PARTNERSHIP, AGENCY & TRUSTS SAN BEDA MEM Ory Alo 2018 ARTNERSHIP Partnership By the contract of partnership two or more persons bind themselves to contrbute money. property or industry to. common fund, with the intention of dividing the profits among themselves (CIVIL. CODE, An.1767) Pee ‘Two (2) or more persons may alsofom a pafinership for the exercise of a profession {CIVIL CODE,.Art, . 1767). OT COrLE: a ba Requisites for Existence of Partnership | 4. There was an intention to create partnership, 2. There as a common fund to be gbtaihed fer contributions: and yi There was ajointinterestin the ptt (4). | eae et Partnership as Separate Personality partnership has a juridical personality Separate and ‘istinc from that of each ofthe partners éven in case ‘of failure to comply with the requirements of Ar. 1772, part (CIVIL CODE, Art. 1768; DE LEON, Gomments and Cases on Partnership, Agency and Trusts, (2014), p. 9) [hereinafter, DE LEON: JURADO, Civil Law Reviewer, (2006), p.1042) Iereinater, JURADO} 3 ‘As an independent juridical person, a partnership may enter into contracts, acquire’ and possess property of all kinds in its name, as well as incur obligations and bring civil or criminal actions in conformity with the laws and regulations of its ‘organization (CIVIL CODE, Art. 46) In view of the separate juridical personality possessed by a partnership, the partners cannot be held liable for the obligations of the partnership Unless it is shown that the legal fiction of a different juridical personality is being used for a fraudulent, Unfair, or illegal purpose (Aguila, Jr. v. CA, 316 SCRA 246 [1999). General Professional Partnership A profession is defined as “a group of men pursuing a,learned art as a common calling in the spirit of ‘PUbIIC service ~ no less a public service because it ‘may incidentally be a means of livelihood” (I). ‘The practice of a profession is not a business or an “enterprise for profit. However, the law allows the joint ‘Di pursuit thereof by two or more persons as partners. © Irvsuch case, - partnershi the individual partners, and not the ‘wo engage in the practice of the cc and are responsible for their own acts as > stich (id. at 40). ‘While Strictly speaking the exercise of a profession is ‘ot a business undertaking nor an enterprise for profit, ~ the law considers the joint pursuit thereof, for ‘mutual help, as a partnership. (PARAS, Civil Code of the Philippines, Volume V, (2016), p. 580) [hereinafter 5 PARAS]. Partnership for the Practice of Law Itis not a partnership formed for the purpose of carrying on rade oF Business or of holding property but that which is intimately and peculany related to the administration of justice. Thus, the use of a nom de plume, assumed, or trade name inlaw practice is improper (DE LEON, supra at 11) EXECUTIVE COMMITTEE KATES JASTIN E. AGUILAR SUBJECT COMMITTEE CZARINA-MAYBELLYNE _V. Overall ‘Chairperson, PACIS. Subject “Chai.” LORETO CHRISTINE P. MONDERIN PLACIDO.” RUDOV Chalrperson for "Academics, BERNARDEZ Assistant Subject, CCHESKA’ ARIA’ C.”AGRUPIS Chairperson for Hotel Operations, MARA CLARA SC ESTRELLA Vice Chai for Operation, MARY CCYMIELL ©. SUMANQUL Vice hair for Seertaria,-ARTLYN GEM G.'SERORAN Vice Chair Chai, RONIFELE. 1. BARRIOS Eltron Data Procesing ‘THERESE ANJELICA M. BUERGO Pertons and” Femily Relations, KRISTINE “MAE” ACEDIRO Popes, JAMES “BRYAN S DEANG and CHERSH KIM B. forFinence ZAIRE XANDRAM. FERRER Obligation and Contracts REYES Vie Chair for Audit, ALYSSA. CHRISTINE. DELA ASMENAH IM. CRUZ Soles and Lease, NINA BARAMBANGAN VieeChairfor ANDREA D.ALMODAL Electronic Data Processing Parinership. Agency Tests, MARTIN ALEC N. BAUTISTA JOSHUA" V._ "CONSTANTINO Vie Char for Logistics MARVIE. “Credit Transactions, SAMANTHA Le PAGCALIWANGAN Vice MARIE” 'V. CONTRERAS (Chair for Membership Succeaton JULIA ANTOINETTE S. UNARCE Lond. ites ond Deed JESHA AINA F. NOBLE Torts and Damages, MIKKAELA BENEDICT 'S.MONES Conflict of Laser FLORAVICK ANA. ABAYA. CAMILLE. BENEDICTO. JEMIMAH FAYE L_BISDA, ANDREA D BRIONES, MARY CCHERWYN L. CASTRO, BEA PATRICIA. G. DANGAZO, SARAHB. DE. GUZMAN, ANNE MAE D. ENRIQUEZ, RONALD A. FLORES, ‘ADVISERS DEAN ED VINCENT. 5. ‘ALBANO, ATTY. MANUEL L- CASINO, ATTY. NICASIO C CABANEIRO, ATTY. JOSEPH FERDINAND’ M. DECHAVEZ, ‘ATTY, EFREN. VINCENT Mt DIZON, ATTY. “CHARLITO MARTIN R MENDOZA. ATTY. HUNCESCA™ LOURDES. M. GUSEPPE CHRISTIAN. AM SEGA, ATTY” ROWELL D. HUEVOS,“ KATRISHA ILAGAN ANALINE B. KOK, MARIA LUBANGCO, IVAN CHRIS T LUVZURIAGA, CARMEL MA TTARAT. NEDIODIA, KEVINE ALYSSA M. REALINO, FRances "ANGELA V. SALVACION, MARIA BEATRIZ. -R_VARONA. ERICA VISTAPARTNERSHIP, AGENCY & TRUSTS SAN BEOA MEMORY AID ZOLe Characteristics of Partnership (P°C?BON) 1. Brineipal ~ does not depend for its existence on ‘ther contracts; Statute of Frauds (Art. 1403). However there are formal requirements for creatin: alimited partnership (Id). 2. Preparatory — entered as a means to an end: 3. Profit-oriented ~ purpose is for profit and not just ‘common enjoymer 4, Commutative — undertaking of each one is Considered equal with the others; ‘Consensual ~ perfected by mere consent; Bilateral ~ entered by two or more persons and the rights and obligations arising therefrom are always reciprocal: 7. Qnerous — certain contributions have to be made; and 8._ Nominate — has a special designation th law (DE LEON, supra at 11-12; PINEDA, Partnership, Agency & Trusts (2006) p.53) [hereinafter PINEDA]. ‘A partnership contract, in its essence, is a contract of agency (see Art. 1818) (I. at 12) Essential Requisites (C°OP?S*) Articles of Partnership 'No required form is generally necessar however, it is customary to embody th. terms of the agreement in a documer known as “Articles of Partnership" statin. the name, nature or purpose and locatio: of the firm, and defining, among members the powers, rights, duties, and liabilities ¢ the “partners among themselves, thei contributions, the manner by which the profits and losses are to be shared, and the procedure for dissolving the partnershij a Later disagreements among the partner will not automatically destroy thi partnership. What is important is thi unanimous assent of the parties atthe tim 1. There must be a valid Contract: sass Cf the agreement to associate as partner 2. The parties must have legal Capacity to enter into fat the creation of the relationship (I.) the contract: 3. There must be a Contribution of money, property (industry to a common fund; 4, The Object must be lawful 5. The intent must be to obtain Profit and to divide the fame among the partes and 6, "There must beat east one general Rartne. 7. There must be affection Socetats. i 8. The arices of partnership must not bé kept Secret ‘among the members. Essential Requisites (C*OP*S*) 4. There must be a valid Contract The partnership relation is fundamentally contractual, The essential elements (Cause, Object, and Consideration) of a contract must be present (id. at 13) There is no such thing as a partnership created by law or by operation or implication of law alone (Ia) Note: The partnership relation is not the Contract itself, but the result of the contract (9) Form The relation is evidenced by the terms of the contract which may be oral, written, express or implied from the acts or declarations of the parties, subject to the provisions of Articles 1771 to 1773, and to the Statute of Frauds, No formality is required in setting up a {general partnership unless it falls within the 282 | 2018 SAN BEDA CENTRALIZED BAR OPERATIONS: As in other cases of contracts, in order ‘make an agreement for a partnership vac there must be a vaid consideration exit as between the partners. Each partne Sugenders to the partnership an inorest hig: property, labor, skis, or energy, aceordance with the express or impict ‘stipulations of their mutual agreement (/d) by Itis fiduciary in nature, Partnership is a personal relation in whict the element of delectus personae exists. Dolectus Personae (choice of persons) the authority of one partner to bind anothe by contract or otherwise. It involves trus and confidence between the partners. Nc fone can become a member of th: partnership association without the Consent of all the other associates (Id 15). One selects his partners on the basis 0 their personal qualifications and qualities, such as. solvency, ability, honesty, anc trustworthiness, among ___ others. (BAUTISTA, ESTEBAN B, Treatise o1 Philippine Partnership Law, 1995, at p. 9: as cited in VILLANUEVA, Agency, Trusts Partnerships and Joint Ventures, (2018) 1p-446) [heroinafter, VILLANUEVA}.PARTNERSHIP, AGENCY & TRUSTS MEMORY AID 2018 2. Note: Applies only to general partners (DE LEON, supra at 18; CIVIL CODE, Art 1866) Power to Dissolve Partnership Any one of the partners may. at his sole pleasure, dictate a dissolution of the partnership at will. He must, however, act jn good faith to avoid liability for damages (DE LEON, supra at 15-16). ©. The principle of estoppel applies (CIVIL CODE, Art 1825). tn such case, there is no actual or legal partnership. but-merely a partnership fabitty imposed by law in favor of third persons (OE LEON, supra at 16). Partnership liability may be imposed upon ‘a person under this principle where he holds himself out or permits himself to" be" held out as a partnerin an enterprise, 2.9 The parties must have legal Gapacity to enter into the contract Individuals Any person who cannot give tonsent to a contract cannot be a partner (DE LEON, supra ot 7) t 2 ‘Amaried woman even skeasy of aoe Sanne contbute conjugal funds as her contribution to the partnership, unless she is permitted to do ‘80 by her husband (FAMILY CODE, Art. 125) oF Unless she is the administrator ofthe conjugal parinership, in which case the court must give iis consent oF authority (FAMILY CODE, Art 124) Partnership as Partner There is no prohibition against 2 partnership ‘boing a partner in another partnership (Id). Corporation as Partner Unless authorized by a statute or by its charter, ‘a corporation Is without capacity or power to €enter into a contract of partnership (Mendiola v. CA, GR. No. 159333, July 31, 2006). Reason: Public Policy - The mutual agency between the partners, whereby the corporation would be bound by the acts of persons who are fot its duly appointed and authorized agents and officers, would be inconsistent with the policy of the law that the corporation shall manage its own affairs separately and ‘exclusively (Id) 3. There must be a mutual Contribution of money, ‘property, or industry to a common fund ‘a. Money ~ must be in legal tender. Checks, drafts, promissory notes and other mercantile documents are not_money. ‘There is no contribution of money until they have been cashed (CIVIL CODE, Art.1249), b. Property ~maybe real, personal, corporeal (or incorporeal property. Thus, credit and goodwill may be contributed (DE LEON, ‘supra at 19). Industry - means the active cooperation, the work of the party associated, which may be either personal manual efforts or intellectual, and for which he receives a share in the profits (not merely salary) of the business (Id) A limited partner in a contract of partnership cannot _ contribute mere se industry (CIVIL CODE, Art. 1845). Note: Proof is necessary that there be Contribution of money, property or industry (id. at 20), Sm obo purpon must be lo (IV Bore. Art. 1770) cobteulowu when tis conan tote "inorals; good customs, public order or public ‘policy (CIVIL CODE, Art. 1306). ‘Subject to this general limitation on contracts, a partnership may be organized for any purpose ‘except that it may not engage in an enterprise for which the law requires @ specific form of business organization, such as banking which under the General Banking Law of 2000 (R.A. No. 8791, Sec. 8.) only stock corporations may undertaké. (OE LEON, supra at 24). Instances of unlawful object are: to create illegal ‘monopolies or combinations in restraint of trade, to carry on gambling, to engage in s mugging, 0 lease furnished apartments to prostitutes, t0 ‘prevent competition in bidding for government ‘contracts, to control the price of a commodity in the inlerest of its members, etc. (DE LEON, supra at 24). Note: The illegality of the object will not be resumed. It must appear to be of the essence Of the relationship (Id. at 58) 5. The primary Purpose must be to obtain profits to ivide the same among the parties (Id. at 12) 2016 SAN BEDA CENTRALIZED BAR OPERATIONS | $93PARTNERSHIP, AGENCY & TRUSTS SAN BEDA MEMORY AID 2018 ‘A partnership is formed to cary on a business for profit. All that is needed is a profit motive. Hence, even an unprofitable business can be a partnership provided the goal of the business is to generate profits and to return these profits to the partners as owners of the business (ld. at 24), Its purpose must be for profit and not just for ‘common enjoyment of the property, money, etc, fr else it is one of co-ownership. Pecuniary benefit, however, need nat be the only purpose. Mt may have social, moral or spiritual aims (PINEDA, supra at 9) Sharing of Profits Since the partnership is engaged for the ‘common benefit or interest ofthe partners, there ‘must be an intention of dividing the profit among the partners (DE LEON, supra at 26). A stipulation which excludes one opsitidiall partners from any participation in the profits oF losses is void (CIVIL CODE, Art. 1799) Sharing of Losses The definition of partnership under Article 1767 refers to “profits” only and is silent as to “losses.” The reason is that the object of a partnership is primarily the sharing of profits,’ while the distribution of losses is but a “cohsequen: the same" (DE LEON, supra at 26), ‘Agreement Not Necessary is not necessary for the parties to agree upon, a system of sharing losses, for the obligation is implied from the partnership relation but if only the share of each partner in the profits has been ‘agreed upon, the share of each in the losses" shall be in the same proportion (CIVIL CODE, Att. 1797, par. 1), 6. There must be at least one general Partner ‘The law expressly requires that there be at least fone general partner (CIVIL CODE, Art. 1843) with unlimited fabilty. (40 Am. Jur. 477) 7. Thete must be affoctio Societatis Its the desire to formulate an active union with People among whom there exist mutual confidence and trust (delectuspersonarum) (PARAS, Civil Code of the Philippines, Volume V, (2016), p. 582) [hereinafter 5 PARAS]. 8 The atlices of partnership must not be kept ‘Secret among the members. Otherwise, the association shall have no legal personality and shall be governed by the 394 | 2018 SAN BEDA CENTRALIZED BAR OPERATIONS, provisions of the Civil Code relating to ce ‘ownership (CIVIL CODE, Art. 1775). Partnership v. Voluntary Association(JP-CL} Ty POCeriy PMc beers ‘Has juridical personality | Has no juridica ee There is. contribution of capital “There is no contrbutior of capital although fear are usually collectec from the members tc maintain the PEST The partnership isthe | Members are one lable individually able for se the debts of corporation (DELEON, supra at 52) Partnership v. Co-ownership (CJP?-D°AFT) eres créated by lcontraci, either express or law, but may exist even a\Generally created by plied without a contract |(.e.succession) Rens a Has a juridical personality|Has no ‘separate and distinct from| personality ‘that of each partner Realization of profits Sommon enjoyment of a thing or right TEE es juridical In general, a partner may|A co-owner cannot |bind the partnership represent the co ‘ownership May be stipulated upon [Must always depend ‘upon proportionate shares and any stipulation tothe ‘contrary is void 'No limitation upon the|An agreement to keep duration is set by law the thing undivided for more than 10 years is | not allowed I —————PARTNERSHIP, AGENCY & TRUSTS seDA MEMORY ores Corporation ‘Death or incapacity of a|Death or incapacty of a partner dissolves does not partnership necessarily dissolve the In general, there is -no|No public instrument is required form needed even if real |property is the object of the co-ownership. oe "A partner may not dispose A. co-owner can dispose ‘of his individual interest in of his share without the lthe partnership so as to consent of the others make the assignee a partner without unanimous consent (dat 48-497 Partnership v. Corporation CNJ-PMERET "FOG a os cus Created by mere|Created bylaw or by] agreement poration of aw rs ‘Alleas2 persons Requires ai least fveS) | nape excep 3) : corporation soe) Sas From the moment offFrom the date of [execution of the contract ssuance of the ot pernership \certoate Ei Incorporation by the sec Powers [May exercise any power!Can exercise only the expressly lgonted by law or implies from those | granted orincldent tots i lexistence ‘agreed upon, _ every|directors or trustees partner is an agent of the| partnership cet 'A partner, as such, can |sue a co-partner who) |mismanages Partners are generally |tiabie for partnership) \debis to third persons. cannot. transfer hb rest in tho| jparinefship so. as to imake the transferee a lpartner .. without the| [unanimous consent of all the existing partners. | porod of std Of dio stpulatod “bythe pornos ished for imited partnership cuir by law to add the) Word “Ltd May be dissdived at any ime by any or all of the| \partners land the Civil Code a. at 55-57) Partnership v. Conjugal P: Created by voluntary agreement of two oF Sneek [ Tersteabanorinonst | t lone instance. i end ‘The suit against a] ‘member of the board of directors or trustees| 'who mismanages must be in the name of the| ‘corporation Stockholders are liable) only to the extent of the) shares subscribed. by| them [Stockholder has| \generally the right to] lransfer his shares ‘without prior consent of| {the other stockholders. ‘Corporation may not be} {formed for a term in) excess of 50 years| extendible to not more| ‘than 50 years in any| ‘Corporation may adopt ‘any name provided its} not the same as or) similar to any registered firm name. Can only be dissolved! with the consent of the| State ‘Governed by the contract|Govemed by the [Corporation Code artnership of Gi Coheed rc ‘Only between a man anda woman 2018 SAN BEDA CENTRALIZED BAR OPERATIONS | 395PARTNERSHIP, AGENCY & TRUSTS EDA MEMORY AID 2018 i any more persons, belonging to either sex To obtain profits PT ‘According to ‘agreement of partners Or in proportion to their respective capital contributions Has: Turidical personality Distribution The whole interest of a partner may be disposed of without the consent of other partners [itis shared equally by | alt partners uniess one for more of them are appointed managers in | |e artes of | rinershi Governed by the stipulation of the ties er Partnership begins from the moment ofthe execution of the contract, unless. otherwise stipulated re mnn Cig To regulate property relations cars ‘Shares of spouses are divided equally Has no personality of Shares The. share of “each spouse cannot be disposed of during the ‘marriage even with the consent of the other ‘Although ‘administration balonds | toboth spouses j tho nusband's decison revail in case of. shall ddisagreemer ‘Governed b ‘Commences. precisely onthe celebration marriage. stipulation ‘contrary is v (DELEON, Supra at 50-52) Partnership v. A Cay Partners are mutual ‘agents of one another ‘and thereby the control that a principal has over his agent does not raat The agent 1s merely a legal extension of the personality of the | principal yency (CoRLi nt. y law date of to oid and idical ical | the of the | Any the thereby under the complete Control ofthe principal 396 | 2018 SAN BEDA CENTRALIZED BAR OPERATIONS pertain between and | Sa greater Partner binds not only | The agent who act the other partners and | within the scope 0 partnership, but also | authority does not bin himself in the pursuit of | himself to the contrac the partnership | or transaction he enter: enterprise. into. [When a partner enters | The agent must ente into a contract in his | into contracts anc ‘own name but in the | transactions in the Pursuit of partnership | name of the principal fo business, the other | the latter to be bounc partners’ and the | thereby. partnership would sti be bound thereby Eo Partnership v. Joint Venture (CF-TransPo Rea ad ey ar Contemplates, the | Ordinanly limited to < Undertaking of a general | single transaction anc 3 continuous | not intended to pursue < ess of a particular | continuous business. Has no fim name, prea The property used] The property usec rf becomes the property of | remains undividec |Ahe business entity and | property of ite henge “of all the | contributor. ines, "A partner acting in] None of | the co pursuance of the firm | venturers can bind the business, binds not only | joint venture or his co: himself asa principal, | venturers. but 2s their agent as | well, also. the and his co- (WILLANUEVA, supra at 451-457) Joint Venture ‘An association of persons or companies jointly Undertaking some commercial enterprise; generally, all contribute. assets and share risks (Kilosbayan, Incorporated v. Guingona, J, G.R. No. 113375, May 5, 1994) requires a community of intorestin the performance Of the subject matter, a right to direct and govern the policy in connection therewith, and a duty which may be altered by agreement to share both in profits andPARTNERSHIP, AGENCY & TRUSTS SAN BEDA MEMO RY AID 2018 losses _(InformationTechnology Foundation _v, COMELEC, G.R. No. 159139, January 13, 2004). ‘A joint venture, being a form of partnership. is to be governed by the laws on partnership (Marsman Drysdale Land, Inc. v. Philigpine Geoanalytics, Inc, GR. No. 183374, June 29, 2010). Requistes:(CRISp) ‘A Community of interest inthe performance of the ‘subject matter; 2. A Right to direct and govern the policy in ‘connection therewith; and 3, Duty to Share profits and losses (OE LEON, ‘supra at 84), Note: A partnership may be particular or universal (CIVIL CODE, Art. 1776) and a particular partnership, may have forts object a specific undertaking. Hence, falling under the second kind of partnership, joint venture is @ form of partnership with a’ legal personality. separate and distinct from the-parties! ‘composing it, and should thus be governed by the law of partnership (DE LEON, supra at 84) Effect of Failure to Comply Statutory Requirements 1. Under Art. 1772 — Even in casé of failure to execute @ public instrument and register the same with the Securities and Exchange Commission in cases when the, partnership capital exceeds P3,000, such | par ‘acquires juridical personality (DE LEON, supra at 27). 2. Under Articles 1773 and 1775 - The partnership shall not acquire any juridical ‘personality because the contract itself is void (i. Rules to Determine the Existence of a Partnership (CIVIL. CODE, Art. 1769) (NCR-Share) 1. General Rule: Persons who are Not partners as to each other are not partners as to third persons. Exception: Partnership by estoppel (CIVIL CODE, Art. 1825), Ilustration: If A and B are not partners as to each other, neither will they be partners with respect to C, a third person. But if A, with the ‘consent of 8, represents to C that they are partners, then A and B will be considered partners’ as to C even if they are not really partners (DE LEON, supra at 31), 2. Go-ownership or co-possession of a property does not of itself establish a partnership, whether such co-owners or co-passessors do oF do not share any profits made by the use of the property. Reason: The law does not imply a partnership between co-owners or co-possessors because of the fact that they develop or operate a ‘common property, since they may rightfully do this by virtue of their respective titles or common, ‘dominion over the property (DE LEON, supra at 31) Illustration: A and J inherited from theie father ‘an apartment which is leased to third persons. They are merely co-owners and not partners. There must be a lear intent to form a partnership (Id. at 32). Co-ownership Converted into Partnership The co-ownership of inherited properties is automatically converted into an unregistered partnership the moment said common properties andior the income derived therefrom, ‘are used as a common fund with intent to Produce profits for the heirs in proportion to thei yective shares in the inheritance as “determined in a project partition (fa v. CIR, GR No. L-19342, May 25, 1972). Note: The property of a man and a woman who =live together as husband and wife without the it of marriage or under @ void marriage all be|governed by the rules on co-ownership IFAMILY CODE, ar. 147 axing Of gross Returns alone does not indicate “a partnership, whether or not the Persons sharing them have a joint or cominon tight or interest in any property fromm which the retums are derived. Reason: When a business is carried on in “behalf of a given person as a partner, he is ‘conceived as being interested in its failures as well as its successes; itis the chance of gain or loss, which characterizes a business. Take note that in a partnership, the partners share profits after satisfying all of the partnership's liabilities (OE LEON, supra at 36). “Gross retums” may be paid over as ‘commission, wages, rents, interest on a loan. IMlustration: A, owner of a passenger jeepney, ‘agrees with J, a driver, that the latter shall have full control and use of the jeepney to carry passengers, pay for gasoline and oil, and shoulder the cost of repairs, and that the gross receipts are to be divided between them. No partnership is established as no sharing of Profits is contemplated (Id. at 37). Note: To regard the petitioners as having formed an unregistered partnership would result 2018 SAN BEDA CENTRALIZED BAR OPERATIONS | 397PARTNERSHIP, AGENCY & TRUSTS" AN 8 DA MEMORY AID 2018 in oppressive taxation. Their original purpose was 0 divide the lots for residential purposes, but they were compelled to resell because of the high cost of construction. There must be an ‘unmistakable intention to form a partnership of joint venture (Pascual v. CIR, G.R. No, 78133, October 18, 1988). 4, Receipt by a person of Share in the profits is a prima facie evidence that he is a partner in the business; sharing in the net profits presupposes sharing in the losses. However, no such inference will be drawn if such profits were received in payment: (DAWIC) ‘a. Asa Debt by installments or otherwise; b. Asan Annuity to a widow or representative of a deceased partner; cc. As Wages of an employee or rent to a andlor d. _Asinterest on a loan, though the amount of payment varies with the profits business; and fe. As the Consideration for the sale of a ‘goodwill of a business or other property by installments or otherwise (CIVIL CODE, Art. 1769, par.4) ~ Disputable Presumption of Partnership ‘The sharing of profits and losses. ig prima’ facie ‘evidence of an intention to form a partnership butnot conclusive evidence. The presum, : rebutted by other circumstances (DE LEON, m7) Test of Partnership Existence 1. Whether or not there is an agreement to contrib money, property, or industry to a common fund: and re greke = @ partnership, such persons become subject “c that limited partners are not bound beyond the ‘amount of their investment (CIVIL CODE, An 1843); 5. The books of the partnership shall be kept subject to any agreement between the partners ‘at the principal place of business of the partnership (CIVIL CODE, Art, 1805); 6. A fiduciary relation exists between the partner: (CIVIL CODE, An. 1807); 7. A capitalist “partner cannot cary on any competing business venture unless there is ¢ stipulation to the contrary (CIVIL CODE, Art 1808), while an industrial partner is absolute!) prohibited from engaging in any kind of busines (CIVIL CODE, Art. 1789); and & On dissolution, the partnership is_no terminated, but continues until the winding up o Partnership affairs is completed (CIVIL CODE Art, 1828). _...,Nete: These may be modified by stipulation of the P WlearIners subject to the rights of third persons dealing e partnership (DE LEON, supra at 46-47) Pardons Not Partners as To Each Other 1, Partnership by estoppel — A partnership car exist as to third persons if no contract o Ge erahyp, express ‘or implid, has. beer flefed fnto between the parties themselves WIL GODE, Ar. 1834, last par) except Ir ership by estoppel. Thus, where persons by ‘dis, consent, or representations have misled fird persons or parties into beleving tha the former’ are partners ina non-existing liabilities of partners to all who, in good faith, dea with’ them in their apparent relations. (CIVIL LODE, Ant 1825; Id). 2. Whether or not there is intent of the contracting7s== Parties to divide the profits among themselves (Id. at 45-46) Burden of Proof The burden of proving the existence of a partnership rests on the party having the affirmative of that issue (id. at 45). Incidents of a Partnership 1. The partners’ share in profits and losses (CIVIL CODE, Arts. 1767,1797, 1798, and 1799): 2. They have equal rights in the management and conduct of the partnership business (CIVIL. CODE, Art, 1803): 3. Every partneris an agent ofthe partnership, and. entitled to bind the other partners by his acts, for the purpose of its business (CIVIL CODE, Art 1818): 4. All partners are personally lable forthe debis of the partnership with their separate property (CIVIL CODE, Arts. 1816 and 1822-24) except 398 | 2016 SAN BEDA CENTRALIZED BAR OPERATIONS. 2. Persons living together without benefit of marriage Their wages and salaries shall be owned by them in equal shares and the property acquired by both ‘of them through their work or industry shall be ‘governed by the rules on co-ownership (FAMILY ‘CODE, Art 147). Partnership viz. Co-ownership The law does not imply a partnership between co- ‘owners or co-possessors because of the fact that they develop or operate a common property, since they may rightfully do this by vitue of their respective titles. Co-ownership can be converted into a partnership it ‘case where the heirs, who are engaged in a joint ‘venture, agreed that the income from the common properties be contributed to @ common fund (08PARTNERSHIP, AGENCY & TRUSTS SAN SEDA MEMORY AID 2018 Commissioner of Internal Revenue, 45 SCRA 74 11972). Object or Purpose of Partnership A partnership must have a lawful object and must be ‘established for the common benefit or interest of the partners. When an unlawful partnership is dissolved by a judicial decree, the profits shall be confiscated in favor of the state (CIVIL CODE, Art. 1770). The provision of the first paragraph Article 170 reiterates two essential elements of a contract of partnership’ 4. Legality of the object; and 2. Community of benefit or interest of the partners. (see, Art. 1767); (DE LEON, supra at 58) Effects of Unlawful Partnership (V-PIC) 4. The contract is Woid ab initio (CIVIL CODE, Art 1409, par. 1) woe iar 2. The Profs shall be confiscated in tavSh gfe” government (REVISED PENAL CODE, Art. 45); 3. The Instruments or tools and proceeds of the crime shall be. forfeited in” favor -of the ‘government; (REVISED PENAL GODE;Art. 45); and 4, The Contributions of the partners shall AGS © confiscated unless they fall under No, ‘3. (OE LEON, supra at 59). vor deste y comossh cE the happening of an event which makes it unlawlulfor . the business ofthe partnership to be carried on, oF for the members to cary it on in partnership, (CIVIL. CODE, Art. 1830 (3). Note: A partnership is dissolved by operation of f2¥ upon the happening of an event which makes it tunlawiul for the business of the partnership to be carried on, or for the members to carry it on in partnership (CIVIL CODE, Art. 1830 (3). Decree of Dissolution ‘A judicial decree is not necessary to dissolve an Unlawful partnership. However, it may sometimes be ‘advisable that a judicial decree of dissolution be secured for the convenience of the parties (DE LEON, supra at 59-60). The partners must be reimbursed the amount oftheir respective contributions. Any other solutions would be immoral (Amber v. Politico, G.R. No. 31057, ‘September 7, 1929) When an unlawful partnership is dissolved by a judicial decree, the profits shall be confiscated in favor of the State, without prejudice to the provisions, Of the Penal Code governing the confiscation of the instruments and effects of a crime (CIVIL CODE, Art 1770), Effects of Partial legality: 1. Where a part of the business of a partnership is. legal and part illegal, an account of that which is legal may be had; and 2. Where, without knowledge or participation of the partners, the firm's profits in a lawful business have been increased by wrongful acts, the Innocent partners are not precluded as against the guilty partners from recovering their share of the profits (DE LEON, supra at 62). Effect of Subsequent illegality ‘The happening of an event subsequent to the making of a valid partnership contract which would render ilegal the business of the partnership will not nulify the contract (I. at 63). _ Form of Partnership Contract w ie: A parinership may be constituted in ‘any HOor validly and enforceablt of the contract ‘among parties; regardless of the value of the ‘contribution (CIVIL CODE, Art.171), “Exceptions: (SLR) ERReal property or real right is contributed (CIVIL A 1771); and covered by the Statute of Frauds (CIVIL Art. 1403, par. 2 fa). j 1f Tach A and J oraly agreed to form 8 thon cne ad one half ar fom tay, Sethe fo caves P1000 ate aval ot the porod. 1 votes to. ahead win be Siemon canoer tie agreoman? No. Since the agreement is to be enforced after ‘one year from the making thereof, the same should be in writing under the Statute of Frauds (5 PARAS, supra at 610) 3. A Limited partnership, however, cannot be constituted orally. The requirements of the Statute must be substantially complied with (CIVIL CODE, Art, 1844); otherwise, the lability Of the limited partners becomes the same as that (of general partners (DE LEON, supra at 284). Note: Partnership's existence may be implied from the acts or conducts of the parties, as well as other declarations. In determining whether or not a particular transaction _ constitutes partnership, as between the parties, the intention should be ascertained (ld. at 65). Registration of Partnership Fallure to comply with the requirements does not prevent the formation of partnership or affect its 2018 SAN BEDA CENTRALIZED BAR OPERATIONS | 399PARTNERSHIP, AGENCY & TRUSTS SAN BEDA MEMORY AID 2ols liability and that of the partners to third persons (CIVIL CODE, Art. 1772). Purpose of Registration: To set a condition for the issuance of licenses to engage in business or trade {and to give notice to third parties. it can be assumed that the members themselves knew of the contents of their contract (TOLENTINO, Civil Code of the Philippines, Volume V (1992) p.326) [hereinafter 5 TOLENTINO)). The business purpose of the requirements under Arts. 1771 and 172 is to prevent evasion of tax liabilities by big partnerships and to protect the public by enabling those who deal with partnetships to determine more accurately the membership and ‘capital contributions (VILLANUEVA, supra at 499). Recording of Atices of Partnership is not for the ‘purpose of giving the partnership juridical personality, (DE LEON, supra at 67). ee Effectivty of Registration ie e Registration is effective from the date the partnership. papers are presented to and left for record in the Secures and Exchange Commission (SEC Opinion. February 8. 1962 and February 5, 1969) Partnership With Contribution Of Iminévablé Property ‘A contract of partnership is vag: whenever immovable property is contributed. thes inventory of said property is not made, signed by the parties, and attached tothe public instrument (GIVE CODE! Art. 1773) BS . 4. Form if Personal Property is Contributed). 2. if capitals ess than P3,000 — No special frm is required for its validity or existence. = b. Where the contract of partnership has/a capital of 3,000 pesos or more, in money or pproperty~ it shall appear in a public instrument and must be recorded in the Office of the Securities and Exchange Commission (Id. at 66), 2. Form if Real Property is Contributed (WIP) Where immovable property or real rights are contributed, regards of the value thereof The contract itself must be in Writing in a Public instrument; and b. An Inventory of the property contributed, signed by the parties, is attached to the public instrument (CIVIL. CODE, Art. 1773). If there is no inventory the contact of partnership is void and has no juridical personality. Moreover, to be effective against third parties, the partnership must also be registered in the Registry of Property 1400 | 2018 SAN BEDA CENTRALIZED BAR OPERATIONS Of the province where the real property contribute is found (DE LEON, supra at 68). Note: Inapplicable to immovable property which me bbe possessed or even owned by the partnership br ‘not contributed by any of the parties (DE LEO supra at 68). Adverse Effect of Failure to Comply wit Registration Requirements of Article 1773 Partners cannot avail of any advantage that th partnership medium affords them. The primar advantage that the partners have under @ de jut partnership setting is that their personal liablity to th partnership creditors for assets that have not bee Contributed to the firm is only joint and subsidian since they have the benefit of exciusic (VILLANUEVA, supra at 508) When they do not comply with the formalities unde ‘Att. 1773, the partnership is voi inthe sense that th rinars are deemed 10 be acting for themselve ‘entered into the partnership contracts an transactions. Thus, pariners can be held ‘rect liable by parinetship creditors. for all contract ‘entered ito, and all obigations assumed, in th pane othe partnersip which is declared vei) fe: The formalities mandated under Art. 1773 ar {hg protection ofthe parinership creditor: the declaration that the partnership Is vol jt affect the intra-partnership_relationshi “betwen and among the partners and between th Partners and the partnership itself (Torres v CA, G.F No, 134599, December 8, 1999). ‘Acquisition or Conveyance of Property b Partnership ‘Any. imimovable property or an interest therein’ me ‘be acquired in the partnership name. Tile s ‘acquired can be conveyed only in the partnershi name (CIVIL CODE, Art. 1774). ‘Transparency of Articles of Partnership Itis also required that the articles of partnership mu: ‘not be kept secret among the members; otherwise the association shall have no legal personality an shall be governed by the provisions of the Civil Cod relating to co-ownership (CIVIL CODE, Art. 1778). Secret Partnerships Without Juridical Personalit Itis essential that the partners are fully informed nc ‘only of the agreement but of all matters affecting th partnership (CIVIL CODE, Art. 1806). A partner i ‘considered the agent of his co-partners and of th partnership in respect of all partnership transaction (CIVIL CODE, Art. 1803) ‘Associations, whose articles or agreements are ket secret among the members and wherein anyone ¢PARTNERSHIP, AGENCY & TRUSTS SAN BEOA MEMORY AID zo1e them may contract in his own name with third persons are, by this article, deprived of juridical personality for evidently such associations are not partnerships. AS ‘among themselves, they shall be governed by the provisions relating to co-ownership (DE LEON, supra at. 70) While they cannot sue for lack of judicial personality, they may, however be sued by third persons under the “common name” they use. This is to protect Innocent third persons who might deal with them (PINEDA, supra at 40). Itis essential that the articles of partnership be given publicly for the protection not only of the members themselves but also of third persons from fraud and deceit to which otherwise they would be easy victims. (OE LEON, supra at 70) Claseficaton of Partnership ‘ee triacetate parler he segs the tabi of he Farrar ney be gon orgies (CR EOEE ‘art 1778) Classifications of Partnership: (OLDER-P2) 1. As to Object 2. Universal partnership 1 Gr Bt present propery (CIM CODE: ‘Art-1778), and ii, _ Of profits (CIVIL oe 780). b. Particular partnership one its object: (D-FUSE) i. Determinate things: ii, Their Use or Fruits, il, A Specific undertaking; and iv. The Exercise of a ‘profession or occupation (CIVIL CODE, Art. 1783). 2. Asto Liability of partners: a. ° General partnership (CIVIL CODE, Art 1816) — where all the partners are liabie pro rata with all their property after the partnership assets have-been exhausted; and b. Limited partnership (CIVIL CODE, Art 1843) — where the limited partners shall not be bound by the obligations of the partnership in excess of his capital ‘contribution 3. As to Duration: a. Partnership at will Note: A partnership that does not fix ts term is a partnership at will. The birth and life of a partnership at willis predicated on the mutual desire and consent of the partners. Verly, any fone of the partners may, at his sole pleasure, ictate the dissolution ofthe partnership at wil He must, however, 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 (Ortega v. CA, GR No. 109248, July 3, 1995). . Partnership with a fixed period; and c. Partnership for a particular undertaking ~ automatically dissolved upon the achievement of the particular undertaking stipulated in the contract of partnership (VILLANUEVA, supra at 534) 4. As to legality of Existence: ‘a. De jure partnership (CIVIL CODE, Arts. 1772, par. 2 and 1773), and b. De facto partnership (DE LEON, supra at 72) 5. As to Representation to others: ‘a. Ordinary or real partnership; and b. Ostensible or partnership by estoppel rn aay" ‘CODE, Art, 1825) bit: ‘a. Secret parinership; and 6. "Notorious or open partnership (DE LEON, iecial or trading (CIVIL. CODE, Art. issional or non-trading (CIVIL CODE, ) gern ‘@ommon Fund Co-ownership by the partners of the property and. _-Business of the partnership and which implies joint ‘powers of management and control ofthe partnership “saee8ni! In sharing of the profits and losses (DE LEON, ‘supra at 61). ‘A partnership may be deemed to exist among parties who agree to borrow money to pursue a business and to divide the profits or losses that may arise therefrom, even if it is shown that they have not contributed any capital of their own to a “common fund,” as their contribution to such fund could be intangible lke credit or industry (Lim Tong Lim v. Phil, Fishing Gear Industries, Inc., G.R. No. 136448, November 3, 1999). Salient Features of Ordinary Partnership: 1. Community of interest in profits and losses; Note: Mere sharing of profits itself does not of Necessity constitute a partnership (Id. supra at 62). 2. Community of interest in the capital employed; and 3. Community of power in administration (Id. at 63). 2018 SAN BEDA CENTRALIZED BAR OPERATIONS | 401,PARTNERSHIP, AGENCY & TRUSTS SAN BEDA MEMORY AID 2018 Universal Partnership ‘A.universal partnership may refer to all the present or toll the profits (CIVIL CODE, Art. 1777) ‘A. Universal Property ‘One wherein the partners contribute all the property which actually belong 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 (CIVIL CODE, Art. 178), Partnership of All Present In a universal partnership ofall present property, the property which belonged to each of the paitiners at the. time. of the constitution of the partnership, ‘becomes the common property of al the partners, as well as_all the profits which they may acquire therewith {A ipulation for the common enjoyment of any other ANSWER: No, because there was no stipulatio. regarding future properties or theic fruits If there wa a stipulation, the land acquired as salary as well a its fruits will belong to the firm; but the land acquire later by inheritance will not belong to the partnershi since this cannot be stipulated upon (ld). Universal Partnership of Profits ‘One which comprises all that the partners ma acquire by their industry or work during the existenc Of the partnership and the usufruct of movable ¢ immovable property which each of the partners ma possess af the time of the celebration of the contrac (CIVIL CODE, Art. 1780) Coverage ‘A universal partnership of profits comprises all the the partners may acquire by their industry or work; becomes common property @.g. commission in transaction, salary or wages. The acquisition must by during the ‘existence of the partnership (PINED¢ Petts oy bo moder but te propery om Berner ray acu subscuenty by nie eee Cie legacy, or donation cannot be" included ‘in. such stipulations, except the fruits thereof (CIVIL. CODE, Att. 1779). The following become the common, aroma at of partners: 41. Property which belonged to each ¢ ange a no time of the constitution of the pai arid 2. Profits which they may acquire fi Contibuted (OE LEON, supra af 76.77) Rule on After-acquired Properties {AS rule, aside from the contributed properties enil the profits of the contributed common property ( coher profits) are included. Thus, should a partner ‘Acquisition not by industry or work are not include: 49. winning a lotto, legacy of interests derived fror a bank deposi. tay-acquire by their industry or work, profit, by, their partners through chance (ie wittiout employment of any physical o ual éfforts are not included (DE LEON, supr. ‘Partners retain their ownership over their present anc future property. What passes to the partnership an the profits and the use of the same (Id) subsequently acquire a property as remuneration fore QUESTION: A and 8 entered into a universe his work, such property and its fruits are not to:be ‘enjoyed by the universal partnership of all present property (5 PARAS, supra at 619). However, profits from other sources may become ‘common, only if there is a stipulation to such effect (ia). Properties subsequently acquired by inheritance, legacy or donation, cannot be included in the ‘stipulation but the fruits thereof can be included in the stipulation (Id. at 620) QUESTION: A and B entered into a universal partnership ofall present property. No stipulation was made regarding other properties. Subsequently, A received 2 parcel of land by inheritance from his father; and another parcel of land from the San Beda University as remuneration for A's work as a professor therein. Are the two parcels of land and ‘their fruits to be enjoyed by the partnership? 402 | 2018 SAN BEDA CENTRALIZED BAR OPERATIONS, partnership of profits. Later, A purchased a parcel ¢ land. Will the fruits of said land belong to th partnership? ANSWER: As a rule, NO, because the usufruc ‘ranted tothe firm under Art. 1780, par. 2, refers onl to that of the property possessed by the partner atthe time of the celebration of the contract. I follows tha fruits of after-acquired property do not belong to the firm asa malter of right (5 PARAS; supra at 621-622) Presumption: Articles of Universal Partnership entered into without specification of its nature, onl constitute a Universal Partnership of Profits (CIVIi ‘CODE, Art. 1781). Reason: A universal partnership of profits Impose: less obligations on the partners, since they preserve the ownership of their separate property (DE LEON supra at 79).PARTNERSHIP, AGENCY & TRUSTS SAN BEDA ME MORY AID ols Universal Partnership of all Present Property v. Universal Partnership of all Profits Cen pion Of all Profits Ceres ‘Al present property | Property, which the actually belonging to | partners owned at the the partners are | time of the celebration ‘contributed tothe | of the contract, shall partnership, which | continue to periain to become | common | them. Only the: property of all the | usufruct (use and partners and the | fruits) shall become partnership, common property. | ro Only protis “corned All" pete serene trom “the” property | trough the “nsusty Centroutod _Bocams | or wan of the parton, common propery tut | come Samon ret pros arg em | property i oiher propery ot tre oe parrots The ‘tattr a protis, however ‘may Be spalaton "bs Gnsideed ss common. property for tho onoymont of (CW CODE: hts 1770 ar 7780) Persons Prohibited from Engaging) and Universal partnership( 1. Legally married spouses (FAMILY’ ‘cooks es 87), However, spouses may enter ilo. a Particular partnership like the exercise of profession or vocation (CIR v. William J. Ser CTA, GR No, L-25532, February 28, 1969); =o 2. Common law spouses (FAMILY CODE, Art 87); 3. Parties guilty of adultery or concubinage; and Note: Conviction not required, the guilt of the parties may be proved by preponderance of ‘evidence (CIVIL CODE, Art. 739) 4. Criminals convicted for the same offense in Consideration of the same (CIVIL CODE, Art 739). Reason: To allow them will be like permitting them to do indirectly what the law expressly prohibits Effect of Violation The partnership violating Art. 1782 is null and void, and its nullity may be raised anytime. No legal personality was ever acquired (5 PARAS, supra at 623) In a universal partnership, the object is vague and indefinite, contemplating @ general business with some degree of continuity. In particular partnership, the object is well defined and limited, being confined to an undertaking of a single, temporary or ad hoc nature(DE LEON, supra at 82). Examples: To construct a building: to buy and sell real estate; to practice the law profession, Here in a sense, it is as if all the members are industrial partners (Io). Universal Partnership v. Particular Partners! roy oy eee As to Subject Matter The / Practical and Legal importance of ‘Distinguishing between Universal and Particular Partnerships ‘The usefulness of the distinction is that persons who __ fe disqualified rom donating to another cannot enter “nto-a universal partnership of any sort. Also, the rights and obligations that may arise from subsequent ventures pursued by the partners would be determined whether they are bound under a universal oF particular type of partnership. (Id. at 532). May spouses validly enter into a partnership relation? Spouses cannot enter into a Universal Partnership. Art. 1782 of the Civil Code provides that, “persons who are prohibited from giving each other any donation or advantage cannot. enter into Universal partnership.” It has thus been opined that since under Art. 87 of the Family Code, “every Right to inspect and copy partnership books (CIVIL CODE, Ad. 1805): eso onan fama scout (Cv DE Art. 1809); htt ask for the dissolution ofthe firm atthe sftime (CIVIL CODE, Arts. 1830-1831). “Seana ule" partnership. begins tom te moment of the execution of the contract (CIVIL "CODE, Art. 1784). ‘The birth and life of a partnership is parties (Ortega v. CA, supra). Hence, as a rule, even if contributions have not been made, the firm already exists, for partnership is @ ‘consensual contract (5 PARAS, supra at 627). Exception: Partners may stipulate some other date for the commencement of the partnership (CIVIL CODE, Art. 1784). Agreement to Establish Future Partnership The contracting parties are authorized by way of exception to stipulate on the date the contract of partnership shall begin to exist, However, if the Contracting parties agreed to become partners not at the time of the execution of the contract but at the: ‘same future time, they do not become partners until the appointed time has arrived(PINEDA, Id. at 49). 2018 SAN BEDA CENTRALIZED BAR OPERATIONS | 405,PARTNERSHIP, AGENCY & TRUSTS SAN BEDA MEMORY A Partnership with a Fixed Term ‘One which the term of its existence has been agreed upon expressly or impliedly. The expiration of the term or the accomplishment of the particular undertaking will cause the automatic dissolution of the partnership (DE LEON, supra at 89) Rights and Duties of Partners. When a partnership for a fixed term or 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 (CIVIL CODE, Art. 1785, par. 1) Now Partnorship is Created (Partnership at Will) ‘Accontinuation 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 (CIVIL Ci 1788, par. 2) oF a With such continuation, the partnership for a fad terms dissolved and a now one is ereated by implied agreement (DE LEON, supra at 90) Kinds of Partnership at Will (VILLANUEVA) Sp at 534) 1. When at the onset, there is no tenn ‘express or implied; and { Prima facie evidence of firm's When itis continued by the habitual ma although the period has ended or the. put has been accomplished (CIVIL CODE, 1785). 2 Dissolution ‘Anyone of the partners may dictate dissolution of the partnership at will But he must act in good faith (DE LEON, supra at 90) ‘There is no such thing as an indissoluble partnership (ld.at 90). Note: Presence of bad faith can stil cause dissolution but results in liability for damages to other partners (Id.at 90) ‘Obligations of Partners among Themselves ‘A. Obligation With Respect to Contribution of Property (CoW-DAD) To Contribute what had been promised (CIVIL CODE, Art. 1786); Reason: The mutual contribution to a common fund is the essence of partnership, for without the contributions the partnership is useless (DE LEON, supra at 93). ‘406 | 2018 SAN BEDA CENTRALIZED BAR OPERATIONS. ‘The money or property contributed becomes thy property of the partnership. Hence, it cannot br withdrawn or disposed of by the contributin partner without the consent or approval of th partnership or other partners (ld). ‘When specific and determinate things had beer contributed, the contributing partner is bound t warrant the things against eviction; but, warrant: Js not applicable where the contribution of the partner (industrial) is personal services. However he is liable for damages if he refuses or neglect: to render the services without valid justifcation (PINEDA, supra at p. $3). He cannot, however, be compelled to render hi personal ‘service ‘by specific performanct because that is tantamount to. involuntar servitude (Id) Effect of Failure to Contribute Propert "Promised: The failure to contribute is to make thi «partner ipso jure a debtor of the partnership ever in the absence of demand. In case of fall, th femedy isnot rescission but an action for spect. performance with damages and interest (Sana » GR. No. L-33580, February € However, it the defaulting partner § Bad, rescission may prosper (Pabalan ‘GR No, -5963, February 24,1912) ant specific and determinate propert ® \eoniributed to the partnership in case of evictior © (GIVIL CODE, Art. 1786); son: The obligation of warranty agains eviction Is the necessary consequence of tht nature of the partnership which is an onerou: ‘contract (PINEDA, supra at 53). Remedy for Broach: The partnership ma recover the proper indemnity from thy contributing partner (Id. at $4) Note: The warranty referred to includes that ¢ against hidden defects; the contribution to thi partnership is an onerous contract of alienation land the provisions of the law on sales, so far a pertinent, should be applied (5 TOLENTING ‘supra at 331), Warranty is not applicable where the contributor of the partner (industrial) is personal services “However, he is liable for damages ifhe refuses o neglects ‘to render the services without vali justification, He cannot, however, be compelled tt ender his personal services by specifi performance because that is tantamount ti Involuntary servitude (PINEDA, supra at 53)PARTNERSHIP, AGENCY & TRUSTS SAN BEDA MEMORY AID 2018 Enforceability of Warranty ‘The warranty cannot be enforced until a final judgment has been rendered whereby the vendee losses the thing acquired or part thereof (CIVIL CODE, Art. 1557) The partners shall not be obliged to make good the proper warranty, unless he is summoned in the suit for eviction at the instance of the vendee (PINEDA, supra at 53). To Deliver the fruits of the property from the time: they should have been delivered, without the need of any demand (CIVIL CODE, Art. 1786); Note: No demand is necessary to put the partner in default (Id at 95). 1. If property has been promised, the ruts thereof ‘should also be given. The fruits referred to are those arising from the time they should have been, aura, tou coed Ot sy Sopa PACK PARAS, supra at 629). If the partner is in bad faith, he's liable not only for the fruits actually produced, but also forthose that could have been produced (5,PARAS, supra at 629). to | \ b. I money nas been promised} int =r wan nis obigaton shout be ren Art 1788), Hee, again, no ceman eS Put th paar etal (8 PAPAS. supra at B20) ‘anid If what is promised is only the “use" of a specific = thing which does not include its ownership, the conttibuting partner must sill warrant the thifig'* against eviction. The situation is akin to a “lease” agreement (PINEDA, supra at. 54). It what is contributed is credit, the contributing partner will only warrant its existence but not the ‘solvency of the debtor unless there is contrary stipulation (I. Remedy For Breach Of Warranty The partnership may recover the proper Indemnity from the contributing partner. If the partnership would not have been constituted had itnot been for the property contributed, the other partners may seek the dissolution of the firm (Id). When contribution is in goods, the amount thereof must be determined by proper Appraisal of the value thereof at the time of contribution (CIVIL. CODE, Art. 1787); Reason: To determine how much has been contributed (5 PARAS, supra at 630) Manner of Appraisal: ‘a. That which is prescribed by the contract; or b. In the absence of stipulation, by experts chosen by the partners according to current prices (DE LEON, supra at 97). Necessity of Inventory-Appraisal Proofs needed to determine how much goods or money had been contributed. An inventory is therefore useful (Tablazon v. Bollozos, C.A., 51 0.6. 1966) Risk of Loss. After goods have been contributed, the partnership bears the risks of subsequent ‘changes in their value (CIVIL CODE, Art. 1787). ‘Any subsequent increase or decrease in value of ty contributed will be for the account of fi (PINEDA, supra at $5). S Property Subject to appraisal In’ease of immovable property, the appraisal is gee ee ws negessary acts of circumstances are brought to th Reason: Apparent lack of confidence, witho prejudice to the liablity for damages PARAS, supra at 705). In contravention of the agreement between tr partners, where the circumstances do not pert fa dissolution under any other provision of th article, by the express will of any partner at ar time; ‘This may be made even though the partnersh was entered for @ definite term or particul: undertaking. The withdrawing partner shall t liable for damages for unjustified dissolution, bi in no case can he be compelled to remain in tr partnership. It is a power and not necessarily fight to dissolve a partnership(Rojas v: Maglan. supra): I the cause i not justified, orno cause was give! the withdrawing partner is ible for damages, bt oe can he be competed to remain in th B PARAS, supra at 705) His withdrawal wil always result in dissolution « the firm because the number of partners | "reduced. Any change in the relation of th FS will cause dissolution (PINEDA, supra z | pallor fom of notice of wiheraval | and iis eucent that uneivoc {rowledge ofthe other parnors that sian th trerde ofthe wil or purpose to terminate th partnership (ld.). -BY-any Event which makes it unlawful for th 2 Stupmsee*pusiness ofthe partnership to be cated on or fe Unanimous Agreement ‘The agreement must be unanimous, Majority alone cannot dissolve the partnership without breach of contract (ld) iv. By the expulsion of any partner from the business bona fide in accordance with such a ower conferred by the agreement between the partners. The expulsion has the effect of decreasing the number of the partners, hence, the dissolution. The expulsion must be made in {900d faith, and strictly in accordance wath the ower conferred by the agreement between the partners. This power may be vested in ‘one partner exclusively. The partner expelled in bad faith can claim damages (ld). 424 | 2018 SAN BEDA CENTRALIZED BAR OPERATIONS. 6. the members to cary it on in partnership: Note: If the business or the object had bee Unlawful from the very beginning, the firm neve had juridical personality (5 PARAS, supra at 706, In any case by the Loss of the thing: ‘a. When a specific thing which a partner ha promised to contribute to the partnershig perishes before the delivery; or b. When the partner has only contibuted th usuffuct of the property Reason: The partnership is dissolved becaus: the partner has not or is deemed to have nc ‘given his contribution (DE LEON, supra at 224). ‘This provision refers only to specific things. Whe! the thing to be contributed is not specific, Article 1786 (par. 1) and 1788 shall govern (id).PARTNERSHIP, AGENCY & TRUSTS SAN BEDA MEMO Note: The mere failure by a partner to contribute his share of the capital pursuant to an agreement to form a partnership does not prevent the existence of a firm. Such failure may be waived by the other parties to the agreement (DE LEON, supra at 224), By the Death of any partner; When a partner dies, there is an automatic dissolution of the partnership because there is @ reduction in the number of the original partners (PINEDA, supra 164). The surviving partner will contiue the business of the partnership under certain cumstances. if the surviving partners desist from continuing the business and decide to liquidate the partnership assets, the firm is not inthe state of partnership liquidation (4). Avview has been expressed that the Seay, . e partnership when, by common agreement, the Dr dada B conde: ie sald aungande Seg Sch cose conicered a coniguaton oF hey sriint corral of partnership It such 2 however, thee is a Gssolution ofthe paersR. vnthoutoandng up. anda content tho business of the dissolved partnership by a lew pertnrship of whic the eur fhe hove ote dacoaved or xis members becoming late 25 he od we Creditors of the fim (DE LEON, seta 2S By the Civil interdiction of any partner; ba Ry arD 2018 Note: The insolvency of the partner or of the partnership must be adjudged by the court (id. at 227). Reason: By the insolvency of the partner, his Credit is impaired. It would be impossible for him to pay for partnership liabilities in case the partnership assets have been exhausted, Insolvency of the partnership results to inability ccontinue the business which practically amounts to dissolution (Id. at 226). 1. By Decree of court under Art, 1831 (CIVIL CODE, Art. 1830). “The decree must be a final judgment rendered by ‘a court of competent jurisdiction (5 PARAS, ‘supra at 709). Under Article 1831, there are several circumstances like insanity, imbecilty and other cities which may be used as basis for dissolution of the partnership (PINEDA, Fat 165). Limitiig The Causes of Dissolution FS Gannot enter into an agreement where atig'dissolution of partnership brought out by the court, the presiding judge glace ihe partnership under receivership and direct an accounting to be made towards winding up doe farpefain ates, rounds for Judicial Dissolution: (FLO) The Soun shall decree cssoution, on appitcation by Civil interdiction which is a mandatory accessdfy"or for a partner, whenever: penalty imposed when the penalty is at least reclusion temporal restricts the capacity to act of 2 partner. A civil intedictee cannot manage his ‘own properties, neither can he donate properties inter viv. This is known as civil death (PINEDA, supra at 165) 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 (REVISED PENAL CODE, Art. 34). Reason: One who is without capacity to manage his own property should not be allowed to ‘manage partnership property (DE LEON, supra at 229). By the Insolvency of any partner or of the partnership; Any partner commits Misconduct or persistent breach of partnership agreement, such as when: a) A partner wilfully or persistently commits a Breach of the partnership agreement, or otherwise conducts himself in matters relating to the partnership business that it is not reasonably practicable to cary on the business in partnership with him; A partner has been Guilty of such conduct as tends to affect prejudicially the carrying on of the business (CIVIL CODE, Art. 1831). ») Reason: They defeat and materially affect and obstruct the purpose of the partnership (DE LEON, supra at 232), Temporary grievances, __discourtesies, disagreements, oF mistakes of judgments that involve no permanent mischief or injury will not suffice as the basis for a judicial decree of dissolution (ld) O18 SAN BEDA CENTRALIZED BAR OPERATIONS | 425PARTNERSHIP, AGENCY & TRUSTS SAN BEDA MEMORY AID 2018 Where a partner is quity of serious misconduct, the only remedy available to co-partners is to apply to the court for dissolution. But the partnership agreement may expressly confer the Power to expel a partner under specified Conditions. When this power is exercised in good. faith, it causes dissolution, without violation ofthe partnership agreement, ‘although no suit has been instituted to that end (id. at 233) 2. Apartner has been declared Insane in any judicial proceeding or is shown to be of unsound mind; Note: The partner may have been previously declared insane in a judicial proceeding otherwise, his insanity must be duly proved. It ‘must materially affect the capacity of partner to perform his contractual duties as such (Id. at 231), Incapacity: A pariner impliedly undertakes to advance the success ofthe partnership, he is a member by devoting to reasonable mits, his time, effort, and abity. His Co-partners aro ented to his contibution ani, {or any reason, he falls to full his duties they are thereby deprived, in. greater or less, Begres, according 10 the extent of his faluré, ofthe Benefits of the contract which they have dnd. of the ‘ruts. thereot 0 which legitimately entitled. Hence, the have the power to decree disslution Dartnership because of Incapacity of @ partner which mately affects his ability to discharge the duties imposed by his partnership contract. (id, at 232) ‘The incapacity contemplated by law is incapacity which is lasting, from which the prospect f= recovery is remote. if the disabilly be of a temporary nature, if it be merely an occasional malady or accidental ilness, if there be a fair prospect of recovery within a reasonable time, then, and in such cases, there is no fit ground to decree a dissolution, for every partnership must be presumed to be entered into, subject to the common incidents of life such as temporary illness, infirmity, oF insanity (Id). 3. Apartner becomes in any other way Incapable of performing his part of the partnership contract; Note: The incapacity must be lasting, from which the prospect of recovery is remote (Id. at 232) 4. The business of the partnership can only be carried on at a Loss; Note: A court is authorized to decree dissolution ‘notwithstanding the partnership has been making 426 | 2016 SAN BEDA CENTRALIZED BAR OPERATIONS, profits where it appears at the time of t! ‘application that the business can only be carrc fon at a loss (Id, at 233). 5. Other circumstances render that dissolutic equitable: lle. Abandonment of the business; Fraud jn tl ‘management of the business; Refusal witho justifiable cause 10 render accounting of t! partnership affairs. ‘On the application of the purchaser ofa partner interest: 1. “After the termination of the. specified tom particular undertaking: 2. ‘Atany ime if the partnership was a partnership wil when the interest was assigned or when th charging order was issued (CIVIL CODE, A 1831), EFFECTS OF DISSOLUTION $18 Partner's Authority to Act for tr Partnership = General Rule: Dissolution terminates ALL authori Of any partner to act for the partnership (CIVIL COD: Qualifications to the General Rule: 4. With Respect to the Partners (in so far as partne: / ate. concerned): 4, ‘Dissolution is not by Act, Insolvency or Dea (AID) of a partner: general rule applie Hence, dissolution terminates the actu authority of a partner to undertake ne business for the partnership (CIVIL COD! Art. 1832); . Dissolution is by act, insolvency or death of partner: authority of partners inter se to act f the partnership is not deemed terminate: Thus, each partner is liable to his co-partne! for his share of any liability created by ar partner acting for the partnership as if tr partnership has not been dissolved (CIV. CODE, Art. 1833). Exceptions to (b): 1. The cause of dissolution is the act of partner and the acting partner he knowledge of such dissolution; li, ‘The cause of dissolution is the death « insolvency of @ partner and the actin partner had knowledge or notice of suc dissolution (CIVIL CODE, Art. 1833).PARTNERSHIP, AGENCY & TRUSTS SAN GEDA MEMO RY AID 2018 te: When a person has knowledge of a fact: 1. Not only when he has actual knowledge but also when has knowedge of such other facts as in circumstances show bad faith. 2. A person has notice of a fact when the person who claims the benefit of notice: 8. States the fact to such person, or b. Delivers through the mail or other ‘means a written statement of the fact to such person 6r to a proper person at his place of business or residence (DE LEON, supra at 239), Notice should be sufficient if the fact to be notified is an ordinary business fact as when a latter concerning transactions is placed on the desk of B, but B never opened the letter 5 PARAS, supra at 717) Death or insolvency, being 5 ea than an “act,” notice is enough. He law provides "knowledge or notice” (/d. at 718). Article 1833 applies only ifthe contrat oF the “ye pore bin’ he anoint fine Portersip nat bound. ety Pasnerie personaly tate aay 3 2. wih Respct to Thi Persons: | The part Te general oud. 0) onmecl alton aufory of cir ps already deemed terminated but thé in 5 partners can recover from the guilty partners. ‘8. When partnership is bound to third person after dissolution (CIVIL CODE, Art. 1834) i. Acts appropriate for’ winding up partnership affairs ji, Acts for completing unfinished transactions ii, Any transaction which would bind the partnership if dissolution had not taken place provided the parties are in good faith, meaning the other party is: 1. A previous creditor and he had no knowledge or notice of the dissolution; or 2. Not a previous creditor and the fact of dissolution had not been published in a newspaper of general circulation b. When partnership is not bound to third persons after dissolution (Ne-U-1-UW/4) 1 Completely New transaction which ‘would bind the partnership if dissolution had not taken place with third persons in bad faith. ii, Where ‘partnership was dissolved because it was Unlawful to carry on the: business, except when the act is for winding up: ii, Where the acting partner in the transaction has become Insolvent jv. Where the partner is Unauthorized to Wind up, except ifthe transaction is with third persons in good faith (same circumstances as defined above); v. Where act is Inappropriate for winding up or for completing unfinished transactions(CIVIL CODE, Art. 1834). Notice of Dissolution to Creditors 1. Person had extended credit prior 10 dissolution — they must have knowledge or notice of dissolution, a ae notice must be actual '$_ Who had known of partnership fexistencé — publication is sufficient. Note:/The fact that the dissolution has been ‘would be sufficient even if they did ually read the advertisement (DE J, supra at 242-243) int Partner Need Not Give Notice liability of a partner unknown as such to thé person with whom the contract is made ©. 0680 far unknown and inactive in partnership © pifirs shall be satisfied out of partnership ‘assets alone (DE LEON, supra 246), A dormant partner is both inactive and secret. His connection with the partnership ‘not having known, it cannot in any degree have contributed ‘towards establishing its reputation or credit (Id). Third persons, not having dealt with the partnership in reliance upon the membership of the dormant partner, are accordingly not entitled to notice of his withdrawal. The principle of estoppel cannot Operate to continue his liablity or his authority after dissolution since prior thereto, hhe was never known or held out as a partner. However, he will be personally liable for partnership debis arising at the time of his retirement (ld). Liability Of A Pretender: If after dissolution of the firm, a person pretends to be a partner though he is not and enters into transaction In behalf of the firm, he will be liable as a partner by estoppel under Articie ‘2018 SAN BEDA CENTRALIZED BAR OPERATIONS | 427PARTNERSHIP, AGENCY & TRUSTS SAN BEDA MEMORY AID 2ole 1825. Similarly a partner of an existing partnership who consents to the representation made by the pretender, is also liable to the persons with whom the pretender has dealt with (PINEDA, supra at 175). B. As to Partner's Existing Liability General Rule: Dissolution does not automatically discharge the existing labilly of any partner (CIVIL CODE, Art. 1838). Exception: A partner may be relieved from all ‘existing liabilties upon dissolution only by an agreement among: 1. Pariner concerned; 2. Person or partnership continuing the business; and 3. Partnership creditors (CIVIL CODE, Art. 1835, ar. 2) ‘The individual property of a deceased partner shall be liable fr all obligations of the partnership, wile he was a partner, subject to prior payment. his separate debts (CIVIL CODE, Art 1835, par. 3) Fr Existing Liability of Partners General Rule: Just because the fir is dissolved does not automatically mean that pa fib of any partner is discharged. Otherwise, creditors would be prejudice, partic PARAS, supra at 723). Exception To The General Rule: By way ‘exception, upon dissolution of the partnership, tl partner concerned is discharged from any Bang Rights of a Partner upon Dissolution (CIVI ‘CODE, Art. 1837) 1. When dissolution is not in Contravention ¢ the Partnership Agreement ‘@ Have partnership property applied t discharge partnership liabilities; b. Receive in cash his share of the surplus. Note: When dissolution is caused by expulsior expelled partner may be discharged from 2 partnership liability in the same manner as abov but he shall receive in cash only the net amour ‘due him from the partnership (DE LEON, supra ¢ 253). If dissolution is proper, no partner is liable for an loss sustained as a result ofthe dissolution (ly). 2. When dissolution is in Contravention of th Partnership Agreement (CIVIL CODE, Art. 183 par. 2 (1) "SE eights of partner who has not cused th Da ehson wonaily PRC) To be Indemnitied for damages cause by the partner guilty of the wronaft ‘issolution; Tohave Partnership property applied {ischarge partnership liabilities: ii, #76 Bosses partnership _propert jshould they decide to continue th “business; iv.} To Receive in cash his share of th surplus, To Continue the business in the sam name during the agreed, term of th Partnership, by themselves. or joint with others. liability if there is an agreement to that effect betwee" 6, Rights of a partner who has wrongfully cause himself, the partnership creditor and the person of partnership continuing the business. It has been held that @ partner who has withdrawn from the partnership is released from liability only when there is liquidation and his withdrawal has been duly published (PINEDA, supra at 176). Death Of A Partner: The individual property of a deceased partner, properties not promised to the partnership, shall be liable for all obligations of the Partnership’ incurred while he was sill a partner, ‘subject to all the prior payment of his separate debts. ‘The outside or personal creditors are preferred tothe firm's creditors (ld). 428 | 2018 SAN BEDA CENTRALIZED BAR OPERATIONS, the dissolution (CIVIL CODE, Art. 1837, par. 3) i. Business is not continued by the othe partners: To have partnership property applied t discharge partnership labile 2. To receive in cash his share of th surplus less damages caused by hi wrongful dissolution, 1. Business is continued: To have the value of his interest in th partnership at the time of th. dissolution, surplus less damage caused by his wrongful dissolution t his co-partners, ascertained and paid i cash or secured by a bond approved b the court 2, To be released from all existing an future liabilities.PARTNERSHIP, AGENCY & TRUSTS SAN BEDA MEMORY AID 2018 Note: Goodwill may be defined as the advantage which it has from its establishment or from the patronage of its customers, over and above the mere Value of its property and capital. The value of the goodwill of the business is not considered in ascertaining the value of the interest of the guilty partners, obviously as a penalty for their bad faith. (OE LEON, supra at 254-255). Partner's lien: The right of every partner, on a dissolution, against the other partners and persons. claiming through then in respect of their interests as partners, to have the partnership property applied to discharge partnership liabilities and the surplus asses, if any, distributed in cash to the respective partners, after deducting what may be due to the firm from them as partners, constitutes what is known as. the ‘partner's lien" (i.). Note: Innocent partners have better rights than guilty partners, and that the latter are required to indemni ys forte damages cavod (5 PARAS, spre agar Right Of Innocent Partners To Gentinue Innocent partners may continue the business but this» time hee i realy a ew parinerstip: They ean even Use ine same fm name if they wi fo; Moreover they can ask new members to Jin, Hh shay, he wars gonied he guly paws at sad por i 2. Bond approved by the cou B. Payment of his’ interest att Gissoution minus damages, Moreover guilty pertner "who ls excluded oe indemnified against all present or future partnership liablties. This is becéuse he's fo longer a partner (Id). ee, Rights Of Partner Who Has Wrongfully Casual The Dissolution {uit the business is not continued by the other pariners, to have the partnership property Applied to discharge its lables and to receive in cash his share of the surplus less damages caused by his wrongful dissolution 2._ Ifthe business is continued: a. To have the value of his interest in the partnership atthe time ofthe 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 ». To be released from all existing and future abies of the partnership. Rights of a Partner where Partnership Contract Is Rescinded on the Ground of Fraud or Misrepresentation(SIR): 1. Right of Subrogation in place of the partnership creditors after payment of partnership liabilities; 2. Right of Indemnification by the guilty partner ‘against all debts and labilties of the partnership: ‘and 3. Right of Retention of, or lien on, the surplus of partnership property after satisfying partnership liabities for any sum of money paid or Contributed by him(CIVIL CODE, Art. 1838). ‘Manner of Winding Up 1. Extrajudicial — by the partners themselves: without the intervention of the court; 2. Judicial ~ under the control and direction of the ‘court upon proper cause shown by any partner, his legal representative or his assignee (DE LEON, supra at 246). Persons Authorized to Wind Up 1, Partners designated by the agreement; 2. In the absence of such agreement, all partners who have not wrongfully dissolved the partnership; or representative of last surviving partner not nt (CIVIL CODE, Art. 1836) Rules in Settling the Accounts between Partners. after Dissolution(CIViL CODE, Art 1839) (ALC): 1; Determine’ the Assets of the Partnership which © até 2s follows: hip property onffibutions of the partners necessary for Seo! par 2.;Payment of Liabilties in Winding Up in the following order: ‘a. Those owing to creditors other than partners; b.° Those owing to partners other than for capital or profits; Those owing to partners in respect of capital; 4d. Those owing to partners in respect of profits (CIVIL CODE, Ar. 1839, par.2), 3. The partners shall Contribute, as provided by Art 1797, the amount necessary to satisfy the liabilities (CIVIL CODE, Art. 1839, par. 4). Persons Who Can Enforce the Additional Contribution: 1, An assignee for the benefit of creditors or any person appointed by the court shall have the right to enforce the contributions above specified (CIVIL CODE, Art. 1839, par. 5). 2. Any partner or his legal representative shall have the right to enforce the contributions specified ‘above, to the extent of the amount which he has paid in excess of his share of the liability (CIVIL CODE, Art. 1839, par. 6). 2018 SAN BEDA CENTRALIZED BAR OPERATIONS | 429PARTNERSHIP, AGENCY & TRUSTS SAN BEDAM EMORY AID 2018 Note: The individual property of deceased partner shall be liable for the contributions above (CIVIL, CODE, Art. 1839, par. 7). Note: Partnership creditors shall have priority on partnership property and the separate creditors on individual property, saving the rights of lien or secured creditors. Where a Partner or His Estate Becomes Insolvent Claims against his separate property shall rank in the following order: 4, Those owing to separate creditors 2. Those owing to partnership creditors ‘3. Anything left to the partners by way of contribution (CIVIL CODE, Art. 1839, par. 9) When Assets Are Not Sufficient TO Satisfy The Firm's Liabilities When the firm's assets are not enough to settle the liabilities, the partners are required to contribute to. fully satisfy ts liabilities. The amounts of co will depend upon the partner's. contributed that is, pro rata (PINEDA, supra at 188) Limited Partners, Not Liable: Limited partners who cannot participate in the management, of “the” partnership are not personally liable | for. jthe partnership obligations beyond their” confribultons ld). \ tole Order Of Payment In The Winding Partnership Liabilities ited Partnership. | ‘Those owing [Those owing to ei Cone Sha imited partner CREDITORS. rene at ‘Those owing to LIMITED} 3|Partners in respect to their share of the profits and) other compensation by| [way of income on thei] contribution Those owing to LIMITED) ‘Those owing to partners| partners in respect to their lby way of CAPITAL; and CAPITAL. CONTRIBUTIONS; ‘Those owing to pariners|Those owing to general by way of PROFITS|partners other than for| (CIVIL CODE, Art. 1839, capital and profits; \Par. 2) Those owing to partner lother than for capital ‘and profits; [oso ovng to” gor partners in respect to, PROFITS; and 430 | 2018 SAN BEDA CENTRALIZED BAR OPERATIONS f | ‘Those owing to genera ipartners in respect tc CAPITAL (CIVIL CODE \Art, 1863). Return Of Partner's Share Is Dependent O1 Discharge Of Creditors: A partner's share canno be retumed without first dissolving and liquidating thy partnership, for the retum is dependent on th discharge of the creditors, who claims. enjo preference over those of the partners, and itis self evidence that all members of the partnership an Interested in its assets and business, and are entitle: to be heard in the matter ofthe firm's liquidation anc the distribution of its property (Magdusa v. Albaran GR. No, L-17526, June 30, 1962) Rule When There Are Claims Over Partnershit Assets And Claims Over individual Properties O Partners, Which Are Both In Custody Of Thi ran Gourt For Distribution: "A, Patinership creditors are preferred with regard t *tcpartniership property; and 2., Individual creditors are preferred with respect tc individual properties of partners (PINEDA, sup: at 190) (© Rule incase oF insolvency OF A Partner Or Tha SE stab In Caco Of Death: agaist to privat propery of a partne tate! (in case of his death) which is insolven shall bf paid in the following order: 1” Separate creditors 2.” Partnership creditors; and Paces who gave contnbutons (PINEDA, sup at 190). poowelfistances When Creditor of Old Partnershit ‘Continues to be Creditor of New Partnership WALRSW-Ex) The creditors ofthe old partnership are also creditor: ‘of the continued partnership after dissolution when: 4. When any New partner is admitted into at existing partnership, or when any partner retire: and assigns (or the representative of the deceased partner assigns) his rights it Partnership property to two or moro of the partners, or to one or more of the partners anc one of more third persons, ifthe’ business Continued without liquidation of the partnershig affairs; When ALL BUT ONE pariner retire and assigr (or the representative of a deceased parine ‘assigns their rights in partnership property tothe remaining partner, who continues the busines: without liquidation of partnership affair, eithe alone or with others; When any partner Retires or dios and the business "of the dissolved partnership i continued as set forth in Nos. 1 and 2 of thiPARTNERSHIP, AGENCY & TRUSTS SAN BEDA MEMORY AID Zole article, with the consent ofthe retired partners or the representative of the deceased partner, but without any assignment of his right in partnership Property: 4. When ail the partners or their representatives assign their rights in partnership property to one ‘or more third persons who promise to pay the debts and who continue the business of the dissolved partnership; 5. When any partner Wrongfully causes a dissolution and the remaining partners continue the business under the provisions of Art. 1837, ‘second paragraph, No. 2, either alone or with ‘others, and without liquidation of the partnership affairs; 6. When’a partner is Expelled and the remaining partners continue the business either alone or with others without liquidation of the partnership affairs (CIVIL CODE, Art. 1840). Applicability: Article 1840 applies when a partnership is dissolved but the remaining continue the business without liquidation of its accounts first (PINEDA, supra at 193) ‘Any change in membership dissolves a partnership and creates a new one. As the partnership is the result of a contract, 2 change in the!parties to, the LEON, supra at 266). Change In Membership, Cause Of Dissolutian” = ‘Aficle. 1840 states six’ situations where there Is” dissolution by reason ‘of change in. membershi caused by any of the following {. 1 admission of new member, i 2. retioment of a partner; ‘ 3. assignment of rights in partnership property: 4. death ofa partner, and 5. expulsion ofa partner (PINEDA, supra at 193). ‘When there is a change in the membership and the partnership is simply continued without liquidation, the unpaid old creditors of the dissolved partnership automatically becomes creditors of the new partnership (1). WF this were not s0, itis easy to deceive the old creditors by simply causing a change in the membership of the partnership (1d). Reason: To maintain the preferential rights of the old ‘creditors to the partnership property of the partnership whose business is continued by the new partners (ld. At 193-194), ‘The law makes the creditors of the dissolved partnership also creditors of the persons of partnership continuing the business (DE LEON, supra at 267). "busi Contact racesery resus in 8 now cont BE Note: Paragraph 1, No. 4, applies only when the third person continuing the business of the dissolved Partnership promises to pay the debts of the Partnership. Otherwise, creditors of the dissolved partnership have no’ claim on the person or partnership continuing the business or its property Unless the assignment can be set aside as a fraud on ‘creditors under paragraph 4 (id, at 268). Prior Right Of Dissolved Partnership Creditors As Against Purchaser When a retiring or deceased partner has sold his interest in the partnership without a final settlement with creditors of the partnership, such creditors have ‘an equitable lien on the consideration paid to the telting of deceased partner by the purchaser thereof. This lien comes ahead of the claims of the separate creditors or the retired or deceased partner (ic). Continuation Of Dissolved Partnership Business _By Another Company ration deemed a mere continuation of ‘Brio patinership — the weight of authority supports {he view that whers/a corporation was formed by, and ‘consisted of, members of a partnership whose business and property was conveyed and transferred 0° the Corporation for the purpose of continuing its usiness, such corporation is presumed to have patinérship debts and is prima facie liable $260) Tigmbefs of the partnership may be said to have imply'put d new coat, or taken on a corporate cloak, and the corporation is a mere continuation of the partnership (1). 2. When” obligations of company bought out Considered assumed by vendee: When one company buys out another and continues the business of the fatter company, the buyer may be said to assume the obligations of the company bought out when said obligations are not of considerable amount or value especially when incurred in the ordinary course, and when the business of the latter is continued (DE LEON, supra at 268). However, when sald obligation is of extraordinary value, and the company was bought out not to Continue its business but to stop its operation in order to eliminate competition, it cannot be said that the vendee assumed all the obligations of the rival company (Phil. Air Lines, Inc. v. Balinguit, G.R. No. 8718, June 30, 1956) Use of Partnership Name ‘As a general rule, upon the dissolution of a ‘commercial partnership, the succeeding partners or parties have the right to carry on the business under the old name, in the absence of stipulation forbidding it since the name of a commercial partnership is a 2018 SAN BEDA CENTRALIZED BAR OPERATIONS | 431PARTNERSHIP, AGENCY & TRUSTS SAN BEDA MEMO partnership asset inseparable from the goodwill ofthe firm (DE LEON, supra at 270). Liability of Third Person Becoming a Partner ‘The liability of a third person becoming a partner in the partnership continuing the business, under this article, shall not extend to his personal property, Unless there isa stipulation to the contrary (PINEDA, supra at 187) Continuation of Partnership without Liquidation The remaining partners (and/or new partners) may continue the business by simply taking over the business enterprise and continuing the use of the old name (DE LEON, supra at 266). Rights of Retiring, or of Estate of Deceased Partner When Business is Continued 4. Have the value of the interest of the retiring or deceased partner ascertained as of the date of dissolution, ie. retirement or death 2. Receive, as an ordinary creditor, an,camUintisi" equal to his share to the value of his sharein the’. dissolved partnership with interest, of, at. his, ‘option, inlieu of interest, the profits attributable to the use of his right in the property of the dissolved partnership (CIVIL CODE, Ar. 12419. [ Partner's Lion Right of every partner to have the paliersip broperty applied to dcharye parwertve bites land to have the surplus assets, if any, Gash to the respective partners, after deduct may be ue tothe pares fom hen as pare (a. at 253) Persons Liable to Render an Account 4. The winding up partners; 2. The surviving partners; or 3, The person or partnership continuing the business (CIVIL CODE, Art. 1842). Right to Demand Accounting Of Partner's Interest The right to demand accounting of a partners interest shall be reckoned from the date of dissolution of the partnership unless there is a contrary agreement (PINEDA, supra at 200) ITED PARTNERSHIP Limited partnership ‘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 partnership debts (CIVIL CODE, Art, 1843). 432 | 2018 SAN BEDA CENTRALIZED BAR OPERATIONS Characterstis ofa Liited Partnership: (Co°LDR Formed by substantial Compliance in good fat with the statutory requirements; 2. One or more general partners Control th business and are personally liable to creditors; 3. One or more limited partners Contribute mone ‘or property to the capital and share in the profit but do not participate in the management of th business; 4, Limited partners are not personally Liable fc partnership obligations beyond the amount « their capital contributions; 5. The partnership Debts’ are paid out of th ‘common fund and the individual properties of th general partners; and 6. The limited partners may ask for the Return « their capital contributions under the condition prescribed by law (PINEDA, supra at 205-206). ‘Advantages of a Limited Partnership 4. On the part of the general partneris ~ They ca “Secure capital from others for purposes of the "business while retaining control and supervisio of the partnership business, 2. On the part of the limited partner ~ The limite partner shares in the profits without risk « Esse eeggen Ha, ot 206) | em of alimited partner may be: Bie Soon. ‘But ngt services (CIVIL CODE, Art, 1845). Effect Services Limited Partner also Contributes Hi “S__-ff he does so, with the knowledge of his co-partnen hhe becomes a general and limited partner at th “Sseseeesame time. In such case, he will be exposed to all th liabilities of a general partner (PINEDA, supra < 213). Name of a Limited Partner General Rule: The surname of a limited partner she ‘not appear in the partnership name (CIVIL CODE Art. 1846). Exceptions: 1. Ifitis also the name of a general partner, or 2. Prior to the time when the limited partner becam ‘such, the business had been carried on under name in which his sumame appeared (CIVi CODE, Art. 1846). Effects of Violation of the Rule: 41. The limited partner will be liable to partnershi creditors who have no actual knowedge that h is not a general partner (CIVIL CODE, Art. 1846)PARTNERSHIP, AGENCY & TRUSTS SAN GEDA MEMORY AID 2018 2. The limited partner does NOT acquire the rights, Cf a general partner (PINEDA, supra at 214) Reason For Non-inclusion ‘The sumame of a limited partner shall not appear in the partnership name because he is exempted from ‘general lability. His liability is limited, that is why, he is referred to as limited partner. Liability for Falsity in Certificate (CIVIL CODE, Art 1847) Requisites: (KEL) 1, He Knew the statements to be false 2. Atthe time he signed the certificate, or b. Subsequently, but having sufficient time to ‘cancel or amend it or file a petition for its cancellation or amendment; The person seeking to Enforce liability has relied upon the false statement in transacting business with the partnership; and The person suffered Loss as a result of reliance upon false statement. [we Note: A limited partner contributing greater then that specified is not liable for making a false statement (DE LEON, supra at 291). ‘ Note: Ar. 1847 does not say that thé guity pariner shall be liable as a general partner, The fability imposed therein is merely statutory 8nd does \not make the limited partner’ general partner for all purposes, ever asiotrd pee Liability of a Limited Partner for Participating tn Management of Partnership: ‘A limited partner is liable 2s & general partner forthe firm's obligations if he takes part in the control of tie business (CIVIL CODE, Art. 1848), SY The limited partner takes part in the management of the business wher: ‘The business is carried on by board of directors chosen by the limited partners; By the terms of the contract between the parties, ‘an appointee of the limited partner becomes the directing manager of the firm; Limited partner purchases the entire partnership property, taking title in himself and then carries on the business in his own name and for his exclusive benefit: and He makes ois a party toa contract with creditors of ar insolvent firm with respect to the disposal of the firm's assets in the payment ofthe firm’ debts (OE LEON, supra at 293). Note: The list not exclusive. General Rule on Liability of Limited Partner: As a rule, a limited partner is not liable as a general partner. His lability is limited to the extent of his Contribution to the partnership. However, if he takes part in the control of the business’ which contemplate active participation in the business of the partnership, he becomes liable as 1 general partner. While he becomes liable as a {general partner, he does not acquire the rights of one (PINEDA, supra at 215) Mlustrations Of Active Participation 1. When the limited partner participates in the selection of the managing partners of the partnership (Stranger v. Thomas, 114 Wis. 699): 2. When the limited partner exercises supervisory ower over a superintendent of the business of the partnership (Richardson v. Hogss, 38 Pa Sf. 153); When the limited partner purchases the entire Property of the firm, taking title in himself and carries on the business in his own name and for cclusive benefit (Silvola v. Roulett, 272 Pd. 4. When the business is carried on by a board of ‘rectors chosen by the imited partners (1d) cof Additional Limited Partners formation of tho. limited. parmership, lnjted partners may be. admited upon f ariendment to the original certificate in “Effect of Faure to Amend: This does not necessonly mean the dissolution of the. tinted Parinrship (Tec 81 and Co. v. Collector of Internal Revenue, GF. No. 42115, March 30, 1995) ~““Requisites For Admission Of Additional Limited Partners The law allows the admission of imited partners after the formation of the firm. It is, however, required that the original certificate be amended indicating the ‘admission of the new partner or partners and all partners shall sign the certificate and which thereafter, ‘must be duly fled with the SEC (PINEDA, supra at 217). Management of a Limited Partnership ‘General Rule: A limited partner has no management powers. Exception: A general partner in a limited partnership however has no authority, without written consent or ratification of all limited partners, to: (CIC-PA'C) 4. 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; 2018 SAN BEDA CENTRALIZED BAAR OPERATIONS | 433PARTNERSHIP, AGENCY & TRUSTS SAN GEDA MEMO RY AID 2018 4. Possess partnership property, or assign their Fights 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 fight to do so is given in the certificate; and 7. Continue the business with the partnership roperty on the death, retirement, insanity, civil interdiction or insolvency of a general partner, tunless the right to do so is given in the certificate (CIVIL CODE, Art, 1850). The said acts are acts of strict dominion or ownership, ‘and are beyond the scope of the authority of a general partner. The general partner who violated the requirement imposed by Art. 1850 is liable for damages to the limited partnership (DE LEON, supra at 295). Rights, Powers, and Liabilities Of A General Partner ‘The essential feature of a limited partnership ig tha Wis union of two classes or type of members ~ the limited partner and the general partner. The law expressly requires that there be at least one general partner with unlimited liability. 1. Right of contro! or unlimited persénal ibility: A general partner in a ined partnetsip fs vested ttn the entire control ofthe finn’s pusiness and has all the rights and powers and ig subject all the labities and restrictions of apart partnership. without limited partners. ender of Ns unlmtedporconel bly fr {he obligation ofthe partnership that hei granted. the general authorly to manage the fins business (ld). 2. Acts of administration or acts of strict dominion ‘Asa rule, he may bind the partnership by any act Of administration, but he had no power to do the ‘specific acts enumerated in Acie 1850 (even if agreed to by all the general partners) without the writen consent or at least ratification of all the limited partners. The said acts are of strict dominion or ownership and are, therefore, beyond the scope of the authority of a general partner (id. at 295). 3. The general partners, of course, have no power to bind the limited partners beyond the latter's investment (1). Rights of a Limited Parner (61 FZAR®) To have the partnership Books kept at the principal place of business of the partnership: 2. To Inspect, at a reasonable hour, partnership books and copy any of them; 3. To demand true and Eull information of the things affecting the partnership 1434 | 2018 SAN BEDA CENTRALIZED BAR OPERATIONS, eee 4, To demand a Formal account of the partnershi affairs whenever circumstances render itjust an reasonable ; 5. To Ask for dissolution and winding up by decre of court (CIVIL CODE, Art. 1851); 6. To Receive a share in the profits or othe compensation by way of income provided th: the partnership assets are in excess < partnership liabilties after such payment (CIVI CODE, Arts. 1851 and 1856); and 7. To Receive the return of his contribution provide that a. Al the labiliies of the partnership, excer liabilities to general partners and to limite partners on account of their contibution, hav been paid or the partnership assets ar sufficient to pay partnership iabilties; b. The consent ofall the members (general an limited partners) has been obtained; cc. The certificate is cancelled or so amended a to set forth the withdrawal or reduction (CIVL CODE, Arts. 1851 and 1857). Exceptions: When letter (a) and (c) are complied with, th relum of the contribution is a matter of right: i. On the dissolution of the partnership Upon the arrival of the date specified in thy _ > certicate forthe return: oF ib After ho has given 6 months notice in waitin, © to all other partners, given that no time "specified in the certificate for the return c the contribution or for the dissolution of th: partnership (CIVIL CODE, Art. 1857) Right of Limited Partner to Cash in Return fo Contribution (CIVIL CODE, Art. 1857) General Rule: A limited partner, irespective of th “hature of his contribution, has only the right ti demand and receive cash, Exceptions: 1. When there is a stipulation to the contrary; and 2. Where all the partners consent to the return othe than in the form of cash (CIVIL CODE, Art. 185: par. 3). ‘One Person, Both A General Partner And Limited Partner ‘A person may be a general and a limited partner a the same time in the same partnership provided tha this fact is stated in the certificate signed, swom to land recorded in the Office of the Securities anc Exchange Commission (CIVIL CODE, Art. 1853) (DE LEON, supra 300-301) Allowable Transactions of a Limited Partner 1. Transacting other business with the partnership;PARTNERSHIP, AGENCY & TRUSTS SAN GEDA MEMO RY Alo 2018 Receiving a pro rata share of the partnership assets with the general creditors i he is not also a general partner; and Granting loans to the partnership (CIVIL CODE, Art. 1854), Prohibited Transactions: 4. Receiving or holding as collateral security any partnership property; or Receiving any payment, conveyance, or release from liability if the partnership assets are less than its liabilities (CIVIL CODE, Art. 1854), 2. Reason behind the prohibited transactions: To prevent illegal competition between the limitéd partner and creditors ofthe partnership for the assets Of the partnership (A.T.E. Financial Services, Inc. v. Corson, 268 A. 2d 73, July 10, 1970). Note: Violation of the prohibition will give rise to the presumption that it has been made to defraud partnership creditors. The prohibition absolute, there is no such prohibition» partnership assets are sufficient: to discharge Partnership liailties to persons not claiming as ‘general or limited pariners (DE LEON, supra at 302). Preferred Limited Partners om : Preference over one or more limited pattners is a8 by agreement of all partners as. slated certificate as to the: { 41. Return of contributions; t 2. Compensation by way of income; and 3, Any other matter (CIVIL CODE, Art, 1855) = Note: In the absence of such statement) in Gerticato, even if there is an agreement all the: limited partners shall stand on equal Teapoat f Bove rete (OE LEON, Sopa ef SOP Liabilities of a Limited Partner General Rule: A limited partner is not liable as general partner (CIVIL CODE, Art. 1848) Exceptions (MAGES 1. When he takes part in control or Management of the partnership (CIVIL CODE, Art. 1848); Reason: It contemplates active participation inthe business of the partnership, In the Absence of registration of the limitéd partnership with the Securities and Exchange Commission (SEC); Reason: Lack of substantial compliance in the formal requirements of Art. 1844 of the Civil Code. 3. When he becomes a General partner by estoppel; When he is Erroneously designated as a {general partner and fails to correct such error (CIVIL CODE, Art. 1852); Mustration: A, 8, C, D and E decided to create a limited partnership. E, who agreed to be a limited partner and had already contributed money, was left out ofthe cerifcate and in the SEC records(S PARAS, supra at 749) General Rule: A person erroneously believing himself that he has become a limited partner, as. inthe above scenario, is exempted from liability as ‘a general partner (CIVIL CODE, Ar, 1852). Conditions for Exemption: (RAP) ‘a. On ascertaining the mistake, he promptly Renounces his interests in the profits of the business or other compensation by way of income (CIVIL CODE, Art. 1852): His sumame does not Appear in the firm M name (CIVIL CODE, Art. 1846); and He does not Parlicipate' in the management of the business (CIVIL ‘CODE, Art 1848) Inert heis a general partner at the Same time NE CODE, Art 185) What his Surmame appears in the firm name / subject to the exceptions provided by Art. caer / 1846 of the Civil Code, ‘Ks. lipiled partners they are not principals in the {fansaction of a partnership, their labilly, as a rule, is "to:the partnership (CIVIL CODE, Art. 1858), not to the ‘creditors ofthe partnership. Preference To Some Limited Partners Preference can be given to some limited partners ‘over other limited partners. However, the preference must be stated in the certificate (CIVIL CODE, Art 1855). Compensation Of Limited Partner The right ofthe limited partner to receive his share of the profits or compensation by way of income stipulated for in the certificate is subject to the ‘condition that partnership assets will still be in excess Of partnership liabilities after such payment. In other words, third-party creditors have priority over the limited partner's rights (DE LEON, supra at 304). In determining the labiliies of the partnership, the liabilities to the limited partners for their contributions, ‘and to general partners, whether for contributions or ‘hot, are not included. Liabilties to limited partners. 2018 SAN BEDA CENTRALIZED BAR OPERATIONS | 435PARTNERSHIP, AGENCY & TRUSTS SAN BEDA MEMORY AIO 2018 other than on account of their contributions arising from business transactions by them with the partnership, enjoy protection, subject tothe preferential rights of partnership creditors (Id). Note: The liabilities of a limited partner may be waived or compromised, provided: The waiver or compromise is made with the consent of all the partners; and the waiver or compromise does not Prejudice partnership creditors who extended ‘credit or whose claims arose before the cancellation ‘or amendment of the certificate (CIVIL CODE, Art 1858, par. 3) General Rule: A person erroneously “believing himself that he has become limited partner, as in the ‘above scenario, is exempted from liability as 2 ‘general partner (CIVIL CODE, Art, 1852). Conditions for Exemption: (RAP) 1. On ascertaining the mistake, he promptly. Renounces his interests in the profits.,of he! business or other compensation by way. of income (CIVIL CODE, Art 1852): 2. His sumame does not Appear in the fim name (CIVIL CODE, Art. 1846); and 3, He does not Participate in the management of the business (CIVIL CODE, Art. 1848). Note: An heir of a deceased partner ordinarily (not Note: An assignee merely receives the share of th Profits or the return of the contribution to which th. assignor would otherwise be entitled. The assigne acquires all the rights of the limited partner only whe ha has become a substituted limited partner (D LEON, supra at 312-313). Causes of Dissolution of a Limited Partnerst 1. Retirement, Insolvency, Death, Insanity, or Civ interdiction (RIDIC) of a general partner, Exception: If the business is continued b remaining general partners (under a right so t do stated in the certificate or with the consent c all members) (CIVIL CODE, Art. 1860). Note: The abovementioned causes of a gener: partner dissolve the partnership, while any « ‘such causes affecting a limited partner does nc result in its dissolution, unless of course if ther is only one limited partner (DE LEON, supra « 344 When all imited partners ceased to be suc (CIVIL CODE, Art. 1864, par. 1); Expiration ofthe term or period of existence of th partnership (CIVIL CODE, Art, 1830, par. 1[a)); By agreement of all partners before the lapse « riod of existence (CIVIL CODE, Art. 183 led): psa) bonnes rata pore are Gon Ea fiscondct of @ general partner or frau protection, but he may later on elect to besome'ally general partner (Goqublay v. Syeip, supra). Substituted Limited Partner ‘A person admitted to all the rights ofa limited partnec who has died or has assigned is iferest in the Partnership (DE LEON, supra at 313) ‘committed by a general partner against th limited partneris; oF 6. When the limited partner demanded the return < his contribution but same was unjustifiably denie (CIVIL CODE, Art. 1857, par. 3{1). Note: The above list is NOT exclusive. General Rule: He has all the rights and powers, and is subject to all the restrictions and liabilities of his assignor (CIVIL CODE, Art, 1859, Par.6). Exception: Those liabilities which he was ignorant at the time he became a limited partner and which could not be ascertained from the cerificate (CIVIL CODE, Art, 1855). Requisites in Order that the Assignee May Become a Substituted Limited Partner: (CAR) All the members must Consent to the assignee becoming a substituted limited partner, or the ited partner, being empowered by tho certificate must’ give the assignee the right to become a limited partner: 2. The certificate must be Amended in accordance with Art. 1865; and 3, The certificate as amended must be Registered In the Securities and Exchange Commission (CIVIL CODE, Art, 1858). 436 | 2018 SAN BEDA CENTRALIZED BAR OPERATIONS Exceptions To The Above Rule On Dissolution The limited partnership is not dissolved even if general partner is» involved in any of th circumstances provided the business is continued b the remaining general partners under aright stated i the certificate or even if not stated, when all th ‘members have given their consent to the contributio of the business (ld. at. 236). On the death of a limited partner, his executor ¢ administrator shall acquire all the rights of a limite. partner for the purpose of selting the estate (CIVI CODE, Art 1861, par. 1). ‘The estate of the deceased limited partner shall b liable for all his obligations or liabilities 10 the Partnership as a limited partner (CIVIL CODE, Ar 1861, par. 2).PARTNERSHIP, AGENCY & TRUSTS SAN BED a MEMORY AID 2018 Rights Of Creditors Of Limited Partners To Charge The Interest Of The Indebted Limited Partner ‘The creditor ofa limited partner may file a petition to charge the interest ofthe latter in the partnership with the payment of the unsatisfied amount of the creditor's claim. This is a sort of a foreclosure of the interest of the indebted limited partner for the satisfaction of the creditor's claim. A receiver may be appointed by the court to preserve the said interest. ‘The court may issue other orders, directives as may be necessary under the attendant circumstances (Id. at 237-238). Settling of accounts ori of alimited partnership Alice 1883 states the order of priory inthe payrnent ofthe lables ofthe limited partnership: 4. Those owing to creditors, in the order of priority as provided by law. except those to limited partners on account oftheir contributions, and to ilities after dissolution general partners. The pertinent | Concurrence and Preferente of Credits shall be applicable; 2. Those owing to limited partners in respect to their share of the profits and other compensation by way of income on their contributions; 5 ~ 3. Those owing to limited parnersikyespectof the | capital of their contributions; 4, Those owing to general partners ‘aor than for capital and profits; iE 5. Those owing to general partners: ines % profits; t oo 6 Those owing to general partners. if respect 10. capital (CIVIL CODE, Art, 1863) (PINEDA, & at 239-240). i, ie Note: In a general partnership, the claims ot ‘the ‘general partners in respect of capital enjoy" preference over those in respect of profits (CIVIL CODE, Art. 1839, par. 1[c & d). Cancellation Partnership 4. When the parinership is dissolved: or 2) When all the limited partners ceased to be such (CIVIL CODE, At 1654) of Certificate or Articles of Amendment of Certificate or Partnership A certificate _ shall (AraaNaS-FRET-CO) ‘An Additional Limited partner is admitted; ‘A person is Admitted as a general partner; ‘There is a change in the Name of the partnership ‘Fin the amount or character of the contribution of any limited partner; ‘A person is Substituted as a limited partner, Articles of be amended when: 2 3 5. A time is Fixed for the dissolution of the partnership, or the return of a contribution, no time having been specified in the certificate; ‘A general partner Retires, dies, becomes {insolvent or Insane, or is sentenced to civil interdiction and the business is continued under ‘Att. 1860 (RIDIC), ‘There is a false or Erroneous statement in the certificate; ‘There is a change in the Time as stated in the certificate for dissolution of the partnership or for the return of a contribution; There is change in the Character of the business. of the partnership; or The members desire to make a change in any Other statement in the certificate in order that it Shall accurately represent the agreement among them (CIVIL CODE, Art. 1864) 10. Requirements for Cancellation/Amendment of a Cortificat on WAS Must be in writing; ba 2 Must 3€ signed and sworn to by all the members ing the new membars if some are added: in ‘case of substitution, the assigning limited partner ‘must also sign; and 3. Cancellation or amendment must be recorded in the SEC (CIVIL CODE, Art. 1865) a | Berson designated refuses to execute the jito@nend oF cancel ceriicte, a. person desing. the cancelation or amendment ofa Soorticate "nay pettton, the court to order Cancellation or amendment thereof (CIVIL CODE, “Art, 4865), tf the court finds that the petitioner has a right to have the writing executed by a person who refuses to do 1. It shall order the SEC where the certificate is recorded, to record the cancellation or amendment of the certificate; and ‘When the certiicate is to be amended, shall also cause tobe filed for record in said office a certified Copy of its decree setting forth the amendment (CIVIL CODE, Art. 1865) 2 Note: The approval by the Commission of the ‘amendment or cancellation is not required (DE LEON, supra at 322). General Rule: A limited partner is a mere contributor, hhence, he cannot be a proper party in a case for or against the partnership (CIVIL CODE, Art. 1866). Exceptions: 1. Unless the action isto enforce his individual rights against the partnership as authorized in Art 1851; or 1A CENTRALIZED BAR OPERATIONS | 437PARTNERSHIP, AGENCY & TRUSTS SAN BEDA MEMORY AID 2018 2. He can be a defendant on an action filed against ‘Cinsited' Partner! ‘General Partner! him by the partnership to enforce his liability to ee Partnership the latter (CIVIL CODE, Art. 1866) Proper Party to Proceedings by or Against (men Limited and General Partner/Partnership Limited partner is not | General partner is the Distinguished: (C2OR°B-PET“AL) ee as ert ent a proper party to | proper party to proceedings by or | proceedings by or against a partnership | against a partnership. Poon 5 | unless: ‘Composed of one or] Composed only of 1.He is also a general more general partners | general partners paartner (his lability is ‘and one or more limited to the partners not to riners, the creditors); or PO Wore te ehoct of Ee ort ety contol saa | sormbute money, cree eee Soret a atte | pope treo See Pererhip ‘ou ma | retmatero coareto aba ts ares lene SN ae must be executed in a | as.a general ruléjimey. ‘Tfithétscase of a limited prohibited from | certificate of limited | be constituted in any pariner for he is| engaging in a |eotrertip.auy ges | tow cower]. [earned "mare | bultes which eo [oe ec SY ae | nate arte lf! 2 Heetiper ‘to te | the soma nd of | partners and recorded | partnership, unless. partnership, business in which Pen oee Panes oropety in} gk tenement eek ngaseo : 2. Industrial partner - is wan of beoets ‘Governed by Art. 1863 | Governedby Aft 1839 | 2 Js vedo hee for himself, Insanity of @ general | insanity of a géAerall|” Sra eg partner automatically | partner being a judicial ese dissolves the | ground for dissolution, Retirement, death, [ Relirement, death, partnership (CIVIL | under Art. 1831 of the insanity Or insolvency of | insanity or insolvency CODE, Art, 1860). Civil Code, it will not 1 limited partner does | of @ general partner automatically dissolve not’ dissolve the | dissolves the the partnership -patinership for his | partnership. Re rs rr executor or eae administrator shall have | Limited partner has no | General pariners have the rights of a limited share inthe | an equal right in the partner for the purpose | management of a| management of the of selling his estate. limited partnership and | business (when the renders himself liable to | manner of Required to have a] May be a partnership partnership creditors as | management has not fixed term or particular | with a term or a ‘2 general partner if he | been agreed upon) undertaking nership at wil takes part in the control ignabllty of Interest of the business Freely assignable, with | Not assignable without assignee acquiring all | the consent of the Generally, the name of |Name of a general the rights of the limited | other partners, a limited ‘partner must | partner may appear in partner subject to} although he may not appear in the fim | the firm name. certain qualifications | associate a third name. | person with him in his share Firm name must be | No such requirement followed by the word Limited partners | General partner Is limites liability extends only to | personally liable for his capital contribution _| partnership obligations ‘438 | 2018 SAN BEDA CENTRALIZED BAR OPERATIONSPARTNERSHIP, AGENCY & TRUSTS SAN BEDA MEMORY alo 2018 (OE LEON, supra at 281-282) roo fee Sa ance ‘after exhaustion of rinership assets. A NCY A contract of agency is one whereby a person (agent) binds himself to render some service oF to-do something in representation or on behalf of another (principal), with the consent or authority of the latter (CIVIL CODE, Ar. 1868). Characteristics of An Agency Contract: (PF- BORN-CP) Nature of An Agency Preparatory: Fiduciary; Bilateral (but may be unilateral); sigh nerous (generally): 3 Representative Relation; Nominate; Consensual; and Principat ‘ Itis both a contract and a representative relation (DE LEON, supra at 328-929) | Distinct characteristic of a Contract of Agbhey = 1 Representative Character — in a contract of agency, the agent acts asa representative Of the principal, and not for himself; Derivative authority; and The agent's power to bring about business relations between his principal and third personis™™™ is the most distinctive mark of the agent, -as contrasted with others who act in representative capacity but are not agents (id. at 348) Parties to the Contract of Agency: 1 2 Principal - one whom the agent represents and from whom he derives authority; ‘Agent — one who acts for and represents another. Purpose of an Agency ‘To extend the personality of the principal through the facility of the agent. It enables the activity of man which is naturally limited in its exercise by the impositions of his physiological conditions to be legally extended by permitting him to be and carry on many different activities through another when physical presence is impossible or inadvisable at the ‘same time (17 Manresa 434). Elements of an Agency: (COC-RW) Consent, ‘a. Express or implied i. Express ‘A person may express his consent through a contract either orally or in writing (CIVIL CODE. Art. 1868); it implied ‘A person may impliedly express his consent through his conducts (CIVIL CODE, Art 1869); or through ratification (CIVIL CODE, Art. 1910) b. It is essential, for a contract of agency to fexist, that the principal consents that the constructively present in many different places and to perform diverse juridical acts other party, the agent, shall act on its behalf and the agent consents s0 as to act. ‘c.Any person or entity having juridical capacity ‘myand capacity to act and not otherwise SS -Aisqualfied, may enter into an agency. dA principal must be capacitated or have lege capacity to enter ino @ contac The agent's capacity is usually immaterial, oes fol have to possess full capacty to act pena himself insofar as. third persons are oncomed (DE LEON, supra at 334.336) “6. ] Insdfaf as bis obligations to his principal are concerned, the agent must be competent to bind himself. The extent to which an agent is a fiduciary and is subjected to duties and liabilities to his principal depends upon his Capacity (Id. at 336). nan agent-principal relationship, the personality of the principal is extended through the facility ofthe agent. In so doing, the agent, by legal fiction, becomes the principal, authorized to perform all acts which the latter would have him do. Such a Felationship can only be effected with the ‘consent of the principal, which must not, in any way, be complied by law or by any court (Orient-" Air” Services and Hotel Representatives v. Court of Appeals, G.R. Nos. 76931-33, May 29, 1991) 2. Object: Execution of a juridical actin relation to a third person; Cause: may be onerous or gratuitous but Presumed for compensation:(CIVIL CODE, Art. 1875) Itis not necessary that there is a consideration for the relationship to be created, 2018 SAN BEDA CENTRALIZED BAR OPERATIONS | 439,PARTNERSHIP, AGENCY & TRUSTS a Memory D 2018 ‘The agent acts as Representative of the principal, The acts of the agent on behalf ofthe principal within the scope of his authority (CIVIL CODE, Art, 1881), produce the sam2 legal and binding ‘effects as if they were personally done by the principal The agent acts Within the scope of his authority (DELEON, supra at 331-332), The agent may not be deprived of his right to compensation by an unjustified revocation of the agency (PINEDA, supra at 281) The agent must act as a representative and not for himself, and must act within the scope of his authority (CIVIL. CODE, Art. 1881). ‘Acts Which May Be Delegated To An Agent General Rule: What aman may doin person, he may do thru another (DE LEON, supra at 337). ry Exceptions: 1. Personal Acts 2. Criminal Acts or acts not allowed by law if done by the principal (2 C..S. 1039-1040), Note: The relations of an agent to hig princigal Bré fiduciary in character since they are based.on trust ‘and confidence (Severino v. Severino, GR. No. 18058, January 16, 1923). Knowledge of Agent Is imputed To Principal General Rule: The knowledge of the agent is imputed to the principal even though the agent néver communicated such knowledge to the principal Exceptions:(ABC) : Where the agent's interest are Adverse to those of the principal; and Where the person claiming the Benefit ofthe rule colludes with the agent to defraud the principal Where the agent’s duty is not to disclose the Information, as where he is informed by way of Gonfidential information (DE LEON, supra at 347) to Sell v. Sale |Agent receives the goods |The buyer receives Jas the goods of the principal { ‘Agent delivers the proceeds of the sale [Agent can return the lobject in case he is lunable to sell it \goods as owner [Buyer pays the price. |The buyer. as a rule, ‘cannot return the object | ‘sold 440 | 2018 SAN BEDA CENTRALIZED BAR OPERATIONS [Bound to ac according to [The buyer can dea wi [he nstuctons otis” [Ine tg a he pleases principal [boing the owner (id. at 362). Agency v. Lease of Services eee Principle of representation| Principle of employmer is applied. is applied, [Extinguished at will of the Concurrence of partie principal or the agent. is necessary. ‘Agent discretionary power [Principat cont exordsos|Employee _ exerdea ‘ministerial functions on! (a. at 350) Ts terminated upon the accomplishment of its (Agent does not hold ] Trustee holds tile over Hie over the property | the property subject of © [subject of agency a trust agreement Revocation ‘Agency ; may be] The trust agreement, revoked anytime cordinatiy, is terminated conly upon fulfilment of its purpose NI ‘Agent acts in the name ] The trustee may act on ‘of his principal his own name ‘Agent has authority to | The trustee does not represent the principal | have authority to bind the trustor eo May or may not involve | Trust always involves a propert control over pr (6. at 372-3757 ‘Agency v. Guardianship (C?RA°P) ey ery Creation |Founded upon consent of Created respective 0 the parties thereto [the consent ay capacit ofthe ward Sei ‘The agent represents a] The guardian irincipal with legal| represents a. person [capacity without legal capacityPARTNERSHIP, AGENCY & TRUSTS SAN BEGA Sey aio 2018 oy er pool \who has the capacity tolan incapacitated person ‘contract for himselt er ‘Agent derives his authority) Guardian {rom his principal | derive his from the ward (ans ‘Appointment of an agents) Guardian is appointed | |derived from contract. | by the court and stands in loco parents | doesnot authority [Agent's power may at any! time be abrogated or| Legal guardian may be |modified by the principal. | substituted by law ris 'Agents are subject to the|Not subject 4o!the| lcontrol. of the [principals (id. at 372). ‘Agency may be oral, unless the law requires a ‘specific form (CIVIL CODE, Art. 1869). Kinds of Agency (C?SAN) 4, AS fo manner of Greation { a. Express: j i Oral or Verbat i, Wien = when the law requires @ specific form (CIVIL CODE, Art. 1869, par. 2). ” »._ Implied 2. Astoits Character a. Gratuitous; . Compensated or onerous (CIVIL CODE, Art 1873). 3. As to extent of Scope of business covered ‘a. General ~ comprises all the business of the principal; b. Spacial ~ comprises one or more specific transactions (CIVIL CODE, Art. 1876). 4, As to Authority conferred ‘a Couched in general terms - one which is created in general terms and is deemed to comprise only acts of administration (CIVIL CODE, Art. 1877): b. Couched in specific terms. 5. Astoits Nature and effects a, Ostensible / representative - agent acts in the name and in representation of the principal; Simple / commission - agent acts in his own name but for the account of the principal Forms of Agency General Rule: There are no formal requirements {governing the appointment of an agent. 1. Express; 2. Implied: a. From the acts of the principal; 'b. From his silence or lack of action; to repudiate the agency knowing that another person is acting on his behalf without authority (CIVIL CODE, Art. 1869); and . If the principal delivers his power of altomey to the agent and the latter receives it without any objection (CIVIL CODE, Art. 1871). Exception: When the law requires a specific form (eg., sale of a piece of land or any interest therein thru ‘an agent) authority of the agent shall be in writing, otherwise, the sale is void (CIVIL CODE, Art 1874). These contracts cannot be ratified. Neither can the right to set up the defense of ilegality be OD EMEN ES, Note: In'an implied agency, the principals stil bound by the acts of the agent just as in case of express ‘agency. ‘Acceptance by the agent may also be express or s aa ‘his acts which cary out the agency, or | Gram fis silence or inaction” according. to” the [U eemtanops (Civil CODE, Ant. 1870) f Fotmg of Aeceptance By Agent 1. Express: and 2 impli ‘2. Efom his acts which carry out the agency: or b._From his silence or inaction according tothe circumstances (CIVIL CODE, Art. 1870). Kinds of Implied Acceptance 1. Between persons who are present (CIVIL CODE, Art 1871), 2, Principal delivers his power of attomey to the ‘agent; and b. Agent receives it without any objection. 2, Between persons who are absent(CIVIL CODE, ‘Art, 1872), the acceptance of the agency cannot 'be implied from the silence of the agent, except: ‘a. When the principal transmits his power of attomey to the agent, who receives it without any objection; b. 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 (CIVIL CODE, Art. 1872) 2018 SAN GEDA CENTRALIZED BAR OPERATIONS | 44PARTNERSHIP, AGENCY & TRUSTS BEDA MEMORY AID 201 ‘Article 1872 applies only when the persons involved are both absent unlike in Article 1871 where they are both present (PINEDA supra at 263). In Article 1872, the general rule is that the silence of the supposed “agent” does not mean implied ‘accoptance of the agency (Id). General Rule: Acceptance cannot be implied from silence of the agent (CIVIL CODE, Art. 1872 par. 2) Exceptions: 1. Principal transmits his power of attorney to the agent, who receives it without any objection; 2. 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 (CIVIL CODE, Art. 1872, pars. 2 and 3) ‘As a rule, agency isnot presumed. A presunmptii Afi ‘agency may arise, however. in those few, 6288s” where agency may arise by operation of law (le. Art 1803) oF to prevent unjust enrichment (DE LEON, supra at $79), Appointment of Agent {tis not essential that the agent should be appoiited directly by the principal, but the appoiniment may be ‘made through another, as by eferring an epplicant another and representing that he has authorities or the relation may arise out of an agree femploy the agent of another, such person then becoming an agent ofthe fist party (DE LEON, supra at 378). ‘Between persons who are present, the acceptance of the agency may also be implied if the princi delivers his power of attorney to the agent and the latter receives it without any objection (CIVIL CODE, Art. 1871). “Present” - meaning “face to face” or conversing with each other through mobile cellphone (5 PARAS supra at 787) ‘Acceptance Between Persons Present ‘As regards implied acceptance by the agent, the law distinguishes between cases 1. where persons are present (CIVIL CODE, Art 1871); and 2. where persons are absent (CIVIL CODE, Art 1872; DE LEON, supra at 382) The agency is impliedly accepted if the agent receives a power of attomey from the principal himself personally without any objection, both being present. 442 | 2018 SAN BEDA CENTRALIZED BAR OPERATIONS Power of Attorney Itis an instrument in writing by which one person, & principal, appoints another as his agent, and confer ‘upon him the authority to perform certain specifie ‘acts oF kinds of acts in behalf ofthe principal (Id). Purpose: Not to define the authority of he agent 2 between himseif and his principal but to evidence th authority of the agent to third parties with whom th agent deals ‘A power of attorney is valid even though no notar public intervened inits execution (Reyes v. Santiagc G.R. Nos. 47996-7, November 27, 1975; Angeles 1 Phil, National Railvays, G.R. No. 150128, August 3: 2006). Distinctions Between Article 1871 and Artick 1872 porreriy Correa] % Coen ‘reated,_both|When created, both the Principal and agent are principal and the agen {present lare absent. Fie oer of tome is! The power of attorneys lpersonally delivered by| not sonia Personally pprincipalto'the agent | delivered. There is f° | transmission by ¥ messenger, or by letter {In both articles, there is no objection or reply given by the’*agent" to the principal. Hence, agency is deemec impliedly accepted (la). sw person specially informs another or states by public advertisement that he has given a power attomey to a third person, the latter thereby becomes duly authorized agent, in the former case with respect to the person who received the specia information; and in the latter case with regard to any person, ‘The power shall contribute to be in full force until the notice is rescinded in the same manner in which it was given (CIVIL CODE, Art. 1873) Rule on Agency by Estoppel ‘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 in good faith, and in the honest belief that he is what he appears to be (Cuison v. Court of Appeals, G.R. No, 88539, October 26, 1993)PARTNERSHIP, AGENCY & TRUSTS N BEDA MEMORY AID 2018 Estoppel to Deny Agency 1. Estoppel of agent — one professing to act as ‘agent may be estopped to deny agency both ‘against the asserted principal and third persons. 2. Estoppel of principal ‘a. AS to agent — if he knows that another is acting as his agent and fails to repudiate his, acts or accepts the benefits of them b. - Asto sub-agent ~he must have known or be charged with the knowledge of the fact of transaction and terms of agreement between the agent and sub-agent 3. Estoppel of third persons — A third person, having dealt with one as an agent may be estopped to deny the agency as against the principal, agent, or third persons in interest. He will not, however, be estopped where he has withdrawn from the contract made with the ‘unauthorized agent before receiving any benefits thereunder. 4, Estoppel of the government the government isnether estopped by the mistake or eros of 8 part ofits agents. Butit may be estopped through affirmative acts of its officers acting within the scope of their authority, (DE LEON, supra at 389- 390), poise cece ‘Should be restricted to cases where authorityis rot real but apparent nea ea Reliance is necessary. | Reliance necessar EMERGE There is no agency at | There is actual agency. all, but the one | The Principal alone is ‘assuming to act as'| liable. ‘agent has apparent or ‘ostensible, although not ‘authority to Ec PTO ‘An apparent agent has | Agent has actual none of the rights of an | authority to act on agent, except where the | behalf ofthe principal principal's conduct or representations are ‘such that the agent reasonably believed thatthe principal intended him to act as agent in the matter. (DE LEON, supra. af 390-397) ‘Manner of Termination or Rescission of Agericy If the agency is created under Anticie 1873, it shall ‘continue to exist and be effective until the notice (information or advertisement) had been rescinded in the same manner in which it was given, The power of attorney must be revoked in the same manner in which it was given (CIVIL CODE, Art 1873, par. 2). 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 (CIVIL CODE, Art. 1921). If the agent had general powers, revocation of the agency does not prejudice third persons who acted in {900d faith and without knowledge of the revocation. Notice of the revocation in a newspaper of general Circulation is a sufficient warning to third persons {CIVIL CODE, Art. 1922) “Nevertheless, revocation made in any manner is effective where the person dealing with the agent has actual knowedge therefor; henwise, bad faith and jraua would be committed (DE LEON, supra at 387). ‘To forestall fraud, a revocation made in any manner Il be effective against all persons having actual e thereof (5 PARAS, supra at 789 cling tions on the New Civil Code, 16 Lawyer's or #69. ‘Agency for Compensation General Rule: Agency is presumed to be for ‘compensation (CIVIL CODE, Art. 1875). Exception: Unless there is proof to the contrary. Necessity of Compensation The relation of principal and agent can be created ‘although the agent receives no compensation. Gratuitous Agent ‘A person who agrees to act as an agent without compensation. The promise’of a gratuitous agent is ordinarily not enforceable but the fact that he is such has no effect upon his rights and duties with reference 10 the principal and third persons. However, the fact that the agency was for ‘compensation or not, shall be considered by the court in determining the extent of liability of agent for fraud (or negligence (CIVIL CODE, Art. 1909) Liability of Principal To Pay Compensation ‘Amount ~ the principal must pay the agent the compensation agreed upon, or the reasonable value of the agent's services, if no compensation was specified (DE LEON, supra at 398). 2018 SAN BEDA CENTRALIZED BAR OPERATIONS | 443,PARTNERSHIP, AGENCY & TRUSTS SAN GEDA MEMO 2, Compliance by agent with his obligations ~ the liability of the principal to pay. commission presupposes thatthe agent has complied with his. ‘bligaton as such tothe principal (1). ‘A broker is never entitled to commission for Unsuccessful efforts. Even ifthe brokeris responsible ‘or making the owner and the possible buyer to meet and discuss the terms, ifno sale was consummated, he is not entitled to a commission (Id) Governing Rule Tho aget ust rove that he waste ung case mite! ponnig cao Procuring Cause Fens signing ast of evens which witout frcak in tk conaty, recut ie acomnpichment or ane coos hw eploynent ot te Bros peduing pce) nos able tenuyentne omer tome The brokor_must_ bo iments Saumnaion othe sate. aied toa Sian De LEON, Sopa Set ‘An agency is either general or special. The former fs comprises all the business of the principal. The latter, | fone or more specific transactions (CIVIL. CODE, i 1876). Classes and Kinds of Agents | ‘Universal Agent ~ one employed to do a that the principal may personally do, and Which he can lawully delegate to another the power of doing. We 2. General Agent -one employed to transactall he. business ofthe principal, oral the business of @ tent by which Agent may Bind Principal Binds his principal by an|Cannot bind his princip: ‘act within the scope ofin a beyond « his authorty although it|outside the specific act [may be contrary 10 his| which he is authorized t special instructions. |perform on behalf of th principal PY (Conducts a series of|Usually involves a singl involving continuity Pe ce |Statomont of principal Authonty of agent mus [with respect to. the|be strictly pursued ‘agents. authority. would oréinaiy be regarded as) acvisory only TY ‘authorty does|Mere revocation i Bt terminato by the eectve fo terminate th Mere revocation of hislauthorty as to. thin ‘authority: wihout notice persons because th hid ary i person has a duty t 37 comprises all the business of th ‘ebuched in general terms, it is limite ‘acts of administrations (Dominion Insuranc Gomp;v. GA, G.R. No, 129919, February 6, 2002). “Power af Attorney Kn. insisiment in writing by which one person, € pfincipal, appoints another as his agent and confer particular kind or in a particular place, or in cti6h=="upor him the authority to perform certain specie ‘words to do all acts, connected with a particular trade, business or employment 3. Special or Particular Agent - one authorized to ‘actin one or more specific transactions, oF to do fone or more specific acts, or to act upon a Particular occasion (DE LEON, supra at 407- 408). General Agent v. Special General Agent gent (SEC’ rer Peed all acts connected with/acts in pursuance of [ino snchess” “evearialer Petweiens Se ont racy ee eee eae teat wats i [eects totbedone | bo] 4444 | 2018 SAN BEDA CENTRALIZED BAR OPERATIONS ‘acts oF kinds of acts on behalf of the principal (Id. « 382) ‘An agency couched in general terms comprises on! acts of administration, even, even if the princip: should state that he withholds no power or that th agent may execute such acts as he may conside ‘appropriate, or even though the agency shoul authorize a general_and unlimited managemet (CIVIL CODE, Art. 1877). ‘Agency Couched in General and Special Terms According to the power or authority conferred, th agency may be: 4. Couched in general terms (CIVIL CODE, Ar 1877); 00 2. Couched in specific terms under special power ¢ attomey (CIVIL CODE, Art. 1878)PARTNERSHIP, AGENCY & TRUSTS SAN BEDA MEMO RY Alo 2ole ‘Acts of Administration ‘Acts of administration are those which do not imply the authority to alienate (DE LEON, supra at 413). However, sound management will sometimes require the performance of an act of ownership. Hence, acts ‘of administration will always be a questions of fact, than of law. Instances Where SPA Is Necessary(CIVIL CODE, ‘Aft. 1878) (PECWEMALB-BOCARO}: ‘Tomake Payments as are not usually considered a acts of administration; Payment is the delivery of money or thie performance in any other manner of an obligation (CIVIL CODE, Art. 1232). itis an act of ownership because it involves the conveyance of ownership ‘of money or property. (DE LEON, supra at 420). Note: If the payment is usually considered an act (of administration, no special power of attomey is needed. It should be noted, however, that some — acts of administration carry with them the ‘exercise of acts of dominion, e.g, the sale by an ‘administrator of fertile land or the products of the land (see 11 Manresa 469-470) 2. To Effect novation which put an endo objigations already in existence at time the. agency was constituted; novton te exten on cho RE the creation of a new one which substitutes it by Changing: the. objec a ponpal condone Ihara, saben, «debtor of Seroas nother in the night ofthe creditor (CIVIL G Coot Art, 1291). The obligations must already be in existence at the time of the constitution of the agency (5 PARAS, supra at 601). 3, To Compromise, submit questions to arbitration, renounce the right to appeal from a judgment, waive objections to the venue of an action of ‘@ prescription already acquired ‘There are five (5) diferent powers mentioned here. A right given regarding one fs not enough to {grant the others. Compromise Itis a contract whereby the parties, by making reciprocal concessions, avoid aitigation or put an tend to one already commenced (CIVIL CODE, ‘art. 2028). Arbitration Is where the parties submit their controversies to ‘one or more arbitrators for a decision (CIVIL CODE, Art 2024), ‘An agent cannot waive: the right to appeal from a judgment; objections to the venue of an action; Prescription already acquired by the principal (CIVIL CODE, Art. 1106) (PINEDA, supra at 293) 4. To Waive any obligation gratuitously; ‘This is condonation or remission (CIVIL CODE, Art. 1270). A debtor may have a debt or obligation to do in favor of the principal. The agent cannot walve such credit gratuitously. Express ccoridonation shall comply with the forms of donation (CIVIL CODE, Art. 1270), The waiver is an act of ownership. 5. ToEnter nto any contract by which the ownership of an immovable is transmitted or acquired either Brauyousty or fora valuable consideration ee ‘The conveyance of an immovable, whether for a Valuable consideration or gratuitously isan act of ‘ownership, ot an act of administration. Special of attornay is needed to validly effect such 688 (PINEDA, supra at 295) authority of an agent to execute a ract pf Sale of real estate must be conferred "and must give him specific authority, either 1. conduct the general business of the principal or to execute a binding contract ing terms and conditions which are in the “contract he did execute, ‘The express mandate required by law to enable ‘8N appointee of an agency couched in general tezms to sell must be one that expressly mentions ‘a sale or that includes a sale as a necessary Ingredient of the act mentioned. For the principal to confer the right upon an agent to sell real ‘estate, a power of attorney must so express the powers of the agent in clear and unmistakable language. When there is any reasonable doubt that the language so used ‘conveys such power, no such construction shall bbe given to the document (Cosmic. Lumber Corporation v. CA, G.R. No. 114311, November 29, 1996) Absence of Written Authority Ithas been repeatedly held that the absence of a ‘written authority to sell a piece of land is ipso jure, Void, precisely to protect the interest of an Lnsuspecting owner from being prejudiced by the unwarranted act of another (Pahud v. CA, G.R. No, 160346, August 25, 2009). BOIS SAN BEDA CENTRALIZED BAR OPERATIONS | 445,PARTNERSHIP, AGENCY & TRUSTS SAN BEDA MEMORY AID 2016 6. To Make gifts, except customary ones for charity ‘or those made to employees in the business managed by the agent, General Rule: Gifts are donations. A donation is an act of liberality whereby a person disposes of 2 thing or right in favor of another who accepts it Iis an act of ownership. Hence a special power of attorney is necessary. Exception: Gifts which are customary for charity oF given to employees in the business managed by the agent. Because these are only acts of administration (PINEDA, supra at 297). 7. To Loan or borrow money, unless the latter act, be urgent and indispensable for the preservation of the things which are under administration; ‘What is involved here is only money. The agent ‘may have in his possession funds or money of his While the agent may agree to render sorr service without compensation, he cannot withor authority bind his principal to do so, unless he given a special power to that effect This tantamount to bind him to render service withor ‘compensation. This is involuntary servitude (Id, 10. To Bind the principal in a contract of partnershit By the contract of partnership, the principal bine themselves to contribute money, property « industry to a common fund with the intention « dividing the profits among themselves. (CIV: CODE, Art. 1767). The contract of partnershi thus creates obligations the futfilment of whic requires an act of strict ownership. Furthermore, the principal must personally hav trust and confidence in the proposed partner: (DE LEON, supra at 425). 411. To Obligate the principal as guarantor or surety: pancal He may lend the money seat EE equa he guorantr binds meet to th persons. He may abuse the act ofl Special power of ettomey is necessary fo contol this act as the principal wil be placed at a Gisadvantage i tore is no lit fo the iseration of the agent I the agent loans Imoney without SSPA the loan wil not be binding the principal (PINEDA, supra at 207, al tna] ‘The same principle applies to the ack of borrowing money. Without a SPA. the agent canna Bowrow money in behalf of the principal (2 Bank of Caloocan v.CA, G.R. No L321 16), 21,198) , ‘The rule is that the agent cannot borrow Money = without a SPA except when the funds. are necessary and indispensable for the preservatlof== ff the property being administered by the said agent (Sta. Catalina v. Espitero, CA-G.R. No, 27075, April 28, 1964). 8. To Lease any real property to another person for ‘more than one year; The special power of attorney is necessary because a lease for more than one (1) year ‘creates a real right, To bind the principal, the agent must be possessed of a special power. (PINEDA, supra at 298) Ifthe lease is not for more than one (1) year, itis merely an act of administration provided kis not registered (0) The principals the lessor and not the lessee (Id). 9. -To Bind the principal to render some service without compensation; 446 | 2018 SAN BEDA CENTRALIZED BAR OPERATIONS to futfl the obligation of the princip: debtor in case the latter should filo do so (CIV CODE, Art. 2047). This is an act of ownershi because to fulfil the obligation, there may be fetyship, the surety binds himself solidaril fithe principal debtor. The creditor can mak I@ Surely” personally lable for the debt of th principal febtor. Ths is an act of strict ownershi (Difector of Public Works v. Sing Juco, G.R. Ne £80184, Juty 12, 1929). 12: To Greate or convey reat rights over immovabl property: _Ai-agent cannot create real rights (usufruc mortgage, voluntary easement) over th immovable property of his principal without special powor of attorney, This is an act of sti ‘ownership. With more reason, an agent cannc onvay same real ights. Both acts conte act of sinc ownership. A special power is needer (Phil. Sugar Estates Development Co. v. Poizai GR. No. 1-25952, December 3, 1925). 19. To Accept or repudiate an inheritance; 14.Any person having the free disposal of hi property may accept or repudiate an inheitanct (CIVIL CODE, Art. 1044). This actis one of stric Gominion; hence, the necessity of a specie authority. To. Ratily or recognize obligation: Contracted before the agency; ‘An agent cannot effect novation of obligation: existing at the time of the constitution of the agency unless he be specially authorized to de 0. Also, the agent cannot ratify or recogniz«PARTNERSHIP, AGENCY & TRUSTS AN BEDA MEMORY Alp 2018 obligations contracted before the agency without special power of attomey (DE LEON, supra at 27). 15. Any Other act of strict dominion Included in the general provisions are all acts of strict dominion not mentioned in the first cases ‘enumerated in the article (Id). Note: A third person with whom the agent wishes to contract on behalf of the principal may require the presentation of the power of attorney or the instructions as regards the agency. Private or secret ‘orders and instructions of the principal do not prejudice third persons who have relied upon the power of attomey or instructions shown them (CIVIL CODE, Art. 1902), Se Refers to the clear mandate (express or implied) ‘specifically authorizing the performance of an act, ‘and must therefore be distinguished from anager Se pat herb egies or sa areca gemara ues (Sag ene ‘A general power of attorney may however include a ‘special power if such special power is mentioned 6r referred to in the general power, e.g. “authorize you y ENO EN. = cont Reason: A special power to compromise does not ‘authorize submission to arbitration because while the principal may have the trust and confidence in the judgment of his agent, he may not have the same trust and confidence on the designate arbitrators, To authorize a person to submit the principal's transactions in question to arbitration, there must be 4 special power of attomey to that effect (CIVIL CODE, Art. 1878, par. 3). Thus if the principal has. designated the names of the arbitrators to arbitrate, the agent cannot submit the matter in controversy to the other arbitrators (Cox v. Fay 54 Vt. 446). I there {is no designation, the agent may submit the matter in ‘question to any arbitrator (PINEDA, supra at 302). When a Principal is Bound by Act of the Agent: 1. Agent must act within the scope of his authority (CIVIL CODE, Ad. 1881); and 2. Agent must actin behalf ofthe principal " limits of the agent's authority shall not be 6 exceeded should it have been performed ina manner more advantageous to the principal than. that specified by him (CIVIL CODE, Art. 1882) /g:Thewprincipal is bound by either actual or arent authority of the agent to sell alfmy properties." This does not heed @ special | “Underrthe dactrine of apparent authority (estoppel), ‘power to sell for each property involved, since such © “the probipalis liable only as to third persons who ower has already been given t “have ben igd reasonably to believe by the conduct [- \aamegyt aC the pringpal that such actual author exists, Effect of Lack of SPA Where One Is Required Itis unenforceable(CIVIL CODE, Art. 1403). Scope of Agent's Authority “The scope of the agent's authority is what appears in the written terms of the power of attomey. White third persons are bound to inquire into the extent or Scope ‘of the agent's 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 latter's authority. In the same way, third persons need not concern themselves with Instructions given by the principal to his agent outside the written power of attorney (Siredy Enterprises, Inc. v. Court of Appeals, etal. GRNo. 129039, September 17, 2002) ‘SPA to sell does not include the power to mortgage; ‘and vice versa. SPA to mortgage includes the power to allow the extrajudicial foreclosure of the mortgaged property (CIVIL CODE, Art. 1879) ‘A special power of attorney to compromise does not ‘authorize submission to arbitration (CIVIL CODE, Art 1880) 1 ee ‘although none has been given. The principal may or My fot be liable to the apparent agent(DE LEON, supra at 439). Kinds of Authority actual Express; implied; Apparent or ostensible; General ‘Special; and Emergency or authority by necessity or operation of law (DE LEON, supra at 495-437). When a Principal Agent: 1. Agent acts without or beyond the scope of his authority in the principal's name; and 2. Agent acts within the scope of his authority but in his own name (Undisclosed Principal), except when the transaction involves a thing belonging to the principal (CIVIL CODE, Art. 1883 par. 2) NOT Bound By Act of The Reason: There is no representation ofthe principal (DE LEON, supra at 444). OIE SAN BEDA CENTRALIZED BAR OPERATIONS | 447PARTNERSHIP, AGENCY & TRUSTS SAN BEDA MEMORY AID 20L8 Efiects of Agent's Acts: . In his own name — valid (in case of sal With Authority whether oF not the subject matter belongs a In principal's name — valid; principal is bound; the principal; Provided, that at the time ‘agent not personally able unless he expressly delivery, the “agent” can legally transfer t bound himself or exceeded the limits of his ‘ownership of the thing. Otherwise, he will authority without giving such party sufficient held liable for breach of warranty gait notice of his powers (CIVIL CODE, Art. 1897); eviction; Art. 1883 does NOT apply PARAS, supra at 609). Mlustration: P authorized A to sell his (P's) car. A then Mlustration: sold the car in P's name. The transaction is ‘A, without authority from P, and represent valid. A assumes no personal liability (5 himself to be the owner of P's car, Sold it te PARAS, supra at 812) buyer. Here, A acted without authori Moreover, he acted in his own behalf. It b. Inhis own name — apply Article 1883; generally clear that the transaction (sale) is va ‘not binding on the principal; agent and stranger provided that at the time delivery is to are the only parties, except regarding things ‘made, the ‘agent’ can transfer legally t belonging to the principal or when the principal ‘ownership of the thing. Otherwise, he will ratifies the contract or derives benefit therefrom, held liable for breach of warranty agait eviction. Itis also clear that only Ais liable lNlustration ~ Exception To The Exception: ‘an innocent purchaser. Here, Article 18 MP autor ond form () a aii vanes "et spy Because Arie 18 crpogurten a te teh err a MA karts Foun and A acts in hs ov (3) Beha hat is, A wanted to sing and he got the ob, only AY. Doctrine Of Agency By Necessity land the Opera House would be Bound ioeach | Hf there is an emergency to meet, te authority of t other. = expanded to cover the exigencies of t Mustration: fhe cor in fis (&s) own namo, Csciosing who the principal sta the agent can ony have recourse aga buyer, andthe buyer can have recourse Decoive tied persons: against he agent under Aricie 1883. - 22 Whergthe Limtations upon the power created However, inthis paricutar case, sce th ‘hie ‘eoud ‘nok have been, know by the th belonged tothe principal, P can have®™’—~" person; recourse againt the buyer and the buyer Gan 3, Where tho prindpal has placed inthe hands + 21. Where the principa'’s acts have contributed have recourse against agent P(id.). ==" the agent instruments signed by him in Ble (Strong v. Repide, G.R. No. L-7154, February: 2. Without Authority 1912); a. In_ principal's name — unauthorized & 4. Where the principal has Ratified the acts of t unenforceable but may be ratified by the agent (DE LEON, supra at 442) principal, in which case, may be validated Fetroactively from the beginning (CIVIL Note: Actually, agency can never be created CODE, Art. 1407); necessity; whal is created is additional authority in agent appointed and authorized before t lustration: emergency arose (Id). Without P's authority, A sold P's car to a buyer in P's behalf. The transaction, insofar as P is The limits of the agent's authority shall not concerned is unauthorized, hence considered exceeded should it have been perform lunenforceabie(CIVIL CODE, Art. 1403, No. in amanner more advantageous to the principal tl 1), Pis therefore not bound, unless he ratifies that specified by him(CIVIL CODE, Art. 1882) the transaction. Without’ the necessary ratification, the buyer can have a claim only The provisions of this article shall be understood against the alleged agent A. The moment a be without prejudice to the actions between t ratification is made. A steps out of the picture, __principal and the agent(CIVIL CODE, Art. 1883). since he would no longer be personally liable, ‘and now itis P who will have to deal with the buyer (1d) 48 | 2018 SAN BEDA CENTRALIZED BAR OPERATIONS:PARTNERSHIP, AGENCY & TRUSTS SAN BEDA MEM@RY AID 2018 Agency with an Undisclosed Principal ‘Art. 1883 pertains to the act of an agent who is authorized, but instead of acting in behalf of the principal, he acts in his own behalf. Art. 1883 does rot apply ifthe agent was unauthorized or he acts in, excess ‘of his authority'(5 PARAS, supra at 823). Undisclosed Principal Is one whom the other party dealing with the agent has no notice of the fact that the said agent is acting for a principal (PINEDA, supra at 308) Reason: To protect third persons against possible collusion between the agent and the principal. It applies only when the agent has, in fact, been ‘authorized by the principal to enter into the particular transaction, but the agent, instead of contracting for and in behalf of the principal, acts in his own ‘name(Phil. National Bank vs. Agudelo y Gonzaga, G.R. No. 39037, October 30, 1933). OBLIGATIONS OF THE AGENT-4 mS General Obligations of an Agent to Principal — (ObAE) 1. To Obey all tawul orders and instrustions.ot | principal within the scope of the = (uy ot ‘Obedtence) ey 2, To Act with utmost good faith furtherance of principal's. int Loyalty); and 3. To Exercise reasonable care, skill ahd ail (Duty of Diigence)(id. at 453-455). Specific Obligations of an Agent to Principal eens —.|D—.r~”—C—C——rs (CIVIL GODE, Art. 1884), Exception: An agent shall not camry out an ‘agency if its execution would manifestly result in toes oF damage tothe principal (CIVIL CODE, Art. 1888). 2. To Answer for damages which through his non- performance the principal may suffer (CIVIL CODE, Art. 1884), ‘This is consistent with the terms of Arts.1170 and. 1909'of the Civil Code(VILLANUEVA, supra at 132). Note: An action for specific performance is not available for personal obligations to do (la). 3, To Einish the business already begun on the death of the principal should delay entail any danger (CIVIL CODE, Art. 1884); 4. To Observe diligence of a good father of a family in the custody and preservation of the goods forwarded to him by the owner in case he declines an agency until an agent is appointed (CIVIL CODE, Art. 1885); General Rule: When a person declines the offer to make him an agent, generally, no contract of agency arises and thereby no obligation is assumed by such person to the offeror based on. the absence of privity Exception: Art. 1885 provides for an exception ‘as when the offeree, in spite of his refusal to accept the appointment, assumes certain liabilities (VILLANUEVA, supra at 134) ‘The duty of care over goods given to his custody can only cover a “reasonable period” because the law provides that the owner shall as soon as practicable ether appoint an agent or take charge 5" (Id). Pe. /ance thé necessary funds should there be > 2 stipulation fo do so (CIVIL CODE, Ar. 1886); Note: Notice that the article covers ony acts that C/ woxld: “manitestiy" lead 10 losses, in other wor, the agent cannot be a quarantor thatthe ial would suffer no loss or damage in the “pursuit of the agency; the sustaining of losses duo 5 To human errs part ofthe risk that every owner ot principal assumes (VILLANUEVA, supra at 140) 7. To Answer for damages if there being a conflict between his interest and those of the principal, he should prefer his own (CIVIL CODE, Art. 1889); Art. 1889 does not declare the contract or transaction the agent entered into as void, but merely makes the agent liable for damages suffered by the principal (VILLANUEVA, supra at 144), ‘A common confict-of-interest situation is the purchase of principal's property. Art. 1491 provides that ‘an agent, cannot acquire by purchase, even at a public of judicial auction, either in’ person or through the mediation of ‘another, the property under his administration or 2018 SAN BEDA CENTRALIZED BAR OPERATIONS | 449PARTNERSHIP, AGENCY & TRUSTS SAN BEDA ME mORY AID 2018 for sale entrusted to him, unless the consent of the principal has been given. Remedy when an Agent Wishes to Prefer His ‘Own Interest: He must timely renounce the ‘agency, provided his renunciation is not for the purpose of profiting from the transaction (PINEDA, supra at 321) Not to Loan to himself if he has been authorized to lend money at interest (CIVIL CODE, Art. 1890); Exception: When the principal consents to the same (CIVIL CODE, at Art. 1890). * ‘Agent may lend money to the principal, but the interest he may charge cannot be higher than the current rate of interest (DE LEON, supra at 470) Reason: The principal will suffer no prejudice ‘because the principal, just the same, willbe Hable ie WS to pay interest (1a) To render an Account of his transactions and to belonging to each principal, inthe case commission agent who. handles goods of same Kind and mark, which belong to efferent ‘owners (CIVIL CODE, Art. 1904), 1) | 18. To Bear the risk of collection, should he also on sale, a guarantee commission (GMI, CODE, Art. 1907); 16. To Indemnity the principal for damages for his {allure to collect the crecits of his principalat the time that they become due (CIVIL CODE, Art 1908); Note: Not applicable to guarantee commission (CIVIL CODE, Art. 1907). 17. Tobe Responsible for fraud or negligence (CIVIL CODE, Art, 1909), “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(CIVIL CODE, Art. 1884), Three Obligations Under Art. 1884 ‘Obligation to Carry Out the Agency ~ A person is free to refuse the agency. But once he accepts the agency, he is bound to carry it out in accordance with its terms in good faith (CIVIL CODE, Art, 1159) and following the instructions, if any, of the principal (CIVIL CODE, Art. 1887; PINEDA, supra at 314) 2. Obligation to Answer for Damages ~ Upon his, failure to carry out the terms of the agency, he is liable for the damage which the principal may suffer (CIVIL CODE, Art. 1897) 3. Obligation to finish the business upon the principal's death ~ Although the death of the principal extinguishes the agency (CIVIL CODE, Art. 1919, par. 3), the agent has an obligation to conclude the business already begun on the death of the principal, in accord with the principles of equity. But the duty exists should delay entail any danger (Id) In case a person declines an agency, he is bound to observe the diligence of a good father of a family in the custody and preservation of the goods forwarded to him by the owner until the latter should appoint an agent. The owner shall as soon as practicable either ‘agent or take charge of the goods (CIVIL ol 1885), Obligation of the person who declines an agency ifthe owner has appointed a person to be his agent "and.zhas. forwarded goods to the latter whom he to accept the agency but did not, the latter observe ordinary diligence in the ‘ll redder thm hale for damages (PINEDA, supra at 316) Diligence of a Good Father of Family A person who decines an agoncy i sill bound to Observe digence of» good father a fami (CIVIL CODE, Art. 1885). ‘Should there be a stipulation that the agent shall ‘advance the necessary funds, he shall be bound to do so except when the principal is insolvent(CIVIL CODE, Art. 1886). ‘An agent shall not carry out an agency if its execution would manifestly result in loss or damage to the principal (CIVIL CODE, Ar. 1888). Reason: The duty of the agent who is merely an ‘extension of the personality of the principal is to render service for the benefit of the principal and not to act to his detrimen(DE LEON, supra at 468). Hence, an agent need not proceed with the agency if by doing s0, loss or damage would manifestly be suffered by the principal (PINEDA, supra at 320). ‘The agent shall be lable for damages If, there being conflict between his interests and those of the 2018 SAN BEDA CENTRALIZED BAR OPERATIONS | 451