Business Organizations I Comparative Matrix

PARTIES

GENERAL PARTNERSHIP
1. General Partner
2. Industrial Partner (Article 1867)

LIMITED PARTNERSHIP
1. General Partner
2. Industrial Partner
3. Limited Partner (Article 1843)

AGENCY
1. Principal
2. Agent

DEFINITION

Two or more persons enter into a binding contract

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

A form of partnership formed by two or more By the contract of agency a

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

PRINCIPAL
PURPOSE/NATURE

The partnership has a separate and distinct juridical

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

Same

Representation
Principles:

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

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

2. Members may contract with third persons in his

own name

Have no juridical personality, and will be treated as

a co - ownership. (Article 1775)

ELEMENTS

CONTRIBUTIONS

CONSIDERATION

1. Mutual Consent bind themselves in a contract to

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

Share in profits and compensation by way of

income. (Articles 1767, 1797, 1798)

Same

the principal has

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

2. Created either by law or by

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

Consent
Representation
Authorization

Elements:
Parties to the trust
Subject matter of the trust

Compensation is presumed
until proven otherwise, Art.
1875

A trust may either be onerous or

gratuitous.

Only money or property

Share in profits and compensation by way of

income. (Articles 1850, 1856, 1857)

PERSONALITY

The partnership has a separate and distinct juridical

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

TYPES/KINDS

As to nature:

Same as General Partnership

Express agency, Art. 1869

Commercial or Trade Partnership

Professional or Non Trade Partnership (Article
1767)

Implied agency, Art. 1869

As to duration:

18761877

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

As to purpose:

1. The purpose for which the partnership was

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

General agency, Art.

Special, Art. 18761878

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

Article 1441 provides that trusts may

be either express or implied.
Express trust one created by
the intention of the trustor or of
the parties.
Implied trust one created by
operation of law.

(Article 1770)

As to legality/existence:

1. De Facto Partnerhip - A partnership that has

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

As to object:

The object of a partnership may either be universal

or particular. (Article 1776)
UNIVERSAL PARTNERSHIPS
- A universal partnership refers to all the present
property or to all the profits. (Article 1777)

Kinds of universal partnership:

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

determinate things, their use or fruits, or a specific

undertaking, or the exercise of a profession or
vocation. (Article 1783)
As to liability:
The liability of a partner may either be general or
limited.
A general partner is has unlimited liability. (Articles
1816, 1817, 1824, 1826, 1839)
An industrial partner is not liable for the losses as
among the partners, but is liable as to third
persons. (Articles 1797, 1816, 1817)
MANNER OF
CREATION/FORM
REQUIRED

A general partnership can be constituted in any

form (Article 1771) and begins from the moment
the contract is executed unless otherwise
stipulated. (Article 1784)
Exceptions:
1. When immovable properties are contributed.
(Article 1771 & 1773)
a. In this case, there should be an inventory of
the immovables contributed. (Article 1773)
b. The inventory should be signed by the parties.
(Article 1773)
c. The inventory should be attached to the
public instrument. (Article 1773)
2. Real rights are contributed. (Article 1771)
3. If capital is 3000 pesos or more. (Article 1772)
Failure to comply with the requisites in 1772 does
not affect the liability to third persons. (Article
1772)

May be orally constituted

unless form is required by
law, Art. 1869 (2)
Written form if agency is for
conveyance of land, Art.
1874

Special, Art. 18761878

1. Execute SPA listing

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

Express Trusts:
Express trusts over 5one5able or
any interests therein must be
written to be enforceable. No
effect as to validity of the
contract. (Art. 1443)
An express trust over personal
property through an oral
agreement is enforceable and
valid between the parties.
No particular words are required
for the creation of an express
trust as long as the intention to
create a trust is clear. (Art. 1444)
The trust is still created even
though the trustee refuses to be
such, unless trustees acceptance
is made a requisite in the
instrument creating the trust.
(Art. 1445)
*NB: The rationale for this is
that the Court will just appoint
another trustee, unless otherwise
stipulated in the trust instrument.

(Sec. 3, Rule 98, Rules of Court)

Acceptance by the beneficiary is

necessary. (Art. 1446)
However, if the trust does not
impose any onerous condition on
the beneficiary, his acceptance
shall be presumed, if there is no
proof to the contrary. (Art. 1446)

Implied Trusts: Form Required

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

4.

5.

6.

7.

8.

for the benefit of another and

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

other person holding a fiduciary

relationship uses funds to
purchase property and causes the
conveyance of the same to
himself or to third persons. A
trust is created in favor of the
owner of the funds. (Art. 1455)
9. When property is acquired
through mistake or fraud. A trust
is created in favor of the person
from whom the property is from
and the acquirer is deemed the
trustee. (Art. 1456)

PERFECTION

CONSUMMATION

DUTIES/OBLIGATIO
NS OF PARTIES

By mere consent (Articles 1767, 1784)

Substantial Compliance in good faith of the

requirements laid in Article 1844.

Consent, i.e. acceptance by

the agent.

Implied Trust
Implied trusts are perfected upon the
satisfaction of all the factual
circumstances provided by law when
creating the same.
Express Trust
An express trust is consummated
when the undertaking for which it
was created has already been
completed or when the period fixed
has already lapsed.

See Dissolution and Winding Up

OBLIGATIONS OF THE PARTNERS

AMONG THEMSELVES:

*NB: The fraud contemplated

here is committed by a third
person not a party to the
contract of trust. Otherwise, no
trust is created.
Express Trust
Express trusts are perfected by mere
consent of all parties involved.

OBLIGATIONS OF PARTNERS AMONG

THEMSELVES:

OBLIGATIONS OF
PRINCIPAL:
1. Comply with obligations

Implied Trust
An implied trust is consummated
when the party for which the implied
trust favors acquires the property
held in trust.
OBLIGATIONS OF THE
TRUSTEE: Rule 98 of the Rules of
Court

1. Every partner is a debtor to the partnership for

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

Additional obligation / rights of the limited partner:

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

2.

3.

4.

5.

6.

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

1. File a bond. (Section 5)

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

demandable sum of money from a person who

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

answer for the liabilities. (Article 1854)

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

appraised. (Article 1795)

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

goods of the same kind

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

entrusted to any of the partners. (Article 1798)

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

injury to the partnership. (Article 1802)

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

render, on demand, true and full information of all

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

OBLIGATIONS WITH REGARD TO THIRD

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

perform a partnership contract. (Article 1816)

limited partner was admitted.

3. The partners cannot exempt themselves,

through a stipulation, from liability as to third
person, but they may settle the matter between
themselves. (Article 1817)

(Article 1846)

4. Every partner is an agent of the partnership and

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

2. If the certificate of limited partnership contains a

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

Any of the acts mentioned above will not

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

name of one or more, but not all partners,

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

of the guilty partner, if a partner has caused loss or

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

If a partnership liability results, the person who

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

RIGHTS/POWERS OF Acts of administration (Article 1800)

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

PROPERTY RIGHTS
Same

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

The trust agreement defines the

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

6. Compel agent to return

document evidencing
the agency, Art. 1920
7. To be indemnified by
agent if the latter
withdraws from agency
without notice, Art.
1928
RIGHTS OF THIRD
PARTIES:
1. If specific person to be
contracted, then he is
not to be prejudiced by
revocation of agency,
Art. 1921
2. If general person to be
contracted and in good
faith, then he is not
prejudiced by revocation
to which he has no
knowledge of, Art. 1922
3. Not to be prejudiced by
appointment of different
agent, Art. 1923
4. Demand the
continuance of agency if
it was constituted for his
interest (there is a
stipulation pour autrui),
Art. 1930
5. Bind the principal by
acts of agent who acted
as agent even if he did
not know of principals
death, Art. 1931
ASSIGNMENT OF
RIGHTS

REIMBURSEMENT

No absolute prohibition for the

assignment of rights over a trust
agreement was provided by law. As
such, the assignability or the absence
thereof will be determined by the
stipulations of the parties.
In the absence of any express

stipulation in the trust agreement

wherein the trust estate shall bear the
liabilities, the trustee bears the
liabilities and expenses in his personal
capacity.

FOR EXPENSES

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

MULTIPLE AGENTS:
1. Bound to the contract
first signed in a situation
where the object is the
same thing but
transacted to two
different people by the
principal and the agent
respectively, Art. 1916
NB: Art. 1916 may also be
applied to a situation where
the object is the same but
transacted to two different
third-parties by two different
agents.

LIABILITY FOR
NEGLIGENCE

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

Unless another degree of diligence is

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

PERSONAL LIABILITY
OF AGENT:
4. Liability for nonperformance, Art. 1884
5. Liable for the acts of
substitute he may
appoint, Art. 1892
6. Liable for fraud or
negligence, to be judged
by courts; rigor depends
on whether
compensation is given
to agent or not, Art.
1909
PRESCRIPTION
RULES (IF
APPLICABLE)

TERMINATION/EXTI
NGUISHMENT

DissolutionChange in the relation of the

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

WindingUpProcess of settling the business or

partnership affairs after dissolution.

Causes of Dissolution

Causes of dissolution

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

Express Trusts
- No prescription is applicable
in express trusts as the
trustee does not hold the
subject trust property in the
concept of owner.
- Prescription may set in if he
repudiates the trust
relationship.
Implied Trusts
- For resulting trusts, as there
is intention to create the
trust, generally, such do not
prescribe.
For constructive trusts, they are
subject to prescription.
Express Trusts
Mutual agreement by all the
parties
Expiration of the term
Fulfillment of the resolutory
condition
Rescission or annulment
Loss of subject matter of the
trust (physical loss or legal
impossibility)
Order of the court
Merger

1. Without violation of the agreement between the

partners
a. By termination of the definite term/ particular
undertaking specified in the agreement
b. By the express will of any partner, who must act
in good faith, when no definite term or particular
undertaking is specified
c. By the express will of all the partners who have
not assigned their interest/ charged them for their
separate debts,either before or after the
termination of any specified term or particular
undertaking
d. By the bona fide expulsion of any partner from
the business in accordance with power conferred
by the agreement
2. In contravention of the agreement between the
partners, where the circumstances do not permit a
dissolution under any other provision of this
article, by the express will of any partner at any
time
3. By any event which makes it unlawful for
business to be carried on/for the members to carry
it on for the partnership
4. Loss of specific thing promised by partner
before its delivery
5. Death of any partner
6. Insolvency of a partner/partnership
7. Civil interdiction of any partner
8. Decree of court under art 1831
(Article 1830)

1. Same as the general partnership

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

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

Accomplishment of the purpose

of the trust

Implied Trusts

9. When the partnership is declared unlawful by a

judicial decree. (Article 1770)

Grounds for dissolution

Grounds for Dissolution

Same

1. Partner declared insane in any judicial

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

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

Effects of dissolution
Same

Effects of dissolution with respect to partners

Effects of dissolution with respect to partners

1. Authority of partners to bind partnership by

new contract is immediately terminated when
dissolution is not due to ACT, DEATH or

Same

INSOLVENCY (ADI) of a partner;

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

Effects of dissolution with respect to nonpartners

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

Effects of dissolution with respect to not

partners
Same

where partnership is regularly

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

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

Discharge of Liability
Same

2. Person/partnership continuing the business

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

Rights of a partner when dissolution not in

contravention of agreement

1. Apply partnership property to discharge

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

Rights of a partner when dissolution in

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

Rights of a partner when dissolution not in

contravention of agreement
Only applicable to general partners, and not to
limited partners.

Rights of a partner when dissolution in

contravention of agreement
Only applicable to general partners, and not to
limited partners.

a. If business not continued by others -apply

partnership property to discharge liabilities of
partnership &receive in cash his share of surplus
less damages caused by his wrongful dissolution
b. If business continued by others -have the value
of his interest at time of dissolution ascertained
and paid in cash/secured by bond & be released
from all existing/future partnership liabilities
(Article 1837)

Rights of injured partner where partnership

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

With regard to the assets of Partnership

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

When business of dissolved partnership is

Rights of injured partner where partnership

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

SETTLEMENT OF ACCOUNTS BETWEEN

PARTNERS

With regard to the assets of Partnership

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

continued

of capital contributed. (Article 1863)

1. Creditors of old partnership are also creditors of

the new partnership which continues the business
of the old one w/o liquidation of the partnership
affairs
2. Creditors have an equitable lien on the
consideration paid to the retiring /deceased
partner by the purchaser when retiring/deceased
partner sold his interest without final settlement
with creditors (Article 1840)
3. Rights if retiring/estate of deceased partner:
a. To have the value of his interest ascertained as
of the date of dissolution
b. To receive as ordinary creditor the value of his
share in the dissolved partnership with interest or
profits attributable to use of his right, at his option
(Article 1841)

When business of dissolved partnership is

continued
Same

The liability of a new partner who was admitted

after the business of the dissolved partnership is
continued, with regard to creditors of the dissolved
partnership, does not extend to his personal
properties unless there is a contrary stipulation.
(Article 1840)

Persons authorized to wind up

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

Persons authorized to wind up

Same

APPLICABLE LAW

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

TAXABILITY

National Internal Revenue Code

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

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

1. Civil Code
2. Jurisprudence

Under Article 1442, the following are

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

of December 31, 1997 shall not, even if declared or

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