Hizon Notes - Partnership, Lease and Prescription.doc

NOTES ON PARTNERSHIP AGENCY, TRUSTS, LEASE AND PRESCRIPTION Kenneth and King C. Hizon _________________________________________________________________________________________________________________

UNIVERSITY OF SANTO TOMAS Faculty of Civil Law BAR REVIEW

NOTES ON CIVIL LAW REVIEW II: PARTNERSHIP, AGENCY, TRUSTS LEASE AND PRESCRIPTION TITLE IX PARTNERSHIP CHAPTER 1 General Provisions Article 1767. By the contract of partnership two or more persons bind themselves to contribute money, property, or industry to a common fund, with the intention of dividing the profits among themselves. Two or more persons may also form a partnership for the exercise of a profession. (1665a)

NOTE: Persons who attempt but fail to form a corporation and who carry on business under the corporate name occupy the position of partnership inter se. Such a relation does not necessarily exist however for ordinarily persons cannot be made to assume the relation of partners as between themselves when their purpose is that no partnership shall exist. No de facto partnership was created among the parties which would entitle the petitioner to a reimbursement of the supposed losses of the proposed corporation. PARTNERSHIP BETWEEN HUSBAND AND WIFE: The better view is that they can enter into a partnership, so long as it does not violate the fundamental provisions on conjugal partnerships, and so long as the partnership is not universal.

Q: What is a (Business) Partnership? It is a contract between 2 or more persons who bind themselves to contribute money, property or industry to a common fund with the intention of dividing the profits among themselves (Pineda, 2006).

NATURE OF PARTNERSHIP, A MERE PRIVILEGE The organization of a partnership is not a matter of absolute right but a privilege which may be enjoyed only under such terms as the State may impose (Pineda, 2006).

Q: What is a Professional Partnership? 0 It is a contract where two or more persons who do not contribute money or property may also form a partnership for the exercise of a profession (Pineda, 2006).

NOTE: Before the NCC, there are 2 kinds of partnerships: (1) civil; and (2) commercial or mercantile partnership. Now, they are governed by the NCC. There is no more distinctions between them (Pineda, 2006).

REQUISITES FOR A CONTRACT OF PARTNERSHIP

KINDS OF PARTNERSHIPS (Pineda, 2006)

0 1

Mutual contribution to a common stock A joint interest in the profits

As to nature

Commercial Professional

NOTE: Without a common fund, there can be no partnership (Pineda, 2006). NOTE: The consent to contribute to a common fund cannot be implied from the mere fact that a man and a woman lived together in a state of concubinage COMMERCIAL CREDIT MAY ALSO BE CONTRIBUTED: Provided that the notice thereof is given the debtor. However, political credit cannot be contributed to the partnership. INTENT CONTROLLING: Although the fact that parties to an agreement may refer to their relationship as one of a partnership is a circumstance entitled to great weight in determining whether partnership really exists, it is not conclusive. In determining whether or not a particular transaction constitutes a partnership, their intention as disclosed by the entire transaction, and as gathered from the facts and from the language employed by them, as well as their conduct should be ascertained.

As duration

to With a term

At will

Organized for the pursuit of business or trade Organized for the exercise of profession fixed Organized for a specific period. Upon its expiration, it is dissolved unless continued by all the partners or by some of them (Art. 1830, 1785) Organized without any definite period; not formed for a specific undertaking and is terminable at anytime by the agreement or consent of the parties.

As to legality De jure One which has complied with all of its partnership the necessary requisites for its organization lawful establishment. De facto One which has failed to observe partnership the requisites for its lawful establishment.

NOTES ON PARTNERSHIP AGENCY, TRUSTS, LEASE AND PRESCRIPTION Kenneth and King C. Hizon _________________________________________________________________________________________________________________

As to exercise and its relation to third persons

Real partnership Partnership by estoppel

One which really exists between and among partners themselves rd and also as to 3 persons. Not really a partnership but is deemed a partnership only in relation to transacting third persons. It arises from acts of misrepresentation which may be oral or written or by conduct. rd

BASIS: To protect 3 persons who have relied on the misrepresentation of the alleged partners who are called partners by estoppel. As to public perception

Open partnership Secret partnership

One whose existence is made known to the public One whose existence is not made known to the public

As to its object

Universal

One which has for its object all the present property or all the profits (Art. 1778 and 1780) One which has for its object determinate things, their use or fruits or the exercise of s profession or vocation or specific undertaking (Art. 1783)

Particular

NATURE OF THE RELATIONSHIP BETWEEN PARTNERS It is essentially fiduciary. They are required to exercise the highest degree of good faith. Each is a confidential agent of the other. Thus, a partner cannot, to the detriment of the other apply to his own benefit the results of the knowledge and information gained in the character of a partner (Pineda, 2006).

Principal

Onerous Preparatory

Capable of suit Profit oriented

Its life does not depend on the existence of another contract unlike a mortgage which depends upon a contract of loan Requires consideration consisting in the contribution of money, property or industry After its constitution, another contract essential in the accomplishment of its purposes may be entered into by the partners It is endowed with legal personality unless it is an unlawful partnership. It can sue and be sued. It is for the common benefit or interest of the partners (Art. 1770); its purpose must be for profit and not just for the common enjoyment of the property, money, etc. or else it is one of coownership. KINDS OF PARTNERSHIP UNDER THE NCC

AS TO Real partner MEMBERSHIP

One who is really a contributing member of an existing legal partnership like a general, limited or industrial partner Partner by One who is not really a estoppel or partner but represents quasi-partner himself as one. He is liable as a partner so that innocent third persons who relied on his representation shall not be prejudiced

AS TO Continuing CONTINUATION partner OF THE BUSINESS AFFAIRS AFTER DISSOLUTION Discontinuing partner

One who continues the partnership business after the dissolution of the partnership due to the reasons stated in Art. 1840

AS TO VALUE OF CONTRIBUTION

One whose contribution represents the majority or controlling interest One whose contribution represents only a minority interest

PRINCIPLE OF DELECTUS PERSONAE This means that no one become member of the partnership without the consent of all partners (Pineda, 2006). JURIDICAL RELATIONS ARISING FROM THE PARTNERSHIP 0 1 2 3

Between and among the partners themselves; Between partners and the firm; rd Between the firm and 3 persons who may have contracted with it; and Between the partners and such third persons (Pineda, 2006). CHARACTERISTICS OF A CONTRACT OF PARTNERSHIP (Pineda, 2006).

Fiduciary Nominate Consensual Bilateral or multilateral

Based on trust and confidence It has a specific name Perfected by mere consent although in certain cases, formalities are required for validity (Art. 1771) 2 or more persons must be involved in the contract

Majority partner Nominal partner

AS TO EXPOSURE Secret partner TO PUBLIC PERCEPTION

Silent partner

Ostensible partner

One who does not participate in the partnership business after its dissolution

One who participates in the profits and losses of the firm but is not publicly known as a partner. He participates in the affairs of the firm but his involvement is not ostensible One who does not take any active part in the partnership although he may be known to be a partner. However, he shares in the profits and losses One who publicly takes active part in the business of the

NOTES ON PARTNERSHIP AGENCY, TRUSTS, LEASE AND PRESCRIPTION Kenneth and King C. Hizon _________________________________________________________________________________________________________________

Dormant partner

AS TO NATURE Original OF MEMBERSHIP partner

Incoming partner

AS TO STATE OF SURVIVORSHIP

Surviving partner

Deceased partner

AS TO EFFECT EXPULSION

THE Expelled OF partner Expelling partner

AS TO THE Capitalist NATURE OF partner CONTRIBUTION

Industrial partner

AS TO LIABILITY

General partner or real partner

Limited

firm and at the same time is publicly known as a partner One who does not take active part in the partnership business and is not publicly known as a part. One who is a member of the partnership from the time of its commencement as a juridical person One who is not an original member of the partnership. He becomes a member subsequent to the establishment of the firm or one who is to be admitted by the consent of all the members One who remains alive while one of the partners dies or one who continues to be in the partnership after its dissolution by reason of the death of a partner One who died while being a member of the partnership. He shares in the partnership will be paid to his legal representatives One who is expelled from the partnership by the other partner/s for a valid cause Partner who caused the expulsion of a partner for a valid cause One who contributes capital (money or property). He cannot engage in other business which competes with the business of the firm unless there is a stipulation to the contrary. He is liable for the for the losses One who does not contribute capital but only his industry or labor. He cannot engage in any other business without the express consent of the other partners. His industry or labor is supposed to be for the firm alone One whose liability to third persons extends to his separate property when the assets of the firm had been exhausted One who is liable to third

partner or persons only to the extent of special partner his contribution. His liability is limited to a fixed amount, that is, only up to his capital contribution unlike the general partner CapitalistOne who contributes both industrial capital and industry partner AS TO Managing MANAGEMENT partner

Silent partner

Liquidating partner

One who actively manages the business or affairs of the firm. He may be designated in the articles or after the constitution of the firm by agreement of the partners One who does not participate in the management of the business or affairs of the firm through he may be known as a partner. He shares in the profits and losses One who liquidates or winds up the affairs of the firm after its dissolution.

OTHER SPECIAL Subpartner CLASSIFICATIONS

One who associates with a real partner in connection with the latter’s share in the partnership, but he is not a member of the said partnership. A subpartner is related only to the regular partner but not to the partnership itself. He may be admitted only with the consent of all the other partners Retiring One who withdraws or partner retires from the partnership Quasi-partners Those who represent or partners by themselves as partners estoppel although there is really no organized partnership. Nevertheless, they are bound as partners in fact with respect to third persons who deal with them and who relied on the former’s representation

TEST OF EXISTECE OF PARTNERSHIP: What determines whether the transaction between the parties constitutes a partnership is their intention as manifested by the entire transaction, attendant facts, language used and conduct of the parties (Pineda, 2006)

NOTES ON PARTNERSHIP AGENCY, TRUSTS, LEASE AND PRESCRIPTION Kenneth and King C. Hizon _________________________________________________________________________________________________________________

PARTNERSHIP v. CORPORATION (Pineda, 2006) PARTNERSHIP CORPORATION As to creation or establishment By agreement of the parties By law or by incorporation under the Corporation Code As to commencement of legal personality It becomes a juridical person It becomes a juridical person from the time the contract from the date of issuance of begins to exist Certificate of Registration by the SEC As to Lifetime No time limit provided by law Not more than 50 years As to the power to bind Partners, as a rule, are agents of It is the Board of Directors the partnership. They can bind (Trustees) which binds the the partnership and their corporation. stockholders are partners not agents of the corporation As to nationality as a juridical person It is a national of the country GR: It is a national of the where established country under whose laws it was incorporated except in time of war where nationality of the controlling stockholders prevails. The exception applies also in the acquisition of land, natural resources and ownership or operation of public utilities. As to extent of liability Partners are liable with their Incorporators are liable only for private property beyond the the amount of their subscribed amount of their contributions capital stocks, unless they act except limited partners unless with fraud there is stipulation As to management When management is not Power to do business and agreed upon, every partner is an management of its affairs are agent of the partnership vested in the board of directors As to suit for mismanagement A partner may sue as a A stockholder cannot sue in his mismanaging partner name members of the BOD who mismanage the corporation. The suit must be in the name of the Corporaiton As to Transferrability of Interest Transferee does not become a Transfer makes the transferee a partner unless all other partners stockholder. Consent of others is give their consent not required As to causes of dissolution a. Death Said causes are not grounds for b. Insanity termination of the corporation c. Retirement d. Insolvency e. Civil interdiction f. Termination of period or purpose of the partnership g. Expulsion

PARTNERSHIP v. CO-OWNERSHIP (Pineda, 2006) PARTNERSHIP CO-OWNERSHIP As to creation or establishment Created or established by It may be created without contract only whether expressly contract such as by law, other or impliedly by conduct generating incidents like confusion (Arts. 472, 473, 2170) and succession (Art. 1078) As to Juridical personality It has a legal or juridical It has no legal or juridical personality from the time of personality establishment As to lifetime The law does not fix a time limit Term of co-ownership must not exceed 10 years As to effect of transfer of interest Transferee cannot be a partner Co-owner can dispose of his without the consent of all the share in the property and the partners transferee becomes a co-owner without need of the consent of the others As to purpose Intended for profit Intended for collective enjoyment As to power to represent GR: There is mutual power to GR: There is no mutual power to represent one another represent the co-owners except in ejectment cases as plaintiffs As to effect of death It dissolves the partnership It does not dissolve the partnership PARTNERSHIP v. AGENCY An agent does not act for himself but only for his principal. However, a partner is both a principal and an agent. He is a principal for his own interests but an agent for the partnership and for other partners (Pineda, 2006). PARTNERSHIP v. JOINT ADVENTURE The outstanding difference is that a joint adventure relates to a single transaction, although it may comprehend a business to be continued over several years, while a partnership relates to a general and continuing business of a particular kind. (Pineda, 2006) CORPORATION CANNOT ENTER INTO A PARTNERSHIP: A corporation cannot enter into a partnership with another person or entity. The reason is that if it be so allowed, it can be bound by persons who do not constitute the BOD. Corporations are bound only by their BOD. However, they may engage in joint ventures with others (Pineda, 2006). Article 1768. The partnership has a juridical personality separate and distinct from that of each of the partners, even in case of failure to comply with the requirements of article 1772, first paragraph. (n) JURIDICAL PERSONALITY OF PARTNERSHIP: In case of suit against a partnership, a partner, being represented by the firm, has no right to appear or be made a party as an individual separate from the firm.

NOTES ON PARTNERSHIP AGENCY, TRUSTS, LEASE AND PRESCRIPTION Kenneth and King C. Hizon _________________________________________________________________________________________________________________

If a partnership commits an act of insolvency, it may be adjudged insolvent although its members may not be insolvent. It may sue and be sued in its own name. CASES FILED AGAINST PARTNERSHIP WILL NOT BE DISMISSED BY REASON OF DEATH OF A PARTNER: A case will not be dismissed because of the death of a partner, where a partnership possessing a personality distinct from any of the partners (Pineda, 2006). CONTRACT OF PARTNERSHIP IS CONSENSUAL; IF ENTERED ORALLY, IT IS AS GOOD AS A WRITTEN ONE: Partnership exists as long as its requisites are present: 0 1

Two or more persons bind themselves to contribute money, property or industry to a common fund Intention on the part of the partners to divide the profits among themselves (Pineda, 2006).

NOTE: It may be constituted in any form; a public instrument is necessary only when immovable property or real rights are contributed thereto. Article 1769. In determining whether a partnership exists, these rules shall apply: 23 Except as provided by article 1825, persons who are not partners as to each other are not partners as to third persons; 24 Co-ownership or co-possession does not of itself establish a partnership, whether such-co-owners or copossessors do or do not share any profits made by the use of the property; 25 The sharing of gross returns does not of itself establish a partnership, whether or not the persons sharing them have a joint or common right or interest in any property from which the returns are derived; 26 The receipt by a person of a share of the profits of a business is prima facie evidence that he is a partner in the business, but no such inference shall be drawn if such profits were received in payment: 23 As a debt by installments or otherwise; 24 As wages of an employee or rent to a landlord; 25 As an annuity to a widow or representative of a deceased partner; 26 As interest on a loan, though the amount of payment vary with the profits of the business; 27 As the consideration for the sale of a goodwill of a business or other property by installments or otherwise. (n) JOINT OWNERSHIP OF PROPERTY: Joint ownership of business or property, does not itself create a partnership, notwithstanding that profits are shared. SHARING IN PROFITS: The presumption of partnership arising from a participation in profits is prima facie, and may be rebutted or outweighed by other circumstances, such as evidence that the participation was referable to some other reasons such as compensation for services rendered as agent, broker, salesman or otherwise.

Article 1770. A partnership must have a lawful object or purpose, and must be established for the common benefit or interest of the partners. When an unlawful partnership is dissolved by a judicial decree, the profits shall be confiscated in favor of the State, without prejudice to the provisions of the Penal Code governing the confiscation of the instruments and effects of a crime. (1666a) ILLEGAL PURPOSE SEPARABLE: When a partnership is sought to be formed for several purposes, and only one of the purposes of the partnership is illegal, the partnership will be sustained if the illegal object can be separated from legal objects of the partnership. JURIDICAL DISSOLUTION OF UNLAWFUL PARTNERSHIP: No confiscation can be lawfully effected without due process of law. an action is therefore necessary to give the partners the opportunity to defend themselves (Pineda, 2006). COVERAGE OF CONFISCATION: Article 1770 authorizes only the confiscation of profits but not the contributions of the partners which constitute the capital of the partnership (Pineda, 2006). RIGHT TO DEMAND CAPITAL: Only the fruits of an unlawful partnership are confiscated. The partners may recover the capital contributed by them because the action for that purpose does not have to be based on the existence of the partnership. Article 1771. A partnership may be constituted in any form, except where immovable property or real rights are contributed thereto, in which case a public instrument shall be necessary. (1667a) FORM OF CONTRACT: An oral contract of partnership is perfectly valid and binding between the parties, if the contribution of the partners is not in the form of immovables or rights in immovables, even if the amount of the capital contributed is in excess of P500.00. NOTE: If personal property or money is contributed, the partnership is valid even if it is orally agreed or organized (Pineda, 2006) REQUISITE TO BIND THIRD PERSONS: Where immovable property had been constituted and the inventory properly made, to bind third persons, the contract of partnership must be registered with the Registry of Property where the immovable is located. Article 1772. Every contract of partnership having a capital of three thousand pesos or more, in money or property, shall appear in a public instrument, which must be recorded in the Office of the Securities and Exchange Commission. Failure to comply with the requirements of the preceding paragraph shall not affect the liability of the partnership and the members thereof to third persons. (n) EFFECT OF FAILURE TO REGISTER: Partnerships with a capital of less than P3,000.00 because the article requires only those with capital of P3,000.00 or more to register with the SEC. But the mere failure to register the contract of partnership does not invalidate the same as among the partners, so long as the contract has the essential requisites, because the main purpose of rd registration is to give notice to the 3 parties, and it can be assumed that the members know the contents of the contract.

NOTES ON PARTNERSHIP AGENCY, TRUSTS, LEASE AND PRESCRIPTION Kenneth and King C. Hizon _________________________________________________________________________________________________________________

Their failure to register does not affect the liability of the partnership rd and the members to 3 persons. Also, the partnership still has juridical personality even if it fails to register. Article 1773. A contract of partnership is void, whenever immovable property is contributed thereto, if an inventory of said property is not made, signed by the parties, and attached to the public instrument. (1668a) EFFECT OF OMISSION: The execution of the public instrument would be useless if there is no inventory of the property contributed, because without its designation and description, they cannot be subject to inscription in the Registry of Property, and their contribution cannot prejudice third persons. The contract is declared void by law when no such inventory is made. ORAL CONTRACT OF PARTNERSHIP: An oral contract of partnership is void if immovable property is contributed to the partnership. Being void, the partners cannot invoke Article 1357 to compel the others to execute the articles of partnership (Pineda, 2006): Article 1357. If the law requires a document or other special form, as in the acts and contracts enumerated in the following article, the contracting parties may compel each other to observe that form, once the contract has been perfected. This right may be exercised simultaneously with the action upon the contract. (1279a) Article 1774. Any immovable property or an interest therein may be acquired in the partnership name. Title so acquired can be conveyed only in the partnership name. (n) ACQUISITION UNDET PARTNERSHIP NAME: All property of whatever nature contributed to the partnership becomes the property of such partnership. Such property acquired by the firm may be conveyed only in the partnership name (Pineda, 2006). NOTE: The present article will not apply if the firm has no name. In case of conveyance, it must be in the name of the partner/s (Pineda, 2006). IMPLICATION OF REFERENCE TO IMMOVABLE: The article expressly refers to immovable property. Impliedly, personal property need not be conveyed in the name of the partnership (Pineda, 2006). ND

RECONCILIATION BETWEEN THE 2 SENTENCE OF ART. 1774 & ART. 1819: “Real property” should be considered strictly “immovable property”. Art. 1819 (pars. 3, 4&5) recognizes the possibility that title to real property may be in the name of the partner, or some of the partners or all of the partners. To reconcile Art. 1819 with the present Article, the rule to follow should be: If the “immovable property” is in the name of the firm, it must be alienated in the name of the firm; if it is in the name of the partner or partners, it must be alienated in the name of the said partner or partners. In both, title is passed to the buyer or grantee. However, if the immovable property is in the name of the firm but conveyed by

a partner or some in his or their names, only the equitable interest is passed to the buyer or grantee who acted in good faith (Pineda, 2006). Article 1775. Associations and societies, whose articles are kept secret among the members, and wherein any one of the members may contract in his own name with third persons, shall have no juridical personality, and shall be governed by the provisions relating to co-ownership. (1669) ASSOCIATIONS AND SOCIETIES, WHOSE ARTICLES ARE KEPT SECRET: Where the articles of such groups are kept secret among the members and where anyone of them may contract in his own name with third persons, the same shall have no legal personality to sue. The law on co-ownership and not partnership shall govern. (Pineda, 2006). While they cannot sue for lack of judicial personality, they may, however, be sued by third persons under the “common name” they use (Pineda, 2006). Article 1776. As to its object, a partnership is either universal or particular. As regards the liability of the partners, a partnership may be general or limited. (1671a) UNIVERSAL v. PARTICULAR PARTNERSHIP

Universal Particular

General partnership

Limited partnership

As to object One which has for its object all the present property or all the profits (Art. 1778 and 1780) One which has for its object determinate things, their use or fruits or the exercise of s profession or vocation or specific undertaking (Art. 1783) As to liability of partners One where all the partners are general partners. General partners are liable even with their individual and separate properties to partnership creditors after the assets of the firm had been exhausted One where there is one or more general partners, and one or more limited partners. A limited partner is one whose liability is limited only to the extent of his contribution to the partnership (Pineda, 2006)

Article 1777. A universal partnership may refer to all the present property or to all the profits. (1672) CLASSIFICATION OF UNIVERSAL PARTNERSHIP: 23 Universal partnership of all the present property of the partners 24 Universal partnership of all the profits derived by the partners in their business (Pineda, 2006). Article 1778. A partnership of all present property is that in which the partners contribute all the property which actually belongs to them to a common fund, with the intention of dividing the same among themselves, as well as all the profits which they may acquire therewith. (1673)

NOTES ON PARTNERSHIP AGENCY, TRUSTS, LEASE AND PRESCRIPTION Kenneth and King C. Hizon _________________________________________________________________________________________________________________

Article 1779. In a universal partnership of all present property, the property which belonged to each of the partners at the time of the constitution of the partnership, becomes the common property of all the partners, as well as all the profits which they may acquire therewith. A stipulation for the common enjoyment of any other profits may also be made; but the property which the partners may acquire subsequently by inheritance, legacy, or donation cannot be included in such stipulation, except the fruits thereof. (1674a) Reasons why subsequently acquired inheritance, legacy, devise, or donation cannot be included in the stipulation in universal partnership of present property: 23 They are not present property. They are future property at the time of the constitution of the partnership 24 Things to be contributed to the partnership must be determinate, known and certain 25 A universal partnership of all present property constitutes a donation of property but future property cannot be donated. Article 1780. A universal partnership of profits comprises all that the partners may acquire by their industry or work during the existence of the partnership. Movable or immovable property which each of the partners may possess at the time of the celebration of the contract shall continue to pertain exclusively to each, only the usufruct passing to the partnership. (1675) PARTNERS’ PRIVATE PROPERTY: It might happen in partnerships that no one of the partners would have any private property, and that if they did, the usufruct would be inconsiderable. If they have, such continues to be his private property, only the usufruct passing to the partnership. UNIVERSAL PARTNERSHIP OF ALL PRESENT PROPERTY v. UNIVERSAL PARTNERSHIP OF ALL PROFITS UNIV. PARTNERSHIP OF ALL UNIV. PARTNERSHIP OF ALL PRESENT PROPERTY PROFITS Coverage All the present property actually Property which the partners belonging to the partners are owned at the time of the contributed to the partnership celebration of the contract shall which become common continue to pertain to them. property of all the partners and Only the usufruct (use and the partnership fruits) shall become common property. Profits Only the profits derived from All profits acquired through the the property contributed “industry or work” of the common property but not partners become common profits arising from other property (Pineda, 2006). property of the partners. The latter profits, however, may by stipulation be considered as common property for the enjoyment of all

Article 1781. Articles of universal partnership, entered into without specification of its nature, only constitute a universal partnership of profits. (1676) Ratio: There is less obligation in universal partnership of profits considering that the properties owned by the partners are retained by them in naked ownership. To consider the partnership as one of the universal partnership of present property would be onerous or more burdensome (Pineda, 2006). Article 1782. Persons who are prohibited from giving each other any donation or advantage cannot enter into universal partnership. (1677) PERSONS DISQUALIFIED FROM ENTERING INTO UNIVERSAL PARTNERSHIP: 23 Legally married spouses (however, spouses may enter into a particular partnership like the exercise of a profession or vocation 24 Common law spouses 25 Parties guilty of adultery or concubinage 26 Criminals convicted for the same offense in consideration of the same 27 A person and a public officer (or his wife, descemdants, ascendants) by reason of his office (Pineda, 2006). PARTICULAR PARTNERSHIPS-one composed of entirely industrial partners, as in the case of 2 or more lawyers associating themselves in the practice of law. When 2 individuals have not formed a general relation of partnership but they have been jointly associated in various real estate deals, it must be considered as a particular partnership for each deal. When one of them makes a transaction while the other is away, without using any funds of the latter, and without the latter having agreed to be a party to such deal, it cannot be said that this particular deal is for their joint account but must be held only for the account of the individual who executes it. Article 1783. A particular partnership has for its object determinate things, their use or fruits, or a specific undertaking, or the exercise of a profession or vocation. (1678) Examples: 23 Determinate thing- to buy and sell a particular lot and house 24 Profession- practice of law by lawyers; practice of medicine by doctors. Hence, there is a partnership of industrial partners 25 Specific undertaking- to paint a building or develop a subdivision

NOTES ON PARTNERSHIP AGENCY, TRUSTS, LEASE AND PRESCRIPTION Kenneth and King C. Hizon _________________________________________________________________________________________________________________

CHAPTER 2 Obligations of the Partners SECTION 1 Obligations of the Partners Among Themselves Article 1784. A partnership begins from the moment of the execution of the contract, unless it is otherwise stipulated. (1679) COMMENCEMENT OF EXISTENCE 0F A PARTNERSHIP- Being a consensual contract, it exists from the declaration of the celebration of the contract even if no contributions had been made yet as long as the elements of a contract are present (Pineda, 2006). AGREEMENT TO FORM PARTNERSHIP: A partnership in fact cannot be predicated on an agreement to enter into a co-partnership at a future day unless it is shown that such agreement was actually consummated. So long as an agreement remains executor, the partnership is inchoate. Article 1785. When a partnership for a fixed term or particular undertaking is continued after the termination of such term or particular undertaking without any express agreement, the rights and duties of the partners remain the same as they were at such termination, so far as is consistent with a partnership at will. A continuation of the business by the partners or such of them as habitually acted therein during the term, without any settlement or liquidation of the partnership affairs, is prima facie evidence of a continuation of the partnership. (n) NOTE: Dissolution is not termination because there is still a winding up of the partnership affairs authorized by law. After the partnership affairs have wound up, the partnership is said to have terminated (Pineda, 2006). PARTNERSHIP AT WILL- The actual continuation of the affairs of the partnership, after the termination of its period or accomplishment of its purposes, by the habitual managers is prima facie evidence of its continuation as such partnership. The resulting partnership as continued is called “partnership at will” because the existence depends upon the will of the partners or on the will of any one of them (Pineda, 2006). Article 1786. Every partner is a debtor of the partnership for whatever he may have promised to contribute thereto. He shall also be bound for warranty in case of eviction with regard to specific and determinate things which he may have contributed to the partnership, in the same cases and in the same manner as the vendor is bound with respect to the vendee. He shall also be liable for the fruits thereof from the time they should have been delivered, without the need of any demand. (1681a)

WARRANTIES OF A PARTNER 23 Warranty against eviction 24 Warranty against hidden defects CONTRIBUTION OF CREDIT: The partner warrants only its existence; he does not warrant the solvency of the debtor unless expressly so provided REASON FOR WARRANTY: The obligation of warranty against eviction is the necessary consequence of the nature of the partnership which is an onerous contact like a contract of sale. A partner shall not contribute something that he does not own at the time of the delivery. When the thing is delivered to the firm, the latter shall from the time of delivery have the right to enjoy the legal peaceful possession of the thing (Pineda, 2006). NOTE: There is still warranty if the thing delivered only for the “use” of the firm (Pineda, 2006). REMEDY FOR BREACH: 23 In case of eviction, the proper remedy is to recover the proper indemnity from the partner 24 And, if the partners can prove that they would not have entered into the partnership contract, had it not been for the contribution which has been lost through the eviction, they may ask for the dissolution of the partnership RULE WHEN CREDIT IS CONTRIBUTED: If what is contributed is credit, the contributing partner will only warrant its existence but not the solvency of the debtor unless there is a contrary stipulation (Pineda, 2006). Article 1787. When the capital or a part thereof which a partner is bound to contribute consists of goods, their appraisal must be made in the manner prescribed in the contract of partnership, and in the absence of stipulation, it shall be made by experts chosen by the partners, and according to current prices, the subsequent changes thereof being for account of the partnership. (n) RULE WHEN CONTRIBUTION IS IN GOODS: When a partner contributes goods as capital, the amount thereof must be determined by proper appraisal of the value thereof at the time of contribution (Pineda, 2006). If there is a mode of appraisal agreed upon, same must be complied with. If there is none, same must be determined by experts chosen by the partners (Pineda, 2006. SUBSEQUENT CHANGES IN VALUE: Any subsequent increase or decrease in value of the property contributed will be for the account of the firm (Pineda, 2006.

DUTIES OF CONTRIBUTING PARTNERS: 23 To deliver what he has undertook to contribute 24 To answer for his breach of warranty 25 To answer for the undelivered or delayed fruits (Pineda, 2006)

Article 1788. A partner who has undertaken to contribute a sum of money and fails to do so becomes a debtor for the interest and damages from the time he should have complied with his obligation. The same rule applies to any amount he may have taken from the partnership coffers, and his liability shall begin from the time he converted the amount to his own use. (1682)

NOTES ON PARTNERSHIP AGENCY, TRUSTS, LEASE AND PRESCRIPTION Kenneth and King C. Hizon _________________________________________________________________________________________________________________

EFFECT OF FAILURE TO PAY CONTRIBUTION: Such will make the partner indebted to it, with interest and any damages occasioned thereby, but does not entitle the other partner or partner to demand rescission of the partnership contract.

Article 1790. Unless there is a stipulation to the contrary, the partners shall contribute equal shares to the capital of the partnership. (n)

Ex: A partner in a construction venture who failed to stand by his commitment to the partnership will be ordered to reimburse to his co-partner whatever the latter invested and spent for the projects of the venture.

Article 1791. If there is no agreement to the contrary, in case of an imminent loss of the business of the partnership, any partner who refuses to contribute an additional share to the capital, except an industrial partner, to save the venture, shall he obliged to sell his interest to the other partners. (n)

INDEMNIFICATION FOR DAMAGES: Includes: 0 Losses suffered 1 Profits the obligee failed to obtain

GR: CAPITALIST PARTNERS NOT OBLIGED TO CONTRIBUTE ADDITIONAL CAPITAL IN CASE OF IMMINENT LOSS OF THE BUISNESS

ACCOUNTING FOR PARTNERSHIP FUNDS: Where a partner, without any authority, takes and use the money of the partnership in the purchase and acquisition of property which he later registers in his own name, he will be required, in a suit for the dissolution of the partnership, to account to his partners for the money which he used in such purchase.

XPN: Unless there is an agreement to the contract. In such case, he is obliged to make additional contribution in accordance with the agreement (Pineda, 2006).

Article 1789. An industrial partner cannot engage in business for himself, unless the partnership expressly permits him to do so; and if he should do so, the capitalist partners may either exclude him from the firm or avail themselves of the benefits which he may have obtained in violation of this provision, with a right to damages in either case. (n) PARTNERSHIP OWNS SERVICES: The industry partner does not contribute money or property but only his industry. The partnership, therefore, is considered the owner of his services. The industrial partner himself cannot exploit his own services for his profit without the express permission of the partnership. Ratio for the prohibition: To prevent any conflict of interest between the industrial partner and the partnership, and to insure faithful compliance by said partner with his prestation. Hence, during the existence of the partnership, the industrial partner must devote his full time to such partnership. Exception: The prohibition will not apply if the other partners give the industrial partner express permission to do so (Pineda, 2006). TOLENTINO: Nature of the prohibition: It is absolute and extends to all business outside of the partnership, even if the partnership is engaged in only one trade, because if the industrial partner is allowed to engage in the other business, the partnership will be prejudiced because of the reduction of the time or the effort which he will have for it. SANCTION AGAINST INDUSTRIAL PARTNER WHO VIOLATES THE PROHIBITION: Exclude the industrial partner from the partnership with damages Recover the benefits which the industrial partner has gained in the business where he had engaged himself without the express consent of the firm or of the partners, with damages (Pineda, 2006).

NOTE: General partners, in case of impending loss of the business are also obliged to make additional contribution to save the business. If he unjustly refuses, he must sell his interest in the partnership to the other partners Ratio: His lack of cooperation and interest should not be rewarded (Pineda, 2006). Article 1792. If a partner authorized to manage collects a demandable sum which was owed to him in his own name, from a person who owed the partnership another sum also demandable, the sum thus collected shall be applied to the two credits in proportion to their amounts, even though he may have given a receipt for his own credit only; but should he have given it for the account of the partnership credit, the amount shall be fully applied to the latter. The provisions of this article are understood to be without prejudice to the right granted to the other debtor by article 1252, but only if the personal credit of the partner should be more onerous to him. (1684) APPLICATION OF THE ARTICLE: Requisites: 0 1 2

There are 2 separate credits which are both demandable One credit is owing to the partnership Another credit is owing to the collecting partner who must be a managing partner of the firm (Pineda, 2006).

NOTE: If the collecting partner is not a managing partner, the law will not apply (Pineda, 2006). Article 1793. A partner who has received, in whole or in part, his share of a partnership credit, when the other partners have not collected theirs, shall be obliged, if the debtor should thereafter become insolvent, to bring to the partnership capital what he received even though he may have given receipt for his share only. (1685a) Ratio: When the debtor becomes insolvent, the debt in favor of the partnership becomes a bad debt and is a loss which must be borne by all the partners, including the partner who has already received his share in the partnership credit, because they have a community of interest and a proportionate share in profits and losses.

NOTES ON PARTNERSHIP AGENCY, TRUSTS, LEASE AND PRESCRIPTION Kenneth and King C. Hizon _________________________________________________________________________________________________________________

Article 1794. Every partner is responsible to the partnership for damages suffered by it through his fault, and he cannot compensate them with the profits and benefits which he may have earned for the partnership by his industry. However, the courts may equitably lessen this responsibility if through the partner's extraordinary efforts in other activities of the partnership, unusual profits have been realized. (1686a) NOTE: Damages caused by the faulting partner cannot be offset or compensated with the profits and benefits which he may have earned for the partnership by his industry. Compensation cannot apply because a partner is both a debtor in his duty to secure profits and benefits for the partnership and also in his duty to observe diligence in the performance of his obligations as a partner. In compensation, it is required that 2 persons in their own rights are creditors and debtors of each other (Pineda, 2006). Necessity of Liquidation For the purpose of adjudicating to a partner damages alleged to have been suffered by reason of the supposed fraudulent management of the partnership business by another partner, it is first necessary that a liquidation of the business be made so that the profits and the losses may be known and the causes of the latter and the responsibility of the managing partner, as well as the damages which each partner may have suffered, may be determined.

the partnership business, and for risks in consequence of its management. (1688a) Reimbursement The managing partner may be allowed funds borrowed or advanced, and necessary for the completion of the work, within the scope of the business and expressly provided for by the agreement among partners. Example: Where the land tax levied on real property owned by the partnership is paid by a partner out of his private funds, such partner is entitled to be reimbursed therefor. NOTE: The article does not apply where no money other than that contributed as capital is involved. NOTE: Even in the case of failure of the business entered into by the partnership with third persons, reimbursement must be made to the paying partner, as long as he is not at fault. The paying partner should not be liable personally because he is a mere agent of the partnership (Pineda, 2006). PAYING PARTNER HAS NO RIGHT OF RETENTION: There is a difference between an ordinary agent and a paying partner. The former, if not refunded, may exercise the right of retention of the things which are the objects of the agency. The paying partner is not given such authority (Pineda, 2006).

Claim against Deceased Partner Any claim against a deceased partner or his estate, for a sum of money due the partnership by reason of any misappropriation of its fund by him, or for damages resulting from his wrongful acts as manager, should be prosecuted against his estate in administration as provided for in the Rules of Court. Article 1795. The risk of specific and determinate things, which are not fungible, contributed to the partnership so that only their use and fruits may be for the common benefit, shall be borne by the partner who owns them. If the things contribute are fungible, or cannot be kept without deteriorating, or if they were contributed to be sold, the risk shall be borne by the partnership. In the absence of stipulation, the risk of the things brought and appraised in the inventory, shall also be borne by the partnership, and in such case the claim shall be limited to the value at which they were appraised. (1687) NOTE: The owner bears the risk. The rule on res perit domino applies to determine who bears the risk of loss of property held by the partnership, except as to fungible things and those under appraisal. Although the law refers to appraisal in the inventory, the same solution applies even when the appraisal is separate from the inventory. Article 1796. The partnership shall be responsible to every partner for the amounts he may have disbursed on behalf of the partnership and for the corresponding interest, from the time the expense are made; it shall also answer to each partner for the obligations he may have contracted in good faith in the interest of

Article 1797. The losses and profits shall be distributed in conformity with the agreement. If only the share of each partner in the profits has been agreed upon, the share of each in the losses shall be in the same proportion. In the absence of stipulation, the share of each partner in the profits and losses shall be in proportion to what he may have contributed, but the industrial partner shall not be liable for the losses. As for the profits, the industrial partner shall receive such share as may be just and equitable under the circumstances. If besides his services he has contributed capital, he shall also receive a share in the profits in proportion to his capital. (1689a) SCOPE: It relates exclusively to the settlement of partnership affairs among the partners themselves and has nothing to do with the liability of the partners to third persons. Profits and losses: Where there is an agreement as to the manner of sharing profits, the losses will be divided in the same proportion. The parties can validly stipulate a distribution of losses different from that of the profits, so long as nobody is excluded from the profits or the losses. NOTE: An industrial partner cannot claim for himself of any part of the property contributed; he can share only in the profits and benefits in conformity with this article, if the contrary is not stipulated. Hibberd v. Estate of McElroy (25 Phil 164) Where a partner has paid certain expenses which represent a loss to the partnership and there is no income from the partnership to reimburse him, he has a right to look to the estate of his other partner for such reimbursement.

NOTES ON PARTNERSHIP AGENCY, TRUSTS, LEASE AND PRESCRIPTION Kenneth and King C. Hizon _________________________________________________________________________________________________________________

LIABILITY OF INDUSTRIAL PARTNER FOR LOSSES: Although under the provisions the industrial shall not be liable for the losses, he may nevertheless be held liable, if by stipulation, he is specially made to participate in the losses (People v. Tenorio, 53 O.G. 8577). “PROFITS” REFER TO NET PROFITS- The profits distributable to the partners should be reduced by the amounts of the income tax assessed against partnership (Pineda, 2006). Article 1798. If the partners have agreed to in trust to a third person the designation of the share of each one in the profits and losses, such designation may be impugned only when it is manifestly inequitable. In no case may a partner who has begun to execute the decision of the third person, or who has not impugned the same within a period of three months from the time he had knowledge thereof, complain of such decision. The designation of losses and profits cannot be intrusted to one of the partners. (1690) Ratio: A partner will have conflict of interest (Pineda, 2006). Article 1799. A stipulation which excludes one or more partners from any share in the profits or losses is void. (1691) Prohibited stipulation: The essence of partnership is that the partners share in the profits and losses. The law does not prohibit a stipulation in which the distribution of the losses is not in proportion to that of the profits; what is prohibited is the exclusion of one or more partners from the profits or losses. Effect of such stipulation: The profits and losses will be distributed in accordance with par. 2 of Art. 1797:

Article 1800. The partner who has been appointed manager in the articles of partnership may execute all acts of administration despite the opposition of his partners, unless he should act in bad faith; and his power is irrevocable without just or lawful cause. The vote of the partners representing the controlling interest shall be necessary for such revocation of power. A power granted after the partnership has been constituted may be revoked at any time. (1692a) POWERS OF MANAGING PARTNER A managing partner can be presumed to have all the incidental powers to carry out the object of the partnership in the transaction of business subject to the exception, however, that when the powers are specifically restricted, he cannot exercise the powers expressly denied him. When the articles of association do not specify the powers of a managing partner, he has the powers of a general agent, and even more; and when the object of the company is determined, the manager has all the powers necessary for the attainment of such object. NOTE: Power of managing partner is generally irrevocable. The power granted after the partnership had been already constituted may be revoked at any time and for any cause. It can be reovoked: 23 Upon showing of just and lawful cause 24 Upon the vote of the partners representing the controlling interest (Pineda, 2006). THE POWER GRANTED AFTER CONSTITUTION OF PARTNERSHIP IS REVOCABLE AT ANY TIME. It is a simple contract of agency. It may be revoked any time by the partners representing the controlling interest (Pineda, 2006).

xx In the absence of stipulation, the share of each partner in the profits and losses shall be in proportion to what he may have contributed, but the industrial partner shall not be liable for the losses. As for the profits, the industrial partner shall receive such share as may be just and equitable under the circumstances. If besides his services he has contributed capital, he shall also receive a share in the profits in proportion to his capital. (1689a) xx NOTE: French jurisprudence and writers consider that a violation of the present article nullifies, not only the particular stipulation of the profits and losses, but the entire contract of partnership. This conclusion is maintained by analogy to obligations based on illicit condition, which annuls the obligation dependent on it. There is, however, no reason why a stipulation to exempt the industrial partner from losses should be void. NOTE: A stipulation exempting the industrial partner from losses is valid because it is just an affirmation of the law. The prohibition applies only to capitalist partners (Pineda, 2006).

23 Is the managing partner entitled to compensation for his services as such? 0 It depends. If there is an agreement stipulating that he shall receive compensation, he shall be so entitled to the compensation agreed upon for his services as managing partner. The details of the compensation will be fixed in the agreement. If there is no agreement, the managing partner, as a rule, is not entitled to compensation. He is expected to render free service to the partnership for the common benefit of all partners (Pineda, 2006). Article 1801. If two or more partners have been intrusted with the management of the partnership without specification of their respective duties, or without a stipulation that one of them shall not act without the consent of all the others, each one may separately execute all acts of administration, but if any of them should oppose the acts of the others, the decision of the majority shall prevail. In case of a tie, the matter shall be decided by the partners owning the controlling interest. (1693a) REQUISITES: 0 Two or more partners are appointed managing partners 1 In their appointment papers, there is no specification of their respective duties

NOTES ON PARTNERSHIP AGENCY, TRUSTS, LEASE AND PRESCRIPTION Kenneth and King C. Hizon _________________________________________________________________________________________________________________

23 There is no stipulation that one of them shall not act without the unanimous consent of all the other partners (Pineda, 2006). NOTE: If there is a designation of the respective duties of the appointed managing partners, the article finds no application (Pineda, 2006). SOLIDARY MANAGEMENT See Art. 1803 OPPOSITION Generally, each manager may execute any acts of administration without asking for the consent of the other managers. Each manager, however, has the right to object to any act or operation before it is celebrated. Such opposition by one partner to the projected act by another is sufficient to prevent it; and if the latter, ignoring such objection, goes ahead and executes the acts, it shall be void, not only as among the members but also to third persons, who had knowledge, or who could have known, of such opposition. NOTE: It will be valid with respect to the third person who contracted with a partner, if such third person was not informed of the opposition, and the contract is one within the scope of the administration of the partnership. Ratio: The partner contracting is an agent of the partnership, and within the scope of his authority, his contract with an innocent third person binds the principal. Time for the opposition: It must be made before the particular act of administration has become effective. TIE: In case of tie in the votes, then the controversy shall be decided by the partners owning the controlling interest. This is a new provision in the Code. Note that it is only in case of a tie or deadlock that the partner owning the controlling interest will decide in the controversy (Pineda, 2006). Article 1802. In case it should have been stipulated that none of the managing partners shall act without the consent of the others, the concurrence of all shall be necessary for the validity of the acts, and the absence or disability of any one of them cannot be alleged, unless there is imminent danger of grave or irreparable injury to the partnership. (1694) JOINT MANAGEMENT The obligation to secure the consent of the other partner rests upon the partner entering into the contract. It is not required to verify whether the partner entering into the contract. It is not imposed upon third person who enters into the contract and who is not required to verify whether the partner entering into the contract has previously obtained the consent of the other. It is presumed that such consent has been given, unless the contrary has been previously manifested to the third person. NOTE: But even if the contract entered into by one partner is made, not only without the consent of the other but even against his will, if

the third person acted in good faith and the transaction refers to matters within the business of the partnership, the contract cannot be annulled, without prejudice to the liability of the guilty partner ot his co-partner. Ratio: The necessity of protecting third person from fraud and deceit. Application of the requirement of previous approval by the other partner: It only refers to the execution of formal contracts in writing, and not to routine transactions, such as ordinary purchases and sales for a firm engaged in the business if buying and selling merchandise of all kinds, naturally come within the scope of the general authority of the manager of a business. Article 1803. When the manner of management has not been agreed upon, the following rules shall be observed: 0 All the partners shall be considered agents and whatever any one of them may do alone shall bind the partnership, without prejudice to the provisions of article 1801. 1 None of the partners may, without the consent of the others, make any important alteration in the immovable property of the partnership, even if it may be useful to the partnership. But if the refusal of consent by the other partners is manifestly prejudicial to the interest of the partnership, the court's intervention may be sought. (1695a) NOTE: The article applies only where the articles of partnership made no provision for the management of the business of the firm (Pineda, 2006). PARTNERS ARE PARTNERSHIP AGENTS: When the articles of partnership make no provision for the management of the partnership business, one partner is empowered to contract in the name of the partnership, and under such circumstances, all the partners are considered as agents of the partnership. ACTS REQUIRING UNANIMITY: For acts of disposition or any modification of the partnership articles, unanimous consent is required; even a majority will not suffice. Example: A partner cannot validly sell or convey the partnership business without the consent of all the other partners forming the partnership. JUDICIAL INTERVENTION, WHEN PROPER: When an important alteration of the property is necessary and the unanimous consent cannot be obtained, resort to the court may be pursued to secure the total consent, in order to avoid an impending prejudice to the partnership (Pineda, 2006). Article 1804. Every partner may associate another person with him in his share, but the associate shall not be admitted into the partnership without the consent of all the other partners, even if the partner having an associate should be a manager. (1696) SUBPARTNERSHIP: Any partner may form a partnership with another person with respect to his share. Their association is called subpartnership. A subpartnership is a sort of partnership within an existing partnership separate and distinct from the original or main partnership (Pineda, 2006).

NOTES ON PARTNERSHIP AGENCY, TRUSTS, LEASE AND PRESCRIPTION Kenneth and King C. Hizon _________________________________________________________________________________________________________________

NOTE: The terms of the subpartnership are immaterial to the original partnership as such terms are mere internal arrangements between the partner and his subpartner (Pineda, 2006). Article 1805. The partnership books shall be kept, subject to any agreement between the partners, at the principal place of business of the partnership, and every partner shall at any reasonable hour have access to and may inspect and copy any of them. (n)

partners is essentially fiduciary, each are confidential agent of the other. NOTE: The partners cannot derive a secret profit from partnership transactions unknown to the others. Duration of the fiduciary relation: No fiduciary relation exists between persons negotiating for the formation of a partnership contract. Such fiduciary relation exists only during the existence of the partnership.

Keeping books in place of business This article refers to a going partnership, and on dissolution, in the absence of other agreement, express or implied, the books to all the partners but no one partner is obliged to continue the place of business to preserve the books for the benefit of the others, nor is there a duty on the part of the purchaser of goodwill and business of a firm to store the books so that the former partners may inspect them. RIGHT TO INSPECT GR: Each partner should have free access to the partnership books for the purpose of inspecting them XPN: Equity will intervene to prevent one partner from keeping or concealing the books “Reasonable Hours”- means at reasonable hours on business days throughout the year; and not merely during some arbitrary period fo a few days chosen by the managers. PLACE WHERE THE BOOKS SHOULD BE KEPT: The books shall be placed and kept in a place agreed upon by the partners. In the absence of any agreement, the books shall be kept at the principal place of business of the firm whereat each partner may come, have access, inspect or copy entries in the books for valid purposes (Pineda, 2006). LACK OF BOOKS: Absence of any formal books of the partnership does not affect the validity of the contract of partnership nor its contracts Article 1806. Partners shall render on demand true and full information of all things affecting the partnership to any partner or the legal representative of any deceased partner or of any partner under legal disability. (n) DUTY TO MAKE DISCLOSURE Good faith not only requires that a partner should not make any false concealment to his partner, but also that he should abstain from all concealment. Article 1807. Every partner must account to the partnership for any benefit, and hold as trustee for it any profits derived by him without the consent of the other partners from any transaction connected with the formation, conduct, or liquidation of the partnership or from any use by him of its property. (n) Relation of Partners: Partners are required to exhibit towards each other the highest degree of good faith. The relation between the

It ends at the termination of the partnership. Termination is the stage when all partnership affairs are wound up or completed. It is different from dissolution (Pineda, 2006) Article 1808. The capitalist partners cannot engage for their own account in any operation which is of the kind of business in which the partnership is engaged, unless there is a stipulation to the contrary. Any capitalist partner violating this prohibition shall bring to the common funds any profits accruing to him from his transactions, and shall personally bear all the losses. (n) NOTE: A capitalist partner cannot engage in the business for his own account or benefit in a business which is similar to the business of the partnership (Pineda, 2006). XPN TO THE PROHIBITION: The other partners may agree to stipulate that the capitalist partners may engage in the same business as that of the partnership if it is perceived that no destructive competition will arise such as when the place of operation is far away from the sphere of influence of the partnership, or when the business will enhance healthy competition with the business of the partnership (Pineda, 2006). ACQUISITION OF REALTY: No prohibition on any of the partners, even though an active member in the partnership, from acquiring realty, on his own private account, and the acquisition of realty does not give the other partners interest therein. Article 1809. Any partner shall have the right to a formal account as to partnership affairs: 0 If he is wrongfully excluded from the partnership business or possession of its property by his co-partners; 1 If the right exists under the terms of any agreement; 2 As provided by article 1807; 3 Whenever other circumstances render it just and reasonable. (n) RIGHT TO FORMAL ACCOUNT GR: A partner is not entitled to a formal account XPN: Dissolution NOTE: There is no reason why they should constantly render him accounts in the formal sense of the word. When, however, he is excluded from the business or the possession of partnership property, without any express agreement authorizing such exclusion, he should have the right to demand a formal account from his partners, without necessarily requiring him to dissolve the partnership.

NOTES ON PARTNERSHIP AGENCY, TRUSTS, LEASE AND PRESCRIPTION Kenneth and King C. Hizon _________________________________________________________________________________________________________________

property The right to demand an accounting exists as long as the partnership exists. Effect of approval of account: The approval of the last and final statement of accounts precludes any right on the part of the complaining partners to a further liquidation, unless the latter can show there was fraud, deceit, error or mistake in said approval. 0Is there a duty to account for acquisition of earnings and property after termination of the partnership? 23 It depends. If the earnings and acquisitions of a partner are obtained from transactions unrelated to the partnership affairs or business, there is no duty to account. Otherwise, he has no account. Thus, it is a recognized principle that a former partner’s duty to share profits with his former co-partner may extend to earnings and acquisitions accruing after the termination of the partnership (Pineda, 2006)

SECTION 2 Property Rights of a Partner Article 1810. The property rights of a partner are: 23 His rights in specific partnership property; 24 His interest in the partnership; and 25 His right to participate in the management (n) PROPERTY RIGHTS: The property rights of a partner are those enumerated under this article. They constitute property being susceptible of appropriation or exercise by the owner. To distinguish these rights from others, they are referred to as principal rights. PRINCIPAL RIGHTS:

of the partnership assets Extent It includes only actual It includes not only the original contributed and promised to the capital contributed but also all partnership property subsequently acquired on account of the partnership (Pineda, 2006). Article 1811. A partner is co-owner with his partners of specific partnership property. The incidents of this co-ownership are such that: 0 A partner, subject to the provisions of this Title and to any agreement between the partners, has an equal right with his partners to possess specific partnership property for partnership purposes; but he has no right to possess such property for any other purpose without the consent of his partners; 1 A partner's right in specific partnership property is not assignable except in connection with the assignment of rights of all the partners in the same property; 2 A partner's right in specific partnership property is not subject to attachment or execution, except on a claim against the partnership. When partnership property is attached for a partnership debt the partners, or any of them, or the representatives of a deceased partner, cannot claim any right under the homestead or exemption laws; 3 A partner's right in specific partnership property is not subject to legal support under article 291. (n) PARTNER’S INTEREST IN ASSETS A partner has no individual property in any specific assets of the firm, but each partner’s interest in partnership property is his share in the surplus after partnership debts are paid and the partnership accounts have been settled.

0Right to demand reimbursement for amounts he advanced to the partnership and to indemnity for the burdens arising from risks in management (Art. 1796) 1Right to have access and to inspect partnership books (Art. 1805) 2Right to demand true and full information of all things affecting the partnership affairs (Art. 1806) 3Right to demand a formal account of partnership affairs under the circumstances in Art. 1809 4Right to dissolve the partnership under certain conditions (Pineda, 2006)

NOTE: The interest of one partner in the assets of a partnership does not entitle him to any particular portion of such assets, but merely confers upon him a right to an accounting with other members of the partnership, and when affairs of the partnership are settled, such partner shall receive the share to which he is entitled.

Extent of property right: A partnership has 3 distinct interests arising from his partnership: 0 His co-ownership in the specific property of the partnership 1 His interest in the partnership as such 2 His right to participate in the management

Transfer of rights: The right of a partner as a co-owner in specific partnership property is not separately assignable or subject to attachment and execution. This peculiarity of tenancy in partnership is a necessary consequence of the partnership relation.

PARTNERSHIP CAPITAL v. PARTNERSHIP PROPERTY PARTNERSHIP CAPITAL PARTNERSHIP PROPERTY Susceptibility to change in value Its value is constant. It does not Its value varies from time to change. It is not affected by time in accordance with the fluctuations in the value of the fluctuations of the market value

A partner, however, subject to agreement between the partners, has an equal right with his partners to possess specific partnership property for partnership purposes, but has no right to possess such property for his personal or other purposes without the other partners’ consent.

Rationale: This is intended to prevent interference by outsiders in partnership affairs and to protect the right of other partners and partnership creditors to have partnership assets applied to firm debts (Pineda, 2006) Example: If A and B are partners and A attempts to assign all his right in some partnership property, to C, and the law recognizes the possibility of such a transfer C, would pro tanto become a partner with B; for the rights of A in the chattel are to possess the chattel for

NOTES ON PARTNERSHIP AGENCY, TRUSTS, LEASE AND PRESCRIPTION Kenneth and King C. Hizon _________________________________________________________________________________________________________________

a partnership purpose. But partnership is a voluntary relation. B cannot have a partner thrust upon him by A without B’s consent. Hence, a creditor of one of the partners cannot be forced into the partnership by involuntary assignment thru attachment and execution. Article 1812. A partner's interest in the partnership is his share of the profits and surplus. (n) INTEREST OF PARTNER The interest of a partner in partnership property and business is the net balance found to be due him after payment of partnership dents and adjustment of partnership accounts between himself and his copartner. Such interest is “property” and is susceptible of being seized under legal process, or of being sold and conveyed, as well as of being made liable for his separate debts. The partner’s share in the undistributed profits and surplus constitutes his interest in the partnership. Profit refers to excess of revenues over expenses for a transaction; sometimes used synonymously with net income for the period. It is gain realized from business or investment over and above expenditures. While surplus refers to remains of a fund appropriated for a particular purpose (Pineda, 2006). Loss, on the other hand, is the difference that results when the liabilities of the partnership are more than the assets (Pineda, 2006). NOTE: Unlike the partner’s interest in specific partnership property, the partner’s interest in the partnership may be assigned, attached and subject to payment of legal support (Pineda, 2006). NOTE: The interest of a partner in an ongoing partnership business where there has been no settlement of his account is not a debt due to the partner by the partnership and, therefore, is not subject to attachment or execution on a judgment recovered against the individual partner. Article 1813. A conveyance by a partner of his whole interest in the partnership does not of itself dissolve the partnership, or, as against the other partners in the absence of agreement, entitle the assignee, during the continuance of the partnership, to interfere in the management or administration of the partnership business or affairs, or to require any information or account of partnership transactions, or to inspect the partnership books; but it merely entitles the assignee to receive in accordance with his contract the profits to which the assigning partner would otherwise be entitled. However, in case of fraud in the management of the partnership, the assignee may avail himself of the usual remedies.

should operate; but the remaining partners may refuse to recognize the right of the assignee to join in the conduct of the business, and make such refusal a ground for dissolution. RIGHTS OF ASSIGNEE: The transfer by a partner of his partnership interest does not make the assignee of such interests a partner in the firm, nor entitle the assignee to interfere in the management of the partnership business or to receive anything except the assignee’s profits. The assignment does not purport to transfer an interest in the partnership, but only a future contingent right to a portion of the ultimate residue as the assignor may become entitled to receive by virtue of his proportionate interest in the capital. In case of dissolution of the partnership, the assignee is entitled to receive his assignor’s interest and may require an account from the date only of the last account agreed to buy all the partners (Pineda, 2006). OTHER RIGHTS OF ASSIGNEE OR CONVEYANCE: 0 1 2

To receive the profits accruing to the assigning partner as per contract To avail himself of the ordinary remedies provided by law in the event of fraud in the management of the partnership To demand an accounting of partnership affairs, but only in case the partnership is dissolved, and such account shall cover the period from the date only of the last account agreed to by all the partners (Pineda, 2006).

Article 1814. Without prejudice to the preferred rights of partnership creditors under article 1827, on due application to a competent court by any judgment creditor of a partner, the court which entered the judgment, or any other court, may charge the interest of the debtor partner with payment of the unsatisfied amount of such judgment debt with interest thereon; and may then or later appoint a receiver of his share of the profits, and of any other money due or to fall due to him in respect of the partnership, and make all other orders, directions, accounts and inquiries which the debtor partner might have made, or which the circumstances of the case may require.

In case of a dissolution of the partnership, the assignee is entitled to receive his assignor's interest and may require an account from the date only of the last account agreed to by all the partners. (n)

The interest charged may be redeemed at any time before foreclosure, or in case of a sale being directed by the court, may be purchased without thereby causing a dissolution: ЀȀȀ⠀Ā⤀ĀᜀĀᜀĀᜀĀᜀĀᜀĀᜀĀᜀĀĀȀ⸀ĀᜀĀᜀĀᜀĀᜀĀᜀĀᜀĀᜀĀ ᜀ0 With separate property, by any one or more of the partners; or ЀȀȀ⠀Ā⤀ĀᜀĀᜀĀᜀĀᜀĀᜀĀᜀĀᜀĀĀȀ⸀ĀᜀĀᜀĀᜀĀᜀĀᜀĀᜀĀᜀĀ ᜀ1 With partnership property, by any one or more of the partners with the consent of all the partners whose interests are not so charged or sold. Nothing in this Title shall be held to deprive a partner of his right, if any, under the exemption laws, as regards his interest in the partnership. (n)

Effect of assignment of Interest

Enforcement of Judgment

The assignment or conveyance of a partner’s interest in the partnership does not act of itself operate as a dissolution of the partnership, in the absence of any showing of an intent that it

The proper method of reaching a judgment debtor’s interest in a partnership is by applying for a charging order, and for the appointment of a receiver under this article rather than by attaching any particular partnership property.

NOTES ON PARTNERSHIP AGENCY, TRUSTS, LEASE AND PRESCRIPTION Kenneth and King C. Hizon _________________________________________________________________________________________________________________

POWERS OF RECEIVER 0

1

He is entitled to any relief necessary to conserve the partnership assets for partnership purposes and particularly to a decree nullifying unlawful efforts of a partner to assign or encumber his interest in specific partnership property He may be authorized to enforce any personal liability of partners for firm debts because such liability constitutes partnership assets.

SECTION 3 Obligations of the Partners with Regard to Third Persons Article 1815. Every partnership shall operate under a firm name, which may or may not include the name of one or more of the partners. Those who, not being members of the partnership, include their names in the firm name, shall be subject to the liability of a partner. (n) CHANGE OF FIRM NAME Where the partners of a general partnership doing business under the firm name of “Sharruf &Co.” obtained insurance policies issued to said firm, but later the firm name was changed to “Sharruf & Eskenazi” which are the names of the same and only partners of the firm “Sharruf &Co.” continuing the same business, it was held that the new firm retained the rights of the former firm under the same policies, and therefore, had juridical personality to sue. FIRM- Implies a partnership of 2 or more persons who bind themselves to contribute money, property, or industry to a common fund, with the intention of dividing the profits among themselves. It may be formed for the exercise of a profession or vocation. The word “firm” is also used to refer to the name, style or title under which the company or concern transacts its business (Pineda, 2006). Article 1816. All partners, including industrial ones, shall be liable pro rata with all their property and after all the partnership assets have been exhausted, for the contracts which may be entered into in the name and for the account of the partnership, under its signature and by a person authorized to act for the partnership. However, any partner may enter into a separate obligation to perform a partnership contract. (n) Against whom action filed: In order to enforce the liability of the partners for partnership debts and obligations, both the partnership and the separate partners may be joined in the same action, but the private property of the latter cannot be taken in payment of the partnership debt until the common property of the concern is exhausted. Where the partnership has no visible assets, the partners individually must respond for its debts. NOTE: A withdrawing partner is not liable for debts and obligations of the partnership after he has ceased to be a member of the partnership and has only the position of a creditor unless the withdrawal was with intent to defraud existing creditors, in which case, he is still liable as a partner.

Industrial Partner also Liable: An industrial partner is liable to the same extent and in the same way as a capitalist partner for the debts and obligations of the partnership (although under Art. 1797, industrial partners shall not be liable for loss). When he has paid such debts out of his private property during the life of the partnership, then, when its affairs are settled, he is entitled to credit for the amount so paid, and if it results that there is not enough property in the partnership, then the capitalist partners must pay him. NOTE: The liability of the partners for the partnership debts is pro rata, if their contributions are unequal. Pro rata means in proportion or ratably, or a division according to share, interest, or liability of each (Pineda, 2006). PARTNER MAY ACT HIS OWN NAME: A partner may enter into a separate obligation to perform a partnership contract. He is then acting in his own name for the benefit of the partnership. Consequently, he is the only one bound for his own acts (Pineda, 2006). Article 1817. Any stipulation against the liability laid down in the preceding article shall be void, except as among the partners. (n) GR: Any stipulation by and among the partners contradicting the pro rata liability of partners provided in Art. 1816 is void. XPN: Such stipulation is valid by and among the partners themselves. Article 1818. Every partner is an agent of the partnership for the purpose of its business, and the act of every partner, including the execution in the partnership name of any instrument, for apparently carrying on in the usual way the business of the partnership of which he is a member binds the partnership, unless the partner so acting has in fact no authority to act for the partnership in the particular matter, and the person with whom he is dealing has knowledge of the fact that he has no such authority. An act of a partner which is not apparently for the carrying on of business of the partnership in the usual way does not bind the partnership unless authorized by the other partners. Except when authorized by the other partners or unless they have abandoned the business, one or more but less than all the partners have no authority to: 0 Assign the partnership property in trust for creditors or on the assignee's promise to pay the debts of the partnership; 1 Dispose of the good-will of the business; 2 Do any other act which would make it impossible to carry on the ordinary business of a partnership; 3 Confess a judgment; 4 Enter into a compromise concerning a partnership claim or liability; 5 Submit a partnership claim or liability to arbitration; 6 Renounce a claim of the partnership. No act of a partner in contravention of a restriction on authority shall bind the partnership to persons having knowledge of the restriction. (n)

NOTES ON PARTNERSHIP AGENCY, TRUSTS, LEASE AND PRESCRIPTION Kenneth and King C. Hizon _________________________________________________________________________________________________________________

AUTHORITY OF PARTNER Where the express and avowed purpose of the partnership is to buy and sell real estate, the immovables acquired form part of the stockin-trade and thus within the ordinary powers of the partner.

Where the title to real property is in the name of all the partners a conveyance executed by all the partners passes all their rights in such property. (n) CONVEYANCE INCLUDE MORTGAGE

RATIFICATION OF UNAUTHORIZED ACT The right to mortgage is included in the right to convey. The principle of agency that one who accepts or retains benefits of unauthorized acts of agents, with knowledge of material facts surrounding the transaction, will be deemed to have ratified those acts will be applicable to a question of ratification of unauthorized acts of partmer.

APPLICABILITY OF THE ARTICLE: The article applies only to real property which refers to immovable like land or building because of the use of the words “title to real property, equitable interest and conveyances” (Pineda, 2006).

LAW ON PARTNERSHIP IS A BRANCH OF THE LAW ON AGENCY: There is more than mutual agency among the partners. They are not agents of one another but they are also of the partnership. Each partner is acting as principal on his own behalf and as agent for his co-partners.

EQUITABLE INTEREST- An equitable interest or title is one cognizable in equity alone; it is a right or interest in property which is imperfect, uncognizable, and unenforceable at law, but which under wellrecognized equitable principles should be and is convertible into a legal right or title (Pineda, 2006).

2 KINDS OF ACTS OF A PARTNER CONTEMPLATED IN THE ARTICLE:

PARTNERSHIP, NOT ITS OFFICERS OR AGENTS SHOULD BE IMPLEADED IN LITIGATION INVOLVING PROPERTY REGISTERED IN ITS NAME: The partners cannot be held liable for the obligations of the partnership unless it is shown that the legal fiction of a different juridical personality is being used for fraudulent, unfair or illegal purposes (Pineda, 2006).

23 Acts which apparently are for the carrying of the business of the partnership 24 Acts which do not apparently for carrying on the business of the partnership in the usual way (Pineda, 2006). “USUAL WAY”- The term “usual way” means it is an ordinary activity for the particular partnership or similar partnership. Example, a partnership engaged in real estate is usually involved in the sale and purchase of lands and buildings.

Article 1820. An admission or representation made by any partner concerning partnership affairs within the scope of his authority in accordance with this Title is evidence against the partnership. (n) ADMISSIONS AFTER DISSOLUTION

Article 1819. Where title to real property is in the partnership name, any partner may convey title to such property by a conveyance executed in the partnership name; but the partnership may recover such property unless the partner's act binds the partnership under the provisions of the first paragraph of article 1818, or unless such property has been conveyed by the grantee or a person claiming through such grantee to a holder for value without knowledge that the partner, in making the conveyance, has exceeded his authority. Where title to real property is in the name of the partnership, a conveyance executed by a partner, in his own name, passes the equitable interest of the partnership, provided the act is one within the authority of the partner under the provisions of the first paragraph of article 1818. Where title to real property is in the name of one or more but not all the partners, and the record does not disclose the right of the partnership, the partners in whose name the title stands may convey title to such property, but the partnership may recover such property if the partners' act does not bind the partnership under the provisions of the first paragraph of article 1818, unless the purchaser or his assignee, is a holder for value, without knowledge. Where the title to real property is in the name of one or more or all the partners, or in a third person in trust for the partnership, a conveyance executed by a partner in the partnership name, or in his own name, passes the equitable interest of the partnership, provided the act is one within the authority of the partner under the provisions of the first paragraph of article 1818.

Partnership is not bound by admissions or statements made by a former partner after the latter has withdrawn from the partnership as to what took place during the period of partnership. REQUISITES TO MAKE A PARTNER’S ADMISSION REPRESENTATION ADMISSIBLE AGAINST THE PARTNERSHIP:

OR

The admission or representation must be connected with partnership affairs It is within the scope of the partner’s authority It is made during the existence of the firm (Pineda, 2006). ADMISSION AFTER DISSOLUTION: An admission made by a partner after the dissolution of the firm will be binding upon the partnership only if connected with the winding up affairs of the firm (Pineda, 2006). Article 1821. Notice to any partner of any matter relating to partnership affairs, and the knowledge of the partner acting in the particular matter, acquired while a partner or then present to his mind, and the knowledge of any other partner who reasonably could and should have communicated it to the acting partner, operate as notice to or knowledge of the partnership, except in the case of fraud on the partnership, committed by or with the consent of that partner. (n) NOTICE When notice is given to the partner while he is a partner, the effect is the same as if notice was had by all the partners. Where the

NOTES ON PARTNERSHIP AGENCY, TRUSTS, LEASE AND PRESCRIPTION Kenneth and King C. Hizon _________________________________________________________________________________________________________________

knowledge or notice has been received by one before he became a partner, and his partners are ignorant of this, and he is not the partner acting in the particular matter, there is no doubt that there has been neither knowledge of nor notice to the partnership. Yet, if the partner acting in the particular matter acquired knowledge before he became a partner, and the knowledge is then present in his mind, and partnership should be charged with knowledge.

Article 1823. The partnership is bound to make good the loss: 23 Where one partner acting within the scope of his apparent authority receives money or property of a third person and misapplies it; and 24 Where the partnership in the course of its business receives money or property of a third person and the money or property so received is misapplied by any partner while it is in the custody of the partnership. (n)

Article 1822. Where, by any wrongful act or omission of any partner acting in the ordinary course of the business of the partnership or with the authority of his co-partners, loss or injury is caused to any person, not being a partner in the partnership, or any penalty is incurred, the partnership is liable therefor to the same extent as the partner so acting or omitting to act. (n)

Article 1824. All partners are liable solidarily with the partnership for everything chargeable to the partnership under articles 1822 and 1823. (n)

LIABILITY FOR WRONGFUL ACTS

NATURE OF LIABILITY

Under the principle of mutual agency, the partnership, or every member of a partnership, is liable for torts committed by one of the members acting in the scope of the firm business, although they do not participate in, ratify or have knowledge of such torts. Such liability is not dependent on the personal wrong of the individual member of the partnership against which the liability is asserted.

The liability of a partner for the wrongful act of another partner is analogous to that of a principal for the acts of his agent since each partner acts both as principal and as agent of the other as to acts done within the apparent scope of business and purpose of the partnership and for its benefit.

The test of liability: whether the wrong was committed in behalf of and within the reasonable scope of the business of the partnership. If it was so, the partners are liable as joint tort-feasors. LIABILITY FOR WANTON OR WILLFUL ACT GR: If the injury results from a wanton or willful act of one of the parties committed outside the agency or common business, then the person doing the act and causing the injury is alone responsible. XPN: If the act was authorized by the members of the partnership or subsequently ratified by them. REQUISITES FOR APPLICATION OF THE LAW: 0 Partner committed a wrongful act or omission (crime or quasidelict) 1 The guilty partner is acting in the ordinary course of the business of the partnership or with authority of the copartners even if the act is not connected with the partnership business 2 Loss or injury is suffered by third person as a result of the wrongful act or omission 3 The aggrieved third person is not a partner in the firm 4 There is no pre-existing contract between the partnership and the third person; if there is, but it was grossly and deliberately violated, this itself constitutes quasi-delict (Pineda, 2006).

SOLIDARY LIABILITY: All partners are liable jointly and severally for everything chargeable to the partnership by reason of the partner’s wrongful act or breach of trust wherein a third person is adversely affected. While the liability of the partners are merely joint in transactions entered into by the partnership, a third person who transacted with said partnership can hold the partners solidarily for the whole obligation if the case involves loss or injury caused to any person not a partner in the partnership, and misapplication of money or property of a third person received by a partner or the partnership. RATIONALE: The law protects the latter who in good faith relied upon the authority of a partner, whether such authority is real or apparent. ART. 1824 IS AN EXCEPTION TO ARTICLE 1816: Under Art. 1816, the liability of the partners, including industrial partners, is pro rata. However, under Art. 1824, the liability of all partners is declared to be solidary under Articles 1822 and 1823. The reason being that the violation of these two articles constitutes torts, hence, the solidary liability of the partners (Pineda, 2006).

DEFENSES AGAINST THE SUIT: To be exercised from liability, the partnership and the co-partner/s must prove that the erring partner committed the complained act while acting for purposes of his own and not for the benefit of the partnership, or acted not in the course of the business of the partnership (Pineda, 2006).

Article 1825. When a person, by words spoken or written or by conduct, represents himself, or consents to another representing him to anyone, as a partner in an existing partnership or with one or more persons not actual partners, he is liable to any such persons to whom such representation has been made, who has, on the faith of such representation, given credit to the actual or apparent partnership, and if he has made such representation or consented to its being made in a public manner he is liable to such person, whether the representation has or has not been made or communicated to such person so giving credit by or with the knowledge of the apparent partner making the representation or consenting to its being made:

REMEDY OF INNOCENT PARTNERS: The innocent partners who were made liable solidary with the offending partner is to seek recovery against the latter for what they have paid with interest (Pineda, 2006).

0 When a partnership liability results, he is liable as though he were an actual member of the partnership; 1 When no partnership liability results, he is liable pro rata with the other persons, if any, so consenting to the

NOTES ON PARTNERSHIP AGENCY, TRUSTS, LEASE AND PRESCRIPTION Kenneth and King C. Hizon _________________________________________________________________________________________________________________

contract or representation as to incur liability, otherwise separately. When a person has been thus represented to be a partner in an existing partnership, or with one or more persons not actual partners, he is an agent of the persons consenting to such representation to bind them to the same extent and in the same manner as though he were a partner in fact, with respect to persons who rely upon the representation. When all the members of the existing partnership consent to the representation, a partnership act or obligation results; but in all other cases it is the joint act or obligation of the person acting and the persons consenting to the representation. (n) PERSONS PROTECTED The article is for the benefit of third persons who are misled by the representation holding out an individual as a partner, and who act to their detriment; but it does not create a partnership as between the alleged partners or as respect third persons who have not in facr been misled. Where a former partner entered into an agreement with the remaining partners to continue the business, and third parties were misled into believing that they are dealing with the same old partnership, that partner who has withdrawn is still liable for partnership liabilities. DOCTRINE OF PARTNERSHIP BY ESTOPPEL A partnership, not duly organized, which has been recognized as such in its dealings with third persons shall be considered as “partnership by estoppel” as far as third persons are concerned. ESTOPPEL- It may be said that estoppel is a bar which precludes a person from denying or asserting anything contrary to that which has been, in contemplation of law, established as the truth either by acts of judicial or legislative officers, or by his own deed or representations either express or implied (Pineda, 2006). Mirasol v. Municipality of Tabaco The admission or representation must be plain and clear. Estoppel cannot be sustained on doubtful or ambiguous inferences (Pineda, 2006). ESTOPPEL OF THIRD PERSONS: He who enters or contract with a partnership as such, is stopped in a suit by the partnership against him growing out of such contract, to claim that the partnership was no properly organized (Pineda, 2006). Requisites to make a person a partner by estoppel: 0

1 2

The person must represent himself as a partner of an existing partnership, when in fact he is not a partner or consents to another representing him to anyone as a partner in an existing partnership or with one or more persons not actual partners Third person relied on the said misrepresentation not being aware of the deception On the faith of such representation, the third person has given credit to the actual or apparent partnership

0

The alleged partner cannot disallow liability by claiming he is not actually a partner. He is estopped from making a disclaimer. He is bound as a “partner”, although, he is actually not a partner (Pineda, 2006).

NO REAL PARTNERSHIP IS CREATED BY ESTOPPEL: Art. 1825 does not create or establish a real partnership as between the alleged partners. It must be stressed, a real partnership is formed by virtue of a contract, express or implied, between the parties. It is only insofar as third persons are involved and for the purpose of giving them protection that the equitable principle of estoppel is recognized in the law (Pineda, 2006). PROOF OF ESTOPPEL: Whoever alleges the existence of a partner or partnership by estoppels has the burden of proof. The existence of the misrepresentation and the innocent reliance on it must be established (Pineda, 2006). Article 1826. A person admitted as a partner into an existing partnership is liable for all the obligations of the partnership arising before his admission as though he had been a partner when such obligations were incurred, except that this liability shall be satisfied only out of partnership property, unless there is a stipulation to the contrary. (n) NOTE: The article eliminates the difficulty which arises when a new partner is admitted without liquidation of firm debts. This is illustrated by the case where all the property of the existing partnership is taken over, without notice of any break in the conduct of business, by the new partnership and the incoming partner; thereby depriving the existing partnership of all its property. In this case, both the existing and subsequent creditors may believe it is one and the same partnership. Existing and subsequent CRs have equal rights as against partnership property and the separate property of all the previous existing members of the partnership, while only the subsequent CRs have the rights against the separate estate of the newly admitted partner. Article 1840. In the following cases creditors of the dissolved partnership are also creditors of the person or partnership continuing the business: 0 When any new partner is admitted into an existing partnership, or when any partner retires and assigns (or the representative of the deceased partner assigns) his rights in partnership property to two or more of the partners, or to one or more of the partners and one or more third persons, if the business is continued without liquidation of the partnership affairs; 1 When all but one partner retire and assign (or the representative of a deceased partner assigns) their rights in partnership property to the remaining partner, who continues the business without liquidation of partnership affairs, either alone or with others; 2 When any partner retires or dies and the business of the dissolved partnership is continued as set forth in Nos. 1 and 2 of this article, with the consent of the retired partners or the representative of the deceased partner, but without any assignment of his right in partnership property; 3 When all the partners or their representatives assign their rights in partnership property to one or more third

NOTES ON PARTNERSHIP AGENCY, TRUSTS, LEASE AND PRESCRIPTION Kenneth and King C. Hizon _________________________________________________________________________________________________________________

persons who promise to pay the debts and who continue the business of the dissolved partnership; 0 When any partner wrongfully causes a dissolution and the remaining partners continue the business under the provisions of article 1837, second paragraph, No. 2, either alone or with others, and without liquidation of the partnership affairs; 1 When a partner is expelled and the remaining partners continue the business either alone or with others without liquidation of the partnership affairs. The liability of a third person becoming a partner in partnership continuing the business, under this article, to creditors of the dissolved partnership shall be satisfied out of partnership property only, unless there is a stipulation to contrary.

the the the the

When the business of a partnership after dissolution is continued under any conditions set forth in this article the creditors of the dissolved partnership, as against the separate creditors of the retiring or deceased partner or the representative of the deceased partner, have a prior right to any claim of the retired partner or the representative of the deceased partner against the person or partnership continuing the business, on account of the retired or deceased partner's interest in the dissolved partnership or on account of any consideration promised for such interest or for his right in partnership property. Nothing in this article shall be held to modify any right of creditors to set aside any assignment on the ground of fraud. The use by the person or partnership continuing the business of the partnership name, or the name of a deceased partner as part thereof, shall not of itself make the individual property of the deceased partner liable for any debts contracted by such person or partnership. (n) NOTE: Article 1826 and 1840 are based on the principle that where there has been one continuous business, the fact that Ayel has been admitted to the business, or Bebeng ceased to be connected with it, should not be allowed to cause endless confusion as to the claims of CRs on the property employed in the business; but all the CRs of the business, irrespective of the times when they became CRs and the exact combinations of persons then owning the business, should have equal rights to the property. LIABILITY OF NEWLY ADMITTED PARTNER: The incoming partner or newly admitted partner is liable for all the obligations of the firm contracted before his admission. On the surface, this appears to be harsh for the incoming partner. However, his liability is limited. It is only up to his share in the partnership property, unless there is a contrary stipulation. His separate property will not be reached by partnership creditors (Pineda, 2006). EFFECT OG ADMISION OF NEW PARTNER ON THE STATUS OF YJE EXISTING PARTNERSHIP: The admission of the new partner dissolves the old partnership (Pineda, 2006). All the properties of the existing partnership are assumed by the new firm without notice of any discontinuance in the conduct of the business, now under the new firm composed of all the original members and the newly admitted one. In effect, the old partnership is deprived of all its properties. Under Art. 1826, existing and subsequent creditors shall have equal rights as against partnership

property of all original partners while only the subsequent creditors have rights against the separate property of the newly admitted partner. Hence, the old creditors do not lose their preference as partnership creditors because they are recognized as the creditors of the new firm (Pineda, 2006). Reason for making new partner liable for obligations contracted before admission: To eliminate the difficulty which arises when by his admission, the existing partnership is dissolved and all properties of the said partnership are taken over by the new partnership. Old creditors lose their preference as partnership creditors. By making the new partner liable even to old creditors, the problem is solved (Pineda, 2006). Article 1827. The creditors of the partnership shall be preferred to those of each partner as regards the partnership property. Without prejudice to this right, the private creditors of each partner may ask the attachment and public sale of the share of the latter in the partnership assets. (n) PARTNERSHIP CREDITORS PREFERRED TO CREDITORS OF INDIVIDUAL PARTNERS: The reason for this grant of priority of payment is that the partnership has a separate and distinct personality from the individual partners. The partnership should apply its property to the payment first of its debts to its own creditors. Conversely, the private property of the partners cannot be taken as payment for partnership debts until the common property of the firm had been exhausted (Pineda, 2006). CHAPTER 3 Dissolution and Winding Up Article 1828. The dissolution of a partnership is the change in the relation of the partners caused by any partner ceasing to be associated in the carrying on as distinguished from the winding up of the business. (n) DISSOLUTION Designates the point in time when the partners cease to carry on the business together. The change in the relation of the partners caused by any partner ceasing to be associated in the carrying on of the business of the partnership (Pineda, 2006).

TERMINATION Is the point in time when all the partnership affairs are wound up.

WINDING UP Is the process of settling partners affairs after dissolution.

The process of settling the business affairs of the partnership (Pineda, 2006).

It is the state which follows after all the partnership affairs have been wound up or concluded. Officially, it is the end of the partnership (Pineda, 2006).

Dissolution is descriptive of that change in the partnership relation which ultimately culminates in its termination. It is not the termination of the partnership or of the rights and powers of partners. EFFECTS OF DISSOLUTION On the partners

1. As

to previous obligations, the dissolution does not necessarily mean that a partner can evade previous

NOTES ON PARTNERSHIP AGENCY, TRUSTS, LEASE AND PRESCRIPTION Kenneth and King C. Hizon _________________________________________________________________________________________________________________

2.

On membership

1.

2.

3.

obligations entered into by the partnership As to new obligations: GR: Dissolution spares the former partners from new obligations entered into by the partnership to which they did not consent either expressly or impliedly XPN: These new obligations are essential for the winding up of the partnership affairs Any change in the membership of the partnership will result in its dissolution and in the formation of a new partnership so long as the course of its business is materially interrupted All partners constituting new partnership are considered incoming partners if there is admission of the new partner even if the business had been theretofore conducted by the others through the previous partnership A change in the relation of the partners will cause the dissolution of the partnership but this will not disturb the continuance of the business of the partnership under the original articles of partnership by the remaining partners or by them and the new partners

them to be charged for their separate debts, either before or after the termination of any specified term or particular undertaking; By the expulsion of any partner from the business bona fide in accordance with such a power conferred by the agreement between the partners; 0 In contravention of the agreement between the partners, where the circumstances do not permit a dissolution under any other provision of this article, by the express will of any partner at any time; 1 By any event which makes it unlawful for the business of the partnership to be carried on or for the members to carry it on in partnership; 2 When a specific thing which a partner had promised to contribute to the partnership, perishes before the delivery; in any case by the loss of the thing, when the partner who contributed it having reserved the ownership thereof, has only transferred to the partnership the use or enjoyment of the same; but the partnership shall not be dissolved by the loss of the thing when it occurs after the partnership has acquired the ownership thereof; 3 By the death of any partner; 4 By the insolvency of any partner or of the partnership; 5 By the civil interdiction of any partner; 6 By decree of court under the following article. (1700a and 1701a) AUTHORITY AND POWERS OF PARTNERS TERMINATION OF TERM OR PURPOSE

Article 1829. On dissolution the partnership is not terminated, but continues until the winding up of partnership affairs is completed. (n) PARTNERSHIP IS NOT TERMINATED Dissolution affects only future obligations of the business, and as to past transactions the partnership continues until it satisfies all its pre-existing obligations. Dissolution does not abrogate its contracts which continue until performed or otherwise become inoperative. It has no effect on debts due from the partnership to third parties except that partners may not act for each other any further than may joint debtors. During dissolution, the partnership will be reputed as existing until the juridical relations arising out of the contract are dissolved. Article 1830. Dissolution is caused: Without violation of the agreement between the partners: By the termination of the definite term or particular undertaking specified in the agreement; By the express will of any partner, who must act in good faith, when no definite term or particular is specified; By the express will of all the partners who have not assigned their interests or suffered

If a fixed duration is agreed on, partnership is dissolved by the lapse of time on the expiration of such period. Irrespective of any agreement as to the period of duration of a partnership, it is dissolved on the completion of the enterprise for which it was formed. EXPRESS WILL OF ANY PARTNER If no time prescribed by the agreement for the duration of a general partnership, it may be dissolved totally by the express will of any partner. A partnership may be dissolved by one partner unequivocally bringing home notice to the other partners that he no longer intends to be a partner. In contravention of agreement Any partnership, whether under the articles of partnership it is to exist for a definite period of time or for the accomplishment of a particular purpose, or whether those articles contain any stipulation as to the time of existence, may be dissolved by the act of any partner alone in accordance with his own pleasure and will. The difference between a partnership for an indefinite period and one for a specified term is that in case of a partnership for a definite term, a dissolution before the expiration of the stipulated time is a breach of agreement which subjects such partner to a claim for damages for breach of contract if the dissolution is not justified. On the other hand, the dissolution of partnership at will affords the

NOTES ON PARTNERSHIP AGENCY, TRUSTS, LEASE AND PRESCRIPTION Kenneth and King C. Hizon _________________________________________________________________________________________________________________

other partner no ground for complaint. In either case the action is of one partner actually dissolves the partnership. This is because a contract of partnership is a contract of agency based on the assent of each of the partners, which may be retracted at any time as to future dealings although the term of the partnership may not have expired. All that is required is that notice of the dissolution must be communicated forthwith to the other members of the firm. By such notice the partnership is dissolved. The rights of the parties upon dissolution are safeguarded by Art. 1837, subdivision (2). Article 1831. On application by or for a partner the court shall decree a dissolution whenever:

ᜀĀᜀĀĀȀ⸀ĀᜀĀᜀĀᜀĀᜀĀᜀĀᜀĀᜀĀᜀĀȀȀ⠀⤀ĀᜀĀᜀĀᜀĀᜀĀᜀ 0 A partner has been declared insane in any judicial proceeding or is shown to be of unsound mind; ᜀĀᜀĀĀȀ⸀ĀᜀĀᜀĀᜀĀᜀĀᜀĀᜀĀᜀĀᜀĀȀȀ⠀⤀ĀᜀĀᜀĀᜀĀᜀĀᜀ 1 A partner becomes in any other way incapable of performing his part of the partnership contract; ᜀĀᜀĀĀȀ⸀ĀᜀĀᜀĀᜀĀᜀĀᜀĀᜀĀᜀĀᜀĀȀȀ⠀⤀ĀᜀĀᜀĀᜀĀᜀĀᜀ 2 A partner has been guilty of such conduct as tends to affect prejudicially the carrying on of the business; ᜀĀᜀĀĀȀ⸀ĀᜀĀᜀĀᜀĀᜀĀᜀĀᜀĀᜀĀᜀĀȀȀ⠀⤀ĀᜀĀᜀĀᜀĀᜀĀᜀ 3 A partner wilfully or persistently commits a breach of the partnership agreement, or otherwise so conducts himself in matters relating to the partnership business that it is not reasonably practicable to carry on the business in partnership with him; ᜀĀᜀĀĀȀ⸀ĀᜀĀᜀĀᜀĀᜀĀᜀĀᜀĀᜀĀᜀĀȀȀ⠀⤀ĀᜀĀᜀĀᜀĀᜀĀᜀ 4 The business of the partnership can only be carried on at a loss; ᜀĀᜀĀĀȀ⸀ĀᜀĀᜀĀᜀĀᜀĀᜀĀᜀĀᜀĀᜀĀȀȀ⠀⤀ĀᜀĀᜀĀᜀĀᜀĀᜀ 5 Other circumstances render a dissolution equitable. On the application of the purchaser of a partner's interest under article 1813 or 1814: 0 After the termination of the specified term or particular undertaking; 1 At any time if the partnership was a partnership at will when the interest was assigned or when the charging order was issued. (n) Misconduct, gross neglect, or breach of duty GR: Gross misconduct, want of good faith, willful neglect of partnership obligations, and such other causes as are productive of serious and permanent injury to the partnership concern, or which render it impracticable to carry on the partnership business, are proper grounds for the dissolution of the partnership by a court of equity at the instance of the innocent partner. Also, habitual drunkenness, great extravagance or unwarranted negligence on the part of the partner in conducting the business of the partnership justifies a judicial dissolution of the partnership at the instance of the other partner, although such facts do not authorize the other, of his own motion, to treat the partnership as ended and take to himself all the benefits of the joint labors and property. DISSENSION, LACK OF CONFIDENCE

Where the purpose of the partnership can no longer be accomplished harmoniously or profitably because of serious dissensions, personal ill-will, irreconcilable differences, and lack of

confidence between partners, courts of equity can consider these grounds for the dissolution of the partnership. Yet, the partner who caused the want of confidence or is the author of the ill-feeling between himself and his partners will not be permitted to make the strained relation he has induced the ground for the dissolution of the partnership. The complaining partner must show that the things relied upon are of serious and permanent character as to prevent the profitable continuance of the partnership business. Not grounds for dissolution: 0 1

trifling and minor grievances involving no permanent mischief; Remedy: Injunction Friction among the partners

Article 1832. Except so far as may be necessary to wind up partnership affairs or to complete transactions begun but not then finished, dissolution terminates all authority of any partner to act for the partnership: 0 With respect to the partners, When the dissolution is not by the act, insolvency or death of a partner; or When the dissolution is by such act, insolvency or death of a partner, in cases where article 1833 so requires; 1 With respect to persons not partners, as declared in article 1834. (n) AUTHORITY AND POWERS OF PARTNERS: The dissolution of a partnership terminates the general agency of one partner for his copartners, but leaves each of the partners with an equal duty and an equal power to do whatever is necessary to collect the debts due the partnership, and to adjust, settle and pay its debts, including authority as before to represent his firm in all acts necessary to complete partnership contracts. When the conversion of property into cash is necessary for the completion of the winding-up process, each partner is deemed to have power after dissolution to dispose of such firm property. NOTE: A member of a dissolved partnership cannot, however, by borrowing money, bind his co-partners, except when such power has been expressly or impliedly conferred upon him, inasmuch as such borrowing, whether to meet pre-existing obligations or not, is generally considered as a new contract. Article 1833. Where the dissolution is caused by the act, death or insolvency of a partner, each partner is liable to his co-partners for his share of any liability created by any partner acting for the partnership as if the partnership had not been dissolved unless: 0 The dissolution being by act of any partner, the partner acting for the partnership had knowledge of the dissolution; or 1 The dissolution being by the death or insolvency of a partner, the partner acting for the partnership had knowledge or notice of the death or insolvency.

NOTES ON PARTNERSHIP AGENCY, TRUSTS, LEASE AND PRESCRIPTION Kenneth and King C. Hizon _________________________________________________________________________________________________________________

SCOPE OF THIS ARTICLE: Where the dissolution has been caused by the act of one of the parties, if the partner acting is subject to a liability to third persons, he can call on his co-partners to contribute towards this liability to the same extent as if there has been no dissolution, provided he had no knowledge of the dissolution, at the time of the act. Example: A, B, and C are partners. A, in accordance with his right, or in contravention of the partnership. B, subsequently, makes a contract for the partnership in ignorance of the dissolution. B under this article would have the right to call upon A and C to assume their share of the burden. The same principle applies when the dissolution is caused by the death or insolvency of a partner, and that fact was unknown to the partner who subsequently makes a contract of partnership. NOTE: The article applies when the partnership is dissolved by: Act Death Insolvency of a partner In such case, despite dissolution, a partner remains liable to his copartners for his share of any liability incurred by any partner acting for the partnership as if there is no dissolution XPNs: 0 1

The dissolution being by an act of the partner, the representing partner had knowledge of the dissolution The dissolution is caused by the death or insolvency of a partner, the representing partner who acts for the partnership, had knowledge or notice of such death or insolvency and still transacts business for the partnership, he alone is responsible for the liability incurred (Pineda, 2006). UNIFORM PARTNERSHIP ACT

0

1

A person has knowledge of a fact within the meaning of the Act not only when he has actual knowledge thereof, but also when he has knowledge of such other facts as in the circumstances shows bad faith A person has notice of a fact within the meaning of this Act when the person who claims the benefit of the notice, states the fact to such person, or delivers through the mail, or by other means of communication, a written statement of the fact to such persons or to a proper person at his place of business or residence.

Article 1834. After dissolution, a partner can bind the partnership, except as provided in the third paragraph of this article: By any act appropriate for winding up partnership affairs or completing transactions unfinished at dissolution; By any transaction which would bind the partnership if dissolution had not taken place, provided the other party to the transaction: 0 Had extended credit to the partnership prior to dissolution and had no knowledge or notice of the dissolution; or 1 Though he had not so extended credit, had nevertheless known of the partnership prior to dissolution, and, having no knowledge or notice

of dissolution, the fact of dissolution had not been advertised in a newspaper of general circulation in the place (or in each place if more than one) at which the partnership business was regularly carried on. The liability of a partner under the first paragraph, No. 2, shall be satisfied out of partnership assets alone when such partner had been prior to dissolution: 0 Unknown as a partner to the person with whom the contract is made; and 1 So far unknown and inactive in partnership affairs that the business reputation of the partnership could not be said to have been in any degree due to his connection with it. The partnership is in no case bound by any act of a partner after dissolution: 5888 Where the partnership is dissolved because it is unlawful to carry on the business, unless the act is appropriate for winding up partnership affairs; or 5889 Where the partner has become insolvent; or 5890 Where the partner has no authority to wind up partnership affairs; except by a transaction with one who ĀȀĀ⸀ĀᜀĀᜀĀᜀĀᜀĀᜀĀᜀĀᜀᄀ̀̀ĀȀ㨀ĀᜀĀᜀĀᜀĀᜀĀ ᜀĀᜀĀᜀĀᜀ768 Had extended credit to the partnership prior to dissolution and had no knowledge or notice of his want of authority; or ĀȀĀ⸀ĀᜀĀᜀĀᜀĀᜀĀᜀĀᜀĀᜀᄀ̀̀ĀȀ㨀ĀᜀĀᜀĀᜀĀᜀĀ ᜀĀᜀĀᜀĀᜀ769 Had not extended credit to the partnership prior to dissolution, and, having no knowledge or notice of his want of authority, the fact of his want of authority has not been advertised in the manner provided for advertising the fact of dissolution in the first paragraph, No. 2 (b). Nothing in this article shall affect the liability under article 1825 of any person who after dissolution represents himself or consents to another representing him as a partner in a partnership engaged in carrying on business. (n) ACCEPTANCE OF BILL: After the dissolution of a partnership, a partner cannot bind the partnership or his co-partners by accepting a bill drawn on the firm, unless he has a special authority to do so. LIABILITY LIMITED BY NOTICE OF DISSOLUTION: The liability of partnership property for partnership debts does not extend to debts contracted by one partner after a dissolution with one having knowledge of dissolution. Persons dealing with a surviving partner with notice of the copartner’s death are bound to recognize the limitation on his authority, and act at their peril when they give credit to the survivor in a new transaction. NOTICE OF DISSOLUTION: Since a partnership once established is, in the absence of anything to indicate its termination, presumed to continue to exist, the law, for the protection of innocent third persons, imposes upon partners, when they dissolve the partnership relation or when dissolution is effected by the retirement or withdrawal of one of the partners, the duty of giving notice of the dissolution of the partnership. The members of a partnership after dissolution continue to be liable to those with whom they have previously dealt as partners who have no notice or knowledge of the dissolution of the firm and who

NOTES ON PARTNERSHIP AGENCY, TRUSTS, LEASE AND PRESCRIPTION Kenneth and King C. Hizon _________________________________________________________________________________________________________________

in good faith continue to act in the belief that the firm is still in existence. Article 1835. The dissolution of the partnership does not of itself discharge the existing liability of any partner. A partner is discharged from any existing liability upon dissolution of the partnership by an agreement to that effect between himself, the partnership creditor and the person or partnership continuing the business; and such agreement may be inferred from the course of dealing between the creditor having knowledge of the dissolution and the person or partnership continuing the business. The individual property of a deceased partner shall be liable for all obligations of the partnership incurred while he was a partner, but subject to the prior payment of his separate debts. (n) CONTINUATION OF LIABILITY: Dissolution of partnership does not discharge the existing contractual liability of any partner without express or implied agreement between himself, the partnership creditor, and the partnership continuing the business or without novation; and in the absence of such factors, a retiring partner’s liability on contracts of the partnership made before dissolution, continues as that of a principal or as a co-principal debtor. NOTE: A partner who has withdrawn from the partnership is released from liability only when there has been liquidation and his withdrawal has been published. Article 1836. Unless otherwise agreed, the partners who have not wrongfully dissolved the partnership or the legal representative of the last surviving partner, not insolvent, has the right to wind up the partnership affairs, provided, however, that any partner, his legal representative or his assignee, upon cause shown, may obtain winding up by the court. (n) KINDS OF WINDING UP JUDICIAL When there is a court intervention initiated by any partner, a legal representative or assignee of a partner

EXTRA-JUDICIAL When the dissolution is voluntary without any court intervention (Pineda, 2006).

WHO CAN INITIATE WINDING UP: 0 1 2 3

The partner who is expressly authorized by agreement to initiate the winding up If there is no such agreement, all the partners may institute the winding up The legal representative of the last surviving partner who must not be insolvent Assignee (Pineda, 2006).

POWERS OR PREROGATIVES OF THE LUQUIDATING PARTNER: 0 He is the sole agent of the partnership for the purpose of winding up of the firm’s affairs. The authority is only with the respect to the winding up of the business affairs 1 He may borrow money to meet accruing liabilities of the firm or may sell property to raise money to pay its debts 2 He may incur obligations necessary to complete existing contracts or to preserve partnership assets

5888 He may engage the services of counsel for reasonable fees to prosecute or defend cases of the firm; he may also incur obligations for litigation expenses (Pineda, 2006). Article 1837. When dissolution is caused in any way, except in contravention of the partnership agreement, each partner, as against his co-partners and all persons claiming through them in respect of their interests in the partnership, unless otherwise agreed, may have the partnership property applied to discharge its liabilities, and the surplus applied to pay in cash the net amount owing to the respective partners. But if dissolution is caused by expulsion of a partner, bona fide under the partnership agreement and if the expelled partner is discharged from all partnership liabilities, either by payment or agreement under the second paragraph of article 1835, he shall receive in cash only the net amount due him from the partnership. When dissolution is caused in contravention of the partnership agreement the rights of the partners shall be as follows: 0 Each partner who has not caused dissolution wrongfully shall have: 0.0 All the rights specified in the first paragraph of this article, and 0.1 The right, as against each partner who has caused the dissolution wrongfully, to damages breach of the agreement. 1 The partners who have not caused the dissolution wrongfully, if they all desire to continue the business in the same name either by themselves or jointly with others, may do so, during the agreed term for the partnership and for that purpose may possess the partnership property, provided they secure the payment by bond approved by the court, or pay any partner who has caused the dissolution wrongfully, the value of his interest in the partnership at the dissolution, less any damages recoverable under the second paragraph, No. 1 (b) of this article, and in like manner indemnify him against all present or future partnership liabilities. 2 A partner who has caused the dissolution wrongfully shall have: 2.0 If the business is not continued under the provisions of the second paragraph, No. 2, all the rights of a partner under the first paragraph, subject to liability for damages in the second paragraph, No. 1 (b), of this article. 2.1 If the business is continued under the second paragraph, No. 2, of this article, the right as against his co-partners and all claiming through them in respect of their interests in the partnership, to have the value of his interest in the partnership, less any damage caused to his co-partners by the dissolution, ascertained and paid to him in cash, or the payment secured by a bond approved by the court, and to be released from all existing liabilities of the partnership; but in ascertaining the value of the partner's interest the value of the good-will of the business shall not be considered. (n) DISCHARGE OF LIABILITIES: Generally, partnership property must first be applied to the payment of partnership debts, and the copartners or their creditors are entitled to only such property as remains after satisfaction of partnership debts.

NOTES ON PARTNERSHIP AGENCY, TRUSTS, LEASE AND PRESCRIPTION Kenneth and King C. Hizon _________________________________________________________________________________________________________________

Upon the dissolution of a partnership by death of a partner, all members of the firm are entitled to a division of the surplus of the assets over the amount necessary to discharge the liabilities of the partnership. CAUSES OF DISSOLUTION UNDER THIS ARTICLE: Dissolution not in contravention of partnership agreement Dissolution in contravention of partnership agreement (Pineda, 2006) GOODWILL OF PARTNERSHIP: The guilty partner is not entitled to a proportionate share of the value of the goodwill if the firm. This is a penalty for his bad faith in wrongfully dissolving the firm (Pineda, 2006). Article 1838. Where a partnership contract is rescinded on the ground of the fraud or misrepresentation of one of the parties thereto, the party entitled to rescind is, without prejudice to any other right, entitled: 0 To a lien on, or right of retention of, the surplus of the partnership property after satisfying the partnership liabilities to third persons for any sum of money paid by him for the purchase of an interest in the partnership and for any capital or advances contributed by him; 1 To stand, after all liabilities to third persons have been satisfied, in the place of the creditors of the partnership for any payments made by him in respect of the partnership liabilities; and 2 To be indemnified by the person guilty of the fraud or making the representation against all debts and liabilities of the partnership. (n) RESCISSION DUE FRAAUD Where one is induced to form a partnership by reason of fraud or misrepresentation, the court, upon prompt application of injured party after deceit becomes known, rescind the contract of partnership. NOTE: Since the ground indicated in the article to set aside the contract of partnership is fraud or misrepresentation, the appropriate technical word for the setting aside of the contract should be “annulled” and not “rescinded” (Pineda, 2006). The deceit must be material and mere exaggerations as to the prospects of an enterprise or the value of the property which he has put into the firm as capital is not a ground for dissolution. When fraud is established, court will compel the repayment of whatever sums may have been improperly obtained. RIGHTS OF PARTIES ENTITLED TO ANNUL: 0

1

Right of lien on the surplus of the partnership property after satisfaction of the partnership liabilities to third persons for any sum paid for any capital or advances contributed by him. This is right of retention of the surplus. Right to subrogate partnership creditors after his payment of partnership liabilities to them

0

Right to be indemnified by the supposed partner guilty of the fraud or misrepresentation against all debts and liabilities of the partnership (Pineda, 2006).

Article 1839. In settling accounts between the partners after dissolution, the following rules shall be observed, subject to any agreement to the contrary: 0 The assets of the partnership are: 0 The partnership property, 1 The contributions of the partners necessary for the payment of all the liabilities specified in No. 2. 1 The liabilities of the partnership shall rank in order of payment, as follows: 0 Those owing to creditors other than partners, 1 Those owing to partners other than for capital and profits, 2 Those owing to partners in respect of capital, 3 Those owing to partners in respect of profits. 2 The assets shall be applied in the order of their declaration in No. 1 of this article to the satisfaction of the liabilities. 3 The partners shall contribute, as provided by article 1797, the amount necessary to satisfy the liabilities. 4 An assignee for the benefit of creditors or any person appointed by the court shall have the right to enforce the contributions specified in the preceding number. 5 Any partner or his legal representative shall have the right to enforce the contributions specified in No. 4, to the extent of the amount which he has paid in excess of his share of the liability. 6 The individual property of a deceased partner shall be liable for the contributions specified in No. 4. 7 When partnership property and the individual properties of the partners are in possession of a court for distribution, partnership creditors shall have priority on partnership property and separate creditors on individual property, saving the rights of lien or secured creditors. 8 Where a partner has become insolvent or his estate is insolvent, the claims against his separate property shall rank in the following order: 0 Those owing to separate creditors; 1 Those owing to partnership creditors; 2 Those owing to partners by way of contribution. (n) LIQUIDATION NECESSARY BEFORE RECOVERY OF SHARE: A partner who has retired must first ask for liquidation of the partnership before he can recover his proportionate share of the partnership

NOTES ON PARTNERSHIP AGENCY, TRUSTS, LEASE AND PRESCRIPTION Kenneth and King C. Hizon _________________________________________________________________________________________________________________

assets. The reason is that the creditors of the partnership must be paid first as they enjoy priority of payment (Pineda, 2006). CONVERSION OF ASSETS INTO CASH GR: After taking an accounting on dissolution of partnership, the court should require a sale of the partnership property and distribute the proceeds to the partners after payment of costs and expenses and debts. XPNs: 23 Where there are no debts and division in kind may be fairly and equitably made; 24 If sale of assets would be prejudicial to an innocent partner who has not consented to the sale; and 25 Where dissolution of the partnership is had on suit of a partner upon violation of a partnership agreement, and a judicial sale of the assets would amount to confiscation. AGREEMENT AS TO DISTRIBUTION OF ASSETS Co-partners may agree in what proportion assets of the partnership may be divided between them upon dissolution. Where there is no fraud, an agreement of dissolution and settlement will not be set aside merely because one partner has made an improvident agreement and settlement is on the basis different from that provided by the articles. Partner’s share cannot be returned without first dissolving and liquidating the partnership, for the return is dependent on the discharge of the creditors whose claims enjoy preference over those of the partners. It is self-evident that all partners of the partnership are interested in its assets and business, and are entitled to be heard in the matter of the firm’s liquidation and the distribution of its property. PREFERENCES OF PAYMENT: 23 24 25 26

Those owing the creditors other than partners Those owing to partners other than capital and profits Those owing to partners in respect of capital Those owing to partners in respect of profits (Pineda, 2006)

RULE IN CASE OF INSOLVENCY OF A PARTNER OR THAT OF HIS ESTATE IN CASE OF HIS DEATH: Order: 23 Separate creditors 24 Partnership creditors 25 Partners who gave contributions (Pineda, 2006)

partners, or to one or more of the partners and one or more third persons, if the business is continued without liquidation of the partnership affairs; 23 When all but one partner retire and assign (or the representative of a deceased partner assigns) their rights in partnership property to the remaining partner, who continues the business without liquidation of partnership affairs, either alone or with others; 24 When any partner retires or dies and the business of the dissolved partnership is continued as set forth in Nos. 1 and 2 of this article, with the consent of the retired partners or the representative of the deceased partner, but without any assignment of his right in partnership property; 25 When all the partners or their representatives assign their rights in partnership property to one or more third persons who promise to pay the debts and who continue the business of the dissolved partnership; 26 When any partner wrongfully causes a dissolution and the remaining partners continue the business under the provisions of article 1837, second paragraph, No. 2, either alone or with others, and without liquidation of the partnership affairs; 27 When a partner is expelled and the remaining partners continue the business either alone or with others without liquidation of the partnership affairs. The liability of a third person becoming a partner in partnership continuing the business, under this article, to creditors of the dissolved partnership shall be satisfied out of partnership property only, unless there is a stipulation to contrary.

the the the the

When the business of a partnership after dissolution is continued under any conditions set forth in this article the creditors of the dissolved partnership, as against the separate creditors of the retiring or deceased partner or the representative of the deceased partner, have a prior right to any claim of the retired partner or the representative of the deceased partner against the person or partnership continuing the business, on account of the retired or deceased partner's interest in the dissolved partnership or on account of any consideration promised for such interest or for his right in partnership property. Nothing in this article shall be held to modify any right of creditors to set aside any assignment on the ground of fraud. The use by the person or partnership continuing the business of the partnership name, or the name of a deceased partner as part thereof, shall not of itself make the individual property of the deceased partner liable for any debts contracted by such person or partnership. (n) SCOPE

Article 1840. In the following cases creditors of the dissolved partnership are also creditors of the person or partnership continuing the business:

The article deals with the right of CRs when a new partner is admitted or a partner retires, is expelled or dies and the business is continued without liquidation of all debts of the partnership dissolved by the change in personnel.

23 When any new partner is admitted into an existing partnership, or when any partner retires and assigns (or the representative of the deceased partner assigns) his rights in partnership property to two or more of the

This does not alter the rule that any change in membership dissolves a partnership and creates a new partnership; neither does it alter the rule that on any change of personnel, the property of the dissolved partnership becomes the property of the partnership

NOTES ON PARTNERSHIP AGENCY, TRUSTS, LEASE AND PRESCRIPTION Kenneth and King C. Hizon _________________________________________________________________________________________________________________

continuing the business. Hence, CRs of the dissolved partnership become CRs of the new partnership.

Applying the general law on prescription of actions, the period of prescription is 10 years if the contract of partnership is in writing; and if not, it is 6 years from dissolution (Pineda, 2006).

SIX SITUATIONS WHERE THERE IS DISSOLUTION BY REASON OF CHANGE IN MEMBERSHIP CAUSED BY ANY OF THE FF: 512 513 514 515 516

Admission of a new partner Retirement of a partner Assignment of rights in partnership property Death of a partner Expulsion

Article 1841. When any partner retires or dies, and the business is continued under any of the conditions set forth in the preceding article, or in article 1837, second paragraph, No. 2, without any settlement of accounts as between him or his estate and the person or partnership continuing the business, unless otherwise agreed, he or his legal representative as against such person or partnership may have the value of his interest at the date of dissolution ascertained, and shall receive as an ordinary creditor an amount equal to the value of his interest in the dissolved partnership with interest, or, at his option or at the option of his legal representative, in lieu of interest, the profits attributable to the use of his right in the property of the dissolved partnership; provided that the creditors of the dissolved partnership as against the separate creditors, or the representative of the retired or deceased partner, shall have priority on any claim arising under this article, as provided article 1840, third paragraph. (n) AGREEMENTS AS TO LIQUIDATION No specific amounts or properties may be adjudicated to the heirs of the deceased partner without the liquidation being first terminated. Agreements between the partners with respect to liquidation of the partnership on the death of one of the members are binding. All rights against the surviving partners are merged in said agreement and deceased partner’s representatives have no rights outside said agreement. GR: When a partner retires from the firm, he is entitled to payment of what may be due him after a liquidation. But liquidation is not necessary where there is already a settlement or agreement as to what the retiring partner shall receive. Where the return of the contributions of the retiring partners was understood and intended by all the parties as a final settlement of whatever rights or claim the withdrawing partners might have in the dissolved partnership, the acceptance of such payment precludes the retiring partners from later on claiming their supposed share in the profit of the firm at the time of dissolution. Article 1842. The right to an account of his interest shall accrue to any partner, or his legal representative as against the winding up partners or the surviving partners or the person or partnership continuing the business, at the date of dissolution, in the absence of any agreement to the contrary. (n) PRESCRIPTION OF ACTION Prescription begins to run only upon dissolution of the partnership when the final accounting is done.

CHAPTER 4 Limited Partnership (n) Article 1843. A limited partnership is one formed by two or more persons under the provisions of the following article, having as members one or more general partners and one or more limited partners. The limited partners as such shall not be bound by the obligations of the partnership. LIMITED PARTNERSHIP; NATURE OF LIABILITY It is one in which the liability of the members is limited (but not all). Such is formed under laws permitting an individual to contribute to a specified sum to the capital of a firm and then limiting his liability for losses to that amount on the parties complying with certain established requirements. Their liability is limited to a fixed amount, that is, to the amount they have contributed or invested in the partnership (Pineda, 2006). SUCCESSION TO GENERAL PARTNER Mere acceptance of the inheritance does not make the heir of a general partner a general partner himself. But by authorizing the widow of a managing partner to manage partnership property which is a limited partner could not be authorized to do, the other general partner recognized her as a general partner, and is now in estoppel to deny her position as a general partner with authority to administer and alienate partnership property. CALLING A PARTNERSHIP AS LIMITED DOES NOT NECESSARILY MAKE IT ONE: The legal intention deducible from the acts of the parties controls in determining the existence of a partnership (Pineda, 2006). CHARACTERISTICS OF LIMITED PARTNERSHIP: There must be compliance with the statutory requirement of form under Art. 1844 which is mandatory Partnership business is under the control of one or more of general partners who are personally liable to partnership creditors One or more limited partners contribute to the partnership capital who share in the profits but do not take part in the management of the business The limited partner/s are not personally liable for the partnership obligations beyond the amount of their contributions or investments The partnership debts or obligations are paid out of the partnership assets and the separate properties of the general partners The limited partners may get back their capital contribution prescribed by law (Pineda, 2006). ADVANTAGES OF A LIMITED PARTNERSHIP:

NOTES ON PARTNERSHIP AGENCY, TRUSTS, LEASE AND PRESCRIPTION Kenneth and King C. Hizon _________________________________________________________________________________________________________________

On the part of the general partners: They can secure capital from others for purposes of their business while retaining the control and supervision of the partnership business. On the part of limited partner: The limited partner shares on the profits without risk of personal liability (Pineda, 2006) PURPOSE OF STATUTE AUTHORIZING LIMITED PARTNERSHIP: To encourage those having capital to become partners with those having skills, by limiting the liability of the former to the incidental amount actually contributed by them (Pineda, 2006).

Article 1844. Two or more persons desiring to form a limited partnership shall: Sign and swear to a certificate, which shall state – 0 The name of the partnership, adding thereto the word "Limited"; 1 The character of the business; 2 The location of the principal place of business; 3 The name and place of residence of each member, general and limited partners being respectively designated; 4 The term for which the partnership is to exist; ( f ) The amount of cash and a description of and the agreed value of the other property contributed by each limited partner; 5 The additional contributions, if any, to be made by each limited partner and the times at which or events on the happening of which they shall be made; 6 The time, if agreed upon, when the contribution of each limited partner is to be returned; 7 The share of the profits or the other compensation by way of income which each limited partner shall receive by reason of his contribution; ( j) The right, if given, of a limited partner to substitute an assignee as contributor in his place, and the terms and conditions of the substitution; 8 The right, if given, of the partners to admit additional limited partners; 9 The right, if given, of one or more of the limited partners to priority over other limited partners, as to contributions or as to compensation by way of income, and the nature of such priority; 10 The right, if given, of the remaining general partner or partners to continue the business on the death, retirement, civil interdiction, insanity or insolvency of a general partner; and 11 The right, if given, of a limited partner to demand and receive property other than cash in return for his contribution.

File for record the certificate in the Office of the Securities and Exchange Commission. A limited partnership is formed if there has been substantial compliance in good faith with the foregoing requirements. COMPLIANCE WITH LAW A partnership transacting business is prima facie a general partnership and those who seek to avail themselves of the protection of laws permitting the creation of a limited partnership must show due compliance with such laws. Hence, to obtain the privilege of limited liability, one must conform to the statutory requirements regulating the formation of limited partnership. A limited partnership that has not complied with the law is not considered as a limited partnership but a general partnership in which all the members are liable. REQUISITES IN THE ESTABLISHMENT OF A LIMITED PARTNERSHIP: The required certificate containing all the 14 enumerated data, must be signed and sworn by all the partners, that is, both general and limited The certificate must be filed with the Office of the SEC (Pineda, 2006) NOTE: Strict compliance is not required. Mere substantial compliance in good faith will suffice (Pineda, 2006). DEFECTIVE CERTIFICATE If the certificate of formation of a limited partnership is defective and shows on its face that the statutory requirements have not been complied with, a court can of its motion hold that a limited partnership has not been formed. XPN: If attaching CRs recognize and deal with a firm as a limited partnership, they will be estopped from insisting that there is no such partnership or that the terms of the partnership were not sufficiently stated in the notice of its formation. Article 1845. The contributions of a limited partner may be cash or property, but not services. NOTE: If he contributes services, he shall be considered an industrial and general partner. A limited partner who contributes services will take active part in the management of the partnership. This means he will be exercising some controlling power in the business which is not supposed to be exercised by a limited partner (Pineda, 2006). Article 1846. The surname of a limited partner shall not appear in the partnership name unless: It is also the surname of a general partner, or Prior to the time when the limited partner became such, the business has been carried on under a name in which his surname appeared. A limited partner whose surname appears in a partnership name contrary to the provisions of the first paragraph is liable as a general partner to partnership creditors who extend credit to the

NOTES ON PARTNERSHIP AGENCY, TRUSTS, LEASE AND PRESCRIPTION Kenneth and King C. Hizon _________________________________________________________________________________________________________________

partnership without actual knowledge that he is not a general partner. SURNAME OF LIMITED PARTNER: Partnerships are required to have a firm name. In a limited partnership, the surname of a limited partner shall not appear in the partnership name because he is exempted from general liability. His liability is limited, that is why, he is referred to as a limited partner. Otherwise, he becomes a general partner (Pineda, 2006). Article 1847. If the certificate contains a false statement, one who suffers loss by reliance on such statement may hold liable any party to the certificate who knew the statement to be false: At the time he signed the certificate, or Subsequently, but within a sufficient time before the statement was relied upon to enable him to cancel or amend the certificate, or to file a petition for its cancellation or amendment as provided in article 1865. REQUISITES FOR PARTY’S KNOWLEDGE OF FALSE STATEMENT: At the time of the signing of the certificate Subsequently, but within a sufficient time before the statement was relied upon to enable him to cancel or amend the certificate, or to file a petition for its cancellation or amendment as provided in Art. 1865 (Pineda, 2006) Article 1848. A limited partner shall not become liable as a general partner unless, in addition to the exercise of his rights and powers as a limited partner, he takes part in the control of the business. GR: A limited partner is not liable as a general partner XPN: If he takes part in the control of the business which contemplates active participation in the business of the partnership, he becomes liable as a general partner (Pineda, 2006). Article 1849. After the formation of a lifted partnership, additional limited partners may be admitted upon filing an amendment to the original certificate in accordance with the requirements of article 1865. Article 1850. A general partner shall have all the rights and powers and be subject to all the restrictions and liabilities of a partner in a partnership without limited partners. However, without the written consent or ratification of the specific act by all the limited partners, a general partner or all of the general partners have no authority to: Do any act in contravention of the certificate; Do any act which would make it impossible to carry on the ordinary business of the partnership; Confess a judgment against the partnership; Possess partnership property, or assign their rights in specific partnership property, for other than a partnership purpose; Admit a person as a general partner; Admit a person as a limited partner, unless the right so to do is given in the certificate; Continue the business with partnership property on the death, retirement, insanity, civil interdiction or

insolvency of a general partner, unless the right so to do is given in the certificate. Article 1851. A limited partner shall have the same rights as a general partner to: Have the partnership books kept at the principal place of business of the partnership, and at a reasonable hour to inspect and copy any of them; Have on demand true and full information of all things affecting the partnership, and a formal account of partnership affairs whenever circumstances render it just and reasonable; and Have dissolution and winding up by decree of court. A limited partner shall have the right to receive a share of the profits or other compensation by way of income, and to the return of his contribution as provided in articles 1856 and 1857. POWER TO CONTRACT A limited partner has no power to bind the partnership by a contract. Article 1852. Without prejudice to the provisions of article 1848, a person who has contributed to the capital of a business conducted by a person or partnership erroneously believing that he has become a limited partner in a limited partnership, is not, by reason of his exercise of the rights of a limited partner, a general partner with the person or in the partnership carrying on the business, or bound by the obligations of such person or partnership, provided that on ascertaining the mistake he promptly renounces his interest in the profits of the business, or other compensation by way of income. NOTE: A person advancing money to a limited partner and who deny that they are partners are within the protection of the provision. It covers all cases where one has contributed to the capital of a business conducted by the partnership or person erroneously believing that he is a limited partner. Relate to 1848 which seems to be the only XPN to the right of a partner to take advantage of the provisions of the article. Article 1853. A person may be a general partner and a limited partner in the same partnership at the same time, provided that this fact shall be stated in the certificate provided for in article 1844. A person who is a general, and also at the same time a limited partner, shall have all the rights and powers and be subject to all the restrictions of a general partner; except that, in respect to his contribution, he shall have the rights against the other members which he would have had if he were not also a general partner. NOTE: A person may be both a general partner and a limited partner in the same partnership at the same time subject to the condition that this fact be stated in the certificate provided for in Art. 1844 (Pineda, 2006). Right of such person: Such person shall have all the rights and powers and be subject to all restrictions of a general partner. Thus, he is liable with his private property to the creditors of the

NOTES ON PARTNERSHIP AGENCY, TRUSTS, LEASE AND PRESCRIPTION Kenneth and King C. Hizon _________________________________________________________________________________________________________________

partnership. As regards his contribution, he shall have the rights as a limited partner as against the other members. If he was ordered to rd pay 3 persons, he would be entitled to recover what he has paid; further, he shall have priority over general partners in the return of their respective contributions (Pineda, 2006). Article 1854. A limited partner also may loan money to and transact other business with the partnership, and, unless he is also a general partner, receive on account of resulting claims against the partnership, with general creditors, a pro rata share of the assets. No limited partner shall in respect to any such claim: Receive or hold as collateral security any partnership property, or Receive from a general partner or the partnership any payment, conveyance, or release from liability if at the time the assets of the partnership are not sufficient to discharge partnership liabilities to persons not claiming as general or limited partners. The receiving of collateral security, or payment, conveyance, or release in violation of the foregoing provisions is a fraud on the creditors of the partnership. NOTE: The relationship between a limited partner and the partnership is not based on trust and confidence. A limited partner is not prohibited from engaging in business for himself is not prohibited from engaging in business for himself even if such business will complete with the one being conducted by the partnership (Pineda, 2006). SHARING PRO RATA WITH GENERAL CREDITORS: GR: A limited partner is entitled to a pro rata share of the partnership assets together with the creditors of the partnership XPN: Unless he is also a general partner TRANSACTIONS PROHIBITED OF LIMITED PARTNERS (Presumption of Fraud): Receiving or holding as collateral security any partnership property Receiving any payment, conveyance, or release from liability if it will prejudice the right of third persons (Pineda, 2006) Article 1855. Where there are several limited partners the members may agree that one or more of the limited partners shall have a priority over other limited partners as to the return of their contributions, as to their compensation by way of income, or as to any other matter. If such an agreement is made it shall be stated in the certificate, and in the absence of such a statement all the limited partners shall stand upon equal footing. NOTE: The article applies only when there are several limited partners. It finds no applicability if there is only one. SCOPE OF PREFERENCES: The return of contributions Compensation by way of income

Other matters where some benefit is granted (Pineda, 2006) Article 1856. A limited partner may receive from the partnership the share of the profits or the compensation by way of income stipulated for in the certificate; provided, that after such payment is made, whether from property of the partnership or that of a general partner, the partnership assets are in excess of all liabilities of the partnership except liabilities to limited partners on account of their contributions and to general partners. Article 1857. A limited partner shall not receive from a general partner or out of partnership property any part of his contributions until: All liabilities of the partnership, except liabilities to general partners and to limited partners on account of their contributions, have been paid or there remains property of the partnership sufficient to pay them; The consent of all members is had, unless the return of the contribution may be rightfully demanded under the provisions of the second paragraph; and The certificate is cancelled or so amended as to set forth the withdrawal or reduction. Subject to the provisions of the first paragraph, a limited partner may rightfully demand the return of his contribution: 0 On the dissolution of a partnership; or 1 When the date specified in the certificate for its return has arrived, or 2 After he has six months' notice in writing to all other members, if no time is specified in the certificate, either for the return of the contribution or for the dissolution of the partnership. In the absence of any statement in the certificate to the contrary or the consent of all members, a limited partner, irrespective of the nature of his contribution, has only the right to demand and receive cash in return for his contribution. A limited partner may have the partnership dissolved and its affairs wound up when: He rightfully but unsuccessfully demands the return of his contribution, or The other liabilities of the partnership have not been paid, or the partnership property is insufficient for their payment as required by the first paragraph, No. 1, and the limited partner would otherwise be entitled to the return of his contribution. LIABILITY AFTER WITHDRAWAL If the assets are not sufficient to pay debts, the limited partner is liable for all sums withdrawn by him, but insufficiency of assets must be alleged in an action against him. The obligation of a limited partner who has withdrawn from the partnership to CRs of the firm in which he was a partner can be discharged by nothing less than payment, notwithstanding that at the time of his withdrawal the assets left with the general partners were insufficient to discharge the outstanding liabilities.

NOTES ON PARTNERSHIP AGENCY, TRUSTS, LEASE AND PRESCRIPTION Kenneth and King C. Hizon _________________________________________________________________________________________________________________

Liability is limited to the capital contribution as long as it is left at the risk of the business. When withdrawn, the interest presumably earned must be included as part of the sum available to CRs. TIME WHEN RETURN OF CONTRIBUTION MAY BE DEMANDED: On the dissolution of the limited partnership On the arrival of the date specified in the certificate On the lapse of 6 months from notice in writing to all other members if no time is specified for the date of the return or dissolution (Pineda, 2006). GR: Return of the contribution should be in cash XPN: He may receive his contribution in another form, if there is a statement to that effect in the certificate, or even if none, if all the partners give their consent (Pineda, 2006). Article 1858. A limited partner is liable to the partnership:

When there is failure to comply with the requisites for the formation of limited partnership (Pineda, 2006) RESPONSIBILITIES OF A LIMITED PARTNER: Difference between his actual contribution and that stated in the certificate as having been made Unpaid contributions which he agreed to make at specified future time and on the conditions stated in the certificate (Pineda, 2006) NOTE: The liabilities of a limited partner may be waived by the partnership if all the members of the partnership give their consent. If one disagrees, no waiver can be effected (Pineda, 2006). Article 1859. A limited partner's interest is assignable. A substituted limited partner is a person admitted to all the rights of a limited partner who has died or has assigned his interest in a partnership.

For the difference between his contribution as actually made and that stated in the certificate as having been made, and For any unpaid contribution which he agreed in the certificate to make in the future at the time and on the conditions stated in the certificate.

An assignee, who does not become a substituted limited partner, has no right to require any information or account of the partnership transactions or to inspect the partnership books; he is only entitled to receive the share of the profits or other compensation by way of income, or the return of his contribution, to which his assignor would otherwise be entitled.

A limited partner holds as trustee for the partnership:

An assignee shall have the right to become a substituted limited partner if all the members consent thereto or if the assignor, being thereunto empowered by the certificate, gives the assignee that right.

Specific property stated in the certificate as contributed by him, but which was not contributed or which has been wrongfully returned, and Money or other property wrongfully paid or conveyed to him on account of his contribution. The liabilities of a limited partner as set forth in this article can be waived or compromised only by the consent of all members; but a waiver or compromise shall not affect the right of a creditor of a partnership who extended credit or whose claim arose after the filing and before a cancellation or amendment of the certificate, to enforce such liabilities. When a contributor has rightfully received the return in whole or in part of the capital of his contribution, he is nevertheless liable to the partnership for any sum, not in excess of such return with interest, necessary to discharge its liabilities to all creditors who extended credit or whose claims arose before such return. EXCEPTIONS TO THE GENERAL RULE ON THE NON-LIABILITY: When he contributes services instead of only money or property When his surname appears in the firm name When there is a false statement in the certificate or articles of partnership which he knows and failed to correct on time When he participates and takes part in the control of the business of the firm When he commits fraud on the creditors of the partnership under Art. 1854

An assignee becomes a substituted limited partner when the certificate is appropriately amended in accordance with article 1865. The substituted limited partner has all the rights and powers, and is subject to all the restrictions and liabilities of his assignor, except those liabilities of which he was ignorant at the time he became a limited partner and which could not be ascertained from the certificate. The substitution of the assignee as a limited partner does not release the assignor from liability to the partnership under articles 1847 and 1858. SUBSTITUTED LIMITED PARTNER: A person admitted to all the rights of a limited partner who has died or has assigned his interest in a partnership (Pineda, 2006) NOTE: Limited partner’s interest in the partnership is assignable. On the other hand, a general partner cannot assign his interest in the partnership as to make the assignee a new partner without the consent of the other partner/s (Pineda, 2006). When may an assignee become a substituted partner?

0

If all the members of the partnership consent thereto; or

NOTES ON PARTNERSHIP AGENCY, TRUSTS, LEASE AND PRESCRIPTION Kenneth and King C. Hizon _________________________________________________________________________________________________________________

When the assignor who is empowered in the Articles of Partnership gives the assignee the right to become a substituted limited partner. Yet, it is still required that the certificate or articles of partnership be properly amended in accordance with Art. 1865. After the amendment, the assignee becomes a substituted limited partner. Rights of substituted limited partner To acquire any information or account of the partnership transactions; and To inspect the partnership books (Pineda, 2006). Liability of the substituted limited partner

business is conducted by the remaining general partners under a right stated in the certificate or even if not so stated, when all the members have given their consent to the continuation of the business (Pineda, 2006). In any event, the certificate must be amended to reflect the continuation of the business by the remaining general partners (Pineda, 2006). Article 1861. On the death of a limited partner his executor or administrator shall have all the rights of a limited partner for the purpose of setting his estate, and such power as the deceased had to constitute his assignee a substituted limited partner. The estate of a deceased limited partner shall be liable for all his liabilities as a limited partner. The article applies if one who died is a limited partner.

He shall be subject to all restrictions and liabilities of the assigning limited partner (Pineda, 2006). XPN: Those liabilities he was ignorant at the time he became a limited partner and could not be ascertained in the certificate or th articles of partnership (Art. 1859, 6 par.) (Pineda, 2006). The fact that the assignee has become a substituted limited partner does not relive the limited partner of all liabilities to the partnership vis-à-vis a person who relied on a false statement in the certificate of partnership. Neither is the assignor relieved of his responsibility under Art. 1858 which states that the liabilities of a limited partner specially to all CRs who extended credit to the partnership or whose claims arose before the return of his capital (Pineda, 2006). Status and rights of an assignee who did not become a substituted limited partner He shall remain a mere assignee. Thus, he cannot require, as a matter of right, information or account of the partnership transactions or affairs, neither can he inspect the partnership books. He has the right to receive the share of the profits or other compensation by way of income or the return of his contribution to which his assignor would otherwise be entitled (Pineda, 2006). Article 1860. The retirement, death, insolvency, insanity or civil interdiction of a general partner dissolves the partnership, unless the business is continued by the remaining general partners: Under a right so to do stated in the certificate, or With the consent of all members. This article applies to the retirement, death, insolvency, insanity or civil interdiction of a general partner. The limited partnership is dissolved by the retirement, death, insolvency, insanity or civil interdiction of a general partner. But if the partner involved is a limited partner, the presence of any of the said circumstances will not dissolve the partnership. XPN: The limited partnership is not dissolved even if a general partner is involved in any of the above 5 circumstances provided the

Rights of executor or administrator of the estate of the deceased limited partner He shall acquire all the rights of a limited partner for the purpose of settling the estate (Pineda, 2006). Liability of the estate of deceased limited partner It shall be liable for all his obligations or liabilities to the partnership as a limited partner (Pineda, 2006). Article 1862. On due application to a court of competent jurisdiction by any creditor of a limited partner, the court may charge the interest of the indebted limited partner with payment of the unsatisfied amount of such claim, and may appoint a receiver, and make all other orders, directions and inquiries which the circumstances of the case may require. The interest may be redeemed with the separate property of any general partner, but may not be redeemed with partnership property. The remedies conferred by the first paragraph shall not be deemed exclusive of others which may exist. Nothing in this Chapter shall be held to deprive a limited partner of his statutory exemption. The partner’s interest in the partnership consists of his share in the profits and surplus. Rights of CRs of limited partners to charge the interest of the indebted limited partner The CR may file a petition to charge the interest of the latter in the partnership with the payment of the unsatisfied amount of the CRs claim. This is a sort of a foreclosure of the interest of the indebted limited partner for the satisfaction of the creditor’s claim (Pineda, 2006). Redemption of charged interest The charged interest may be redeemed with the separate property of any general partner. It may not however be redeemed by any one or more partners using partnership property, unless it is with the

NOTES ON PARTNERSHIP AGENCY, TRUSTS, LEASE AND PRESCRIPTION Kenneth and King C. Hizon _________________________________________________________________________________________________________________

consent of all partners whose interests are not charged (Pineda, 2006).

Those to general partners other than for capital and profits;

Charging of interest is not an exclusive remedy.

Those to general partners in respect to profits;

Article 1863. In settling accounts after dissolution the liabilities of the partnership shall be entitled to payment in the following order:

Those to general partners in respect to capital.

Those to creditors, in the order of priority as provided by law, except those to limited partners on account of their contributions, and to general partners; Those to limited partners in respect to their share of the profits and other compensation by way of income on their contributions; Those to limited partners in respect to the capital of their contributions; Those to general partners other than for capital and profits; Those to general partners in respect to profits; Those to general partners in respect to capital. Subject to any statement in the certificate or to subsequent agreement, limited partners share in the partnership assets in respect to their claims for capital, and in respect to their claims for profits or for compensation by way of income on their contribution respectively, in proportion to the respective amounts of such claims. The article applies to liquidation of a limited partnership. The article applies only after the limited partnership had been dissolved. The following are the causes of dissolution: Retirement, death, insolvency, insanity or civil interdiction of a general partner; When all limited partners ceased to be such; Expiration of the term or period of existence of the partnership; By agreement of all partners before the lapse of the period of existence; Misconduct of a general partner or fraud committed by a general partner against limited partner/s; and When the limited partner demanded the return of his contribution but the same was unjustifiably denied. Other causes: Art. 1830 and 1831. Settling of accounts/liabilities after dissolution of a limited partnership Those to creditors, in the order of priority as provided by law, except those to limited partners on account of their contributions, and to general partners; The pertinent laws on concurrence and preference of credit shall be applicable. Those to limited partners in respect to their share of the profits and other compensation by way of income on their contributions; Those to limited partners in respect to the capital of their contributions;

It is notable that limited partners are given priority over general partners. Winding up of the limited partnership affairs It is the general and not the limited partners who have the duty and power to wind-up the partnership’s affairs. Proportionate sharing by limited partners If there is no agreement in the certificate, the limited partners shall share in the partnership assets and profits in proportion to the respective amounts of their claims. Priority of claims among the limited partners The members of limited partners may include in the partnership articles an agreement for priority of distribution on the winding up of partnership affairs. Such agreement becomes controlling as between the partners themselves. In the absence of such an agreement, all limited partners shall stand on equal footing. Creditors are given priority of payment over both limited and general partners in case of insolvency of the partnership (Pineda, 2006). Article 1864. The certificate shall be cancelled when the partnership is dissolved or all limited partners cease to be such. A certificate shall be amended when: There is a change in the name of the partnership or in the amount or character of the contribution of any limited partner; A person is substituted as a limited partner; An additional limited partner is admitted; A person is admitted as a general partner; A general partner retires, dies, becomes insolvent or insane, or is sentenced to civil interdiction and the business is continued under article 1860; There is a change in the character of the business of the partnership; There is a false or erroneous statement in the certificate; There is a change in the time as stated in the certificate for the dissolution of the partnership or for the return of a contribution; A time is fixed for the dissolution of the partnership, or the return of a contribution, no time having been specified in the certificate, or The members desire to make a change in any other statement in the certificate in order that it shall accurately represent the agreement among them.

NOTES ON PARTNERSHIP AGENCY, TRUSTS, LEASE AND PRESCRIPTION Kenneth and King C. Hizon _________________________________________________________________________________________________________________

EFFECT OF FAILURE TO AMEND

After the certificate is duly amended in accordance with this article, the amended certified shall thereafter be for all purposes the certificate provided for in this Chapter.

Failure to amend the certificate under this article and business is continued after the time fixed, the limited partner is liable generally. Cancellation of Certificate or Articles of Partnership Q: When shall the certificate be cancelled? A:

When the partnership is dissolved; and When all limited partners cease to be such. There can be no limited partnership if there is no limited partner (Pineda, 2006). Amendment of certificate of articles of partnership

The certificate or articles will not be cancelled but shall only be amended in case any of the 10 changes and circumstances has transpired or is present. The purpose of the cancellation or amendment is to put on inquiry all persons who may deal with the partners or with the partnership itself about the status of the partnership so they cannot claim later that they were misled. Article 1865. The writing to amend a certificate shall: Conform to the requirements of article 1844 as far as necessary to set forth clearly the change in the certificate which it is desired to make; and Be signed and sworn to by all members, and an amendment substituting a limited partner or adding a limited or general partner shall be signed also by the member to be substituted or added, and when a limited partner is to be substituted, the amendment shall also be he signed by the assigning limited partner. The writing to cancel a certificate shall be signed by all members. A person desiring the cancellation or amendment of a certificate, if any person designated in the first and second paragraphs as a person who must execute the writing refuses to do so, may petition the court to order a cancellation or amendment thereof. If the court finds that the petitioner has a right to have the writing executed by a person who refuses to do so, it shall order the Office of the Securities and Exchange Commission where the certificate is recorded, to record the cancellation or amendment of the certificate; and when the certificate is to be amended, the court shall also cause to be filed for record in said office a certified copy of its decree setting forth the amendment. A certificate is amended or cancelled when there is filed for record in the Office of the Securities and Exchange Commission, where the certificate is recorded: A writing in accordance with the provisions of the first or second paragraph, or A certified copy of the order of the court in accordance with the provisions of the fourth paragraph;

REQUISITES FOR THE AMENDMENT OF THE CERTIFICATE OF PARTNERSHIP: The amendment must conform with Art. 1844 setting forth clearly the change desired in the certificate. The amendment must be in writing and under oath It must be signed and sworn to by all the members including the new members if some are added; in case of substitution, the assigning limited partner must also sign The amended certificate must be filed with the SEC (Pineda, 2006). REQUISITES FOR THE CANCELLATION OF CERTIFICATE OF PARTNERSHIP: 0 1

The instrument of cancellation must be signed by all the members The instrument of cancellation must be recorded with the SEC. If the cancellation is by order of the court, a certification of the final order of the court must be filed with the SEC (Pineda, 2006).

When is a certificate deemed amended or cancelled? It is deemed amended or cancelled by the filing of the amended certificate or the instrument of cancellation with the SEC (Pineda, 2006). Article 1866. A contributor, unless he is a general partner, is not a proper party to proceedings by or against a partnership, except where the object is to enforce a limited partner's right against or liability to the partnership. LIMITED PARTNER IS A MERE CONTRIBUTOR: The article referred to the limited as a mere contributor to stress the point that as a general rule, he cannot be a proper party in a case for or against the partnership. The reason for this is that a limited partner is not a principal party in the partnership transactions. His liability is not to the creditors of the partnership but to the partnership itself (Pineda, 2006). Q: When can a limited partner be a proper party in a suit as such? If the object of the action is to enforce his individual rights against the partnership as authorized in Art. 1851. He can be a defendant in an action filed against him by the partnership to enforce his liability to the latter (Pineda, 2006). Article 1867. A limited partnership formed under the law prior to the effectivity of this Code, may become a limited partnership under this Chapter by complying with the provisions of article 1844, provided the certificate sets forth: The amount of the original contribution of each limited partner, and the time when the contribution was made; and That the property of the partnership exceeds the amount sufficient to discharge its liabilities to persons

NOTES ON PARTNERSHIP AGENCY, TRUSTS, LEASE AND PRESCRIPTION Kenneth and King C. Hizon _________________________________________________________________________________________________________________

not claiming as general or limited partners by an amount greater than the sum of the contributions of its limited partners. A limited partnership formed under the law prior to the effectivity of this Code, until or unless it becomes a limited partnership under this Chapter, shall continue to be governed by the provisions of the old law.

REFERENCES: DE LEON, HECTOR S., The Law on Sales, Agency, and Credit Transactions, Rex Bookstore, Inc., 2005 PINEDA, ERNESTO L., Partnership, Agency and Trusts, Central Book Publishing, Co., Inc., 2006

TOLENTINO, ARTURO M., Commentaries and Jurisprudence on the Civil Code of the Philippines, Vol. V., Central Book Publishing, Co., Inc. 1991

NOTES ON PARTNERSHIP AGENCY, TRUSTS, LEASE AND PRESCRIPTION Kenneth and King C. Hizon _________________________________________________________________________________________________________________

Title X. - AGENCY CHAPTER 1 NATURE, FORM AND KINDS OF AGENCY

Q: What is the purpose of agency? It is to extend the personality of the principal. Who are the parties to the contract?

Art. 1868. By the contract of agency a person binds himself to render some service or to do something in representation or on behalf of another, with the consent or authority of the latter. (1709a)

0

Q: What is a contract of agency? 1 It is a relationship which implies a power in an agent to contract with a third person on behalf of a principal. It is this power to affect the principal’s contractual relations with third persons that differentiates the agent from the EE, the servant, and the independent contractor. What are the characteristics of a contract of agency? The contract of agency is a: 0 1 2 3

4

Consensual contract; Principal because it can stand by itself without the need of another contract; Nominate because it has its own name; Unilateral if it is gratuitous because it creates obligations for only one of the parties—the agent; or bilateral if it is for compensation because it gives rise to reciprocal rights and obligations; and Preparatory because it is entered into as a means to an end—creation for other contracts.

Principal—one whom the agent represents and from whom he derives his authority; he is the person represented; and Agent—one who acts for and represents another; he is the person acting in a representative capacity. CAPACITY OF THE PARTIES

Any person who is capacitated to act in his own right may be a principal. In case of an agent, since he assumes no personal liability, he does not have to possess full capacity to act insofar as third persons are concerned. But persons who are absolutely incapacitated, such as insane persons cannot be agents. Insofar as his obligations to his principal are concerned, agent must be competent to bind himself. What are the acts that may be delegated to agents?

G.R: What a man may do in person, he may do thru another. XPN:

What are the essential elements of agency? 0 0 1 2 3

There is consent, express or implied, of the parties to establish the relationship; The object is the execution of a juridical act in relation to third persons; The agent acts as representative and not for himself; and The agent acts within the scope of his authority.

NATURE, BASIS AND PURPOSE OF AGENCY Agency is both a contract and a representation. As a contract, the following requisites must concur:

0 1 2

Consent of the contracting parties; Object which is the subject matter of the contract; and Cause which is established.

As a representative relation—the agent renders some service or does something in representation or on behalf of another. Representation constitutes the basis of agency.

The acts of the agent on behalf of the principal within the scope of his authority produce the same legal effect as if they were personally done by the principal. The relation of an agent to his principal is fiduciary in character since it is based on trust and confidence.

Personal acts—if personal performance is required by law or public policy or the agreement of the parties, the doing of the act by a person on behalf of another does not constitute performance by the latter. E.g. right to vote, making of a will, statements which are required to be made under oath should be made personally.

1

Criminal acts or acts not allowed by law—an attempt to delegate to another authority to do an act which, if done by the principal would be illegal, is void. E.g. aliens cannot purchase land through a Filipino agent.

What are the distinctions between agency and loan contracts?

AGENCY An agent is given funds by principal to advance the latter’s Business

LOAN Barrower is given money for purposes of his own and he must generally return it whether or not his own business is successful;

Q: What is the difference between agency and lease of service?

NOTES ON PARTNERSHIP AGENCY, TRUSTS, LEASE AND PRESCRIPTION Kenneth and King C. Hizon _________________________________________________________________________________________________________________

What is the difference between agency and negotiorum gestio?

A: AGENCY The agent executes a juridical act on behalf of another Basis is representation Agent exercises discretionary powers

LEASE OF SERVICE Lessor of services performs a material act for the benefit of another. Basis is service, it is employment; The servant ordinarily performs only ministerial functions

TOLENTINO: The legal possibility of an agency without representation may be inferred from the provisions of Article 1883, particularly the last paragraph: Art. 1883. If an agent acts in his own name, the principal has no right of action against the persons with whom the agent has contracted; neither have such persons against the principal. In such case the agent is the one directly bound in favor of the person with whom he has contracted, as if the transaction were his own, except when the contract involves things belonging to the principal. The provisions of this article shall be understood to be without prejudice to the actions between the principal and agent. (1717) The existence of an agency is perfectly consistent with the circumstances that the agent acts exclusively in his own name. The true essence of the distinction in such case, between lease of services and agency, lies in that the agent enters or is designed to enter into juridical relations, with or without representation of the principal. What is the difference between agency and independent contract? A: AGENCY

INDEPENDENT CONTRACT

Agent is subject to the control and direction of the principal whom he represents.

Where one part undertakes to accomplish a certain result according to his own methods and without being subject to other party’s control except as to the result of the work—the contract is one for a piece of work.

AGENCY NEGOTIORIUM GESTIO In both cases, there is representation Representation is expressly It is only without the authority conferred; of the owner of the business but is without his knowledge; Agent acts according to the Gestor acts according to the express will of the principal; presumed will of the owner by exercising all the diligence of a good father of a family. A contract A quasi-contract Implied agency is founded on There is no simultaneous the lack of contradiction or consent, either express or opposition which constitutes the implied, but fiction or simultaneous agreement on the presumption of consent because part of the presumed principal of the benefits received. to the execution of the contract What is the difference between agency and brokerage?

AGENCY A commission agent is engaged in the purchase or sale for another of personal property which, for this purpose is placed in his possession and at his disposal. He maintains a relation not only with his principal and the purchaser or vendor, but also with the property which is the subject matter of the transaction.

BROKERAGE Has no relation with the thing he buys or sells; merely an intermediary between the purchaser and the vendor. His only office is to bring together the parties to the transaction.

NO AGENCY IN IMPERSONATION: There is no agency in impersonation. Illustration: Thus, if Juan pretends to be Pedro, and enters into a contract with Jose, who thinks he is contracting actually with Pedro, there is no agency. The element of representation is absent. On the part of Jose, there is no knowledge that the contract is on behalf of a person other than the one before him or with whom he is negotiating. And on the part of Juan, he is not acting in another’s name, but under another name. This is Juan’s own contract, binding upon him, unless it is annulled on the ground of error or fraud on the part of Jose.

What is the difference between agency and partnership?

ACTS SUSCEPTIBLE OF AGENCY: GR: Agency is admissible in all contracts or acts

AGENCY Agent acts only for his principal

PARTNERSHIP Partner acts not only for his copartners and the partnership but also as principal of himself.

XPNs: Entering into a marriage contract Making of wills and testaments The presence of the accused during trial of a criminal case

NOTES ON PARTNERSHIP AGENCY, TRUSTS, LEASE AND PRESCRIPTION Kenneth and King C. Hizon _________________________________________________________________________________________________________________

As to extent of business covered: NOTE: The spouses, as between themselves, can enter into a contract of agency. CREATION OF AGENCY: The testimony of the person who drafted the contract that his purpose was to establish an agency does not determine its nature; the parties did not perform the contract in accordance with its terms and conditions with its terms and a contract must be considered, not as the parties stipulated, but as they performed it. The mere use of the term “agency” in one clause cannot dominate the whole contract. CAPACITY OF PARTIES: Both parties must have capacity to give consent. If any special capacity is required for the act entrusted to the agent, it is the principal and not the agent who must have special capacity in addition to the general capacity to contract. Ratio: It is the principal who will receive the benefits and incur the obligations or losses arising therefrom. CAPACITY OF AGENT: No particular capacity is required for the agent, so long as he has sufficient intelligence and freedom of will. But with respect to his obligations and responsibilities towards the principal, the agent must have the capacity to bind himself. NOTE: An incapacitated agent can set up his incapacity against his principal, and such agent would be liable to the principal only in cases of illicit acts and unjust enrichment. The law does not sanction such fraudulent acts. RELATION OF PRINCIPAL AND AGENT: The relations of an agent to his principal are fiduciary and in regard to the property forming the subject matter of an agency, he is stopped from acquiring or asserting title adverse to that of the principal. Art. 1869. Agency may be express, or implied from the acts of the principal, from his silence or lack of action, or his failure to repudiate the agency, knowing that another person is acting on his behalf without authority. Agency may be oral, unless the law requires a specific form. (1710a) What are the kinds of agency?

0

As to the manner of its creation:

Express-the agent has been actually authorized by the principal either orally or in writing; Implied- implied from the acts of the principal, from his silence or lack of action or his failure to repudiate the agency, knowing that another person is acting on his behalf without authority. As to its character: Gratuitous- one where the agent receives no compensation for his services; or Compensated or onerous- one where the agent receives compensation for his services.

General-one which comprises all the business of the principal; or Special-one which comprises one or more specific transactions. As to authority conferred: Couched in general terms-one which is created in general terms and is deemed to comprise only acts of administration; Couched in specific terms-one authorizing only the performance of a specific act or acts. As to its nature and effects: 0 1

Ostensible or representative- one where the agent acts in the name and representation of the principal; Simple or commission- one where the agent acts for the account of the principal but in his own name.

What is the required form of agency? There are no formal requirements governing the appointment of an agent. It may be oral or written. It may even be implied from the circumstances. Art. 1870. Acceptance by the agent may also be express, or implied from his acts which carry out the agency, or from his silence or inaction according to the circumstances. (n) Q: What is the required form of acceptance by agent? As a contract, there must be consent by both parties. It can be express or implied. Art. 1871. Between persons who are present, the acceptance of the agency may also be implied if the principal delivers his power of attorney to the agent and the latter receives it without any objection. (n) PRESUMPTION: This article presumes the acceptance of the agency; but such presumption is only prima facie, and may be defeated by proof to the contrary. NOTE: As regards implied acceptance by agent, the law distinguishes between cases: Where persons are present; and Where persons are absent. An agency is impliedly accepted if the agent receives a power of attorney from the principal himself personally without any objection, both being present. What is a power of attorney? It is a written authorization to an agent to perform specified acts in behalf of his principal which acts, when performed, shall have binding effect on the principal. Art. 1872. Between persons who are absent, the acceptance of the agency cannot be implied from the silence of the agent, except:

NOTES ON PARTNERSHIP AGENCY, TRUSTS, LEASE AND PRESCRIPTION Kenneth and King C. Hizon _________________________________________________________________________________________________________________

When the principal transmits his power of attorney to the agent, who receives it without any objection; When the principal entrusts to him by letter or telegram a power of attorney with respect to the business in which he is habitually engaged as an agent, and he did not reply to the letter or telegram. (n) NOTE: In the cases contemplated by this article, the acceptance of the agency is not compulsory; but the agent wants to refuse it, he must act immediately, so that his silence may not be interpreted as an acceptance, and so he may not incur responsibilities. If both the P and the A are absent, acceptance by the agent is not implied from his silence or inaction. Yet, in 2 cases under Art. 1872, agency is implied. Q: When is there an implied acceptance? If the agent writes a letter acknowledging receipt of power of attorney but offers no objection to the creation of the agency. NOTE: His failure to give reply however does not mean that the agency has been accepted unless the power of attorney is with respect to the business on which he is habitually engaged as an agent or the acceptance could be inferred from his acts which carry out the agency as when he begins to act under the authority conferred upon him. In 1872, the principal transmits the power of attorney to the agent while in 1871 he personally delivers the power of attorney to the agent. RECEIPT WITHOUT OBJECTION: Under the first paragraph, the mere fact that the agent does not answer refusing the agency, cannot be interpreted as an acceptance. The retention of the power of attorney is not a clear proof of acceptance in this case as when it is delivered personally; the failure to answer may be merely due to negligence on the part of the agent, or to his desire to deliberate on whether to accept or not. Under the second paragraph, the acceptance is implied from the failure to reply to the letter or telegram; therefore, in cases falling outside of par.2. more than mere failure to reply is required. The court should consider all the special circumstances of each case to determine whether there has been an acceptance or not. Art. 1873. If a person specially informs another or states by public advertisement that he has given a power of attorney to a third person, the latter thereby becomes a duly authorized agent, in the former case with respect to the person who received the special information, and in the latter case with regard to any person. The power shall continue to be in full force until the notice is rescinded in the same manner in which it was given. (n)

If by public advertisement, the agent as such with regard to any person. Q: What is the manner of revocation of agency? A Power Of Attorney (POA) must be revoked in the same manner in which it was given. NOTE: If the agency has been entrusted for the purpose of contracting with specified persons, its revocation shall not prejudice the latter if they were not given notice thereof. Art. 1874. When a sale of a piece of land or any interest therein is through an agent, the authority of the latter shall be in writing; otherwise, the sale shall be void. (n) NOTE: Sale for a piece of land or any interest thereon like usufruct, mortgage, etc. through an agent is void unless the authority of the agent is in writing. This article speaks only of an agency for sale of a piece of land or any interest therein. Illustration: Where the owner of certain parcels of land left them in the care of his sister as his agent, and later, while absent, wrote to her to sell one parcel of land which she did, it has been held that the latter containing the authority to sell was sufficient. Art. 1875. Agency is presumed to be for a compensation, unless there is proof to the contrary. (n) NOTE: The principal must pay the agent the compensation agreed upon, or the reasonable value of the agent’s services if no compensation was specified. This presupposes however that the agent has complied with his obligation as such to the principal. But a broker, not having quite succeeded in bringing the minds of the buyer and seller to an agreement in regard to the terms of the sale, is not entitled to the commission, nor if his exclusive authority to such has expired. To be entitled to commission, it is not sufficient for him to find a buyer but to find one who will actually buy the property on the terms and conditions imposed by the owner. EFFICIENT-AND-PROCURING CLAUSE: That special condition in a contract entitling the broker to the stipulated commission when the property is sold within a certain period following the expiration of the agency agreement to a purchase procured by the broker during the life of such agency, does not justify a departure from the rule that the broker must be the efficient agent or procuring cause of the sale. The efficient-and-procuring clause is synonymous with the readywilling-and-able rule, and these words provide off the test in determining whether the agent was the procuring cause of the sale. Art. 1876. An agency is either general or special.

What are the ways of giving notice of agency? The former comprises all the business of the principal. The latter, one or more specific transactions. (1712) If by special information, the person appointed as agent is considered such with respect to the person to whom it was given;

What are the classifications of agents?

NOTES ON PARTNERSHIP AGENCY, TRUSTS, LEASE AND PRESCRIPTION Kenneth and King C. Hizon _________________________________________________________________________________________________________________

Universal agent or one authorized to do all acts that the principal may personally do, which he can lawfully delegate to another the power of doing; A general agent or one authorized to transact alld the business of the principal, or all business of a particular kind or in a particular place, or in other words to do all acts, connected with a particular trade, business, or employment; A special or particular agent or one authorized to act with one or more specific transactions or to act upon a particular occasion. Art. 1877. An agency couched in general terms comprises only acts of administration, even if the principal should state that he withholds no power or that the agent may execute such acts as he may consider appropriate, or even though the agency should authorize a general and unlimited management. (n)

To make gifts, except customary ones for charity or those made to employees in the business managed by the agent; To loan or borrow money, unless the latter act be urgent and indispensable for the preservation of the things which are under administration; To lease any real property to another person for more than one year; To bind the principal to render some service without compensation; To bind the principal in a contract of partnership; To obligate the principal as a guarantor or surety;

Q: What is an agency couched in general terms?

To create or convey real rights over immovable property;

It includes only acts of administration and an express power is necessary to perform any act of strict ownership even if the principal states:

To accept or repudiate an inheritance;

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That he withholds no power; That the agent may execute such acts as he may consider appropriate; or That he authorizes a general or unlimited management.

Q: What is the meaning of acts of administration? Those which do not imply the authority to alienate for the exercise of which an express power is necessary. Unless the contrary appears, the authority of the agent is presumed to include all the necessary and usual means to carry out the agency into effect. Examples: The right to commence suits to collect debts owing to the principal To appoint servants or employees of a firm Art. 1878. Special powers of attorney are necessary in the following cases:

To ratify or recognize obligations contracted before the agency; Any other act of strict dominion. (n) SPECIAL POWERS: The power of attorney, as required by this article, should expressly mention the act for which it is drawn. But such special power can be included in a general power of attorney, either by giving authority for all acts of a particular character or by specifying therein the act or transaction for which a special power is needed. Illustration: When in a general power of attorney the agent is authorized to sell the principal’s immovable property, such agent is empowered to sell any real property of the principal, without the necessity of a special power to sell for every specific property. Under what circumstances is a special power of attorney necessary? The following are general acts of strict dominion or ownership and thus a special power of attorney is necessary for their execution through an agent. 0

To make payment;

To make such payments as are not usually considered as acts of administration; To effect novations which put an end to obligations already in existence at the time the agency was constituted;

Q: What is payment?

To compromise, to submit questions to arbitration, to renounce the right to appeal from a judgment, to waive objections to the venue of an action or to abandon a prescription already acquired;

An act of ownership because it involves conveyance of ownership of money or property. But if payment is made in the ordinary course of management it is considered as mere act of administration.

To waive any obligation gratuitously; To enter into any contract by which the ownership of an immovable is transmitted or acquired either gratuitously or for a valuable consideration;

It is the delivery of money or the performance in any other manner of an obligation.

2. To effect novation; Q: What is novation? It is the extinction of an obligation through the creation of new one which substitutes it by changing the object or principal

NOTES ON PARTNERSHIP AGENCY, TRUSTS, LEASE AND PRESCRIPTION Kenneth and King C. Hizon _________________________________________________________________________________________________________________

conditions thereof, substituting a debtor, or subrogating another in the right of the creditor. 0

To compromise;

What is a compromise? It is a contract whereby parties, by making reciprocal concessions, avoid a litigation or put an end to one already commenced. Q: What is arbitration? It is where the parties submit their controversies to one or more arbitrators for decision. It is an act of ownership since they involve the possibility of disposing of the thing or right subject of the compromise or arbitration. The same applies with respect to the authority of the agent to waive: 0 1 2

The right to appeal from a judgment; Objections to the venue of an action; Prescription already acquired.

1

To waive an obligation gratuitously—condonation or remission;

2

To convey or acquire immovable;

3

To make gifts;

10. To bind the principal in a contract of partnership; A contract of partnership creates an obligation and the fulfillment of which requires an act of strict ownership. 0

To obligate the principal as guarantor or surety;

What is a contract of guaranty? It is one where the guarantor binds himself to fulfill the obligation of the principal debtor in case the latter should fail to do so. If the person binds himself solidarily, he is a surety and the contract is called suretyship. A contract of guaranty is unenforceable unless it is made in writing. To create or convey real rights over immovable property belonging to his principal without special power; To accept or repudiate an inheritance; To ratify obligations contracted before the agency; NOTE: Agent cannot effect novation of obligations existing at the time of constitution of the agency unless he be especially authorized to do so. Similarly, he cannot ratify or recognize obligations contracted before the agency without special power from the principal. Any other act of strict dominion; NOTE:

What are gifts or donation?

Sale or purchase of personal property;

It is an act of liberality whereby a person disposes gratuitously of a thing or right in favor of another who accepts it.

A power of attorney is valid although no notary public intervened in its execution.

NOTE: But the making of customary gifts for charity, or those made to employees in the business managed by the agent are considered as acts of administration.

Art. 1879. A special power to sell excludes the power to mortgage; and a special power to mortgage does not include the power to sell. (n)

0

To loan or borrow money;

In loan of money, the barrower is bound to pay the creditor an equal amount of the same kind and quality. The agent is empowered to barrow money.

POWER TO SELL: A power to sell must be understood as for cash, and not on credit, unless the latter is expressly authorized. If the sale is for cash the agent is also considered authorized to receive the price.

No. 7 refers to money and not to other fungible things.

0

To lease realty for more than 1 year;

In case of lease, the lessor gives to the lessee the enjoyment or use of a thing for a price certain, and for a period which may be definite or indefinite. An unrecorded lease of real estate is not binding upon third persons. An agreement for the leasing of real property for a longer period than 1 year is unenforceable unless made in writing. To bind the principal to render service gratuitously;

By the nature of things, an agent cannot sell in a foreign country without making some kind of a contract, and if he had power to sell, it would carry with it the authority to make and enter into the usual and customary contract for its sale. POWER TO RAISE MONEY: If the power is to raise a sum of money for which purpose the agent is authorized to sell a particular real property, or to avail himself of any other means, the agent is considered as employed to mortgage the property. In this case the real object of the agency is to raise the sum of money, and the sale is merely one of the means indicated for attaining that object. But a special power to mortgage real estate does not include the power to contract loans for the principal. NOTE: The agent cannot sell or mortgage the property belonging to the principal without special power;

NOTES ON PARTNERSHIP AGENCY, TRUSTS, LEASE AND PRESCRIPTION Kenneth and King C. Hizon _________________________________________________________________________________________________________________

In the absence of special authority, the sale of mortgage will be unenforceable against the principal as the agent acted beyond his powers.

to escape liability to the principal if the latter demands that the cash price paid by him. Q: Distinguish between power and authority.

Art. 1880. A special power to compromise does not authorize submission to arbitration. (1713a)

Power is considered as the source or cause and the latter is the effect.

While the principal may have confidence in the agent’s judgment, the arbitrator may not possess the trust of the principal.

NOTE: An agent with authority to do act has also the power to bind the principal but the power may exist without authority.

Art. 1881. The agent must act within the scope of his authority. He may do such acts as may be conducive to the accomplishment of the purpose of the agency. (1714a)

So far as third persons are concerned, no distinction exists. An act within the power of the agent is deemed within the scope of his authority even if the agent has in fact exceeded the limits of his authority.

LIMITATION ON AUTHORITY: The powers and duties of an agent are confined and limited to those which are specified and defined in his power of attorney, which limitation is a notice to, and is binding upon, the person dealing with such agent.

What are the different kinds of authority?

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EFFECT OF UNAUTHORIZED ACTS: Where an agent or representative, in entering into a contract on behalf of his principal, exceeds his authority, the contract is not an absolute nullity, but only voidable at the instance of the party who has been improperly misrepresented.

2

When the agent exceeds the scope of his authority, only the principal is prejudiced and the latter is the only one who can impugn the former’s act. The agent becomes personally liable for the damages.

3 4 5

NOTE: But where the powers of attorney are forged by an agent, purporting to have been executed by the owners of certain registered lands, and mortgages were made by such agent by virtue thereof, it was held that such powers of attorney were without force and effect, and the registration of the mortgages executed thereunder were likewise null and void and could not in any way prejudice the rights of the registered owners of the property in question.

Express-when it is conferred by words; Implied-when it is incidental to the transaction or reasonably necessary to accomplish the purpose of the agency; Apparent or ostensible-conferred by conduct or silence. Ostensible authority is another name for authority by estoppel; General- refers to all the business of the principal; Special- when it is limited only to one or more specific transactions; Authority by necessity-when it is demanded by virtue of the existence of an emergency.

What are the requisites in order that the principal may be bound to third persons by the act of the agent? A: 0 1

The agent must act within the scope of his authority; and The agent must act on behalf of the principal.

Art. 1882. The limits of the agent's authority shall not be considered exceeded should it have been performed in a manner more advantageous to the principal than that specified by him. (1715)

What if the agent acts without the authority or in excess or beyond the scope of authority?

Q: What is an authority of an agent?

Such act shall be unenforceable, unless it is ratified, expressly or impliedly, by the person on whose behalf it has been executed, before it is revoked by the other contracting party.

It is the power of the agent to affect the legal relations of the principal by acts done in accordance with the principal’s manifestation of consent to him. NOTE: The condition of the agency can be improved but not made worse. The agent, therefore, is not deemed to have exceeded his authority when he acts in a manner more advantageous to the principal that that specified by the latter, because it is assumed that if the principal were the one acting, he would have also followed the more advantageous course.

NOTE: But the agent is not deemed to have exceeded the limits of his authority should he perform the agency in a manner more advantageous to the principal than that indicated by him. He is authorized to do such acts as may be conducive to the accomplishment of the purpose of the agency. When is the principal bound by the acts of the agent beyond his powers? A:

This article refers to an advantage which can be obtained without modifying the conditions, the form, or the object of the agency. Thus, if an agent is empowered to sell for cash, and he sells on credit at a higher price, he cannot allege the advantage of the higher price

G.R: The principal is not bound by the acts of an agent beyond his limited powers. XPN:

NOTES ON PARTNERSHIP AGENCY, TRUSTS, LEASE AND PRESCRIPTION Kenneth and King C. Hizon _________________________________________________________________________________________________________________

Where the principal’s acts have contributed to deceive third persons in good faith; Where the limitations upon the power created by him could not have been known by third persons; Where the principal has placed in the hands of the agent instruments signed by him in blank; Where the principal has ratified the acts of the agent. Art. 1883. If an agent acts in his own name, the principal has no right of action against the persons with whom the agent has contracted; neither have such persons against the principal. In such case the agent is the one directly bound in favor of the person with whom he has contracted, as if the transaction were his own, except when the contract involves things belonging to the principal. The provisions of this article shall be understood to be without prejudice to the actions between the principal and agent. (1717) SCOPE OF THIS ARTICLE: The rule contained is applicable only to cases where it is material to the third person to know with whom he is contracting. But there are cases where it is immaterial to the third person to know with whom he contracts. Thus, when a person contracts with the driver of an ordinary vehicle for hire, he does not trouble himself to find out who owns the vehicle. PERSONAL LIABILITY OF AGENT: When the agent transacts business in his own, it shall not be necessary for him to state the name of his principal, and shall be directly liable, as if the business were for his own account, to the persons with whom the transacts the same, said persons not having any right of action against the principal nor the latter against them. What are the different kinds of principal?

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Disclosed principal- where the other party thereto has notice that the agent is acting for a principal and of the principal’s identity; Partially disclosed principal-if the other party has notice that the agent is or may be acting for a principal but has no notice of the principal’s identity; Undisclosed principal-if the other party has no notice that the agent is acting for a principal.

To what circumstances is Art. 1883 applicable?

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Where the agent being authorized to act on behalf of the principal; He acts instead in his own name

NOTE: In such case, the agent is the one directly liable to the person with whom he had contracted as if the transaction were his own. Accordingly, there is no representation of the principal when the agent acts in his own name.

Hence, the principal does not have the right of action against the third person nor the third person against him. Q: What is the exception to such rule? It is when the contract involves things belonging to the principal. In such case, the contract is considered as entered into between the principal and the third person. JUDGMENT AGAINST AGENT: A judgment, for or against an agent, in no way binds the real party in interest. Am action is brought for a practical purpose, to obtain actual and positive relief. If the party sues upon is not the proper party, any decision that may be rendered against him would be futile, for it cannot be enforced or executed.

CHAPTER 2 OBLIGATIONS OF THE AGENT Art. 1884. The agent is bound by his acceptance to carry out the agency, and is liable for the damages which, through his nonperformance, the principal may suffer. He must also finish the business already begun on the death of the principal, should delay entail any danger. (1718) What are the specific obligations of the agent?

To carry out the agency in accordance with its terms; To answer for the damages which through his nonperformance the principal may suffer; To finish the business already begun on the death of the principal, should delay detail any danger; To observe the diligence of a good father of a family in the custody and preservation of the goods forwarded him by the owner in case he declines n agency, until an agency is appointed; To advance the necessary funds should there be a stipulation to that effect; To act in accordance with the instructions of the principal; Not to carry out the agency if its execution would manifestly result in loss or danger to the principal; To answer for damages should he prefer in case of conflict, his own interests to those of the principal. Not to loan to himself without the consent of the principal when he has been authorized to lend at interest; To render an account of his transactions and to deliver to the principal whatever he may have received by virtue of the agency; To distinguish goods by countermarks and designate the merchandise respectively belonging to each principal; To be responsible in certain cases for the acts of the substitute; To pay interest on funds he has applied to his own use; To inform the principal, where an authorized sale of credit has been made, of such sale; To bear the risk of collection, should he receive also on a sale, a guarantee commission; To indemnify the principal for damages for his failure to collect the credits of his principal at the time that they become due;

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17. To answer for his fraud or negligence. NOTE: A person is free to refuse to be an agent but once he accepts the agency, he is bound to carry it out in accordance with its terms in good faith. Upon his failure to do so, he is liable for the damage which the principal may suffer. Having accepted the agency, when he was free to refuse it, the agent betrays the confidence reposed on him if he does not fulfill the mandate. Obligation to finish business upon principal’s death NOTE: Although the death of the principal extinguishes the agency, the agent has an obligation to conclude the business already begun on the death of the principal. But the duty exists only should delay entail any danger. Art. 1885. In case a person declines an agency, he is bound to observe the diligence of a good father of a family in the custody and preservation of the goods forwarded to him by the owner until the latter should appoint an agent or take charge of the goods. (n) NOTE: This rule is based on equity. In such case, the owner must act as soon as practicable either: By appointing an agent; and By taking charge of the goods. Art. 1886. Should there be a stipulation that the agent shall advance the necessary funds, he shall be bound to do so except when the principal is insolvent. (n) G.R: The principal must advance to the agent, should the latter request, the sums necessary for the execution of the agency. NOTE: Yet, they may stipulate that the agent shall advance the necessary funds. In such case, the agent is bound to furnish such funds except when the principal is insolvent. Art. 1887. In the execution of the agency, the agent shall act in accordance with the instructions of the principal. In default thereof, he shall do all that a good father of a family would do, as required by the nature of the business. (1719) Q: Distinguish between authority and instructions. Authority is the extent of the limitation of the agent’s power to represent the principal. Instructions are directions which the principal may give the agent to follow in the discharge of his duties as such agent. INTERPRATIONS OF INSTRUCTIONS: Instructions of the principal must be interpreted in accordance with his presumed will and usages of trade. EFFECT OF INSTRUCTIONS: The instructions of the principal to the agent form part of the agency; they constitute the means or the orders carrying out the power granted; hence, to depart from them is to exceed the authority conferred on the agent.

NOTE: Persons dealing with the agent do so at their own risk and are duty bound to investigate his authority because if the fact is done outside the scope of his authority the principal is not bound. Yet, they need not verify or investigate the instructions of the principal since they concern only the P and the A. It is the responsibility of the agent to obey the reasonable and lawful instructions given to him by his principal. If the agent exceeds, violates or fails to act upon such instructions, he will be liable to the principal for any loss or damage resulting therefrom. Q: What is the rule where there are no specific instructions? In the absence of the specific instructions of the P, the A shall do all that a good father of a family would do as required by the nature of the business. Art. 1888. An agent shall not carry out an agency if its execution would manifestly result in loss or damage to the principal. (n) RESULT IN LOSS: In order that this article may apply, the possible loss or damage must not be a matter of appreciation; it is necessary that to anyone the transaction is undoubtedly prejudicial. NOTE: The agent is not bound in all cases to carry out the agency as when its execution would manifestly result in the loss or damage to the principal. Accordingly, the duty of the agent is to render service for the benefit of the P and not to act to his detriment. Art. 1889. The agent shall be liable for damages if, there being a conflict between his interests and those of the principal, he should prefer his own. (n) NOTE: Agency is fiduciary in character—agent is required to observe utmost good faith and loyalty towards his principal. The rule applies whether the agency is onerous or gratuitous. Q: What is the basis for such rule? The reason for prohibiting the agent from engaging in self-dealing is to shut the door against temptation on his part and to ensure that he places the rights and welfare of his principal above his own in performing his agency. Art. 1890. If the agent has been empowered to borrow money, he may himself be the lender at the current rate of interest. If he has been authorized to lend money at interest, he cannot borrow it without the consent of the principal. (n) NOTE: The agent cannot, without a special power of attorney, loan or borrow money. In the second sentence of the article, the A cannot barrow without the consent of the P because the agent may prove to be bad debtor. There is a possible conflict of interest. The transaction may thus be prejudicial to the P. Art. 1891. Every agent is bound to render an account of his transactions and to deliver to the principal whatever he may have received by virtue of the agency, even though it may not be owing to the principal.

NOTES ON PARTNERSHIP AGENCY, TRUSTS, LEASE AND PRESCRIPTION Kenneth and King C. Hizon _________________________________________________________________________________________________________________

Every stipulation exempting the agent from the obligation to render an account shall be void. (1720a) NOTE: It is the duty of the A to account for and deliver to the P all the money and property which may have come into his hands by virtue of or as a result of the agency. It is immaterial whether such money or property is the result of the performance or violation of the A’s duty since A cannot be permitted to derive advantage from his own neglect or violation of duty. SCOPE: This article, however, does not apply to over-payment by mistake. If a debtor, by mistake, pays to the agent more than what is owing to the principal, such agent may keep the excess, because he is the one against who an action may be brought by the payor to recover the excess amount paid.

Q: What is a subagent? He is a person to whom the agent delegates as his agent, the performance of an act for the principal which the agent has been empowered to perform through his representative. NOTE: Unless prohibited, the agent may appoint a subagent or substitute. The right of action against the substitute is an exception to the general rule that contracts are binding only between the contracting parties, assigns, and heirs. What are the different effects of substitution?

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DOMINGO v. DOMINGO 42 SCRA 131 An agent who takes a secret profit in the nature of a bonus, gratuity or personal benefit from the vendee without revealing the same to his principal is guilty of a breach of his loyalty to the latter and forfeits his right to collect the commission that may be due him, even if the principal does not suffer any injury by reason of such breach. OBLIGATION TO ACCOUNT SCOPE: The duty of the agent to account to his principal for all money and property which may have come into his hands during and by virtue of the agency embraces not only such money and property as may be received directly from the principal, but also that which comes into the agent’s hands as the result of his agency. TRANSMISSIBILITY: The obligation or the agent to render an account is transmissible to his heirs. The right of a principal to an accounting is also transmissible to his heirs. Art. 1892. The agent may appoint a substitute if the principal has not prohibited him from doing so; but he shall be responsible for the acts of the substitute: When he was not given the power to appoint one; When he was given such power, but without designating the person, and the person appointed was notoriously incompetent or insolvent. All acts of the substitute appointed against the prohibition of the principal shall be void. (1721) USE OF EMPLOYEES: The use of employees by the agent is different form a substitution. The agent can make use of his employees in carrying out the agency, unless this is expressly prohibited by the principal, or excluded by the nature and purpose of the agency. The agent, however, shall always be liable to the principal for the fault or negligence of such employees. Art. 1893. In the cases mentioned in Nos. 1 and 2 of the preceding article, the principal may furthermore bring an action against the substitute with respect to the obligations which the latter has contracted under the substitution. (1722a)

1

2

If the substitute is appointed by the agent against the express prohibition of the P, the agent exceeds the limits of his authority. In such case, the acts of the substitute shall be void. If the substitution is authorized, the substitution has the effect of releasing the agent from his responsibility unless the person appointed is notoriously incompetent or insolvent. If the substitution is not authorized but not prohibited— the law recognizes the validity of the substitution if the same is beneficial to the P. If the substitution has occasioned damage to the P, the A shall be primarily responsible for the acts of the substitute as he himself executed them. The P has also a right of action against the substitute.

Art. 1894. The responsibility of two or more agents, even though they have been appointed simultaneously, is not solidary, if solidarity has not been expressly stipulated. (1723) JOINT AGENCY This article has reference to the relation of the agents to the principal; each agent is responsible for his own acts to the principal. It does not regulate joint agency in relation to third persons with whom the agents may contract. Under joint agency, several agents are appointed to act collectively. The declaration of one of them to a third person in relation to the agency does not become effective until the others make the same declaration to the same person or ratify the declaration already made by the first agent. In other words, whether they act together or separately, they are considered as a single unit; all must act towards the same end to bind the principal. But the knowledge of a fact by one of them is considered as knowledge of all. LIABILITY IS PERSONAL If the agents are charged with a joint undertaking, so that one cannot act without the others, and the agency is not performed due to the omission of the agent, then he alone bears the entire responsibility for the injury caused. But if each one can act separately, then he is liable only for his own omission or fault.

NOTES ON PARTNERSHIP AGENCY, TRUSTS, LEASE AND PRESCRIPTION Kenneth and King C. Hizon _________________________________________________________________________________________________________________

Art. 1895. If solidarity has been agreed upon, each of the agents is responsible for the non-fulfillment of agency, and for the fault or negligence of his fellows agents, except in the latter case when the fellow agents acted beyond the scope of their authority. (n)

Art. 1896. The agent owes interest on the sums he has applied to his own use from the day on which he did so, and on those which he still owes after the extinguishment of the agency. (1724a) NOTE: The present article contemplates 2 distinct cases:

G.R: The presumption is that an obligation is joint. XPN: If solidarity has been agreed upon, each of the agents becomes solidarily liable: For the non-fulfillment of the agency; For the fault or negligence of his fellow agents provided the latter acted within the scope of their authority. SOLIDARY AGENCY The article governs solidarity in the relation of the agents to the principal and not in relation to third persons. Q: What is solidary agency? It is one in which there being several agents for the same purpose, each one acts independently of the others, and can bind the principal without the intervention of the others.

Sums belonging to the P which the A applied to his own use; and Sums which the agent still owes the P after the expiration of the agency. The agent who converted to his personal use the funds of the P is liable for interest as compensation or indemnity from the day on which he did so. Q: Is it necessary that demand be made by the P? It is clear that if by provision of law the agent is bound to deliver to the P whatever he may have received by virtue of the agency demand is no longer necessary. Art. 1897. The agent who acts as such is not personally liable to the party with whom he contracts, unless he expressly binds himself or exceeds the limits of his authority without giving such party sufficient notice of his powers. (1725)

When a person appoints 2 agents independently, the consent of one will not be required to validate the acts of the other, unless that appears positively to have been the principal’s intention.

NOTE: The agent is precluded from doing any positive act that could prevent performance on the part of his principal.

This governs a joint agency where the agency act collectively as a unit in relation to third persons but where it is stipulated that they shall be solidarily liable to the principal.

An agent who acts as such within the scope of his authority represents the P so that his contract is really the principal’s. The A is not personally liable to the party whom he contracts.

Both Article 1894 and this article apply to a joint or collective agency but are limited to the liability of the agents to the principal. The relations of agents to third persons are governed by other principles.

In case the A acts in excess of his authority, the P is not bound unless he ratifies the act.

ACTS BEYOND POWERS

When the A expressly binds himself, he thereby obligates himself personally and by his own act.

An act of one agent beyond the scope of the agency does not concern the other agents; they have no power to prevent it and they should be held liable for it.

If he exceeds in his authority, the agent becomes personally liable because by his wrong or omission he deprives the third person with whom he contracts of any remedy against the P.

Yet, the mere fact that one agent oversteps the limits of his authority does not exempt the others from discharging the agency, nor does it deprive the principal of the guaranty arising from the stipulated solidarity.

But if the A gave sufficient notice of his power to third persons dealing with him and such person nevertheless contract with him, neither the P nor the A are bound.

Illustrations: Two agents are authorized solidarily to sell a parcel of land No. 1 at P10,000.00. One of the agents sells parcel land No. 2 instead. The other agent cannot be held liable for this act. But if parcel land No. 1 has been sold for P6,000 instead of P10,000 this irregular performance of the agency makes both agents solidary liable to the principal for damages. The agents empowered to sell an immovable are authorized to receive only part of the price. One agent collects the entire price. The other agents are not liable to the principal for the excess collected, because as to that excess the act is beyond the scope of the agency.

Art. 1898. If the agent contracts in the name of the principal, exceeding the scope of his authority, and the principal does not ratify the contract, it shall be void if the party with whom the agent contracted is aware of the limits of the powers granted by the principal. In this case, however, the agent is liable if he undertook to secure the principal's ratification. (n) NOTE: The agent is precluded from doing any positive act that could prevent performance on the part of his principal. The effect of representation is to bind the P as though he personally entered into the contract. If the agent acts in excess of his authority, the A is the one personally liable unless there is subsequent ratification by the P. Yet, the A will not be liable if he gave notice of his powers to the person with whom he has contracted nor in case such person is aware of the limits of the powers granted by the P.

NOTES ON PARTNERSHIP AGENCY, TRUSTS, LEASE AND PRESCRIPTION Kenneth and King C. Hizon _________________________________________________________________________________________________________________

EXCESS OF AUTHORITY: The liability of an agent who has exceeded the scope of his authority, if the principal does not ratify his act, depends upon whether or not the third person knows the limits of the agent’s power. If he knows such limits, he is to blame and he is not entitled to recover damages from the agent, unless the latter undertook to secure the principal’s ratification. But if the third person is unaware of the limits of the authority conferred, he has been deceived, and the agent is liable for damages to him. This is implied under Art. 1897. RATIFICATION: The acts of an agent beyond the scope of his authority does not bind the principal, unless, he ratifies them: Expressly Impliedly Only the principal can ratify; the agent cannot ratify his own unauthorized acts. And the principal must have knowledge of the acts he is to ratify. NOTE: If the principal receives the benefits from the unauthorized acts of the agent, it is evident that he tacitly ratifies them. Art. 1899. If a duly authorized agent acts in accordance with the orders of the principal, the latter cannot set up the ignorance of the agent as to circumstances whereof he himself was, or ought to have been, aware. (n) Q: What is the effect of the ignorance of the agent? If the P appoints an A who is ignorant, the fault is his alone and he must suffer the consequences of his acts. Art. 1900. So far as third persons are concerned, an act is deemed to have been performed within the scope of the agent's authority, if such act is within the terms of the power of attorney, as written, even if the agent has in fact exceeded the limits of his authority according to an understanding between the principal and the agent. (n) Q: What is the effect of an unwritten authority? Every person dealing with the A is under obligation, to make an inquiry not only as to the existence of the agency but also as to the nature and extent of authority of the agent. Q: What if the authority is written?

Art. 1902. A third person with whom the agent wishes to contract on behalf of the principal may require the presentation of the power of attorney, or the instructions as regards the agency. Private or secret orders and instructions of the principal do not prejudice third persons who have relied upon the power of attorney or instructions shown them. (n) NOTE: Ignorance of the agent’s authority is not an excuse.

It is the duty of the third person to require the A to produce his POA to ascertain the scope of his authority. Q: Is the third person bound by the P’s private instructions? The third person is chargeable with knowledge of the terms of the POA as written and the instructions disclosed to him. Yet he is not bound by the secret orders and instructions of the P. Art. 1903. The commission agent shall be responsible for the goods received by him in the terms and conditions and as described in the consignment, unless upon receiving them he should make a written statement of the damage and deterioration suffered by the same. (n) Q: Who is a factor or commission agent? He is one whose business is to receive and sell the goods for commission and who is entrusted by the P with the possession of the goods to be sold. Q: What is the liability of such agent as to the goods received? He will be responsible for any damage or deterioration suffered by the same. To avoid liability, such agent should make a written statement of the damage or deterioration if the goods received by him do not agree with the description in the consignment. Art. 1904. The commission agent who handles goods of the same kind and mark, which belong to different owners, shall distinguish them by countermarks, and designate the merchandise respectively belonging to each principal. (n) Art. 1905. The commission agent cannot, without the express or implied consent of the principal, sell on credit. Should he do so, the principal may demand from him payment in cash, but the commission agent shall be entitled to any interest or benefit, which may result from such sale. (n)

If the authority is in writing, the third party is not required to inquire further than the terms of the written power of attorney. An act of the A within the terms of the POA within the scope of the agent’s authority although the agent has in fact exceeded the limits of his actual authority.

NOTE: A commission agent can sell on credit only with the express or implied consent of the P. Otherwise, the P has 2 alternative remedies:

Art. 1901. A third person cannot set up the fact that the agent has exceeded his powers, if the principal has ratified, or has signified his willingness to ratify the agent's acts. (n)

He may require payment in cash and any interest or benefit from the sale shall belong to the A since the P cannot be allowed to enrich himself at the A’s expense; or Ratify the sale on credit in which case it will have all the risks and advantages to him.

NOTE: The third person cannot set up the fact that the A exceeded his authority to disaffirm his contract not only after the P has ratified the A’s acts but even before such ratification where he has signified his willingness to ratify.

Art. 1906. Should the commission agent, with authority of the principal, sell on credit, he shall so inform the principal, with a statement of the names of the buyers. Should he fail to do so, the sale shall be deemed to have been made for cash insofar as the principal is concerned. (n)

NOTES ON PARTNERSHIP AGENCY, TRUSTS, LEASE AND PRESCRIPTION Kenneth and King C. Hizon _________________________________________________________________________________________________________________

To reimburse the A for all the advances made by him provided the A is free from fault; To indemnify the A for all the damages which the execution of the agency may have caused the latter without fault or negligence on his part; To pay the agent the compensation agreed upon or otherwise, the reasonable value of the agent’s services.

Art. 1907. Should the commission agent receive on a sale, in addition to the ordinary commission, another called a guarantee commission, he shall bear the risk of collection and shall pay the principal the proceeds of the sale on the same terms agreed upon with the purchaser. (n) Q: What is a guarantee commission? It is one where in consideration of an increased commission the factor or commission agent guarantees to the P the payment of debts arising through his agency. Art. 1908. The commission agent who does not collect the credits of his principal at the time when they become due and demandable shall be liable for damages, unless he proves that he exercised due diligence for that purpose. (n) NOTE: The agent who has made an authorized sale on credit must collect the credits due the P at the time they become due and demandable. Otherwise, he shall be liable for damages unless he can show that the credit should not be collected notwithstanding the exercise of due diligence on his part.

NOTE: Representation is the essence of agency. It is not enough that the A should act within the scope of his authority, the A must also act in a representative capacity. LIABILITY FOR AGENT’S ILLICIT ACTS: When the agent is in the performance of an obligation of the principal, the fault of the agent is attributable to the principal; this is culpa contractual. The rule is the same even if the illicit of the agent amounts to a crime. GR: But if the fault or crime committed by the agent is not in the performance of an obligation of the principal, the latter generally is not bound by the illicit act of the agent, even if it is done in connection with his functions. XPNs:

Art. 1909. The agent is responsible not only for fraud, but also for negligence, which shall be judged with more or less rigor by the courts, according to whether the agency was or was not for a compensation. (1726)

When the delict or quasi-delict was committed by the agent because of defective instructions from the principal, or due to the lack of necessary vigilance or supervision on his part, the principal is liable because of his own negligence When the agent secures a contract through fraud, or makes a fraudulent alienation, or executes a simulated contract, all of these acts are imputable to the principal as if done by him, because the illicit act is inseparable from the transaction executed for him When the crime consists in the performance of an act which is within the powers of the agent, but becomes criminal only because of the manner in which the agent has performed it, then principal is liable to third persons who act in good faith.

BREACH OF TRUST: The agent may not, without the permission of the principal, directly or indirectly buy for himself what he has commissioned to sell, or sell what he has been commissioned to buy. This prohibition ceases upon the termination of the agency. NOTE: The A is responsible to the P not only for fraud committed by him but also for negligence. It is held that the failure of a subagent with whom film has been left for safekeeping to insure against loss by fire does not constitute negligence or fraud on its part when it has received no instruction to that effect from its principal.

CHAPTER 3 OBLIGATIONS OF THE PRINCIPAL

Art. 1911. Even when the agent has exceeded his authority, the principal is solidarily liable with the agent if the former allowed the latter to act as though he had full powers. (n) BASIS OF LIABILITY: The basis is the failure to adopt the necessary measures to prevent third persons from being deceived by the apparent authority of the agent. The liability extends only to third persons who have lawfully supposed the existence of the authority.

Art. 1910. The principal must comply with all the obligations which the agent may have contracted within the scope of his authority.

Q: What is estoppel?

As for any obligation wherein the agent has exceeded his power, the principal is not bound except when he ratifies it expressly or tacitly. (1727)

It is a bar which precludes a person from denying or asserting anything contrary to that which has been established as the truth by his own deed or representation.

What are the specific obligations of the P?

Distinguish between apparent authority and authority by estoppel? A:

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To comply with all the obligations which the agent may have contracted within the scope of his authority and in the name of the P; To advance to the A, should the latter so request, the sums necessary for the execution of the agency;

Apparent authority Apparent authority is that

Authority by estoppel Authority by estoppel arises in those cases where the P by his

NOTES ON PARTNERSHIP AGENCY, TRUSTS, LEASE AND PRESCRIPTION Kenneth and King C. Hizon _________________________________________________________________________________________________________________

which though not actually granted, the principal knowingly permits the agent to exercise or holds out as possessing.

culpable negligence permits his agent to exercise powers not granted to him, even though the P may have no notice or knowledge of the conduct of the A.

Distinguish between implied agency and agency by estoppel?

In such case however, the agent is not entitled to the excess in case the things are sold to satisfy his claim and the proceeds thereof are more than the amount due. Art. 1915. If two or more persons have appointed an agent for a common transaction or undertaking, they shall be solidarily liable to the agent for all the consequences of the agency. (1731) What are the 3 requisites for the application of the above article? A:

IMPLIED AGENCY There is an actual agency; The principal alone is liable

AGENCY BY ESTOPPEL The authority of the agent is not real but only apparent If the estoppel is caused by the P, he is liable to any third person who relied on the misrepresentation; if the estoppels is caused by the agent, then only the agent is liable.

Art. 1912. The principal must advance to the agent, should the latter so request, the sums necessary for the execution of the agency. Should the agent have advanced them, the principal must reimburse him therefor, even if the business or undertaking was not successful, provided the agent is free from all fault. The reimbursement shall include interest on the sums advanced, from the day on which the advance was made. (1728) The P must advance to the A upon his request the sums necessary for the execution of the agency. If the P fails to do so, the A will not be liable for the damage which the P may suffer.

Art. 1913. The principal must also indemnify the agent for all the damages which the execution of the agency may have caused the latter, without fault or negligence on his part. (1729) The liability of the P for damages is limited only to that which the execution of the agency has caused the agent. PROFESSIONAL SERVICES The principal must reimburse the agent for amounts the latter may have paid as reasonable compensation for professional services rendered by third persons in the execution of the agency. Art. 1914. The agent may retain in pledge the things which are the object of the agency until the principal effects the reimbursement and pays the indemnity set forth in the two preceding articles. (1730) Q: Is the A authorized to retain the object of the agency in pledge? If the P fails to reimburse or indemnify the A, the A has the right to retain in pledge the things which are the object of the agency. This is a pledge created by operation of law.

There are 2 or more principals; The P have all concurred in the appointment of the same agent; and The agent appointed for a common transaction or undertaking. SOLIDARITY OF PRINCIPALS The article applies even when the appointments were made by the principals in separate acts, provided that they are for the same transaction. The solidarity arises from the common interest of the principals and not from the act of constituting the agency. By virtue of this solidarity, the agent can recover from any principal the whole compensation and indemnity owing to him by others. But the parties may agree to negate such solidarity. The solidarity does not disappear by the mere partition affected by the principals after the accomplishment of the agency. If the undertaking is one in which several are interested, but only some create the agency, only the latter are solidarily liable, without prejudice to the effects of negotiorum gestio with respect to others. And if the power granted includes various transactions some of which are common and others are not, only those interested in each transaction shall be liable for it. Art. 1916. When two persons contract with regard to the same thing, one of them with the agent and the other with the principal, and the two contracts are incompatible with each other, that of prior date shall be preferred, without prejudice to the provisions of Article 1544. (n) Art. 1544. If the same thing should have been sold to different vendees, the ownership shall be transferred to the person who may have first taken possession thereof in good faith, if it should be movable property. Should it be immovable property, the ownership shall belong to the person acquiring it who in good faith first recorded it in the Registry of Property. Should there be no inscription, the ownership shall pertain to the person who in good faith was first in the possession; and, in the absence thereof, to the person who presents the oldest title, provided there is good faith. (1473)

NOTES ON PARTNERSHIP AGENCY, TRUSTS, LEASE AND PRESCRIPTION Kenneth and King C. Hizon _________________________________________________________________________________________________________________

Art. 1917. In the case referred to in the preceding article, if the agent has acted in good faith, the principal shall be liable in damages to the third person whose contract must be rejected. If the agent acted in bad faith, he alone shall be responsible. (n) Art. 1918. The principal is not liable for the expenses incurred by the agent in the following cases: If the agent acted in contravention of the principal's instructions, unless the latter should wish to avail himself of the benefits derived from the contract;

Q: Are the modes mentioned exclusive? No, agency may also be extinguished by the modes of extinguishment of obligations when applicable lime loss of the thing and novation. Other causes include change in law affecting the subject matter or transaction involved like if it makes illegal the required act; or change in the conditions not anticipated by the parties like the outbreak of war, preventing or making impossible the accomplishment of the purpose of the agency. Death of principal

When the expenses were due to the fault of the agent; When the agent incurred them with knowledge that an unfavorable result would ensue, if the principal was not aware thereof; When it was stipulated that the expenses would be borne by the agent, or that the latter would be allowed only a certain sum. (n)

Agency is terminated by the death of the principal, even if the agency is for a definite period, and the period has not yet expired. The authorization by a principal to another to furnish necessaries to the former’s grandson could not be made to extend after his death, not only because the obligation to furnish support is personal and is extinguished upon the death of the person obliged to give support but also because death of a principal terminates the agency. XPNs:

CHAPTER 4 MODES OF EXTINGUISHMENT OF AGENCY

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Art. 1930. The agency shall remain in full force and effect even after the death of the principal, if it has been constituted in the common interest of the latter and of the agent, or in the interest of a third person who has accepted the stipulation in his favor. (n)

Art. 1919. Agency is extinguished: 0 1 2 3 4 5

By its revocation; By the withdrawal of the agent; By the death, civil interdiction, insanity or insolvency of the principal or of the agent; By the dissolution of the firm or corporation which entrusted or accepted the agency; By the accomplishment of the object or purpose of the agency; By the expiration of the period for which the agency was constituted. (1732a)

What are the different modes of extinguishing an agency? A: By agreement; By the subsequent acts of the parties which may be either:

Article 1930; and

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Article 1931 Art. 1931. Anything done by the agent, without knowledge of the death of the principal or of any other cause which extinguishes the agency, is valid and shall be fully effective with respect to third persons who may have contracted with him in good faith. (1738)

Art. 1920. The principal may revoke the agency at will, and compel the agent to return the document evidencing the agency. Such revocation may be express or implied. (1733a) Revocation-when the agency is terminated by the principal; Renunciation- when the same is done by the agent.

By the act of both parties or by mutual consent; or By the unilateral act of one of them. 3. By operation of law. Agency requires the existence and capacity of both the P and the A. The death, civil interdiction, insanity, or insolvency of either party terminates the agency.

Q: What is civil interdiction? It is a form of disqualification which deprives the offender during the period of his sentence of the right to manage his property and dispose of such property by any act or any conveyance inter vivos.

Confidence is the cardinal basis of the relation, it stands to reason that it should cease when such confidence disappears.

While the P may have the absolute power to revoke the A at anytime, he must respond to damages in those cases wherein not having the right to do so, he should discharge the agent.

Q: What are the kinds of revocation? It may be express or implied as when the P appoints a new agent for the same business and transaction or when the P manages the business entrusted to the agent. If the authority of the agent is in writing, the P can compel the A to return the same so as to prevent the A from making use of the

NOTES ON PARTNERSHIP AGENCY, TRUSTS, LEASE AND PRESCRIPTION Kenneth and King C. Hizon _________________________________________________________________________________________________________________

power and thus avoid liability to third persons who may subsequently deal with the A on the faith of the instrument. POWER TO REVOKE BASIS: It is the will of the person represented that may put an end to the representation. Otherwise, the representation would be converted into a true alienation of the personality, either in perpetuity or for a definite period. This is an XPN to the general rules of contract. The agent has no power to oppose such termination even if there was a definite period fixed for the agency. The rule applies whether the agency is gratuitous or remuneratory. INDEMNITY TO AGENT GR: The principal is not liable for damages for having made use of his power to revoke the agency. XPN: If the revocation was made in such a manner as to constitute an abuse of right, the agent can recover damages from the principal. The principal cannot revoke the agency in BF and as a means to avoid paying compensation to the agent.

SCOPE OF THE ARTICLE: It is the duty of the principal on the termination of the agency to give due and timely notice thereof to third persons to whom he has given special invitation to deal with his agent and failure to do so renders him liable to them for whatever may have been in good faith and without negligence sent to the agent without knowledge, actual or constructive, of the termination of the agency. The article also applies to cases where the authority of the agent has been communicated to particular persons, even if they were not rd indicated at the time the agency was created. If 3 persons have knowledge of the revocation, this is equivalent to notification. Art. 1922. If the agent had general powers, revocation of the agency does not prejudice third persons who acted in good faith and without knowledge of the revocation. Notice of the revocation in a newspaper of general circulation is a sufficient warning to third persons. (n) NOTE: Publication constitutes notice to third persons and this is true whether or not they have read the newspaper concerned. Under 1921, the notice must be personal; under 1922, it may be personal. APPLICATION OF THE ARTICLE

Stipulation on irrevocability Parties may validly stipulate that the agency shall be irrevocable for a certain period. There is no reason why it cannot become irrevocable by agreement so long as the agreement is according to the agency and not contrary to morals. The agreement may take 2 forms: A renunciation of a right to revoke, in which case, the principal cannot revoke the agency; or A mere obligation of the principal not to revoke, in which case the agency may be revoked but the principal becomes liable for breach of contract. Even an irrevocable power however, does not prevent the principal from executing the delegated act himself. AGENCY IS NOT EXCLUSIVE An agency conferred to carry out certain transaction is not exclusive; it does not prevent the principal from concluding the transaction himself or naming other persons with the same authority. agent cannot prevent third persons from exercising their right to deal directly with the principal, even when the agency is granted as exclusive because the principal cannot renounce future acts. Art. 1921. If the agency has been entrusted for the purpose of contracting with specified persons, its revocation shall not prejudice the latter if they were not given notice thereof. (1734)

The article refers to agency in which the person with whom the agent is to contract, is not specified.’ Art. 1923. The appointment of a new agent for the same business or transaction revokes the previous agency from the day on which notice thereof was given to the former agent, without prejudice to the provisions of the two preceding articles. (1735a) NOTE: Revocation does not become effective as between the P and the A until it is in same way communicated to the latter; Rights of third persons who acted in good faith and without knowledge of the revocation will not be prejudiced thereby. INCOMPATIBILITY OF POWERS A new agency revokes an existing one only when 2 are incompatible with each other or when the principal makes known to the first agent that his powers have ceased by the appointment of the new agent. Where there is no incompatibility, the new agency may only mean a division of the agency and the 2 agencies can co-exist. Hence, an agent may be appointed to buy lands in certain locality without specification of the particular properties, his powers being limited to the amount stated in his powers. If a second agent is appointed to buy lands in same locality, this is not necessarily incompatible with the first agency, which is not thereby revoked. NOTICE TO THE FIRST AGENT

Accordingly, since the third persons have been made to believe that the A is authorized to deal with them, they have a right to presume that the representation continues in the absence of notification by the P.

The grant of a new power of attorney to the new agent must be made known to the first agent in order to revoke the power granted to the latter. Otherwise, it must be considered that the first agent acted under a valid power of attorney which had not been legally revoked.

NOTES ON PARTNERSHIP AGENCY, TRUSTS, LEASE AND PRESCRIPTION Kenneth and King C. Hizon _________________________________________________________________________________________________________________

EXCLUSIVE AGENCY In cases where the agency is for compensation, and the compensation depends upon the success of the transaction entrusted to the agent, it is usual to stipulate that the agency shall be exclusive. Thus, the principal is deprived of the right to appoint a new agent for the same transaction whether jointly with the exclusive agent or by way of revocation of his powers. This stipulation is valid provided that it is limited to the transaction or with respect to time; otherwise, it will be contrary to the revocability of the agency.

When the agency is created for the mutual interest of both the P and the A. Agency coupled with interest NOTE: An agency coupled with interest cannot be terminated by the sole will of the P although it is so revocable after the interest ceases. Yet, it is essential that the interest of the agent shall be in the subject matter of the power conferred and not merely an interest in the exercise of the power because it entitles him to compensation therefor.

Art. 1924. The agency is revoked if the principal directly manages the business entrusted to the agent, dealing directly with third persons. (n)

Such as when the A parted with value or incurred liability at the P’s request, looking to the exercise of the power as the means of reimbursement or indemnity.

NOTE: Direct management of the business by the P himself; If the purpose is to avoid payment of his agent’s commission, the implied revocation is deemed made in bad faith, and cannot be sanctioned without the commission which is due to the A.

CONDITION IN BILATERAL CONTRACT

DIRECT INTERVENTION BY PRINCIPAL The direct intervention by the principal will revoke the agency only when such intervention is incompatible with the agency. According to Sec. Tolentino, the rule under Argentine Code applies to our jurisdiction: even when there is incompatibility the agency still subsists if the principal expressly manifests that he has no intention of revoking the agency. The express intention must prevail over that which is merely presumed by law.

Example: Ayel buys a piece of land from Bebeng, with part of the price on credit, but stipulating that he appoints Bebeng as agent, to collect a certain amount from CJ and to apply the same to the unpaid price. In this case, A cannot revoke the agency of B. MEANS OF FULFILLMENT If, in a contract of loan with a mortgage or pledge, the CR is appointed as an agent to sell the property given as security or to collect the fruits therefrom, the agency is irrevocable. OTHER CASES OF IRREVOCABILITY When there is an express stipulation to that effect; and When the agency is for the benefit of the agent.

Art. 1925. When two or more principals have granted a power of attorney for a common transaction, any one of them may revoke the same without the consent of the others. (n)

Stipulation of irrevocability:

Art. 1926. A general power of attorney is revoked by a special one granted to another agent, as regards the special matter involved in the latter. (n)

Irrevocable agency is not perpetual. It must be limited to a particular transaction or to a determinate period because public order is against indefinite or irrevocable obligations.

NOTE: A specific power naturally prevails over the general power. SUBSEQUENT GENERAL POWER In the Argentine Code, it is expressly provided that the special power of attorney is not revoked by a subsequent general power of attorney given to another agent, unless the latter refers also to the act authorized under the special power. This is applicable in our jurisdiction. Art. 1927. An agency cannot be revoked if a bilateral contract depends upon it, or if it is the means of fulfilling an obligation already contracted, or if a partner is appointed manager of a partnership in the contract of partnership and his removal from the management is unjustifiable. (n) G.R: The P may revoke an agency at will. XPN: When the agency is created not only for the interest of the P but also for the interest of third person;

EFFECT OF IRREVOCABLE AGENCY: Irrevocability of agency does not merely insure an indemnity to the agent or third persons prejudiced by the revocation; except when otherwise stipulated, it extends the agency even against the will of the principal in the sense that the acts of the agent will bind the principal notwithstanding the untimely revocation. Art. 1928. The agent may withdraw from the agency by giving due notice to the principal. If the latter should suffer any damage by reason of the withdrawal, the agent must indemnify him therefor, unless the agent should base his withdrawal upon the impossibility of continuing the performance of the agency without grave detriment to himself. (1736a) NOTE: The A may withdraw from the agency at any time. This is based on constitutional prohibition against involuntary servitude. If the same is without just cause-the A has the duty to give notice to the P and if the withdrawal is without just cause, to indemnify the P should the latter suffer damage by reason of such withdrawal.

NOTES ON PARTNERSHIP AGENCY, TRUSTS, LEASE AND PRESCRIPTION Kenneth and King C. Hizon _________________________________________________________________________________________________________________

If the same is with just cause- as when it is based on the impossibility of continuing with the agency without grave detriment to himself, or is due to a fortuitous event, the A cannot be held liable. WHAT CONSTITUTE WITHDRAWAL

NOTE: Presupposes that the A acted without knowledge of the death of the principal or any other cause which extinguishes the agency. The law requires good faith not only as to third persons but also the agent. GOOD FAITH OF A THIRD PERSON

When an agent informs his principal that for reasons of health he is about to depart from the place where he is exercising his agency, abandons his property, turns it over to third party, renders his accounts, and asks his principal to execute a power of attorney to third party, it is shown that he renounced his agency but must turn over any balance of money to the principal. Filing of complaint by an agent against his principal for the collection of a balance in his favor resulting from a liquidation of the agency accounts between them, and his rendering of a final account of his operations are equivalent to an express renunciation of the agency and terminate the juridical relation between them. WAIVER OF RIGHT TO WITHDRAW Agent may renounce his right to withdraw from the agency but even in such case, the relationship may be terminated in case of an impossibility of continuing the agency without serious injury to himself.

Art. 1929. The agent, even if he should withdraw from the agency for a valid reason, must continue to act until the principal has had reasonable opportunity to take the necessary steps to meet the situation. (1737a) Art. 1930. The agency shall remain in full force and effect even after the death of the principal, if it has been constituted in the common interest of the latter and of the agent, or in the interest of a third person who has accepted the stipulation in his favor. (n)

rd

This article extends to 3 persons contracting in GF with the agent, even if the agent has knowledge of the cause of revocation. Where the revocation of power is unknown to a third person, there being a basis for confidence previously created by the Principal and on which the third person can rely, it is proper to impute the risk to the principal. GF of a third person is sufficient basis in itself for his protection. DEATH OF PRINCIPAL Law does not impose a duty on the heirs of the principal to notify the agent of the death of the principal; but if the agent dies, his heirs must notify the principal thereof. Art. 1932. If the agent dies, his heirs must notify the principal thereof, and in the meantime adopt such measures as the circumstances may demand in the interest of the latter. (1739) WHEN NOTICE IS IMPOSSIBLE When the heirs of the agent cannot give notice required by the article because the whereabouts of the principal is unknown, they should consign the things object of the agency to the court. The law imposes upon the heirs of the deceased A not only the obligation to notify the P to enable the latter reasonable opportunity to take such steps as may be necessary to meet the situation but also to adopt such measures as the circumstance may demand for the interest of the P.

G.R: Agency is terminated by the death of the P. REFERENCES:

XPN: If the agency has been constituted in the common interest of the P and the A. If it has been constituted in the interest of third persons. COMMON INTEREST This is illustrated by a case where a DR has authorized his CR to sell certain properties of the DR upon non-payment of the debt. The power of sale given in a mortgage has been held to be a power coupled with interest which survives the death of the grantor. BENEFIT OF THIRD PERSON This is illustrated by a case where a DR in selling his land, authorizes the buyer to deliver part of the purchase price to his CR. Art. 1931. Anything done by the agent, without knowledge of the death of the principal or of any other cause which extinguishes the agency, is valid and shall be fully effective with respect to third persons who may have contracted with him in good faith. (1738)

PINEDA, ERNESTO L., Partnership, Agency and Trusts, Central Book Publishing, Co., Inc., 2006

TOLENTINO, ARTURO M., Commentaries and Jurisprudence on the Civil Code of the Philippines, Vol. V., Central Book Publishing, Co., Inc. 1991

NOTES ON PARTNERSHIP AGENCY, TRUSTS, LEASE AND PRESCRIPTION Kenneth and King C. Hizon _________________________________________________________________________________________________________________

TITLE V- TRUSTS CHAPTER 1 General Provisions Article 1440. A person who establishes a trust is called the trustor; one in whom confidence is reposed as regards property for the benefit of another person is known as the trustee; and the person for whose benefit the trust has been created is referred to as the beneficiary. CONCEPT OF TRUST (FIDEICOMMISSO): It is a fiduciary relationship created by agreement or by law where the trustor of the property has the equitable title while the legal title is vested in another (trustee). The trustee holds the property for the benefit of another (beneficiary) who could be the trustor himself or a third person. Trust is a fiduciary relationship involving a property whereby the fiduciary holds it for the benefit of another (Pineda, 2006). TRUST, defined: In its technical sense, a trust is defined as the right, enforceable solely in equity, to be the beneficial enjoyment of property, the legal title to which is vested in another, but the word “trust” is frequently employed to indicate duties, relations, and responsibilities which are not strictly technical trusts (Pineda, 2006). It is a legal relationship between one person having an equitable ownership in property and another person owning the legal title to suhc property, the equitable ownership of the former, entitling him to the performance of certain duties and the exercise of certain powers by the latter (Pineda, 2006).

TRUST v. STIPULATION POUR AUTRUI TRUST

STIPULATION POUR AUTRUI As to origin It can arise either by virtue of a It can arise only by virtue of a contract or by a legal provision contract and never by operation of law As to object The object of a trust is always a The object of a stipulation pour specific property, whether real autrui could either be a specific or personal, including an property or other things undivided interest therein as in co-ownership or choses in action As to form It is either express or implied. It It is always express and must be rd continues to exist unless accepted by the 3 person repudiated before the grant stipulated in his favor is mutually revoked by the parties (Pineda, 2006) TRUST v. TRUST RECEIPT TRUST The right to the beneficial enjoyment of a property but the lehal title to which is vested in another. It is a legal relationship which is fiduciary in nature whereby a person called trustee is holding the propeprty for the benefit of another called the beneficiary

CHARACTERISTICS OF TRUST: It is a relationship It us a relationship of fiduciary character It is a relationship with respect to property, not one involving merely personal duties It involves the existence of equitable duties inposed upon the holder of the title to the property to deal with it for the benefit of another It arises as a result of manifestation of intention to create the relationship (Pineda, 2006) PARTIES IN A TRUST: Trustor who establishes the trust Trustee (fiduciary), the one in whom the confidence is reposed as regards the property for the benefit of another person Beneficiary (cestui que trust) is the person for whose benefit the trust has been created (Pineda, 2006) NOTE: The cestui que trust need not be named at the time the trust is created. It is enough that the cestui que trust is sufficiently certain or identifiable (Pineda, 2006).

TRUST RECEIPT It involves a security transaction intended to aid in financing importers and retail dealers who do not have sufficient funds or resources to finance the importation or purchase of merchandise, and who may not be able to aqcuire credit except through utilization, as collateral, of the merchandise imported or purchased (Pineda, 2006)

Article 1441. Trusts are either express or implied. Express trusts are created by the intention of the trustor or of the parties. Implied trusts come into being by operation of law. KINDS OF TRUST AS TO MANNER OF CREATION EXPRESS TRUST

IMPLIED TRUST As to Creation One created by the express One which is not created agreement of the parties, or by expressly by the parties or by the intention of the trustor the trustor, but by operation of law, there being a law creating it As to manner of creation Created by the direct and the It is merely deducible from the positive acts of the parties, by nature of the transaction some writing, deed or by words, either expressly or inpliedly, evincing an intention to create a trust As to proof needed when immovable or interest therein is involved

Imprescriptible

Prescribes after 10 years from registration of the title; otherwise barred Prescription of action Property cannot be acquired by Property can be acquired by prescription because the prescription (Pineda, 2006)

NOTES ON PARTNERSHIP AGENCY, TRUSTS, LEASE AND PRESCRIPTION Kenneth and King C. Hizon _________________________________________________________________________________________________________________

possession of the trustee is not adverse KINDS OF IMPLIED TRUSTS RESULTING TRUST A resulting trust is a species of implied trust that is presumed always to have been contemplated by the parties, the intention as to which can be found in the nature of their transaction although not expressed in a deed or instrument of conveyance. A resulting trust is based on the equitable doctrine that it is the more valuable consideration than the legal title that determines the equitable interest in property.

CONSTRUCTIVE TRUST A constructive trust is one created not by any word or phrase, either expressly or impliedly, evincing a direct intention to create a trust, but one which arises in order to satisfy the demands of justice. It does not come about by agreement or intention but in the main by operation of law, construed against one who, by fraud, duress or abuse of confidence, obtains or holds the legal right to property which he ought not, in equity and good conscience, to hold (Pineda, 2006).

Article 1442. The principles of the general law of trusts, insofar as they are not in conflict with this Code, the Code of Commerce, the Rules of Court and special laws are hereby adopted.

CHAPTER 2 Express Trusts Article 1443. No express trusts concerning an immovable or any interest therein may be proved by parol evidence. EXPRESS TRUST: Express trusts are those which are created by the direct and positive acts of the parties, by some writing or deed, or will, or by words evincing an intention to create a trust. PROOF NECESSARY TO ESTABLISH AN EXPRESS TRUST WHEN PROPERTY IS IMMOVABLE AND MOVABLE: There must be a statement or mention of a written instrument to evidence the trust. No express trust over a realty can be proved by parol evidence (Pineda, 2006). Article 1444. No particular words are required for the creation of an express trust, it being sufficient that a trust is clearly intended. CREATION OF AN EXPRESS TRUST: What is important is that there must be a clear intent to establish it. There must direct and positive acts of the parties, by some writing or deed, or will, or by words evincing an intention to create a trust (Pineda, 2006). Article 1445. No trust shall fail because the trustee appointed declines the designation, unless the contrary should appear in the instrument constituting the trust. NOTE: If the designated trustee, upon whom confidence is reposed, has declined the appointment as such, the designated substitutetrustee, if there is any, and who accepts the appointment will take over.

If there is no substitute, and the trustor did not provide that the trust will be rendered ineffective in case of the death, resignation, removal or refusal of the designated trustee to assume the respobsibility, the court will appoint a new trustee (Pineda, 2006). PREFERENCE IN THE DESIGNATION OF TRUSTEE BY THE COURT: Between the mother and the uncle, the former is preferred to the trustee of the proceeds of the insurance policy in the absence of any showing that the former is incompetent (Pineda, 2006). Article 1446. Acceptance by the beneficiary is necessary. Nevertheless, if the trust imposes no onerous condition upon the beneficiary, his acceptance shall be presumed, if there is no proof to the contrary. NO ACCEPTANCE, NO TRUST CREATED: It is essential that the beneficiary accepts the trust. However, the acceptance in trust does not have follow the stringent requisites of acceptance of a donation —as this is not so provided. Even if the real property is involved, the acceptance need not be in a public instrument (Pineda, 2006). XPN: There is a presumption of acceptance if the trust is purely gratuitous, that is, it imposes no condition whatsoever upon the beneficiary. EXTINGUISHMENT OF AN EXPRESS TRUST Accomplishment of the aims of the trust Expiration of the agreed term Mutual agreement of all the parties Happening of the resolutory condition if one had been imposed Total loss of the object of trust Annulment or rescissiion of the trust Decision of the court declaring it as terminated Merger of the rights of the trustor and the trustee, as when the trustor waived his beneficiak rights in favor of the trustee, or vice-versa Prescription which arises when there is an express repudiation of the trust, and continuous possession which is public, adverse and peaceful in the concept of an owner for the required period ACQUISITIVE PRESCRIPTION AS A MODE OF ACQUIRING OWNERSHIP: EXPRESS TRUST GR: A trustee cannot acquire by prescriptiion the ownership of property entrusted to him XPN: Provided the ff. requisites are present: 1. The trustee has performed unequivocal acts if repudiation amounting to an ouster of the cestui que trust 2. Such positive acts of repudiation have been made known to the

IMPLIED TRUST Same rule when it comes to the operation of prescription as a mode of acquisition

NOTES ON PARTNERSHIP AGENCY, TRUSTS, LEASE AND PRESCRIPTION Kenneth and King C. Hizon _________________________________________________________________________________________________________________

ceatui que trust The evidence thereon is clear and conclusive The adverse possession of the trustee together with other elements of prescription, must be at least 10 years in the concept of an owner. It begins to run from the time the beneficiary, or trustor gained knowledge of the repudiation by the trustee (Pineda, 2006). ACTS WHICH WERE HELD INSUFFICIENT TO CONSTITUTE REPUDIATION: A mere silent possession without acts amounting to ouster Mere reciept of rents and profits by the trustee and the building Declaration of the property in the trustee’s name for taxation purposes does not constitute acts of repudiation PRESCRIPTION OF ACTION FOR RECOVERY OF PROPERTY HELD IN TRUST EXPRESS TRUST IMPLIED TRUST GR: An action to recover a. Resulting trust: property held in trust does not prescribe. However, if there is GR: The action does not repudiation and no action had prescribe been filed within 10 years from the tine the beneficiary had XPN: There is repudiation been inforned of the repudiation, the action for b. Constructive trust recovery will prescribe It prescribes if no action is filed within 10 years from the registration of the property in the name of the trustee. NOTE: The 10 year prescriptive period applies only when the cestui que trust is not in possesion of the property. Otherwise, there is no prescription (Pineda, 2006).

CHAPTER 3 Implied Trusts Article 1447. The enumeration of the following cases of implied trust does not exclude others established by the general law of trust, but the limitation laid down in article 1442 shall be applicable. IMPLIED TRUST: Implied trusts are those which, without being expressed, are deducible from the nature of the transaction as matters of intent or, independently, of the particular intention of the parties, as being superinduced on the transaction by operation of law basically by reason of equity (Pineda, 2006).

BASIS OF IMPLIED TRUST: It is based on equity. It applies to cases where injustice would result if the legal title of the trustees will prevail over the equitable right of the beneficiary (Pineda, 2006). KINDS OF IMPLIED TRUSTS RESULTING TRUSTS Resulting trusts are based on the equitable doctrine that valuable consideration and not legal title determines the equitable title or interest and are presumed always to have been contemplated by the parties. They arise from the nature or circumstances of the consideration involved in a transaction whereby one person thereby becomes invested with legal title but is obliged in equity to hold his legal title for the benefit of another.

CONSTRUCTIVE TRUSTS Constructive trusts are created by the construction of equity in order to satisfy the demands of justice and prevent unjust enrichment. They arise contrary to intention against one who, by fraud, duress or abuse of confidence, obtains or holds the legal right to property which he ought not, in equity and good conscience, to hold.

Q: May an implied trust be converted into an express trust? Yes, if the implied trustee recognizes the right of the owner over the property (Pineda, 2006). PROOF REQUIRED: While implied trusts may be proved by oral evidence, the evidence must be trustworthy and received by the courts with extreme caution, and should not be made to rest on loose, equivocal or indefinite declarations. Trustworthy evidence is required because oral evidence can easily be fabricated. In order to establish an implied trust in real property by parol evidence, the proof should be as fully convincing as if the acts giving rise to the trust obligation are proven by an authentic document. An implied trust, in fine, cannot be established upon vague and inconclusive proof. NOTE: The enumerated causes of implied trusts are not excluisve (Pineda, 2006). Article 1448. There is an implied trust when property is sold, and the legal estate is granted to one party but the price is paid by another for the purpose of having the beneficial interest of the property. The former is the trustee, while the latter is the beneficiary. However, if the person to whom the title is conveyed is a child, legitimate or illegitimate, of the one paying the price of the sale, no trust is implied by law, it being disputably presumed that there is a gift in favor of the child. CASE WHERE PURCHASER PAID FOR THE PRICE BUT THE LEGAL TITLE OR ESTATE IS GRANTED TO ANOTHER: The Article refers to an implied resulting trust as there is a clear intent to create a trust but short of the ordinary instrument to reflect it. There is a principle recognized in law that a person who pays for something generally does so for his own ineterest and benefit (Pineda, 2006). XPN: If the person who receives the legal title is a legitimate or illegitimate child of the one paying the price, there is no trust implied by law. instead, there is a presumption that there is gift

NOTES ON PARTNERSHIP AGENCY, TRUSTS, LEASE AND PRESCRIPTION Kenneth and King C. Hizon _________________________________________________________________________________________________________________

given in favor of the child. The reason is that the donation is void for being an indirect donation (Pineda, 2006). NOTE: Even if there is already a legal presumption that there is a gift granted to the child, there is still a need to follow the formalities of a donation required by law (Pineda, 2006). XPNs: Article 1448. There is an implied trust when property is sold, and the legal estate is granted to one party but the price is paid by another for the purpose of having the beneficial interest of the property. The former is the trustee, while the latter is the beneficiary. However, if the person to whom the title is conveyed is a child, legitimate or illegitimate, of the one paying the price of the sale, no trust is implied by law, it being disputably presumed that there is a gift in favor of the child. Where the actual contrary intention is proved (Pineda, 2006). PURCHASE MONEY RESULTING TRUST: The trust created under the st 1 sentence of Art. 1448 is referred to as a purchase money resulting trust.

that such positive acts or repudiation have been made known to the cestui que trust or other co-owners and that the evidence thereon must be clear and convincing (Pineda, 2006) Article 1450. If the price of a sale of property is loaned or paid by one person for the benefit of another and the conveyance is made to the lender or payor to secure the payment of the debt, a trust arises by operation of law in favor of the person to whom the money is loaned or for whom its is paid. The latter may redeem the property and compel a conveyance thereof to him. Article 1451. When land passes by succession to any person and he causes the legal title to be put in the name of another, a trust is established by implication of law for the benefit of the true owner. NOTE: The article provides for a resulting trust there being a clear intention to establish a trust. The law refers to inherited land. There is no good reason why the principle cannot apply to personal properties (Pineda, 2006). Article 1452. If two or more persons agree to purchase property and by common consent the legal title is taken in the name of one of them for the benefit of all, a trust is created by force of law in favor of the others in proportion to the interest of each.

Requisites: An actual payment of money, property or services or an equivalent, consulting valuable consideration Such consideration must be furnished by the alleged beneficiary of a resulting trust (Pineda, 2006). NOTE: No implied trust is created when purchase is made in violation of law (Pineda, 2006). Article 1449. There is also an implied trust when a donation is made to a person but it appears that although the legal estate is transmitted to the donee, he nevertheless is either to have no beneficial interest or only a part thereof. CO-OWNERSHIP IS A FORM OF A TRUST: A co-ownership is a form of a trust, with each owner being a trustee for each other and possession of a co-owner shall not be regarded as adverse to other co-owners but in fact is beneficial to them. Mere actual possession by one will not give rise to the inference that the possession was adverse because a co-owner is, after all, entitled to possession of the property. NOTE: A mere silent possession by a co-owner, his receipt of rents, fruits or profits from the property, the erection of buildings and fences and the planting of trees thereon and the payment of land taxes, cannot serve as proof of exclusive ownership, if it is not borne out by clear and convincing evidence that he exercised acts of possession which unequivocably constituted an ouster or deprivation of the rights of the other co-owners. The elements in order that a co-owner’s possession may be deemed adverse to the cestui que trust or the co-owner are: that he has performed unequivocal acts of repudiation amounting to ouster cestui que trust or other co-owners

NOTE: A resulting trust arises in the instant situation because of the intention to create one. The purchasers are co-owners of the property. In the absence of any specific agreement to the contrary, their shares are presumed equal (Pineda, 2006). Article 1453. When property is conveyed to a person in reliance upon his declared intention to hold it for, or transfer it to another or the grantor, there is an implied trust in favor of the person whose benefit is contemplated. NOTE: In this situation, an implied resulting trust is created because of the declared intention of the grantee or to another person (Pineda, 2006). Article 1454. If an absolute conveyance of property is made in order to secure the performance of an obligation of the grantor toward the grantee, a trust by virtue of law is established. If the fulfillment of the obligation is offered by the grantor when it becomes due, he may demand the reconveyance of the property to him. NOTE: An implied resulting trust is created in this situation. There is a clear intention to create a trust, although, it was not reflected in the deed of conveyance. This is like a sale with the right to repurchase, except that the right is not stated in the document. The seller is the benefiicary and the buyer, the trustee. When the seller offers to pay his obligation when due, the buyer must reconvey the property (Pineda, 2006). Article 1455. When any trustee, guardian or other person holding a fiduciary relationship uses trust funds for the purchase of property and causes the conveyance to be made to him or to a third person, a trust is established by operation of law in favor of the person to whom the funds belong. CASE WHERE FIDUCIARY USED TRUST FUNDS IN PURCHASING PROPERTY IN HIS NAME: An impled constructive trust is created in

NOTES ON PARTNERSHIP AGENCY, TRUSTS, LEASE AND PRESCRIPTION Kenneth and King C. Hizon _________________________________________________________________________________________________________________

this situtation to prevent unjust enrichment on the part of the fiduciary (Pineda, 2006). PERSONS COVERED BY THE ARTICLE: trustee guardian agent partner confidential employee persons holding a fiduciary position (Pineda, 2006) Rationale behind the article: To prevent the fiduciart from temptation of putting his own self-interest above that of his principal whom he is supposed to protect. Further, the law is intended to keep and encourage the fiduciary to remain honest, and loyal to his principal (Pineda, 2006). Article 1456. If property is acquired through mistake or fraud, the person obtaining it is, by force of law, considered a trustee of an implied trust for the benefit of the person from whom the property comes. NOTE: This trust is created to prevent unjust enrichment on the part of the acquirer to the prejudice of the true owner. The mistake must be committed by a third person. If made by a party, there is no trust (Pineda, 2006). NOTE: There can be an implied trust in the absence of mistake or fraud (Pineda, 2006). The article does not cover case of violation of a condition in donation (Pineda, 2006). Article 1457. An implied trust may be proved by oral evidence. NOTE: As a rule, the burden of proving the existence of a trust is on the party asserting its existence, and such proof must be clear and satisfactorily show the existence of the trust and its elements. While implied trusts may be proved by oral evidence, the evidence must be trustworthy and received by the courts with extreme caution, and should not be made to rest on loose, equivocal or indefinite declarations. Trustworthy evidence is required because oral evidence can easily be fabricated.

REFERENCES: PINEDA, ERNESTO L., Partnership, Agency and Trusts, Central Book Publishing, Co., Inc., 2006

TOLENTINO, ARTURO M., Commentaries and Jurisprudence on the Civil Code of the Philippines, Vol. V., Central Book Publishing, Co., Inc. 1991

NOTES ON PARTNERSHIP AGENCY, TRUSTS, LEASE AND PRESCRIPTION Kenneth and King C. Hizon _________________________________________________________________________________________________________________

TITLE VIII LEASE

DEPOSIT

LEASE If the price is to be paid whether or not the objects are actually kept in the premises or safe, there is a lease because deposit is a real contract which is perfetced only by delivery of the object. When the owner of the place or safe ha no obligation to take care of the things kept therein, the contract is likewise lease. Hence, the locking up of an automobile ina garage, upon paymnet of a fixed amount daily, without special stipulations, or the use of a safety deposit box in a bank, has been held to be a lease.

CHAPTER 1 General Provisions ARTICLE 1642. The contract of lease may be of things, or of work and service. (1542) Distinguish between sale and lease.

PURCHASE AND SALE There is transmission of ownershio of the thing sold

LEASE Only the use or enjoyment of of the thing is transferred and only for a determinate period

Transmission is permanent unless subject to a resolutory condition

Q: Distinguish lease from simple loan. In case of doubt, the intention of the parties should be the guide in determining the contract entered into. Contracts in the form of leases either with options to the buyer to purchase for a small consideration at the end of the term, provided the so-called rent has been duly paid, or with stipulation that if the rent throughout the term is paid, title shall thereupon vest upon the lessee, are lessees in name only. The rents must be regarded as paymnet of the price in instllments since the due payment of the agrred amount results in the transfer if tilte to the lessee. Distinguished lease from usufruct.

USUFRUCT Always a real right To constitute a usufruct, one must be the owner of the thing Owner allows the usufructuary to use and enjoy the property Includes all possible uses and manner of enjoyment of the property May be for an indefinite peruod of time

LEASE A real right by exception Ownership is not required in order to give an object in lease Lessor places and maintains the lessee in the paymnet of the thing May be limited to particular uses by the contract Must be for a determionte period; otherwise, the court must fix seuch period in an action brought for such purpose.

RENT The owner of the property does not lose its ownership. He simply loses his control oveer the property rented during the period of the contract. The relationship between the parties is that of landlord and tenant.

The relation between the parties is that of the obligor and obligee.

ARTICLE 1643. In the lease of things, one of the parties binds himself to give to another the enjoyment or use of a thing for a price certain, and for a period which may be definite or indefinite. However, no lease for more than ninety-nine years shall be valid. (1543a) LEASE OF THINGS The subject matter of lease must be within the commerce of men. Otherwise, it is void. NOTE: The lease of a building includes the lease of the lot. What are the special characteristics of a lease of things?

0

Distinguish lease from commodatum.

1 2 3

COMMODATUM LEASE Consist in the cession of the use of the thing to another Essentially gratuitous onerous

4

Distinguish lease from deposit.

SIMPLE LOAAN The thing loaned becomes the property of the obligor.

Its essential purpose is to transmit the use or enjoymnet of a thing; It is consensual; It is onerous; Its price is fixed in relation to the period of use or enjoymnent; and It is temporary. EXTENT OF ENJOYMENT

It is noy indispensable that the use or enjoyment granted to the lessee be total or exclusive; within the freedom of contract authorized by law, the parties may establish the terms they deemed

NOTES ON PARTNERSHIP AGENCY, TRUSTS, LEASE AND PRESCRIPTION Kenneth and King C. Hizon _________________________________________________________________________________________________________________

convenient, subjecting the manner of use or enjoyment to limitations and conditions. FORM OF RENT Unlike in sale where it is required that the price must be in money or its equivalent, the price in lease may be in money or in fruits or in some other useful things. It may even be in some other prestation.

A lease of things during the lifetime of one of the parties is considered valid. When the lease is for such time as the lessor or lessee may please, it is considered as one for lofe, ending upon the death of the party who could have terminated the contract. BEYOND 99 YEARS

When it consists in fruits or products, it may be a determinate or fixed quantity or an aliquot part or percentage of the produce of the tenement. It may be variable at different periods within the duration of the lease.

Our Code, allows leases of property for more than 99 years. According to Sen. Tolentino, a lease made for more than 99 years shall be considered as terminated after the end of 99 years. After that period, it will be a lease for an indeterminate term.

When the price consists of a certain percentage of the fruits obtaining from the thing, the contract is to be regarded as a tenancy contract which is generally regarded as an important variation of the contract of lease. But under our law, land tenancy on shares is regarded more as a partnership than as a lease contract.

LEASE OF MOVABLES

Amount of rent The price of lease must be serious or substantial. It should not be so insignificant as to indicate an intention of liberality on the part of the owner; otherwise, the contract would not be a lease but a commodatum. The price must be determined by the parties or at least susceptible fo determination under the contract. If the parties are not able to fix the price, the contract is absolutely VOID.

Code makes no special provisions for the lease of movables. In the absence of special law, the provisions of the NCC are applicable to leases of personal property. ARTICLE 1644. In the lease of work or service, one of the parties binds himself to execute a piece of work or to render to the other some service for a price certain, but the relation of principal and agent does not exist between them. (1544a) CONTRACT FOR WORK By such contract, one of the parties binds himself to produce a result of work or labor and the other party to pay a remuneration.

INCREASES OF RENT

The contract of surgeon to make an operation, that of an artist to give a concert and that of a contractor to construct a building are contracts for work.

Where there is no statute fixing a ceiling on rentals, the landowner has a right to demand an increase thereof upon the expiration of the contract.

LEASE OF SERVICES

What are the factors in determining reasonableness of rental increases of buildings? A: Location of the apartment incluing the neighborhood; The area per floor or storey; Number of rooms, bedrooms, kitchen, closet, facilites provided therefor; Description of the buildig, its type and construction as well as the age of the building. PERIOD OF LEASE The law excludes perpetual lease. There must always be a period which may be definite or indefinite. When the period is indefinite, and the thing leased is a rural land, article 1682 shall apply. If it is a rural land, article 1687 governs. Otherwise, these 2 articles should be applied by analogy. In principle, if the thing is fruit-producing, article 1682 should govern and if it is not fruit-producing, article 1687 should be applied.

By such contract, one of the parties binds himself to render some service that is his own activity or labor and the other party binds himself to pay some remuneration. The party obligated to render service does not lease his person or his power or energy for work but a free activity within the limits set forth by by the contract and by good faith. Distinguish between lease and contract of work.

LEASE OF SERVICE (LOCATIO OPERARUM) The object of the contract is the serivce itslef and not the result whoch it produces e.g: contract of carpenter Even if the result intended is not attained, without fault on the part of the parties, the remuneration is due for the services remdered. The direct object of the contract is the lessor’s labor; the acts in which such labor consists,

LEASE OF WORK (LOCATIO OPERIS) The result is the object to be delivered without considering the labor that produces it. e.g: contract of architect to build a house for another The risk is upon the promissor so that if the result promised is not accomplished he is not entitled to demand the compensation The lessor’s labor although an important factor is not the direct object of the contract of the

NOTES ON PARTNERSHIP AGENCY, TRUSTS, LEASE AND PRESCRIPTION Kenneth and King C. Hizon _________________________________________________________________________________________________________________

performed for the benefit of the contract not is immediately lessee are taken into taken into consideration; consideration immediately The object which the parties consider is not the labor but its result, the complete and finsihed work Law does not speak of risks for The price is stipulated taking the workmen never assumes into consideration not the labor them; workmen is paid for the but the fimished work; the price labor he performs, whatwever is not payable until the work is the result of the work assignes completed and accepted, amd to him, and even should it be the same cammot lawfully be destroyed by accident demanded if the work is destroyed before it is finished and accepted. PROFESSIONALS NOTE: These are leases of services.

CHAPTER 2 Lease of Rural and Urban Lands SECTION 1 General Provisions Q: Distinguish between rural and urban tenements. If the principal purpose is for habitation, it is urban, even if it has gardens or orchards; and if the principal purpose is the direct exploitation of the soil, it is rural even if ut has some structures thereon. Article 1646. The persons disqualified to buy referred to in articles 1490 and 1491, are also disqualified to become lessees of the things mentioned therein. (n) CAPACITY OF FOREINERS

This may consist of money or some other thing or of fixed sum or certain percentage of the product of the work.

Notwithstanding the contitutional prohibition on foreigners to acquire lands in the Philippines, they can lease real or immovable property in the Philippines because Art. 1491 refers only to those persons who, by special relations they have with the property should not be allowed to purchase.

Although no fixed amount may have been determiend as the consideration for the contract of hiring, the contract is nevertheless valid if the amiunt of the implied compensarion can be determined by custom or frequent use in the place where the services were rendered.

Article 1647. If a lease is to be recorded in the Registry of Property, the following persons cannot constitute the same without proper authority: the husband with respect to the wife's paraphernal real estate, the father or guardian as to the property of the minor or ward, and the manager without special power. (1548a)

Hence, where there has been fixed for the services rendered by a physician to a sick person the latter is obliged to pay to the former a reasonable and equitable compensation, the amount of which shall be fixed by the courts according to the uses and customs of the place and the evidence in the case, with or without the testimony of experts.

EFFECT OF WANT OF SPECIAL POWER

COMPENSATION

ARTICLE 1645. Consumable goods cannot be the subject matter of a contract of lease, except when they are merely to be exhibited or when they are accessory to an industrial establishment. (1545a) LEASE OF CONSUMMABLE GOODS GR: Consumable goods cannot be the subject matter of a contract of lease. XPNs: Lease of consumable property, not for the purpose of consuming it but for purposes of display or advertising such as wine to be placed in a showcase of a store but not to be drunk. This is known as ad pompam et ostentationem. Lease of consumables which constitute accessories in the lease of an industrial establishment such as the coal in a factory.

Under the NCC, the husband with respect to the property of his wife, the father and guardian with respect to the property of the child or minor, and an administrator with respect to property under his administration, cannot lease without special power, if the lease is to be recorded in the Registry of Property. Hence, a lease executed by said persons is valid, if the lease is not to be recorded in the registry even withiut special power. But if the lease of real property is to be for a period or more than 1 year, par. 8 of Art. 1878 of the new Code requires a special power of attorney, irrespective of whether the lease will be recorded or not. It is submitted that this requirement applies to the persons mentioned in this article. MANAGER UNDER THE NEW CODE: Applies to a judicial administrator, an administrator of a deceased’s property, as well as one of conjugal property. It also applies to apply to the administrator or manager of property owned in common and to an administrator of patrimonial or private property of the State. Article 1648. Every lease of real estate may be recorded in the Registry of Property. Unless a lease is recorded, it shall not be binding upon third persons. (1549a) LEASE IS A PERSONAL RIGHT: Lease is a personal right although its inscription in the Registry of Property gives it a certain effect against rd 3 person; but this does not modify the nature of the juridical relation because the lease right has a life of its own independent of the registration. The rights of the lessee are not altered by its rd registration; they are merely guaranteed as against 3 persons.

NOTES ON PARTNERSHIP AGENCY, TRUSTS, LEASE AND PRESCRIPTION Kenneth and King C. Hizon _________________________________________________________________________________________________________________

GR: Writ of possession is issuable in foreclosure of mortgage, despite possessesion of a lessee of the premises and the lease has not yet terminated. Exceptions are where the lease had been registered or prior knowledge of the mortgagee of the existence and duration of the lease. EFFECT OF ACTUAL NOTICE: Where the lesse’s contract of lease with the former owner was not recorded on the title, said contract cannot bind the purchaser. But where a purchaser of land at the time of the purchase has full knowledge of the fact that the land has been leased to a third person and is informed of the terms of such lease, he is bound to respect said lease, although it is not entered upon the certificate of title. DELIVERY OF TITLE: The landowner may be compelled by the court to deliver the certificate of title to the lessee so that the lease can be recorded therein. Article 1649. The lessee cannot assign the lease without the consent of the lessor, unless there is a stipulation to the contrary. (n) ASSIGNMENT OF LEASE: The assignment of the lease by the lessee would involve the transfer, not only of rights but also of obligations; hence, the consent of the lessor is necessary. It constitutes novation by a substitution of the person of one of the parties. The assignee becomes the lessee of the property by assignment, entitled to all the rights of a lessee, and said rights are enforceable only against the owners of the property leased, and not against the assignors of the lease. TRANSFER OF RIGHTS: A mere transfer of rights of the lessee, and not of the contract itself, would not require the lessor’s consent, unless there is an express stipulation to the contrary. ASSIGNMENT OF THE LEASE v. SUBLEASE ASSIGNMENT OF THE LEASE A transfer of a third person of the rights and obligations arising from the lease contract In fact, a sale of the lessee’s rights, and when the lessor gives his consent to it, the original lessee is released from his obligations under the contract The personality of the original lessee disappears and there only remains the juridical relation between the lessor and the assignee, who becomes the new lessee There is a succession of particular title to one contract lease

SUBLEASE Merely another contract of lease, where the original lease becomes in turn a lessor Even when the lessor consents to the sublease, the original lease contract subsists and is binding on the lessee. There is a juxtaposition of 2 leases which are 2 distinct juridical relations although related to each other

Sublessee does not have any direct action against the lessor on the contract with the lessee, or vice-versa

Article 1650. When in the contract of lease of things there is no express prohibition, the lessee may sublet the thing leased, in whole or in part, without prejudice to his responsibility for the performance of the contract toward the lessor. (1550)

GR: The power to sublease XPN: Where there is an express prohibition NOTE: The prohibition, to be express, must be stated or declared positively, in clear and direct language. It cannot be left to inferences or implication. The term of the sublease, however, cannot exceed that of the lease, and so the sublease terminates upon the termination of the lease. REMEDY: When the lessee subleases the property inspite of a prohibition to do so, he violates the contract, and the lessor can ask for rescission and damages, or damages only, unnder Art. 1659. WHEN DOES VIOLATION TAKE PLACE: Not upon the execution of the contract of sublease but when the lessee places the thing at the disposal of the sublessee. The lessee cannot justify the breach of contract by proof that the sublease is solvent and of good standing. Article 1651. Without prejudice to his obligation toward the sublessor, the sublessee is bound to the lessor for all acts which refer to the use and preservation of the thing leased in the manner stipulated between the lessor and the lessee. (1551) LIABILITY OF LESSOR TO SUBLEASE: The lessor is liable to the lessee for such damages as may be caused to the latter by reason of breach of the contract by the lessor, but is not directly liable to the sublessee, whose damages are included in whatvever damages the lessee may recover from the lessor, said lease, as sublessor, being the one directly liable to the sublessee. Article 1652. The sublessee is subsidiarily liable to the lessor for any rent due from the lessee. However, the sublessee shall not be responsible beyond the amount of rent due from him, in accordance with the terms of the sublease, at the time of the extrajudicial demand by the lessor. Payments of rent in advance by the sublessee shall be deemed not to have been made, so far as the lessor's claim is concerned, unless said payments were effected in virtue of the custom of the place. (1552a) OWNER’S DEMAND ON SUBLESSEE TO PAY: It does not exempt the latter from his obligation to pay the sublessor (lessee) the rents which he failed to pay the sublessor. This article does not annul the contractual relation between the lessee and sublessee, but simply helps the owner of the property to collect the rentals of the same. ND

RATIO FOR 2 PAR.: It is a precaution to avoid collusion between the lessee and the sublessee, because with a supposed payment of rents in advance by the sublessee and the insolvency of the lessee, the lessor’s rights would be prejudiced. TERMINATION OF SUBLEASE Under Art. 1606 of the said Code, when the lease ceases, the sublease is also terminated, but when the extinguishment of the

NOTES ON PARTNERSHIP AGENCY, TRUSTS, LEASE AND PRESCRIPTION Kenneth and King C. Hizon _________________________________________________________________________________________________________________

lease is due to non-payment of rents by the lessee, the sublease may maintain the contract by complying with what is incumbent upon the lessee. Under Art. 1607, the termination of the lease by confusion or merger in the rights of lessor and lesee, does not terminate the sublease, because the sublease is an independent contract and not merely an accessory to the original lease. EJECTMENT OF LESSEE: A judgment of eviction against a lessee affets his sublessees, even if the latter are not sued in the ejectment case. The subkessees can only assert such right of possession as could have been granted them by their sublessors, their right of possession depending entirely upon that of the latter. Article 1653. The provisions governing warranty, contained in the Title on Sales, shall be applicable to the contract of lease. In the cases where the return of the price is required, reduction shall be made in proportion to the time during which the lessee enjoyed the thing. (1553) WARRANTY OF LESSOR: The warranties implied in contracts of purchase and sale are also implied in contracts of lease. Under Arts. 1561 and 1566, the lessor is liable for the warranty of the thing leased against any hidden defects it may have, even when unknown to said lessor, but this liability for warranty of the thing leased does not amount to an obligation to indemnify the tenant for damages, which is only to be allowed when there is proof that the lessor acted with fraud amd in bad faith by concealing the defect in the thing leased and in not revealinhg it to the lessee.

SECTION 2 Rights and Obligations of the Lessor and the Lessee Article 1654. The lessor is obliged: To deliver the thing which is the object of the contract in such a condition as to render it fit for the use intended; To make on the same during the lease all the necessary repairs in order to keep it suitable for the use to which it has been devoted, unless there is a stipulation to the contrary; To maintain the lessee in the peaceful and adequate enjoyment of the lease for the entire duration of the contract. (1554a) DELIVERY OF PROPERTY: When a lessee rents a building which turns out, however, to be occupied by another person, and the former cannot obtain possession, his (lessee’s) cause of action is against the lessor for breach of contract in that the latter violated the obligation of delivering to him the peaceful possession of the leased premises. CONDITION FOR USED INTENDED: The thing need not be in a condition that will satisfty every whim or caprice of the lessee. It is enough that it can be used by him from the moment of delivery. The parties may validly stipulate that the thingh will be delivered in the condition in which it might be at the time of perfectioon of the contract.

DUTY TO MAKE REPAIRS: Since the lessor is bound to deliver and keep the thing suitable for the use intended, he must remedy all defects which impede or impair such use, whether such defects existed before the delivery or came into existence later. Repairs does not include reconstruction. WAIVER: The lessee may, expressly or tacitly waive the right to repairs to keep the thing suitable for the use intended, or to particular kinds of repairs, in which case, the lessor is relieved of his duty to make such repairs. A stipiulation that the thing shall be delivered to and returned by the lessee in the condition in which it is at the time, is a tacit waiver of repairs. LIABILITY: If the lessor, upon formal notification by the lessee to make the necessary repairs undertook and completed the repairs, the lessee has no right to cancel the lease contract for its unexpired term, in the absence of any provision in the contract to the contrary. It is only when the owner fails to perform his duty after due notice, that the action would lie. PEACEFUL, ADEQUATE POSSESSION: It is the duty of the lessor to place the lessee in legal possession of the premises and to maintain him in the peaceful possesison of the property during the entire term of lease. The non-fulfillment by the lessor of this obligation, as when his nonpayment of the land tax results in the eviction of the lessee, releases the ;essee from the obligation to pay what is stipulated in the contract from the date he ceased to occupy the premises. The duty to maintain the lessee in the peaceful and adequate enjoyment of the lease for the duration of the contract is merely a warranty by the lessor that the lessee shall not be disturbed in his legal, not physical possession. Article 1655. If the thing leased is totally destroyed by a fortuitous event, the lease is extinguished. If the destruction is partial, the lessee may choose between a proportional reduction of the rent and a rescission of the lease. (n) SCOPE OF THIS ARTICLE: This article refers to destruction, total or partial, and to the deteriorations or damages, which must be repaired by the lessor under Art. 1654, par. (2). In case of destruction, therefore, Art. 1654 is not applicable, the present article governs, and under it the lessee is not entitled to ask that the thing lost be reconstructed totally or partially by the lessor. This is the rule even when the thing is insured and the lessor has recovered on the policy. NOTE: The total destruction of a building, a room of which is leased by a lessee, terminates the latter’s lease. PARTIAL DESTRUCTION: The lessee may choose between proportional reduction of rents and rescission of the lease. The election is given by law to the lessee, not to the lessor. Once the choice of the lessee has been accepted by the lessor, however, the former cannot change it, because it becomes binding on both. If the reductiion of rent is chosen, the reduction retroacts to the moment of partial destruction.

NOTES ON PARTNERSHIP AGENCY, TRUSTS, LEASE AND PRESCRIPTION Kenneth and King C. Hizon _________________________________________________________________________________________________________________

It is submitted that rescission will be allowed by the court only whe the destruction is substantial; but if it is insignifant, only a proportional reduction of rent will be decreed. Article 1656. The lessor of a business or industrial establishment may continue engaging in the same business or industry to which the lessee devotes the thing leased, unless there is a stipulation to the contrary. (n) NOTE: When the lessor leases a part of a building for commercial purposes, he may use the other parts, or lease them to others, for the same purposes, unless there is a stipulation to the contrary. The lessor warrants only the peaceful and adequate enjoyment of the lease; he does not warrant the successful results of the business of the lessee in the premises. Article 1657. The lessee is obliged: To pay the price of the lease according to the terms stipulated; To use the thing leased as a diligent father of a family, devoting it to the use stipulated; and in the absence of stipulation, to that which may be inferred from the nature of the thing leased, according to the custom of the place;

ILLICIT USE OF THE THING: The use of the thing for an illicit purpose invalidates the contract. If such use was stipulated, no action can be maintained to enforce the contract, which shall be absolutely void. If it was stipulated, but the lessee later devotes the thing to such illicit use, such as when he uses it for gambling or prostitution, the lessor may demand the termination of the contract. USE INFERRED FROM THE NATURE OF THINGS: When a thing by its nature is susecptible of various uses, the lessee may use it for any of the purposes for which it may be suitable. The lessee need not to limit himself to the use to which the thing was devoted at the time of the lease. NOTE: When the lease is for a commercial establishment dedicated to a particular business, such as a bakery or a grocery, the lessee cannot change the pupose of such establishment. Article 1658. The lessee may suspend the payment of the rent in case the lessor fails to make the necessary repairs or to maintain the lessee in peaceful and adequate enjoyment of the property leased. (n) NOTE: A tenant is released from the obligation to pay rents from the time he is unlawfully dispossessed.

To pay expenses for the deed of lease. (1555) PAYMENT OF RENT The obligation imposed upon the lessee to pay rent in the manner agreed upon arises only where the contract has been actually carried into effect by the delivery of the things leased to the lessee for the purposes stipulated in the contract. Where the lessor has refused to accept the rent being paid by the lessee, the latter should make a monthly tender of payment and notice of consignation for the monthly rentals. WHO FIXES THE RENT: Only the owner has the right to fix the rent. The court cannot determine the rent and compel the lessor or owner to conform thereto and allow the lessee to occupy the premises on the basis of the rent fixed by it. If the lessee disagrees with the rent fixed by the lessor, his duty is to vacate the premises; he has absolutely no right to have the court fix the rent and continue occupyingh the premises pending judicial determination of said rents. INCREASE AND DECREASE OF RENTS: The owner of leased property ha no absolute right to increase the rents. Where the ground relied upon for the increase of rent is the increase in assessment of the property, the rent will be increased in the proportion of the increase in assessment. NOTE: A devaluation or depreciation of the currency justifies increase in rentals. FAILURE TO PAY; INTEREST The tenant who fails to pay the rent, in the absence of some agreement to the contrary, will entitle the lessor to evict the tenant and recover the unpaid rent; and in addition to the rent due, the tenant is liable for the accrued legal interest thereon at the rate of 6 per cent per annum.

FORCE MAJEURE: If force majeure or fortuitous event deprives the lessee of the use or enjoyment of the property, the situation would be similar to total or partial destruction of the property, governed by Art. 1655. The lessee may ask for the rescission of the contract, or the suspension of the payment of rents during the period of interruption. Article 1659. If the lessor or the lessee should not comply with the obligations set forth in articles 1654 and 1657, the aggrieved party may ask for the rescission of the contract and indemnification for damages, or only the latter, allowing the contract to remain in force. (1556) ALRTERNATIVE REMEDIES Upon failure of the lessee to pay the stipulated rent at the time agreed upon, the lessor may elect between the remedies of: Performance Resolution of the lease contract NOTE: In either case, the lessee is entitled to such damages as are appropriate to the particular remedy chosen, but may not, upon resolution of the contract, recover damages that are appropriate only where performance is demanded. Where both parties defaulted in the performance of their corresponding duties, but it could not be determined with definiteness who of them committed the first infraction of the terms of the contract, the parties are in pari delicto and the contract is deemed extinguished, with the parties suffering their respective losses. RESCISSION OF CONTRACT Where the lessee, in possession of land, fails to pay on time the prooper rents, the lessor has a right to rescind the contract, recover the unpaid rents and eject the tenant from the land.

NOTES ON PARTNERSHIP AGENCY, TRUSTS, LEASE AND PRESCRIPTION Kenneth and King C. Hizon _________________________________________________________________________________________________________________

A lessor may seek rescission of lease contract and ejectment of lessee simultaneously in a single action for illegal detainer. Where rescission is the action taken, the rule is that both demands to pay rent and to vacate are necessary to make a lessee a deforciant in order that an ejectment suit may be filed. Payment of the arrearages in rental after demand to pay and to vacate does not extinguish the cause of action for ejectment. NOTE: Rescission will not be permitted for a slight or casual breach of the contract, but only for such breaches as are so substantial and fundamental as to defeat the object of the parties in making the agreement. Neither can rescission be availed of by the wrongdoer, because the same is a remedy granted only to the injured party. NECESSITY OF JUDICIAL ACTION: A contract of lease is a bilateral one and should its resolution be sought it cannot be decided by one party alone. A judicial action is necessary. ARTICLE 1191 and ARTICLE 1659 COMPARED

CHANGES IN FORM AND SUBSTANCE: The lessee of a building under a long term lease has the right to make such changes as the business established therein requires, provided thaty neither the value nor the solidity of the building is impaired. Article 1662. If during the lease it should become necessary to make some urgent repairs upon the thing leased, which cannot be deferred until the termination of the lease, the lessee is obliged to tolerate the work, although it may be very annoying to him, and although during the same, he may be deprived of a part of the premises. If the repairs last more than forty days the rent shall be reduced in proportion to the time - including the first forty days - and the part of the property of which the lessee has been deprived. When the work is of such a nature that the portion which the lessee and his family need for their dwelling becomes uninhabitable, he may rescind the contract if the main purpose of the lease is to provide a dwelling place for the lessee. (1558a) URGENT REPAIRS

ARTICLE 1191 ARTICLE 1659 Courts have the discretion to No such discretion is granted to refuse the resolution or the courts rescission of contracts in their judgment the circumstances of the case warrant the fixing of a term within which the obligor may fulfill or perform his overdue obligation RECOVERY OF DAMAGES An action which has for its object the recovery of damages is quite different from an action for ejectment, which has for its purpose the recovery of the possession of the leased property. A breach of rental contract entitles the other party to demand imdemnity for damages. But an action for damages against an occupant of buildings, who unlawfully detains the same, will not lie in favor of a lessee of said buildings who has never entered into possession under his lease, because there is no privity between the parties. ENFORCEMENT OF LEASE Where the lessor resumes possession of his leased property for its protection after the lessee has abandoned the same, the lessor has still the right, if he elects, to hold the lessee responsible under his contract until the termination of the lease. Article 1660. If a dwelling place or any other building intended for human habitation is in such a condition that its use brings imminent and serious danger to life or health, the lessee may terminate the lease at once by notifying the lessor, even if at the time the contract was perfected the former knew of the dangerous condition or waived the right to rescind the lease on account of this condition. (n) Article 1661. The lessor cannot alter the form of the thing leased in such a way as to impair the use to which the thing is devoted under the terms of the lease. (1557a)

A lessor cannot do anything which may disturb the lessee in the enjoyment of the thing leased. But he cannot be obliged to leave the thing to perish for lack of repairs during the term of the lease. So when urgent repairs are required, the lesssee will have to bear the inconvenience they may cause. The lessor has the burden of proving the urgency of the repair; if they are not really urgent, he will be liable for damages suffered by the lessor. NOTE: Modifications or improvements which the lessor may want to make on the thing prior to the expiration of the lease, so as to insure another lease, cannot be considered as urgent repairs. REMEDIES OF LESSEE If the repairs last more than 40 days, the lessee can ask for a proportionate reduction of rents. If the portion used by the lessee becomes uninhabitable, even for a short time, he can ask for rescission of the contract; but he cannot ask for the reduction of rents in this case if the repairs do not last more than 40 days. If the repars do not last for more than 40 days, and they do not make the portion used by the lessee as adwelling uninhabitable, he has no right at all to rescission, reduction of rents, or damages. Article 1663. The lessee is obliged to bring to the knowledge of the proprietor, within the shortest possible time, every usurpation or untoward act which any third person may have committed or may be openly preparing to carry out upon the thing leased. He is also obliged to advise the owner, with the same urgency, of the need of all repairs included in No. 2 of article 1654. In both cases the lessee shall be liable for the damages which, through his negligence, may be suffered by the proprietor. If the lessor fails to make urgent repairs, the lessee, in order to avoid an imminent danger, may order the repairs at the lessor's cost. (1559a)

NOTES ON PARTNERSHIP AGENCY, TRUSTS, LEASE AND PRESCRIPTION Kenneth and King C. Hizon _________________________________________________________________________________________________________________

USURPATION OR UNTOWARD ACT; PURPOSE OF NOTICE The purpose of requiring the lessee to bring to the knowledge of the owner of the property leased every usurpation and untoward act which any third person may have committed or may be openly preparing to carry out upon the thing leased, is to enable the owner to maintain his civil possession, by suit if necessary.

Disturbance in Fact vs. Disturbance in Law DISTURBANCE IN FACT Takes place when the enjoyment of the lease is physically reduced or impeded, the intruder not claiming any right to the thing or to its enjoyment.

DISTURBANCE IN LAW Takes place when by jurdicial or extra-judicial acts of third person questions the right of the lessee to enjoy the property or the lease, and claims it for himself by virtue of a right pertaining to him. The lessor is liable to the lessee for the disturbance in the latter’s possession

RIGHT OF OWNER-LESSOR: Upon ouster of the tenant the owner may commence summary proceedings to recover possession. And summary possessory action will lie against him who disturbs another in his possession whether acting in his own behalf or under direction of another.

The lessor is not liable to the lessee, who has a direct action against the intruder

The owner is entitled to defend his property from any aggression in order to prevent serious injury to his interests, which would happen if this was left to the tenant who has no interests and has no real right in the property leased.

Article 1665. The lessee shall return the thing leased, upon the termination of the lease, as he received it, save what has been lost or impaired by the lapse of time, or by ordinary wear and tear, or from an inevitable cause. (1561a)

NOTICE OF NEED OF REPAIRS: As during the peiod of the lease, the lessee maintains a relation more direct and proximate to the thing leased, he has the obligation to notify the lessor of the necessity of making the repairs for he cannot allege that he does not know them. It is not the duty of the lessor to constantly inspect the premises to see if there are repairs to be made.

NOTE: At the expiration of the lease, the lessee is obliged to vacate and return the premises leased—the whole of the thing subject of thr lease and not only a part thereof—to the lessor, the owner of the land has the right to cause the building erected on his estate to be taken down without incurring any obligation to return the estate in the same condition in which he received it, unless an agreement was executed prior to the construction of the building.

The lessee, however, is not entitled to reimbursement for the costs of repairs and improvements undertaken by him on the leased premises without the lessor’s knowledge and consent, which was required in their lease contract, which also stipulated that, even when the lessor had previously comsented thereto, they shall be for the sole account of the tenant. OWNER FAILS TO MAKE REPAIRS The remedy of tenants where lessor refuses to make an urgent repair of the leased premises is not to suspend rental payments but to make the urgent repair themselves and charge the costs thereof to lessor. Article 1664. The lessor is not obliged to answer for a mere act of trespass which a third person may cause on the use of the thing leased; but the lessee shall have a direct action against the intruder. There is a mere act of trespass when the third person claims no right whatever. (1560a) TRESASS IN FACT If the act of trespass is not accompanied or preceded by anything which reveals a really juridic intention on the part of the trespasser, in such wise that the lessee can only distinguish the material fact, stripped of all legal form or reason, the trespass is in fact only (de mero hecho). The lessor is not liable for trespass of this kind, although he is liable for trespasses in law (de derecho), pursuant to par. 3 of Art. 1654. Trespass in fact affects only the use of the property leased, and therefore, it is incumbent upon the lessee to repel it.

NOTE: The expenses incurred by the lessee in placing the thing at the disposal of the lessor, cannot be charged against the lessor, because it is his obligation to return the subject matter of the lease. HOW RETURN MADE: This article does not, and no other legal provision does, specify the manner in which the possession of leased property should be returned. By its very nature, the relinquishment of possession need no be accomplished by physical delivery or any other prescribed form. In order to return the thing leased to the lessor, however, it is not enough that the lessee vacates it. It is necessary that he place the thing at the disposal of the lessor, so that the latter can receive it without any obstacle. He must return the keys and leave no sublessees or other persons in the property; otherwise, he shall continue to be liable for the payment of rents. EFFECT OF LESSOR’S LENIENCY: The owner may allow a defaulting tenant to remain in the rented property onee month, one year or even more, and that consent, no matter how long it may last, makes the tenant’s possession lawful. Article 1666. In the absence of a statement concerning the condition of the thing at the time the lease was constituted, the law presumes that the lessee received it in good condition, unless there is proof to the contrary. (1562) PRESUMPTION: In the absence of proof that when the lessees accepted the building leased, the same was uninhabited and inadequate for the use for which it was leased, the legal presumption that the lessee received the thing leased in good condition applies. Article 1667. The lessee is responsible for the deterioration or loss of the thing leased, unless he proves that it took place without his

NOTES ON PARTNERSHIP AGENCY, TRUSTS, LEASE AND PRESCRIPTION Kenneth and King C. Hizon _________________________________________________________________________________________________________________

fault. This burden of proof on the lessee does not apply when the destruction is due to earthquake, flood, storm or other natural calamity. (1563a)

Continued possession of the premises by the lessee after the expiration of the period of the lease, creates an implied new lease, the period of which is established nu Art. 1687 of the NCC.

DESTRUCTION OF PROPERTY: When leased property is destroyed by fire, there arises a presumption against the lessee, which makes him responsible to the owner for the resulting damages, in the absence of proof that the loss happened without the lessee’s fault.

TERMINATION OF THE LEASE

NOTE: Under the contractual stipulation whereby the lessee undertakes to make the necessary repairs on the building leased, failure by the lessee to make the repairs which causes the destruction of the building renders him liable to the lessor. Article 1668. The lessee is liable for any deterioration caused by members of his household and by guests and visitors. (1564a) rd

BASIS OF LIABILITY: The liability of the lessee for the acts of 3 persons is based on the contract itself, under which the lessee has assumed the custody of the thing of which the lessor has been dispossessed. There is no need of proving that he was negligent in selecting and supervising his household helpers, visitors and guests. He is liable from the mere fact of having allowed them into the immovable leased. Article 1669. If the lease was made for a determinate time, it ceases upon the day fixed, without the need of a demand. (1565) LEASE FOR DEFINITE PERIOD

Where the lease is for a definite period, the tenancy expires with the term and no notice to quite is necessary. Upon the expiration of the term, the tenant thenceforth becomes a deforciant withholding the property unlawfully. NOTE: The court is completely devoid of authority to extend the lease after the period stipulated has expired. INCREASE OF RENT: At the end of the period of the lease, the landlord has the right to increase the rent, and the tenant has the option to pay the new rent or to vacate the premises in order to avoid paying the higher rent. If he agrees to pay the new rent, he cannot be ejected until he defaults in said obligation. EXTENSION: When a contract contains a provision that the term of the lease may be extended for a further similar period, the extension is to be understood as having been promised to the lessee, and the latter, without need of further consent of the lessor, (unless he breaks the terms of the contract), can continue the lease and occupy the premises on notice to the lessor. A stipulation that the lease is extendible for 6 years “agreed upon by both parties” gives to the lessee the right to take additional period or to quit upon the expiration of the term. In construing provisions of this character the tenant is favored, in case of uncertainty in the term of the lease, and not the landlord. Stipulatioons for the extension of the period of lease at the exclusive option of the lessee, are valid. A covenant to renew a lease which makes no provision as to the terms of the renewal or extension implies an extension or renewal upon the same terms as provided in the original lease contract.

The lease may terminate: By the expiration of the period By the total loss of the thing By the resolution of the right of the lessor, such as when the lessor is a usufructuary and the usufruct is terminated By the will of the purchaser or transferee of the thing By rescission due to non-performance of the obligation of one of the parties NOTE: An agreement of the parties that either of them may terminate tge lease on a 30-dat notice is valid. When the agreement between the lessor and the lessee is that the lease is only temporary may be terminated when the former needs it for his business or when his children need the same, the lease is terminated when the condition happens and the lessee is notified accordingly. Article 1670. If at the end of the contract the lessee should continue enjoying the thing leased for fifteen days with the acquiescence of the lessor, and unless a notice to the contrary by either party has previously been given, it is understood that there is an implied new lease, not for the period of the original contract, but for the time established in articles 1682 and 1687. The other terms of the original contract shall be revived. (1566a) NOTE: The 15-day clause of this article is not applicable to successive renewals under Art. 1687. Thus, the lease of a dwelling house at a monthly rentak terminable upon 30 days’ written notice terminates at the expiration of thirty days from receipt of such notice, whether or not such termination coincides, with a day on which rent is payable. TACIT RENEWAL DURATION: When the tenant, with the acquiesence of the landlord, holds over after the expiration of the term the tacit renewal of the lease is not for the same term of that of the original contract but for the periods established by Arts. 1682-1687, according to the character of the property and the periods of payment of the rent. However, there can be no renewal, if the lessor, before the expiration of the term, gives the lease a notice to vacate. NOTE: Implied new lease revives only those terms of the original contract germane to the lesse’s right of enjoyment of possession of leased premises. Special agreements foreign to right of occupancy are excluded. Article 1671. If the lessee continues enjoying the thing after the expiration of the contract, over the lessor's objection, the former shall be subject to the responsibilities of a possessor in bad faith. (n) Article 1672. In case of an implied new lease, the obligations contracted by a third person for the security of the principal contract shall cease with respect to the new lease. (1567) Article 1673. The lessor may judicially eject the lessee for any of the following causes:

NOTES ON PARTNERSHIP AGENCY, TRUSTS, LEASE AND PRESCRIPTION Kenneth and King C. Hizon _________________________________________________________________________________________________________________

When the period agreed upon, or that which is fixed for the duration of leases under articles 1682 and 1687, has expired; Lack of payment of the price stipulated; Violation of any of the conditions agreed upon in the contract; When the lessee devotes the thing leased to any use or service not stipulated which causes the deterioration thereof; or if he does not observe the requirement in No. 2 of article 1657, as regards the use thereof. The ejectment of tenants of agricultural lands is governed by special laws. (1569a) TERMINATION OF PERIOD: Upon the termination of the period of lease, the lessor is entitled to recover possession and dispose of the leased property to another lessee. INCREASE OF RENT: Where after the notice of increased rental, the lessee elects to stay, he thereby merely assumes the obligation of paying the new rental, and could not be ejected until he defaults in said obligation. A lessor has the right to increase the rent from and after the expiration of the period of lease; and if the tenant thereafter remains in possession without agreeing to the increase, he is bound to pay the reasonable value of the use and occupation. REASONABLENESS OF RENT: It was held that the determination of what is to be paid for leasing municipal property lies within the power and discretion of the city or municipal board, and unless the ordinance passed by the board on the matter is ultra vires or clearly unreasonable, courts should not interfere with it.

action, upon failure of the lessee to comply with the terms and conditions of the contract, is valid and binding. Article 1674. In ejectment cases where an appeal is taken the remedy granted in article 539, second paragraph, shall also apply, if the higher court is satisfied that the lessee's appeal is frivolous or dilatory, or that the lessor's appeal is prima facie meritorious. The period of ten days referred to in said article shall be counted from the time the appeal is perfected. (n) SCOPE OF THE ARTICLE: The present article applies not only to the lease of lands, but also to the buildings standing thereon, on the principle that the accessory follows the principal. Prior physical possession by the plaintiff of the property in litigation in an unlawful detainer case is not indispensable for the issuance of the writ of preliminary mandatory injunctionn where said plaintiff is the vendee of the property. For the purpose of this article, it is enough that the plaintiff is the owner of the land and the defendant is in temporary occupancy thereof whether under a lease contract, or on mere tolerance or under a temporary permit. This article is applicable where after the termination of the lease contract, or the revocation of the permit, the lessee or occupant unlawflly prolongs his occupation of the premises. HIGHER COURT- The issuance of the writ of preliminary mandatpry injunction as authorized by the present article, in an ejectment case, is expressly vested in the appellate court, because the law employs the phrase “higher court” and it is the higher court with must satisffy itself that the appeal is either frivolous or dilatory, in the case of the lessee, or prima facie meritorious, in the case of the lessor. PERIOD OF 1O DAYS: The period of 10 days within which to file a petition for a writ of preliminary mandatory injunction should be counted from the date when the petitioning party is notified of the perfection of the appeal.

NON-PAYMENT OF RENT Mere failure to pay rents, or a breach of contract to pay rents, does not render the possession of the lessee per se unlawful. It is not the failure of the lessee to pay rents as agreed upon in a contract, but the failure of the lessee to pay rents after a demand therefor that entitles the lessor to bring an action of unlawful detainer. Failure or refusal of the lessor to receive the rent is not a valid defense in ejectment cases; in such instances the debtor-lessee must consign the amount due from him. VIOLATION OF CONTRACT: The landlord has the right to terminate a contract of lease under Art. 1673 of the NCC par. 3 which provides that the lessor may judicially eject the lessee for violaiton of any of the conditions agreed upon in the contract. The lessorsare not in law required to bring first an action for rescission, but could ask the court to do so and simultaneously seek the ejection of the lessee in a single action for illegal detainer. Definite or indefinite, the lessor has the right to terminate the contract of lease upon violation of its terms and conditions. EXTRAJUDICIAL REMEDY A stipulation in a lease contract authorizing the lessor to take possession of the leased premises, without resorting to judicial

Article 1675. Except in cases stated in article 1673, the lessee shall have a right to make use of the periods established in articles 1682 and 1687. (1570) Article 1676. The purchaser of a piece of land which is under a lease that is not recorded in the Registry of Property may terminate the lease, save when there is a stipulation to the contrary in the contract of sale, or when the purchaser knows of the existence of the lease. If the buyer makes use of this right, the lessee may demand that he be allowed to gather the fruits of the harvest which corresponds to the current agricultural year and that the vendor indemnify him for damages suffered. If the sale is fictitious, for the purpose of extinguishing the lease, the supposed vendee cannot make use of the right granted in the first paragraph of this article. The sale is presumed to be fictitious if at the time the supposed vendee demands the termination of the lease, the sale is not recorded in the Registry of Property. (1571a) SCOPE OF THIS ARTICLE: Although this article makes express reference only to sales, its intent and reason justify its application to any other form of alienation.

NOTES ON PARTNERSHIP AGENCY, TRUSTS, LEASE AND PRESCRIPTION Kenneth and King C. Hizon _________________________________________________________________________________________________________________

SALE OF LEASED PROPERTY; RIGHT OF VENDEE: A contract of lease of real property exeucted by the vendor, unless recorderd, ceases to have effect when the property is sold, in the absence of contrary agreement. The purchaser of said property is not bound by an unrecorded lease thereof which is not mentioned in the deed of conveyance. The new owner may terminate both the lease and any subleases made by the lessee. NOTE: The act of the new owner of giving notice of an increase of rent, when the original period has expired, constitutes a notice of termination of the original lease. Upon purchase of the leased property, the lessee must pay to the new owner, and if after due notice from the latter, he pays to the former owner may still recover the amount of rent from him. APPLICATION OF THIS ARTICLE: The provisions of the present article apply only to the leases for a fixed term, and not to those from month to month. Where the lease is on month to month basis, and the purchaser seeks to recover from the lease the property which said lessee has leased from the vendor, the purchaser’s right is not based onn the present article, but on his right as the owner or vendee to recover possession from a tenant holding-over after the termination of the right to hold possession. WHEN AVAILED OF: No special period for its exercise. It may be asserted at any time before the action prescribes. But when a new relation is created between the vendee and the lesee, thus, excluding that which existed between the vendor and the lessee,the vendee cannot avail himself of the right granted by this article. EFFECT OF ACTUAL NOTICE: A purchaser of land who has full knowledge of the fact that the land has been leased to a third person and is informef of the terms of such lease at the time of the purchase, is bound to respect said lease, allthough it is not tendered upon the certificate of title. The lease in effect become part of the contract of sale. But where land registered in the name of the landlord is subject to an existing lease not recorded on the title, and the terms of the lease are not known to a person dealing subsequently with the property, but who was informed that the lease was to terminate at a certain time, it was held that the latter’s knowledge that a lessee was in possession of the land was not sufficient to charge him with notice of the duration of the lease, which was longer than the period made known to him, for he had a right to rely on the certificate of title and was not bound to make further inquiries.

the lessee, reserving to the lessee only the right to gather the fruits of the crop corresponding to the current agricultural year. The lessee, however, may recover his damages from the vendor, his lessor. The right granted to a lessee to gather the fruits of the crop corresponding to the current agricultuaral year, does not extend to the gathering of fishers which require 2 years before they are of any commercial value. Article 1677. The purchaser in a sale with the right of redemption cannot make use of the power to eject the lessee until the end of the period for the redemption. (1572) SCOPE AND LIMITATION: The provision of this article is not applicable to a case where the vendor, on disposing of real property under the right of repurchase, continues nevertheless in possession thereof by virtue of a special agreement, not as owner, but as tenant of the purchaser by the payment of rent. The limitation contained in said article refers to the tenant or lessee who has contracted with the vendor and who has had no relation whatever with the purchaser under an agreement of redemption; such tenant is a third person with respect to said vendor and purchaser, because, if the vendor should by redemption recover property, the lessee would again be entitled to the enjoyment of the lease; wherefore, the limitation of the puchaser’s right is proper and just. VENODR AS LESSEE: But where the vendor remains in possession as a tenant, and he fails to pay the agreed rent, he may be evicted by the vendee even before the period of redemption has expired. After the title has been consolidated in the vendee, the vendor-lessee may also be ejected for breach of the lease agreement. Article 1678. If the lessee makes, in good faith, useful improvements which are suitable to the use for which the lease is intended, without altering the form or substance of the property leased, the lessor upon the termination of the lease shall pay the lessee one-half of the value of the improvements at that time. Should the lessor refuse to reimburse said amount, the lessee may remove the improvements, even though the principal thing may suffer damage thereby. He shall not, however, cause any more impairment upon the property leased than is necessary. With regard to ornamental expenses, the lessee shall not be entitled to any reimbursement, but he may remove the ornamental objects, provided no damage is caused to the principal thing, and the lessor does not choose to retain them by paying their value at the time the lease is extinguished. (n)

PURCHASER IN FORECLOSURE: When an immovable is mortgaged, the puchaser thereof in foreclosure proceedings is not bound to respect a lease which was recorded subsequent to yje registration of the mortgage.

Article 1679. If nothing has been stipulated concerning the place and the time for the payment of the lease, the provisions or article 1251 shall be observed as regards the place; and with respect to the time, the custom of the place shall be followed. (1574)

RARTIFICATION: The termination of the existing lease is optional to the vendee; if he does not make use of his right, the lease continues in force. The vendee may be barred from terminating the lease when he expressly accepts or ratifies it, or when he tacitly renounces his right to terminate it by the collection of rents under the lease contract or by other similar acts.

PLACE OF PAYMENT OF RENT: The rent should be paid in the place designated in the obligation. In the absence of an agreement between the parties as to the place of the payment, the rent is payable at the domicile of the lessees. And where the failure of the lessee to pay rent is attributable to the lessor’s omission or neglect to collect at his domicile, the same cannot be a ground for their ejectment.

RIGHT OF THE LESSEE TO GATHER FRUITS; RECOVER DAMAGES: The law grants the purchaser of a leased estate the right to terminate

NOTES ON PARTNERSHIP AGENCY, TRUSTS, LEASE AND PRESCRIPTION Kenneth and King C. Hizon _________________________________________________________________________________________________________________

SECTION 3 Special Provisions for Leases of Rural Lands Article 1680. The lessee shall have no right to a reduction of the rent on account of the sterility of the land leased, or by reason of the loss of fruits due to ordinary fortuitous events; but he shall have such right in case of the loss of more than one-half of the fruits through extraordinary and unforeseen fortuitous events, save always when there is a specific stipulation to the contrary. Extraordinary fortuitous events are understood to be: fire, war, pestilence, unusual flood, locusts, earthquake, or others which are uncommon, and which the contracting parties could not have reasonably foreseen. (1575)

Article 1683. The outgoing lessee shall allow the incoming lessee or the lessor the use of the premises and other means necessary for the preparatory labor for the following year; and, reciprocally, the incoming lessee or the lessor is under obligation to permit the outgoing lessee to do whatever may be necessary for the gathering or harvesting and utilization of the fruits, all in accordance with the custom of the place. (1578a) OWNERSHIP OF FRUITS: This article does not determine the ownership of the fruits existing on the tenement at the termination of the lease. It only requires the incoming lessee or lessor to permit the outgoing lessee to do whatever is necessary for the gathering or harvesting and enjoyment of the fruits in accordance with the customs of the place; this refers to the fruits which under the other provisiobs pertain to the lessee.

RIGHT TO REDUCTION Requisites: The land leased must be of rural character More than ½ of the fruits must have been lost The loss must have occurred through extraordinary and unforseen fortuitous event; and There must be no stipulation against the application of the article FORTUITOUS EVENT: Depradation of strangers is a fortuitous event which constitutes a justification for the reduction of rental due from the lessee. The violence of robbers though not independent of human will; and war, although dependent upon the will of the combatants; is caso fortuito. So is the will of a third person who prevents performance of the obligation. NOTE: Typhoons are not extra-ordinary fortuitous event events, under the present article, because in the Philippines, it cannot be said that they are uncommin and not be reasonably foreseen by the contracting parties. PERCENTAGE OF REDUCTION: The rent stipulated should be reduced in the same ration that the actual receipts are to the normal income obtainable from the leased tenement. XPN: Where by the terms of the contract of lease, the rent is fixed at an aliquot part of the crops, the tenant cannot demand a reduction on account of loss of more than ½ of the crop by fortuitous events, and the failure to deliver the stipulated proportion of the crop gathered entitles the landlord to evict the tenant. Article 1681. Neither does the lessee have any right to a reduction of the rent if the fruits are lost after they have been separated from their stalk, root or trunk. (1576) Article 1682. The lease of a piece of rural land, when its duration has not been fixed, is understood to have been for all the time necessary for the gathering of the fruits which the whole estate leased may yield in one year, or which it may yield once, although two or more years have to elapse for the purpose. (1577a) EFFECT OF IMPROVEMENTS MADE: The duration of a lease depends upon the stipulation in the contract of rental and cannot be affected by the more or less valuable improvements voluntarily made by the lessee upon the property.

Article 1684. Land tenancy on shares shall be governed by special laws, the stipulations of the parties, the provisions on partnership and by the customs of the place. (1579a) REQUISITES OF TENANCY SHARES: The parties are the landowner and the tenant The subject is agricultural land There is consent The purpose is agricultural production There is personal cultivation There is sharing of harvests AGRICULTURAL LAND- a fishpond is also an agricultural land. Where the land is officially classified and assessed as residential, it cannot be considered agricultural. Where the land is within the poblacion, the presumption is that is residential. Article 1685. The tenant on shares cannot be ejected except in cases specified by law. (n) SECTION 4 Special Provisions for the Lease of Urban Lands Article 1686. In default of a special stipulation, the custom of the place shall be observed with regard to the kind of repairs on urban property for which the lessor shall be liable. In case of doubt it is understood that the repairs are chargeable against him. (1580a) Article 1687. If the period for the lease has not been fixed, it is understood to be from year to year, if the rent agreed upon is annual; from month to month, if it is monthly; from week to week, if the rent is weekly; and from day to day, if the rent is to be paid daily. However, even though a monthly rent is paid, and no period for the lease has been set, the courts may fix a longer term for the lease after the lessee has occupied the premises for over one year. If the rent is weekly, the courts may likewise determine a longer period after the lessee has been in possession for over six months. In case of daily rent, the courts may also fix a longer period after the lessee has stayed in the place for over one month. (1581a) APPLICATION: This article refers to a “lessee”, i.e, one who has a contract of lease with the owner. It does not contemplate sublessees having no contractual relations with such owner, much less a mere occupant.

NOTES ON PARTNERSHIP AGENCY, TRUSTS, LEASE AND PRESCRIPTION Kenneth and King C. Hizon _________________________________________________________________________________________________________________

A tenancy from day to day, month to month, or year to year under this article may arise in either of 2 ways: If the parties say nothing in the contract of lease as to its duration and make no provision for its termination upon notice, the duration is determined by the agreement as to the period at which the rent is payable. If the tenant is permitted to commence a new period, there is a tacit renewal of the lease for a like term If at the expiration of a lease for a definite period, the tenant is permitted to hold over for 15 days, i.e., if by the terms of the lease the period of its duration was 5 years, for instance, and a monthly, quarterly, or yearly rental was reserved, and upon its expiration the tenant, with the acquiescence of the landlord, holds over for 15 days, this does not bring about a tacit renewal of the lease for another term of 5 years, but creates a tenancy, from month to month, quarter to quarter, or from year to year, as the case may be, governed thereafter, as to duration and renewal by this article. DURATION OF LEASE: Where the lease is for a definite period the tenancy expires with the term and no notice to quit is necessary. But when there is no agreement as to the duration of the lease and rent is paid monthly, it is understood that it shall terminate without necessity of special notice, upon the expiration of the term, even if there has been no violation of the contract, unless prior thereto, the extension of said term has been sought by appropriate action, and judgment, is eventually granted therein granting relief. A verbal contract of lease, however, without a definite period fixed, wherein the lessees have agreed to pay monthly rentals, should be considered as one existing from month to month, and beingh renewed by tacit approval of the parties, until the lessor signified his intention to terminate the lease. FIXING LONGER PERIOD: The court may fix a longer term for such the lease after the leasen has been in occupation of the premises for a certain time. The action in this respect is not in accordance with Art. 1197, but in accordance with the present article. This court merely gives the court discretion to extend the period of the lease. The discretionary power of the court to fix the duration of the contract contemplates of a situation where neither of the parties being at fault, the lessor decided to terminate the contract of lease. DURATION LEFT TO THE LESSEE: The present article fixing the legal terms for leases in which no conventional term is stipulated, has no application to a lease whose termination is expressly left to the will of the lessee. NOTE: Art. 1197 is not applicable, however, where the duration of the lease is left to the will of the lessor, because in a lease, the lessor is the creditor and the lessee the debtor. A stipulatioon authorizing the lessees to continue occupying the leased premises indefinitely as long as they should faithfully fulfill the obligation with respect to the payment of rentals, has been held invalid, since that would have leave to the sole and exclusive will of one of the contracting parties, the validity and fulfillment of the contract, within the meaning of Art. 1308.

Article 1688. When the lessor of a house, or part thereof, used as a dwelling for a family, or when the lessor of a store, or industrial establishment, also leases the furniture, the lease of the latter shall be deemed to be for the duration of the lease of the premises. (1582)

REFERENCE: TOLENTINO, ARTURO M., Commentaries and Jurisprudence on the Civil Code of the Philippines, Vol. V., Central Book Publishing, Co., Inc. 1991

NOTES ON PARTNERSHIP AGENCY, TRUSTS, LEASE AND PRESCRIPTION Kenneth and King C. Hizon _________________________________________________________________________________________________________________

TITLE V PRESCRIPTION CHAPTER 1 General Provisions Prescription is generally used with reference to acquisition of a right by the lapse of time. On the other hand, the word “limitation” as applied to actions under the common law, has reference to the time within which an action must be brought after the right of action has accrued. 2 KINDS OF PRESCRIPTIONS: The acquisition of a right by the lapse of time, known as acquisitive prescription or adverse possession and usucapcion The loss of a right of action by the lapse of time known as extinctive prescription or limitation of actions. Article 1106. By prescription, one acquires ownership and other real rights through the lapse of time in the manner and under the conditions laid down by law. In the same way, rights and conditions are lost by prescription. (1930a) BASIS OF PRESCRIPTION: By abandonment, negligence or carelessness, owners provided with the most perfect title may be deprived and dispossessed of their properties by usurpers who, by lapse of time specified by law, acquire the same by prescription. ACQUISITIVE PRESCRIPTION Acquisitive prescription is based on the assertion by a usurper of an adverse right for such a long time, uncontested by the true owner of the right, as to give the presumption that the latter has given up such right in favor of the former.

EXTINCTIVE PRESCRIPTION Based on the probability, born of experience, that the alleged right which accrued in the distant past never existed or has already been extinguished; or if it exists, the inconvenience caused by the lapse of time should be borne by the party negligent in the assertion of his right. Based on negligence or presumed abandonment by the owner of a right, whether patrimonial or remedial EFFECT OF ACQUISITIVE PRESCRIPTION Our law considers an obligation barred by extinctive prescription as a natural one, and the same consideration can be given to the duty to return the thing to its true owner after its has been acquired by prescription. Whatever is paid or delivered due to the promptings of conscience cannot be recovered. RETROACTIVITY OF PRESCRIPTION: The acquisition of ownership or other real rights through the prescription is retroactive; once the period is completed, the new owner is considered as having acquired the thing or right from the moment the period began to run.

PRESCRIPTION AS A MATTER OF DEFENSE: It must be explicitly relied upon in the pleadings. It cannot be availed of unless it is specially pleaded in the answer; and it must be proved or established with the same degree of certainty as any essential obligation in the civil action. Article 1107. Persons who are capable of acquiring property or rights by the other legal modes may acquire the same by means of prescription. Minors and other incapacitated persons may acquire property or rights by prescription, either personally or through their parents, guardians or legal representatives. (1931a) CAPACITY FOR PRESCRIPTION GR: Capacity to acquire property or rights by other legal modes is required for prescription. XPN: Minors and other incapacitated persons may also, under certain circumstances, acquire by prescription. For them to acquire by prescription, it is necessary that they must have discernment, because the intent to appropriate the thing as one’s own is an essential element of the possession. When discernment is wanting, they can acquire by prescription only throug their legal representatives. When the prescription requires just title, the capacity to prescribe will be the same capacity required for the particular title in question. Article 1108. Prescription, both acquisitive and extinctive, runs against: Minors and other incapacitated persons who have parents, guardians or other legal representatives; Absentees who have administrators, either appointed by them before their disappearance, or appointed by the courts; Persons living abroad, who have managers or administrators; Juridical persons, except the State and its subdivisions. Persons who are disqualified from administering their property have a right to claim damages from their legal representatives whose negligence has been the cause of prescription. (1932a) Article 1109. Prescription does not run between husband and wife, even though there be a separation of property agreed upon in the marriage settlements or by judicial decree. Neither does prescription run between parents and children, during the minority or insanity of the latter, and between guardian and ward during the continuance of the guardianship. (n) BETWEEN HUSBAND AND WIFE The law does not permit prescription to run between the spouses during the marriage, because reasons of influence or affection may often prevent one from bringing an action against the other. These reasons exist even if there is a separation of property between them.

NOTES ON PARTNERSHIP AGENCY, TRUSTS, LEASE AND PRESCRIPTION Kenneth and King C. Hizon _________________________________________________________________________________________________________________

Article 1110. Prescription, acquisitive and extinctive, runs in favor of, or against a married woman. (n)

the State or any of its subdivisions not patrimonial in character shall not be the object of prescription. (1936a)

Article 1111. Prescription obtained by a co-proprietor or a coowner shall benefit the others. (1933)

OBJECT OF PRESCRIPTION: Under Art. 530, only things susceptible of being appropriated may be the object of possession. Since possession is an essential element of prescription, it follows that things which are not susceptible of appropriation cannot be acquired by prescription. Thus, common things, property of public dominion, and the intransmissible rights, cannot be acquired by prescription.

NEED FOR RATIFICATION: In the language used by the article, it seems ratification is not necessary. This article will apply only when the prescription has a relation to the property owned in common. For instance, if 3 persons own in common a parcel of land with an area of 100 hectares, and the co-owner who is managing the land occupies more than the area owned, then the excess may be acquired by prescription for all, because there is no doubt that the assertion of ownership over such excess is but an extention of the co-ownership ober 100 hectares really owned by the 3 co-owners. The co-owner in adverse possession clearly possesses in representation of the co-ownership. In order that he may acquire possession for the other co-owners, they must ratify his act, pursuant to Art. 532. And because possession must be in the concept of an owner in order to ripen into ownership by prescription, it seems juridically incompatible wthat co-owners who do not ratify and may not even know the possessory acts of another co-owner, should be considered also in possession in the concept of owner. Article 1112. Persons with capacity to alienate property may renounce prescription already obtained, but not the right to prescribe in the future.

XPNS TO THE RULE: The following cannot be acquired by prescription: Movables possessed through a crime Lands registered under the Torrens System NOTE: Under Art. 1108, prescription does not run against the State and its subdivisions. There is inconsistency between Art. 1108 and the present article, as to prescription against the State and its subdivisions. While under the present article, patrimonial property may be the object of prescription, under Art. 1108, prescription does not run against the State and its subdivisions (irrespective of the kind of property). The intent of the law is to exclude patrimonial patrimony from the operation of acquisitive prescription, it is likewise clear that the congress intended that only property “not patrimonial in character” should be free from prescription. Patrimonial property can be acquired by prescription against the State or any of its subdivisions.

Prescription is deemed to have been tacitly renounced when the renunciation results from acts which imply the abandonment of the right acquired. (1935)

Article 1114. Creditors and all other persons interested in making the prescription effective may avail themselves thereof notwithstanding the express or tacit renunciation by the debtor or proprietor. (1937)

RENUNCIATION IS UNILATERAL: Renunciation of prescription already acquired is a unilateral act, and does not require the acceptance of the person to be benefited by it. No formality is required for it; it may even be tacit.

CREDITORS MAY PLEAD PRESCRIPTION: A current creditor of a corporation may interpose the plea of prescription to prevent the corporation from payig prescribed debts ahead of the current creditor.

TACIT RENUNCIATION: Where a party acknowledges the correctness of a debt and promises to pay it after the same has prescribed and with full knowledge and with full knowledge of the prescription, he waives the benetif of prescription.

NOTE: But prescription pleaded by one creditor does not inure to the benefit of another creditor.

NOTE: A simple acknowledgment, which contains no new and positive promise to pay the debt which has prescribed, such as a promise to pay only ½, or even a part of payment, does not amount to a renunciation of the prescription. RENUNCIATION VOID: A renunciation of prescription in advance is void. Thus, no renunciation can be made, at the time of entering into contract, of the right of pleading a prescription which may thereafter be acquired. RENUNCIATION BY REPRESENTATIVES: Only persons with capacity to alienate property can renounce prescription already obtained. Hence, an administrator or executor is without the power to renounce or waive prescription after it has been acquired in favor of the estate he represents. Article 1113. All things which are within the commerce of men are susceptible of prescription, unless otherwise provided. Property of

Article 1115. The provisions of the present Title are understood to be without prejudice to what in this Code or in special laws is established with respect to specific cases of prescription. (1938) Article 1116. Prescription already running before the effectivity of this Code shall be governed by laws previously in force; but if since the time this Code took effect the entire period herein required for prescription should elapse, the present Code shall be applicable, even though by the former laws a longer period might be required. (1939)

CHAPTER 2 Prescription of Ownership and Other Real Rights Article 1117. Acquisitive prescription of dominion and other real rights may be ordinary or extraordinary.

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Ordinary acquisitive prescription requires possession of things in good faith and with just title for the time fixed by law. (1940a) REQUISITES OF ACQUISITIVE PRESCRIPTION: Capacity to acquire by prescription A thing capable of acquisition by prescription Possession of the thing under certain conditions Lapse of time provided by law REQUISITES OF ORDINARY PRESCRIPTION: Possession of things in good faith With the just title for the time fixed by law CONVERSION OF POSSESSION: When the possession begins in good faith, but later on is converted into bad faith, how long should the prescription be, ordinary or extra-ordinary? There are possible solutions: 0 1 2

The supervening bad faith erases the former possession in good faith, and extra-ordinary prescription will run from the date of possession in bad faith The prescription will be extraordinary but the period will be counted form the time the possession began The prescription will be extraordinary but the possession in good faith shall be computed in the proportion that the period of extraordinary prescription bears to that of ordinary prescription.

NOTE: The last solution appears to be the most acceptable, because it reflects the difference betweenb the 2 kinds of prescription and gives the proper value to possession in good faith. The first is inadmissible because it places a possessor who began in goof faith in a worse position than the one who began in bad faith The second is likewise unacceptable because possession in good faith and possession in bad faith are given identical effects. Article 1118. Possession has to be in the concept of an owner, public, peaceful and uninterrupted. (1941) Article 1119. Acts of possessory character executed in virtue of license or by mere tolerance of the owner shall not be available for the purposes of possession. (1942) CONCEPT OF OWNER Acts of a possessory character which are merely tolerated by bthe possessor or which are due to his license, do not constitute possession. TOLERANCE v. LICENSE LICENSE A positive act of the owner in favor of the holder of the thing

TOLERANCE The passive acquiescense of the owner to acts being performed by another which appear to be contrary to the rights of the

former. In both cases, the possessor acts in recognition of the rights of the owner. NOTE: From the moment the possessor disgards the owner and exercise rights in opposition to that of the latter, the possession is converted into one in concept of owner and can be the basis of prescription. WHEN POSSESSION CONSIDERED PUBLIC: Public means the acts of enjoyment are executed in such a manner as to be manifest or visible to all, especially to the person against whom the possessopm is being adversely asserted. It must be known to the owner of the thing. If the possession is publicly known, it is presumed that the owner knows it, unless there is clear proof to the contrary. PEACEFUL: When it is acquired and maintained without violence, physical or moral. The possession continues to be peaceful even if the possessor should use such force as is reasonably necessary to repel or prevent an actual or threatened unlawful physical invasion of the property (Art. 429). UNINTERRUPTED: It is continuous when the possessor has never ceased to manifest with external acts his intention to exercise a right over the thing, whcin presupposes that he has never in fact ceased to exercise the right. It need no be absolute but only in relation to the nature of the right exercised. It is interrupted if there has been no act of deprivation of enjoyment of the things by a third person or any other act which interrupts prescription. Article 1120. Possession is interrupted for the purposes of prescription, naturally or civilly. (1943) EFFECT OF INTERRUPTION: When prescription is uninterrupted, all the benefits acquired so far from the possession cease; when prescption runs again, it will be entirely a new one. This distinguishes interruption from suspension of prescription. SUSPENSION OF PRESCRIPTION: In suspension, the past period is included in the computation, being added to the period after prescription is resumed. Examples of suspension: when a child becomes insane, or a ward is placed under guardianship, the cases contemplated in Art. 1109. Article 1121. Possession is naturally interrupted when through any cause it should cease for more than one year. The old possession is not revived if a new possession should be exercised by the same adverse claimant. (1944a) Article 1122. If the natural interruption is for only one year or less, the time elapsed shall be counted in favor of the prescription. (n) Article 1123. Civil interruption is produced by judicial summons to the possessor. (1945a) Article 1124. Judicial summons shall be deemed not to have been issued and shall not give rise to interruption: If it should be void for lack of legal solemnities; If the plaintiff should desist from the complaint or should allow the proceedings to lapse;

NOTES ON PARTNERSHIP AGENCY, TRUSTS, LEASE AND PRESCRIPTION Kenneth and King C. Hizon _________________________________________________________________________________________________________________

(3) If the possessor should be absolved from the complaint. In all these cases, the period of the interruption shall be counted for the prescription. (1946a)

NOTE: While the registered owner who executed the title which is the basis for prescription, is not considered a third person, he is however, regarded as a third person with respect to a title executed by another who is not registered owner. When the title of first transferee of a real right over the things is considered as a third person if his tilte is recorded.

Lacuesta v. Guerrero The general rule declared in Article 1124 of the Civil Code is to the effect that a suit brought and abandoned or decided against the plaintiff, is considered as never having been commenced. EFFECT OF RECOVERY OF POSSESSION: Under Articles 1121 and 1122, in case of natural prescription, the old possession loses all its juridical effects, and even if the possession is reacquired, the old possession cannot be tackled to the new possession for purposes of prescription. But in case of civil interruption, if the possession is recovered, it can be connected to the time that has elapsed as if it were in fact continuous, the period of interruption is to be counted for the prescription. The use of the phrase “period of interruption” is misleading because there is really no interruption, as shown by the opening paragraph. The possession is deemed continuous. Article 1125. Any express or tacit recognition which the possessor may make of the owner's right also interrupts possession. (1948) RECOGNITION BY THE POSSESSOR: In order to interrupt prescription, the recognition of the owner’s right mut be made by the possessor. The declaration of a third person that the property does not belong to the possessor, when such declaration has not been authorized or ratfied by the possessor, does not interrupt the possession of prescription. Article 1126. Against a title recorded in the Registry of Property, ordinary prescription of ownership or real rights shall not take place to the prejudice of a third person, except in virtue of another title also recorded; and the time shall begin to run from the recording of the latter. As to lands registered under the Land Registration Act, the provisions of that special law shall govern. (1949a) RECORDED TITLES OF THIRD PERSONS: The owner of the thing at the beginning of the prescriptive period is not considered as a third person within the meaning of this rule. But those who acquire their right subsequently, relying on the registration of ownership in the Registry, must be considered as third persons, and they cannot be prejudiced by the period of possession prior to the date of their acquisition. The third, persons, however, must comply with the ff: That the acquisition is by onerous title That the acquisition is from one who, according to the Registry, can transmit title That the acquisition is registered That such third person has no knowledge of the prescription

The time for prescription to the prejudice of those who are not considered as third persons with recorded titles, shall be counted from the commencement of the possession under title of ownership, although the title by virtue of which it is held may not have been registered. REGISTERED LANDS: Adverse possession may not be allowed to defeat the owner’s right to possessopn of land registered under the Torrens system; otherwise, loss of the land by prescription would be indirectly approved, in violation of Sec. 46 of the Land Registration Act. Neither can prescriprion be allowed against the registered owner’s hereditary successors because the latter merely step into the shoes of the decedent and merely the continuation of the personality of their predecessor in interest. NOTE: Laches, not prescription may be set up as to the registered land. Article 1127. The good faith of the possessor consists in the reasonable belief that the person from whom he received the thing was the owner thereof, and could transmit his ownership. (1950a) Article 1128. The conditions of good faith required for possession in articles 526, 527, 528, and 529 of this Code are likewise necessary for the determination of good faith in the prescription of ownership and other real rights. (1951) POSSESSION IN GOOD FAITH Under the Civil Code, a prescriptive title to real state is not acquired by the mere possession thereof, under claim of onwership, for a period of 10 years, unless it was originally acquired “with just title and good faith”. Good faith in this connection, while it is always to be presumed in the absence of proof to the contrary, requires a wellfounded belief that the person from whom title was received was himself the owner of the land with the right to convey. And unless the contrary is shown, the possessor of the land must be presumed to be in good faith. GOOD FAITH: The possessor muts believe that the title for his acquisition is sufficient; it is not enough that he knows of no defect in it. This belief must be founded and there is sufficient basis when he believes that the transferor was the owner of the thing anc could transmit the owneship thereof. The good faith must exist, not only at the beginning of the possession, but throughout the entitre period required for prescription. The Code rejetcs Roman Law principle that supevening bad faith does not prejudice the prescription, and follows the contrary rule of the common law. Article 1129. For the purposes of prescription, there is just title when the adverse claimant came into possession of the property through one of the modes recognized by law for the acquisition of ownership or other real rights, but the grantor was not the owner or could not transmit any right. (n)

NOTES ON PARTNERSHIP AGENCY, TRUSTS, LEASE AND PRESCRIPTION Kenneth and King C. Hizon _________________________________________________________________________________________________________________

Article 1130. The title for prescription must be true and valid. (1953) Article 1131. For the purposes of prescription, just title must be proved; it is never presumed. (1954a)

REVOCABLE TITLE- One in which the transferor has made a reservation by virtue of which the right of the possessor may disappear, cannot serve as a basis for a prescription; but once the reservation becomes ineffective, the period that has run can be counted for the prescription. Ex: a sale witht the right to repurchase

TITLE FOR PRESCRIPTION: For purposes of prescription, the title of the possessor must be just, true, valid, and proved. JUST TITLE-An act which has for its purpose the transmission of ownership, and which would have actually transferred ownership if the grantor had been the owner. This vice or defect is the one cured by prescription. Examples: sale with delivery exchange donation succession dation in payment However, the ff. do not constitute title: lease of things loan deposit all contracts which do not transmit property rights partition compromise court decisions Ratio: All the abovementioned are all declaratory of property rights but do not transmit them. TRUE TITLE- The title for prescription must be true. To be true, the title must exist actually, and not merely in the mind of the possessor. A legally non-existent title is without value. Thus, a will cannot be a sufficient title if it has been revoked by an unknown subsequent will which is later discovered. So is a title that is absolutely simulated. But where there is only relative simulation, the true title hidden behind the fictitious one will suffice. However, a simulated title, which conceals a prohibited act, cannot be the basis for prescription. FALSE TITLE:- One which does not exist but is believed by the possessor to exist, may or may not be sufficient. The false belief may be based on an error of fact or of law: If the mistake of fact refers to an act of a third person, the title is sufficient for prescription; if it refers to an act of a third person, the title is sufficient for prescription if it refers to an act of the possessor himself, it is not sufficient if the error of law refers to the validity of the act, then the title is not adequate if the mistake refers to a fact in the application of a rule of law, there will be an adequate title NOTE: If one buys from an insane party, believing that an insane person can validly alienate property, the title is not sufficient; but if he did not know that the vendor was insane, then the title is sufficient.

NOTE: A voidable title, so long as it has not been annulled, can be the basis of ordinary prescription. When the title is subject to a suspensive condition, the period of prescription begins tot run from the fulfillment of the condition; if the condition is resolutory the period begins at once, without prejudice to the effect of the resolution by the condition which may later happen. TITLE MUST BE PROVED: The requirement that just title must be proved for purposes of prescription, is an exception to the general rule embodied in article 541, which presumes a just title for every possessor in the concept of owner. The exception is based on the offensive, and not merely defensive, character of prescription, which requires greater guarantees. Article 1132. The ownership of movables prescribes through uninterrupted possession for four years in good faith. The ownership of personal property also prescribes through uninterrupted possession for eight years, without need of any other condition. With regard to the right of the owner to recover personal property lost or of which he has been illegally deprived, as well as with respect to movables acquired in a public sale, fair, or market, or from a merchant's store the provisions of articles 559 and 1505 of this Code shall be observed. (1955a) Article 1133. Movables possessed through a crime can never be acquired through prescription by the offender. (1956a) Article 1134. Ownership and other real rights over immovable property are acquired by ordinary prescription through possession of ten years. (1957a) Article 1135. In case the adverse claimant possesses by mistake an area greater, or less than that expressed in his title, prescription shall be based on the possession. (n) CONSTRUCTIVE POSSESSION: The possession upon which prescription is based, is not limited to the area actually occupied, but covers the area over which the possession is asserted. The doctrine of constructive possession applies when the possession is under title calling for the whole. The actual possession of part of the property is deemed to extend to the whole as shown by the limits or boundaries described in the title. The actual possession of a part of the property may be through a tenant. It does not apply, however, where the possession is without title. Article 1136. Possession in wartime, when the civil courts are not open, shall not be counted in favor of the adverse claimant. (n)

NOTES ON PARTNERSHIP AGENCY, TRUSTS, LEASE AND PRESCRIPTION Kenneth and King C. Hizon _________________________________________________________________________________________________________________

Article 1137. Ownership and other real rights over immovables also prescribe through uninterrupted adverse possession thereof for thirty years, without need of title or of good faith. (1959a) WHEN TTILE VOID: Even when title of the possessor is void such as an oral donation of real property, he may acquire ownership by prescription under the provisions of this title. Article 1138. In the computation of time necessary for prescription the following rules shall be observed: The present possessor may complete the period necessary for prescription by tacking his possession to that of his grantor or predecessor in interest; It is presumed that the present possessor who was also the possessor at a previous time, has continued to be in possession during the intervening time, unless there is proof to the contrary; The first day shall be excluded and the last day included. (1960a) TACKING OF POSSESSION In order that there cab be a tacking of possession, the present possessor must have obtained his possession from the previous possessor. There must be privity between them. Tacking is possible only when there is succession of rights between the predecessor and the successor. A mere usurper cannot invoke the possession of any previous possessor.

Statute of limitations: These are acts limiting the time withinwhich actions shall be brought. It does not confer any right of action but are enacted to restrict the period within which the right, otherwise unlimited, might be asserted. They are not matters of substantive rights but are available only as defenses. The purpose of the statute is to protect the diligent and vigilant not those who sleep on their rights. However, the basic prinicple most genereally relied upon by the authoritties is that statute of limitations are statutes of repose, the object of which is to suppress fraudulent and stale claims from springing up at great distances of time and surprising the parties or their representatives when all the proper vouchers and evidences are lost or the facts have become obscure from the lapse of time or the defective memory or death or removal of witness. The prescription of actions in CC contemplates civil actions and not criminal actions. Prescription and laches: The defense of laches applies independently of prescription. It is different from statute of limitations. Prescription Concerned with the fact of delay A matter of time

DIFFERENT CHARACTER OF POSSESSION: When the predecessor is in good faith, and the successor is in bad faith, the latter can assert only extra-ordinary prescription. The more reaosonable view in computing the period is that the tacking of the possession should be permitted in such case. The period should be computed in the same manner as where the character of the possession of a person changes while the period is running; that is, the period of possession in good faith should be computed in the proportion that the period of extra-ordinary prescription bears that of ordinary prescription. If the possession of the predecessor was in bad faith and that of the successor is in good faith, the present possessor can claim under ordinary prescription, but in this case, the posession of the predecessor cannot be counted. The period of bad faith possession cannot be availed of for ordinary prescription. The present possessor in good faith, however, should not be limited to ordinary prescriptioon. The period of possession of the predecessor, although in bad faith, may have been so long that it would be beneficial CHAPTER 3 Prescription of Actions Prescription of actions or limitation of actions refer to the time within which an action may be brought, or some act done, to preserve a right. It is a legal and not a natural cause of the extinguishnent of obligations.

Statutory Applies to law Based on fixed time

Laches Concerned with the effect of delay A quesrtion of inequity of permitting a claim to be enforced, this inequity being founded on some change of condition of the property or the relation of parties. Not statutory Applies to equity Not

Article 1139. Actions prescribe by the mere lapse of time fixed by law. (1961) Leap year in period: Febraury 28 and 29 should be counted as separate days not as one

day.

Effect of lapse of time: It has the effect of extinguishing the action. But there is no extinctive prescription unless the period provided by law expires. Mere delay in the enforcement of a claim does not result in any reduction or loss of right, unless the full period required by law for prescription has expired. Prescription to be pleaed: The bar of statute of limitations cannot be asserted as a defense unless it is specifically pleaded in the answer and proven with the same degree of certainty by which any essential allegation in the pleadings is established. Since it is a defense which the DR alone can plead, and the obligation subsists until he avails himself thereof, the courts of justice cannot supply the defense if the DR himself does not do so. It is thus error to permit proof of prescription if it has not been defensively pleaded and such proof is objected to. The right may be waived or renounced. It is deemed waived if not timely raised or pleaded before or during the hearing of the case. Howerver, if it is apparent on the face of the complaint, it may be favorably considered even after evidence is adduced.

NOTES ON PARTNERSHIP AGENCY, TRUSTS, LEASE AND PRESCRIPTION Kenneth and King C. Hizon _________________________________________________________________________________________________________________

Article 1140. Actions to recover movables shall prescribe eight years from the time the possession thereof is lost, unless the possessor has acquired the ownership by prescription for a less period, according to articles 1132, and without prejudice to the provisions of articles 559, 1505, and 1133. (1962a)

(2) Upon a quasi-contract. (n) Article 1146. The following actions must be instituted within four years: Upon an injury to the rights of the plaintiff;

Article 1141. Real actions over immovables prescribe after thirty years. This provision is without prejudice to what is established for the acquisition of ownership and other real rights by prescription. (1963) Article 1142. A mortgage action prescribes after ten years. (1964a) Not imprescriptible: The fact that a mortgage is registered does not make the action to foreclose it imprescriptible. Effect of interest: It is not possible to separate legally the interest or any part thereof from the principal itself; hence, if the action to recover the mortgage debt itslef has prescribed, the action to recover the interest must also be prescribed.

Upon a quasi-delict; However, when the action arises from or out of any act, activity, or conduct of any public officer involving the exercise of powers or authority arising from Martial Law including the arrest, detention and/or trial of the plaintiff, the same must be brought within one (1) year. (As amended by PD No. 1755, Dec. 24, 1980.) Injury to rights: The 1-year period fixed by the rules of court within which a petition for quo warranto should be filed, counted from the date of ouster does not apply to a case where P is separated from his employment for unjustifibale causes. Such unjustified separation from employment is an injury to the rights of the P and the action may be brought within 4 years under this article. Action on fraud: It prescribes in 4 years from discovery of the fraud.

Article 1143. The following rights, among others specified elsewhere in this Code, are not extinguished by prescription: To demand a right of way, regulated in article 649; To bring an action to abate a public or private nuisance. (n) Other Imprescritible actions: Among actions that have been held as imprescriptible are: Action by the government or government entity; Action for mandamus; Action to enforce an express trust, as long as the trustee does not repudiate the trust; Action to quiet title to property in one’s possession; Action or defense to declare a contract or judgment void ab initio; and Action of the registered owner to recover his land. Article 1144. The following actions must be brought within ten years from the time the right of action accrues: Upon a written contract; Upon an obligation created by law; Upon a judgment. (n) Implied trusts: When property is registered in another’s name, an implied or constructive trust is created by law in favor of the true owner. The action for reconveyance of the title to the rightful owner prescribes in 10 years from the issuance of the title. But if fraud has been committed, and this is the basis of action, not implied trust, the action will be barred after 4 years. Article 1145. The following actions must be commenced within six years: (1) Upon an oral contract;

Upon a quasi-delict: where real property which belongs in ownershio to D and over which he was amd has always been in possession but by mistake of the cadastral clerk came to be titled in 1935 in the name of L, who had never claimed it and who knew all along that he was not the owner thereof but had only a paper title thereto, never bothered to disturb D’s pssession save only in 1948 when he sought to do so, therafter filing his reinvindicatory action to recover the land from D in 1949, the counterclaim fro reconveyance contained in the answer of D filed in 1951 should be held to have been filed within the prescriptive period to recover on a quasi-delict is 4 years. Article 1147. The following actions must be filed within one year: For forcible entry and detainer; For defamation. (n) Article 1148. The limitations of action mentioned in articles 1140 to 1142, and 1144 to 1147 are without prejudice to those specified in other parts of this Code, in the Code of Commerce, and in special laws. (n) Article 1149. All other actions whose periods are not fixed in this Code or in other laws must be brought within five years from the time the right of action accrues. (n) Right to collect taxes: Limitations upon the right of the government to assess and collect taxes will not be presumed in the absence of clear legislation to the contrary, and where the government has not by express statutory provision provided a limitation upon its right to assess unpaid taxes, such right is imprescriptible. Article 1150. The time for prescription for all kinds of actions, when there is no special provision which ordains otherwise, shall be counted from the day they may be brought. (1969) r Time from which period computed: The principal and most important point when we examine the character, conditions and

NOTES ON PARTNERSHIP AGENCY, TRUSTS, LEASE AND PRESCRIPTION Kenneth and King C. Hizon _________________________________________________________________________________________________________________

consequences of prescription of actions under Code is the time from which we are to compute the period fixed by law for the extinguishment of the abandoned right of action. In cases where there is no special provision for such computation, recourse must be had to the rule that the period must be counted from the day on which the corresponding action could have been instituted. It is the legal possibility of bringing the action which determines the starting point for the computation. The period should not be made to retroact to the date of execution of the contract. Accrual of cause of action: It arises when that which should have been done is not done or that which should not have been done is done. Essential elements: Existence of a legal right in the P; With a corresponding legal duty in the defendant; A violation or breach of that right or duty with consequential injury of damage to the plaintiff, for which he may maintain an action for appropriate relief. From that moment, the period of prescription of action accrues or begins to run. Prescriptive periods When windows were opened in the building of a neighbor in violation of law, the period of prescription for the action to close the same must be counted from the day they were opened. In an obligation to pay upon receipt of an inheritance by the debtor, prescription beins to run from the date of suhc receipt because when the obligation is subject to a suspensive condition, prescription runs only from the happening of the condition. But where the obligation is without date of maturity, or a note is payable on demand, prescription begins to run from the date of the note or obligation and not from demand. This last rule does not apply to liability for the unpaid balance of a subscription to shares of a corporation; in this case, the liability of the subscriber does not arise until call or demand for payment by the board of directors, and therefore, prescription would run only from such demand. When a contract provides for the payment of money within a year, with the privilege of extension for another year at the option of the creditor, a delay by the debtor, or the failure of the creditor to insist upon payment, does not import a tacit renewal, and prescription will run from the end of the first year. When an action is based on fraud, deceit, the period of prescription will begin to run on the date of the discovery of the fraud or deceit. In case of quasi-delict, the prescriptive period starts from the day the quasi-delict occurred or was committed.

When the action is for partition, and reconveyance based on implied or constructive trusts, the time for prescription begins to run from the date of issuance of the original certificate of title because the registration of an instrument in the office of the Register of Deeds constitutes constructive notice to the whole world. The period begins to run from the time a possessor was made aware of a claim adverse to his own. The period of prescription of the right of the nearest relative, as intestate heir to some properties, to question the validity of a purported will or donation mortis causa made by the decedent, does not commence to run until a third person claims a right under such instrument where in the meantime the intestate heir has been in possession of the properties and there was no occasion to seek judicial annulment of the instrument. The prescriptive period within which to bring action to set aside a simulated written deed of pacto de retro sale starts only when the alleged vendees made known their intention by overt acts not to hide by the true agreement, and not from the date of execution of the contract. Article 1151. The time for the prescription of actions which have for their object the enforcement of obligations to pay principal with interest or annuity runs from the last payment of the annuity or of the interest. (1970a) OBLIGATIONS WITH INTEREST: The rule in this article that the period of prescription in obligations with interest runs only from the last payment of interest, is applicable only to cases where the principal debt is already due. Where there is a period for the principal obligation which is not yet due, payment of interest at stipulated intervals does not cause the running of interest at stipulated intervals does not cause the running of the period of prescription, which will commence only after the maturity of debt. But where the existence of a past due mortgage was recognized by payments of interest, prescription ran only from the past payment of interest. Article 1152. The period for prescription of actions to demand the fulfillment of obligation declared by a judgment commences from the time the judgment became final. (1971) WHEN JUDGMENT BECOMES FINAL: Trial court Supreme Court or Court of Appeals

Upon the expiration of the period for appeal, thereafter prescription begins to run The true judgment is that entered by the clerk of court pursuant to the dispositive part of its decision, and the period of prescription is therefore computed from the date such judgment is entered. The period is 10 years according to Art.1144

Article 1153. The period for prescription of actions to demand accounting runs from the day the persons who should render the same cease in their functions.

NOTES ON PARTNERSHIP AGENCY, TRUSTS, LEASE AND PRESCRIPTION Kenneth and King C. Hizon _________________________________________________________________________________________________________________

The period for the action arising from the result of the accounting runs from the date when said result was recognized by agreement of the interested parties. (1972) ACTION TO COMPEL ACCOUNTING The period of prescription of an action to compel an accounting by joint account partner begins to run from the date of retirement of the members from whom accounting is demanded. It begins to run from the dissolutionof a partnership when the final accounting is done. CURRENT ACCOUNTS: There is a distinction as to the time when the period of prescription begins to run in mutual current accounts and in simple current open accounts. In the former, the statute of limitatiions begins to run on the date of the last item; while in the latter, the statute begins to run from the date of each particular item.

When prescription is interrupted by a judicial demand, the full period for the prescription must be reckoned from the cessation of the interruption. NOTE: Although an option is started within the prescriptive period, if the plaintiff desists in its prosecution or judgment is unconditionally stayed for one reason or another, the running of the period of limitations is not suspended. The parties are exactly in the same position as if no action had been commenced at all. WRITTEN EXTRA-JUDICIAL DEMAND: Since extinctive prescription is based on presumed abandonment of a right, it is obvious that the running of the period shall be interrupted when a demand is made by the creditor upon the debtor before the lapse of the period fixed by law. The burden of proof to show such demand is upon the creditor. The law requires that such demand be in writing, hence, a verbal demand upon the debtor is not sufficient to interrupt or renew the prescriptive period. WRITTEN ACKNOWLEDGMENT OF DEBT:

When there is a mutual, open, and current account between 2 parties it is said that it implies that they have mutually consented that each item shall not constitute an independent debt immediately, to be paid or enforced at once but that the items occuring from time to time, in favor of the respective parties, shall operate as mutual set-offs, and that the shifting balance, when either or both shall call for it, shall be the debt, and run for this reason the statute of limitations does not run during such a state of mutual dealings, but only from the date of the last item.

In

extinctive prescription, the interruption through acknowldgment of the creditor’s right can take place only when such acknowledgment is in writing. There must always be a writing but the recognition of the debt may be either expressly stated therein or may be implied therefrom. The law does not require express acknowledgment. Examples:

When an accounting has been made betweeb the parties in their current account dealings, the right of action accrues, and the period of prescription begins to run, on the date when the last balance was struckm and not when the business relations terminated. Article 1154. The period during which the obligee was prevented by a fortuitous event from enforcing his right is not reckoned against him. (n)

A promise to pay a debt can be considered in no other light but an acknowledgment of its existence, and interrupts prescription The listing of a mortgage indebtedness by the debtor in his schedule of liabilities filed in insolvency proceedings, is sufficient acknowledgment of such indebtedness for the purpose of interrupting prescription.

EFFECT OF DESTRUCTION OF JUDICIAL RECORDS: All terms or periods fixed by law or regulations shall cease to run from the date of destruction of the records of the case, and shall only begin to run again onn the date when the parties or counsel shall have received notice to the effect that the records have been constituted.

Examples of insufficient acknowledgment:

Article 1155. The prescription of actions is interrupted when they are filed before the court, when there is a written extrajudicial demand by the creditors, and when there is any written acknowledgment of the debt by the debtor. (1973a)

NOTE: The acknowledgment of the debt may be made by a legal representative. Thus, a guardian, executor, or administrator, may acknowledge a debt so as to interrupt prescription.

FILING OF ACTION IN COURT The filing of an action interrupts extinctive prescription as to the parties defendants therein. The interruption lasts during the pendency of the action. The prescription period runs anew after the dismissal of the first action to revive judgment. Filing a motion for reconsideration continues the suspension of the running of the period of prescription, which runs again after the court proceedings have been finally terminated.

Mere offer to compromise a suit upon a supposed debt Denial of the correctness of the account claiming that the same is exorbitant.

Effect of acknowledgement: By acknowledging a debt, a DR may renew the obligation and interrupt the prescription, so as to make it run only from the date of the acknowledgement. Thus, where a decedent attempted to make a will, which was not valid because of its form, but which contained acknowledgment of a debt in favor of another, it was held that prescription ran against the claim, not from the death of the decedent but from the date of the invalid will. Effect of part payment: It cannot interrupt the period of prescritpion. A partial payment before the period has elapsed is undoubtedly an implied acknowledgement of the debt. Our present requires that the acknowledgement, in order to interrupt prescription, must be written; hence, the legal impossibility of

NOTES ON PARTNERSHIP AGENCY, TRUSTS, LEASE AND PRESCRIPTION Kenneth and King C. Hizon _________________________________________________________________________________________________________________

considering payment as an acknowledgement sufficient to interrupt prescription. Other causes not interrupting: The death of DR does not interrupt the running of the statute of limitations because the CR has at his disposal appropriate means for the prosecution of an action to enforce the collection of his claim. The transfer of the right to another person does not suspend the running of the period of prescritpion because once it begins to run, it never stops until legally interrupted. The institution of criminal action cannot have the effect of interrupting the institution of a civil action based on a quasi-delict. An order to stay execution of a judgment does not suspend the running of the prescription against it. Confinement in jail is not one of the grounds by which prescription of an action may be interrupted. The extinction of the debt of one of various joint DRs does not necessarily affect the debt of the others, and the acknowledgment of the debt by him will not stop the running of the statute of limitations as to them.

REFERENCE: TOLENTINO, ARTURO M., Commentaries and Jurisprudence on the Civil Code of the Philippines, Vol. V., Central Book Publishing, Co., Inc. 1991