252928709 partnership agency and trust

7/25/2019 252928709 Partnership Agency and Trust

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PARTNERSHIP

PARTNERSHIPBy the contract of partnership two or

more 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.(Art. 177! A partnership has a "uridical personality

which is separate and distinct from that ofthe partners.

A partnership may sue and be sued in its

name or by its duly authori#edrepresentatives. A managing partner of thepartnership may execute all acts ofadministration including the right to suedebtors of the partnership in the case oftheir failure to pay their obligation when itbecomes demandable. (Tai Tong Chuache &Co. vs. Insurance Commission 158 SCRA 336[1988]

FORM OF PARTNERSHIP CONRTRACT!"#"RA$ R%$"$o special form is re%uired forthe validity or existence of the contract ofpartnership.

"'C"TI)#S1.&here immovable property or real rights arecontributed, the partnership contract shall bevoid unless'

a. t is reduced to writing in apublic instrument (Art. 1771!.b. An inventory of the property contributedis made, signed by the parties andattached to the public instrument.(Art.177)!.

A partnership contract

which states that the partnership is

established to operate a fishpond is notrendered void because no inventory of thefishpond was made (where it did not clearlyappear in the articles of partnership that thereal property had been contributed by anyoneof the partners). (Agad vs. Mabolo andMabolo Agad and Co., 23 SCRA 1223[1968])

*. &here the contract is by its terms not to beperformed within a year from the ma+ingthereof, such partnership contract is covered bythe statute of frauds and thus re%uires a writtenagreement to be enforceable.). &here the contract of partnership has acapital of ), pesos or more, in money orproperty, it shall appear in a public instrumentand must be recorded in the -ffice of the

ecurities and /xchange 0ommission. owever, apartnership has a "uridical personality even incase of failure to comply with this re%uirement.

Requisites:1. intention to create a partnership*. common fund obtained from the

contributions). "oint interest in the profits

Essential Features:1. there must be a valid contract2*. the parties must have legal capacity to enter

into the contract2

NOTE: &ith regard to number * (legal capacity

of contracting parties!, individuals not legallyincapacitated to contract and partnerships mayenter into a contract of partnership. &ithrespect to corporations, the court held inAurbach vs. anitary &ares 3anufacturing0orporation 14 05A 1) 6148that although acorporation cannot enter into a partnershipcontract, it may however engage in a "ointventure with others. A "oint venture has beengenerally understood to mean an organi#ationformed for some temporary purpose.

There is nothing against one corporationbeing represented by a natural or "uridicalperson in a suit in court, for the true rule is that9although a corporation has no power to enter apartnership, it may nevertheless enter into a"oint venture with another where the nature ofthat venture is in line with the businessauthori#ed by the charter. (*+ Tua,on an- Co.Inc vs. /o0anos 95 I$ 126 [195]). there must be mutual contribution of money,

property and industry to a common fund

NOTE:A partnership of a civil nature was formedbecause :atchalian ; 0o. put up money to buy asweepsta+es tic+et for the sole purpose ofdividing e%ually the pri#e which they may win asthey did in fact in the amount of children so they can buildtheir residences, but the latter after 1 year soldthem and paid the capital gains, they should notbe treated to have formed an unregisteredpartnership and taxed corporate income tax onthe sale and on dividend income tax on theirshares of the profits from the sale. ()i00os *r.vs. CIR [1985]>. the ob"ect must be lawful2 and


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=. the primary purpose must be to obtainprofits7" C*3 :;A


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certificate ofincorporationby theecuritiesand /xchange0ommission

4. Powers


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community of interest in the business,sharing of profits and losses, and a mutualright of control.

The main distinction in common law

"urisdiction is that partnership contemplatesa general business with some degree ofcontinuity, while "oint venture is formed for

the execution of a single transaction and isthus of temporary nature

n 7i0osa?an Incor>ora4e- vs. !uingona *r

;3; SCRA 112 [199] the court defined a"oint venture as an association of persons orcompanies "ointly underta+ing somecommercial enterprise2 generally allcontribute assets and share ris+s. tsre%uisites are'

a. A community of interest in theperformance of the sub"ect matter2

b. A right to direct and govern the policyin connection therewith2

c. @uty to share profits and losses.NOTE:Dnder the 0ivil 0ode, a partnership maybe particular or universal, and a particularpartnership may have for its ob"ect a specificunderta+ing. ence, a "oint venture may betreated li+e any other contract, innominate innature to be regulated and governed primarilyby the stipulations of the parties thereto andsuppletorily by the general provisions of the 0ivil0ode on obligations and contracts, by rules

governing the most analogous contracts (e.g.0a@ on >ar4nershi>!, and by the customs of theplace.

Other Si"ilar Contra#ts$% Colla&oration- the act of wor+ing together ina "oint pro"ect.'% Asso#iation- act of a number of personsuniting together for some special purpose orbusiness.

R!(ES TO )ETERMINE E*ISTENCE OF

PARTNERSHIP (A5T 17!1. !"#"RA$ R%$" . 5eceipt of share in the profits is a strongpresumptive evidence of partnership.

owever, no such inference will be drawn ifsuch profits were received in payment'(a! as a -e4by installments or otherwise2(b! as @agesof an employee or rent to a

landlord2(c! as an annui4? to a widow or

representative of a deceased partner2

(d! as in4erest on a loan, though theamount of payment vary with the profitsof the business2 and

(e! as the consi-era4ion for the saleof a goodwill of a business or otherproperty by installments or otherwise.

C(ASSIFICATION OF PARTNERSHIP1. as 4o oec4

a! universal partnershipi. universal partnership of all present

property

ii. universal partnership of profitsb! particular partnership

;. as 4o 0iai0i4? oB >ar4nersa! general partnershipb! limited partnership

3. as 4o -ura4iona! partnership at willb! partnership with a fixed period

. as 4o 0ega0i4? oB eis4encea! de "ure partnershipb! de facto partnership

5. as 4o re>resen4a4ion 4o o4hersa! ordinary or real partnershipb! ostensible or partnership by estoppel

6. as 4o >u0ici4?a! secret partnershipb! notorious or open partnership

. as 4o >ur>osea! commercial or tradingb! professional or non?trading

!NIERSA( PARTNERSHIP1. A uni+ersal partnership o, all presentpropertis one wherein the partners contributeall the property which actually belong to themto a common fund, with the intention of dividingthe same among themselves, as well as all theprofits which they may ac%uire therewith.

n a universal partnership of all present

property, the property which belongs to each ofthe partners at the time of the constitution ofthe partnership, becomes the common property


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of all the partners, as well as the profits whichthey may ac%uire therewith.

A stipulation for the common en"oymentof any other profits may also be made2 but theproperties which the partners may ac%uiresubse%uently by inheritance, legacy or donationcannot be included in such stipulation, except

the fruits thereof.

&here the articles of partnership do not

specify the nature of the universal partnership,whether it is one of 9present propertyC or of9profitsC only, it will be presumed that theparties intended merely a partnership of profits.NOTE: Euture properties cannot be contributed.Thus, property subse%uently ac%uired by (1!inheritance, (*! legacy or ()! donation cannot beincluded by stipulation except the fruits thereof.

*. A uni+ersal partnership o, pro,its is onewhich comprises all that the partners mayac%uire by their industry or wor+ during theexistence of the partnership and the usufruct ofmovable or immovable property which each ofthe partners may posses at the time of thecelebration of the contract.

3ovable or immovable property which each

of the partners may posses at the time of thecelebration of the contract shall continue to

pertain exclusively to each, only the usufructpassing to the partnership.

NOTE:


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ndustrial partner one who contributesonly his industry or personal service.

;. as 4o $IA/I$IT

a) eneral partnerone whose liability to third persons extendsto his separate property, he may either be a

capitalist or industrial partner. 0i&ited partner one whose liability tothird persons is limited to his capitalcontribution.

3. as 4o +A#A!"+"#Ta*ana"in" partner one who manages thebusiness or affairs of the partnership2 he maybe appointed in the articles of partnership orafter constitution of the partnership. ilent partner one who does not ta+eany active part in the business although he

may be +nown to be a partner.c 0iuidatin" partner one who ta+escharge of the winding up of the partnershipaffairs upon dissolution.

. +isce00aneousa stensi(le partner one who ta+es activepart and +nown to the public as a partner inthe business, whether or not he has actualinterest in the firm.

ecret partner? one who ta+es active part

in the business by is not +nown to be apartner by outside parties nor held out as apartner by the other partners. c Dor&antpartner one who does not ta+e active part inthe business and is not +nown or held out aspartner.

7" C;$

CapitalistPartner

In1ustrialPartner

1. as to contri(utioncontributes

money orproperty

contributes

his industry(mental orphysical!

2. as to prohi(ition to en"a"ein other (usiness

0annot generallyengage in thesame or similarenterprise asthat of his firm

cannotengage in anybusiness forhimself

3. as to profits

1. shares in theprofitsaccording toagreementthereon2

*. if none, prorata to his

contribution

receives a"ust ande%uitableshare

4. as to losses1. first, the

stipulation asto losses2

*. if none, theagreement asto profits2

). if none, prorata tocontribution

exempted asto losses (asbetweenpartners!2 butis liable tothird persons,withoutpre"udice toreimbursement from the

capitalistpartners

O3(I.ATIONS OF PARTNERS AMON.THEMSE(ES:

I% O&li2ation with respe#t to #ontri&ution o,propert

a! To contribute what had been promisedb! To answer for eviction in case the

partnership is deprived of determinateproperty contributedc! To answer to the partnership for the

fruits of the property the contribution ofwhich is delayed, from the date theyshould have been contributed to the timeof actual delivery

d! To preserve the property with thediligence of a good father of a familypending delivery to the partnership

e! To indemnify the partners for anydamages caused to it by the retention of

the same or by delay in its contribution.

II% O&li2ations with respe#t to #ontri&ution o,"one an1 "one #on+erte1 to personal use

a! To contribute on the date due theamount he has underta+en to contributeto the partnership

b! To reimburse any amount he may haveta+en from the partnership coffers andconverted to his own personal use

c! To pay the agreed or legal interest, if he

fails to pay his contribution on time or incase he ta+es any amount from thecommon fund and converted to his ownpersonal use


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d! To indemnify the partnership for thedamages caused to it by the delay in thecontribution or the conversion of any sumfor his personal benefit.

III% O&li2ation Not to En2a2e in Other 3usiness,or Hi"sel,

1. In1ustrial partner? cannot engage in anybusiness for himself unless the partnershipexpressly permits him to do so. The otherpartners have the remedy of either excludingthe erring partner from the firm or ofavailing themselves of the benefits which hemay have obtained.Note: The prohibition is absolute and applieswhether the industrial partner is to engage inthe same business in which the partnership isengaged or in any +ind of business. t is clearthat the reason for the prohibition exists in

both cases, which is to prevent any conflictof interest between the industrial partnerand the partnership and to insure faithfulcompliance by said partner with hisprestation (/vangelista ; 0o. vs. Abadantos, =1 05A >1, 17)!

*. Capitalist partner? The prohibition extendsonly to any operation which is of the same+ind of business in which the partnership isengaged unless there is a stipulation to the

contrary.

I% O&li2ation to Contri&ute A11itional CapitalAs a general rule, a capitalist partner is

not bound to contribute to the partnership morethan what he agreed to contribute but in case ofan imminent loss of the business, and there is noagreement to the contrary, he is underobligation to contribute an additional share tosave the venture. f he refuses to contribute, heshall be obliged to sell his interest in thepartnership to other partners.

% O&li2ation o, Mana2in2 Partner who Colle#ts)e&t

&here a person is separately indebted tothe partnership and to the managing partner atthe same time, any sum received by themanaging partner shall be applied to the twocredits in proportion to their amounts, exceptwhere he received it entirely for the account ofthe partnership, in which case the whole sumshall be applied to the partnership credit only.

Requisites ,or the appli#ation o, the rule:

1! There exists two debts, one where thecollecting partner is creditor, the other,where the partnership is creditor.

*! Both debts are demandable)! The partner who collects is authori#ed to

manage and actually manages thepartnership.

I% O&li2ation o, Partner /ho Re#ei+es Sharein Partnership Cre1it

A partner who receives, in whole or inpart, his share in the partnership, when theothers have not collected theirs, shall beobliged, if the debtor should thereafter becomeinsolvent, to bring to the partnership capitalwhat he received even though he may havegiven receipt for his share only.

Requisites ,or appli#ation o, rule:

1! A partner has received, in whole or in part,his share in the partnership credit

*! The other partners have not collected theirshares.

)! The partnership debtor has becomeinsolvent.

II% O&li2ation o, Partner ,or )a"a2es toPartnership

/very partner is responsible to thepartnership for damages suffered by it through

his fault. e cannot compensate them with theprofits and benefits which he may have earnedfor the partnership by his industry.

III% )ut to Ren1er In,or"ation


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c! is right to participate in themanagement

*. 5ight to reimbursement for amountsadvanced to the partnership and toindemnification for ris+s in conse%uence ofmanagement

). 5ight to associate with another person in his

share>. 5ight of access and inspection of partnership

boo+s=. 5ight to true and full information of all

things affecting the partnership. 5ight to a formal account of partnership

affairs under certain circumstancesNOTE: The ten year period to demand anaccounting by a partner begins at thedissolution of the partnership.

7. 5ight to have partnership dissolved undercertain conditions.

R!(ES FOR )ISTRI3!TION OF PROFITS AN)(OSSES1. Distri(ution of profits

a! According to their agreement (but notine%uitously to defeat Art.17!

b! f none,1! hare of capitalist partner shall be in

proportion to his capital contribution*! ndustrial partner shall receive such

share as may be "ust and e%uitable

under the circumstances2. Distri(ution of lossesa! According to their agreement as to losses

(but not ine%uitously to defeat Art.17!b! f none, according to their agreement as

to profitsc! f none, in proportion to his capital

contribution, but the purely industrialpartner shall not be liable for the losses

!"#"RA$ R%$" A stipulation excluding apartner from any share in the profits or losses is

-@ (Article 17!"'C"TI)# Article 177(*! excludes anindustrial partner from losses. Thus, astipulation excluding an industrial partner fromlosses is A@, but he is $-T exempted fromliability insofar as third persons are concerned.NOTE: n general, ABTF refers toresponsibility towards third persons, and -/refers to responsibility as among partners

CONTRACT OF S!3-PARTNERSHIP -ne formed between a member of a

partnership and a third person for a divisionof profits owing to him from the partnershipenterprise.

t is a partnership within a partnership

distinct and separate from the main orprincipal partnership.

NOTE:n the absence of unanimous consent ofall the partners, a sub?partner does not becomea member of the partnership. ence, a sub?

partner does not ac%uire the rights of a partnernor is he liable for its debts

PROPERT5 RI.HTS OF A PARTNER1. ,i"ht to specific partnership property contemplates tangible property

The specific partnership property belongs to

the partnership as a separate "uridicalpersonality. The partners have no actualinterest in it until after dissolution.

e%ual right with other partners to possess

specific partnership property for partnershippurposes

not assignable, except in connection with the

assignment of rights of all partners in thesame property

not sub"ect to attachment or execution,

except on a claim against the partnership not sub"ect to legal support

NOTE: Any immovable property or an interesttherein may be ac%uired in the partnershipname. The title so ac%uired may be conveyed

only in the partnership name sub"ect to theprovisions ofAr4ic0e 1819 oB 4he Civi0 Co-e.

2. nterest in the partnership share in the profits and surplus

A partner actually owns his respective share.

E,,e#ts o, #on+ean#e & a partner o, hisinterest in the partnership1. conveyance of his whole interest G

partnership may either remain or bedissolved

*. assignee does not necessarily become apartner). assignee cannot interfere in the management

or administration of the partnership businessor affairs

>. assignee cannot demand information,accounting and inspection of the partnershipboo+s

Re"e1ies o, separate 6u12"ent #re1itor o, apartner Application for a charging order after

securing "udgment on his credit to sub"ect

the interest of the debtor partner withpayment of unsatisfied amount of the"udgment debt


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Re1e"ption o, interest #har2e11. :eneral partnership

a! with separate property of a partner2 orb! with partnership property, with the

consent of all the partners whoseinterests are not so charged or sold

*. imited partnership (interest of limited

partner!a! with separate property of any general

partner but $-T with partnershipproperty

3. ,i"ht to participate in the &ana"e&ent

MANA.EMENT OF PARTNERSHIPI% /hen the "anner o, "ana2e"ent has &eenpro+i1e1 ,or in the partnership a2ree"ent

A. /hen a &ana"in" partner has &een

appointe11 A>>oin4men4 in 4he ar4ic0es oB

>ar4nershi>a. >oin4men4 o4her 4han in 4he ar4ic0esoB >ar4nershi>

a. >aren40? carr?ing on in 4he

usua0 @a? 4he usiness oB 4he>ar4nershi>

!"#"RA$ R%$" Act binds thepartnership.

"'C"TI)#


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i.


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NOTE:The dissolution of a partnership must notbe understood in the absolute and strict sense sothat at the termination of the ob"ect for whichit was created the partnership is extinguished.(Tes4a4e oB +o4a vs. Serra I$ 6 19;6.@issolution does not automatically result in thetermination of the legal personality of the

partnership, nor the relations of the partnersamong themselves who remain as co?partnersuntil the partnership is terminated./IN)IN. !P


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!"#"RA$ R%$" @issolution terminates allauthority of any partner to act for thepartnership"'C"TI)#S1. Acts necessary to wind up partnership affairs*. Acts necessary to complete transactions

begun but not then finished

$ote' Thus, dissolution terminates theA0TDA authority of a partner to underta+e$/& business for the partnership

;!A(IFICATIONS TO THE .ENERA( R!(E:1. ith respect to the partners(in so far as

partners themselves are concerned!a! @issolution is not by act, insolvency or

death of a partner' :eneral 5ule applies.ence, dissolution terminates theA0TDA authority of a partner tounderta+e $/& business for the

partnershipb! @issolution is by act, insolvency or death

of a partner'!"#"RA$ R%$" Authority of partnersinter se to act for the partnership is $-Tdeemed terminated. Thus, each partneris liable to his co?partners for his share ofany liability created by any partneracting for the partnership as if thepartnership has not been dissolved

"'C"TI)#S1! The cause of dissolution is the A0T of

a partner and the acting partner hadI$-&/@:/ of such dissolution

2) The cause of dissolution is the @/ATor $-/$0F of a partner and theacting partner had I$-&/@:/ or$-T0/ of such dissolution

*. ith respect to persons not partners(thirdpersons!a! &hen partnership is oun- to third

persons after dissolution

1! Act appropriate for winding uppartnership affairs

*! Act appropriate for completingunfinished transactions

)! 0ompletely $/& transaction whichwould bind the partnership ifdissolution had not ta+en placeprovided' the other party is in "oodfaith, meaning'i. ! To continue the business in the samename during the agreed term of thepartnership, by themselves or "ointlywith others


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=! To possess partnership propertyshould they decide to continue thebusiness

b! 5ights of a partner who has wrongfullycaused the dissolution1! f the business is not continued by the

other partners

i. To have partnership propertyapplied to discharge partnershipliabilities

ii. To receive in cash his share of thesurplus less damages caused by hiswrongful dissolution

*! f the business is continuedi. To have the value of his interest in

the partnership at the time of thedissolution, surplus less damagescaused by his wrongful dissolutionto his co?partners, ascertained

and paid in cash or secured by abond approved by the court2 A$@

ii. To be released from all existingand future liabilities

NOTE:The value of the goodwill ofthe business is not considered inascertaining the value of the interestof the guilty partners.

RI.HTS OF A PARTNER /HERE PARTNERSHIPCONTRACT IS RESCIN)E) ON THE .RO!N) OF

FRA!) OR MISREPRESENTATION(NOTE: The following are the rights of thepartner entitled to rescind!1. 5ight of /$ on, or 5/T/$T-$ of, the

surplus of partnership property aftersatisfying partnership liabilities for any sumof money paid or contributed by him

2. 5ight of DB5-:AT-$ in place of thepartnership creditors after payment ofpartnership liabilities2 and

). 5ight of $@/3$E0AT-$ by the guiltypartner against all debts and liabilities of the

partnership

MANNER OF /IN)IN. !P1. /xtra"udicial G by the partners themselves

without the intervention of the court*. Hudicial G under the control and direction of

the court upon proper cause shown by anypartner, his legal representative or hisassignee

PERSONS A!THORI


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was only a subterfuge resorted to by thepartners in order to evade liability for possiblelosses, while assuming their en"oyment ofadvantages to be derived from the relation. *oChung Cang vs. aciBic Commercia0 Co. 5 I$1; [19;3]. n other words if the partiesintended a general partnership, they are general

partners although their purpose is to avoid thecreation of such a relation.

Chara#teristi#s o, (i"ite1 Partnership1. imited partnership is formed by substantial

compliance in good faith with the statutoryre%uirements

*. -ne or more general partners control thebusiness and are personally liable tocreditors

). -ne or more limited partners contribute tothe capital and share in the profits but do

not participate in the management of thebusiness and are not personally liable forpartnership obligations beyond the amountof their capital contributions

>. The limited partners may as+ for the returnof their capital contributions under theconditions prescribed by law

=. The partnership debts are paid out of thecommon fund and the individual propertiesof the general partners

(i"ite1Partner=Partnership

.eneralPartner=Partnership

1. +-tent of lia(ilityimited partnerJsliability extendsonly to his capitalcontribution

:eneralpartner ispersonallyliable forpartnershipobligations

2. ,i"ht to participate in the&ana"e&ent of partnership

imited partner hasno share in themanagement of alimited partnershipand renders himselfliable topartnershipcreditors as ageneral partner ifhe ta+es part in thecontrol of the

business

:eneralpartnershave ane%ual rightin themanagementof thebusiness(when themanner ofmanagement

has not beenagreedupon!

3. Contri(ution

imited partnermust contributecash or property tothe partnership butnot services

:eneralpartner maycontributemoney,property orindustry tothe

partnership

4. Proper party to proceedin"s(y or a"ainst the partnership

imited partner isnot a proper partyto proceedings byor against apartnership nless1. he is also a

general partner,

or*. where the ob"ect

of theproceeding is toenforce a limitedpartnerJs rightagainst orliability to thepartnership

:eneralpartner isthe properparty toproceedingsby or againsta

partnership

5. Transfera(ility of interest

imited partnerJsinterest is freelyassignable, withassignee ac%uiringall the rights of thelimited partnersub"ect to certain%ualifications

:eneralpartnerJsinterest inthepartnershipmay not beassigned asto ma+e theassignee anew partnerwithout the

consent ofthe otherpartners,although hemayassociate athird personwith him inhis share

6. nclusion of partner8s na&e inthe fir& na&e

As a general rule,name of a limitedpartner must notappear in the firm

$ame of ageneralpartner mayappear in


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name the firmname

7. Prohi(ition to en"a"e inother (usiness

$o such prohibitionin the case of alimited partner whois considered amere contributor tothe partnership

:eneralpartner isprohibitedfromengaging ina businesswhich is ofthe A3/+ind of business inwhich thepartnership

is engaged,if he is acapitalistpartner, orin A$F of business forhimself if heis anindustrialpartner

. +ffect of retire&ent9 death9insanity or insol/ency

5etirement, death,insanity orinsolvency of alimited partnerdoes not dissolvethe partnership forhis executor oradministrator shallhave the rights of a

limited partner forthe purpose of selling his estate

5etirement,death,insanity orinsolvency ofa generalpartnerdissolves thepartnership

#. Creationimited partnershipis created by themembers aftersubstantialcompliance in goodfaith with there%uirements setforth by law

:eneralpartnership,as a generalrule, maybeconstitutedin any formby contractor conductof thepartnership

1$. *e&(ers of the partnership0omposed of one ormore generalpartners and one ormore limitedpartners

0omposedonly of generalpartners

11. %ir& na&eEirm name must befollowed by theword imited

$o suchre%uirement

12. ,ules "o/ernin" dissolutionand windin" up

:overned by Art.14)

:overned byArt. 14)

ESSENTIA( RE;!IREMENTS FOR FORMATION OF(IMITE) PARTNERSHIP

1. A certificate or articles of limitedpartnership which states the mattersenumerated in Article 14>>, which must besigned and sworn2

*. uch certificate must be filed for record inthe -ffice of the ecurities and /xchange0ommission.

NOTE: A strict compliance with the legalre%uirements is not necessary. t is sufficientthat there is substantial compliance in goodfaith. f there is no substantial compliance, the

partnership becomes a general partnership as faras third persons are concerned, in which all themembers are liable as general partners. (*oChung Cang vs. aciBic Commercia0 Co. 5 I$1; [19;3].

owever, a firm which fails tosubstantially comply with the formalre%uirements of a limited partnership is ageneral partnership only as to its relations tothird persons. The firm is a limited partnership,sub"ect to all rules applicable to suchpartnership2 and as between the partners theyare bound by their agreement2 and that all thelimited partnerJs relations to his co?partners andtheir obligations to him growing out of therelation remain unimpaired.

As to third persons or creditors guilty ofestoppel, the firm shall not be treated as ageneral partnership despite lac+ of substantialcompliance to the re%uirements of a limitedpartnership. f creditors deal with the firm as alimited partnership, they will be estopped frominsisting that there is no such partnership, or

that the terms of the partnership were notsufficiently stated in the notice of its formation.(2 Am. *ur. 6.


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CONTENTS OF THE CERTIFICATE OR ARTIC(ESOF (IMITE) PARTNERSHIP1. $ame of the partnership, adding thereto the

word 9limited2C*. 0haracter of the business2). ocation of the principal place of business2

>. $ame and place of residence of eachmember, general and limited partners beingrespectively designated2

=. Term for which the partnership is to exist2. Amount of cash and description of and the

agree value of the other propertycontributed by each limited partner2

7. Additional contributions to be made by eachlimited partner and the times at which orevents on the happening of which they shallbe made2

4. Time, if agreed upon, when to contribution

of each limited partner is to be returned2. hare in the profits or other compensation by

way of income which each limited partnershall receive by reason of his contribution2

1. 5ight, if given, of a limited partner tosubstitute an assignee as contributor in hisplace, and the terms and conditions of thesubstitution2

11. 5ight, if given, of the partners to admitadditional partners2

1*. 5ight, if given, of one or more of the limited

partners to priority over other limitedpartners, as to contributions or as tocompensation by way of income, and thenature of such priority2

1). 5ight, if given, of the remaining generalpartner or partners to continue the businesson the death, retirement, civil interdiction,insanity or insolvency of a general partner2and

1>. 5ight, if given, of a limited partner todemand and receive property other thancash in return of his contribution.

(IA3I(IT5 FOR FA(SE STATEMENT INCERTIFICATE

Any partner to the certificate containinga false statement is liable to one who suffersloss by reliance on such certificate provided thefollowing re%uisites are present'1. e +new the statement to be false at the

time he signed the certificate, orsubse%uently having sufficient time tocancel or amend it or file a petition for itscancellation or amendment, he failed to doso2

*. The person see+ing to enforce liability hasrelied upon the false statement intransacting business with the partnership2

). The person suffered a loss as a result ofreliance upon such false statement.

MANA.EMENT OF (IMITE) PARTNERSHIP A general partner in a limited partnership is

vested with the entire control of the firmJsbusiness and has all the rights and powers

and is sub"ect to all the liabilities andrestrictions of a partner in a generalpartnership.

A general partner in a limited partnership

however has no authority, without writtenconsent or ratification of all limitedpartners, to'1. @o any act in contravention of the

certificate2*. @o any act which would ma+e it

impossible to carry on the ordinarybusiness of the partnership2

). 0onfess "udgment against thepartnership2

>.


17/29

provided' that the partnership assets are inexcess of partnership liabilities after suchpayment

7. To receive the return of his contributionprovided'

a! All the liabilities of the partnershiphave been paid -5 the partnership

assets are sufficient to paypartnership liabilities

b! The consent of all the members(general and limited partners! hasbeen obtained"'C"TI)#&hen the return of the contributionmay be rightfully demanded'1! -n the dissolution of the

partnership*! Dpon the arrival of the date

specified in the certificate for the

return)! After he has given months

notice in writing to all otherpartners, if no time is specified inthe certificate their for the returnof the contribution or for thedissolution of the partnership

c! The certificate is cancelled or soamended as to set forth thewithdrawal or reduction

(IA3I(ITIES OF A (IMITE) PARTNER1. 0ia(ility for unpaid contri(utiona! Eor the difference between his

contribution as actually made and thatstated in the certificate as having beenmade2 A$@

b! Eor any unpaid contribution which he hasagreed in the certificate to ma+e in thefuture at the time and the conditionsstated in the certificate

2. 0ia(ility as trusteea! pecific property stated in the certificate

as contributed by him, but which was notcontributed or which has been wrongfullyreturned2 A$@

b! 3oney or other property wrongfully paidor conveyed to him on account of hiscontribution

NOTE: These liabilities can be waived orcompromised only by consent of all themembers2 but a waiver or compromise shall $-Taffect the right of a creditor of a partnershipwho extended credit or whose claim arose afterthe filling and before the cancellation oramendment of the certificate, to enforce suchliabilities.

S!3STIT!TE) (IMITE) PARTNER A person admitted to all the rights of a

limited partner who has died of has assignedhis interest in the partnership.

!"#"RA$ R%$" e has all, the rights and

powers, and is sub"ect to all the restrictions andliabilities of his assignor."'C"TI)# Those liabilities which he wasignorant at the time he became a limitedpartner A$@ which could not be ascertainedfrom the certificate.

RE;!ISITES IN OR)ER THAT THE ASSI.NEE MA53ECOME A S!3STIT!TE) (IMITE) PARTNER1. All the members must consent to the

assignee becoming a substituted limited

partner, -5 the limited partner, beingempowered by the certificate must give theassignee the right to become a limitedpartner

*. The certificate must be amended inaccordance with Art.14=

). The certificate as amended must beregistered in the ecurities and /xchange0ommission

A((O/A3(E TRANSACTIONS OF A (IMITE)

PARTNER Being merely a contributor to the partnership

is not prohibited from'1. granting loans to the partnership*. transacting other business with the

partnership). receiving a pro rata share of the partnership

assets with the general creditors if he is $-Talso a general partner

NOTE: n transacting a business with thepartnership as a non?member, the limited

partner is considered a non?partner creditor

PROHI3ITE) TRANSACTIONS OF A (IMITE)PARTNER

1. receiving or holding as collateral security anypartnership property2 or

*. receiving any payment, conveyance, orrelease from liability if it will pre"udice thepartnership creditors

NOTES:


18/29

iolation of the prohibition will give rise to

the presumption that it has been made todefraud partnership creditors

The prohibition is $-T AB-DT/, there is no

such prohibition if the partnership assets aresufficient to discharge partnership liabilitiesto persons not claiming as general or limited

partners.

A.ENC5

CONTRACT OF A.ENC5 A contract whereby a person (a"ent! binds

himself to render some service or to dosomething in representation or on behalf ofanother (principal!, with the consent orauthority of the latter. (Ar4ic0e 1868!

The parties to the contract are'1. . Bound to actaccording to theinstructions ofhis principal.

>. The buyer candeal with thething as heplease being theowner.

P!RPOSE OF A.ENC5

The purpose of agency is to extend thepersonality of the principal through thefacility of the agent. t enables the activityof man which is naturally limited in itsexercise by the impositions of hisphysiological conditions to be legallyextended by permitting him to beconstructively present in many differentplaces and to perform diverse "uridical actsand carry on many different activitiesthrough another when physical presence isimpossible or inadvisable at the same time.(11 +anresa 3!

E(EMENTS OF A.ENC5A. Consen4 Any person or entity having "uridical capacity

and capacity to act and not otherwisedis%ualified, may enter into an agency.

But as regards the party with whom the

agent acts or contracts, the legal capacity ofthe principal rather than the agent, is of thegreater import.

/. )ec4 the services to be underta+en by the agent

may cover all acts pertaining to a business of

the principal ("eneral a"ency! or one ormore specific transactions (special a"ency!

the extent of the agentJs authority to act,

whether it be a general or a special agency,depends on how the agency is couched.

C. Cause 3ay be onerous or gratuitous but presumed

for compensationNOTE: The agent may not be deprived of hisright to compensation by an un"ustifiedrevocation of the agency

0IN)S OF A.ENC51. as 4o manner oB crea4ion

a! e9press? one where the agent hasbeen actually authori#ed by theprincipal, either orally or in writing2

b! i"plie1? one which is implied from thei. acts of the principal? from

his silence or lac+ of action, or hisfailure to repudiate the agency


19/29

+nowing that another person isacting on his behalf withoutauthority.

ii. Acts of the agent? when hecarries out the agency, or from hissilence or inaction according to thecircumstances.

;. as 4o i4s charac4era! 2ratuitous? one where the agent

receives no compensation for hisservices.

b! #o"pensate1 or onerous? one wherethe agent receives compensation forhis services.

3. as 4o e4en4 oB usiness covere-a! 2eneral? one which comprises all the

business of the principal2

b! spe#ial? one which comprises one ormore specific transactions.

. as 4o au4hori4? conBerre-a! #ou#he1 in 2eneral ter"s? one which

is created in general terms and isdeemed to comprise only acts ofadministration2

b! #ou#he1 in spe#i,i# ter"s- oneauthori#ing only the performance of aspecific act or acts.

5. as 4o i4s na4ure an- eBBec4sa! ostensi&le or representati+e- one

where the agent acts in the name andin representation of the principal.

b! si"ple or #o""ission- one where theagent acts in his own name but for theaccount of the principal.

ACTS /HICH MA5 3E )E(E.ATE) TO AN A.ENT!"#"RA$ R%$" Dha4 a man ma? -o in>erson he ma? -o 4hru ano4her."'C"TI)#S

1. ersona0 ac4s if personal performance isre%uired the doing of an act by a person onbehalf of another does not constituteperformance by the latter.

a! oting during an election2b! 3a+ing a will2c! 3a+ing statements which are re%uiredto be done under oath2d! A member of the board of directors ortrustees in a corporation cannot validlyact as such by proxye! An agent cannot delegate to a sub?agent the performance of acts which hehas been appointed to perform in person.

*. Crimina0 Ac4s or Ac4s no4 a00o@e- ? 0a@?There can be no agency in the perpetration of acrime or unlawful act./xamples'

a! An alien principal using an agentto ac%uire lands2b!


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1. here persons are present Acceptance may be implied if'

a. principal delivers his power of attorneyto the agent and

b. agent receives it without any ob"ection

2. here persons are a(sent!"#"RA$ R%$" Acceptance cannot be

implied from silence of the agent"'C"TI)#1. principal transmits his power of attorney

to the agent, who receives it without anyob"ection2

*. principal entrusts to him by letter ortelegram a power of attorney withrespect to the business in which he ishai4ua00? engage- as an agent, and hedid not reply to the letter or telegram

R!(E ON

A.ENC535

ESTOPPE( -ne who clothes another with apparent

authority as his agent, and holds him out to

the public as such, cannot be permitted todeny the authority of such person in goodfaith, and in the honest belief that he iswhat he appears to be. (Cuison vs. CA!R.88531 )c4oer ;6 1993

C(ASSES AN) 0IN)S OF A.ENTS

1. Dniversal Agent? one employed to do all actsthat the principal may personally do, andwhich he can lawfully delegate to anotherthe power of doing.

*. :eneral Agent? one employed to transact all

the business of the principal, or all thebusiness of a particular +ind or in aparticular place, or in other words to do allacts, connected with a particular trade,business or employment.

). pecial or


21/29

regarded asadvisory only

SPECIA( PO/ER OF ATTORNE5 >SPA8 An instrument in writing by which one

person, as principal, appoints another as hisagent and confers upon him the authority to

perform certain specified acts or +inds ofacts on behalf of the principal.

NOTE: t need not be notari#ed2 except whereit is executed in a foreign country, must becertified in accordance with the 5ules of 0ourt.

INSTANCES /HERE SPA IS NECESSAR5(A5T 1474!>PEC/EM- ((3- 3OCARO81. To ma+e such payments as are not usually

considered as acts of administration2*. To effect novation which put an end to

obligations already in existence at time theagency was constituted2

). To compromise, to submit %uestions toarbitration, to renounce the right to appealfrom a "udgment, to waive ob"ections to thevenue of an action or to abandon aprescription already ac%uired2

>. To waive any obligation gratuitously2=. To enter into any contract by which the

ownership of an immovable is transmitted orac%uired either gratuitously or foe a valuable

consideration2. To ma+e gifts, except customary ones for

charity or those made to employees in thebusiness managed by the agents2

7. To loan or borrow money, unless the latterJsact be urgent and indispensable for thepreservation of the things which are underadministration2

4. To lease any real property to another personfor more than one year2

. To bind the principal to render some servicewithout compensation2

1. To bind the principal in a contract ofpartnership2

11. To obligate the principal as guarantor orsurety2

1*. To create or convey real rights overimmovable property2

1). To accept or repudiate an inheritance21>. To ratify or recogni#e obligations contracted

before the agency21=. Any other act of strict dominion.

NOTE: a third person with whom the agentwishes to contract on behalf of the principalmay re%uire the presentation of the power of

attorney or the instructions as regards theagency2 ece>4 private or secret orders.

NOTE:The scope of the agentJs authority is whatappears in the written terms of the power ofattorney. &hile third persons are bound toin%uire into the extent or scope of the agentJs

authority, they are not re%uired to go beyondthe terms of the written power of attorney.Third persons cannot be adversely affected byan understanding between the principal and hisagent as to the limits of the latterJs authority.n the same way, third persons need not concernthemselves with instructions given by theprincipal to his agent outside the written powerof attorney. (ire-? "n4er>rises Inc. vs. CA e4a0.!R 1;9239 Se>4emer ; ;22;NOTES:

rinci>a0

NOTE: The limits of the agentJs authority shallnot be considered exceeded should it have beenperformed in a manner more advantageous tothe principal than that specified by him.

/hen a person NOT &oun1 & a#t o, another

1. atter acts @i4hou4 or e?on- 4he sco>e ofhis authority in the formerJs name2 and

*. atter acts @i4hin 4he sco>e oB his au4hori4?u4 in his o@n name (%#:ISC$)S":


22/29

RI#CIA$, except when the transactioninvolves a thing belonging to the principal. nsuch case, the contract is deemed as enteredbetween the principal and the third person.

EFFECTS OF A.ENT7S ACTS

1. &ith Authoritya. in >rinci>a0Fs name = +ali12 principal is

bound2 agent not personally liable unlesshe bound himself (Article 147!

b. in his o@n name = Apply Article 144)2generally not &in1in2 on the prin#ipal2agent and stranger are the only parties,except regarding things belonging to theprincipal or when the principal ratifiesthe contract or derives benefittherefrom.

*. &ithout Authority

a. in >rinci>a0Fs name = unauthori4e1 an1unen,or#ea&le but may be ratified, inwhich case, may be validatedretroactively from the beginning (Article1>7!

b. in his o@n name = +ali1, whether or notthe sub"ect matter belongs to theprincipal, provided that at the time ofdelivery, the 9agentC can transfer legallythe ownership of the thing. -therwise, hewill be held liable for breach of warranty

against eviction2 Article 144) does $-Tapply

OCCASIONS /HEN PRINCIPA( IS 3O!N) 35 THEACTS OF THE A.ENT 3E5ON) THE (ATTER7SPO/ERS

.eneral Rule: The principal is not bound by theacts of the agent beyond his limited powers.+-ceptions1. &here the principalJs acts have contributedto deceive the third person in good faith2

*. &here the limitations upon the powercreated by him could not have been +nown bythe third person2). &here the principal has placed in the handsof the agent instruments signed by him in blan+(trong vs. :utierre# 5epide . &here the principal has ratified the acts ofthe agent.

)o#trine o, A2en# & Ne#essit By virtue of the existence of an emergency,

the authority of an agent is correspondinglyenlarged in order to cope with the exigencies orthe necessities of the moment Requisites:

1. 5eal existence of an emergency*. nability of the agent to communicatewith the principal). /xercise of the additional authority forthe principalJs own protection>. Adoption of fairly reasonable means,premises duly considered

NOTE: Agency can never be created bynecessity2 what is created is a--i4iona0au4hori4?in an agent appointed and authori#edbefore the emergency arose.

.ENERA( O3(I.ATIONS OF A.ENT TOPRINCIPA(:1. To act with utmost good faith and loyalty for

furtherance of principalJs interests*. To obey all lawful orders and instructions of

principal within the scope of the agancy

). To exercise reasonable care, s+ill anddiligence

SPECIFIC O3(I.ATIONS OF A.ENT TO PRINCIPA(1. To carry out the agency which he has

accepted*. To answer for damages which through his

performance the principal may suffer). To finish the business already begun on the

death of the principal should delay entail anydanger

>. To observe diligence of a good father of afamily in the custody and preservation of thegoods forwarded to him by the owner in casehe declines an agency, until an agent isappointed

=. To advance the necessary funds should therebe a stipulation to do so

. To act in accordance with the instructions ofthe principal, and in default thereof, to doall that a good father of a family would do

7. $ot to carry out the agency if its executionwould manifestly result in loss or damage to

the principal4. To answer for damages if there being a

conflict between his interest and those ofthe principal, he should prefer his own

. $ot to loan to himself if he has beenauthori#ed to lend money at interest

1. To render an account of his transactions andto deliver to the principal whatever he mayhave received by virtue of the agency

11. To distinguish goods by countermar+s anddesignate the merchandise respectivelybelonging to each principal, in the case of acommission agent who handles goods of thesame +ind and mar+, which belong todifferent owners


23/29

1*. To be responsible in certain cases for theacts of the substitute appointed by him

1). To pay interest on funds he has applied to hisown use

1>. To inform the principal, where an authori#edsale of credit has been made, of such sale

1=. To bear the ris+ of collection, should he

receive also on sale, a guarantee commission1. To indemnify the principal for damages for

his failure to collect the credits of hisprincipal at the time that they become due

17. To be responsible for fraud or negligence

NOTE:A stipulation exempting the agent fromthe obligation to render an account shall be-@.!"#"RA$ R%$" Inowledge of agent is+nowledge of principal."'C"TI)#S

1. AgentJs interests are adverse to those of theprincipal

*. AgentJs duty is not to disclose theinformation (confidential infor&ation!

). &here the person claiming the benefit of therule colludes with the agent to defraud theprincipal

S!3-A.ENT A person to whom the agent delegates, as his

agent, the performance of an act for theprincipal which the agent has beenempowered to perform through hisrepresentative.

NOTE: The agent may appoint a substitute (su&-a2ent! except when he has been prohibited bythe principal. (A5T 14*!

Instan#es when a2ent shall &e responsi&le ,orthe a#ts o, the su&stitute:1. when he was not given the power to appoint2

or*. when he was given such power but without

designating the person, and the personappointed was notoriously incompetent orinsolvent.

). in these two cases the principal may furtherbring an action against the substitute withrespect to the obligations which the latterhas contracted under the substitution.

NOTE: All acts of the substitute appointedagainst the prohibition of the principal shall be-@.

JOINT A.ENTS Agents appointed by one or more principals

under such circumstances as to induce the

inference that it was the principalJs intentthat all should act in con"unction inconsummating the transaction for which theywere appointed.

Their responsibility is H-$T2 except if

solidarity has been expressly stipulated. f solidarity has been agreed upon, each

agent is responsible for the'a. non?fulfillment of the agencyb. fault or negligence of his fellow agents2

except when the fellow agents actedbeyond the scope of their authority.

NOTE: innocent agent has a right later on torecover from the guilty or negligent agent (A5T1*17(*!!Instan#es when a2ent "a in#ur personallia&ilit:1. &hen the agent expressly binds himself

NOTE: The individual liability of the agentcan be considered a further security in favorof the creditor and does not affect orpreclude the liability of the principal2 &oth

are lia&le*. &hen agent exceeds his authority). &hen agent by his acts prevents

performance on the part of the principal>. &hen a person acts as an agent without

authority or without a principal=. A person who acts as an agent of an

incapacitated principal unless the third partywas aware of the incapacity at the time ofthe ma+ing of the contract

FACTOR=COMMISSION A.ENT

? one engaged in the purchase and sale for aprincipal of personal property, which for thispurpose, has to be placed in his possession andat his disposal. f the commission agent received goods

consigned to him, he is responsible for anydamage or deterioration suffered by thesame in the terms and conditions and asdescribed in the consignment.

The commission agent who handles goods of

the same +ind and mar+, which belong to

different owners, shall distinguish them bycountermar+s, and designate the


24/29

merchandise respectively belonging to eachprincipal.

A commission agent can sell on credit only

with the express or implied consent of theprincipal. f such sale is made withoutauthority, the principal is given twoalternatives'

i. e may re%uire payment in cash, inwhich case any interest or benefit fromthe sale on credit shall belong to theagent since the principal cannot beallowed to enrich himself at the agentJsexpense2

ii. e may ratify the sale on credit inwhich case it will have all the ris+s andadvantages to him.

f the commission agent is authori#ed to sell

on credit, he shall inform the principal witha statement of the names of the buyers.&ith such statement, the sale shall bedeemed to be for cash as far as the principalis concerned.

The commission agent who does not collect

the credits of his principal at the time whenthey become due and demandable shall beliable for damages, unless he proves theexercise of due diligence for that purpose.

3RO0ER A middleman or intermediary who, in behalf

of others and for a commission or fee,negotiates contractsKtransactions relating toreal or personal property.

Fa#tora2e 0ompensation of a factor or commission

agent.

Or1inar Co""ission 0ompensation for the sale of goods which are

placed in his possession or at his disposal.

.uarant Co""ission >)el #re1ere8 Eee that is given in return for the ris+, which

the agent has to bear in the collection ofcredits.

An agent with a del credere commission is

liable to the principal if the buyer fails topay or is incapable of paying.

.ENERA( O3(I.ATIONS OF PRINCIPA( TOA.ENT @uties and liabilities of the principal are

primarily based upon the contract and thevalidity of the contract between them

SPECIFIC O3(I.ATIONS OF PRINCIPA( TO A.ENT(0A5

agent may have contracted within the scopeof his authority and in the name of theprincipal

*. To advance to the agent, should the latter sore%uest, the sums necessary for theexecution of the agency

). To reimburse the agent for what the latterhas advanced (plus interest!, even if thebusiness was not successful, provided theagent was free from fault

>. To indemnify the agent for all the damages,which the execution of the agency may havecaused the latter without fault or negligenceon his partNOTE:The agent may retain in pledge the

things which are the ob"ect of the agencyuntil the principal effects thisreimbursement and pays the indemnity.

=. To pay the agent the compensation agreedupon, or if no compensation was specified,the reasonable value of the agentJs services

(IA3I(IT5 OF PRINCIPA( FOR TORT OF A.ENTR!(E: The principal is civilly liable to thirdpersons for torts of an agent committed at theprincipalJs direction or in the course and within

the scope of the agentJs authority.Reason ,or lia&ilit:The rule is based upon theprinciple that he who does an act throughanother does it himself.

CON)ITIONS FOR RATIFICATION1. principal must have capacity and power to

ratify*. principal must have had +nowledge of

material facts). principal must ratify the acts in its entirety>. act must be capable of ratification

=. act must be done in behalf of the principal

ESTOPPE( 35 PRINCIPA(/ven when the agent has exceeded his

authority, the principal is solidarily liable withthe agent if the former allowed the latter to actas though he had full powers.

JOINT PRINCIPA(S Two or more persons who appoint an agent

for a common transaction or underta+ing.

(ia&ilit:solidarily liable to the agent for allthe conse%uences of the agency.

Requisites o, soli1ar lia&ilit:

1. There are two or more principals


25/29

*. The principals have all concurred in theappointment of the same agent2 and

). The agent is appointed for a commontransaction or underta+ing

NOTE: Any one of them may revo+e the agency

R!(ES ON )O!3(E SA(E 35 PRINCIPA( AN)

A.ENT1 &hen two persons contract with regard to

the same thing, one of them with the agentand the other with the principal, and the twocontracts are incompatible with each other,that of prior date shall be preferred, withoutpre"udice to Article 1=>>(-ou0e sa0e!.

* f the agent has acted in good faith, theprincipal shall be liable in damages to thethird person whose contract must bere"ected. f the agent is in bad faith, healone shall be responsible.

Instan#es when prin#ipal is not lia&le ,or thee9penses in#urre1 & the a2ent:1. if the agent acted in contravention of the

principalJs instructions, unless the lattershould wish to avail himself of the benefitsderived from the contract2

*. when the expenses were due to the fault ofthe agent2

). when the agent incurred them with+nowledge that an unfavorable result would

ensure, if the principal was not awarethereof2>. when it was stipulated that the expenses

would be borne by the agent, or that thelatter would be allowed only a certain sum.

MO)ES OF E*TIN.!ISHMENT OF A.ENC5(/@&A5@!1. Expiration of the period*. )eath, civil interdiction, insanity or

insolvency of the principal or of the agent). /ithdrawal of the agent

agent may withdraw by giving notice tothe principal, but must indemnify theprincipal for damages that he may sufferby reason of such withdrawal.

>. Accomplishment of the ob"ect or the purposeof the agency

=. Revocation. )issolution of the firm or corporation, which

entrusted or accepted the agency.

Instan#es when 1eath o, prin#ipal 1oes notter"inate a2en#1. f the agency has been constituted in the

common interest of the principal and theagent

2. f it has been constituted in the interest of a

third person who has accepted thestipulation in his favor

Re+o#ation o, A2en# & Prin#ipalL:/$/5A 5D/' Agency is revocable at will ofthe principal, regardless of the term of the

agreement.L/M0/


26/29

C(ASSIFICATIONS1. +ffecti/ity? from the viewpoint of whether

they become effective after the death of thetrustor or during his life, it may be either'a% testa"entar trustsb. trusts inter +i+os (sometimes called

9li/in" trustsC!*. Creation ? from the viewpoint of the

creative force bringing them intoexistence, it may be either'

a) E9press trust? created by the intentionof the trustor or of the parties

b) I"plie1 trust ? one which comes intobeing by operation of law. This may beeither'

1) Resu04ing 4rus4 ? one in which theintention to create a trust is presumedby law to exist from the transactionand facts of the case

2) Cons4ruc4ive 4rus4? one imposed by lawirrespective of and even contrary to theintention of the parties. t is designedto promote "ustice, frustrate fraud andprevent un"ust enrichment.

Persons in+ol+e1 in the #reation o, a trust:

1. Trustor? the one who intentionally creates atrust

2. Trustee ? the person who holds the legaltitle to the trust property for the benefit ofanother and with certain powers and sub"ectto certain duties

3. :eneficiary or the cestui ue trust ? theone who has the e%uitable interest in theproperty and en"oys the benefit ofadministration by the trustee. e may be anatural person or a legal entity. The trustormay establish a trust with himself as thebeneficiary (usual case!.

E(EMENTS OF E*PRESS TR!ST1. 0ompetent trustor and trustee2

2. Ascertainable trust res2 and). ufficiently certain beneficiaries.

TR!ST PROPERT5The concept of a trust arises from or is theresult of a fiduciary relation between thetrustee and the cestui %ue trust as regards

certain property? real, personal, funds or money,choses in action held by the trustee. (achecovs. Arro 85 I$ 525

The trust property is owned by two or more

persons at the same time, the relation betweenthe two owners being such that one of them isunder an obligation to use his ownership for thebenefit of the other. The trustee is not a mere agent but an

owner. But his ownership is a mere matter of

form rather than substance, and nominal ratherthan real.

PROOF OF TR!STL:/$/5A 5D/' trust whether express orimplied may be proved by parol or oral evidenceL/M0/


27/29

re%uirement however is not for validity but onlyfor purposes of proof.

NOTES:

Trusts cannot be established in violation of

law. Trust is founded in e%uity such that itcannot result from a contract formed for an

illegal purpose. $either may a trust be created for the

purpose of evading a legal prohibition./xample' there cannot be a trust createdfor the purpose of obtaining homesteadpatents, in favor of a person alreadydis%ualified to obtain additional homesteads.

Ne#essit o, A##eptan#e to the #reation an1+ali1it o, trust relationship1. Acceptance of the trustee

The acceptance of the trustee is notnecessary to its existence and validity sinceif he declines, the courts will appoint atrustee to fill the office that he declines.(see Sec.3 Ru0e 98 oB 4he Ru0es oB Cour4.

NOTE:But a trusteeJs acceptance of the trust isnecessary to charge him with the office of thetrustee and the administration of the trust andto vest the legal title in him.

*. Acceptance of the &ene,i#iar The acceptance by the beneficiary is

essential to the creation and validity of atrust. owever, such acceptance ispresumed if there is no proof to the contraryand the trust does not impose any onerouscondition upon the beneficiary.

Requisites ,or a Trustee to #lai" title &pres#ription:1. e has performed open and une%uivocal acts

of repudiation*. uch positive acts of repudiation have been

made +nown to the beneficiary or the cestui%ue trust

). The evidence thereon should be clear andconvincing and

>. The period fixed by law has expired. (1years from the time that the repudiation ismade +nown to the beneficiary in cases ofexpress trust or resulting trust while 1 yearsfrom the time a constructive trust arises!.

n order that a trustee may sue or be sued

alone, it is essential that his trust should be

express, that is a trust created by the directand positive acts of the parties, by somewriting deed or will, or by proceedings in

court. 5ule ), sec ) does not apply in casesof implied trust that is, a trust which may beinferred merely by4he acts of the parties orfrom other circumstances. (A$ vs. ea0-$umer Co.

NOTES:

the 1?year prescriptive period in case ofimplied trust begins to run from the date thetrustee repudiates the express trust. n thecase S>s. ascua0 e4 a0. vs. CA e4 a0. !R1159;5 Augus4 15 ;223 it was held thatrepudiation ta+es place when the adverseparty registers the land.

the >?year prescriptive period under Article

1)1 applies only if the fraud does not giverise to an implied trust, and the action is toannul a voidable contract under Article 1).

TR!ST P!RS!IT R!(E /%uity will pursue property that is wrongfully

converted by the fiduciary, or otherwise compelrestitution to the beneficiary. A trust will followthe property through all changes in its state andform, provided its product or proceeds arecapable of identification.

IMP(IE) TR!ST Are those, without being express, are

deducible from the nature of the transaction as

matters of intention, or which are superinducedon the transaction by operation of law, asmatters of e%uity independently of theparticular intention of the parties.


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E*PRESS TR!ST

1. !0reated by theintention of theparties

2. !s to proof of trustAn express trustover an immovableproperty or anyinterest thereincannot be provedby parol evidence

3. !s re"ards repudiation of trustAn expressrepudiation made

+nown to thebeneficiary isnecessary in orderthat laches orac%uisitiveprescription maybar an action toenforce an expresstrust.

0IN)SOF IMP(IE) TR!STS

1. >4!G There is a resulting trust when property issold, and the legal estate is granted to oneparty but the price is paid by another partyfor the purpose of having the beneficialinterest of the property.

To give rise to a purchase money resulting

trust, it is essential that there be'a! an actual payment of money, propertyor services or an e%uivalent, constitutingvaluable consideration2b! and such consideration must be furnishedby the alleged beneficiary of a resultingtrust.

"'C"TI)#S

a! &here A pays the purchase money andtitle is conveyed by absolute deed to AJschild or to a person to whom A stands in locoparentis and who ma+es no express promise,a trust does not result, the presumptionbeing that a gift was intended2b! &here an actual contrary intention is

proved2c) &here the purchase is made in violationof an existing statute and in evasion of itsexpress provision, no trust can result in favor

of the party who is guilty of fraud. (Tigno vs.Cour4 oB A>>ea0s ;82 SCRA ;6; [199]

*. @onations made to a person but thebeneficial interest is vested in another. The

donee is the trustee while the designatedthird person is the beneficiary. (A5T 1>>!.

). = !

>. egal title to land inherited by heir placedin the name of another. (Ar4ic0e 151!

=. egal title to property purchased ta+en inone co?owner. (A5T 1>=*!

. 0onveyance under a promise to hold for, ortransfer to another. (A5T 1>=)!

7. Absolute conveyance to a person to secure

performance of grantorJs obligation.4. (A5T 1>=>!. ==!1. Ac%uisition of property through mista+e or

fraud. (A5T 1>=!.

NOTE: An action for reconveyance of aparcel of land based on an implied orconstructive trust prescribes in ten years,the point of reference being the date of

registration of the deed or the date of theissuance of the certificate of title over theproperty. BDT, this rule applies only whenthe plaintiff (or person enforcing the trust! isnot in possession of the property, since if aperson claiming to be the owner thereof is inactual possession of the property, the rightto see+ reconveyance, which in effect see+sto %uiet title to property, does not prescribe.

Requisites &e,ore perio1 or pres#ription"a start in re2ar1 to an a#tion &ase1 onan i"plie1 trust:a! the trustee has performedune%uivocal acts of repudiation amounting toan ouster of the cestui %ue trust.

RES!(TIN.TR!ST

CONSTR!CTIETR!ST

1. ntention to create trustThe intent ofthe parties tocreate a trustis presumed

or implied bylaw from thenature of theirtransaction

The trust is createdirrespective of oreven contrary to theintention of the

parties to promote"ustice, frustratefraud and to preventun"ust enrichment.

2. Prescripti/e periodThe 1 yearprescriptiveperiod shallbe countedfrom the

timerepudiation ismade +nowntobeneficiary.

The 1 yearprescriptive periodshall be countedfrom the time thatthe constructive

trust arises.

3. +-a&plesllustrated inArticles 1>>4,1>>, 1>=1,1>=*, 1>=)

llustrated in Articles1>=, 1>=>, 1>==,1>=


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b! uch positive acts of repudiationhave been made +now to the cestui %uetrust2 and

c) /vidence thereon is clear andpositive. (G-a. :e Carera vs. Cour4 oBA>>ea0s ;6 SCRA 339 [199].

NOTE:The enumeration is not exclusive.

Other e9a"ples o, i"plie1 trust:1. The registration of land under torrens in the

name of one person do not bar evidence toshow it was only held in trust for another.

*. 0ertificate of registration of vehicle placedin the name of a person although the pricewas not paid by him but by another.

). -ne arising from the agentJs willful violationof the trust reposed in him by the principalby buying for himself the property he was

supposed to buy for the principal whodesignated and appointed him to negotiatewith the owner.

>. n consonance with the trust fund doctrine in0orporation aw, the assets of thecorporation, as represented by the capitalstoc+, are regarded as 9trust fundC to bemaintained unimpaired for the payment ofcorporate creditors.

252928709 partnership agency and trust

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