BUS ORG 1.

LAW ON PARTNERSHIPS
JUNE 11 INTRODUCTION
BUSINESS ORGANIZATION
June 14, 2013 (Part 1), Friday

So we will formally start our classes tonight.
Q: Can you please explain the historical background on the law of partnership?
Q: So it started during the Roman times?
Actually it existed even before the Roman times.
Q: So you mean to say is that there existed a special court for that matter?
Q: How about the governing law in our jurisdiction? Can you explain its history before the Civil Code?
Q: Was there not distinction as to what law will govern?
Before the New Civil Code, commercial or mercantile partnerships were governed by the Code of Commerce while non-commercial
or civil partnerships were governed by the old Spanish Civil Code. So in our jurisdiction, there was a distinction as to what law will
govern.
So the sources of our law on partnership are taken from the Old Civil Code and from the US Uniform Partnership Act and from the
Uniform Limited Partnership Act. Take note that some provisions are taken from the Code of Commerce as well as from the opinions of
civilians.
Q: What is a contract of partnership?
Q: So the definition under Article 1767 is from what viewpoint?
From the viewpoint of partnership as a contract.
Q: So a partnership can also be defined as?
Take note that under Article 1767, it gives us the legal definition of a partnership as a contract. However, partnership can also be
defined as an association, a legal relation, a status, an organization, an entity, or a joint undertaking. Take note that partnership is a
legal concept but the determination of the existence of a partnership may involve inferences drawn from the circumstances
attending its creation and operation.
Q: How will you distinguish the civil law concept from the American concept of partnership?
Q: What is a general professional partnership?
Q: What is a partnership for the practice of law?
Take note that a partnership for the practice of law is a mere association for nonbusiness purpose as distinguished from busi ness. The
primary characteristics of which are as follows:
1. It is a duty of public service;
2. The relation as an officer of court to the administration of justice;
3. It is highly fiduciary relation to the clients; and
4. The relation to the colleagues at bar is characterized by candor and fairness.
Q: What are the characteristic elements of a partnership?
Q: What are the essential features of partnership?
Q: The first essential feature of a contract of partnership is that the existence of a valid contract. Can you please explain?
Q: Is form an essential requisite for the validity of a partnership contract?
Q: As a review, what are the essential requisites of a valid contract?
Q: Explain that a partnership is a relation which is fiduciary in nature.
Q: The second essential requisite for a contract of partnership is the legal capacity of a partner to enter into a contract. How do you
define legal capacity?
Q: Who can be a partner?
Q: Who cannot be a partner?
Q: Can a partnership enter into another partnership?
Q: how about the corporation, can it enter into a partnership?
Take note that if it is a partnership, there is no prohibition for it to enter into another partnership. But if it is a corporation, the general
rule is that unless authorized by a statute or its charter, a corporation is without capacity or power to enter into a contract of
partnership. That is the general rule and it is subject to exceptions like:
1. In joint ventures (JV) where the nature of the JV is in line with the business authorized by its charter ;
2. Partnership agreement which provides that two partners will manage the partnership so that the management of the
corporate interest is not surrendered; and
3. Entry of a foreign corporation as a limited partner in a limited partnership mainly for investment purposes.
Q: Explain the third essential characteristic of a contract of partnership: contribution of money, property or industry to a common
fund.
In addition to property, real or personal property, including corporeal property.
Q:Explain the characteristic of partnership: the purpose of which is to obtain profit.
Q: Should it not be an exclusive purpose?
Take note that the purpose to obtain profit need only be the principal purpose and not the exclusive purpose.
Q: Should the profits be equally shared by the partners?
So it depends upon the stipulation of the contract of partnership. Take note that stipulation which excludes the partner from any
participation in the profits is void and a stipulation which excludes one or more of the partners from any of the losses is void.
Q: What is the consequence of a partnership being a juridical entity separate from its partners?
Q: Can partners be liable for the obligation of the partnership?
Take note that the partners are not liable for the obligations of the partnership as a general rule unless it is shown that the legal fiction
of a separate legal personality is being used for a fraudulent, unfair or illegal purpose.
What are the different relations created by a contract of partnership?
A contract of partnership creates relations among the partners themselves, second is relation between partners to the partnership,
third is the relation of the partnership as to third persons with whom it contracts and lastly relation of partners with such third persons.
Describe the kind of relation that exists among the partners themselves.
The partners among themselves, is one of fiduciary relationship. It is essentially one of mutual trust and confidence. Each partner is a
what- an agent and he is deemed a trustee and a cestui que trust at the same time.
How about the relationship of a partner to the partnership. Eventhough the partnership is not yet terminated there is still a fiduciary
relationship and until it is terminated there is still mutual trust and confidence.
When is the birthdate of a partnership? It is at the moment of the execution of the contract between the partners.It is moment of
the registration at the SEC. For how long the term of a contract of partnership? It depends upon the agreement as well as the
consent of the parties. Can the parties enter into a contract of partnership in the future? Yes Maam, they can agree to enter into a
future partnership, however, it is only inchoate. What is limitation? Theres no juridical personality therefore it cannot enter into any
contract. However, take note of the Statute of Frauds ha, if it is not to be performed within a year of making the contract- it must be
in whatin writing, in order for it to be enforceable. It must be in writing and evidenced by a memorandum in order for it to be
enforceable. Meaning you can file now a case in court if that is in writing kaya nga yuna ng ibig sabihin ng enforceability.
So Art. 1784.- A partnership begins from the moment of the execution of the contract, unless it is otherwise stipulated. This provision is
self-explanatory.
Article 1785. What is a partnership with a fixed term? It is that the parties lay down a specific term or its life span or it can be that of a
partnership with a specific undertaking. It is with a specific lifespan. What is the effect if the said partnership with a fixed term is
continued beyond its term? If it is continued beyond its term and is not liquidated, or there is no sign that the parties intend to end the
partnership then it is meant to be a partnership at will. What is a partnership at will? It is a partnership that continues based on the
consent of the parties and its existence is terminable at the will of anyone of them. A partnership at will is a partnership that is
designed to continue for a fixed period of time and is to last only during the mutual consent or at the pleasure of the parti es and its
existence is terminable at the will of anyone of them.
Art 1785. When a partnership for a fix term or a particular undertaking is continued after the termination of such term or particular
undertaking without any express agreement, the rights and duties of the partners remain the same as they were at such termination,
so far as is consistent with a partnership at will.
A continuation of the business by the partners or such of them as habitually acted therein during the term, without any
settlement or liquidation of the partnership affairs, is prima facie evidence of a continuation of the partnership.
For example, the partnership is for a fixed period and it is now converted to a partnership at will, state the rights and obligation
of the parties.
As a default, the rights and obligations in the partnership will go on unless the partners agreed to other rights and obligations.
The stipulations provided for in the previous partnership will continue and in default of that, the provisions of Civil Code on partnership.

What happened to the partnership with a fixed period kasi nagcontinue na ang partnership? It is deemed di ssolved and
converted into a partnership at will.
Take note with such continuation, the old partnership is dissolved and a new one is created by implied agreement, the
continued existence of which will depend upon the mutual desire and consent of the partners. Another one, even if a partnership is
for a fixed term, it can be terminated. Diba originally they have agreed, oh fixed na tayo, it can be terminated anytime by the
express will of any partner before the time previously agreed upon arises. It can still be dissolved upon the express term of any partner
because, why, there is no such thing as an idissoluble partnership.
State the obligation of the partner with respect to contribution of property. The obligations of the parties with respect to the
contribution of property 1. to contribute at the beginning of the partnership or at the stipulated time the money, property, or industry
which he may have promised to contribute and, 2. to answer for eviction in case the partnership is deprived of the determinate
property contributed, 3. To answer to the partnership for the fruits of the property the contribution of which he delayed, 4. To preserve
said property with the diligence of a good father of a family pending delivery to the partnership, and 5. To indemnify the partnership
for any damage caused to it by the retention of the same or by the delay in its contribution.
What is the effect if the said partner failed to contribute the property he promised? The said party is considered a debtor of a
partnership.
State the liability of the partner in case of eviction. The partner is bound in the same cases and in the same manner as the
vendor is bound with respect to the vendee with regard to specific and determinate thing which he may have contributed to the
partnership.
How about his liability if the said partner failed to perform the service stipulated. Take note Article 1786. Every partner
Bus Org
June 18, 2013
TSN by Sonny

As a review of what we have discussed last week, what is a contract of partnership?

By the contract of partnership two or more persons bind themselves to contribute money, property, or industry to a common
fund, with the inten- tion of dividing the profits among themselves.


So can you please give me the facts of Lim Tong Lim v. Philippine Fishing?

Facts: On behalf of F Corporation, Chua and Yao entered into a contract for the purchase of fishing nets and floats from G
Corporation, claiming that they were engaged in a business venture (fishing business) with petitioner Lim who, however, was
not a signatory to the agreement. A suit was filed by G Corporation against the three in their capacities as general partners,
on the allegation that F Corporation was a non-existent corporation as shown by a certification from the Securities and
Exchange Commission.

Issue: Was Lim a partner of Chua and Yao in the fishing business and may thus be held liable as such for the fishing nets and
floats purchased by them for the use of the partnership?

Held: Yes: Partnership formed by Chua, Yao, and Lim. From the factual findings of both lower courts [Regional Trial Court
and Court of Appeals], it is clear that Chua, Yao, and Lim had decided to engage in a fishing business, which they started by
buying boats worth P3.35 million, financed by a loan secured from Jesus Lim who was petitioners brother. In their Compromise
Agreement, they subsequently revealed their intention to pay the loan with the proceeds of the sale of the boats, and to
divide equally among them the excess or loss. These boats, the purchase and the repair of which were financed with
borrowed money, fell under the term common fund under Article 1767.

Take note: The contribution to such fund need not be cash or fixed assets; it could be an intangible like credit or industry. That
the parties agreed that any loss or profit from the sale and operation of the boats would be divided equally among them also
shows that they had indeed formed a partnership.

Moreover, it is clear that the partnership extended not only to the purchase of the boat, but also to that of the nets and the
floats. The fishing nets and the floats, both essential to fishing, were obviously acquired in furtherance of their business. It would
have been inconceivable for Lim to involve himself so much in buying the boat but not in the acquisition of the aforesaid
equipment, without which the business could not have proceeded. Given the preceding facts, it is clear that there was,
among petitioner, Chua and Yao, a partnership engaged in the fishing business. They purchased the boats, which constituted
the main assets of the partnership, and they agreed that the proceeds from the sales and operations thereof would be
divided among them.


Last week, we said that, "the existence of a co-ownership or co-possession does not of itself establish a partnership." Can you please
tell me the case of Pascual v. CIR?

Facts: On June 22, 1965, petitioners bought two (2) parcels of land from Santiago Bernardino, et al. and on May 28, 1966, they
bought another three (3) parcels of land from Juan Roque. The first two parcels of land were sold by petitioners in 1968
toMarenir Development Corporation, while the three parcels of land were sold by petitioners to Erlinda Reyes and Maria
Samson on March 19,1970. Petitioners realized a net profit in the sale made in 1968 in the amount of P165,224.70, while they
realized a net profit of P60,000.00 in the sale made in 1970. The corresponding capital gains taxes were paid by petitioners in
1973 and 1974 by availing of the tax amnesties granted in the said years.

However, in a letter dated March 31, 1979 of then Acting BIR Commissioner Efren I. Plana, petitioners were assessed and
required to pay a total amount of P107,101.70 as alleged deficiency corporate income taxes for the years 1968 and 1970.

Commissioner informed petitioners that in the years 1968 and 1970, petitioners as co-owners in the real estate transactions
formed an unregistered partnership or joint venture taxable as a corporation under Section 20(b) and its income was subject
to the taxes prescribed under Section 24, both of the National Internal Revenue Code 1 that the unregistered partnership was
subject to corporate income tax as distinguished from profits derived from the partnership by them which is subject to
individual income tax.

Issue: Whether or not a contract of partnership was entered into among them

Ruling: None. the essential elements of a partnership are two, namely: (a) an agreement to contribute money, property or
industry to a common fund; and (b) intent to divide the profits among the contracting parties.

In the present case, there is no evidence that petitioners entered into an agreement to contribute money, property or industry
to a common fund, and that they intended to divide the profits among themselves. Respondent commissioner and/ or his
representative just assumed these conditions to be present on the basis of the fact that petitioners purchased certain parcel s
of land and became co-owners thereof.

The sharing of returns does not in itself establish a partnership whether or not the persons sharing therein have a joint or
common right or interest in the property. There must be a clear intent to form a partnership, the existence of a juridical
personality different from the individual partners, and the freedom of each party to transfer or assign the whole property.

In the present case, there is clear evidence of co-ownership between the petitioners. There is no adequate basis to support
the proposition that they thereby formed an unregistered partnership. The two isolated transactions whereby they purchased
properties and sold the same a few years thereafter did not thereby make them partners. They shared in the gross profits as
co- owners and paid their capital gains taxes on their net profits and availed of the tax amnesty thereby. Under the
circumstances, they cannot be considered to have formed an unregistered partnership which is thereby liable for corporate
income tax, as the respondent commissioner proposes.

And even assuming for the sake of argument that such unregistered partnership appears to have been formed, since there is
no such existing unregistered partnership with a distinct personality nor with assets that can be held liable for said defici ency
corporate income tax, then petitioners can be held individually liable as partners for this unpaid obligation of the partnership
p. 7 However, as petitioners have availed of the benefits of tax amnesty as individual taxpayers in these transactions, they are
thereby relieved of any further tax liability arising therefrom.


How about the case of Lorenzo Ona v. CIR? Can you tell me the facts of the case?

Facts: Julia Buales died on March 23, 1944, leaving as heirs her surviving spouse, Lorenzo T. Oa and her five children. In 1948,
Civil Case No. 4519 was instituted in the Court of First Instance of Manila for the settlement of her estate. Later, Lorenzo T. Oa
the surviving spouse was appointed administrator of the estate of said deceased.

instead of actually distributing the estate of the deceased among themselves pursuant to the project of partition approved in
1949, "the properties remained under the management of Lorenzo T. Oa who used said properties in business by leasing or
selling them and investing the income derived therefrom and the proceed from the sales thereof in real properties and
securities," as a result of which said properties and investments steadily increased yearly from P87,860.00 in "land account" and
P17,590.00 in "building account" in 1949 to P175,028.68 in "investment account," P135.714.68 in "land account" and P169,262.52
in "building account" in 1956. And all these became possible because, admittedly, petitioners never actually received any
share of the income or profits from Lorenzo T. Oa and instead, they allowed him to continue using said shares as part of the
common fund for their ventures, even as they paid the corresponding income taxes on the basis of their respective shares of
the profits of their common business as reported by the said Lorenzo T. Oa.

Issue: whether or not a contract of partnership was entered into among the parties

Ruling: it is Our considered view that from the moment petitioners allowed not only the incomes from their respective shares of
the inheritance but even the inherited properties themselves to be used by Lorenzo T. Oa as a common fund in undertaking
several transactions or in business, with the intention of deriving profit to be shared by them proportionally, such act was
tantamonut to actually contributing such incomes to a common fund and, in effect, they thereby formed an unregistered
partnership within the purview of the above-mentioned provisions of the Tax Code.


Last week, we discussed that, "the sharing of gross returns does not of itself es- tablish a partnership." Again, "the sharing of gross
returns does not of itself es- tablish a partnership." So what happened in the case of Obillos v. CIR?

Facts: O, after completing payment to S on two lots, transferred his rights to his four children, C, etc. to enable them to build
their residences. S sold the two lots for P178,708.12 to C, etc. who resold them more than a year later to T for P313,050, treating
the profit of P134,341.88 as capital gains and paying an income tax on one-half of their respective shares (or P33,584) of the
profit. Issue: Did C, etc. form a partnership under Article 1767? Held: No. (1) Division of profits was merely incidental. They
were co-owners pure and simple. To consider them as partners would obliterate the distinction between a co-ownership and
a partnership. C, etc. were not engaged in any joint venture by reason of that isolated transaction.18 The original purpose was
to divide the lots for residential purposes. If later on they found it not feasible to do so because of the high cost of construction,
then they had no choice but to resell the same to dissolve the co-ownership. TAKE NOTE: The division of the profits was merely
incidental to the dissolution of the co-ownership which was, in the nature of things, a temporary state. It has to be terminated
sooner or later. There must be an unmistakable intention to form a partnership. Article 1769(3) provides that the sharing of
gross returns does not of itself establish a partnership whether or not the persons sharing them have a joint or common right
or interest in any property from which the returns are derived. There must be an unmistakable intention to form a partnership
or joint venture.

Such intent was present in the Gatchalian case (supra.) where 15 persons contributed small amounts to purchase a two-peso
sweepstakes ticket with the agreement that they would divide the prize. The ticket won the third prize of P50,000. The 15
persons were held liable for income tax as an unregistered partnership. The instant case is distinguishable from the case where
the parties engaged in joint ventures of profit. Thus, in the Ona case (supra.), where after an extrajudicial settlement the co-
heirs used the inheritance or the incomes derived therefrom as a common fund to produce profits for themselves, it was held
that they were taxable as an unregistered partnership. It is likewise different from Reyes vs. Commissioner of Internal Revenue
(24 SCRA 198 [1968]) where father and son purchased a lot and building, entrusted the administration of the building to an
administrator, and divided equally the net income, and from Evangelista vs. Collector of Internal Revenue (102 Phil. 140 [1957])
where three sisters bought four pieces of real property which they leased to various tenants and derived rentals therefrom.
Clearly, the petitioners in these two cases had formed an unregistered partnership.


Can you please reiterate the meaning of the law, that "the receipt by a person of a share of the profits of a business is pri ma facie
evidence that he is a partner." Again, "the receipt by a person of a share of the profits of a business is prima facie evidence that he is
a partner." and what are its exceptions:

The sharing of profits and losses is prima facie evidence of an intention to form a partnership but not a conclusive evidence.
The presumption of partnership arising from such profit- sharing agreement may be rebutted and outweighed by other
circumstances.

The exceptions are:

(a) As a debt by installments or otherwise;
(b)As wages of an employee or rent to a land- lord;
(c) As an annuity to a widow or representative of a deceased partner;
(d) As interest on a loan, though the amount of payment vary with the profits of the business;
(e) As the consideration for the sale of a good- will of a business or other property by installments or otherwise.

So what happened in the case of Sardane v. CA?

Ruling: As manager of the basnig Sarcado naturally some degree of control over the operations and maintenance thereof
had to be exercised by herein petitioner. The fact that he had received 50% of the net profits does not conclusively establish
that he was a partner of the private respondent herein. TAKE NOTE: Article 1769(4) of the Civil Code is explicit that while 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 business, no such
inference shall be drawn if such profits were received in payment as wages of an employee. Furthermore, herein petitioner
had no voice in the management of the affairs of the basnig.

So there is no partnership here in the case of Sardane v. CA.


My question is, what are the effects of an unlawful partnership? State the effects of an unlawful partnership.

The following are the consequences of a partnership formed for an unlawful purpose:

(1) The contract is void ab initio and the partnership never existed in the eyes of the law (Art. 1409[1].);

(2) The profits shall be confiscated in favor of the government;

(3) The instruments or tools and proceeds of the crime shall also be forfeited in favor of the government;22 and

(4) The contributions of the partners shall not be confiscated unless they fall under No. 3


So what happened in the case in Arbes v. Polistico? Give the ruling na lang.

A partnership must have a lawful object, and must be established for the common benefit of the partners.

When the dissolution of an unlawful partnership is decreed, the profits shall be given to charitable institutions of the domi cile of
the partnership, or, in default of such, to those of the province.




Are the partners entitled to the profits?

No. Article 1770 permits no action for the purpose of obtaining the earnings made by an unlawful partnership, during its
existence.


My question is, what must be done when a partnership has a capital of P3k or more?

(a) The contract must appear in a public instrument; and (b) It must be recorded or registered with the Securities and
Exchange Commission.

What is the purpose of that registration requirement?

The requirement of public instrument is imposed as a prerequisite to registration, and registration is necessary as a condition
for the issuance of licenses to engage in business or trade.

However, failure to comply with the above requirements does not prevent the formation of the partnership (Art. 1768.) or
affect its liability and that of the partners to third persons.

So what happened in the case of Sunga-Chan v. Chua?

Ruling: A partnership may be constituted in any form, except where immovable property of real rights are contributed thereto,
in which case a public instrument shall necessary.6 Hence, based on the intention of the parties, as gathered from the facts
and ascertained from their language and conduct, a verbal contract of partnership may arise.7 The essential profits that must
be proven to that a partnership was agreed upon are (1) mutual contribution to a common stock, and (2) a joint interest in
the profits.8 Understandably so, in view of the absence of the written contract of partnership between respondent and
Jacinto, respondent resorted to the introduction of documentary and testimonial evidence to prove said partnership.

Petitioners maintain that said partnership that had initial capital of P200,000.00 should have been registered with the Securities
and Exchange Commission (SEC) since registration is mandated by the Civil Code, True, Article 1772 of the Civil Code requires
that partnerships with a capital of P3,000.00 or more must register with the SEC, however, this registration requirement is not
mandatory. Article 1768 of the Civil Code25 explicitly provides that the partnership retains its juridical personality even i f it fails
to register. The failure to register the contract of partnership does not invalidate the same as among the partners, so long as
the contract has the essential requisites, because the main purpose of registration is to give notice to third parties, and i t can
be assumed that the members themselves knew of the contents of their contract.26 In the case at bar, non-compliance with
this directory provision of the law will not invalidate the partnership considering that the totality of the evidence proves that
respondent and Jacinto indeed forged the partnership in question.


My question is, is an inventory of property contributed to partnership always required? State the rules and its effects.

An inventory is required only whenever immovable property is contributed. Hence, Article 1773 does not apply in the case of
immovable property which may be possessed or even owned by the partnership but not contributed by any of the partners.

So what is the importance of this inventory?

An inventory is very important in a partnership to show how much is due from each partner to complete his share in the
common fund and how much is due to each of them in case of liquidation.




So what happened in the case of Torres v. CA? What is the ruling in this case? Was there a partnership?

Under the above-quoted Agreement, petitioners would contribute property to the partnership in the form of land which was
to be developed into a subdivision; while respondent would give, in addition to his industry, the amount needed for general
expenses and other costs. Furthermore, the income from the said project would be divided according to the stipulated
percentage. Clearly, the contract manifested the intention of the parties to form a partnership.

The SC said that there was partnership but it was void. But here, the SC said that the JVA was considered as an ordinary
contract from which rights may be enforced.


My question is, what is a secret partnership? What law will govern such partnerships?

These are associations whose articles or agreements are kept secret among the members (i.e., known to some members only
but withheld from the rest) and wherein anyone of them may contract in his own name with third persons.

As among themselves, they shall be governed by the provisions relating to co-ownership.


State the effect of a partner who transacts for the secret partnership in his own name.

A member who transacts business for the secret partnership in his own name becomes personally bound to third persons who
are unaware of the existence of such association, in the same way and for the same reason that an agent who acts in his own
name when dealing with third persons is directly bound in favor of such persons who may only sue or be sued by the agent
and not his principal.


My last question is, can the secret partnership by itself be held liable?

As a general rule no, except when they are deemed as partnership in estoppel.


My question is, what is a universal partnership and how will you distinguish that for a particular partnership? What is the main
distinction between the two?

Take note: the fundamental difference between a universal partnership and a particular partnership lies in the scope of their
subject matter or object, ha. If it is a general partnership, the object is vague and indefinite, contemplating a general business
with some degree of continuity, while if it is particular partnership, it is limited and well-defined, being confined to an
undertaking of a single, temporary, or ad hoc nature.


Last question for tonight, what happened in the case of CIR v. Suter? Was there a universal or particular partnership in this case? What
was contributed by the partners?

What existed was a particular partnership since the contributions of the partners were fixed sums of money and neither of them were
industrial partners.

Business Organization
June 21, 2013 Part 1 (Friday)

Q: As a review, what is a universal partnership as distinguished from a particular partnership?
Q: So what is the ruling of the Supreme Court in the case of CIR vs. Sutter? So what kind of partnership was constituted in that case?
So what was contributed by the partners was fixed amount of money. That is why what existed was a particular partnership.
Q: What are the different kinds of partners under the Civil Code?
Q: How will you distinguish a partnership at will with a partnership with a fixed period?
Q: How will you distinguish a de jure partnership from a de facto partnership?
Q: How will you distinguish a secret partnership from an open or notorious partnership?
Q: How will you distinguish a commercial or trading partnership from a professional or nontrading partnership?
Article 1777 provides that A universal partnership may refer to all the present property or to all the profits. Art. 1778 provides that A
partnership of all present property is that in which the partners contribute all the property which actually belongs to them to a
common fund, with the intention of dividing the same among themselves, as well as all the profits which they may acquire therewith.
Q: How do you define a universal partnership of all present property?
So take note ha, what properties become the common properties of all the partners:
1. Property which belongs to any of them (partners ) at the time of the constitution of the partnership; and
2. The profits which they may acquire from the properties contributed.
Q: Can future property be contributed to a partnership?
Q: Why cant future properties be contributed to the partnership?
Take note the very essence of a contract of partnership is that the properties contributed be included in the partnership, it requires
that said properties are things that are determinate.
Q: What are the exceptions?
Q: How about properties to be acquired by inheritance?
Actually the right of the said partner in that is merely inchoate. So hindi pwede inheritance, legacy or donation. Donation cannot be
included by stipulation except the fruits thereof.
Q: How about the usufruct of properties acquired by inheritance, legacy or donation, can that be contributed?
Take note the usufruct of the property acquired by inheritance, legacy or donation may be stipulated. It has to be stipulated so that it
can be contributed to the common fund.
Q: Does ownership of property donated to the partnership pass on to the partnership in a universal partnership of profits.
Article 1780 provides that " A universal partnership of profits comprises all that the partners may acquire by their industry or work during
the existence of the partnership.Movable or immovable property which each of the partners may possess at the time of the
celebration of the contract shall continue to pertain exclusively to each, only the usufruct passing to the partnership.
Take note ha, what passes to the partnership are the profits, or income, as well as the use or the usufruct of the same if it is a universal
partnership of profits.
Q:How about profits acquired through chance?
Article 1781 provides that Articles of universal partnership, entered into without specification of its nature, only constitute a universal
partnership of profits. Why is there such a presumption in favor of a universal partnership of profits?
So take note that in case of doubt, the presumption is that it is a universal partnership of profits.
Q: Who are the persons prohibited from entering into a universal partnership of property?
Take note that the following are prohibited from making donations:
1. Article 87 of the Family Code, donations between spouses during marriage is void except moderate gifts on the occasion of
family rejoicing. The prohibition also applies to common law spouses, those living together as husband and wife without the
benefit of a valid marriage;
2. Those made between persons who are guilty of adultery or concubinage at the time of the donation. Take note that there is
no need for a conviction. So mali yung sabi na guilty of adultery or concubinage because there is no need for a conviction.
What is only needed here is merely a preponderance of evidence;
3. Those made between persons found guilty of the dame criminal offense in consideration thereof; and
4. Those made to a public officer or his wife, descendants r ascendants, by reason of his office.
Q: So what is the reason again for Article 1782 for the said prohibition?
The prohibition is founded on the theory that a contract of universal partnership is for all purposes a donation, thus seeks to prevent
persons disqualified from making donations from doing it indirectly what the law prohibits them from doing directly.
Q: Please reiterate the facts in the case of CIR vs. William Sutter.
Q: is there a partnership if the business is only for a single transaction?
Q: what is a particular partnership?
Take note that the business of the partnership need not be continuing in nature ha. The business of the partnership or the carrying on
of the business of partnership is not essential to constitute a partnership because there can be an agreement to undertake a
particular piece of work. So pwede sya single transaction. So it really depends upon the intention of the parties.
Q: What is a Joint Venture (JV)?
Q: So you mean to say that a JV is a preparatory to form a partnership?
Q: Tell me about the case of Auerbach vs. Sanitary Wares.
Q: So you mean to say that a JV is synonymous to a partnership? Limited partnership?
Q: Can you please define again what is a JV?
Q: is a JV deemed a partnership?
Q: Can a corporation enter into a partnership based on the ruling in Auerbach?
General Rule:
Take note as a general rule, a corporation cannot ordinarily enter into a contract of partnership. The limitation is founded on public
policy since in a partnership, a corporation will be bound by the acts of persons who are not duly appointed and authorized agents
and officers which would be entirely inconsistent with the policy of the law that a corporation shall manage its own affairs separately
and exclusively. Another reason: in entering into a partnership, the identity of the corporation is lost or merged with that of another.
Take note ha that a corporation can only act through its duly authorized agents and not bound by the acts of anyone else.
Exceptions: (based on SEC Opinion, dated February 29, 1980)
1. Provided the following conditions are met:
The Articles Of Incorporation of the corporation must expressly authorize the corporation to enter into contracts of
partnership with others in the pursuit of its business;
The Articles Of Partnership must provide that all the partners will manage the partnership; AND
The Articles Of Partnership must stipulate that all the partners are and shall be jointly and severally liable for all the
obligations of the partnership.
So take note ha that all these conditions must be present. Moreover, two or more corporations may enter into a JV if the nature of the
venture is in line with the business authorized by its charter. But take note, even if two corporations enter into a JV, there is no
independent and separate legal entity that is created out of the said relationship. And the same need not be registered with the SEC.
So what is a JV? As ruled in the case of Auerbach, as well as in the case of Tan Eng Kee, JVs are usually concerned with an isolated
transaction or project as opposed to a partnership which contemplates a general business with some continuity. In a JV, it does not
have a firm name kaya nga no separate legal entity, there is no mutual agency and it does not have a separate juridical personality.
So in effect, a JV is not a partnership.
Q: If it will be asked in a bar, how will you distinguish a JV from a joint account? What is a joint account?
A joint account is similar to a partnership. But that is provided under the Law On Commerce. So Commercial Law ito sya. It is provided
under the Law On Commerce where merchants may interest themselves in the transaction of other merchants contributing thereto
the part of the capital they may agree upon and participating in the favorable or unfavorable results thereof in the proportion they
may determine. So Joint Account based on that definition is like a partnership kaya lang it is under the Law On Commerce.
Q: In relation to Article 1780, does ownership of property contributed pass on to the partnership in a universal partnership of profits?
So in relation to Article 1780 on the rule on the universal partnership of profits, take note, all that the partners may acquire jointly or
severally through their physical or intellectual efforts, whether it be on a pursuit of trade or in the exercise of their profession or
otherwise, it pertains to the partnerhip and are subject to division among the partners upon its termination. So what it excl udes are the
following:
1. Acquisitions of partnership through any means not requiring the exertion of human efforts or intelligence; and
2. Properties which each partner acquires before the celebration of the contract (Take note here that only the usufruct of the
property passes to the partnership).
Q: So what are the different relations created by a contract of partnership?
Q: Can you please discuss the relationship that exists among the partners themselves?
It is essentially one of a mutual trust and confidence. Each partner is an agent and deemed a trustee and cestui que trust.
Q: How about the relationship of a partner to a partnership, can you please describe that?
Q: When is the birthdate of the partnership?
Q: For how long will it exist (the term of the contract of a partnership)?
What are the different relations created by a contract of partnership?
A contract of partnership creates relations among the partners themselves, second is relation between partners to the partnership,
third is the relation of the partnership as to third persons with whom it contracts and lastly relation of partners with such third persons.
Describe the kind of relation that exists among the partners themselves.
The partners among themselves, is one of fiduciary relationship. It is essentially one of mutual trust and confidence. Each partner is a
what- an agent and he is deemed a trustee and a cestui que trust at the same time.
How about the relationship of a partner to the partnership. Eventhough the partnership is not yet terminated there is still a fiduciary
relationship and until it is terminated there is still mutual trust and confidence.
When is the birthdate of a partnership? It is at the moment of the execution of the contract between the partners.It is moment of
the registration at the SEC. For how long the term of a contract of partnership? It depends upon the agreement as well as the
consent of the parties. Can the parties enter into a contract of partnership in the future? Yes Maam, they can agree to enter into a
future partnership, however, it is only inchoate. What is limitation? Theres no juridical personality therefore it cannot enter into any
contract. However, take note of the Statute of Frauds ha, if it is not to be performed within a year of making the contract- it must be
in whatin writing, in order for it to be enforceable. It must be in writing and evidenced by a memorandum in order for it to be
enforceable. Meaning you can file now a case in court if that is in writing kaya nga yuna ng ibig sabihin ng enforceability.
So Art. 1784.- A partnership begins from the moment of the execution of the contract, unless it is otherwise stipulated. This provision is
self-explanatory.
Article 1785. What is a partnership with a fixed term? It is that the parties lay down a specific term or its life span or it can be that of a
partnership with a specific undertaking. It is with a specific lifespan. What is the effect if the said partnership with a fixed term is
continued beyond its term? If it is continued beyond its term and is not liquidated, or there is no sign that the parties intend to end the
partnership then it is meant to be a partnership at will. What is a partnership at will? It is a partnership that continues based on the
consent of the parties and its existence is terminable at the will of anyone of them. A partnership at will is a partnershi p that is
designed to continue for a fixed period of time and is to last only during the mutual consent or at the pleasure of the parti es and its
existence is terminable at the will of anyone of them.
Art 1785. When a partnership for a fix term or a particular undertaking is continued after the termination of such term or particular
undertaking without any express agreement, the rights and duties of the partners remain the same as they were at such termination,
so far as is consistent with a partnership at will.
A continuation of the business by the partners or such of them as habitually acted therein during the term, without any
settlement or liquidation of the partnership affairs, is prima facie evidence of a continuation of the partnership.
For example, the partnership is for a fixed period and it is now converted to a partnership at will, state the rights and obligation
of the parties.
As a default, the rights and obligations in the partnership will go on unless the partners agreed to other rights and obligations.
The stipulations provided for in the previous partnership will continue and in default of that, the provisions of Civil Code on partnership.

What happened to the partnership with a fixed period kasi nagcontinue na ang partnership? It is deemed dissolved and
converted into a partnership at will.
Take note with such continuation, the old partnership is dissolved and a new one is created by implied agreement, the
continued existence of which will depend upon the mutual desire and consent of the partners. Another one, even if a partnership is
for a fixed term, it can be terminated. Diba originally they have agreed, oh fixed na tayo, it can be terminated anytime by the
express will of any partner before the time previously agreed upon arises. It can still be dissolved upon the express term of any partner
because, why, there is no such thing as an idissoluble partnership.
State the obligation of the partner with respect to contribution of property. The obligations of the parties with respect to the
contribution of property 1. to contribute at the beginning of the partnership or at the stipulated time the money, property, or industry
which he may have promised to contribute and, 2. to answer for eviction in case the partnership is deprived of the determinate
property contributed, 3. To answer to the partnership for the fruits of the property the contribution of which he delayed, 4. To preserve
said property with the diligence of a good father of a family pending delivery to the partnershi p, and 5. To indemnify the partnership
for any damage caused to it by the retention of the same or by the delay in its contribution.
What is the effect if the said partner failed to contribute the property he promised? The said party is considered a debtor of a
partnership.
State the liability of the partner in case of eviction. The partner is bound in the same cases and in the same manner as the
vendor is bound with respect to the vendee with regard to specific and determinate thing which he may have contributed to the
partnership.
How about his liability if the said partner failed to perform the service stipulated. Take note Article 1786. Every partner i s a
debtor of the partnership for whatever he may have promised to contribute thereto. He shall also be bound for warranty in case of
eviction with regard to specific and determinate things which he may have contributed to the partnership in the same cases and in
the same manner as the vendor is bound with respect to the vendee.
Take note, under 1786 sabi niya, specific and determinate things- this refers to non-fungible things. Sabi pa dito in the same cases
and in the same manner as the vendor is bound with respect to the vendee. So, Art 1786 talks about warranty against eviction.
Remember your law on Sales, sabi dito warranty against eviction. What are the warranties that are included under 1786? The other
warranties include: 1. Warranty against hidden defects- take note that warranties in a contract of sale applies to Article 1786.
2. Warranty for (merchantility ).
What are the obligations of a partner with respect to contribution of property? Take note the article speaks about every partner. So
number one, to contribute at the beginning of the partnership whatever he may have promised. Number two, to answer for eviction
in case the partnership is deprived of the determinate property contributed. Three, to answer to the partnership for the frui ts of the
property the contribution of which he delayed, from the date they should have been contributed up to the time of actual delivery.
Number four, to preserve said property with diligence of a good father of a family pending delivery to the partnership and number
five, to indemnify the partnership for any damage caused to it by the retention of the same or by the delay in its contribution.
How is appraisal of goods contributed to a partnership made?
Appraisal is necessary for determining how much each partner contributed. As to goods, as stipulated under 1787, the first must be
that which was expressly stipulated in the contract and in the absence of such stipulation it will be with appraisal. It must be done by
experts chosen by the parties themselves according to current prices. Again number one, based on agreement of the parties. The
value of the properties based on what? On what was stipulated by the parties on the agreement. If there is no stipulation as to prices,
it will be determined by the experts who will then be determining based on current prices. Take note that number one, if there is
agreement by the parties as prescribed by the contract of partnership, the value of the properties is based on their agreement. If
there is no stipulation, it will be determined by appraisal of experts chosen by the parties based on current prices. That is under Art
1787.
State the obligations of a partner with respect to the contribution of money.
Under Art 1767. A partner may contribute money, property or industry to a common fund. Under Art 1788 it contemplates contribution
of a partner for a sum of money. It actually speaks of two types of contribution. One is a contribution which the partner fails to
contribute to the partnership and the second is a misappropriation of the money from the coffers of the partnership. Now the
obligation of such partner is first, to contribute the amount to the partnership. Second, the amount that the partner took from the
coffers of the partnership and which he may have misappropriated. Third is to pay the damages that the partnership may have
incurred by virtue of misappropriation of the funds and failed contribution of the money and fourth is to indemnify the partnership for
damages.
To what kind of partner does 1788 apply? 1788 contemplates capital partner. It refers to capitalist partner. Regarding the li ability of
the guilty partner for interest and damages. When do you reckon obligation for interests and damages. It is reckoned from the time
he should have complied with the obligation and not from demand, whether judicial or extrajudicial.
Take note if there is mere failure to return the said money there is no estafa. Your remedy there is to file a civil action for liquidation of
the partnership and levy the assets. Again, if there is mere failure to return the money there is no estafa.
Who is an industrial partner? An industrial partner is a partner who does not contribute money but his skills or talent in the partnership.
What are the obligations of the industrial partner? They are the following: 1. He is prohibited from engaging in business for himself
unless the partnership expressly expressly permits him to do so. What kind of business? Any kind of business because the prohibition is
absolute. What are the remedies if the said industrial partner engages in business? The capitalist partner may exclude the industrial
partner or the benefits acquired by the industrial partner from the business, then the partnership may be benefited also. Then, in either
case, a complaint for damages.
So the remedies are the following: to exclude the industrial partner from the firm, or to avail themselves of the benefits he may have
obtained, and in either case, a right to damages. Take note, the industrial partner contributes industry, labor or services to the
partnership.
Article 1790. Unless there is a stipulation to the contrary, the partners shall contribute e qual shares to the capital of the partnership.
Take note Art 1790, it applies to capitalist partner. How about an industrial partner does the provision apply? As a general rule, NO.
Because the industrial partner contributes industry, labor, or services. Unless the industrial partner also contributes capital if there is a
stipulation in their contract. Take note that partners may stipulate equal contribution to the common fund. General rule, kahit ano
pwede sila mag stipulate. They can even stipulate contribution of unequal funds but in the absence of such stipulation, their
contribution shall be in equal shares.
State the obligation of capitalist partner to contribute additional capital. A capitalist partner is required to contribute additional
capital if the partnership is in imminent loss of the business. When you say imminent loss is it not impending loss only? Take note 1791, it
does also refers to total loss of the business such that the partnership can no longer continue to pursue its purpose.
What are the requisites for this rule to apply? First, there is an imminent loss of the business, second if the majority of the partners are of
the opinion that there is imminent loss of the business, the third is that the capitali st partner refuses deliberately to contribute
additional shares, and there is no agreement that in case of imminent loss the parties are not obliged to contribute.
Is the industrial partner obliged to contribute in the capital in case of imminent loss of the business? No, the industrial partner is not
required because as said earlier an industrial partner is only required to contribute industry, labor or services. Article 1791 provides
that: If there is no agreement to the contrary, in case of imminent loss of the business of the partnership, any partner who refuses to
contribute an additional share to the capital, except an industrial partner. Not only imminent loss ha, mag apply pa rin into in case of
total loss of the business such that the partnership can no longer continue to pursue its purpose.
So what must be done? First, halimbawa there is imminent loss or total loss. The following must be done:
1, there must be a capital call;
2. there must be an agreement for everyone to contribute to continue the business;
3. after such agreement, the failure to contribute gives the right to buy out the interest of the uncontributing partner.
Article 1791 imposes a mandate to the capitalist partners.
What obligation does the law impose upon the managing partner who collects debt?
Regarding managing partner who collects debt, to collect the debt demanded from the debtor and there is also a creditor-debtor
relationship between that debtor and the partnership as a whole. Should he collect the sum of money, the proceeds shall be divided
between himself and to the partnership even if it was only the managing partner who received it.
When does this article apply? What are the requisites?
This article will apply subject to the following requisites:
1. There exists at least two debts, one where the collecting partner is creditor, and the other, where the partnership is the
creditor;
2. Both debts are demandable, and;
3. The partner who collects is authorized to manage and actually manages the partnership.
Article 1792 provides that:
If a partner authorized to manage collects a demandable sum, which was owed to him in his own name, from a person who
owed the partnership another sum also demandable, the sum this collected shall be applied to the two credits in proportion to their
amounts, even thought he may have given a receipt for his own credit only; but should he have given it for the account of the
partnership credit, the amount shall be fully applied to the latter.
The provisions of this article are understood to be without prejudice to the right granted to the debtor by Article 1252 but only if
the personal credit of the partner should be more onerous to him.
So briefly, what obligation is mandated under 1792 to the managing partner? To apply the sum collected. So the obligation
imposed upon the managing partners is for him to apply the sum collected.
Article 1252 Civil Code: it is a mode of extinguishment of obligation regarding application of payments. It provides that:
He who has various debts of the same kind in favor of one and the same creditor, may declare at the time of making the
payment, to which of them the same must be applied. Unless the parties so stipulate, or when the application of payment is made by
the party for whose benefit the term has been constituted, application shall not be made as to debts which are not yet due.
If the debtor accepts from the creditor a receipt in which an application of the payment is made, the former cannot
complain of the same, unless there is a cause for invalidating the contract.
What obligation does the law impose on the partner who receives share of partnership credit? The partner who receives part
or whole of the credit is obliged to return it so that the partners who did not received the payment for that credit can also share it.
What is the reason of the article for imposing the obligation? As we have already discussed, in partnership, the partners share the
profits and the loss. Here, if the partner who received the payment and the debtor becomes insolvent, the l oss is not shared
proportionately. And so the partner who received the payment shall distribute it to other partners. Will the article apply if the credit is
collected upon dissolution of the partnership? In the book, it discussed two answers. Some of the commentators say that it should be
in the affirmative. However, according to Manresa and Ricci, upon the dissolution of the partnership, their obligation to the other
partners are also are also dissolved so in effect, their obligation to divide the losses would also be not present. In effect, article 1793
applies only during the existence of the partnership and not upon its dissolution.
State the rule regarding the obligation of the partner for the damages done to the partnership. If it is the partner at fault, he is liable
for the damages. How about the profits earned by the said partnership? Can that stand as compensation for the damages? Pwede
ba iyon? As a general rule, set-off cannot be made sot the profits cannot be applied. Why is it not subject to set-off? The main reason
is that for compensation to be applied, the negligent partner must be both a creditor and a debtor of the partnership. Why is he not
deemed a creditor? What is his obligation? It is to pay the debt, and the profits that he earned are currently not owned by him and
owned by the partnership. Take note, damages are not generally subject to set-off because the partners has the obligation to secure
benefits for the partnerships. Profits which he may have earned are owned by the partnershi p. Partnership as a matter of law or right.
In fact a partner has the obligation to exercise due diligence. General rule, not subject to set off, unless there are unusual profits
realized through the extraordinary efforts of the partner at fault. So, it is allowed on ground of equity.
Who bears the loss of things contributed? Please state the rule. A partnership can be held responsible for the partner for the amounts
he may have disbursed for the partnership and for corresponding expenses made. He shall also enter for each partner the obligation
he may have conducted for interest of the business. Please state Article 1795.
Article 1795. The risk of specific and determinate things, which are not fungible, contributed to the partnership so that onl y their use
and fruits may be for the common benefit, shall be borne by the partner who owns them.
If the things contributed are fungible, or cannot be kept without deteriorating, or if they were contributed to be sold, the risk
shall be borne by the partnership. In the absence of stipulation, the risks of things brought and appraised in the inventory, shall also be
borne by the partnership, and in such case the claim shall be limited to the value at which they were appraised.
What are the rules in relation to that article, if there is specific and determinate thing not fungible. If it is a specific and determinate
thing, the risk of loss shall be for the account of the partnership (partner who owns it). For fungible things, or things whi ch cannot be
kept without deteriorating, the risk of loss is borne by the partnership. For things contributed to be sold, the partnership also bears the
loss. And for things brought and appraised in the inventory, the partnership bears the loss.
Take note, Article 1795, presupposes that there has already been delivery whether actually or constructively. Before delivery, who
bears the loss? It is the partner because he is the owner of the property and under Article 1786 he is debtor of the partnership for
whatever he promised to contribute. Again, regarding the risk of loss of things contributed, if it is specific and determinate thing not
fungible or only the use is contributed, the risk of loss is borne by the partner because he is still the owner of the thing. This is based on
res sperit domino. Number two, if it is specific and determinate things, the ownership of which is transferred to the partnership, the risk
of loss is for the account of the partnership because in that instance, the partnership is the owner of the property. Number three, if its
fungible things or things contributed without deteriorating, the risk of loss is borne by the partnership. Number four, if things contributed
are to be sold, the partnership bears the risk of loss and. Number five, if the things brought and appraised in the inventory, it is the
partnership who bears the risk of loss.
Take note in relation to Article 1785, the risk of loss is transferable by stipulation. So general rule, mag base tayo sa number 1-5 unless
there is a stipulation to the contrary.

Bus Org
June 25, 2013
TSN by Sonny

Again, what is an industrial partner?

An industrial partner is one who contributes only his industry or personal service to the partnership (Arts. 1789, 1767.); He is considered
the owner of his services, which is his contribution to the common fund.

So regarding the provision to engage in business, what are the rules?

ART. 1789. An industrial partner cannot engage in business for himself unless the partnership expressly permits him to do so; and if he
should do so, the capitalist partners may either exclude him from the firm or avail themselves of the benefits which he may have
obtained in violation of this provision, with a right to damages in either case.

So what happened in the case of Evangelista v. Abad Santos?

EVANGELISTA & CO., DOMINGO C. EVANGELISTA, JR., CONCHITA B. NAVARRO and LEONARDA ATIENZA ABAD SABTOS, petitioners, vs.
ESTRELLA ABAD SANTOS, respondent.

Facts:
On December 17, 1963 respondent filed a suit against the three other partners alleging that the partnership had been paying
dividends to the partners except to her; and the defendants had refused and continued to refuse to let her examine the partnership
books or to give her information regarding the partnership.

She therefore prayed that the defendants be ordered to render accounting of the partnership business and to pay her corresponding
share in the partnership profits after such accounting.

The defendants claimed among others that Estrella was not an industrial partner; that she has been, and up to the present time still is,
one of the judges of the City Court of Manila, devoting all her time to the performance of the duties of her public office, thus it was
never contemplated between the parties, for she could not lawfully contribute her full time and industry which is the obligation of an
industrial partner pursuant to Art. 1789 of the Civil Code.

ISSUE: Whether the Estrella is an industrial partner.

Ruling:
Yes. Even as she was and still is a Judge of the City Court of Manila, she has rendered services for appellants without which they
would not have had the wherewithal to operate the business for which appellant company was organized.

ART. 1789. An industrial partner CANNOT engage in business for himself, UNLESS the partnership expressly permits him to do so; and if
he should do so, the capitalist partners may either exclude him from the firm or avail themselves of the benefits which he may have
obtained in violation of this provision, with a right to damages in either case.'
It is not disputed that the provision against the industrial partner engaging in business for himself seeks to prevent any conflict of
interest between the industrial partner and the partnership, and to insure faithful compliance by said partner with this prestation.

There is no pretense, however, even on the part of the appellee is engaged in any business antagonistic to that of appellant
company, since being a Judge of one of the branches of the City Court of Manila can hardly be characterized as a business.

That appellee has faithfully complied with her prestation with respect to appellants is clearly shown by the fact that it was only after
filing of the complaint in this case and the answer thereto appellants exercised their right of exclusion under the codal art just
mentioned by alleging in their Supplemental Answer dated June 29, 1964 or after around nine (9) years from June 7, 1955
subsequent to the filing of defendants' answer to the complaint, defendants reached an agreement whereby the herein plaintiff
been excluded from, and deprived of, her alleged share, interests or participation, as an alleged industrial partner, in the defendant
partnership and/or in its net profits or income, on the ground plaintiff has never contributed her industry to the partnership, instead she
has been and still is a judge of the City Court (formerly Municipal Court) of the City of Manila, devoting her time to performance of
her duties as such judge and enjoying the privilege and emoluments appertaining to the said office, aside from teaching in law
school in Manila, without the express consent of the herein defendants'.

So you mean to say that even if she is an industrial partner, she is not prohibited to engage in other business? Remember that the
prohibition is absolute unlike for capitalist partners which is just relative.

Take note, the SC said in this case that Judge Abad Santos is not engaged in any industry as being a judge can hardly be
characterized as a business. Being a judge is a profession.

Okay. Can you please state the responsibility of the partnership to the partners under Article 1796?

The partnership has the obligation to:

(1) refund amounts disbursed by the partner in behalf of the partnership plus the corresponding interest from the time the expenses
are made (not from the date of demand). Here, the law refers to loans or advances made by a partner to the partnership other than
capital contributed by him;

(2) answer for the obligations the partner may have contracted in good faith in the interest of the partnership business; and

(3) answer for risks in consequence of its management.

Can you please explain the case of Martinez v. Ong Pong Co?

PEDRO MARTINEZ, plaintiff-appellee, vs.ONG PONG CO and ONG LAY, defendants.ONG PONG CO., appellant.

FACTS:
On the 12th of December, 1900, the plaintiff herein delivered P1,500 to the defendants who, in a private document, acknowledged
that they had received the same with the agreement, as stated by them, "that we are to invest the amount in a store, the profits or
losses of which we are to divide with the former, in equal shares."

The plaintiff filed a complaint on April 25, 1907, in order
to compel the defendants to render him an accounting of the partnership as agreed to, OR
else to refund him the P1,500 that he had given them for the said purpose.
Ong Pong Co alone appeared to answer the complaint;
he admitted the fact of the agreement and the delivery to him and to Ong Lay of the P1,500 for the purpose aforesaid,
but he alleged that Ong Lay, who was then deceased, was the one who had managed the business,
and that nothing had resulted therefrom save the loss of the capital of P1,500, to which loss the plaintiff agreed.

CFI:
ordered Ong Pong Co to return to the plaintiff one-half of the said capital of P1,500 which, together with Ong Lay, he had received
from the plaintiff, to wit, P750,
plus P90 as one-half of the profits,
calculated at the rate of 12 per cent per annum for the six months that the store was supposed to have been open, both sums in
Philippine currency, making a total of P840, with legal interest thereon at the rate of 6 per cent per annum, from the 12th of June,
1901, when the business terminated and on which date he ought to have returned the said amount to the plaintiff, until the full
payment thereof with costs.

ISSUE: WON Ong Pong Co is liable to return the of capital received from Martinez and of profit.

RULING: YES as to the capital but NOT with profit.
As to the first assignment of error, the fact that the store was closed by virtue of ejectment proceedings is of no importance for the
effects of the suit. The whole action is based upon the fact that the defendants received certain capital from the plaintiff for the
purpose of organizing a company; they, according to the agreement, were to handle the said money and invest it in a store which
was the object of the association; they, in the absence of a special agreement vesting in one sole person the management of the
business, were the actual administrators thereof; as such administrators they were the agent of the company and incurred the
liabilities peculiar to every agent, among which is that of rendering account to the principal of their transactions, and paying him
everything they may have received by virtue of the mandatum. (Arts. 1695 and 1720, Civil Code.) Neither of them has rendered such
account nor proven the losses referred to by Ong Pong Co; they are therefore obliged to refund the money that they received for the
purpose of establishing the said store the OBJECT of the association. This was the principal pronouncement of the judgment.

With regard to the second and third assignments of error, this court, like the court below, finds no evidence that the entire capital or
any part thereof was lost. It is no evidence of such loss to aver, without proof, that the effects of the store were ejected. Even though
this were proven, it could not be inferred therefrom that the ejectment was due to the fact that no rents were paid, and that the rent
was not paid on account of the loss of the capital belonging to the enterprise.

With regard to the possible profits, the finding of the court below are based on the statements of the defendant Ong Pong Co, to the
effect that "there were some profits, but not large ones." This court, however, does not find that the amount thereof has been proven,
nor deem it possible to estimate them to be a certain sum, and for a given period of time; hence, it can not admit the estimate,
made in the judgment, of 12 per cent per annum for the period of six months.

Inasmuch as in this case nothing appears other than the failure to fulfill an obligation on the part of a partner who acted as agent in
receiving money for a given purpose, for which he has rendered no accounting, such agent is responsible ONLY for the losses which,
by a violation of the provisions of the law, he incurred. This being an OBLIGATION TO PAY IN CASH, there are no other losses than the
legal interest, which interest is NOT due except from the time of the judicial demand, or, in the present case, from the filing of the
complaint. (Arts. 1108 and 1100, Civil Code.)
We do NOT consider that article 1688 is applicable in this case, in so far as it provides "that the partnership is liable to every partner for
the amounts he may have disbursed on account of the same and for the proper interest," for the reason that no other money than
that contributed as is involved.

As in the partnership there were two administrators or agents liable for the above-named amount, article 1138 of the Civil Code has
been invoked; this latter deals with debts of a partnership where the obligation is not a joint one, as is likewise provided by article 1723
of said code with respect to the liability of two or more agents with respect to the return of the money that they received from their
principal. Therefore, the other errors assigned have not been committed.

What is the rationale behind 1796 on the obligation of the partnership to reimburse and answer for all the obligations contracted by its
partners?

Diba, every partner is an agent of the partnership? Then the partner is not personally liable, provided, however, that he is free from all
fault (see Art. 1912.)

Again, under Article 1796, the partnership has the obligation to:

(1) refund amounts disbursed by the partner in behalf of the partnership plus the corresponding interest, take note, from the time the
expenses are made and not from the date of demand. Now why? Because the rule on agency applies to the said partner.

(2) answer for the obligations the partner may have contracted, take note that it should be in good faith and In the interest of the
partnership business; take note, the second obligation includes personal obligation incurred by partner in the course of ordi nary
partnership affairs.

(3) answer for risks in consequence of its management. Under the third obligation, it includes the risks and losses incurred by the
partner for the partnership in good faith.

In addition, a partner has no obligation to loan or advance money to the partnership firm. He may do this, provided there is no
contrary agreement. If a partner advances money to the partnership, then he becomes a. creditor and he becomes are preferred
creditor at that which means his credit must be satisfied first before the distribution of profits. Any voluntary contribution given beyond
that in state in the partnership agreement is deemed an advancement of money.

Can you please recite the case of Machuca v. Chuidian?

JOSE MACHUCA vs. CHUIDIAN, BUENAVENTURA & CO., May 13, 1903

Facts:
In 1882, defendants are organized as a regular general partnership in Manila; it was a continuation of a prior partnership of the
same name. It was stipulated that the partners liability should be "LIMITED TO THE AMOUNTS BROUGHT in by them. Thereafter,
partners contributed additional amounts.
In 1888, the partnership went into liquidation, and it does not appear that the liquidation had been terminated.
During liquidation, the accounts-current of Telesforo Chuidian and Candelaria Chuidian had diminished while Mariano
Buenaventuras acct had increased.
In 1894, Mariano Buenaventura died and his estate passed to his children (among whom was Vicente Buenaventura).
In 1898, Vicente Buenaventura executed a public instrument wherein he "assigns to Jose Garcia 25% share in all that may be
obtained by whatever right in whatever form from the liquidation of the partnership of Chuidian, Buenaventura & Co. xxx
Garcia now asks to have the credit assigned to him to be recorded in the books of the partnership. Likewise, to receive immediately
25% of the amount representing Vicente Buenaventuras share in the account-current.

Issue: Whether Garcia is entitled to 25% of D. Vicente Buenaventura's share in the partnership's assets.

Held/Ratio: NO. Garcia is NOT entitled.

Under clause 19 of the partnership agreement of the parties, the partnership would be liquidated:
liabilities to non partners are to be discharged first;
claims of the Chuidian minors are to be next satisfied (does not appear how they acquired such);
advances made by a partner;
leaving the ultimate residue (if any) to be distributed, among the partners in the proportions they may be entitled.
Hence, Vicente Buenaventura (rights are those of his decesead father, Mariano) is NOT entitled to receive any part of the assets
until the creditors who are nonpartners and the Chuidian minors are paid. Whatever rights Vicente had either as creditor or partner,
he could only transfer SUBJECT TO THIS CONDITION.

Vicente CANNOT transfer the partnership's assets to 3rd person but may transfer/assign a partner's interest (share in profits & losses) on
the partnership
By that instrument he undertakes to assign to Garcia not a present interest in the assets of the partnership but an interest in whatever
"may be obtained from the liquidation of the partnership," which Garcia is to receive "in the same form in which it may be obtained
from said partnership," and "on the date when Messrs. Chuidian, Buenaventura & Co., in liquidation, shall have effected the
operations necessary in order to satisfy" the claims of D. Vicente Buenaventura.
Decision: CFI decision (w/c favoured Garcia) REVERSED and SET ASIDE. Case is REMANDED to the court a quo.
The plaintiff will be entitled to receive from the assets of the partnership, if any remain, at the termination of the liquidation.
Court did not discuss how would the partners share in the remaining assets, if there is any, in proportion to their contributions.

Actually, what happened in the case of Machuca, is that, they contributed in the first partnership they contributed in addition to the
capital contribution so mag apply ang article 1796. In article 1796, before mag share ng profits, dapat bayaran muna ang mga
utang. Kasi nga in this case may advance money na na contribute.

Sorry nag skip ako class. So what happened in the case of Ortega v. Court of Appeals?

GREGORIO F. ORTEGA, TOMAS O. DEL CASTILLO, JR., and BENJAMIN T. BACORRO, petitioners, vs.
HON. COURT OF APPEALS, SECURITIES AND EXCHANGE COMMISSION and JOAQUIN L. MISA,respondents.

FACTS:

The law firm of ROSS, LAWRENCE, SELPH and CARRASCOSO, its name, was changed to BITO, MISA & LOZADA on June 7, 1977.
On 19 December 1980, (Joaquin L. Misa] appellees Jesus B. Bito and Mariano M. Lozada associated themselves together, as senior
partners with
respondents-appellees Gregorio F. Ortega, Tomas O. del Castillo, Jr., and Benjamin Bacorro, as junior partners.

On 30 June 1988, petitioner filed with this Commission's Securities Investigation and Clearing Department (SICD) a petition for
dissolution and liquidation of partnership. On 31 March 1989, the hearing officer rendered a decision against their favour/ petitioner
(for the DISSOLUTION).

On appeal, the SEC en banc REVERSED the decision of the Hearing Officer.

The Court of Appeals, finding NO reversible error on the part of respondent Commission, AFFIRMED in toto the SEC decision.

ISSUES:
1. Whether or not the Court of Appeals has erred in holding that the partnership of Bito, Misa & Lozada (now Bito, Lozada, Ortega &
Castillo) is a partnership at will. NO.
2. Whether or not the Court of Appeals has erred in holding that the withdrawal of private respondent dissolved the partnership
regardless of his good or bad faith. NO.

Ruling:

(1) A partnership that does not fix its term is a partnership at will. That the law firm "Bito, Misa & Lozada," and now "Bito, Lozada, Ortega
and Castillo," is indeed such a partnership need not be unduly belabored. The partnership agreement does NOT provide for a
specified period or undertaking. The "DURATION" clause simply states, "The partnership shall continue so long as mutually satisfactory
and upon the death or legal incapacity of one of the partners, shall be continued by the surviving partners."

The "PURPOSE" of the partnership is NOT the specific undertaking referred to in the law. Otherwise, all partnerships, which necessari ly
must have a purpose, would all be considered as partnerships for a definite undertaking. There would therefore be no need to
provide for articles on partnership at will as none would so exist. Apparently what the law contemplates, is a specific undertaking or
"project" which has a definite or definable period of completion.

(2) The birth and life of a partnership at will is predicated on the mutual desire and consent of the partners. The right to choose with
whom a person wishes to associate himself is the very foundation and essence of that partnership. Its continued existence is, in turn,
dependent on the constancy of that mutual resolve, along with each partner's capability to give it, and the absence of a cause for
dissolution provided by the law itself. Verily, any one of the partners may, at his sole pleasure, dictate a dissolution of the partnership
at will. He must, however, act in good faith, NOT that the attendance of bad faith can prevent the dissolution of the partnership 4 but
that it can RESULT in a liability for DAMAGES. 5

In passing, neither would the presence of a period for its specific duration or the statement of a particular purpose for its creation
prevent the dissolution of any partnership by an act or will of a partner. 6 Among partners, 7 mutual agency arises and the doctrine of
delectus personae allows them to have the POWER, although NOT necessarily the right, to dissolve the partnership. An UNJUSTIFIED
dissolution by the partner can subject him to a possible action for DAMAGES.

The DISSOLUTION of a partnership is the change in the relation of the parties caused by any partner ceasing to be associated in the
carrying on, as might be DISTINGUISHED from the WINDING UP of, the business. 8 Upon its dissolution, the partnership continues and its
legal personality is retained until the complete winding up of its business culminating in its termination.

How did he dictate the dissolution of the partnership at will? Diba, he withdrew? Yes.

So as a review, under Article 1785, a partnership at will is one in which no time is specified and is not formed for a particular
undertaking or venture and which may be terminated at anytime by mutual agreement of the partners, or by the will of any one
partner alone; or one for a fixed term or particular undertaking which is continued by the partners after the termination of such term
or particular undertaking without express agreement.

Sabi dito, verily, any one of the partners may, at his sole pleasure, dictate a dissolution of the partnership at will. He must, how- ever,
act in good faith, not that the attendance of bad faith can prevent the dissolution of the partnership but that it can result in a liability
for damages. So, the principle is, regardless of the good faith or bad faith of the party, as long as he dictates the dissolution of the
partnership, the partnership will be dissolved.

So even if the partnership is with a fixed period, pwede. Now, bakit? Because of the principle of delectus personae. Because among
partners, mutual agency arises and the doctrine of delectus personae allows them to have the power, although not necessarily the
right, to dissolve the partnership.

Can you please state the rules on the distribution of profits under 1797?

Distribution of profits:

(a) The partners share the profits according to their agreement subject to Article 1799.

(b) If there is no such agreement:

1)The share of each capitalist partner shall be in proportion to his capital contribution. This rule is based on the presumed will of the
partners.

2) The industrial partner shall receive such share, which must be satisfied first before the capitalist partners shall divide the profits, as
may be just and equitable under the circumstances.

How about the rules on the distribution of losses?

Distribution of losses:

(a) The losses shall be distributed according to their agreement subject to Article 1799.

(b) If there is no such agreement, but the contract provides for the share of the partners in the profits, the share of each in the losses
shall be in accordance with the profit-sharing ratio, but the industrial partner shall not be liable for losses. The profits or losses of the
partnership cannot be determined by taking into account the result of one particular transaction but of all the transactions had.

(c) If there is also no profit-sharing stipulated in the contract, then losses shall be borne by the partners in proportion to their capital
contributions, but the purely industrial partner shall not be liable for the losses.

Does the industrial partners share in the distribution of losses?

General rule: no
Except: When there is an express agreement making him liable

So what happened in the case of Moran Jr. v. CA?

Doctrine:
The essence of partnership is the sharing of profits and losses.

Facts:
Pecson and Moran entered into an agreement whereby both would contribute P15,000 each for the purpose of printing 95,000
posters featuring the delegates of the 1971 Constitutional Convention. Moran would act as a managing partner.
According to the agreement, Pecson would receive a commission of P1000 a month from April to December (8 months). Pecson
gave Moran P10,000 as part of his share. Only 2,000 posters were printed. The printing cost P4,000. Pecson gave another P7000 for the
printing of The Voice of the Veteran Magazine which they also agreed upon.
Moran gave Pecson a promissory note amounting to P20,000 in consideration of Pecsons contributions and commission for 3
months.
Pecson filed a case for an action of recovery of sum of money based on the alleged partnership agreement, whereby he seeks the
return of his 10K contribution, and based on the promissory note.
The CFI held that, there is indeed a partnership agreement, and that based on this Pecson gave 10K, and gave another 7K for the
Voice of the Veteran Magazine. The CFI ruled that because Pecson also failed to give the full amount of 15 thousand for the posters,
both Moran and Pecson is entitled to rescind the contract. Moran was asked to return to Pecson the 17K received by him.
Both parties appealed to the CA. The CA ruled against Moran. He was ordered to pay:

P 47,500 the amount which, according to the CA, would have accrued in favor of Pecson if the agreement was honored; P 8000 ,
as commission from April to December; P 7000, as return of Pecsons investment for the Voice of the Veterans because the project
never took off.
From this judgment, Moran appealed to the Supreme Court.

Issue:
1. W/N the CA erred in ordering Moran to pay the abovementioned amounts. YES
2. W/N Moran is liable to pay the promissory note executed by him. NO

Held:
1. YES. (As to the P47,500 and the P8000)
Law: When partner who has undertaken to contribute a sum of money fails to do so, he becomes a debtor of the partnership for
whatever he may have promised to contribute and for interests and damages from the time he should have complied with his
obligation.
In the case at bar, there was NO evidence that the partnership would have been a profitable venture, in fact it was a failure doomed
from the start. Therefore there is NO basis for the award of speculative damages. Moreover, BOTH parties were in breach of their
duties as Pecson also failed to pay in full his obligation to the partnership.

Art 1797 provides that the shares and losses shall be governed by the AGREEMENT, in the ABSENCE of an agreement regarding the
losses, it shall be borne PROPORTIONATELY.

Being a contract of partnership, each partner must bear the losses and profits of the venture that is the ESSENCE of partnership.
Even under the assurance of the other party that the venture would become successful, in the absence of fraud, the other party has
NO right to claim highly speculative profits. Hidden risks such as the failure of the COMELEC to proclaim the candidates in the ConCon
on time, etc. should be considered.

(As to the P 7000) The fact that respondent presented in Court as EVIDENCE the book Voice of the Veterans is sufficient proof that
the project took off and therefore, the assertion of the CA in awarding the P7000 in favor of Pecson is BASELESS.

2. NO. Because of the circumstances mentioned above, Moran should only pay Pecson 6K representing the unused balance of his
10K share (4k was for the printing), and another 3K representing 12 of the profits earned from the sale of the printed posters. (NOTE
THAT THE 20K WAS FOR: P10,000 CONTRIBUTION OF PECSON FOR THE POSTERS, P7000 CONTRIBUTION FOR THE VETERANS MAGAZINE,
P3000 FOR 3 MONTHS WORTH OF COMMISSION)

So the principle in the Moran case is that, a partner is only entitled to his share of profits actually realized by the venture. So even if an
assurance is made by a partner that they would earn a huge amount of profits, in the absence of fraud, the others cannot claim a
right to recover profits promised where the business is highly speculative of a failure.

Regarding the distribution of profits,

(a) The partners share the profits according to their agreement subject to Article 1799.

(b) If there is no such agreement:

1)The share of each capitalist partner shall be in proportion to his capital contribution.

2) The industrial partner shall receive such share, which must be satisfied first before the capitalist partners shall divide the profits, as
may be just and equitable under the circumstances.

Take note, regarding the industrial partner, the industrial partner's share of profits is purely based on quantum meruit, so you cannot
quantify. What he contributes is industry, skill, or labor.

Regarding the distribution of losses, losses here refers to loss when there is already a liquidation of the partnership.

Again, a general rule, industrial partner is not liable for the losses kasi nga quantum meruit and his contribution is in the form of of his
industry, skill and labor, unless there is a stipulation to the contrary.

What happened in the case of Fortis v. Gutierrez Hermanos?

FACTS:
Plaintiff worked for the defendants during the year 1902 under a contract by which he was to receive as compensation 5 per cent of
the net profits of the business. The contract was made on the part of the defendants by Miguel Alonzo Gutierrez but was not in writing.
By the provisions of the articles of partnership he (Miguel Alonzo Gutierrez) was made one of the managers of the company, wi th full
power to transact all of the business thereof. As such manager he had authority to make a contract of employment with the plaintiff.

It is CLAIMED by the APPELLANTS that the CONTRACT ALLEGED in the COMPLAINT made the plaintiff a COPARTNER of the defendants
in the business which they were carrying on.

ISSUE: WON Fortis is an employee or a manager. EMPLOYEE

HELD:
This contention cannot be sustained. It was a mere contract of employment.
The plaintiff had no voice nor vote in the management of the affairs of the company.
The fact that the compensation received by him was to be determined with reference to the profits made by the defendants in
their business did NOT in any sense make by a partner therein.
The articles of partnership between the defendants provided that the profits should be divided among the partners named in a
certain proportion. The contract made between the plaintiff and the then manager of the defendant partnership did NOT in any way
vary or modify this provision of the articles of partnership.
The profits of the business could NOT be determined until all of the expenses had been paid.
A part of the expenses to be paid for the year 1902 was the salary of the plaintiff. That salary had to be deducted BEFORE the net
profits of the business, which were to be divided among the partners, could be ascertained.

ISSUE (issue related to obligation of the partners): WON Gutierrez had the right to employ Fortis although the contract was NOT in
writing.

HELD: YES. SCOPE OF A MANAGING PARTNER: a managing partner has the authority to employ a bookkeeper although the contract
was NOT in writing. It was NO necessary that the contract between the plaintiff and the defendants should be made in writing.

So in other words, Fortis was not entitle to share in the profits because he was a mere employee. He claimed that he was entitled to
the 5% of the profits pero salary ito ha, hindi ito share from the profits.

Can you please state the rule on the designation of a third person of the share in profits and losses?

ART. 1798. If the partners have agreed to intrust to a third person the designation of the share of each one in the profits and losses,
such designation may be im- pugned only when it is manifestly inequitable. In no case may a partner who has begun to execute the
deci- sion of the third person, or who has not impugned the same within a period of three months from the time he had knowledge
thereof, complain of such decision. The designation of losses and profits cannot be intrusted to one of the partners.

Okay. How is the delegation to the third person done?

The designation of the share in the profits and losses may be delegated to a third person by common consent of all the partners.

Take note of the second sentence that The designation of losses and profits cannot be intrusted to one of the partners. It is made to
guarantee utmost impartiality to the distribution.

Is a stipulation in the partnership contract excluding a partner from profits or losses valid? How about a stipulation exempting a
partner from the losses? Is this valid?

General rule: invalid. But the partnership subsists.

With reference to the industrial partner, since the law itself excludes him from losses (Art. 1797, par. 2.), a stipulation exempting him
from the losses is naturally valid as an exception to the general rule in Article 1799. This is without prejudice, however, to the rights of
third persons. (Art. 1817.) The industrial partner is not liable for losses because he cannot withdraw the work or labor already done by
him, unlike the capitalist partners who can withdraw their capital. Furthermore, if the partnership fails to realize any profits, then he has
labored in vain and in a real sense, he has already contributed his share in the loss.

If the stipulation is void, how will the sharing be done?

Follow Article 1797.

Can you please state the rules regarding the right and obligations of the partners with respect to the management of the
partnership?

Unless the partnership agreement provides otherwise, each partner in a general partnership has a right to an equal voice in the
conduct and management of the partnership business.

General rule: each partner in a general partnership has a right to an equal voice in the conduct and management of the partnership
business

Exception: Unless the partnership agreement provides otherwise, such as when a specific partner is named in the articles of
partnership as manager

TAI TONG CHUACHE & CO., petitioner, vs. THE INSURANCE COMMISSION and TRAVELLERS MULTI-INDEMNITY CORPORATION,
respondents.

FACTS:

Azucena Palomo bought a parcel of land and building from Rolando Gonzales and assumed a mortgage of the building in favor of
S.S.S. which was insured with S.S.S. Accredited Group of Insurers.

April 19, 1975: Azucena Palomo obtained a loan from Tai Tong Chuache Inc. in the amount of P100,000 and to secure it, the l and
and building was mortgaged.

On April 25, 1975, Arsenio Chua, representative of Thai Tong Chuache & Co. insured the latter's interest with Travellers Multi-
Indemnity Corporation for P100,000.00 (P70,000.00 for the building and P30,000.00 for the contents thereof).

June 11, 1975: Pedro Palomo secured a Fire InsurancePolicy covering the building for P50,000 with Zenith Insurance Corporation. July
16, 1975:

another Fire Insurance policy was procured from Philippine British Assurance Company, covering the same building for P50,000 and
the contents thereof for P70,000.

July 31, 1975: building and the contents were totally razed by FIRE.

Spouses Palomo were able to claim P41,546.79 from Philippine British Assurance Co., P11,877.14 from Zenith Insurance Corporation
and P5,936.57 from S.S.S. Group of Accredited Insurers BUT TRAVELLERS MULTI-INDEMNITY REFUSED.

Travellers Insurance, on its part, admitted the issuance of the Policy No. 599 DV and alleged that Fire Policy No. 599 DV, covering the
furniture and building of complainants was secured by a certain Arsenio Chua, mortgage creditor, for the PURPOSE of protecting his
mortgage credit against the complainants, Spouses Palomo;

O that the said policy was issued in the name of Azucena Palomo, only to indicate that she owns the insured premises;

O that the policy contains an endorsement in favor of Arsenio Chua as his mortgage interest may appear to indicate that insured was
Arsenio Chua and the complainants, that the premium due on said fire policy was paid by Arsenio Chua;

O that respondent Travellers is not liable to pay complainants, Spouses Palomo.

Tai Tong Chuache & Co. filed a complaint in intervention claiming the proceeds of the fire Insurance Policy issued by Travellers.

Respondent Insurance Commission DISMISSED spouses Palomos' complaint on the GROUND that the insurance policy subject of the
complaint was taken out by Tai Tong Chuache & Company, petitioner herein, for its own interest only as mortgagee of the insured
property and thus COMPLAINANT AS MORTGAGORS of the insured property have NO right of action against herein respondent.

O It likewise dismissed petitioner's complaint in intervention based on the inference that the credit secured by the mortgaged
property was already paid by the Palomos before the said property was gutted down by fire. The foregoing conclusion was arrived at
on the basis of the certification issued by the then Court of First Instance of Davao, Branch II that in a certain civil acti on against the
Palomos, Antonio Lopez Chua stands as the complainant and NOT petitioner Tai Tong Chuache & Company.

ISSUEs:
1. W/N the civil case filed by Arsenio Chua was in his capacity as personal creditor of spouses Palomo. NO
2. W/N Tai Tong Chuache & Co. can claim the proceeds of the fire Insurance Policy issued by Travellers. YES

HELD:

As adverted to earlier, respondent Insurance Commission absolved respondent insurance company from liability on the basis of the
certification issued by the then Court of First Instance of Davao, Branch II, that in a certain civil action against the Palomos, Arsenio
Lopez Chua stands as the complainant and not Tai Tong Chuache. From said evidence respondent commission inferred that the
credit extended by herein petitioner to the Palomos secured by the insured property must have been paid. Such is a glaring error
which this Court cannot sanction. Respondent Commission's findings are based upon a mere inference.

YES. Rule 3, Sec. 2 respondent pointed out that the action must be brought in the name of the real party in interest.

However, it should be borne in mind that PETITIONER BEING A PARTNERSHIP may sue and be sued in its name or by its duly authorized
representative. The fact that Arsenio Lopez Chua is the representative of petitioner is not questioned.

Petitioner's declaration that Arsenio Lopez Chua acts as the managing partner of the partnership was CORROBORATED by
respondent insurance company.

Thus CHUA as the managing partner of the partnership MAY EXECUTE ALL ACTS OF ADMINISTRATION including the right to sue
debtors of the partnership in case of their failure to pay their obligations when it became due and demandable.

Or at the very least, Chua being a partner of petitioner Tai Tong Chuache & Company is an agent of the partnership. Being an
agent, it is understood that he acted for and in behalf of the firm.

The respondent insurance company having issued a policy in favor of herein petitioner which policy was of legal force and effect at
the time of the fire, it is bound by its terms and conditions. Upon its failure to prove the allegation of lack of insurable interest on the
part of the petitioner, respondent insurance company is and must be held liable.

Digests taken from 3M Digest Pool
BUSORG 1
ST
PART
JUNE 28, 2013

(Note: Q Maams question, A students answer, C Maams comment)
Q: Mr. Solana, as a review, can you please reiterate the facts in the case of Tai Tong vs. The Insurance Commission.
A: This case involved a particular land and building which was mortgaged by spouses Talomo. Now, in this particular plan has been
issued four times by the SSS, by the Zenith Insurance Corporation, by the Philippine Insurance Policy Company, and by the Travellers
Multi-Indemnity Corporation. After which, sometime in July 1975, the building that was mortgaged was razed to the ground and the
three insurance companies then paid except for the Travellers Multi-Indemnity Corporation. They chose not to pay because they
were under the belief that the mortgage has already been paid by the spouses Talomo, the insurance being to insure the interest of
Tai Tong for 100,000 pesos. So thats the reason why the Travellers Multi-Indemnity Corporation refused to pay because they alleged
that Arsenio Chua was acting on his own when he tried to collect and they disregarded the fact that Mr. Chua was actually the
managing partner of Tai Tong and aside from this acting on information in a civil case against Talomo, Mr. Chua was acting al so on
his own. However the Supreme Court (SC) ruled that that act of the insurance commission in inferring that Chua alone standing as a
complainant should not throw this case. They ruled that Chua as the managing partner of the partnership Tai Tong, is actually
authorized to execute all acts of administration including the right to sue debtors of the partnership in case they fail to pay. Now, tai
Tong produced a document of mortgage which proves that the money 100,000 pesos was not yet paid by Talomo. Therefore they
were correct in intervening to collect the 100,000 from Zenith Corporation.
C: Okay, so the applicable article in that Sir is Article 1800 of the Civil Code.
Art. 1800. The partner who has been appointed manager in the articles of partnership may execute all acts of administration despite
the opposition of his partners, unless he should act in bad faith; and his power is irrevocable without just or lawful cause. The vote of
the partners representing the controlling interest shall be necessary for such revocation of power.
A power granted after the partnership has been constituted may be revoked at any time.
Q: Okay Sir, my final question is is the managing partner entitled to compensation?
A: It would depend maam. As a general rule
C: The general rule is that a managing partner is not entitled to a compensation for the services he rendered unless there is a
stipulation to the contrary. However, there are certain instances wherein it is the law which would provide for an implication where
they may be a contract for compensation.
Q: So what are those cases wherein the law may imply a contract for compensation in favor of a managing partner, can you cite the
exceptions?
A: Cases when the law may imply a contract for compensation (from the book):
(a) A partner engaged by his co-partners to perform services not required of him in fulfillment of the duties which the
partnership relation imposes and in a capacity other than that of a partner (e.g., to perform clerical services in carrying on the
business of the firm) is entitled to receive the compensation agreed upon therefor.
(b) A contract for compensation may be implied where there is extraordinary neglect on the part of one partner to perform
his duties toward the firms business, thereby imposing the entire burden on the remaining partner.
(c) One partner may employ his co-partner to do work for him outside of and independent of the co-partnership, and
become personally liable therefor.
(d) Partners exempted by the terms of partnership from rendering services to the firm may demand pay for services rendered.
(e) Where one partner is entrusted with the management of the partnership business and devotes his whole time and
attention thereto, at the instance of the other partners who are attending to their individual business and giving no time or
attention to the business of the firm, the case presents unusual conditions, is taken out of the general rule as to compensation
and warrants the implication of an agreement to make compensation.

Q: Can you state the facts in the case of Bachrach vs. La Protectora?
A: In this case maam, the partners here formed a partnership called La Protectora. Now, the one who was acting as a manager was
Marcelo Barba and he negotiated to purchase two automobile trucks for an amount of P16,500. But he paid P3,000 in cash as deposit
and for the balance of such he executed a Promissory Note (PN) stating that he obliges to pay himself to pay for the amount of the
balance. Now, because they were not able to pay for the obligations, Bachrach now instituted a claim against them. Before that
there was a chattel mortgage and it was not able to compensate for the balance, thus he instituted a claim for the amount. Now,
the issue in this case is whether or not the defendants should be liable for the firm debts and whether or not Barba has the authority to
incur expenses for the partnership.
As to the first issue, the Supreme Court said that the defendants here are liable for the firm debts because the PN actually constitutes
the obligation of Barba and La Protectora to pay the balance. As to the second issue, as provided in the Civil Code, all partners are
to be considered as agents of the partnership and therefore, when Barba signed the PN he had the authority to incur the expenses
and thus he himself and the partnership should be liable to the pay the balance.
Q: So meaning to say that the partners here are liable based on what?
A: The partners here are liable based on the fact that Barba has an agent is authorized to incur expenses for the partnership.
C: Okay. Take note here that the partners are not personally liable but their liability is based on the fact that they are partners.
Q: So here, was the manager able to bind the partnership with the transactions he entered into?
A: Yes maam, he was able to bind the partnership since he is the president and manager.
C: Okay, so in relation to the scope of the managing partner, take note that as a rule, a managing partner may not bind the
partnership by a contract wholly foreign to its business. So in relation to this case, Barba was able to bind the partnership since the
transaction he entered into is in connetion with the transportation business. Because the presumption was to purchase truck.Because
this is in connection with the transportation business of the partnership. So the principle there is on the scope of the power of a
managing partner.
Q: What is the rule where the respective duties of two or more managing partners are not specified?
A: (from the book)
Where respective duties of two or more managing partners not specified.
The rule in this case is that each one may separately perform acts of administration.
(a) If one or more of the managing partners shall oppose the acts of the others, then the decision of the majority (per head) of the
managing partners shall prevail. Note that the right to oppose can be exercised only by those entrusted with the management of the
partnership and not by any partner.
(b) In case of tie, the matter shall have to be decided by the vote of the partners owning the controlling interest, that is, more than
50% of the capital investment.
Q: Okay, what are the requisites for this rule to apply?
A: (from the book)
This article applies only when the following requisites are present:
(a) Two or more partners have been appointed as managers;
(b) There is no specification of their respective duties; and
(c) There is no stipulation that one of them shall not act without the consent of all the others.

Q: Can you state the rule when it is stipulated that the managing partners shall only act with the consent of the others?
A: In Article 1802 it provides
Art. 1802. In case it should have been stipulated that none of the managing partners shall act without the consent of the others, the
concurrence of all shall be necessary for the validity of the acts, and the absence or disability of any one of them cannot be alleged,
unless there is imminent danger of grave or irreparable injury to the partnership.
Q: How about if it only involves routine transactions?
A: If it involves only routine transactions, he can so act without the consent of all the other partners.
C: So the consent of managing partners is not necessary in case of routine transactions.
Q: Can you state the rule when the manner of management has not been agreed upon?
A: Article 1803 provides:
ART. 1803. When the manner of management has not been agreed upon, the following rules shall be observed:
(1) All the partners shall be considered agents and whatever any one of them may do alone shall bind the partnership, without
prejudice to the provisions of Article 1801.
(2) None of the partners may, without the consent of the others, make any important alteration in the immovable property of the
partnership, even if it may be useful to the partnership. But if the refusal of consent by the other partners is manifestly prejudicial to the
interest of the partnership, the courts intervention may be sought.
C: Okay. In those instances wherein the consent of other partners is required, they must consent. So regarding this consent, must this
be expressly given?
A: No maam. This consent may not be expressed. It can be inferred from the actions of the partners.
Q: So you mean to say, even if the partners, di silamagcomment, magsilentlangsila, can that be considered by the court as consent
already?
A: Yes maam. Without any objection to the actions done by the other partner, such interference is deemed to be concurrence of
the other partners.


June 28, 2013 Second Half Bus Org
Started at 19:00

However, if the act is of great importance to the partnership, cannot act on it even if it is useful without the concurrence of all the
partners. If the refusal of the partners, or the acts for the useful improvements are not given then the courts intervention may be
sought to compel the parties.
In those instances wherein the consent of other partners (are) required you said that they must consent. Regarding this consent, must
this be expressly given? The consent need not be express, it can be inferred from the acts, of not opposing the action.
You mean to say, if the partners do not comment, theyre silent. Can that be deemed as consent already? Can that be deemed by
the court as consent under the law?
Under the article, without making objection to actions done by the partner such that non-interference is deemed to be concurrence.
What is a contract of a sub-partnership? A contract of sub-partnership is found in Article 1804. When a partner associates with another
person, with the third person, with regard to his share in the partnership, this is referred to as sub-partnership.
What right is granted under Article 1804? Under Art 1804, the partner may contract with another person even without the consent of
the other partners.
Again, what right does the law grant the said partner. Right to what? Right to ASSOCIATE under Article 1804.
Again, what is a sub-partnership? A contract of sub-partnership is one where a partner associates with another person in his share of
the partnership. So it is a partnership within a partnership. It is a partnership within the partnership and it is what, distinct and separate
from the other partnership.
Does this associate of the sub-partnership become a member of the partnership? No, he does not become a member of the main
partnership without the consent of the partners.
What is the reason? This is because the original partnership is an agreement between all the partners and this involves a fiduciary
relationship and so a partner cannot just involve another person without the consent of the other partners.
(Maam draws) Number one, that is a sub-partnership diba, there is a main partnership, P na may circle and then may tatlong
partners si P1, P2 and P3. Then P3 associates with P4. So, in that instance the3re is a sub-partnership. Second example: Original
partnership: P1, P2, P3. P2 and P3 associated. Is there a sub-partnership? Based on the definition of Article 1804. Is that deemed a
partnership? Is there a sub-partnership under Number 2 based on the definition of Article 1804?
I think there is sub-partnership. Based on the definition of partnership, and a partnership of the main persons without the assent of all
these partners and basing on the diagram, it is only P2 and P3 who made a partnership. If theyre contracting is not in contravention
of the main purpose of the partnership, then there is sub-partnership.
Again, what right is granted under Article 1804? The right to ASSOCIATE. Research on number 2, if there is a partnership in that case.
Where should the partnership books be kept? Under Article 1805, it is expressly provided that books of the partnership should be kept
in the place of their business.
Please state the rights of the partner with respect to partnership books. With respect to the partners right, they have the exclusive
right to examine the books because it is their right to know the status of the partnership and they may do so within a reasonable hour
within the day. The law interprets is as a reasonable hour of the business day and not anytime as the partner wants to examine it.
Based on you understanding, what is that reasonable hour? In business hours, from 8:00 am to 5:00 pm.
Under Article 1805: The partnership books shall be kept subject to any agreement between the partners, at the principal place of
business of the partnership, and every partner shall at any reasonable hour, have access to and may inspect and copy any of them.
Okay, take note that the principle under Article 1805, it is to enable the partner to obtain true and full information of partnership affairs
because a partner is the co-owner of the properties including the partnership books.
Can you please state the duty of every partner in rendering information. Or can you please state the duty of every partner to
account for the partnership. AS specified in Article 1806, every partner shall have the obligation on demand to render the true and full
information of all things affecting the partnership to any partner or the legal representative of any deceased partner or of any partner
under legal disability.
Ok, so the duty to render information. Is demand required? Kelangan ba mag-demand muna, bago mag-render ng information? Not
necessarily. Because the book says, any partner can also give true and full information upon voluntary disclosure of material facts.
Take note that demand is not required because a partner has the duty of voluntary disclosure.
Please state the rule under Article 1807. In Article 1807, the partner has the duty to account for every benefit he receives in behalf of
the partners. Also, he has the obligation to account for any transaction connected with the formation, duty, or liquidation of the
partnership to his co-partners.
When does this duty begin? The duty to account, begin?
In connection with 1806, the duty is actually ongoing because they can voluntarily present the accounting but as a matter of right,
upon the dissolution of the partnership, then there is a duty to present the accounting to the partners.
When does this begin, the duty to account? It begins during the formation of the partnership. Take note, even before the formation of
the partnership, where a person who agreed with another to form a partnership has the obligation to account for the commissions
and discounts received in acquiring property for the future partnership. Take note it begins even before the formation of the
partnership and continues after the dissolution of the partnership. Dissolution of the partnership means? Dissolution is the wrapping up
of the business and the partnership and concludes at the final accounting.
What happened in the case of Pang Lim?
This is about the distillery owned by Lo Seng and company. Upon the expiration of this lease, a new written contract, in the making of
which Lo Yao was represented by one Lo Shui as attorney-in-fact whereby the lease was extended for 15 years. Pang Lim sold all his
interest in the distillery to his partner Lo Seng, thus placing the latter in the position of sole owner. Lo Shui, again acting as attorney in
fact of Lo Yao, executed and acknowledged before a notary public a deed purporting to convey to Pang Lim and another
Chinaman named Benito Galvez, the entire distillery plant. But this document was never recorded in the registry of property.

So, thereafter, Pang Lim and Benito Galvez demanded possession from Lo Seng, but the latter refused to yield; and the present action
of unlawful detainer was thereupon initiated by Pang Lim and Benito Galvez in the court of justice of the peace of Paombong to
recover possession of the premises. The issue here is whether or not, Pang Lim, having been the participant of the contract of lease in
question, is in the position to terminate it for the reason that he is now the owner of it.

Pang Lim has occupied a double role in the transactions which gave rise to this litigation, namely, first, as one of the lessees; and
secondly, as one of the purchasers now seeking to terminate the lease. These two positions are essentially antagonistic and
incompatible. Every competent person is by law bond to maintain in all good faith the integrity of his own obligations; and no less
certainly is he bound to respect the rights of any person whom he has placed in his own shoes as regards any contract previously
entered into by himself.

While yet a partner in the firm of Lo Seng and Co., Pang Lim participated in the creation of this lease, and when he sold out his interest
in that firm to Lo Seng this operated as a transfer to Lo Seng of Pang Lim's interest in the firm assets, including the lease; and Pang Lim
cannot now be permitted, in the guise of a purchaser of the estate, to destroy an interest derived from himself, and for which he has
received full value.

The bad faith of the plaintiffs in seeking to deprive the defendant of this lease is strikingly revealed in the circumstance that prior to
the acquisition of this property Pang Lim had been partner with Lo Seng and Benito Galvez an employee. So, both, therefore had
been in relations of confidence with Lo Seng and in that position had acquired, knowledge of the possibilities of the property and
possibly an experience which would have enabled them, in case they had acquired possession, to exploit the distillery with profit.

So, it would be shocking to the moral sense if the condition of the law were found to be such that Pang Lim, after profiting by the sale
of his interest in a business, worthless without the lease, could intervene as purchaser of the property and confiscate for his own
benefit the property which he had sold for a valuable consideration to Lo Seng.

So, if one partner obtains in his own name and for his own benefit the renewal of a lease on property used by the firm, to commence
at a date subsequent to the expiration of the firm's lease, the partner obtaining the renewal is held to be a constructive trustee of the
firm as to such lease.

So in relation to Article 1807, what knowledge did Pang Lim acquire when he was still a partner of the said partnership? That he knew
the original lease has been extended for 15 years and he also knew the extent of the valuable improvements made thereon. Thus,
the SC said that as a fundamental in equity jurisprudence that one partner cannot to the detriment of another apply exclusively to his
benefit the results of the knowledge and information gained in the character of said partner.

END

Bus Org
July 2, 2013
TSN by Sonny

Ms. Velarde, can you please state the accountability of every partner in a partnership?

The answer is 1807. to account to the partnership for any benefit, and hold as trustee for it any profits derived by him without the
consent of the other partners from any transaction connected with the formation, conduct, or liquidation of the partnership or from
any use by him of its property.

When do these obligations begin? Even before partnership is created as Long as there is an agreement to form one.

What happened in the case of Lim Tanhu v. Remolete?

Lim Tanhu v. Ramolete

Facts:

Tan filed an action for accounting of real and personal properties as well as recovery of the same with damages

Tan alleged that she is the widow of Tee Hoon Lim Po Chuan, who was a partner in the commercial partnership Glory Commercial
Company along with Lim Tanhu and Ng Sua

- she alleged that Lim Tanhu and Ng Sua, through fraud and machination, took actual and active management of the partnership,
and although Lim Po Chuan was the manager of the company, Lim Tanhu and Ng Sua managed to use the funds of the partnership
to purchase lands and buildings

Lim Tanhu and Ng Sua denied the allegations and according to them, Tan is not the legitimate wife, and with regard to the
allegations of fraud, proper liquidation had been regularly made of the business of the partnership and that Lim Po Chuan used to
receive his share until his death, as a result of which the partnership was dissolved and what corresponded to him were all given to his
wife and children.

Issue: W/N Tan, allegedly being the wife of Lim Po Chuan, can claim from the company the share of her husband

Held: NO.

Since Lim Po Chuan was in control of the affairs of the partnership, the logical inference is that if Lim Tanhu and Ng Sua obtained any
portion of the funds of the partnership for themselves, it must have been with the knowledge and consent of Lim Po Chuan

-for this reason, no accounting could be demanded from them therefore; Article 1807 of the Civil Code refers only to what is taken by
a partner without the consent of the other partner of partners

It is also significant that the tax declarations and land titles, the properties which were allegedly acquired by Lim Tanhu and Ng Sue
with the funds of the partnership appear to have been transferred to their names only in 1969 or later long after the partnership had
been dissolved after the death of Lim Po Chuan

-Lim Tanhu and Ng Sua then had no obligation to account for such acquisitions in the absence of clear proof that they had viol ated
the trust of Lim Po Chuan during the partnership

Assuming that there has not yet been any liquidation, Glory Commercial Corporation would have the status of a partnership in
liquidation and the only right Tan could have would be to what might result after such liquidation to belong to the deceased partner;
before this is finished, it is impossible to determine what rights or interests the deceased had.

-No specific amounts or properties may be adjudicated to the heir or legal representative of the deceased partner without the
liquidation being first terminated.


What are the fiduciary duties of a partner?

1. To account for any profit acquired in any manner injurious to the partnership interest

2. He cannot acquire for himself any partnership asset nor divest for himself any partnership opportunity.

3. Every partner must not compete with the partnership within the scope of its business

These duties begin even before the creation of the partnership so as long as there has already been an agreement to create a
partnership.

Karen, can a partner engaged a business similar to that of the partnership?

The answer is 1808. Prohibition against capitalist partner to engage in business is relative, unlike the industrial partner who is absolutely
prohibited from engaging in any business for himself.

Ms. Kyrie, when shall a partner have a right to a formal account as to partnership affairs? (1809)

General rule During existence of partnership, a partner is not entitled to a formal account of partnership affairs. The rights of partner
are amply protected in arts 1805 and 1806. Also, it would cause much inconvenience and unnecessary waste of time.

Exceptions In the special and unusual situations enumerated under art. 1809. Right of partner to demand an accounting w/o
bringing about dissolution is a necessary corollary to right to share in profits. A formal account is a necessary incident to the dissolution
of the partnership.

Under 1809, the exceptions are:

1. If he is wrongfully excluded from the partnership business or possession of its property by his co-partners;

2. If the right exists under the terms of any agreement;

3. As provided by article 1807;

4.Whenever other circumstances render it just and reasonable.

Prescriptive period Right to demand accounting exists as long as partnership lasts. Prescription only begins to run upon dissolution
when final accounting is done.

Diesto, rezaida? What happened in the case of ...

DAN FUE LEUNG vs. HON. INTERMEDIATE APPELLATE COURT and LEUNG YIU


Facts: The Sun Wah Panciteria, a restaurant, located at Florentino Torres Street, Sta. Cruz, Manila, was established sometime in
October, 1955. It was registered as a single proprietorship and its licenses and permits were issued to and in favor of petitioner Dan
Fue Leung as the sole proprietor. Respondent Leung Yiu adduced evidence during the trial of the case to show that Sun Wah
Panciteria was actually a partnership and that he was one of the partners having contributed P4, 000.00 to its initial establ ishment.

In essence, the private respondent alleged that when Sun Wah Panciteria was established, he gave P4, 000.00 to the petitioner with
the understanding that he would be entitled to twenty-two percent (22%) of the annual profit derived from the operation of the said
panciteria.

Issue(s): Whether or not Leung Yiu is a partner in the establishment of Sun Wah Panciteria.

Ruling: The private respondent and the petitioner are partners in the establishment of Sun Wah Panciteria because Article 1767 of the
Civil Code provides that "By the contract of partnership two or more persons bind themselves to contribute money, property or
industry to a common fund, with the intention of dividing the profits among themselves".

The private respondent is a partner of the petitioner in Sun Wah Panciteria. The requisites of a partnership which are 1) two or more
persons bind themselves to contribute money, property, or industry to a common fund; and 2) intention on the part of the partners to
divide the profits among themselves - have been established. As stated by the respondent, a partner shares not only in profits but also
in the losses of the firm. If excellent relations exist among the partners at the start of business and all the partners are more interested in
seeing the firm grow rather than get immediate returns, a deferment of sharing in the profits is perfectly plausible. It would be
incorrect to state that if a partner does not assert his rights anytime within ten years from the start of operations, such rights are
irretrievably lost. The private respondent's cause of action is premised upon the failure of the petitioner to give him the agreed profits
in the operation of Sun Wah Panciteria. In effect the private respondent was asking for an accounting of his interests in the
partnership.

It is Article 1842 of the Civil Code in conjunction with Articles 1144 and 1155 which is applicable. Regarding the prescriptive period
within which the private respondent may demand an accounting, Articles 1806, 1807, and 1809 show that the right to demand an
accounting exists as long as the partnership exists. Prescription begins to run only upon the dissolution of the partnership when the final
accounting is done.

The resolution of the Intermediate Appellate Court ordering the payment of the petitioner's obligation shows that the same continues
until fully paid. The question now arises as to whether or not the payment of a share of profits shall continue into the future with no
fixed ending date. Considering the facts of this case, the Court may decree dissolution of the partnership under Article 1831 of the
Civil Code. There shall be a liquidation and winding up of partnership affairs, return of capital, and other incidents of dissolution
because the continuation of the partnership has become inequitable.

What about the case of EMNACE as regards prescriptive period?

EMILIO EMNACE vs. COURT OF APPEALS
G.R. No. 126334; November 23, 2001

Facts:
Petitioner Emilio Emnace, Vicente Tabanao and Jacinto Divinagracia were partners in a business concern known as Ma. Nelma
Fishing Industry. Sometime in January of 1986, they decided to dissolve their partnership and executed an agreement of partition and
distribution of the partnership properties among them, consequent to Jacinto Divinagracia's withdrawal from the partnership.
Included in the assets to be distributed were two (2) parcels of land located at Sto. Nio and Talisay, Negros Occidental.

Throughout the existence of the partnership, and even after Vicente Tabanao's untimely demise in 1994, petitioner Emnace fail ed to
submit to herein respondents Tabanao's heirs any statement of assets and liabilities of the partnership, and to render an accounting of
the partnership's finances. Petitioner also reneged on his promise to turn over to Tabanao's heirs the deceased's one-third (1/3) share
in the total assets of the partnership despite formal demand for payment thereof.
Tabanao' s heirs filed against petitioner an action for accounting, payment of shares, division of assets and damages.

Petitioner filed a motion to dismiss the complaint on the grounds of improper venue since the action is a real action involving a parcel
of land that is located outside the territorial jurisdiction of the court a quo. He further contended that the complaint should be
dismissed on the ground of prescription, arguing that respondents' action prescribed four (4) years after it accrued in 1986.

Issues:
I. Whether or not the venue was properly laid.
II. Whether or not the action filed by herein respondent-heirs has already prescribed.

Ruling:
I. The Supreme Court held that the venue was properly laid.

The herein respondents are asking that the assets of the partnership be accounted for, sold and distributed according to the
agreement of the partners. The fact that two of the assets of the partnership are parcels of land does not materially change the
nature of the action. It is an action in personam because it is an action against a person, namely, petitioner, on the basis of his
personal liability. It is not an action in rem where the action is against the thing itself instead of against the person. Furthermore, there is
no showing that the parcels of land involved in this case are being disputed. In fact, it is only incidental that part of the assets of the
partnership under liquidation happen to be parcels of land.
Moreover, the action filed by respondents not only seeks redress against petitioner. It also seeks the enforcement of, and petitioner's
compliance with, the contract that the partners executed to formalize the partnership's dissolution, as well as to implement the
liquidation and partition of the partnership's assets. Clearly, it is a personal action that, in effect, claims a debt from petitioner and
seeks the performance of a personal duty on his part. Hence, respondents' complaint seeking the liquidation and partition of the
assets of the partnership with damages is a personal action which may be filed in the proper court where any of the parties reside.
II. The Supreme Court held that the action has not yet prescribed.

The three (3) final stages of a partnership are: (1) dissolution; (2) winding-up; and (3) termination.36 The partnership, although
dissolved, continues to exist and its legal personality is retained, at which time it completes the winding up of its affairs, including the
partitioning and distribution of the net partnership assets to the partners. For as long as the partnership exists, any of the partners may
demand an accounting of the partnership's business. Prescription of the said right starts to run only upon the dissolution of the
partnership when the final accounting is done.
Contrary to petitioner's protestations that respondents' right to inquire into the business affairs of the partnership accrued in 1986,
prescribing four (4) years thereafter, prescription had not even begun to run in the absence of a final accounting.

Articles 1807 and 1809, which deal with the duty to account, the right to demand an accounting accrues at the date of dissolution in
the absence of any agreement to the contrary. When a final accounting is made, it is only then that prescription begins to run.

In the case at bar, no final accounting has been made, and that is precisely what respondents are seeking in their action before the
trial court, since petitioner has failed or refused to render an accounting of the partnership's business and assets. Hence, the said
action is not barred by prescription.


Ms. Fabian? Can you state the facts of Sison v. McQuaid?

SERGIO SISON vs. HELEN MCQUAID

Facts: Sison and McQuaid are partners in a lumber business. The partnership sold lumber to the US army for P13,800. Sison alleged that
McQuaid has persistently refused to deliver one-half of the price, or P6,900, to him notwithstanding repeated demands, investing the
whole sum for her own benefit. He filed an action to recover from McQuaid one-half of the purchase price of the lumber sold.

Issue: Should the proceeds from the sale of lumber be considered profits as to entitle Sison thereof?

Ruling:NO. The complaint does not allege that there has been a liquidation of the partnership business and the said sum has been
found to be due him as his share of the profits. The proceeds from the sale of a certain amount of lumber cannot be considered
profits until costs and expenses have been deducted. Moreover, the profits of the business cannot be determined by taking into
account the result of one particular transaction instead of all the transactions thats been had. Hence, the need for a general
liquidation before a member of a partnership may claim a specific sum as his share of the profits.

What is the principle here?

The profits of the business cannot be determined by taking into account one transaction only. The principle is that you can only
determine the profits after accounting and liquidation. You need to take account everything to know the share of the partner.

William. What happened in the case of Ornum v. Lasala?

1.In 1908 Pedro Lasala, father of the respondents, andEmerenciano Ornum formed a partnership
2. Lasala as capitalist while Ornum will be the industrial partner
3. Lasala delivered the sum of P1,000 to Ornum who will conducta business at his place of residence in Romblon.
4. In 1912, when the assets of the partnership consisted ofoutstanding accounts and old stock of merchandise,Emerenciano Ornum,
following the wishes of his wife, asked forthe dissolution of the Lasala, Emerenciano
5. Ornum looked for someone who could take his place and he suggested the names of the PETITIONERS who accordingly became
the new partners.
6. Upon joining the business, the petitioners, contributed P505.54 as their capital
7. the new partnership Pedro Lasala had a capital of P1,000,appraised value of the assets of the former partnership, plusthe said
P505.54 invested by the petitioners who, as industrial partners, were to run the business in Romblon.
8. After the death of Pedro Lasala, his children (the respondents) succeeded to all his rights and interest in the partnershi p.
9. The partners NEVER knew each other personally.
10. NO formal partnership agreement was ever executed.
11. The petitioners, as managing partners, were received one-half of the net gains, and the other half was to be divided between
them and the Lasala group in proportion to the capital put in by each group.
12. During the course divided, but the partners were given theelection, as evidenced by the statements of accounts referred to in the
decision of the Court of Appeals, to invest their respective shares in such profits as additional capital.
13. The petitioners accordingly let a greater part of their profits as additional investment in the partnership.
14. After 20 years the business had grown to such anextent that is total value, including profits, amounted toP44,618.67.
15. Statements of accounts were periodically prepared by thepetitioners and sent to the respondents who invariably did not make
any objection thereto.

16. Before the last statement of accounts was made, therespondents had received P5,387.29 by way of profits.

17. The last and final statement of accounts, dated May 27,1932, and prepared by the petitioners after the respondents had
announced their desire to dissolve the partnership,
18. Pursuant to the request contained in this letter, thepetitioners remitted and paid to the respondents the total amount
corresponding to them under the above-quoted statement of accounts which, however, was NOT signed by the respondents.
19. Thereafter the complaint in this case was filed by therespondents, praying for an accounting and final liquidation of the assets of
the partnership.

20. The COURT OF FIRST INSTANCE OF MANILA: PETITIONER
held that the last and final statement of accounts prepared by the petitioners was tacitly approved and accepted by the
respondents who, by virtue of the above-quoted letter of Father Mariano Lasala, lost their right to a further accounting from the
moment they received and accepted their shares as itemized in said statement.
21. This judgment was REVERSED BY THE COURT OF APPEALSprincipally on the ground that as the final statement of accounts remai ns
unsigned by the respondents, the same stands disapproved.
22. The decision appealed by the petitioners

ISSUES:(1) WoN the accounting stated in the letter including the last and final statement of account was tacitly accepted by the Rs as
the final liquidation and accounting of the assets of the partnership? YES!

(2) Are there really mistakes and misrepresentations made in the statement of accounts made?

Petitioners contention:
To support a plea of a stated account so as to conclude the parties in relation to all dealings between them, the accounting must be
shown to have been final. All the first nine statements which the defendants sent the plaintiffs were partial settlements, while the last,
although intended to be final, has not been signed.


HELD FOR ISSUE NO. 1: YES. SC stated that the last and final statement of accounts hereinabove quoted, had been APPROVED BY THE
RESPONDENTS.

This approval resulted, by virtue of the letter of Father Mariano Lasala of July 19, 1932, quoted in part in the appealed decision from
the failure of the respondents to object to the statement and from their promise to sign the same as soon as they received their shares
as shown in said statement.

After such shares had been paid by the petitioners and accepted by the respondents without any reservation, the approval of the
statement of accounts was virtually confirmed and its signing thereby became a mere formality to be complied with by the
respondents exclusively. Their REFUSAL TO SIGN, after receiving their shares, amounted to a WAIVER to that formality in favor of the
petitioners who has already performed their obligation.

This approval precludes any right on the part of the respondents to a further liquidation, unless the latter can show that there was
fraud, deceit, error or mistake in said approval.

The Court of Appeals did not make any findings that there was fraud, and on the matter of error or mistake it merely said:

HELD FOR ISSUE NO. 2: the pronouncement that the evidence tends to prove that there were mistakes in the petitioners' statements of
accounts, without specifying the mistakes, merely intimates as suspicion and is not such a positive and unmistakable finding of fact as
to justify a revision, especially because the Court of Appeals has relied on the bare allegations of the parties, Moreover, as the
petitioners did not appeal from the decision of the Court abandoned such allegation in the Court of Appeals.

no justifiable reason (fraud, deceit, error or mistake) has beenpositively and unmistakably found by the Court of Appeals so

as to warrant the liquidations sought by the respondents. In justice to the petitioners

It should be borne in mind that this case has been pending fornearly nine years and that, if another accounting is ordered, acostly
action or proceeding may arise which may not bedisposed of within a similar period, it is not improbable that theintended relief may
in fact be the respondents' funeral.


Cabuslay? What are the property rights of a partner?

1.) Rights in specific partnership property;
2.)Interest in partnership;
3.) Right to participate in management.

How do you distinguish partnership property from partnership capital?

Partnership property's value may vary from day to day w/ changes in market value.
Partnership capital on the other hand is Constant: it remains unchanged as the amount is fixed by agreement of the partners, and is
not affected by fluctuations in the value of the partnership property, although it may be increased and decreased by unanimous
consent of the partners.

Partnership property Includes not only the the individual included original capital contributions made contributions, but all property
subsequently by the partners in establishing or acquired on account continuing the of the partnership or partnership. w/ partnership
funds, including partnership name and goodwill.Partnership capital,on the other hand, is the aggregate contributions made by the
partners in establishing the establishment or continuing of the partnership.

Who is the owner of the property used by the partnership?

Where there is no express agreement that property used by a partnership constitutes partnership property, such use does not make it
partnership property, and whether it is so depends on the intention of the parties, w/c may be shown by proving an express
agreement or acts of particular conduct. The intent of the parties is the controlling factor.

My last question for you is this. Who owns the property acquired by a partner with partnership funds?

Unless a contrary intention appears, property acquired by a partner in his own name w/ partnership funds is partnership property. But
if the property was acquired after dissolution but before the winding up of the partnership affairs, it would be his separate property
but he would be liable to account to the partnership for the funds used in its acquisition.

Otero? Is he not around? Absent? Ok. Mr. Morente? Can you please state the nature of a partner's right in specific property?

Art. 1811 contemplates tangible property but not intangible things. A partner is a co-owner w/ his partners of specific partnership
property, but the rules on co-ownership do not necessarily apply. The legal incidents of this tenancy in partnership are distinctively
characteristic of the partnership relation. Take note that they only have an equal right of possession ha.

What if a partner is wrongfully excluded from possession of partnership property?

A partner wrongfully excluded from possession of partnership property by a co-partner has a right to formal account and may even
apply for a judicial decree of dissolution. Remember that ha? That is 1809!

What if a partner dies?

On the death of a partner, his right in specific partnership property vests in the surviving partners.

What is the extent of his beneficial interest over the specific partnership property?

Mr. Morente, if under the last paragraph of the article, neither partner may separately own the specific partnership property. Why?
Because the property belongs to the partnership.

Donna flores? In relation to 1811, can a partner assign is rights to specific partnership property?

No, not assignable. A partner cannot separately assign his right to specific partnership property but all of them can assign their rights
in the same property. Reasons for non-assignability: 1.) It prevents interference by outsiders in partnership affairs; 2.) It protects the right
of other partners and partnership creditors to have partnership assets applied to firm debts; 3.) It is often impossible to determine the
extent of a partners beneficial interest in a particular partnership asset.

Ok. My last question is, can specific partnership property be subject to attachment, execution or garnishment?

No. The properties are owned by the partnership. Partners only have the right to possess. They cannot exercise rights of dominion over
them.
BUSORG 1
ST
PART
JULY 5, 2013

(Note: Q Maams question, A students answer, C Maams comment)

Q: As a review of Article 1811, can you state the nature of a partners right in a specific partnership property?

A: Under Article 1811, a partners right over the specific property of the partnership cannot be assigned. Second, he or she has equal
access to the possession of the specific properties, however as discussed in the previous discussion, they do not really act as co-
owners but they have equal right to possession for the specific properties. Next, the right of a partner over the specific property of the
partnership cannot be attached in any action against a partner in a partnership.

Q: Only attachment?

A: Attachment and execution maam. And then it is not subject to legal support under Article 233.

Q: Why is the right is not assignable?

A: The right is not assignable maam because according to the discussion in the book, in a specific property it is impossible to
determine the particular interest of a partner over that specific property. However in the succeeding articles, it can be gleaned that if
ever the partner has a debt or an obligation with a third person, he can put it as a security the interest but not the specific property.

C: So take note, under Article 1811, the right given to any partner is only the right to equal possession of property. Each partner is said
to be possessed with a joint interest in the whole interest of the partnership property but does not own individually any particular
article or any separate part or aliquot part thereof. So when we say right to equal protection, what does this right to equal possession
include? Right to equal possession includes the use and control of the said property including the power of sale and dispossession
such as applying partnership property to partnership debts even without the consent of other partners. When you say again ri ght to
equal possession of the property, it must be possession, right to possess or use the said specific property only for partnership purposes.
Equal possession for partnership purposes. That is the general rule. So if a partner possesses that specific partnership property for
partnership purposes, it can be done even without the consent of the other partners because the said right to possess is embodied
under Article 1811.

Q: Example, if that right of equal possession is not for partnership purposes, is that allowed?

C: As a general rule, that is not allowed unless the other partners consent.

Q: What are the limitations to this right of equal possession?

C: First limitation, it extends only to partnership purposes. Thus a partner has no right to possess if it is for any other purpose without the
consent of his other partners.

Q: If that partner possess without the consent of other partners, what is his liability?

C: He is accountable for the value of such use as well as for any profits that he may have derived therefrom.

Q: If the said partner converts partnership money to his own use, what is his liability?

A: Maam, I think he should be liable for that amount including any criminal liability that he may be charged like for exampl e estafa
maam.

C: He shall be liable for estafa. Second, civilly liable for the amount he converted including interest and damages from the time of
such conversion. Okay, criminal and civil liability. Another principle under Article 1811 is that a partners interest in specific partnership
property, it is taken out of reach of his individual creditors. Thats why it cannot be subject to any attachment or execution because
of this principle. Again, under Article 1811, the general premise is that a partner has no personal property in any specific partnership
property and he has no right to possess or use it except for partnership purposes only.

Q: Can a partners interest in the partnership be assigned?

A: With respect to the interest in specific property maam, then it is assignable. However with respect to the partners interest in the
whole partnership, then it is assignable.

Q: Is that subject to attachment or execution (partners interest in the partnership)?

A: No maam. It depends on who is the creditor maam. If the creditor is that of the partnership, then the interest of the partners may
be garnished, attached or executed. However the personal creditors of the partners, then it is not can be executed or garnished.

Q: So your stand is dependekung personally liable sya to the said creditor or the said creditor is the creditor of the partnership? Isnt it
that under Article 1812, a partners interest in the partnership is a share of a profit and a surplus which means that the said interest is
the partners own property?

A: Yes maam, thats what Im saying maam.

Q: So if thats his own property, is it not subject to attachment, garnishment or execution?

A: However maam the personal creditor of a partner may avail of a charging order wherein the creditor may file before the
competent court to satisfy his unsatisfied claim against the partner. Because the partner is entitled to income or profit in every year,
then that income which will accrue will satisfy. So my answer is yes, a partners interest may be subject to the execution on the
charging order.

Q: Okay, nagskipka. When you say charging order, how can you avail of that charging order? In fact sabimo that is issued by the
court. So how can you avail of that remedy? What is your procedure if you want to avail of that remedy?

A: Receivership maam.

C: Receivership?! Nagskipkakasi.Sige, wag nalangyan.

Q: When can a partner determine his share in the partnership profits?

A: With respect to profits maam, he may determine his interest depending on how they will make an account in their income
statement maam.

Q: When can a partner determine his share in a partnership profits? How do you define profits?

A: Profits is the net amount of revenue over expenses.

C: So when can you determine profits?

A: A partner can determine it annually, semiannually or even quarterly because the partnership will file an Income Tax Return in the
BIR.

Q: So you are an accountant? So what happened in the case of De Lua v. Castillo?

A: In this case maam, partners are De Lua and Castillo. They formed a partnership. Thereafter they agreed that a certain fishpond
which will eventually be granted to one of the partners and they will divide it equally. Eventually, the fishpond was granted. Then now
they decided to divide it. The question here is whether or not the fishpond is within the terms of the specific property that can be
possessed by each of the partners, thus they can divide it. Well according to the Supreme Court, the interest or specific property in
the partnership specifically 1811 only refers to tangible assets and by tangible means cars, personal properties, etc. However the
fishpond forms part of the public domain which does not fall under tangible. In fact it is an intangible asset because it is a right or a
privilege granted by the State. So it is not a tangible property, hence not falling under Article 1811 of the Civil Code.

Q: So under Article 1811, when you say specific partnership property, it refers to what kind of property?

A: Only tangible property.

Q: When can a partner determine his share of profits?

A: Maam, when there is already accounting of profits of the revenue minus expenses in order for the profit to be determined. Usually
this happens when there is dissolution of the partnership and there has already a winding up.

Q: Im not familiar in accounting. When you say accounting, does that presuppose liquidation?

A: Yes maam.

Q: Is dissolution, is that synonymous to dissolution.

A: No maam. Profit is sales less revenue. And it may be determined annually maam.

(Note: Accounting is the art of identifying, classifying, recording business transactions within a given period of time and
communicating it to the interested business users. In order to determine your share in the profit, accounting is necessary because in
accounting you will know whether or not your company is operating at a profit or at a loss. Profit is simply revenue/sales less expenses.
Halimbawa, magbentakangisang candy.Binilimongtagpiso, binentamong tag dos, di may profit kanapiso (sale na dos less expense
monapiso). That is simple accounting. However, in an actual business scenario, there are a lot of business transactions of your sale,
expenses, etc. Aside from your capital in purchasing your products (if for example your partnership is engaged in buy and sell), you
have other factors to consider such as your expenses to electricity, wages of your employees, etc. in order for you to determine the
profit of your partnership. Now, as to question on when you say accounting, does that presuppose liquidation? My unsolicited opinion
is no. Why? Aside from the requirement by the BIR, SEC and other authorities for you to submit you financial statements annually for
tax purposes, etc. (before you can submit your financial statements, accounting is necessary because your financial statements
reflect the profit that you have earned for a givenperiod , usually 1 year), the rendering of accounting would depend on the need of
the interested user. Of course in a partnership, the interested users are primarily the partners themselves who are presumably the most
interested persons to know the result of their business operation. Example, nagjoinkang partnership. After 3 months,
nafeelmonaparang may anomalyangginagawaang partner mo. So paramacheckmo, magdemandkangayonsakanya to render
accounting. Tanunginmosya, pare, anongnagyarisa business natin? May kita pa batayo, parangnilulustaymonaangperanatin ah?
So in rendering accounting, he should show to you what happened to the partnership operations and the financial situation of your
partnership at a given period of time. Saannapunta at anongnangyarisaperanyo. After nyamagrenderng accounting,
narealizemonawalanamanpalasyangginagawanganomalya, then di kanamagliliquidation. It does not necessarily mean that there is
already liquidation when you render accounting. Okay?! It would also be remembered in our previous lessons that when a partner
engaged in a competing business against the business of our partnership without being authorized to do so, he is required to render
accounting to other partners regarding the profit but he alone shall shoulder the losses if any. In that case, magdemandkasakanyato
render accounting paramalaman kung may kinitasyadoonsa competing business niya. Kung meron, share kayo. Kung nalugisya,
sakanyalangyon kaynganungnienter. Again, rendering of accounting does not presuppose liquidation and winding up. But of course,
pag mag liquidation or winding up kayo, necessary namagrenderng accounting paramalamanmo kung magkanoang share
namakukuhamosa partnership.)

Q: In relation to Article 1812, is a partners interest deemed to be a debt of the partnership?

A: No maam. Since the partnership is not a debtor of the partners, the partners interest are not debts of the partnership.

Q: Can you please tell me the facts of the case of Navarro vs. Hon. Despidido.

A: (I cant clearly hear it so please check nalang your digests ha regarding the facts of this case)

Q: So what property relations existed between Karen Go and her husband?

A: Conjugal partnership of gains maam.

Q: So if the property relation between the parties is conjugal partnership of gains, is it governed by the rules of partnership?

A: Pursuant to Art 108 maam, conjugal partnerships shall also to be governed by the rules of partnership, or the rules of a contract of
partnerships in all that is not in conflict with what is also determined by the spouses in their marriage settlement. So a conjugal
partnership of gains itself maam is also governed by Article 147 of the Civil Code maam. This provision also states that it shall be
governed by the rules of the contracts of partnership also and all that is not in contrary with what is expressly provided in the chapter
or by the spouses in their marriage settlement. So being the co-owner of such properties maam, Karen Go (the wife yata in this case)
may separately bring an action for the property administration.

Q: So as a review of your Family Code, what comprises the conjugal partnership of gains?

A: (From the Family Code)

Art. 106. Under the regime of conjugal partnership of gains, the husband and wife place in a common fund the proceeds, products,
fruits and income from their separate properties and those acquired by either or both spouses through their efforts or by chance, and,
upon dissolution of the marriage or of the partnership, the net gains or benefits obtained by either or both spouses shall be divided
equally between them, unless otherwise agreed in the marriage settlements.

Q: Can you please state the effect of assignment by a partner of his whole interest in the partnership.

A: Basically a partners right in specific partnership property is actually not assignable. But he may assign his interest in the partnership
to one of his co-partners or to a third person irrespective of the consent of the other partners in the absence of agreement to the
contrary.

Q: So if that said partner assigns his whole interest in the partnership, will that assignment divest him of his status as a partner in the
partnership?

A: No maam as long as there is no agreement to the contrary.

Q: So what are the rights granted to the said assignee?

A: The rights granted to the said assignee are to receive the profits and to avail himself of the usual remedies provided by law in case
there is fraud and also to receive assignors interest in case there is dissolution and to require an account of the partnership affairs

Q: You said that the assignee can availof the usual remedies provided by law in the event of fraud. What are these remedies?

A: Remedies such as to bring an action against a partner, example in case of fraud an action for a charging order.

Q: What are the rights withheld from an assignee?

A: The rights withheld from an assignee are: He is withheld to interfere with the management, to require any information or account of
the partnership and he is also withheld from inspecting the books maam.

Q: Why are these rights withheld from an assignee?

A: In my own understanding, these rights should be for the partners themselves. The rights assigned to him is limited by law as these
rights are reserved for the partners.

Q: Why are these rights withheld from an assignee?

A: Because the mere assignment of a partners right does not divest him of his being a partner. Even if he assigned his rights to other
persons, he remains to be a partner of the partnership.

C: Okay. For the simple reason that the assignees does not become a partner of the partnership. Please read Art 1813.

A: ART. 1813. A conveyance by a partner of his whole interest in the partnership does not of itself dissolvethe partnership, or, against
the other partners in theabsence of agreement, entitle the assignee, during the continuance of the partnership, to interfere in the
management or administration of the partnership business or affairs, or to require any information or account of partnership
transactions, or to inspect the partnership books; but it merely entitles the assignee to receive in accordance with his contract the
profits to which the assigning partner would otherwise be entitled. However, in case of fraud in the management of the partnership,
the assignee may avail himself of the usual remedies.

In case of a dissolution of the partnership, the assignee is entitled to receive his assignors interest and may require an account from
the date only of the last account agreed to by all the partners.

Q: Can you state the facts in the case of Rialubid vs. Jaso?

A: (Please refer to your case digests)

Q: What action was filed in court?

A: Action for specific performance, accounting, termination of the Joint Venture (JV), inventory of assets and properties, dissolution of
the JV, appointment of receiver and damages maam.

Q: So what is the ruling of the Supreme Court (SC)?

A: The SC ruled maam, it upheld the validity of the said assignment. As to the contention that Jaso does not have a standing for such
action, the SC held that the JV is likened to a particular partnership or one which has for its object determinate things, their use or
fruits is for an undertaking or for the exercise of a profession or a vocation. Therefore the rule is settled that JV are governed by the
law on partnership which are in turn based on mutual agency or delectus personae. Article 1813 is applicable in this case.

Busorg July5 part2
Started at 39:00
What is a charging order? It is given by the court when a separate creditor of a partner in a partnership wants to collect money debts
or anything from a partner. The book does not say how it can be availed of, but you have to file first an action for collection of sum of
money before the court can adjudge that this partner has a debt, the separate creditor can now get a charging order such that a
separate creditor can now get the interest of that partner in the partnership.
You mean to say, you have to file a separate civil case against that partner and then when a favorable judgment will be rendered in
favor of the creditor, this creditor can now apply for this charging order. Can you please read Article 1814.
ART. 1814. Without prejudice to the preferred rights of partnership creditors under Article 1827, on due application to a competent
court by any judgment creditor of a partner, the court which entered the judgment, or any other court, may charge the interest of
the debtor partner with payment of the unsatisfied 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 other money due or to fall due to him in respect of the partnershi p, and make
all other orders, directions, accounts and inquiries which the debtor partner might have made, or which circumstances of the case
may require.
The interest charged may be redeemed at any time before foreclosure, or in case of a sale being directed by the court, may be
purchased without thereby causing a dissolution:
1. With separate property, by any one or more of the partners; or
2. With partnership property, by any one or more of the partners with the consent of all the partners whose interests are not so
charged or sold.
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
partnership.
Take note ha, the court which entered the judgment or any other court. So based on 1814, the said judgment creditor can avail of
this remedy when there is already a final judgment. There is an entry of judgment ha. Or any other court, bakit any other court pa,
pwede?
If the partnership itself has other creditors and this separate creditor, his rights to the interest of the debtor partner is subsidiary only so
that in case that that partnership has its own creditors, the residue of what will remain to that debtor-partner, what the separate
creditor can collect would be what there would be after the payment of all the obligations of the partnership first.
So take note, you can file a charging order before the court which rendered a judgment in favor of the judgment creditor or any
other court. It it is filed before the court which rendered judgment it must be filed only when the decision or the judgment is already
final and executory. So how will you do this? Ano and iyong procedure in obtaining this? What will you file? If you ask for a charging
order, is that synonymous to asking for a charging order? No. Diba, charging order is a separate remedy.
How will you avail of that benefit? Apply to a proper court for a charging order. Okay, you apply. Paano? Granting lawyer na kayo,
meron kayong client na ganun yung situation, how will you apply? Wild guess lang hais that similar to filing a motion for execution?
Attachment, you attach during and actually after, but is that synonymous? File a motion for the issuance of a charging order. Okay, it
is only through a motion and not a separate action diba, kasi adjunct lang siya doon. Remember class, that is found in practice. It is a
motion for the issuance of a charging order. Baka sa regular courts they do that.
Again, what is a charging order? A charging order attaches the interest of the partner. Number one, it directs the partnership to pay
any profits that may be due to the judgment debtor in favor of the judgment creditor in satisfaction of his credit. Take note, including
interest. Second, (implication) to the charging order. Someone said, receivership. Okay, you can ask the court for the appointment of
a receiver to collect money. And number three, it may be sold to auction of foreclosure with the right of redemption. Again, you can
file in the court which rendered the judgment a motion, a mere motion and not a separate action.
So when can a judgment creditor avail of this remedy? When there is already entry of judgment. Meaning final and executory na ang
decision. Take note before the court which rendered the decision or any other court may charge the interest of the debtor-partner
with payment of the unsatisfied amount of such judgment debt with interest thereon.
Question: Maam, kung any other court will issue, is it still a motion?
Maam: I dont think so, kung any other court, it must be a petition. Pero hindi lang ako sure kung anong petition siya and what
procedure will govern. Have you encountered that in your CivPro?
Maybe, you can file in another court a petition for the issuance of a charging order and then you attach a certified true copy of the
judgment as well as the entry of judgment, siguroStick na lang kayo sa general rule, halimbawa tanungin sa bar, you file a motion
for the issuance of the charging order.
So, based on this article, Article 1814, how much is the redemption price? The said article provides that it can be redeemed. In an
ordinary sale, the price of the thing sold theoretically represents its market or actual value. The second part of Article 1814. (The
interest charged may be redeemed xxx) So, how much is that redemption price?
Remember when you say, like charging order, it represents the unsatisfied debt. So how much is the redemption price? This is
dependent on the amount of the unsatisfied judgment debt. Okay, can you please state the rights of the redeeming non-debtor
partners.
Under the book, the redeeming non-debtor partner does not acquire absolute ownership over the debtor-partners interest but holds
it in trust for him consistent with principles of fiduciary relationship. Again, what are these rights? The redeeming non-debtor partner
does not acquire absolute ownership over the debtor partners interest but holds it in trust for him consistent with their fi duciary
relationship.
State the facts of Mendiola vs. CA. In this case, a certain corporation named PAFCOR was organized in the laws of California entered
into a side agreement on a representative office. Here, ATM or Arsenio T. Mendiola was named to be the President of this
representative office in the Philippines. The issue here, cause there has been a contention by ATM is that basically he is a partner of
the corporation. The contention of the other partners is that he is not a partner but merely an employee. It is presumably known to
ATM since contract (says) that his duty was basically to man the office in the Phils. The issue was whether or not there was a
partnership formed between Mendiola and the company. The SC held that there is no partnership in the case. Because as we all
know, the members should contribute to the capital, property or industry and if there has been profit, they would divide the profits. In
this case, they would divide the income by 50-50 does not per se mean that theres already partnership because here, the President
of PAFCOR said that the company is basically a theoretical company for the purpose only of dividing the income. So, even though
the partnership shared profits, it does not alone make it a partnership.
Is it mandatory for a partnership to operate under a firm name? Yes. It is mandatory. AS provided in Article 1815 that every partnership
shall operate under a firm name which may or may not include the name of one or more of the partners. And It also provides that
those who are not members of the partnership who include their names in the firm name, shall be liable as party.
So, under Article 1815, the law provides that every partnership shall operate under a firm name which may or may not include the
name of one or more of the partners. Those who, not being members of the partnership, include their names in the firm name, shall be
subject to the liability of a partner. So it is mandatory for a partnership, then, to operate under a firm name. What is the limitations
imposed by law on a partners right to choose a firm name. General rule, the partners may adopt any firm name they desire. What
are the limitations to the general rule? The limitation to the general rule is that the firm name that they choose should not be
misleading name and they should not include the names of the deceased partners. So first limitation is that they should not use
misleading name. What is misleading name? It is which is identical or deceptively confusing similar to that of any existing partnership
or corporation or to any other name already protected by law or is patently deceptive, confusing or contrary to existing law. Okay,
and it is deemed to deceive the public.
Second limitation is it cannot use the name of deceased partner. What is the limitation to this limitation? They cannot conti nue to use
the firm name with the name of the deceased partner for such use runs counter to Article 1815. However, this was already
abandoned because under Rule 3.02 of the Code of Professional responsibility- (allows) the continued use of the name of a
deceased partner is permissible provided that the firm indicates in all its communications that said partner is deceased.
Okay, what is the third limitation to this right of the partner to use firm name? If a third person who is not actually a partner in the firm, is
included in the firm name, he is liable. What is the liability of that third person? The liability of the partnership, he would also be liable
for it. Because, he is deemed under the law a what? A partner by estoppel.
As a general rule, partners may adopt a firm name they desire subject to these limitations:
1. The cannot use misleading name;
2. Second, the name of deceased partner (this is deemed abandoned) Based on latest jurisprudence, it is allowed provided that
all communications should indicate that said partner is deceased and;
3. Should not include name of persons who are not partners of the firm. These persons are partners by estoppel and their liability
to the third persons is personal. The partnership as a general rule is not liable.
Please state the liability of partners for the contractual obligations of the partnership with third persons. In Article 1816 states that: All
partners, including industrial ones, shall be liable pro rate with all their property and after all the partnership assets have been
exhausted, for the contracts which may be entered into in the name and for the account of the partnership, under its signature and
by a person authorized to act for the partnership. However, any partner may enter into a separate obligation to perform a
partnership contract.
So general rule is that partners are principal to the other partners in the partnership and agent to the partnership. All the partners are
liable for all the liabilities which the partnership may incur even including industrial partners. When will this article apply? What is their
liability? As to third persons they are liable. Okay, so what is the nature of the individual liability of these partners? Pro rata, equal or
joint or subsidiary. So when will apply- this subsidiary liability nung partners to third persons? Applies only after all the partnership assets
have been exhausted.
You said that an industrial partner under the said article is liable. What is the remedy of this industrial partner? Diba as a rule he is not
liable because his only contribution to the partnership is skill, labor or industry. So under this article, he is liable together with the other
partners. In fact, the said article provides all partners, so including industrial partners. What is now the remedy? The remedy of the
industrial partner is to ask for reimbursement from the capitalist partner for the payment of the liabilities.
Take note, the Article 1816, this speaks about the inability of the partnership to pay a debt to a third party at a particular time. If you
notice, the article provides: All partners including industrial partners. The law makes all the partners including the industrial partner
liable pro rata. As a rule kasi, the industrial partner is not liable except under this article and his remedy is to ask for a reimbursement
from the capitalist partners. So, again, all partners. This refers to all general partners. Diba, yung earlier part natin class, may mga
distinctions tayo, who is a general partner, a specific partner? Article 1816 refers to all general partners. So if it will be asked, can an
industrial partner be a general partner? YES, he can be. So, in relation to this said article, as a general rule, all partners here are
deemed general partners except when there is a stipulation to the contrary. If there is such stipulation to the contrary, those partners
are specific or limited partners. So under this article, their liability is what, pro rata.
What do you mean by pro-rata? This is equally jointly and not proportionately. Those basing on the number of partner and not on the
contribution to the common fund. Give me a specific example, there is a partnership and then there are three partners. As you said
there are three partners, the nature of the individual liability of the partners in pro rata, meaning the division of the liability is equal not
based on the amount of the capital that they contributed or it is not proportionate, meaning for example, I am the partner, I
contributed 5k and the other partners contributed 3k and 2k. When you mean pro rata, (regardless) of the amount contributed, their
liability is equal. So, for example the liability is 2k, if we say pro rata then the liability would be 1k each not proportionately. So pro rata
would depend on the number of partners and not on the amount of their contribution.
Again, the said article provides the liability all the partners including the industrial partners is pro rata. Again, it is subsidiary and pro
rata, it covers both real and personal property. I will emphasize, bakit subsidiary and kanilang liability. Why not solidary? The properties
of the partnership must first be exhausted. Take note, the liability there is not solidary because of the separate juridical personality of
the partnership. Therefore, you must first exhaust the partnership assets before the partners become subsidiarily liable. So the article
provides that they are subsidiarily liable for partnership obligations. What are those partnership obligations? These obligations are
those that the partnership may contract in the ordinary course of the business transaction. Example, if a partnership buys a certain
stock from a certain supplier, then that is an obligation of the partnership. So obligation which the partnership may incur. You mean to
say that obligation is entered into under the name of the partnership or under its signature. Another example of a partnership
obligation. For example the partnership causes damage to a third person, in that case the partnership may be held liable. For
example, a partner driving in order to carry the stocks of the partnership from its warehouse to its stores, and it happens to hit a third
person, the partnership is liable because the partner is acting under the partnership. In that instance the said partner will only be
subsidiarily liable. When are the partners solidarily liable under this article? Partners may be solidarily liable under Article 1816, a
partner, however, may assume a separate undertaking in his name with a third party to perform a partnership contract or make
himself solidarily liable in a partnership contract. So he will make himself solidarily liable if he makes himself solidarily liable under that
contract.
What are those instances when the partners are solidarily liable?
1. If he expressly agrees to a solidarily liable;
2. Art 1822 if he is liable for tort, and;
3. When said party is liable for misappropriation under Article 1833.
Article 1816 provides that the liability of the partners are only subsidiary. What if for example, they stipulate otherwise? If the parties
stipulate contrary to 1816, this would be valid among the parties themselves but with regards to third persons, it is void.

Bus Org
July 9, 2013
TSN by Sonny

What is the liability of the partnership for acts of partners for apparently carrying on in the usual way of partnership?

Every partner is an agent and may execute such acts with binding affect on the partnership even if he has in fact no authority unless
the 3rd person has knowledge of such lack of authority.

There are two requisites in order that the partnership will not be liable: a.) The partner so acting has in fact no authority; and b.) The
3rd person knows that the acting partner has no authority.

Usual way: usual for the particular partnership or usual for similar partnerships. Actually, the acts mentioned in No. 1 refer only to acts
of administration.


What about for acts which are not apparently for carrying on in the usual way of business?

For acts which are not apparently for carrying on in the usual way of business of the partnership, the partnership is not bound, unless
authorized by all the other partners or unless they have abandoned the business. The general rule is that powers not specifically
delegated in a partnership agreement are presumed to be withheld. Paragraph 3 gives instances of acts generally outside the
implied power of a partner and constitute limitations to the authority to bind partnership.

What are these acts of dominion? These are the acts enumerated in 1818.

What about for acts in contravention of a restriction on authority?

The partnership is not liable to third persons having actual or presumptive knowledge of the restrictions, whether or not the acts are for
apparently carrying on in the usual way the business of the partnership. On the other hand, persons not having such notice have a
right to assume that the authority of a partner is co-extensive with the business transacted by the firm.

Can you please read Article 1818?

Art. 1818. Every partner is an agent of the partnership for the purpose of its business, and the act of every partner, including the
execution in the partnership name of any instrument, for apparently carrying on in the usual way the business of the partnership of
which he is a member, binds the partnership, unless the partner so acting has in fact no authority to act for the partnership in the
particular matter, and the person with whom he is dealing has knowledge of the fact that he has no such authority. An act of a
partner which is not apparently for carrying on of the business of the partnership in the usual way does not bind the partnership unless
authorized by the other partners. Except when authorized by the other partners or unless they have abandoned the business, one or
more but less than all the partners have no authority to:
1.) Assign the partnership property in trust for creditors or on the assignees promise to pay the debts of the partnership;
2.) Dispose of the goodwill of the business;
3.) Do any other act which would make it impossible to carry on the ordinary business of a partnership;
4.) Confess a judgment;
5.) Enter into a compromise concerning a partnership claim or liability;
6.) Submit a partnership claim or liability to arbitration;
7.) Renounce a claim of the partnership.

No act of a partner in contravention of a restriction on authority shall bind the partnership to persons having knowledge of the
restriction.

As a review, who owns the property purchased with partnership funds? Te partnership itself.

So, what are the effects of conveyance of real property belonging to the partnership?

The ownership of real estate is prima facie that indicated by the muniment of title. Ordinarily, title to real property or interest therein
belonging to the partnership is registered in the partnership name. However, for one reason or another, the title to the property is not
held by the partnership, although as between the partners there is no question that it is a partnership property. The presumption is
that, property purchased with partnership funds belongs to the partnership unless a contrary intent is shown. Article 1819 gi ves the
legal effects of the conveyance of real property belonging to the partnership depending in whose name it is registered and in whose
name it is conveyed. Under the article, the real property may be registered or owned in the name of:
1.) The partnership (pars. 1,2);
2.) One or more but not all the partners (par. 3);
3.) One or more or all the partners, or in a 3rd person in trust for the partnership (par. 4);
4.) All the partners (par. 5). It will be noticed that under paragraphs 1, 3 and 5, what is conveyed is title or ownership, while under
paragraphs 2 and 4, what is conveyed is merely equitable interest.

Conveyance interpreted to include a mortgage. Thus, the right to mortgage is included in the right to convey (unlike in agency).

What if for example, the title to property is registered with the partnership, then all of the partners signed in favor of the conveyance?
What is the effect?

The title is passed on to the buyers.

Ok. What if the title is registered with the partnership, the deed was made by a partner, and deed is signed by a partner only?

It passes equitable interest. except when the buyer had no knowledge.

What is equitable interest? Not legal title, but short of it.

What if the title is registered with the partnership, the deed was made by a partnership, and deed is signed by a partner only?

It passes legal title unless the act does not bind the partnership under 1818.

What if the title is registered with one or more or all or trustee, the deed was made by the partnership or in his name? It passes
equitable interest only.

Okay. Can you please read article 1819?

Art. 1819. Where title to real property is in the partnership name, any partner may convey title to such property by a conveyance
executed in the partnership name; but the partnership may recover such property unless the partners act binds the partnership
under the provisions of the first paragraph of article 1818, or unless such property has been conveyed by the grantee or a person
claiming through such grantee to a holder for value without the knowledge that the partner, in making the conveyance, has
exceeded his authority. Where title to real property is in the name of the partnership, a conveyance executed by a partner, i n his own
name, passes the equitable interest of the partnership, provided the act is one within the authority of the partner under the provisions
of the first paragraph of article 1818. Where title to real property is in the name of one or more but not all the partners, and the record
does not disclose the right of the partnership, the partners in whose name the title stands may convey title to such property, but the
partnership may recover such property if the partners act does not bind the partnership under the provisions of the first paragraph of
Article 1818, unless the purchaser or his assignee, is a holder for value, without knowledge. Where the title to real property is in the
name of one or more or all the partners, or in a third person in trust for the partnership, a conveyance executed by a partner in the
partnership name, or in his name, passes the equitable interest of the partnership, provided the act is one within the authority of the
partner under the provisions of the first paragraph of Article 1818. Where the title to real property is in the names of all the partners a
conveyance executed by all the partners passes all their rights in such property.

Okay. Can you please state the effect of admission by a partner?

As a general rule, a person is not bound by the act, admission, statement, or agreement of another of which he has no knowledge or
to which he has not given his consent except by virtue of a particular relation between them.

The right of a party cannot be prejudiced by the acts of another. This is actually a rule on evidence. The exception is when an
admission made by a partner. Take note of tis ha. This is a rule on evidence.

But admissions by a party as testified to by a 3rd person are admissible in evidence against him in litigation. Admissions by another are
received against a party if the former is acting in the capacity of agent of the latter. Thus, under Article 1820, the admission of a
partner made during the existence of the partnership are binding against the partnership (and co-partners) when such admissions
refer to a matter concerning partnership affairs and made within the scope of his authority. But when a partner makes no admissions
for himself only without purporting to act for the partnership, he alone shall be chargeable with his admissions.

After dissolution, admission made by a partner will bind the co-partners if connected with the winding up of partnership affairs.


What must you prove to make the partnership liable because of the admission of a partner?

You have to prove the existence of the said partnership apart for the said admission. It must also be done while the partnership exists.

What is the effect of notice to, or knowledge of, a partner of matter affecting partnership affairs?

Notice to, or knowledge of, any partner of any matter relating to partnership affairs operates as a notice to or knowledge of the
partnership except in case of fraud.

A 3rd person desiring to give notice to a partnership of some matter pertaining to the partnership business need not communicate
with all the partners. If notice is delivered to a partner, that is an effective communication to the partnership notwithstanding the
failure of the partner to communicate such notice or knowledge to his co-partners.

What are theses cases?

1.) Knowledge of the partner acting in the particular matter acquired while a partner; 2.) Knowledge of the partner acting in the
particular matter then present to his mind; and
3.) Knowledge of any other partner who reasonably could and should have communicated it to the acting partner.

For example, partner says, ay, nakalimutan ko. Is this a valid defense? No, not to third persons.

What is the liability of a partnership for a partner's tort or breach of trust?

The above 3 articles provide for the solidary liability of the partners and the partnership to 3rd persons for the wrongful act or omission
or breach of trust of a partner acting within the scope of the firms business or with the authority of his co-partners. This is true even
though the other partners did not participate in, or ratify, or had no knowledge of the act or omission.

How will you distinguish this from the liability under 1816?

This liability of the partners is different from their liability for contractual obligations as defined in Article 1816. Here, it is solidary, while in
Article 1816, it is joint and subsidiary. Furthermore, while the liability in Article 1816 refers to partnership obligations, this arti cle covers
the liability of the partnership arising from the wrongful acts or omissions of any partner. The act or omission is call ed tort when it does
not constitute a crime or felony punishable by law.

Why kaya?

The obligation is solidary because the law protects him who, in good faith, relied upon the authority of a partner, whether such
authority is real or apparent.

What are the requisites to make the partnership liable?

1.) The partner must be guilty of a wrongful act or omission; and
2.) He must be acting in the ordinary course of business, or with the authority of his co-partners even if the act is unconnected with the
business.

The partnership is not liable if the partner acted on his own and not for the benefit of the partnership in the course of some transaction
not connected with the partnership business.

A non-acting partner in a partnership engaged in a lawful business is not criminally liable for the criminal acts of another partner but
he is criminally liable if the partnership is involved in an unlawful enterprise with his knowledge or consent.

As regards number 1, does this presuppose a court finding him guilty? (She left the question hanging. She went on to ask the next
question.)

Who is a partner in estoppel?

A person who is not a partner may become a partner by estoppel and thus be held liable to 3rd persons as if he were a partner,
when by words or by conduct he: 1.) Directly represents himself to anyone as a partner in an existing partnership or in a non- existing
partnership (with one or more persons not actual partners). By the person himself; or 2.) Indirectly represents himself by consenting to
another representing him as a partner in an existing partnership or in an non-existing partnership. By his consent or with his knowledge.

Note that the 3rd party gave credit to the representation, either public or personal.

What is a partnership in estoppel?

If all the actual partners consented to the representation, then the liability of the person who represented himself to be a partner or
who consented to such representation and the actual partners is considered a partnership liability. This is a case of partnership by
estoppel. The person becomes an agent of the partnership and his act or obligation that of the partnership.

What is the liability? It depends:

It is pro rata: When there is no existing partnership and all those represented as partners consented to the representation, or not all of
the partners of an existing partnership consented to the representation, then, the liability of the person who represented hi mself to be
a partner or who consented to his being represented as partner, and all those who made and consented to such representation, is
joint or pro rata..

It is separate: When there is no existing partnership and not all but only some of those represented as partners consented to the
representation, or none of the partners in an existing partnership consented to such representation, then the liability will be separate
that of the person who represented himself as a partner or who consented to his being represented as a partner, and those who
made and consented to the representation, or that only of the person who represented himself as partner.

So please read article 1825:

Art. 1825. When a person, by words spoken or written or by conduct, represents himself, or consents to another representing him to
anyone, as a partner in an existing partnership or with one or more persons not actual partners, he is liable to any such persons to
whom such representation has been made, who has, on the faith of such representation given credit to the actual or apparent
partnership, and if he has made such representation or consented to its being made in a public manner he is liable to such person,
whether the representation has or has not been made or communicated to such person so giving credit by or with the knowledge of
the apparent partner making the representation or consenting to its being made:

1.) When a partnership liability results, he is liable as though he were an actual member of the partnership;

2.) When no partnership liability results, he is liable pro rata with the other persons, if any, so consenting to the contract or
representation as to incur liability, otherwise separately.

When a person has been thus represented to be a partner in an existing partnership, or with one or more persons not actual partners,
he is an agent of the persons consenting to such representation to bind them to the same extent and in the same manner as though
he were a partner in fact, with respect to persons who rely upon the representation. When all the members of the existing partnership
consent to the representation, a partnership act or obligation results; but in all other cases it is the joint act or obligation of the person
acting and the persons consenting to the representation.

Does estoppel create partnership?

No. Only liability is created.

What are the elements to establish liability as a partner on ground of estoppel?

1.) Proof by plaintiff that he was individually aware of the defendants representations as to his being a partner or that such
representations were made by others and not denied or refuted by the defendant;

2.) Reliance on such representations by the plaintiff; and

3.) Lack of any denial or refutation of the statements by the defendant.
BUSORG 1
ST
PART
JULY 13, 2013

(Note: Q Maams question, A students answer, C Maams comment)

Q: As a review, who is a partner by estoppel?

A: A partner by estoppel maam is one who represents himself to the public as someone who is a partner in a partnership.

Q: How does he hold himself to the public as a partner?

A: He holds himself to the public as a partner by directly representing himself as a partner to the others.

C: By words spoken or written or by conduct.

Q: How about if he represented himself as a partner in non-existing partnership, is he deemed as a partner by estoppel?

A: As to third persons maam, he would be deemed as partner.

C: As to third personshe would be deemed as partner even if there is no existing partnership. But as to the persons to whom he
represents?

A: If it is with the consent or the knowledge of those persons maam, those persons would also be liable to third persons.

Q: So is there a partnership liability?

A: There is maam if there is an existing partnership and all partners consent to the representation made by that person who holds
himself out as a partner to the public.

Q: What is the liability?

A: The liability of the partnership maam is solidary. The partnership assets or properties are liable.

Q: How about those persons who were represented as partners, what is their liability to third persons if they consent? Is that solidary or
merely

A: Ahm, if there is an existing partnership maam and all those who consented would be liable solidarily.

C: So, if they consent. So my question is, who are liable pro-rata under the said article?

A: Those persons where there is an existing partnership but not all of them consented, so those who consented are liable pro-rata; and
when there is no existing partnership, and all those persons who consented, they will all be liable maam pro-rata.

Q: Who are liable separately?

A: Separately maam, those where there is no existing partnership, not all but only some consented or have knowledge with the
misrepresentation, and also those where none of the partners in an existing partnership consented so only the person representing will
be liable separately.

Q: How will you distinguish a partnership by estoppel from a corporation by estoppel?

A: A corporation by estoppel maam is where all persons assume to act as a corporation even if they do not have authority to do so
and therefore under the law, they are liable as general partners for all the liabilities and damage incurred. Now as to partnership by
estoppel maam they are those where there is no existing partnership...

Q: Before that question, what if there is a partner by estoppel, will that automatically result to a partnership by estoppel or the other
way around?

A: No maam, because estoppel does not create a partnership but it merely creates a liability maam on the part of the person
estopped maam.

Q:Can you please state the liability of incoming partner for existing partnership obligations?

A: (From the book)
When a person is admitted as a partner into an existing partnership, he is liable for all obligations existing at the time of his admission
as though he was already a partner when such obligations were incurred. For such obligations, his liability is limited to his share in the
partnership property, unless there is a stipulation to the contrary.

Q: What is the reason for the rule why his liability is limited?

A: Because the partnership has its own personality maam and the property of the partnership is first to be used before using his
separate property for the payment of the partnership obligation.

Q: My other question is what is the extent of the liability of an incoming partner when he assumes the obligation of a retiring partner?

A: (from the book)
He is liable directly to the old partnership creditors such that the latter has a right of action against the incoming partner

Q: Can you please read Article 1826?
ART. 1826. A person admitted as a partner into an existing partnership is liable for all the obligations of the partnership arising before
his admission as though he had been a partner when such obligations were incurred, except that this liability shall be satisfied only out
of partnership property, unless there is a stipulation to the contrary.

C: As a general rule, the liability of an incoming partner under Article 1826 is liable for all the obligations of the partnership arising
before his admission as though he had been a partner when such obligations were incurred. But it is limited only to the partnership
property unless there is a contrary stipulation.

Q: How about the extent of his liability for the subsequent partnership obligation?

C: Take note that for all the obligations accruing subsequent to the admission of the new partner, all the partners are liabl e with their
separate properties.

Q: What is the effect as to the partnership if a new partner is admitted?

A: The partnership will be dissolved.

Q: When you say dissolved, what happens to the partnership?

A: The association of the other partners (old partners) is already terminated.

Q: Is there any partnership created upon the admission of the new partner?

A: yes maam.

Q: Who enjoys preference as to partnership property?

A: Partnership creditor.

Q: So what is the remedy of the private creditors of the partners? Can you please read Article 1827?

A: ART. 1827. The creditors of the partnership shall be preferred to those of each partner as regards the partnership property. Without
prejudice to this right, the private creditors of each partner may ask the attachment and public sale of the share of the latter in the
partnership assets.

Q: What happens in the case of Sycip Salazar?

A: so in this case maam, two separate Petitions were filed before the Court 1) by the surviving partners of Atty. Alexander Sycip, who
died on May 5, 1975, and 2) by the surviving partners of Atty. Herminio Ozaeta, who died on February 14, 1976, praying that they be
allowed to continue using, in the names of their firms, the names of partners who had passed away. So the issue in this case is whether
or not the name of a deceased partner may still be continued to be used by a partnership engaged in a legal profession. The
Supreme Court ruled that inasmuch as "Sycip, Salazar, Feliciano, Hernandez and Castillo" and "Ozaeta, Romulo, De Leon, Mabanta
and Reyes" are partnerships, the use in their partnership names of the names of deceased partners will run counter to Article 1815 of
the Civil Code which provides that every partnership shall operate under a firm name, which may or may not include the name of
one or more of the partners.
Those who, not being members of the partnership, include their names in the firm name, shall be subject to the liability, of a partner.

The Supreme Court further said that it is clearly tacit in the above provision that names in a firm name of a partnership must either be
those of living partners and in the case of non-partners, should be living persons who can be subjected to liability.

Q: Does this ruling still hold?

A: No maam. So this ruling has been already abandoned in view of Rule 3.02 of the Code of Professional Responsibility. In this Rule, it
is said that In the choice of a firm name, no false, misleading or assumed name shall be used. The continued use of the name of a
deceased partner is permissible provided that the firm indicates in all its communications that said partner is deceased.

Q: So what is the reason why the court prohibited the inclusion of the deceased partner based on what ground?

C: So as not to mislead the public. In this case, the Supreme Court said that in case of firm names, Article 1815 refers to living persons.

Q:What happened in the case of Jo Chung Cang vs.Pacific Commercial Company?

A: In this case maam Sociedad Mercantil, Teck Seing & Co, Ltd., filed an application to be adjudged insolvent. The creditor) filed a
motion to declare the individual partners insolvent as parties to the proceeding, requiring each of the said partners to file an inventory
of his property and that each of the said partners be adjudicated insolvent debtors in this proceeding. There are two issues in this
case maam. First, whether or not Teck Seing & Co, Ltd. is a general partnership. The Supreme Court said that YES. It is a general
partnership. To establish a limited partnership, there must be at least 1 general partner and the name of at least 1 of the general
partners must appear in the firm name. But in this case maam, neither of these requirements have been fulfilled.

And the second issue in this case maam is whether or not the fact that the firm name Teck Seing & Co., Ltd. does not contain the
name of all or any of the partners, as prescribed by the Code of Commerce, prevented the creation of a general partnership. The
amicus curiae said that my opinion is that such a fact alone cannot and will not be a sufficient cause of preventing the formation of a
general partnership, especially if the other requisites are present and the requisite regarding registration of the articles of association
in the Commercial Registry has been complied with, as in the present case.

Q: What kind of partnership is Teck Seing in this case?

A: Actually in this case, they wanted to form a limited partnership but there was a disregard of a requirement of the law, hence it was
considered as partners by estoppel. In this case, eventhough not all the partners name are included in the partnership name it does
not necessarily mean that they are not liable for the partnership obligations incurred by the partnership maam.

Q: Was there a partnership by estoppel in this case?

A: The Supreme Court held in this case that there was none maam.

C: So it was a general partnership and not a limited partnership contrary to the claim of Teck Seing.

Q: So what do you think is the reason of that said partnership why they wanted to have it a limited partnership?
C: Okay, in order presumably to evade their liability.

Q: So as a review, what is a limited partnership?
A: (from the book)
Limited partnership is one formed by two or more persons having as members one or more general partners and one or more limited
partners, the latter not being personally liable for the obligations of the partnership.
Q: What is a general partnership?
A: (from the book)
A general partnership is one consisting of general partners who are liable pro rata and subsidiarily and sometimes solidarily with their
separate property for partnership debts.
Q: So what is their liability? What kind of liability?

A: I think maam it is a personal liability.
C: Take note that a general partner is liable subsidiarily and pro rata to the extent of their personal property for the partnership
obligations.
Q: What happened in the case of PNB vs. Lo.
A: In this case maam, Severo Eugenio Lo and Ng Khey Ling, together with J. A. Say Lian Ping, Ko Tiao Hun, On Yem Ke Lam and Co
Sieng Peng formed a commercial partnership under the name of "Tai Sing and Co.," with a capital of P40, 000 contributed by said
partners. J. A. Say Lian Ping was appointed general manager of the partnership, with powers specified in the partnerships articles of
copartnership. Subsequently, he assigned in favor of A. Y. Kelam authorizing him to manage the company maam. Upon the transfer
of the powers of management to A. Y. Kelam, the latter obtained a loan with PNB, mortgaged with several personal properties of the
company.Such credit was renewed several times. The other partners claimed that they also obtained a different credit maam. Later
on, when PNB tried to collect, it is collecting the entire amount of P20, 239.00, together with interest. Respondent partner here, raised
as a defense that "Tai Sing & Co. was not a general partnership, and that the commercial credit in current account which "Tai Sing &
Co. obtained from the petitioner had not been authorized by the board of directors of the company, nor was the person who
subscribed said contract authorized to make the same, under the article of copartnership. So the issue here is whether the partnership
can be held liable for the said obligations. And the court ruled that Yes. Art. 1815 of the NCC provides: Every partnership shall operate
under a firm name, which may or may not include the name of one or more of the partners. Those who, not being members of the
partnership, include their names in the firm name, shall be subject to the liability of a partner. Upon the assignment of the
management and administration to A. Y. Kelam, he was liable along with the other partners.

Q: So what was the liability of the partners here?
A: The liability of the partners here is joint and several liability.

Q: What happened in the case of CO Pitco vs. Yulo.
A: Here maam, Florencio Yulo and Jaime Palacios were partners in the operation of a sugar estate in Negros. As partners, they had
commercial dealings with a china man named Dy-Sianco. On February 1903, the father of Florencio, Pedro Yulo, took charge of his
interests in the partnership, and he eventually became a general partner of Palacios. This partnership continued until the end of 1904.
For the collection of a debt amounting to P1,638.80 from one of their dealings, Dy-Sianco filed a case in court. However, at that time,
Palacios was no longer in the Philippines. So, the whole amount was demanded of Yulo alone. Yulo refused to pay for the whole
amount, thus this petition.
So the issue in this case is WON Pedro Yulo is liable for the entire amount of the debt incurred by the partnership. The Supreme Court
said NO. The partnership of Yulo and Palacios is a Civil Partnership. As distinguished from a Mercantile Partnership, in a ci vil
partnership, by express provision of Articles 1698 and 1137 of the Civil Code, partners are not liable each for the whole amount of the
debts incurred by the partnership, but only in pro rata.Therefore, in this case, Yulo is only responsible for one half (1/2) of the debt,
notwithstanding the fact that Palacios can no longer be found in the Philippines.

Q: So what is the amount of the obligation in this case?
A: The amount of the obligation is P1,638.

Q: So when you say that a partner is liable pro rata, how do you define again pro rata?
A: Pro rata means that the partners are liable in proportion based on their capital contribution.

Q: Based on what?
C: So it is not based on the capital contribution but based on the number of general partners.

Q: What happened in the case of Island Sales, Inc. vs.United Pioneers?
A; (Note: Sorry, medyo mahina ang recording dito na part so digest na lang ang nilagay ko na facts)
FACTS: On April 22, 1961, the defendant company, a general partnership, purchased from the plaintiff a motor vehicle on instalment.
Having failed to receive the installment due on July 22, 1961, the plaintiff sued the defendant company for the unpaid balance
amounting to P7,119.07. Benjamin C. Daco, Daniel A. Guizona, Noel C. Sim, Romulo B. Lumauig, and Augusto Palisoc were included
as co-defendants in their capacity as general partners of the defendant company.
Subsequently, on motion of the plaintiff, the complaint was dismissed insofar as the defendant Romulo B. Lumauig is concerned. The
defendants Benjamin C. Daco and Noel C. Sim claimed that since there are five (5) general partners, the joint and subsidiary liability
of each partner should not exceed one-fifth ( 1/ 5 ) of the obligations of the defendant company. But the trial court denied the said
motion notwithstanding the conformity of the plaintiff to limit the liability of the defendants Daco and Sim to only one-fifth ( 1/ 5 ) of
the obligations of the defendant company
So the issue in this maam is whether or not the dismissal of the complaint in favor one of the general partners of a partnership
increases the joint and subsidiary liability of each of the remaining partners for the obligations of the partnership. And the Supreme
Court said NO, the remaining partners liability will not be increased vis--vis the amount condoned by Island Sales in favor of Romulo
because the liability of the general partners is pro rata maam. In here, the liability of the appellant shall be limited to only 1/5 of the
obligations of the defendant company. The fact that Romulo was dismissed from the case, that does not unmake the said amount as
a general partner in the appellant company. (sic)And so in order to dismiss the case, the plaintiff merely condoned the legal liability
maam as towards Island Sales.

Q: What happened in the case Manasque vs. Court of Appeals?
A: In the case of Manasque, Manasque is an engineer who entered in a partnership with Galan and under the registered name of
Galan and Associates as a contractor. They entered into a written contract with Tropical for remodeling the respondent's Cebu
branch building. When Tropical paid for this undertaking, this payment was by check in the name of Manasque. And then Mansque
indorsed the check in favor of Galan to encash the check and pay for the materials incurred by the partnership. However in this case,
Galan was accused here that he used the amount for his personal use. When the second check came from Tropuca, Manasque
indorsed it again to Galan. Galan informed Tropical of the misunderstanding between him and Manasque as partners. Hence the
second payment, Tropical changed the name of the payee from Manasque to Galan and Associates. Later, the construction
continued through Manasques sole efforts by contracting debts from various suppliers. The partnership also incurred debts from Cebu
Southern Hardware Company and other creditors. Manasque file a complaint to Galan, and Tropica Cebu Branch Manager. So in
the issue in this case whether the obligation of the partnership in favor of Cebu Southern Hardware Company is to be shouldered
exclusively by Galan or it is joint and solidary. The SC held that while it is true under Article 1816 that All partners, including industrial
ones, shall be liable pro rata with all their property and after all the partnership assets have been exhausted, for the contracts which
may be entered into in the name and for the account of the partnership, under its signature and by a person authorized to act for the
partnership. However, any partner may enter into a separate obligation to perform a partnership contract, this provision should be
construed together with Article 1824 which provides thatAll partners are liable solidarily with the partnership for everything
chargeable to the partnership under articles 1822 and 1823. So, while the liabilities of the partners are merely joint in transactions
appertaining to the partnership, a third person who transacted with the said partnership can hold the partners solidarily liable if the
basis of the third persons claim is Article 1822 and 1823. So here, the obligation is solidary because the law protects third persons. In
this case, Tropical had every reason to believe that there is a subsisting partnership between Manasque and Galang no fault or error
could be imputed to it for making the payment to Galan and Associates. It is but fair that the consequences of a wrongful act
committed by any of the partners therein should be answered solidarily by all the partners and the partnership as a whole.However,
as between Manasque and Galan, Galan must reimburse Manasque for the payments made to the intervenors since it was
established that Galan was in bad faith.

Q: Is the third party here required to inquire as to the authority of the partner?
A: No maam. Because that would be cumbersome on the part of the third parties. The general rule is that a third person need not
inquire to the authority of a partner with whom he/she is transacting especially if that partner does business in the name of the
partnership.

Q: What happened in the case of Tiosejo Investment vs. Spouses Ang?
A: (The recit of our classmate in this case can be hardly heard in my recording, so please refer to your digests with the following
questions asked by maam in relation to Article 1824)
Q: What was the defense of the petitioner here?
Q: What was the ruling of the Supreme Court?
Q: Why is their liability solidary?

Bus Org
July 16, 2013
TSN by Sonny

What are the effects of change in membership of a partnership?

1.) Dissolution of existing partnership and formation of a new one
2.) Transformation of all partners into incoming
3.)Continuance by remaining partners of
partnership as before

How do you define dissolution?

Dissolution is the change in the relation of the partners caused by any partner ceasing to be associated in the carrying on of the
business. It is that point in time when the partners cease to carry on the business together. It represents the demise of a partnership.

How about Winding up?

The process of settling the business or partnership affairs after dissolution.

What about Termination?

Termination is that point in time when all partnership affairs are completely wound up and finally settled. It signifies the end of the
partnership life.

Which comes first?

1. Dissolution
2. Winding up
3. Termination

So Article 1828 provides that the dissolution of a partnership is the change in the relation of the partners caused any partner ceasing
to be associated in the carrying on as distinguished from the winding up of the business.

What are the effects of dissolution?

1.) Partnership not terminated Dissolution does not automatically result in the termination of the legal personality of the partnership,
nor the relations of the partners among themselves who remain as co-partners until the partnership is terminated.

2.) Partnership continues for a limited purpose After dissolution, a partnership is considered as maintaining a limited existence for the
purpose of making good all outstanding engagements, of taking and settling all accounts, and collecting all the property, means
and assets of the partnership existing at the time of its dissolution for the benefit of all interested.

3.) Transaction of new business prohibited Upon dissolution, no new partnership business should be undertaken, but affairs should be
liquidated and distribution made to those entitled to the partners interest.

In relation to 1826, when a new partner is admitted, the old partnership is terminated and new one is formed. What if they want to
continue the business despite a new one being admitted? Is there legal dissolution to speak of?

Yes. The old partnership is terminated.

How do you distinguish dissolution of partnership from suspension of partnership business?

The dissolution is permanent. Suspension is merely temporary.

When is there a dissolution made without violation of partnership agreement?

The answer is 1830. There is dissolution made without violation f partnership agreement in the following: a.) By the termination of the
definite term or particular undertaking specified in the agreement; b.) By the express will of any partner, who must act in good faith,
when no definite term or particular undertaking is specified; c.) By the express will of all the partners who have not assigned their
interests or suffered them to be charged for their separate debts, either before or after the termination of any specified term or
particular undertaking; d.) By the expulsion of any partner from the business bona fide in accordance with such a power conferred by
the agreement between the partners.

Why does the law allow the dissolution of the partnership at any time?
Because of the principle of delectus personae

Take note that in expulsion, it must be made in good faith.

When is there dissolution in contravention of the agreement of the partners?

In contravention of the agreement between the partners, where the circumstances do
not permit a dissolution under any other provision of this article, by the express will of any partner at any time;

When is there dissolution by operation of law?

By any event which makes it unlawful for the business of the partnership to be carried out or for the members to carry it on in
partnership;

What is the other ground?

When a specific thing, a partner had promised to contribute to the partnership, perishes before the delivery; in any case by the loss of
the thing, when the partner who contributed it having reserved the ownership thereof, has only transferred to the partnership the use
or enjoyment of the same; but the partnership shall not be dissolved by the loss of the thing when it occurs after the partnership has
acquired the ownership thereof.

What are the rules governing loss?

Loss before delivery Partnership is dissolved because there is no contribution inasmuch as the thing to be contributed cannot be
substituted with another. There is here a failure of a partner to fulfill his part of the obligation.

Loss after delivery Partnership not dissolved but it assumes the loss of the thing having acquired ownership thereof. The partners may
contribute additional capital to save the venture.

Loss where only the use or enjoyment contributed Loss before or after delivery dissolves the partnership because in either case, the
partner cannot fulfill his undertaking to make available the use of the specific thing contributed. Here, the contributing partner bears
the loss since he retains ownership and, therefore, he is considered in default with respect to his contribution. Upon dissol ution, the
partners may demand for an accounting and liquidation. The mere failure by a partner to contribute his share of capital does not
prevent the existence of a firm. Such failure may be waived by the others.

What about death as a ground for dissolution? What are rules regarding this ground?

The deceased partner ceases to be associated in the carrying on of the business; hence, the ipso facto dissolution of the partnership
by his death by operation law. The surviving partners have no authority o continue the business except as provided in Article1833.

Status of partnership Subsequent legal status of partnership is that of a partnership in liquidation, nd the only rights inherited by the
heirs are those resulting from said liquidation. Before liquidation is made, it is impossible to determine the share of the deceased
partner.

Liquidation of its affairs The liquidation is entrusted to the surviving partners, or to liquidators appointed by them and not the
administrator or executor of the deceased partner.

Continuation of business without liquidation A clause in the articles of partnership providing for the continuance of the firm
notwithstanding the death of one the partners is legal. By common agreement, the surviving partners and the heirs of the deceased
may decide to continue the partnership. But they become liable to the old creditors the firm.


Okay. Insolvency is also a ground for dissolution. Why?

The insolvency of a partner subjects his interest in the partnership to the right of his creditors and makes impossible for him to satisfy
with his property partnership obligations to its creditors in the event that partnership assets have been exhausted. Thus, by his
insolvency, its credit is impaired. An insolvent partner has no authority to act for the partnership not the other partners to act for him.

The insolvency of the partnership renders its property in the hands of the partners liable for the satisfaction of partnership obligations
resulting in their inability to continue the business, which dractically amounts to a dissolution. But the reconveyance by the assignee of
the properties of the partnership pursuant to an order of the court after the termination of the insolvency proceedings
involving the partnership has the effect of restoring the partnership to its status quo.

Must it be judicially decreed? Kasi diba, tedious pa?
Yes. Otherwise, any partnership can merely claim insolvency.

What about civil interdiction of any partner?
A partnership requires the capacity of the partners. A person under civil interdiction cannot validly give consent, as his capacity to
act is limited thereby. Civil interdiction deprives the offender during the time of his sentence of the right to manage his property and
dispose of such property by any act or any conveyance inter vivos. One who is w/o capacity to manage his own property should not
be allowed to manage partnership property.

What are the rules regarding expulsion of a partner?

In the absence of an express agreement to that effect, there exists no right or power of any member, r even a majority of the
members, to expel all other members of the firm at will. Nor can they at will forfeit the share or interest of a member and compel him
to quit the firm, even paying what is due him.

What are the grounds of judicial dissolution. And to whom is the remedy available?

1.) A partner has been declared insane in any judicial proceeding or is shown to be of unsound mind;

2.) A partner becomes in any other way incapable of performing his part of the partnership contract;

3.) A partner has been guilty of such conduct as tends to affect prejudicially the carrying
on of the business;

4.) A partner willfully or persistently commits a breach of the partnership agreement, or otherwise so conducts himself in matters
relating to the partnership business that it is not reasonably practicable to carry on the business in partnership with him;

5.) The business of the partnership can only be carried on at a loss;

6.) Other circumstances render a dissolution equitable;

The grounds are available to a partner upon dissolution.

Can you please read article 1831 muna?

Article 1831. On application by or for a partner the court shall decree a dissolution whenever:
(1) A partner has been declared insane in any judicial proceeding or is shown to be of unsound mind;
(2) A partner becomes in any other way incapable of performing his part of the partnership contract;
(3) A partner has been guilty of such conduct as tends to affect prejudicially the carrying on of the business;
(4) A partner wilfully or persistently commits a breach of the partnership agreement, or otherwise so conducts himself in
matters relating to the partnership business that it is not reasonably practicable to carry on the business in partnership with him;
(5) The business of the partnership can only be carried on at a loss;
(6) Other circumstances render a dissolution equitable.
On the application of the purchaser of a partner's interest under article 1813 or 1814:
(1) After the termination of the specified term or particular undertaking;
(2) At any time if the partnership was a partnership at will when the interest was assigned or when the charging order was
issued. (n)
About number one. What if the partner is kalit lang nabuang? Is it automatic or must the partner must be judicially decree of insanity?

There must be a judicial declaration. It is not automatic ha.

How about number 2?

It is anything which renders a member incapable other than insanity.

How about number three? Should it be habitual, paulit-ulit? Yes.

How about number five?

Since the purpose of the partnership is the carrying of a business for profit, it may be dissolved by decree of court when it becomes
apparent that it is unprofitable with no reasonable prospects of success.

A court is authorized to decree a dissolution notwithstanding that the partnership has been making
profit where it appears at the time of the application that the business can only be carried on at a loss.

Who shall determine that a partnership is at a loss?

One of the partners will have to prove that the partnership is at a loss.

Is this for a definite period? What if three months lang siya lugi? What about next month with profits na then later on lugi uli? How long
should they be at a loss para may judicial decree?

Bernal: It depends upon the discretion of the court. Normally, when corporations are starting, they will always be at a loss. So it really
depends on what can be proved.

When can a purchaser apply for the dissolution of the partnership?

On application by a purchaser of a partners interest In either of the two cases mentioned in the last paragraph, a purchaser of a
partners interest under Article 1813 or 1814 may apply for judicial dissolution of a partnership.

Can you please state the effect of dissolution on authority of a partner?

Upon dissolution, the partnership ceases to be an on-going concern and the partners power of representation is confined only to
acts incident to winding up or completing transactions begun but not then finished. The event of dissolution terminates the actual
authority of a partner to undertake new business for the partnership.

Okay. That is the general rule. What about the qualifications to that rule?

Insofar as the partners themselves are concerned, the authority of any partner to bind the partnership by a new contract is
immediately terminated when the dissolution is not by the act, insolvency, or death of a partner. When the dissolution is by such act,
insolvency, or death, the termination of authority depends upon whether or not the partner had knowledge or notice of the
dissolution as provided in Article 1833.

With respect to third persons, the partnership is generally bound by the new contract although the
authority of the acting partner as it effects his copartners is already deemed terminated. However, the innocent partners may
recover from the acting partner.



Note ha, they cannot enter into new contracts during dissolution. Can you please read article 1832?

Art. 1832. Except so far as may be necessary to wind up partnership affairs or to complete transactions begun but not then finished,
dissolution terminates all authority of any partner to act for the partnership:
1.) With respect to the partners,
a.) When the dissolution is not by the act, insolvency or death of a partner; or
b.) When the dissolution is by such act, insolvency or death or a partner, in cases where Article 1833 so requires;
2.) With respect to persons not partners, as declared in Article 1834.


When is a partner deemed to have knowledge? Can you please read Article 1833?

Art. 1833. Where the dissolution is caused by the act, death or insolvency of partner, each partner is liable to his co-partners for his
share of any liability created by any partner acting for the partnership as if the partnership had not been dissolved unless:
1.) The dissolution being the act of any partner, the partner acting for the partnership had knowledge of the dissolution;
or
2.) The dissolution being by the death or insolvency of a partner, the partner acting for the partnership had knowledge
or notice of the death or insolvency.


July 19- NO CLASS

July 23, 2013


Q: Can you please explain the effect of dissolution on the authority of the partner to bind the partnership.
A:
Effect of dissolution on authority of partner.

General rule: Unless otherwise stipulated, every partner is considered the agent of the partnership with authority to bind the
partnership as well as the other partners with respect to the transaction of its business. Upon dissolution, the partnership ceases
to be a going concern and the partners power of representation is confined only to acts incident to winding up or
completing transactions begun but not then finished.

Qualifications to the rule:In so far as the partners themselves are concerned, the authority of any partner to bind the
partnership by a new contract is immediately terminated when the dissolution is not by the act, insolvency, or death of a
partner. (Art. 1832.)


Q: So what happens during the dissolution stage?

A: Di ba as a review, during the dissolution stage, the partnership is not yet terminated. The partnership is continued for a limited
period and the transaction of a new business, as a general rule, is not binding to the partnership.


Q: What if for example, the ground for dissolution is not for an act, death or insolvency of the partner? What is the effect of the
dissolution on the authority of the partner?

A: ART. 1832. Except so far as may be necessary to wind up partnership affairs or to complete transactions begun but not then
finished, dissolution terminates all authority of any partner to act for the partnership.
(1) With respect to the partners:
(a) When the dissolution is not by the act, insolvency or death of a partner; or
(b) When the dissolution is by such act, insolvency or death of a partner, in cases where Article
1833 so requires;
(2) With respect to persons not partners, as declared in article 1834. (n)



Q: What if the ground for dissolution is an act, death or insolvency of the partner? What is the effect of the dissolution on the authority
of the partner?

A: ART. 1833. Where the dissolution is caused by the act, death or insolvency of a partner, each partner is liable to his co-partners for
his share of any liability created by any partner acting for the partnership as if the partnership had not been dissolved unless:

(1) The dissolution being by act of any partner, the partner acting for the partnership had knowledge of the dissolution; or
(2) The dissolution being by the death or insolvencyof a partner, the partner acting for the partnershiphad knowledge or notice of
the death or insolvency.


Q: Does a partner have the authority to enter into contracts during the dissolution stage and bind the partnership?
A: As general rule, the authority to act for the partnership is already terminated when the ground for the dissolution is not due to
death, acts or insolvency of the partner. In other word , there is no partnership liability and the partners are not liable. But if the ground
for the dissolution is due to death, insolvency or acts of the partners, then any of the partner who entered into a contract without the
knowledge of such death, insolvency or acts of the partner, EACH partner is liable for any liability created by any of the partner
acting for the partnership if the partnership is not dissolved. So if the ground for dissolution is due to death, insolvency or acts of the
partner, and the partner entered into a new contract but he has knowledge of such death, insolvency or acts of the partner, then he
is personally liable. But with respect to third persons, as a general rule, the partnership is generally bound.


Q: Can the partners bind a dissolved partnership to 3
rd
persons?
A:
ART. 1834. After dissolution, a partner can bind thepartnership, except as provided in the third paragraph of this article:
(1) By an act appropriate for winding up partnership affairs or completing transactions unfinished at dissolution;
(2) By any transaction which would bind the partnership if dissolution had not taken place, provided the other party to the transaction:
(a) Had extended credit to the partnership prior to dissolution and had no knowledge or notice of the dissolution; or
(b) Though he had not so extended credit, had nevertheless known of the partnership prior to dissolution, and having no knowledge
or notice of dissolution, the fact of dissolution had not been advertised in a newspaper of general circulation in the place (or in each
place if more than one) at which the partnership was regularly carried on.

The liability of a partner under the first paragraph, No. 2, shall be satisfied out of partnership assets alone when such partner had been
prior to dissolution:
(1) Unknown as a partner to the person with whom the contract is made; and
(2) So far unknown and inactive in partnership affairs that the business reputation of the partnership could not be said to have been in
any degree due to his connection with it.

The partnership is in no case bound by any act of a partner after dissolution:
(1) Where the partnership is dissolved because it is unlawful to carry on the business, unless the act is appropriate for winding up
partnership affairs; or
(2) Where the partner has become insolvent; or
(3) Where the partner had no authority to wind up partnership affairs, except by a transaction with one who
(a) Had extended credit to the partnership prior to dissolution and had no knowledge or notice of his want of authority; or
(b) Had not extended credit to the partnershipprior to dissolution, and, having no knowledge or notice of his want of authority, the fact
of his want of authority has not been advertised in the manner provided for advertising the fact of dissolution in the first paragraph, No.
2(b).

Nothing in this article shall affect the liability under article 1825 of any person who after dissolution represents himself or consents to
another representing him as a partner in a partnership engaged in carrying on business. (n)

Q: What is the liability of the partner under the 1
st
paragraph of Article 1834?
A: The liability shall be satisfied out of the partnership assets alone when such partner, prior to dissolution, please read (read Article
1834).

Q: The article talks about knowledge of a 3
rd
person. Should it be actual knowledge of the dissolution?
A: It must be actual knowledge.

Q: What if the 3
rd
person extended credit to the partnership without knowledge of the dissolution, is the partnership liable?
A: The partnership is not bound (cf Article 1834)

Q: What if the acting partner became insolvent and he contracted with another person. Is the partnership liable?

Q: What kind of notice is required under this Article in order to relieve a retiring partner or his representative of a deceased partner
from subsequent liability?
A: Under Article 1834, after dissolution, a partner can bind the partnership.
(1) By an act appropriate for winding up partnership affairs or completing transactions unfinished at dissolution;
(2) By any transaction which would bind the partnership if dissolution had not taken place, provided the other party to the
transaction:
(a) Had extended credit to the partnership prior to dissolution and had no knowledge or notice of the dissolution; or
(b) Though he had not so extended credit, had nevertheless known of the partnership prior to dissolution, and having no knowledge
or notice of dissolution, the fact of dissolution had not been advertised in a newspaper of general circulation in the place (or in each
place if more than one) at which the partnership was regularly carried on.
OR
(3) Where the partner has no authority to wind up partnership affairs except by transaction with one who:
(a) had extended credit to the partnership prior to the dissolution and had no knowledge or notice of his want of authority; or
(b) had not so extended credit to the partnership prior to the dissolution and having no knowledge or notice of his want of authority,
the fact of his want of authority has not been advertised in the manner provided for in advertising the notice of dissolution under 1
st

paragraph of Article 1834.


Q: Is there a partnership by estoppel after dissolution of the partnership?
A: Yes there can be.

Q: Can you please state the effect of the dissolution on the partners existing liability.
A:
ART. 1835. The dissolution of the partnership does not of itself discharge the existing liability of any partner. A partner is discharged
from any existing liability upon the dissolution of the partnership by an agreement to that effect between himself, the partnership
creditor and the person or partnership continuing the business; and such agreement may be inferred from the course of dealing
between the creditor having knowledge of the dissolution and the person or partnership continuing the business.

The individual property of a deceased partner shall be liable for all obligations of the partnership incurred while he was a partner, but
subject to the prior payment of his separate debts. (n)


Q: Please state the manner of winding up of a dissolved partnership.
A: Manner of winding up.
The winding up of the dissolved partnership may be done either:
(1) judicially, under the control and direction of the proper court upon cause shown by any partner, his legal representative, or his
assignee; or
(2) extrajudicially, by the partners themselves without intervention of the court.

Q: Who are authorized to wind up partnership?
A: Persons authorized to wind up.
(1) The following are authorized to wind up the affairs of the
partnership:
(a) The partners designated by the agreement;
(b) In the absence of such agreement, all the partners who have not wrongfully dissolved the partnership; or
(c) The legal representative (executor or administrator) of the last surviving partner (when all the partners are already dead), not
insolvent.
(2) The court may, in its discretion, after considering all the facts and circumstances of the particular case, appoint a receiver to wind
up the partnership affairs where such step is shown to be to the best interests of all persons concerned. An insolvent partner does not
have the right to wind up partnership affairs.

Q: What are the powers of the liquidating partner?
A: Powers of liquidating partner.
1. Make new contracts.
2. Raise money to pay partnership debts.
3. Incur obligations to complete existing contracts or preservepartnership assets.
4. Incur expenses necessary in the conduct of litigation.

Q: Is the receiver tasked to wind up partnership affairs entitled to compensation?
A: No?

Q: Are the partners tasked to wind up partnership entitled to compensation?
A: They are entitled but not necessarily compensation because its part of their duties. Minimal langsiya. Same with court appointed
receivers. Not compensation ang term.

Q: Can you please read Article 1836?
A: ART. 1836. Unless otherwise agreed, the partners who have not wrongfully dissolved the partnership or the legal representative of
the last surviving partner, not insolvent, has the right to wind up the partnership affairs, provided, however, that any partner, his legal
representative or his assignee, upon cause shown, may obtain winding up by the court.

Q: What are the rights of the partners when the dissolution is not in contravention with the agreement?
A: Rights where dissolution not in contravention of agreement.
Unless otherwise agreed, the rights of each partner in case of dissolution without violation of partnership agreement are as follows:
(1) To have the partnership property applied to discharge the liabilities of the partnership; and
(2) To have the surplus, if any, applied to pay in cash the net amount owing to the respective partners.


Q: How about the rights of any partner who had wrongfully caused the dissolution of the partnership? Do they have any right?
A: Rights where dissolution in contravention of agreement.
When the partnership is dissolved in violation of the partnership agreement, the rights of a partner vary depending upon whether he is
the innocent or the guilty partner.
(1) Rights of partner who has not caused the dissolution wrongfully:
(a) To have partnership property applied for the payment of its liabilities and to receive in cash his share of the surplus;
(b) To be indemnified for damages caused by the partner guilty of wrongful dissolution;
(c) To continue the business in the same name during the agreed term of the partnership, by themselves or jointly with others; and
(d) To possess partnership property should they decideto continue the business.
(2) Rights of partner who has wrongfully caused the dissolution:
(a) If the business is not continued by the other partners, to have the partnership property applied to discharge its liabilities and to
receive in cash his share of the surplus less damages caused by his wrongful dissolution.
(b) If the business is continued:
1) To have the value of his interest in the partnership at the time of the dissolution, less any damage caused by the dissolution to his
co-partners, ascertained and paid in cash or secured by bond approved by the court; and
2) To be released from all existing and future liabilities of the partnership.

Q: What is the goodwill of a business? Is that a partnership asset?
A:Goodwill as part of partnership assets. Inasmuch as the word assets in the law of partnership is not to be confined to assets at
law, but includes all assets applicable to the payment of the partnership debts, the goodwill of the partnership, if of money value, is
usually considered part of the property and assets of the firm, in the absence of a contract, express or implied, to the contrary.

Q: How about firm name, is that a partnership asset?
A: Firm name as part of goodwill. The name of a firm is an important part of the goodwill and its use may be protected
accordingly. The firm name of the partnership, as distinguished from the name of an individual, is an element of the partnership
enterprise, a substantial asset thereof, and passes with a sale of the partnership property and goodwill.

Q: Can a partner himself, rescind a contract of partnership?
A: Yes maam. If one is induced by fraud or misrepresentation to become a partner, the contract is voidable or annullable. If the
contract is annulled, the injured partner is entitled to restitution. (Art. Here, the fraud or misrepresentation vitiates consent.

Q: What are the rights of injured partner where partnership contract is rescinded?
A: (1) Right of a lien on, or retention of, the surplus of partnership property after satisfying partnership liabilities for any sum of money
paid or contributed by him;
(2) Right to subrogation in place of partnership creditors after payment of partnership liabilities; and
(3) Right of indemnification by the guilty partner against all debts and liabilities of the partnership.

Q: What is an equitable lien or quasi-lien?
A: A partner has a right to have debts owing to the partnership from his co-partners deducted from their respective shares. This right is
called equitable lien or quasi-lien in American law.
It exists only when the affairs of the partnership are rounded up and the shares of the partners are computed after dissoluti on.

Q: What are the rules in settling accounts?
A: (Read Article 1839)

Q: What is the order of the application of the assets?
A: Order of application of the assets. The partnership assets shall be applied to the satisfaction of the liabilities of the partnership in
the following order:
(a) First, those owing to partnership creditors;
(b) Second, those owing to partners other than for capital and profits such as loans given by the partners or advances for business
expenses;
(c) Third, those owing for the return of the capital contributed by the partners; and
(d) Finally, if any partnership assets remain, they are distributed as profits to the partners in the proportion in which profits are to be
shared.

Q:Are the loans extended by the partners to the partnership considered as capital?
A: Loans and advances made by partners to the partnership are not capital.
Nor are undivided profits, unless otherwise agreed. Capital contributions are returnable only on dissolution, but loans are payable at
maturity and accumulated profits may be withdrawn at any time by consent of a majority.

Q: What are the rights of the partners where assets are insufficient?
A: If the assets enumerated in No. 1 are insufficient (i.e., there is an overall loss),
the deficit is a capital loss which requires contribution like any other loss. Any partner or his legal representative (to the extent of the
amount which he has paid in excess of his share of the liability), or any assignee for the benefit of creditors or any person appointed
by the court, shall have the right to enforce the contributions of the partners provided in Article 1797. If any of the partners does not
pay his share of the loss, the remaining partners have to pay but they can sue the non-paying partner for indemnification.

BusOrg, July 26, 2013
Can a dissolved partnership continue its business without liquidation? A dissolved partnership can continue its business without
liquidation where it was dissolved when there is a change of membership.
You mean to say that even if there is dissolution per se it does not necessarily follow that liquidation will follow dissolution in that case?
Yes, if the cause of the dissolution is caused by a change in membership of the partnership, then the partnership even though
considered dissolved they did not have to go through winding up.
What are the rights of the new partnership vis--vis the right of the old partnership? They have equal rights in the properties of the
partnership.
How about example, a retired or deceased partner sold his right to the partnership without final settlement with the creditor of that
partnership. What are the rights of the creditor in that instance? If a retiring partner or deceased partner sold his interest in the
partnership without final settlement, such creditor has an equitable lien on the consideration paid to the retiring or deceased partner
by the purchaser thereof. This lien comes ahead of the claims of the separate creditors of the retired or deceased partner.
Please read Article 1840.
What are the rights of the retiring or of the estate of the deceased partner when the business is continued? To have the value of the
interest of the retiring partner or deceased partner in the partnership ascertained as of the date of dissolution; and
To receive thereafter, as an ordinary creditor, an amount equal to the value of his share in the dissolved partnership with interest, or,
at his option, in lieu of interest, the profits attributable to the use of his right.
When does prescription of a partners right to account of his interest begin to run vis--vis a partners right to accounting?
It begins to run upon the liquidation and accounting of the partnership assets.
Who are the persons liable to render an accounting?
The winding up partner, the surviving partner, and the person or partnership continuing the business.
Is liquidation necessary?
With regards to distribution of share of profits for the share in the profits, yes, liquidation is necessary.
Please read Article 1842.
What happened in the case of Idos vs Ca?
In the case of Idos vs. CA, Alarilla joined the business of Irma Idos and they formed a partnership under the style of Tagumpay
Manufacturing which is a company manufacturing leather. However, it was short-lived and they decided to terminate the
partnership. Upon liquidation, Idos issued four post-dated checks in favor of Alarilla representing his share on the assets in the amount
of 900, 000. Alarilla collected the amount but Idos failed to pay, so he filed a case for violation of BP 22. Issue: Whether or not Idos
could be held liable for BP 22? The court held that she could not be held liable. The post dated checks were merely representations of
his share, and was not a promise to pay Alarilla. At that time there was not yet any liquidation, so Alarilla was not entitled to any share
yet. Thus, Idos cannot be held liable for violation of BP 22.
How about the case of Mota vs. Serra?
Plaintiffs and defendants entered into a partnership for the construction and exploitation of a rail road line. There was a capital
contribution of 150,000. Later, the defendant Serra entered into a contract of sale with third persons Luzuriaga, Concepcion, and
Whittaker whereby he sold to the latter the hacienda Palma and all other running business. But before delivering to the purchasers
of the hacienda, Luzuriaga renounced all his rights in favor of Concepcion and Whittaker. An absolute deed of sale for the said
contract for the amount of 1.6M and the purchasers agreed that the unpaid balance of the purchase price shall be paid.
Veneracion bought from the plaintiffs the of the railroad line and of the purchase price, Concepcion and Whittaker paid only a
sum of 47,000. And in a deed, Concepcion and Whittaker agreed that the previous contract between plaintiffs and defendants
should be cancelled and would be of totally no effect whatsoever.
The issue in this case is whether the plaintiffs can enforce their rights arousing out of a contract of partnership in the building of the
railroad line? SC held that yes, they can enforce their right because SC held that the dissolution of a partnership must not be
understood in the absolute and strict sense so that the determination of the object for which it was created, the partnership is
extinguished. In this case, it cited a certain case whereby some of the partners were allowed to claim the shares of the partnership
even if it was dissolved. The dissolution of a firm does not relieve the partners from their obligations.
What was the obligation of the defendant in the case?
The defendants obligation was to give the plaintiffs share in the partnership. As a conclusion, although a partnership will be dissolved,
it does not say that upon the dissolution, all the obligations will be dissolved. The partnership will subsist for the purpose of winding up
and putting to a rest all of those obligations.
How about the case of Tocao vs. CA?
In this case, it is a case wherein a joint venture was created and there are three partners namely: Tocao, Belo and Anay. Anay was
tasked to hold the marketrng job and she was granted several commissions of anything that may be generated from the business.
However, thereafter, the President of the business tendered a letter in a sales office in Cubao wherein Anay was to be removed as
VP. Consequently, she was not able to get her commission as agreed upon and thereafter she was removed. She filed for a
complaint for sum of money against the other parties. The question to be resolved is whether or not she is entitled to damages. The
court ruled in the affirmative. The acts of Belo and Tocao were in contravention of the agreement. In the contravention, meaning it is
in bad faith. The consequence of this is the award for damages. Although no one can be compelled to stay in a partnership, but if
the removal is not in good faith, then a claim for damages may be granted by the court. The removal here affected was through a
memo removing her is tantamount to unilaterally withdrawing. Because he is the one who removed her, he is liable for damages.
In other words, the partnership here was dissolved? Yes. It was dissolved but it was not made in good faith thats why they are liable
for damages.
So that anyone of the partners can dictate dissolution of the partnership because of what principle? Delectus Personae.
How about the case of Goquio Lay vs. CA?
Certain persons formed a general partnership wherein they provided that the lifetime of the partnership shall last ten years and upon
the death of one of the partners, it will continue and the heir of the partner shall take his place and the copartnership shall not be
dissolved and shall be continued. However, said copartnership may be dissolved at anytime upon withdrawal in writing of the
partners. Later on in the course of the transaction, they purchased parcels of land from Tan Sing An. He died, leaving a widow and
four minor children. There was an intestate proceeding.
Was the partnership dissolved in this case?
Yes, it was dissolved, upon liquidation.
Why? Because a certain partner died and his wife was replaced as a partner.
So upon the death of the partner, the partnership dissolved but the wife, what? Was admitted as a new member of the partnership.
What was the obligation of that new partner, the wife? The liability could not extend to the share of the estate but the wife being a
new member, her liability would extend as to the partnership contribution. The liability of that partner wife was she a general partner
or limited partner? General Partner. As a general partner, her liability would extend to the partnership contribution.
In relation to that, what is the liability of an incoming partner for an existing partnership obligation? Take note under Article 1826: A
person admitted as a partner in an existing partnership is liable for all of the obligations of the partnership arising before his admission
as though he had been a partner when such obligations were incurred, except that this liability shall be satisfied only out of
partnership property, unless there is a stipulation to the contrary.
In this case, the wife partner was a general partner.
What happened in the case of Ng Chio Cio vs. Ng Diong?
Ng Diong and the other partners entered into a contract of general partnership in the name of Ng Ching Beng Hermanos. The
partnership was to exist for 10 years and was amended to exist for another 16 years. They obtained a loan from a bank and also
executed a mortgage to guarantee the payment and it was dissolved. It was dissolved manner of dissolution- was through a judicial
decree. So during the dissolution proceedings, the insolvency court proceedings was intervened because the war broke out. So when
it continued in 1945, a composition agreement was entered into by the partners where it was stated that the creditors would receive
20% everytime the assets of the partnerships were sold. The court authorized Ng Diong, then managing partner to sell the assets to CN
Hodges. The other partners filed a case questioning the authority of Ng Diong claiming that it was already dissolved. So was the
partnership effectively dissolved in the case? Yes, however, the court gave emphasis on the fact that even if it was dissolved, Ng
Diong had the authority to sell because the insolvency of the partnership renders the partners liable for the satisfaction of partnership
obligations. However, the reconveyance by the assignee of the partnership after insolvency proceedings has the effect of restoring
the partnership. It was returned to its status quo for the purpose of satisfying creditor claims.
So in other words if you say that it was restored to it previous status as an existing partnership? Take note it was already resolved.
Based on your understanding. There was already a judicial decree of dissolution because of insolvency. This case states i t was
retained to its status quo, meaning, its status prior it was decreed insolvent. Based on your understanding, is it possible? In other words,
the court gave emphasis to the compromise agreement. You mean to say, it is possible even if a partnership is insolvent, pwede
siyang maging partnership again?
Talking about partnership, it is not considered legally dead unless it was wound up. But take note it was already decreed by the court.
Another answer: After dissolution, the partnership is not terminated. It exists for a limited purpose. It is possible that it returns to its status
quo. After that, they are ordered by the court to wound up properties to satisfy obligations.
The ruling said, status quo, prior it was insolvent. So meaning, magbalik siya sa being solvent? Parang at status quo ante bellum. So it
was not insolvent before that. Please research.
Primelink vs. Lazatin case
In this case, in 1994 Primelink properties and the Lazatin siblings entered into a joint venture agreement. The lazatins would give
property and Primelink would develop it. For four years, however, Primelink failed to develop the said land. In 1998, the Lazatins filed a
complaint to rescind the JVA with preliminary injunction. The issue here is that: Whether or not the improvements made by Primelink
should be turned over in favor of the Lazatins. It was held that although it was not prayed for, possession is incidental to the relief
prayed for and it is also because in this jurisdiction, joint ventures are governed by laws on partnership. Under the laws of partnership
where a partnership is dissolved, as it is in the case, when the trial court rescinded the JVA, the innocent party has the ri ght to wind up
partnership affairs. So with the rescission of the JVA on account of the fraudulent act, all authority is terminated except so far as
necessary to winding up or to complete transactions begun but not yet finished. So on dissolution, the partnership is not terminated
but continues until the winding up of partnership affairs is completed. The winding up means the administration of the assets of the
partnership for the purpose of terminating the business and discharging the obligation of the partnership. It must be stressed, too, that
although the Lazatins acquired the possession of the land, the said land and improvements are part of partnership assets subj ect to
the rights and obligations of the creditors and third parties and subject of the settlement of the account between the parties. So until
the partnership accounts are determined, it cannot be ascertained how much any of the parties are entitled to it.
Bus Org
July 30, 2013
TSN by Sonny

What is a limited partnership?

The form of business association composed of one or more general partners and one or more special partners, the latter not being
liable for the partnership debts. The liability of limited partners is limited to a fixed amount their capital contributions or the amount
they have invested in the partnership.

How will you distinguish a limited partner from a general partner?

General Partner Limited Partner
Personally liable for partnership obligations Liability extents only to his capital contribution
All of the general partners have an equal right
in management in the absence of an
agreement
No share in management
May contribute money, property or industry Must contribute cash or even property but not
services
Proper party to proceedings Not a proper party to the proceedings
Interest cannot be assigned as to make the
assignee a new partner without the consent of
the partners
His interest is freely assignable, with the
assignee acquiring all the rights of a limited
partner subject to certain qualifications
His name may appear in the partnership name Generally, his name must not appear
Prohibited from engaging in a business which is
of the same kind if business in which the
partnership is engaged
No such prohinition
His retirement, death, insanity, or insolvency
dissolves the partnership
His retirement, death, insanity, insolvency does
not

Can you please read Article 1843?

Article 1843. A limited partnership is one formed by two or more persons under the provisions of the following article, having as
members one or more general partners and one or more limited partners. The limited partners as such shall not be bound by the
obligations of the partnership.

So, what are the characteristics of a limited partnership?

1.) Formed by compliance with statutory requirements;
2.) One or more general partners control the business and are personally liable to creditors;
3.) One or more limited partners contribute to the capital and share in the profits but do not participate in the management of the
business and are not personally liable for partnership obligations beyond the amount of their capital contributions;
4.) The limited partners may ask for the return of their capital contributions under the conditions prescribed by law; and
5.) The partnership debts are paid out of common fund and the individual properties of the general partners.

Is form essential for the validity of a limited partnership?

Yes. A limited partnership is formed if there has been substantial compliance in good faith with the requirements set forth i n Article
1844.

The creation of a limited partnership is a formal proceeding and is not a mere voluntary agreement, as in the case of a general
partnership. Accordingly, the requirements of the statute must be followed; otherwise, the liability of the limited partners becomes the
same as that of general partners.

Can you please read Article 1844?

Article 1844. Two or more persons desiring to form a limited partnership shall:
(1) Sign and swear to a certificate, which shall state -
(a) The name of the partnership, adding thereto the word "Limited";
(b) The character of the business;
(c) The location of the principal place of business;
(d) The name and place of residence of each member, general and limited partners being respectively designated;
(e) The term for which the partnership is to exist;
( f ) The amount of cash and a description of and the agreed value of the other property contributed by each limited
partner;
(g) The additional contributions, if any, to be made by each limited partner and the times at which or events on the
happening of which they shall be made;
(h) The time, if agreed upon, when the contribution of each limited partner is to be returned;
(i) The share of the profits or the other compensation by way of income which each limited partner shall receive by
reason of his contribution;
( j) The right, if given, of a limited partner to substitute an assignee as contributor in his place, and the terms and
conditions of the substitution;
(k) The right, if given, of the partners to admit additional limited partners;
(l) The right, if given, of one or more of the limited partners to priority over other limited partners, as to contributions or
as to compensation by way of income, and the nature of such priority;
(m) The right, if given, of the remaining general partner or partners to continue the business on the death, retirement,
civil interdiction, insanity or insolvency of a general partner; and
(n) The right, if given, of a limited partner to demand and receive property other than cash in return for his contribution.
(2) File for record the certificate in the Office of the Securities and Exchange Commission.
A limited partnership is formed if there has been substantial compliance in good faith with the foregoing requirements.

Why do you think form is important here? It is to protect the interest of the third persons dealing with the said partnership.

So for example, not all of those enumerated under 1844 is borne out of the articles. Will it be a limited partnership or a general
partnership?

Limited partnership. All that is needed in substantial compliance in good faith. As to third persons, however, it will be considered as a
general partnership.

How should the court construe the articles of partnership in this case?

It should consider the substance rather than the form.

Can a partnership be a limited partner? It depends on the agreement.

Can an existing general partnership be changed into a limited partnership? Yes.

Can a corporation become a member of the limited partnership? Yes, if it is stated in the articles of partnership.

Can you please read Article 1845?

Article 1845. The contributions of a limited partner may be cash or property, but not services.

What can a limited partner contribute? cash or property, but not services.

When should the contributions be made? It should be made BEFORE the formation of the limited partnership.

Can a general partner be at the same time be a limited partner in a limited partnership? Yes.

Can the surname of a limited partner be placed in the name of the partnership? Yes. There is actually no prohibition.

Can you please read Article 1846?
Article 1846. The surname of a limited partner shall not appear in the partnership name unless:
(1) It is also the surname of a general partner, or
(2) Prior to the time when the limited partner became such, the business has been carried on under a name in which his
surname appeared.
A limited partner whose surname appears in a partnership name contrary to the provisions of the first paragraph is liable as a general
partner to partnership creditors who extend credit to the partnership without actual knowledge that he is not a general partner.

What are the requisites to enforce liability for false statement in a certificate?

1.) He knew the statement to be false at the time he signed the certificate, or subsequently, but having sufficient time to cancel or
amend it or file a petition for its cancellation or amendment,
he failed to do so;

2.) The person seeking to enforce liability has relied upon the false statement in transacting business with the partnership; and

3.) The person suffered loss as a result of reliance upon such false statement.

When is a limited partner deemed a general partner? When he has taken active participation in the administration of the partnership.

When is he deemed to have actively taken part in the management of the partnership?
Such control contemplates active participation in the management of the partnership business and does not comprehend the mere
giving of advice to general partners. The limited partner takes part in the management of the business and is liable generall y for the
firms obligations where:

1.) The business of the partnership is in fact carried on by a board of directors chosen by the limited partners;
2.) By the terms of the contract between the parties, an appointee of the limited partner becomes the directing manager of the firm;
3.) The limited partner purchases the entire property of the partnership, taking title in himself and then carries on the business in his
own name and for his own exclusive benefit; or
4.) He makes or is a party to a contract with creditors of an insolvent firm with respect to the disposal of the firms assets in payment of
the firms debts. The interference contemplated is with respect to an existing limited partnership. A limited partner is not subject to
general iability for taking part in the management of the firm because he settles its affairs after dissolution.

Can you please read Article 1849?

Article 1849. After the formation of a lifted partnership, additional limited partners may be admitted upon filing an amendment to the
original certificate in accordance with the requirements of article 1865.

What are the rights, powers and liabilities of a general partner?

Right of control/unlimited personal liability A general partner in a limited partnership is vested with the entire control of the firms
business and has all the rights and powers and is subject to all the liabilities and restrictions of a partner in a partnership without limited
partners, i.e., in a general artnership. It is in consideration of his unlimited personal liability for the obligation of the partnership that he
is granted the general authority to manage the firms business.

Acts of administration/acts of strict dominion As a rule, he may bind the partnership by any act of administration, but he has no
power to do the specific acts enumerated in Article 1850 (even if agreed to by all the general partners) without the written consent or
at least ratification of all the imited partners. The said acts are acts of strict dominion or ownership and are, therefore, beyond the
scope of the authority of a general partner.

The general partner who violates the requirement imposed by Article 1850 is liable for damages to the limited partners.

Other limitations The general partners, of course, have no power to bind the limited partners eyond the latters investment. Neither
do they have the power to act for the firm beyond the purpose and scope of the partnership, and they have no authority to change
the nature of the business w/o the consent of the limited partners.

Can you please read Article 1850?

Article 1850. A general partner shall have all the rights and powers and be subject to all the restrictions and liabilities of a partner in a
partnership without limited partners. However, without the written 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:
(1) Do any act in contravention of the certificate;
(2) Do any act which would make it impossible to carry on the ordinary business of the partnership;
(3) Confess a judgment against the partnership;
(4) Possess partnership property, or assign their rights in specific partnership property, for other than a partnership purpose;
(5) Admit a person as a general partner;
(6) Admit a person as a limited partner, unless the right so to do is given in the certificate;
(7) Continue the business with partnership property on the death, retirement, insanity, civil interdiction or insolvency of a
general partner, unless the right so to do is given in the certificate.

What are the rights of a limited partner under 1851?

Article 1851. A limited partner shall have the same rights as a general partner to:
(1) Have the partnership books kept at the principal place of business of the partnership, and at a reasonable hour to inspect
and copy any of them;
(2) Have on demand true and full information of all things affecting the partnership, and a formal account of partnership
affairs whenever circumstances render it just and reasonable; and
(3) Have dissolution and winding up by decree of court.
A limited partner shall have the right to receive a share of the profits or other compensation by way of income, and to the
return of his contribution as provided in articles 1856 and 1857.

What are his other rights?

1.) To require that the partnership books be kept at the principal place of business of the partnership;
2.) To inspect and copy at a reasonable hour partnership books or any of them;
3.) To demand true and full information of all things affecting the partnership;
4.) To demand a formal account of partnership affairs whenever circumstances render it just and reasonable;
5.) To ask for dissolution and winding up by decree of court;
6.) To receive a share of the profits or other compensation by way of income; and
7.) To receive the return of his contribution provided the partnership assets are in excess of all its liabilities.

What is the status of a partner where there is failure to create limited partnership?

A limited partnership is formed when there is substantial compliance in good faith with the requirements of the law. If not complied
with, the limited partner will have the liability of a general partner as to 3rd persons. Article 1852 provides for an exemption.

What are the conditions for exemption from liability as a general partner?

1.) On ascertaining the mistake, he promptly renounces his interest in the profits of the business or other compensation by way of
income;
2.) His surname does not appear in the partnership name; and
3.) He does not participate in the management the business.

Can a person be a general partner and a limited partner at the same time? If that is possible, can that person contribute his industry?

Yes. He can be a limited and general partner at the same time. He may also contribute his services.

What are his rights and powers?

A person may be a general and a limited partner atthe same time in the same partnership provided that this fact is stated in the
certificate signed, sworn to, and recorded in the Office of the Securities and Exchange Commission. Generally. his rights and powers
are those of a general partner. Hence, he is liable with his separate property to 3rd persons. However, with respect to his contribution
as a limited partner, he would have the right of a limited partner insofar as the other partners are concerned. This means that while he
is not relieved from personal liability to 3rd persons for partnership
debts, he is entitled to recover from the general partners the amount he has paid to such 3rd persons;
and in settling accounts after dissolution, he shall have priority over general partners in the return of their respective contributions.

Can you please read Article 1853?

Article 1853. A person may be a general partner and a limited partner in the same partnership at the same time, provided that this
fact shall be stated in the certificate provided for in article 1844.
A person who is a general, and also at the same time a limited partner, shall have all the rights and powers and be subject to all the
restrictions of a general partner; except that, in respect to his contribution, he shall have the rights against the other members which
he would have had if he were not also a general partner.
Can you please read Article 1854?

Article 1854. A limited partner also may loan money to and transact other business with the partnership, and, unless he is also a
general partner, receive on account of resulting claims against the partnership, with general creditors, a pro rata share of the assets.
No limited partner shall in respect to any such claim:
(1) Receive or hold as collateral security any partnership property, or
(2) Receive from a general partner or the partnership any payment, conveyance, or release from liability if at the time the
assets of the partnership are not sufficient to discharge partnership liabilities to persons not claiming as general or limited
partners.
The receiving of collateral security, or payment, conveyance, or release in violation of the foregoing provisions is a fraud on the
creditors of the partnership.
Please continue reading
BusOrg AGENCY COMPLETE
Bus.Org.
Make-up Class
August 10, 2013

(recording didnt start on time. Lecture presumably began on Article 1868 )
What are the essential elements of agency?
What is the nature of the relationship between the principal and the agent?
How will you distinguish an agency from a lease of service?
How do you distinguish agency from guardianship?
In a guardianship relationship, the agent/guardian acts in behalf of the ward, so how do you distinguish?
How do you distinguish an agency to sell from a contract of sale?
How about an agent from an independent contractor?
In other words, in an independent contractor contract, the party is not subject to the control of the principal. Other distinctions? Who
is liable for torts in the contract of agency? How about in the contract with independent contractor?

Article 1869. Agency may be express, or implied from the acts of the principal, from his silence or lack of action, or his failure to
repudiate the agency, knowing that another person is acting on his behalf without authority.

What are the different classifications of agency?
Can agency be presumed? No, it must exist as a fact.
Is form essential to the validity of a contract of agency?

Article 1870. Acceptance by the agent may also be express, or implied from his acts which carry out the agency, or from his silence
or inaction according to the circumstances.

Article 1871. Between persons who are present, the acceptance of agency may also be implied if the principal delivers his power of
attorney to the agent and the latter receives it without any objection.

What is a power of attorney?
An instrument in writing by which one person, as principal, appoints another as his agent and confers upon him the authority to
perform certain specified acts or kinds of acts on behalf of the principal. Its primary purpose is to evidence the authority of the agent
to 3
rd
parties w/ whom the agent deals.
Should it be notarized? No, it can be a private document.
How is a power of attorney construed? Strictly construed against whom?
Construction
A power of atty is strictly construed and strictly pursued. The instrument will be held to grant only those powers which are specified,
and the agent may neither go beyond nor deviate from the power of atty. The only exception is when strict construction will destroy
the very purpose of the power.
Can an agency be implied? Yes but NOT presumed

Article 1872. Between persons who are absent, the acceptance of the agency cannot be implied from the silence of the agent,
except:
1. When the principal transmits his power of attorney to the agent, who receives it without any objection
2. when the principal entrusts to him by letter or telegram a power of attorney with respect to the business in which he is habitually
engaged as an agent, and he did not reply to the letter or telegram.

When is acceptance of agency implied from the silence of the agent? 2 exceptions in 1872

Article 1873. If a person specially informs another or states by public advertisement that he has given a power of attorney to a third
person, the latter thereby becomes a duly authorized agent, in the former case with respect to the person who received the special
information, and in the latter case with regard to any person.

The power shall continue to be in full force until the notice is rescinded in the same manner in which is was given.

When is there an agent in estoppels?
Estoppel of Agent One professing to act as agent for another may be estopped to deny his agency both as against his asserted
principal and the 3
rd
persons interested in the transaction in which he is engaged.
When is the principal vis--vis the agent deemed in estoppel?
Agency by Estoppel: There is really no agency at all, but the alleged agent seemed to have apparent or ostensible, although no real
authority to represent another.
Article 1874. When a sale of piece of land or any interest therein is through an agent, the authority of the latter shall be in writing
otherwise, the sale shall be void. A letter is sufficient [Jimenez v. Rabot].
Article 1875. Agency is presumed to be for compensation, unless there is proof to the contrary.
Who is a broker?
Is he entitled to a compensation?
Does the law allow a double agency?
For example, the agent assumes the role of a double agency, what is his right to compensation?
Article 1876. An agency is either general or special.
The former comprises all the business of the principal, the latter one or more specific transactions.
Who is a universal agent? principal can lawfully delegate to another the power of doing.
How about a general agent? to do all acts connected with a particular trade, business, or employment.
Who is an attorney in fact? Does acts not of a legal character, for example? legal proceedings.
How do you distinguish a general agent from a particular agent? 5 distinctions: TENIS

State the effect of agency couched in general terms. 1877
Article 1877. An agency couched in general terms comprises only acts of administration, even if the principal should state that he
withholds no power or that agent may execute such acts as he may consider appropriate, or even though the agency should
authorize a general and unlimited management.
How are contracts of agency construed? Against whom?

What are the specific acts when a SPA is necessary? Memorize the 15 cases in Article 1878.
Article 1878. Special powers of attorney are necessary in the ff cases:
1. To make such payments as are not usually considered as acts of administration;
2. To effect novations which put an end to obligations already in existence at the time the agency was constituted;
3. To compromise, to submit questions to arbitration, to renounce the right to appeal from a judgment, to waive objections to
the venue of an action or to abandon a prescription already acquired;
4. To waive any objection gratuitously;
5. To enter into any contract by which the ownership of an immovable is transmitted or acquired either gratuitously or for a
valuable consideration;
6. To make gifts, except customary ones for charity or those made to employees in the business managed by the agent;
7. To loan or borrow money, unless the latter act be urgent and indispensable for the preservation of the things which are under
administration;
8. To lease any real property to another person for more than one year;
9. To bind the principal to render some service without compensation;
10. To bind the principal in a contract of partnership;
11. To obligate the principal as a guarantor or surety;
12. To create or convey real rights over immovable property;
13. To accept or repudiate an inheritance;
14. To ratify or recognize obligations contracted before the agency;
15. Any other act of strict dominion.
For example, you go to court, and you submit a clients case for mediation. What if the client does not want to appear personally?
May your client authorize you to appear in his behalf?
What must the client execute in order to authorize the lawyer? He has to execute a Special Power of Attorney. Although before
mediation, the parties have to personally appear, but with a SPA, the lawyer is allowed, otherwise, the essence of agency is
defeated.
Article 1879. A special power to sell excludes the power to mortgage; and a special power to mortgage does not include the power
to sell.
What acts are included in the power to sell? 7
What are those not included in the power to mortgage? 3
Why is the power to sell not included in power to mortgage?

Article 1880. A special power to compromise does not authorize submission to arbitration.
Article 1881. The agent must act within the scope of his authority. He may do such acts as may be conducive to the accomplishment
of the purpose of the agency.
Why does the power to compromise not include the power to submit to arbitration?

What is the essence of the agent-principal relationship? Agents authority
What are the different kinds of authority given to an agent? 7 kinds
What are the requisites in order for a principal to be bound by the act of his agent?
2 reqs: in behalf & w/in the scope
When is the principal not bound by the acts of his agent?
1. When the agent acts
a. without or
b. beyond the scope of his authority; or
2. when the agent acts within the scope of his authority but in his own name
a. except when the transaction involves things belonging to the principal

Article 1882. The limits of the agents authority shall not be considered exceeded should it have been performed in a manner more
advantageous to the principal than that specified by him?

What happens if the agent exceeds his authority but later performs an agency in a manner more advantageous to the
principal?

Who are the different kinds of principals?
Who is the disclosed principal?
How about an undisclosed principal?
Article 1883. If an agent acts in his own name, the principal has not right of action against the persons with whom the agent has
contracted; neither have such persons against the principal.
In such case the agent is the one directly bound in favor of the person with whom he has contracted, as if the transaction were his
own, except when the contract involves things belonging to the principal.
What is the remedy of the principal?
Can he not ask for damages?

BUS ORG
August 13, 2013
TSN by Sonny

So lets go back to a juridical person being a principal. Can a corporation be constituted as a principal? YES.

Can a corporation be constituted as an agent of a principal? YES.

How about a partnership, as a principal? YES.

How about as an agent? NO.

What are the different kinds of agency as to manner of creation?

As to manner of creation: EXPRESS of IMPLIED. It is express when the agent is actually authorized, either orally or in writing. It is implied
from the acts of the principal, from his silence or lack of action or his failure to repudiate the agency knowing that another person is
acting on his behalf without authority.

What is an agency by estoppel?

It is when an agent acted without authority and the principal just allowed it to happen.

What happened in the case of Naguiat v. Queano?

E3. CELESTINA T. NAGUIAT, vs. COURT OF APPEALS and AURORA QUEANO
G.R. No. 118375. October 3, 2003

Facts:

NAGUIAT granted a loan to Queano. Naguiat then indorsed to Queano two checks. The proceeds of the checks were to constitute
the loan granted by Naguiat to Queano.

To secure the loan, Queano executed a Deed of Real Estate Mortgage. Queano also issued to Naguiat a promissory note for the
amount of P200,000 and a postdated Security Bank and Trust Company check for the P200,000.00 payable to the order of Naguiat.

The Security Bank check issued by Queano was dishonored for insufficiency of funds. Queano then received a letter from Naguiats
lawyer, demanding settlement of the loan. Shortly thereafter, Queano and one Ruby Ruebenfeldt met with Naguiat. At the meeting,
Queano told Naguiat that she did not receive the proceeds of the loan, adding that the checks were retained by Ruebenfeldt, who
purportedly was Naguiats agent.

Queano filed a complaint for cancellation of the Real Estate Mortgage she had entered into with Naguiat.

Naguiat questions the admissibility of the various written representations made by Ruebenfeldt on the ground that they could not
bind her following the res inter alia acta alteri nocere non debet rule. The Court of Appeals rejected the argument, holding that since
Ruebenfeldt was an authorized representative or agent of Naguiat the situation falls under a recognized exception to the rule.Still,
Naguiat insists that Ruebenfeldt was not her agent.

Issue: Whether Ruebenfeldt was an agent of Naguiat

Ruling:

Yes. Ruebenfeldt was not a stranger or an unauthorized person. Naguiat instructed Ruebenfeldt to withhold from Queano the checks
she issued or indorsed to Queano, pending delivery by the latter of additional collateral. Ruebenfeldt served as agent of Naguiat on
the loan application of Queanos friend, Marilou Farralese, and it was in connection with that transaction that Queano came to know
Naguiat. It was also Ruebenfeldt who accompanied Queano in her meeting with Naguiat and on that occasion, on her own and
without Queano asking for it, Reubenfeldt actually drew a check for the sum of P220,000.00 payable to Naguiat, to cover for
Queanos alleged liability to Naguiat under the loan agreement.

The Court of Appeals recognized the existence of an agency by estoppel citing Article 1873
1
of the Civil Code. Apparently, it
considered that at the very least, as a consequence of the interaction between Naguiat and Ruebenfeldt, Queano got the
impression that Ruebenfeldt was the agent of Naguiat, but Naguiat did nothing to correct Queanos impression. In that situation, the
rule is clear. One who clothes another with apparent authority as his agent, and holds 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 parties dealing with such person
in good faith, and in the honest belief that he is what he appears to be.

The Court of Appeals is correct in invoking the said rule on agency by estoppel. More fundamentally, whatever was the true
relationship between Naguiat and Ruebenfeldt is irrelevant in the face of the fact that the checks issued or indorsed to Queano were
never encashed or deposited to her account of Naguiat.

All told, we find no compelling reason to disturb the finding of the courts a quo that the lender did not remit and the borrower did not
receive the proceeds of the loan. That being the case, it follows that the mortgage which is supposed to secure the loan is null and
void
What about as to form?

What is the form of an agency? It can be oral or written. If written, it can be in a private or public instrument. Under the law, the
contract of agency must be in writing when:

1
Art. 1873. If a person specially informs another or states by public advertisement that he has given a power of attorney to
a third person, the latter thereby becomes a duly authorized agent, in the former case with respect to the person who received
the special information, and in the latter case with regard to any person.
The power shall continue to be in full force until the notice is rescinded in the same manner in which it was given.
Agency by Estoppel:

1. a sale of a piece of land or any interest therein is through an agent
2. the transaction necessitates a special power of atty under 1878 and 1879
2


What is a general agency?

A general agency comprises all business of the principal.

How about a special agency?

A special agency comprises one or more specific transaction.

What if an agency is couched in general terms? Then it is deemed to comprise only acts of administration.

What if an agency is couched in specific terms? The authority given is only the performance of the specific act/s.

What acts require special power of attorney?

Article 1878. Special powers of attorney are necessary in the following cases:

2
PNC-WIGLLS-PG-CARS: 151878 and
Art. 1879. A special power to sell excludes the power to mortgage; and a special power to mortgage does not include the power to sell
(1) To make such payments as are not usually considered as acts of administration;
(2) To effect novations which put an end to obligations already in existence at the time the agency was constituted;
(3) To compromise, to submit questions to arbitration, to renounce the right to appeal from a judgment, to waive objections to the
venue of an action or to abandon a prescription already acquired;
(4) To waive any obligation gratuitously;
(5) To enter into any contract by which the ownership of an immovable is transmitted or acquired either gratuitously or for a valuable
consideration;
(6) To make gifts, except customary ones for charity or those made to employees in the business managed by the agent;
(7) To loan or borrow money, unless the latter act be urgent and indispensable for the preservation of the things which are under
administration;
(8) To lease any real property to another person for more than one year;
(9) To bind the principal to render some service without compensation;
(10) To bind the principal in a contract of partnership;
(11) To obligate the principal as a guarantor or surety;
(12) To create or convey real rights over immovable property;
(13) To accept or repudiate an inheritance;
(14) To ratify or recognize obligations contracted before the agency;
(15) Any other act of strict dominion. (n)
What are the other modes of creating an agency as to compensation?

1. Gratuitous
2. Onerous

Okay. Who is a broker? One who in behalf of others, and for compensation, or fee, negotiate contracts relative to property. He is the
negotiator between the parties, never acting on his own name but in the name of those who employ him. He is strictly a middleman
and for some purposes, the agent of both parties.

What happened in the case of AF Realty v. Dieselman?
AF REALTY & DEVELOPMENT, INC. and ZENAIDA R. RANULLO, petitioners,
v.
DIESELMAN FREIGHT SERVICES, CO., MANUEL C. CRUZ, JR. and MIDAS DEVELOPMENT CORPORATION
Dieselman Freight Service Co. is a domestic corporation and a registered owner of a parcel of commercial lot located at Metro
Manila
Manuel C. Cruz, Jr., a member of the board of directors of Dieselman, issued a letter denominated as "Authority To Sell Real Estate"2
to Cristeta N. Polintan, a real estate broker of the CNP Real Estate Brokerage. Cruz, Jr. authorized Polintan "to look for a buyer/buyers
and negotiate the sale" of the lot at P3,000.00 per square meter, or a total of P6,282,000.00. Cruz, Jr. has no written authority from
Dieselman to sell the lot.
In turn, Cristeta Polintan, authorized Felicisima ("Mimi") Noble to sell the same lot.
Felicisima Noble then offered for sale the property to AF Realty & Development, Inc. (AF Realty) at P2,500.00 per square meter.5
Zenaida Ranullo, board member and vice-president of AF Realty, accepted the offer and issued a check in the amount of
P300,000.00 payable to the order of Dieselman. Polintan received the check and signed an "Acknowledgement Receipt"6 indicating
that the amount of P300,000.00 represents the partial payment of the property but refundable within two weeks should AF Realty
disapprove Ranullo's action on the matter.
AF Realty confirmed its intention to buy the lot. Hence, Ranullo asked Polintan for the board resolution of Dieselman authori zing the
sale of the property
Manuel F. Cruz, Sr., president of Dieselman, acknowledged receipt of the said P300,000.00 as "earnest money" but required AF Realty
to finalize the sale at P4,000.00 per square meter.8 AF Realty replied that it has paid an initial down payment of P300,000.00 and is
willing to pay the balance.9
However, on August 13, 1988, Mr. Cruz, Sr. terminated the offer and demanded from AF Realty the return of the title of the lot earlier
delivered by Polintan
Claiming that there was a perfected contract of sale between them, AF Realty filed with the Regional Trial Court a complaint for
specific performance against Dieselman and Cruz, Jr.. The complaint prays that Dieselman be ordered to execute and deliver a final
deed of sale in favor of AF Realty
In its answer, Dieselman alleged that there was no meeting of the minds between the parties in the sale of the property and that it
did not authorize any person to enter into such transaction on its behalf.
Meanwhile Dieselman and Midas Development Corporation (Midas) executed a Deed of Absolute Sale13 of the same property
Midas delivered to Dieselman P500,000.00 as down payment and deposited the balance of P5,300,000.00 in escrow account with the
PCIBank.
Constrained to protect its interest in the property, Midas filed a Motion for Leave to Intervene Midas alleged that it has purchased
the property and took possession thereof, hence Dieselman cannot be compelled to sell and convey it to AF Realty. The trial court
granted Midas' motion.
After trial, the lower court rendered the challenged Decision holding that the acts of Cruz, Jr. bound Dieselman in the sale of the lot
to AF Realty.14 Consequently, the perfected contract of sale between Dieselman and AF Realty bars Midas' intervention. The trial
court also held that Midas acted in bad faith when it initially paid Dieselman even without seeing the latter's title to the property
Dissatisfied, all the parties appealed to the Court of Appeals.
AF Realty alleged that the trial court erred in not holding Dieselman liable for moral, compensatory and exemplary damages, and in
dismissing its counterclaim against Midas.
Upon the other hand, Dieselman and Midas claimed that the trial court erred in finding that a contract of sale between Diesel man
and AF Realty was perfected. Midas further averred that there was no bad faith on its part when it purchased the lot from Dieselman.
the Court of Appeals reversed the judgment of the trial court holding that since Cruz, Jr. was not authorized in writing by Dieselman to
sell the subject property to AF Realty, the sale was not perfected; and that the Deed of Absolute Sale between Dieselman and Midas
is valid, there being no bad faith on the part of the latter.
AF Realty now comes to this Court via the instant petition alleging that the Court of Appeals committed errors of law.
The focal issue for consideration by this Court is who between petitioner AF Realty and respondent Midas has a right over the subject
lot.
Issue: W/N AF Realty has a right over the subject lot. None.
Involved in this case is a sale of land through an agent. Thus, the law on agency under the Civil Code takes precedence.
Since a corporation, such as the private respondent, can act only through its officers and agents, all acts within the powers of said
corporation may be performed by agents of its selection; and, except so far as limitations or restrictions may be imposed by special
charter, by-law, or statutory provisions, the same general principles of law which govern the relation of agency for a natural person
govern the officer or agent of a corporation, of whatever status or rank, in respect to his power to act for the corporation; and agents
when once appointed, or members acting in their stead, are subject to thesame rules, liabilities, and incapacities as are agents of
individuals and private persons
Pertinently, Article 1874 of the same Code provides:
"ART. 1874. When a sale of piece of land or any interest therein is through an agent, the authority of the latter shall be in writing;
otherwise, the sale shall be void." (Emphasis supplied)
Considering that respondent Cruz, Jr., Cristeta Polintan and Felicisima Ranullo were not authorized by respondent Dieselman to sell its
lot, the supposed contract is void. Being a void contract, it is not susceptible of ratification by clear mandate of Article 1409 of the
Civil Code, thus:
"ART. 1409. The following contracts are inexistent and void from the very beginning:
x x x
(7) Those expressly prohibited or declared void by law.
"These contracts cannot be ratified. Neither can the right to set up the defense of illegality be waived
Upon the other hand, the validity of the sale of the subject lot to respondent Midas is unquestionable. As aptly noted by the Court of
Appeals,24 the sale was authorized by a board resolution of respondent Dieselman
WHEREFORE, the assailed Decision and Resolution of the Court of Appeals are hereby AFFIRMED withMODIFICATION in the sense that
the award of damages and attorney's fees is deleted.
What happened in the case of Ramos v. Calanoc?

RAMOS vs. CA and CESARIO P. CALANOC
FACTS: Emerito M. Ramos, a businessman engaged in the import-export trade and using the firm name FIMCO, entered into a
contract with the Board of Liquidators of the Philippine Government for the purchase of 20,000 tons of rice from the now defunct
National Rice and Corn Corporation (NARIC) at the rate of P404.00 per metric ton, F.O.B. Manila.
FIMCO entered into several contracts with local merchants for the resale to them of the imported goods and one such contract was
concluded with Mrs. Salustiana Dee, or Wellington & Co., in the amount of $1,333.000.00 or P2,666,000.00.
1
Cesario P. Calanoc,
plaintiff in the lower court, claiming that Emerito M. Ramos had engaged his services to procure purchasers for the imported goods
and that he was directly instrumental in bringing about the contracts in question, instituted an action to recover his alleged agreed
commissions of 2% on the contract with Wellington & Co. and 1% on those with the International Mercantile Co.
Calanoc declared that sometime in 1953, he went to Ramos' suite at the Manila Hotel upon the latter's invitation. Appellant told
Calanoc to sell the merchandise at a mark-up price of twenty-three percent of the invoice value of the importation and that the
overprice would constitute his commission.
Plaintiff was introduced to Mrs. Salustiana Dee, the owner of Wellington & Co., by Jose Ang Uco. He explained to the prospective
buyer the terms of the contract between FIMCO and the NARIC. Plaintiff also explained to Mrs. Dee that she was to open two letters
of credit, and that she was to pay a premium of 25% mark-up on the value of her imported commodities. Calanoc, accordingly
informed appellant that Mrs. Dee had agreed to pay a premium of 25% and that, therefore, after deducting the 23% required mark-
up, he (plaintiff) had a commission of 2% on said transaction.
Plaintiff's testimony also finds corroboration in appellant's own admission that in engaging the broker's services he specifi ed that the
latter's compensation would consist of the excess of the required 23% mark-up price.
In the appellate court's thinking, there was "a clear preponderance of evidence that in compliance with his undertaking to procure
purchasers for appellant's merchandise, he produced the importers, Wellington & Co. .. and as a result of his efforts said companies
entered into the contracts in question with the defendant-appellant (thereby entitling plaintiff) to recover the commissions claimed
by him as compensation for his successful efforts.
ISSUE: w/n Ramos as principal was is liable to Calanoc to 2% commission? NO.
HELD: The decision of the Court of Appeals is evidently based on the assumption that since Calanoc was the efficient agent who
brought about the Wellington & Co. contract, it follows that he was entitled to the 2% commission which he claims was the overprice
he secured for Ramos' merchandise. The assumption is not borne out by the record. As already observed, and this was confirmed by
the Court of Appeals, the arrangement was for Calanoc "to sell the merchandise at a mark-up price of twenty-three percent of the
invoice value of the importation and the overprice would constitute his commission." Nothing in the agreement guaranteed Calanoc
a fixed commission, which depended upon the overprice the buyer would pay. And it is a fact, undisputed by Calanoc that what
Ramos received in the Wellington & Co. transaction in excess of his original 23% mark-up price was only P13,330.00 and not
P53,320.00, the amount claimed and awarded by the trial court and the Court of Appeals.
Calanoc never brought the buyer, Mrs. Salustiana Dee, to Ramos. The agreement, if any, regarding the 25% buying price was made
solely between Calanoc and Mrs. Dee. Ramos did not intervene nor participate in any manner in that supposed agreement. While it is
true, as Calanoc claims, that he informed petitioner that Mrs. Dee had already agreed to pay the 25% premium, there is absent in the
records of this case any evidence to show that Mrs. Dee confirmed such agreement with petitioner and that the latter could have
bound her to it.
A broker is never entitled to commissions for unsuccessful efforts. The risk of failure is wholly his. The reward comes only with his success.
That is the plain contract and contemplation of the parties. The broker may devote his time and labor, and expend his money with
ever so much of devotion to the interest of his employer, and yet if he fails, if without effecting an agreement or accomplishing a
bargain, he abandons the effort, or his authority is fairly and in good faith terminated, he gains no right to commissions.
He failed to find or produce a purchaser upon the terms prescribed in his employment, and the principal was under no obligati on to
wait longer that he might make further efforts. The failure therefore and its consequences were the risk of the broker only however
must be taken with one important and necessary limitation If the efforts of the broker are rendered a failure by the fault of the
employer; or if the latter declines to complete the contract because of some defect of title in the ownership of the seller, some
unremoved encumbrance, some defect which is the fault of the latter, then the broker does not lose his commissions.
It is significant that in his complaint Calanoc does not attribute bad faith, fraud or fault to Ramos. All that he claims is that since he
had informed Ramos of Mrs. Dee's alleged commitment to pay a 25% mark-up, the latter had consequently lost the right to reduce it.
But as already observed, there is no showing that such a commitment to Calanoc was a contract which Ramos himself could enforce
against Mrs. Dee, or that she was ready and willing to pay him the 25% mark-up, despite which he accepted only 23-1/2%, And
certainly, if she was, vis-a-vis Ramos, willing to pay only 23-1/2%, he was not precluded from accepting it without being liable to
Calanoc for the difference.
In the absence of independent proof that the non-payment by Mrs. Dee of the 25% premium over the mark-up price was due to the
fault, fraud or bad faith of Ramos, we are not prepared to share the Court of Appeals' view in this regard. He gained nothing by the
reduction, and it cannot be presumed that he accepted it in order to cause prejudice to Calanoc.

Is there a contract of agency between a client and a lawyer? YES.

Be sure to be familiar with the following terms:

1. Attorney at law- one whose business is to represent clients in legal proceedings
2. Auctioneer one whose business is to sell property for others to the highest bidder at a public sale
3. Broker - one whose business is to act as intermediary between 2 other parties
4. Commission agent one whose business is to receive and sell goods for a commission and who is entrusted by and usually
selling his own name
5. Attorney in fact one who represents a client who may or may not a lawyer


AUGUST 16 KADAYAWAN FESTIVAL (No Class)


BusOrg
August 20, 2013
TSN by Sonny

What happened in the case of Inland Realty v. Court of Appeals?

Inland Realty vs.CA

Facts:
On Sept.6, 1975, defendant corporation Ayala, Inc. through its Assistant General Manager J. Armando Eduque, granted to Land
Realty, authority to sell 9,800 shares of stocks in Architect's Bldg. Inc. The terms of the sale was for P1,500.00 per share and the contract
was to last for thirty days.

Inland Realty, a Company engaged in realty and brokerage, strategized its sale through sending letters to its prospective buyers.
Stanford Microsystems, Inc. proposed buying the stocks but submitted a count-offer for P1,000.00/share for 9,800 shares payable in 5
years at 12% per annul interest until fuly paid.

This proposal was communicated by Inland Realty to defendant corporation but the latter opposed, claiming the offer was too low
and asked petitioner if the price can be adjusted according to the terms of the authority to sell. The period of the contract extended
for several times. Petitioner asked for an exclusive authority and for a longer period but Eduque would not give the same. The sale
was made in favor of Stanford. Later on, Inland Realty sued defendant for its brokerage fees. Defendant claims that it is not entitled
because after the thirty day period expired, petitioner was no longer connected to the transaction and that it abandoned it,

Issue: Whether or not Inland Realty is entitled to the brokerage fees.

Held: No. Petitioner was not entitled to the brokerage commission of 5%. It appeared that there was no express authority given y
defendant for th extension of the thirty-day period of the authority to sell. Moreover, petitioner did not do anything except submit the
name of the prospective buyer, Microsystems. I did not take part in the consummation of the sale and the processing of the
necessary documents. More importantly, what existed was a proposal and a counter-proposal which Dd not constitute the closing of
the transaction just because it was plaintiff who solely suggested to defendants the name of Stanford as buyer, and that Inland Realty
did not sell the stocks in accordance with the terms of the agreement with Ayala Co., that each stock be sold at P1,500 each.

Was the contract of sale consummated? NO. Petitioner was not able to sell the property under the terms agreed. The alleged brokers
should be the efficient procuring cause.

What happened in the case of Siasat v. IAC?

E8. PRIMITIVO SIASAT and MARCELINO SIASAT vs. INTERMEDIATE APPELLATE COURT and TERESITA NACIANCENO
G.R. No. L-67889 October 10, 1985

Facts:

Teresita's authorization from United Flags Industry reads as follows:

"Mrs. Tessie Nacianceno,

This is to formalize our agreement for you to represent United Flag Industry to deal with any entity or organization, private or
government in connection with the marketing of our products-flags and all its accessories. For your service, you will be entitled to a
commission of thirty (30%) percent.

Signed Mr. Primitive Siasat, Owner and Gen. Manager"

Teresita Nacianceno succeeded in convincing officials of DECS to purchase without public bidding, one million pesos worth of
national flags for the use of public schools throughout the country.

On October 16, 1974, the first delivery of 7,933 flags was made by the United Flag Industry. The next day, on October 17, 1974,
Nacianceno's authority to represent the United Flag Industry was revoked by Primitivo Siasat.

Siasat, after receiving the payment of P469,980.00 on October 23, 1974 for the first delivery, tendered the amount of P23,900.00 or five
percent (5%) of the amount received to Nacianceno. The latter protested but acceded when Siasat promised that they would pay
the commission in full after they delivered the other half of the order. Nacianceno now claims for her commission.

Siasat claims that Nacianceno does not deserve the amount she prays for because the authorization making her the
company'srepresentative merely states that she could deal with any entity in connection with the marketing of their products for a
commission of 30% and that there was no specific authorization for the sale of 15,666 Philippine flags to the Department.

Issue: Whether Nacianceno was a general or a specific agent of United Flag Industry

Ruling:

General agent. There are several kinds of agents. To quote a commentator on the matter: An agent may be (1) universal: (2) general,
or (3) special. A universal; agent is one authorized to do all acts for his principal which can lawfully be delegated to an agent. So far
as such a condition is possible, such an agent may be said to have universal authority. (Mec. Sec. 58).

A general agent is one authorized to do all acts pertaining to a business of a certain kind or at a particular place, or all acts
pertaining to a business of a particular class or series. He has usually authority either expressly conferred in general terms or in effect
made general by the usages, customs or nature of the business which he is authorized to transact. An agent, therefore, who is
empowered to transact all the business of his principal of a particular kind or in a particular place, would, for this reason, be ordinarily
deemed a general agent. (Mec Sec. ,30).

A special agent is one authorized to do some particular act or to act upon some particular occasion. lie acts usually in accordance
with specific instructions or under limitations necessarily implied from the nature of the act to be done. (Mec. Sec. 61) (Padilla, Civil
Law The Civil Code Annotated, Vol. VI, 1969 Edition, p. 204).

One does not have to undertake a close scrutiny of the document embodying the agreement between the petitioners and the
respondent to deduce that the 'latter was instituted as a general agent. Indeed, it can easily be seen by the way general words were
employed in the agreement that no restrictions were intended as to the manner the agency was to be carried out or in the place
where it was to be executed. The power granted to the respondent was so broad that it practically covers the negotiations leading
to, and the execution of, a contract of sale of petitioners' merchandise with any entity or organization.

Since only one transaction was involved, we deny the petitioners' contention that respondent Nacianceno is not entitled to the
stipulated commission on the second delivery because of the revocation of the agency effected after the first delivery. The
revocation of agency could not prevent the respondent from earning her commission because as the trial court opined, it came too
late, the contract of sale having been already perfected and partly executed.

So what kind of agent was Teresita? A general agent.

Is authority synonymous to power? YES. Authority is the power of the agent to effect legal relations which bind the principal. The
authority emanates from the principal.

How to you differentiate a general from a special power of attorney? GPA general in scope; SPA only specified acts are covered.

Can you name some transactions which necessitate a special power of attorney?

Article 1878. Special powers of attorney are necessary in the following cases:
(1) To make such payments as are not usually considered as acts of administration;
(2) To effect novations which put an end to obligations already in existence at the time the agency was constituted;
(3) To compromise, to submit questions to arbitration, to renounce the right to appeal from a judgment, to waive objections to the
venue of an action or to abandon a prescription already acquired;
(4) To waive any obligation gratuitously;
(5) To enter into any contract by which the ownership of an immovable is transmitted or acquired either gratuitously or for a valuable
consideration;
(6) To make gifts, except customary ones for charity or those made to employees in the business managed by the agent;
(7) To loan or borrow money, unless the latter act be urgent and indispensable for the preservation of the things which are under
administration;
(8) To lease any real property to another person for more than one year;
(9) To bind the principal to render some service without compensation;
(10) To bind the principal in a contract of partnership;
(11) To obligate the principal as a guarantor or surety;
(12) To create or convey real rights over immovable property;
(13) To accept or repudiate an inheritance;
(14) To ratify or recognize obligations contracted before the agency;
(15) Any other act of strict dominion. (n)
What are these acts? These are acts of strict dominion.

If you are dealing with an agent, what is the most prudent thing to do? Check the extent of the agents authority.

What happened in the case of Dizon v. CA?

E5. Dizon vs. CA
FACTS Private respondent Overland Express Lines, Inc. (lessee) entered into a Contract of Lease with Option to Buy with
petitioners (lessors) involving a 1,755.80 square meter parcel in Diliman, Quezon City. The term of the lease was for one (1) year
commencing from May 16, 1974 up to May 15, 1975. During this period, private respondent was granted an option to purchase for the
amount of P3,000.00 per square meter. Thereafter, the lease shall be on a per month basis with a monthly rental of P3,000.00.
For failure of private respondent to pay the increased rental of P8,000.00 per month effective June 1976, petitioners filed an action for
ejectment and ordered private respondent to vacate the leased premises and to pay the sum of P624,000 representing the unpaid
rentals.
Private respondent filed an action for Specific Performance and Fixing of Period for Obligation to compel the execution of a deed of
sale pursuant to the option to purchase and the receipt of the partial payment, and to fix the period to pay the balance.
The lower court ruled that the payment by private respondent of P300,000.00 on June 20, 1975 as partial payment for the leased
property, which petitioners accepted (through Alice A. Dizon) and for which an official receipt was issued, was the operative act that
gave rise to a perfected contract of sale, and that for failure of petitioners to deny receipt thereof, private respondent can therefore
assume that Alice A. Dizon, acting as agent of petitioners, was authorized by them to receive the money in their behalf.
ISSUE WON payment through Alice Dizon operated to perfect the contract of sale.
HELD There was no perfected contract of sale between petitioners and private respondent. Private respondent argued that it
delivered the check of P300,000.00 to Alice A. Dizon who acted as agent of petitioners pursuant to the supposed authority given by
petitioner Fidela Dizon, the payee thereof. Private respondent further contended that petitioners' filing of the ejectment case against
it based on the contract of lease with option to buy holds petitioners in estoppel to question the authority of petitioner Fi dela Dizon. It
insisted that the payment of P300,000.00 as partial payment of the purchase price constituted a valid exercise of the option to buy.
In an attempt to resurrect the lapsed option, private respondent gave P300,000.00 to petitioners (thru Alice A. Dizon) on the erroneous
presumption that the said amount tendered would constitute a perfected contract of sale pursuant to the contract of lease with
option to buy. There was no valid consent by the petitioners (as co-owners of the leased premises) on the supposed sale entered into
by Alice A. Dizon, as petitioners' alleged agent, and private respondent. The basis for agency is representation and a person dealing
with an agent is put upon inquiry and must discover upon his peril the authority of the agent. As provided in Article 1868 of the New
Civil Code, there was no showing that petitioners consented to the act of Alice A. Dizon nor authorized her to act on their behalf with
regard to her transaction with private respondent. The most prudent thing private respondent should have done was to ascertain the
extent of the authority of Alice A. Dizon. Being negligent in this regard, private respondent cannot seek relief on the basis of a
supposed agency.
In Bacaltos Coal Mines vs. Court of Appeals,
Maams Emphasis: Every person dealing with an agent is put upon inquiry and must discover upon his peril the authority of the agent.
If he does not make such inquiry, he is chargeable with knowledge of the agent's authority, and his ignorance of that authori ty will not
be any excuse. Persons dealing with an assumed agency, whether the assumed agency be a general or special one, are bound at
their peril, if they would hold the principal, to ascertain not only the fact of the agency but also the nature and extent of the authority,
and in case either is controverted, the burden of proof is upon them to establish it.

Is she considered as agent? Was she authorized?
No. She was not authorized at all.

What are the different kinds of authority under the law?

1. Actual Authority that which is actually granted either expressly or impliedly
2. Implied authority powers which are incidental or conducive to the accomplishment of the purpose of the agency
3. General Authority comprises all the business of the principal
4. Special authority - comprises one or more specified acts
5. Acts of Administration(1877)- arises where the authority is couched in general terms
6. Apparent of ostensible Authority- from the application of the doctrine of estoppel or fiction of law

What happened in the case of Veloso v. CA?
Petitioner Francisco Veloso was the owner of a parcel of land situated in the district of Tondo, Manila. The title was registered in the
name of Francisco A. Veloso, single.The said title was subsequently canceled and a new one. in the name of Aglaloma B. Escario,
married to Gregorio L. Escario.
Veloso filed an action for annulment of documents, reconveyance of property with damages and preliminary injunction and/or
restraining order. Petitioner alleged therein that he was the absolute owner of the subject property and he never authorized anybody,
not even his wife, to sell it. He alleged that he was in possession of the title but when his wife, Irma, left for abroad, he found out that
his copy was missing. He then verified with the Registry of Deeds of Manila and there he discovered that his title was already
canceled in favor of defendant Aglaloma Escario. The transfer of property was supported by a General Power of Attorney. executed
by Irma Veloso, wife of the petitioner and appearing as his attorney-in-fact, and defendant Aglaloma Escario.[7] Petitioner Veloso,
however, denied having executed the power of attorney and alleged that his signature was falsified.
Petitioner contended that the sale of the property, and the subsequent transfer thereof, were null and void. Petitioner Veloso,
therefore, prayed that a temporary restraining order be issued to prevent the transfer of the subject property; that the General Power
of Attorney, the Deed of Absolute Sale and the Transfer Certificate of Title be annulled; and the subject property be reconveyed to
him..
Defendant Aglaloma Escario in her answer alleged that she was a buyer in good faith and denied any knowledge of the alleged
irregularity. She allegedly relied on the general power of attorney of Irma Veloso which was sufficient in form and substance and was
duly notarized. She contended that plaintiff had no cause of action against her. In seeking for the declaration of nullity of the
documents, the real party in interest was Irma Veloso, the wife of the plaintiff. She should have been impleaded in the case. In fact,
Plaintiff's cause of action should have been against his wife, Irma. Consequently, defendant Escario prayed for the dismissal of the
complaint and the payment to her of damages.
Pre-trial was conducted. The sole issue to be resolved by the trial court was whether or not there was a valid sale of the subject
property.
During the trial, plaintiff (herein petitioner) Francisco Veloso testified that he acquired the subject property from the Philippine Building
Corporation before He married Irma Lazatin Hence, the property did not belong to their conjugal partnership.
Issue: W/N there was a valid sale of the subject property. Yes.
Ruling: We find petitioner's contentions not meritorious.
An examination of the records showed that the assailed power of attorney was valid and regular on its face. It was notarized and as
such, it carries the evidentiary weight conferred upon it with respect to its due execution. While it is true that it was denominated as a
general power of attorney, a perusal thereof revealed that it stated an authority to sell
Thus, there was no need to execute a separate and special power of attorney since the general power of attorney had expressly
authorized the agent or attorney in fact the power to sell the subject property. The special power of attorney can be included in the
general power when it is specified therein the act or transaction for which the special power is required.
The general power of attorney was accepted by the Register of Deeds when the title to the subject property was canceled and
transferred in the name of private respondent.
Whether the instrument be denominated as "general power of attorney" or "special power of attorney," what matters is the extent of
the power or powers contemplated upon the agent or attorney in fact. If the power is couched in general terms, then such power
cannot go beyond acts of administration. However, where the power to sell is specific, it not being merely implied, much less
couched in general terms, there can not be any doubt that the attorney in fact may execute a valid sale. An instrument may be
captioned as "special power of attorney" but if the powers granted are couched in general terms without mentioning any specific
power to sell or mortgage or to do other specific acts of strict dominion, then in that case only acts of administration may be deemed
conferred."
As to the other claims of petitioner:
Petitioner contends that his signature on the power of attorney was falsified. He also alleges that the same was not duly notarized for
as testified by Atty. Tubig himself, he did not sign thereon nor was it ever recorded in his notarial register.
We found, however, that the basis presented by the petitioner was inadequate to sustain his allegation of forgery. Mere variance of
the signatures cannot be considered as conclusive proof that the same were forged. Forgery cannot be presumed.[17] Petitioner,
however, failed to prove his allegation and simply relied on the apparent difference of the signatures. His denial had not established
that the signature on the power of attorney was not his.
Even granting for the sake of argument, that the petitioner's signature was falsified and consequently, the power of attorney and the
deed of sale were null and void, such fact would not revoke the title subsequently issued in favor of private respondent Aglaloma
"The right of an innocent purchaser for value must be respected and protected, even if the seller obtained his title through fraud. The
remedy of the person prejudiced is to bring an action for damages against those who caused or employed the fraud, and if the latter
are insolvent, an action against the Treasurer of the Philippines may be filed for recovery of damages against the Assurance Fund."
Finally, the trial court did not err in applying equitable estoppel in this case. The principle of equitable estoppel states that where one
or two innocent persons must suffer a loss, he who by his conduct made the loss possible must bear it.
ACCORDINGLY, the petition for review is hereby DENIED for lack of merit.
Diba dapat Special of Attorney ang dapat dito? The SC held that there was an SPA here.What is controlling is the content of the
authority and not the title of the instrument.
What happened in the case of Bravo-Guerrero v. Bravo?

E10 Bravo-Guerrero vs. Bravo
FACTS Spouses Mauricio and Simona

Bravo owned two parcels of land in Makati City, Metro Manila. Simona executed a General
Power of Attorney appointing Mauricio as her attorney-in-fact. In the GPA, Simona authorized Mauricio to "mortgage or otherwise
hypothecate, sell, assign and dispose of any and all of my property, real, personal or mixed, of any kind whatsoever and wheresoever
situated, or any interest therein xxx." Mauricio subsequently mortgaged the Properties to the Philippine National Bank (PNB) and
Development Bank of the Philippines (DBP) for P10,000 and P5,000, respectively.
7

On Mauricio executed a Deed of Sale with Assumption of Real Estate Mortgage conveying the Properties to "Roland A. Bravo, Ofelia
A. Bravo and Elizabeth Bravo ("vendees"). The sale was conditioned on the payment of P1,000 and on the assumption by the
vendees of the PNB and DBP mortgages over the Properties.
However, the Deed of Sale was not annotated on the certificates. Neither was it presented to PNB and DBP. The mortage loans and
the receipts for loan payments issued by PNB and DBP continued to be in Mauricios name even after his death.
Edward, represented by his wife, Fatima Bravo, filed an action for the judicial partition of the Properties. Edward claimed that he and
the other grandchildren of Mauricio and Simona are co-owners of the Properties by succession. Despite this, petitioners refused to
share with him the possession and rental income of the Properties. Edward later amended his complaint to include a prayer to annul
the Deed of Sale, which he claimed was merely simulated to prejudice the other heirs.
ISSUE WON Maurico who was only given a GPA by his wife was authorized to sell the property.
HELD Yes. Simona authorized Mauricio to dispose of the Properties when she executed the GPA. True, Article 1878 requires a special
power of attorney for an agent to execute a contract that transfers the ownership of an immovable. However, the Court has clarified
that Article 1878 refers to the nature of the authorization, not to its form. Even if a document is titled as a general power of attorney,
the requirement of a special power of attorney is met if there is a clear mandate from the principal specifically authorizing the
performance of the act.
In Veloso v. Court of Appeals,

the Court explained that a general power of attorney could contain a special power to sell that satisfies
the requirement of Article 1878, thus:


An examination of the records showed that the assailed power of attorney was valid and regular on its face. It was notarized and as
such, it carries the evidentiary weight conferred upon it with respect to its due execution. While it is true that it was denominated as a
general power of attorney, a perusal thereof revealed that it stated an authority to sell, to wit:


"2. To buy or sell, hire or lease, mortgage or otherwise hypothecate lands, tenements and hereditaments or other forms of real
property, more specifically TCT No. 49138, upon such terms and conditions and under such covenants as my said attorney shall deem
fit and proper."
Thus, there was no need to execute a separate and special power of attorney since the general power of attorney had expressly
authorized the agent or attorney in fact the power to sell the subject property. The special power of attorney can be included in the
general power when it is specified therein the act or transaction for which the special power is required. (Emphasis supplied)
In this case, Simona expressly authorized Mauricio in the GPA to "sell, assign and dispose of any and all of my property, real, personal
or mixed, of any kind whatsoever and wheresoever situated, or any interest therein xxx" as well as to "act as my general representative
and agent, with full authority to buy, sell, negotiate and contract for me and in my behalf."
25
Taken together, these provisions
constitute a clear and specific mandate to Mauricio to sell the Properties. Even if it is called a "general power of attorney," the
specific provisions in the GPA are sufficient for the purposes of Article 1878. These provisions in the GPA likewise indicate that Simona
consented to the sale of the Properties.

What happened in the case of Rivero v. CA?

JOSE RIVERO, JESSIE RIVERO and AMALIA RIVERO vs. COURT OF APPEALS
FACTS:
It was alleged that Benito Dy Chiao, Sr. (the father) was engaged in business under the business name Benito Commercial. He
courted and promised Concepcion of a good life and to provide for her needs as well as to provide for her education. Benito Chiao
Sr. delivered on his promises. During their cohabitation, their son benedick was born. When Benito Sr. died, he left properties worth
100 million pesos. As such, benedick wanted the court to appoint a receiver to protect his rights.
Mary Jane Dy Chiao, in behalf of his brothers, denied all allegations. Mary Janes brother were confined in a mental hospital and so
benedick asked the court to appoint mary jane as their guardian ad litem which was granted because of a SPA allegedly signed by
her brothers appointing her as their guardian.
Now, armed with the SPA, Mary Jane entered into a compromise agreement with benedick wherein it was stated that they now
recognize benedick as the illegitimate son of their father and gave him 6 million pesos as his share of the estate.
When her brothers got out of the hospital, they alleged that they did not give their authority to the compromise agreement. They
sought the nullification of such SPA on the grounds of extrinsic fraud. Benito Jr. alleges that the compromise agreement was the
product of connivance between his sister and Benedick, and their respective counsels.
ISSUE: Whether or not there was a valid compromise agreement by virtue of the SPA?
HELD:
No. there was no valid compromise.
Article 2035(1) of the New Civil Code provides that no compromise upon the civil status of persons shall be valid. As such, paternity
and filiation, or the lack of the same, is a relationship that must be judicially established, and it is for the court to determine its
existence or absence. It cannot be left to the will or agreement of the parties.
Compromise is a contract whereby parties, making reciprocal concerns, avoid litigation or put an end to one already commenced.

Like any other contract, it must comply with the requisite provisions in Article 1318 of the New Civil Code, to wit: (a) consent of the
contracting parties; (b) object certain which is the subject matter of the contract; and (c) cause of the obligation which is
established. Like any other contract, the terms and conditions of a compromise agreement must not be contrary to law, morals, good
customs, public policy and public order.

Any compromise agreement which is contrary to law or public policy is null and void, and
vests no rights and holds no obligation to any party. It produces no legal effect at all.

Considering all these, there can be no other
conclusion than that the decision of the RTC on the basis of a compromise agreement where Benedick was recognized as the
illegitimate child of Benito, Sr. is null and void.
As to the issue on the SPA, Article 1878 of the New Civil Code provides that an SPA is required for a compromise. Furthermore, the
power of attorney should expressly mention the action for which it is drawn; as such, a compromise agreement executed by one in
behalf of another, who is not duly authorized to do so by the principal, is void and has no legal effect, and the judgment based on
such compromise agreement is null and void.

The judgment may thus be impugned and its execution may be enjoined in any
proceeding by the party against whom it is sought to be enforced.

A compromise must be strictly construed and can include only
those expressly or impliedly included therein.
On the assumption that the Dy Chiao brothers had signed the SPA on September 20, 1995, a cursory reading of the compromise
agreement will show that they did not specifically empower their sister to enter into a compromise agreement with Benedick. It bears
stressing that the SPA was executed as early as September 20, 1995, while the complaint was filed with the RTC almost a year
thereafter, or on August 27, 1996.
The Court is convinced that the compromise agreement was the handiwork of Atty. Simando, the lawyer of benedick in this case and
the same lawyer who notarized the SPA dated September 20, 1995 purportedly executed by the Dy Chiao brothers

Agency v. Loan

Loan: Money is given in which the lender has no interest or concern on the manner of disposition by the person who received it.
Receiver is not an agent of the lender-giver. Otherwise, there is a contract of agency.

Agency v. Independent Contract

Independent Contract: a party binds himself to do something for an employer for consideration by using his skill and tools; performs
his duty independent of his employer; does not represent his employer

Agency: the principal directs or controls the agents obligation; represents the principal; principal is liable for tort (1911)

BUSORG AUGUST 23, 2013
(Note: As requested, only the important questions and comments of maam are transcribed here. God bless)

CASES
1. Macapagal vs. Remorin
Q: What if for example if there is a doubt as to whether or not there is an authority to sell, so how will you construe that?
A: In this case, the Supreme Court said that any reasonable doubt will yield to construction that no such authority has been given.

2. AirPhil vs. International Business
Q: Was the receipt or agreement considered a compromise agreement which necessitates a special power of attorney?
A: In this case, the Supreme Court said no because the payment was made in the ordinary course of business.

3. Woodchild vs. Roxas
Q: Does the authority to sell include the authority or power to convey real rights (In this case what is also conveyed is right of way)?
A: No.
Q: What is needed?
A: It requires another authority. Another special power of attorney.

Q: How do you construe a power of attorney (PA)?
A: Take note that powers of attorney are construed strictly and courts will not interfere or presume broad powers from these which do
not sufficiently include property or subject after which the agent is to yield. The general rule is that the PA must be pursued within the
legal scriptures and the agent can neither go beyond it nor beside it. An act must be done legally identical with that authorized to be
done.
4. Litonjua vs. Fernandez
Q: What is required of the agent to validly dispose the immovable property of the principal?
A: Special Power of Attorney clearly showing that such power is given to the agent and such SPA must be in writing(cf Art 1874 and
1878 of Civil Code).
5. Shoppers Paradise vs. Roque
No question asked.
6. Bicol Savings vs. Court of Appeals
Q: Does the authority to enter into a contract of mortgage include the power to sell?
A: No as expressly provided under the Civil Code.
C: Under this case, the right to foreclose mortgage property is a separate right conferred by law based on the mortgage contract
and not on the alleged SPA.
7. Rural Bank vs. Court of Appeals
C: take note that the contract of mortgage should be executed by the agent for and in behalf of the principal as the acts and deed
of the principal.

8. NFA vs. IAC
Q: Under Article 1883, here the agent contracted in his own name. SO what is the cause of action of the principal against the agent?
A: He can sue the agent for damages.
Q: How about the principal as against 3
rd
persons?
A: He can sue the 3
rd
persons based on the contract.

9. Gold Star Mining vs. Lim-Jimena
C: Take note that a principal has a right of action against 3
rd
persons if it involves things belonging to the principal although the rule
walasyang cause of action kungsyempre it does not involve his things. But if the contract involves his things then the princi pal has a
cause of action against 3
rd
persons to whom the agent has contracted in his own name.

XXXXXX
(ANSWERS to the following questions are found in Articles 1884 to 1908)
Q: Is acceptance by an agent necessary in a contract of agency?
Q: SO what are the general obligations of an agent to his principal?
Q: What is the rule if a person declines agency?
Q: What is that diligence of a good father of a family?
Q: As a general rule, the agent should act in accordance with the instructions of the principal, what are the exceptions?
Q: Can the agent disobey the instructions of his principal? What are those instances?
Q: Can the agent be the borrower of the principal?
Q: can the agent lend money to 3
rd
person without interest?
Q: Who is a subagent?
Q: Is the principal responsible for the acts of the subagent?
Q: When can the principal sue the substitute?
Q: Can two agents simultaneously appointed be held solidarily liable?
Q: So what if for example, solidarity has been agreed or stipulated, the agents will be held solidarily liable for what?
Q: What if for example the fellow agent acted beyond the scope of his authority?
C: Take note that if the fellow agent acted beyond the scope of his authority, the other agent cannot be held solidarily liable to the
principal.
Q: Please read and explain Article 1896.
Q: The general rule under the law is that the agent who acts as such is not personally liable to the party with whom he contracts.
Why?
C: Exceptions: When he binds himself expressly or when he exceeded his authority without giving notice to third person without notice
of his authority.
Q: For example, the agent acted under the authority of the principal under the name of the principal, what is the status of that
contract?
C: Valid.
Q: What if for example, the agent acted under the authority of the principal but in his own behalf, what is the status of that contract?
C: He is personally liable, meaning valid as to the 3
rd
person.
Q: What is remedy of the principal against the agent?
C: He has a cause of action for damages.
Q: What about the remedy of the principal against the third person?
Q: What if the agent has acted without authority but he contracted on behalf of the principal, what is the status of the contract?
Q: What if the agent has acted without authority and he contracted in his own name, what is the status of the contract?
Q: What if the agent has exceeded his authority and he contracted in behalf of the principal, what is the status of the contract?
A: It is unenforceable but subject to ratification.
Q: For example the principal appoints an agent who is ignorant, what is the liability of the principal to third persons.
C: Principal is solely liable to the third person.
Q: In order to hold the principal liable, what should the 3
rd
person dealing with the agent do?
Q: what does the scope of agents authority include?
Q: What is implied authority?
C: Implied authority when it is incidental to the transaction or necessary to reasonably accomplish the purpose of the agency then it
is presumed that the principal has granted the agent such authority.
C: Take note ha, persons dealing with an agent based on the case of Leyson vs. CA , is called upon inquiry and must discover at his
own peril the authority of the agent. If he does not make such authority, he is charged to be with knowledge of such authority by the
agent and his ignorance will not excuse him, hence it is not a valid defense. Thus persons dealing with an assumed agency, whether
such agency is a general or special one, are bound at their own peril if they would hold the principal to ascertain not only the facts of
the agency but also the nature and extent of such authority and in case it is controverted, the burden of proof is upon them to
establish. So take note that a third person is not required to inquire further than the terms of the written power of attorney but you
have to assume that what is expressly written in that power will cover the implied authority.
Q: State the responsibility of the principal when the agent acts with improper notice.
Q: What is the duty of a third person who deals with an agent?
A: You should ascertain the extent and nature of the authority.
Q: Do secret or private instructions or order prejudice 3
rd
persons?
Q: Who is a commission agent?
Q: What is the difference between a commission agent and a broker?
Q: There is a presumption under the law regarding the damage while in the custody or damage in the custody of the commission
agent, so what should a commission do to avoid liability?
Q: Can you state the alternative rights of the principal in case the commission agent sold the goods without authority?
C: Take note ha, these are only alternative rights of the principal.
Q: What is a guaranty commission and its purpose?
Q: Can an agent be held liable for fraud?
Q: How do you prove fraud?
A: fraud is not presumed. It must be alleged.
BusOrg
August 27, 2013
TSN by Sonny

What happened in Macias v. Warmer?
MACIAS VS WARNER, BARNES & CO., in its capacity as agents of "The China Fire Insurance Co.," of "The Yang-Tsze" and of "The State
Assurance Co., Ltd.," defendant-appellant. Facts: The plaintiff is a corporation duly registered and domiciled in Manila. The defendant
is a corporation duly licensed to do business in the Philippine Islands, and is the resident agent of insurance companies "The China Fire
Insurance Company, Limited, of Hongkong," "The Yang-Tsze Insurance Association Limited, of Shanghai," and "The State Assurance
Company, Limited, of Liverpool. The plaintiff is an importer of textures and commercial articles for wholesale. In the ordinary course of
business, it applied for, and obtained policies against loss by fire. On March 25, 1919, and while the policies were in force, a loss
occurred in which the insured property was more or less damaged by fire and the use of water resulting from the fire. The plaintiff
made a claim for damages under its policies, but could not agree as to the amount of loss sustained. It sold the insured property in its
then damaged condition, and brought this action against Warner, Barnes & Co., in its capacity as agents, to recover the difference
between the amount of the policies and the amount realized from the sale of the property. The numbers and amounts of the poli cies
and the names of the insurance companies are set forth and alleged in the complaint. The answer admits that the defendants is the
resident agent of the insurance companies, the issuance of the policies, and that a fire occurred on March 25, 1919, in the building in
which the goods covered by the insurance policies were stored. Before the trial, counsel for the defendant objected to the
introduction of any evidence in the case, and moved "that judgment be entered for the defendant on the pleadings upon the
ground that it appears from the averment of the complaint that the plaintiff has had no contractual relations with the defendant,
and that the action has not been brought against the real party in interest." Judgment was entered against Warner, Barnes & Co.,
Ltd., in its capacity as agent and representative in the Philippine Islands for The China fire Insurance Company, Ltd., The Yang-Tsze
Insurance Association, Ltd., and The State Assurance Co., Ltd., for the payment to the plaintiff, E. Macias & Co., of the sum of
P18,493.29, the amount of this judgment to be prorated by Warner, Barnes & Co., among the three insurance companies above-
mentioned by it represented, in proportion to the interest insured by each of said three insurance companies, according to the
policies issued by them in favor of the plaintiff, and sued upon in this action. Issue: Whether or not Warners, Barnes & Co. is liable as an
agent? Held: The material facts are not in dispute it must be conceded that the policies in question were issued by the different
insurance companies, through the defendant as their respective agent; that they were issued in consideration of a premium which
was paid by the insured to the respective companies for the amount of the policies, as alleged; that the defendant was, and i s now,
the resident agent in Manila of the companies, and was authorized to solicit and do business for them as such agent; that each
company is a foreign corporation. The principal office and place business of the The China Fire Insurance Company is at Hongkong;
of The Yang-Tsze Insurance Association is at Shanghai; and of The State Assurance Company is at Liverpool. As such foreign
corporations they were duly authorized and licensed to do insurance business in the Philippine Islands, and, to that end and for that
purpose, the defendant corporation, Warner, Barnes & Co., was the agent of each company. All of the policies are in writing, and
recite that the premium was paid by the insured to the insurance company which issued the policy, and that, in the event of a loss,
the insurance company which issued it will pay to the insured the amount of the policy. This is not a case of an undisclosed agent or
an undisclosed principal. It is a case of a disclosed agent and a disclosed principal. The policies on their face shows that the
defendant was the agent of the respective companies, and that it was acting as such agent in dealing with the plaintiff. That in the
issuance and delivery of the policies, the defendant was doing business in the name of, acting for, and representing, the respective
insurance companies. The different policies expressly recite that, in the event of a loss, the respective companies agree to
compensate the plaintiff for the amount of the loss. the defendant company did not insure the property of the plaintiff, or i n any
manner agree to pay the plaintiff the amount of any loss. There is no contract of any kind. either oral or written, between the plaintiff
and Warner, Barnes & Co. Plaintiff's contracts are with the insurance companies, and are in writing, and the premiums were paid to
the insurance companies, and are in writing, and the premiums were paid to the insurance companies and the policies were issued
by, and in the name of, the insurance companies, and on the face of the policy itself, the plaintiff knew that the defendant was
acting as agent for, and was
representing, the respective insurance companies in the issuance and deliver of the policies. The defendant company did not
contract or agree to do anything or to pay the plaintiff any money at any time or on any condition, either as agent or principal. There
is a very important distinction between the power and duties of a resident insurance agent of a foreign company and that of an
executor, administrator, or receiver. An insurance agent as such is not responsible for, and does not have, any control over the corpus
or estate of the corporate property, as does an executor, administrator, or receiver. Subject only to the order of the court, such
officers are legal custodians and have actual possession of the corporate property. It is under their control and within thei r jurisdiction.
As stated by counsel for Warner, Barnes & Co., an attorney of record for an insurance company has greater power and authority to
act for, and bind, the company than does a soliciting agent of an insurance company. Yet, no attorney would contend that a
personal action would lie against local attorneys who represent a foreign corporation to recover on a contract made by the
corporation. On the same principles by which plaintiff seeks to recover from the defendant, an action could be maintained against
the cashier of any bank on every foreign draft which he signed for, and on behalf of, the bank. Every cause of action ex contractu
must be founded upon a contract, oral or written, either express or implied. Warner, Barnes & Co., as principal or agent, did not make
any contract, either or written, with the plaintiff. The contracts were made between the respective insurance companies and the
insured, and were made by the insurance companies, through Warner, Barnes & Co., as their agent. As in the case of a bank draft, it
is not the cashier of the bank who makes the contract to pay the money evidenced by the draft, it is the bank, acting through its
cashier, that makes the contract. So, in the instant case, it was the insurance companies, acting through Warner, Barnes & Co., as
their agent, that made the written contracts wit the insured. Again, there is not claim or pretense that Warner, Barnes & Co. had any
authority to act for, and represent the insurance companies in the pending action, or to appear for them or make any admission
which would bind them. As a local agent, it could not do that without express authority. That power could only exercised by an
executive officer of the company, or a person who was duly authorized to act for, and represent, the company in legal proceedings,
and there is no claim or pretense, either express or implied, that the defendant has any such authority. Plaintiff's cause of action, if
any, is direct against the insurance companies that issued the policies and agreed to pay the losses. The only defendant in the instant
case is "Warner, Barnes & Co., in its capacity as agents of:" the insurance companies. Warner, Barnes & Co. did not make any
contract with the plaintiff, and are not liable to the plaintiff on any contract, either as principal or agent. For such reason, plaintiff is
not entitled to recover its losses from Warner, Barnes & Co., either as principal or agent. There is no breach of any contract with the
plaintiff by Warners, Barnes & Co., either as agent or principal, for the simple reason that Warner, Barnes & Co., as agent or principal,
never made any contract, oral or written, with the plaintiff. Plaintiff's own evidence shows that any cause of action it may have is
against the insurance companies which issued the policies. The complaint is dismissed, and the judgment of the lower court is
reversed, and one will be entered here in favor of Warner, Barnes & Co., Ltd., against the plaintiff, for costs in both this and the lower
court. So ordered.


What happened in the case of PNB v. Ritratto Group?

FACTS: Petitioner Philippine National Bank is a domestic corporation organized and existing under Philippine law. Meanwhile,
respondents Ritratto Group, Inc., Riatto International, Inc. and Dadasan General Merchandise are domestic corporations, likewise,
organized and existing under Philippine law. On May 29, 1996, PNB International Finance Ltd. (PNB-IFL) a subsidiary company of PNB,
organized and doing business in Hong Kong, extended a letter of credit in favor of the respondents in the amount of US$300,000.00
secured by real estate mortgages. Respondents made repayments of the loan incurred by remitting those amounts to their loan
account with PNB-IFL in Hong Kong. Pursuant to the terms of the real estate mortgages, PNB-IFL, through its attorney-in-fact PNB,
notified the respondents of the foreclosure of all the real estate mortgages and that the properties subject thereof were to be sold at
a public auction on May 27, 1999 at the Makati City Hall. Respondent filed a case for injunction which was granted. The petitioners on
the other hand filed a petition for certiorari before the CA in relation to the issuance of a restraining order, but the same was denied.
In this case, the petitioners assert that no cause of action exists against PNB, which is not a real party in interest being a mere attorney-
in-fact authorized to enforce an ancillary contract. In their Comment, respondents argue that even assuming arguendo that
petitioner and PNB-IFL are two separate entities, petitioner is still the party-ininterest in the application for preliminary injunction
because it is tasked to commit acts of foreclosing respondents' properties.
ISSUE: W/N PNB is real party in interest NO.
RULING: The contract questioned is one entered into between respondent and PNB-IFL, not PNB. In their complaint, respondents admit
that petitioner is a mere attorney-in-fact for the PNB-IFL with full
power and authority to, inter alia, foreclose on the properties mortgaged to secure their loan obligations with PNB-IFL. In other words,
herein petitioner is an agent with limited authority and specific duties under a special power of attorney incorporated in the real
estate mortgage. It is not privy to the loan contracts entered into by respondents and PNB-IFL.
Aside from the fact that PNB-IFL is a wholly owned subsidiary of petitioner PNB, there is no showing of
the indicative factors that the former corporation is a mere instrumentality of the latter are present. Neither is there a demonstration
that any of the evils sought to be prevented by the doctrine of piercing the corporate veil exists. Inescapably, therefore, the doctrine
of piercing the corporate veil based on the alter ego or instrumentality doctrine finds no application in the case at bar.
In any case, the parent-subsidiary relationship between PNB and PNB-IFL is not the significant legal relationship involved in this case
since the petitioner was not sued because it is the parent company of PNB-IFL. Rather, the petitioner was sued because it acted as an
attorney-in-fact of PNB-IFL in initiating the foreclosure proceedings. A suit against an agent cannot without compelling reasons be
considered a suit against the principal. Under the Rules of Court, every action must be prosecuted or defended in the name of the
real party-in-interest, unless otherwise authorized by law or these Rules.18 In mandatory terms, the Rules require that "parties-in-interest
without whom no final determination can be had, an action shall be joined either as plaintiffs or defendants."19 In the case at bar,
the injunction suit is directed only against the agent, not the principal.
All told, respondents do not have a cause of action against the petitioner as the latter is not privy to the contract the provisions of
which respondents seek to declare void. Accordingly, the case before
the Regional Trial Court must be dismissed and the preliminary injunction issued in connection therewith, must be lifted.
- On the issue of the restraining order: It must be lifted.

What happened in the case of NAPOCOR v. NAMERCO?

FACTS: NPC and Namerco, as the representative of the International Commodities Corporation, New York City executed in Manila a
contract for the purchase by the NPC from the New York firm of 4,000 long tons of crude sulfur for its Maria Cristina Fertilizer Plant in
Iligan City at a total price of P450,716
It was stipulated in the contract of sale that the seller would deliver the sulfur at Iligan City within sixty days from noti ce of the
establishment in its favor of a letter of credit and that failure to effect delivery would subject the seller and its surety to the payment of
liquidated damages.
The New York supplier was not able to deliver the sulfur due to its inability to secure shipping space. During the period from January 20
to 26, 1957 there was a shutdown of the NPCs fertilizer plant because there was no sulfur. No fertilizer was produced.
NPC rescinded the contract of sale and demanded payment of liquidated damages.
ISSUE:
W/N Namerco acted within the scope of its authority as agent in signing the contract of sale and therefore it should be the principal
that is to be made liable.
HELD: Namerco is liable for liquidated damages to NPC.
The New York corporation in its cable to Namerco stated that the sale was subject to availability of a steamer. However, Namerco did
not disclose that cable to the NPC and, contrary to its principals instruction, it agreed that non-availability of a steamer was not a
justification for nonpayment of the liquidated damages.
Namerco is liable for damages because under article 1897 of the Civil Code the agent who exceeds the limits of his authority without
giving the party with whom he contracts sufficient notice of his powers is personally liable to such party.
Even before the contract of sale was signed Namerco was already aware that its principal was having difficulties in booking shipping
space. One day before the contract of sale was signed, the New York supplier advised Namerco that the latter should not sign the
contract unless it (Namerco) wished to assume sole responsibility for the shipment.
The New York corporation informed Namerco that since the latter acted contrary to the formers cabled instructions, the former
disclaimed responsibility for the contract and that the responsibility for the sale rested on Namerco. It bluntly told Namerco that the
latter was never authorized to enter into the contract and that it acted contrary to the re-peated instructions of the former.
NAMERCO contends that: every person dealing with an agent is put upon inquiry and must discover upon his peril the authority of the
agent would apply in this case if the principal is sought to be held liable on the contract entered into by the agent.
However, in this case, it is the agent that is sought to be held liable on a contract of sale which was expressly repudiated by the
principal because the agent took chances, it exceeded its authority and, in effect, it acted in its own name.
The unenforceability of the contract is against the principal. It is being enforced against the agent because Article 1897 implies that
the agent who acts in excess of his authority is personally liable to the party with whom he contracted.
Art. 1898 of the Civil Code also provides that if the agent contracts in the name of the principal, exceeding the scope of his
authority, and the principal does not ratify the contract, it shall be void if the party with whom the agent contracted is aware of the
limits of the powers granted by the principal.
Namerco, as agent, exceeded the limits of its authority in contracting with the NPC in the name of its principal. The NPC was unaware
of the limitations on the powers granted by the New York firm to Namerco.
Namerco never disclosed to the NPC the cabled or written instructions of its principal. For that reason and because Namerco
exceeded the limits of its authority, it virtually acted in its own name and not as agent and it is, therefore, bound by the contract of
sale which, however, is not enforceable against its principal.
If, as contemplated in articles 1897 and 1898, Namerco is bound under the contract of sale, then it follows that it is bound by the
stipulation for liquidated damages in that contract.
So when a person exceeds his authority, is this tantamount to no authority at all? YES.

So what is the effect? He becomes personally liable.

For example, an agent transacted in behalf of the principal. 3
rd
person is not aware of the scope of the authority of the agent. What is
the status of the contract?

Between the principal and the third person, the status of the contract is UNENFORCEABLE. The third person can go against the agent
provided that the principal raises the lack of authority of the agent.

What if the third person is aware of the scope/extent of authority of the agent? What is the status of the contract?

The contract is VOID. But if the agent secures the ratification of the principal, the remedy is to proceed against the agent. The basis is
1898.


What happened in the case of Philippine Products v. Primateria

FACTS: Primateria Zurich is a foreign juridical entity engaged in international trade with agricultural products. In 1951, through its agent
Primateria Philippines with Alexander Baylin and Jose Crame as its officers, it entered into an agreement with a domestic company
Philippine Products company whereby they undertook to buy copra in the Philippines for the account of Primateria Zurich. Philippine
products company caused the shipment of copra to foreign countries but it wasnt paid for such transactions. Thus, an action to
recover a sum of money was filed against the foreign company and its agents in the Philippines.
Lower court held the foreign company (Primateria Zurich) liable but its agentsPrimateria Philippines, Alexander and Jose were
absolved from any and all liabilities.
Contention of plaintiff PPC: it appealed from that error where the court dismissed the complaint against the agents because
according to it, Primateria Zurich is a foreign corporation doing transactions in the Philippines without license; thus, its agents here are
personally liable for the contracts made in its behalf. It claimed recovery from both principal and agent.
ISSUE #1: WON PPC can recover from BOTH the principal and its agent
Held: NO.
PPC cannot recover from both the principal and agent. PPC has been given judgment against the principal Primateria Zurich for the
whole amount. It asked for such judgment and did not appeal from it. It clearly stated that its appeal concerned the 3 other
defendants.
ISSUE #2: WON its agents may be held personally liable on the contracts made in the name of the entity with 3rd persons in the
Philippines based on Article 1897
Held: NO.
There is no proof that, as agents, they exceeded the limits of their authority. In fact, the principal Primateria Zurich who should be
the one to raise the point, never raised it, denied its liability on the ground of excess of authority. At any rate, the articl e does not hold
that in cases of excess of authority, both the agent and the principal are liable to the other contracting party.
This view of the cause dispenses with the necessity of deciding the other two issues, namely: whether the agent of a
So, when is an agent personally liable?
1. When he exceeds the limits of his authority and he does not give the third person any sufficient notice of his powers
2. When he agrees to be personally bound.
What happened in the case of Safic Alcan v. Imperial?

In 1985, Safic Alcan & Cie (SAC), a corporation, entered into an agreement with Imperial Vegetable Oil Co., Inc. (IVO) whereby the
latter shall deliver tones of coconut oil to SAC. Both parties complied. IVO was represented by its president, Dominador Monteverde.
In 1986, SAC again entered into an several agreements with IVO but this time it was agreed that IVO shall deliver the coconut oil 8
months from the agreement or sometime in 1987. This time, IVO failed to deliver and SAC sued IVO.
IVO in its defense aver that Monteverde was acting beyond his power as president when he made the 1986 agreement with SAC;
that Monteverde is acting beyond his power because the 1986 contracts were speculative in nature and speculative contracts are
prohibited by the by-laws of IVO.
SAC insists that there is an implied agency between IVO and Monteverde because SAC and Monteverde has been transacting since
1985 and that IVO benefited from said transactions.
ISSUE: Whether or not Monteverdes act in entering into the 1986 contracts is ultra vires.
HELD: Yes. It was proven by IVO, when they presented a copy of their by-laws, that Monteverde acted beyond his authority when he
entered into speculative contracts with SAC in 1986. The 1986 contracts are speculative because at the time of the contracts, the
coconuts are not even growing at that time and are yet to be harvested. Hence, the 1986 contracts are sales of mere expectations
and this is something prohibited by the by-laws and the Board of Directors of IVO.
There can be no implied agency too simply because there has been a previous transaction
So you said that the agent exceeded his authority. So what is the status of the contract?
It is void against the principal only if the 3
rd
party knows of the limit. But if the principal ratifies, the contract now becomes validated.

To whom will the third party go against now? The principal. But take note, the agent can still be held liable if he undertook to secure
the principals ratification.

What happened in the case of Siredy v. CA?

Private respondent Conrado De Guzman is an architect-contractor doing business under the name and style of Jigscon Construction.
Petitioner Siredy is the owner and developer of Ysmael Village; the president of Siredy is Ismael Yanga.[6]
Yanga executed a Letter of Authority in favor of MR. HERMOGENES B. SANTOS to do and execute all or any of the following acts:
1. To negotiate and enter into contract or contracts to build Housing Units on the subdivision lots in Ysmael Village Xxx
2. To sell lots on our subdivisions and;
3. To represent, intercede and agree for or make agreements for all payments in Siredys favor xxx
Santos entered into a Deed of Agreement[10] with De Guzman. The deed expressly stated that Santos was representing Siredy
Enterprises, Inc. Private respondent was referred to as contractor while petitioner Siredy was cited as principal.De Guzman
constructed 26 residential units at Ysmael Village; 13 were fully paid but the other 13 remained unpaid.
De Guzman tried but failed to collect the unpaid account from petitioner. Thus, he instituted the action for specific performance
against Siredy, Yanga, and Santos who all denied liability.
Petitioners defense: presented testimonial evidence to the effect that Siredy had NO contract with De Guzman and had NOT
authorized Santos to enter into a contract with anyone for the construction of housing units at Ysmael Village.
ISSUE:
WON Santos was a duly constituted agent of Siredy. Assuming arguendo that Siredy was bound by the acts of Santos, WON under the
terms of the Deed of Agreement, Siredy can be held liable for the amount sought to be collected. YES!!!!!!!
RULING:
By the relationship of agency, one party called the principal authorizes another called the agent to act for and in his behalf in
transactions with third persons. The authority of the agent to act emanates from the powers granted to him by his principal; his act is
the act of the principal if done within the scope of the authority. He who acts through another acts himself
Review of the LOA executed by Yanga: On its face, the instrument executed clearly and unequivocally constituted Santos to do
and execute, among other things, the act of negotiating and entering into contract or contracts to build Housing Units on our
subdivision lots in Ysmael Village, Sta. Rosa, Marilao, Bulacan.[20] Nothing could be more express than the written stipulations
contained therein. It was upon the authority of this document that De Guzman transacted business with Santos that resulted in the
construction contract denominated as the Deed of Agreement. Hence, the inescapable conclusion is that Siredy is bound by the
contract through the representation of its agent Santos.
The BASIS of agency is REPRESENTATION, that is, the agent acts for and in behalf of the principal on matters within the scope of his
authority (Art, 1881) and said acts have the same legal effect as if they were personally done by the principal. By this legal fiction of
representation, the actual or legal absence of the principal is converted into his legal or juridical presence.[
Moreover, even if arguendo Santos mandate was only to sell subdivision lots as Siredy asserts, the latter is still bound to pay De
Guzman. De Guzman is considered a third party to the agency agreement who had no knowledge of the specific instructions or
agreements between Siredy and its agent. What De Guzman only saw was the written Letter of Authority where Santos appears to be
duly authorized. Article 1900 of the Civil Code provides:
Art. 1900. So far as third persons are concerned, an act is deemed to have been performed within the scope of the agents authority,
if such act is within the terms of the power of attorney, as written, even if the agent has in fact exceeded the limits of his authority
according to an understanding between the principal and the agent.
The SCOPE of the agents authority is what appears in the written terms of the power of attorney. While third persons are bound to
inquire into the extent or scope of the agents authority, they are not required to go beyond the terms of the written power of
attorney. Third persons cannot be adversely affected by an understanding between the principal and his agent as to the limits of the
latters authority. In the same way, third persons need not concern themselves with instructions given by the principal to hi s agent
outside of the written power of attorney.
So, what is the essence of agency?
The ESSENCE of agency being the representation of another, it is evident that the obligations contracted are for and on behal f of the
principal. This is what gives rise to the juridical relation. A consequence of this representation is the liability of the principal for the acts
of his agent performed within the limits of his authority that is equivalent to the performance by the principal himself who should
answer therefor.
What happened in the case of Green Valley v. IAC?
On November 3, 1969, Squibb and Green Valley entered into a letter agreement the text of which reads as follows:
E.R. Squibb & Sons Philippine Corporation is pleased to appoint Green Valley Poultry & Allied Products, Inc. as a non-exclusive
distributor for Squibb Veterinary Products, as recommended by Dr. Leoncio D. Rebong, Jr. and Dr. J.G. Cruz, Animal Health Division
Sales Supervisor.
As a distributor, Green Valley Poultry & Allied Products, Inc. will be entitled to a discount as follows:
Feed Store Price (Catalogue)
xxxx
Green Valley Poultry & Allied Products, Inc. will distribute only for the Central Luzon and Northern Luzon including Cagayan Valley
areas. We will not allow any transfer or stocks from Central Luzon and Northern Luzon including Cagayan Valley to other parts of
Luzon, Visayas or Mindanao which are covered by our other appointed Distributors. In line with this, you will follow strictly our
stipulations that the maximum discount you can give to your direct and turnover accounts will not go beyond 10%.
It is understood that Green Valley Poultry and Allied Products, Inc. will accept turn-over orders from Squibb representatives for delivery
to customers in your area. If for credit or other valid reasons a turn-over order is not served, the Squibb representative will be notified
within 48 hours and hold why the order will not be served.
It is understood that Green Valley Poultry & Allied Products, Inc. will put up a bond of P20,000.00 from a mutually acceptabl e bonding
company.
Payment for Purchases of Squibb Products will be due 60 days from date of invoice or the nearest business day thereto. No payment
win be accepted in the form of post-dated checks. Payment by check must be on current dating.
It is mutually agreed that this non-exclusive distribution agreement can be terminated by either Green Valley Poultry & Allied
Products, Inc. or Squibb Philippines on 30 days notice.
xxxx (Rollo, pp. 12- 13.)
For goods delivered to Green Valley but unpaid, Squibb filed suit to collect. The trial court as aforesaid gave judgment in favor of
Squibb, which was affirmed by the Court of Appeals.
In both the trial court and the Court of Appeals, the parties advanced their respective theories.
Green Valley claimed that the contract with Squibb was a mere agency to sell; that it never purchased goods from Squibb; that the
goods received were on consignment only with the obligation to turn over the proceeds, less its commission, or to return the goods ff
not sold, and since it had sold the goods but had not been able to collect from the purchasers thereof, the action was premature.
Upon the other hand, Squibb claimed that the contract was one of sale so that Green Valley was obligated to pay for the goods
received upon the expiration of the 60-day credit period.
Both courts below upheld the claim of Squibb that the agreement between the parties was a sales contract.
Issue:
WON Green Valleys contract with Squibb was a mere agency to sell.
Ruling:
We do not have to categorize the contract. Whether viewed as an agency to sell or as a contract of sale, the liability of Green Valley
is indubitable. Adopting Green Valley's theory that the contract is an agency to sell, it is liable because it sold on credit without
authority from its principal. The Civil Code has a provision exactly in point. It reads:
Art. 1905. The commission agent cannot, without the express or implied consent of the principal, sell on credit. Should he do so, the
principal may demand from him payment in cash, but the commission agent shall be entitled to any interest or benefit, which may
result from such sale.
How do you distinguish a contract of agency from a contract of partnership?

By the contract of partnership two or more persons bind themselves to contribute money, property, or industry to a common fund,
with the intention of dividing the profits among themselves. By the contract of agency a person binds himself to render some service
or to do something in representation or on behalf of another, with the consent or authority of the latter.

How do you distinguish an agency from a lease of service?

Agency basis is representation; Lease of Work or Services (LWS)- basis is employment.

Agency agent exercises discretionary powers; LWS lessor performs ministerial functions

Agency there are three parties; LWS- two parties only

Agency Commercial or business transactions are involved; LWS mere manual or mechanical execution

AUGUST 30 NO CLASS

BusOrg
September 3, 2013
TSN by Sonny

Atty. Guerzo discussed the answers in the exam.

BUSORG SEPTEMBER 6, 2013
(Articles 1909 to
Q: Article 1910 is the first principal obligation of the principal to the agent in the absence of an agreement, to comply with the entire
obligation which the agent may have contracted in his name and in the scope of his authority. Can you explain this Article?
Q: What is the effect of the ratification with respect to the agent?
C: The effect is that it is as if the contract entered into by the agent is entered into by the principal.
Q: What is the effect of the ratification with respect to the principal?
C: Okay. So with respect to third person he is bound by the ratification. He cannot question the authority of the agent to do the
ratified act.
Q: Is ratification needed to be communicated to third persons in order to be effective?
Q: What are the distinctions between ratification and estoppel?
Q: How do you distinguish apparent authority from authority by estoppel?
C: When you say authority by estoppel , it is from the point of view of the third person. While when you say apparent authority, take
note, it is not actually granted to the agent. Here the principal knowingly permits the agent to exercise or holds him out as possessing
such authority. Take note that the basis of Article 1911 is the principle of estoppel. This is one of the instances that law imposes
solidarity.
Q: what is the second principal obligation of the principal to the agent?
A: The principal must advance to the agent, should the latter so request, the sums necessary for the execution of the agency.
Q: Is this inclusive of interest?
C: Take note ha that this is inclusive of interest and the same is reckoned from the day the advances were made.
Q: Please explain Article 1914. Why is the agent allowed to retain the thing, what is its basis?
C: The nature of the agents right of lien is a specific and not a general lien.
Q: Please read Article 1915. Why does the rule impose a solidary liability?
C: Take note ha that in order for this Article to apply, the following are the requisites:
1. That there are two or more principals;
2. The principals concurred for the appointment of the same agent; and
3. The agent is appointed for common undertaking.
Q: Hindi bapwedeng joint angkanilang liability?
C: Unless they agree to a joint liability.
Q: Read Art 1916 and 1944. Explain.
Q: Read Article 1917. Is the principal always liable for the damages caused to third persons or is ot the agent who is always liable?
Q: What is meant by good faith under the same Article?
Q: What are the instances wherein the principal is not liable for the expenses incurred by the agent?
XXX CASES
1. Areola vs. CA
Q: Who is liable in this case?
Q: What was his position, the one who has misappropriated.
2. Sedia vs. White

C: the Supreme Court said that by filing of the answer jointly with Sedia through their common counsel, Hontiveros affirmed the
allegation that Sedia is his agent.
3. Prudential Bank vs. CA
No comment here.
4. De Castro vs. CA
C: But the co-owners are deemed indispensable parties. So the Supreme Court took the exception to the said rule that they should be
joint. So the applicable provision is Article 1915 which provides that If two or more persons have appointed an agent for a common
transaction or undertaking, they shall be solidarily liable to the agent for all the consequences of the agency. So the general rule is
solidary unless expressly agreed otherwise. SO the exception is provided in this case of De Castro.
5. Dominion Insurance vs. CA
C: So before we go to modes of extinguishment of agency, I will lecture on the liability of the principal to third persons for torts of an
agent. The applicable principle or rule here is the vicarious liability rule or respondeat superior. Halimbawa, you are confronted with
that question, when is the principal liable for the torts committed by an agent? Okay. Principal is liable for the torts committed by his
agent if two things are existing:
First, you have to determine the existence of the Principal-Agent (P-A relationship); and
Second, the tort was committed by the agent within the scope of the relationship.

As a review, how do you determine the existence of the P-A relationship? (Nemonics ABC)
1. Assent. There must be assent or agreement between the P and A. Take note that this agreement may be formal (in writing) or
informal (istorya-istoryalang);
2. Benefit. The agents conduct must be always for the benefit of the principal;and
3. Control. The P must have therightr to control the acts of the A by having the power to supervise the manner of the agents
performance.

Next. How do you determine that the tort was committed by the agent within the scope of the relationship? So three-factor analysis.
Three questions must be asked.
1. Was the conduct of the agent he was hired to perform?
2. Did the tort occurred during the job?
3. Did the agent intend to benefit the principal?
It is sufficient that the agent intended even a partial benefit to the principal. Take note, we are talking about torts, vicarious liability.

Next. How about the liability of the principal for the contracts entered into by the agent? 2-part test:
1. If there exists a P-A relationship; and
2. P authorized the A to enter the contract.
When you say authority, there are 4 types of authority. First is the actual express authority. There is the actual express authority if the Pin
writing or through words spoken or some other manifestation, the P wishes or intends to grant the A the authority to enter into the
contract. Take note that SC said that actual authority is narrowly construed such that the A must act within the scope of his authority
to bind the P.
Second is the actual implied authority. It is actual implied authority if it is based on the conduct or the circumstance, the principal
intends to authorize the agent. So anoyungmga factors nasinasabinilang may actual implied authority? First, by necessity. So there is
an implied authority to do all tasks which are necessary to accomplish an expressed task. Second, by custom. Here there is an
implied authority to do all tasks which are customarily performed by persons with the agents title or position. And third, prior dealing
between the P and A. Here there is an implied authority on the part of the agent to do all tasks to which the agent believes to have
been authorized from prior acquiescence of the principal.

Next we have apparent authority. So how do we know that A has an apparent authority? You have to question:
1. Whether or not the P cloth the A with appearance of authority; and
2. The 3
rd
party reasonable relies on the appearance of the said authority.
Under apparent authority, what is this lingering authority? When you say lingering authority, it means that A had actual authority at
one point but has been terminated. So take note, you have to cut off that apparent authority in order for P not to be liable? How?
First, the P should give a timely and proper notice of termination to 3
rd
party. What is proper notice? It is a personal notice to all 3
rd

parties that the P knows the A dealt with AND publication. Take note personal notice and publication. What if the agent has the
lingering authority and he has the possession of the goods? What should the P do? It is a must for P to remove the goods from his
possession.

Class, what is this ratification? Ratification is that authority that can be granted after the contract has been entered provided that:
a. The P has knowledge of all material facts regarding the contract; and
b. The P must accept the benefits under the said contract.
Take note that in ratification, you cannot alter the terms of the contract because the P must accept all the benefits from the contract
without modification of the terms of the said contract for ratification to be effective. Last, regarding liability. Third party vs. P. 3
rd
party
sues P. Take note that under the 1
st
circumstance, the P is liable only when there is a valid authority (4 types of authority). Next, 3
rd

party sues the A. Here the liability depends on whether or not the P was disclosed. So if the P is disclosed and his identity is known to 3
rd

party, then only P is liable. What if P is undisclosed or partially disclosed? Then P and A are liable. What if intentional torts committed
by A? Halimbawanagcommitng crime ang agent. Can you sue the P? Example, if A during the course of business nakabarilsi A. Can
you sue the P? Take note, if unintentional torts, vicarious liability applies.
BusOrg
September 10, 2013
TSN by Sonny

What are the modes of extinguishing a contract of agency?

Article 1919. Agency is extinguished:
(1) By its revocation;
(2) By the withdrawal of the agent;
(3) By the death, civil interdiction, insanity or insolvency of the principal or of the agent;
(4) By the dissolution of the firm or corporation which entrusted or accepted the agency;
(5) By the accomplishment of the object or purpose of the agency;
(6) By the expiration of the period for which the agency was constituted.


Is there a presumption of continuance of agency? YES. Once shown to have existed, an agency relation will be presumed to have
continued in the absence of anything to show its termination.

What are the necessary characteristics of the parties for the continuance of the agency?
1. Present
2. Capacitated
3. Solvent

Are the grounds under Article 1919 exclusive? NO.

What are the GENERAL modes of extinguishing an agency?
1. Agreement
2. Subsequent acts of the parties which may be either:
a. By the act of both parties or by mutual consent
b. By the unilateral act of one of them
3. By operation of law

The general rule is that death of either the agent or the principal extinguished the agency. What are the exceptions?

1. If the agency is coupled with an interest
2. If the act of the agent was executed without the knowledge of the death of the principal ant the 3
rd
person who contracted
with the agent acted in good faith

Why is dissolution or the firm/corporation a ground for extinguishment? Because it is tantamount to death of a juridical person. The
juridical existence is also extinguished.

What happens if the subject matter of the agency is lost or destroyed?

G.R. The loss or destruction of the subject matter of the agency terminates the agents authority to deal with reference to it.

Exceptions:
1. If it is possible to substitute other material for that which was destroyed without substantial detriment to either party;
2. If the destroyed subject matter was not in fact essential to the contract
3. A partial loss or destruction

Does legal impossibility terminate agency? YES. An agency then terminates if a change in law makes the purpose of the agency
unlawful.

How about the change of the surrounding circumstances of the agency? Does this terminate the agency?

G.R: The authority is terminated when a basic change in the circumstance surrounding the transaction not contemplated by the
parties which would reasonably lead the agent to believe that the principal would not desire to act.

Exceptions:

1. If the original circumstances are restored within a reasonable period of time, the agents authority may be revived.
2. Where the agent has reasonable doubts as to whether the principal would desire him to act, his authority will not be
terminated if he acts reasonably.
3. Where the P and the A are in close daily contact, the As authority to act will nt terminate upon the change of circumstances
if the A knows the P is aware of the change and does not give him new instructions.

May an agency be terminated by a subsequent act of the P? YES. That is revocation. (1920)

How about by the subsequent acts of an agent? YES. That is withdrawal or renunciation. (1920)

Why is that allowed? Trust and Confidence doctrine

Must a notice of revocation be communicated to the agent? Yes.

Must a notice of revocation be communicated to third parties? YES.

May an agent renounce an agency at will? YES. But he must comply with the obligations owing to P.

Suppose P revokes the agency at will, can the agent hold him liable for damages? Yes, when it is done in bad faith or when it is
terminated before the expiry of a fixed period.

Can renunciation be done impliedly? Yes.

What are the forms of renunciation by the agent?
1. Where he has conducted himself in a manner incompatible with his duties as an agent
2. When he abandons the object of his agency and acts for himself in committing a fraud upon his principal
3. When he files a complaint against the principal and adopts an antagonistic attitude towards him.

Are violations of the instruction of P tantamount to renunciation? NO. A may be rendered liable to the principal but he does not cease
to become an agent.

Can you please read Article 1921?
Article 1921. If the agency has been entrusted for the purpose of contracting with specified persons, its revocation shall not prejudice
the latter if they were not given notice thereof.
What is the effect of revocation with respect to third persons if the agent was authorized to contract with specific persons? 1921.
Presumption of authority exists absent any notice to the third person.

What is the effect of revocation with respect to third persons if the agent was authorized to contract with the public in general? 1922. If
the agent had general powers, revocation of the agency does not prejudice third persons who acted in good faith and without
knowledge of the revocation. Notice of the revocation in a newspaper of general circulation is a sufficient warning to third persons.

How will you distinguish Article 1921 from Article 1922?
1921 1922
Must be personal May be personal
Revocation must be known to 3
rd
persons
informed of the appointment
Even if 3
rd
persons do not know, as long as
there is publication in a newspaper of general
circulation

Okay. Can you please read Article 1923?

Article 1923. The appointment of a new agent for the same business or transaction revokes the previous agency from the day on
which notice thereof was given to the former agent, without prejudice to the provisions of the two preceding articles.

Can you please explain this article?

There is implied revocation of the previous agency when the principal appoints a new agent for the same business or transacti on if
there is incompatibility. But the revocation does not become effective as between the P and the A unless it is in some way
communicated to the latter. Again, the rights of 3
rd
persons who acted in good faith and without knowledge of the revocation will
not be prejudiced thereby.

There is no implied revocation where the appointment of another A is compatible with the continuation of like authority in the 1
st

agent or if the first agent is not given notice of the appointment of the new agent.

How do you construe the authority of an agent? Strictly against the agent and in favour of the principal.

Can you please read Article 1924?

Article 1924. The agency is revoked if the principal directly manages the business entrusted to the agent, dealing directly with third
persons.

What is the General Rule in this article?
The direct management by the P of the business revokes the agency

What is the exception?
When the only desire of the P in doing so is for him and the A to manage the business together

Can you please read Article 1925?

Article 1925. When two or more principals have granted a power of attorney for a common transaction, any one of them may revoke
the same without the consent of the others. (n)

Can you please explain?

Since the appointmentof an agent by 2 or more principals for a common transaction or undertaking makes them solidarily liable to
the agent for all consequences of the agency, then each one of the principal should be granted the right to revoke the power of
attorney even without the consent of the others.

Can you please read Article 1926?

Article 1926. A general power of attorney is revoked by a special one granted to another agent, as regards the special matter
involved in the latter. (n)

Can you please explain?
Two agents are involved. One was granted authority through GPA, the other SPA. The general power is impliedly revoked as to
matters covered by the SPA because a special power naturally prevails over a general power.

Can you please read Article 1927?

Article 1927. An agency cannot be revoked if a bilateral contract depends upon it, or if it is the means of fulfilling an obligation
already contracted, or if a partner is appointed manager of a partnership in the contract of partnership and his removal from the
management is unjustifiable. (n)



What is the general rule under this provision?

P may revoke agency at will

Exceptions:
1. When a bilateral contract depends on the agency
2. When the agency is the means of fulfilling an obligation already contracted
3. When a partner is appointed as manager of a partnership in the contract of partnership and his removal from the
management is unjustifiable

What must be present for an agency, coupled with interest, be irrevocable?
1. Interest must be in the subject matter of the power conferred and not merely an interest in the exercise of the power.

Can you please read Article 1928?

Article 1928. The agent may withdraw from the agency by giving due notice to the principal. If the latter should suffer any damage
by reason of the withdrawal, the agent must indemnify him therefor, unless the agent should base his withdrawal upon the
impossibility of continuing the performance of the agency without grave detriment to himself.

What are the obligations of an agent who withdraws from the agency without just cause?
1. Notify the principal
2. Indemnify the principal should the latter suffer any damage by reason of such withdrawal

Why is the agent allowed to renounce from the agency any time? Constitutional prohibition against involuntary servitude

What are the obligations of an agent after his withdrawal? He must continue to act in favour of the P until P has reasonable
opportunity to take the necessary steps to remedy the situation.

Can you please read Article 1930?

Article 1930. The agency shall remain in full force and effect even after the death of the principal, if it has been constituted in the
common interest of the latter and of the agent, or in the interest of a third person who has accepted the stipulation in his favor. (n)

General Rule; Agency is terminated instantly when principal dies.

Exceptions:
1. If the agency has been constituted in the common interest of the P and the A
2. If the agency has been constituted in the interest of a 3
rd
person who has accepted the stipulation in his favour

Can you please read Article 1931?
Article 1931. Anything done by the agent, without knowledge of the death of the principal or of any other cause which extinguishes
the agency, is valid and shall be fully effective with respect to third persons who may have contracted with him in good faith

What must the heirs do in case of death of the Agent?

Article 1932. If the agent dies, his heirs must notify the principal thereof, and in the meantime adopt such measures as the
circumstances may demand in the interest of the latter.

Can the heirs continue the agency?

GR: NO.
Exceptions:
1. Agency by operation of law, or a presumed or tacit agency;
2. Agency is coupled with an interest in the subject matter of the agency.
Bus.Org.
September 13, 2013
CASES on Modes of Extinguishment of Agency
1. ESTATE OF THE LATE JULIANA DIEZ VDA. DE GABRIEL VS. CIR
How is the agency extinguished in the case?
Is notice to the agent deemed notice to the estate?
Is that binding on the principal?
Is the notice to the agent regarding the assessment deemed notice to the estate? Why?

2. NEW MANILA LUMBER VS. REPUBLIC OF THE PHILIPPINES

Who is the contractor in this case?
There was revocation because?

3. CATAN VS. NLRC

What kind of notice is required under Article 1921 in order for the revocation to be binding or valid to third persons?

As compared to Article 1922, what kind of notice will suffice?

4. LUSTAN VS. CA

Aside from the agency contract, what was executed?
What is a pacto de retro sale as a review?
Was the petitioner able to acquire her property back?

5. RAMNANI VS. CA

Was there a partnership here?

6. CENTRAL SURETY VS. HODGES

Article 1922 applies. Petitioner is liable on the surety bond in question. By honoring several surety bonds issued in its behalf by Mrs.
Mesa (agent), subsequently, petitioner (Central Surety) induced the public to believe that she had authority to issue such bonds. As a
consequence, petitioner is now stopped from pleading, particularly against a regular customer thereof, like Hodges, the absence of
said authority.

7. SANCHEZ VS. MEDICARD

Article 1924 applies. The agency is revoked if the principal directly manages the business entrusted to the agent, dealing directly with
third persons. Medicard directly negotiated with Unilab, and as found by the court, petitioner Sanchez did not render services to
Medicard, his principal, to entitle him to commission in the said transaction between Medicard and Unilab.

8. CMS LOGGING VS. CA

9. LIM VS. SABAN

On irrevocable contracts, as a general rule, contracts must be consensual. There is a principle of mutuality of contract that is why an
agency may be revoked at will by the principle at anytime. There are exceptions to this mutuality of contract principle:

1. Where an agency is coupled with interest. That is provided under Article 1927. The agent has for himself an interest in the
property which forms the subject matter of the agency. Hence, an agency, cannot, be terminated to the prejudice of such
interest.

2. Where the authority has been partly exercised as regards such acts and obligation as arisen from acts already done in the
agency. Like for example, you have a contract of agency, the agent already performed part of the obligation. Now the
principal cannot just revoke the agency at will because it will cause prejudice to the agent thats why this is the second
exception.

3. When the agent has purchased the goods on his personal liability or where he made the payment of the goods, the agency
cannot be terminated.

4. When there is a waiver made by the principal of his right to revoke.

5. Those enumerated under Article 1927 including the first one, where the agency is coupled with interest.

Irrevocable agency is an exception to the principle of mutuality of contracts. This is the exception to the principle that the agency
may be revoked by the principal at will.


10. DEL ROSARIO VS. ABAD

11. BISAYA LAND VS. SANCHEZ

Was the agency coupled with interest in this case?

12. RALLOS VS. CHAN

What is the effect of the agents act when he sold the property after the principals death?

Bus.Org.
Tuesday, Sept 17, 2013

Discussion on Modes of Extinguishment of Agency

Based on an old case, the case of Dela Pena vs. Hidalgo (16 Phil 450), an agent may withdraw from the agency by reason of health
and medical treatment.

The general premise is that, death of either parties extinguishes the agency because civil personality is extinguished by death,
pursuant to Article 42 of the Civil Code.

Exceptions:

1. Article 1930 of the Civil Code. The agency shall remain in full force and effect even after the death of the principal, if it has
been constituted in the common interest of the latter and of the agent, or in the interest of a third person who has accepted
the stipulation in his favor.

First exception, speaks of an (1) agency coupled with a common interest of the principal and agent and (2) an agency coupled with
interest of a third person who has accepted the stipulation in his favor.

2. Article 1931. Anything done by the agent, without knowledge of the death of the principal or of any other cause which
extinguishes the agency, is valid and shall be fully effective with respect to third persons who may have contracted with him in
good faith.

3. Article 1884. The agent is bound by his acceptance to carry out the agency and is liable for the damages which, through his
non-performance, the principal may suffer.

He must also finish the business already begun on the death of the principal, should delay entail any danger.

Here, there is an imperative need to finish the business which was started by the agent in order to avoid danger, prejudice or
damage to the principal.

What happens if after the death of the principal, the agent or a attorney-in-fact continues to manage the estate of the deceased
principal? Take note, he becomes a negotiorum gestor. There is an extra-contractual obligation governed by Article 2144 of the Civil
Code. The agent becomes a negotiorum gestor of the decedents heirs and the heirs are liable for the obligation assumed by the
negotiorum gestor and tfor the interest and benefit of the estate.

Article 2144. Whoever voluntarily takes charge of the agency or management of the business or property of another, without any
power from the latter, is obliged to continue the same until the termination of the affair and its incidents, or to require the person
concerned to substitute him, if the owner is in a position to do so. xxx


Article 1921. If the agency has been entrusted for the purpose of contracting with specified persons, its revocation shall not prejudice
the latter if they were not given notice thereof.

Here an agency for the purpose of contracting with specified third persons. Take note, the revocation of this agency shall not
prejudice the specified persons who were not timely notified of the acts of revocation because these specified persons must be given
the opportunity to meet the situation so that they may be able to protect their rights and interests.

Article 1922. If the agent had general powers, revocation of the agency does not prejudice third persons who acted in good faith
and without knowledge of the revocation. Notice of the revocation in a newspaper of general circulation is sufficient warning to third
persons.

It applies when the agent is clothed with general powers of attorney. Under the said provision, if the agency is revoked by the
principal and the third person dealing with the agent is not aware of the revocation, the transaction will be binding upon the
principal even if the agent is in bad faith.

If the agent is in good faith, meaning, he has no knowledge of the revocation. The third person is in good faith also, the principal is
bound by the contract.

Example, the agent is in bad faith, the third person is also in bad faith. If both of them are aware of the revocation and they still
proceeded with the transaction, the principal is not bound by the contract unless he ratifies the same.

Article 1923. The appointment of a new agent for the same business or transaction revokes the previous agency from the day on
which notice thereof was given to the former agent, without prejudice to the provisions of the two preceding articles.

In order for the revocation to be valid, first notice must be given to the first agent. If no notice is given to the first agent and that said
first agent continued the agency in good faith, what is the effect of the contract that he entered into? It is binding upon the principal.

The second power of attorney revoking the first one operates only after due notice is given to the first agent, because this speaks of
two agents. Another principle, it is important for the two agencies must be incompatible. Thus, if the two agencies are not
incompatible, they may co-exist.

Example, Agent 1 is appointed to buy land in Davao. If Agent 2 is appointed to buy land in Davao, then these two agencies are not
incompatible.

What is exclusive agency? There is exclusive agency if:

1. It is expressly stipulated; and
2. When compensation is anchored on the success of the transactions entrusted to the agent.

Under this exclusive agency, the principal is deprived of the authority to appoint a new agent for the same transaction whether the
new appointment is joined with the first agent or by way of implied revocation of the power of the first agent. The exclusive agency to
be valid must be limited with respect to the transaction or with respect to the time.

Article 1927. An agency cannot be revoked if a bilateral contract depends upon it, or if it is a means of fulfilling an obligation already
contracted, or if a partner is appointed manager of a partnership in the contract of partnership and his removal from the
management is unjustifiable.


Article 1927 speaks of power of attorney coupled with interest. Take note, as a general rule, that is irrevocable.

What is a power of attorney coupled with obligation? Is that the same with a power of attorney coupled with interest? A power of
attorney coupled with obligation is one where the authority given is to secure the agent against some of the obligations assumed or
liability incurred on the principals behalf. This is irrevocable like a power of attorney coupled with interest.

Article 1931. Anything done by the agent, without knowledge of the death of the principal or of any other cause which extinguishes
the agency, is valid and shall be fully effective with respect to third persons who may have contracted with him in good faith.

This speaks of knowledge by the agent of the fact of death of the principal or some other grounds of extinguishment of agency. The
act is valid, effective and enforceable with respect to the third person.

Article 1932. If the agent dies, his heirs must notify the principal thereof, and in the meantime adopt such measures as the
circumstances may demand in the interest of the latter.

Under this article, the heirs of the agent are required to notify the principal of the facts of death, that is the first duty. Second duty, the
heirs must adopt measures within their power to protect the interest of the principal. There are two duties imposed. What is the basis of
these duties imposed on the heirs of the agent?

The basis of this duty is presumed agency or agency by operation of law.

There is a duty imposed by law on the heirs of the agent upon his death. Is there a duty on the part of the heirs of the principal to
notify the agent? There is no duty. That is the case of Rallos. It is the usual duty of an agent to keep periodic contact or
communication with the principal.

BUS ORG TRUST
TSN by Sonny
October 1, 2013


Q: Define Trust and what are its characteristics.

A: Trust is a legal relationship between one person having an equitable ownership in property and another person owing the legal title
to such property, the equitable ownership of the former entitling him to the performance of certain duties and the exercise of certain
powers by the latter.
Characteristics:
1. It is essentially contractual
2. Based on a property relationship
3. It is a relationship
4. It is a relationship of a fiduciary character
5. It is a relationship with respect to property, not one involving merely personal duties
6. It involves the existence of equitable duties imposed upon the holder of the title to the property to deal with it for the benefit
of another
7. It arises as a result of a manifestation of intention to create the relationship

Q: How many parties are in the relationship?
A: 3
Q: Who are they?
A: Article 1440. A person who establishes a trust is called the trustor; one in whom confidence is reposed as regards property for the
benefit of another person is known as the trustee; and the person for whose benefit the trust has been created is referred to as the
beneficiary.
Q: How is Trust different from Agency?
AGENCY TRUST
Fiduciary in nature
Essentially revocable Essentially obligatory in its terms and period and can only be
rescinded based on breach of trust
Agent possesses property under agency for and in the name of
the owner
Trustee takes legal or naked title to the subject matter of trust

Q: Are the principles of equity applicable to Trust?
A: Yes.
Q; What is the basis of Trust?
Agent must act upon instructions of the owner Trustee acts on his own business discretion
Agent enters into contract in the name of the principal Trustee enters into contracts in his own name
Agent cannot be sued Trustee is liable directly and may be sued in his trust capacity
A: Equity. The basis of Trust is equity. The leading case there is Ramos v.Ramos, 61 SCRA 284 where the SC held that "in its technical
legal sense, a trust is defined as the right, enforceable solely in equity, to the beneficial enjoyment of property, the legal title to which
is vested in another, but the words 'trust' is frequently employed to indicate duties, relations, and responsibilities which are not strictly
technical trusts."
Q: Can a minor be the trustor?
A: No.
Q: Can a trustee be a minor?
A: No.
Q: How about a minor acting through his legal guardian?
A: (Not answered)
Q: Can a juridical person be a trustor?
A: Yes.
Q: Can a juridical person be a trustee?
A: Yes.
Q: Can a juridical person be a beneficiary?
A: Yes. What is important is the capacity to receive gratuitously the property.
Q: Can a trustor become at the same time be a trustee?
A: Yes.
Q: Can the beneficiary be at the same time the trustee?
A: Yes.
Q: How do you distinguish a Trust from a stipulation pour autrui?
A: In Trust, there is transfer of legal title to the trustee and equitable title to the beneficiary. In stipulation pour autrui, there is only a
benefit in favour of a third person.
Q: What is an express trust?
A; One created by the intention of the trustor or of the parties (Art. 1441)or those created by direct and positive acts of the parties, by
some writing or deed or by words evidencing an intention to create a trust

Q: What is an implied trust?

A: Those which are deducible from the nature of the transactions as matters of intent, or which are superinduced on the transaction
by operation of law as matters of equity, independently of the particular intention of the parties.

Q: What are its distinctions?

A:

Express Trust Implied Trust
As to matter of creation, it is created by the
intention of the parties
By operation of law
Manner of creation, by the direct and positive
acts of the parties evincing an intention to
create trust
Deductible by the nature of the transaction
As to proof, if it involves immovable, it cannot
be proved by parol evidence
Can be proved by parol evidence
As to prescription of action, it is imprescriptible
unless the trust has been repudiated
Prescriptible after 10years from the registyration
of the title
The property cannot ve acquired by
prescription
Can be acquired by prescription


Q: What is a resulting trust?

A: A trust raised by implication of law and presumed always to have been contemplated by the parties, the intention as to which is
to be found in the nature of their transaction, but not expressed in the deed or instrument of conveyance

Q: How about a constructive trust?

A: A trust not created by any words, either expressly or impliedly evincing a direct intention to create a trust, but by the construction
of equity in order to satisfy the demands of justice

Q: How do you distinguish a resulting from a constructive trust?
A:
RESULTING TRUST CONSTRUCTIVE TRUST
Based on equitable doctrine that valuable consideration, and
not legal title, determines the equitable title or interest
Created by the construction of equity in order to satisfy the
demands of justice and prevent unjust enrichment
Presumed always to have been contemplated by the parties Arise contrary to intention against who [in bad faith] ought to
hold the legal right to property

Q: Does it prescribe if it is an express trust?
A: No.
Q: What are the different kinds of express trust?
A:
1. Express trust involving immovable
2. Contractual or inter vivos trust
3. Testamentary trust
4. Pension or retirement trust
5. Charitable trust
Q: What is the proof necessary in express trust?
A: If immovable, then it must be in writing; movable, parol evidence may be introduced.
Q: What is parol evidence?
A: In the context of contracts, deeds, wills, or other writings, parol evidence refers to extraneous evidence such as an oral agreement
(a parol contract), or even a written agreement, that is not included in the relevant written document. The parol evidence rule is a
principle that preserves the integrity of written documents or agreements by prohibiting the parties from attempting to alter the
meaning of the written document through the use of prior and contemporaneous oral or written declarations that are not referenced
in the document.
So you cannot prove stipulations in the contract by parol evidence.
Q: So how do you establish an express trust under 1444 of the NCC?
A: Article 1444. No particular words are required for the creation of an express trust, it being sufficient that a trust is clearly intended.
So it is based on the intention.
Q: Can the court appoint a trustee?
A: Yes.
Q: What are those instances where the court can appoint a trustee?
A: Just read Rule 98 of the Rules of Court regarding the obligations of the trustee.
Q: Is a trustee entitled to receive his compensation or is that gratuitous?
A: Under the Rules of court, the trustee is generally entitled to a compensation.

BUS ORG TRUST
TSN by James
October 8, 2013

(Note: Q - Question, A - Students Answer; C Maam Comments)

Q: So we are now in Article 1445. State the rule and its exceptions.
Art. 1445. No trust shall fail because the trustee appointed declines the designation, unless the contrary should appear in the
instrument constituting the trust.

A: Under this rule, it says that if ever the trustee declines the designation, the trust does not necessarily fail unless it appears in the
instrument that the trust shall fail if ever the trustee shall decline the trust.


Q: Why is that so?
A: Because in case of refusal of the trust by the trustee, the court will appoint another trustee. If the appointment of the trustee is a
material provision, the trustor can provide that a refusal of the trustee ____ sought the failure of the constitution of the trust.


Q: Because what is the main reason?
A: Perhaps, under the Rules of Court, Rule 98, you cannot force a trustee to accept a trust. Necessarily there must be an acceptance.
If the trustee does not accept it, it does not necessarily mean that the trust will fail. Otherwise, the institution of the trust will depend on
the trustee and not on the trustor.

C: Okay, thank you. Take note: We are talking about express trust. So under Article 1445, even if the trustee declines the designation,
we must respect the intention of the trustor to create the trust. That is why the court comes in to appoint a substitute. In other words, the
intention of the trustor must be respected. That is the reason behind Article 1445. Take note that if on the other hand, no beneficiary
can be found, what will happen to the trust? The trust must necessarily fail. In one case, SC stated that as between the mother and the
uncle, the mother is preferred to be the trustee of the proceeds of the insurance policy in the absence of any showing that she is
incompetent. This is based on the case of Cabanas vs. Pilapil 58 SCRA 95.


Q: Can you please explain Article 1446?
ART. 1446. Acceptance by the beneficiary is necessary. Nevertheless, if the trust imposes no onerous condition upon the beneficiary,
his acceptance shall be presumed, if there is no proof to the contrary.


Q: Why is the acceptance by the beneficiary necessary?
C: Acceptance by the beneficiary is necessary for the perfection of the contract. So the acceptance by the beneficiary, this is akin
to a contract of donation that there must be acceptance. But as to the form of acceptance, no particular form is required even if
the subject property is immovable property. So form is not essential for the validity of the acceptance.


Q: What are the grounds for the extinguishment of an express trust?

C: GROUNDS FOR THE EXTINGUISHMENT OF EXPRESS TRUST
1. Accomplishments of the aims of the trust;
2. Expiration of the agreed term;
3. Mutual agreement of ALL the parties (the trustor, trustee and the beneficiary);
4. The happening of a resolutory condition if one has been imposed;
5. Total destruction of the object of the trust;
6. Annulment or rescission of the trust;
7. Decision of the court declaring the trust as terminated;
8. Merger of the rights of the trustor and the trustee as when the trustor waives his beneficial rights in favor of the trustee and vice
versa; and
9. Prescription which arises when there is an express repudiation of the trust.


Q: In express trust, is prescription a mode of acquiring ownership?
C: As a general rule, a trustee cannot acquire by prescription the ownership of the property entrusted to him because his possession is
not adverse. The exception is when he repudiates the same expressly. For how many years?30 years because it is a possession in bad
faith.


Q: When is there repudiation? What are the elements of repudiation?
C: There is repudiation when the following elements are present:
1. The trustee has performed unequivocal acts amounting to the ouster of the beneficiary;
2. Such positive acts of repudiation have been known to the cestuique trust (the beneficiary); and
3. Evidence thereon is clear and conclusive.

Take note, if there is repudiation, the beneficiary should file an action to recover possession of the property within 10 years from the
time the repudiation is made to him. We are talking here about express trust.


Q: How about if it is implied trust in relation to the question above, how many years?
C: If it is implied trust, 10 years from the time the right of action accrues provided that the beneficiary is not in possession of the
property. Take note, the basis of this 10 years is Article 1144, paragraph 2 of your Civil Code. This is an action based on an obligation
created by law.


Q: Why is it necessary that in order for this action to prosper, the beneficiary should not be in possession of the property?
C: Because if the beneficiary is in possession, it is not adverse and the action should be an action for quieting of title which is
imprescriptible.


Q: How about if it is a constructive trust, how many years?
C: 10 years from the date of the registration of the deed of conveyance which operates as a constructive notice to the whole world.


Q: What is an implied trust?
A: Implied trusts are those which are deducible from the nature of the transactions as matters of intent, or which are superinduced on
the transaction by operation of law as matters of equity, independently of the particular intention of the parties.

Q: What is a resulting trust?
A: A trust raised by implication of law and presumed always to have been contemplated by the parties, the intention as to which is
to be found in the nature of their transaction, but not expressed in the deed or instrument of conveyance

Q: How about a constructive trust?
A: A trust not created by any words, either expressly or impliedly evincing a direct intention to create a trust, but by the construction
of equity in order to satisfy the demands of justice.

Q: May an implied trust be converted into an express trust?
A: Yes. It may be converted into express trust by the recognition by the implied trustee to their right in the property inherited.

Q: Explain Article 1448.
ART. 1448. There is an implied trust when property is sold, and the legal estate is granted to one party but the price is paid by another
for the purpose of having the beneficial interest of the property. The former is the trustee, while the latter is the beneficiary. However, if
the person to whom the title is conveyed is a child, legitimate or illegitimate, of the one paying the price of the sale, no trust is implied
by law, it being disputably presumed that there is a gift in favor of the child.

A: In this case, there are two different persons involved. One is the person who has possession of the property bought and the other
person is the one who has paid the price. In this case, the person who paid the price is the beneficiary because it is somehow stated
that he paid the price to give the possession thereof, to have the legal title thereof, to the person in a possession as a trustee so that
the trustee may hold the trust and the benefit of the trust will go to the person who paid the price.

Q: So the legal title of the property is under whose name?
A: The possessor. But in a case when the person who has possession of the property is the child of a person paying the price of the
said property,, the law says that there will be no trust. But instead what is contemplated is a donation or a gift by the person who paid
the price to the in possession of the property who is his child.

Q: What kind of implied trust is Article 1448?
C: It is an implied resulting trust because in here there is an intention to create a trust but it is not put into writing. So take note ha that
this is otherwise known as a purchase money resulting trust.

The following are the requisites for a purchase money resulting trust:
1. Actual payment of money, property, or services, or an equivalent constituting valuable consideration; and
2. Such consideration must be furnished by the alleged beneficiary of the resulting trust.

In one case, SC ruled that there is no implied trust created when the purchase is made in valuation of the law.
Q: Explain Article 1449.
ART. 1449. There is also an implied trust when a donation is made to a person but it appears that although the legal estate is
transmitted to the donee, he nevertheless is either to have no beneficial interest or only a part thereof.

C: Take note here that the done is just like a dummy.

Q: Article 1450.
ART. 1450. If the price of a sale of property is loaned or paid by one person for the benefit of another and the conveyance is made to
the lender or payor to secure the payment of the debt, a trust arises by operation of law in favor of the person to whom the money is
loaned or for whom it is paid. The latter may redeem the property and compel a conveyance thereof to him.

Q: What kind of implied trust is Article 1450?
A: Constructive trust.

Q: Explain Article 1451.
ART. 1451. When land passes by succession to any person and he causes the legal title to be put in the name of another, a trust is
established by implication of law for the benefit t of the true owner.

Q: What kind of implied trust is Article 1451?
A: It is a resulting trust.

Q: Explain Article 1452.
ART. 1452. If two or more persons agree to purchase property and by common consent the legal title is taken in the name of one of
them for the benefi t of all, a trust is created by force of law in favor of theothers in proportion to the interest of each.

A: It is also a resulting trust.
C: Take note that the requisites for Article 1452 to apply:
1. Two or more persons agree to purchase a property; and
2. They consent that one should take the title in his name for the benefit of everyone.

Take note also under Article 1452 that here, the purchasers are co-owners of the property in the absence of any specific
agreement to the contrary, their shares are presumed to be equal pursuant to Article 485 of the Civil Code.
Another ruling of the SC, co-owners are trustees for the shares of the other co-owners.


Q: Explain Article 1453.

ART. 1453. When property is conveyed to a person in reliance upon his declared intention to hold it for, or transfer it to another or the
grantor, there is an implied trust in favor of the person whose benefit is contemplated.

C: This is a case of an implied resulting trust because of the intention of the grantee to whom or transfer the property to the grantor or
to another person.


ART. 1454. If an absolute conveyance of property is made in order to secure the performance of an obligation of the grantor toward
the grantee, a trust by virtue of law is established. If the fulfillment of the obligation is offered by the grantor when it becomes due, he
may demand the reconveyance of the property to him.

A: it is a resulting trust maam.

C: Okay. It is akin to a sale with a right to repurchase.


ART. 1455. When any trustee, guardian or other person holding a fiduciary relationship uses trust funds for the purchase of property and
causes the conveyance to be made to him or to a third person, a trust is established by operation of law in favor of the person to
whom the funds belong.

A: It is a constructive trust.

Q: Who are the persons covered by the provision?
A: An agent is also covered.


ART. 1456. If property is acquired through mistake or fraud, the person obtaining it is, by force of law, considered a trustee of an
implied trust for the benefit of the person from whom the property comes.

C: Requisites:
1. The property is acquired through mistake, fraud or abuse of confidence (based on jurisprudence); and
2. The mistake is committed by a third person.


ART. 1457. An implied trust may be proved by oral evidence.

C: Take note, even if the property involved is immovable. How about if it is express trust? If it is an express trust and it involves
immovable, it cannot be proved by parol evidence. If it involves only movable properties, then it can be proved by parol evidence.