UP 2010 Civil Law (Partnership and Agency)
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Transcript of UP 2010 Civil Law (Partnership and Agency)
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CIVIL LAW REVIEWER TABLE of CONTENTS
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AGENCYTable of Contents
Chapter I. Nature, Form, and Kinds of Agency.......................................................................341
I. Definition [Art. 1868, CC] ..................341II. Purpose.............................................341III. Characteristics [CNPPBF].................342IV. Essential Elements............................342V. Determination of Existence of Agency
342VI. Agency v Similar Contracts ...............343VII. Kinds .............................................344
Chapter II. Obligations of the Agent...........348I. To Carry Out the Agency ..................348III. To Advance the Necessary Funds [Art.1886, CC] ...................................................349IV. To Act in Accordance with PrincipalsInstructions.................................................349V. To Prefer Interest of Principal OverPersonal Interest........................................349VI. To Render Accounts and Deliver ThingsReceived by Virtue of the Agency..............349VII. To Be Responsible for Substitutes350VIII. To Pay Interest .............................350IX. To Answer for His Negligence or Fraud[Art. 1909, CC] ...........................................350X. Special Obligations of Factor/Commission Agents ...................................350
Chapter III. Liabilities of the Agent.............352I. Liability to Third Persons...................352II. Liability to the Principal .....................352III. Liability of Two or More Agents.........353
Chapter IV. Obligations of the Principal ...354I. To Comply with the obligationscontracted by the agent .............................354II. To Advance the Necessary Sums andReimburse the Agent .................................355III. To Indemnify the Agent for Damages355IV. To Pay the Agents Compensation ...356V. To Be Solidarily Liable ......................356
Chapter V. Extinguishment of Agency......357Extinguishment of Agency [EDWARD] ......357I. Expiration of the period for which it wasconstituted..................................................357II. Death, civil interdiction, insanity,insolvency ..................................................357III. Withdrawal of the agent ....................357IV. Accomplishment of the object of theagency .......................................................357V. Revocation ........................................357VI. Dissolution of the firm/corp. Whichentrusted/accepted the agency..................358
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Chapter I. Nature, Form, and Kinds ofAgency
I. DEFINITIONII. PURPOSEIII. CHARACTERISTICSIV. ESSENTIAL ELEMENTSV. DETERMINATION OF EXISTENCEVI. AGENCY V SIMILAR CONTRACTSVII. KINDS
I. Definition [Art. 1868, CC]By the contract of agency,1. a person (agent) binds himself2. to render some service or to do something in
representation or on behalf of another(principal),
3. with the consent or authority of the latter.
II. PurposeThe purpose of agency is to extend theprincipals personality.
The personality of the principal is extendedthrough the facility of the agent. In so doing,the agent, by legal fiction, becomes theprincipal, authorized to perform all actswhich the latter would have him do. Therelationship can only be effected with theconsent of the principal, which must not, inany way, be compelled by law or by anycourt. (Litonjua, Jr. v. Eternit Corp.)
What acts may be authorized1. General Rule: What a man may do in
person, he may do thru another.2. Exceptions
a. Personal actsb. Criminal actsc. Unlawful acts
Theory of Imputed knoweldge1. General Rule: For knowledge of agent to be
imputed to the principal, there must be:a. Actual notice to the agent;b. The notice must pertain to a matter of
fact and not of law; andc. The fact must be within the scope of the
agents authority.2. Exceptions
a. Agents interests are adverse to those ofthe principal;
b. Agents duty is not to discloseinformation;
c. 3rd person claiming the benefit of therule colludes with agent to defraudprincipal.
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&P
ARTN
ERS
HIP
AGENCY & PARTNERSHIP TEAM
Prof. Roberto N. DioFaculty Editor
Genevieve E. JusiLead Writer
Joyce Anne C. RoldanWriter
CIVIL LAW
Kristine BongcaronPatricia TobiasSubject Editors
ACADEMICS COMMITTEE
Kristine BongcaronMichelle Dy
Patrich LeccioEditors-in-Chief
PRINTING & DISTRIBUTION
Kae Guerrero
DESIGN & LAYOUT
Pat HernandezViktor FontanillaRusell Aragones
Romualdo Menzon Jr.Rania Joya
LECTURES COMMITTEE
Michelle AriasCamille MarananAngela Sandalo
Heads
Katz ManzanoSam Nuez
Arianne Cerezo
Mary Rose BeleyKrizel MalabananMarcrese Banaag
Volunteers
MOCK BAR COMMITTEE
Lilibeth Perez
BAR CANDIDATES WELFARE
Dahlia Salamat
LOGISTICS
Charisse Mendoza
SECRETARIAT COMMITTEE
Jill HernandezHead
Loraine MendozaMary Mendoza
Faye CelsoJoie Bajo
Members
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NoteThe theory of imputed knowledgeascribes the knowledge of the agent, to theprincipal, not the other way around. Theknowledge of the principal cant be imputed to itsagent. (Sunace Internatl Mgt. Services v. NLRC,2006)
III. Characteristics [CNPPBF]1. Consensual: perfected by mere consent2. Nominate: has its own name3. Preparatory: purpose is the execution of a
juridical act in relation to a third person4. Principal: can stand by itself without need of
another contract5. Bilateral: gives rise to reciprocal rights and
obligations6. Fiduciary: since it is based on trust and
confidence
IV. Essential ElementsEssential Elements [CORS] (Rallos v Felix GoChan, 1978)1. Consent, express or implied, of the parties
to establish the relationship2. Object is the execution of a juridical act in
relation to a third person3. Agent acts as a Representative and not for
himself4. Agent acts within the Scope of his authority
Intent to establish agency essentialGeneral Rule1. On the part of the principal there must be an
intention to appoint or an intention naturallyinferable from his words or actions; and
2. On the part of the agent, there must be anintention inferable from words or deeds toaccept the appointment and act on it.
Exception1. Agency by estoppel; and2. Agency by operation of law
Agency by Estoppel1. The principal manifested a representation of
the agents authority or knowlingly allowedthe agent to assume such authority;
2. The third person, in good faith, relied uponsuch representation;
3. Relying upon such representation, such thirdperson has changed his position to hisdetriment. (Litonjua vs. Eternit Corporation,G.R. No. 144806)
Apparent AuthorityIt imposes liability, not as the result of thereality of a contractual relationship, butrather because of the actions of a principalor an employer in somehow misleading the
public into believing that the relationship orthe authority exists.
The principal is bound by the acts of hisagent with the apparent authority which heknowingly permits the agent to assume, orwhich he holds the agent out to the public aspossessing. The question in every case iswhether the principal has by his voluntaryact placed the agent in such a situation thata person of ordinary prudence, conversantwith business usages and the nature of theparticular business, is justified in presumingthat such agent has authority to perform theparticular act in question. (ProfessionalServices Inc. vs. Agana, G.R. No. 126297)
One who clothes another with apparentauthority as his agent, and holds him out tothe public as such, cannot be permitted todeny the authority of such person to act ashis agent, to the prejudice of innocent thirdparties dealing with such person in goodfaith. (Macke v Camps, 1907)
Capacity of the partiesThe principal must be capacitated to giveconsent.
The agent must have the capacity to enterinto contracts although he/she may not havethe capacity to enter into the particularcontract subject of the agency
However, as between the principal and theagent, the agent can set up his incapacityprovided he is not estopped. [Paras, CivilCode of the Philippines Annotated]
V. Determination of Existence of AgencyDesignation by partiesis not controlling.
Fact of existenceIf relations that constitute agency exist, thereis agency regardless of whether or not theparties understood the exact nature of therelation.
No presumption of existence1. General Rule: Agency must exist as a fact.2. Exceptions:
a. When agency arises ipso jureb. To prevent unjust enrichment
Intention of the parties to createThe nature of the contract depends on theintention of the parties as gathered from
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their words and actions and thecircumstances of the case.
As between principal and 3rd person,however, agency may exist without theexpress consent of the agent.
Keeler Rule (Harry Keeler Electric vRodriguez, 1922)1. Against the principal, the third party has the
obligation to determine existence and scopeof agency and has the burden of proof incase the principal denies it
2. Against the agent, the third person dealswith him at his own peril. A third person mayrequire the presentation of the POA or theprincipals instructions as regards theagency (Art. 1902)
3. The person dealing with the agent must alsoact with ordinary prudence and reasonablediligence. If he knows or has good reason tobelieve that the agent is exceeding hisauthority, he cannot claim protection.
VI. Agency v Similar Contracts
Partnership1. An agent acts not for himself, but for his
principal; a partner can act for himself, forhis firm, and for his partners
2. Parity of Standing TestA partnership generally presupposes aparity of standing between the partners, inwhich each party has an equal proprietaryinterest in the capital or property contributes& where each party exercises equal rights inthe conduct of the business. (Sevilla v CA,1988)
Independent Contractor (IC)Agency IC
1. ControlThe agent acts underthe control andinstruction of theprincipal.
The IC is authorized todo the work accordingto his own method,without being subjectto the other partyscontrol, except insofaras the result of thework is concerned
2. Liability for tortPrincipal is liable fortorts committed by theagent within the scopeof his authority.
Employer not liable fortorts committed by theindependentcontractor.
3. SubagentsAgents of the agentcan be controlled bythe principal
The employees of thecontractor are not theemployees of theemployer of thecontractor
Lease of ServiceAgency Lease of Service
1. BasisBasis isrepresentation
Basis is employment
2. PurposeExecution of a juridicalact in relation to athird person
Execution a piece ofwork or rendering ofservice
3. Authorized ActsThe agent is destinedto execute juridicalacts (creation,modification orextinction of relationswith third parties)
Lease of servicescontemplate onlymaterial acts.
4. DiscretionAgent exercisesdiscretionary powers.
Lessor ordinarilyperforms onlyministerial functions.
5. Parties3 parties: Principal,agent and the 3rdperson with whom theagent contracts
2 parties: Lessor andlessee.
Lease of PropertyAgency Lease of Property
1. ControlThe agent acts underthe control andinstruction of theprincipal.
Lessee is notcontrolled by thelessor
2. Things involvedAgency may involvethings other thanproperty
Lease of property onlyinvolves property
3. Binding powerAgent can bind theprincipal
Lessee cannot bindthe lessor
Agency to Sell v SaleAgency to Sell Sale
1. Ownership of goodsAgent receives thegoods as the goods ofthe principal
Buyer receives thegoods as owner
2. PaymentAgent deliversproceeds of the sale tothe principal
Buyer pays the price
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3. Return of goodsGenerally, the agentcan return the goodsin case he is unable tosell them to a thirdperson
generally, buyercannot return thegoods bought
4. DiscretionAgent exercisesdiscretionary powers.
Lessor ordinarilyperforms onlyministerial functions.
5. PartiesAgent in dealing withthing received isbound to act accordingto the instructions ofhis principal;
Buyer can deal withthe thing as hepleases, being theowner.
Agency to Buy v SaleAgency to Buy Sale
1. Ownership of goodsThe agent acquiresownership in behalf ofthe principal
The buyer acquiresownership for himself.
2. Changes in priceGenerally, any changein the price should beborne by the principal
Buyer cannot adjustthe price alreadyagreed upon.
3. PaymentThe agent pays thepurchase price inbehalf of the principal
Buyer pays the price
GuardianshipAgency Guardianship
1. Person representedAgent represents acapacitated person
A guardian representsan incapacitatedperson.
2. Source of authorityAgent is appointed bythe principal and canbe removed by thelatter.
Guardian is appointedby the court or by law.
3. ControlThe agent acts underthe control of theprincipal.
Guardian is not subjectto the directions of theward but must act forthe benefit of the latter.
4. DiscretionAgent exercisesdiscretionary powers.
Lessor ordinarilyperforms onlyministerial functions.
5. Binding powerAgent can make theprincipal personallyliable.
Guardian has nopower to imposepersonal liability on theward.
VII.KindsAs to Manner of Creation1. Express
a. Agent has been actually authorized bythe principal
b. Agency may be oral or in writing, unlessthe law requires a specific form. [Art.1869, CC]
2. Implieda. On the part of the principal:
From his acts his silence or lack of action; his failure to repudiate the agency
knowing that another person isacting on his behalf without authority[Art. 1869, CC]
b. On the part of the agent: from his acts which carry out the
agency; from his silence or inaction
according to the circumstances [Art.1870, CC]
Acceptance of the Agency Between persons who are present
Principal delivers his power ofattorney to the agent; and
Agent receives it withoutobjection [Art. 1871, CC]
Between persons who are absent: General Rule: Acceptance
cannot be implied from thesilence of the agent
Exceptionsi. when the principal transmits
his POA to the agent, whoreceives it without anyobjection;
ii. when the principal entrusts tohim by letter or telegram aPOA with respect to thebusiness in which he ishabitually engaged as anagent, and he did not reply tothe letter [Art. 1872, CC]
c. Agency by estoppel If a person specially informs another
or states by public advertisementthat he has given a power ofattorney to a third person, the latterbecomes a duly authorized agent,even if previously there was never ameeting of minds between them.
The power shall continue to be infull force until the notice is rescindedin the same manner in which it wasgiven. [Art. 1869, CC]
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d. In Litonjua, Jr. v. Eternit Corp. (2006),the following must be present for agencyby estoppels to exist: the principal manifested a
representation of the agentsauthority or knowingly allowed theagent to assume such authority;
the third person, in good faith, reliedupon such representation;
relying upon such representation,such third person has changed hisposition to his detriment.
As to FormalitiesGeneral Rule
Agency may be oral or in writing [Art. 1869,CC]
Exceptionsa. When the law requires a specific form
[Art. 1869, CC]b. Sale of a piece of land or any interest
thereinWhen a sale of a piece of land or anyinterest therein is through an agent, theauthority of the latter shall be in writing;otherwise, the sale shall be void. [Art.1874, CC]
It is not necessary that the real propertyto be sold be precisely described in thewritten authority of the agent. It issufficient if the authority is so expressedas to determine without doubt the limitsof the agents authority. [Jimenez vRabot, 1918]
As to Cause or ConsiderationAgency may be onerouse or gratuitous
a. General RuleAgency is presumed tobe for compensation [Art. 1875, CC]
b. ExceptionThere is proof to thecontrary [Art. 1875, CC]
As to Extent of Business Covered1. Universal
A universal agent is one authorized todo all acts for his principal which canlawfully be delegated to an agent.[Siasat v. IAC (1985)]
2. GeneralIt comprises all the business of theprincipal [Art. 1876, CC]
3. SpecialIt comprises one or more specifictransactions [Art. 1876, CC]
General Agency Special Agency1. Scope of authority
All acts connected withthe business oremployment in which heis engaged.
Specific acts inpursuance of particularinstructions or withrestrictions necessarilyimplied from the act to bedone.
2. Nature of service authorizedInvolves continuity ofservice.
No continuity of service.
3. Extent to which agent may bind principalMay bind his principal byan act within the scope ofhis authority although itmay be contrary to thelatters specialinstructions.
Cannot bind his principalin a manner beyond oroutside the specific actswhich he is authorized toperform.
4. Termination of authorityApparent authority doesnot terminate by the mererevocation of his authoritywithout notice to the 3rdparty.
Duty imposed upon the3rd party to inquiremakes termination of therelationship as betweenthe principal and agenteffective as to such 3rdparty, unless the agencyhas been entrusted forthe purpose ofcontracting with such 3rdparty.
5. Construction of principals instructionsMerely advisory in nature. Strictly construed as they
limit the agents authority.
As to Authority Conferred1. Agency may be couched in general or
specific termsa. Couched in general terms [Art. 1877,
CC]If couched in general terms, it comprisesonly acts of administration, EVEN IF: the principal states that he withholds
no power; or he states that the agent may
execute such acts as he mayconsider appropriate; or
the agency should authorize ageneral and unlimited management
b. Couched in specific termsauthorizingonly the performance of specific act/acts
2. Power of AttorneyDefinition
Written authorization to an agent toperform specified acts in behalf of hisprincipal which acts, when performed,shall have binding effect on the principal[2 Am. Jur. 30]
PurposeNot to define the agents authority, but toevidence such authority to 3rd parties
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InterpretationGeneral Rule: Power of Attorney shouldbe strictly construedException: When strict construction willdestroy the very purpose of the power
Special Power of AttorneyA special power of attorney is anauthority granted by the principal to theagent where the act for which it is drawnis expressly mentioned. [Strong v.Repide, 1906]
A special power can be included in ageneral power of attorney, either bygiving authority for all acts of a particularcharacter or by specifying therein theact/transaction for which a special poweris needed. [Tolentino]
3. When special powers are necessary [Art.1878, CC] (PNC-WIG-LLB-PORIRS):a. to make such Payments as are not
usually considered acts of administrationb. to effect Novations which put an end to
obligations already in existence at thetime the agency was constituted
a. Compromise, to submit questions toarbitration, to renounce the right toappeal from a judgment, to waiveobjections to the venue of an action or toabandon a prescription already acquired
b. to Waive any obligation gratuitouslyc. to enter into any contract by which the
ownership of an Immovable istransmitted or acquired eithergratuitously or for a valuableconsideration
d. to make Gifts, except customary onesfor charity or those made to employeesin the business managed by the agent;
e. to Loan or borrow money, unless thelatter act be urgent and indispensablefor the preservation of the things whichare under administration
f. to Lease any real property to anotherperson for more than one year
g. to Bind the principal to render someservice without compensation
h. to bind the principal in a contract ofPartnership
i. to Obligate the principal as a guarantoror surety
j. to create or convey Real rights overimmovable property
k. to accept or repudiate an Inheritancel. to Ratify or recognize obligations
contracted before the agencym. any other act of Strict dominion
Notea. Art. 1878 refers to the nature of the
authorization, not to its form. Even if adocument is titled as a general power ofattorney, the requirement of specialpower of attorney is met if there is aclear mandate from the principalspecifically authorizing the performanceof the act (Bravo-Guerrero v Bravo,2005)
b. What SPA to sell/mortgage does notinclude [Art. 1879, CC] A special power to sell excludes the
power to mortgage; Special power to mortgage does not
include the power to sell.c. A special power to compromise does not
authorize submission to arbitration. [Art.1880, CC]
d. The power to legally compel thepayment of debts owing to the principalis an express grant of the right to bringsuit for the collection of such debts.(Germann & Co v Donaldson, 1901)
e. A power of attorney to loan and borrowmoney and to mortgage the principalsproperty does not carry with it or implythat that the agent has a legal right tomake the principal liable for the personaldebts of the agent. (BPI v De Coster,1925)
f. Unless the contrary appears, theauthority of an agent must be presumedto include all the necessary and usualmeans of carrying the agency into effect.(Macke v Camps, 1907)
g. If agent is empowered to borrowmoneythe agent may be the lender atthe current rate of interest.
h. If agent is empowered to lend money atinterestthe agent cannot borrow themoney without the consent of theprincipal
i. Effect of lack of SPA where one isrequired It is neither accurate notcorrect to conclude that the absence ofSPA (where one is required by law)renders the contract entered into byvirtue of said SPA void. The contract ismerely unenforceable. (Dungo vLopena, 1962, citing Art. 1403(1), CC)
As to Nature and Effects1. Ostensible or Representativeagent acts in
the name and representation of the principal2. Simple or Commissionagent acts in his
own name but for the principals account3. Agency by Estoppelthere is no agency,
and the alleged agent seemed to have
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apparent or ostensible, but not real,authority to represent another
Apparent Authority Agency by EstoppelThough not actuallygranted, principalknowingly permits orholds out the agent aspossessing thenecessary powers to actin a certain way.
Where the principal, byhis acts or omission,permits his agent toexercise powers notgranted to him, eventhough the principal mayhave no notice orknowledge of the conductof the agent.
Implied Agency Agency by EstoppelPrincipal alone is liable. If caused by the principal,
he is responsible. Ifcaused by the agent, heis responsible. Provided,3rd person in good faith.
4. When the principal ratifies the acts of theagenta. Conditions for ratification (CaP-DECK)
i. The principal must have Capacityand Power to ratify
ii. The act must be Done in behalf ofthe principal
iii. He must ratify the acts in its Entiretyiv. The act must be Capable of
ratificationv. He must have had Knowledge of
material facts.b. Effects of ratification
i. With respect to the agent: It relievesthe agent from liability. He may alsorecover compensation
ii. With respect to the principal: Heassumes responsibility for theunauthorized act, as fully as if theagent had acted under originalauthority; but he is not liable for actsoutside the authority approved byhis ratification.
iii. With respect to 3rd persons: Theyare bound by ratification. Theycannot question agents authority.
Ratification EstoppelRests on intention Rests on prejudiceAffects the entiretransaction from thebeginning.
Affects only relevantparts of the transaction.
The substance ofratification is confirmationof unauthorized acts orconduct after it has beendone.
The substance ofestoppel is the principalsinducement to another toact to his prejudice.
As to Kinds of Principal1. Principal may be:
a. Disclosedb. Partially disclosedthird persons are
unaware of principals identityc. Undisclosedagent acts in his own
name2. General Rule [Art. 1883, CC]
If the principal is undisclosed (agent acts inhis own name):a. the agent is the one directly bound in
favor of the person with whom he hascontracted, as if the transaction were hisown
b. the principal has no right of actionagainst the persons with whom theagent has contracted; neither have suchpersons against the principal.
Exception [Art. 1883, CC]a. When the contract involves things
belonging to the principalb. Exception qualified by National Bank v
Agudelo, 1933For the principal to be bound by theact of an agent who contracted inhis [agents] own name, it is notsufficient that the contract involvedthings belonging to the principal.The agent should also have actedwithin his scope of authority.[National Bank v Agudelo, 1933;Rural Bank of Bombon v CA, 1992]
3. Agent may still be sued even if principal isundisclosed and contract involved thingsbelonging to the principal.
Even if the principal is undisclosed andthe contract involved things belonging tothe principal, the third person whocontracted with the agent has a right ofaction not only against the principal butalso against the agent, when the rightsand obligations which are the subjectmatter of the litigation cannot be legallyand juridically determined withouthearing both of them. In such case, theagent being a necessary party to the fulland complete determination of the casewhich originated from his act should beincluded in the case as defendant.[Beaumont v Prieto, 1921]
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Chapter II. Obligations of the Agent
I. TO CARRY OUT THE AGENCYII. TO ACT WITHIN THE SCOPE OF HIS
AUTHORITYIII. TO ADVANCE NECESSARY FUNDSIV. TO ACT IN ACCORDANCE WITH
INSTRUCTIONSV. TO PREFER PRINCIPALS INTEREST OVER
PERSONAL INTERESTVI. NOT TO LOAN TO HIMSELF WITHOUT
PRINCIPALS CONSENTVII. TO RENDER ACCOUNT AND DELIVER
THINGS RECEIVED BY VIRTUE OF AGENCYVIII. TO BE RESPONSIBLE FOR SUBSTITUTESIX. TO PAY INTERESTX. TO ANSWER FOR HIS FRAUD/NEGLIGENCEXI. SPECIAL OBLIGATIONS OF
FACTOR/COMMISSION AGENTS
I. To Carry Out the AgencyObligation to carry out the agency heaccepted [Art. 1884, CC]1. The agent is bound by his acceptance to
carry out the agency own2. He shall be liable for damages that the
principal may suffer due to his non-performance [Art. 1884, CC]
Exception: An agent shall not carry out anagency if its execution would manifestly result inloss or damages to the principal. [Art. 1888, CC]
Obligation to finish business began onprincipals death [Art. 1884, CC]
The agent must finish the business alreadybegun on the death of the principal, shoulddelay entail any danger
Obligation should he decline the agency [Art.1885, CC]1. He is bound to observe the diligence of a
good father of a family in the custody andpreservation of the goods forwarded to himby the owner until the latter should appointan agent or take charge of the goods
2. However, the owner must act as soon aspracticable either by appointing an agent orby taking charge of the property
Obligation to continue agency should hewithdraw [Art. 1929, CC]
The agent, even if he should withdraw fromthe agency for a valid reason, must continueto act until the principal has had reasonableopportunity to take the necessary steps tomeet the situation.
II. To Act Within the Scope of HisAuthority [Art. 1881, CC]
Authority is the power of the agent to affect thelegal relations of his principal by acts done inaccordance with the principals manifestations ofconsent.
When agent acting within the scope of hisauthority1. When he is performing acts which are
conducive to the accomplishment of thepurpose of the agency [Art. 1881, CC]
2. If the agency has been performed in amanner more advantageous to the principalthan that specified by him [Art. 1882, CC]
3. Insofar as third persons, when the agentsact is within the terms of the power ofattorney, as written, even if the agent has infact exceeded the limits of his authorityaccording to an understanding between theprincipal and the agent. [Art. 1900, CC]
Note:1. A 3rd person with whom the agent wishes to
contract on behalf of the principal mayrequire the presentation of a power ofattorney or the principals instructions [Art.1902, CC]
2. The scope of the agents authority is whatappears in the written terms of the power ofattorney. While third persons are bound toinquire into the extent or scope of theagents authority, they are not required to gobeyond the terms of the written power ofattorney. [Siredy Enterprises, Inc. v CA,2002]
Effect when agent acts within the scope ofhis authority1. General Rule The agent who acts as such
is not personally liable to the party withwhom he contracts
2. Exceptionsa. If he expressly bound himself [Art. 1897,
CC]b. If he exceeds the limits of his authority
without giving such party sufficientnotice of his powers [Art. 1897, CC]
c. If he acted in his own name; except ifthe contract involves things belonging tothe principal [Art. 1883, CC]
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III. To Advance the Necessary Funds[Art. 1886, CC]
General RuleThe agent is bound to advance necessaryfunds, should there be a stipulation to do so.
ExceptionWhen the principal is insolvent
IV. To Act in Accordance with PrincipalsInstructions
Obligation to act in accordance withprincipals instructions
In the execution of the agency, the agentshall act in accordance with the instructionsof the principal. [Art. 1887, CC]
Obligation in the absence of instructionsAgent shall do all that a good father of afamily would do, as required by the nature ofthe business [Art. 1887, CC]
When private orders and instructions notbinding to third persons
Private or secret orders and instructions ofthe principal do not prejudice third personswho have relied upon the power of attorneyor instructions shown them. [Art. 1902, CC]
Effect when agent acts in accordance withprincipals orders
Principal cannot set up the ignorance of theagent as to circumstances whereof hehimself was, or ought to have been aware[Art. 1899, CC]
Authority v InstructionsAuthority Instructions
The sum total of thepowers committed orpermitted to the agent
Only a private rule ofguidance to the agent
Relates to the subject(biz/transaction) withwhich the agent isempowered to deal oract.
Refers to the manneror mode of agentsaction with respect tomatters within thepermitted scope ofaction.
Limits of authority tooperate vs those whohave/are charged withknowledge of them.
Binding only on theprincipal and agent
V. To Prefer Interest of Principal OverPersonal Interest
Rule in case of conflict of interest1. General Rule
The agent shall be liable for damages if,there being a conflict between hisinterests and those of the principal, heshould prefer his own. [Art. 1889, CC]
2. Exceptionsa. The principal waives the benefit of the
rule, provided he does so with fullknowledge of the facts.
b. The interests of the agent are superior,ex., agency coupled with an interest.
Agent prohibited from purchasing propertyof principal1. General Rule
The agent cannot acquire by purchase,even at a public or judicial auction,either in person or through the mediationof another property whoseadministration or sale may have beenentrusted to them.
2. ExceptionThe principal has consented to thepurchase. [Art. 1491(2), CC]
VI. To Render Accounts and DeliverThings Received by Virtue of theAgency
Obligation to account and deliver [Art. 1891,CC]Every agent is bound to:1. render an account of his transactions; and2. deliver to the principal whatever he may
have received by virtue of the agency, eventhough it may not be owing to the principal.
Effect of failure to complyIf he fails to do so or uses themoney/property for his own use, the agent isliable for estafa [Art. 315, RPC]
Contrary stipulation voidEvery stipulation exempting the agent fromthe obligation to render an account shall bevoid [Art. 1891, CC]
When not applicable (LIM)1. A right of Lien exists in favor of the agent.2. The agent or broker Informed the principal of
the gift or bonus or profit he received fromthe vendee, and the principal did not object.
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3. If the agent or broker acted only as aMiddleman with the task of merely bringingtogether the vendor and vendee (Domingo vDomingo)
VII.To Be Responsible for Substitutes
The agent shall be responsible for the acts ofhis substitute:1. when he was not given the power to appoint
one; or2. when he was given such power, but without
designating the person, and the personappointed was notoriously incompetent orinsolvent.
The agent may appoint a substitute if theprincipal has not prohibited him from doing so.All acts of the substitute appointed against theprohibition of the principal shall be void
Principal may also bring an action against thesubstitute with respect to the obligations whichthe latter has contracted under the substitution.[Art. 1893, CC]
VIII. To Pay InterestThe agent owes interest on:1. the sums he has applied to his own use from
the day on which he did so2. those which he owes after the
extinguishment of the agency
IX. To Answer for His Negligence orFraud [Art. 1909, CC]
The agent is responsible not only for fraud, butalso for negligence
Liability shall be judged with more or less rigorby the courts, according to whether the agencywas or was not for a compensation
X. Special Obligations of Factor/Commission Agents
Definitionone whose business is to receive & sellgoods for a commission, and is entrusted bythe principal with its possession [Mechemon Agency]
Obligations of a commission agent1. For goods received [Art. 1903, CC]
a. He shall be responsible for the goodsreceived by him in the terms andconditions and as described in theconsignment
b. To avoid liability, he should make awritten statement of the damage anddeterioration suffered by the same uponreceiving them
2. When handling goods of the same kind andmark with different owners [Art. 1904, CC]
He should distinguish the goods bycountermarks, and designate themerchandise respectively belonging toeach principal.
3. Not to sell on credit without express consent[Art. 1905, CC]
The commission agent cannot, withoutthe express or implied consent of theprincipal, sell on credit.Should he do so:a. the principal may demand from him
payment in cashb. but the commission agent shall be
entitled to any interest or benefit,which may result from such sale
4. To inform the principal of sale made oncredit, if authorized to do so [Art. 1906,CC]a. Should the commission agent, with
authority of the principal, sell on credit,he shall so inform the principal, with astatement of the names of the buyers
b. Should he fail to do so, the sale shall bedeemed to have been made for cashinsofar as the principal is concerned.
5. To indemnify principal for damages forfailure to collect the credits of his principalwhen they fall due [Art. 1908, CC]General Rule:
The commission agent who does notcollect the credits of his principal at thetime when they become due anddemandable shall be liable for damages
ExceptionIf he proves that he exercised duediligence for that purpose
6. When he receives a guarantee commission(del credere commission) [Art. 1907, CC]a. Bear the risk of collectionb. Pay the principal the proceeds of the
sale on the same terms agreed uponwith the purchaser
Ordinary Agent v Commission AgentOrdinary Agent Commission Agent
Acts for and inbehalf of theprincipal.
Acts in his own name orin that his principal.
Need not havepossession of thegoods of theprincipal.
Must be in possessionof the goods of theprincipal.
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Broker v Commission Agent (PacificCommercial v Yatco, 1939)
Broker Commission AgentHas no custody orpossession of thething he disposes;merely acts as anintermediary betweenthe sellers and thebuyer.
Engaged in thepurchase and sale, fora principal, of personalproperty which has tobe placed in hispossession anddisposal.
Maintains no relationwith the thing whichhe purchases or sells.
Has a relation with theprincipal (buyers orsellers) and theproperty which is theobject of thetransaction.
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Chapter III. Liabilities of the Agent
I. LIABILITITY TO THIRD PERSONSII. LIABILITY TO THE PRINCIPALIII. LIABILITY OF TWO OR MORE AGENTS
I. Liability to Third Persons
Agent not personally liable as a generalruleGeneral Rule
An agent who acts as such is not personallyliable to the party with whom contracts [Art.1897, CC]
Exceptions1. When he acts in his own name, except when
the contract involves things belonging to theprincipal [Art. 1883, CC]
2. If he expressly binds himself [Art. 1897, CC]3. If he exceeds the limits of his authority
without giving such party sufficient notice ofhis powers [Art. 1897, CC]
NoteWhen an agent contracts in hisown name and without the expressauthority of his principal, the obligationso contracted by him is personal and isnot binding on his principal. [PNB v.Agudelo]
BUT Third persons cannot set up thefact that the agent has exceeded hispowers if the principal has ratified, orhas signified his willingness to ratify theagents acts [Art. 1901, CC]
4. Under Art. 1898, CCa. Agent contracts in the name of the
principal;b. He exceeds the scope of his authority;c. The party with whom he contracted with
is aware of the limits of his powers; ANDd. The agent undertook to secure the
principals ratification.
Note Under Art. 1898, CC, the contractshall be void if the principal does not ratifythe contract and the party with whom theagent has contracted is aware of the limits ofthe powers granted by the principal.
Agent liable for damages to third personsunder Art. 1916 & 1917, CC1. When two persons contract with regard to
the same thing, one of them with the agentand the other with the principal;
2. the two contracts are incompatible with eachother
3. the agent acted in bad faith4. agent shall be liable for damages to third
person whose contract must be rejected
II. Liability to the Principal
Agent is liable for damages1. Due to non-performance of agency
The agent is liable for the damages which,thru his non-performance, the principalmay suffer [Art. 1884, CC]
2. For preferring personal interest to that ofprincipal
The agent shall be liable for damages if,there being a conflict between his interestsand those of the principal, he shouldprefer his own. [Art. 1889, CC]
3. Damages due to his withdrawal [Art. 1928,CC]
The agent must indemnify the principal forany damage that the principal may sufferby reason of the withdrawal of the agent;
Exception: The agent should base hiswithdrawal upon the impossibility ofcontinuing the performance of the agencywithout grave detriment to himself.
Liability of agent for acts of substitute underArt. 1892, CCThe agent shall be responsible for the acts of thesubstitute:1. when he was not given the power to appoint
one; or2. when he was given such power, but without
designating the person, and the personappointed was notoriously incompetent orinsolvent.
Principal may bring an action against thesubstitute with respect to the obligations whichhe has contracted under the substitution. [Art1893, CC]
All acts of the substitute appointed against theprohibition of the principal is void. [Art 1893, CC]
Responsibility for fraud or negligenceThe agent is responsible not only for fraud,but also for negligence, which shall bejudged with more or less rigor by the courts,according to whether the agency was or wasnot for compensation. [Art. 1909, CC]
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Interest under Art. 1896, CCThe agent owes interest on:1. the sums he has applied to his own use from
the day on which he did so2. those which he owes after the
extinguishment of the agencya. If he converted for personal use, his
liability is without prejudice to a criminalaction that may be brought against him.
b. If for the sum he owes afterextinguishment, demand is notnecessary because the agent is requiredto deliver to the principal whatever hemay have received by virtue of theagency. [Art 1891, CC]
Liablity of Commission Agents1. For any damage or deterioration of the
goods in the terms and conditions and asdescribed in the consignment
Exception: Upon receiving the goods, theagent makes a written statement of thedamage and deterioration suffered [Art1903, CC]
2. For commingling goods belonging todifferent owners [Art 1904, CC]
3. For selling on credit without the express orimplied consent of the principal [Art 1905,CC]
III. Liability of Two or More AgentsLiability is joint as a general rule [Art. 1894,CC]General Rule: Responsibility of two or moreagents, even though they have been appointedsimultaneously, is joint
Exception: Solidarity is expressly stipulated
Liability of two or more agents [Art. 1895,CC]If solidarity has been agreed upon, each of theagents is responsible for:1. the non-fulfillment of agency; and2. for the fault or negligence of his fellows
agents, except: When the fellow agentsacted beyond the scope of their authority incase of fault or negligence.
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Chapter IV. Obligations of the Principal
I. TO COMPLY WITH THE OBLIGATIONSCONTRACTED BY THE AGENT
II. TO ADVANCE NECESSARY SUMS ANDREIMBURSE THE AGENT
III. TO INDEMNIFY AGENT FOR DAMAGESIV. TO PAY THE AGENTS COMPENSATIONV. BE SOLIDARILY LIABLE
General Rule: THE ACT OF THE AGENT ISTHE ACT OF THE PRINCIPAL
Principal is bound by the acts of his agent.He has an obligation to deal fairly and ingood faith with his agent
SPECIFIC OBLIGATIONS OF THE PRINCIPAL[CARICS]3. to Comply with the obligations contracted by the
agent4. To Advance necessaty sums and Reimburse the
agent5. To Indemnify agent for damages6. To pay the agents Compensation7. be Solidarily liable
I. To Comply with the obligationscontracted by the agent
Obligations principal is bound to complywith1. obligations which the agent may have
contracted within the scope of his authority[Art. 1910, CC]
Note: Principal is directly liable to creditor fordebt incurred by agent acting within thescope of his authority. That the agent alsobound himself personally does not relieveprincipal from liability if the debt wasincurred for his benefit. [Tuason v. Orozco]
2. obligations which the agent may havecontracted beyond the scope of his authoritybut were ratified expressly or tacitly by theprincipal [Art. 1910, CC]
Note: Conditions for ratification (CaP-DECK)a. The principal must have Capacity and
Power to ratify.b. The act must be Done in behalf of the
principalc. He must ratify the acts in its Entiretyd. The act must be Capable of ratificatione. He must have had Knowledge of
material facts.
3. When an agent acts in his own name, butthe contract involves things belonging to theprincipal, the contract must be consideredas entered into between the principal andthe third person. [Art. 1883, CC; Sy-Jucoand Viardo v Sy-Juco, 1920]
4. The principal is solidarily liable with theagent who has exceeded his authority if theformer allowed the latter to act as though hehad full power. [Art. 1911, CC]
5. If two persons contract simultaneously withagent & principal for the same thing:a. Contract of prior date prevailsb. If applicable, follow the rule on double
sales in Art. 1544, CC. [Art. 1916, CC]
Liability of Principal for Tort of Agent [Art.1910, CC]
The principal is civilly liable to third personsfor torts of an agent if he commit such in thecourse and within the scope of the agency.
Agents negligence or disobedience to theprincipal does not relieve him from liability,even if he had no knowledge about the tort.
Agent and principal are solidarily liable tothird persons.
Liability of Joint Principals: Solidary [Art1915]
Each principal may be sued by the agent forthe entire amount due, not just forproportionate shares.
Any of the principals may revoke the agency
Requisites of Solidary Liability:a. Two or more principalsb. All principals concurred in the
appointment of the same agentc. Agent was appointed for a common
undertaking
Rules on Double Sale by Principal and Agent[Art. 1916-1917]General Rule:1. When two persons contract with regard to
the same thing, one of them with the agentand the other with the principal
2. two contracts are incompatible with eachother
3. the agent acted in good faith4. the principal shall be liable for damages to
the third person whose contract must berejected
In case of double sale, which contracts areincompatible with each other, that of PRIOR
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DATE shall be preferred, without prejudice to Art1544.
Art. 1544 provides that:a. If the same movable property is sold to
different persons, ownership istransferred to whoever first tookpossession in good faith.
b. If it be immovable, ownership belongs tothe person who in good faith firstrecorded it in the Registry of Property.
c. If there is no inscription, ownership shallbelong to the person who, in good faithwas first in possession; and in theabsence of such, to the one whopresents the oldest title, provided thereis good faith.
Principal not liable in the following cases1. Void or inexistent contracts under Art. 1409,
CC2. Sale of a piece of land or any interest
therein & the authority of the agent is not inwriting [Art. 1874, CC]
3. Acts of the substitute appointed against theprohibition of the principal [Art. 1892, CC]
4. Art. 1898, CCRequisites:a. agent contracts in the name of the
principalb. he exceeds the scope of the his
authorityc. the principal does not ratify the contractd. the party with whom the agent
contracted is aware of the limits of thepowers granted by the principal; andi. the agent did not undertake to
secure the principals ratification5. Agent has no authority or acted beyond the
scope of his authority [Arts. 1403(1); 1910,CC; Dungo v Lopena, 1962]
6. When the agent acts in his own name,persons with whom the agent hascontracted have no right of action againstthe principal, except when the contractinvolves things belonging to the principal.[Art. 1883, CC]
7. Unenforceable contracts under Art. 1403,CC
II. To Advance the Necessary Sums andReimburse the Agent
Obligation to advance sums [Art. 1912, CC]The principal must advance to the agent,should the latter so request, the sumsnecessary for the execution of the agency.
Obligation to reimburse [Art. 1912, CC]1. Should the agent have advanced sums, the
principal must reimburse him even if thebusiness or undertaking was not successful,provided the agent is free from all fault.
2. The reimbursement shall include interest onthe sums advanced, from the day on whichthe advance was made.
Exceptions to obligation to reimburse[Art.1918] (FCKS)1. When the expenses were due to the Fault of
the agent;2. If the agent acted in Contravention of the
principal's instructions, unless the lattershould wish to avail himself of the benefitsderived from the contract;
3. When the agent incurred them withKnowledge that an unfavorable result wouldensue, if the principal was not awarethereof;
4. When it was Stipulated that the expenseswould be borne by the agent, or that thelatter would be allowed only a certain sum.
Note: Under Art. 1236(2), CC:whoever pays for another may demandfrom the debtor what he has paid, exceptthat if he paid without the knowledge oragainst the will of the debtor, he can recoveronly insofar as the payment has beenbeneficial to the debtor.
Agents right to retain in pledge object ofagency should principal fail to reimburse him1. The agent may retain in pledge the things
which are the object of the agency until theprincipal:a. effects the reimbursement set forth in
Art. 1912, CC; andb. pays indemnity set forth in Art. 1913, CC
2. But agent is not entitled to the excess incase the thing was sold to satisfy his claim,and the proceeds are more than his claim[Arts. 2115, 2121, CC]. Also he mustpossess the thing lawfully in his capacity asagent [2 C.J.S. 457]
III. To Indemnify the Agent for Damages
Obligation to pay indemnity for damages[Art. 1913, CC]
The principal must indemnify the agent forall the damages which the execution of theagency may have caused the latter, withoutfault or negligence on his part.
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The agents has the right to retain in pledge theobject of the agency should principal fail to paythe indemnity set forth in Art. 1913, CC.
IV. To Pay the Agents Compensation
Agency is presumed to be for a compensation,unless there is proof to the contrary. [Art. 1875,CC]
General Rule on CommissionThe agent must be the efficient procuringcause in order to be entitled tocompensation [Inland Realty v. Court ofAppeals]. His efforts must have resulted infinding a ready, able and willing buyer of thegoods.
But for equity purposes, commission may begranted if the agent, even if he is not theprocuring cause, nonetheless took diligentsteps to bring back the parties which led tothe consummation of the sale [Prats v. Courtof Appeals]
Compensation of BrokersSince the brokers only job is to bringtogether the parties to a transaction, itfollows that if the broker does not succeed inbringing the mind of the purchaser and thevendor to an agreement with reference tothe terms of a sale, he is not entitled to acommission. [Rocha v Prats, 1922]
Doctrine of Procuring CauseWhen a party is not the efficientprocuring cause in bringing about a sale,he is not entitled to the stipulatedbrokers commission. [Inland Realty vCA, 1997]
If the principal breaks off from negotiationswith a buyer brought by the agent in order todeliberately deal later with the buyerpersonally, this is evident bad faith. In suchcase, justice demands compensation for theagent. [Infante v Cunanan, 1953]
V. To Be Solidarily Liable
With agent, if agent acted beyond scope ofauthority and principal allowed him to act asthough he had full powers
Even when the agent has exceeded hisauthority, the principal is solidarily liable withthe agent if the former allowed the latter to
act as though he had full powers. [Art. 1911,CC]
With person who appointed an agent withhim for a common transaction
If two or more persons have appointed anagent for a common transaction orundertaking, they shall be solidarily liable tothe agent for all the consequences of theagency. [Art. 1915, CC]
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Chapter V. Extinguishment of Agency
I. EXPIRATION OF THE PERIOD FOR WHICH ITWAS CONSTITUTED
II. DEATH, CIVIL INTERDICTION, INSANITY,INSOLVENCY
III. WITHDRAWAL OF THE AGENTIV. ACCOMPLISHMENT OF THE OBJECT OF THE
AGENCYV. REVOCATIONVI. DISSOLUTION OF THE FIRM/CORPORATION
WHICH ENTRUSTED/ACCEPTED THEAGENCY
Extinguishment of Agency [EDWARD]1. Expiration of the period for which it was
constituted2. Death, civil interdiction, insanity, insolvency3. Withdrawal of the agent4. Accomplishment of the object of the agency5. Revocation6. Dissolution of the firm/corp. Which
entrusted/accepted the agency
I. Expiration of the period for which itwas constitutedIf created for fixed period, expiration of theperiod extinguishes agency even if thepurpose was not accomplished
If no time is specified, Art. 1197 shall apply.The courts may fix the period as under thecircumstances have been probablycontemplated by the parties.
Period may be implied from terms ofagreement, purpose of agency, and thecircumstances of the parties
II. Death, civil interdiction, insanity,insolvency
Death extinguishes agencyGeneral Rule: Death extinguishes agency
Exceptions:1. Agency coupled with an interest
a. Interest common to principal and agent;or
b. Interest of a 3rd person who hasaccepted the stipulation in his favor. [Art.1930, CC]
2. Anything done by the agent, withoutknowledge of the death of the principal or ofany other cause which extinguishes theagency, is valid and fully effective withrespect to 3rd persons who may have
contracted with him in good faith. [Art. 1931,CC]
3. Agent must finish business already begunon the death of the principal, should delayentail any danger. [Art. 1884, CC]
Obligation of heirs of agent upon agentsdeath [Art. 1932, CC]1. They must notify the principal of the agents
death2. They should adopt such measures as the
circumstances may demand in the interestof the principal in the meantime.
3. The law does not impose a duty on theprincipals heirs to notify the agent of theprincipals death. [Rallos vs Felix Go Chan]
III. Withdrawal of the agent
1. General Rule: Agent may withdraw from theagency by giving due notice to the principal[Art. 1928, CC]
But: If the principal should suffer anydamage by reason of the withdrawal, theagent must indemnify him;
Exception: If the agent based his withdrawalupon the impossibility of continuingperformance of the agency without gravedetriment to himself. [Art. 1928, CC]
2. The agent, even if he should withdraw fromthe agency for a valid reason, must continueto act until the principal has had reasonableopportunity to take the necessary steps tomeet the situation. [Art. 1929, CC]
IV. Accomplishment of the object of theagencyBetween principal and agent, the fulfilmentof the purpose for which agency wascreated ipso facto terminates agency even ifit be expressly made irrevocable. If thepurpose has not been accomplished, theagency continues indefinitely for as long asthe intent to continue is manifested throughwords or actions of the parties
V. Revocation
Principal may revoke the agency at will as ageneral ruleGeneral Rule:
The principal may revoke the agency at will,and compel the agent to return thedocument evidencing the agency. Such
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revocation may be express or implied. [Art.1920, CC]
Exceptions:1. The right of the principal to terminate the
authority of his agent is absolute andunrestricted, except only that he may not doso in bad faith [Danon v Brimo, 1921]
2. Agency is coupled with an interest [Art.1927, CC]a. A bilateral contract depends upon itb. It is the means of fulfilling an obligation
already contracted;c. Partner is appointed manager of a
partnership in the contract of partnershipand his removal from the managementis unjustifiable.
Note:1. Powers of attorney falling under 1927
cannot be revoked at the pleasure of theprincipal, but may be revoked for a justcause, such as when the attorney-in-factbetrays the interest of the principal.(Coleongco v Claparols, 1964)
2. A mere statement in the power of attorneythat it is coupled with an interest is notenough. In what does such interest consistmust be stated in the power of attorney. (DelRosario v Abad, 1958)
3. Irrevocability of the contract cannot affect3rd persons and is obligatory only on theprincipal who executed the agency. (NewManila Lumber v Republic, 1960)
Revocation may be express or implied1. Expressprincipal clearly and directly
makes a cancellation of the authority of theagent in writing or orally
2. Implieda. The appointment of a new agent for the
same business or transaction revokesthe previous agency from the day onwhich notice thereof was given to theformer agent, without prejudice to theprovisions Art. 1921 and Art. 1922, CC[Art. 1923, CC]
b. The agency is revoked if the principaldirectly manages the business entrustedto the agent, dealing directly with thirdpersons. [Art. 1924, CC]
c. A general power of attorney is revokedby a special one granted to another
agent, as regards the special matterinvolved in the latter [Art. 1926, CC]
d. In all three cases, there is impliedrevocation only where the newappointment is incompatible with theprevious one.
When revocation makes principal liable fordamages1. If there is a period stipulated in the agency
contract, the agent may still revoke theagents authority at will; but principal will beliable for damages.
2. No period fixed: principal liable if the agentcan prove the former acted in bad faith.
Effect of revocation with respect to 3rdpersons [Arts. 1921-1922,CC]
Agency to contractwith specific
persons
Agency to contractwith general public
Wont prejudice 3rdpersons until notice isgiven them.
Wont prejudice thosein good faith & w/oknowledge.
Notice must bepersonal.
Notice must bepublished (Arts. 1873,1922).
Revocation in case of solidary principals[Art. 1925, CC]
When two or more principals have granted apower of attorney for a common transaction,any one of them may revoke the samewithout the consent of others.
Notice of Revocation as against thirdpersons1. If agent had general powers:
Revocation DOES NOT prejudice thirdpersons who acted in good faith andwithout knowledge of the revocation
Notice of revocation in a newspaper ofgeneral circulation is a sufficient warningto third persons
2. If agency is for the purpose of contractingspecified persons: to prejudice personsspecified, they must be given actual notice.
VI. Dissolution of the firm/corp. Whichentrusted/accepted the agency
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PARTNERSHIPTable of Contents
Chapter I. Nature, Creation, Kinds ofPartnership ...................................................361
I. Essential Features ............................361II. Characteristics ..................................362III. Distinctions........................................362IV. Rules to Determine Existence...........363V. How Partnership is Formed ..............363VI. Partnership Term ..............................363VII. Kinds of Partnerships....................363
Chapter II. Obligations of thePartnership/Partners Among Themselves 366
CRRAMP-LS..............................................366I. Make Contributions as Promised ......366III. Manage the Partnership....................367IV. Render Full Information.....................368V. Account for benefits ..........................368VI. Reimburse expenses ........................368VII. Liable for Partnership Contracts ...368VIII. Solidarily Liable with Partnership.369
Chapter III. Obligations of thePartnership/Partners as to Third Persons.370
LANN .........................................................370I. Operate Under a Firm Name (Art. 1815,CC) 370II. Bound by Partnership Admission......370III. Bound by Notice Partner ...................370IV. Liable for Acts of the Partnership......370
Chapter IV. Rights of Partners...................371I. Share in Losses and Profits ..............371II. Associate Another in His Interest......371III. Access to Partnership Books ............371IV. Obtain Formal Account .....................371V. Property Rights .................................371VI. Convery Real Property (Art. 1819, CC)
372
Chapter V. Rights of the Partnership ........374I. Acquire Immovables..........................374II. Preference of Creditors .....................374
Chapter VI. Dissolution and Winding Up ..375I. Definitions .........................................375II. Causes for Dissolution ......................375III. Consequences of Dissolution ...........375IV. Partners Liability...............................376
Chapter VII. Rights of Partners UponDissolution....................................................377
I. Right to Wind Up ...............................377II. Right to Damages for or to ContinueBusiness on Wrongful Dissolution .............377
III. Right to Lien or Retention, to Stand inPlace of Creditor, to be Indemnified ..........377IV. Right of Retiring/Deceased Partner (Art.1841, CC) ..................................................377V. Right of Account (Art. 1842, CC) ......378
Chapter VIII. Rules on Settlement (Art. 1839,CC).................................................................379
Chapter IX. Limited Partnership ................380I. Definition ...........................................380II. Forming/Amending a LimitedPartnership (Art. 1844, CC) .......................381III. Limited Partner..................................382IV. General Partner ................................384V. Dissolution ........................................384VI. Settling Accounts for Dissolution ......385
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Chapter I. Nature, Creation, Kinds ofPartnership
I. ESSENTIAL FEATURESII. CHARACTERISTICSIII. DISTINCTIONSIV. RULES TO DETERMINE EXISTENCEV. HOW PARTNERSHIP IS FORMEDVI. PARTNERSHIP TERMVII. CLASSES OF PARTNERSVIII.KINDS OF PARTNERSHIPS
Art. 1767. By the contract of partnership two ormore persons bind themselves to contributemoney, property, or industry to a common fund,with the intention of dividing the profits amongthemselves.
Two or more persons may also form apartnership for the exercise of a profession.(1665a)
I. Essential Features1. A mutual contribution of money, property, or
industry to a common fund;2. With the intention of dividing profits among
themselvesNote: The object must be for profit andnot merely for common enjoyment;otherwise only a co-ownership has beenformed.
3. The parties must have legal capacity.Exception: corporation cannot become apartner on grounds of public policy.
4. It has a separate juridical personality (Art.1768, CC) apart from the separatepersonality of each of the member.
Note: Associations and societies, whosearticles are kept secret among themembers, and wherein any one of themembers may contract in his own namewith third persons, shall have nojuridical personality, and shall begoverned by the provisions relatingto co-ownership. (Art. 1775, CC)
Although not a juridical entity, it may stillbe sued by third persons under thecommon name it uses. (Sec. 15, Rule 3,Rules of Court)A
GEN
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&P
ARTN
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AGENCY & PARTNERSHIP TEAM
Prof. Roberto N. DioFaculty Editor
Genevieve E. JusiLead Writer
Joyce Anne C. RoldanWriter
CIVIL LAW
Kristine BongcaronPatricia TobiasSubject Editors
ACADEMICS COMMITTEE
Kristine BongcaronMichelle Dy
Patrich LeccioEditors-in-Chief
PRINTING & DISTRIBUTION
Kae Guerrero
DESIGN & LAYOUT
Pat HernandezViktor FontanillaRusell Aragones
Romualdo Menzon Jr.Rania Joya
LECTURES COMMITTEE
Michelle AriasCamille MarananAngela Sandalo
Heads
Katz ManzanoSam Nuez
Arianne Cerezo
Mary Rose BeleyKrizel MalabananMarcrese Banaag
Volunteers
MOCK BAR COMMITTEE
Lilibeth Perez
BAR CANDIDATES WELFARE
Dahlia Salamat
LOGISTICS
Charisse Mendoza
SECRETARIAT COMMITTEE
Jill HernandezHead
Loraine MendozaMary Mendoza
Faye CelsoJoie Bajo
Members
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5. Has a lawful object (Art. 1770, CC)a. A partnership must have a lawful object
or purpose, and must be established forthe common benefit or interest of thepartners.
Note: When an unlawful partnershipis dissolved by a judicial decree, theprofits shall be confiscated in favorof the State, without prejudice to theprovisions of the Penal Codegoverning the confiscation of theinstruments and effects of a crime
II. Characteristics1. Fiduciary2. Nominate designated by a specific name3. Consensual perfected by mere consent4. Bilateral/Multilateral entered into between
two or more persons5. Principal - existence does not depend on
another contract6. Onerous money, property or industry must
be contributed1. Preparatory other contracts essential in
the carrying out of its purposes can beentered into
III. Distinctions
Partnership CorporationCreated by mereagreement of theparties;
Created by operation of law
May be organized byonly two persons
Requires at least 5incorporators;
Juridical personalitycommences fromthe moment ofexecution of thecontract ofpartnership
Personality commences fromSECs issuance of thecertificate of incorporation
May exercise anypower authorized bythe partners as longas it is not contraryto law, etc.
Can exercise such powersexpressly granted by law orincident to its existence
If no agreement asto mgt. - everypartner is an agentof the partnership
Power to do business isvested in the board ofdirectors/ trustees
A partner as suchmay sue a co-partner whomismanages
Suit against the board/directorwho mismanages must bebrought in the corp.s name
Has no right ofsuccession
Has right of succession
The partners areliable personally andsubsidiarily forpartnership debts
The stockholders are liable tothe extent of the sharessubscribed by them
Partnership CorporationBased on delectuspersonam*
Not based on delectuspersonam
May be establishedfor any period oftime stipulated
May not be formed for aperiod exceeding 50 years
May be dissolved atanytime by the will ofany or all partners
May be dissolved only withthe consent of the state
Governed by theCivil Code
Governed by the CorporationCode
*Delectus personam: the right of partners toexercise their choice and preference as to theadmission of any new members to thepartnership, and as to the persons to be soadmitted, if any.
Partnership Co-ownershipCreation Always
created by acontract
General,created by law,may exist evenwithout acontract
JuridicalPersonality
Has aseparate,distinctjuridicalpersonality
Has no juridicalpersonality
Purpose Realization ofprofits
Commonenjoyment of athing or right
Duration No limitationupon theduration is setby law
An agreementto keep thethingundivided, notexceeding tenyears, shall bevalid. (Art. 494,CC)
Transfer ofInterests
Needunanimousconsent ofpartners tomakeassignee ofinterest apartner
A co-owner candispose of hisshare withoutthe consent ofthe others
Power toact withThirdPersons
A partner maybind thepartnership
A co-ownercant representthe co-ownership
Dissolution Death orincapacity of apartnerdissolves thepartnership
Death orincapacity of aco-owner doesnot dissolve theco-ownership
Representa-tion
There ismutual agency
There is nomutual agency
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Partnership Co-ownershipProfits Must be
stipulatedupon
Must alwaysdepend uponproportionateshares and anystipulation tothe contrary isvoid.
IV. Rules to Determine ExistenceArt. 1769. In determining whether a partnershipexists, these rules shall apply:1. General Rule: Persons who are not partners
to each other are not partners as to thirdpersons
Exception: partnership by estoppel.
2. Co-ownership or co-possession and sharingof gross returns DO NOT establish apartnership
3. Prima facie evidence of partnership: receiptof a share of the business profits
Except if received in payment as:a. A debt by instalment or otherwise;b. As wages to an employee or rent to a
landlord;c. An annuity to a widow or representative
of a deceased partner;d. As Interest on a loan, though the
amount of payment vary with the profitsof the business; and
e. As the consideration for the sale ofgoodwill of a business or other propertyby instalment or otherwise.
V. How Partnership is Formed
1. Form of ContractGeneral Rule: The contract may beconstituted in any form (Art. 1771, CC)
Exceptionsa. Where immovable property or real rights
are contributed (Art. 1771, CC)i. The contract must appear in a public
instrument (1771)ii. It must have an inventory of such
immovable property signed by theparties and attached to theinstrument (1773)
b. Where the capital is at least P3,000, inmoney or propertyi. The contract must appear in a public
instrument which must be recorded
in the Securities and ExchangeCommission (SEC). (Art. 1772, CC)
ii. FAILURE to comply with thisrequirement shall NOT affect theliability of the partnership and themembers to third persons.
VI. Partnership TermCommencement of the partnership1. General Rule: A partnership begins from the
moment of the execution of the contract2. Exception: When otherwise agreed upon by
the parties (Art. 1784, CC)
A Partnership may either be for1. Fixed term or particular undertaking2. at will
Extension of Life of Partnership1. By express renewal of the agreement2. By implied renewalRequisites:
a. A partnership is for a fixed term orparticular undertaking
b. It is continued after the termination ofsuch term or particular undertakingwithout any express agreemen
Note: Prima facie evidence of continuationa. Continuation of the business by the
partners without any settlement orliquidation of the partnership affairs(1785)
b. Effect: The rights and duties of thepartners remain the same as they wereat such termination, so far as isconsistent with a partnership at will(1785)
VII.Kinds of Partnerships
As to legality of existence1. De jure has complied with all the
necessary requisites for lawfulestablishment (Arts. 1772, 1773, CC)
2. De facto failed to comply with therequisites
As to its object1. Universal (Art. 1777, CC)
a. As to all present property (Art. 1778,CC)Partners contribute all their properties toa common fund with the intention ofdividing them among themselves as wellas all the profits they may acquire
Includes all properties which belongedto each partner at the time of the
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constitution of the partnership
Partners may stipulate that all may enjoyall other profits made except thoseproperties which may be acquiredsubsequently through inheritance,legacy or donation
b. As to profits (Art. 1780, CC)Partners contribute all that they mayacquire by their industry or work duringthe existence of the partnership
Does not include properties which eachpartner may possess at the time of thecelebration of the contract
Articles of Universal PartnershipIf the Articles of a universal partnershipdo not state its nature, it only constitutesa universal partnership of profits. (Art.1781, CC)
Persons prohibited to enter into a universalpartnershipThose persons who areprohibited from giving donation (Art. 133and 739, CC):a. Between husband and wifeb. Those guilty of adultery or concubinagec. Those guilty of a criminal offense, if the
partnership was entered into inconsideration of the same
d. A person and a public officer (or hiswife, descendants, ascendants) byreason of his office
2. Particular (Art. 1783, CC)The object may be determinate things, theiruse or fruits, or specific undertaking or theexercise of a profession or vocation.
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As to partners liability1. General2. Limited
General LimitedAll partners are generalpartners liable forpartnership obligationspro rata with all theirproperty after exhaustionof partnership assets
Formed by two or morepartners, with one ormore general partnersand one or more limitedpartners
Industrialist Partner v Capitalist PartnerIndustrialist
PartnerCapitalistPartner
Contribution Contributes hisindustry
Contributesmoney orproperty
Prohibition toengage inotherbusiness
Cannot engagein any businessfor himself
Cannotengage inthe same orsimilarenterprise
Profits Receives a justand equitableshare
Shares inprofitsaccording toagreementthereon; ifnone, prorata to hiscontribution
Losses Exempted as tolosses asbetweenpartners but itis liable to 3rdpersons withoutprejudice toreimbursementfrom thecapitalistpartners
1. stipulationas to losses
2. if none,theagreementas to profits
3. if none,pro rata tocontribution
Partnership by Estoppel1. Requisites of Partner By Estoppel:
a. The person represents himself as a partner of
an existing partnership or of two ormore persons not actual partners, or
consents to another representinghim as a partner of an existingpartnership or of two or morepersons not actual partners
b. Third person relied on themisrepresentation, unaware of thedeception.
c. On the faith of the misrepresentation,the 3rd person gave credit to theactual/apparent partnership.
d. The person representing or consentingto the representation is liable: as an actual member if a
partnership liability results pro rata with other persons when no
partnership liability results (Art.1825, CC)
2. No real partnership is created by estoppel. Itis only insofar as 3rd persons are involvedand for the purpose of protecting them thatthe principal of estoppel is recognized.
3. As to liability resulting from therepresentation:a. when all the members consent,
partnership obligation resultsb. if not all consent, only a joint obligation
of the one representing and of thosewho consented results
Note: Corporation by estoppelAll persons are liable as general partners(Sec. 21, Corp. Code). A de factopartnership is created.
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Chapter II. Obligations of thePartnership/Partners Among Themselves
I. MAKE THE CONTRIBUTIONS AS PROMISEDII. PAY DAMAGESIII. MANAGE THE PARTNERSHIPIV. RENDER FULL INFORMATIONV. ACCOUNT BENEFITSVI. REIMBURSE EXPENSESVII. LIABILITY FOR PARTNERSHIP CONTRACTSVIII. SOLIDARY LIABILITY WITH PARTNERSHIP
CRRAMP-LS1. Make Contributions as promised2. Render full information3. Account benefits4. Manage the partnership5. Pay damages6. Liability for partnership contracts7. Solidary liability with partnership
I. Make Contributions as PromisedA partner is a debtor: for whatever he hadpromised to contribute thereto (Art. 1786, CC)
When promised contribution is property: ingeneral1. Partner is a warrantor in case of eviction
with regard to specific and determinatethings he may have contributed (Art. 1786,CC)Note: If breached
Partnership may recover indemnity fromcontributing partner.
2. Liable for fruits from the time they shouldhave been delivered without need of anydemand (Art. 1786, CC)
3. Other duties of contributing partners:a. to preserve the property with the
diligence of a good father of a family(Art. 1163, CC)
b. to indemnify the partnership fordamages caused to it by delay incontribution of property (Art. 1170, CC)
4. Risk of loss of things contributed (Art. 1795,CC)a. Borne by the partner who owns them
If they are not fungible, so that onlytheir use and fruits may be for thecommon benefit
b. Borne by the partnershipIf the things contributed are:i. fungible;ii. cannot be kept without deteriorating;
iii. if they were contributed to be sold
But in the absence of stipulation, the riskof things brought and appraised in theinventory, shall also be borne by thepartnership, and in such case the claimshall be limited to the value at whichthey were appraised.
When promised contribution is goods (Art.1787, CC)1. Appraisal must be made in a manner
prescribed in the contract of partnership2. In the absence of stipulation
a. Made by experts chosen by the partnersb. Made by experts chosen by the partners
When promised contribution is immovableproperty (Art. 1771-1773, CC)1. An inventory of the property is signed by the
parties, and attached to the publicinstrument
2. The public instrument must be filed with theSEC if the capital is more than P3,000.00.
When promised contribution is a sum ofmoney Sanctions:1. Partner becomes the firms debtor for
interest and damages from the time of hisfailure to contribute or from time ofconversion (Art. 1788, CC)
2. When money or property has been receivedby a partner for a specific purpose and helater misappropriated it, such partner isguilty of estafa. (Liwanag v CA, 2008)
Bring to partnership capital credit receivedEqual contribution by general partners:capitalist partners shall contribute equalshares to the capital of the partnership (Art.1790, CC).
Obligation of capitalist partner to contributeadditional capital1. To contribute additional capital in case of
imminent loss, requisites:a. There is an imminent loss of the
businessb. There is a need to contribute additional
capital to save the venturec. Capitalist partner refuses deliberately to
contribute an additional shared. There is no agreement to the contrary
2. If refused to contribute: the partner must sellhis interest in the partnership to the otherpartners (Art. 1791, CC)
3. Industrial partner is exempted fromcontributing.
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Obligation of managing partner who is also acreditor of the same partnership debtor1. Requisites:
a. 2 separate credits, both demandable,b. one credit is owed to the partnership,c. the other to the collecting partner whos
a managing partner.2. Managing partner should:
a. If issued receipt for own account only apply the sum to the 2 credits inproportion to their amounts
b. Issued receipt for partnerships account apply whole sum to partnershipscredit (Art. 1792, CC)
When the partner who has received, in wholeor in part, his share of a partnership creditPartner shall give to the partnership what hereceived if:1. a debtor made a partial payment of his debt
to the partnership2. a partner received his share of the credit
and the others havent3. the debtor later becomes insolvent, (Art.
1793, CC).4. Cf. 1792: in 1793 theres only 1 debt where
the partnership is the creditor
II. Pay Damages
Liability for damages due to partners faultThe damages cannot be compensated withthe profits and benefits he may have earnedfor the partnership by his industry (Art.1794, CC).
Mitigation of liabilityThe courts may equitably lessen hisresponsibility if through his extraordinaryefforts in other activities unusual profits havebeen realized (Art. 1794, CC)
Before a partner may sue another foralleged fraudulent management andresultant damages, a liquidation must firstbe effect to determine the extent of thedamage. Without liquidation of partnershipaffairs, partner cannot claim damages.(Soncuya v. De Luna)
III. Manage the Partnership
General Rules1. Right of management is primarily governed
by agreement of the partners as provided inthe articles of partnership (Art. 1800, CC)
2. Right to manage may either be:a. exercised by all the partners, orb. limited to a certain number of partners
called managing partners
If a specific person has been appointed asmanager (Art. 1800, CC)1. If right is conferred in the articles of
partnershipa. Manager may execute all acts of
administration despite the opposition ofother partners unless he is in bad faith
b. Power is irrevocable without just orlawful cause.
Note: The vote of the controllinginterest of the partners is necessaryfor revocation.
2. If power is granted after constitution ofpartnership, it may be revoked at anytime
If two or more partners are appointed asmanagers1. Without specification of their duties or
without a stipulation of how each one willact-- (Art. 1801, CC)a. Each one may separately execute all
acts of administrationb. If opposed, decision of majority prevailsc. In case of a tie, the matter is to be
decided by the controlling interest.2. If there is a stipulation that managers must
act jointly (Art. 1802, CC)a. The concurrence of all managers is
necessary for validity of the actsb. Their absence or disability cannot be
alleged as a defense unless there isimminent danger or grave or irreparableinjury to the partnership.
If the manner of management has not beenagreed upon (Art. 1803, CC)1. All partners are considered agents and the
act of anyone bind the partnership withoutprejudice to Art. 1801
2. To make important alterations in theimmovable property of the partnership, evenif useful, need the consent of all the partners
If refusal to give consent is manifestlyprejudicial to the partnership, the courtsintervention may be sought
Every partner is considered an agent (Art.1818, CC)General Rule:
Every partner is considered an agent of thepartnership for the purpose of its businessand any act of the agent for apparently
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carrying on the usual business of thepartnership binds the partnership.
Exception:If the partner has no authority to act; ANDthe third person dealing with him knew thatthe partner had no authority
If the acts are not for carrying out thebusiness of the partnership(Art. 1818, CC)General Rule:
Acts of the partner not apparently forcarrying out the business of the partnershipdo not bind the partnership.
Exceptions:When authorized by other partners; OR other
partners have abandoned the business
Acts not usual in the business of partnership(Art. 1818, CC) [ADD-CRES]1. Assign the partnership property in trust for
creditors or on the assignee's promise topay the debts of the partnership;
2. Dispose of the good-will of the business;3. Do any other act which would make it
impossible to carry on the ordinary businessof a partnership;
4. Confess a judgment;5. Renounce a claim of the partnership.6. Enter into a compromise concerning a
partnership claim or liability;7. Submit a partnership claim or liability to
arbitration;
IV. Render Full Information
Duty to give information:1. On demand, to give true and full information
of all things affecting the partnership to anypartner or their legal representatives (Art.1806, CC).
2. Voluntary disclosure of material facts withinhis knowledge relating to/affectingpartnership affairs (Art. 1821, CC).
V. Account for benefitsDuty to account (Art. 1807, CC)Every partner must:1. Account to the partnership for any benefit;
AND2. Hold as trustee for it any profits derived by
him without the consent of the other partnersfrom any transaction connected with theformation, conduct or liquidation of thepartnership
VI. Reimburse expensesThe partnership is responsible to everypartner for:1. Amounts disbursed on behalf of the
partnership plus interest from the time theexpense is made
2. Obligations contracted in good faith in theinterest of the business
3. Risks in consequence of management
VII.Liable for Partnership Contracts
Liability of partnership and partners forpartnership contracts-- (Art. 1816, CC)1. All partners shall be liable pro rata with all
their property butThe private property of the partnerscannot be seized for satisfaction ofpartnership debts until all thepartnership assets have been exhausted
2. For the contracts which may be entered into:a. in the name and for the account of the
partnershipb. under its signature andc. by a person authorized to act for the
partnership.
The exemption of an industrial partner frompaying losses relates exclusively to thesettlement of the partnership affairs among thepartners themselves, and not to the partnerssubsidiary liability to 3rd persons (La CompaniaMaritima v Munoz, 1907).
While the liability of the partners is joint intransactions entered into by the partnership, a3rd person who transacted with the partnershipcan hold partners solidarily liable for the wholeobligation if the 3rd persons case falls underArts. 1822-1823 (Muasque v. CA, 1985)
However, any party may enter into a separateobligation to perform a partnership contract.(Art. 1816, CC)
Stipulation against pro-rata liability void1. General Rule: Stipulation against pro rata
liability is void2. Exception:such stipulation is valid among
the partners (Art. 1817, CC)
Art. 1817 vs. 1799it is permissible to stipulate among partnersthat a capitalist partner will be exemptedfrom liability in excess of the original capitalcontributed; but wont be exempted insofaras his capital is concerned (Paras).
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Liability of a newly-admitted partner1. Obligations contracted before his admission:
liable only up to his share in the partnershipproperty unless theres a contrary stipulation(Art. 1826, CC).
2. Obligations contracted after admission:liable as an ordinary original partner
Liability of outgoing partner1. When he gives notice of his retirement or
withdrawal, hes freed from liability oncontracts entered into thereafter but stillliable on existing