Exam

PARTNERSHIP Commented [LR1]:
I. CONTRACT OF PARTNERSHIP
A. DEFINITION
Q: What is a partnership?
ANS: It is a contract where two or more persons bind themselves to contribute money, property, or industry to a common
fund, with the intention of dividing the profits among themselves (CIVIL CODE, Art. 1767).
B. ELEMENTS
Q: What are the essential features of a partnership?

ANS: The essential features are as follows:
1. There must be a valid contract; Commented [LR2]:
Note: Since partnership is fundamentally contractual, all the essentials of a valid contract must be present,
specifically, consent, object and cause (DE LEON, P.A.T., supra at 14).
- Partnership is a voluntary relation created by agreement of the parties. There is no such thing as a partnership
created by law, or by operation or implication of law alone.
- Form: The partnership relation is evidenced by the terms of the contract which may be oral, written, implied or
express from the acts or declarations of the parties;
2. The parties (two or more persons) must have legal capacity to enter into the contract;
3. There must be a mutual contribution of money, property, or industry to a common fund;
- The contribution can be money, property and industry or any two or one of them
A. Money –currency which is legal tender in the Philippines
B. Property-
a. May be real or personal, corporeal or incorporeal
b. Credit (such as promissory notes) may be contributed but the contribution is considered only when it is
cashed.
- In partnership, proof is necessary that there be a contribution of money, property or industry to a common fund
with the intention of dividing the income or profits obtained therefrom.
4. The object must be lawful;
5. The primary purpose must be to obtain profits and to divide the same among the parties; and (De Leon, Comments
and Cases on Partnership, Agency and Trusts (2014), p.12) [hereinafter DE LEON, P.A.T.].
- A partnership is formed to carry on a business for profit.
- All that is needed is a profit motive. Hence, even an unprofitable business can be a partnership provided that the
goal of the business is to generate profits and to return these profits to the owners.
- Pecuniary profit need not be the only aim, it is enough that it is the primary purpose.
Q: Does a partnership have a separate personality?

ANS: Yes. A partnership has a juridical personality of its own, distinct and separate from that of each of the partners. In our
jurisdiction, partnerships, except general professional partnerships, are treated for income tax purposes as corporations and
subject to tax as such.
Q: May checks, drafts, or promissory notes payable to order be considered as contribution of money?
ANS: No. They are only representatives of money. There is no contribution of money until they have been cashed (CIVIL
CODE, Art. 1249).
Q: Is a license to construct and operate a cockpit considered a contribution to partnership?

ANS: Yes. The property contributed may be real or personal, corporeal or incorporeal. Credit such as promissory notes or
other evidence of obligation or even a mere goodwill may be contributed, as they are considered property (DE LEON,
P.A.T., supra at 19).
Q: Explain “industry” as contribution to partnership.

ANS: The word “industry” has been interpreted to mean the active cooperation, the work of the party associated, which may
either be personal manual efforts or intellectual and for which he receives a share in the profits (not merely salary) of the
business (DE LEON, P.A.T., supra at 19).
Q: Distinguish a partner contributing his industry or services from one who is a lessor of services.
ANS: A partner contributing his industry or services is independent of the other partners, that is, he is not subject to the
supervision of the other partners, while the lessor is under the supervision of the lessee or employer (DE LEON, P.A.T.,
supra at 20).
Q: May a partnership be formed for the exercise of a profession?

ANS: Yes. Two or more persons may also form a partnership for the exercise of a profession (CIVIL CODE, Art. 1767).
While strictly speaking the exercise of a profession is neither a business undertaking nor an enterprise for profits, the law
considers the joint pursuit thereof, for mutual help, as partnership (PARAS, Civil Code, supra at 576).
Q: What are the consequences if the object or purpose of the partnership is unlawful?
ANS: The following are the consequences:
1. The contract is void ab initio and the partnership never existed in the eyes of the law;
2. The profits shall be confiscated in favor of the government;
3. The instrument or tolls and proceeds of the crime shall be forfeited in favor of the government; and
4. The contributions of the partners shall not be confiscated unless they fall under number 3 (DE LEON, P.A.T., supra at
59).
NOTE: - A partnership is dissolved by operation of law upon the happening of an event which makes it unlawful for the
business of the partnership to be carried on, or for the members to carry it on in partnership (Art.1830[3]; A juridical decree is
not necessary to dissolve an unlawful partnership. But it is advisable to be secured for the convenience of the partners/parties
and to protect third persons.
C. RULES TO DETERMINE EXISTENCE
Q: What are the rules in determining the existence of partnership?

ANS: The rules are as follows:
1. Except as provided by Article 1825, persons who are not partners as to each other are not partners as to third
persons;
2. Co-ownership or co-possession does not of itself establish a partnership, whether such co-owners or co-possessors
do or do not share any profits made by the use of the property;
3. The sharing of gross returns does not of itself establish a partnership, whether or not the persons sharing them have
a joint or common right or interest in any property from which the returns are derived;
4. The receipt by a person of a share of the profits of a business is prima facie evidence that he is a partner in the
business, but no such inference shall be drawn if such profits were received in payment (DIWAC):
a. As a Debt by installments or otherwise;
b. As Interest on a loan, though the amount of payment vary with the profits of the business;
c. As Wages of an employee or rent to a landlord;
d. As an Annuity to a widow or representative of a deceased partner; and
e. As the Consideration for the sale of a goodwill of a business or other property by installments or otherwise
(CIVIL CODE, Art. 1769).
Q: What are the tests to determine whether or not a partnership exists?

ANS: To determine whether a partnership exists, the tests are:
1. Whether or not there is an agreement to contribute money, property, or industry to a common fund; and
2. Whether or not the contracting parties intended to divide the profits among themselves (CIVIL CODE, Art. 1767).
Q: Assuming that there is a mutual contribution of money, property, or industry to a common fund, is the receipt by
a person of a share of the profits of a business conclusive evidence that he is a partner in the business?
ANS: No. It is merely prima facie evidence that he is a partner (JURADO, Civil Law, supra at 1043).
Q: Explain the sharing of profits as an essential feature of partnerships.

ANS: A partnership is essentially a business enterprise established for profit. It is necessary that there is an intention to
divide the profits among the members, although not necessarily in equal shares (DE LEON, P.A.T., supra at 25).
Q: Fortis is a bookkeeper in a partnership named “Gutierrez Hermanos”, with a yearly salary amounting to 5% of
the net profits for each year. Fortis, however, has no vote at all in the management of the business. Is he a partner?
ANS: No. Clearly this is a mere contract of employment (PARAS, Civil Code, supra at 598).
Q: Valderama and Co., a general merchandise for partnership has become insolvent for misadministration of the
business and entered into an agreement with its creditors to the effect that the business should be continued for
the time being under the direction and management of an experienced businessman appointed by the creditors, an
arrangement to be carried out until the claims of the creditors are fully satisfied. Can you consider the creditors
who are parties to the agreement partners?
ANS: No.The creditors are not partners, for their only interest in the sharing of profits is the receipt or payment of their
credits (CIVIL CODE, Art. 1769). Moreover, in a partnership, the partners are supposed to trust and have confidence in all
the partners – this element is not present in the instant case (PARAS, Civil Code, supra at 599).
Q: Is sharing of losses implied in a contract of partnership?

ANS: Yes. It is not necessary for the parties to agree upon a system of sharing losses, for the obligation is implied from the
partnership relation (DE LEON, P.A.T., supra at 26).
Q: Are partnerships and labor unions similar?

ANS: No. Partnerships and labor unions have some characteristics in common, but they have different purposes. The
purpose of partnership is to enable its members to conduct a lawful business, trade or profession for pecuniary gain, while a
labor union’s purpose is for collective bargaining or dealing with employers concerning terms and conditions of employment
(DE LEON, P.A.T., supra at 47).
Q: Distinguish partnerships from business trusts.

ANS: When certain persons entrust their property or money to others who will manage the same for the former, a business
trust is created. In a true business trust, the beneficiaries(cestui que trust) do not participate in the management; hence, they
are exempted from personal liability, in that they can be bound only to the extent of their contribution (PARAS, Civil Code,
supra at 587). In partnership, the partners shall be considered as agents and whatever any one of them may do alone shall
bind the partnership (CIVIL CODE, Art. 1803[1]), and all partners, including industrial ones, shall be liable pro rata with all
their property and after all partnership assets have been exhausted, for the contracts which may be entered into in the name
and for the account of the partnership (CIVIL CODE, Art. 1816).
Q: Distinguish a partner from an agent.

ANS: An agent never acts for himself but only for his principal. A partner is both a principal (for his own interests) and an
agent (for the firm and the others) (PARAS, Civil Code, supra at 588).
Q: May a corporation become a partner?

ANS: The majority view is that a corporation cannot become a partner on ground of public policy. However, a corporation
can enter into a joint venture with another where the nature of the venture is in line with the business authorized in its charter
(PARAS, Civil Code, supra at 589).
D. HOW IS PARTNERSHIP FORMED
Q: What are the formalities required in constituting a partnership?

ANS: Generally, a partnership may be constituted in any form (CIVIL CODE, Art. 1771). The exceptions are the following:
1. In cases where immovable property or real rights are contributed, regardless of value:
a. It must be in writing in a public instrument (CIVIL CODE, Art. 1771). Without the public instrument, the partnership
is void and has no juridical personality even as between the parties (Art. 1773)
b. An inventory of said property should be made, signed by the parties, and attached to the public instrument;
c. It must be recorded with the Register of Deeds where the immovable is located to bind third persons; and
d. Where the contract falls within the Statute of Frauds, the contract itself must be in writing in a public instrument
2. In cases where personal property is contributed:
a. If capital is less than P3,000, no special form is required for its validity or existence (CIVIL CODE, Art. 1772); or
b. Where the contract of partnership has a capital of 3,000 pesos or more, in money or property, the same shall
appear in a public instrument and must be recorded in the Office of the Securities and Exchange Commission.
However, a partnership has a juridical personality and is valid even in case of failure to comply with this
requirement (CIVIL CODE, Arts. 1772 and 1768).
Without the contribution of real property, a partnership formed orally though more than P500 is contributed is
valid. Art. 1358 applies only for the purpose of convenience and not for validity and enforceability.
NOTE: For the effectivity of the contract insofar as innocent third persons are concerned, the same must be registered in
the Registry of Property if real properties are involved.
Q: If two persons agree to form a partnership in the future, does the partnership immediately arise from the
moment of said agreement?
ANS: No. An agreement to form a partnership does not of itself create a partnership. When there are conditions to be
fulfilled or when a certain period is to elapse, the partnership is not created until after the fulfillment of the conditions or the
arrival of the term and this is true even if one of the parties has already advanced his agreed share of the capital (PARAS,
Civil Code, supra at 606).
Q: A and B today orally agreed to form a partnership one and a half years from today, each one to contribute
P1,000. If at the arrival for the period, one refuses to go ahead with the agreement, can the other enforce the
agreement?
ANS: No, the agreement was merely oral and executory. Since therefore the agreement is to be enforced after one (1) year
from the making thereof, the same should be in writing to be enforceable under the Statute of Frauds (PARAS, Civil Code,
supra at 606).
Q:What is the purpose of registration with the Office of the Securities and Exchange Commission as provided in
Article 1772?
ANS: The registration is to set a condition for the issuance of licenses to engage in business or trade. In this way, the tax
liabilities of big partnerships cannot be evaded and the public can also determine more accurately their membership and
capital before dealing with them (4 CAPISTRANO, Civil Code of the Philippines, p. 260).
Q: Is an unregistered partnership valid?

ANS: Yes. Even if not registered, the partnership having a capital of P3,000 or more is still a valid one, and therefore has
legal personality (CIVIL CODE, Art. 1768).
Q: Does an association which is not lawfully organized as a partnership possess legal personality?
ANS: If an association is not lawfully organized as a partnership (though it apparently carries on the business as a
partnership), it possesses no legal personality. Therefore, it cannot sue as such. However, the “partners”, in their individual
capacity, can (Lopez, et. al. v. Yu Sefao, G.R. No. 9393, August 20, 1915; PARAS, Civil Code, supra at 595).
Q: Are the articles of partnership required for the existence of a partnership?

ANS: No. However, while the partnership relation may be informally created and its existence proved by manifestations of
the parties, it is customary to embody the terms of the association in a written document known as “Articles of Partnership”
(DE LEON, P.A.T. supra at 13).
E. PARTNERSHIP TERM
Q: When does a partnership begin?

ANS:A partnership begins from the moment of the execution of the contract, unless it is otherwise stipulated (CIVIL CODE,
Art. 1784).
Q: Are contributions necessary before a contract of partnership may exist?

ANS: No. As a rule, even if contributions have not been made, the form already exists, for partnership is a consensual
contract (PARAS, Civil Code, supra at 580).
Q: What is a partnership at will?

ANS: A partnership at will is a continuation of the business by the partners or such of them as habitually acted therein during
the term, without any settlement or liquidation of the partnership affairs, is prima facie evidence of a continuation of the
partnership. 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 partnership at will (CIVIL CODE, Art. 1785).
Q: Is the term of partnerships unlimited?
ANS: Yes. In a sense, a partnership is unlimited as to its duration, as the law fixes no time limit. The term may be agreed
upon expressly; as when there is a definite period, or impliedly, as when a particular enterprise is undertaken - it being
understood that the firm ends as soon as its purpose is achieved (PARAS, Civil Code, supra at 580).
F. UNIVERSAL VS. PARTICULAR PARTNERSHIP; GENERAL VS. LIMITED
Q: Enumerate the different classifications of partnership.

ANS: The different classifications are the following:
1. According to manner of creation:
a. Orally constituted;
b. Constituted in a private instrument;
c. Constituted in a public instrument; or
d. Registered in the Office of Securities and Exchange Commission.
2. According to object:
a. Universal with all present property;
b. Universal with all profits; or
c. Particular.
3. According to liability:
a. Limited partnership; or
b. General partnership.
4. According to legality:
a. Lawful/legal; or
b. Unlawful/illegal.
5. According to duration:
a. For a specific period;
b. Until the purpose is accomplished; or
c. A partnership at will.
6. According to representation to others:
a. Ordinary partnership; or
b. Partnership by estoppel (PARAS, Civil Code, supra at 612).
Q: What is a universal partnership?

ANS:A universal partnership may refer to all the present property or to all the profits (CIVIL CODE, Art. 1777).
Q: What is a universal partnership of all present property?

ANS: A universal partnership of all present property is that in which the partners contribute all the property which actually
belongs to them to a common fund, with the intention of dividing the same among themselves, as well as all the profits which
they may acquire therewith (CIVIL CODE, Art. 1778).
Q: Can future properties be contributed?

ANS: As a general rule, future properties cannot be contributed. Thus, property subsequently acquired by inheritance,
legacy or donation cannot be included by stipulation except the fruits thereof (DE LEON, P.A.T., supra at 77).
Q: A and B entered into a universal partnership of all present property. No stipulation was made regarding other
properties. Subsequently, A received a parcel of land by inheritance from his father, and another parcel of land by
inheritance from San Beda College as remuneration for A’s work as professor therein. Are the two parcels of land
and their fruits to be enjoyed by the partnership?
ANS: No. There was no stipulation regarding future properties or their fruits (PARAS, Civil Code, supra at 616).
Q: A and B entered into a universal partnership of all present property. It was stipulated that all properties
subsequently acquired would belong to the partnership. Subsequently, A received a parcel of land by inheritance
from his father, and another parcel of land by inheritance from San Beda College as remuneration for A’s work as
professor therein. Are the two parcels of land and their fruits to be enjoyed by the partnership?
ANS: The land acquired as salary as well as its fruits will belong to the firm; but the land acquired later by inheritance will not
belong to the partnership since this cannot be stipulated upon (CIVIL CODE, Art. 1779 (2). The fruits of the inherited land
will go to the firm because said fruits may be considered as properties subsequently acquired, and there is no prohibition to
stipulate on fruits, even if the fruits be those of properties acquired later on by inheritance, legacy or donation (PARAS, Civil
Code, supra at 616).
Q: What is a universal partnership of profits?

ANS: It comprises all that the partners may acquire by their industry or work during the existence of the partnership. The
movable or immovable property which each of the partners may possess at the time of the celebration of the contract shall
continue to pertain exclusively to each, only the usufruct passing to the partnership (CIVIL CODE, Art. 1780).
Q: In a universal partnership of profits, are profits acquired through chanceincluded?

ANS: No. Profits acquired by the partners through chance, such as lottery or by lucrative title without employment of any
physical or intellectual efforts are not included (DE LEON, P.A.T., supra at 78).
Q: In a universal partnership of profits, A contributed the use of his car. At the end of the partnership, should the
car be returned to him?
ANS: Yes. It must be returned to him because the naked ownership had always been with him, and upon the end of the
usufruct, full ownership reverts to him. Remember that only its use had been previously contributed (PARAS, Civil Code,
supra at 617).
Q: A and B entered into a universal partnership of profits. Later, A purchased a parcel of land. Will the fruits of the
said land belong to the partnership?
ANS: No, the usufruct granted to the firm under Art. 1780, par. 2 refers only to the property possessed by the partner at the
time of the celebration of the contract. However, it would be valid to stipulate that the usufruct of after-acquired properties
would belong to the partnership (PARAS, Civil Code, supra at 617).
Q: Who cannot enter into a universal partnership?

ANS: Persons who are prohibited from giving each other any donation or advantage cannot enter into a universal
partnership (CIVIL CODE, Art. 1782).
Q: Give examples of persons prohibited from entering into a universal partnership.

ANS: The persons prohibited are as follows:
1. Husband and wife (CIVIL CODE, Art. 1782, in relation to FAMILY CODE, Art. 87)
2. Those guilty of adultery or concubinage (CIVIL CODE, Art. 739); and
3. Those guilty of the same criminal offense, if the partnership was entered in consideration of the same (CIVIL
CODE, Art. 739).
Q: What is the rule when the articles of universal partnership are entered intowithout specification of its nature?
ANS: Articles of universal partnership, entered into without specification of its nature, only constitute universal partnership of
profits (CIVIL CODE, Art. 1781).Rationale: There is less obligation in universal partnership of profits considering that the
properties owned by the partners are retained by them in naked ownership.
Q: What is a particular partnership?

ANS: A particular partnership has for its object determinate things, their use or fruits, or a specific undertaking, or the
exercise of a profession or vocation (CIVIL CODE, Art. 1783).
Note: In a universal partnership, the object is vague and indefinite, contemplating a 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, P.A.T., supra at 82)..
Q: What is a general partnership?

ANS: A general partnership is one where all the partners are general partners, that is, they are liable even with respect to
their individual properties, after the assets of the partnership have been exhausted (PARAS, Civil Code, supra at 606).
Q: What is a limited partnership?

ANS: A limited partnership is one formed by two or more persons under the provisions of Article 1844 of the Civil Code
(requirements to form a limited partnership), having as members one or more general partners and one or more limited
partners. The limited partners as such shall not be bound by the obligations of the partnership (CIVIL CODE, Art. 1843).
Q: May a partnership exist when all are “limited partners”?

ANS: No. A partnership where all the partners are “limited partners” cannot exist as a limited partnership; it will even be
refused registration. If at all it continues, it will be a general partnership, and all the partners will be general partners
Q: Can a husband and wife enter into a contract of partnership?

ANS: It depends.If the partnership is a universal partnership, a husband and a wife cannot enter into such contract. Under
Article 1782, persons prohibited from making donations to each other are prohibited from entering into universal
partnerships. However, the prohibition does not apply if the partnership is a particular partnership or a limited partnership
(JURADO, Civil Law, supra at 1045).
G. PARTNERSHIP BY ESTOPPEL
Q: What is a partnership by estoppel?

ANS: When a person, by words spoken or written or by conduct, represents himself, or consents to another representing
him to anyone, as a partner in an existing partnership or with one or more persons not actual partners, he is liable to any
such persons to whom such representation has been made, and who has, on the faith of such representation, given credit to
the actual or apparent partnership, and if he has made such representation or consented to its being made in a public
manner he is liable to such person, whether the representation has or has not been made or communicated to such person
so giving credit by or with the knowledge of the apparent partner making the representation or consenting to its being made:
1. When a partnership liability results, he is liable as though he were an actual member of the partnership;
2. When no partnership liability results, he is liable pro rata with the other persons, if any, so consenting to the contract
or representation as to incur liability, otherwise, separately (CIVIL CODE, Art. 1825).
Note:Art. 1825 does not create a partnership as between the alleged partners. The law only considers them partners
and the association as a partnership insofar as it is favorable to third persons. However, partnership liability is
created only in favor of persons who on the faith of such representation given credit to the partnership.
Q. What are the requisites to make a person a “partner by estoppel”?
1. The person must represent himself as a partner of an EXISTING PARTNERSHIP when in fact, he is not a partner or he
consents to another representing him to anyone as a partner in an existing partnership or with one or more persons not actual
partners;
2. A THIRD PERSON relied on the said misrepresentation not being aware of the deception;
3. On the faith of such representation, the third person HAS GIVEN CREDIT to the actual or apparent partnership;
The alleged partner cannot disallow liability by claiming that he is not actually a partner. He is estopped from making a
disclaimer. He is bound as a partner although he is not actually a partner.
Note: No real partnership is created by estoppel. Art. 1825 does not create or establish a real partnership as between the
alleged partners.
Reason: A real partnership is created by contract, express or implied.
It is only insofar as third persons are concerned and for the purpose of giving them protection that the
equitable principle of estoppel applies.
Q: When can there be a partnership by estoppel?

ANS: When all members of the existing partnership consent to the representation, a partnership act or obligation results
(CIVIL CODE, Art. 1825), in which case, a partnership by estoppel arises.
Q: When can there be a partner by estoppel?

ANS: There can be a partner by estoppel when:
1. Represents himself as a partner or consents himself to be represented as a partner of an existing partnership with or
without the consent of the partnership; or
2. Represents himself as a partner of a non-existent partnership (PARAS, Civil Code, supra at 692-693).
Note: When two or more persons attempt to create a partnership but fail to comply with the legal formalities essential for
juridical personality, the law considers them as partners, and the association is a partnership insofar as it is favorable to third
persons, by reason of the equitable principle of estoppel (MacDonald v. Nat. City Bank of New York, G.R. No. L-7991, May
21, 1956; PARAS, Civil Code, supra at 613).
Q: When is the doctrine of estoppel inapplicable?

ANS: The doctrine does not apply when although there is misrepresentation, the third party is not deceived (PARAS, Civil
Q: Give an example of a partner by estoppel.

ANS: X, a rich man, wanted to give better credit to a partnership, so he signed the partnership agreement as partner when
in fact, he was not really one. People who rely on the misrepresentation can consider him a partner by estoppel (Hobbs v.
Virginia Nat. Bank, 147 V. 892, 1926; PARAS, Civil Code, supra at 593).
H. PARTNERSHIP v. JOINT VENTURE
Q: What is a joint venture?

ANS: A joint venture is an association of persons or company jointly undertaking some commercial enterprise; generally
contribute assets and share risks. It requires a community of interest in the performance of the subject matter, a right to
direct and govern the policy in connection therewith, and a duty which may be altered to share both in profits and losses
(Kilosbayan v. Guingona, G.R. No. 113375, May 5, 1994).
Q: Distinguish partnership from joint venture.

ANS: The differences are as follows:
Partnership Joint Venture

As to existence of legal personality
Has a sort of informal partnership, with no firm
name and no legal personality.
Has a legal personality
In a joint account, the participating merchants can
transact business under their own name, and can
be individually liable therefore.
As to the transactions
Usually, but not necessarily, it is limited to a single
Generally relates to a continuing business of various transaction, although the business of pursuing to
transactions of a certain kind. a successful termination may continue for a
number of years.
I. PROFESSIONAL PARTNERSHIP
Q: May a partnership be established for the exercise of a profession?

ANS: Yes, two or more persons may also form a partnership for the exercise of a profession (CIVIL CODE,
Art. 1767 (2) ).
Q: Are professional partnerships prohibited by law?

ANS: No. The practice of a profession is not a business or an enterprise for profit. However, the law
allows the joint pursuit thereof by two or more persons as partners. It is the individual partners, not the
partnership, who engage in the practice of the profession and are responsible for their own acts as such.
The law does not allow the practice of a profession as a corporate entity. Personal qualifications for such
practice cannot be possessed by a corporation (DE LEON, P.A.T., supra at 10).
J. MANAGEMENT
Q: Who shall manage the partnership?

ANS: The management of the partnership may be vested by agreement in one, or some, or all of the
partners, or even in a third person, either in the articles of partnership or after the partnership had
already been constituted (CIVIL CODE, Arts. 1800, 1801, 1802). If there is no agreement, it is vested in all
of the partners (CIVIL CODE, Art. 1803; JURADO, Civil Law, supra at 1049).
Q: What are the two (2) modes of appointing a manager?

ANS: Art. 1800 speaks of two modes of appointment:
1. Appointment as manager in the articles of partnership; and
2. Appointment as manager made in an instrument, other than the articles of partnership or made
orally (PARAS, Civil Code, supra at 641).
Q: How is a managing partner removed?

ANS: The power of the manager is irrevocable without just and lawful cause. Therefore:
1. To remove him for just cause, the vote of the partners representing the controlling interest is
necessary for such revocation of power; or
2. To remove him without cause, or for an unjust cause, there must be unanimity (including his own
vote) (PARAS, Civil Code, supra at 641).
Q: What is the extent of the power of a managing partner appointed in the articles of partnership?
ANS: The partner appointed by common agreement in the articles of partnership may execute all acts of
administration notwithstanding the opposition of the other partners, unless he should act in bad faith.
His power is revocable only upon just or lawful cause and upon the vote of the partners representing the
controlling interest (DE LEON, P.A.T., supra at 118).
Q: What is the effect of the appointment as manager if made after the constitution of the
partnership?
ANS: The power to act may be revoked at any time for any cause whatsoever (DE LEON, P.A.T., supra at
119).
Q: What is the extent of the power if the appointment is after the constitution of partnership?
ANS: As long as he remains the manager, he can perform all acts of administration, but if others oppose
and he persists, he can be removed (PARAS, Civil Code, supra at 642) with or without just cause.
Q: May two or more managing partners be entrusted with the management of the partnership?
ANS: Yes. The rules are:
1. When the appointment is without specification of their respective duties and without stipulation
that one of them shall not act without the consent of all the others, each one may execute all acts
of administration except if any such partner should oppose:
a. Decision of the majority of the managing partners shall prevail; and
b. In case of a tie, decision of the partners having the controlling interest shall prevail (CIVIL
CODE, Art. 1801).
2. With stipulation requiring unanimity of action, unanimous consent of all the managing partners
shall be necessary for the validity of the acts and absence or disability of any managing partner
cannot be alleged, except when there is an imminent danger of grave or irreparable injury to the
partnership (CIVIL CODE, Art. 1802); or
3. When manner of management has not been agreed upon, all partners shall be considered as
managers and agents and unanimous consent is required for important alteration of immovable
property (CIVIL CODE, Art. 1803).
Q: What is the effect when unanimity is required, but one of the managers is absent or incapacitated?
ANS: Absence or incapacity is no excuse, except when there is imminent danger of grave or irreparable
injury to the partnership (CIVIL CODE, Art. 1802).
II. RIGHTS AND OBLIGATIONS OF PARTNERSHIP
Q: Enumerate the relations created by a contract of partnership.

ANS: The relations created are the following:
1. Relations among the partners themselves;
2. Relations of the partners with the partnership;
3. Relations of the partnership with third persons; and
4. Relations of the partners with third persons (DE LEON, P.A.T., supra at 90).
Q: What are the rights and obligations, in general, of partners?

ANS: The rights and obligations are the following:
1. Partnership relationship is essentially one of mutual trust and confidence. The law imposes upon
the partners the highest standards of integrity and good faith in their dealings with each other;
2. Fiduciary relationship remains until partnership is terminated so that it includes matters
concerned with the formation of the partnership (CIVIL CODE, Art. 1807), and when the
partnership is dissolved, the assets of the partnership must still be managed in accordance with
its fiduciary principle; and
3. As to a limited partnership, the rights and obligations of the partners as to each other are
provided on the theory that a partner is both a principal and an agent in relation to his co-
partners but the relationship does not involve the element of trust and confidence (DE LEON,
P.A.T., supra at 91-92).
III. RIGHTS AND OBLIGATIONS OF PARTNERS AMONG THEMSELVES
Q: Enumerate the obligations of partners among themselves

ANS: The obligations of partners among themselves are classified as follows:
1. Obligations with respect to contribution of property;
2. Obligations with respect to contribution of money and money converted to personal use (CIVIL
CODE, Art. 1788);
3. Obligation not to engage in another business for himself(CIVIL CODE, Art. 1789 and Art 1808);
4. Obligation to contribute additional capital(CIVIL CODE, Art. 1791);
5. Obligation of the managing partner who collects debt (CIVIL CODE, Art. 1792);
6. Obligation of partner who receives share in partnership credit (CIVIL CODE, Art. 1793);
7. Obligation of partner for damages to partnership(CIVIL CODE, Art. 1794);
8. Duty to render true and full information (CIVIL CODE, Art. 1806); and
9. Obligation to account for any benefit and hold as trustee unauthorized personal profits (CIVIL
CODE, Art. 1807)
Q: Enumerate the obligations of the partners with respect to contribution of property.

ANS: Under the Civil Code, the obligations of the partners are:
1. To contribute at the beginning of the partnership or at the stipulated time the money, property, or
industry he had promised (CIVIL CODE, Art. 1786);
2. To answer for eviction in case the partnership is deprived of the determinate property contributed
(CIVIL CODE, Art. 1786);
3. To answer to the partnership for the fruits of the property the contribution of which he delayed, from
the date they should have been contributed up to the time of actual delivery (CIVIL CODE, Art. 1786);
4. When the contribution of the partner consists of goods, their appraisal must be made in the manner
prescribed in the contract of partnership, and in the absence of stipulation, it shall be made by experts
chosen by the partners, and according to current prices, the subsequent changes thereof being for
account of the partnership (CIVIL CODE, Art. 1787);
5. To preserve said property with the diligence of a good father of a family pending delivery to the
partnership (CIVIL CODE, Art. 1163); and
6. To indemnify the partnership for any damage caused to it by the retention of the same or by the delay
in its contribution (CIVIL CODE, Art. 1170).
Q: What are the three (3) important duties of every partner with regard to the contribution of or
property?
ANS: The important duties are:
1. Duty to contribute what had been promised;
2. Duty to deliver the fruits of what should have been delivered; and
3. Duty to be bound for warranty in case of eviction (CIVIL CODE, Art. 1786).
Q: If a partner fails to contribute what was promised within the stipulated time, may the partnership
contract be rescinded?
ANS: No, rescission is not the proper remedy. The remedy should be to collect what is owing as well as
damages (PARAS, Civil Code, supra at 626).
Q: When is appraisal necessary?

ANS: When contribution consists of goods, appraisal of value is needed to determine how much has
been contributed (PARAS, Civil Code, supra at 626).
Q: Enumerate the obligations of partners with respect to contribution of money and money converted
to personal use.
ANS: The obligations of partners are the following:
1. To contribute on the date due the amount he has undertaken to contribute;
2. To reimburse any amount he may have taken from the partnership coffers and converted to his
own use;
3. To pay the agreed or legal interest, if he fails to pay his contribution on time or in case he takes
any amount from the common fund and converts it to his own use; and
4. To indemnify the partnership for the damages caused to it by the delay in the contribution or for
the conversion of any sum for his personal benefit (CIVIL CODE, Art. 1788).
Q: Explain the obligation of a partner not to engage in another business for himself.
ANS: The obligations differ for Industrial Partner and Capitalist Partner.
1. An industrial partner cannot engage in any business for himself, unless the partnership expressly
permits him to do so; and if he should do so, the capitalist partners may either exclude him from
the firm, or avail themselves of the benefits which he may have obtained in violation of this
provision, with a right to damages in either case (CIVIL CODE, Art. 1789); and
2. A capitalist partner cannot engage for their own account in any operation which is of the kind of
business in which the partnership is engaged, unless there is a stipulation to the contrary (CIVIL
CODE, Art. 1808).
Q: Juan and Pedro formed a partnership to operate a car repair shop in Quezon City. Juan provided
the capital while Pedro contributed his labor and industry. On one side of their shop, Juan opened and
operated a coffee shop, while on the other side, Pedro put up a car accessories store. May they
engage in such separate businesses?
ANS: Juan, the capitalist partner, may engage in the restaurant business because it is not the same kind
of business that the partnership is engaged in. On the other hand, Pedro may not engage in any other
business unless their partnership expressly permits him to do so because as an industrial partner he has
to devote his full time to the business of the partnership (CIVIL CODE, Art. 1789; JURADO, Civil Law,
supra at 1048).
Q: What is the remedy when an industrial partner engages in a business for himself?
ANS: If an industrial partner engages in business for himself, the remedies are:
1. The capitalist partners may either exclude him from the firm with damages; or
2. Avail themselves of the benefits which he may have obtained in violation of this provision with
damages (CIVIL CODE, Art. 1789).
Q: What is the remedy when a capitalist partner engages in business for his own account?
ANS: Any capitalist partner violating this prohibition shall bring to the common funds any profits
accruing to him from his transactions, and shall personally bear all the losses (CIVIL CODE, Art. 1808).
Q: When does the obligation to contribute additional capital arise?

ANS: If there is no agreement to the contrary, in case of an imminent loss of the business of the
partnership, any partner who refuses to contribute an additional share to the capital, except an
industrial partner, to save the venture, shall be obliged to sell his interest to the other partners (CIVIL
CODE, Art. 1791).
Q: What is the obligation of a partner who collects a debt in favor of the partnership?
ANS: The rules are:
1. If a partner authorized to manage collects a demandable sum which was owed to him in his own
name, from a person who owed the partnership another sum also demandable, the sum thus
collected shall be applied to the two credits in proportion to their amounts, even though he may
have given a receipt for his own credit only; but should he have given it for the account of the
partnership credit, the amount shall be fully applied to the latter (CIVIL CODE, Art. 1792).
2. If a partner who has received in whole or in part, his share of a partnership credit, when the other
partners have not collected theirs, shall be obliged, if the debtor should thereafter become insolvent
to bring to the partnership capital what he received even though he may have given receipt for his
share only (CIVIL CODE, Art. 1793).
Note: Art. 1792 is understood to be without prejudice to the right granted to the other debtor by Art.
1252 (on application of payment), if the personal credit of the partner should be more onerous to him
(CIVIL CODE, Art. 1792, Par. 2).
Q: P, a managing partner is X’s creditor to the amount of P1 million, which is already demandable. X
also owes the partnership P1 million, also demandable. P collects 1 Million. What are the
implications?
ANS: If P gives a receipt for the firm, it is the firm’s credit that has been collected. If P gives a receipt for
his own credit only, P500,000 will be given to him; the other P500, 000 belongs to the firm (CIVIL CODE,
Art. 1792; PARAS, Civil Code, supra at 633).
Q: X owes a firm P1 million. P, a partner was given his share of P500, 000, there being only two
partners. Later, X becomes insolvent. Must P share the P500,000 with the other partner?
ANS: Yes, even if P had given the receipt for his share only. Equity demands proportionate share in the
benefits and losses (CIVIL CODE, Art. 1793; PARAS, Civil Code, supra at 634).
Q: Is there an obligation on the part of the partner to pay for damages suffered by the partnership
due to the partner’s fault?
ANS: Yes. Every partner is responsible to the partnership for damages suffered by it through his fault,
and he cannot compensate them with the profits and benefits which he may have earned for the
partnership by his industry. However, the courts may equitably lessen this responsibility if through the
partner's extraordinary efforts in other activities of the partnership, unusual profits have been realized
Q: Explain the rules on risk of loss of the thing contributed.

ANS: The rules are:
1. The risk of specific and determinate things which are not fungible, contributed to the partnership
so that only their use and fruits may be for the common benefit, shall be borne by the partner
who owns them;
2. If the things contributed are fungible or cannot be kept without deteriorating, the risk shall be
borne by the partnership;
3. If the thing contributed is to be sold, the risk shall be borne by the partnership; and
4. If the thing is brought and appraised in the inventory, the risk shall be borne by the partnership
Q: What are the responsibilities of the partnership to the partners?

ANS: The responsibilities of the partnership are:
1. To refund amounts disbursed on behalf of the firm plus interest (legal) from the time expenses
were made (and not from demand, since after all, a partner is an agent and the rule on agency
applies to him);
2. To answer to each partner for obligations he may have entered into in good faith in the interest of
the partnership; and
3. To answer for risks in consequence of its management (CIVIL CODE, Art. 1796).
Q: How are profits and losses distributed?

ANS: The rules are:
1. Profits are distributed according to agreement; if none, according to amount of contribution;
2. Losses are distributed according to agreement;
a. if there is no agreement as to losses, but profit sharing has been agreed upon, loses shall be
distributed according to the same proportion;
b. if there is no agreement, then losses shall be distributed proportionately according to amount
contribution;
3. Industrial partner’s profits is such share as may be just and equitable under the circumstances;
and
4. While an industrial partner may be held liable by third persons, he can recover whatever he has
paid from the partners for he is exempted from losses with or without stipulation to this effect
(CIVIL CODE, Art. 1797; PARAS, Civil Code, supra at 638-639).
Q: Is a stipulation excluding a partner from profits or losses valid?
ANS: A stipulation which excludes one or more partners from any share in the profits or losses is void
(CIVIL CODE, Art. 1799), except in case of industrial partners whom the law itself excludes from losses
Q: May a partner associate another person with him in his share?

ANS: Yes, every partner may associate another person with him in his share, but the associate shall not
be admitted in the partnership without the consent of all the other partners (CIVIL CODE, Art. 1804).
Q: What is meant by the principle of “delectus personae” in partnership relations?

ANS: The principle refers to the rule which is inherent in every partnership that no one can become a
member of the partnership association without the consent of all the partners. Consequently, even if a
partner will associate another person in his share in the partnership, the associate shall not be admitted
into the partnership without the consent of all the partners, even if the partner having an associate
should be a manager (CIVIL CODE, Art. 1804; JURADO, Civil Law, supra at 1050).
Q: To whom does the partner have the duty to render true and full information of all things affecting
the partnership?
ANS: Partners shall render on demand true and full information of all things affecting the partnership to
any partner or the legal representative of any deceased partner or of any partner under legal disability
Q: What is the obligation of a partner who derives profits from any transaction connected with the
formation, conduct or liquidation of the partnership without the consent of the other partners?
ANS: Every partner must account to the partnership for any benefit, and hold as trustee for it any profits
derived by him without the consent of the other partners from any transaction connected with the
formation, conduct, or liquidation of the partnership or from any use by him of its property (CIVIL CODE,
Art. 1807).
Q: Enumerate the rights of a partner in a partnership.

ANS: The rights of a partner include the:
1. Property rights of a partner (CIVIL CODE, Art. 1810);
2. Right to reimbursement for amounts advanced to the partnership and to indemnification for risks
in consequence of management (CIVIL CODE, Art. 1796);
3. Right to associate with another person with him in his share (CIVIL CODE, Art. 1804);
4. Right of access and inspection of partnership books (CIVIL CODE, Art. 1805);
5. Right to true and full information of all things affecting the partnership (CIVIL CODE, Art. 1806);
and
6. Right to a formal account of partnership affairs under certain circumstances (CIVIL CODE, Art.
1809).
7. Right to have dissolution and winding up by decree of court (CIVIL CODE, Art. 1830).
Q: What are the property rights of a partner?

ANS: The property rights of a partner are the following (SIM):
1. His rights in Specific partnership property;
2. His Interest in the partnership; and
3. His right to participate in the Management (CIVIL CODE, Art. 1810).
Q: What is the nature of a partner’s right in specific partnership property?
ANS: A partner does not actually own any part of partnership property or property owned by the
partnership as a separate business entity, although he has equal rights with his partners to possess
specific partnership property (CIVIL CODE, Art. 1811), the lawcontemplates tangible property (DE LEON,
Q: What is the nature of partner’s interest in the partnership?

ANS: A partner's interest in the partnership is his share of the profits and surplus (CIVIL CODE, Art.
1812).
Q: Is a partner’s interest considered a debt due from the partnership?

ANS: No. A partner is not a creditor of the partnership for the amount of his share (DE LEON, P.A.T.,
supra at 160).
Q: May a partner assign his whole interest in partnership?

ANS: Yes. He may assign his interest (his share in the profits and surplus) in the partnership to any of his
co-partners or to third persons without the consent of the other partners, in the absence of agreement
to the contrary (DE LEON, P.A.T., supra at 160).
Q: What are the effects of assignment of partner’s whole interest inpartnership?

ANS: The assignment of partner’s whole interest in partnership will result in:
1. Rights withheld from assignee:
a. To interfere in the management;
b. To require any information or account; and
c. To inspect any of the partnership books.
2. Rights of assignee of partner’s interest:
a. To receive in accordance with his contract the profits accruing to the assigning partner;
b. To avail himself of the usual remedies provided by law in the event of fraud in the
management;
c. To receive the assignor’s interest in case of dissolution; and
d. To require an account of partnership affairs, but only in case the partnership is dissolved and
such account shall cover the period from the date only of the last account agreed to by all
partners (CIVIL CODE, Art. 1813).
Q: A, B, C and D were partners. A assigned his interest in the partnership to his son S. Consequently, S
wants to join in the management of the enterprise. B, C and D refused. Is the partnership necessarily
dissolved?
ANS: No, the mere assignment did not dissolve the firm. This is so even if B, C and D did not allow S to
participate in the firm’s business conduct. S did not become a partner. He was a mere assignee (entitled
to collect only whatever profits his father A could have collected) (PARAS, Civil Code, supra at 665-666).
Q: What is the remedy of a creditor after securing judgment on his credit?

ANS: Application for a charging order after securing judgment on his credit to subject the interest of the
debtor partner with payment of the judgment debt (CIVIL CODE, Art. 1814).
Q: What is meant by a “charging order”?

ANS: A “charging order” upon a partner’s interest in the partnership refers to the remedy available to a
judgment creditor of a debtor partner to charge the interest of the latter in the partnership by means of
a court order for the purpose of satisfying the amount of judgment. A receiver of the debtor partner’s
share of the profits may even be appointed. However, the charging order is always subject to the
preferred rights or partnership creditors (CIVIL CODE, Art. 1814; JURADO, Civil Law, supra at 1053).
Q: A, B and C are partners. A personally owes X a sum of money. X sues A, and obtains a final
judgment in his favor. But A is insolvent. What is the remedy of X?
ANS: X may go to the same court (or any other court possessed of jurisdiction) and ask that A’s interest
in the partnership be “charged” (attached or levied upon) for the payment to him (X) of whatever has
not yet been paid him with interest thereon (PARAS, Civil Code supra at 666 – 667).
IV. OBLIGATIONS OF PARTNERSHIP/PARTNERS TO THIRD PERSONS
Q: Suppose the firm name is changed in good faith but the members remain the same, will the
partnership under the new name retain all the rights it had under the old name?
ANS: Yes. As held by the Supreme Court, the change of name is not important, not having been done to
defraud the insurance company. Moreover, the members remain the same (Sharruf and Co. v. Baloise
Fire Insurance, G.R. No. 44119, March 30, 1937).
Q: What is the liability of strangers whose names are included in the firm name?
ANS: Strangers (those who are not members of the partnership) who include their names in the firm are
liable as partners because of estoppel (CIVIL CODE, Art 1815, Par. 2) but do not have the rights of
partners for after all, they had not entered into any partnership contract (PARAS, Civil Code, supra at
670).
Q: What is the liability of partners for contractual obligations?

ANS: All partners, including industrial ones, shall be liable pro rata with all their property and after all
the partnership assets have been exhausted, for the contracts which may be entered into in the name
and for the account of the partnership, under its signature and by a person authorized to act for the
partnership. However, any partner may enter into a separate obligation to perform a partnership
contract (CIVIL CODE, Art. 1816).
Q: May an industrial partner be held liable?

ANS: Yes, but he can recover the amount he has paid from the capitalist partners unless there is an
agreement to the contrary (DE LEON, P.A.T., supra at 174-176).
Q: May a partner still be held liable for liabilities contracted by the partnership after he has
withdrawn from the partnership?
ANS: A partner who withdraws is not liable for liabilities contracted after he has withdrawn, for then he
is no longer a partner. If his interest has not yet been paid him, his right to the same is that of a mere
creditor (PARAS, Civil Code, supra at 671).
Q: In the articles of a general co-ownership, one of the partners is expressly exempted from personal
liability for the losses of the partnership. Is this agreement valid?
ANS: If the exempted partner is an industrial one, the agreement is valid as among themselves, but not
insofar as creditors are concerned. If the exempted partner is a capitalist, the agreement is void as
against the firm. As among themselves, it is valid as to the contributions in excess of the capital (CIVIL
CODE, Art. 1817); but void as to the original contribution (CIVIL CODE, Art. 1799).
Q: When is the partnership liable for acts of partners?

ANS: The liabilities of the partnership are subject to the following rules:
1. If the acts are for apparently carrying on in the usual way of business of the partnership, every
partner is an agent and may execute such acts with binding effect even if he has no authority
unless the third person has knowledge of such lack of authority;
2. In cases of acts of strict dominion or ownership, the partnership is not bound, unless authorized
by all the other partners or unless they have abandoned the business; and
3. For acts in contravention of a restriction on authority; the partnership is not liable to third persons
having actual or presumptive knowledge of the restrictions, whether or not for carrying on in the
usual way the business of the partnership (De Leon, Comments and Cases on Partnership, Agency
and Trusts, 2010, p. 177-179; CIVIL CODE, Art. 1818).
Q: What is the liability of a partner who enters into a contract without authority?
ANS: The particular partner who undertakes to bind his co-partners by a contract without authority is
himself personally liable on such contract (DE LEON, P.A.T., supra at 182).
Q: May an admission of a partner be considered as admission against the partnership?

ANS: Generally, an admission by a partner is an admission against the partnership under the following
conditions:
1. The admission must concern partnership affairs; and
2. Within the scope of his authority (CIVIL CODE, Art. 1820).
Q: What is the effect upon the partnership of giving notice to a partner?

ANS: Notice to a partner is notice to the partnership. A partnership cannot claim ignorance if a partner
knew. However, notice to a partner, given while already a partner, is notice to the partnership, provided
it relates to partnership affairs (PARAS, Civil Code, supra at 686-687).
Q: Is knowledge of a partner, when no notice has been given, also considered as knowledge of the
partnership?
ANS: Knowledge of the partner is also knowledge of the firm provided:
1. The partner acting on the particular matter involved acquires the knowledge; and
Note: It may have been acquired while already a partner or even prior to that time, provided he
still remembers the same.
2. Although not acting in the particular matter involved, the partner having knowledge had reason to
believe that the fact related to a matter which had some possibility of being the subject of the
partnership business and only if he was so situated that he could communicate it to the partner
acting in the particular matter before such partner gives binding effect to his act (PARAS, Civil
Q: What is the liability of the partnership with regard to the partner’s tort or breach of trust?
ANS: The rules on liability are as follows:
1. Where, by any wrongful act or omission of any partner acting in the ordinary course of the
business of the partnership or with the authority of his co-partners, loss or injury is caused to any
person, not being a partner in the partnership, or any penalty is incurred, the partnership is liable
therefore to the same extent as the partner so acting or omitting to act (CIVIL CODE, Art. 1822);
2. The partnership is bound to make good the loss:
a. Where one partner acting within the scope of his apparent authority receives money or
property of a third person and misapplies it; and
b. Where the partnership in the course of its business receives money or property of a third
person and the money or property so received is misapplied by any partner while it is in the
custody of the partnership. (CIVIL CODE, Art. 1823)
3. All partners are liable solidarily with the partnership for everything chargeable to the partnership
under Articles 1822 and 1823. (CIVIL CODE, Art. 1824); and
4. The rule of respondeat superior (rule on vicarious liability) applies to the law of partnership in the
same manner as other rules governing the agency relationship.
Q: A and B are partners. A misappropriated a sum of money belonging to customer X but which was
already in the custody of the partnership. Who can X hold liable?
ANS: X can hold liable either the firm, A or B, and the liability is for the whole amount because it is
solidary. However, if B is made to pay the full amount, he can recover the whole amount, plus the
interest from A later on instead of only A’s share, for the simple reason that it is only A who is guilty
Q: A, B and C are partners. D is admitted as a new partner. Will D be liable for partnership obligations
contracted prior to his admission to the partnership?
ANS: Yes, but his liability will extend only to his share in the partnership property, not to his own
individual properties (CIVIL CODE, Art. 1826; PARAS, Civil Code, supra at 695).
V. DISSOLUTION
Q: Define dissolution of a partnership.

ANS: It is the change in the relation of the partners caused by any partner ceasing to be associated in
the carrying on as distinguished from the winding up of the business (CIVIL CODE, Art. 1828).
Q: Is a partnership terminated upon dissolution?

ANS: On dissolution, the partnership is not terminated, but continues until the winding up of
partnership affairs is completed (CIVIL CODE, Art. 1829).
Q: Explain the concepts of dissolution, winding up and termination of a partnership.

ANS: The definitions are:
1. Dissolution is the change in the relation of the partners caused by any partner ceasing to be
associated in the carrying of the business (CIVIL CODE, Art. 1828). It is that point of time when the
partners cease to carry on the business together;
2. Winding up is the process of settling business affairs after dissolution; and
3. Termination is the point in time after all the partnership affairs have been wound up (PARAS, Civil
Code, supra at 695, 698-699).
Q: When does the four-year prescriptive period of the right of a partner to demand an accounting of
the partnership business start to run?
ANS: As long as the partnership exists, any of the partners may demand an accounting of the
partnership business. The prescription of the said right starts to run only upon the dissolution of the
partnership when the final accounting is done (Emnace v. CA, G.R. No. 126334, November 23, 2001).
Q: What are the kinds of dissolution?

ANS: There are two kinds of dissolution:
1. Extrajudicial (CIVIL CODE, Art. 1830);and
2. Judicial dissolution (CIVIL CODE, Art. 1831).
Q: Enumerate the causes for extrajudicial dissolution

ANS: The causes for extrajudicial dissolution are:
1. Without violation of the agreement between the partners:
a. By the termination of the definite term or particular undertaking specified in the agreement;
b. By the express will of any partner, who must act in good faith, when no definite term or
particular undertaking is specified;
c. By the express will of all the partners who have not assigned their interests or suffered them
to be charged for their separate debts, either before or after the termination of any specified
term or particular undertaking; or
d. By the expulsion of any partner from the business bona fide in accordance with such a power
conferred by the agreement between the partners;
2. In contravention of the agreement between the partners, where the circumstances do not permit
a dissolution under any other provision of this article, by the express will of any partner at any
time;
3. By any event which makes it unlawful for the business of the partnership to be carried on or for
the members to carry it on in partnership;
4. When a specific thing which a partner had promised to contribute to the partnership, perishes
before the delivery; in any case by the loss of the thing, when the partner who contributed it
having reserved the ownership thereof, has only transferred to the partnership the use or
enjoyment of the same; but the partnership shall not be dissolved by the loss of the thing when it
occurs after the partnership has acquired the ownership thereof;
5. By the death of any partner;
6. By the insolvency of any partner or of the partnership;
7. By the civil interdiction of any partner; or
8. By decree of court under the following article (CIVIL CODE, Art. 1830).
Q: What are the grounds for judicial dissolution?

ANS: On application by or for a partner the court shall decree a dissolution whenever:
1. A partner has been declared insane in any judicial proceeding or is shown to be of unsound
mind;
2. A partner becomes in any other way incapable of performing his part of the partnership
contract;
3. A partner has been guilty of such conduct as tends to affect prejudicially the carrying on of the
business;
4. A partner willfully or persistently commits a breach of the partnership agreement, or otherwise
so conducts himself in matters relating to the partnership business that it is not reasonably
practicable to carry on the business in partnership with him;
5. The business of the partnership can only be carried on at a loss;
6. Other circumstances render dissolution equitable; and
7. On application of the purchaser of a partnership’s interest under Article 1813 or 1814, after the
termination of the specified term or particular undertaking; or at any time if the partnership was
a partnership at will when the interest was assigned or when the charging order was issued
Q: When a firm is dissolved, does this mean that the contracts and obligations previously entered
into, whether the firm is the creditor or the debtor, automatically cease?
ANS: No. The firm is still allowed to collect previously acquired credits; it is also bound to pay off its
debts. A dissolved partnership still has personality for the purpose of winding up of its affairs, or of
completing transactions begun but unfinished (PARAS, Civil Code, supra at 711).
Q: What are the effects of dissolution as to partner’s authority to act for thepartnership?
ANS: The general rule is dissolution terminates all authority of any partner to act for the partnership
Q: Is the rule on termination of all authority of a partner as an effect ofdissolution absolute?

ANS: No. A partner can still act for the partnership in the following instances:
1. Acts necessary to wind up partnership affairs; and
2. Acts necessary to complete transactions begun but unfinished (CIVIL CODE, Art. 1832).
Q: What are the qualifications to the general rule with respect to the partners(in so far as partners are
concerned)?
ANS: The qualifications are:
1. When dissolution is not by act, insolvency or death of a partner, dissolution terminates the
actual authority of a partner to undertake new business for the partnership (CIVIL CODE, Art.
1832); or
2. When dissolution is by act, insolvency or death of a partner, authority of partners inter se to
act for the partnership is not deemed terminated. Thus, each partner is liable to his co-
partners for his share of any liability created by any partner acting for the partnership as if
the partnership has not been dissolved. This rule is subject to the following exceptions:
a. The cause of dissolution is the act of a partner and the acting partner had knowledge of such
dissolution; and
b. The cause of dissolution is the death or insolvency of a partner and the acting partner had
knowledge or notice of such dissolution (CIVIL CODE, Art. 1833).
Q: A, B and C were partners. A resigned from the firm. Therefore it was dissolved. B knew this, and yet
he still deliberately entered into new transactions with X, an innocent customer. The transactions
were not needed for winding up. Will the firm still be liable?
ANS: Yes (CIVIL CODE, Art. 1834). In the event that the assets of the firm are not enough to satisfy the
firm’s liability to X, X can still go after the individual assets of A, B and C. After all of them have paid X, A
and C can still recover from B, the partner who acted despite his knowledge of the firm’s dissolution
Q: In the preceding problem, if X knew of the dissolution, can the firm be held liable?
ANS: No. Neither A nor C will be liable. Only B and X are concerned, and they will have to settle with
each other, depending on their reason why they still entered into the contract (PARAS, Civil Code, supra
at 713).
Q: What are the qualifications to the general rule with respect to third persons?
ANS: With respect to third persons, the qualifications are:
1. When partnership is bound to third persons after dissolution:
a. Act appropriate for winding up partnership affairs;
b. Act for completing unfinished transactions; and
c. Completely new transaction which would bind the partnership if dissolution had not taken
place provided the other party is in good faith, meaning:
i. Previous creditor (had previously extended credit) and he had no knowledge or notice of
the dissolution; or
ii. Not a previous creditor and the fact of dissolution had not been published in a
newspaper of general circulation.
2. When partnership is not bound to third persons after dissolution:
a. Where partnership was dissolved because it was unlawful to carry on the business, except
when the act is for winding up;
b. Where the acting partner in the transaction has become insolvent;
c. Where the partner is unauthorized to wind up, except if the transaction is with third persons
in good faith (same circumstances as defined above);
d. Where act is not appropriate for winding up or for completing unfinished transactions; and
e. Completely new transaction which would bind the partnership if dissolution had not taken
place with third persons in bad faith (CIVIL CODE, Art. 1834).
Q: A, B and C are partners under a certain firm name. A retires. B and C continue the business. Is A
liable to previous customers who transact with the new firm if the firm still uses the old firm name?
ANS: Yes, unless A actually notifies said old customers or unless said customers actually know of his
retirement (PARAS, Civil Code, supra at 719).
Q: What is the general rule as to partner’s existing liability in case of dissolution?

ANS: Dissolution does not automatically discharge the existing liability of any partner (CIVIL CODE, Art.
1835, Par. 1).
Q: What is the exception to the general rule that dissolution does not discharge the existing liability of
any partner?
ANS: A partner may be discharged from all existing liabilities upon dissolution ONLY by an agreement
between himself, the partnership creditor and the persons or partnership continuing the business; and
such agreement may be inferred from knowledge of the dissolution and the person or partnership
continuing the business (CIVIL CODE, Art. 1835, Par 2).
Q: What are the kinds of winding-up?

ANS: Winding up may be done extrajudicially or judicially:
1. Extrajudicial winding-up:
a. By the partners who have not wrongfully dissolved the partnership; or
b. By the legal representative of the last surviving partner (when all the partners are already
dead), provided the last survivor was not insolvent.
2. Judicial winding-up - under the control and direction of the court, upon proper cause that is
shown to the court (CIVIL CODE, Art. 1836).
VI. LIMITED PARTNERSHIP
A. DEFINITION
Q: What is a limited partnership?

ANS: A limited partnership is one formed by two or more persons under the provisions of Article 1844 of
the Civil Code, having as members one or more general partners and one or more limited partners. The
limited partners as such shall not be bound by the obligations of the partnership (CIVIL CODE, Art. 1843).
Q: May a limited partner contribute the same things that a general partner may contribute.
ANS: No. A limited partner in a limited partnership cannot contribute mere industry or services (CIVIL
CODE, Art. 1845).
B. HOW LIMITED PARTNERSHIP IS FORMED/AMENDED
Q: What are the requirements for the formation of a limited partnership?

ANS: In forming a limited partnership, the following requirements must be complied with:
1. The certificate or articles of the limited partnership stating the matters enumerated in Article
1844 of the Civil Code which must be signed and sworn to; and
2. Such certificate must be filed for record in the Office of the Securities and Exchange Commission
Q: Is the execution of a certificate of limited partnership required?

ANS: Yes. A prime requisite to the formation of a limited partnership, under Article 1844, is the
execution of the prescribed certificate. This document, as a rule, must contain the matters enumerated
in said article. Thus, a limited partnership cannot be constituted orally. The statements required in the
certificate must be true at the time the certificate and other required papers are filed with the SEC (DE
LEON, P.A.T., supra at 285).
Q: Is strict compliance with the requirements necessary?

ANS: No, a strict compliance with the legal requirements is not necessary. It is sufficient that there is
substantial compliance in good faith. However, a firm which fails to substantially comply with the formal
requirements of a limited partnership is a general partnership only as to its relations to third persons
(DE LEON, P.A.T., supra at 286).
Q: How is a limited partnership amended?

ANS: The procedure on amending a limited partnership are as follows:
1. In the following cases, a certificate shall be amended:
a. There is a change in the name of the partnership or in the amount or character of the
contribution of any limited partner;
b. A person is substituted as a limited partner;
c. An additional limited partner is admitted;
d. A person is admitted as a general partner;
e. A general partner retires, dies, becomes insolvent or insane, or is sentenced to civil
interdiction and the business is continued under Article 1860;
f. There is a change in the character of the business of the partnership;
g. There is a false or erroneous statement in the certificate;
h. There is a change in the time as stated in the certificate for the dissolution of the partnership
or for the return of a contribution;
i. A time is fixed for the dissolution of the partnership, or the return of a contribution, no time
having been specified in the certificate, or
j. 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, Par.2).
2. The certificate must be signed and sworn to by all the members, and an amendment substituting a
limited partner or adding a limited or general partner shall be signed also by the member to be
substituted or added, and when a limited partner is to be substituted, the amendment shall also
be signed by the assigning limited partner; and
3. The cancellation or amendment must be recorded in the SEC (CIVIL CODE, Art. 1865).
C. RIGHTS AND OBLIGATIONS OF A LIMITED PARTNER
Q: Can a limited partner be held liable for partnership obligations?

ANS: A limited partner cannot be held liable for partnership obligations (CIVIL CODE, Art. 1843).
However, if his surname appears in the partnership or firm name or if he participates in the
management or control of the business, he can be held liable (CIVIL CODE, Arts. 1846, 1848).
Q: May a limited partner be held liable as a general partner?

ANS: A limited partner shall not become liable as a general partner unless, in addition to the exercise of
his rights and powers as a limited partner, he takes part in the control of the business (CIVIL CODE, Art.
1848).
Q: May additional limited partners be admitted to the partnership?

ANS: Yes. After the formation of a limited partnership, additional limited partners may be admitted
upon filing an amendment to the original certificate in accordance with the requirements of Article 1865
Q: Enumerate the rights of a limited partner.

ANS: The rights of a limited partner are the following:
1. To require that the partnership books be kept at the principal place of business of the partnership
(CIVIL CODE, Art. 1851);
2. To inspect and copy at a reasonable hour partnership books or any of them (CIVIL CODE, Art.
1851);
3. To demand true and full information of all things affecting the partnership (CIVIL CODE, Art. 1851);
4. To demand a formal account of partnership affairs whenever circumstances render it just and
reasonable (CIVIL CODE, Art. 1851);
5. To ask for dissolution and winding up by decree of court (CIVIL CODE, Art. 1851);
6. To receive a share of the profits or other compensation by way of income (CIVIL CODE, Art. 1856);
and
7. To receive the return of his contribution provided the partnership assets are in excess of all its
liabilities (CIVIL CODE, Art. 1857).
Q: May a person be a general and limited partner at the same time?

ANS: Yes, provided the same is stated in the certificate. His rights are those of a general partner.
However, regarding his contribution, he would be considered a limited partner, with the rights of a
limited partner insofar as the other partners are concerned (CIVIL CODE, Art. 1853; PARAS, Civil Code
supra at 747-748).
Q: Enumerate the liabilities of a limited partner.

ANS: The liabilities of a limited partner are subject to the following:
1. A limited partner’s liability for unpaid contribution are the following:
a. For the difference between his contribution as actually made and that stated in the certificate
as actually made; and
b. For any unpaid contribution which he agreed in the certificate to make in the future at the
time and on the conditions stated in the certificate.
2. A limited partner is considered as trustee for the partnership for:
a. Specific property stated in the certificate as contributed by him but which he had not
contributed;
b. Specific property of the partnership which had been wrongfully returned to him;
c. Money wrongfully paid or conveyed to him on account of his contribution; and
d. Other property wrongfully paid or conveyed to him on account of his contribution (CIVIL
CODE, Art. 1858).
Q: Who is a substituted limited partner?

ANS: He is a person admitted to all the rights of a limited partner who has died or has assigned his
interest in the partnership (CIVIL CODE, Art. 1859).
Q: A, a limited partner, assigned his right to X. In the certificate, A was not given the right to give his
assignee the right to become a substituted limited partner. How can X acquire said right to become a
substituted partner?
ANS: Only if all the members of the partnership so consent. If they do consent, X acquires the right to
become a substituted limited partner, but is not yet one until after the certificate is appropriately
amended (CIVIL CODE, Art. 1859; PARAS, Civil Code, supra at 755).
Q: Suppose in the preceding problem, X was not given the right to become a substituted limited
partner by the partners, what will his status and his rights be?
ANS: He will be a mere assignee. He has no right to require any information or account of the
partnership transactions, or to inspect the partnership books. But he has the right to receive the share
of the profits or other compensation by way of income, or the return of his contribution to which the
assignor would otherwise be entitled (CIVIL CODE, Art. 1859; PARAS, Civil Code, supra at 755).
Q: What is the effect of death, retirement, insolvency, civil interdiction of a general partner or
partnership?
ANS: The partnership is dissolved, unless the remaining general partners continue the business:
1. Under a right to do so stated in the certificate, or
With the consent of all members (CIVIL CODE, Art. 1860).
AGENCY
I. DEFINITION
Q: What is a contract of agency?

ANS: By the contract of agency a person binds himself to render some service or to do something in representation or on
behalf of another, with the consent or authority of the latter (CIVIL CODE, Art. 1868).
Q: What are the essential elements of agency?
ANS: 1. Consent of the parties, express or implied
2. Object : which is the execution of a juridical act in relation to third persons
3. The agent must act within the scope of his authority
Q: How can an agency be determined? The law makes no presumption. It must exist as a fact. For the relation to exist,
there must be consent of both parties.
Q: Distinguish agency from partnership.

ANS: An agent acts not for himself, but for his principal; a partner acts for himself, for his firm, and for his partners. It may
even be said that partnership is a branch of the law on agency (PARAS, Civil Code, supra at 771).
Q: Distinguish between a contract of agency and a contract of lease of services.

ANS: The two contracts may be distinguished in the following ways:
Contract of Agency Contract of Lease of Services

As to basis contract
The basis of contract in the contract of agency is In a contract of lease of services, the basis is
representation. employment.
As to mode of extinguishment
The contract of agency may be extinguished at will Concurrence of both parties is necessary in the
by the principal. case of contract of lease of services.
As to exercise of discretionary powers
The agent exercises discretionary powers in order to The employee exercises ministerial functions
attain the end for which he was appointed. only.
As to kind of contract
The contract of agency is a preparatory contract. The contract of lease of services is a principal
contract.
II. NATURE, FORM AND KINDS OF AGENCY
A. NATURE OF AGENCY
Q: Who are the parties in a contract of agency?

ANS: The two parties in a contract of agency are:
1. Principal – one whom the agent represents and from whom he derives his authority. He is the person
represented in the contract of agency
2. Agent- one who acts for and represents another, he is the person acting in representative capacity.
Q: What are the requisites in order that the principal may be bound by the act of the agent?
ANS: The requisites are:
1. The agent must act within the scope of his authority; and
2. The agent must act in behalf of the principal (PARAS, Civil Code, supra at 807).
Q: May an agent be held principally liable?

ANS: Yes. If an agent acts in his own name, he is the one directly bound in favor of the person with whom he has
contracted, as if the transaction were his own. The principal has no right of action against the persons with whom the agent
has contracted; neither have such persons against the principal (CIVIL CODE, Art. 1883, Par.2).
Q: Is the aforementioned rule absolute?

ANS: No. The rule does not apply when the contract involves things belonging to the principal (CIVIL CODE, Art. 1883).
Note: The provisions of this article shall be understood to be without prejudice to the actions between the principal and
agent (CIVIL CODE, Art. 1883, Par. 3).
Q: A principal told his agent to sell his car for him. The agent sold it to a third party. The agent acted in his own
name. Can the third party sue the principal in case the car has hidden defects?
ANS: Yes. Although the agent acted in his own name, still the sale involved a car belonging to the principal. Here we apply
the exception stated in the second paragraph of Article 1883. The sale is valid (PARAS, Civil Code, supra at 820).
Q: May an agency be presumed?

ANS: Agency is generally not presumed. The relation between principal and agent must exist as a fact. However, a
presumption of agency may arise in cases where an agency may arise by operation of law or to prevent unjust enrichment
(DE LEON, P.A.T., supra at 378-379).
B. FORMS OF AGENCY
Q: Is there a required form for agency

ANS: None. The usual method by which an agency is created is by contract which may be oral, written or implied (DE
LEON, P.A.T., supra at 375).
Q: What is the form required when the sale through an agent involves a piece of land or any interest therein?
ANS: The authority of the agent shall be in writing; otherwise, the sale shall be void (CIVIL CODE, Art. 1874).
C. KINDS OF AGENCY
Q: What are the kinds of agency?

ANS: Kinds of agency may be classified as follows:
1. As to manner of its creation:
a. It may either be express; or
b. Implied.
2. As to its character:
a. It may be gratuitous; or
b. Onerous/compensated.
3. As to extent of business covered:
a. It may be general; or
b. Special.
4. As to authority conferred:
a. It may be couched in general terms; or
b. Couched in specific terms.
5. As to its nature and effects:
a. It may be ostensible or representative; or
b. Simple/commission (DE LEON, P.A.T., supra at 374-375).
C-1. IMPLIED AGENCY
Q: May an agency be implied?

ANS: Yes. As indicated in Art. 1869, the principal must know “that another person is acting on his behalf without authority”
for an agency to be implied (DE LEON, P.A.T., supra at 374). Agency may be implied from words and conduct of the parties
and the circumstances of the particular case as established in Arts. 1869 – 1872 (DE LEON, P.A.T., supra at 376).
Q: Enumerate the different kinds of implied agency.

ANS: The kinds of implied agency are as follows:
1. From acts of principal;
2. From his silence;
3. Lack of action; or
4. His failure to repudiate the agency knowing that another person is acting on his behalf without authority (CIVIL
CODE, Art. 1869).
Q: When is the acceptance of the agency implied between persons who are absent?
ANS: Between persons who are absent, the acceptance of the agency cannot be implied from the silence of the agent
except:
1. When the principal transmits his power of attorney to the agent, who receives it without any objection; or
2. When the principal entrusts to him by letter or telegram a power of attorney with respect to the business in which he
is habitually engaged as an agent, and he did not reply to the letter or telegram (CIVIL CODE, Art. 1872).
Q: A company wrote a circular letter to its customers introducing a certain X as its duly authorized agent. One
customer then dealt with the company thru X. One day, X’s authority was revoked, but the customer continued to
deal thru X since it never was informed by circular or otherwise of the revocation. Is the company still liable for X’s
acts even after the revocation of the agency?
ANS: Yes, for the customer was in good faith, not having been informed by circular or otherwise of the revocation (PARAS,
Civil Code, supra at 785).
Q: Explain the doctrine of agency by necessity.

ANS: Strictly speaking, an agency can never be created by necessity. What is meant by the phrase “agency by necessity” is
that by virtue of the existence of an emergency, the authority of an agent is correspondingly enlarged in order to cope with
the exigencies or the necessities of the moment. The five (5) conditions laid down for authority of agency by necessity are:
1. The real existence of an emergency;
2. Inability of the agent to communicate with the principal;
3. Exercise of the additional authority for the principal’s own protection;
4. The adoption of fairly reasonable means, premises duly considered; and
5. The ceasing of the authority the moment the emergency no longer demands the same (PARAS, Civil Code, supra
at 785).
C-2. AGENCY BY ESTOPPEL
Q: When is there an agent by estoppel?

ANS: If a person specially informs another or states by public advertisement that he has given a power of attorney to a third
person, the latter thereby becomes a duly authorized agent, in the former case with respect to the person who received the
special information, and in the latter case with regard to any person. The power shall continue to be in full force until the
notice is rescinded in the same manner in which it was given (CIVIL CODE, Art. 1873).
Note: One who clothes another with apparent authority as his agent, and holds him out to the public as such, cannot be
permitted to deny the authority of such person to act as his agent to the prejudice of innocent third parties dealing with such
person in good faith and in the honest belief that he is what he appears to be (Cuison v. Court of Appeals, G.R. No. 88539,
October 26, 1993).
Q: What is the liability in agency by estoppel?

ANS: There is really no agency at all, but the alleged agent seemed to have apparent or ostensible, although no real
authority to represent another. The liabilities are as follows:
1. Estoppel of Agent – One professing to act as agent for another may be estopped to deny his agency both as against
rd
his asserted principal and the 3 persons interested in the transaction in which he is engaged.
2. Estoppel of Principal:
a. As to agent – one who knows that another is acting as his agent and fails to repudiate his acts, or accept the
benefits of them, will be estopped to deny the agency as against such other;
rd
b. As to sub-agent – to estop the principal from denying his liability to a 3 person, he must have known or be
charged with knowledge of the fact of the transmission and the terms of the agreement between the agent and
sub-agent; and
rd
c. As to 3 persons – One who knows that another is acting as his agent or permitted another to appear as his
rd
agent, to the injury of 3 persons who have dealt with the apparent agent as such in good faith and in the
exercise of reasonable prudence, is estopped to deny the agency.
rd rd
3. Estoppel of 3 Persons –A 3 person, having dealt with one as an agent may be estopped to deny the agency as
rd
against the principal, agent or 3 persons in interest.
4. Estoppel of the government– The government is neither estopped by the mistake or error on the part of its agents.
But it may be estopped through affirmative acts of its officers acting within the scope of their authority.
Q: Distinguish agency by estoppel from implied agency.

ANS: The differences are:
1. As between the principal and the agent:
a. In an implied agency, the agent is a true agent with the rights and duties of an agent; and
b. In an agency by estoppel, the “agent” is not a true agent; hence he has no rights as such.
2. As to third persons:
a. If the estoppel is caused by the principal, he is liable, but only if the third person acted on the misrepresentation;
in an implied agency, the principal is always liable; and
b. If the estoppel is caused by the agent, it is only the agent who is liable, never the alleged principal; in an implied
agency, the agent is never personally liable (PARAS, Civil Code, supra at 786).
Q: Jose appoints Augusto, a minor, as his agent to sell his car. Augusto sells the car to Maria. May Jose avoid the
contract entered into by Augusto in favor of Maria on the ground of his agent’s incapacity?
ANS: Jose cannot avoid the contract entered into by Augusto in favor of Maria on the ground of his agent’s incapacity. In a
contract of agency, as far as third persons are concerned, what is important and material is the legal capacity of the principal
to enter into a contract. The capacity of the agent is of no moment. The agent’s personality is merely an extension of the
principal’s. If the principal has the necessary capacity, that is enough (JURADO, CIVIL LAW, supra at 1070).
C-3. GENERAL VS. SPECIAL AGENCY
Q: Distinguish a general agency from a special agency.

ANS: General and special agencies are distinguished as follows:
General agent Special agent

Scope of authority
Authorized to do only one or more specific acts in
Usually authorized to do all acts connected with pursuance of particular instructions or with
the business in which he is engaged. restrictions necessarily implied from the act to be
done.
Continuity
Conducts a series of transactions involving a Usually involves a single transaction or a series of
continuity of service. transactions not involving continuity of service.
Extent to which agent may bind principal
Binds his principal by an act within the scope of Cannot bind his principal in a manner beyond or
his authority although it may be contrary to his outside the specific acts which he is authorized to
special instructions. perform.
Termination of authority
Apparent authority does not terminate by mere
Termination effective as to 3rdparty unless agency
revocation of authority without notice to
was for the purpose of contracting with that 3rdparty.
3rdparties.
Construction of instructions of principal
Statement of principal with respect to the agent’s
authority would ordinarily be regarded as advisory Authority of the agent must be strictly construed.
only
C-4. AGENCY COUCHED IN GENERAL TERMS
Q: Is a general agency the same with an agency couched in general terms?

ANS: No. A general agency must not be confused with one couched in general terms which is a special agency when it
involves only one or more specific transactions (DE LEON, P.A.T., supra at 403).
Note: An agency couched in general terms comprises only acts of administration, even if the principal should state that he
withholds no power or that the agent may execute such acts as he may consider appropriate, or even though the agency
should authorize a general and unlimited management (CIVIL CODE, Art. 1877).
C-5. AGENCY REQUIRING SPECIAL POWER OF ATTORNEY

Q: When is a special power of attorney necessary?
ANS: A special power of attorney is necessary in cases of acts of strict dominion or ownership as distinguished from acts of
administration. (DE LEON, P.A.T., supra at 418).
Q: Enumerate the cases where special powers of attorney are necessary.

ANS: A Special Power of Attorney is required in the following cases:
1. To make such payments as are not usually considered as acts of administration;
2. To effect novations which put an end to obligations already in existence at the time the agency was constituted;
3. To compromise, to submit questions to arbitration, to renounce the right to appeal from a judgment, to waive
objections to the venue of an action or to abandon a prescription already acquired;
4. To waive any obligation gratuitously;
5. To enter into any contract by which the ownership of an immovable is transmitted or acquired either gratuitously or
for a valuable consideration;
6. To make gifts, except customary ones for charity or those made to employees in the business managed by the agent;
7. To loan or borrow money, unless the latter act be urgent and indispensable for the preservation of the things which
are under administration;
8. To lease any real property to another person for more than one year;
9. To bind the principal to render some service without compensation;
10. To bind the principal in a contract of partnership;
11. To obligate the principal as a guarantor or surety;
12. To create or convey real rights over immovable property;
13. To accept/repudiate an inheritance;
14. To ratify or recognize obligations contracted before the agency; and
15. Any other act of strict dominion (CIVIL CODE, Art. 1878).
Q: Is the intervention of a notary public necessary for the validity of a special power of attorney?
ANS: No. A special power of attorney is valid although no notary public intervened in its execution (Barreto v. Tuason, G.R.
No. L-36811, March 31, 1934).
Q: Suppose that an agent holds a special power to sell a certain property, is he also empowered by implication to
mortgage said property?
ANS: No. Art. 1879of the CIVIL CODE declares that a special power to sell excludes the power to mortgage; and a special
power to mortgage does not include the power to sell (JURADO, Civil Law, supra at 1075).
Q: Suppose that an agent holds a special power to enter into compromise, is he also empowered by implication to
submit to arbitration?
ANS: No. A special power to compromise does not authorize submission to arbitration (CIVIL CODE, Art. 1880).
Q: Suppose the special power to sell does not specify the manner nor terms of payment, may the agent sell the
property on credit?
ANS: No. The sale is valid, but the principal may demand from the agent payment in cash, in which case, the latter, once he
has delivered the cash to the former, would then be liable to any interest or benefit which may result from the sale (CIVIL
CODE, Art. 1905; JURADO, Civil Law, supra at 1075).
Q: An agent with general powers of administration, leased to another 2 parcels of land belonging to his principal;
with one for 10 years at P1,000 a year payable annually, and with the other without a fixed term at P100 a month
payable monthly. Do you think that these contracts are valid and binding upon the principal?
ANS: The first contract is not valid and binding, because according to the Civil Code, to lease any real property to another
for more than one year, a special power of attorney is necessary (CIVIL CODE, Art. 1878). The second, however, is valid
and binding because it involves merely a simple act of administration (JURADO, Civil Law, supra at 1076-1077)
C-6. AGENCY BY OPERATION OF LAW
Q: What is an agency by operation of law?

ANS: An agency by necessity is created, or the ordinary powers of an agent may be enlarged, when an emergency occurs
and an employee or an agent is unable to get in touch with his employer (DE LEON, P.A.T., supra at 560).
III. OBLIGATIONS OF THE AGENT

Q: Enumerate the obligations of an Agent to Principal.
ANS: The following are the obligations of the agent:
1. To carry out the agency which he has accepted (CIVIL CODE, Art. 1884).
2. To be liable for damages which, through his non-performance, the principal may suffer (CIVIL CODE, Art. 1884).
3. To finish the business already begun on the death of the principal, should delay entail any danger (CIVIL CODE,
Art. 1884).
4. In case he declines an agency, 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 (CIVIL CODE, Art.
1885).
5. To advance the necessary funds should there be a stipulation to do so, except when the principal is insolvent
6. To act in accordance with the instructions of the principal in the execution of the agency. In default thereof, to do all
that a good father of a family would do, as required by the nature of the business (CIVIL CODE, Art. 1887).
7. Not carry out an agency if its execution would manifestly result in loss or damage to the principal (CIVIL CODE,
Art. 1888).
8. To be liable for damages if, there being a conflict between his interests and those of the principal, he should prefer
his own (CIVIL CODE, Art. 1889).
9. If he has been authorized to lend money at interest, he cannot borrow it without the consent of the principal (CIVIL
CODE, Art. 1890).
10. To render an account of his transactions and to deliver to the principal whatever he may have received by virtue of
the agency, even though it may not be owing to the principal (CIVIL CODE, Art. 1891).
11. To be responsible for interest on the sums he has applied to his own use from the day on which he did so, and on
those which he still owes after the extinguishment of the agency
12. To be responsible not only for fraud, but also for negligence, which shall be judged with more or less rigor by the
courts, according to whether the agency was or was not for a compensation (CIVIL CODE, Art. 1909).
Q: Who is a sub-agent?
ANS: A sub-agent is a person employed or appointed by an agent as his agent, to assist him in the performance of an act
for the principal which the agent has been empowered to perform (DE LEON, P.A.T., supra at 484-485).
Q: May an agent appoint a sub-agent or substitute?

ANS: The agent may appoint a sub-agent or substitute if the principal has not prohibited him from doing so, but he shall be
responsible for the acts of the substitute:
1. When he was not given power to appoint.
2. When he was given such power, but without designating the person, and the person appointed was
notoriously incompetent or insolvent (CIVIL CODE, Art. 1892).
Q: What do you mean by joint agents?

ANS: Agents appointed by one or more principals under such circumstances as to induce the inference that it was the
principal’s intent that all should act in conjunction in consummating the transaction for which they were appointed (DE
LEON, P.A.T., supra at 485-486)
Q: What is the liability of joint agents?

ANS: The responsibility of joint agents, even though they have been appointed simultaneously, is not solidary, if solidarity
has not been expressly stipulated. If solidarity has been agreed upon, each of the agents is responsible for the non-
fulfillment of the agency, and for the fault or negligence of his fellow agents, except in the latter case when the fellow agents
acted beyond the scope of their authority (CIVIL CODE, Art. 1894-1895).
Q: Is an agent personally liable to the party with whom he contracts?

ANS: No. The agent who acts as such is not personally liable to the party with whom he contracts, unless he expressly
binds himself or exceeds the limits of his authority without giving such party sufficient notice of his powers (CIVIL CODE, Art.
1897).
Q: What is the effect if the agent contracting in the name of the principal exceeds his authority?
ANS: If the agent contracts in the name of the principal, exceeding the scope of his authority, and the principal does not
ratify the contract, it shall be void if the party with whom the agent contracted is aware of the limits of the powers granted by
the principal. In this case, however, the agent is liable if he undertook to secure the principal’s ratification (CIVIL CODE, Art.
1898).
Q: May the principal set up the defense of ignorance of the agent?

ANS: No. If the duly authorized agent acts in accordance with the orders of the principal, the latter cannot set up the
ignorance of the agent as to circumstances whereof he himself was, or ought to have been, aware (CIVIL CODE, Art. 1899).
Q: What is the effect of an act of an agent as to third persons?

ANS: So far as third persons are concerned, an act is deemed to have been performed within the scope of the agent’s
authority, if such act is within the terms of the power of attorney, as written, even if the agent has in fact exceeded the limits
of his authority according to an understanding between the principal and the agent (CIVIL CODE, Art. 1900).
Q: What is a commission agent?

ANS: A person whose business is to receive and sell goods entrusted to him by the principal for a commission and is
usually selling in his own name (PINEDA, Partnership, supra at 351).
Q: What is a broker?
ANS: Is one who is engaged for others on a commission; a negotiator between the parties, never acting in his own name but
in the name of those who employed him. He is merely an intermediary between the purchaser and the vendor. (DE LEON,
Q: What are the differences between a Commission Agent, Ordinary Agent and Broker?
ANS: The differences are as follows:
Commission Agent Ordinary Agent Broker
As to Possession of Goods
No need to have possession
Needs to have possession of
No need to have possession
the goods
As to Representation
Transacts in the name of the No relation whatsoever with
Sells in his own name the thing he sells or purchases
principal
Q: What are the obligations of a commission agent?

ANS: The obligations of a commission agent are the following:
1. To be responsible for the goods received by him in the terms and conditions and as described in the consignment,
unless upon receiving them he should make a written statement of the damage and deterioration suffered by the
same (CIVIL CODE, Art. 1903).
2. If he handles goods of the same kind and mark belonging to different owners, to distinguish them by countermarks,
and designate the merchandise respectively belonging to each principal (CIVIL CODE, Art. 1904)
3. To not sell on credit, without the express or implied consent of the principal. Should he do so, the principal may
demand from him payment in case, but the commission agent shall be entitled to any interest or benefit, which may
result from such sale (CIVIL CODE, Art. 1905).
4. If he is authorized to sell on credit, to inform the principal, with a statement of the names of the buyers. Should he fail
to do so, the sale shall be deemed to have been made for cash insofar as the principal is concerned. (CIVIL CODE,
Art. 1906).
5. To bear the risk of collection and pay the principal the proceeds of the sale on the same terms agreed upon with the
purchaser, if he should receive on sale, in addition to the ordinary commission, a guarantee commission (CIVIL
CODE, Art. 1907).
6. To be liable for damages if he does not collect credits of his principal at the time when they become due, unless he
proves that he exercised due diligence for that purpose (CIVIL CODE, Art. 1908).
Q: What is the purpose of a guarantee commission?

ANS: To compensate the agent for the inconveniences and risks he has to undergo in the collection of the purchase price
payable to the principal (PINEDA, Partnership, supra at 537).
IV. OBLIGATIONS OF THE PRINCIPAL
Q: Enumerate the obligations of a principal.

ANS: The primary obligations of the principal to the agent in the absence of such agreement are:
1. To comply with all the obligations which the agent may have contracted in his name and within the scope of his
authority (CIVIL CODE, Art. 1910);
2. To advance, should the agent so request, sums necessary for the execution of the agency (CIVIL CODE, Art. 1912,
Par 1);
3. To reimburse the agent for all advances made by him, provided the agent is free from fault (CIVIL CODE, Art. 1912,
Par 2);
4. To indemnify the agent for all the damages which the execution of the agency may have caused the latter without
fault or negligence on his part (CIVIL CODE, Art. 1913); and
5. To pay the agent the compensation agreed upon or the reasonable value of the latter’s services.
Q: W, X and Y employ agent A to sell land owned in common by the three, with A receiving a commission of
P1,500,000. What is the obligation of W, X and Y?
ANS: If A is successful, A can collect from any of the three the amount of P1,500,000 because of their solidary liability. The
solidarity is due to the existence of a common transaction (CIVIL CODE, Art. 1915). Of course, if X pays the P1,500,000, he
can recover reimbursement of P500,000 each from Y and W (PARAS, Civil Code, supra at 856-857).
Q: What is the rule when both the principal and agent contract with respect to the same thing?
ANS: When two persons contract with regard to the same thing, one of them with the agent and the other with the principal,
and the two contracts are incompatible with each other, that of prior date shall be preferred, without prejudice to the
provisions of Article 1544 (CIVIL CODE, Art. 1916).
Q: What is the liability of principal if agent acted in good faith or bad faith?
ANS: In the case referred to in Article 1916, if the agent has acted in good faith, the principal shall be liable in damages to
the third person whose contract must be rejected. If the agent acted in bad faith, he alone shall be responsible (CIVIL
CODE, Art. 1917).
Q: When is the principal not liable for expenses incurred by the agent?
ANS: The principal is not liable for the expenses incurred by the agent in the following cases:
1. If the agent acted in contravention of the principal’s instructions, unless the latter should wish to avail himself of the
benefits derived from the contract;
2. When the expenses were due to the fault of the agent;
3. When the agent incurred them with knowledge that an unfavorable result would ensue, if the principal was not
aware thereof; and
4. When it was stipulated that the expenses would be borne by the agent, or that the latter would be allowed only a
certain sum (CIVIL CODE, Art. 1918).
V. MODES OF EXTINGUISHMENT
Q: Enumerate the modes of extinguishment of a contract of agency.
ANS: The modes of extinguishment are as follows (:
1. By its revocation;
2. By the withdrawal of the agent;
3. By the death, civil interdiction, insanity or insolvency of the principal or of the agent;
4. By the dissolution of the firm or corporation which entrusted or accepted the agency;
5. By the accomplishment of the object or purpose of the agency; and
6. By the expiration of the period for which the agency was constituted (CIVIL CODE, Art. 1919).
Note: The list is not exclusive.
Q: P authorized A to support the former’s grandson. P subsequently died. Is A still required to give support?
ANS: No. P’s death terminated A’s authority. Also, P’s obligation to give support, being a personal one, was extinguished on
his death (Hermosa v. Longara, G.R. No. L-5267, October 27, 1953).
Q: May the principal revoke the agency at will?
ANS: The principal may revoke the agency at will, with or without reason since an agency relationship is voluntary, except
as provided in Article 1927 (CIVIL CODE, Art. 1920).
Q: When is an agency irrevocable?

ANS: An agency is irrevocable when:
1. A bilateral contract depends upon it;
2. It is the means of fulfilling an obligation already contracted; or
3. A partner is appointed manager of a partnership in the contract of partnership and his removal from the management
is unjustifiable (CIVIL CODE, Art. 1927).
Q: Enumerate the instances when agency cannot be revoked at the principal’s will.
ANS: The agency cannot be revoked at principal’s will in the following instances:
1. When it is “coupled with an interest” (interest possessed by the agent in the subject matter of the power);
2. In the cases mentioned in Art. 1927:
a. When a bilateral contract depends on the agency;
b. When the agency is the means of fulfilling an obligation already contracted; or
c. In the case of a partner appointed manager in the contract of partnership and his removal from the management
is unjustifiable;
3. When there has been a waiver by the principal (New Manila Lumber Co. v. Republic, G.R. No. L-14248, April 28,
1960);
4. When the principal is obliged not to revoke; or
5. When the revocation is done in bad faith (PARAS, Civil Code, supra at 862-863).
Q: What is meant by an agency coupled with an interest?

ANS: An agency coupled with an interest refers to an agency wherein the agent has acquired some interest of his own in
the execution of the authority granted to him, in addition to his mere interest in the contract of employment with the resulting
gains (JURADO, Civil Law, supra at 1086).
Q: In an agency coupled with an interest, does the death of the agent terminate the agency?
ANS: Generally, the agent’s death ends the agency for it should not be continued by one upon whom the principal has
reposed no confidence. However, under American Law, it has been held that the agent’s death does not terminate the
agency; such power may be subsequently exercised by his personal representative, insofar as may be essential to protect
the interests of the estate of the agent (PARAS, Civil Code, supra at 873).
Q: Is notice of revocation published in a newspaper sufficient when the third persons have not been specified?
ANS: Yes. If the agent had general powers, revocation of the agency does not prejudice third persons who acted in good
faith and without knowledge of the revocation. Notice of the revocation in a newspaper of general circulation is a sufficient
warning to third persons (CIVIL CODE, Art. 1922).
Q: What are the effects of appointment of a new agent?

ANS: The effects are:
1. Appointment of a new agent revokes the first agency only in case of incompatibility;
2. A special power revokes a general one (CIVIL CODE, Art. 1926); and
3. If the first agent is not notified of the appointment of the second agent, it is understood that the first agency still exists
(PARAS, Civil Code, supra at 864-865).
Q: What is the effect if the principal directly manages the business?

ANS: The agency is revoked if the principal directly manages the business entrusted to the agent, dealing directly with third
persons (CIVIL CODE, Art. 1924).
Note: The rule applies only in case of incompatibility (PARAS, Civil Code, supra at 864-865).
Q: May an agent withdraw from the agency?

ANS: Yes. The agent may withdraw from the agency by giving due notice to the principal. If the latter should suffer any
damage by reason of the withdrawal, the agent must indemnify him therefore, unless the agent should base his withdrawal
upon the impossibility of continuing the performance of the agency without grave detriment to himself (CIVIL CODE, Art.
1928).
Note: The agent, even if he should withdraw from the agency for a valid reason, must continue to act until the principal has
had reasonable opportunity to take the necessary steps to meet the situation (CIVIL CODE, Art. 1929).
Q: What is the effect on the contract of agency in case of death of the principal?
ANS: The agency shall remain in full force and effect even after the death of the principal, if it has been constituted in the
common interest of the latter and of the agent, or in the interest of a third person who has accepted the stipulation in his
favor (CIVIL CODE, Art. 1930).
TRUST
A. DEFINITION
Q: What is a trust?
ANS: A trust is the fiduciary relationship between one person having equitable ownership in property and another owing the
legal title to such property, the equitable ownership of the former entitling him to the performance of certain duties and the
exercise of certain powers by the latter for the benefit of the former (DE LEON, P.A.T., supra at 628) or of another person.
Q: Who are the parties in a trust?

ANS: A person who establishes a trust is called the trustor; one in whom confidence is reposed as regards property for the
benefit of another person is known as the trustee; and the benefit for whose benefit the trust has been created is referred to
as the beneficiary or the cestui que trust(CIVIL CODE, Art. 1440).
Q: What are the characteristics of trust?

ANS: The characteristics of trust are the following:
1. It is a relationship;
2. It is a relationship fiduciary in character;
3. It is a relationship with respect to property, not one involving merely the personal duties;
4. It involves the existence of equitable duties imposed upon the holder of the title to the property to deal with it for the
benefit of another; and
5. It arises as a result of a manifestation of intention to create the relationship. (Morales, et al. vs. CA, et. Al G.R. No.
117228, June 19, 1997)
Q: Who has the burden to prove the existence of trust?

ANS: The general rule is that the burden of proving the existence of a trust is on the party alleging its existence; and to
discharge this burden, it is generally required that this proof be clear and satisfactory and convincing (Ramos vs Ramos, 61
SCRA 284)
B. KINDS OF TRUSTS
Q: What are the kinds of trusts?
ANS: Trust are either express or implied. Express trusts are created by the intention of the trustor or of the parties. Implied
trust come into being by operation of law (CIVIL CODE, Art. 1441).
Q: Distinguish express trust from implied trust.

ANS:
Express Trust Implied Trust
Creation of Trust
Those without being expressed are deducible
Created by direct and positive acts of the parties by
from the nature of the transaction by operation of
some words or writing or deed or will evidencing an
law as matters of equity, independently of the
intention to create trust
particular intention of the parties
Existence of fiduciary relationship
No express trust concerning an immovable or any
interest therein may be proved by parol evidence May be proved by parol evidence.
Proof of trust
No express trust concerning an immovable or any
interest therein may be proved by parol evidence May be proved by parol evidence.
As to the effect of Laches and Prescription
Do not constitute a bar to enforce an express trust, at May constitute a bar to enforce an implied trust,
least while the trustee does not openly repudiate the and no repudiation is required unless there is a
trust, and make known such repudiation to the concealment of the facts giving rise to the trust
beneficiary.(JURADO, Civil Law, supra at 919 – 920 ) (Fabian vs Fabian, 21 SCRA 213)
A.EXPRESS TRUST
Q: What is an express trust?

ANS: Express trusts are those trusts voluntarily and intentionally created by direct and positive act of the trustor, by some
writing, deed, will or oral declaration evincing an intention to create the trust. (DE LEON, P.A.T., supra at 643).
Q: How can the existence of a trust be proved?

ANS: No express trusts concerning an immovable or any interest therein may be proved by parol evidence (CIVIL CODE,
Art. 1443). An express trust over personal property or any interest therein may be proved by oral evidence (DE LEON,
Q: Is there a form required to create a Trust?

ANS: No particular words are required for the creation of an express trust, it being sufficient that a trust is clearly intended
(CIVIL CODE, Art. 1444). However by virtue of Art. 1443, the writing is required not for validity but for purposes of proof.
Hence by analogy, this requirement may also be included under the Statute of Frauds (Cuaycong vs Cuaycong, 21 SCRA
1192).
Q: Is the acceptance by the trustee necessary?

ANS: No trust shall fail because the trustee appointed declines the designation, unless the contrary should appear in the
instrument constituting the trust (CIVIL CODE, Art. 1445). In the case of an express trust, the acceptance of trust by the
trustee is necessary only to charge him with the office of the trustee, however, his acceptance of the trust is not necessary to
its existence and validity (DE LEON, P.A.T., supra at 648).
Q: Is the acceptance by the beneficiary necessary?
ANS: Acceptance by the beneficiary is necessary. Nevertheless, if the trust imposes no onerous condition upon the
beneficiary, his acceptance shall be presumed, if there is no proof to the contrary (CIVIL CODE, Art. 1446).
Q: May laches and prescription constitute a bar to enforce an express trust?

ANS: As a general rule, the express trust disables the trustee from acquiring for his own benefit the property committed to
his management or custody, at least while he does not openly repudiate the trust and make such repudiation known to the
beneficiary (JURADO, Civil Law, supra at 922).
Q: Enumerate the modes of extinguishment of an express trust:

ANS: The modes of extinguishment are as follows (THE-MAD2-RAMP):
1. Total loss of the object of the trust;
2. Happening of the resolutory condition, if any;
3. Expiration of the agreed term;
4. Mutual agreement of all the parties;
5. Annulment or rescission of the trust;
6. Decision of the court declaring the trust terminated;
7. Death or legal incapacity of the trustee when the trustor intended no other person to administer the trust (Caezo vs
Rojas, G.R. No. 148788, November 23, 2007);
8. Revocation by the trustor, if such power is reserved;
9. Accomplishment of the purpose of the trust;
10. Merger of the rights of the trustor and the trustee, when the trustor waived his beneficial rights in favor of the trustee,
or vice versa; and
11. Prescription
Note: The list is not exclusive.
B. IMPLIED TRUST
Q: What is an implied trust?

ANS: Implied trusts are those without being expressed are deducible from the nature of the transaction by operation of law as
matters of equity, independently of the particular intention of the parties. (DE LEON, P.A.T., supra at 650).
Q: How may an implied trust be converted to express trust?

ANS: An implied trust may be converted to an express trust through the recognition by the implied trustee of the right to the
property of the owner. (DE LEON, P.A.T., supra at 656).
Q: What are the kinds of implied trust?

ANS: Implied trusts are ordinarily subdivided into:
a) Resulting trust – is a trust raised by implication of law and presumed always to have been contemplated by the
parties, the intention as to which is to be found in the nature of the transaction but not expressed in deed or instrument of
conveyance (JURADO, Civil Law, supra at 918). Examples of resulting trusts are illustrated in Art. 1448-1455 of the Civil
Code.
b) Constructive trust (trust de son tort)– it is a trust created not by any word evincing a direct intention to create a
trust but by the instruction of equity to satisfy the demands of justice and to prevent unjust enrichment. It arises contrary to
agreement or intention against one who, by fraud, duress or abuse of confidence obtains or holds the legal title to property
which ought not, in equity and conscience, to hold (ALBANO, Civil Law, p. 517). An example of trust is illustrated in Art.
1456 of the Civil Code.
Q: May laches constitute a bar to enforce an implied trust?

ANS: Laches constitute a bar to action to enforce the trust and no repudiation is required, unless there is a concealment of
fact giving rise to the trust. (JURADO, Civil Law, supra at 922).
Q: May prescription constitute a bar to enforce an implied trust?

ANS: Yes, however the following requisites are required before period of prescription may start:
1. The trustee has performed unequivocal acts of repudiation amounting to ouster of the beneficiary..
2. Such positive acts of repudiation have been made known to the beneficiary.
3. Evidence thereon is clear and positive (Vda. De Cabrera v. Court of Appeals, G.R. No. 108547, February 3, 1997)
Q: What is the period for prescription of an action for reconveyance of real property based on an implied trust?
ANS: The following are the rules on prescription and laches in an action to recover the property held in trust:
1. If the action for reconveyance involves the annulment of a voidable contract which became the basis for fraudulent
registration of the subject property, then the period of prescription is four (4) years from the discovery of fraud. (Reason Art.
1391 (4) )
2. If the action does not involve an annulment of a contract but there was fraud in the registration of the subject
property, then the period of prescription is ten (10) years from discovery of fraud. (Reason Art.1144 No. 2, an action based
upon an obligation by law must be brought within ten (10) years from the right of action accrues)
If the action for reconveyance is in reality an action to quiet title, the legitimate owner of the property which was fraudulently
registered in the name of another had always been in possession thereof so that the constructive notice rule cannot be
applied, then the action is imprescriptible. (JURADO, Civil Law, supra at 924).

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PARTNERSHIP Commented [LR1]:

Q: What are the essential features of a partnership?

Q: Does a partnership have a separate personality?

Q: Is a license to construct and operate a cockpit considered a contribution to partnership?

Q: Explain “industry” as contribution to partnership.

Q: May a partnership be formed for the exercise of a profession?

C. RULES TO DETERMINE EXISTENCE

Q: What are the rules in determining the existence of partnership?

Q: What are the tests to determine whether or not a partnership exists?

Q: Explain the sharing of profits as an essential feature of partnerships.

Q: Is sharing of losses implied in a contract of partnership?

Q: Are partnerships and labor unions similar?

Q: Distinguish partnerships from business trusts.

Q: Distinguish a partner from an agent.

Q: May a corporation become a partner?

Q: What are the formalities required in constituting a partnership?

Q: Is an unregistered partnership valid?

Q: Are the articles of partnership required for the existence of a partnership?

Q: When does a partnership begin?

Q: Are contributions necessary before a contract of partnership may exist?

Q: What is a partnership at will?

F. UNIVERSAL VS. PARTICULAR PARTNERSHIP; GENERAL VS. LIMITED

Q: Enumerate the different classifications of partnership.

Q: What is a universal partnership?

Q: What is a universal partnership of all present property?

Q: Can future properties be contributed?

Q: What is a universal partnership of profits?

Q: In a universal partnership of profits, are profits acquired through chanceincluded?

Q: Who cannot enter into a universal partnership?

Q: Give examples of persons prohibited from entering into a universal partnership.

Q: What is a particular partnership?

Q: What is a general partnership?

Q: What is a limited partnership?

Q: May a partnership exist when all are “limited partners”?

Q: Can a husband and wife enter into a contract of partnership?

Q: What is a partnership by estoppel?

Q: When can there be a partnership by estoppel?

Q: When can there be a partner by estoppel?

Q: When is the doctrine of estoppel inapplicable?

Q: Give an example of a partner by estoppel.

H. PARTNERSHIP v. JOINT VENTURE

Q: What is a joint venture?

Q: Distinguish partnership from joint venture.

Partnership Joint Venture

Q: May a partnership be established for the exercise of a profession?

Q: Are professional partnerships prohibited by law?

Q: Who shall manage the partnership?

Q: What are the two (2) modes of appointing a manager?

Q: How is a managing partner removed?

II. RIGHTS AND OBLIGATIONS OF PARTNERSHIP

Q: Enumerate the relations created by a contract of partnership.

Q: What are the rights and obligations, in general, of partners?

III. RIGHTS AND OBLIGATIONS OF PARTNERS AMONG THEMSELVES

Q: Enumerate the obligations of partners among themselves

Q: Enumerate the obligations of the partners with respect to contribution of property.

Q: When is appraisal necessary?

Q: When does the obligation to contribute additional capital arise?

Q: Explain the rules on risk of loss of the thing contributed.

Q: What are the responsibilities of the partnership to the partners?

Q: How are profits and losses distributed?

Q: May a partner associate another person with him in his share?

Q: What is meant by the principle of “delectus personae” in partnership relations?