AGENCY, TRUST and PARTNERSHIP

INSTRUCTIONS

1. This Questionnaire contains ten (10) pages. Check the number of pages
and make sure it has the correct number of pages and their proper
numbers.

All the items have to be answered within/our (4) hours. Since there are

twenty (20) questions, you have 12 minutes to answer each question,
and 6 minutes to answer each sub-question. You may write on the
Questionnaire for notes relating to the questions.

Read each question very carefully and write your answers in your Bar
Examination Notebook in the same order the questions are posed. Write
your answers only on the front of every sheet in your Notebook. If not
sufficient then start with the back page of the first sheet and thereafter.
Note well the allocated percentage points for each number, question, or
sub-question. In your answers, use the numbering system in the
questionnaire.

2. Answer the Essay questions legibly, clearly, and concisely. Start each

number on a separate page. An answer to a sub-question under the
same number may be written continuously on the same page and the
immediately succeeding pages until completed.

Your answer should demonstrate your ability to analyze the facts, apply
the pertinent laws and jurisprudence, and arrive at a sound or logical
conclusion. Always support your answer with the pertinent laws, rules,
jurisprudence, and the facts.

3. A mere "Yes" or "No" answer without any corresponding explanation or

discussion will not be given full credit. Thus, always briefly but fully
explain your answers although the question does not expressly ask for
an explanation. You do not need to re-write or repeat the question in
your Notebook.
 I.

A partner cannot demand the return of his share (contribution) during the
existence of a partnership. Do you agree? Explain your answer. (3%)

Yes, I agree. He is not entitled to the return of his contribution to the capital of
the partnership, but only to the net profits from the partnership business
during the life of the partnership period. If he is a limited partner, however, he
may ask for the return of his contributions as provided in Arts. 1856 and 1857.

II.

Answer TRUE if the statement is true, or FALSE if the statement is false.

Explain your answer in not more than two (2) sentences. An oral
partnership is valid. (2%)

TRUE. An oral contract of partnership is valid even though not in writing

because it is a consensual contract. However, if it involves contribution of an
immovable property or a real right, an oral contract of partnership is void. In
such a case, the contract of partnership to be valid, must be in a public
instrument (Art. 1771, NCC), and the inventory of said property signed by the
parties must be attached to said public instrument (Art. 1773, NCC.).

III.

A, B, and C entered into a partnership to operate a restaurant business.

When the restaurant had gone past break-even stage and started to gamer
considerable profits, C died. A and B continued the business without
dissolving the partnership. They in fact opened a branch of the
restaurant, incurring obligations in the process. Creditors started
demanding for the payment of their obligations. Who are liable for the
settlement of the partnership’s obligations? Explain? (5%)

The two remaining partners, A and B, are liable. When any partner dies and
the business is continued without any settlement of accounts as between him
or his estate, the surviving partners are held liable for continuing the business
despite the death of C (Articles 1841, 1785, par. 2, and 1833 of the New Civil
Code).

IV.
Joe and Rudy formed a partnership to operate a car repair shop in Quezon
City. Joe provided the capital while Rudy contributed his labor and
industry. On one side of their shop, Joe opened and operated a coffee
shop, while on the other side, Rudy put up a car accessories store. May
they engage in such separate businesses? Why? (5%)

Joe, the capitalist partner, may engage in the restaurant business because it is
not the same kind of business the partnership is engaged in. On the other
hand, Rudy may not engage in any other business unless their partnership
expressly permits him to do so because as an industrial partner he has to
devote his full time to the business of the partnership (Art. 1789, CC).

V.

Dielle, Karlo and Una are general partners in a merchandising firm.

Having contributed equal amounts to the capital, they also agree on equal
distribution of whatever net profit is realized per fiscal period. After two
years of operation, however, Una conveys her whole interest in the
partnership to Justine, without the knowledge and consent of Dielle and
Kaflo.

A. Is the partnership dissolved? (5%)

No, a conveyance by a partner of his whole interest in a partnership does

not of itself dissolve the partnership in the absence of an agreement. (Art.
1813, Civil Code)

B. What are the rights of Justine, if any, should she desire to

participate in the management of the partnership and in the
distribution of a net profit of P360.000.00 which was realized after
her purchase of Una’s interest? (5%)

Justine cannot interfere or participate in the management or

administration of the partnership business or affairs. She may, however,
receive the net profits to which Una would have otherwise been entitled.
In this case, P120,000 (Art. 1813, Civil Code)

VI.

W, X, Y and Z organized a general partnership with W and X as industrial

partners and Y and Z as capitalist partners. Y contributed P50.000.00 and
Z contributed P20.000.00 to the common fund. By a unanimous vote of
the partners, W and X were appointed managing partners, without any
specification of their respective powers and duties.

A applied for the position of Secretary and B applied for the position of
Accountant of the partnership.
The hiring of A was decided upon by W and X, but was opposed by Y and Z.

The hiring of B was decided upon by W and Z, but was opposed by X and Y.

Who of the applicants should be hired by the partnership? Explain and

give your reasons for each applicants. (5%)

A should be hired as Secretary. The decision for the hiring of A prevails

because it is an act of administration which can be performed by the duly
appointed managing partners, W and X.

B cannot be hired, because in case of a tie in the decision of the managing

partner, the deadlock must be decided by the partners owning the controlling
interest. In this case, the opposition of X and Y prevails because Y owns the
controlling interest (Art. 1801, Civil Code).

VII.

A, B and C formed a partnership for the purpose of contracting with the

Government in the construction of one of its bridges. On June 30, 1992,
after completion of the project, the bridge was turned over by the
partners to the Government. On August 30, 1992, D. a supplier of
materials used in the project sued A for collection of the indebtedness to
him. A moved to dismiss the complaint against him on the ground that it
was the ABC partnership that is liable for the debt. D replied that ABC
partnership was dissolved upon completion of the project for which
purpose the partnership was formed. Will you dismiss the complaint
against B if you were the judge? (10%)

As Judge. I would not dismiss the complaint against A because A is still liable
as a general partner for his pro rata share of 1/3 (Art. 1816, C. C.). Dissolution
of a partnership caused by the termination of the particular undertaking
specified in the agreement does not extinguish obligations, which must be
liquidated during the “winding up" of the partnership affairs (Articles 1829 and
1830, par. 1-a, Civil Code).

VIII.
A, B, and C entered into a partnership to operate a restaurant business.
When the restaurant had gone past break-even stage and started to gamer
considerable profits, C died. A and B continued the business without
dissolving the partnership. They in fact opened a branch of the
restaurant, incurring obligations in the process. Creditors started
demanding for the payment of their obligations.

A. Who are liable for the settlement of the partnership’s obligations?

Explain? (5%)

The two remaining partners, A and B, are liable. When any partner dies
and the business is continued without any settlement of accounts as
between him or his estate, the surviving partners are held liable for
continuing the business despite the death of C (Articles 1841, 1785, par.
2, and 1833 of the New Civil Code).

B. What are the creditors’ recourse/s? Explain. (5%) (2010 Bar

Question)

Creditors can file the appropriate actions, for instance, an action for the
collection of sum of money against the “partnership at will” and if there
are no sufficient funds, the creditors may go after the private properties
of A and B (Article 1816, New Civil Code).

Creditors may also sue the estate of C. The estate is not excused from
the liabilities of the partnership even if C is dead already but only up to
the time that he remained a partner (Article 1829, 1835, par. 2; NCC,
Testate Estate of Mota v. Serra, 47 Phil. 464 [1925]). However, the liability
of C’s individual property shall be subject first to the payment of his
separate debts (Article 1835, New Civil Code).

IX.

P acquired some knowledge about S’s credit before P became a partner.

Later P became a partner, and one day S had a transaction with the firm.
P never conveyed the information he knew to the firm although he could
have done so. Another partner R was the person who dealt with S’s
transaction. Nobody else in the firm knew what P already knew. Is P’s
knowledge also the knowledge of the partnership? (5%)

No, because P was not the partner acting in the particular matter involved. He
had acquired the knowledge BEFORE he became a partner, not afterwards. The
words “present to his mind” (remembered) do not apply, for they ap- ply only to
the person ACTING in the particular matter. Thus, the Commissioners have
said: “Where the knowledge or notice has been received by the partner 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.” (Art. 1821)

X.

A is engaged in business all by himself. With a view to obtaining a better

financial standing in the community, A pretended to friends and clients
that B was his partner. The misrepresentation was with B’s consent. Who
would be preferred later on as to the assets of the business-creditors who
trusted only A or creditors who relied on the alleged partnership of A and
B? (5%)

While partnership creditors are preferred over separate creditors (See Art.
1827), still in this particular case, there was no real partnership, and therefore
neither partner- ship assets nor partnership creditors properly exist. Therefore,
also no preference is given to creditors who relied on the existence of the
fictitious firm. Inasmuch as NO partnership liability results, it follows that
deceived creditors may only hold both A and B as jointly liable. (Art. 1825)

XI.

A sold to B, one of the managing partners of Partnership X, the other

being C, a certain number of mining claims without the consent of C. In
an action by A to recover the unpaid balance of the purchase price against
Partnership X, C claims that the contract is not binding upon the
partnership for the reason that under the articles of partnership, there is
a stipulation that one of the partners cannot bind the firm by a written
contract without the consent of the others.

Is the transaction made by B binding upon the partnership? (10%)

Yes. The stipulation undoubtedly creates an obligation between the two

partners, which consists in asking the other’s consent before contracting for
the partnership. This obligation, of course, is not imposed upon a third person
who contracts with a partnership.

A third person may, and has a right to, presume that the managing partners
with whom he contracts has, in the ordinary and usual course of business, the
consent of his co-partner for otherwise he would not enter into the contract.
The third person would naturally not presume that the partner with whom he
enters into the transaction is violating the articles of partnership but, on the
contrary, is acting in accordance therewith. The reason or purpose is no other
than to protect a third person who contracts with one of the managing partners
from fraud or deceit to which he can be an easy victim. (Litton vs. Hill & Ceron,
67 Phil. 509, Art. 1802)

XII.

A and B were partners in the operation of a cinema business. The theatre

was mortgaged to C who foreclosed the mortgaged debt. A, in his own
behalf, redeemed the property with his own private funds. Subsequently,
A filed a petition for the cancellation of the old title of the partnership
and the issuance of another title in his name alone.

Did A become the absolute owner of the property? (5%)

No. In this case, when A redeemed the property in question he became a

trustee for the benefit of his co-partner, B, subject to his right to demand from
the latter his contribution to the price of redemption plus legal interest.
(Catalan vs. Gatchalian, 105 Phil. 1270, Art. 1807)

XIII.

Louie, before leaving the country to train as a chef in a five-star hotel in

New York, U.S.A., entrusted to his first-degree cousin Dewey an
application for registration, under the Land Registration Act, of a parcel
of land located in Bacolod City. A year later, Louie returned to the
Philippines and discovered that Dewey registered the land and obtained
an Original Certificate of Title over the property in his Dewey’s name.
Compounding the matter, Dewey sold the land to
Huey, an innocent purchaser for value. Louie promptly filed an action for
reconveyance of the parcel of land against Huey.

A. Is the action pursued by Louie the proper remedy? (5%)

As discussed in Sales, that is not the proper remedy because Huey is a

buyer in good faith, an IPFV, and he bought it from an apparent owner
kasi ang lupa ay nakarehistro sa pangalan ng seller. Hence, it is not a
proper action.

B. Assuming that reconveyance is the proper remedy, will the action

prosper if the case was filed beyond one year, but within ten years,
from the entry of the decree of registration? (5%)
 Yes. because the action is not questioning the validity of the certificate of
title registration of the land per se, which should only be filed within one
year from registration. This is an action for reconveyance, for breach of
trust, and therefore it may be filed within 10 years from registration in
the name of the trustee, of Duey.

XIV.

Juan and his sister Juana inherited from their mother two parcels of
farmland with exactly the same areas. For convenience, the Torrens
certificates of title covering both lots were placed in Juan’s name alone.
In 1996, Juan sold to an innocent purchaser one parcel in its entirety
without the knowledge and consent of Juana, and wrongfully kept for
himself the entire price paid.

C. What rights of action, if any, does Juana have against Juan and/or
the buyer? (5%)

Against Juan, she can file an action for damages for breach of trust.
clearly, when this two parcels of land where registered in the name of the
brother, a trust relationship arose with the sister as the beneficiary as
far as one half of each of the parcels of land. nung binenta niya without
consent, there is breach of trust for which he can be held liable not only
for the value of the property but also for damages.

D. As against the buyer, does Juana has a cause of action? (5%)

Under the law on sales, when this buyer bought it from an apparent
owner, and the buyer is a buyer in good faith and for value, he acquires
absolute ownership over the parcels of land. Malinaw sa facts na Juan
sold the properties to an innocent purchaser for value. Hence, Juana will
not have a cause of action against the buyer.

Alternative answer:
Juana can file an action for quieting of title under Article 476

XV.

1. If the agent had “general powers” the revocation of the agency by

the principal would bind third parties dealing with agent when-
a. There has been specific notice thereof to the third party being dealt
with by the agent.
 b. There has been notice thereof in a newspaper of general
circulation.
c. There has been formal notice thereof given to the agent.
d. There has been surrender of the written instrument covering the
agency.

2. An agent, authorized by a special power of attorney to sell a land

belonging to the principal succeeded in selling the same to a buyer
according to the instructions given the agent. The agent executed
the deed of absolute sale on behalf of his principal two days after
the principal died, an event that neither the agent nor the buyer
knew at the time of the sale. What is the standing of the sale?
a. Voidable.
b. Valid.
c. Void.
d. Unenforceable.

3. Mr. X, without the authority of Mr. Y, owner of a car, sold the same
car in the name of Mr. Y to Mr. Z. The contract between Mr. X and
Mr. Z is –
a. Void because of the absence of consent from the owner, Mr. Y.
b. Valid because all of the essential requisites of a contract are
present.
c. Unenforceable because Mr. X had not authority but he sold the
car in the name of Mr. Y, the owner.
d. Rescissible because the contract caused lesion to Mr. Z.

4. When an agent acts in the name of the principal without or in

excess of authority, then:
a. The contract is void as to the principal and the third party dealt
with by the agent.
b. The contract is void as to the principal.
c. The contract is unenforceable as to the principal.
d. The contract is valid, until annulled.

5. What is the effect of a commission agent selling on credit without

the consent of the principal?
a. The power to sell includes the power to sell on credit and hence
there is no effect.
b. The principal may demand from the agent the payment in
cash.
c. The agent must render an accounting to the principal of the
interest charged on the sale on credit.
d. The sale is void.
6. With respect to a power of attorney of an agent, a third person
dealing with an agent –
a. May require that the power of attorney be presented.
b. Must require that the power of attorney be presented in order to be
bound.
c. Is bound to the principal only if the power of attorney is in writing,
even if the same was not presented at the time the third person
executed the contract with the agent acting in the name of the
principal.
d. Is bound only with respect to private and secret orders when the
same has been communicated to the third person in writing.

7. Owner held out Agent as Owner’s representative in business deals.

Agent sold to Buyer a parcel of land owned by Owner. Agent signed
the deed of sale for and on behalf of Owner and delivered the
transfer certificate of title covering the land. No other document
was executed and/or delivered by any of the parties. Buyer
demanded from Owner and Agent possession of the property. Is
Owner obliged to comply with the demand?
a. No, because the contract is void.
b. No, because the contract is unenforceable.
c. Yes, because the Owner is estopped.
d. Yes, because the Owner authorized Agent.

8. An agent with general powers for administration, desirous of

improving the financial condition of his principal’s business, sold a
piece of land belonging to his principal for double the price that
appeared in an inventory prepared by the principal before leaving
the place. Do you think the agent has exceeded his power?
a. Yes, considering he made a sale, a transaction which requires
a special power of attorney. As a mere administrator, he had
no right to alienate.
b. No, since the limits of an agent’s authority shall not be considered
exceeded should he have performed it in a manner advantageous
to the principal than that specified.
c. Yes, since the power conferred upon the agent was one that can be
described as one of strict dominion.
d. No, considering that there was no prohibition against selling the
land at a better price, if said price can be obtained.

9. The following statements refer either to authority or instruction

given by the principal to his agent:

I. Relates to the kind of business or transaction upon which the

agent is commissioned to act.
 II. Concerns the principal and the agent.
III. Refers to the mode of action by the agent in carrying out the
agency.
IV. Third persons can require the agent to present it to them
since they are chargeable with knowledge thereof.

a. I and II refer to authority

b. I and IV refer to authority
c. II and IV refer to instruction
d. III and IV refer to instruction
10. A and B, solidary agents of X, were appointed to sell the Ferrari of
the principal. Unfortunately, A sold the Lamborghini of the
principal. Who should be held liable?
a. A
b. B
c. A and B
d. A or B