Oblicon 2

Frensel vs.
Mariano Ochaco
CIVIL LAW REVIEW II Facts: Mariano asked Merit to construct an
Sales, Lease, Agency, edifice for him and agreed that Merit was to
supply not only Labor but also Materials. Merit
Partnership, Trust and Credit bought the materials from Frensel, however the
Transactions price of the materials remain unpaid so Frensel
Atty. Crisostomo Uribe demanded payment from Mariano, the ground
LEASE relied upon by Frensel is that Merit was an
Notes: agent of Mariano therefore, for failure to pay
• Read the Definition of Lease under Articles the price, Frensel claim that Mariano can be
1643, 1644, 1713. held liable for the price of material.
• Consider also on Formalities: Articles 1647, Note: In Agency, the control of the principal
1724 in relation to 1403 on Statute of Frauds over the agent is so pervasive that the principal
and 1403, 1878 on Agency to Lease. can control not only the result but also the
manner and method of the performance of the
• Assignment and Sublease: Articles 1649, obligation which is not present in this case and
1650 therefore Merit was not considered an agent of
Mariano.
• Implied new lease or tacita recunducion:
Article 1670 (important) Relationship of the taxi driver with his
operator, is this a contract of lease? that
• Rights and Obligation of the Lessor and this is in fact a lease but not a lease of thing, but
Lessee: Articles 1673, 1678, 1680, 1723 lease of service specifically an employment
(take note several questions in the bar contract, this is because of the control of the
have appeared under these provisions)
operator over the taxi driver, as to when, what
• Period of the Lease if the parties failed to time the drive operates the vehicle.
Fixed the Period: Articles 1682, 1687 As to safety deposit boxes does this
involve lease of things?
• Rights of Third Person: Article 1729 (ex: it considered the contract as special kind of
rights of owner of materials against the deposit. This cannot be considered a lease of
owner of the building)
things because the lessee has no control over
Note: The first thing to consider in lease is to
the safety deposit box. In fact he cannot even
consider the kind of lease.
enter the bank where the safety deposit boxes
Kinds of Lease: are located if it not a banking hour, like when
1. Lease of Things the bank is close so he cannot enter therein.
2. Lease of Work or Service
3. Lease of Right
Note: The best way to remember the
kinds of contract is to know by heart what are
Note: The only kind of Lease of Service that will the real contract (mutuum, commodatum,
be discuss under the Civil Law is the Contract deposit, pledge) and formal contract
for a Piece of Work. (antichresis, donation).
Definition: In one case decided by the SC, involving an

agreement between the Bureau of Animal
in lease, it must be for a price certain,
Industry and Mr. Bagtas, where 3 bulls were
otherwise if there is no valuable consideration
delivered by the Bureau to Bagtas for breeding
for the use or enjoyment of the thing it will be
purpose. There was a period agreed upon for
commodatum.
one (1) year, after the lapse, despite demand for
Q: If in the agreement one of the parties the return of the bull Bagtas failed to do so,
binds himself to render service, for price thereafter he died and so his estate was
certain would that be a lease of service? required to deliver to deliver the 3 bull but only
A: Not necessarily, because it may also be a the 2 were returned and the third bull could not
contract of agency, be returned allegedly on the ground that the
in order for the contract to be considered as said bull died in a crossfire between the
lease of service, there must be no relation of Hukbalahap and the AFP, so the claim was
principal and agent existing between the fortuitous event.
parties. Claiming that the agreement was
Distinguish a Contract for Piece of Work commodatum it was argued that since there
from Contract of Agency was no transfer of ownership in commodatum,
Page 1 Faye Marie C. Martinez – Chato Cabigas – Jessica A. Lopez – Dian Rosapapan
November 2008
then the risk of loss would still pertain to the to help which when resolve Atty. Mutuc now
Bureau. demanded for his Atty. Fees.
SC ruled that this cannot be One of the defenses raised by Dy was

commodatum, because there was stipulation that there was no written contract between the
for the payment of breeding fee that has to be parties and therefore he is not entitled to Atty.
paid by Bagtas, it cannot be commodatum but a Fees.
lease of thing, because there was a
Held: Documentary formalism is not an
compensation to be paid for the use of the bull.
essential element in the contract. In fact the
Again a contract of lease of things is essential
contract may be express or implied. Thus, the
onerous.
absence of a written contract will not preclude a
Note: Lease of things is not essentially finding that there was a professional
personal. relationship which merit attorney’s fees for
professional service rendered.
Heirs of Fausto Dimaculangan vs. IAC
Held: Upon the death of parties like death of Lease of Things –
lessee, the contract is not thereby terminated. Under 1403, Statute of Fraud, when there is a
The heirs of the lessee may continue to occupy contract of lease over an immovable and it is for
the premises by virtue of the lease because it is more than a year, the contract of lease must be
not extinguish upon death of lessee. in writing in order for it to be an enforceable
Essential Requisites of Contract of contract.
Lease
If a person is authorized to lease an
1. Consent there are people who
immovable property of another for more than 1
are prohibited from entering in specific kind of
year, that person or agent should have special
lease, those mentioned in 1490, 1491. When
spouses are prohibited from selling to each power of attorney.
other similarly they are also prohibited from Where a principal appointed an agent
entering in contract of lease as spouses. granting him unlimited and general
management over his properties
withholding no power from him and
the guardian cannot lease property of the ward authorizing the agent to act as may
as much as the agent cannot lease the property deemed appropriate. With this GPA the
of the principal which he is suppose to agent entered in a contract of sale and
administer. two (2) contracts of lease. The first lease
pertains to a parcel of land in Kalookan
2. Object for 4 years and rental to be paid annually
As a rule therefore consumable things cannot for 60k a year. He also lease a certain
be the subject matter of lease of things. The land in QC but they did not fixed the
exception is, when the use of the things is only period of lease but they agreed on
for exhibition, or when they are accessory to an payment of rentals on monthly basis
industrial establishment then it may be a rate of 3k per month. These contracts
subject of lease. were entered into while the principal was
in the hospital. Rule on the validity and
3. Cause binding effects of the contracts upon the
Lease of thing – the consideration for the lessor principal.
is the payment of rental
In the first lease, since it was for 4 years
Lease of work or service - it is the compensation and involve as lease over an immovable and
to be paid by the other party pertains to an act under 1878, then the agent
should have a special power of attorney and
Lease of right – it is the payment of royalties
under the facts he was only given a general
which is the cause and consideration of the one
power of attorney, hence since armed only by
leasing the right to another
GPA, the contract is unenforceable as against
FORMALITIES the principal.
Lease of Service – there is no particular form
In the second lease, the agent
required by law for the validity of the lease not
represented the principal did not fix the period
even for the enforceability as a rule.
of the lease but only fixed the monthly rental of
Donald Dy vs. CA 3k, therefore under 1687, this will be construed
Facts: The brother of Dy had a problem in one as a month to month lease. Since only month to
of the casino in Las Vegas, so he ask Atty. Mutuc month, involve merely acts of administration
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BE: Agreement for the repair of a private BE: Instead of building it was a chapel
plane and for a certain sum of money, that is constructed by the lessee, will the
however additional work was requested same rule apply?
by a person who has the authority of a
duly recognize representative of the A: Consider also as useful improvement
owner of the plane and the request was
Note: If the improvement however is an
merely verbal, when the additional work
was completed, the one who rendered ornamental improvement and the lessor wants
the work demanded additional payment, to appropriate the same, he has to pay for the
the defense raise was under 1724 in value of the improvement not merely 50% but
order that a claim for additional payment the value of the improvement itself.
for the additional work, the agreement
for the additional work must be in BE: Pertain to construction of a building,
writing and the changes should be where an architect was authorized aside
authorized in writing. A: The suggested from designing of the building also to
supervise the work of the contractor.
answer of UP will sustain the defense because
When completed it was delivered to the
of 1724; such change not being authorized in
owner however within 15 years, it
writing, the request was merely verbal then the
collapse because of the earthquake due
claim may not prosper. to faulty construction, and it was the
only building that collapse no other
Gonzales vs. Mateo building. What are the rights of the
It was stipulated in the contract that “ang lahat owner against the architect and
ng kailangang gagawin sa bahay sabungan ay contractor? Can the owner demand the
ipagagawang lahat ni Ginoong Gonzales (lessee) reconstruction of the building
sa kanyang sariling ukol, na ang samahan ay considering that the cost of the
walang sinasagot”. Even if the lessor under the construction of the building has tripled
law has the obligation to make the necessary from the time of construction up to the
time of collapse?
repairs it is still subject to stipulation of the
A: Under 1723, the owner can hold the architect
parties.
and contractor solidarily liable. Because the
A lease contract was entered into architect not merely designed the building but
between A and B over a parcel of land also supervise the construction hence under
for a period of 15 years wherein the 1723, they are solidarily liable.
lessee conducted his business where he
constructed a 3 storey bldg for 300, 000. Under 1167, in obligation to do, if what
Upon the lapse of the 15 year period the has been poorly done may be undone at the
parties not having been able to agree on expense of the debtor, in fact he can have
the extension of the lease, the lessor another person to do the work at the expense
demanded the lessee to vacate the of the debtor. Notwithstanding that the cost
premises. Lessee refuse to vacate until tripled he may validly do so.
he is reimburse the 300, 000 and arguing
that since he is a builder in good faith he May a lessee sublease the property
therefore has the right to retain the thing without the consent of the lessor and
until he is reimbursed. What are the what are the respective liabilities of the
rights and obligation of the lessor and lessee and sublessee?
lessee? Can the lessee be considered a
builder in good faith in the first place? A: A lessee may not assign his right on the lease
No, he cannot be considered a builder in good without the consent of the lessor however he
faith as he was merely a lessee and he is not may sublease the property in whole or in part
claiming ownership over the parcel of land even without the knowledge of the lessor as
when he constructed the building therefore he long as he was not prohibited from subleasing
has no right of retention. In fact under the law the premises.
the lessor has the option of appropriating the The law provides that reduction of rental may
improvement or requiring the lessee to vacate only be demanded by the lessee if he harvested
the premises and remove the improvement. less than half of what normally would be
But if he decides to appropriate the harvested in that property.
improvement for himself he has to pay 50% of
the expense incurred by the lessee because it is At any rate even if he was only able to harvest
a useful improvement. If the lessor decides not less than one half this would not entitle him to
to appropriate, the lessee may remove the reduction of rentals, because under the law,
improvement this may only be claimed if it was due to extra
ordinary FE event as oppose to merely an
ordinary FE. Storm is an ordinary FE, what could
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be considered as an extra ordinary FE event is would now buy the property in
pestilence, unusual flood. accordance with the option to buy. The
lessor refuse, caliming there was no
Presence merely of unlawful element more option. Was the lessor correct? Yes.
extra ordinary FE may not be considered as a Was it correct to say that there was
basis for the claim of reduction of the rental. extension of the lease under the facts
TERMINATION OF THE LEASE

A building was constructed by A, for this
B gave A 5 million pesos with the
agreement that B will be the lessee of
the entire building for a period of 10
years for 1,000 rentals a month.
However, on the 5th of the agreement the
entire building was burned due to FE
without fault of anyone. A reconstructed
the building, just before the building is
completed, B notified A of his intent to
continue the lease, as to complete the 10
year period. A refuse, is A justified in
refusing B’s offer to continue the lease?
Yes. He was justified because by the destruction

of the lease due to FE the lease contract was
terminated so it can no longer be continued.
BE: Discuss the effect of death of

lessee, lessor, agent and principal.
A: In a lease of thing, death of the lessee does
not terminate the contract. A contract of lease
is not essentially a personal contract therefore
upon the death of the lessee, it may be
continued until the expiration of period of the
lease by the heirs. (Case: Heirs of Dimaculangan
vs. IAC)
IMPLIED NEW LEASE
The question in the bar could be as

simple as under what circumstance
would an implied new lease or tacita
recunducion arise? A: Under the law, the
only requirement is that
1. The lease period has expired and
2. The lessee continues to be in possession of
thelease for at least 15 days from the time of
the expiration of the lease and
3. No notice to the contrary from the lessor and
thelessee.
BE: Pertain to contract of lease entered

into for period of 3 years Jan 1, 81 up to
1984. Rentals were paid on monthly
basis. It was stipulated that the lessee
has the option to buy property at a
certain price within a certain period
(option to buy). Despite the lapse of the
3 year period, the lessee did not exercise
the option, but continued to be in
possession of the property and paying
the monthly rentals and the lessor
accepting the same. This continued until
June 1984 when the lessee stated that he
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in an implied new lease, only those terms and conditions which are
germane in a contract of lease are deemed renewed as to the rest like
option to buy, will not be considered renewed.
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AGENCY
Definition 1868, 1874 and 1878 - formalities
Because a form is required for the validity or

for the enforceability of the contract entered by
the agent-1878, 1874
1892 - pertain to appointment of the

substituteeffect- may the agent nonetheless be
held liable for
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the loss that incurred by the principal as the Nielson vs. Lepanto Minning (LM)
result of the appointment of the substitute.
Nielson has no power of representation to bind
Other provisions pertain to the right and LM with third person even it has power to buy
obligations of commission agent or more certain items he still has to obtain or seek the
importantly the guaranty commission agent – opinion or approval of the BOD of the LM in
1907 - 1908 order to buy certain items, which means he is
not really an agent as to their has no right of
Effect of death -1919, 1930 and 1931
representation.
Either of the agent or principal
But a feature which would make agency
Revocation - kind of agency - agency coupled similar to partnership
with interest - 1927 It is based on trust and confidence that
A asked her best friend to B buy for her there are fiduciary obligations of an agent as
certain items in a grocery store. Is there much as there are fiduciary obligations of a
a nominate contract created between A partner
and B? If B agreed to the request of A, an
agency relationship has been created, a Mariano Case
nominate contract has been created. In agency the principal has almost full control of
the agent, he can give specific instructions to
if you have accepted the request of the the agent, on how the obligations are to be
politician were for you to deliver the performed, the manner of the obligations, the
speech in a gathering would that result remedies performed, with whom, where it is to
an agency relationship? be performed, lahat, that would be the extent
A contract of agency to arise the subject of the control of the principal over the agent.
matter or the object of the contract must be the
execution of the juridical act, mere social or In the case of control of one party over
political representative would not result to a another which only goes into the result, it
contract of agency. cannot be considered as a contract of agency
but it may be considered a contract for a piece
Principal - This is a distinct feature of of work.
agency similar to partnership, they are both
preparatory contracts, they can stand on their In a contract of agency, when the principal
own don’t depend on any other contract for delivers the thing to the agent, only possession
their validity, which means that even if the is transferred to the agent, ownership is
agent did not enter into another contract, retained by the principal (owner) in fact in
which means he did not perform their agency to sell, an agent who was not able to sell
obligation it doesn’t mean that the contract of he has the right to return the goods to the
agency is void, seller.
Agency and negotiorum gestio may be

similar in the sense that there is representation 2 concepts similar in agency and
in its legal relationship but they can be partnership Both of them are business
distinguished as to their manner of creation in organizations, both are based on trust and
that agency is created by mere agreement of confidence,
the parties, negotiorum gestio created by
operation of law.
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distinction between the two - in partnership, A: If the 3rd person has actual knowledge of the
there is a juridical personality created separate revocation, it is bad faith on his part to continue
and distinct from that of the individual partner. transacting with the agent. The agent acting on
In agency, despite the perfection of a contract behalf of the principal and thus he should not
of agency, wala sila pa rin, the only personalities be allowed to recover.
would be that personality of the principal and
the personality of the agent. Dela Pena vs. Hidalgo
Facts: Dela Pena authorized Hidalgo to
2. Apparent / Ostensible administer his properties in the Philippines, He
has to leave the country. Hidalgo managed the
Rallos Case properties of Dela Pena, after a while he has to
Facts: Letter was sent by B to X, informing X leave the country also and go to Spain for
that A has the authority to enter into a contract health reasons. So he appointed another
with X specifically to obtain goods from X, like person, another Hidalgo to administer said
copra, abaca which goods will be sold by A.
properties of Dela Pena and wrote a letter to
After the sale a portion can be deducted as a Dela Pena informing him of the appointment of
commission and the rest to be delivered to X. another person to replace him as the
After a certain period, the goods obtained by A administrator of his property. Dela Pena
from X remained unpaid. In other words, A will received a letter, he did not reject the
get the goods from X. A did not deliver the appointment, he did not question the acts of
proceeds of the sale. X demanded payment the new administrator. After a while he died
from B. The defense of B was as of that moment and his heirs (Dela Pena heirs) filed an action
from that certain period he has already revoked against Hidalgo (the 1st agent) for accounting,
the authority of the agent and therefore be damages etcetera for the period after the
bound by any contract entered into by A in appointment of the other agent.
representation of B with 3rd person. Is the
claim of B tenable? Issues: (1) Who was then the agent during the
No, 1873 so far as 3rd person are concerned, this period?; (2) Can the 1st agent be held liable after
notice itong letter nya kay X remain in full force the appointment of another administrator?
and effect until it is rescinded in the same
Held: From the silence of the principal, due to
manner it was given.
his inaction, due to his failure to repudiate the
Q: What if B was able to prove that he acts of the substitute, he is thereby deemed
posted the notice in Manila Bulletin - impliedly consented to the appointment of
notice of fact of revocation of A. If there another person as the new agent, therefore
was such publication of notice, would implied agency was created.
the ruling of the SC be different?
A: No, still the same (Article 1873) When both parties are within the same
conference hall, A said to B that he
(See phraseology of 1873) would sell his (B) parcel of land in
Q: What if in this problem he had actual Cagayan De Oro City but that B did not
knowledge of the revocation even if he react, he just stared at the speaker,
did not receive the letter eh under 1873 nakatingin lng sya, he said nothing, by
he should be sent a letter in order that his silence would have deemed the
the revocation of authority of A will be agency? A: No.
effective as to third person?
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Q: But if B delivered a special power of faith or fraud committed against the principal
attorney to A, sabi nya “Here is the SPA, may be mitigated if the agency is gratuitous in
I am authorizing you to sell my parcel of character.
land in Cagayan De Oro City”. The SPA
was accepted by B but he said nothing, What is the scope of authority of the
basta tinanggap na lng nya, deemed agent –
impliedly consented to that agency? A:
Yes. If the agency is in general term this only
comprises acts of administration. Even if the
What if A was in Manila B in Cebu. A principal beholds power to the agent or it is
asked B to be his agent to sell a parcel stated that the agent may execute any act
of land and B did not say anything, wala
lng, is B considered to have impliedly principal still the real party in the contract is the
consented as an agent? A: No. principal and not the agent
Q: But this time again a SPA was sent by Is it correct to say that any act which a
A (Manila) through DHL to B (Cebu) person can lawfully do, he can delegate
which was accepted / received by B, to a 3rd person or to an agent?
now he did nothing by his inaction, by A: Not all. There are acts which are considered
silence he is deemed to have accepted purely personal acts. This he may not delegate
the agency?
to an agent – like the execution of an affidavit,
Not necessarily, it will depend on the nature of
you cannot ask somebody to sign on her behalf
the business of B,
in an affidavit or even in succession you cannot
if B was in the business of piggery / poultry ay delegate the execution of a will to a 3 rd person,
walang kinalaman yan sa selling of a parcel of note that it is execution not drafting of the will.
land. He will not be considered to have You can ask somebody to sign for you, under
impliedly accepted the agency. However, if B is certain circumstances, but the execution per se
a real estate broker, he is deemed to have cannot be left to a 3rd person, it is a purely
impliedly consented to the agency. personal act.
COMPENSATION OF THE AGENT Q: The right to vote may be delegated to

another person?
it depends. Voting in national / local election
Agency is presumed to be for compensation. If
cannot at least be validly delegated.
that principal is claiming that the agent agreed
to render service without compensation the
burden is on him (the principal) to prove that in as for corporation can there be a valid
fact delegation of the right to vote? Yes. In a
stockholders’ meeting, this cannot happen but
Sa abogado, pro bono or libre ang serbisyo nang
in a BOD’s meeting, in a BOD meeting it is the
agent, may the agent be held liable? A: Of
personal presence of the Director which will be
course sa abogado even if pro bono yan if he
counted for the purposes of quorum but for
caused damage to the principal or client due to
purposes of voting, you can ask somebody to
his negligent acts, he can be held liable.
observe dun sa proceedings.
However,
But obviously if the person himself cannot
The liability of the agent for causing damage to
lawfully do, cannot delegate anyone like if the
the principal due to his negligence or even bad
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agent cannot buy a parcel of land in the binding contract of lease as against the
Philippines, he cannot also delegate such acts to principal. However, if this is an immovable
another person that is void sale. like a parcel of land, would this be valid
and binding against the principal?
FORM OF CONTRACT OF AGENCY
Agency may be oral. If the agent was authorized this contract is unenforceable as against the
to sell a parcel of land and his authority is not in principal only if: (1) in the contract of lease the
writing, the sale itself is void under 1874, principal is the lessor; (2) the object is
however, if for example, the agent was immovable and (3) the period is more than 1
authorized to sell a car and his authority is not year.
in writing,
Therefore, if the principal is the lessee SPA is
any other act of strict dominion would require not required,
special power of attorney. So 1878 would
Would that power of attorney be valid
enumerate cases, acts of contracts where the
and binding as against the principal if it
law requires the authority of the agent in
is not in a public instrument?
writing, it should have a Special Power of
Attorney, A: Yes, even if a power of attorney is only in a
private instrument, the power of attorney is
if he paid the sellers of fertilizer without
valid and binding against the principal. The law
Special Power of Attorney, would the
payment be binding against the does not require that it must be in a public
principal? instrument.
A: Yes because that payment is only considered
Jimenez vs. Rabot
as an act of administration.
Jimenez sent a letter to his sister asking his
He used the proceeds of the palay to pay sister to sell one of his parcels of land. With that
the indebtedness of his principal with a letter, the sister indeed sold one of his parcels
certain bank (PNB) without SPA, of land to Rabot. However, the sister did not
remit the proceeds of the sale, binulsa lng nya,
not in the matter of acts of administration
so when Jimenez went back to Pangasinan, he
without SPA.
demanded the property, yun ay na kay Rabot
Other Acts / Contracts which Require a na, so he filed an action against Rabot, the
SPA 1. Entering into a compromise agreement defense raised by him is that the letter would
with SPA. He cannot submit the matter to the not be sufficient a power of attorney to bind
arbitrator without another SPA, those are 2 and him as a principal in the sale of the parcels of
separate distinct powers - the power to submit land.
matters in the arbitrator and the power to
Held: A letter suffices as a power of attorney.
compromise.
When you sent a letter to your brothers or
sisters you do not notarize such letter.
If this lease involves immovable like a parcel of
OBLIGATIONS OF THE AGENT
land, for a period of 3 years without a SPA,
would that be valid and Binding?
1. Primarily, the obligation of the agent is
to carry out the agency. If he failed to
if it would be a car for 3 years without SPA, carry out, he may be held liable.
even if it is for 3 years this would be a valid and
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Q: Should he carry out the agency after Q: The agent was authorized to lend
the death of the principal? money of the principal, may the agent
A No, the agency is extinguished by the death of himself be the borrower of the money
the principal. However, if delay would impair without the consent of the principal?
danger for an already began but then A: This time hindi na pwede. He may be a good
unfinished contract, he should continue to carry agent to lend the money to other person but he
out the agency. may not be a good debtor. Thus, the law would
protect the principal in that case.
If he did not carry out agency, he may
not be held liable? Insular Drug vs. PNB Facts: The agent here
Exception was authorized to collect sums of money
including checks from the client of Insular.
He should not carry out agency if it would result
in loss / damage in the principal. The checks were payable to Insular but instead
of delivering the checks in the Insular, he
encashed the check or deposited the checks in
2. In carrying out the agency, there are 2 his account in PNB.
obligations of the agent, he should
always remember: Does the authority to collect the checks
(a) To act within the scope of authority includes the power to indorse the checks or
(b) To act in behalf of the principal or even the power to encashed the check?
inrepresentation of the principal.
No, the power to collect does not include the
Mack vs. Kang, if a person who is an agent power to indorse or the power to encash the
has the authority to manage the restaurant, checks.
necessarily, he must have the authority to Q: The obligation to act on behalf of the
purchase items for the management of the principal - If the agent acted for himself
restaurant - the act of buying these items, like and did not disclose his principal, would
plates, these are reasonable and necessary for that 3rd person has a cause of action
the accomplishment of the agency. against the principal? A: No.
The principal authorized his agent to sell his car, Q: Would that principal have a cause of
a specific car for 300k. The agent sold the car action against the 3rd person?
for 400K. A: Wala din. exception in
The agent indeed may be considered to have or If the object involved in the contract entered
may be claimed to have acted outside or in into by the agent and the 3rd person belongs to
excess of his authority because he told to sell the principal - the law grants / gives a cause of
the car for 300k. action to the 3rd person against the principal and
viceversa.
If the principal authorized the agent to
borrow money without the authority of
the principal can the agent himself be Q: If the agent acted within the scope of
the lender? his authority and in representation of the
A: The law provides yes, as long as the interest principal, who will be bound in such
rate will be the market rate, so the agent may contract?
be the lender.
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A: Aside from the 3rd person, it will be the pursuant to an agency even if it not
principal because again the agent is merely owing to the principal.
representing the principal.
Q: However, is it possible for the agent Stipulation exempting him from this obligation
himself to be bound in such contract or to render an accounting is void.
be held liable under such contract?
A: Yes. If he expressly binds himself to that Obligation to render an accounting
Q: The principal authorized the agent to
contract, why he would do that? Agent lang
sell a car for 300k, the description of the
naman sya,
car was mentioned in the SPA. However,
the 3rd person to whom a thing is offered for before the agent would sell the car, the
sale for example the agency to sell, the 3 rd principal called him by phone and
instructed him to sell the car in QC to a
person will say that “I will buy that if you also
member of IBP chapter. Instead of
bind yourself as one of the sellers” because I selling the car in QC to an IBP member,
don’t know the principal. Eh ang agent gusto he sold the car in Manila to a person not
kumita, sige na din di ba. He will bind himself known by the principal for 300k.
personally in the contract as a seller and not as (1) Can the principal recover the car
an agent. from thebuyer if that car is already
delivered to the buyer?
The contract even if he acted within the (2) Any remedy provided by the law
scope, acted in representation of the principal, to theseller or to the principal?
he acted negligently or in bad faith. A: (1) It depends, if that buyer has no
knowledge of that instruction of the principal
then he has all the right to retain the car and
every person who is guilty of fraud,
that sale will be valid and binding as against the
negligence, etc.. will be held liable for damages.
principal. As provided under Art. 1900 so far as
3rd persons are concerned they only rely on the
the agent may be held liable if he acted beyond
SPA as written. They have no obligation to
the scope of authority. Also, if he acted beyond
inquire on the special instructions made by the
the scope of his authority, however, he may not
principal which are not mentioned in the SPA,
be held liable under such contracts and under
certain circumstances:
(2) To go after the agent for damages, if there is
(a) The principal ratified - then the
any damage sustained by him for his failure to
principal will be held liable and be
follow the instructions of the principal.
bound on such contract.
(b) Even if the principal did not ratify, if the
3rd person was notified of the fact that If the agent acted outside the scope of his
the agent was in excess of his authority authority and this was known to the 3 rd person
or even if he was not notified, he was the contract is void. Take note by the specific
aware of the fact that the agent was in provision of the law this contract is void and
excess of his authority. subject to ratification.
3. One important obligation of an agent Is it possible that the agent be held
is to render an account of his liable to the 3rd person even if the 3rd
transactions and to deliver to the person was aware of the fact that the
principal whatever he may have receive
November 2008
agent was in excess or outside his ok you can appoint a substitute but if you will
authority? appoint a substitute, appoint Pedro”. If the
A: Yes, if the agent promised to obtain the agent appointed Pedro, would he be held
ratification of the principal and failed to obtain liable for the losses incurred by the
the ratification. principal coz of the acts of Pedro? A:
Hindi naman.
BE: X appoints Y as his agent to sell his
(X) products in Cebu City. Can Y appoint
subagent? And if he does what are the
effects of this appointment? LIABILITIES OF 2 OR MORE AGENTS
A: Yes, the agent may appoint a subagent, if the
Q: If the principal appointed 2 or more
principal does not prohibit him in doing so. But
agents for a certain transaction, what
he shall be responsible for the acts of the would be the nature of their liability?
substitute especially if one appointed turns to Can they be held liable jointly or
be incompetent or insolvent. solidarily?
A: Agents can only be held jointly liable unless
But if the agent appointed a substitute,
they expressly bound themselves solidarily.
the answer will depend on Art 1892.
But Even if they bound themselves solidarily
and damage was incurred by the principal due
may the principal hold the agent
to the act of one of the agents, it is still possible
liable?
that they may not be held solidarily liable
The first thing you have to consider is if he was
prohibited in appointing a substitute or not. If if that agent who caused damage to the
he was prohibited he will be held liable because principal acted outside the scope of his
he appointed 1 despite the prohibition. authority.
if it is against the prohibition, such acts Commission Agent
are void. If he was not prohibited under the law, Authorized to sell and he would have a
he shall be responsible for the acts of the commission as to the price.
substitute
Q: If the agent sold a refrigerator on
If in the management of the business of credit without the consent of the
the principal losses were incurred because the principal –
substitute misappropriated the income of the
10k ang sabi ng principal, he may be
business or acted with gross negligence,
able to sell it at 15k pero 4 gives. If
the agent will be responsible for the payable every other month, the next day
acts of the substitute and he may be held liable after the sale, the principal having been
informed of the sale, he demanded for
for the losses incurred by the principal because
the proceeds of the sale. Can the agent
the substitute acted negligently, outside the
be compelled to pay or deliver the
scope of the authority and in bad faith. proceeds of the sale.
However, if the agent was given the
power to appoint, there may be 2 scenarios: A: Yes, he can be compelled to deliver the
(1) The person to be appointed as the substitute proceeds as if it was sold on a cash basis
may have been designated or (2) the person to because he sold it on credit without the consent
be appointed was not designated. of the principal.
November 2008
Q: What if 4 months after, he have (estoppel). The principal and the agent
already collected 15k, can the principal will be solidarily liable.
claim “di ba you only gave me 9k which
is based on the 10k price but you were (2) Obligation to advance the money
able to sell it at 15k, so I should get 90% necessaryfor the accomplishment of
of the 15k”. Is that a valid claim? the purpose of the agency.
A: No, under the law, if the commission agent (3) Obligation to Reimburse
sold the thing on credit without the consent of G.R.: The principal
the principal, he is entitled to any profit which Exc: 1918
he would derive from such obligation. a. If the agent is acting in contravention of
the instructions of the principal.
BE: The agent was authorized to sell 20 Example: He sold items in Cebu
units of refrigerator. He received in instead in Cagayan.
addition to his commission, a guaranty However, if the principal wants to avail
commission. He was able to sell the of the benefits derived by the agent,
refrigerators and received his guaranty. the principal will be obliged to
However, the buyer failed to pay the reimburse.
price of these refrigerators. The b. Agent was at fault
principal demanded from the agent the
money which he could have delivered to
the principal as a guaranty commission Q: Ayce was authorized to lease a
agent. The defense raised by the agent specific property (warehouse). She
is that he has no obligation to collect the entered into a lease contract with Dian.
price. The agent said that his only However, the principal (Chato) also
obligation is to sell the refrigerator. Is entered into a contract of lease over the
that correct? same property with another person
A: No, as he received a guaranty commission, named Gerard. Which contract will be
he is known as a guaranty commission agent. recognized?
He is also known as “del credere agent” and as A: Based on priority in time, priority in right.
such, he bears the risk of collection. The prior date should prevail. Take note that
this is a lease of property.
OBLIGATIONS OF THE PRINCIPAL
In sale, priority in time is not applicable.
(1) To comply with the obligations which
theagent may have contracted within MODES OF EXTINGUISHING AGENCY
the scope of his authority and in E – xpiration of the period
representation of the principal. D – eath, civil interdiction, insanity
W – ithdrawal
If the agent acted outside the scope of his A – ccomplishment of purpose
authority, the principal may not be bound to R – evocation
such contract. But even if the agent acted D – issolution of the entity
beyond or outside the scope of his authority,
Q: Is this enumeration exclusive? A:
the principal may be bound if:
Extinguishing obligations are equally applicable
1. He ratified
to agency. Example: mutual dissent, loss of the
2. He contributed to deceive the 3 rd person
into believing that the agent acted thing due to fortuitous event.
outside the scope of his authority
November 2008
BE: Ariel authorized Jessica to sell a the death of the principal and the third person
pendant with a diamond valued at 5k. is in good faith.
While Jessica was on her way home, 2
persons snatched the bag containing Rallos vs. Felix
the pendant. Thus, Jessica was not able The agent was a brother of his two sisters. He
to sell the pendant. Ariel sued Jessica. was authorized to sell the land. The brother
Jessica raised the defense that robbery sold the land only after the death of one of the
is a fortuitous event and therefore he
sisters. He sold it to Felix. The administrator of
cannot be held liable for the loss of the
his sister filed an action to recover the property.
pendant. Ariel claimed that before
Jessica could invoke fortuitous event, What is the effect of the death of one of the
there has to be conviction of the principals?
perpetrators of the crime and even
though this is a fortuitous event, there Held: As to the surviving sister’s portion, it is
was negligence on the part of Jessica in valid and binding. But as to the deceased sister
walking alone with that pendant. Decide. (Article 1919), the authority of agent was
terminated after the death.
As to the contention of Ariel, conviction is not Revocation
required. Preponderance of evidence is It is an act of the principal. The principal can
sufficient. Jessica cannot be held liable because revoke the authority of the agent at will at any
walking alone is not a negligent act. time. Q: Would this be correct if the
parties agreed for the period of agency?
What is the effect of the death of the Can the agent hold the principal liable
agent? for breach of contract?
A: G.R.: The agency is extinguished (Article
The principal can revoke anytime even when
1919). EXC.: Article 1930 – if the agency was
there is a period agreed upon because agency is
constituted for the benefit of both parties or for
based on trust and confidence.
the benefit of a third person who accepted the
benefit, then that agency shall continue even Q: If he has the power to revoke, may
after the death of the agent. the principal be held liable?
A: Yes If there is abuse of right, the liability
BE: P authorized A to sell a land (14 would be under the provisions on human
hectares). In 1950, before A could sell, P relations.
died. After P died, in 1954, the heirs sold
the land to X. In 1956, A sold it to Y. Who A sold a land to B at 100M. They agreed
has a better right? that it will be paid in 10 years. The seller
A: If A has no SPA, this sale is void under Article reserved title over the land. In order for
1874. X would have a better right. If there was a B to pay the price, A constituted B as his
SPA, it depends if A has knowledge of the death agent for the development of the land –
of P or if he was in good faith. If A has subdividing the land, constructing
knowledge of the death, X has a better right. If Y houses and selling the house and lot.
Proceeds to be delivered to the seller
is in bad faith (he knows of the death of P), X
who is also the principal as payment of
has a better right. the price in the sale of land. However, in
The act of an agent after the death of the the 5th year, the principal revoked the
authority of the agent. Was the
principal will be valid if he had no knowledge of
revocation valid? A: Not valid, because this
November 2008
is an agency which is coupled with interest.
Here, (1) a bilateral contract depends upon the
agency and (2) the agency is the means of
fulfilling an obligation which has already been
contracted.
Q: If agency coupled with interest –

possible that it could be revoked?
A: SC said in Collongco – Yes, if the revocation
was with a just cause. In the case of Collongco,
there was a just cause because the agent
committed acts contrary to the interest of the
principal. Collongco attempted to ask the
superintendent of the factory to destroy the
machinery by pouring acid.
Partnership
November 2008
Chato, using all his savings in the total partner which is obviously not present in co-
amount of 2,000, decided to establish a ownership.
restaurant. Faye, however, gave 4,000 as
“financial assistance” with the Powers of the Members:
agreement that Faye will have 22% share Unless otherwise agreed upon, each partner is
of the profits of the business. After 22 an agent of the other partners and of the
years, Faye filed an action to compel partnership.
Chato to deliver to her the share in the Co-ownership: As a rule, a co-owner cannot act
profits claiming that she was a partner. as an agent of the other co-owners unless
Chato denied that Faye was her partner.
otherwise agreed upon between the co-owners.
Is Faye a partner of Chato?
PROFITS:
A: Yes, Faye was a partner in the business
Co-owner: Mas malaki ang profits, mas malaki
because there was a contribution of money to a
ang interest. But not necessarily in partnership,
common fund and there was an agreement to
because the sharing in the profits may be
divide the profit among themselves.
stipulated upon by the parties. Pero kung
DEFINITION OF PARTNERSHIP walang stipulation, it may be based on the
Q: What if two or more persons agreed capital contribution.
to put up a partnership but they never
intended to divide the profits among Q: Will death extinguish co-ownership?
themselves, would that still be A: No, Kapag namatay ang isang co-owner, his
considered a valid partnership contract? heirs will be the co-owners of the surviving
A: Yes, under the second paragraph of the coowners at pwedeng tulou-tuloy lang yan.
article, two or more persons can form a However in partnership, if it is a general
partnership for the exercise of a profession. partnership, if one of the partners dies, the
Partnership vs. Co-ownership partnership is dissolved.
Consider the essential features: 1.) BE: May the spouses enter
Creation: into a limited partnership to engage in a
Partnership is obviously created by agreement. realty business, with the wife as a
Coownership may be created by agreement, but limited partner? A: Yes, because spouses are
it may also be created by operation of law. In only prohibited, under the New Civil Code, to
fact, by express provision of the law, the fact enter into a universal partnership.
that there is co-ownership does not necessarily
BE: Can a corporation enter into a
mean that there is a partnership existing
contract of partnership with an
between two persons. Example: Two persons individual? Can a corporation enter into
may inherit a property from their father or a contract of partnership with another
mother, and under the law, they may be corporation?
considered as co-owners of the same property. No. While a corporation may enter into a joint
venture, it cannot validly enter into a contract
Purpose:
Partnership: either to divide profits or exercise of partnership. Under the Corporation Code,
a profession. the business of the corporation is supposed to
Co-ownership: Common enjoyment of the thing be governed by the board of directors, and if
or right owned in common; such a corporation will enter into a contract of
partnership, the other partners may bind the
Partnership: it has a juridical personality, corporation in certain activities without the
separate and distinct from the individual consent of the board of directors.
November 2008
Q: If the agreement of the parties to a
Those persons who are prohibited fromgiving contract of partnership was only a verbal
each other any donation or advantage cannot agreement, would that be a valid and
enter into a UNIVERSAL partnership: binding contract? Will there be a
a.) those guilty of adultery or juridical personality created? A: As a rule,
concubinage at the time of the yes. Even if under Art. 1772, the law provides
execution of the contract because it that every contract of partnership, having a
would be easy to circumvent the capital of more than Php3,000 or more, shall be
provision on donation in a public instrument and must be registered
with the SEC.
b.) Other persons prohibited are those
mentioned in Art. 1739, those
persons mentioned in the law on Q: Is there a partnership agreement
donation. which would require a particular form for
2. Object of Partnership: the validity of the partnership
To engage in a lawful activity. agreement?
Q: If the object is to engage in a lawful if one of the contracting parties promised to

activity, necessarily the partnership is contribute an immovable, there has to be an
valid? inventory of such immovable and signed by the
A: No. contracting parties. If there is no inventory, the
law is very clear, the partnership is void.
only corporation may engage in insurance and
banking business, therefore there can be no Consequences: separate and distinct
partnership engaging in such business: banking personality
and insurance. 1.) It can own its properties;
2.) It can sue and be sued;
3. Cause of Partnership
3.) It may be found guilty of an act of
. insolvency;
Q: What would be the effect if either the 4.) It may be dissolved for committing
cause or the object of the partnership is an act of insolvency.
illegal or if the partnership has an
unlawful cause or object?
A: The contract of partnership is void and under
Campos-Rueda vs. Pacific Commercial
Facts: The partnership here filed a petition for
the law, when the contract is void, it produces
the dissolution of the partnership, but one of
no legal effects whatsoever, therefore, action to
the creditors opposed the petition for
compel a party to the contract to distribute the
dissolution on the ground that there was no
profits will never prosper. In fact, under the law
showing that the individual partners are already
on partnership, the State will confiscate the
insolvent.
profits of such illegal partnership.
Held: The solvency or insolvency of the
Q: Will an action to compel a partner to
render an accounting prosper? individual partners is irrelevant as to the
A: No. Any action to enforce a void contract will petition of the dissolution of the partnership.
never prosper. 2 Kinds of Universal Partnership:
FORMALITIES: 1.) Universal Partnership of Property
November 2008
2.) Universal Partnership of Profit name, if the surname of a general
partner is the same as that of the
If the partners agreed to form a universal limited partner. b.) such surname was
partnership, however, they failed to state what already in the firm name prior to his
kind of universal partnership, it shall be treated entry in the partnership.
merely as a universal partnership of profit,
3.) When he is a general partner and a
TERM OF PARTNERSHIP limited partner in the same partnership
Q: If the partners failed to fix a period, at the same time.
does it mean that the partners agreed a
partnership at will and may be dissolved 4.) When there is failure to comply
at any time without any liability so long substantially as to the formalities
as they acted in good faith? prescribed by law in the formation of a
A: No, because a partnership may be a limited partnership.
partnership for a particular undertaking even if
no period was fixed by the parties.
all of them can be treated as
general partners by third persons.
CLASSIFICATION OF PARTNERS: Therefore, a third person, in this
According to the liability of the partners: scenario, can hold a limited partner
1.) General liable up to his personal properties. The
2.) Limited limited partner’s remedy is to seek
reimbursement from his other partners.
partners are general partners and they are liable
for partnership obligations up to their personal Q: An industrial partner, may be a
property. Each one of them has the right to general partner?
participate in the management of the A capitalist partner may either be an industrial
partnership unless otherwise agreed upon by or general partner.
the partners.
Q: May an industrial partner be a limited
A limited partner cannot be held liable up to his partner?
personal property, the liability of a limited A: No. A limited partner can only contribute
partner will only be up to his capital money or property. He cannot contribute
contribution. He also would not have the right service.
to participate in the management of the Q: But can a partner be both capitalist
business of the partnership. and industrial?
A: Yes, he can contribute both money and
industry. He can be both capitalist and
EXC: Instances when a limited partner may be
industrial and there will be consequences to
held liable up to his personal property:
that.
1.) If he participates in the management of
BE: A and B formed a partnership to
the business of the partnership.
operate a car repair shop. A contributed
2.) If his surname appears in the firm money, B contributed industry. While
name. Except: a.) even if a limited the car repair shop was already in
operation, A operated a coffee shop
partner’s name appears in the firm
beside the car repair shop. B also
November 2008
operated a car accessories store on the to A. Should this 30,000 be distributed in
other side of the shop. May these proportion to the debts to the
partners engage in those business partnership and to A, meaning, 20,000
activities? will go to the partnership and 10,000 will
A: As far as A is concerned, he can validly go to A.
engage in such business because the law would A: If A is a limited partner, there shall be no
only prohibit him from engaging in a similar distribution in proportion to the credit of these
activity. As far as B, an industrial partner, is two creditors. The law which requires that
concerned, he cannot engage in any business payment be distributed in proportion to the
activity without any express authority or grant two credits will only apply if the partner to
by the partnership for him to engage in such whom the amount is delivered is a managing
business. partner. If he is a limited partner,
B, as industrial partner, is supposed to give his he is a limited partner, then he can have the
time in the said partnership business. right t receive everything he received.
Incoming Partner: Q: Assuming that A is in fact a

Q: ABC Partnership is composed of A, B managing partner and he received the
and C. Thereafter, D became a member 30,000 from X, is it possible still for A to
of the partnership. Six months after D’s retain everything which he received?
entry as a member, a certain obligation, A.: Yes, if this debt is already due and
3 Million became due and demandable. demandable. In this scenario, the debt is not yet
For this partnership obligation, can D be due and demandable. Such debt MUST be due
held liable? and demandable in order for the law on the
proportional distribution to apply to both debts.
If the obligation is incurred after his entry, there Q: A is a managing partner and both
is no question that, if he is a general partner, he debts are due and demandable. 30,000
can be held liable up to his personal properties. was delivered to A. Is it possible for the
partnership to have the right to the
Q: If this obligation is incurred prior to entire 30,000?
his entry as a partner, can he be held A: If A receipted the amount in the name of the
liable?
partnership. By specific provision of the law, if
A: Yes. As a rule, he may be held liable, but only
the managing partner who received such
to the extent of partnership property which
amount, receipted the same in the name of the
would include his capital contribution, unless
partnership, the partnership will be entitled to
there is a stipulation to the contrary. Even if the
the entire amount.
obligation was incurred prior to his entry,
however, if in the partnership agreement, he Q: If A, as managing partner, and both
agreed to be bound by those obligations, then debts being due and demandable, he
he can be held liable even to the extent of his received the amount of Php30,000 and
personal property, though he is a new partner. receipted the same in his own name,
may he be entitled to retain everything?
Q: X is indebted to ABC Partnership A: Yes, if X’s debt to A is more onerous and X
which may be limited. The same debtor chose to have this amount paid to this debt.
of the partnership is also a debtor of one Under the law, the debtor has the right to
of the partners. The debt to the choose to pay the debt which is more onerous.
partnership is 100,000, while the debt to
the partner is 50,000. X delivered 30,000
November 2008
PROPERTY RIGHTS A: Yes, there can be such valid levy.
3 Major property rights of a partner: Q: In partnership, can a creditor of a
1.) Right in specific partnership property; partner levy upon the rights of the
2.) Interest in the partnership; and partner over a specific partnership
3.) The right of the partner to participate in property? A: That is not possible. Only
themanagement of the business of the partnership creditors can levy upon partnership
partnership. assets or partnership property. This is different
in the partner’s interest in the partnership for
Property rights considered as minor:
this interest in the partnership can be validly
1.) Right to have access to the books of the
assigned by one of the partners even without
partnership;
the consent or knowledge of the other partners.
2.) Rght to demand for a formal accounting.
Interest in the Partnership
Q: Can a partner demand for a formal Simply put, this is a partner’s share in the profit
accounting at any time?
and surplus.
A: No. The law will only give a right to a formal
accounting under very specific circumstances. Q: What would be the share of a partner
Why? Because a partner already has access to in a partnership?
the books, thus, it may be unnecessary to
1.) Stipulation. For instance, in a
demand for a formal accounting at any time.
partnership of 3 persons, they can
Right in specific partnership property: agree that one may have 95% of the
Under the law, a partner is a co-owner profits, while the 2 other partners may
with the other partners as to specific have 5% of the same respectively.
partnership property. Again, he is a co-owner
Q: What if, in such agreement, one of the
with his partners and NOT with the partnership
partners was excluded in sharing in the
over specific partnership properties. profits?
A: Such stipulation is void. Take note that only
such stipulation is void and not the whole
Q in property law, if two persons are co- partnership agreement.
owners of a parcel of land, can a
coowner sell his interest over the parcel Q: What if one of the partners is an
of land without the consent or even industrial partner?
knowledge of the other co-owner? A: By express provision of the law, he shall be
Would that be a valid assignment of given his share by determining the value of the
interest? service rendered. Thus, determine first the
A: Yes. However, in specific partnership value of the service rendered, give the same to
property, there can be no valid assignment of the industrial partners, then the balance will be
interest by one partner. The assignment of distributed to the capitalist partners in
interest of a specific partnership property accordance to their capital contribution.
would only be valid if all the partners would
BE: A, B and C are partners. In their
likewise assign their interests.
partnership agreement, they agreed in
Q: May a creditor of a co-owner of a the equal sharing of the profits.
parcel of land levy upon such portion of Thereafter, C assigned his whole
the land interest over that land owned by interest in the partnership to X. X now
the debtor / co-owner? demanded that he be allowed to
November 2008
participate in the management of the Q: Is the appointment of the secretary an
business of the partnership and also his act of administration? A: Yes.
share in the profits in the business of
the partnership. Are the claims f X valid? Q: Would it bind the partnership? A: Yes,
even if opposed by the other partners, the
capitalist partners, the latter would not have
By express provision of the law, an assignee has any right for this is merely an act of
no right to participate in the management of administration wellwithin the powers of a
the business of the partnership, unless managing partner.
otherwise agreed upon. He will not even have
the access to the books of the partnership. His Q: With regard to the accountant, take
only right would be to receive whatever the note that the appointment by W was
assigning partner may receive as share in the opposed by another managing partner.
How will this tie be resolved?
profits and in the surplus.
A: Under the law, this will be resolved by all the
Q: If profits were declared, for instance, partners with the controlling interest. The
in the amount of 360,000, would the partners with controlling interest will prevail.
assignee have the right to share in the
profits? A: Yes. X is entitled to share of Q: In this case, who has the controlling
Php120,000, since the agreement is equal interest?
sharing of profits. A: Y. The determination as to who has
controlling interest depends on the capital
Right to participate in the management contribution. Thus, an industrial partner is
of the business of the partnership excluded in such cases. In this case, it is obvious
BE: W, X, Y and Z formed a partnership. that 50,000 is more than the capital
W and X contributed industry; Y contribution, and because Y opposed to the
contributed 50,000; Z contributed 20,000. appointment, such appointment will not bind
In a meeting, the partners unanimously the partnership.
agreed to designate W and X as
managing partners, such appointment
having no stipulation as to their
TYPES OF MANAGEMENT:
respective duties nor was there any
1.) Solidary Management:
statement that neither can act without
-without specification as to each other’s
the consent of the other. Thereafter, 2
persons applied for two positions: 1.) as duties or without stipulation that one of them
secretary; and 2.) as an accountant. As shall act without the consent of all.
far as the secretary is concerned, it was
2.) Joint Management:
W and X who appointed the secretary,
opposed by W and Z. The accountant -two or more managing partners with
was appointed by W concurred by Z, the stipulation that none of them shall act
which was opposed by X and Y. Whose without the consent of all others. The incapacity
appointment would bind the of one of the partners, or his absence will not
partnership? be a valid ground not to obtain his consent to a
A: This management arrangement is known as contract. It has to be by unanimous consent,
joint management. Any managing partner may unless, in obtaining his consent (he is absent or
execute acts which are merely acts of incapacitated) it would result in irreparable
administration even if opposed by all the other damage to the partnership, then the consent of
partners, the absent or incapacitated managing partner
November 2008
may be dispensed with. This is also known as 3 Obligations of the partners:
management by consensus. 1. To make good his promised
contribution: A. Money:
3.) If there was management arrangement
agreed upon between the partners, each
partner is considered as an agent of the If the partner promised to contribute
partnership. money, for instance, the partners agreed to
contribute 1 Million with 4 partners, without an
Into these arrangements, if only one partner is agreement as to respective amount to be
appointed as a manager, he can execute any contributed, the law provides that they will
acts of administration even if opposed by all the have to share equally.
other partners.
If one partner failed to make good his
Q: In a partnership of which the promised contribution which is a sum of money,
business is into buying and selling cars, he can be held liable by the nondefaulting
the managing partner decided to buy a
partners up to the amount promised plus
vintage Mercedes Benz, to the
interest. If no rate was stipulated by the parties,
opposition of the other partners for they
consider it bad investment, will the it will be the legal rate of 12%, because this is
decision or the act of the managing forbearance in money.
partner in buying the said car bind the
Remedies that may be invoked by
partnership? A: Yes, because such act is
the nondefaulting partners:
merely an act of administration. The problem is,
if the managing partner continues to not 1.) Specific performance - the other
consider the sentiments of the other partners, partners can compel him to make
he may be removed as a managing partner. good his promised contribution.
2.) Dissolution - may be an option by the
Q can he be easily be removed? non-defaulting partners, if that is the
No. only amount that they are expecting
for the partnership.
If he was constituted as a managing
partner in the articles f partnership, he can only Q: Can a non-defaulting partner rescind
be validly removed under two conditions: the partnership agreement? rescission is
1.) There has to be just cause; and not a remedy of the non-defaulting partners.
2.) by those partners having controlling Under the law, the defaulting partners are
interests. treated as a debtor of the partnership by
specific provision of the law. Therefore, that
Absent one of these conditions, he cannot be provision prevails over the general rule in
validly removed. In fact, even if there is just obligations and contracts wherein rescission
cause, if the managing partner controls 51% of may be a remedy in case of serious breach.
the partnership, he can never be removed.
C. Industry
if he was appointed as a managing
If a partner fails to render service as
partner only after the constitution of the
promised, will specific performance be a
partnership, he can be validly removed even
remedy? Ans.: Definitely not. It would be a
without just cause, so long as it was done by
violation of his rights against involuntary
those partners having controlling interests.
servitude. The remedy would be to demand for
the value of the service plus damages.
November 2008
2. Fiduciary Duties: obligations. The remedy of the industrial
The duty to observe utmost good faith, honesty, partner, if held liable, is to go after his partners,
fairness, integrity in being with each other. This for the agreement is valid among themselves.
duty commences even during the negotiation
Q: What if there is no stipulation as to
stage.
the sharing of the losses, or that the
May a partner may be held liable for stipulation in void?
breach of fiduciary duty even after the
termination of the partnership?
A: Yes. If there is an agreement as to profits,
then the sharing in the profits will be the same
if the foundation of that act was made during basis in the sharing of the losses
the existence of the partnership that can still be
considered as a breach of fiduciary duty. last scenario, there is no stipulation as
to losses and there is also no stipulation as to
3. Participate in the Losses: profits. In this case, it would depend on their
capital contribution.
Q: What will be the share of the partner
in the losses incurred in the Thus, in this scenario, would the
partnership? A: Consider first whether there industrial partner share in the losses?
was a stipulation as to losses or there was no A: Wala, kasi wala syang capital contribution.
stipulation.
Q: Assuming that the assets of the

This will be a valid and binding partnership are not sufficient to cover
stipulation among the partners. the obligations of the partnership, what
would be the nature of the obligation of
Q: Would this still be a valid stipulation the partner? solidarily liable? Or would
if one of them is an industrial partner? they only be held jointly liable?
Yes, If the industrial partner agreed to share in
the losses, then who are we to deny him that? For contractual obligations, as a rule, the
partners would only be jointly liable, unless
Q: What if in the stipulation regarding
they bound themselves solidarily, for
losses, one or more of the partners is
excluded in sharing with the same, what contractual obligations. However, If the
will be the status of the stipulation? obligation arose from a tortuous act or a
A: It depends on who was excluded. If the wrongful act
excluded partner is a capitalist partner, that for example, while in the performance of his
stipulation is definitely void, 100%. obligation, a partner received a sum of money
If the partner excluded is an industrial from one of its clients which sum of money was
partner, it depends. As among the partners, this misappropriated that partner, such partner will
stipulation is valid, however, this is void among be held solidarily liable with his partners and
third persons. In other words, despite the with the partnership.
stipulation among partners, in excluding the United Pioneers General
industrial partner in sharing in the losses, the Construction Case, the creditor filed a
creditors of the partnership can still hold such collection suit impleading the 5 general
industrial partner liable for his contractual partners. During the pendency of the case, the
November 2008
creditor asked for the dismissal of the action as partnership to such contract, ang negosyo nila
against one of the partners. restaurant. 
Q: But the seller would raise the
the amount which was found to be the liability defense, “hindi ko naman alam na
of the partnership was Php100,000, restaurant yung business, e ang
nagrepresent ng partnership si Atty.
the assets of the partnership will not be ABC, so akala law firm.” Is that a valid
sufficient to cover this indebtedness, the defense?
partners will be liable to pay equally. A: No. The SC would tell that the third party
contracting with the partnership has the
should they be liable 25,000 each or 20,000
obligation to know at least the nature of the
each including the 5th partner?
business of the partnership.
The liability of the partners is only joint,
therefore, the condonation of the liability of Q: A,B,C,D, and E did decide to buy the
one partner will not increase the liability of the set, but designated A to buy the same
other partners. and not E, but the E bought the SCRA,
would that contract bind the
Thus, partnership?
A: Yes, as long as the third person was not
they have to share in the losses, equally aware of that agreement of the partnership
into 20,000, yung apat na lang na defendants, because such act is an act apparently for
kasi yung isa, condoned na yung obligation. carrying on the business of the partnership the
usual way. So, if the partnership is a law office,
OBLIGATIONS OF PARTNER RE: 3RD
but the partner bought certain things for a
PERSONS Q: When would a contract
entered into by a partner bind the restaurant, then such act is not apparently for
partnership? Ex.: If a partner went to a carrying on the business the usual way, thus
furniture shop to buy furniture the of such act would require the consent of the
which is Php100,000, and such amount partners in order to bind the partners.
remained unpaid, can the seller demand
Under Article 1818, there are certain acts which
payment from the partnership? A: It
law requires the unanimous consent of the
depends as to whether the contract was
partners for such a contract or act to bind the
entered into in the name of the partnership, for
partnership, like, disposing the goodwill of the
the account of the partnership, under its
partnership or to contest a judgment against
signature, by a partner who is authorized to
the partnership or renounce a claim of the
enter into that contract to bind the partnership.
partnership.
Thus, in this example, if in the agreement the
buyer was the partner himself and not the DISSOLUTION, WINDING UP AND
partnership, that partner should be held liable, TERMINATION
for the furniture was not bought in the name of Upon dissolution of the partnership, it is NOT
the partnership. DEEMED dissolved. It will still have to go
through the process of winding up of the affairs
Q: if a partner bought a complete set of of the business of the partnership before the
SCRA in the name of the partnership partnership itself will be terminated.
pero naman, and business ng partnership ay Q: When would there be a dissolution of

restaurant, hindi naman ata na i-bind nya ang a partnership?
November 2008
the act of the two partners? May the
action filed by Philip to dissolve the
if there is a change in the relation of the partnership prosper?
partners caused by any of the partners ceasing by the express will of all the partners who have
to be associated in the carrying on of the not assigned their interest is a cause for the
business of the partnership. dissolution of the partnership.
Q: May there be a dissolution even if Q: As far as Philip was concerned, will
none of the partners ceased to be his petition prosper, even assuming that
associated with the carrying on of the no dissolution was made by the 2
business of the partnership despite the partners?
definition of dissolution under Art. A: No. With the assignment of the interest of a
1828? partner to another person that does make the
Yes. With the admission of a new partner, assignee a partner of the partnership without
under Art. 1840, the partnership is dissolved. the consent of the other partners, therefore, he
Q: What is the effect of the dissolution? , has no personality to file a petition for the
It will not result in the termination, it will only dissolution of the partnership.
start the winding up process, effectively, this Expulsion of any partner in good faith, it
will terminate the authority of all partners to maybe because the grounds for expulsion was
bind the partnership, agreed upon by the partners and one of the
CAUSES OF THE DISSOLUTION partners violated such agreement, thus he may
1.) Extrajudicial; be expelled in good faith, therefore it may be
2.) Judicial. voluntary and without violation.
Extrajudicial causes: INVOLUNTARY CAUSES:

1.) Voluntary; Q: If one of the partners in a partnership
2.)Involuntary. was elected a Senator, would this
dissolve the partnership by operation of
Judicial causes are necessarily voluntary
law? A: No.
because it is by application.
Q: Even if it is a partnership of lawyers
By the will of one of the partners: the
or a law office? A: No.
partnership may be dissolved without liability
on the part of the partner, if the partnership is a Under the Constitution, these elected officials
partnership at will and he dissolved the are prohibited only from appearing before
partnership in good faith. tribunals and not from private pratice.
BE: A, B and C agreed to form a Q: If a lawyer was appointed in the
partnership for a period of five years. cabinet, would that result in the
After 2 years of business, C assigned dissolution of the partnership by
his whole interests to Philip. The two operation of law?
other partners, realizing that they would A: Yes. Under the Constitution, Cabinet
not be able to deal with Philip, decided Secretaries are prohibited from private practice
to dissolve the partnership. Philip, not
of their profession.
knowing of the dissolution done by the 2
partners, filed a petition for the
dissolution of the partnership with the
court. Was the partnership dissolved by
November 2008
Q: What if the law partner was elected as
governor of his province will it result in
the dissolution of the partnership? A: Yes.
Local Government Code, chief executives are
also prohibited from the private practice of
their profession.
Q: What if the partner who died is

a partner in a limited partnership? Would
that dissolve automatically the
partnership?
Insolvency or civil interdiction of any partner

will result in the dissolution of the partnership.
Judicial Causes: Grounds:

1.) Insanity or incapacity:
-The courts require that it should be
permanent in character; and -such incapacity or
insanity must affect the performance of such
partner of his obligations with respect to the
partnership business.
Q: Quarrels among partners, valid

ground? A: Normally, no. However, if such
quarrels give rise to dissension among the
partners, affecting the conduct of the business
of the partnership, this can also be a valid
ground, falling under “other circumstances”
which would render the dissolution equitable.
Q: Upon the dissolution of the

partnership, and there were assets left,
how will these be distributed? To whom
these assets be given? A: As far as
partnership assets are concerned:
1.) Partnership creditors who are not
partners.
2.) Partnership creditors
3.) If there are remaining assets, to the
capitalist partners;
4.) Excess - profits based on their
agreement as to profits.
TRUST
November 2008
The classification of trust into two kinds BE: A and B, brother and sister
(express and implied) and implied trust into two respectively, inherited two identical
kinds (resulting and constructive) would be parcels of land. For purposes of
relevant in two concepts: convenience, B, sister of A, agreed to
have the land registered in the name of
1.) Applicability of the parole
A. However, when the parcels of land
evidence rule; and
were registered in the name of A, A sold
2.) Prescription, specifically, one of the parcels of land to a buyer in
acquisitive prescription. good faith and for value. Can B recover
the land from the buyer? What would be
Note: An express trust over an immovable may
the remedy of B?
not be proven by parole evidence.
EXPRESS TRUST B cannot recover the land from the

Q: May an express trust over an buyer.
immovable be proven by mere testimony
a buyer who had bought the property
of the witness?
A;Yes, if the lawyer of the other party did not from a seller who has no right to sell, but he has
object to the presentation of the witness. apparent authority to sell, and the buyer bought
the property in good faith, he will acquire
BE: In an agreement between A and B, a ownership over the thing even if the seller has
property of A was to be registered in the no right to sell.
name of B, with an agreement the B will
reconvey the property to A’s son upon B’s remedy would be to go after her
the graduation of the said son (A’s son). brother for breach of trust in selling the
property without her consent.
In 1983, A’s son graduated. Despite that
fact, B did not reconvey the property. He BE: A property was bought by a father
had no knowledge of this agreement and was registered in the name of his
until 1993, when accidentally, the son of illegitimate daughter. The illegitimate
A discovered such instrument pertaining daughter occupied the said parcel of
to the agreement of A and B. Thus, he land and constructed a house where she
demanded that the land be conveyed to and her husband and their children
him. B refused raising the defense of lived. Several years thereafter, her father
prescription. Is this claim tenable? died. The other heir of her father (his
A: Definitely not. This pertains to an express legitimate children) demanded for the
trust. In an express trust, trustee will be holding delivery of the said property to the
the property only in the name of the beneficiary estate for distribution to the other heirs,
claiming that a trust relationship was
or the cestui que trust, therefore, he cannot
established between the father and the
acquire the said property by acquisitive illegitimate child. Is this a valid claim?
prescription unless there would be adverse
possession over the property.
Q: Can the other heirs recover that
property?
A: It depends, considering that it is a donation,
IMPLIED TRUST
if the donation is inofficious. If the same be
Resulting Trust: inofficious, the other heirs may demand for the
November 2008
return of the property or at least the value of
the property.
Resulting trust includes Articles 1448, 1451,

1449, 1450,1452,1453,1454.
Constructive Trust:
November 2008
BE: A applied for the registration of a parcel of land in
his name. However, he was called in New York to be a
chef in a hotel. So, he asked his cousin to follow up
his application for registration of land while he was in
New York. Instead of ensuring the registration of the
property in the name of A, he had the property
registered in his (cousin) name. After which, he sold
the property to a thi4rd person who bought the land
relying on the TCT. When A returned to the Phils., he
learned of what his cousin had done. May A recover
the parcel of land from the 3 rd person who bought the
property in good faith and for value? A: No.
Q: Let’s assume that the remedy here is conveyance,

the cousin has not yet been able to sell the property to
the 3rd person, however the same in registered in the
name of the cousin. If the cousin would raise the
defense that the action was filed more than one year
from the time of registration of the property in his
name, is that claim tenable?
A: Untenable. The one year period provided by law is relevant
only if the action filed is for the reopening of the registration
case because of fraud. Thus, if the action is for reconveyance, it
does not matter of the one year period has already lapsed
Q: In constructive trust, may the trustee acquire the

property by prescription by mere lapse of time,
without repudiation?
A: Yes, because from the very start, he was already claiming

ownership over the thing. Iba don sa resulting trust or express
trust.
sa constructive trust, itong pinsan at yung abogado in one case, would be claiming ownership over the property, right
from the very start and therefore without need of repudiation, yung prescriptive period will start to run in a constructive
trust
November 2008

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Frensel vs.

Definition: In one case decided by the SC, involving an

SC ruled that this cannot be One of the defenses raised by Dy was

TERMINATION OF THE LEASE

Yes. He was justified because by the destruction

BE: Discuss the effect of death of

IMPLIED NEW LEASE

The question in the bar could be as

BE: Pertain to contract of lease entered

Because a form is required for the validity or

1892 - pertain to appointment of the

Agency and negotiorum gestio may be

COMPENSATION OF THE AGENT Q: The right to vote may be delegated to

Q: If agency coupled with interest –

Q: If the object is to engage in a lawful if one of the contracting parties promised to

Incoming Partner: Q: Assuming that A is in fact a

Q: Assuming that the assets of the

pero naman, and business ng partnership ay Q: When would there be a dissolution of

Extrajudicial causes: INVOLUNTARY CAUSES:

Q: What if the partner who died is

Insolvency or civil interdiction of any partner

Judicial Causes: Grounds:

Q: Quarrels among partners, valid

Q: Upon the dissolution of the

EXPRESS TRUST B cannot recover the land from the

Resulting trust includes Articles 1448, 1451,

Q: Let’s assume that the remedy here is conveyance,

Q: In constructive trust, may the trustee acquire the

A: Yes, because from the very start, he was already claiming

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