Business Organizations I Comparative Matrix

GENERAL PARTNERSHIP LIMITED PARTNERSHIP AGENCY TRUST

PARTIES 1. General Partner 1. General Partner 1. Principal Article 1440 provides for the parties
2. Industrial Partner (Article 1867) 2. Industrial Partner 2. Agent in a trust, namely:
3. Limited Partner (Article 1843) 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

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)
PRINCIPAL The partnership has a separate and distinct juridical
PURPOSE/NATURE 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
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.
Same Representation
Principles:
A spring cannot
rise higher than its
source. All that the
agent can do is what
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 the principal has 2. Created either by law or by
own name authorized. agreement (Art. 1441)
Acceptance of agent 3. Legal title is held by one party
Have no juridical personality, and will be treated as is necessary. His and the equitable or beneficial
consent is necessary title on another.
a co - ownership. (Article 1775)
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.
ELEMENTS 1. Mutual Consent bind themselves in a contract to Same Consent Elements:
contribute money, property, or industry Representation Parties to the trust
2. To contribute these to a common fund Authorization Subject matter of the trust
3. Intent to divide the profits among themselves.

CONTRIBUTIONS Money, property, services (Article 1767) Only money or property

CONSIDERATION Share in profits and compensation by way of Share in profits and compensation by way of Compensation is presumed A trust may either be onerous or
income. (Articles 1767, 1797, 1798) income. (Articles 1850, 1856, 1857) until proven otherwise, Art. gratuitous.
1875
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 Article 1441 provides that trusts may
Commercial or Trade Partnership be either express or implied.
Professional or Non Trade Partnership (Article Implied agency, Art. 1869 Express trust one created by
1767) the intention of the trustor or of
General agency, Art. the parties.
As to duration: 18761877 Implied trust one created by
1. Partnership at will operation of law.
2. Partnership with a term or a particular Special, Art. 18761878
undertaking Special powers of
(Article 1785) attorney necessary
(Art. 1878)
Rule on continuation of partnership when term has expired Special power to sell
or the undertaking is finished: does not include
1. If the partnership is continued without any express power to mortgage
agreement, the rights and duties of the parnters remain the and vice versa. Art.
same. 1879
2. If there is an express agreement, the rights and duties of Special power to
the parties are in accordance to the agreement. compromise is not
the same as power
As to purpose: to submit for
1. The purpose for which the partnership was arbitration. Art.
formed must be lawful; and 1880
2. The partnership must be established for the
common benefit or interest of the partners.
(Article 1770)

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

As to object:
The object of a partnership may either be universal
or particular. (Article 1776)

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

Kinds of universal partnership:

1. Universal partnership of all properties. (Articles
1776, 1777, 1778, 1779)
2. Universal partnership of all profits. (Articles
1777, 1780, 1781)

Important Notes:
1. Only the usufruct of any movable or immovable property
passess to the partnership in a universal partnership of
profits.
2. If the articles of universal partnership is silent, then the
object of the partnership is that of a universal partnership of
profits.

PARTICULAR PARTNERSHIP
A particular partnership may be likened to a joint
venture (Heirs of Tan Eng Kee vs. CA, G.R.
126881)

A particular partnership has for its object

 determinate things, their use or fruits, or a specific
undertaking, or the exercise of a profession or
vocation. (Article 1783)

As to liability:

The liability of a partner may either be general or

limited.

A general partner is has unlimited liability. (Articles

1816, 1817, 1824, 1826, 1839)
An industrial partner is not liable for the losses as
among the partners, but is liable as to third
persons. (Articles 1797, 1816, 1817)

MANNER OF A general partnership can be constituted in any May be orally constituted Express Trusts:
CREATION/FORM form (Article 1771) and begins from the moment unless form is required by Express trusts over 5one5able or
REQUIRED the contract is executed unless otherwise law, Art. 1869 (2) any interests therein must be
stipulated. (Article 1784) written to be enforceable. No
Written form if agency is for effect as to validity of the
conveyance of land, Art. contract. (Art. 1443)
Exceptions: 1874 An express trust over personal
1. When immovable properties are contributed. property through an oral
(Article 1771 & 1773) Special, Art. 18761878 agreement is enforceable and
a. In this case, there should be an inventory of 1. Execute SPA listing valid between the parties.
the immovables contributed. (Article 1773) specific authorized No particular words are required
actions that agent for the creation of an express
b. The inventory should be signed by the parties.
may perform trust as long as the intention to
(Article 1773) 2. Notarize SPA in the
c. The inventory should be attached to the create a trust is clear. (Art. 1444)
jurisdiction where
public instrument. (Article 1773) The trust is still created even
he is
though the trustee refuses to be
2. Real rights are contributed. (Article 1771) 3. Apply notarized
such, unless trustees acceptance
3. If capital is 3000 pesos or more. (Article 1772) SPA in Philippine
is made a requisite in the
consulate for
instrument creating the trust.
authentication
Failure to comply with the requisites in 1772 does (Art. 1445)
not affect the liability to third persons. (Article
1772) *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
 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)
4. 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)
5. 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)
6. 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)
7. 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)
8. When a trustee, guardian or
 other person holding a fiduciary
relationship uses funds to
purchase property and causes the
conveyance of the same to
himself or to third persons. A
trust is created in favor of the
owner of the funds. (Art. 1455)
9. When property is acquired
through mistake or fraud. A trust
is created in favor of the person
from whom the property is from
and the acquirer is deemed the
trustee. (Art. 1456)

*NB: The fraud contemplated

here is committed by a third
person not a party to the
contract of trust. Otherwise, no
trust is created.
PERFECTION By mere consent (Articles 1767, 1784) Substantial Compliance in good faith of the Consent, i.e. acceptance by Express Trust
requirements laid in Article 1844. the agent. Express trusts are perfected by mere
consent of all parties involved.

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

Implied Trust
An implied trust is consummated
when the party for which the implied
trust favors acquires the property
held in trust.
DUTIES/OBLIGATIO OBLIGATIONS OF THE PARTNERS OBLIGATIONS OF PARTNERS AMONG OBLIGATIONS OF OBLIGATIONS OF THE
NS OF PARTIES AMONG THEMSELVES: THEMSELVES: PRINCIPAL: TRUSTEE: Rule 98 of the Rules of
1. Comply with obligations Court
1. Every partner is a debtor to the partnership for Additional obligation / rights of the limited partner: imposed by contracts 1. File a bond. (Section 5)
whatever he promised to contribute. 1. Right to have partnership books kept at principal entered into by his 2. Make an inventory of the real
2. A partner warrants against eviction the place of business authorized agent in his and personal property in trust.
properties he promised to contributes. 2. Right to inspect/copy books at reasonable hour behalf Art. 1910 (Section 6[a])
2. Advance to agent sums 3. Manage and dispose of the estate
3. A partner is liable for the fruits of the property 3. Right to have on demand true and full info of all necessary for the and faithfully discharge his trust
he promised to contribute if there was delay in the things affecting partnership execution of agency in relation thereto, according to
delivery, without need of demand. (Article 1786) 4. Right to have formal account of partnership upon the latters request, law or according to the terms of
4. The value of the goods that a partner affairs whenever circumstances render it just and Art. 1912 the trust instrument as long as
contributes must be appraised according to the reasonable 3. Reimburse agent (with they are legal and possible.
stipulations in the contract, or according to 5. Right to ask for dissolution and winding up by interest if applicable) if (Section 6[b])
the latter had advance 4. Render a true and clear account.
experts, if there are not stipulations thereto. The decree of court
sums himself even if (Section 6[c])
appraised price would be the amount he 6. Right to receive share of profits/other transaction was
contributes to the partnership. (Article 1787) compensation by way of income unsuccessful, Art. 1912
5. If the partner who promised to contribute (Article 1851) 4. Indemnify agent for
money, fails to deliver it on the time promised, he 7. Right to receive return of contributions, or damages the latter may
will be liable for the interest and damages from the demand the return of his contribution provided the have suffered in the
time of delay. partnership assets are in excess of all its liabilities. execution of the agency
without fault on the
6. A partner is also liable for interest and damages ((Articles 1851, 1856, 1857)
latters part, Art. 1913
if he used partnership money for his own use. 8. The limited partner holds as trustee for the 5. Bound to contract first
(Article 1788) partnership the money, other properties, specific signed in a situation
7. An industrial partner can't engage in a business properties he contributed but was not delivered, has where the object is the
for himself, unless the partnership expressly been wrongfully returned, or was wrongfully same thing but
permits him. If he does so without permission, the conveyed to him. transacted to two
partnership may expel him or avail of the benefits 9. Even a limited partner rightfully received hs share different people by the
principal and the agent
he obtained from doing so. However, in both in whole or in part, he is still liable to the respectively, Art. 1916
options, the partnership still has the right to partnership for any sum required to discharge the 6. Not revoke agency if:
damages against him. (Article 1789) partnership liability if the claim arose before he a. bilateral
8. Partners should contribute equal shares to the received his share. (Article 1858) contract
capital, unless a contrary stipulation appears. 10. A limited partner can assign his interest. (Article depends on it
(Article 1790) 1859) b. it is the means
of fulfilling a
9. If the partnership is in danger of losing business, 11. A limited partner may also transact business
pre-existing
a partner refuses to contribute more capital to save with the partnership and can receive on account of contractual
the venture, must sell his shares to the other resulting claims against the partnership, unless he is obligation
partners, unless there is a contrary stipulation. a limited partner. However, no limited partner c. partner, as
However, this is with the exception of the cannot receive collateral security, nor a payment, agent, is
industrial partner. (Article 1791) conveyance, or release if at the time of such receipt appointed as
10. If an authorized partner was able to collect a the assets of the parrtnership are not enough to manager and his
removal is
demandable sum of money from a person who answer for the liabilities. (Article 1854) unjustifiable
both owed him and the partnership, he is obliged 12. If there are several limited partners, they may Art. 1927
to apply the sum proportionally to his credits and agree among themselves who among them may
the partnership's credits. However, there is no have priority as to compensation by way of income
OBLIGATIONS OF
stipulation against applying the entire sum in favor or any other matter. This agreement must be written AGENT:
of the partnership credit. in the certificate. If there is no agreement, then all 1. Act within scope of his
Qualification: If a partner has multiple debts to of them shall be on equal footing. (Article 1855) authority, Art. 1881
one person, he can declare to which debt shall the 2. Carry out the agency as
collected amount be credited, but only in cases 13. Without the written consent or ratification of all accepted, Art. 1884
where the personal debt of the partner is more limited partners, a general partner cannot: 3. Finish the business
already begun even on
onerous to him than the partnership credit. (Article
1. Do any act in contravention of the certificate death of principal, Art.
1792) 1884
11. If a partner has received his share, in whole or 2. Do any act which would make it impossible to 4. Observe ordinary
in part, ahead of the others, shall be obliged to carry on the ordinary business of the partnership diligence in custody of
return it to the partnership capital if the goods forwarded by
partnership becomes insolvent. (Article 1793) 3. Confess judgment against partnership principal (in case of
12. Every partner is responsible to the parntership declining the agency),
4. Possess partnership property/assign rights in Art. 1885
for the damages it suffered through his fault. This
specific partnership property other than for 5. Advance necessary
liability is not set - off even if the partnership funds if stipulated,
partnership purposes
profited or benefited through such industry. unless principal is
However, the Courts may temper his liabili+I13ty 5. Admit person as general partner insolvent, Art. 1886
if the partnership realized unusual profits through 6. Act in accordance of
the extraordinary efforts of the partner in other 6. Admit person as limited partner unless principals instructions
activities. authorized in certificate or with ordinary
diligence as required by
13. If a partner contributes a specific and nature of business, Art.
determinate thing to the partnership, for purpose is 7. Continue business with partnership property on
1887
only for the use of and enjoyment of the fruits, and death, retirement, civil interdiction, insanity or
7. Refrain from acts that
such thing is not fungible, the risk shall be borne insolvency of gen partner unless authorized in would cause damage or
by the partner who owns it. certificate. (Article 1850)" loss to principal, Art.
If fungible things, or things that eventually 1888
8. Render account of
deteriorates where contributed, or if they were
transactions, Art. 1891
contributed for the purpose of selling the same, 9. Deliver to principal
the risk shall be borne by the partnership. what he received
However, if there is no stipulation, the things that because of the agency,
were appraised in the inventory shall be borne by Art. 1891
the partnership as well, and in such case, the claim 10. If commission agent,
shall be limited to the value at the time they were then he is responsible to
distinguish and mark
appraised. (Article 1795) goods of the same kind
14. The partnership answers for all the expenses, owned by different
including the interests, a partner may have incurred principals, Art. 1904
in the name of the partnership. The partnership 11. If commission agent and
authorized to sell on
shall also answer for the obligations a partner has credit, then he is
contracted in good faith for the partnership's responsible to inform
interest. Lastly, the partnership shall also answer principal, Art. 1906
for the consequences arising from the management 12. Continue to act as agent
of the partnership business. (Article 1796) until principal has
reasonable opportunity
15. THe losses and profits shall be distributed in to take necessary steps
the following manner: to meet the situation in
the case of the formers
1. According to the agreement stipulated in valid withdrawal, Art.
the contract 1929
2. If there was no stipulation as to losses, OBLIGATIONS OF
then it shall be distributed proportionately. AGENTS HEIRS:
3. If there is no stipulation as to profits and 1. Notify the principal of
losses, then the same shall be distributed agents death and adopt
in proportion to their contribution, but provisional measures as
the industrial partner is not liable for any the circumstances may
demand in the interest
losses.
of principal, Art. 1932
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
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, (Article 1846)

through a stipulation, from liability as to third
person, but they may settle the matter between
themselves. (Article 1817)
4. Every partner is an agent of the partnership and
binds the partnership with every act carried out for
the interest of the partnership business.
Exception:
The partner is not authorized to act for the
partnership in that matter, and the third person
knows of the defect of authority of such partner.
These two conditions must concur, and in such a
case, the partner so acting is liable only in his
personal capacity.
Exception to the Exception:
If the partners ratify the action of the unauthorized
partner, then the act binds the partnership.
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

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.
 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) RIGHTS OF AGENT: The trust agreement defines the
PARTIES 1. May retain in pledge the rights and powers of the parties to a
PROPERTY RIGHTS PROPERTY RIGHTS thing put under his trust. The law did not provide for any
custody by the principal specific grant of rights or powers.
The property rights of a partner are (Article 1810): Same if the latter fails to pay
1. His right in a specific partnership property damages/for sums the
former had advanced,
a. A partner has an equal right to possession which Art. 1914
2. May withdraw from
is not assignable and such right is limited to the
agency but with due
share of what remains after partnership debts have notice to principal. Art.
been paid. (Article 1811) 1928
3. May withdraw without
2. His interest in the partnership notice on the basis of
impossibility of
a. A partner's interest in the partnership is his performance without
grave detriment to
share of the profits and surplus. (Article 1812) himself, Art. 1928

3. His right to participate in the management RIGHTS OF PRINCIPAL:

1. No liability if agent
Important Notes: contravenes his actions
1. A partner may convey his whole interest in the (exception: if avails of
benefits derived from
partnership and such conveyance does not dissolve
the contravening actions
the partnership. It only entitles the assignee to act of agent), Art. 1918 (1)
in behalf of the assigning partner and to receive the 2. Not to reimburse agent
profits the latter would otherwise be entitled. if expenses were agents
fault, Art. 1918 (2)
2. In cases of fraud in management, the assignee 3. Not to reimburse agent
may avail of the usual remedies available to the if agent knew of
unfavorable result of his
assigning partner.
expense and the
principal was not
3. In case a dissolution of partnership occurs, the informed, Art. 1918 (3)
assignee is entitled to receive the assignor's 4. Not to reimburse agent
interest. (Article 1813) 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
 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 No absolute prohibition for the
RIGHTS 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.
REIMBURSEMENT In the absence of any express
FOR EXPENSES stipulation in the trust agreement
wherein the trust estate shall bear the
liabilities, the trustee bears the
liabilities and expenses in his personal
capacity.
MULTIPLE MULTIPLE AGENTS:
RELATIONS (I.E, 1. Bound to the contract
SUBPARTNERS/LIMI first signed in a situation
TED where the object is the
PARTNERS/MULTIPL same thing but
transacted to two
E AGENTS, ETC.)
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 LIABILITIES OF Unless another degree of diligence is

NEGLIGENCE PRINCIPAL: required under the agreement,
1. Solidarily liable with generally, the trustee is expected to
agent if the latter exercise reasonable diligence in the
exceeded his authority management and holding of the
but the former allowed subject trust property for the
the agent to act as beneficiary. In case of negligence, the
though he had authority, trustee may be held personally liable
Art.1911 for the loss suffered by the trust
2. Solidarily liable with estate.
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
 PERSONAL LIABILITY
OF AGENT:
4. Liability for non-
performance, 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 DissolutionChange in the relation of the EXTINGUISHMENT
NGUISHMENT partners caused by any partner ceasing to be 1. Revocation by principal,
associated in the carrying on of the business; Art. 1919 (1)
2. Withdrawal by agent,
partnership is not terminated but continues until
Art. 1919 (2)
the winding up of partnership affairs is completed. 3. Death, civil interdiction,
(Article 1828)
insanity, or insolvency
of either principal or
WindingUpProcess of settling the business or agent, Art. 1919 (3)
partnership affairs after dissolution. 4. Dissolution of firm or
corporation which
Causes of Dissolution Causes of dissolution 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 1. Same as the general partnership 5. Accomplishment of Accomplishment of the purpose
partners 2.. Death of a limted partner does not dissolve the purpose of agency, Art. of the trust
a. By termination of the definite term/ particular parntership, instead the rights of the deceased 1919 (5)
undertaking specified in the agreement partner is transferred to his assignee. (Article 1861) 6. Expiration of period of Implied Trusts
contract of agency, Art.
b. By the express will of any partner, who must act 1919 (6)
in good faith, when no definite term or particular 7. Agency automatically
undertaking is specified revoked when directly
c. By the express will of all the partners who have manages the business
not assigned their interest/ charged them for their entrusted to the agent,
separate debts,either before or after the dealing directly with
third parties, Art. 1924
termination of any specified term or particular
8. General power revoked
undertaking if special one granted to
d. By the bona fide expulsion of any partner from another agent if and
the business in accordance with power conferred only in so far as the
by the agreement special matter is
involved in the general
2. In contravention of the agreement between the matter, Art. 1926
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)
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
Effects of Dissolution
Same
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 with respect to partners Effects of dissolution with respect to partners

1. Authority of partners to bind partnership by Same

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

Effects of dissolution with respect to not
partners
partners
1. Partner continues to bind partnership even after
Same
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
 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 Discharge of Liability

a partner, except by agreement between:
Same
1. Partner and himself
2. Person/partnership continuing the business
3. Partnership creditors

The individual property of a deceased partner is

still liable for all the obligations the partnership
incurred while he was still a partner, however, his
separate debts must be satisfied first. (Article 1835)

Rights of a partner when dissolution not in

contravention of agreement
Rights of a partner when dissolution not in
contravention of agreement
1. Apply partnership property to discharge Only applicable to general partners, and not to
liabilities of partnership (Article 1836) limited partners.
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 Rights of a partner when dissolution in
contravention of agreement
1. Partner who did not cause dissolution
wrongfully: Only applicable to general partners, and not to
a. Apply partnership property to discharge limited partners.
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:

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. Rights of injured partner where partnership
contract was rescinded on the ground of fraud
1. Right to lien on surplus of partnership property or misrepresentation by one party.
after satisfying partnership liabilities
2. Right to subrogation in place of creditors after Only applicable to general partners, and not to
payment of partnership liabilities limited partners. (See settlement of accounts)
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
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 When business of dissolved partnership is
the new partnership which continues the business continued
of the old one w/o liquidation of the partnership
affairs Same
2. Creditors have an equitable lien on the
consideration paid to the retiring /deceased
partner by the purchaser when retiring/deceased
partner sold his interest without final settlement
with creditors (Article 1840)
3. Rights if retiring/estate of deceased partner:
a. To have the value of his interest ascertained as
of the date of dissolution
b. To receive as ordinary creditor the value of his
share in the dissolved partnership with interest or
profits attributable to use of his right, at his option
(Article 1841)

The liability of a new partner who was admitted

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

Persons authorized to wind up

Persons authorized to wind up
1. Persons who were authorized by stipulation
2. Partners designated by the agreement Same
3. In absence of agreement, all partners who have
not wrongfully dissolved the partnership
4. Legal representative of last surviving partner
(Article 1842)
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 1. Civil Code Under Article 1442, the following are
2. Special Laws 2. Jurisprudence the applicable laws on trusts:
3. Jurisprudence Civil Code
4. General Principles of Law that are applicable Code of Commerce
5. National Internal Revenue Code 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 pass-
through 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.