ATP Notes (Paras; Jurado; Cases) Atty.

Risel Castillo-Taleon ibtk2i

2) Articles of Partnership must provide that all partners will

TITLE IX: PARTNERSHIP manage the partnership, and they shall be jointly and severally
liable.
Article 1767. By the contract of partnership two or more persons
bind themselves to contribute money, property, or industry to a Article 1768. The partnership has a juridical personality separate
common fund, with the intention of dividing the profits among and distinct from that of each of the partners, even in case of failure
themselves. to comply with the requirements of article 1772, first paragraph.
Two or more persons may also form a partnership for the exercise of ● Art. 1772, first paragraph (registration with the Securities and
a profession. Exchange Commission) is not intended as a prerequisite for the
Partnerships: contract whereby two or more persons bind themselves to acquisition of juridical personality by the partnership, but merely as
contribute money, property, or industry to a common fund, with the a condition for the issuance of licenses to engage in business or
intention of dividing the profits among themselves, or in order to trade.
exercise a profession. ● Purpose of registration: To give notice to third persons
Status and a fiduciary relation subsisting between persons ● Effects of Partnership Being a Juridical Entity:
carrying on a business in common with a view on profit a) Juridical personality is separate and distinct from that of each
CHARACTERISTICS OF THE CONTRACT: of the partners.
1) P2C2BON b) Rights of a partnership:
Principal: its existence does not depend on other contract 1. Acquire and possess property of all kinds
Preparatory: entered as a means to an end. 2. Incur obligations
Consensual: perfected by mere consent 3. Bring civil or criminal actions
Commutative: undertaking of each one is considered equal with 4. Can be adjudged insolvent even if the individual members be
others each financially solvent.
Bilateral or multi-lateral: entered by two or more persons 5. GR: Partner has no right to make a separate appearance in
Onerous: certain contributions have to be made. court, if the partnership being sued is already represented.
Nominate: has special designation in law Exception: He is personally sued.
2) There must be a contribution of money, property, or industry to a
common fund. Article 1769. In determining whether a partnership exists, these
Common fund may refer to credit rules shall apply:
Economic Goodwill (1) Except as provided by article 1825, persons who are not partners
ü Commercial Goodwill as to each other are not partners as to third persons;
× Political Credit/ personal influence: contrary to (2) Co-ownership or co-possession does not of itself establish a
good customs partnership, whether such-co-owners or co-possessors do or do not
3) Object must be a lawful one share any profits made by the use of the property;
4) There must be an intention of dividing the profit among the partners. (3) The sharing of gross returns does not of itself establish a
● Object must be for profit and not merely for common enjoyment partnership, whether or not the persons sharing them have a joint or
otherwise, only a co-ownership is formed. common right or interest in any property from which the returns are
5) There must be affectio societatis – desire to formulate an ACTIVE derived;
union with people among whom there exist mutual confidence and trust (4) The receipt by a person of a share of the profits of a business is
(delectus personarum) prima facie evidence that he is a partner in the business, but no such
inference shall be drawn if such profits were received in payment:
WHO CAN BE A PARTNER? (a) As a debt by installments or otherwise;
A) Person capacitated to enter into contractual relation (b) As wages of an employee or rent to a landlord;
● Minor cannot become a partner unless his parent or guardian (c) As an annuity to a widow or representative of a deceased
consents. partner;
○ One Partner is minor: Voidable (d) As interest on a loan, though the amount of payment vary
○ All partner are minor: Unenforceable with the profits of the business;
B) Married woman, even if already of age, cannot contribute conjugal (e) As the consideration for the sale of a goodwill of a business or
funds as her contribution to the partnership, unless she is permitted other property by installments or otherwise. (n)
to do so by her husband (Art. 125, FC) or unless she is the
administrator of the conjugal partnership, in which case, the court Requisites for Existence of Partnership:
must give its consent/ authority. a) Intention to create a partnership
C) GR: Corporation CANNOT become a partner because of public b) Common fund obtained from contribution
policy. c) Joint interest in the profit
EXCEPTION: Corporation entering into a joint venture with ● No definite criterion can be set up except that all the characteristics
another where the nature of the venture is in line with the business of the contract must be proved as being present
authorized in its charter. ● Partnership by Estoppel: If 2 persons not partners represent
● Joint venture, being a form of partnership, is governed by laws themselves as partners to strangers, a partnership by estoppel results.
on partnership.
● Can a corporation and an individual form a general Article 1770. A partnership must have a lawful object or purpose,
partnership? and must be established for the common benefit or interest of the
GR: No partners.
Exception: Provided the following conditions are met: When an unlawful partnership is dissolved by a judicial decree, the
1) Articles of Incorporation of the corporation expressly allows profits shall be confiscated in favor of the State, without prejudice to
the corporation to enter into partnerships; and the provisions of the Penal Code governing the confiscation of the
instruments and effects of a crime.

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ATP Notes (Paras; Jurado; Cases) Atty. Risel Castillo-Taleon ibtk2i

● Lawful object or purpose: within the commerce of man, possible, b) Lease public lands adapted to grazing in excess of 2,000
and not contrary to law, morals, good customs, public order or hectares
public policy.
● If a partnership has several purposes, one of which is unlawful, the Article 1775. Associations and societies, whose articles are kept
partnership can still validly exist so long as the illegal purpose can secret among the members, and wherein any one of the members
be separated from the legal purposes. may contract in his own name with third persons, shall have no
● Is a judicial decree necessary to dissolve an unlawful partnership? juridical personality, and shall be governed by the provisions
No, for the contract is void from the very beginning, and therefore relating to co-ownership. (1669)
never existed from the viewpoint of the law. ● Associations referred in this article are not a partnership and
● Consequences of Unlawful Partnership: therefore not a legal person.
a) The proceeds of the crime and the instruments or tools shall be 1) It may be sued by third person under the common name it
confiscated or forfeited in favor of the Government, unless uses. Insofar as prejudiced persons are concerned, rules of
they be the property of a third person not liable for the offense, co-ownership shall apply.
but those articles which are not subject of lawful commerce 2) It cannot sue as such because it has no legal personality and
shall be destroyed (Art. 45, RPC) cannot be ordinarily be a party to a civil action.
b) Partners forfeit the proceeds or profits but NOT their
contributions, provided no criminal prosecution has been Article 1776. As to its object, a partnership is either universal or
instituted. particular.
c) Unlawful partnership has no legal personality. As regards the liability of the partners, a partnership may be
general or limited. (1671a)
Article 1771. A partnership may be constituted in any form, except Classification of Partnerships:
where immovable property or real rights are contributed thereto, in ● As to liability:
which case a public instrument shall be necessary. a) General partners: those who can be held liable for
partnership obligations even to the extent of their private
Article 1772. Every contract of partnership having a capital of three property.
thousand pesos or more, in money or property, shall appear in a b) Limited partners: those who cannot be held liable for
public instrument, which must be recorded in the Office of the partnership obligations.
Securities and Exchange Commission. ● As to contribution:
Failure to comply with the requirements of the preceding a) Capitalist partners: those who contribute money or property
paragraph shall not affect the liability of the partnership and the to the common fund.
members thereof to third persons. (n) b) Industrial partners: those who contribute only their skill or
Article 1773. A contract of partnership is void, whenever immovable industry to the common fund.
property is contributed thereto, if an inventory of said property is ● As to management:
not made, signed by the parties, and attached to the public a) Managing partners: those who manage or administer
instrument. (1668a) partnership affairs
b) Secret partners/ Dormant partner: those who have no voice
FORMALITIES NEEDED FOR THE CREATION OF in the management of partnership affairs.
PARTNERSHIP: ● As to third persons:
GR: Partnership may be constituted in any form (Art. 1771) a) Ostensible partners: those publicly known as such
Exceptions: b) Secret partner/ dormant partner: those whose connection
● Personal Property with the partnership is not known.
a) Less than P3,000 (total): may be oral c) Partners by estoppel/ de facto partner: those who represent
b) P3,000 or more: (1) must be in a public instrument and (2) themselves, or consent to another or others representing them
registered with the SEC. But even if (2) is not complied with, to anyone as partners either in an existing partnership or in one
partnership is still valid and possesses a distinct personality. that is fictitious or apparent.
(Art. 1772, par 2)
● Real Property regardless of value contributed Article 1777. A universal partnership may refer to all the present
a) Public instrument (Art. 1772); and property or to all the profits. (1672)
b) With an attached inventory signed by the parties otherwise the
partnership is void and has no juridical personality (Art. 1773) Article 1778. A partnership of all present property is that in which
● Limited partnership: Registered in the SEC, otherwise not valid the partners contribute all the property which actually belongs to
as a limited partnership. However, without such registration, may them to a common fund, with the intention of dividing the same
still be a general partnership. among themselves, as well as all the profits which they may acquire
therewith. (1673)
Article 1774. Any immovable property or an interest therein may be
acquired in the partnership name. Title so acquired can be conveyed Article 1779. In a universal partnership of all present property, the
only in the partnership name. (n) property which belonged to each of the partners at the time of the
● Applicable to immovable and movable property constitution of the partnership, becomes the common property of all
● If partnership has aliens, it cannot own lands, whether public or the partners, as well as all the profits which they may acquire
private, or whether agricultural or commercial, except through therewith.
hereditary successions or when 60% of the capital is owned by A stipulation for the common enjoyment of any other profits may
Filipinos. also be made; but the property which the partners may acquire
● Even if entirely of Filipino capital, partnership may not: subsequently by inheritance, legacy, or donation cannot be included
a) Acquire, lease or hold public agricultural lands in excess of in such stipulation, except the fruits thereof. (1674a)
1,024 hectares

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ATP Notes (Paras; Jurado; Cases) Atty. Risel Castillo-Taleon ibtk2i

Article 1780. A universal partnership of profits comprises all that using his own funds, should make transactions in the same business,
the partners may acquire by their industry or work during the it is his own undertaking (Lyons vs Rosentock)
existence of the partnership.
Movable or immovable property which each of the partners may CHAPTER 2: Obligations of the Partners
possess at the time of the celebration of the contract shall continue to SECTION 1: Obligations of the Partners Among Themselves
pertain exclusively to each, only the usufruct passing to the
partnership. (1675) Article 1784. A partnership begins from the moment of the
execution of the contract, unless it is otherwise stipulated. (1679)
UNIVERSAL PARTNERSHIP GR: Partnership begins from the moment of the execution of the
contract.
ALL PROFITS ALL PRESENT PROPERTY Exception: When there is contrary stipulation.
● Agreement for a future partnership does not itself result in a
Only the usufruct of the All property actually belonging partnership,the intent must later on be actualized by the formation
properties of the partners to the partners are contributed -- of the intended partnership.
becomes common property; and said properties become
Naked ownership is retained by common property, Article 1785. When a partnership for a fixed term or particular
each of the partners. undertaking is continued after the termination of such term or
particular undertaking without any express agreement, the rights
All profits acquired by the Aside from the contributed and duties of the partners remain the same as they were at such
industry or work of the partners properties, only the profits of termination, so far as is consistent with a partnership at will.
become common property during said contributed common A continuation of the business by the partners or such of them as
the exisence of the partnership property habitually acted therein during the term, without any settlement or
(Art 1780) liquidation of the partnership affairs, is prima facie evidence of a
Properties subsequently acquired continuation of the partnership. (n)
by inheritance, legacy or ● Partnership at will:
donation, cannot be included in a) When there is no term, express or implied
the stipulation but the fruits b) When it is continued by the habitual managers, although the
thereof tbe included in the period has ended, or the purpose has been accomplished.
stipulation.
● Reason for future property to be not included: Article 1786. Every partner is a debtor of the partnership for
1) Contracts regarding successional rights cannot be made. whatever he may have promised to contribute thereto.
2) Partnership demands that the contributed things be determinable, He shall also be bound for warranty in case of eviction with regard
known, and certain. to specific and determinate things which he may have contributed to
3) Universal partnership of all present properties implies really a the partnership, in the same cases and in the same manner as the
donation and future property cannot be donated. vendor is bound with respect to the vendee. He shall also be liable
for the fruits thereof from the time they should have been delivered,
Article 1781. Articles of universal partnership, entered into without without the need of any demand. (1681a)
specification of its nature, only constitute a universal partnership of 3 Important Duties of Every Partner:
profits. (1676) 1) Duty to Contribute
● Reason: Less obligation is imposed in the universal partnership of
profits because their real and personal properties are retained by ● Contribution must be made ordinarily at the time the
the, in naked ownership. partnership is entered into, unless a different period is
● If universal partnership of all present properties is desired, stipulated. But no demand is necessary to put the partner in
reformation is the proper remedy. default because in a partnership the obligation to contribute is
one where time is of the essence.
Article 1782. Persons who are prohibited from giving each other any ● Partner must exercise due diligence in preserving the property
donation or advantage cannot enter into universal partnership. to be contributed, otherwise, he can be held liable for losses
(1677) and deterioration.
● Reason: Universal partnership is virtually a donation to each other ● If a partner fails to contribute within the stipulated time what
of the partner’s properties or atleast their usufruct. Thus, those was promised, may the partnership be rescinded?
prohibited to donate to each other, should not be allowed to do ●
indirectly what the law forbids directly. 2) Duty to Deliver Fruits
● Examples: (Art 739) ●
Fruits: those arising from the time they should have been
1) Husband and wife delivered, without need of any demand.
2) Those guilty of concubinage or adultery ● Property: fruits thereof should also be given.
3) Those guilty of the same criminal offense, if the partnership If the partner is in bad faith, he is liable for the fruits actually
was entered into in consideration of the same. produced and those that could have been produced.
4) Given to public officers or his wife,ascendants or descendants, ● Money: interest and damages from the time he should have
by reason of their office complied with the obligation.
3) Duty to Warrant
Article 1783. A particular partnership has for its object determinate ● Eviction: whenever by final judgment based on a right prior to
things, their use or fruits, or a specific undertaking, or the exercise sale, or an act imputable to the partner, the partnership is
of a profession or vocation. (1678) deprived of the whole or a pat of the thing purchased.
● In the absence of agreement, each particular deal results in a ● There is a duty to warrant in case of eviction to specific and
particular partnership. IF one of them, on his own account, and determinate things already contributed.

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ATP Notes (Paras; Jurado; Cases) Atty. Risel Castillo-Taleon ibtk2i

Article 1787. When the capital or a part thereof which a partner is Article 1790. Unless there is a stipulation to the contrary, the
bound to contribute consists of goods, their appraisal must be made partners shall contribute equal shares to the capital of the
in the manner prescribed in the contract of partnership, and in the partnership. (n)
absence of stipulation, it shall be made by experts chosen by the
partners, and according to current prices, the subsequent changes
thereof being for account of the partnership. (n)
● An inventory-appraisal is needed to determine how much goods Article 1791. If there is no agreement to the contrary, in case of an
or money had been contributed. imminent loss of the business of the partnership, any partner who
● How appraisal is made: refuses to contribute an additional share to the capital, except an
1) As prescribed by the contract industrial partner, to save the venture, shall he obliged to sell his
2) In default of the first, by experts chosen by the partners, and at interest to the other partners. (n)
current prices ● Reason: Capitalist partner’s apparent lack of interest
● After the goods have been contributed, the partnership bears the ● A capitalist partner is obliged to sell his interest to the other
risks of subsequent changes in their value. partners:
a) If there is imminent loss of the business of the partnership;
Article 1788. A partner who has undertaken to contribute a sum of and
money and fails to do so becomes a debtor for the interest and b) He deliberately refuses to contribute an additional share to the
damages from the time he should have complied with his obligation. capital; and
The same rule applies to any amount he may have taken from the c) There is no agreement to the contrary.
partnership coffers, and his liability shall begin from the time he ● Industrial partner is exempted because he is already giving his
converted the amount to his own use. (1682) entire industry.
● No demand is needed to put a partner in default:
1) When money promised that is not given on time (Contribution): Article 1792. If a partner authorized to manage collects a
because time is of the essence, partnership is formed precisely demandable sum which was owed to him in his own name, from a
to make use of the contributions. person who owed the partnership another sum also demandable, the
2) When partnership money is converted to personal use of the sum thus collected shall be applied to the two credits in proportion
partner: because the firm is deprived of the benefits of the to their amounts, even though he may have given a receipt for his
money, from the very moment of conversion. own credit only; but should he have given it for the account of the
● Partner isalso liable for: partnership credit, the amount shall be fully applied to the latter.
1) Interest at the agreed rate; if none, at 6% per annum. The provisions of this article are understood to be without prejudice
2) Damages that may be suffered by the partnership.\ to the right granted to the other debtor by article 1252, but only if
the personal credit of the partner should be more onerous to him.
Article 1789. An industrial partner cannot engage in business for (1684)
himself, unless the partnership expressly permits him to do so; and if ● Reason: To prevent furtherance of the partner’s personal interest to
he should do so, the capitalist partners may either exclude him from the detriment of the firm.
the firm or avail themselves of the benefits which he may have ● Requisites:
obtained in violation of this provision, with a right to damages in a) Existence of 2 debts: (firm as creditor and partner is creditor)
either case. (n) (In relation to Art 1808) b) Both sums are demandable
c) Collecting partner is a managing partner
Ex: Z, managing partner, is X’s creditor to the amount of P1M, already
Partners for Contribution demandable. X also owes the partnership P1M, also demandable. Z
collects P1M.
Capitalist Partner Industrial Partner (a) Z gives receipt for the FIRM: P1M is of the firm’s credit.
(b) Z gives receipt for his own credit only: P500k to Z; P500k to firm.
Contribut Contributes money or property Contributes his industr Exception: If the personal credit of Z is more onerous to X, X may
ion physical) decide to pay only P’s credit by virtue of his right of application of
payment (Art. 1262).
Prohibitio Cannot generally engage in any Cannot engage in any
n to operation which is of the same or himself (Art 1789) Article 1793. A partner who has received, in whole or in part, his
engage in similar enterprise as that of his share of a partnership credit, when the other partners have not
other firm (Art. 1808) collected theirs, shall be obliged, if the debtor should thereafter
business become insolvent, to bring to the partnership capital what he
received even though he may have given receipt for his share only.
Profits 1) Shares according to Receives just and equ (1685a)
agreement; (Art. 1797) ● Applies when there is only one debt -- firm credit
2) If none, pro rata to his Ex: X owes YZ firm P1M. Y, a partner, was given his share of P500k.
contribution Later, X becomes insolvent. Must Y share the P500k with Z, the other
partner?
Losses 1) Stipulation as to losses Exempted as to loss YES, because equity demands proportionate share of the benefits and
2) If none, agreement as to partners BUT liable as losses.
profits without prejudi ● Does Art. 1793 apply even if the collecting was done AFTER the
3) 3) If none, pro rata to reimbursement from t dissolution of the partnership? NO. Because:
contribution partners (Art. 1816) a) When the firm is dissolved, there is no more partnership credit
or capital.
b) No more trust relations really still exist.
c) Equity demands the rewarding of one’s diligence in collecting.

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ATP Notes (Paras; Jurado; Cases) Atty. Risel Castillo-Taleon ibtk2i

contributed capital, he shall also receive a share in the profits in

Article 1794. Every partner is responsible to the partnership for proportion to his capital. (1689a)
damages suffered by it through his fault, and he cannot compensate A. Distribution to Capitalist Partners
them with the profits and benefits which he may have earned for the ● Profit
partnership by his industry. However, the courts may equitably 1) According to agreement but not iniquitous to other partner
lessen this responsibility if through the partner's extraordinary 2) If none, according to amount contribution
efforts in other activities of the partnership, unusual profits have ● Losses
been realized. (1686a) 1) According to agreement as to losses
● General damages cannot be offset by benefits because partner has 2) If none, according to agreement as to profits
the duty to secure benefits for the partnership and the duty not to be 3) If none, according to amount of contribution
at fault. Since both are duties, compensation should not take place, B. Distribution to Industrial Partners
the partner being the debtor in both instances. Compensation ● Profit: just and equitable share; share equivalent to that of the
requires 2 persons who are reciprocally the debtor and creditors of capitalist partner with the least capital.
each other. But can be mitigated by extraordinary efforts resulting ● Losses: Exempted from losses
to unusual profits.
● Before partner may sue for damage, liquidation must be effected to
know the extent of the damage. Article 1798. If the partners have agreed to intrust to a third person
● If negligent partner is dead, suit for recovery may be against his the designation of the share of each one in the profits and losses,
estate. such designation may be impugned only when it is manifestly
Article 1795. The risk of specific and determinate things, which are inequitable. In no case may a partner who has begun to execute the
not fungible, contributed to the partnership so that only their use decision of the third person, or who has not impugned the same
and fruits may be for the common benefit, shall be borne by the within a period of three months from the time he had knowledge
partner who owns them. thereof, complain of such decision.
If the things contribute are fungible, or cannot be kept without The designation of losses and profits cannot be intrusted to one of
deteriorating, or if they were contributed to be sold, the risk shall be the partners. (1690)
borne by the partnership. In the absence of stipulation, the risk of ● Reason: To avoid partiality.
the things brought and appraised in the inventory, shall also be ● Designation by Third Person of Shares in Profits and Losses:
borne by the partnership, and in such case the claim shall be limited GR: Designation by third party may be impugned when it is
to the value at which they were appraised. (1687) manifestly inequitable
Who bears the risk of loss? Exception: Designation by third party may not be impugned even
a) Specific and determinate things (Not fungible): Partner who if manifestly inequitable:
owns bears the loss because ownership was never transferred to 1) If aggrieved partner has already begun to execute the decision;
the firm. or
b) Fungible or Deteriorable: Firm bears the loss because the 2) If he has not impugned the same within a period of 3 months
ownership has been transferred from the time he had knowledge thereof.
c) Things contributed to be sold: Firm bears the loss
d) Contributed under Appraisal: Firm bears the loss because this Article 1799. A stipulation which excludes one or more partners
has the effect of an implied sale. from any share in the profits or losses is void. (1691)
● Reason: Partnership is for common benefit
Article 1796. The partnership shall be responsible to every partner ● Exception: Industrial partners
for the amounts he may have disbursed on behalf of the partnership ● Reason: Because industrial partner already has shared in the
and for the corresponding interest, from the time the expense are losses such that if the partnership shows no profit, this means
made; it shall also answer to each partner for the obligations he may the he has labored in vain.
have contracted in good faith in the interest of the partnership ● Ex: A (industrial partner), B and C were partners. In the first
business, and for risks in consequence of its management. (1688a) year of operation, firm made a profit of P3M. In the second
Responsibility of Firm: year, a loss of P1.5M was sustained having net profit of only
1) Refund amounts disbursed on behalf of firm + legal interest from P1.5M. How much will A get?
the time expenses were made and not from demand. A will get only ⅓ of P1.5M, the net profit and not 1.3 of P3M.
● Amounts disbursed: does not refer to the original capital While it is true that he does not share in the losses, this only
● Refund must be made even in case of failure of the means that do not share in the net losses.
enterprise entered into, provided partner is not at fault.
Being a mere agent, partner should not assume personal Article 1800. The partner who has been appointed manager in the
liability. articles of partnership may execute all acts of administration despite
2) Answer to each partner for obligations, he may have entered into in the opposition of his partners, unless he should act in bad faith; and
good faith in the interest of the partnership, as well as for risks in his power is irrevocable without just or lawful cause. The vote of the
consequences of its management. partners representing the controlling interest shall be necessary for
such revocation of power
Article 1797. The losses and profits shall be distributed in 2 MODES OF APPOINTMENT AS MANAGER:
conformity with the agreement. If only the share of each partner in 1) Appointment as manager in the articles of partnership
the profits has been agreed upon, the share of each in the losses shall ● Power is irrevocable without just cause or lawful cause
be in the same proportion. ○ To remove him for just cause, the controlling partner
In the absence of stipulation, the share of each partner in the profits should oust him
and losses shall be in proportion to what he may have contributed, ○ To remove him without just cause, there must be
but the industrial partner shall not be liable for the losses. As for the unanimity
profits, the industrial partner shall receive such share as may be just ● Extent of power:
and equitable under the circumstances. If besides his services he has

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ATP Notes (Paras; Jurado; Cases) Atty. Risel Castillo-Taleon ibtk2i

○ In GOOD FAITH: he may do all acts of administration This provision presupposes that unanimity is still required despite the
(not ownership) despite the opposition of his partners incapacity or absence of one of the partners, except when there is
○ In BAD FAITH: he cannot imminent danger of grave or irreparable injury.
2) Appointment other than in the Articles of Partnership (eg. orally)
● Power to act may be revoked at any time, with or without just In this vein, the unanimity is strictly complied, and it cannot bind the
cause done by the controlling interest partnership if there is no unanimity, the absence and/or incapacity of
● Extent of power: As long as he remains manager, he can another to consent should not be alleged.
perform all acts of administration, but if the others oppose and
he persists, he can be removed. Effects: If the transaction with the third person was entered without the
Scope of Powers of Managers: Unless specifically restricted, managers consent of others, the partnership is not bound therefor, only the partner
has the powers of general agent, as well as ll incidental powers needed to transacting is liable.
carry out the objective of the partnership.
Article 1803. When the manner of management has not been agreed
Art. 1801 If two or more partners have been intrusted with the upon, the following rules shall be observed:
management of the partnership without specification of their (1) All the partners shall be considered agents and whatever any one
respective duties, or without a stipulation that one of them shall not of them may do alone shall bind the partnership, without prejudice
act without the consent of all the others, each one may separately to the provisions of article 1801.
execute all acts of administration, but if any of them should oppose (2) None of the partners may, without the consent of the others,
the acts of the others, the decision of the majority shall prevail. In make any important alteration in the immovable property of the
case of a tie, the matter shall be decided by the partners owning the partnership, even if it may be useful to the partnership. But if the
controlling interest. refusal of consent by the other partners is manifestly prejudicial to
SOLIDARY MANAGEMENT the interest of the partnership, the court's intervention may be
Art. 1801 applies when: sought.
a) two or more partners are managers; Manner of management has not been agreed upon. This is the only
b) there is no specification of respective duties; OR instance every partner may perform any act of administration.
c) no stipulation requiring unanimity “without a stipulation that
one of them shall not act without the consent of all the others x Rules:
x x” a) Generally, each partner is an agent.
b) “x x x without prejudice to the provisions of Article 1801” that
Rules: if the act is opposed, the majority shall prevail. If in case of tie,
a) Unlimited separate powers to administer; shall be decided by the partners having controlling interest.
b) Except if any of the managers should oppose, in this case, the c) Exceptions on Art. 1803 (1):
decision of the majority of the managers shall prevail; i) When acting in his own name;
c) In case of tie in (b), the managing partners owning the ii) If somebody else had been given authority to
controlling interest prevail, as long as they are also managers manage.
(Paras); controlling interest of all partners (Jurado) d) Alteration on immovable property requires unanimity.

Nonetheless, the non-managers are not given the right to oppose as they Rules on immovable property (Art. 1803, par. 2)
have stripped themselves of any participation in the administration on a) “Alterations” contemplate useful expenses, not necessary ones;
appointing other partners as managers. (11 Manresa 385, cited in 5 Paras b) Consent, for the purpose of this provision, may be express of
648) implied.

Jurado: Art. 1804 Every partner may associate another person with him in
a) if there is opposition, the majority of managers shall prevail; his share, but the associate shall not be admitted into the
b) in case of a tie, the vote of the controlling interest (not partnership without the consent of all the other partners, even if the
necessarily managers) shall prevail. partner having an associate should be a manager.
NB: same rule with De Leon, basis on (b), Art. 492. This is problematic PRINCIPLE OF DELECTUS PERSONARUM- no one can become a
though. Are laws on coownership applicable on laws on partnership? member of the partnership association without the consent of all the
partners.
If there is an irreconcilable tie, it will be deemed as though it is entered
without authority. The vote resisting the transaction shall prevail. (De Rules on consent:
Leon) a) Not required - A partner associating another person in his
share in the partnership;
Opposition should be made before the acts produce legal effects insofar b) All are required - For the associate to become a partner
as the third persons are concerned. (11 Manresa 387, cited in 5 Paras
648) Reason for (b), the principle of delectus personae. Moreover, change in
membership is an actual modification or novation of contract, the
Art. 1802 In case it should have been stipulated that none of the consent of the parties required. (11 Manresa 395, cited in 5 Paras 653)
managing partners shall act without the consent of the others, the
concurrence of all shall be necessary for the validity of the acts, and Art. 1805 The partnership books shall be kept, subject to any
the absence or disability of any one of them cannot be alleged, unless agreement between the partners, at the principal place of business of
there is imminent danger of grave or irreparable injury to the the partnership, and every partner shall at any reasonable hour
partnership. have access to and may inspect and copy any of them.
JOINT MANAGEMENT, “x x x none of the managing partners shall act This right always presuppose an ongoing partnership.
without the consent of the others x x x”
Essence:

6
ATP Notes (Paras; Jurado; Cases) Atty. Risel Castillo-Taleon ibtk2i

a) As a part of the right of the partner to obtain true and full 1808 1789
information of the partnership affairs (Art. 1806);
b) That the partner is also a co-owner of the books (Art. 1811) Capitalist partners Industrial partners

Not available to: Cannot engage in any operation Cannot engage in business for
a) partnership pending dissolution, the right depends on the which is of the kind of business himself (meaning, in any
court’s discretion; the partnership is engaged. business outside of the
b) partnership already dissolved, no partner shall be duty-bound partnership)
(as mandated in 1805) to continue the place of business for the
benefit of others. No duty, no right. a) Shall bring to the a) May be excluded in the
common funds any business, and liable for
“Reasonable hour” means on business days throughout the year, and not profits accruing to him damages;
merely capricious or arbitrary period selected by the managers. from the transactions;
b) Partners may avail of the
Art. 1806 Partners shall render on demand true and full information b) Personally bear all the losses benefits derived from the
of all things affecting the partnership to any partner or the legal engagement of the industrial
representative of any deceased partner or of any partner under legal partner, with damages.
disability.
When there is no prohibition:
Simply, there must be no concealment between partners in all matters a) expressly stipulated that he can do so engage;
affecting the firm’s interest, even without demand. b) expressly allowed by the partners to do so;
c) impliedly allowed to do so; (in case where all partners are
Who can demand information? likewise violating 1808)
a) any partner; d) Cession of the business of partnership;
b) legal representative of a dead partner; e) When the capitalist partner becomes a limited partner.
c) legal representative of any partner under legal disability. Not duly mentioned, but he can be also ousted in proper cases, like
repeated violation after due prior warnings.
Art. 1807 Every partner must account to the partnership for any
benefit, and hold as trustee for it any profits derived by him without Hypo: A, B, C: A P50K capital; B 5 cars; C management. Taxi business.
the consent of the other partners from any transaction connected Can:
with the formation, conduct, or liquidation of the partnership or a) B enter into another partnership for use of 2 cars for Uber
from any use by him of its property. business?
b) C enter into another partnership for management of Grab
Note: business?
- Must account to the partnership for any benefit x x x derived
by him; a) No. Basis: Art. 1808. Uber business is also the kind of business
- Holds as trustee for the partnership any profit derived by him the partnership is engaged, which is taxi business. The fact that
- without the consent of other partners. the 2 cars are distinct from that 5 cars used in the taxi business,
as B is nevertheless engaged in other business of the same
The words “and hold as trustee for the partnership any profit” indicate kind. (taleon q1)
that the partnership can claim as their own any property or money that b) No. Basis: Art. 1789. Industrial partners are prohibited to
can be traced, and not necessarily directly. engage in business for himself. Any industry suffices:
industrial partners cannot enter in other partnership using the
Hypo: A, and B are partners; a partnership property was mortgaged to C same industry he contributes to the business. (taleon q1)
for partnership funds. After foreclosure of C because of failure of the Hypo 2: J and P, for car repair shop business: J capital; P labor and
partnership to pay for the loan, A with his own funds, redeemed the industry. J operated a coffee shop; P car accessories store. Can J and P
property. A has the right over the property as his own and may demand engage in such separate business?
the title to be transfered to his name. a) Yes. Coffee shop business is not the same as the car repair shop
-- False. Art. 1807 states that every partner becomes trustee for his business; Art. 1808 only requires that it shall not enter into
co-partner with regard to any benefit or profit derived from his act s similar business;
partner. In the first place, C has no title to convey to A because C is not b) No. Art. 1789 provides that industrial partners cannot engage
the owner thereof; rather, A is the trustee of the property and held in trust in business for himself, except, of course, when allowed by
in favor of his co-partner B the property. partners. (Jurado Rev, 1048)
-- Proper remedy: demand reimbursement for the price of redemption +
legal interest. (Jurado Rev, 1052) Art. 1809 Any partner shall have the right to a formal account as to
partnership affairs:
Art. 1808 The capitalist partners cannot engage for their own (1) If he is wrongfully excluded from the partnership
account in any operation which is of the kind of business in which business or possession of its property by his co-partners;
the partnership is engaged, unless there is a stipulation to the (2) If the right exists under the terms of any agreement;
contrary. (3) As provided by article 1807;
(4) Whenever other circumstances render it just and
Any capitalist partner violating this prohibition shall bring to the reasonable.
common funds any profits accruing to him from his transactions, Mnemonics: WAPO
and shall personally bear all the losses.

Difference with Art. 1789

7
ATP Notes (Paras; Jurado; Cases) Atty. Risel Castillo-Taleon ibtk2i

Article 1809 is an exception to the general rule that no formal accounting Article 1813. A conveyance by a partner of his whole interest in the
is demandable until after dissolution. After all, there is access to the partnership does not of itself dissolve the partnership, or, as against
partnership books and accounts. the other partners in the absence of agreement, entitle the assignee,
during the continuance of the partnership, to interfere in the
Other persons not entitled to formal accounting: Assignees of management or administration of the partnership business or
partnership share in Art. 1813. affairs, or to require any information or account of partnership
transactions, or to inspect the partnership books; but it merely
WAPO are the only considered grounds for formal accounting in its entitles the assignee to receive in accordance with his contract the
context, no other case can it be demanded. profits to which the assigning partner would otherwise be entitled.
However, in case of fraud in the management of the partnership, the
Section 2 assignee may avail himself of the usual remedies.
PROPERTY RIGHTS OF A PARTNER In case of a dissolution of the partnership, the assignee is entitled to
receive his assignor's interest and may require an account from the
Article 1810. The property rights of a partner are: date only of the last account agreed to by all the partners.
(1) His rights in specific partnership property; Effects of conveyance of the partner of his whole interest in the
(2) His interest in the partnership; and partnership:
(3) His right to participate in the management. (1) It does not dissolve the partnership;
(2) It does not entitle the assignee to interfere in the
-- Specific partnership property: specific property contributed for the management of the business, or to require an accounting of
partnership; partnership transaction, or to inspect the partnership books;
-- Interest in the partnership: Share of the profits and losses without any however, in case of fraud in the management of the
reference to any particular or specific property; partnership, he may avail himself of the usual remedies;
-- Right to participate in the management: a valuable property right (3) It entitles the assignee to receive in accordance with his
contract the profits to which the assignor would otherwise be
entitled; and
(4) Upon dissolution of the partnership, the assignee is entitled
to receive his assignor’s interest and may then demand for an
Art. 1811. A partner is co-owner with his partners of specific accounting. (Jurado Rev 1052-3; taleon q2)
partnership property.
The incidents of this co-ownership are such that: -- Does not dissolve the partnership, but it can have the effect of
(1) A partner, subject to the provisions of this Title and to dissolving the partnership, but the dissolution by reason thereof is not
any agreement between the partners, has an equal right automatic;
with his partners to possess specific partnership property -- The assignor is still the partner, entitled to demand accounting or
for partnership purposes; but he has no right to possess information; by which the assignee do not have the same rights because
such property for any other purpose without the consent of mere assignment does not make the assignee a partner (refer to Art.
his partners; 1804)
(2) A partner's right in specific partnership property is not -- The assignee cannot interfere in the management.
assignable except in connection with the assignment of
rights of all the partners in the same property; Rights of the Assignee
(3) A partner's right in specific partnership property is not -- Profits the assignor would have obtained. In case of conflicting claims
subject to attachment or execution, except on a claim between an outside creditor, and a claim for the share of profits by an
against the partnership. When partnership property is assignee, the creditor is preferred. The assignee get what is left
attached for a partnership debt the partners, or any of therefrom;
them, or the representatives of a deceased partner, cannot -- The usual remedies not available is thereby available in case of fraud
claim any right under the homestead or exemption laws; in the management
(4) A partner's right in specific partnership property is not -- For annulment of assignment if tainted with vices of consent or is
subject to legal support under article 291. incapacitated to give consent therefor;
-- Demand accounting upon dissolution of the partnership, covering the
Art. 1811, summed up: period from the date of the last accounting.
-- That all partners are likewise co-owners of specific partnership
properties; When the share is merely mortgaged, Art. 1813 is also covered; but
-- Therefore, he has equal right to possess the property for partnership without prejudice to the provisions on securities and loans as in essence,
purposes, and definitely not for other purposes; the mortgaged share is a security.
-- Not assignable;
except if all the other partners assign their rights in the same Article 1814. Without prejudice to the preferred rights of
property. Violation of this rule renders the assignment void. partnership creditors under article 1827, on due application to a
-- Not subject to attachment or execution on claims outside of the competent court by any judgment creditor of a partner, the court
partnership; (eg individual liability); which entered the judgment, or any other court, may charge the
Note that it can be attached for partnership debt. interest of the debtor partner with payment of the unsatisfied
-- Not subject to legal support. amount of such judgment debt with interest thereon; and may then
or later appoint a receiver of his share of the profits, and of any
Article 1812. A partner's interest in the partnership is his share of other money due or to fall due to him in respect of the partnership,
the profits and surplus. and make all other orders, directions, accounts and inquiries which
Interest in the partnership may generally be assigned, be attached, and the debtor partner might have made, or which the circumstances of
be subject to legal support. the case may require.

8
ATP Notes (Paras; Jurado; Cases) Atty. Risel Castillo-Taleon ibtk2i

The interest charged may be redeemed at any time before When the firm name changes but the members remain, the liabilities and
foreclosure, or in case of a sale being directed by the court, may be rights of the previous firm shall remain. (Sharruf v. Baloise Fire
purchased without thereby causing a dissolution: Insurance)

(1) With separate property, by any one or more of the partners; or On strangers in the firm name
(2) With partnership property, by any one or more of the partners Those whose names are included in the firm are liable as partners
with the consent of all the partners whose interests are not so because of estoppel (Art. 1815, par. 2) However, they do not acquire
charged or sold. rights of partners because they are not admitted in the partnership in the
first place.
Nothing in this Title shall be held to deprive a partner of his right, if
any, under the exemption laws, as regards his interest in the Art. 1846 - where a limited partner includes his name in the firm name,
partnership. he has the obligations, but not the rights, of a general partner.

Charging order - refers to: Even though that a partnership has fictitious or assumed name, it does
-- the remedy available to a judgment creditor of a not affect the validity of contracts validly entered thereto.
debtor partner;
-- To charge the interest of the latter in the partnership; Art. 1816. All partners, including industrial ones, shall be liable pro
-- by means of a court order for the purpose of satisfying the amount of rata with all their property and after all the partnership assets have
the judgment. (Jurado Rev, 1053; taleon q2) been exhausted, for the contracts which may be entered into in the
name and for the account of the partnership, under its signature and
“Without prejudice to the prefered rights of partnership creditors under by a person authorized to act for the partnership. However, any
Article 1827 x x x” note that the partnership assets and shares therefrom partner may enter into a separate obligation to perform a
is subject to preference over partnership creditors, the rights of an partnership contract.
individual creditor only subsidiary; only when the partnership properties Losses vs. Liability: Losses - as between partners; Liability - insofar as
have satisfied the claims of partnership creditors. third persons are concerned; Industrial partners are exempted from losses
but not from liability. How can this be reconciled in the light of
Receivership application of Art. 1816?
The court MAY at the same time (of the charging order) or later appoint
a receiver in the profits or other money due him. Though all partners, including industrial partners, are liable pro rata
with all of their property for all liabilities the partnership incurred, this is
This entails that the receiver is entitled to ANY relief necessary to only the case if all partnership properties are exhausted and there
conserve the partnership assets for partnership purposes. Eg. Collection remains a liability by the partnership, then the industrial partner has to
of money due to the partnership as creditor. pay; but the industrial partner may demand to other capitalist partners
what he has paid because this also constitutes losses, the industrial
Redemption partner is exempted therefrom.
Extinguishment of the charge or attachment on the partner’s interest in
the profits. In this vein, it is provided that the liability under this provision is
subsidiary and joint. Even if the contributions be unequal, Art. 1816
Redemption is made: states that the liability herein is PRO RATA.
1) at any time before the foreclosure;
2) after foreclosure, may still be bought with the separate This liability by partnership to third persons is characterized as a
property by any one of the partners; or contractual obligation, as differentiated from obligation arising from
3) with other partnership property with consent of all other criminal offense or quasi delict (Arts. 1822-1824). Requisites:
partners, excluding the delinquent partner. a) That the contract must be entered into in the name and for the
account of the partnership and under its signature; and
A partner is entitled to exemption laws on his share over the partnership; b) that the partner must be authorized to act for the partnership.
but not as to the specific partnership property. (Jurado Rev, 1053)

Note that this contemplates the partnership obligation, a contractual

OBLIGATIONS OF PARTNERS AS REGARDS THIRD PERSONS obligation, can hold individual partners liable, subject to preference in
Art. 1827 (Jurado Rev, 1053-4)
Art. 1815. Every partnership shall operate under a firm name,
which may or may not include the name of one or more of the Any partner, though, may enter into separate obligation to perform
partners. partnership contract. Here, he acts in his own name, but for the benefit of
the partnership. Liabilities, ascribed to the individual; benefit accrues to
Those who, not being members of the partnership, include their the partnership.
names in the firm name, shall be subject to the liability of a partner.
Art. 1817 Any stipulation against the liability laid down in the
Firm Name - is the name of the juridical entity. preceding article shall be void, except as among the partners.

Code of Commerce - The name of at least one general partner should Again, as regards losses, industrial partner may not be held therefor.
appear; (Art. 1797, par. 2); but as regards liabilities, in excess of partnership
but changed in Civil Code, Article 1815, that the firm name may or may property, he shall be liable. After satisfying his liability to the third
not include the name of one or more partners. persons, he may hold the capitalist partners for what he has paid for its
satisfaction, being a loss insofar as the partners themselves are
concerned.

9
ATP Notes (Paras; Jurado; Cases) Atty. Risel Castillo-Taleon ibtk2i

Hypo: A, and B are partners; a partnership property was mortgaged to C

Art. 1818 =Every partner is an agent of the partnership for the for partnership funds. After foreclosure of C because of failure of the
purpose of its business, and the act of every partner, including the partnership to pay for the loan, A with his own funds, redeemed the
execution in the partnership name of any instrument, for apparently property. A has the right over the property as his own and may demand
carrying on in the usual way the business of the partnership of the title to be transfered to his name.
which he is a member binds the partnership, unless the partner so -- False. Art. 1807 states that every partner becomes trustee for his
acting has in fact no authority to act for the partnership in the co-partner with regard to any benefit or profit derived from his act s
particular matter, and the person with whom he is dealing has partner. In the first place, C has no title to convey to A because C is not
knowledge of the fact that he has no such authority. the owner thereof; rather, A is the trustee of the property and held in trust
An act of a partner which is not apparently for the carrying on of in favor of his co-partner B the property.
business of the partnership in the usual way does not bind the This stems from the fact that as a general rule, and under general
partnership unless authorized by the other partners. principles of law, a partner is an agent of the partnership, under Art.
Except when authorized by the other partners or unless they have 1818.
abandoned the business, one or more but less than all the partners -- Proper remedy: demand reimbursement for the price of redemption +
have no authority to: legal interest. (Jurado Rev, 1052)

(1) Assign the partnership property in trust for creditors or on the Art. 1819
assignee's promise to pay the debts of the partnership; Rules:
(2) Dispose of the good-will of the business; 1. Title to real property in partnership name - Any partner may
(3) Do any other act which would make it impossible to carry on the convey title in the partnership name; partnership may recover,
ordinary business of a partnership; XCPN: where the partner is the agent of the
(4) Confess a judgment; partnership, Art. 1818; or where it is in the hands of
(5) Enter into a compromise concerning a partnership claim or a holder for value in good faith from the grantee;
liability; 2. Title to real property in the name of partnership -
(6) Submit a partnership claim or liability to arbitration; Conveyance may be made by any partner in his own name; but
(7) Renounce a claim of the partnership. only equitable interest passes, provided it is within authority.
No act of a partner in contravention of a restriction on authority 3. Title in one or more but not all of partners, record do not
shall bind the partnership to persons having knowledge of the disclose presence of partnership - partner whose name noted
restriction. therein may convey but the partner may recover if not bind the
Mnemonics: ADIC CAR partnership under Art. 1818,
XCPN: purchaser is a holder for value, without
Summed up, Art. 1818 states that a partner is an agent of the partnership knowledge.
for the purpose of its business; the instances where he can bind the 4. Title is in one or more or all, OR in third person in trust -
partnership; and the instances where he cannot bind the partnership Conveyance may be made by one partner in the partnership
(ADIC-CAR) name, or his own name, passing equitable interest, provided
within the authority in Art. 1818
Third instance, effect: That in case liability accrues therefrom, only the 5. Title to real property in the name of all partners -
contracting partner individually, and not the partnership as a whole shall conveyance executed by ALL partners passes their rights to
be liable. the property.

When can a partner bind a partnership? This article is related to Article 1818, but Art. 1819 only applies to real
a) When he is expressly or impliedly authorized; properties.
b) When he acts in behalf and in the name of the partnership. -- Equitable interest - all interest which the partnership had, except title
Implied authorization? (beneficial interest SHORT of ownership)
a) other partners did not object, having knowledge of the act; and
b) when the act is for “apparently carrying on in the usual Art. 1820 An admission or representation made by any partner
business of the partnership”. (While there was no concerning partnership affairs within the scope of his authority in
authorization, the same is binding provided there is good faith accordance with this Title is evidence against the partnership.
as regards third person) Admission by a partner is an admission against the partnership if:
Then how can it be determined whether or not the transaction is within a) must concern partnership affairs;
the scope of the partnership business? b) within the scope of his authority.
May be gauged by the usual manner in which it is carried out in the
locality; or even more broadly, by actual conduct of business as carried -- Admission before dissolution are binding only if the partner has
out with knowledge, presumed or actual, of the partner. authority to act on a particular matter;
-- After dissolution, admission only necessary to wind up the business.
When can a partner CANNOT bind a partnership? Otherwise, it is not the act the “act of partnership”, and therefore should
a) When, though apparently carrying on in usual business, the not be an evidence against it.
partner has in fact NO authority, and the third person is aware
of this lack of authority. In this case, the third person is in bad Art. 1821 Notice to any partner of any matter relating to
faith; partnership affairs, and the knowledge of the partner acting in the
b) When the act is NOT for apparently carrying on in usual particular matter, acquired while a partner or then present to his
business, and has no authority. (This applies WN the third mind, and the knowledge of any other partner who reasonably could
parties are aware of the fact). and should have communicated it to the acting partner, operate as
NOTE: ADIC-CAR are the acts that fall in this category, notice to or knowledge of the partnership, except in the case of fraud
wherein to constitute authority, the authority must be on the partnership, committed by or with the consent of that
unanimously given, except where the business is abandoned. partner.

10
ATP Notes (Paras; Jurado; Cases) Atty. Risel Castillo-Taleon ibtk2i

anyone, as a partner in an existing partnership or with one or more

Consider this: Notice is knowledge, but knowledge is NOT persons not actual partners, he is liable to any such persons to whom
NECESSARILY notice. such representation has been made, who has, on the faith of such
Effect of Notice: representation, given credit to the actual or apparent partnership,
-- Generally, notice to a partner is notice to the partnership, subject to and if he has made such representation or consented to its being
restrictions and qualifications; made in a public manner he is liable to such person, whether the
-- That the notice should be related to partnership affairs. representation has or has not been made or communicated to such
person so giving credit by or with the knowledge of the apparent
Effect of Knowledge, but no notice per se partner making the representation or consenting to its being made:
How? May be by analysis or deduction. Knowledge binds the (1) When a partnership liability results, he is liable as though he
partnership if: were an actual member of the partnership;
a) Knowledge was acquired by a partner who is acting in the (2) When no partnership liability results, he is liable pro rata with
particular matter involved; or the other persons, if any, so consenting to the contract or
i) this knowledge may be acquired while already a representation as to incur liability, otherwise separately.
partner; or When a person has been thus represented to be a partner in an
ii) prior to being a partner, provided he still remembers existing partnership, or with one or more persons not actual
the same (present to his mind) partners, he is an agent of the persons consenting to such
b) A partner not acting in the particular matter; but: representation to bind them to the same extent and in the same
i) essential that the partner therein had reason to believe manner as though he were a partner in fact, with respect to persons
that he fact related to the matter had some possibility of being the who rely upon the representation. When all the members of the
subject of the business; and was so situated that he could communicate it existing partnership consent to the representation, a partnership act
to the partner acting in the particular matter. or obligation results; but in all other cases it is the joint act or
Note: knowledge therein must have been obtained while obligation of the person acting and the persons consenting to the
already a partner. representation.
Ex.: Service of summons or pleadings on a partner of a law firm is also PARTNERSHIP OR PARTNER BY ESTOPPEL.
service on the law firm. A person may:
a) represent himself as a partner of an existing partnership, with
Art. 1822 Where, by any wrongful act or omission of any partner or without the consent of the partnership (partner by estoppel);
acting in the ordinary course of the business of the partnership or b) represent himself as a partner of a non-existing partnership
with the authority of his co-partners, loss or injury is caused to any (partnership by estoppel)
person, not being a partner in the partnership, or any penalty is
incurred, the partnership is liable therefor to the same extent as the If a third person is deceived and misled because of such
partner so acting or omitting to act. misrepresentation, the deceiver is partner by estoppel.
Note herein that it is liability from wrongful act or omission of a partner
(eg tort) Here, the partners and the partnership is liable in solidum, even If the partnership consented to the misrepresentation, a partnership
the innocent partners, “partnership is liable x x x to the same extent as liability results (a kind of partnership by estoppel). If no consent, no
the partner so acting x x x” The liability of the guilty partner is the same partnership liability. This is the only instance a partnership is liable in
as the partnership. However, this is without prejudice to the right of case of liability from partnership from estoppel (Jurado Rev, 1057). Note
action by the innocent partners against the guilty partner/s. that in partnership liability, the liable are all the partners and the
deceivers; if there is none, then the deceptor is the only liable: all pro
In the case of an obligation arising from a criminal offense or a rata.
quasi-delict, the only requisite prescribed by the law is that the act must
be performed by a partner in the ordinary course of the business of the Character of liability of partner by estoppel.
partnership with the authority of his co-partners. (Jurado Rev, 1053) If partnership liability results, then he is liable as if he is a partner
thereof (but obv, has no rights of a partner);
Does not apply if not within the scope of authority; not wrongful; that If there is no partnership liability, then he is liable pro rata with the
the act did not make the partner liable himself; and/or committed when deceptors and the consenting partner in existing partnership, if there is
already dissolved. any, and provided that not all consented. (Ibid.)

Art. 1823 The partnership is bound to make good the loss: Note that the deception to the third party as a result of the
(1) Where one partner acting within the scope of his apparent misrepresentation is required; if there is no deception, there is no
authority receives money or property of a third person and partner/ship by estoppel.
misapplies it; and
(2) Where the partnership in the course of its business receives Those who allege the existence of partnership by estoppel has the burden
money or property of a third person and the money or property so of proving:
received is misapplied by any partner while it is in the custody of the a) existence of misrepresentation; and
partnership. b) innocent reliance on it.
Par. 1- misappropriation by the receiving partner;
Par. 2- misappropriation by any partner on money or property received Art. 1826 A person admitted as a partner into an existing
by the partnership. partnership is liable for all the obligations of the partnership arising
Any way, in both, the partnership is bound to make good of the loss. before his admission as though he had been a partner when such
Art. 1824, Liabilities of partners under Art. 1822-3 are solidary, ALL obligations were incurred, except that this liability shall be satisfied
partners are liable. only out of partnership property, unless there is a stipulation to the
contrary.
Art. 1825 When a person, by words spoken or written or by conduct, Entry of new partner in existing partnership
represents himself, or consents to another representing him to

11
ATP Notes (Paras; Jurado; Cases) Atty. Risel Castillo-Taleon ibtk2i

Note: that a new partner shall be liable to partnership obligations -- After Elfledo died and Norberto ambushed, Jimmy suggested that
incurred before admission only insofar as his contribution is concerned; three out of 9 trucks be his share; another three for the heirs of Norberto,
but shall be liable to its individual property on those incurred thereafter which subsequently sold to respondent, and the rest to Elfledo’s heirs.
(in cases provided in Art. 1816) -- Moreover, it was contended that Jose left no estate when he died in
1981; and that his partnership with Jimmy and Norberto has ceased, and
The entry of a new partner effectively dissolves the former firm and there could be no property be held in trust by Elfledo.
creates a new one, but obligations therein to the creditors remain, such
that the creditors remain as it to the new partnership, hence there has -- RTC held to distribute the properties equally between plaintiffs and
been one continuing business insofar as the creditors are concerned. Juliet Villa-Lim; and to submit an accounting of all profits.
-- CA reversed RTC.
Art. 1827 The creditors of the partnership shall be preferred to those
of each partner as regards the partnership property. Without ISSUE
prejudice to this right, the private creditors of each partner may ask Who between Elfledo and Jose was the partner in the trucking business
the attachment and public sale of the share of the latter in the
partnership assets. HELD
Preference: A partnership exists:
a) Individual property - Individual creditor > Partnership creditor; - when two or more persons agree to place their money, efforts, labor and
b) Partnership property - Partnership creditor > Individual skill;
creditor. - in lawful commerce or business;
- with the understanding that there shall be a proportionate sharing of the
Note then that the sale of share by a partner to a third party while the profits and losses among them.
firm remains solvent shall render the contention of validity of the sale
premature and shall necessarily fail. Undoubtedly, the best evidence would have been the contract of
partnership or articles of partnership; but the case at bar has neither.

However, to determine the partner in this case, Art. 1769 is instructive:

Art. 1769. In determining whether a partnership exists, these

rules shall apply:
xxx
(1) Except as provided by Article 1825, persons who are not
partners as to each other are not partners as to third persons;
CASES (2) Co-ownership or co-possession does not of itself establish
I. ARTICLES 1767 - 1827 a partnership, whether such-co-owners or co-possessors do
----------xx---------- or do not share any profits made by the use of the property;
(3) The sharing of gross returns does not of itself establish a
1. HEIRS JOSE LIM VS. LIM partnership, whether or not the persons sharing them have a
GR NO. 172690 joint or common right or interest in any property from which
March 3, 2010 the returns are derived;
(4) The receipt by a person of a share of the profits of a
business is prima facie evidence that he is a partner in the
FACTS
business, but no such inference shall be drawn if such profits
Petitioners are heirs of the late Jose Lim, represented by Juliet Villa Lim,
were received in payment:
wife; while respondents is the widow of the late Elfledo Lim, eldest son
(a) As a debt by installments or otherwise;
of Jose Lim.
(b) As wages of an employee or rent to a landlord;
(c) As an annuity to a widow or representative of a
-- Sometime in 1980, Jose, together with Jimmy Yu and Norberto Uy,
deceased partner;
formed a partnership to engage in trucking business, contributing
(d) As interest on a loan, though the amount of
P50,000 to purchase a truck.
payment vary with the profits of the business;
-- Jose managed the operations of the trucking business until his death in
(e) As the consideration for the sale of a goodwill of
1981. Thereafter, with the agreement of Jose’s heirs and partners, Elfledo
a business or other property by installments or
shall continue managing the business.
otherwise. (n)
-- The shares in the profits and income therein, forming part of the estate
Applying the provision in this case, it was proved that:
of Jose were held in trust by Elfledo.
a) Jose gave Elfledo P50,000 as share in the partnership;
-- By the time the partnership ceased, the business had 9 trucks, and
b) That Elfledo ran the affairs of the partnership, having control
from the profit therefrom, Elfledo has purchased numerous real
and management without interference with the petitioners;
properties, named and registered under Elfledo and the respondent.
c) All properties were registered under Elfledo;
-- Elfledo died in 1995.
d) That Elfledo did not receive wages from the partnership,
indicating that what he had received were shares of the profits
-- Petitioners claiming that the properties, which Elfledo took over
of the business;
without their consent, forms part of the estate of Jose, and therefore
e) None of the petitioners, heirs of Jose, has demanded
demanding accounting of all income from the estate of Elfledo, and
accounting, a supposed evidence of partnership. (Tan Eng Kee
surrender its administration.
vs. CA)
-- Respondent argued on the other hand that Elfledo was himself a
partner of Norberto and Jimmy. That through the efforts of Elfledo, the
It is noted from the findings of the CA, and affirmed by the court that if
business flourished from having just 1 truck.
it were true that Jose is the partner, then it should have been dissolved

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ATP Notes (Paras; Jurado; Cases) Atty. Risel Castillo-Taleon ibtk2i

upon his death, merely a year after its formation, and its assets
liquidated. But it did not happen; the management was transferred 3. JARANTILLA, JR. VS. JARANTILLA
under the helm of Elfledo. GR NO. 154486
xx December 1, 2010

Note: Art. 1769 (4) is explicit that the receipt of the shares of profits FACTS
from the business is a prima facie evidence of partnership. In 1948 (subsequent mentions in the case appears that this should be
----------xx---------- 1946), Jarantilla heirs extrajudicially partitioned real properties of their
parents for themselves.
2. MARSMAN DRYSDALE VS. PHIL GEOANALYTICS -- The heirs allotted the produce of the real properties from 1947-1949
GR NO. 183374 for the studies of Rafael and Antonieta Jarantilla.
June 29, 2010 -- Same year, Rosita Jarantilla and Deocampo entered into an agreement
with sps Buenaventura Remotigue and Conchita Jarantilla to provide
mutual assistance to each other by way of financial support to any
FACTS commercial and agricultural activitiy on a joint business agreement.
-- Marsman Drysdale entered into a Joint Venture Agreement with -- In 1957, Remotigue executed an “Acknowledgement of Participating
Gotesco for construction of an office building over a property of Capital”, acknowledging that they are not only the owner of three
Marsman in Makati. properties registered under Remotigue’s name, and that the participating
-- It was agreed in the JVA that the capital for the venture shall be 50-50 capital of the co-owners, as of 1952 are as follows, among others:
basis; the land of Marsman is appraised at P420 M; and Gotesco shall a) Antonieta Jarantilla, P8,000;
likewise contribute the same amount in cash. b) Federico Jarantilla, P5,000.
-- Respondent PGI was contracted to provide subsurface soil exploration -- In 1973, the partnership ended whereas the partners voluntarily agreed
and other geotechnical engineering assistance for the project. After it to completely dissolve their “joint business arrangement.”
was completed, PGI billed the venture at a total of P284,553 and -- In 1987, Antonieta filed a complaint for accounting of the assets and
P250,800 for its services. income of co-ownership; and delivery of her share corresponding 8%
-- However, despite repeated demands, the venture failed to pay; and and for damages.
because of economic reasons, the project was shelved. -- She also alleged that she has helped in the management of the business
-- PGI filed a complaint for collection of money; to which Marsman from 1946-1969 without receiving any salary, the same rolling back as
passed its liability to Gotesco, which, under the agreement, shall additional investment on her behalf.
shoulder all monetary expenses for the project. -- During the course of the petition, Federico entered a compromise
-- Quezon City RTC held Marsman and Gotesco jointly liable; CA agreement with Antonieta and in turn asserted too his right over 6% in
affirmed the same, rationctinating that the JVA cannot bind third the partnership, the same manner as Antonieta was.
persons, and that it cannot favor nor prejudice third persons, even if -- Now petitioner, Federico, asserts as well that he was in partnership
aware of the arrangment. with Remotigue, et al as evidenced in the Acknowledgement executed in
1957.
ISSUE
Which, between Marsman and Gotesco bears the liability to pay PGI ISSUE
W/N the partnership subject to the Acknowledgement funded the subject
HELD real properties; corollarily, what is the right of the petitioner over the
They are jointly liable to PGI. properties?

-- Art. 1207 lays down that the rule, except contrary stipulation, that HELD
liability if there are two or more debtors in one and the same obligation, It is found, and held, that there was a verbal partnership created in 1946,
the obligation is joint, and Art. 1208 on joint obligation presumes that it affirmed in the 1957 Acknowledgement.
is divided into as many equal shares as there are xxx debtors.
--- The provisions on JVA shall only apply in determining the liability of -- To determine the rights, the Court explained Art. 1769:
the venturers to each other. Aside from the circumstance of profit or agreement of
-- A joint venture a form of partnership, it is governed by laws on co-ownership or co-possession, there must be clear intent to
partnership. form a partnership, the existence of a juridical personality
-- Rules according to Art. 1797, on losses and profits: different from that of individual partners, and the freedom to
a) Shall be distributed in conformity with the agreement; transfer or assign any interest in the property by one with the
b) Absent the same, and if the share in the profits has been agreed consent of the others.
upon, the losses shall be in the same proportion;
c) Absent both, the share of the losses and profits shall be in X x x an isolated transaction whereby two or more persons
proportion to what he may have contributed x x x contribute funds to buy certain real estate for profits in the
-- In the JVA, Marsman and Gotesco agreed upon a 50-50 sharing in the absence of other circumstances showing a contrary intention
profits, but none on the losses. By rules aforementioned, the same ratio cannot be considered a partnership.
applies in the obligation-loss of the joint venture.
.xx -- Therefore, for to constitute a partnership there must be: a) intent to
form the same; b) generally participating in both profits and losses; c)
Note: As corporations generally cannot enter into a contract of community of interest.
partnership, it has been held that it may nonetheless enter into a JV, akin -- Going back to Art. 1767, partnership is when two or more persons
to a particular partnership. bind themselves to contribute money, property, or industry to a common
----------xx---------- fund, with the intention of dividing the profits among themselves.
-- However, as provided in the Acknowledgement, there is no evidence
that the subject real properties, specifically mentioned in the

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ATP Notes (Paras; Jurado; Cases) Atty. Risel Castillo-Taleon ibtk2i

Acknowledgement, were assets of the partnership referred to in the -- Therefore, it is clear that Lim never had the intention to form a
document. Petitioner failed to show that the respondents used his money corporation despite his representations; the proposed corporation was
to purchase the properties. never formed because the petitioner reneged on their agreement.
-- Since that is the case, it cannot be possible, failure to show further -- There being no de facto partnership created among the parties, they
positive evidence, that he has the right over 6% of the properties could not be charged with the losses of the company.
claiming co-ownership.
.xx ----------xx----------
----------xx----------
5. WOLFGANG AURBACH VS. SANITARY WARES
4. PIONEER INSURANCE VS. CA GR NO. 75875
GR NO. 84197 December 15, 1989
July 28, 1989
FACTS
FACTS On August 1962, American Standard (ASI), Saniwares, and other
In 1965, Jacob Lim was engaged in the single proprietorship in an airline Filipino investors agreed to participate in the ownership of an enterprise
business known as the Southern Airlines. engaged in manufacturing vitreous china and sanitary wares in the
Philippines.
Japan Domestic Airlines contracted with Lim for a sales contract, for 2 -- Articles of Incorporation provides the manner of nomination and
aircrafts and a spare part, with Pioneer Insurance executing in favor of election of directors, providing cumulative voting for directors; and for
JDA a surety bond for the price of the aircrafts and the spare parts. management: that as long as ASI owns 30% of the stock of the
-- It appears that Bormaheco, Cervantes, and Maglana contributed funds Corporation, 3 of 9 directors shall be designated by ASI; and the other 6
for the purchase of the aircrafts; the funds are supposed to be by other stockholders.
contributions for a new corporation proposed by Lim. -- ASI’s capital increased to 40%.
-- On June 1965, Lim executed, in favor of Pioneer, a deed of chattel -- In 1983, in the Annual Stockholder’s meeting, elections were held.
mortgage as a security fo the suretyship in favor of Lim, over the two
aircrafts. -- ASI nominates 3; the Filipino investors 6. Eduardo Ceniza nominated
-- However, Lim defaulted in his payments with the JDA, and upon Salazar, who in turn nominated Chamsay, but Baldwin Young, the
payment by Pioneer of the sum of P298,626, the latter filed a petition for Chairman struck the last two nominations, in violation of the agreement
extrajudicial foreclosure of chattel mortgage. It then filed an action for that there should only be 9 nominations, for nine-member BOD.
judicial foreclosure impleading Cervantes, Bormaheco, and Maglan. -- Arguments ensued, and so the ASI Group, representing 54% of the
--- respondents argued that they are not privies to the contracts, and maid stock, decided to continue the meeting outside the hall; by which ASI
a counterclaim for recovery of sum used to purchase the aircrafts. nominated 4; Salazar nominated himself, and these 5 were certified as
elected directors.
--- RTC held Lim liable to Pioneer, but all other defendants are not liable -- The Lagdameo group, representing the 6 Filipino investors group
to Pioneer. nominated claims to be the legitimate directors; the ASI group (5) also
--- The petition of Lim argued that failure of Bormaheco, Cervantes, and claiming the same.
Maglan to incorporate creates a de facto partnership, and that losses shall
be shared in proportion to the contribution. -- To determine what rules on voting should apply, the Aurbach group
contents that there is intent to form a corporation; while the Lagdameo
ISSUE group contends that their enterprise is a JV.
What rules govern relationship between co-investors where agreement
was to do business through corporate vehicle but failed to incoroporate ISSUE
the entity in which they had chosen to invest? Whether the business is JV or a corporation.

HELD HELD
It is ordinarily held that persons who attempt, but fail, to form a Rule on contracts show that the type of contract is depending on the
corporation and who carry on business under the corporate name occupy actual intention of the parties.
the position of partners inter se; their rights as members of the company
to the property acquired by the company will be recognized. -- The Supreme Court held that it shows that the parties agreed to
-- However, a partnership relation between certain stockholders and establish a JV, given the unusual arrangements on its policymaking body,
other stockholders, will not be implied in the absence of an agreement; consistent with a JV, and not a corporation:
as to make liable to contribute payment of debts illegally contracted by a) Requirement of greater than majority vote for shareholder and
the latter. director action;
-- Petitioner received P151,000 for the participation of Bormaheco, b) Give certain shareholders power to select a specified number
Cervantes and Maglana, Maglana giving P75,000 in the ownership of the of directors;
subject planes and spare parts. c) Shareholders control over the selection and retention of
employees;
-- It is futher discovered that Lim lured the defendants to purchase d) Settlement of disputes by arbitration.
airplanes and spareparts, as part of their contribution and participation to -- Young himself testified that the Agreement stating that it shall not be
the proposed corporation known as SAL. construed to constitute the same as joint ventures or partners merely to
-- However, it appears that Lim signed the alleged chattel mortgage and obviate the possibility of the enterprise being treated as partnership for
surety bond agreement in his personal capacity. tax purposes and liabilities to third parties.

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ATP Notes (Paras; Jurado; Cases) Atty. Risel Castillo-Taleon ibtk2i

-- Under our laws, JV is a form of partnership and should be governed (4) When a specific thing which a partner had promised to
by law on partnership. That although corporations cannot enter into a contribute to the partnership, perishes before the delivery; in any
partnership contract, it may engage in a joint venture with others. case by the loss of the thing, when the partner who contributed it
-- To allow ASI, an American corporation, to vote additional equity by having reserved the ownership thereof, has only transferred to the
virtue of its additional capital would obliterate their minority status, partnership the use or enjoyment of the same; but the partnership
taking into consideration the violation of the nationalization shall not be dissolved by the loss of the thing when it occurs after the
requirements under the Constitution. partnership has acquired the ownership thereof;
(5) By the death of any partner;
(6) By the insolvency of any partner or of the partnership;
(7) By the civil interdiction of any partner;
(8) By decree of court under the following article.

No violation of agreement [Art. 1830(1)]

1) Termination of definite term or specific undertaking
- The term or the undertaking is embodied in the contract, and
the law is the law between the parties. Hene, the partnership is
terminated at the time of termination of the term or
undertaking, lest it becomes partnership at will.
2) Express will of a partner acting in good faith when there is no definite
term nor specific undertaking.
- This is a partnership at will, and may be dissolved upon will
of any partner in good faith anytime;
- If there is bad faith on leaving, the firm is nonetheless
dissolve, but the leaving partner may be responsible for
DISSOLUTION AND WINDING UP damages.
3) Express will of all partners
ART. 1828 Sans:
Dissolution of a partnership is the change in the relationship of the - those partners who assigned their share; or
partners caused by any partner ceasing to be associated in the carrying - whose interest have been charged.
on [the business] May also have the same effect when one buys out the interest of all the
others (French v. Mulholland, 187 NW 254)
ART. 1829
Art. 1828, “x x x as distinguished from winding up of the business” 4) Expulsion in good faith of a member
Winding up –­ process of settling business affairs after dissolution. - Expulsion, there is decrease in the number of partners; when
Termination – time after all the partnership affairs have been wound up. the number of partners decrease, there is a dissolution.
- When the expulsion is in bad faith, same effect without
Dissolution does not terminate the partnership; only when the winding prejudice to liability for damages by the expelled member. In
up process is completed will the partnership affairs shall be terminated. here, there is apparent lack of confidence.

- Dissolution cannot mean that a partner can evade previous obligations Violation of agreement [Art. 1830 (2)]
entered into by the partnership; Even there is a specified term, one partner may cause its dissolution by
- But it saves the former partners from subsequent obligations contracted expressly withdrawing even before the expiration of the period, with or
which they have not expressly or impliedly consented, unless essential without justifiable cause.
for winding up. (Testate Estate of Mota v. Serra) - In the case of unjustified cause, the withdrawing partner shall
be liable for damages.
ARTICLE 1830. Dissolution is caused: - In both cases, there is decrease in the number of members,
(1) Without violation of the agreement between the partners: hence, the dissolution.
(a) By the termination of the definite term or particular
undertaking specified in the agreement; Unlawfulness of the business [Art. 1830 (3)]
(b) By the express will of any partner, who must act in good - Business becomes unlawful: the firm will not be allowed to
faith, when no definite term or particular is specified; carry on, hence, dissolved;
(c) By the express will of all the partners who have not - Business had been unlawful from the beginning: the firm never
assigned their interests or suffered them to be charged for had any juridical personality. There is no partnership to speak
their separate debts, either before or after the termination of.
of any specified term or particular undertaking;
(d) By the expulsion of any partner from the business bona Loss [Art. 1830 (4)]
fide in accordance with such a power conferred by the - Specific thing is lost before delivery
agreement between the partners; - The partner in turn has not contributed, resulting to
(2) In contravention of the agreement between the partners, where dissolution;
the circumstances do not permit a dissolution under any other - If the loss occurs after delivery, the firm bears the loss, and
provision of this article, by the express will of any partner at any the partner has given his contribution, hence not dissolved;
time; - Generic things cannot perish (genus nunquam peruit)
(3) By any event which makes it unlawful for the business of the - Only the use of the thing is contributed, and lost before or after delivery
partnership to be carried on or for the members to carry it on in to the firm.
partnership; - The ownership was not transferred to the firm, and loss have
the effect as if there has been no contribution.

15
ATP Notes (Paras; Jurado; Cases) Atty. Risel Castillo-Taleon ibtk2i

Death of any partner [Art. 1830 (5)] Prejudicial Conduct or Persistent Breach of the Agreement [Art. 1831
- There is automatic dissolution, by reason of decrease in the number of (3)]
partners. Examples:
- The dissolution in this instance may be: - Failure of managers to hold regular meetings as required by the
partial - the surviving partners continue the business among agreement;
themselves; - Failure to provide financial reports;
total - the survivors proceeded to liquidate the assets, instead - Failure to hear grievance and make reform; (Gatdula v. Santos)
of continuing. - Accounting is unjustifiable refused (Lavoine v. Casey)
Bearneza v. Dequilla - this would become partners in
liquidation.
Receiver
Insolvency of any partner or of the Partnership [Art. 1830 (6)] - Here, where there is suit for dissolution, the court may appoint a
Insolvency need not be judicially declared; also need not be that he has receiver at its discretion, except:
no assets left, it is enough that the assets be less than the liabilities. If a) where practically all the assets are in the hands of the
insolvency need be judicially declared, then it should have been under sherriff under writ of replevin;
paragraph 8, “by decree of court.” b) existence of a partnership is denied.

Time of dissolution
- Dissolution effective at the time the judicial decree becomes a final
Civil interdiction of any partner [Art. 1830 (7)] judgement.
Civil interdiction results to incapacity to enter into dispositions of
property, needed in the partnership. ARTICLE 1832. Except so far as may be necessary to wind up
partnership affairs or to complete transactions begun but not then
Decree of the Court under Art. 1831 [Art. 1830 (8)] finished, dissolution terminates all authority of any partner to act
Must be final judgement rendered by a court of competent jurisdiction. for the partnership:
(1) With respect to the partners:
Art. 1830 provides for the causes of dissolution; to which the partners (a) When the dissolution is not by the act, insolvency or
decreasing or limiting the causes of dissolution held to be invalid. death of a partner; or
(Lichauco v. Lichauco) (b) When the dissolution is by such act, insolvency or death
of a partner, in cases where article 1833 so requires;
Art. 1831. On application by or for a partner the court shall decree a (2) With respect to persons not partners, as declared in article 1834.
dissolution whenever:
(1) A partner has been declared insane in any judicial proceeding or Article 1832 provides for the general rule: that when the firm is
is shown to be of unsound mind; dissolved, any partner will not bind the partnership.
(2) A partner becomes in any other way incapable of performing his
part of the partnership contract; However, as was discussed, the partnership is not terminated upon
(3) A partner has been guilty of such conduct as tends to affect dissolution but until after winding up; and at this point, the personality is
prejudicially the carrying on of the business; for the winding of affairs; at that time, the firm is still required to pay off
(4) A partner wilfully or persistently commits a breach of the its debts; and has the right to collect credits due them (as a part of
partnership agreement, or otherwise so conducts himself in matters winding up process).
relating to the partnership business that it is not reasonably
practicable to carry on the business in partnership with him; Question: Does dissolution of the partnership terminate all authority
(5) The business of the partnership can only be carried on at a loss; of the managing partner, if one had been appointed, or of any partner,
(6) Other circumstances render a dissolution equitable. if no manager had been appointed, to act for the partnership?
The dissolution of the partnership terminates all authority of the
On the application of the purchaser of a partner's interest under managing partner or of any partner, as the case may be, to act for the
Article 1813 or 1814: partnership. This rule, however is subject to the following exceptions:
(1) After the termination of the specified term or particular (1) Acts necessary to wind up partnership affairs;
undertaking; (2) Acts necessary to complete transactions begun but not then
(2) At any time if the partnership was a partnership at will when the finished; and
interest was assigned or when the charging order was issued. (3) Acts or transactions which would bind the partnership if
dissolution had not taken place, provided the other party to
In the dissolution by decree of court, it must be first proved that the firm such transactions:
is, in the first place, existing. (a) Had extended credit to the partnership prior to
dissolution and had no knowledge or notice of such
Insanity of a Partner [Art. 1831 (1)] dissolution; or
Insanity makes a partner incapacitated to contract; (b) Although he had not so extended credit, had
Insanity need not be declared by the court; so long as the insanity is duly nevertheless known of the partnership prior to
proven in court, then it may constitute a ground under Art. 1831. dissolution, and, having no knowledge or notice of
dissolution, the fact of dissolution had not been
Incapability to Perform Part [Art. 1831 (2)] advertised in a newspaper of general circulation in
Examples: the place at which the business was regularly carried
- When a partner enters government service, prohibiting him from on. (Jurado, 1060)
participating in the firm;
- The partner will have to stay abroad for a long time.

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ATP Notes (Paras; Jurado; Cases) Atty. Risel Castillo-Taleon ibtk2i

ARTICLE 1833. Where the dissolution is caused by the act, death or The partnership is in no case bound by any act of a partner after
insolvency of a partner, each partner is liable to his co-partners for dissolution:
his share of any liability created by any partner acting for the (1) Where the partnership is dissolved because it is
partnership as if the partnership had not been dissolved unless: unlawful to carry on the business, unless the act is
(1) The dissolution being by act of any partner, the partner appropriate for winding up partnership affairs; or
acting for the partnership had knowledge of the (2) Where the partner has become insolvent; or
dissolution; or (3) Where the partner has no authority to wind up
(2) The dissolution being by the death or insolvency of a partnership affairs; except by a transaction with one who:
partner, the partner acting for the partnership had (a) Had extended credit to the partnership prior
knowledge or notice of the death or insolvency. to dissolution and had no knowledge or notice of
For the purposes of Art. 1833, there are two categories for causes of his want of authority; or
dissolution in Art. 1830, to wit: (b) Had not extended credit to the partnership
a) AID (act, insolvency, and death) prior to dissolution, and, having no knowledge or
b) others (like termination of the period). notice of his want of authority, the fact of his
want of authority has not been advertised in the
Art. 1833, where it provides for effects where the cause is the AID, manner provided for advertising the fact of
applies only on effects as among the partners themselves, where a dissolution in the first paragraph, No. 2 (b).
partnership liability is incurred. Necessarily, Art. 1833 makes the Nothing in this article shall affect the liability under Article 1825 of
partnership bound; if not, Art. 1834 is applied. any person who, after dissolution, represents himself or consents to
another representing him as a partner in a partnership engaged in
General rule: All partners are bound to each other, except: carrying business.
a) Where the dissolution is caused by act of any partner, the
partner acting for the partnership had knowledge of the Article 1834 provides, two instances, and their corollary effects:
dissolution; a) When partnership is bound (therefore partnership liability is created)
Note here that the firm and the partners shall be - Where the business is for winding up;
liable, but the partners can always recover from the - To complete unfinished transactions;
partner acting. - For completely new business with third persons considered innocent:
b) Where the cause is insolvency and death, and the partner a) those who have extended credit to the partnership prior to the
acting has notice or knowledge of the death or insolvency. dissolution and had no knowledge or notice of the dissolution
(must be a previous creditor);
Notice vs. knowledge b) those who have not extended credit but knew the partnership
Knowledge is personal to the partner acting; that the partner must prior to dissolution and have no knowledge or notice of
actually know the fact concerned. Notice is when a fact was made dissolution, the fact not advertised in a newspaper of general
publicly, but not necessarily personally known to a partner concerned. circulation.
Knowledge is a necessary consequence of notice; but there can be mere In cases where the partnership is bound, paragraph 2 provides that those
notice without actual knowledge. In cases where knowledge is required, who are: a) unknown as a partner to the person with whom the contract
mere notice not producing knowledge is not sufficient. is made; and b) unknown and inactive in partnership affairs that the
business could not be said to have been due to his connection with it, are
Art. 1834. After dissolution, a partner can bind the partnership, only liable insofar as his partnership assets alone.
except as provided in the third paragraph of this article:
(1) By any act appropriate for winding up partnership Hypo: A, B, and C are partners. A withdraws (therefore constituting
affairs or completing transactions unfinished at dissolution), with the knowledge of B. B transacted to X, a third person
dissolution; in good faith, and a previous creditor. C was not known to X, nor X could
(2) By any transaction which would bind the partnership if have transacted to the firm because of C. a) Is the firm liable?; and b)
dissolution had not taken place, provided the other party to Can X go after individual properties of B and C?
the transaction: a) Yes, because since X is a previous creditor, hence falls under
(a) Had extended credit to the partnership prior first paragraph, (2)(a) of Art. 1834, where a previous creditor
to dissolution and had no knowledge or notice of has extended credit to the partnership prior to the dissolution.
the dissolution; or b) Yes, except to C, an unknown partner to X, to which his
(b) Though he had not so extended credit, had liability shall be satisfied out of partnership assets only. (5
nevertheless known of the partnership prior to Paras 721)
dissolution, and, having no knowledge or notice of b) When partnership is not bound
dissolution, the fact of dissolution had not been - Those other than the instances where the partnership is bound;
advertised in a newspaper of general circulation - where the firm was dissolved because it was unlawful to carry on the
in the place (or in each place if more than one) at business, except when it is for winding up;
which the partnership business was regularly - where the partner that acted in the transaction has become insolvent;
carried on. - the partner is unauthorized to wind up, except towards a customer in
The liability of a partner under the first paragraph, No. 2, shall be good faith.
satisfied out of partnership assets alone when such partner had been
prior to dissolution: Hypo 2: A, B, and C are partners. A dies, with knowledge of B but
(1) Unknown as a partner to the person with whom the transacted to X, on business not connected to winding up. The notice of
contract is made; and dissolution was in the paper but did not read the notice. When X
(2) So far unknown and inactive in partnership affairs that transacted to B, he did not know that the partnership is dissolved. a) If X
the business reputation of the partnership could not be said is a previous creditor, is the firm liable?; b) if X is not a previous
to have been in any degree due to his connection with it. creditor, is the firm liable?

17
ATP Notes (Paras; Jurado; Cases) Atty. Risel Castillo-Taleon ibtk2i

a) Yes, but as among partners, only B will be liable, having However, those income earned after such time, shall not be considered as
knowledge of the death; profits, but additional income to the capital, and the distribution of
b) No, as it is the fault of X that he did not read the which is governed by co-ownership, hence, depending on the
advertisement, there is no special consideration on that point as contribution given.
he is not a previous creditor. (5 Paras 720-721)
ARTICLE 1837
ARTICLE 1835. The dissolution of the partnership does not of itself To determine the rights under this provision, it must be mentioned that
discharge the existing liability of any partner. the cause of dissolution may be in two ways: contract is not violated,
and the contract is violated.
A partner is discharged from any existing liability upon dissolution
of the partnership by an agreement to that effect between himself, a) Contract is not violated
the partnership creditor and the person or partnership continuing - Each partner may have the partnership property apply to its liabilities,
the business; and such agreement may be inferred from the course and surplus thereof, in net amount, to respective partners in cash.
of dealing between the creditor having knowledge of the dissolution - When caused by expulsion of a partner bona fide under the agreement,
and the person or partnership continuing the business. the expelled partner, after being discharged from liabilities, receive in
cash only the net amount due him with the partnership. (Art. 1837, first
The individual property of a deceased partner shall be liable for all paragraph) He is discharged from liabilities by:
obligations of the partnership incurred while he was a partner, but a) Payment;
subject to the prior payment of his separate debts. b) Agreement to discharging any existing liability under Art.
1835 (and therefore the requirements of Art. 1835 must be
General rule: Dissolution does not discharge existing liability of followed)
partners. Otherwise, the creditors shall be prejudiced.
b) Where the partnership contract is violated
Exception: An agreement. (second paragraph, Art. 1835) The agreement a) The innocent partners have better rights than guilty partners
must be within: (apparently) and that the guilty partners, on top of its less
a) partner concerned; rights, are required to indemnify for the damage caused.
b) other partners; and b) The innocent partners may continue the business, but always,
c) the creditor. the rights granted to guilty partners are safeguarded by:
i) Bond approved by the court; and
Where an action for accounting against a managing partner is pending ii) payment of his interest minus damages
and the partner dies during the pendency thereof, the action must be c) In case of non-continuance of business, the interest of the
discontinued, and the suit must be conducted in the settlement partner should be given in cash.
proceedings in the deceased estate. (Po Yeng Cheo v. Lim Ka Yan) But d) As a consequence of bad faith, the guilty partner shall have no
again, the claims of the partnership creditor is subordinated by the rights share on the value of the goodwill.
of the separate creditors. (Art. 1835, last paragraph; Art. 1827) e) And where the expulsion, on the other hand, is wrong and
unjustified, he is to be regarded as an innocent partner; and is
ARTICLE 1836. Unless otherwise agreed, the partners who have not entitled to his shares, as well as damages, and profits from the
wrongfully dissolved the partnership or the legal representative of value of the goodwill.
the last surviving partner, not insolvent, has the right to wind up the
partnership affairs, provided, however, that any partner, his legal ARTICLE 1838
representative or his assignee, upon cause shown, may obtain Contemplates annulment of the partnership contract on account of fraud
winding up by the court. or misrepresentation. Fraud or misrepresentation here implies all
instances were consent is vitiated on entering the contract of partnership.
Winding up may be extrajudicial or judicial.
a) Extrajudicial: Rights
- By the partners who have not wrongfully dissolved the a) lien or retention - for surplus of partnership property for any
partnership; or sum paid by him for purchase of an interest or any advances
- By legal representative of the last survivng partner (if all are made by him; [Art. 1838 (1)]
dead); b) subrogation - to stand in place of creditors whom he paid for,
- When the managing partners has the necessary authority to for any payments made by him in respect to partnership
liquidate under its articles of co-partnership x x x since he, as a liabilities; [Art. 1838 (2)]
manager, is empowered to wind up the business affairs of the c) indemnification - by guilty person against all debts or
partnership. (Ng Chio Cho v. Ng Diong) liabilities of the partnership [Art. 1838 (3)]
(Ian, ratio: since you brought me into this, you indemnify me
b) Judicial: for any liability I incurred in the partnership for if not for the
- The person to wind up must be appointed by the court; misrepresentation or fraud, I’ll not incur that liability in the
- However, the petition to wind up may be done by any partner, first place)
legal representative, or assignee, with cause shown. (Art. 1836,
part 2) ARTICLE 1839
Upon liquidation “profits” are supposed to accrue only during the Art. 1839. In settling accounts between the partners after
existence of the partnership before the dissolution. It also includes those dissolution, the following rules shall be observed, subject to any
actually received after the dissolution on transactions entered into before agreement to the contrary:
the dissolution. In this case, the agreement or rule on the distribution (1) The assets of the partnership are:
shall govern. (a) The partnership property,
(b) The contributions of the partners necessary for the
payment of all the liabilities specified in No. 2.

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ATP Notes (Paras; Jurado; Cases) Atty. Risel Castillo-Taleon ibtk2i

(2) The liabilities of the partnership shall rank in order of payment,

as follows: Hypo: A, B, and C. A died. Is A’s estate liable for the contributions
(a) Those owing to creditors other than partners, needed to pay off the partnership obligations?
(b) Those owing to partners other than for capital and - Yes, on obligations incurred prior to his death. (5 Paras 734)
profits,
(c) Those owing to partners in respect of capital, Hypo 2: Both the partnership properties and individual properties are in
(d) Those owing to partners in respect of profits. the possession of the court for distribution, who should be preferred (in
(3) The assets shall be applied in the order of their declaration in No. the distribution)?
1 of this article to the satisfaction of the liabilities. - As regards partnership properties, those partnership creditors;
(4) The partners shall contribute, as provided by article 1797, the - As regards individual properties, individual creditors. (Art.
amount necessary to satisfy the liabilities. 1827; 5 Paras 734)
(5) An assignee for the benefit of creditors or any person appointed
by the court shall have the right to enforce the contributions For rules in insolvency to apply [Art. 1839 (9)], it need not be that tha
specified in the preceding number. partner has no money nor property; it is enough that the assets are less
(6) Any partner or his legal representative shall have the right to than the liabilities.
enforce the contributions specified in No. 4, to the extent of the
amount which he has paid in excess of his share of the liability. ARTICLE 1840. In the following cases creditors of the dissolved
(7) The individual property of a deceased partner shall be liable for partnership are also creditors of the person or partnership
the contributions specified in No. 4. continuing the business:
(8) When partnership property and the individual properties of the (1) When any new partner is admitted into an existing partnership,
partners are in possession of a court for distribution, partnership or when any partner retires and assigns (or the representative of the
creditors shall have priority on partnership property and separate deceased partner assigns) his rights in partnership property to two
creditors on individual property, saving the rights of lien or secured or more of the partners, or to one or more of the partners and one or
creditors. more third persons, if the business is continued without liquidation
(9) Where a partner has become insolvent or his estate is insolvent, of the partnership affairs;
the claims against his separate property shall rank in the following (2) When all but one partner retire and assign (or the representative
order: of a deceased partner assigns) their rights in partnership property to
(a) Those owing to separate creditors; the remaining partner, who continues the business without
(b) Those owing to partnership creditors; liquidation of partnership affairs, either alone or with others;
(c) Those owing to partners by way of contribution. (3) When any partner retires or dies and the business of the
dissolved partnership is continued as set forth in Nos. 1 and 2 of this
Rules for settling accounts article, with the consent of the retired partners or the representative
Settling accounts for partnership actually tantamount to liquidation. Art. of the deceased partner, but without any assignment of his right in
1839 applies if there is no contrary agreement. partnership property;
(4) When all the partners or their representatives assign their rights
Essence: A partner cannot demand its proportionate share of profit or on in partnership property to one or more third persons who promise
return of its capital assets in an action for it is essential to first pay-off to pay the debts and who continue the business of the dissolved
the creditors. There must be an action for liquidation before there is partnership;
recovery of proportionate shares. (Po Yeng Cheo v. Lim Ka Yam) (5) When any partner wrongfully causes a dissolution and the
remaining partners continue the business under the provisions of
Settlement of accounts must be made from the assets of the partnership article 1837, second paragraph, No. 2, either alone or with others,
which includes: and without liquidation of the partnership affairs;
a) partnership property, including goodwill; and (6) When a partner is expelled and the remaining partners continue
b) contributions of the partners to pay-off partnership liabilities. the business either alone or with others without liquidation of the
partnership affairs.
Order of payment The liability of a third person becoming a partner in the partnership
a) Creditors stranger to the partnership; continuing the business, under this article, to the creditors of the
b) Those owing to the partners as creditors dissolved partnership shall be satisfied out of the partnership
- Must be placed in subordinate position from outside property only, unless there is a stipulation to the contrary.
creditors; and those owing to the partners which are
not profits nor capital (like reimbursements) When the business of a partnership after dissolution is continued
c) Capital of the partners under any conditions set forth in this article the creditors of the
- Preferred over profits as profits are only determined dissolved partnership, as against the separate creditors of the
as surplus form the capital retiring or deceased partner or the representative of the deceased
- Industrial partners without capital contribution and partner, have a prior right to any claim of the retired partner or the
no contrary agreement, has no stake in the capital, representative of the deceased partner against the person or
but only on profits. partnership continuing the business, on account of the retired or
d) Profits deceased partner's interest in the dissolved partnership or on
account of any consideration promised for such interest or for his
New Contributions right in partnership property.
Required to be given when partnership assets are insufficient to satisfy
liabilities. It can be enforced by: Nothing in this article shall be held to modify any right of creditors
a) Any assignee for the benefit of the creditor or anyone to set aside any assignment on the ground of fraud.
appointed by the court;
b) Any partner or his legal representative to the extent of what he The use by the person or partnership continuing the business of the
has paid in excess of the share of the liabilities. partnership name, or the name of a deceased partner as part

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ATP Notes (Paras; Jurado; Cases) Atty. Risel Castillo-Taleon ibtk2i

thereof, shall not of itself make the individual property of the c) Person or partnership continuing the business
deceased partner liable for any debts contracted by such person or
partnership.
Chapter 4: Limited Partnership
Example: Article 1843. A limited partnership is one formed by two or more
A and B are partners. C was later admitted and the firm’s business is persons under the provisions of the following article, having as
continued. (Assume that A and B consented to the admission) The members one or more general partners and one or more limited
creditors of the old firm continue to be creditors of the new partnership partners. The limited partners as such shall not be bound by the
but the liability of C shall be satisfied out of partnership only, except obligations of the partnership.
when there is stipulation to the contrary.

Hypo: NR, NA, C, M formed a partnership. NA was expelled from the General Partnership Limited Partnership
partnership while Nancy, Cres and Michael continued the business and
admitted L to the partnership. Will all the 4 partners who continued the Composed only of general Composed of at least 1 general
business liable to the creditors of the dissolved partnership? partners partner and 1 limited partner
- Yes. In the following cases creditors of the dissolved
partnership are also creditors of the person or partnership May be constituted in any form Must be contained in a certificate
continuing the business: x x x (6) When a partner is expelled of limited partnership, duly
and the remaining partners continue the business either alone signed and sworn to by all of the
or with others without liquidation of the partnership affairs. partners, and recorded in the
- However, L’s share in the liabilities shall be satisfied only out Office of the Securities and
of partnership assets. Exchange Commission

On deceased or retired partner Must operate under a firm name, Must operate under the firm nme,
- The creditors of the partnership shall have a prior right over which may or may not include followed by the word “Limited”
any claim by the retired partner or the representative of the the name of one or more of the (Jurado, p. 1061)
deceased partner for any claim by the latter “on account of the partners
retired or deceased partner's interest in the dissolved
partnership or on account of any consideration promised for
such interest or for his right in partnership property.” (As
Article 1839 provides for preference of credits on settlement of General Partner Limited Partner
liability, also applies in this case);
- But though the name of the deceased partner remains in the Can be held personally liable for Cannot be held liable
firm name of the continued business, his estate, and individual partnership obligations after all
properties is not liable for it presupposes a new partnership the assets of the partnership have
though with a new name, and new partnership is presumed to been exhausted
enter contracts after the retiring or deceased partner has
ceased to become a partner. May participate in the Do not participate
management of the partnership
ARTICLE 1841
Article 1841 speaks of the rights of retiring partners or estate of deceased Contribute money, property or Contribute money or property
partner when the business is continued without any statement of industry to a common fund only
accounts.
Name may appear in the firm Does not appear in the firm name
- Such is entitled only whatever is due to him after liquidation, except name
when the share the retiring or deceased partners is entitled is already
settled, then, he is entitled to what is settled. (Bonnevie v. Hernandez, 95 There is a limitation on the right No such limitation exist (Jurado,
Phil. 175) of a general partner to engage in p. 1062)
another business (for industrial
ARTICLE 1842. The right to an account of his interest shall accrue partner) or in the same kind of
to any partner, or his legal representative as against the winding up business as that in which the
partners or the surviving partners or the person or partnership partnership is engaged (for
continuing the business, at the date of dissolution, in the absence of Capitalist Partner)
any agreement to the contrary.

When the right to account occurs: Article 1844. Two or more persons desiring to form a limited
a) Agreement by the parties; partnership shall:
b) Absence thereof, the date of dissolution. (1) Sign and swear to a certificate, which shall state -
(a) The name of the partnership, adding thereto the word
Plaintiff may be: "Limited";
a) Any partner; or (b) The character of the business;
b) His legal representative. (c) The location of the principal place of business;
(d) The name and place of residence of each member,
The action for a right of accounting by the plaintiff may be against: general and limited partners being respectively designated;
a) Winding up partners; (e) The term for which the partnership is to exist;
b) Surviving partners; and/or

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ATP Notes (Paras; Jurado; Cases) Atty. Risel Castillo-Taleon ibtk2i

( f ) The amount of cash and a description of and the ● Makes the limited partner liable as a general partner to innocent
agreed value of the other property contributed by each third parties, without the rights of general partner
limited partner;
(g) The additional contributions, if any, to be made by each Article 1847. If the certificate contains a false statement, one who
limited partner and the times at which or events on the suffers loss by reliance on such statement may hold liable any party
happening of which they shall be made; to the certificate who knew the statement to be false:
(h) The time, if agreed upon, when the contribution of each (1) At the time he signed the certificate, or
limited partner is to be returned; (2) Subsequently, but within a sufficient time before the
(i) The share of the profits or the other compensation by statement was relied upon to enable him to cancel or
way of income which each limited partner shall receive by amend the certificate, or to file a petition for its
reason of his contribution; cancellation or amendment as provided in article 1865.
(j) The right, if given, of a limited partner to substitute an ● Person who suffers loss due to a false statement can sue for
assignee as contributor in his place, and the terms and damages.
conditions of the substitution;
(k) The right, if given, of the partners to admit additional Article 1848. A limited partner shall not become liable as a general
limited partners; partner unless, in addition to the exercise of his rights and powers as
(l) The right, if given, of one or more of the limited a limited partner, he takes part in the control of the business.
partners to priority over other limited partners, as to DO NOT constitute taking part in the control of the business:
contributions or as to compensation by way of income, and 1) Dealing with a customer
the nature of such priority; 2) Consultation on one occasion with general partners
(m) The right, if given, of the remaining general partner or DO constitute taking part in the control of the business:
partners to continue the business on the death, retirement, 1) Selection of the managing partner
civil interdiction, insanity or insolvency of a general 2) Supervision over superintendent of the business of the firm
partner; and
(n) The right, if given, of a limited partner to demand and Article 1849. After the formation of a lifted partnership, additional
receive property other than cash in return for his limited partners may be admitted upon filing an amendment to the
contribution. original certificate in accordance with the requirements of article
(2) File for record the certificate in the Office of the Securities and 1865.
Exchange Commission. Upon taking in additional limited partner but failure to make the proper
A limited partnership is formed if there has been substantial amendment in the certificate with the SEC, does not necessarily mean
compliance in good faith with the foregoing requirements. the dissolution of the limited partnership.

Requisites in the Formation of Limited Partnership: Article 1850. A general partner shall have all the rights and powers
a) Signing under oath of the required certificate; and and be subject to all the restrictions and liabilities of a partner in a
b) Filing for record of the certificate in the Office of the partnership without limited partners. However, without the written
Securities and Exchange Commission consent or ratification of the specific act by all the limited partners,
a general partner or all of the general partners have no authority to:
The non fulfillment of the requisites would not make it a limited (1) Do any act in contravention of the certificate;
partnership but a general partnership. (2) Do any act which would make it impossible to carry on the
Ex: If the contribution of each limited partner is not stated, law ordinary business of the partnership;
has not been complied with; (3) Confess a judgment against the partnership;
If the firm name does not have the word “limited” such is not a (4) Possess partnership property, or assign their rights in
limited partnership. specific partnership property, for other than a partnership
purpose;
Article 1845. The contributions of a limited partner may be cash or (5) Admit a person as a general partner;
property, but not services. (6) Admit a person as a limited partner, unless the right so to
In a limited partnership, an industrial partner cannot be a limited partner do is given in the certificate;
but can be a general partner. (7) Continue the business with partnership property on the
death, retirement, insanity, civil interdiction or insolvency of
Article 1846. The surname of a limited partner shall not appear in a general partner, unless the right so to do is given in the
the partnership name unless: certificate.
(1) It is also the surname of a general partner, or ● In relation to acts under Art. 1850, general partners (even if
(2) Prior to the time when the limited partner became such, already unanimous among themselves) must still get written
the business has been carried on under a name in which his consent or ratification of ALL the limited partners.
surname appeared.
A limited partner whose surname appears in a partnership name If a general partner in a limited partnership goes abroad, his capacity to
contrary to the provisions of the first paragraph is liable as a general bind the firm is governed by the law of the place where the limited
partner to partnership creditors who extend credit to the partnership was formed.
partnership without actual knowledge that he is not a general
partner. Article 1851. A limited partner shall have the same rights as a
GR: A limited partner cannot be held liable for partnership obligations general partner to:
(Art 1843) (1) Have the partnership books kept at the principal place of
Exception: His surname appears in the partnership or firm name (Art business of the partnership, and at a reasonable hour to
1846); inspect and copy any of them;
If he participate in the management or control of the (2) Have on demand true and full information of all things
business (Art 1848); (Jurado, p1062) affecting the partnership, and a formal account of

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ATP Notes (Paras; Jurado; Cases) Atty. Risel Castillo-Taleon ibtk2i

partnership affairs whenever circumstances render it just ● There can be preference to some limited over other limited partners
and reasonable; and but it must be stated in the certificate
(3) Have dissolution and winding up by decree of court. ● Nature of Preference:
A limited partner shall have the right to receive a share of the profits (a) Return of Contributions;
or other compensation by way of income, and to the return of his (b) Compensation;
contribution as provided in articles 1856 and 1857. (c) Other matters
● Limited partner necessarily has lesser rights than a general partner.
● However, he cannot bind the firm by contract (Columbia Land Co. Article 1856. A limited partner may receive from the partnership the
vs Dally) share of the profits or the compensation by way of income stipulated
for in the certificate; provided, that after such payment is made,
Article 1852. Without prejudice to the provisions of article 1848, a whether from property of the partnership or that of a general
person who has contributed to the capital of a business conducted by partner, the partnership assets are in excess of all liabilities of the
a person or partnership erroneously believing that he has become a partnership except liabilities to limited partners on account of their
limited partner in a limited partnership, is not, by reason of his contributions and to general partners.
exercise of the rights of a limited partner, a general partner with the ● Refers to limited partner’s profit or compensation by way of
person or in the partnership carrying on the business, or bound by income
the obligations of such person or partnership, provided that on ● Art 1856 shall apply provided that partnership assets must be in
ascertaining the mistake he promptly renounces his interest in the excess of partnership liabilities to third person not liabilities to
profits of the business, or other compensation by way of income. partners.
● If a person erroneously believes that he has become a limited
partner and thereupon exercises the rights of a limited partner, he Article 1857. A limited partner shall not receive from a general
should NOT be considered liable as a general partner. partner or out of partnership property any part of his contributions
PROVIDED: until: (CONDITIONS before contributions can be returned)
a) On ascertaining the mistake, he promptly renounces his (1) All liabilities of the partnership, except liabilities to
interest in the profits of the business, or other compensation by general partners and to limited partners on account of
way of income; or their contributions, have been paid or there remains
b) Even if no such renouncement was made, partnership creditors property of the partnership sufficient to pay them;
were NOT prejudiced. (2) The consent of all members is had, unless the return of
the contribution may be rightfully demanded under the
Article 1853. A person may be a general partner and a limited provisions of the second paragraph; and
partner in the same partnership at the same time, provided that this (3) The certificate is cancelled or so amended as to set forth
fact shall be stated in the certificate provided for in article 1844. the withdrawal or reduction.
A person who is a general, and also at the same time a limited ● Upon violation of any of the conditions, previous creditors can sue
partner, shall have all the rights and powers and be subject to all the but they must allege and prove the non-existence of the conditions.
restrictions of a general partner; except that, in respect to his Subject to the provisions of the first paragraph, a limited partner
contribution, he shall have the rights against the other members may rightfully demand the return of his contribution: (TIME when
which he would have had if he were not also a general partner. contributions can be returned)
● A person can be a general and limited partner at the same time (1) On the dissolution of a partnership; or
provided such is stated in the Certificate. (2) When the date specified in the certificate for its return
● GR: Rights, Power and Restrictions of a General Partner has arrived, or
Exception: Right as to Contributions of a Limited Partner (3) After he has six months' notice in writing to all other
members, if no time is specified in the certificate, either for
Article 1854. A limited partner also may loan money to and transact the return of the contribution or for the dissolution of the
other business with the partnership, and, unless he is also a general partnership.
partner, receive on account of resulting claims against the In the absence of any statement in the certificate to the contrary or
partnership, with general creditors, a pro rata share of the assets. No the consent of all members, a limited partner, irrespective of the
limited partner shall in respect to any such claim: nature of his contribution, has only the right to demand and receive
(1) Receive or hold as collateral security any partnership cash in return for his contribution.
property, or A limited partner may have the partnership dissolved and its affairs
(2) Receive from a general partner or the partnership any wound up when:
payment, conveyance, or release from liability if at the time (1) He rightfully but unsuccessfully demands the return of
the assets of the partnership are not sufficient to discharge his contribution, or
partnership liabilities to persons not claiming as general or (2) The other liabilities of the partnership have not been
limited partners. paid, or the partnership property is insufficient for their
The receiving of collateral security, or payment, conveyance, or payment as required by the first paragraph, No. 1, and the
release in violation of the foregoing provisions is a fraud on the limited partner would otherwise be entitled to the return of
creditors of the partnership. his contribution.

Article 1855. Where there are several limited partners the members Article 1858. A limited partner is liable to the partnership:
may agree that one or more of the limited partners shall have a (1) For the difference between his contribution as actually
priority over other limited partners as to the return of their made and that stated in the certificate as having been
contributions, as to their compensation by way of income, or as to made, and
any other matter. If such an agreement is made it shall be stated in (2) For any unpaid contribution which he agreed in the
the certificate, and in the absence of such a statement all the limited certificate to make in the future at the time and on the
partners shall stand upon equal footing. conditions stated in the certificate.
A limited partner holds as trustee for the partnership:

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ATP Notes (Paras; Jurado; Cases) Atty. Risel Castillo-Taleon ibtk2i

(1) Specific property stated in the certificate as contributed who relies on a false statement in the certificate (Art 1847) and to
by him, but which was not contributed or which has been creditors who extended credit or whose claims rose before the
wrongfully returned, and assignment (Art 1859).
(2) Money or other property wrongfully paid or conveyed
to him on account of his contribution. Article 1860. The retirement, death, insolvency, insanity or civil
The liabilities of a limited partner as set forth in this article can be interdiction (DRICI) of a GENERAL PARTNER dissolves the
waived or compromised only by the consent of all members; but a partnership, unless the business is continued by the remaining
waiver or compromise shall not affect the right of a creditor of a general partners:
partnership who extended credit or whose claim arose after the (1) Under a right so to do stated in the certificate, or
filing and before a cancellation or amendment of the certificate, to (2) With the consent of all members.
enforce such liabilities. ● Source: Sec 20, Uniform Limited Partnership Act
When a contributor has rightfully received the return in whole or in ● Art 1860 do NOT apply to limited partner, for in such case, the
part of the capital of his contribution, he is nevertheless liable to the firm is not dissolved.
partnership for any sum, not in excess of such return with interest, ● A, B, C and D are partners. A and B are general partners and the
necessary to discharge its liabilities to all creditors who extended rest are limited partners. A dies. Is the partnership dissolved? YES.
credit or whose claims arose before such return. Unless continued by the remaining general partners.
● Source: Sec 17, Uniform Limited Partnership Act When may remaining general partners continue the business?
● A, limited partner, received the return of his contribution. It was 1) If the right to do so is stated in the certificate
discovered that the remaining assets were insufficient to pay 2 2) If all the members consent
creditos, X and Y. X’s claim arose before the return. Y’s claim BUT, at any event, there should be an amendment of the
arose after the return. Should A be compelled to give back what he certificate.
had received?
(a) X’s claim should be satisfied out of what has been return to A. Article 1861. On the death of a limited partner his executor or
If there is a balance, it should be returned to A. If there is a administrator shall have all the rights of a limited partner for the
deficit, A is not liable because he is only a limited partner. purpose of setting his estate, and such power as the deceased had to
(b) Y’s claim does not have to be satisfied from what has been constitute his assignee a substituted limited partner.
returned to A as contribution. The estate of a deceased limited partner shall be liable for all his
liabilities as a limited partner.
Article 1859. A limited partner's interest is assignable. ● Source: Sec 21, Uniform Limited Partnership Act

A substituted limited partner is a person admitted to all the rights of Article 1862. On due application to a court of competent jurisdiction
a limited partner who has died or has assigned his interest in a by any creditor of a limited partner, the court may charge the
partnership. interest of the indebted limited partner with payment of the
unsatisfied amount of such claim, and may appoint a receiver, and
An assignee, who does not become a substituted limited partner, has make all other orders, directions and inquiries which the
no right to require any information or account of the partnership circumstances of the case may require.
transactions or to inspect the partnership books; he is only entitled The interest may be redeemed with the separate property of any
to receive the share of the profits or other compensation by way of general partner, but may not be redeemed with partnership
income, or the return of his contribution, to which his assignor property.
would otherwise be entitled. The remedies conferred by the first paragraph shall not be deemed
exclusive of others which may exist.
An assignee shall have the right to become a substituted limited Nothing in this Chapter shall be held to deprive a limited partner of
partner if all the members consent thereto or if the assignor, being his statutory exemption.
thereunto empowered by the certificate, gives the assignee that right. ● Source: Sec 22, Uniform Limited Partnership Act
Article 1863. In settling accounts after dissolution the liabilities of
An assignee becomes a substituted limited partner when the the partnership shall be entitled to payment in the following order:
certificate is appropriately amended in accordance with article 1865. (1) Those to creditors, in the order of priority as provided
by law, except those to limited partners on account of their
The substituted limited partner has all the rights and powers, and is contributions, and to general partners;
subject to all the restrictions and liabilities of his assignor, except (2) Those to limited partners in respect to their share of the
those liabilities of which he was ignorant at the time he became a profits and other compensation by way of income on their
limited partner and which could not be ascertained from the contributions;
certificate. (3) Those to limited partners in respect to the capital of
their contributions;
The substitution of the assignee as a limited partner does not release (4) Those to general partners other than for capital and
the assignor from liability to the partnership under articles 1847 and profits;
1858. (5) Those to general partners in respect to profits;
● Source: Sec 19, Uniform Limited Partnership Act (6) Those to general partners in respect to capital.
● Does the assignee of the interest of the limited partner become Subject to any statement in the certificate or to subsequent
necessarily a substitute partner? NO. The following should be agreement, limited partners share in the partnership assets in
present: a) consent of all members of the partnership or b) if respect to their claims for capital, and in respect to their claims for
assignor, being empowered by the certificate, gives the assignee profits or for compensation by way of income on their contribution
that right respectively, in proportion to the respective amounts of such claims.
● A, limited partner, assigned his interest to X, who subsequently ● Source: Sec 23, Uniform Limited Partnership Act
became a substituted limited partner. Is A completely relieved of all
his liabilites to the partnership? NO. A is still liable to a person

23
ATP Notes (Paras; Jurado; Cases) Atty. Risel Castillo-Taleon ibtk2i

Article 1864. The certificate shall be cancelled when the partnership (3) After the certificate is duly amended in accordance with
is dissolved or all limited partners cease to be such. this article, the amended certified shall thereafter be for all
● Writing to cancel a certificate shall be signed by all members. (Art purposes the certificate provided for in this Chapter.
1865)
A certificate shall be amended when:
(1) There is a change in the name of the partnership or in
the amount or character of the contribution of any limited
partner; Article 1866. A contributor, unless he is a general partner, is not a
(2) A person is substituted as a limited partner; proper party to proceedings by or against a partnership, except
(3) An additional limited partner is admitted; where the object is to enforce a limited partner's right against or
(4) A person is admitted as a general partner; liability to the partnership.
(5) A general partner retires, dies, becomes insolvent or
insane, or is sentenced to civil interdiction and the business
is continued under article 1860;
(6) There is a change in the character of the business of the Article 1867. A limited partnership formed under the law prior to
partnership; the effectivity of this Code, may become a limited partnership under
(7) There is a false or erroneous statement in the this Chapter by complying with the provisions of article 1844,
certificate; provided the certificate sets forth:
(8) There is a change in the time as stated in the certificate (1) The amount of the original contribution of each limited
for the dissolution of the partnership or for the return of a partner, and the time when the contribution was made;
contribution; and
(9) A time is fixed for the dissolution of the partnership, or (2) That the property of the partnership exceeds the
the return of a contribution, no time having been specified amount sufficient to discharge its liabilities to persons not
in the certificate, or claiming as general or limited partners by an amount
(10) The members desire to make a change in any other greater than the sum of the contributions of its limited
statement in the certificate in order that it shall accurately partners.
represent the agreement among them. A limited partnership formed under the law prior to the effectivity
of this Code, until or unless it becomes a limited partnership under
Article 1865. The writing to amend a certificate shall: this Chapter, shall continue to be governed by the provisions of the
old law.
(1) Conform to the requirements of article 1844 as far as ● EFFECTIVITY OF THE NCC: August 30, 1950
necessary to set forth clearly the change in the certificate ● On June 1, 1946, limited partnership was formed. May it become a
which it is desired to make; and limited partnership in the NCC? Yes, by following the conditions
in Art. 1867.
(2) Be signed and sworn to by all members, and an If the limited partnership does not want to become one under the
amendment substituting a limited partner or adding a NCC, what law shall govern such? The old law .
limited or general partner shall be signed also by the
member to be substituted or added, and when a limited
partner is to be substituted, the amendment shall also be
signed by the assigning limited partner.

The writing to cancel a certificate shall be signed by all members.

A person desiring the cancellation or amendment of a certificate, if

any person designated in the first and second paragraphs as a
person who must execute the writing refuses to do so, may petition
the court to order a cancellation or amendment thereof.

If the court finds that the petitioner has a right to have the writing
executed by a person who refuses to do so, it shall order the Office of
the Securities and Exchange Commission where the certificate is
recorded, to record the cancellation or amendment of the certificate;
and when the certificate is to be amended, the court shall also cause
to be filed for record in said office a certified copy of its decree
setting forth the amendment.

A certificate is amended or cancelled when there is filed for record

in the Office of the Securities and Exchange Commission, where the
certificate is recorded:

(1) A writing in accordance with the provisions of the first

or second paragraph, or

(2) A certified copy of the order of the court in accordance

with the provisions of the fourth paragraph;

24
ATP Notes (Paras; Jurado; Cases) Atty. Risel Castillo-Taleon ibtk2i

a) Principal - he whom the agent represents and he whom he

TITLE X: AGENCY derives authority;
b) Agent - he who acts or stands for another; given with full or
Chapter 1 partial discretion but sometimes under specific command.
NATURE, FORM, AND KINDS OF AGENCY
- An agent, to note, acts in another’s (principal) name. If acts under
Art. 1868. By the contract of agency a person binds himself to another name (pretends to be someone else), he certainly acts in his own
render some service or to do something in representation or on name, as to not make the principal liable.
behalf of another, with the consent or authority of the latter.
Capacity
According to Paras, the definition provided by Art. 1868 is defective and a) Principal
broad. i) Must be capacitated to give consent;
- In rendering some service, it differs from lease of service for what the - if any special capacity is needed, it must
agent really does for the principal is a juridical act, and the agent’s acts be the principal who possess the same, not
are discretionary powers; not merely ministerial functions. the agent.
- As regards representation, Art. 1868 appears that the agent must always - If the principal is capacitated to act for
represent the principal. However, there are instances where an agent himself, then he can act through an agent.
does not sometimes disclose his principal, or may act in behalf of ii) The principal may be a natural or juridical person.
himself, but the principal would remain to be bound, for instance in In sum, it should have a juridical personality.
cases where the contract involves things belonging to the principal. (Art. iii) A married man may appoint his wife as
1883) administrator or executor of his conjugal properties;
while a wife may appoint her husband as an agent of
Therefore, in JBL Reyes’ Observation on the new Civil Code (1951), the her paraphernal properties.
true essence of the distinction (from lease of services) lies on that the - In the first case, the married man is an
agent: agent of conjugal properties, hence a
- enters or is designated to enter juridical relations; conveyance of conjugal real property,
- with or without representation of the principal. without the consent of his wife is voidable.
b) Agent
Other definitions: i) capacity as the same as that of contracts:
- A contract, either express or implied upon a consideration, or - as between the agent and the principal,
gratuitous undertaking, by which one of the parties confides to the other must have the same capacity as that in law
the management of some business to be transacted in his name or his of contracts;
account, and by which that other assumes to do the business and renders - when third persons are concerned, must be
an account of it. (2 Am. Jur. 13) enough that the principal be the one
- A relationship which results from the manifestation of consent by one capacitated to enter contracts an agent is
person to another that the other shall act on his behalf and subject to his entering to.
control, and consented by the other so to act. (Sec. 1, Restatement of thr - In the case of a minor agent:
Law of Agency) - the contract with a stranger and agent is valid, as long as the
- An act which one person gives to another the power to do something principal is capacitated;
for the principal and in his name. (French Civil Code) (All cited from 5 - however, as between agent and the principal, the minor agent
Paras 772) can set up the defense of incapacity as against the principal.

Characteristics Hypo: P appoints A, a minor as agent to sell P’s goods. B a buyer buys
a) Principal; from A. P then seeks to disaffirm the sale as void, with the grounds that
b) Nominate; (Title X - Agency A is a minor.
c) Bilateral - Both the principal and the agent have respective - The judgement should be against P and for B. A is deemed an
obligations; extension of P’s personality, who has legal age. Hence, P
d) Preparatory - for subsequent juridical relations to be entered cannot avoid the contract. (Mendoza v. De Guzman, 33 OG
by agent in the name of the principal; 1505)
e) Commutative; Hypo 2: A furnished B with money for current expenses. B was obliged
f) Generally onerous; Art. 1875 “...presumed to be for a to render monthly accounts to A, and that B would eventually pay him.
compensation” B obtained goods from C on credit. May C sue A on grounds that B is
g) A representative relation, not a status; A’s agent?
h) A fiduciary relation, based on trust and confidence. - The difference between a loan and agent is that the former is
given money from a lender for purposes of its own, generally
In Philpotts v. Phil Mfg. Co., 40 Phil. 471, a mandamus can lie against a to return it; while the latter furnishes the the agent funds to
Company for an agent to exercise the right to inspect corporate books for advance the principal’s business. It is apparent that B is only a
his principal, in conformity with the general rule that what a man may do borrower, not an agent. (Atcheson R. Co. v. Maber, 23 Kan.
in person, he may do through another. 163)

Note though that those strictly personal act under the law may not be Agency vs. Lease of Services
designated to an agent.
Agent represents the principal; The lessor of services does not
represent his employer;

Parties Termination at the will of either Termination at the will only of

25
ATP Notes (Paras; Jurado; Cases) Atty. Risel Castillo-Taleon ibtk2i

Persons bound with an assumed agency are bound to their morals if they
the principal or the agent; both; would hold the principal liable, to ascertain out not only the fact of
agency, but also the nature and extent of authority, and the burden of
Agent exercises discretionary Worker does ministerial proof is upon them to establish it. (Recio v. Ateris of Sps. Aguedo &
powers; functions; Altamirano, 702 SCRA 137)
Usually involves 3 persons: Two persons: lessor (worker) and Art. 1869. Agency may be express, or implied from the acts of the
principal, agent, and stranger lessee. principal, from his silence or lack of action, or his failure to
repudiate the agency, knowing that another person is acting on his
Agent may incidentally render acts of service; while lessor of services behalf without authority.
may incidentally make contracts. (5 Paras 777)
Agency may be oral, unless the law requires a specific form.
Hypo: Operators of gasoline station owned by X company has the
following arrangement: Kinds of Agency According to Manner of Constitution
a) Operators sell only products of X; use company lent to them; a) express;
b) dispose of stock at prices fixed by X; b) implied.
c) Operators appointed and removable by company. i) from the acts of the principal;
Is X company liable liable to damages caused by operators to third ii) from the principal’s silence;
parties? iii) lack of action;
- Yes. Operators are agents, not independent contractors. iv) failure to repudiate the agency.
Negligence of operators, as agents, bind the principal. (Shell - In all cases of implied agency, the principal knows another person is
Co. v. Firemen’s Insurance Co., 100 Phil. 757) acting on behalf of the principal without authority.

Agency vs. Independent Contractor - In Gutierrez Hermanos v. Orense, 28 Phil. 571, that where an owner of
land testifies that he consented to its sale by a hitherto unauthorized
Agent acts under the control of Independent contractor is person, such person becomes his agent.
the principal; authorized to do the work
according to his own method; Hypo: P told A to surrender proceeds of the sale after A has sold the
and only the result is concern; tobacco. When is A required to turn over the proceeds?
- Since A, as provided in the facts, is an agent, the turnover of
Sub-agent may be controlled by Employees of the contractor are the proceeds must be made immediately, the remedy of Art.
the principal; not employees of the employer; 1197 not even required when it provides a definite period.

Agent can bind the principal; Cannot bind the employer by Kinds of Agency According to Form
tort; a) Oral (note that Art. 1869 makes sufficient an oral agency);
b) Written (example: Art. 1874 on sale of land or any interest
Negligence imputable to the Generally not imputable to the therein is through an agent, the authority shall be in writing)
principal. employer
Art. 1870. Acceptance by the agent
(5 Paras 778) a) Express;
b) Implied, from:
- In determining whether the contract is that of agency or some other i) Acts of the agent which carry out the agency; or
contract, the mere testimony of the person who drafted the contract is of ii) Agent’s silence; or
no importance, for a contract is what the law defines it to be and not iii) Agent’s inaction according to the circumstances.
what it is called by the contracting parties. (Quiroga v. Parsons, 38 Phil. c) Art. 1871, another form of implied agency
501) i) Between person who are “present”;
- “Present” means “face to face”; or conversing with
Agent vs. Broker each other through phone or cellphone. (5 Paras 787)
Agent - receives a commission upon successful conclusion of a sale; ii) When the principal delivers his power of attorney to
Broker - earns his pay merely by bringing the buyer and the seller the agent;
together, even if no sale is eventually made. (Hann v. CA and BMW, 266 iii) The agent receives it without any objection.
SCRA 537)
- A broker is one whose occupation is to bring the parties together, in
matters of trade, commerce, or navigation. (Schmid & Oberly v. RJL Art. 1872. Acceptance of agency of the Parties are Absent
Martinez, 166 SCRA 493) “Absent” - not “present”
1) When the principal transmits its power of attorney to an agent, who
receives it without any objection;
- When the offeree (principal) writes a letter acknowledging the
Doctrine of Apparent Authority receipt of the offer, but offers no objection of the agency.
A corporation will be estopped from denying the agent’s authority if it - Where there is no such letter, it would be unfair to assume
knowingly permits one of its officers or any other agent to act within the acceptance.
scope of an apparent authority, and it holds him out to the public as 2) When the principal entrusts to him by letter or telegram a power of
possessing the power to do those acts. (Advance Paper Corp. v. Arma attorney with respect to the business in which he is habitually engaged
Traders, 712 SCRA 313) as an agent, and he did not reply to the letter of telegram.
Assumed Agency

26
ATP Notes (Paras; Jurado; Cases) Atty. Risel Castillo-Taleon ibtk2i

3) Another kind of implied acceptance is when the silent offeree begins Art. 1875. Agency is presumed to be for a compensation, unless
to act under the authority conferred upon him. (George v. Sandel, 18 La. there is proof to the contrary.
Ann. 535) General Rule: Agency is for a compensation.

Hypo: A had deposited a horse with B. One day, A asked a friend, C if - In the absence of stipulation, the agent is entitled to compensation only
he would take the horse from B and sell it for him, if A would write C a after he has completely or substantially completed his obligation as
letter to that effect. C said yes. A wrote C to get the horse from B but C agent.
did not answer, but get the same, and was subsequently able to sell it. Is
C an A’s agent? Art. 1876. An agency is either general or special.
- Yes, the acceptance of the agency could clearly be inferred
from the facts. (Garvey v. Scott, 9 Ill. A. 19) The former comprises all the business of the principal. The latter,
one or more specific transactions.
Art. 1873. If a person specially informs another or states by public
advertisement that he has given a power of attorney to a third The distinction on whether an agency is general or special depends on
person, the latter thereby becomes a duly authorized agent, in the the extent of the business covered.
former case with respect to the person who received the special
information, and in the latter case with regard to any person. In Reyes v. Reyes, absent any substantial evidence to show a special
agent’s authority to give consent to the tenancy, there could be no
The power shall continue to be in full force until the notice is implied tenancy.
rescinded in the same manner in which it was given.
Art. 1877. An agency couched in general terms comprises only acts
In this provision, Art. 1873 contemplates that the principal informs other of administration, even if the principal should state that he
people of the existence of the agency. The ways where the information is withholds no power or that the agent may execute such acts as he
conveyed are: may consider appropriate, or even though the agency should
a) special information; and authorize a general and unlimited management.
b) public advertisement.
An agency according to its power or authority may be:
“x x x until notice [of agency] is rescinded in the same manner in which a) general (Art. 1877);
it was given.” is provided by Art. 1873 to forestall fraud. It means that b) specific (Special Power of Attorney) (Art. 1878);
the termination is also conveyed to the person with which the notice of
agency was made. Therefore, a special or general agency may be couched in general and
- In this case, the revocation is only effective against all persons specific terms. Here, Art. 1877 provides that agency couched in general
having actual knowledge thereof (of the revocation). terms comprises only acts of administration, be it general agency or SPA.

Agency by Estoppel Therefore, any vested act to an agent which constitutes act of strict
One who clothes another with apparent authority as his agent, and holds dominion is invalid.
him out to the public as such, cannot be permitted to deny the authority
of such person to act as his agent, to the prejudice of innocent third Example: I make you my agent for all my properties. I withhold no
parties dealing with such person in good faith, and in the honest belief power from you. You may execute such acts as you may consider
that he is what he appears to be. (Macke v. Camps, 7 Phil 553) appropriate. You are hereby given general and unlimited management.
- Agency by estoppel, as differentiated from implied agency is that:
a) the agency by estoppel is not a true agent, and has no rights as Note that in Art. 1877, it only comprises acts of administration despite
an agent, (but has liabilities and obligations and such); any stipulation that the principal withholds no power.
b) as to third persons
i) if the estoppel is caused by the principal, he is liable, Art. 1878. Special powers of attorney are necessary
but only if third person acted on the
misrepresentation; in implied agency, the principal is Acts in Article 1878 may be divided into three:
always liable; a) acts of strict dominion;
ii) if the estoppel is caused by the agent, it is only the b) gratuitous contracts;
agent who is liable; and in implied agency, the agent c) contracts where personal trust or confidence is of the essence.
is never personally liable.
Special Powers of Attorney - a clear mandate specifically authorizing the
Art. 1874. When a sale of a piece of land or any interest therein is performance of the act, and must therefore be distinguished from agency
through an agent, the authority of the latter shall be in writing; couched in general terms.
otherwise, the sale shall be void.
In general, the execution of a power of attorney need not need any
- “Any interest therein” may include usufruct, easement, etc. intervention from a notary public. (Barretto v. Tuason)
- Buildings, for this matter, strictly speaking, is not included, and the
agency to sell a building may not have to be in writing. Paragraph 1: Payments not usually considered acts of administration
Some payment may be then part of acts of administration. Therefore, if a
In Jimenez v. Rabat, 38 Phil. 318, since the agency in selling a parcel of payment involves also acts of dominion, a special power of attorney is
land was made in writing, the sale is valid, and has sufficient authority; needed.
and if the sale was already made, the principal cannot recover the land Example: Sale of products of the land administered.
anymore.
Paragraph 2: Effect novations which put an end to obligations already
in existence at the time the agency was constituted

27
ATP Notes (Paras; Jurado; Cases) Atty. Risel Castillo-Taleon ibtk2i

Paragraph 3: Five different powers: Purpose: to protect the interest of an unsuspectary owner from being
a) To compromise; prejudiced by the unwarranted act of another and to caution the buyer to
b) To submit questions to arbitration; assure himself of the specific authorization of the putative agent.
c) To renounce right of appeal;
d) To waive objections to the venue of an action ; or Art. 1879 Special power to sell
e) abandon a prescription already acquired. Special power to sell does not include special power to mortgage; nor the
They are different from each other; therefore the right of grant of one special power to mortgage does not include special power to sell.
does not confer grant of others.
Power to sell includes:
Paragraph 4: Waiver of any obligation gratuitously is similar as a) power to find a purchaser or sell directly;
remission or donation. b) power to deliver the thing selling;
c) power to make warranty and representation;
Paragraph 5: Any contract by by which the ownership of an immovable d) power to make necessary transfer documents;
is transferred or acquired either onerously or gratuitously. e) power to fix the terms of the sale, unless the conditions are
already set by the principal;
“transmitted” or “acquired” then means either selling or buying an f) power to receive the price unless only authorized to solicit
immovable. orders;
but does not include:
Hypo: Did the buyer validly acquire a real property sold where an a) sell on credit (but only sell in cash) (ref Art. 1905);
agency to sell the real property was not put into writing? b) to barter or to exchange; and/or
A: No. Art. 1878 (5) requires an SPA on the sale of a parcel of land or c) to mortgage or to pledge.
any interest therein. Moreover, when it involves a parcel of land or
interest therein, it must be made in writing otherwise, the sale shall be Power to mortgage does not include:
void. Without an authority in writing, the agent could not validly sell the a) to sell; or
subject property. (Jurado, 1073) b) to execute second mortgage;
c) to mortgage for agent’s personal benefit or for benefit of other
Paragraph 6: To make gifts third person.
Exception: customary ones for charity; or those made to the employees
in the business managed by the agent. Note that as correlated to law on mortgage, it can only be made on the
The exceptions are considered acts of administration only. present property of the principal (at the time of the execution of SPA) but
the contrary can be stipulated upon; but at the time of the mortgage, the
Paragraph 7: To loan or borrow money principal (mortgagor) must be the owner of the thing mortgaged,
Exceptions on borrowing money: when urgent and indispensable for otherwise the mortgage is void.
preservation of the things under administration.
- In no case shall loan be allowed except when there is special power of Art. 1880 Special power of compromise; arbitration
attorney to that effect. Grant of one does not include the other.

Paragraph 8: Lease any real property for more than one year Compromise: Agent can do anything which the principal can do to effect
Only lease of real property is contemplated in this paragraph, therefore; a settlement;
a) it does not include personal properties;
b) lease of less than one year is mere act of administration. Arbitration: When the special power has this effect, the arbitral
judgement the agent entered into binds the principal;
Paragraph 9: To bind the principal to render some service gratuitously; - When the arbitrators are specifically designated by the principal, the
Gratuitous contracts agent should not submit it to others; otherwise the agent has not
authority;
Paragraph 10: To bind the principal in a contract of partnership - Absent this, he is authorized to submit it to anyone.
The principal should personally repose his trust and confidence on his
proposed partners. Art. 1881 Scope of authority
Agent must act within scope of authority; may do such ats conducive to
Paragraph 11: To bind the principal as guarantors or surety accomplishment of the purpose of agency.
Neither the power to execute contract of suretyship or guaranty be
inferred from general powers of attorney. (Director of Public Works v. On fundamentals of agency, there may arise four instances:
Sing Juco) a) acting with authority and in behalf of the principal;
b) acting with authority but in behalf of himself, not the
Paragraph 12: To create or convey real rights over immovable property principal;
Examples: create easement, to mortgage, etc. c) “agent” acting without authority but in behalf of a principal;
d) “agent” acting without authority, and in his own behalf.
In Adriano v. Pangilinan, where the SPA only asks that the agent be
asked to look for possible money lenders does not include the power to Effects
mortgage. a) With authority:
i) in behalf of a principal - VALID, and agent generally is not
However, in Lao v. Villones-Lao, a special power of attorney cannot be responsible;
the basis of a valid mortgage contract. ii) in agent’s behalf - VALID; only AGENT is liable, except
when it involves property of the principal (Art. 1883)
b) Without authority:

28
ATP Notes (Paras; Jurado; Cases) Atty. Risel Castillo-Taleon ibtk2i

i) in “principal’s” behalf - UNENFORCEABLE but may be Art. 1883. If an agent acts in his own name, the principal has no
ratified; right of action against the persons with whom the agent has
ii) “agent’s” behalf - VALID, so long as the agent can legally contracted; neither have such persons against the principal.
transfer the ownership of the thing (if it involves so) whether In such case the agent is the one directly bound in favor of the
or not the subject matter belongs to the principal. person with whom he has contracted, as if the transaction were his
own, except when the contract involves things belonging to the
Authority v. Power principal.
Authority - refers to mandate given to the agent by his principal;
Power - extent of the mandate or agency. The provisions of this article shall be understood to be without
The effect of authority is power (granted to the agent) prejudice to the actions between the principal and agent.
(5 Paras 813)
Art. 1883 presupposes that the agent was authorized, but instead acting
Authority - The right of the agent to effect legal relations of his principal in behalf of the principal, he acts on his own behalf. “xxx acts in his own
by the performance of acts effectuated in accordance with the principal’s name”
manifestation of consent.
The recourse of the third person is against the agent, as the third person
Kinds has no right against the principal; nor the principal against the agent.
a) express - authority is clearly defined;
b) implied - necessary acts to accomplish the purpose; Exception: when it involves the properties of the principal.
c) general - discretion is complete;
d) special - particular instructions given; When the agent acts in his own name, he need not state his principal, he
e) apparent - “agent” is led by the principal that he is authorized, is directly liable to the third persons.
when actually he was not.
When the agent buys in his own name but actually, for the principal, the
A forged power of attorney to, say, mortgage and registration thereof seller has the right to look for either, unless:
makes the latter null and void, and shall not, in any way, affect the rights a) he trusted the agent exclusively;
of registered owners. b) by the usage and understanding of business, the agent is only
held;
Hypo: Without P’s authority, A sold the business establishment of P in c) special circumstances show that the agent was intended to be
P’s name. What is the right of the buyer? bound and the seller knew it. (Wing Lee v. Bark, 5 Paras 824)
A: Buyer has no title to the property, as the sale is unauthorized and
unenforceable. The remedy of Buyer is against A. (Yu Eng Yu v. AC However, when it cannot be determined whether the agent was
Ransom, as cited from 5 Paras 818) authorized or not, the action must be both against the agent and the
principal. (Beaumont v. Prieto, as cited in 5 Paras 824)
If agents, acting for a principal acted in bad faith, the principal must be
assumed as also acted in bad faith. (Caram v. Laureta) In the exception, it is provided that the sale is valid; the agent is
authorized, only that he acts in his own name in the process.
Doctrine of Agency by Necessity
Note that agency per se cannot be created by necessity. Hence, the Second paragraph of Art. 1883 only applies when it involves property of
doctrine actually meant that in case of necessity, the authority is third person, but not that of principal. Why? Because the principal is
correspondingly enlarged to cope with the exigencies and necessities of bound. (Lion Tek Goan v. Azores)
the moment.

Requisites: Chapter 2
a) real existence of an emergency; OBLIGATIONS OF THE AGENT
b) inability of the agent to communicate with the principal;
c) exercise of additional authority is for the principal’s own Art. 1884. The agent is bound by his acceptance to carry out the
protection; agency, and is liable for the damages which, through his
d) the adoption of fairly reasonable means; and non-performance, the principal may suffer.
e) ceasing of authority if the emergency no longer demands the
necessity. He must also finish the business already begun on the death of the
principal, should delay entail any danger.
Art. 1882. When Agent’s performance of authority is deemed still
authorized. Rules on general liability:
When the manner was made as it made more advantageous to the a) Note that agent who does not carry out the agency is liable for
principal than specified by him. damages.
“x x x is liable for the damages which, through his
This is justified in view of the greater benefit that would accrue to the non-performance, the principal may suffer.”
principal.
b) On the other hand, when he does so, he is not held liable
“advantage” is not confined to financial gain; but may be offset by except when he binds himself so.
moral and ethical loss.
Second paragraph, general rule: Agency extinguishes upon death of the
Therefore, agent may not sell the thing entrusted by the principal at a principal, but Art. 1884 par. 2 states that the agent is obliged to finish the
lower price fixed by the principal but can at a higher price fixed by the business already began if cessation thereof entails danger.
principal, if it can be obtained.

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ATP Notes (Paras; Jurado; Cases) Atty. Risel Castillo-Taleon ibtk2i

Art. 1885. In case a person declines an agency, he is bound to Art. 1890

observe the diligence of a good father of a family in the custody and a) If the agency is to borrow money, the agent may lend the same
preservation of the goods forwarded to him by the owner until the to the principal at the current rate of interest;
latter should appoint an agent or take charge of the goods. b) But when authorized to lend money, cannot borrow it without
the consent of the principal.
As inferred from Art. 1885, an agent may decline to be an agent, but Note that the borrowing of money must be for the benefit of the
shall be required to fulfill obligations, that is: principal, not for agent’s personal benefit.
a) diligence of good father of a family in the custody and
preservation of the goods. Art. 1891 Duty to:
a) account transactions; and
On the other hand, it is the duty of the owner to, as soon as possible: b) deliver to the principal whatever he may have receive by virtue
a) appoint an agent; or of the agency.
b) take care of the goods. Reason: because of the representative relation and fiduciary position of
the agent and the contract of agency.
Art. 1886
- Agent is bound to advance necessary funds should there be a In Domingo v. Domingo, it is an absolute duty to make a full disclosure
stipulation thereto; or accounting to his principal. The principal has the right to demand all
- Exception: when principal is insolvent, he is not bound to do so. funds collected by the agent by virtue of the agency.

Art. 1887. In the execution of the agency, the agent shall act in Art. 1891 provides that any provision to the contrary is void for it would
accordance with the instructions of the principal. be conducive to fraud.

In default thereof, he shall do all that a good father of a family Note that there is no co-ownership over the funds notwithstanding the
would do, as required by the nature of the business. right to commission; and should not profit for his own account as long as
the agency continues.
General: acts of agents beyond his limited powers are invalid;
BUT may bind the principal if: If the agent refuses, the principal may terminate the agency and sue the
a) principal’s acts have contributed to deception of third person in agent for the balance; nor the death of the principal dispensed with the
good faith; duty to account, despite the agency terminated.
b) limitations given by the principal could not have been known
by the third person; The principal also has the right to pass upon the correctness of
c) principal placed in agent’s possession instruments signed by accounting; and also has the right to reasonably inspect books of
him in blank. account.

The agent though is not liable if he has acted in the instructions despite Art. 1892 SUB-AGENTS
the principal unable to accomplish the object of agency, unless: a) An agent may appoint a substitute
a) has exceeded authority; or i) Except: if the principal prohibited him from doing
b) acted with negligence, deceit, or fraud. so.
ii) If nevertheless appointed despite the prohibition, the
Construction of instruction: principal may void all acts of the substitute.
“as a plain man acquainted with the object in view, and attending b) Despite the agent only not allowed when prohibited from
reasonably, to the language used x x x” doing so:
- So if the authority is couched on uncertain terms as to be reasonably i) Shall be liable to the acts of the substitute if he is not
susceptible of two meanings, and adopted one of them in good faith, and expressly granted the right to do so; and
without negligence, the agent shall be deemed to have exercised his best ii) the substitute is:
judgment and an honest discretion, he fulfills his duty. 1) notoriously incompetent; or
2) insolvent.
Art. 1887 then gives importance on the part of the agent to follow the iii) In which case, Art. 1893 expressly grant the right to
instructions, but when there is EXCESSIVE EXECUTION, and the bring action against the substitute.
excess can be disregarded, then nevertheless the authorized portion shall
be given effect. Arts. 1894-1895 TWO OR MORE AGENTS
General rule: JOINT
Art. 1888. An agent shall not carry out an agency if its execution - Only solidary when solidarity has been expressly stipulated.
would manifestly result in loss or damage to the principal. (1894)
Reasons:
a) an agent should exercise due diligence; and In case where the solidarity is agreed upon, each of the agents is
b) must presumably act for the benefit, and not to the detriment of responsible for:
the principal. a) the non-fulfillment of the agency; and
b) for the fault or negligence of his fellow agents; except
Art. 1889 i) in this case, soidary agents are only liable if acted
Agent is liable for damages where there is conflict between his interest within the scope of authority.
and those of principal he should prefer is own.

The Article does not distinguish, so it applies whether the agency is

onerous or gratuitous.

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ATP Notes (Paras; Jurado; Cases) Atty. Risel Castillo-Taleon ibtk2i

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