DECLINES AN AGENCY he
faith / exercised reasonableness. is still bound to observe diligence of a good father of a family
XPN: If he has a good reason (to the detriment of the P) in the custody and preservation of the goods forwarded to
him by owner.
Agent impliedly undertakes that he possesses a degree
of skill reasonably or ordinarily competent for Owner must act as soon as practicable either:
performance of service 1. Appointing an agent
He will exercise REASONABLE SKILL, otherwise breach 2. Taking charge of the goods
of duty

SPECIFIC OBLIGATIONS OF AGENT TO PRINCIPAL: 1886:

1. To carry out the agency which he has accepted OBLIGATION TO ADVANCE NECESSARY FUNDS:
2. To answer for damages which through his performance
As a rule, P must advance to agent the sums necessary
the principal may suffer
for execution of agency
3. To finish the business already begun on the death of the
Contract of agency may stipulate that the agent shall
principal should delay entail any danger
advance the necessary funds
4. To observe diligence of a good father of a family in the
custody and preservation of the goods forwarded to him GR: Agent is bound to furnish such funds
by the owner in case he declines an agency, until an
agent is appointed XPN: when P is insolvent (this is based on Ps obligation to
5. To advance the necessary funds should there be a reimburse the agent)
stipulation to do so
Insolvency is a ground for extinguishment of agency
6. To act in accordance with the instructions of the
Principal is not liable for the expenses incurred by agent
principal, and in default thereof, to do all that a good
father of a family would do
7. Not to carry out the agency if its execution would 1887:
manifestly result in loss or damage to the principal INSTRUCTIONS private directions which the P may give to
8. To answer for damages if there being a conflict between agent in regard to the manner of performing his duties as
his interest and those of the principal, he should prefer such agent but of which a 3rd party is ignorant. It is said to
his own be a secret if P intended for them not to be made known.
9. Not to loan to himself if he has been authorized to lend
money at interest INSTRUCTIONS VS. AUTHORITY:
10. To render an account of his transactions and to deliver
INSTRUCTIONS AUTHORITY
to the principal whatever he may have received by virtue
Direct the manner of Sum total of the powers
of the agency
transacting the authorized committed / permitted to
11. To distinguish goods by countermarks and designate business and agent by P may be limited
the merchandise respectively belonging to each contemplates only a private in scope and such
principal, in the case of a commission agent who rule of guidance to the limitations are part of
handles goods of the same kind and mark, which belong agent and are independent authority
to different owners and distinct in character
12. To be responsible in certain cases for the acts of the Refer to the manner or Relates to the subject with
substitute appointed by him mode of his action with w/c the agent is
13. To pay interest on funds he has applied to his own use respect to matters w/c in empowered to deal
14. To inform the principal, where an authorized sale of their substance are w/in
credit has been made, of such sale
35 | P A R T N E R S H I P , A G E N C Y A N D T R U S T

the scope of permitted this interest even if in so doing he disobeys the Ps orders /
action injures his interest.
Instructions limiting the Limitations are operative
agents authority
insignificant as
are
those
as against those who have
/ charged with knowledge 1890:
dealing with the agent w/ of them OBLIGATION NOT TO LOAN TO HIMSELF:
neither knowledge nor
notice of them Agent cannot loan / borrow money without SPA:
rd
Not expected to be made Made known to the 3 1. If he has been expressly empowered to BORROW
known person dealing with agent MONEY, he MAY be the LENDER at the current rate of
interest there is no danger of the P suffering any
damage since current rate of interest would have to be
LIABILITY OF P TO 3RD PERSON:
paid if loan were obtained from a 3rd person
GR: If act is done within the apparent scope of authority, P
will be liable to 3rd person (Doctrine of Estoppel) 2. If agent has been authorized to LEND MONEY at interest
he CANNOT be the BORROWER
XPN: Unless the 3rd person w/ whom the agent dealt knew XPN: if with the consent of P because agent may prove
that he was exceeding his authority / violating his to be a bad debtor
instructions

3rd persons are bound to inquire as to the extent of his 1891:

authority
OBLIGATION TO ACT IN ACCORDANCE W/ PS
INSTRUCTIONS:
GR: Agent has to obey all the reasonable and lawful
instructions given to him by principal, otherwise he will be
liable
XPN: Failure of his P to accomplish object of the agency
WHEN DEPARTURE FROM PS INSTRUCTIONS
JUSTIFIED:
1. SUDDEN EMERGENCY when P cannot be consulted
and circumstances cannot admit delay
2. AMBIGUOUS INSTRUCTIONS if he chooses
reasonably one of 2 possible interpretations; not
chargeable with disobedience / its consequences in
case he makes an honest mistake and adopts a
construction different from that intended by P.
3. INSUBSTANTIAL DEPARTURE not a breach when it is
not substantial / doesnt affect the result / does no
damage to P.
1888:
WHEN AGENT SHALL NOT CARRY OUT AGENCY if its
execution would MANIFESTLY result in loss / damage to the
principal.
1889:
OBLIGATION NOT TO PREFER HIS OWN INTEREST TO
THOSE OF THE PRINCIPAL:
Agent is prohibited from dealing in the agency matter on
his own account and for his own behalf W/O CONSENT
OF P, freely given w/ full knowledge of all the
circumstances that might affect the transaction
P may waive this benefit if he does so with full
knowledge of the facts
GR: Where there is a conflict of interest, agent has the duty
to prefer Ps interest over his own.
XPN: Agents interests are superior when he has a security
interest in goods of the P in his possession, he may protect
OBLIGATIONS TO RENDER ACCOUNTS:
GR: Obligation of the agent to account for and to deliver to
the principal (or an authorized third party) all money and
property which may have come into his hands or of a sub-
agent appointed by him by virtue of or as a result of the
agency.
XPN:
1. The duty embodied in Article 1891 will not apply if the
IS
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.
2. 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.
3. Where a right of lien exists in favor of the agent, the rule
is not also applicable
ACCOUNTS to be Included:
1. Source of profits (immaterial whether such money or
property is the result of the performance or violation of
the agents duty, if it be the fruit of the agency)
2. Secret profit bonus, gratuity or personal benefit from
the vendee, without revealing the same to his principal,
the vendor, is guilty of breach of his loyalty to the
principal and forfeits his right to collect the commission
from his principal, even if the principal does not suffer
any injury by reason of such breach of fidelity.
NOTE: A principal is entitled to have an honest agent, and it
is only the honest agent who is entitled to any commission.
GR: Stipulation exempting agent from obligation to account
VOID (2nd Par)
LIABILITY FOR CONVERSION:
If the agent fails to deliver and instead converts or
appropriates for his own use the money or property
belonging to the principal, the agent is liable for estafa. He
cannot retain the commission pertaining to him by
subtracting the same from his collections.
36 | P A R T N E R S H I P , A G E N C Y A N D T R U S T

OBLIGATION TO TURN OVER PROCEEDS OF THE AGENCY
duty of the agent to simultaneously turn over his
collections.
REPORT imports a statement of collections.
ACCOUNTING settling of accounts of administration or
agency; delivery or payment of property funds or money
coming into the hands of the agent; submission of a
statement of receipts and disbursements with the trust
funds coming into his hands and tender or turning over to
the one to which he is liable, moneys and property in respect
thereto. The payment is part of the accounting.
NOTE: All profits made and any advantage gained by an
agent in the execution of his agency should belong to the
principal.
AGENTS POSSESSION OF POSSESSION OF TELLER
GOODS of a BANK
1. Sub-agent appointed by agent W/O AUTHORITY from
principal:
The sub-agent is a stranger to the principal who
originally gave life to the agency. The principal will
not be liable to third parties for the sub-agents acts
but the agent will be liable to the principal or third
parties if the sub-agent acts wrongfully.
2. Sub-agent appointed by agent WITH AUTHORITY from
principal:
A fiduciary relationship exists between the principal
and the agent, the agent and sub-agent, and the
principal and the sub-agent. Any act done by the
substitute or sub-agent in behalf of the principal is
deemed an act of the principal.
NOTE: Neither the agent nor the substitute can be held
personally liable so long as they act within the scope of their
authority.

Agent can assert as Payment to the teller is 3. Effect of DEATH OF PRINCIPAL / AGENT:
against his principal when payment to the bank a. If the authority of the sub-agent proceeds from the
the principal fails to Teller is mere custodian or principal, the death of the agent who appointed him
reimburse him for keeper of funds received, does not affect his authority.
advances he has made, no independent right to b. But where the sub-agent is a substitute for the
and indemnify for retain or possess the same agent and acts under authority from him and to
damages suffered without against the bank whom he is accountable, the death of the agent
his fault. terminates his authority even though the power of
Where a sales agent A teller of a bank who substitution is given in the original power.
misappropriates or fails to misappropriates money
turn over to his principal received by him for the EFFECT OF SUBSTITUTION:
proceeds of things or bank is guilty of qualified
1. SUBSTITUTION PROHIBITED:
goods he was theft
commissioned or When the substitute is appointed by the agent
authorized to sell for the against the express prohibition of the principal, the
latter, he is guilty of estafa. agent exceeds the limits of his authority. The law
says that all acts of the substitute in such a case
shall be void. If the principal has not prohibited the

1892 - 1893: agent from appointing a substitute, he will be liable

SUB-AGENT a person employed or appointed by an agent
as his agent, to assist him in the performance of an act for
the principal which the agent has been empowered to
perform.
GR: the agent may appoint a sub-agent or substitute
XPN: Unless prohibited by the principal
GR: An agent may not delegate to a subagent where the work
entrusted to him by the principal to carry out requires special
knowledge, skill, or competence
XPN: Unless he has been authorized to do so by the principal
NOTE: The principal need not fear prejudice as he has a right
of action not only against the agent but also against the
substitute with respect to the obligations which the latter
has contracted under the substitution. (Art. 1893)
GR: contracts are binding only between the contracting
parties, their assigns and heirs
XPN: contract of agency, the principal can make the sub-
agent or substitute liable for contracts entered into by the
latter under the substitution
RELATION AMONG PRINCIPAL, AGENT AND SUB-AGENT:
to third persons for the acts of the sub-agent within
the scope of his authority, whether or not such sub-
agent is known to the principal.
2. SUBSTITUTION AUTHORIZED:
If in the contract of agency, the agent is given the
power to appoint a substitute and the principal did
not designate any particular person to be appointed,
the substitution has the effect of releasing the agent
from his responsibility unless the person appointed
is notoriously incompetent or insolvent. The
principal may proceed against both the agent and
the substitute for damages he may have suffered.
But if the substitute is the person designated by the
principal, the consequence is the absolute
exemption of the agent.
3. SUBSTITUTION NEITHER AUTHORIZED NOR
PROHIBITED:
If the agent appoints a substitute when he was not
given the power to appoint one the law recognizes
the validity of the substitution if the same is
beneficial to the principal because the agency has
thus been executed in fulfillment of its object. If the
substitution has occasioned damage to the
principal, the agent shall be primarily responsible for
the acts of the substitute as if he himself executed
37 | P A R T N E R S H I P , A G E N C Y A N D T R U S T
them. The principal has also a right of action against
the substitute.
1894:
NECESSITY OF CONCURRENCE WHERE THERE ARE 2 /
MORE AGENTS:
GR: The responsibility of two or more agents even though
they have been appointed simultaneously, is not solidary but
JOINT.
XPN: If solidarity has been expressly stipulated, liability is
SOLIDARY.
JOINT AGENTS agents appointed by one or more
principals under such circumstances as to induce the
inference that it was the principals intent that all should act
in conjunction in consummating the transaction for which
they were appointed.
Private Joint Agency the agency cannot be exercised
except by the concurrence of all agents
Public Joint Agency the agency may be exercised by
a majority.
SEVERAL AGENTS each one to act separately in a particular
branch of his principals business or in a particular locality.
1895:
GR: each of the agents is responsible for the non-fulfillment
of the agency, and for the fault or negligence of his fellow
agents when SOLIDARITY has been agreed upon.
XPN: In the latter case, when the fellow agents acted beyond
the scope of their authority.
JOINT OBLIGATION each debtor is liable only for
proportionate part of the debt.
SOLIDARY OBLIGATION each debtor is liable for the entire
obligation.
Innocent agent has a right later on to recover from guilty
or negligent agent.
1896:
LIABILITY OF AGENT FOR INTEREST:
The agent who converted to his personal use the funds
of the principal is LIABLE FOR INTEREST by way of
compensation or indemnity which shall be computed
from the day on which he did so (w/o prejudice to
criminal action).
The agent who is found to owe the principal sums after
the extinguishment of the agency is liable for interest
from the date the agency is extinguished.
Demand is not necessary for DELAY to exist.
1897:
DUTIES AND LIABILITIES OF AGENTS TO 3RD PERSONS:
The agent is liable to third persons for his torts which
result in an injury to the third person.
A purported agent will be held personally liable as a
principal on a contract executed w/o authority if the
contract contains apt words to bind him personally.
If the TORT is committed by the agent within scope of
his authority, both the principal and the agent are liable.
An Agency is liable to third persons for injury resulting
from their misfeasance and malfeasance.
But and Agent is generally not responsible to third
persons for nonfeasance.
WHEN AGENT INCURS PERSONAL LIABILTY
When the agent expressly binds himself, he thereby
obligates himself personally and by his own acts.
When the agent exceeds his authority, he really acts
without authority and therefore, the contract is
unenforceable against the principal unless the latter
RATIFIES the act.
When an agent by his act prevents performance on the
part of the principal, he can be held liable to third
persons.
When a person acts as an agent without authority or
without principal, he himself regarded as principal,
possessed of all rights and subject to all liabilities of a
principal.
A person who purports to act as agent of an
incapacitated principal also incurs personal liability
unless the third party was aware of the incapacity at the
time of making of the contract.
THIRD PARTYS LIABILITIES TOWARD AGENT:
Instances in which a third party subjects himself to liability
at the hands of an agent:
1. Where the agent contracts in his own name for an
undisclosed principal, in which case, the agent may sue
3rd party to enforce 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
subsequently to be illegal, the agent being ignorant with
respect to its illegal nature.
4. Where the third party commits tort against the agent.
1898:
EFFECT WHERE 3RD PERSON IS AWARE OF AGENTS
POWERS LIMITS:
1. If agent acts in the name of the principal and within
scope of his authority:
Agent is NOT liable
Representation is between principal and 3rd person
2. If agent acts in the name of the principal but in excess
of his authority:
Agent is personally LIABLE
XPN: if there is subsequent ratification by principal
3. If agent exceeds authority and 3 rd person is aware of
the limits of agents power:
Agent is NOT liable
Representation is between principal and 3rd person
4. If agent exceeds authority and promised / undertook to
secure the principals ratification:
If he obtains ratification he is NOT liable
If he fails to obtain ratification he will be personally
LIABLE
38 | P A R T N E R S H I P , A G E N C Y A N D T R U S T
1899:
EFFECT OF IGNORANCE OF AGENT if agent acts within
the scope of his authority + in accordance with instructions
of principal = principal cannot set up this defense; he will be
liable alone for his fault.
1900:
SCOPE OF AGENTS AUTHORITY AS TO 3 RD PERSONS:
Scope of agents authority includes not only the actual
authorization conferred upon the agent by his principal, but
also that which has apparently or impliedly been delegated
to him.
WHERE AUTHORITY IS NOT IN WRITING:
1. Duty of the third person to make an inquiry.-Every
person dealing with an assumed agent is put upon an
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 authority of the agent.
Otherwise If he does not make such an inquiry, he is
chargeable with knowledge of the agents authority, and his
ignorance of that authority will not be an excuse.
If the acts of an agent are suspicious and unreasonable in
nature and the character is unusual and improbable, the
third person may:
a. refuse the dealing
b. ascertain from the principal the true condition
2. Duty of the third person not to rely on the statement of
the agent-The mere representation or declaration of one
that he is authorized to act on behalf of another cannot
of itself serve as proof of his authority to act as agent or
of the extent of his authority as agent.
NOTE: The authority or extent of authority of an agent cannot
be established by his own representations out of court but
upon the basis of the manifestations of the principal himself.
In case the fact of agency or the extent of the authority of the
agent is controverted, the burden of proof is upon the third
person to establish it.
CERTAIN FUNDAMENTAL PRINCIPLES:
a. That the law indulges in no bare presumptions that an
agency exists; it must be proved and presumed from
facts;
b. That the agent cannot establish his own authority,
either by his representations or by assuming to
exercise it;
c. That an authority cannot be established by a mere
rumor or general reputation;
d. That even a general authority is not an unlimited one;
and
e. That every authority must find its ultimate source in
some act or omission of the principal. An assumption
of authority to act as agent for another of itself
challenges inquiry.
WHERE AUTHORITY IS IN WRITING:
if the authority of the agent is in writing, such person is not
required to inquire further than the terms of the written
power of attorney.
As far as the third person is concerned, an act of the agent
within the terms of the power of attorney as written is within
the scope of the agents authority, although the agent has in
fact exceeded the limits of his actual authority according to
the secret understanding between him and the principal. In
such a case, the principal is estopped from claiming that the
agent exceeded his authority. The rule is necessary to
protect the interests of third persons.
METHODS OF BROADENING AND RESTRICTING AGENTS
AUTHORITY:
1. By implication:
This means that the agents authority extends not only to
the express requests, but also to those acts and
transactions incidental thereto. It embraces all the
necessary and appropriate means to accomplish the desired
end.
2. By usage and custom:
a. authorization may not, however, be enlarged through
usage and custom in the following four classes of cases:
1) Where it is sought to vary the terms of an express
authorization
2) Where it is sought thereby to dispense with a legal
requirement enacted for the principals benefit
3) Where it is sought thereby to change a rule of law or to
dispense with a formality required by law
4) Where it is sought to vary an essential quality of the
agency relationship
b. GR: that the principal must have notice of the alleged
custom before the agents acts, in accordance therewith,
may bind the principal
NOTICE to the Principal is PRESUMED under the following:
1) Where the principal and the agent reside in the same
community, the usage is definite and well-known, and the
agent has no notice that he is to act to the contrary; and
2) Where the agent is authorized to deal in a particular place
or in a particular market or exchange. This is upon the
ground that the principal, as a reasonable man, must ave
anticipated that such usages were likely to prevail and,
therefore, in the absence of any contrary intention, must
have authorized the dealing in contemplation of them.
3. By necessity:
An agency can never be created by necessity; what is
created is additional authority in an agent appointed and
authorized before the emergency arose
REQUISITES:
i. the emergency really exists;
ii. the agent is unable to communicate with the principal;
iii. the agents enlarged authority is exercised for the
principals protection; and
iv. the means adopted are reasonable under the
circumstances.
39 | P A R T N E R S H I P , A G E N C Y A N D T R U S T
4. By certain doctrines:
THE DOCTRINES:
1. Of apparent authority (see Art. 1911.),
2. Of liability by estoppel and
3. Of ratification are additional methods by which
authorization may be created.
5. By the rule of ejusdem generis:
The term is a method for stating the rule that where, in an
instrument of any kind, an enumeration of specific matters
is followed by a general phrase, the general phrase is held to
be limited in scope by the specific matters.
RESPONSIBILITY OF PRINCIPAL WHERE AGENT ACTED
WITH IMPROPER MOTIVES:
GR: The motive of the agent in entering into a contract with
a third person is immaterial. Where a written authority given
to an agent covers the thing done by him on behalf of the
principal, it is not competent to the court to look into the
mind of the agent, and if he had applied his authority for his
own ends, to hold that the principal is not bound.
XPNs.
a. where the third person knew that the agent was acting
for his private benefit
b. where the owner is seeking recovery of personal
property of which he has been unlawfully deprived
PRINCIPALS RESPONSIBILITY FOR AGENTS
MISREPRESENTATION
1) Within the scope of agents authority:
A principal is subject to liability for loss caused to another by
the others reliance upon a deceitful representation of an
agent in the course of his employment if:
a. the representation is authorized
b. within the implied authority of the agent to make for the
principal
c. apparently authorized, whether the agent was
authorized by him or not to make the representation
NOTE:
An agent empowered to sell property is presumed to
possess the right to make representations regarding the
condition and quality of the subject of the sale as usually
accompany such transactions.
A principal who has cloaked his agent with apparent
authority is estopped to deny said authority.
Innocent third persons should not be prejudiced if the
principal failed to adopt the needed measures to prevent
misrepresentation, much more so if the principal ratified the
agents acts beyond the latters authority.
2) Beyond the scope of agents authority:
The principal is not bound by the misrepresentation of his
agent committed beyond the scope of his authority.
Note: the one who accepts the benefit of a contract must
also accept responsibility for the means by which such
contract was procured
3) For the agents own benefit:
A principal is responsible for his agents fraudulent acts
committed within the scope of his agency even where the
agents fraud was perpetrated for his own benefit
1901:
RATIFICATION BY THE PRINCIPAL:
GR: 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 agents acts.
The ratification shall have retroactive effect.
Before ratification by the principal or expression of
willingness on his part to ratify, the thirds person may
repudiate the act of the agent.
1902:
PRESENTATION OF POWER OF ATTY / INSTRUCTIONS AS
REGARDS AGENCY:
GR: Third person deals with an agent at his peril. Hence he is
bound to inquire as to the extent of the agents authority.
Third persons are not bound by principals private
instructions or secret orders to the agent.
1903:
FACTOR OR COMMISSION AGENT DEFINED Is one whose
business is to receive and sell goods for a commission (also
called FACTORAGE) and who is entrusted by the principal
with the possession of goods to be sold, and usually selling
in his own name.
GR: 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.
XPN: To avoid liability, the CA should make a written
statement of the damage or deterioration if the goods
received by him do not agree with the description in the
consignment.
1904:
OBLIGATION OF COMMISSION AGENT HANDLING GOODS
OF SAME KIND AND MARK:
GR: The CA 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.
XPNs:
1. By custom, some agents, such as auctioneers, normally
are permitted to mingle their principals property with
their own.
2. Some agents, such as collecting banks, are permitted to
mingle the funds of their principal (depositor) with their
own and the property of their principals.
40 | P A R T N E R S H I P , A G E N C Y A N D T R U S T
1905:
RIGHT OF PRINCIPAL WHERE SALE ON CREDIT MADE W/O
AUTHORITY:
GR: A CA 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 (2) alternatives:
1. He may require payment in cash from the agent
2. He may ratify the sale on credit in which case it will have
all the risks and advantages to him.
1906:
OBLIGATION OF COMMISSION AGENT WHERE SALE ON
CREDIT IS AUTHORIZED:
P authorizes A to sell on credit
But A fails to inform P that a sale was on credit with a
statement of the name of the buyer/s
PS REMEDY: to demand from A the payment IN
CASH.
But as far as the buyer is concerned, the sale is on credit
and he is not liable to pay before the arrival of the period
agreed upon.
1907:
GUARANTEE COMMISSION (Del Credere Commission) is
one where, in consideration of an increased commission, the
factor / commission agent guarantees to the principal the
payment of debts arising through his agency
An agent who guarantees payment of the customers
account in consideration of the higher commission is
called a del credere agent.
The purpose is to compensate the agent for the risks he
will have to bear in the collection of the credit due the
principal
Applies to both cash and credit sales
NATURE:
Liability of the del credere agent is a CONTINGENT
PECUNIARY LIABILITY to make good in the event the
buyer fails the sum due.
But he is not primarily the debtor
The P may sue the buyer in his OWN NAME
notwithstanding the del credere commission, so that the
latter amounts to no more than a guaranty
A del credere agent may sue in his name for the
purchase price in the event of non-performance by the
buyer.
1908:
OBLIGATION OF COMMISSION AGENT TO COLLECT
CREDITS OF PRINCIPAL:
A commission agent who has made an authorized sale
on credit must COLLECT the credits due the principal at
the time they become due and demandable
This does not apply to a case where there is guarantee
commission
GR: If he fails, he becomes liable for the for damages
XPN: Unless he can show that the credit could not be
collected notwithstanding the exercise of due diligence of
his part.
PS REMEDY: proceed against the debtor
1909:
LIABILITY OF AGENT FOR FRAUD / NEGLIGENCE /
INTENTIONAL WRONG:
A is responsible to the P for fraud and negligence
It is his duty to notify the P of all relevant and material
facts or any information having a bearing on the
interests of the P as soon as reasonably possible after
learning them
The circumstance that the agency is or is not gratuitous
will be considered by the courts in fixing the liability of
the agent for NEGLIGENCE (not fraud).
Agency is presumed to be for compensation
Agent is liable when:
o He does not discharge the agency with due
promptness,
o Or not according to the instructions of his principal
o Or not within the limits of his authority
o When he does not make use of the powers
conferred on him
If quasi-delict / tort committed by act or omission
causes damage to another, there being fault or
negligence, the guilty party is liable for the damage done.
A is also liable for torts committed willfully
GR: P is not responsible if the agents tort was intentional
rather than merely negligent.
XPN: P becomes solidarily liable if the tort was committed
by the A while performing his duties in furtherance of the Ps
business.
GR: An agent who gratuitously assumes the agency
obligation and neglects to carry it out is NOT LIABLE for his
nonfeasance
XPN: where the agent knows / should know that the P, in
reliance upon his promise to do the given act, will refrain
from doing the act himself, liability for nonfeasance
attaches.
1910:
OBLIGATIONS OF A PRINCIPAL:
The principal must comply with all the obligations which the
agent may have contracted within the scope of his authority.
As for any obligation wherein the agent has exceeded his
power, the principal is not bound except when he ratifies it
expressly or tacitly.
OBLIGATIONS, IN GENERAL, OF P TO A:
*duties and liabilities of the principal are primarily based
upon the contract between them.
*principal is under the obligation to deal fairly and in good
faith with his agent
*Primary obligation of the principal to the agent is simply
that of complying with the terms of their employment
contract (if any).
41 | P A R T N E R S H I P , A G E N C Y A N D T R U S T

*Principal may refuse to perform his part of the contract (2) In tort - 3rd persons tort liability to the principal insofar
when the agent has already breached the contract. as the agent is involved in the tort, arises in 3 situations:

SPECIFIC OBLIGATIONS:
(**contract defines the obligations, in the absence of the
same, the law imposes certain obligations of the principal to
his agent**)
(a) where the third person damages or injures property or
interest of the principal in the possession of the agent;
(b) where 3rd person colludes with the agent to injure or
defraud the principal; and

a. To comply with as all the obligations which the agent (c) where the 3rd person induces the agent to violate his
may have contracted within the scope of his authority contract w/ the principal to betray the trust reposed upon
(Arts. 1910, 1881, 1897) and in the name of the principal him by the principal.
(Arts. 1868, 1883).
b. To advance to the agent, should the latter so request, the (3) In respect with property received agent does not have
sums necessary for the execution of the agency. (Arts. legal title to property entrusted to his possession by the
1912) principal.
c. To reimburse the agent for all the advances made by With respect to negotiable instruments, the law protects
him provided he is free from fault. third parties who are holders in due course.
d. To indemnify the agent for all the damages which the
execution of the agency may have caused the latter LIABILITY OF P FOR MISMANAGEMENT OF BUSINESS BY
without fault or negligence on his part. (Art. 1913) HIS AGENT:
e. To pay the agent the compensation agreed upon, or if no
Mismanagement of business of a principal by his agents
compensation was specified, the reasonable value of
does not relieve the principal from the responsibility that he
the agents services. (Arts. 1875, 1306)
had contracted to third persons.
LIABILITY OF P TO 3RD PERSONS:
Where agents act binds the principal, the latter may seek
GR: principal will be liable to third persons for all acts recourse against the agent.
committed by the agent, and should bear the damage
LIABILITY OF P FOR TORT OF AGENT:
caused to third persons.
GR: Principal civilly liable to third persons for torts of an
Reason for liability: acts of the agent w/in his express
agent committed at the principals direction within the scope
authority are considered acts of the principal.
of the agents employment.
ESTOPPEL TO DENY (AGENCY BY ESTOPPEL):
Reason for Liability: He who does an act through another
The principal is bound by the act of his agent when he has does it himself.
placed the agent in such position that persons of ordinary
BUSINESS HAZARD THEORY: hazards of the business
prudence are thereby led to believe and assume that the
should be borne by the business directly.
agent is possessed of certain authority to deal with him in
reliance on such assumption. MOTIVATION-DEVIATION TEST: bounds of the agents
authority are not the limits to the principals tort liability, but
(Between two innocent parties, the one who made it possible
rather the scope of the employment which may or may not
for the wrong to be done should be the one to bear the
be within the bounds of authority.
resulting loss.)
2 FACTORS: (when present, liability is imposed)
WAIVE OF CLAIM AGAINST P:
(a) Satisfactory evidence that employee in doing the act was
If a third person waives his claim against the principal, he
motivated in part at least by a desire to serve his employer,
cannot assert them against the agent.
and
AGENCY FROM NECESSITY / BY OPERATION OF LAW:
(b) Satisfactory evidence that the act was not in extreme
An agency from necessity is created, or the ordinary powers deviation from the normal conduct of such employee.
of an agent may be enlarged, when an emergency occurs
REPRESENTATION, ESSENCE OF AGENCY:
and an employee or an agent is unable to get in touch with
his employer. (1) Agent acts in representative capacity (in behalf of the
principal to bind him as if he personally contracted)
LIABILITY OF 3RD PERSONS TO P:
(2) Agent acts within the limits of his authority (agent who
(1) In contract - 3rd person liable to the principal upon
exceeds authority is not deemed an agent of the principal)
contract entered into by his agent as if entered into by the
principal himself. RATIFICATION the adoption or the affirmance by a person
of a prior act which did not bind him, but which was done or
*third person cannot set allege any defense against the
professed to be done on his account thus giving effect to the
agent, in an action by the principal to enforce the contract.
acts as if originally authorized. (purely voluntary)
*notice to agent is notice to the principal; third party not
liable for damages for failure of the agent to give notice to
his principal.
42 | P A R T N E R S H I P , A G E N C Y A N D T R U S T

CONDITIONS FOR RATIFICATION:

(1) Principal must have the capacity to ratify;

(2) He must have had knowledge or had reason to know of
material or essential facts of the transaction;
(3) He must ratify the acts in its entirety
1911:
ESTOPPEL:
Even when the agent has exceeded his authority, the
principal is solidarily liable with the agent if the former
allowed the latter to act as though he had full powers.

(4) The act must be capable of ratification ESTOPPEL is a bar which precludes a person from denying
or asserting anything contrary to that which has been
(5) The act must be done in behalf of the principal established as the truth by his own deed or representation
either express or implied.
FORMS: Express or Implied
Ratification Estoppel
PERSONS ENTITLED TO RATIFY - must have the power to
rests on intention, rests on prejudice rather
ratify the original act sought to be ratified
express or implied, than intention.
MEANING OF MATERIAL FACTS Those which reasonably regardless of
ought to be known by the principal prejudice to another,
the party is bound he is bound notwithstanding
In order to bind a principal by ratification, he must have been because he intended to the absence of such
in possession of all the facts and must have acted in light of be, intention
such facts. (Actual knowledge of relevant facts) because the other party will
be prejudiced and defrauded
Burden to show such knowledge: party seeking to rely on the by his
ratification. conduct, unless the law
treats him as legally bound.
Assumed when Principal have either actual knowledge of
retroactive and makes the estoppel operatesupon
material facts or sufficient knowledge or notice of some
agents something which has been
other facts so that it would have been easy to find out the
unauthorized act good done but after the
material facts. from the beginning, misleading act and in
Agent has duty to inform principal about relevant facts. reliance on it and may only
extend to so much of such
Ratification must be entire or not at all. act as can be shown to be
affected by the estopping
ACTS THAT MAY BE RATIFIED: conduct.
Ratification affects the Estoppel affects only the
1. VALID / VOID ACTS Those acts w/c may be
entire transaction and relevant parts of the
authorized may be ratified. Acts w/c are absolutely void
from the beginning, transaction and from that
cannot be authorized nor ratified.
time only when estoppel
2. VOIDABLE ACTS Merely voidable acts may be ratified
may be said to be spelled
3. UNREVOKED ACTS Acts must be done in behalf of the out.
principal. The substanceof the substance of estoppel is
EFFECTS OF RATIFICATION: ratification is the
confirmation of the principals inducement to
1. With respect to agentrelieves agent from liability for unauthorized act or another to act to his
the unauthorized transaction; he may recover contract after it has been prejudice;; Acts and conduct
compensation due done or made;; amounting to an estoppel in
2. With respect to principal himselfhe assumes ratification may pais may in some instances
responsibility for the unauthorized act be complete without any amount to a ratification
3. W/ respect to third personsbound by the ratified act elements of estoppel.

Ratification need not be communicated to the agent or third

party. Act or conduct of principal not communication is key. WHEN P IS SOLIDARILY LIABLE WITH AN AGENT

GR: Ratification operates to have retroactive effect. o The agent must have acted in the name of a disclosed
principal and the third person was not aware of the limits
XPNs: of the power granted by the principal.
o The third person with whom the agent dealt may sue
1. Where doing so would defeat the rights of third parties
either the agent or the principal alone, or both. The agent
which accrued between the time of making the
should be exempt from liability if he acted in good faith.
unauthorized contract and the time of ratification.
2. Where doing so would make wrongful an otherwise
rightful act or omission which has taken place between
the time of making the unauthorized contract and the
time of ratification
3. Where doing so would be to allow the circumvention of
the rule of law.
4. If third party has withdrawn from the contract.
43 | P A R T N E R S H I P , A G E N C Y A N D T R U S T

Apparent Authority Authority by Estoppel 1. Obligation founded on implied promise to repay.

that which though not arises in those cases where
actually granted, the the principal, by his GR: where one is employed or directed by another to do an
principal knowingly culpable negligence, act in his behalf, not manifestly wrong, the law implies a
permits the agent to permits his agent to promise by the principal to reimburse the agent for
exercise or holds him out exercise powers not expenditures incurred as a proximate consequence of the
as possessing. granted to him, even though good faith execution of the agency, which includes interest
the principal may have no thereon.
notice or knowledge of the
conduct of the agent. 2. Obligation not affected even if undertaking not
not founded in negligence has its basis in the successful.
of the principal but in the negligence of the principal
conscious permission of
acts beyond the powers
in failing properly to
supervise the affairs of the
1913:
OBLIGATIONS TO INDEMNIFY AGENT FOR DAMAGES:
granted agent, allowing him to
exercise powers not The principal must also indemnify the agent for all the
granted to him, and so damages which the execution of the agency may have
justifies others in believing caused the latter, without fault or negligence on his part.
he possesses the requisite
authority. 1. Where damages caused by the execution of agency - If
The doctrine of powers by in the performance of such an act, therefore, the agent
estoppel can apply only in invades the rights of third persons, and incurs liability to
those cases in which a third them, the loss should fall rather upon him for whose
party acted to his detriment benefit and whose direction it was done, than upon him
in reliance upon the whose only intention was to do his duty to his principal.
appearance of authority the
principal has held the agent 2. Where damages caused by wrongful acts of third
out as having. The presence
persons the liability of the principal for damages is
of such reliance is
limited only to that which the execution of the agency
unnecessary to spell out an
has caused the agent.
apparent authority.
3. Where agent acted upon his own account.
Implied Agency Agency by estoppel
There is an actual In an agency by estoppel, the
agency. The principal
alone is liable.
authority of the agent is not
real but only apparent:
1914:
(a) If the estoppel is caused by RIGHT OF THE AGENT TO RETAIN IN PLEDGE OBJECT OF
the principal, he is liable to any AGENCY:
third person who relied on the
LEGAL PLEDGE If the principal fails to reimburse or
misrepresentation.
indemnify the agent as required in Articles 1912 and 1913,
(b) If the estoppel is caused by
the agent, then only the agent the agent has the right to retain in pledge the things which
is liable. are the object of the agency.

NATURE OF AGENTS RIGHT OF LIEN:

1912: 1. Right limited to subject matter of agency

OBLIGATIONS TO ADVANCE FUNDS: 2. Right requires possession by agent of subject matter -

An agent in order to have a lien, must have some
The agent is bound by his acceptance to carry out the
possession, custody, control, or disposing power in and
agency. (Art. 1884.) On the other hand, the principal is
over the subject matter in which the lien is claimed.
under obligation to provide the means with which to
execute the agency.
3. Right generally only in favor of agent The right of lien
If the principal fails to comply with his obligations, the
exist only in favor of the agent, and cannot be claimed
agent will not be liable for the damage which, through
by one to whom the agent delegates his authority where
his nonperformance, the principal may suffer. (Art.
no privity exists between sub-agent and the principal.
1884.)

OBLIGATION TO REIMBURSE AGENTS FOR FUNDS

ADVANCED BY LATTER:

The said advances must be reimbursed by the principal

with interest from the day the advance was made.
44 | P A R T N E R S H I P , A G E N C Y A N D T R U S T

1915:
NATURE OF LIABILITY OF 2/MORE PRINCIPALS TO THEIR
AGENTS:
If two or more persons have appointed an agent for a
common transaction or undertaking, they shall be solidarily
liable to the agent for all the consequences of the agency.
JOINT PRINCIPALS relates to a group with substantially
identical interests, and contemplates the appointment of an
agent or agents empowered to bind the members of the
group jointly (solidarily).
XPN:
Partnership agent appointed by the partnership or by a
partner thereof acting within the scope of the partnership
business binds all the partners by his valid acts or
transactions.
The responsibility of two or more agents, even though
they have been appointed simultaneously, is joint, not
solidary.
REQUISITES FOR 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.
Each principal may be sued by the agent for the entire
amount due and not just for his proportionate share.
The solidarity arises from the common interest of the
principals and not from the act of constituting the
agency.
WHERE PRINCIPALS ARE MEMBERS OF A NON-PROFIT
ASSN:
PRINCIPALS OF A PROFIT ASSN principals here are
personally liable on all business contracts.
PRINCIPALS OF A NON-PROFIT ASSN the principals or
members are liable personally only under two
circumstances:
RULES:
1. MOVABLE PROPERTY:
If the same thing should have been sold to different
vendees, the ownership shall be transferred to the
person who may have first taken possession thereof in
good faith
2. IMMOVABLE PROPERTY:
The ownership shall belong to the person acquiring it
who in good faith first recorded it in the Registry of
Property.
3. NO INSCRIPTION:
The ownership shall pertain to the person who, in good
faith was first in the possession; and, in the absence
thereof, to the person who presents the oldest title,
provided there is good faith.
1917:
LIABILITY TO 3RD PERSON OF AGENT / PRINCIPAL WHO
CONTRACTS SEPARATELY:
In the case referred to in the preceding article, 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 acted in bad faith, he alone shall be
responsible.
1918:
WHEN PRINCIPAL NOT LIABLE FOR EXPENSES INCURRED
BY AGENT:
The principal is not liable for the expenses incurred by the
agent in the following cases:
1. If the agent acted in contravention of the principals
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 ensue, if the principal was not
aware thereof;
4. When it was stipulated that the expenses would be
borne by the agent, or that the latter would be allowed
only a certain sum.

1. Where the member assented to the particular act or

transaction in respect of which personal liability is
1919:
AGENCY IS EXTINGUISHED:
sought to be fastened.
2. Where the member assented by his conduct, e.g., at a RWDDAE
meeting at which the contract was proposed, nobody
dissented. 1. By its revocation;
2. By the withdrawal of the agent;

1916: 3. By the death, civil interdiction, insanity or insolvency of

the principal or of the agent;
RULE WHEN 2 PERSONS CONTRACT SEPARATELY WITH 4. By the dissolution of the firm or corporation which
AGENT AND PRINCIPAL: entrusted or accepted the agency;
5. By the accomplishment of the object or purpose of the
When two persons contract with regard to the same thing,
agency;
one of them with the agent and the other with the principal,
6. By the expiration of the period for which the agency was
and the two contracts are incompatible with each other, that
constituted.
of prior date shall be preferred, without prejudice to the
provisions of article 1544. PRESUMPTION OF CONTINUANCE OF AGENCY:

When once shown to have existed, an agency relation will be

presumed to have continued, in the absence of anything to
45 | P A R T N E R S H I P , A G E N C Y A N D T R U S T
show its termination; and the burden of proving a revocation
or other termination of an agency is on the party asserting it.
TERMINATION OF AGENCY:
ASO
1. by agreement (Nos. 5, 6.); or
2. by the subsequent acts of the parties which may be
either:
a. by the act of both parties or by mutual consent; or
b. by the unilateral act of one of them (Nos. 1, 2.); or
c. by operation of law. (Nos. 3, 4.)
ESSENTIAL REQUISITES FOR CONTINUANCE OF AGENCY:
1. Presence
2. Capacity
3. Solvency
o Whether the death of one of two or more principals or of
one of two or more agents terminates the agency
depends upon the intention of the parties.
o The intention of the parties controls except as otherwise
provided by law.
o Civil interdiction deprives the offender during the period
of his sentence of the right to manage his property and
dispose of such property by any act or any conveyance
inter vivos.
o The insolvency of the agent will also ordinarily put an
end to the agency, at least if it is in any way connected
with the agents business which has caused his failure.
DEATH OF A PRINCIPAL:
GR: Agency is extinguished ipso jure upon the death of either
principal or agent.
XPNS:
(a) That the agency is coupled with an interest (Art. 1930.);
and
(b) That the act of the agent was executed without
knowledge of the death of the principal and the third person
who contracted with the agent acted in good faith.
POWER TO FORECLOSE SURVIVES DEATH OF A of war.
MORTGAGOR:
1. Under Act No. 3135 - The power of sale in a deed of
mortgage is not revoked by the death of the principal
(mortgagor) as it is not an ordinary agency that
contemplates exclusively the representation of the
principal by the agent but is primarily an authority
conferred upon the mortgagee for the latters own
protection.
2. Under the Rules of Court - It grants three (3) remedies
to mortgagee that can be alternatively pursued in case
the mortgagor dies:
A. to waive the mortgage and claim the entire debt
from the estate of the mortgagor as an ordinary
action;.
B. to foreclose the mortgage judicially and prove any
deficiency as an ordinary claim; and
C. to rely on the mortgage exclusively, foreclosing the
same at any time before it is barred by prescription
without right to file a claim for any deficiency.
DISSOLUTION OF FIRM / CORPORATION:
Dissolution of a firm or corporation which entrusted (as
principal) or accepted (as agent) the agency, extinguishes its
juridical existence as far as the right to go on doing ordinary
business is concerned, except for the purpose of winding up
its affairs.
o The fulfillment of the purpose for which the agency is
created ipso facto terminates the agency, even though
expressed to be irrevocable.
o When the object or purpose of the agency is
accomplished and nothing else remains to be done,
there would be no sense in continuing the relationship
beyond that point.
o An agency relationship between the parties may also be
terminated by the non-accomplishment of the object or
purpose within a reasonable time.
EXPIRATION OF TERM:
1. TERM SPECIFIED Where an agency, by the terms of
the original agreement, is created for a fixed period or is
to end at a certain time, the expiration of such period or
the arrival of that time, obviously results in the
termination of the relationship, even though the purpose
for which the agency was created has not been
accomplished.
2. TERM NOT SPECIFIED If no time is specified, it
terminates at the end of a reasonable period of time.
Either, party can terminate the relationship at will by
giving notice to the other.
3. PERIOD IMPLIED - The period may be implied from:
a. the terms of the agreement
b. the purpose of the agency
c. the circumstances of the parties
The modes provided in the extinguishment of agency is
not exclusive. An agency may also be extinguished by
the modes of extinguishment of obligations in general
when applicable, like loss of the thing or novation.
Agency is terminated, as a matter of law, upon outbreak
An agency terminates if a change in the law makes the
purpose of the agency unlawful.
LOSS / DESTRUCTION OF SUBJECT MATTER:
GR: In the absence of any agreement by the parties to the
contrary, the loss or destruction of the subject matter of the
agency or the termination of the principals interest therein
terminates the agents authority to deal with reference to it.
XPNS:
(a) If it is possible to substitute other material for that which
was destroyed without substantial detriment to either
party or if the destroyed subject matter was not in fact
essential to the contract, the agency may continue.
(b) A partial loss or destruction of the subject matter
46 | P A R T N E R S H I P , A G E N C Y A N D T R U S T
NOTE:
The termination of the agency does not necessarily free the
principal from liability.
CHANGE OF CONDITIONS:
GR: 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 the agent is terminated.
XPNS:
(a) If the original circumstances are restored within a
reasonable period of time, the agents authority may be
revived.
(b) Where the agent has reasonable doubts as to whether
the principal would desire him to act, his authority will
not be terminated if he acts reasonably.
(c) Where the principal and agent are in close daily contact,
the agents 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.
CONFIDENTIAL INFORMATION ACQUIRED BY FORMER
AGENT IN THE COURSE OF HIS AGENCY:
The court must determine, first, whether the knowledge or
information, the use of which the complainant seeks to
enjoin, is confidential; and second, whether, if it be
confidential, in whole or in part, its use ought to be prevented.
1920:
REVOCATION OF AGENCY BY PRINCIPAL:
An agency may be terminated by the subsequent acts of the
parties.
REVOCATION when termination is done by the principal
WITHDRAWAL / RENUNCIATION when done by the agent
Agency generally is revocable at will by principal
As the law makes no distinction, revocation at will is
proper whether the agency is gratuitous or with
compensation.
While the principal may have absolute power to revoke
the agency at any time, he must respond in damages for
breach of contract where the termination is wrongful.
1. WHERE AGENCY CONSTITUTED FOR A FIXED PERIOD
principal shall be liable for damages occasioned by
the wrongful discharge of the agent before the
expiration of the period fixed.
2. WHERE NO TIME FIXED FOR CONTINUANCE OF
AGENCY The principal is at liberty to terminate it at will
subject only to the requirements of good faith.
KINDS OF REVOCATION:
1. An example of implied revocation is when the principal
appoints a new agent for the same business or
transaction (Art. 1923.) or when the principal directly
manages the business entrusted to the agent.
2. When the principal after granting a general power of
attorney to an agent, grants a special one to another
agent
3. The agents authority may also be revoked impliedly in
the same manner as in the case of appointment of an
agent.
Express notice to the agent that the agency is revoked is
not always necessary.
In this connection, it has been held that actual notice
must be brought home to former customers, while
notice by publication is sufficient as to other persons.
GR: the acts of an agent within the apparent scope of his
authority are binding on the principal.
FORMS OF RENUNCIATION:
1. When an agent abandons the object of his agency and
acts for himself In committing a fraud upon his principal.
2. When an agent institutes an action against his principal
for the recovery of the balance in his favor.
On the other hand, the mere fact that the agent violates
his instructions does not amount to a renunciation, and
although he may thus render himself liable to the
principal, he does not cease to be an agent.
1921:
AGENT AUTHORIZED TO CONTRACT WITH SPECIFIED
PERSONS:
If the agency is created for the purpose of contracting with
specific persons, its revocation will not prejudice such third
persons until notice thereof is given them.
REGARDING NOTICE:
GR: representation continues to exist in the absence of
notification by the principal.
XPN: notice is not required if the third persons already know
of the revocation and acted in good faith
1922:
AGENT AUTHORIZED TO CONTRACT WITH PUBLIC IN
GENERAL:
In case the agent has general powers (as when the agent
has been appointed to manage a business), innocent third
persons dealing with the agent will not be prejudiced by the
revocation before they had knowledge thereof. In this case,
however, the fact that the revocation was advertised in a
newspaper of general circulation would be sufficient
warning to third persons.
NOTE: Publication constitutes notice upon everybody and
this is true whether or not such third persons have read the
newspaper concerned.
1921 Notice of revocation MUST be personal
1922 Notice of revocation MAY be personal
47 | P A R T N E R S H I P , A G E N C Y A N D T R U S T
1923:
REVOCATION BY APPOINTMENT OF NEW AGENT:
IMPLIED REVOCATION OF PREVIOUS AGENCY:
There is implied revocation of the previous agency when the
principal appoints a new agent for the same business or
transaction provided there is incompatibility.
To be effective between the principal and the agent, it is
required that it must be communicated in some way to the
agent.
NOTE:
The rights of third persons who acted in good faith and
without knowledge of the revocation will not be
prejudiced thereby.
There is no implied revocation where the appointment of
another agent is not incompatible with the continuation
of a like authority in the first agent, or the first agent is
not given notice of the appointment of the new agent.
SUBSTITUTION OF COUNSEL RECORD:
REQUISITES:
A. There must be a written request for substitution;
B. It must be filed with the written consent of the client;
C. It must be with the written consent of the attorney to be
substituted; and
D. In case, the consent of the attorney to be substituted
cannot be obtained, there must be at least a proof of
notice that the motion for substitution was served on
him in the manner prescribed by the Rules of Court.
NOTE:
The first counsel may not be presumed substituted by a new
counsel merely from the filing of a formal appearance by the
latter.
1924:
REVOCATION BY DIRECT MANAGEMENT OF BUSINESS BY
PRINCIPAL HIMSELF:
GR: The agency is revoked if the principal directly manages
the business entrusted to the agent, dealing directly with
third persons.
XPN: the only desire of the principal is for him and the agent
to manage the business together
NOTE:
If the purpose of the principal in dealing directly with the
purchaser and himself affecting the sale of the
principals property is to avoid payment of his agents
commission, the implied revocation is deemed made in
bad faith and cannot be sanctioned without according
to the agent the commission which is due him.
1924 is different from 1916 which governs the relations
as between themselves of third persons who separately
contract with the agent and the principal with regard to
the same thing.
1925:
REVOCATION BY ONE OF 2 / MORE PRINCIPALS:
When two or more principals have granted a power of
attorney for a common transaction, any one of them may
revoke the same without the consent of the others.
Any one of the principals is granted the right to revoke the
power of attorney without the consent of the others.
(Act of one is the act of all)
1926:
PARTIAL REVOCATION OF GENERAL POWER BY A SPECIAL
POWER:
A general power of attorney is revoked by a special one
granted to another agent, as regards the special matter
involved in the latter.
Partial revocation of general power by a special power.
GENERAL POWER impliedly revoked as to matters covered
by the special power
SPECIAL POWER prevails over a general power
Notice of the revocation must be communicated to the
agent
As to matters not covered by the special power, the general
power remains valid.
1927:
AGENCY COUPLED WITH AN INTEREST:
An agency cannot be revoked if a bilateral contract depends
upon it, or if it is the means of fulfilling an obligation already
contracted, or if a partner is appointed manager of a
partnership in the contract of partnership and his removal
from the management is unjustifiable.
GR: principal may revoke an agency at will. (Art. 1920)
Rationale: essence of agency is the agents duty of
obedience to the principal
XPNS:
(1) When the agency is created not only for the interest of
the principal but also for the interest of third persons;
and
(2) When the agency is created for the mutual interest of
both the principal and the agent. (Art. 1930)
In such cases, the agency is deemed as one coupled with an
interest.
It becomes part of another obligation or agreement.
Agency cannot be revoked by the sole will of the principal as
long as the interest of the agent or of a third person subsists.
INSTANCES OF IRREVOCABILITY:
1. When a bilateral contract depends upon it
2. When revocation is without any justifiable cause and the
agency is a means of fulfilling an obligation
48 | P A R T N E R S H I P , A G E N C Y A N D T R U S T
3. When a partner is appointed manager of a partnership
in the contract of partnership and his removal from the
management is unjustifiable.
TERMINATION OF AGENCY:
Agency coupled with an interest cannot be terminated by
the sole will of the principal
AN AGENCY IS COUPLED WITH AN INTEREST:
1. Where the agent has parted with value or incurred
liability at the principals request, or
2. Where the interest in the thing concerning which the
power is to be exercised arises from an assignment,
pledge or lien created by the principal
SUFFICIENCY OF INTEREST must be a present interest in
the subject matter itself
Agent is not considered to have an interest in the subject
matter simply because he expects to make a commission or
profit from his employment as agent.
P owes B P10,000.00. At the request of P, A consented to be
Ps surety but only after P delivered to A a certificate of stock
as security with a power to transfer it in case A becomes
liable to B.
*P cannot revoke the agency unless he first pays B.
P borrows from A P10,000.00. P pledges or mortgages his
property to A as security for the debt and gives A the power
to dispose of it should P default.
*There is an agency coupled with an interest which is
irrevocable.
TERMINOLOGY USED BY PARTIES NOT CONTROLLING:
Whether an interest which will make an agency irrevocable:
To be determined from the entire agreement between the
parties and from the facts and circumstances not from the
terminology used
Even if agency or power is made in terms irrevocable, that
fact will not prevent its revocation by the principal where the
agency or power is not, in fact, coupled with an interest.
REVOCABILITY OF AGENCY COUPLED WITH INTEREST:
WHERE THERE IS NO JUST CAUSE:
* Both the right and the power to revoke the agency without
the agents consent is taken away; any purported revocation
has no effect
Unless by express provision the authority remains revocable
WHERE THERE IS JUST CAUSE:
* Authority certainly can be revoked for a just cause
Art. 1800 -- The powers of a partner, appointed as manager,
in the articles of partnership are irrevocable without just or
lawful cause.
Agents power may be given as security without
transferring to the agent any interest in the subject
matter of the agency
Power or authority given as security though irrevocable
during the principals lifetime, is revoked by his death.
Agency coupled with an interest not a true agency.
Persons with a proprietary interest in the subject matter of
their agency are not true agents at all.
1928:
RIGHT OF AGENT TO WITHDRAW:
The agent may withdraw from the agency by giving due
notice to the principal. If the latter should suffer any damage
by reason of the withdrawal, the agent must indemnify him
therefor, unless the agent should base his withdrawal upon
the impossibility of continuing the performance of the
agency without grave detriment to himself.
agent may renounce or withdraw from the agency at any
time, without the consent of the principal, even in
violation of the latters contractual rights; subject to
liability for breach of contract or for tort
applies whether the agency is gratuitous or for
compensation
based on the constitutional prohibition against
involuntary servitude
Agency is a voluntary relationship between the parties
WITHOUT JUST CAUSE agent has the duty to give due
notice to the principal and to indemnify the principal should
the latter suffer damage by reason of such withdrawal.
Reason: if agent fails in his obligation and as such, he
answers for losses and damages occasioned by the non-
fulfillment. (Arts. 1884, 1770.)
WITH JUST CAUSE agent cannot be held liable; he is not
required to sacrifice his own interests just to serve the
principal.
1929:
OBLIGATION OF AGENT TO CONTINUE TO ACT AFTER
WITHDRAWAL:
Even when the agent withdraws from the agency for a valid
reason:
he must still continue to act
until the principal appoints a new agent to remedy the
situation caused by the withdrawal
to prevent damage / prejudice to the principal
1930:
WHEN DEATH OF PRINCIPAL DOES NOT TERMINATE
AGENCY:
GR: Agency is terminated instantly by the death of the
principal.
XPNS:
1. If the agency has been constituted in the common
interest of the principal and the agent
2. If it has been constituted in the interest of the 3rd person
who has accepted the stipulation in his favor
49 | P A R T N E R S H I P , A G E N C Y A N D T R U S T
1931:
NATURE OF AGENTS AUTHORITY AFTER DEATH OF
PRINCIPAL:
Anything done by the agent, without knowledge of the death
of the principal or of any other cause which extinguishes the
agency, is VALID and shall be fully effective with respect to
3rd persons who may have contracted with him in good faith.
Agent here is required to finish the business already
begun on the death of the principal should delay entail
any danger
In this case, the principals affairs must be wound up or
carried on for a time by the agent after the Ps death
The agent acts because of a prior and not a presently
existing relation with the creator of the authority
Agents duty is no longer to the deceased but to the
QUASI-ENTITY: THE PRINCIPALS ESTATE
It is for the personal representative (executor /
administrator) vested by law with the authority to
administer the liquidation of the principals affairs to say
what shall be done about the business originally
delegated by the principal to the agent
If the agent has to continue the business, it must be by
the personal representatives authority and as his agent
VALIDITY OF ACTS OF AGENT AFTER THE TERMINATION
OF AGENCY:
Principals death extinguishes the agency
But this should not prejudice 3rd persons who have dealt
with the agent in good faith without notice of the
revocation
These 3rd persons are protected where IT IS NOT
SHOWN that the agent had knowledge of the
termination of the agency because the death of the
principal or of any other cause which extinguishes the
agency
Art. 1931 speaks of knowledge of death of the principal
or of any other cause
GOOD FAITH is required both on the 3 rd person and
agent
1932:
DUTY OF AGENTS HEIRS TO PROTECT INTEREST OF
PRINCIPAL:
1. Notify the principal to enable the latter reasonable
opportunity to take such steps as may be necessary to
meet the situation
2. Adopt such measures as the circumstances may
demand in the interest of the principal
It is NOT the duty of the Principals heirs to inform the agent
of Principals death
CONTINUATION BY AGENTS HEIRS OF AGENCY:
GR: An agency calls for personal services. The agents duties
cannot be performed by his personal representatives, and
therefore, agency is generally terminated.
The event of the agents death terminates the agency
relationship at least in those instances where personal
services and skill are required or cannot be performed
by the agents representative even though the agency
has not yet expired.
The rights and obligations of the agent arising from the
contract are not transmissible to his heirs.
XPNS:
1. The heirs duty to continue the agency after the death of
the agent arises from what may be termed as an
AGENCY BY OPERATION OF LAW or a presumed or tacit
agency.
The heirs can continue the agency only temporarily
The principal has a right to an agent of his choice
He should not expect the authority to pass to the
agents heirs or personal representatives
2. Where AGENCY IS ONE COUPLED WITH AN INTEREST
in the subject matter of the agency
Ex: power of sale in a mortgage
The death of the agent will not instantly end the
relationship
Consequently, his heirs / representatives may
subsequently exercise the power conferred at least
insofar as may be necessary to protect the
interests of the estate of the agent
An agency coupled with an interest survives the
death of the agent such is transmitted to his heirs
/ representatives.
1440:
CONCEPT OF TRUST:
TRUSTOR a person who establishes a trust.
TRUSTEE one in whom confidence is reposed as regards
property for the benefit of another person.
BENEFICIARY the person for whose benefit the trust has
been created.
TRUST:
Is the fiduciary relationship between one person having
an equitable ownership in property and another owning
the legal title to such property.
It is a legal arrangement whereby a person transfers his
legal title to property to another to be administered by
the latter for the benefit of a third party.
1. TRUST IMPLIES CONFIDENCE IN A RELATIONSHIP:
Trust is often used in reference to the confidential
aspect of any kind of a bailment or possession by one
person of the property of another.
2. TRUST CANNOT BE ESTABLISHED IN VIOLATION OF
LAW:
A trust is the right, enforceable in equity, to the beneficial
enjoyment of property the legal title to which is in
another.
NOTE:
What distinguishes a trust from the legal relations is the
separation of the legal title and the equitable ownership of
the subject property between two (2) or more people.
50 | P A R T N E R S H I P , A G E N C Y A N D T R U S T

Trust Bailment 1. The subject matter of a trust may be any property of

Necessarily involves a
transfer of legal title, or
atleast a separation of
equitable interest and legal
title, with the legal title in
the trustee.
the bailee has possession
of, without legal title to, the
property subject to the
bailment.
value real, personal, funds or money, or choses in
action.
2. The trust res must consist of property actually in
existence in which the trustor has a transferable interest
or title.
NATURE OF OWNERSHIP OF TRUSTEE & BENEFICIARY:

Trust Donation 1. Ownership by two persons at the same time

Is an existing legal Or otherwise known as gift
- Trustee and beneficiary
relationship and involves is a transfer of property and
the separation of legal and except in the case of a gift 2. Ownership of trustee, a mere matter of form and nominal
equitable title in trust, involves a
disposition of both legal - His ownership, therefore, is a mere matter of form rather
and equitable ownership. than of substance, and nominal rather than real.

3. Trustee, not mere agent

Trust Contract
- Trustee is not a mere agent but an owner. He is a person
always involves an is a legal obligation based
ownership, embracing a on an undertaking to whom the property of someone else is fictitiously
set of rights and duties supported by a attributed by the law, to the extent that the rights and powers
fiduciary in character consideration, which thus vested in a nominal owner shall be used by him on
which may be created by a obligation may or may not behalf of the real owner.
declaration without a be fiduciary in character.
4. Transfer of equitable title
consideration
- The interests of the beneficiary in the trust can, in general,
be reached by his creditors, and he can sell or otherwise
Trust Debt
dispose of them.
The beneficiary of creditor has
a trust has a merely a personal 5. Rights of beneficiary
beneficial interest claim against the
in the trust debtor; - Depending on the terms of the trust instrument, the
property; but there is no beneficiary may receive the income from the assets of the
In trust, there is a such relation trust, the assets themselves, or both.
fiduciary relation between a debtor
between a trustee and creditor. CHARACTER OF OFFICE OF TRUSTEE:
and a beneficiary, a debt implies 1. as a Principal
a trust refers to a merely an
duty to deal with a obligation to pay a - The trustee is not an agent of the trust estate or of the
specific property certain sum of cestui que trust, but he acts for himself in the administration
for the benefit of money, of the trust estate, although subject to the terms of the trust
another. and the law of trusts.

PERSONS INVOLVED IN THE CREATION OF AN EXPRESS
TRUST:
1. Trustor (creator/settlor/grantor) the person who
intentionally creates or establishes the trust. He
transfers legal ownership of property to a person for the
benefit of a third party, who owns the equitable little;
2. Trustee the person who takes and holds the legal title
to the property in trust solely for the benefit of another,
with certain powers and subject to certain duties;
3. Beneficiary or cestui que trust the person who has
the equitable title or interest in the property and enjoys
the benefit of the administration of the trust by the
trustee.
- He may be a natural person or a legal entity.
- The trust may provide for more than one beneficiary.
TRUST PROPERTY:
The juridical concept of a trust arises from or is the result of
a fiduciary relation between the trustee who holds legal title
and the cestui que trust who has the equitable title as
regards certain property.
2. as Agent
- a trustee has been regarded as an agent of beneficiaries of
the trust at least for certain purposes, such as for the
purpose of imputing to the beneficiaries of the trust notice
given to the trustee.
3. as fiduciary
- A trustee, like an executor or administrator, holds an office
of trust.
- Executor or Administrator his duties are fixed and/or
limited by law
- Trustee - usually governed by the intention of the trustor or
of the parties, if established by contract.
NOTE:
A trust is not void for indefiniteness if by its terms the whole
property will go to the beneficiary or beneficiaries who is/are
undetermined but will be determined at the termination of
the trust, at the latest.
51 | P A R T N E R S H I P , A G E N C Y A N D T R U S T

1441: 1443:
CLASSIFICATION OF TRUSTS: EVIDENCE TO PROVE EXPRESS TRUST:

Trusts are either express or implied. Express trusts are GR: The burden of proving the existence of a trust is on the
created by the intention of the trustor or of the parties. party alleging its existence, it is generally required that his
Implied trusts come into being by operation of law. proof be clear and satisfactory and convincing.

CLASSIFICATION OF TRUSTS: GR: The defense of the Statute of Frauds and the defense
that express trusts cannot be proved by parole evidence.
1. CREATION:
XPNS:
a. Express trust one which can come into existence only
by the execution of an intention to create it by the trustor 1. By failure to interpose timely objections against the
or the parties; presentation of oral evidence not admissible under the
b. Implied trust one which comes into being by law
operation of law; this latter trust being either: 2. By cross-examining the adverse party and his witnesses
along the prohibited lines
1. Resulting trust one in which the intention to
create trust is implied or presumed in law; NOTE:

2. Constructive trust one imposed by law Writing is necessary to prove an express trust
irrespective of, and even contrary to any such intention concerning an immovable or any interest therein not for
for the purpose of promoting justice. validity but for purposes of proof (STATUTE OF
FRAUDS)
In other words:
To affect third persons, a trust concerning an
1. Express trust a trust intentional in fact immovable or any interest therein must be embodied in
2. Resulting trust one intentional in law a public instrument and registered in the Registry of
3. Constructive trust one imposed irrespective of Property.
intention. An express trust over personal property or any interest
therein, and an implied trust, whether the property
2. EFFECTIVITY: subject to the trust is real or personal, may be proved by
oral evidence.
a. Testamentary trust - one which is to take effect upon
the trustors death.
b. Inter vivos trust - one established effective during the
owners life.
1444:
CREATION OF EXPRESS TRUST:
3. REVOCABILITY: EXPRESS TRUST are those trusts intentionally created by
a. Revocable trust - one which can be revoked or cancelled direct and positive act of the trustor, by some writing, deed,
by the trustor or another individual given the power will, or oral declaration evincing an intention to create the
b. Irrevocable trust - one which may not be terminated trust.
during the specified term of the trust. IMPLIED TRUST are respectively founded upon an
EXPRESS ELEMENTS OF TRUST: intention of the parties to a transaction implied in law, or
upon fraud or wrong irrespective of the intention of the
1. A competent trustor and trustee; parties concerned.
2. An ascertainable trust res; and
3. Sufficiently certain beneficiaries GR: No particular words are required or essential for the
creation of an express trust, it being sufficient that a trust is

1442: clearly intended.

NOTE: What is important is whether the trustor or the party

PRINCIPLES OF THE GENERAL LAW OF TRUSTS ADOPTED:
manifested an intention to create the kind of relationship
The principles of the general law of trusts, insofar as they are which in law is known as a trust. It is immaterial whether or
not in conflict with this Code, the Code of Commerce, the not he knows that the relationship which he intends to create
Rules of Courts and special laws are hereby adopted. is called a trust, and whether or not he knows the precise
characteristic of the relationship which is called a trust, it
TERMINATION OF EXPRESS TRUST: being sufficient that a trust is clearly intended.
1. Expiration of period fixed KINDS OF EXPRESS TRUSTS:
2. Accomplishment of purpose
3. Mutual agreement of beneficiaries (According to purpose)
4. Exercise of power to terminate
1) Charitable trust or one designed for the benefit of a
segment of the public or of the public in general. It is one
created for charitable, educational, social, religious, or
scientific purposes, or for the general benefit of
humanity. (A private trust is not for the good of the public
in general or society as a whole)
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2) Accumulation trust or one that will accumulate income
to be reinvested by the trustee in the trust for the period
of time specified.
3) Spendthrift trust or one established when the
beneficiary need to be protected, because of his
inexperience or immaturity from his imprudent spending
habits or simply because the beneficiary is spendthrift.
4) Sprinkling trust or one that gives the trustee the right to
determine the income beneficiaries who should receive
income each year and the amount thereof. Income that
is not distributed in any given year is added to the
corpus, as in an accumulation trust. It is a discretionary
trust if it gives the trustee the discretion to pay or not to
pay the income or principal.
Q: Can a trustee sue or be sued alone?
A: YES. In order that a trustee may sue or be sued alone, it is
essential that his trust be express
NOTE: It has been held that the payment of the indemnity
does not make the insured a trustee of the insurer with the
right to bring the action in the name of the latter and the duty
to pay to him (insurer) so much of the recovery as
corresponds to the amount he (insured) had received.
1445:
ACCEPTANCE, DECLINATION / RENUNCIATION BY A
TRUSTEE:
GR: No trust shall fail because the trustee appointed declines
the designation
XPN: unless the contrary should appear in the instrument
constituting the trust.
In the case of an express trust, acceptance of trust by a
trustee 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.
Q: Can an appointed/ designated trustee decline the
responsibility and thereby be free from any legal or equitable
duty or liability in the matter?
A: YES. Unless a contrary intention appears in the
instrument constituting the trust (Art. 1145.), declination or
refusal or disqualification of a trustee does not operate to
defeat or void the trust; nor does it operate to vest legal as
well as equitable title in the beneficiary.
NOTE:
A contract to renounce, for a pecuniary consideration,
the right to act as a trustee has generally been
recognized to be against public policy.
A renunciation of a trust after its acceptance can only be
by resignation or retirement with court approval or at
least, with agreement of beneficiaries and on
satisfaction of all legal liabilities growing out of the
acceptance of the trust.
When a person administering property in the character
of trustee inconsistently assumes to be holding in his
own right, this operates as renunciation of the trust and
the beneficiaries in the property are entitled to maintain
an action to declare their right and remove the unfaithful
trustee.
1446:
ACCEPTANCE OF TRUST BY THE BENEFICIARY:
NOTE:
Acceptance of or assent to the trust by the beneficiary is
essential to the creation and validity of a trust.
The trust being beneficial to the beneficiary, his
acceptance is presumed if there is no proof to the
contrary. However, if the trust imposes some onerous
condition, acceptance must be shown. Such acceptance
may be express or implied.
1447:
CONCEPT OF IMPLIED TRUST:
The enumeration of the following cases of implied trust does
not exclude others established by the general law of trust,
but the limitation laid down in Article 1442 shall be
applicable.
IMPLIED TRUSTS without being express, are deducible
from the nature of the transaction as matters of intent, or
which are super induced on the transaction by operation of
law, as matters of equity, independently of the particular
intention of the parties.
- Not created voluntarily, but imposed by law or inferred
from the conduct or dealings of the parties.
- Existence of a trust relationship is inferred in order to
effect the presumed intention of the parties.
- No implied trust where a contrary intention is proved.
KINDS OF IMPLIED TRUST:
1. RESULTING TRUST a trust which is raised or created
by the act or construction of law;
Presumed always to have been contemplated by the
parties; intention found in the nature of their transaction,
but not expressed in the deed or instrument of
conveyance.
based on the equitable doctrine that valuable
consideration and not legal title determines the
equitable title or interest
2. CONSTRUCTIVE TRUST a trust not created by any
words, but by the construction of equity in order to
satisfy the demands of justice and prevent unjust
enrichment.
Does not arise by agreement or intention but by
operation of law against one who, by fraud, duress, or
abuse of confidence obtains or holds the legal right to
property which he ought not, in equity and good
conscience, to hold.
If a person obtains legal title to property by fraud or
concealment, courts of equity will impress upon the title a so
called constructive trust in favor of the defrauded party.
A constructive trust is not a trust in a technical sense.
It is substantially an appropriate remedy against unjust
enrichment.
3. EXPRESS TRUST a beneficiary and a trustee are linked
by a confidential or fiduciary relation
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Constructive trustno promise, no fiduciary relation to Proof **ET **IT concerning

speak of and the so-called trustee neither accepts any trust of trust concerning an an immovable
nor intends holding the property for the beneficiary. immovable or or any interest
any interest therein may be
CASES OF IMPLIED TRUST (NOT EXCLUSIVE): therein cannot proved by oral
be proved by evidence
1. Registration of a land under the Torrens System in the
parol evidence
name of another does not bar evidence to show that the
Repudiation of **express **laches
property is only being held in trust for the nonregistered
trust repudiation constitutes a
owner. made known bar to actions to
to the enforce an
2. An implied trust is created when the certificate of beneficiary is implied trust
registration of a vehicle is placed in the name of a person required, In even where
although the price thereof was not paid by him but by order that there is no
another. laches may repudiation,
bar an action unless there is
3. Even though a mortgagee exercising the power of sale to enforce an concealment of
contained in a mortgage is not strictly considered a express trust the fact giving
trustee; deemed a custodian as far as concerns the ** does not rise to the trust
surplus of the proceeds of the foreclosure sale; regarded prescribe
a trustee for the benefit of the mortgagor or owner of the except when
equity of redemption. the trustee
repudiates the
4. Implied trust is created between the principal and the trust.
agent who willfully violated the trust reposed in him by
the principal by buying for himself the property he was An implied trust may be converted to an express trust by the
supposed to buy for the principal. recognition by the implied trustee of the right to the property
of the owner.
5. Trust fund doctrine in corporation law, the assets of the
corporation as represented by its capital stock are Examples:
regarded as trust funds to be maintained unimpaired
for the payment of corporate creditors; no distribution of (1) Trustee acknowledged in a public instrument sale of
such assets among the stockholders without provision land by his parents to beneficiary.
being first made for the payment of corporate debts (2) Trustee directed his tenant to pay rentals to beneficiary
and allowed latter to take possession.
6. Insurance Commissioner Insurance Code has the duty ACQUISITION OF PROPERTY THROUGH PRESCRIPTION:
to hold the security deposits for the benefit of all policy
holders. An implied trust is created by law for the benefit RULE: trustee cannot acquire by prescription ownership over
of all claimants under subsisting insurance contracts property entrusted to him, unless he repudiates the trust
issued by the insurance company. (applies to express trusts and resulting implied trusts)

IMPLIED TRUST founded upon equity. NOTE: constructive trust is subject to prescription; once the
resulting trust is repudiated, it is converted into a
CONSEQUENCES OF AN IMPLIED TRUST ARE: constructive trust, subject to prescription.
Principally, the implied trustee shall deliver the Action for reconveyance will not prescribe as long as the
possession and reconvey title to the property to the property stands in the name of the trustee.
beneficiary of the trust; and
pay to the latter the fruits and other net profits received REPUDIATION OF TRUST
from such property during the period of wrongful
1. BY TRUSTEE possession of a trustee is possession of
holding and otherwise, to adjust the equities between
the cestui que trust and, therefore, cannot be a good
the trustee holding the legal title and the beneficiary of
ground for title by prescription.
the trust.
Doctrine of implied trust if based on an illegal contract
Express trusts disable the trustee from acquiring for his
cannot be invoked; being founded in equity, a trust can
own benefit the property committed to his management
never result from acts violative of the law.
or custody, unless he repudiates the trust and makes
DISTINCTIONS BETWEEN EXPRESS TRUSTS AND IMPLIED such repudiation known to the beneficiary.
TRUSTS: trustee may claim title by prescription founded on
adverse possession where it appears that:
Express Trust Implied Trusts
Creation of ** created by ** by operation a. he has performed open and unequivocal acts of
trust the intention of of law. repudiation amounting to an ouster of the cestui que
the trustor or **intent is to be trust or the other co-owners;
parties taken from the b. such positive acts of repudiation have been made
**intention is circumstances
known to the cestui que trust or the other co-
clear
owners;
c. the evidence should be clear and conclusive
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The period will commence to run from and after said
repudiation and the knowledge thereof by the cestui que
trust.
2. By Third Persons a third person who holds actual,
open, public, and continuous possession of a land,
adversely to the trust, acquires title to the land by
prescription as against such trust.
ACTS AMOUNTING TO REPUDIATION OF TRUST:
(1) ACTS NOT CONSIDERED ACTS OF REPUDIATION
acts adverse to strangers may not be adverse to the
cestui que trust.
a. Mere silent possession of trustee unaccompanied
by acts amounting to an ouster of of the cestui que
trust cannot be construed as adverse possession.
b. mere receipt of rents and profits from the property,
erection of buildings, payment of land taxes, do not
by themselves serve as proof of exclusive
ownership
c. action to compel the trustee to convey property
registered in his name for the benefit of the cestui
que trust does not prescribe unless the trustee
repudiates the trust
d. denial of the trust made by a trustee who was a
minor at the time of repudiation does not abrograte
the trust relations
(2) ACTS CONSIDERED ACTS OF REPUDIATION In
Pangan vs CA, the SC laid down specific acts which are
considered acts of repudiation:
a. Filing by a trustee of an action in court against the
trustor to quiet title to property, or for recovery of
ownership thereof
b. The issuance of the certificate of title would
constitute an open and clear repudiation of any
trust, and in the lapse of more than 20 years, open
and adverse possession as owner would certainly
suffice to vest title by prescription.
c. An action for the reconveyance of land based on
implied or constructive trust prescribes within 10
years.
d. The prescriptive period may only be counted from
the time petitioners repudiated the trust relation in
1955 upon the fi ling of the complaint for recovery of
possession
e. There is clear repudiation of a trust when one who
is an apparent administrator of property causes the
cancellation of the title thereto
f. when the defendants, alleged co-owners of the
property in question, executed a deed of partition
and on the strength thereof obtained the
cancellation of the title in the name of their
predecessor
PRESCRIPTIBILITY OF ACTION FOR RECONVEYANCE
BASED ON IMPLIED TRUST:
(1) PERIOD OF PRESCRIPTION action for reconveyance to
enforce an implied trust in ones favor prescribes in 10 years
from the time the right of action accrues
action for reconveyance is a legal remedy granted to a
rightful owner of land wrongfully or erroneously
registered, to compel the latter to reconvey the land to
him even after one (1) year from the issuance of the
decree of registration, for such action does not seek to
set aside the decree which is respected as
incontrovertible and no longer open to review, but
instead seeks to transfer or reconvey the land wrongfully
or erroneously registered in another persons name from
said registered owner to the rightful owner or to one with
a better right
(2) WHERE PERSON CLAIMING TO BE OWNER IN ACTUAL
POSSESSION OF PROPERTY the right to seek
reconveyance in this case does not prescribe
Reason: his undisturbed possession gives him the
continuing right to seek the aid of a court of equity to
ascertain and determine the nature of the adverse claim of a
third party and its effect on its own title
(3) WHEN PRESCRIPTIVE PERIOD BEGINS TO RUN 10
year period of prescription of an action for reconveyance of
property (real or personal) based on an implied trust starts
from the moment the law creates the trust (when the cause
of action arises)
(a) Action for reconveyance of real property based on
constructive trust resulting from its fraudulent
registration in the name of another-- the action may be
filed from the discovery of the fraud or notice thereof.
constitutes repudiation; lapse of 10 years is
sufficient to vest title by adverse possession
(This rule applies only to the remedy of reconveyance which
is available when of registration of property procured by
fraud, thereby creating a constructive trust.)
(b) Where the ownership of land was sold fictitiously to
avoid a foreclosure of mortgage-- the te10-year
prescriptive period should be counted from the date of
recording of the release of mortgage.
(c) Where legitimate owner of the subject property which
was fraudulently registered in the name of another had
always been in possession thereof---constructive
notice rule cannot be applied; the action is
imprescriptible.
(d) Where the registration under the Torrens System
secured through fraudulent misrepresentation-- from
the time the true owner actually discovered the act of
defraudation.
(e) an action for reconveyance of real property based
exclusively on fraud prescribes in four 4 years from the
discovery of the fraud;
If based on implied or constructive trust--10 years
from the alleged fraudulent registration or date of
issuance of the certificate of title
bad faith in securing title over real property--
prescriptive period reckoned from the actual
discovery of the fraud
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(4) WHERE RIGHTS OF THE BENEFICIARY ARE
RECOGNIZED BY THE TRUSTEE 10 years from the time
the trustee begins to assert his title or repudiate the trust
When failure to pay share of one of co-owners as
promised by new co-owner constitute an act of
repudiation:
Where there is an unequivocal act of refusal to make
payment, or a definite reneging from the promise.
(5) WHEN TACKING OF POSSESSION NOT PERMITTED
only where there is privity between successive possessors;
does not apply where possessor came into possession of
the property in dispute by virtue of sale that is null and void
ab initio
(6) WHERE PROPERTY IN POSSESSION OF THIRD PERSON
limitation upon the right of beneficiary to recover title over
property held in trust: same must not have been transferred
to an innocent purchaser for value in which event, his
remedy is to ask for damages
LACHES IN ACTION TO ENFORCE A TRUST:
(1) In case of express trusts applies from the time the
trustee openly denies or repudiates the trust and the
beneficiary is notified thereof
(2) In case of implied trusts implied trusts, may be barred
not only by prescription but also by laches.
The doctrine of laches, is less strictly applied between near
relatives than when the parties are strangers to each other
1448:
SALE TO A PARTY BUT PRICE PAID BY ANOTHER:
There is an implied trust when property is sold, and the legal
estate is granted to one party but the price is paid by another
for the purpose of having the beneficial interest of the
property. The former is the trustee, while the latter is the
beneficiary. However, if the person to whom the title is
conveyed is a child, legitimate or illegitimate, of the one
paying the price of the sale, no trust is implied by law, it being
disputably presumed that there is a gift in favor of the child.
SALE TO A PARTY BUT PRICE PAID BY ANOTHER
(1) GR: resulting trust arises in favor of a person from whom
a consideration comes for a conveyance of property,
whether realty or personalty, to another. The
presumption is that he who pays for a thing intends a
beneficial interest therein for himself.
Sometimes referred to as a purchase money resulting
trust.
Created in order to effectuate what the law presumes to
have been the intention of the parties in the
circumstances that the person to whom the land was
conveyed held it as trustee for the person who supplied
purchase money.
(2) TITLE IS CONVEYED TO A CHILD:
NO TRUST IS IMPLIED if the person to whom the legal
estate is conveyed is a child, legitimate or illegitimate, of the
payor, because it is presumed that a gift or donation was
intended in favor of the child. (Presumption of a gift is
rebuttable by proof of a contrary intention)
(3) SALE TO EVADE SOME RULE OF LAW:
What the parties then cannot expressly provide in their
contracts for being contrary to law, morals, good customs,
public order, or public policy, they cannot impliedly or
implicitly do so in the guise of a resulting trust.
trust is invalid if its enforcement would be against public
policy, even though its performance does not involve the
commission of a criminal or tortious act by the trustee.
Ex: property sold to X, who acquires title but price is paid by
Y.
By operation of law, an implied trust arises with X as the
trustee and Y, the beneficiary.
**If X is the legitimate or illegitimate child of Y, no trust is
implied by law.
PURCHASE BY A PERSON WITH HIS OWN FUNDS FOR
ANOTHER
Purchase by one person, on a consideration furnished
by himself, where he takes the conveyance in the name
of another, raises a resulting trust in favor of the former.
Presumption of law: purchaser intends the purchase for his
own benefit and the conveyance in the name of another as a
matter of convenience or arrangement for collateral
purposes.
Results because of equity and arises by implication or
operation of law.
Facts: To prevent the eventual sale at public auction of the
land of A (deceased owner) which was forfeited by the
Government for delinquency in payment of real estate taxes,
B paid the delinquent taxes and accepted receipts for
payments issued in the name of A.
Issue: Did B acquire the rights of A in and to said property by
reason of said payments?
Ruling: No. B became a trustee of the land for the benefit of
the heirs of A.
1449:
DONATION TO A PERSON BUT BENEFICIAL INTEREST
VESTED IN ANOTHER:
There is also an implied trust when a donation is made
to a person but it appears that although the legal estate
is transmitted to the done, he nevertheless is either to
have no beneficial interest or only a part thereof.
1450:
PURCHASE WITH BORROWED FUNDS:
If the price of a sale of property is loaned or paid by one
person for the benefit of another and the conveyance is
made to the lender or payor to secure the payment of the
debt, a trust arises by operation of law in favor of the person
to whom the money is loaned or for whom it is paid. The
latter may redeem the property and compel a conveyance
thereof to him.
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1. TRUST IN FAVOUR OF LENDER:
GR: The use of borrowed money in making a purchase does
not raise a resulting trust in favor of the lender even where
the money is loaned to enable the borrower to purchase the
property in question and the borrower promises, but fails, to
execute a mortgage on the property after it is purchased to
secure the loan.
2. TRUST IN FAVOR OF BORROWER:
When money is borrowed to purchase property, and the
conveyance is made, not to the borrower, but to the
lender who takes title to the property in his own name in
order to secure the loan, a resulting trust in the property,
binding the lender or payor (trustee) in favor of the
borrower (beneficiary), arises. IN THIS CASE, THE REAL
PURCHASER IS THE BORROWER
An agreement between the parties whereby the property
purchased shall be considered sold to the trustee in
case the beneficiary fails to reimburse him is
tantamount to a pactum commissorium, which is
expressly prohibited by Art. 2208 of the NCC.
1451:
LEGAL TITLE TO LAND INHERITED BY HEIR PLACED IN
NAME OF ANOTHER:
SUCCESSION a mode of acquisition whereby property,
rights and obligations to the extent of the value of the
inheritance of a person are transmitted through his death to
another or others either thru a will / by operation of law.
These are transmitted from the moment of decedents
death.
Where a person who has acquired land by inheritance
causes the legal title to be placed in the name of another,
a RESULTING TRUST is presumed in law in favor of the
heir (true owner).
The heir himself by his voluntary action, causes the
registration of his legal title under the name of another
person
CONSTRUCTIVE TRUST Where through fraudulent
representations / by pretending to be the sole heir of the
deceased, an heir succeeded in having the original title of a
land in the name of the deceased cancelled and a new one
is issued in his name, enabling him to possess the land and
get its produce.
No trust relationship can exist over a property in favor of
an heir as beneficiary where it appears that the
deceased predecessor had no title to the property in
question.
1452:
LEGAL TITLE TO PROPERTY PURCHASED TAKEN IN ONE
CO-OWNER:
A property is purchased by 2/more persons
There is a common consent that the legal title be placed
in the name of only one of the co-owners for the benefit
of all
Trust arises by implication of law in favor of the others
in proportion to the interest of each
This expressly allows the 1st co-owner to register his
proportionate share in the name of the 2 nd co-owner in
whose name the property is registered.
The second co-owner serves as a legal trustee of the
first co-owner insofar as the proportionate share of the
latter is concerned.
REQUISITES FOR ART. 1452 TO APPLY:
1. The 1st co-owner needs to show that there is common
consent among the purchasing co-owners to put the
legal title to the purchased property in the name of the
2nd co-owner for the benefit of all.
2. Property must be capable of private ownership.
1453:
CONVEYANCE UNDER A PROMISE TO HOLD FOR, OR
TRANSFER TO ANOTHER:
The trust established here is based on the PROMISE /
REPRESENTATION of the grantee to hold the property
conveyed for, or transfer it to another or the generator.
The grantee is estopped from asserting ownership in
himself by denying him representation as against the
person for whose benefit the implied trust is created.
This rule is founded upon EQUITY, where on the faith of
the agreement or understanding, the grantee is enabled
to gain an advantage in the purchase of the property /
where the consideration / part thereof has been
furnished by or for another.
Ex:
1. Where property is taken by a person under an agreement
to hold it for or convey it to another or to the grantor, or
on certain conditions, a trust results for the benefit of
such other or his heirs, which equity will enforce
according to the agreement.
2. A person who, before consolidation of property in the
purchaser under a contract of sale with pacto de retro,
agrees with the vendors to buy the property and
administer it until all debts constituting an encumbrance
thereon shall have been paid after which the property
shall be turned back to the original owners, is bound by
such agreement; upon buying the property under these
circumstances, such person becomes in effect a trustee
and is bound to administer the property in this character.
1454:
ABSOLUTE CONVEYANCE TO A PERSON TO SECURE
PERFORMANCE OF GRANTORS OBLIGATION:
Ordinarily, the creditor will require the execution by the
debtor of a mortgage or pledge as security for the
fulfillment of the latters obligation mortgagee /
pledgee does not become a trustee.
But if an ABSOLUTE CONVEYANCE OF PROPERTY is
made instead in order to guarantee the performance of
an obligation of the grantor toward the grantee implied
trust is created by operation of law for the benefit of the
grantor.
Upon offering to the grantee the fulfillment of the
obligation, the grantor is entitled to a deed of
reconveyance of the property as long as the rights of the
innocent 3rd parties have not intervened.
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1455:
PURCHASE OF PROPERTY WITH USE OF TRUST FUNDS:
There is a purchase by a trustee, guardian or other
person holding a fiduciary relationship of property
Where he takes conveyance in his own / 3rd persons
name, using trust funds for the purchase
This establishes a RESULTING TRUST for the
benefit of the person to whom the funds belong.
This rule goes to the fact of consideration, and has
nothing to do with fraud / breach of confidence.
A constructive trust arises on a purchase with the
use of trust funds where there is fraud / breach of
confidence
The rule in this Art. Is entirely independent of
whether any fraud has intervened.
No fraud, in fact, need be shown, and no excuse will
be heard from the trustee.
1456:
ACQUISITION OG PROPERTY THROUGH MISTAKE /
FRAUD:
If property is acquired through the mistake / fraud, the
person obtaining it is, by force of law, considered a trustee
of an implied trust for the benefit of the person from whom
the property comes.
CONSTRUCTIVE TRUST CREATED:
A. This is created by law where a party acquires through
mistake / fraud a legal title property to which another
has a better right in favor of the aggrieved party who is
truly entitled to it / his successors-in-interest, and
grants to the latter the right to recover his / their title over
the property by way of reconveyance while the same has
not yet passed to an innocent purchaser for value, in
keeping with the primary principle of law and equity that
one should not unjustly enrich himself at the expense of
another.
B. The presence of fraud / mistake creates an implied trust
for the benefit of the rightful and legal owner giving him
the right to seek reconveyance of the property.
What must be alleged in the complaint are:
1. That the plaintiff was the owner of the property
2. That the defendant had illegally dispossessed him
of the same
The creation of a constructive trust is an appropriate
remedy against unjust enrichment.
C. Ex: A buyer of a parcel of land at a public auction to
satisfy a judgment against a widow, acquired only
interest on the land corresponding to the share of the
widow and the other half belonging to the heirs of her
husband became impressed with a constructive trust in
behalf of said heirs.
D. Where the person supposedly transferring ownership
was not authorized to do so, the buyer who, in good faith,
obtained a transfer certificate of title in his name over
the property in question, is deemed to have acquired the
same by mistake under Art. 1456.
E. A purchaser in bad faith is considered a trustee of an
implied trust for the benefit of the true owner of the
property.
He may not successfully set up prescription as a
defense.
Mistake / fraud that results in an implied trust being
impressed upon the property involved, may be the
mistake / fraud of a 3rd person, and need not be a
mistake / fraud committed directly by the trustee
himself under the implied trust.
NOT TRUST IN THE TECHNICAL SENSE:
This is constructive trust arising by operation of law
It is not trust in the technical sense
In a typical trust, confidence is reposed in one person for
the benefit of another respecting property which is held
by the former for the benefit of the later
It is created by means of affording relief to the innocent,
and constitutes a remedial device through which
preference of self is made subordinate to loyalty to
others
REMEDY OF OWNER UNDER THE TORRENS SYSTEM:
Where the land owner whose property has been
wrongfully / erroneously registered under the Torrens
system in anothers name
Remedy is: after 1 year from date of the decree of
registration, not set aside the decree but, respecting it as
incontrovertible and no longer open to review, to bring
an ordinary action in the ordinary court of justice for
reconveyance / if the property has passed into the
hands of an innocent purchaser for value, for damages.
Action for reconveyance does not prescribe unless and
until the property is registered / the instrument affecting
it is inscribed in accordance with law.
TRUSTEE CANNOT REPUDIATE TRUST:
GR: Principle of Conclusiveness of a certificate of title
XPN: The principle that a trustee who takes a Torrens title in
his name cannot repudiate the trust by relying on the
registration
The beneficiary has the right to enforce the trust,
notwithstanding the irrevocability of the Torrens title,
and the trustee and his successors-in-interest are
bound to execute the deed of reconveyance.
Torrens system was never designed to shield and
protect on who had committed fraud /
misrepresentation and thus holds title in bad faith
It does not create / vest title but only confirms and
records title already existing and vested
Where one does not have any rightful claim over a real
property, the Torrens system of registration can confirm
/ record nothing
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1457:
PROOF OF IMPLIED TRUST:

An EXPRESS TRUST concerning an immovable / any

interest therein may NOT be proved by parol / oral
evidence.
An IMPLIED TRUST, whether involving realty /
personalty, may be proved by oral evidence to avoid
unjust enrichment by the formal holder of property / title
Where grantor conveys land to the grantee with the
understanding that after the latters death the property
would be returned to the grantor / his heirs, an implied
trust is created in favor of the grantor or his heirs which
may be proved by parol evidence.
An implied trust is neither dependent upon an express
agreement nor required to be evidenced by a writing,
hence, the oral evidence required to prove an implied
trust has to be trustworthy because oral evidence can
be easily fabricated. It cannot rest on loose, equivocal or
indefinite declarations
In order to establish implied trust in real property, by
parol evidence, the proof should be as fully convincing
as if the acts giving rise to the trust obligation are proven
by an authentic document.
An implied trust cannot be established contrary to the
recitals of a Torrens title, upon vague and inconclusive
proof.
Ex: where the supposed trustees had appeared to be the
registered owners of the lot in question for more than 40
years and had possessed it during that period, and the
trustors who created the alleged rust, died a long time
ago, their title and possession cannot be defeated by
oral evidence which can be easily fabricated. Any
pretension as to the existence of an implied trust should
not be countenanced.
The doctrine of implied trust finds no application where
there are no proven facts to support it. While an implied
trust (or real / personal property) does not required the
formalities of an express trust over realty which cannot
be proved by oral evidence, still there must be proof that
the trustor wanted to grant one party only the beneficial
ownership of a property, although said beneficiary may
have legal title in himself.
The bare existence of confidential relation between
grantor and grantee (mother-in-law and son-in-law)
does not stand alone, raise the presumption of fraud.
A deed (of sale) will not be set aside merely because the
grantor and the grantee sustained a confidential
relationship where the evidence shows no fraud or
abuse of confidence.