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CIVIL LAW
AGENCY
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(2) Responsibility for the Substitute The law on agency allows the appointment by
General Rule: If the Agent validly appoints an agent of a substitute in the absence of an
a substitute, the Principal is liable for the express agreement to the contrary. (An agent’s
Substitute’s acts act of entrusting jewelry to a substitute is
therefore not an abuse of confidence such as to
Exception: [1892] constitute estafa) [Serona v. People]
(a) If the agent appoints a substitute
although he was not given the power A.4. RETAIN IN PLEDGE THE OBJECTS
to appoint one OF AGENCY
(b) If the agent was given the power to
appoint a substitute, and the principal Art. 1914. The agent may retain in pledge the
did not designate the person he can things which are the object of the agency until
appoint, but he appoints someone who the principal effects the reimbursement and
is notoriously incompetent or insolvent. pays the indemnity set forth in the two
preceding articles.
(3) Validity of the Substitute’s acts Art 1912. The principal must advance to the
agent, should the latter so request, the sums
necessary for the execution of the agency.
If the principal prohibits the agent from
appointing a substitute, then all the acts of the Should the agent have advanced them, the
substitute are void. principal must reimburse him therefore, even if
the business or undertaking was not
What may a third person who has contracted successful, provided the agent is free from
fault.
with a prohibited Substitute do?
(a) If the principal is aware that a Substitute The reimbursement shall include interest on
is acting on his behalf without authority the sums advanced, from the day on which the
yet he fails to repudiate the substitute’s advance was made.
acts, then there may be implied agency
(act will not be void) Art. 1913. The principal must also indemnify
(b) If the principal was not aware of the acts, the agent for the damages which the execution
or that when he became aware he of the agency may have caused the latter,
repudiates the acts, then the Agent may without fault or negligence on his part.
be held liable.
(1) Two scenarios under which the Agent may
retain in pledge the objects of the agency:
(4) The Substitute is an Alternate, not a
(a) if the agent advances funds for the
Delegate
execution of the agency, or
(b) if the agent has suffered injury caused
An agent cannot delegate to another the same
by the execution of the agency
agency. Potestas delegate non delegare
potest. Re-delegation is detrimental to the
principal as the second agent has no privity of
contract with the principal... Article 1892
allows the agent to appoint a substitute (not a
delegate). [Baltazar v. Ombudsman]
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Art. 1882. The limits of the agent's authority Rule: The third person can rely completely on
shall not be considered exceeded should it the written power of attorney to determine
have been performed in a manner more
whether the agent’s act is within the limits of
advantageous to the principal than that
specified by him. (1715) his authority.
The agent may do acts more advantageous to Exception: If the third person is aware of the
the principal than what is indicated in the secret understanding between the principal
power of attorney. and the agent.
For example, if the agent was authorized to
sell a car for P2,500,000 but was able to sell it
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(6) Authority of Corporate Officers Art. 1885. In case a person declines an agency,
The general principles of agency govern the he is bound to observe the diligence of a good
relation between the corporation and its father of a family in the custody and
officers or agents, subject to the articles of preservation of the goods forwarded to him by
the owner until the latter should appoint an
incorporation, bylaws, or relevant provisions of agent or take charge of the goods. (n)
law. [San Juan v. CA]
Art. 1899. If a duly authorized agent acts in
A corporate officer intrusted with the general accordance with the orders of the principal, the
management and control of its business, has latter cannot set up the ignorance of the agent
implied authority to make any contract or do as to circumstances whereof he himself was, or
any other act which is necessary or appropriate ought to have been, aware. (n)
to the conduct of the ordinary business of the
corporation. As such officer, he may, without If the Principal was aware of certain
any special authority from the Board of circumstances, and the agent simply followed
Directors, perform all acts of an ordinary the former’s instructions without being aware
nature, which by usage or necessity are of those circumstances thereby causing injury
incident to his office... to a third person, then the principal cannot
Where similar acts have been approved by the blame the agent later on.
directors as a matter of general practice,
custom and policy, the general manager may B.3. CARRY OUT THE AGENCY
bind the company without formal
authorization of the board of directors. [Board (1) In General
of Liquidators v. Kalaw]
Art. 1884 par. 1 The agent is bound by his
B.2. ACT IN ACCORDANCE WITH acceptance to carry out the agency, and is
liable for the damages which, through his non-
INSTRUCTIONS performance, the principal may suffer.
Art. 1887. In the execution of the agency, the The agent is bound to carry out his duties as
agent shall act in accordance with the agent once he accepts the authorization
instructions of the principal.
granted by the principal. Else, he is liable for
In default thereof, he shall do all that a good damages if the principal suffers injury.
father of a family would do, as required by the
nature of the business. (1719) (2) Continuing Business
The agent must act within the specific limits of Art. 1884 par. 2 He must also finish the
his authority (See B.1.) and perform the acts in business already begun on the death of the
the manner dictated by the principal. principal, should delay entail any danger.
(1718)
If the principal did not provide instructions as
(3) In case of Withdrawal
regards the manner, then the agent must do
all that a good father of a family would do.
Art. 1929. The agent, even if he should
withdraw from the agency for a valid reason,
What if a person refuses to be an agent but must continue to act until the principal has
goods have already been forwarded to him? had reasonable opportunity to take the
necessary steps to meet the situation. (1737a)
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Art. 1888. An agent shall not carry out an The relations of an agent to his principal are
agency if its execution would manifestly result fiduciary and it is an elementary and very old
in loss or damage to the principal. (n) rule that in regard to property forming the
subject matter of the agency, he is stopped
Example: If the Agent is obliged to buy palay from acquiring or asserting a titled adverse to
whose price suddenly spiked and, if bought, that of the principal. His position is analogous
will lead to the principal’s ruin, then the agent to that of a trustee and he cannot consistently,
may not carry out the agency. with the principles of good faith, be allowed to
create in himself an interest in opposition to
B.4. ADVANCE FUNDS that of his principal or cestui que trust.
[Severino v. Severino]
Art. 1886. Should there be a stipulation that
the agent shall advance the necessary funds, (3) Double Sales
he shall be bound to do so except when the
principal is insolvent. (n)
Art. 1916. When two persons contract with
Conditions: regard to the same thing, one of them with the
agent and the other with the principal, and the
(a) There is a stipulation stating that the agent two contracts are incompatible with each
shall advance the necessary funds, and other, that of prior date shall be preferred,
(b) The principal must be solvent without prejudice to the provisions of article
1544. (n)
B.5. PREFER THE PRINCIPAL’S
INTEREST OVER HIS OWN Art. 1917. In the case referred to in the
preceding article, if the agent has acted in
good faith, the principal shall be liable in
(1) In General damages to the third person whose contract
must be rejected. If the agent acted in bad
Art. 1889. The agent shall be liable for faith, he alone shall be responsible. (n)
damages if, there being a conflict between his
interests and those of the principal, he should Art. 1544. If the same thing should have been
prefer his own. (n) sold to different vendees, the ownership shall
be transferred to the person who may have first
taken possession thereof in good faith, if it
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which caused damage against itself, thereby b. The agent exceeded the scope of
preventing it from recovering from the his authority
principal what it lost. [see Metrobank v. CA c. The agent undertook to secure the
1991] principal’s ratification, and
d. The principal did not ratify the
C. LIABILITY OF AGENTS contract
If the agent acts beyond the scope of his
C.1. WHEN SOLIDARY authority, the third person can recover from
either the principal or the agent but not from
Art. 1894. The responsibility of two or more both. [Eurotech v. Cuizon]
agents, even though they have been appointed
simultaneously, is not solidary, if solidarity has (2) Acts in His Own Name
not been expressly stipulated. (1723)
Art. 1883. If an agent acts in his own name, the
(1) Each of the agents can be held solidarily principal has no right of action against the
liable for the non-fulfilment of the agency or persons with whom the agent has contracted;
for injuries caused by fault or negligence IF: neither have such persons against the
(a) The principal simultaneously appoints principal.
more than one agent, and
In such case the agent is the one directly
(b) There is an express stipulation that bound in favor of the person with whom he has
such agents are solidarily liable contracted, as if the transaction were his own,
(2) Not solidarily liable IF except when the contract involves things
The fellow agents acted beyond the scope of belonging to the principal.
their authority.
The provisions of this article shall be
understood to be without prejudice to the
C.2. WHEN PERSONAL actions between the principal and agent. (1717)
(1) Expressly Bound or In Excess of Authority This is called an “Agency with an undisclosed
General Rule: the agent who transacts as an principal.
agent is not personally liable to the third
person for the obligation entered into If the agent enters contract without notice to
the third party that he was acting as an agent,
Exceptions: the agent is directly bound as a party to the
(a) When the agent expressly binds contract, and the principal and the third
himself person have no right of action against one
(b) When the agent exceeds the limits of another.
his authority without giving the person
he is transacting with sufficient notice What if the contract “involves things belonging
of his powers [Art 1897] to the principal?” Does the agent go away
scot-free?
(c) When all of the ff are present: The exception under Art 1883 “does not say
a. The person transacting with the that (a third party) does not have, and cannot
agent is aware of the limits of the bring an action against the agent also.”
agent’s authority [Beaumont v. Prieto]
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(c) Relying upon such representation, such To be a General Agent, it is sufficient that the
third person has changed his position to listed authorized transactions apparently cover
his detriment. all that is required to run the business of the
principal. It is not necessary that the power
Agency by estoppel is similar to the doctrine of granted actually says “all the business of the
apparent authority. It requires proof of reliance principal.” [Dominion Insurance v. CA]
upon the representation and that the
representation predated the action which B. SPECIAL AGENCY
relied on the representation. [Litonjua v.
Eternit] If the agent handles only specific aspects of the
principal’s business and not all of it, the he is a
With respect to hospitals in relation to special agent. [See Art 1876]
physicians who are independent contractors,
General Agency Special Agency
there are only two requisites [Nogales v.
Capitol Medical]: The Agent handles all The Agent only
(a) (Representation) The hospital acted in a of the business of the handles specific
manner which would lead a reasonable principal. aspects of the
person to conclude that the individual who business.
was alleged to be negligent was an
employee or agent of the hospital
(b) (Reliance) The plaintiff acted in reliance
upon the conduct of the hospital or its
VI. Agency Couched In
agent, consistent with ordinary care and
prudence
General Terms (ACGT)
This refers to a type of authority granted to the
V. General vs. Special agent, not to the scope.
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Required:
The authorization must be
IX. Rights and
(a) Written, and
(b) Specific
Obligations of Principal
Only specific authorization is required: A. OBLIGATIONS
(a) If the contract is a sale of an immovable
other than land A.1. COMPLY WITH THE OBLIGATIONS
(b) If the contract transmits ownership over an CONTRACTED BY THE AGENT
immovable other than land
(c) If the contract transmits ownership over Art. 1910. The principal must comply with all
land thru a transaction other than a sale the obligations which the agent may have
contracted within the scope of his authority.
As for any obligation wherein the agent has
B.3. EFFECT OF SPECIFIC
exceeded his power, the principal is not bound
AUTHORIZATION except when he ratifies it expressly or tacitly.
(1727)
Where an instrument specifies and defines
powers and duties, all such powers and duties If the agent acts within the scope of his
are limited and confined to those which are authority, then the principal must comply.
specified and defined, and all other powers Otherwise, the principal is bound to comply
and duties are excluded. [BPI v. De Coster] only if he ratifies the agent’s act that was done
beyond the scope of his authority.
VIII. Agency By
(1) Acts Within the Scope of Authority
Operation of Law (a) Those expressly specified in the power
of attorney
(b) Conducive acts
Normally, an agency is established only if there
(c) Advantageous acts
is mutual intent on the part of the principal (d) Collateral acts
and agent to establish the agency. [Victorias
Milling v. CA] (2) Ratified Acts
An agency may be established by operation of Art. 1901. A third person cannot set up the fact
law, however, in the following cases: that the agent has exceeded his powers, if the
(1) In a partnership, every partner is an agent principal has ratified, or has signified his
of the partnership for the purpose of its willingness to ratify the agent's acts. (n)
business [Art. 1818];
(2) Agency by estoppel (both statutory and If the principal ratifies or signifies to ratify the
jurisprudential), where the principal’s act of the agent, then that effectively binds the
actions would reasonably lead a third third person to the unauthorized act of the
person to conclude that an agency exists; agent. The principal, by implication, also
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becomes bound to the act simply by signifying Art. 1918. The principal is not liable for the
his willingness to ratify. expenses incurred by the agent in the following
cases:
By benefitting from the unauthorized act of an (1) If the agent acted in contravention of the
agent, the principal is said to have ratified the principal's instructions, unless the latter
acts of the agent and is estopped from denying should wish to avail himself of the benefits
said authority. [Filipinas Life v. Pedroso] derived from the contract;
(2) When the expenses were due to the fault of
In some cases, the mere acceptance of benefits the agent;
is not tantamount to ratification by the (3) When the agent incurred them with
principal. The principal must have full knowledge that an unfavorable result
knowledge at the time of ratification of all the would ensue, if the principal was not aware
material facts and circumstances relating to thereof;
the unauthorized act of the person who
assumed to act as agent. If the material facts (4) When it was stipulated that the expenses
were suppressed or unknown, there can be no would be borne by the agent, or that the
ratification. [Manila Memorial v. Linsangan] latter would be allowed only a certain sum.
(3) When Estoppel Applies (n)
Art. 1911. Even when the agent has exceeded General Rule: the principal must advance or
his authority, the principal is solidarily liable reimburse (with interest) the sums necessary to
with the agent if the former allowed the latter execute the agency.
to act as though he had full powers. (n)
Exceptions:
Even if there was no express authority, the (1) Expenses incurred through acts which
principal is still solidarily liable because he contravene the principal’s instructions, and
allowed the agent to act as if he had authority. the principal does not want to derive
(This is not actually estoppel, but implied benefit therefrom
agency.) (2) Expenses due to the fault of the agent
(3) Expenses incurred by the agent with the
A.2. ADVANCE OR REIMBURSE SUMS knowledge that an unfavourable result
NECESSARY would ensue, and the principal was
unaware
Article 1912. The principal must advance to the (4) If there is a stipulation that expenses would
agent, should the latter so request, the sums be borne by the agent or that he would be
necessary for the execution of the agency. allowed only a certain sum
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The Situation: the agent suffers damage as a the agent for all the consequences of the
result of performing his duties as an agent, agency. (1731)
and such damage did not result from the
agent’s fault or negligence If several principals appoint an agent for a
common transaction, then they are all
solidarily liable to the agent.
A.4. COMPENSATE THE AGENT
B.3. IF THE CONTRACT INVOLVES
Art. 1875. Agency is presumed to be for a THINGS BELONGING TO THE PRINCIPAL
compensation, unless there is proof to the
contrary. (n) Art. 1883. If an agent acts in his own name, the
principal has no right of action against the
Steps to determine whether the agent is persons with whom the agent has contracted;
entitled to compensation: neither have such persons against the
(1) Determine whether the person is an agent principal.
or a broker
In such case the agent is the one directly
(2) If he is an agent, determine whether he is bound in favor of the person with whom he has
the procuring cause, i.e. if there is a close, contracted, as if the transaction were his own,
proximate and causal relation between the except when the contract involves things
agent’s efforts and the sale belonging to the principal.
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authority. [PNB v. Agudelo] This operates A mere statement in the power of attorney that
as an exception to the exception. it is coupled with an interest is not enough. The
Art. 1920. The principal may revoke the agency Lim v. Saban enumerates certain rules with
at will, and compel the agent to return the respect to an agency coupled with an interest:
document evidencing the agency. Such
(1) It is one where there is mutual benefit on
revocation may be express or implied. (1733a)
the part of the principal and agent, or the
principal and third person
Art. 1927. An agency cannot be revoked if a
bilateral contract depends upon it, or if it is the (2) The agency coupled with an interest
means of fulfilling an obligation already cannot be revoked for as long as the
contracted, or if a partner is appointed interest of the agent or third person exists
manager of a partnership in the contract of (3) The agent’s interest must be “the subject
partnership and his removal from the matter of the power conferred and not
management is unjustifiable. (n) merely an interest in the exercise of the
power because it entitles him to
Art. 1930. The agency shall remain in full force
compensation.”
and effect even after the death of the principal,
if it has been constituted in the common (4) If the agent’s interest is limited to
interest of the latter and of the agent, or in the compensation, then it is not an agency
interest of a third person who has accepted the coupled with an interest. [Lim v. Saban]
stipulation in his favor. (n)
The agency coupled with an interest is
General Rule: The principal may revoke the irrevocable because ”the agency becomes part
agency at will and compel the agent to return of another obligation or agreement. It is not
the power of attorney solely the rights of the principal but also that
of the agent and third persons which are
Exception: An agency cannot be revoked if: affected. [Republic v. Evangelista]
(1) A bilateral contract depends upon it; or
(2) It is the means of fulfilling an obligation An agency coupled with an interest can still be
already contracted; or revoked, but only for just cause, i.e. bad faith,
(3) A partner is appointed manager of a breach of confidence, or betrayal of trust.
partnership in the contract of partnership [Coleongco v. Claparols]
and his removal from the management is
unjustifiable;
(4) If it is an agency couple with an interest
(a) If the agency was constituted in the
common interest of the principal and
of the agent, or
(b) If the agency was constituted in the
interest of a third person who has
accepted the stipulation in his favour.
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XI. Modes of The principal can revoke the agency even if the
period fixed in the contract has not yet expired.
Extinguishment [CMS Logging v. CA]
B.1. IN GENERAL
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(1) When Notice is Required Art. 1924. The agency is revoked if the principal
directly manages the business entrusted to the
Art. 1921. If the agency has been entrusted for agent, dealing directly with third persons. (n)
the purpose of contracting with specified
persons, its revocation shall not prejudice the If the principal believes that the agent is in
latter if they were not given notice thereof. breach of the contract and thereby decides to
(1734) deal with the business directly, then the
agency is said to be revoked. [CMS Logging v.
(2) When a Third Person in Good Faith Has No CA] The mere act of direct management by the
Knowledge of Revocation principal is not enough to revoked the agency.
Art. 1922. If the agent had general powers, B.5. SPECIAL AUTHORITY REVOKES THE
revocation of the agency does not prejudice
third persons who acted in good faith and GENERAL AUTHORITY WHERE A
without knowledge of the revocation. Notice of SPECIAL MATTER IS INVOLVED
the revocation in a newspaper of general
circulation is a sufficient warning to third Art. 1926. A general power of attorney is
persons. (n) revoked by a special one granted to another
agent, as regards the special matter involved
What does “agent with general powers” mean? in the latter. (n)
Most likely, it is an agent authorized to
transact with the general public in Art. 1926 refers to a general agency (entirety of
contradistinction to the agent who contracts business) and special agency (only aspects of
with specified persons under Art. 1921. the business).
B.3. APPOINTMENT OF NEW AGENT If Agent 1 is given a general agency, and Agent
2 is later given a special agency, then Agent 1
Art. 1923. The appointment of a new agent for can no longer perform the powers granted to
the same business or transaction revokes the Agent 2 under the special agency.
previous agency from the day on which notice
thereof was given to the former agent, without B.6. WHEN AGENCY CANNOT BE
prejudice to the provisions of the two
preceding articles. (1735a)
REVOKED
Revocation takes effect when notice is given to Art. 1927. An agency cannot be revoked if a
the former agent, not when the new agent is bilateral contract depends upon it, or if it is the
means of fulfilling an obligation already
appointed. contracted, or if a partner is appointed
manager of a partnership in the contract of
partnership and his removal from the
management is unjustifiable. (n)
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Accomplishment
The fulfillment of the purpose for which agency
was created ipso facto terminates agency even
though it was expressly made irrevocable. If
the purpose has not been accomplished, the
agency continues indefinitely for as long as the
intent to continue is manifested through words
or actions of the parties.
Dissolution
The dissolution of a partnership or corporation
which entrusted (principal) or accepted (agent)
the agency extinguishes its juridical existence,
except for the purpose of winding up its affairs.
It is equivalent to death.
Expiration
(1) If created for fixed period, expiration of the
period extinguishes agency even if the
purpose was not accomplished.
(2) If no time is specified, the courts may fix
the period as under the circumstances
have been probably contemplated by the
parties [Art. 1197]. Otherwise, the agency
terminates at the end of a reasonable
period of time. Either party can terminate
the relationship at will by giving notice to
the other [De Leon (2010)].
The period contemplated may be implied from
terms of agreement, purpose of agency, and
the circumstances of the parties.
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Nature of Agency: General and Special i. The transaction entered into by the
(1) General Agency agent is unenforceable
a. To be a General Agent, it is sufficient 1. But the agent may still have the
that the listed authorized transactions principal ratify it
apparently cover all that is required to ii. If the principal is a corporation, then
run the business of the principal. It is the specific authorization must come
not necessary that the power granted in the form of a Board resolution
actually says “all the business of the 1. Except to the extent that such
principal.” [Dominion Insurance v. CA] power is given to the agent
b. General Agency refers to the scope of expressly or by reasonable
the business covered, not to the extent implication from the
of discretion or responsibility given to circumstances [Vicente v
the Agent Geraldes]
(2) Agency Couched in General Terms iii. If the transaction is sale of a piece of
a. A type of agency that only grants the land, then there must be a written
agent power to perform acts of and specific authorization to sell
administration 1. Else, the sale is void
b. Test: if the nature of the business
requires performance of certain acts
repeatedly and without express
authorization, then those are acts of
administration
(3) Specific Agency
a. Refers to the scope of the agent’s
authority
b. The agency must comprise of one or
more specific transactions, short of the
entire business
c. Cf. General Agency
(4) Special Power of Attorney (SPA)
a. It is not merely the name of a
document but a description of the
power granted to an agent
b. Certain transactions require a SPA,
and these transactions usually involve
acts of strict dominion (i.e. acts of
ownership)
c. If the power is couched in general
terms, then the agent may do only acts
of administration; if the power is
couched in specific terms then the
agent is empowered to perform such
specific act of strict dominion
d. Effect of Lack of SPA
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CIVIL LAW
PARTNERSHIP
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The Civil Code requires the parties “bind B.1. LAWFUL PURPOSE
themselves to contribute” to a common Article 1770 (1). A partnership must have a
fund. The partnership may therefore exist lawful object or purpose, and must be
even before the common fund is created. established for the common benefit or interest
The common fund may not even come of the partners.
from the partners themselves but may be If there is no lawful purpose, then the
borrowed from third persons. [Lim Tong partnership agreement is void ab initio.
Lim v Philippine Fishing Gear] Contracts whose purpose is contrary to law are
The form of the common fund may not void from the beginning. [Art1409 (1)].
even be cash or property; it can be in the
form of credit or industry.
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Article 1770 (2). When an unlawful partnership (3) Insane or demented persons;
is dissolved by a judicial decree, the profits (4) Deaf-mutes who do not know how to write;
shall be confiscated in favor of the State, (5) Incompetents who are under guardianship.
without prejudice to the provisions of the Penal
Code governing the confiscation of the Exceptions : The capacity of the following
instruments and effects of a crime. persons to enter into a contract of partnership,
though capacitated to contract generally, are
Upon the dissolution of an unlawful limited:
partnership, the profits are simply confiscated (1) Those who are prohibited from giving each
by the State. The previous rule is to give such other any donation or advantage cannot
profits to a charitable institution. enter into a universal partnership [Article
1782];
Art 1770 (2) talks of “profits.” When it comes (2) A corporation cannot enter into a
to the original contributions of the partners, partnership in the absence of express
the same must be reimbursed to them. [Arbes authorization by statute or charter.
v Polistico]
B.2. COMMON BENEFIT Although a corporation cannot enter into a
partnership contract, it may, however, engage
Article 1770. A partnership must have a lawful
in a joint venture with others [Aurbach vs.
object or purpose, and must be established for
Sanitary Wares Manufacturing Corp]
the common benefit or interest of the partners.
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stipulation, except the fruits thereof (b) Attached to such instrument must be
[Article 1779]. an inventory, signed by the parties, of
(2) All the profits: the property contributed [Articles 1771
(a) It comprises all that the partners may and 1773];
acquire by their industry or work during (2) Where the capital is at least P3,000, in
the existence of the partnership. money or property:
(b) Only the usufruct over the property of (a) The contract must appear in a public
the partners passes to the partnership instrument; and
[Article 1780]. (b) It must be recorded in the Office of the
Securities and Exchange Commission
When the articles of universal partnership do (SEC).
not specify its nature (all present property or
all the profits), the partnership will be As to the second, failure to comply with these
considered as one only of all the profits [Article requirements, however, does not affect the
1781]. liability of the partnership and the partners to
D.2. OBJECT OF PARTICULAR third persons [Articles 1768 and 1772].
PARTNERSHIP
A particular partnership has for its object F. DURATION
determinate things, their use or fruits, or a F.1. COMMENCEMENT
specific undertaking, or the exercise of a Art 1784. A partnership begins from the
profession or vocation [Article 1783]. moment of the execution of the contract,
D.3. EFFECT OF UNLAWFUL OBJECT unless otherwise stipulated
If the partnership has an unlawful object or
purpose: F.2. TERM
(1) The contract is void ab initio [Article As to period, a partnership may either be:
1409(1)]. (1) For a fixed term or particular undertaking;
(2) Once dissolved by judicial decree: or
(a) The profits shall be confiscated by (2) At will, the formation and dissolution of
favor of the State; which depend on the mutual desire and
(b) The instruments or tools and proceeds consent of the parties. Any one of the
of the crime shall also be forfeited in partners may, at his sole pleasure, dictate
favor of the State [Article 1770]. the dissolution of the partnership, even in
(3) The contributions of partners shall not be bad faith, subject to liability for damages
confiscated unless they are instruments or [Ortega v. CA [(995)].
tools of the crime [De Leon (2010)].
F.3. EXTENSION
E. FORM A partnership term may be extended by:
General rule: The contract may be constituted (1) Express renewal; or
in any form [Article 1771]. (2) Implied renewal, when these requisites
Exceptions: concur:
(1) Where immovable property or real rights (a) The partnership is for a fixed term or
are contributed: particular undertaking;
(a) The contract must appear in a public (b) It is continued after the termination of
instrument; and the fixed term or particular
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undertaking without any express (2) Partnership de facto is one which failed to
agreement [Article 1785]. so comply.
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etc.” (1979)]. A professional partnership is a (16) Incoming partner, who is about to be taken
particular partnership [Article 1783]. as a member into an existing partnership;
I. KINDS OF PARTNERS (17) Retiring partner, who is withdrawing from
(1) Capitalist partner, whose contribution is the partnership.
money or property;
(2) Industrial partner, contribution is only his Industrial Capitalist
industry; partner partner
(3) General partner, whose liability to third Form of contribution
persons extends to his separate property;
(4) Limited partner, whose liability to third Industry Money or property
persons is limited to his capital Share in profits
contribution; Just and equitable According to
(5) Managing partner, who was designated to share agreement; if none,
manage the affairs or business of the in proportion to
partnership; contribution
(6) Liquidating partner, who takes charge of
the winding up of partnership affairs; Share in losses
(7) Partner by estoppel, who is not really a Exempted as to According to
partner but is liable as such for the losses as between agreement; if none,
protection of innocent third persons; partners, but liable in the same
(8) Continuing partner, who continues the to third persons, proportion as the
business after dissolution of the without prejudice to agreed share in
partnership by admission of a new partner, reimbursement profits; if none, in
or retirement, death or expulsion of from capitalist proportion to
existing partners; partners contribution
(9) Surviving partner, who remains a partner Engagement in business
after dissolution by death of any partner;
(10) Subpartner, who is not a member of the Cannot engage in Cannot engage, for
partnership but contracts with a partner business for himself, his own account, in
with regard to the share of the latter in the unless the the same kind of
partnership; partnership business as that of
(11) Ostensible partner, who takes active part expressly permits the partnership,
in the business of the partnership and is him to do so; should unless there is a
known by the public; he do so without stipulation to the
(12) Secret partner, who takes active part in the permission, the contrary; should he
business, but is unknown to the third capitalist partners do so, he shall bring
persons as a partner; may: [1] exclude him to the common fund
(13) Silent partner, who does not take active from the firm; or [2] any profits accruing
part in the business, but may be known to avail themselves of to him from his
be a partner by third persons; the benefits transactions and
(14) Dormant partner, who does not take active obtained in violation shall personally
part in the business and is not known or of the prohibition, bear all the losses
held out as a partner; with right to [Article 1808]
(15) Original partner, who has been a partner damages in either
since the constitution of the partnership; case [Article 1789]
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Conjugal
Partnership
partnership of gains
Created by Arises in case the
voluntary spouses, of opposite
agreement of two or sex, agree before
more partners of marriage
either sex
Governed by Governed by law
agreement
Has juridical Has no juridical
personality personality
Commencement Commencement is
date may be on the date of the
stipulated celebration of the
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obliged to sell his interest to the other (2) When the debtor declares, pursuant to
partners, unless there is an agreement to the Article 1252, at the time of making the
contrary [Article 1791]. payment, to which debt the sum must be
applied, it shall be so applied [Article
A.2. CONTRIBUTION OF INDUSTRY 1792].
An industrial partner is obliged to contribute
his industry at the stipulated time. C. RIGHT TO RETURN OF CREDIT
RECEIVED
General rule: An industrial partner cannot A partner, authorized to manage or not, who
engage in business for himself. Should he do already received, in whole or in part, his share
so, the capitalist partners, as well as industrial of a partnership credit, is obliged to bring to
partners [De Leon (2010)] may either: the partnership capital what he received when:
(1) Exclude him from the firm; or (1) The other partners have not collected their
(2) Avail themselves of the benefit which he shares; and
may have obtained. (2) The partnership debtor has become
insolvent.
Exception: He may engage in business for
himself when the partnership expressly permits This obligation exists even when he issued a
him to do so [Article 1789]. receipt for his share only [Article 1793].
B. RIGHT TO APPLY PAYMENT Ratio: In this case, the debt becomes a bad
RECEIVED TO PARTNERSHIP CREDIT debt. It would be unfair for the partner who
General rule: A partner authorized to manage, already collected not to share in the loss of the
who collects a demandable sum owed to him other partners.
in his own name from a person who also owes
the partnership a demandable sum, is obliged D. RIGHT TO INDEMNITY FOR
to apply the sum collected to both credits pro DAMAGES
rata, even if he issued a receipt for his own Every partner is responsible to the partnership
credit only. for damages suffered by it through his fault.
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Exception : The court may equitably lessen the partner having an associate is a managing
liability if, through his extraordinary efforts in partner [Article 1804].
other activities of the partnership, unusual
profits were realized [Article 1794]. Note, This arrangement refers to a contract of
however, that there is still no compensation in subpartnership, which is a partnership within a
this case. partnership, distinct and separate from the
main partnership. It is considered a
D.2. SUIT FOR DAMAGES modification of the original contract [De Leon
Before a partner may sue another for alleged (2010)].
fraudulent management and resultant
damages, liquidation must first be effected to B. RIGHT TO INSPECT PARTNERSHIP
determine the extent of the damage. Without BOOKS
liquidation of partnership affairs, a partner The partnership books shall be kept:
cannot claim damages [Soncuya v. De Luna (1) At a place agreed upon by the partners;
(1939)]. (2) When there is no such agreement, at the
principal place of business of the
E. RESPONSIBILITY TO PARTNERS partnership.
In the absence of any stipulation to the
contrary, every partner is an agent of the Every partner shall, at any reasonable hour,
partnership for the purpose of its business. As have access to and may inspect and copy any
such, it is responsible to every partner: of them.
(1) For amounts, and the corresponding
interest from the time the expenses were Any reasonable hour means reasonable hours
made, which he may have disbursed on on business days throughout the year [Pardo v.
behalf of the partnership; Lumber Co. (1925)].
(2) For obligations he may have contracted in
good faith in the interest of the partnership C. RIGHT TO A FORMAL ACCOUNT
business; and General rule: The right to a formal account of
(3) For risks in consequence of the partnership affairs accrues only when the
management of the partnership [Article partnership is dissolved.
1796].
Exceptions: In the special and unusual cases
mentioned in Article 1809, formal accounting
III. Rights and may be demanded by any partner even before
dissolution:
Obligations of Partners (1) If he is wrongfully excluded from the
partnership business or possession of its
among Themselves property by his co-partners;
A. RIGHT TO ASSOCIATE ANOTHER (2) If the right exists under the terms of any
agreement;
IN SHARE
(3) If, without his consent, a partner has
Every partner may associate another person
derived profits from any transaction
with him in his share. The admission of the
connected with the formation, conduct, or
associate to the partnership, however, requires
liquidation of the partnership or from any
consent of all the other partners even if the
use of partnership property;
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The interest charged may be redeemed before H.3. MANAGEMENT BY TWO OR MORE
foreclosure or, in case of sale directed by the PARTNERS
court, may be purchased without causing When there are two or more managing
dissolution: partners appointed, without specification of
(1) With separate property, by one or more of their duties or without a stipulation on how
the partners; or each one will act:
(2) With partnership property, by one or more (1) Each one may separately execute all acts
of the partners, will consent of all, except of administration.
the debtor partner [Article 1814]. (2) If any of them opposes the acts of the
others, the decision of the majority
H. RIGHT TO PARTICIPATE IN prevails.
MANAGEMENT (3) In case of a tie, the partners owning the
Management of the partnership is primarily controlling interest will decide [Article
governed by the agreement of the partners in 1801].
the articles of partnership. It may be stipulated
that the partnership will be managed by: Requisites:
(1) All the partners; or (1) Two or more partners have been appointed
(2) A number of partners appointed as as managers;
managers, which may be appointed: (2) There is no specification of their respective
(a) In the articles of partnership; or duties; and
(b) After constitution of the partnership.
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(3) There is no stipulation that one of them is evidence against the partnership [Article
shall not act without the consent of all the 1820].
others. (3) Notice to any partner of any matter
relating to partnership affairs is notice to
H.4. STIPULATION OF UNANIMITY the partnership [Article 1821].
In case there is a stipulation that none of the (4) Wrongful act or omission of any partner
managing partners shall act without the acting for partnership affairs makes the
consent of others, the concurrence of all is partnership liable [Article 1822].
necessary for the validity of the acts. (5) Partnership is bound to make good losses
The absence or disability of one cannot be for wrongful acts or misapplications of
alleged, unless there is imminent danger of partners [Article 1823].
grave or irreparable injury to the partnership
[Article 1802]. I. RIGHT TO PROFITS AND
OBLIGATION FOR LOSSES
H.5. MANAGEMENT WHEN MANNER I.1. RULES FOR DISTRIBUTION OF
NOT AGREED UPON PROFITS AND LOSSES
When there is no agreement as to the manner The distribution of profits and losses shall be in
of management, the following rules apply: accordance with the following rules:
(1) All the partners are considered agents (1) They shall be distributed in conformity with
[mutual agency]. Whatever any one does the agreement.
alone binds the partnership, unless there is (2) If only the share in profits has been
a timely opposition to the act, under Article stipulated, the share in the losses shall be
1801. in the same proportion.
(2) Any important alteration in the immovable (3) In the absence of any stipulation:
property of the partnership, even if useful (a) The share in the profits of the capitalist
to the partnership, requires unanimity. If partners shall be in proportion to their
the alteration is necessary for the contributions.
preservation of the property, however, (b) The losses shall be borne by the
consent of the others is not required [De capitalist partners, also in proportion
Leon (2010)]. to the contributions.
(c) The share of the industrial partners in
If the refusal is manifestly prejudicial to the the profits is that share as may be just
partnership, court intervention may be sought and equitable. If he also contributed
[Article 1803]. capital, he will receive a share of the
profits in proportion to his
H.6. MUTUAL AGENCY contribution; and
In addition to the Article 1801, there is (d) The industrial partner, who did not
effectively a mutual agency in the following contribute capital, is not liable for
cases: losses [Article 1797].
(1) Partners can dispose of partnership
property even when in partnership name I.2. EXCLUSION OF PARTNER FROM SHARE
[Article 1819]. General rule: A stipulation excluding one or
(2) An admission or representation made by more partners from any share in the profits or
any partner concerning partnership affairs losses is void [Article 1799].
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Exception: A stipulation exempting an General rule: The partners may adopt any firm
industrial partner from losses is valid, since, if name desired.
the partnership fails to realize profits, he can
no longer withdraw his work or labor [De Leon Exceptions:
(2010)]. (1) They cannot use a name which is “identical
or deceptively or confusingly similar to an
J. OBLIGATION TO RENDER existing or corporation [or partnership] or
INFORMATION to any other name already protected by
Partners shall render on demand true and full law or is patently deceptive, confusing or
information of all things affecting the contrary to existing laws” [Section 18,
partnership to: Corporation Code].
(1) Any partner; (2) Use of names of deceased partner in law
(2) The legal representative of any deceased firms is “permissible provided that the firm
partner; or indicates in all its communications that
(3) The legal representative of any partner said partner is deceased” [Rule 3.02, Code
under legal disability [Article 1806]. of Professional Responsibility].
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(1985)]. The provisions refer to wrongful General rule: Any act of a partner which is
acts or omission and misapplication of apparently for the carrying on of the usual
money or property by a partner in the business of the partnership binds the latter,
ordinary course of business. including the execution of any instrument in
(2) A person admitted as a partner into an the partnership name.
existing partnership is liable for all the
obligations of the partnership arising Exception: The partnership is not bound when
before his admission, except that his the following concur:
liability shall be satisfied only out of (1) The partner has in fact no authority to act;
partnership property, unless there is a and
stipulation to the contrary [Article 1826]. In (2) The person with whom he deals has
other words, he is not personally liable. knowledge of such fact [Article 1818 (1)].
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(b) All the partners consented to the (2) Knowledge of the partner acting in the
representation; and particular matter acquired while a partner;
(c) A partnership liability results. (3) Knowledge of the partner acting in the
(2) He is liable jointly and pro rata (as though particular matter then present to his mind;
he were a partner in fact) with those who or
consented to the representation when: (4) Knowledge of any other partner who
(a) There is an existing partnership but not reasonably could and should have
all the partners consented; or communicated it to the acting partner.
(b) There is no existing partnership and all These do not apply in case of fraud on the
those represented as partners partnership committed by or with the consent
consented to the representation. of the partner [Article 1821].
(3) He is liable separately when:
(a) There is an existing partnership but
V. Dissolution
none of the partners consented; or A. CONCEPTS
(b) There is no existing partnership and Dissolution – the change in the relation of the
not all of those represented as partners partners caused by any partner ceasing to be
consented to the representation. associated in the carrying on of the business. It
is different from the winding-up of the
J. LIABILITY OF AN INCOMING business [Article 1828]. It does not terminate
PARTNER the partnership, which continues until the
A person admitted as a partner is liable: winding up of partnership affairs is completed
(1) For obligations incurred subsequent to his [Article 1829].
admission as the other partners are liable;
(2) For obligations incurred before his Winding up – the actual process of settling the
admission, but will be satisfied only out of partnership business or affairs after
the partnership property, unless otherwise dissolution. It involves collection and
stipulated that he fully assumes such distribution of partnership assets, payment of
obligations. debts, and determination of the value of the
interest of the partners in the partnership.
Ratio:
(1) The new partner partakes of the benefits of Termination – the point in time when all
the partnership property and an already partnership affairs are completely wound up
established business. and finally settled. It signifies the end of the
(2) He has every means of obtaining full partnership life [De Leon (2010)].
knowledge of the debts of the partnership
and remedies that amply protect his B. CAUSES OF DISSOLUTION
interest [De Leon (2010)]. B.1. WITHOUT VIOLATION OF THE
AGREEMENT
K. NOTICE TO OR KNOWLEDGE OF (1) By the termination of the definite term or
THE PARTNERSHIP particular undertaking specified in the
The following operate as notice to or agreement;
knowledge of the partnership: (2) By the express will of any partner, who
(1) Notice to any partner of any matter must act in good faith, when no definite
relating to partnership affairs; term or particular is specified.
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(3) By the express will of all the partners who (2) When a specific thing which a partner had
have not assigned their interests or promised to contribute, perishes before
suffered them to be charged for their delivery, or by the loss of the thing, only
separate debts, either before or after the the use or enjoyment of which has been
termination of any specified term or contributed; the loss of a specific thing,
particular undertaking; however, does not dissolve the corporation
(4) By the expulsion of any partner from the after its ownership has already been
business bona fide in accordance with such transferred to the partnership;
a power conferred by the agreement (3) By the death of any partner;
between the partners [Article 1830(1)]. (4) By the insolvency of any partner or of the
partnership;
If, after the expiration of the definite term or (5) By the civil interdiction of any partner;
particular undertaking, the partners continue
the partnership without making a new B.4. BY DECREE OF COURT
agreement, the firm becomes a partnership at A partner may apply for dissolution in court
will [Article 1785]. when:
(1) A partner has been declared insane in any
Any one of the partners may, at his sole judicial proceeding or is shown to be of
pleasure, dictate the dissolution of the unsound mind;
partnership at will. He must, however, act in (2) A partner becomes in any other way
good faith, not that the attendance of bad faith incapable of performing his part of the
can prevent the dissolution of the partnership partnership contract;
but that it can result in a liability for damages (3) A partner has been guilty of such conduct
[Ortega v. CA (1995)]. as tends to affect prejudicially the carrying
on of the business;
B.2. IN CONTRAVENTION OF THE (4) A partner willfully or persistently commits
AGREEMENT a breach of the partnership agreement, or
Where circumstances do not permit dissolution otherwise so conducts himself in matters
under any other provision of Article 1830, it relating to the partnership business that it
may also be dissolved by the express will of any is not reasonably practicable to carry on
partner at any time. the business in partnership with him;
Thus, even if there is a specified term, one (5) The business of the partnership can only
partner can cause its dissolution by expressly be carried on at a loss;
withdrawing even before the expiration of the (6) Other circumstances render a dissolution
period, with or without justifiable cause. If the equitable.
cause is not justified or no cause was given, the
withdrawing partner is liable for damages but A person who acquires the interest of a partner
in no case can he be compelled to remain in may likewise apply:
the firm [Rojas v. Maglana (1990)]. (1) After the termination of the specified term
or particular undertaking;
B.3. BY OPERATION OF LAW (2) At any time if the partnership was a
(1) By any event which makes it unlawful for partnership at will when the interest was
the business of the partnership to be assigned or when the charging order was
carried on or for the members to carry it on issued
in partnership;
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be said to have been in any degree due to for the partnership had knowledge or
his connection with it [Article 1834]. notice of the death or insolvency [Article
1833].
Any act of a partner after dissolution in no case
binds the partnership in the following cases: C.4. ON EXISTING LIABILITY OF
(1) Where the partnership is dissolved because PARTNERS
it is unlawful to carry on the business, General rule: Dissolution does not of itself
unless the act is appropriate for winding up discharge the existing liability of any partner.
partnership affairs;
(2) Where the partner has become insolvent; Exception: A partner may be relieved when
(3) Or, where the partner has no authority to there is an agreement to that effect between:
wind up partnership affairs, except by a (1) Himself;
transaction with one who: (2) The partnership creditor; and
(a) Had extended credit to the partnership (3) The person or partnership continuing the
prior to dissolution and had no business.
knowledge or notice of his want of
authority; or Such agreement may be inferred from the
(b) Had not extended credit to the course of dealing between the creditor having
partnership prior to dissolution, and, knowledge of the dissolution and the person or
having no knowledge or notice of his partnership continuing the business.
want of authority, the fact of his want
of authority has not been advertised In case of dissolution by death, the individual
[Article 1834]. property of a deceased partner is liable for
obligations of the partnership incurred while
Article 1834 does not affect the liability under he was a partner, after payment of his separate
Article1825 of any person who, after debts [Article 1835].
dissolution, represents himself or consents to
another representing him as a partner in a D. WINDING UP PARTNERS
partnership engaged in carrying on business D.1. WHO MAY WIND UP
[Article 1834]. The following partners have the right to wind
up the partnership affairs:
C.3. ON LIABILITY FOR CONTRACTS (1) Those designated in an agreement;
AFTER DISSOLUTION BY SPECIFIC (2) Those who have not wrongfully dissolved
CAUSES the partnership; or
General rule: A contract entered into by a (3) The legal representative of the last
partner acting for the partnership after surviving partner, who was not insolvent.
dissolution by act, death or insolvency of a
partner binds the other partners. Any partner or his legal representative or
assignee may obtain winding up by the court,
Exceptions: upon cause shown [Article 1836].
(1) The dissolution being by act of any partner,
the partner acting for the partnership had D.2. MANNER OF WINDING UP
knowledge of the dissolution; or 1. Extrajudicial, by the partners themselves;
(2) The dissolution being by death or or
insolvency of a partner, the partner acting
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2. Judicial, under the control and direction (c) During the agreed term for the
of the proper court. partnership.
The action for liquidation of the partnership is For the purpose of continuing the business, the
personal. The fact that sale of assets, including said partners may possess the partnership
real property, is involved does not change its property provided:
character, such sale being merely a necessary (1) They secure the payment by bond
incident of the liquidation of the partnership, approved by the court; or
which should precede and/or is part of its (2) They pay any partner who has caused the
process of dissolution [Claridades v. Mercader dissolution wrongfully the value of his
(1966)]. interest in the partnership, less any
damages recoverable, and indemnity
E. RIGHTS OF PARTNERS IN CASE OF against all present or future partnership
DISSOLUTION liabilities [Article 1837(2)].
E.1. DISSOLUTION WITHOUT VIOLATION
II. PARTNER WHO CAUSED THE
OF THE AGREEMENT
Each partner may have:
DISSOLUTION
(1) The partnership property applied to The partner who caused the dissolution
discharge the partnership liabilities; and wrongfully has the following rights:
(2) The surplus applied in cash to the net (1) If the business is not continued, all the
amount owing to the respective partners. rights Article 1837, 1st par., subject to
liability for damages;
This is a right as against his co-partners and all (2) If the business is continued, the right, as
partners claiming through them in respect of against his co-partners and all claiming
their interests in the partnership. It cannot be through them, to:
availed if there is an agreement to the contrary (a) Ascertainment, without considering the
[Article 1837 (1)]. value of the goodwill of the business,
and payment to him in cash the value
of his partnership interest, less any
E.2. DISSOLUTION IN CONTRAVENTION
damage, or have the payment secured
OF THE AGREEMENT
by a bond approved by the court; and
I. PARTNER WHO DID NOT CAUSE THE (b) Be released from all existing liabilities
DISSOLUTION of the partnership [Article 1837(3)].
The partners who did not cause the dissolution
wrongfully has the following rights: The goodwill of a business may be defined to
(1) To demand the right under Article 1837, 1st be the advantage which it has from its
par.; establishment or from the patronage of its
(2) To be indemnified for damages for breach customers, over and above the mere value of
of the agreement against the partner who its property and capital. The goodwill [which
caused the dissolution wrongfully [Article includes the firm name] is part of the
1837(1)]; partnership assets and may be subject of sale
(3) To continue the business: [De Leon (2010)].
(a) In the same name;
(b) By themselves or jointly with others;
F. RIGHTS OF PARTNERS IN CASE OF
RESCISSION
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(2) Separate creditors have priority on (e) Expulsion of a partner, and the
individual property, saving the rights of lien remaining partners continue the
of secured creditors. business, either alone or with others.
(3) Anything left from either shall be applied (2) When the cause of dissolution is the
to satisfy the other [Article 1839(8)]. retirement or death of any partner, and
business is continued with the consent of
G.6. DISTRIBUTION OF PROPERTY OF the retired partner or the representative of
INSOLVENT PARTNER the deceased partner, without assignment
Where a partner has become insolvent or his of their rights to partnership property.
estate is insolvent, the claims against his (3) When the cause of dissolution is the
separate property shall rank in the following assignment by all the partners or their
order: representatives of their rights in
(1) Those owing to separate creditors; partnership property to one or more third
(2) Those owing to partnership creditors; persons who promise to pay the debts and
(3) Those owing to partners by way of who continue the business of the
contribution [Article 1839(9)]. partnership [Article 1840, 1st par.].
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legal representative, as against such person or (2) The business is controlled or managed by
partnership, subject to the prior rights of one or more general partners, who are
creditors of the dissolved partnership: personally liable to creditors [Articles 1848
(1) May have the value of his interest at the and 1850].
date of dissolution ascertained; and (3) One or more limited partners contribute to
(2) Shall receive as an ordinary creditor: the capital and share in the profits but do
(a) An amount equal to the value of his not manage the business and are not
interest in the dissolved partnership personally liable for partnership
with interest; or obligations beyond their capital
(b) At his option or at the option of his contributions [Articles 1845, 1848 and
legal representative, in lieu of interest, 1856].
the profits attributable to the use of his (4) Obligations or debts are paid out of the
right in the property of the dissolved partnership assets and the individual
partnership [Article 1841]. property of the general partners [Article
1843].
J. RIGHT TO AN ACCOUNT (5) The limited partners may have their
In the absence of any agreement to the contributions back subject to conditions
contrary, the right to an account of his interest prescribed by law [Articles 1844 and 1957].
shall accrue to any partner, or his legal
representative at the date of dissolution, as A limited partnership has the following
against: advantages:
(1) The winding up partners; (1) For general partners, to secure capital
(2) The surviving partners; or from others while retaining control and
(3) The person or partnership continuing the supervision for the business;
business [Article 1842]. (2) For limited partners, to have a share in the
profits without risk of personal liability.
VI. Limited Partnership C. GENERAL AND LIMITED
A. DEFINITION
PARTNERS DISTINGUISHED
A limited partnership is:
(1) A partnership; General partner Limited partner
(2) Formed by two or more persons; Extent of liability
(3) Having as members: Personally, but Liable only to the
(a) One or more general partners; and subsidiarily, liable extent of his capital
(b) One or more limited partners. for obligations of contributions
the partnership
The limited partners as such shall not be
bound by the obligations of the partnership Right to participate in management
[Article 1843]. Unless otherwise No right to
agreed upon, all participate in
B. CHARACTERISTICS general partners management
(1) A limited partnership is formed by have an equal right
compliance with the statutory to manage the
requirements [Article 1844]. partnership
Nature of contribution
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requirements. When there is failure to (2) Subsequently, but within a sufficient time
substantially comply with the requirements: before the statement was relied upon to
(1) In relation to third persons, the partnership enable him to cancel or amend the
is general, unless they recognized that the certificate, or to file a petition for its
firm is a limited partnership; and cancellation or amendment [Article 1847].
(2) As between the partners, the partnership
remains limited, since they are bound by REQUISITES:
their agreement [De Leon (2010)]. (1) The partner knew the statement to be
false:
E.2. PURPOSE OF FILING (a) At the time he signed the certificate; or
The purpose of filing the certificate in the SEC (b) Subsequently, but having sufficient
is: time to cancel or amend it, or file a
(1) To give actual or constructive notice to petition for its cancellation or
potential creditors or persons dealing with amendment, and he failed to do so;
the partnership; and (2) The person seeking to enforce liability has
(2) To acquaint them with its essential relied upon the false statement in
features, including the limited liability of transacting business with the partnership;
limited partners [De Leon (2010)]. and
(3) The person suffered loss as a result of
E.3. FIRM NAME reliance upon such false statement.
General rule: The surname of a limited partner
shall not appear in the partnership name. E.5. GENERAL AND LIMITED PARTNER
AT THE SAME TIME
Exceptions: A person may be a general and a limited
(1) It is also the surname of a general partner; partner in the same partnership at the same
or time. This fact must be stated in the certificate.
(2) Prior to the time when the limited partner A person who is a general, and also at the
became such, the business had been same time a limited partner, shall have all the
carried on under a name in which his rights and powers, and be subject to all the
surname appeared. restrictions of a general partner, except that, in
respect to his contribution as a limited partner,
A limited partner whose surname appears in a he shall have the rights against the other
partnership name contrary to this prohibition is members which he would have had if he were
liable as a general partner to partnership not also a general partner [Article 1853].
creditors who extend credit without actual
knowledge that he is not a general partner. F. MANAGEMENT
Only general partners have the right to
E.4. FALSE STATEMENT IN THE manage the partnership. If a limited partner
CERTIFICATE takes part in the control of the business, he
If the certificate contains a false statement, becomes liable as a general partner [Article
one who suffers loss by reliance thereon may 1848].
hold liable any party to the certificate who
knew the statement to be false: A general partner shall have the rights and
(1) At the time he signed the certificate; or powers and be subject to all restrictions and
liabilities of a partner in a partnership without
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(2) He does not participate in the A limited partner shall have the same rights as
management of the business [Article a general partner to:
1848]; and (1) Require that the partnership books be kept
(3) His surname does not appear in the at the principal place of business of the
partnership name [Article 1846]. partnership;
(2) To inspect and copy any of them at a
G.2. LIABILITY TO PARTNERSHIP reasonable hour;
CREDITORS (3) To demand true and full information of all
General rule: A limited partner is not liable as a things affecting the partnership;
general partner. His liability is limited to the (4) To demand a formal account of
extent of his contributions [Article 1843]. partnership affairs whenever
circumstances render it just and
Exceptions: The limited partner is liable as a reasonable;
general partner when: (5) To ask for dissolution and winding up by
(1) His surname appears in the partnership decree of court;
name, with certain exceptions [Article (6) To receive a share of the profits or other
1846, 2nd par.]. compensation by way of income; and
(2) He takes part in the control of the business (7) To receive the return of his contribution
[Article 1848]. provided the partnership assets are in
excess of all its liabilities [Article 1851].
G.3. LIABILITY TO SEPARATE
CREDITORS H.2. RIGHT TO TRANSACT BUSINESS
On due application to a court of competent WITH THE PARTNERSHIP
jurisdiction by any separate creditor of a A limited partner may:
limited partner, the court may: (1) Loan money to the partnership;
(1) Charge his interest with payment of the (2) Transact other business with the
unsatisfied amount of such claim; partnership; and
(2) Appoint a receiver; and (3) Receive a pro rata share of the partnership
(3) Make all other orders, directions and assets with general creditors if he is not
inquiries which the circumstances of the also a general partner [Article 1854, 1st
case may require. par.].
The interest so charged may be redeemed with Limitations: A limited partner, with respect to
the separate property of any general partner, his transactions with the partnership, cannot:
but may not be redeemed with partnership (1) Receive or hold as collateral security any
property [Article 1862]. partnership property; or
(2) Receive any payment, conveyance, or
Note: In a general partnership, the interest release from liability if it will prejudice the
may be redeemed with partnership property right of third persons [Article 1854, 1st
with the consent of all the partners whose par.].
interests are not charged [Article 1814].
Violation of the prohibition is considered a
fraud on the creditors of the partnership
H. RIGHTS OF A LIMITED PARTNER [Article 1854, 2nd par.].
H.1. IN GENERAL
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