2014 ATP&JV Outline

ATENEO DE MANILA LAW SCHOOL
AGENCY & TRUSTS, PARTNERSHIPS

& JOINT VENTURES
1
DEAN CESAR L.
VILLANUEVA
FIRST SEMESTER, SY 2014-15 ATTY. JOSE U.
COCHINGYAN III
A. LAW ON AGENCY
I. NATURE AND OJECT OF AGENCY
1. D!"#$#%#&$ 'A(%. 1)*)+, P-(%#!. #$ -$ A/!$01 R!2-%#&$.3#4
Under Article 1868 of the Civil Code, a contract of agency is one whereby 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.
!

"he #panish term for principal is mandante$ and among the terms used for agent are
mandatario, factor, attorney-in-fact, proxy, delegate or representative.
2. R&&% -$5 O67!0%#8!. &" A/!$01 'A(%.. 191: -$5 1409;1<+
"he right of inspection given to a stoc%holder under the law can be e&ercised either by himself
or by an attorney'in'fact, and either with or without the attendance of the stoc%holder. "his is in
conformity with the general rule that what a man may do in person he may do through another.
Philpotts v. Phil. Mfg. Co., () *hil (+1 ,1-1-..
"he purpose of every contract of agency is the ability, by legal fiction, to e&tend the personality
of the principal through the facility of the agent$ but the same can only be effected with the
consent of the principal. Orient Air Service & otel !epresentatives v. Court of Appeals, 1-+
#C/A 6(0 ,1--1..
1here a common carrier leases the truc%s of another common carrier there can be no contract
of agency between them, for there is no representation by one with respect to the other and
neither was there any authority to represent the other by the terms of the arrangements.
"oadmasters Customs Services# $nc. v. %lodel &ro'erage Corp., 62- #C/A 6- ,!)11..
9. E2!=!$%. &" %3! C&$%(-0% &" A/!$01
Rallos v. Felix Go Chan & Sons Realty Corp., )1 SCRA 251 '1>:)+? "he following are the
essential elements of the contract of agency3
,a. Consent, e&press or implied, of the parties to establish the relationship$
,b. Object, which is the execution of a juridical act in relation to third parties$
,c. "he agent acts as a representative and not for himself$ and
,d. "he agent acts within the scope of his authority.
2
1hether or not an agency has been created is determined by the fact that one is representing
and acting for another. "he law ma%es no presumption of agency$ proving its e&istence, nature
and e&tent is incumbent upon the person alleging it. (r)an &an'# $nc. v. Pe*a, 60- #C/A (18
,!)11..
"here is no principal'agent relationship between an establishment and the security guards
assigned by the security company to guard its premises because there is no power of
representation. "he security guards are the employees of the security agency$ conse4uently, the
establishment cannot be held liable for the negligence committed by the security guards causing
loss to third parties. Mamaril v. &oy Scouts of the Philippines# 688 #C/A (2+ ,!)12..
-. Consent 'A(%.. 191: -$5 1409;1<+
1
Unless otherwise indicated, all references to articles pertain to the 5ew Civil Code of the *hilippines.
2
See Chemphil +xport v. Court of Appeals, !01 #C/A !1+ ,1--0.$ ,ominion $nsurance Corp. v. Court of Appeals, 2+6 #C/A !2-
,!))!.$ !epu)lic v. +vangelista, (66 #C/A 0(( ,!))0.$ "iton-ua# .r. v. +ternit Corp.# (-) #C/A !)( ,!))6.$ +urotech $ndustrial
/echnologies# $nc. v. Cui0on# 0!1 #C/A 08( ,!))+..
3
!eiterated in 1u +ng Cho v. Pan American 2orld Airways# $nc., 2!8 #C/A +1+ ,!))).$ Manila Memorial Par' Cemetery# $nc. v.
"insangan, ((2 #C/A 2++ ,!))(.$ +urotech $ndustrial /echnologies# $nc. v. Cui0on, 0!1 #C/A 08( ,!))+.$ "oadmasters Customs
Services# $nc. v. %lodel &ro'erage Corp., 62- #C/A 6- ,!)11.$ (r)an &an'# $nc. v. Pena, 60- (18 ,!)11.$ 2estmont $nvestment
Corp. v. 3rancis# .r., 661 #C/A +8+ ,!)11.$ 4illoria v. Continental Airlines# $nc., 662 #C/A 0+ ,!)1!..
"he basis for agency is representation$ on the part of the principal, there must be an actual
intention to appoint

or an intention naturally inferable from his words or actions$

and on the part of
the agent, there must be an intention to accept the appointment and act on it$ in the absence of
such intent, there is no agency. ,ominion $nsurance Corp. v. CA, 2+6 #C/A !2- ,!))!..
(
6. Subject Matter? Service !xecution of "uridical #cts in $ehalf of %rincipal
6t is clear from Art. 1868 that the basis of agency is representation. . . .7ne factor which most
clearly distinguishes agency from other legal concepts is control$ one person ' the agent ' agrees
to act under the control or direction of another ' the principal. 6ndeed, the very word 8agency8 has
come to connote control by the principal. 4ictorias Milling Co. v. CA, 222 #C/A 662 ,!)))..
0
6n an agent'principal relationship, the personality of the principal is e&tended through the
facility of the agent. 6n so doing, the agent, by legal fiction, becomes the principal, authori9ed to
perform all acts which the latter would have him do. #uch a relationship can only be effected with
the consent of the principal, which must not, in any way, be compelled by law or by any court.
"iton-ua# .r. v. +ternit Corp.# (-) #C/A !)( ,!))6..
0. C&$.#5!(-%#&$? A/!$01 P(!.@=!5 %& ! "&( C&=4!$.-%#&$,
U$2!.. T3!(! I. P(&&" %& %3! C&$%(-(1 'A(%. 1):5+
Old Civil Code5 "he service rendered by the agent was deemed to be gratuitous, apart from
the occupation of some of the house of the deceased by the plaintiff and his family$ for if it were
true that the agent and the principal had an understanding to the effect that the agent was to
receive compensation aside from the use and occupation of the houses of the deceased, it
cannot be e&plained how the agent could have rendered services as he did for eight years
without receiving and claiming any compensation from the deceased. xAgu*a v. "arena, 0+ *hil
62) ,1-2!..
*rescinding from the principle that the terms of the contract of agency constituted the law
between the principal and the agent, then the mere fact that other agents intervened in the
consummation of the sale and were paid their respective commissions could not vary the terms of
the contract of agency with the plaintiff of a 0: commission based on the selling price. ,e Castro
v. Court of Appeals# 28( #C/A 6)+ ,!))!..
4. E..!$%#-2 C3-(-0%!(#.%#0. &" A/!$01
-. &o'inate and %rincipal
Act done by one person in behalf of another is in its essential nature one of agency ; it will be
an agency whether the parties understood the e&act nature of the relation or not. ,oles v.
Angeles# (-! #C/A 6)+ ,!))6..
<ven when the Agreement provides that the agency manager is considered an independent
contractor and not an agent, nonetheless when the agency manager is e&pressly authori9ed to
solicit and remit offers to purchase interments spaces, it covers an agency arrangement since the
agency manager represented the interest of the memorial company. Manila Memorial Par'
Cemetery# $nc. v. "insangan, ((2 #C/A 2++ ,!))(..
6. (nilateral
6
and %ri'arily Onerous 'A(%. 1):5+
Agency is presumed to be for compensation. 1hen an agent performs services for a principal
at the latter=s re4uest, the law will normally imply a promise on the part of the principal to pay for
the reasonable worth of those services$ principal>s intent to compensate the agent for services
performed will be inferred from the principal=s re4uest for the agent>s service. (r)an &an'# $nc. v.
Pe*a, 60- #C/A (18 ,!)11..
0. Consensual 'A(%.. 1)*> -$5 1):0+
An agency may be e&pressed or implied from the act of the principal, from his silence or lac%
of action, or failure to repudiate the agency. "iton-ua# .r. v. +ternit Corp.# (-) #C/A !)( ,!))6..
/he )asis for agency is representation. 1here there is no showing that ?rigida consented to
the acts of @eganos or authori9ed him to act on her behalf, much less with respect to the
4
(r)an &an'# $nc. v. Pe*a, 60- #C/A (18 ,!)11..
5
Amon /rading Corp. v. Court of Appeals# (++ #C/A 00! ,!))0..
6
A unilateral contract has been defined as 7A contract in which one party ma'es a promise or underta'es a performance.8 "hus,
it was observed that 79M:any unilateral contacts are in reality gratuitous promises enforced for good reason with no element of
)argain.8 A?BACC># BA1 @6C"675A/D 2!6 ,1--).E 6t is perhaps in this sense that agency is unilateral because it is the agent who
underta%es the performance of the agency. Fowever, one must not forget that agency is still a contract with a bilateral character.
Ganresa e&plains3 7As regards whether the agency has a unilateral or )ilateral character# it is evident# in our considered opinion#
from the point of view of the Code# that the totality of cases involving agency will always )e )ilateral# not )ecause# as one ordinarily
supposes# there will )e o)ligations exclusively for the agent and rights exclusively for the principal. $t is clear that at times it
happens this way# )ut what is common in agency with other contracts is the mutuality and the reciprocity that arises from the
existence of an o)ligation against another o)ligation# a right against another right.8 11 GA5/<#A. C7G<5"A/67# AB C7@6H7 C6I6B
<#*AJ7B ((2 ,1-0).
A"*KLI 7utline Page 2
particular transactions involved, then any attempt to foist liability on respondents'spouses through
the supposed agency relation with @eganos is groundless and ill'advised. 6t was grossly and
ine&cusably negligent of petitioners to entrust to @eganos, not once or twice but on at least si&
occasions as evidenced by si& receipts, several pieces of Mewelry of substantial value without
re4uiring a written authori9ation from his alleged principal. A person dealing with an agent is put
upon in4uiry and must discover upon his peril the authority of the agent.

$ordador v. )u*, 2)9
SCRA 9:4 '1>>:+.
"he basis for agency is representation and a person dealing with an agent is put upon in4uiry
and must discover upon his peril the authority of the agent. A co'owner does not become an
agent of the other co'owners, and any e&ercise of an option to buy a piece of land transacted with
one co'owner does not bind the other co'owners of the land. "he most prudent thing the
purported buyer should have done was to ascertain the e&tent of the authority said co'owner$
being negligent in this regard, he cannot see% relief on the basis of a supposed agency. ,i0on v.
CA, 2)! #C/A !88 ,1---..
5. %reparatory+ Representative and ,erivative 'A(%. 1)*)+
Agency is )asically personal# representative# and derivative in nature. "he authority of the
agent to act emanates from the powers granted to him by his principal$ his act is the act of the
principal if done within the scope of the authority. ;ui facit per alium facit per se. e who acts
through another acts himself. Rallos v. Felix Go Chan & Sons Realty Corp., )1 SCRA 251
'1>:)+.
"he essence of agency being the representation of another, it is evident that the obligations
contracted are for and on behalf of the principalNthe principal is liable for the acts of his agent
performed within the limits of his authority. /an v. +ngineering Services# (-8 #C/A -2 ,!))6..
6n a situation where two agents enter into a contract of behalf of their principals, even if the
principals do not actually and personally %now each other, such ignorance does not affect their
Muridical standing as agents, especially since the very purpose of agency is to e&tent the
personality of the principal through the facility of the agent. ,oles v. Angeles# (-! #C/A 6)+
,!))6..
6t is said that the underlying principle of the contract of agency is to accomplish results by
using the services of othersNto do a great variety of things. 6ts aim is to e&tent the personality of
the principal or the party for whom another acts and from whom he or she derives the authority to
act. 2estmont $nvestment Corp. v. 3rancis# .r., 661 #C/A +8+ ,!)11..
'#+ %rinciples Flowin- fro' #-ency Characteristics of
.%reparatory and Representative/ 'A(%. 1)>:+
6n an agency, the principal>s personality is e&tended through the facility of the agentNthe
agent, by legal fiction, becomes the principal, authori9ed to perform all acts which the latter
would have him do. #uch a relationship can only be effected with the consent of the principal,
which must not, in any way, be compelled by law or by any court. "he Agreement itself
between the parties states that either party may terminate the Agreement without cause by
giving the other 2) days> notice by letter, telegram or cable. Orient #ir Services v. Court
of #ppeals, 1>: SCRA *45 '1>>1+.
+
6t is said that the basis of agency is representation, that is, the agent acts for and on behalf
of the principal on matters within the scope of his authority and said acts have the same legal
effect as if they were personally e&ecuted by the principal. ?y this legal fiction, the actual or
real absence of the principal is converted into his legal or Muridical presence ; <ui facit per
alium facit per se. !urotech 0ndustrial 1echnolo-ies+ 0nc. v. Cui*on+ 521 SCRA 5)4
'200:+.
8
"he other conse4uences of the doctrine of representation are3
5otice to the agent should always be construed as notice binding on the
principal, even when in fact the principal never became aware thereof. Air
3rance v. CA, 1!6 #C/A ((8 ,1-82..
Art. 18-+ reinforces the familiar doctrine that an agent, who acts as such, is not
personally liable to the party with whom he contracts$ it is the principal who is
liable on the contracts of the agent. +urotech $ndustrial /echnologies# $nc. v.
Cui0on# 0!1 #C/A 08( ,!))+..
1hen an agent purchases the property in bad faith, the principal is deemed a
purchaser in bad faith. Caram# .r. v. "aureta, 1)2 #C/A + ,1-81..
7
"iton-ua# .r. v. +ternit Corp.# (-) #C/A !)( ,!))6.$ 4illoria v. Continental Airlines# $nc., 662 #C/A 0+ ,!)1!..
8
Country &an'ers $nsurance Corp. v =eppel Ce)u Shipyard, 6+2 #C/A (!+ ,!)1!..
"he basis for agency is representation and a person dealing with an agent is
put upon in4uiry and must discover upon his peril the authority of the agent.
Safic Alcan & Cie v. $mperial 4egeta)le Oil Co.# $nc., 200 #C/A 00- ,!))1..
!. %ersonal+ Fiduciary and Revocable
"he relations of an agent to his principal are fiduciary and in regard to the property forming the
subMect matter of the agency, he is estopped from ac4uiring or asserting a title adverse to that of
the principal. Severino v. Severino, (( *hil. 2(2 ,1-!2..
?y reason of the personal# representative and derivative nature of agency, agency is
e&tinguished by the death of the principal or agent. !allos v. 3elix %o Chan & Sons !ealty, 81
#C/A !01 ,1-+8..
A contract of agency is generally revocable as it is a personal contract of representation based
on trust and confidence reposed by the principal on his agent. As the power of the agent to act
depends on the will and license of the principal he represents, the power of the agent ceases
when the will or permission is withdrawn by the principal. /hus# generally# the agency may )e
revo'ed )y the principal at will. !epu)lic v. +vangelista, (66 #C/A 0(( ,!))0..
5. D#.%#$/@#.3!5 "(&= O%3!( S#=#2-( C&$%(-0%.?
-. F(&= E=42&1=!$% C&$%(-0%
"he relationship between the corporation which owns and operates a theatre, and the security
guard it hires to maintain the peace and order at the entrance of the theatre is not that of principal
and agent, because the principle of representation was in no way involved. "he security guard
was not employed to represent the defendant corporation in its dealings with third parties$ he was
a mere employee hired to perform a certain specific duty or tas%, that of acting as special guard
and staying at the main entrance of the movie house to stop gate crashers and to maintain peace
and order within the premises. ,ela Cru0 v. >orthern /heatrical +nterprises, -0 *hil +2- ,1-0(..
"he concept of a single person having the dual role of agent and employee while doing the
same tas% is a novel one in our Murisprudence, which must be viewed with caution especially
when it is 5!8&#5 &" -$1 7@(#.4(@5!$%#-2 .@44&(% &( 4(!0!5!$%. All these, read without any
clear understanding of fine legal distinctions, appear to spea% of control by the insurance
company over its agents. "hey are, however, controls aimed only at specific results in
underta%ing an insurance agency, and are, in fact, parameters set by law in defining an insurance
agency and the attendant duties and responsibilities an insurance agent must observe and
underta%e. "hey do not reach the level of control into the means and manner of doing an
assigned tas% that invariably characteri9es an employment relationship as defined by labor law.
/ong'o v. /he Manufacturers "ife $nsurance Co. ?Phils.@# $nc., 6() #C/A 2-0 ,!)11..
6. F(&= C&$%(-0% "&( - P#!0!-&"-W&(A
"hat the operator owed his position to the company which could remove him or terminate his
services at will$ that the service station belonged to the company and bore its tradename and the
operator sold only the products of the company$ that the e4uipment used by the operator
belonged to the company and were Must loaned to the operator and the company too% charge of
their repair and maintenance$ that an employee of the company supervised the operator and
conducted periodic inspection of the company=s gasoline and service station$ that the price of the
products sold by the operator was fi&ed by the company and not by the operator$ the, the finding
of the Court of Appeals that the operator was an agent of the company and not an independent
contractor should not be disturbed. Shell v. 3iremenAs $ns. Co., 1)) *hil +0+ ,1-0+..
C. FROM ROBER
"he 4uestion as to what constitutes a sale so as to entitle a real estate bro%er to his
commissions is e&tensively annotated in the case of "unney vs. ealey ,5ebras%a. (( Baw /ep.
Ann. 0-2, and the long line of authorities there cited support the following rule3 "he business of a
real estate bro%er or agent, generally, is only to find a purchaser, and the settled rule as stated by
the courts is that, in the absence of an e&press contract between bro%er and his principal, the
implication generally is that the bro%er becomes entitled to the usual commissions whenever he
brings to his principal a party who is able and willing to ta%e the property and enter into a valid
contract upon the terms then named by the principal, although the particulars may be arranged
and the matter negotiated and completed between the principal and the purchaser directly.
Macondray & Co. v. Sellner, 22 *hil. 2+) ,1-16..
"he duties and liability of a bro%er to his employer are essentially those which an agent owes
to his principal. Conse4uently, the decisive legal provisions on determining whether a bro%er is
mandated to give to the employer the propina or gift received from the buyer would be Articles
18-1 and 1-)- of the Civil Code. ,CLV? Det the facts did indicate clearly that the real estate
bro%er was appointed as an e&clusive agent.. ,o'in-o v. ,o'in-o, 42 SCRA 191 '1>:1+.
6n agencies to sell where the entitlement of the commission is subMect to the successful
consummation of the sale with the buyer located by the agent, said agent would still be entitled to
the commission on sales consummated after the e&piration of his agency when the facts show
that the agent was the efficient procuring cause in bringing about the sale. Pratts v. Court of
Appeals, 81 #C/A 26) ,1-+8.$ Manoto2 $ros.+ 0nc. v. Court of #ppeals, 221 SCRA 224
'1>>9+.
A )ro'er is one who is engaged, for others, on a commission, negotiating contracts relative to
property with the custody of which he has no concern$ the negotiator between the other parties,
never acting in his own name but in the name of those who employed him. Fis occupation is to
)ring the parties together, in matter of trade, commerce or navigation. Schmid and O)erly# $nc. v.
!." Martine0, 166 #C/A (-2 ,1-88..
1here the purported agent was orally given authority to follow up the purchase of the fire
truc% with the municipal government, there is no authority to sell nor has the purported agent
been empowered to ma%e a sale in behalf of the seller. %uardex v. >"!C, 1-1 #C/A (8+
,1--)..
1hen the terms of the agency arrangement is to the effect that entitlement to the commission
was contingent on the purchase by a customer of a fire truc%, the implicit condition being that the
agent would earn the commission if he was instrumental in bringing the sale about. #ince the
agent had nothing to do with the sale of the fire truc%, and is not therefore entitled to any
commission at all. %uardex v. >"!C, 1-1 #C/A (8+ ,1--)..
An agent receives a commission upon the successful conclusion of a sale. 7n the other hand,
a bro%er earns his pay merely by bringing the buyer and the seller together, even if no sale is
eventually made. ,O)iter B the issue was whether it was an independent distri)utor of &M2 cars
in the Philippines. xahn v. Court of Appeals, !66 #C/A 02+ ,1--+..
Although the ultimate buyer was introduced by the bro%er to the seller, nonetheless the bro%er
was not entitled to receive the commission even with the consummation of the sale because the
lapse of the period of more than one ,1. year and five ,0. months between the e&piration of
bro%er>s authority to sell and the consummation of the sale to the buyer, is significant inde& of the
bro%er>s non'participation in the really critical events leading tot he consummation of said sale.
?ro%er was not the efficient procuring cause in bringing about the sale and therefore not entitled
to the stipulated bro%er>s commission. 0nland Realty v. Court of #ppeals, 2:9 SCRA :0
'1>>:+.
An agent receives a commission upon the successful conclusion of a sale. 7n the other hand,
a )ro'er earns his pay merely )y )ringing the )uyer and the seller together, even if no sale is
eventually made. 1an v. Gullas, 9>9 SCRA 994 '2002+.
6n relation thereto, we have held that the term procuring cause in describing a bro%er>s
activity, refers to a cause originating a series of events which, without brea% in their continuity,
result in the accomplishment of the prime obMective of the employment of the bro%erNproducing a
purchaser ready, willing and able to buy on the owner>s terms. "o be regarded as the procuring
cause of a sale as to be entitled to a commission, a bro%er>s efforts must have been the
foundation on which the negotiations resulting in a sale began. Medrano v. Court of #ppeals,
452 SCRA :: '2005+.
-
A real estate bro%er is one who negotiates the sale of real properties. Fis business, generally
spea%ing, is only to find a purchaser who is willing to buy the land upon terms fi&ed by the owner.
Fe has no authority to bind the principal by signing a contract of sale. 6ndeed, an authority to find
a purchaser of real property does not include an authority to sell. )itonjua+ "r. v. !ternit Corp.+
4>0 SCRA 204 '200*+.
#ince bro%erage relationship is necessary a contract for the employment of an agent,
principles of contract law also govern the bro%er'principal relationship. xA)acus Securities Corp.
v. Ampil# (82 #C/A 210 ,!))6..
5. F(&= S-2!
1hen the agreement compels the purported agent to pay for the products received from the
purported principal within the stipulated period, even when there has been no sale thereof to the
public, the underlying relationship is not one of contract of agency to sell, but one of actual sale. A
true agent does not assume personal responsibility for the payment of the price of the obMect of
the agency$ his obligation is merely to turn'over to the principal the proceeds of the sale once he
receives them from the buyer. Conse4uently, since the underlying agreement is not an agency
agreement, it cannot be revo%ed e&cept for cause. x;uiroga v. Parsons, 28 *hil 0)! ,1-18..
-
!eiterated in Phil. ealthcare Providers ?Maxicare@ v. +strada, 0(! #C/A 616 ,!))8..
1hen under the agreement the purported agent becomes responsible for any changes in the
ac4uisition cost of the obMect he has been authori9ed to purchase from a supplier in the United
#tates, the underlying agreement is not an contract of agency to buy, since a true agent does not
bear any ris% relating to the subMect matter or the price. ?eing a contract of sale and not agency,
any profits reali9ed by the purported agent from discounts received from the American supplier
pertained to it with no obligation to account for it, much less to turn it over, to the purported
principal. %on0alo Puyat v. Arco, +! *hil. ()! ,1-(1..
"he primordial difference between a sale and an agency to sell is the transfer of ownership or
title over the property subMect of the contract. 6n an agency, the principal retains ownership and
control over the property and the agent merely acts on the principal=s behalf and under his
instructions in furtherance of the obMectives for which the agency was established. 7n the other
hand, the contract is clearly a sale if the parties intended that the delivery of the property will
effect a relin4uishment of title, control and ownership in such a way that the recipient may do with
the property as he pleases. Spouses 4iloria v. Continental Airlines# $nc., 662 #C/A 0+ ,!)1!..
II. FORMS AND BINDS OF AGENCY
1. H&C A/!$01 M-1 ! C&$.%#%@%!5 'A(%. 1)*>+
"here are some provisions of law which re4uire certain formalities for particular contracts3 the
first is when the form is re4uired for the validity of the contract$ the second is when it is re4uired to
ma%e the contract effective as against third parties$ and the third is when the form is re4uired for
the purpose of proving the e&istence of the contract. A contract of agency to sell on commission
basis does not belong to any of these three categories, hence it is valid and enforceable in
whatever form in may be entered into. Conse4uently, when the agent signs her signature on any
face of the receipt showing that she receives the Mewelry for her to sell on commission, she is
bound to the obligations of an agent. "he e&act position of the agent>s signature in the receipt ,in
this case near the description of the goods and not on top of her printed name. is immaterial. "im
v. Court of Appeals, !0( #C/A 1+) ,1--6..
-. F(&= S#5! &" %3! P(#$0#4-2 'A(%. 1)*>+
1hen the buyers'a-retro failed for several years to clear their title to the property purchased
and allowed the seller'a-retro to remain in possession in spite of the e&piration of the period of
redemption, then the e&ecution of the memorandum of repurchase by the buyers> son'in'law,
which stood unrepudiated for many years, constituted an implied agency under Article 186- of the
Civil Code, from their silence or lac% of action, or their failure to repudiate the agency. Conde v.
Court of Appeals, 11- #C/A !(0 ,1-8!..
1here the principal has ac4uiesced in the act of his agent for a long period of time, and has
received and appropriated to his own use the benefits result in from the acts of his agent, courts
cannot declare the acts of the agent null and void. "inan v. Puno, 21 *hil. !0- ,1-10..
6. F(&= S#5! &" %3! A/!$% 'A(%.. 1):0, 1):1 -$5 1):2+
0. F(&= S#5! &" T3#(5 P-(%#!.DP@62#0 'A(%.. 1):9 -$5 140), 1>21 -$5 1>22+
'#+ A/!$01 I. N&% P(!.@=!5 %& EE#.%
7ne who alleges the e&istent of an agency relationship must prove such fact for the law
does not ma%e presumption of agency and proving its e&istence, nature and e&tent is
incumbent upon the person alleging it. 1un =wan &yung v. PA%CO!, 6)8 #C/A 1)+ ,!))-.$
>evada v. Casuga, 668 #C/A ((1 ,!)1!..
*ersons dealing with an assumed agent are bound at their peril, and if they would hold the
principal liable, to ascertain not only the fact of agency but also the nature and e&tent of
authority, and in case either is controverted, the burden of proof is upon them to prove it.
Country &an'ers $nsurance Corp. v =eppel Ce)u Shipyard, 6+2 #C/A (!+ ,!)1!..
1)

'##+ R@2! W3!$ T3#(5 P-(%#!. G#8!$ N&%#0! &" A/!$01
1hen the owner of a hotelOcafP business allows a person to use the title managing agent
and allows such person to ta%e charge of the business during his prolonged absence,
performing the duties usually entrusted to managing agent, then such owner is bound by the
act of such person. 7ne who clothes another apparent authority as his agent, and holds him
out to the public as such, can not be permitted to deny the authority of such person to act as
his agent, to the preMudice of innocent third parties dealing with such person in good faith and
10
2oodschild oldings# $nc. v. !oxas +lectric and Construction Co.# $nc., (26 #C/A !20 ,!))(.$ Manila Memorial Par' Cemetery#
$nc. v. "insangan, ((2 #C/A 2++ ,!))(.$ (mipig v. People, 6++ #C/A 02 ,!)1!.$!ecio v. eirs of the Spouses Altamirano, +)!
#C/A 12+ ,!)12..
in the following pre'assumptions or deductions, which the law e&pressly directs to be made
from particular facts, are deemed conclusive. Mac'e v. Camps, + *hil 0!! ,1-)+..
A long'standing client can recover from the defendant'principal the goods sent goods to
sell on commission to the former agent of the defendant, when no previous notice of the
termination of agency was given to said client. Faving given client a special invitation to deal
with such agent, it was the duty of the defendant on the termination of the relationship of
principal and agent to give due and timely notice thereof to the client$ and failing to do so,
defendant'principal is responsible to client for whatever goods may have been in good faith
and without negligence sent to the agent without %nowledge, actual or constructive, of the
termination of such relationship. Rallos v. 3an-co, 20 P3#2 2*> '1>11+.
1hen the law firm has allowed for 4uite a period the messenger of another office to receive
mails and correspondence on their behalf, an implied agency had been duly constituted,
specially when there is no showing that counsel had obMected to such practice or too% step to
put a stop to it. +<uita)le PC$-&an' v. =u, 200 #C/A 2)- ,!))1..
2. B#$5. &" A/!$01
-. -.!5 &$ @.#$!.. &( T(-$.-0%#&$. E$0&=4-..!5 'A(%. 1):*+
'1+ G!$!(-2 &( U$#8!(.-2 A/!$01
An agent may be ,1. universal$ ,!. general, or ,2. special. A universal a-ent is one
authori9ed to do all acts for his principal which can lawfully be delegated to an agent$ such an
agent may be said to have universal authority. A -eneral a-ent is one authori9ed to do all
acts pertaining to a business of a certain %ind or at a particular place, or all acts pertaining to a
business of a particular class or series. Fe has usually authority either e&pressly conferred in
general terms or in effect made general by the usages, customs or nature of the business
which he is authori9ed to transact. An agent, therefore, who is empowered to transact all the
business of his principal of a particular %ind or in a particular place, would for this reason, be
ordinarily deemed a general agent. A special a-ent is one authori9ed to do some particular
act or to act upon some particular occasion$ he acts usually in accordance with specific
instructions or under limitations necessarily implied from the nature of the act to be done.
Siasat v. $AC, 12- #C/A !28 ,1-80..
'2+ S4!0#-2 &( P-(%#0@2-( A/!$01
"he right of an agent to indorse commercial paper ,chec%. is a very responsible power and
will not be lightly inferred. A salesman with authority to collect money for his principal does not
have the implied authority to indorse chec%s received in payment. Any person ta%ing chec%s
made payable to a corporation which can act only by agents does so at his peril, and must
abide by the conse4uence if the agent who indorses the same is without authority. $nsular
,rug v. P>&, 08 *hil. 68( ,1-22..
6. W3!%3!( I% C&8!(. L!/-2 M-%%!(.
'1+ A%%&($!1--%-L-C
7nly the employee, not his counsel, can impugn the consideration of the compromise as
being unconscionable. "he relation of attorney and client is in many respects one of agency,
and the general rules of agency apply to such relationNthe circumstances of this case indicate
that the employee>s counsel acted beyond the scope of his authority in 4uestioning the
compromise agreement. Although a client has undoubtedly the right to compromise a suit
without the intervention of his lawyer, the same cannot be done to defraud the lawyer of the
earned attorney>s fees. .-Phil Marine# $nc. v. >"!C, 061 #C/A 6+0 ,!))8..
An attorney cannot, without a client>s authori9ation, settle the action or subMect matter of the
litigation even when he believes that such a settlement will best serve his client>s interest.
Philippine Aluminum 2heels# $nc. v. 3AS%$ +nterprises# $nc., 2(! #C/A +!! ,!)))..
'2+ A%%&($!1-#$-F-0%
"he relationship of attorney and client is in many respects one of agency, and the general
rules of agency apply to such relation. "he acts of an agent are deemed the acts of the
principal only if the agent acts within the scope of his authority. "hus, when the lawyer files an
opposition to the compromise agreement that has been validly entered into by his client, he is
acting beyond the scope of his authority. /.-Phil. Marine# $nc. v. >"!C# 061 #C/A 6+0 ,!))8@.
0. W3!%3!( I% C&8!(. A0%. &" A5=#$#.%(-%#&$ &( A0%. &" D&=#$#&$? F%owers of #ttorneyG
'1+ F&(= &" P&C!(. &" A%%&($!1
6n a case involving authority to act in baranggay conciliation cases covering an eMectment
for failure to pay rentals3 A power of attorney is an instrument in writing by which one person,
as principal, appoints another as his agent and confers upon him the authority to perform
certain specified acts or %inds of acts on behalf of the principal. "he written authori9ation itself
is the power of attorney, and this is clearly indicated by the fact that it has also been called a
letter of attorney. 2ee v. ,e Castro, 06! #C/A 6-0 ,!))8..
"he Better dated Lanuary 16, 1--6 relied upon by the petitioners was signed by respondent
Qernande9 alone, without any authority from the respondents'owners. "here is no actuation of
respondent Qernande9 in connection with her dealings with the petitioners. As such, said letter
is not binding on the respondents as owners of the subMect properties. )itonjua v.
Fernande*, 42: SCRA 4:) '2004+.
6t is a general rule that a power of attorney must be strictly construed$ the instrument will be
held to grant only those powers that are specified, and the agent may neither go beyond nor
deviate from the power of attorney. Olaguer v. Purugganan# .r., 010 #C/A (6) ,!))+..
'2+ G!$!(-2 P&C!( &" A%%&($!1 'A(%. 1)::+
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 e&ecute such acts as
he may consider appropriate, or even though the agency should authori9e a general and
unlimited management. 1oshi0a'i v. .oy /raining Center of Aurora# $nc., +)! #C/A 621
,!)12..
1e stress that the power of administration does not include acts of disposition or
encumbrance, which are acts of strict ownership. As such, an authority to dispose cannot
proceed from an authority to administer, and vice versa, for the two powers may only be
e&ercised by an agent by following the provisions on agency of the Civil Code ,from Article
18+6 to Article 18+8.. #--abao v. %arulan "r., *2> SCRA 5*2 '2010+.
'9+ S4!0#-2 P&C!( &" A%%&($!1
Although a #pecial *ower of Attorney was issued by the insurance company to its agency
manager, it wordings show that it sought only to establish an agency that comprises all the
business of the principal within the designated locality, but couched in general terms, and
conse4uently was limited only to acts of administration. A general power permits the agent to
do all acts for which the law does not re4uire a special power. "hus, the acts enumerated in or
similar to those enumerated in the #pecial *ower of Attorney ,i.e., really a general power of
attorney. did not re4uire a special power of attorney, and could only cover acts of
administration. ,o'inion 0nsurance Corp. v. Court of #ppeals, 9:* SCRA 29> '2002+.
<ven when the title given to a deed is as a Heneral *ower of Attorney, but its operative
clause contains an authority to sell, it constituted the re4uisite special power of attorney to sell
a piece of land. "hus, there was no need to e&ecute a separate and special power of attorney
since the general power of attorney had e&pressly authori9ed the agent or attorney in fact the
power to sell the subMect property. "he special power of attorney can be included in the
general power when it is specified therein the act or transaction for which the special power is
re4uired. 4eloso v. Court of #ppeals+ 2*0 SCRA 5>9 '1>>*+.
1hen an agent has been given general control and management of the business, he is
deemed to have power to employ such agents and employees as are usual and necessary in
the conduct of the business, and needs no special power of attorney for such purpose. 1u
Chuc' v. 7=ong "i Po, (6 *hil. 6)8 ,1-!(..
An attorney'in'fact empowered to pay the debts of the principal and employ legal counsel
to defend the principal>s interest, has certainly the implied power to pay on behalf of the
principal the attorney>s fees charged by the lawyer. Municipal Council of $loilo v. +vangelista,
00 *hil. !-) ,1-2)..
A co'owner who is made an attorney'in'fact, with the same power and authority to deal
with the property which the principal might or could have had if personally present, may adopt
the usual legal means to accomplish the obMect, including acceptance of service and engaging
of legal counsel to preserve the ownership and possession of the principal>s property.
%overnment of P$ v. 2agner, 0( *hil. 12! ,1-!-..
Contracts of agency and general powers of attorney, must be interpreted in accordance
with the language used by the parties. "he real intention of the parties is primarily to be
determined from the language used. "he intention is to be gathered from the whole
instrument. 6n case of doubt, resort must be had to the situation, surroundings, and relations
of the parties. 1henever it is possible, effect is to be given to every word or clause used by
the parties. 6t is to be presumed that the parties said what they intended to say and that they
used each word or clause with sole purpose, and that purpose is, if possible, to be
ascertained and enforced. 6f the contract be open to two constructions, one of which would
while the other would overthrow it, the former is to be chosen. 6f by one construction the
contract would be illegal, and by another e4ually permissible construction would be lawful, the
latter must be adopted. "he acts of the parties will be presumed to be done in conformity with
and not contrary to the intent of the contract. "he meaning of general words must be
construed with reference to the specific obMect to be accomplished and limited by the recitals
made in reference to such obMect. "inan v. Puno, 21 *hil. !0- ,1-10..
'4+ EE4(!.. P&C!( &" A%%&($!1 EE02@5!. P&C!(. &"
A5=#$#.%(-%#&$ 'e.-., G!$!(-2 P&C!( &" A%%&($!1+
"he instrument which grants to the agent the power "o follow'up, as%, demand, collect
and receipt for my benefit indemnities or sum due me relative to the sin%ing of G.I. 5<G7# in
the vicinity of <l Ladida, Casablanca, Gorocco on the evening of Qebruary 1+, 1-86, is a
special power of attorney, e&cludes any intent to grant a general power of attorney or to
constitute a universal agency. ?eing special powers of attorney, they must be strictly
construed. "he instrument cannot be read to give power to the attorney'in'fact to obtain,
receive, receipt from the insurance company the proceeds arising from the death of the
seaman'insured, especially when the commercial practice for group insurance of this nature is
that it is the employer'policyholder who too% out the policy who is empowered to collect the
proceeds on behalf of the covered insured or their beneficiaries. %ineda v. Court of
#ppeals, 22* SCRA :54 '1>>9+.
5. C-.!. W3!(! S4!0#-2 P&C!(. &" A%%&($!1 A(! N!0!..-(1 'A(%. 1):)+
'1+ T& M-A! P-1=!$%. F#s #re &ot (sually Considered as #cts of #d'inistrationG
6n the case of the area manager of an insurance company, it was held that the payment of
claims is not an act of administration, and that since the settlement of claims was not included
among the acts enumerated in the #pecial *ower of Attorney issued by the insurance
company, nor is of a character similar to the acts enumerated therein, then a special power of
attorney was re4uired before such area manager could settle the insurance claims of the
insured. Conse4uently, the amounts paid by the area manager to settle such claims cannot be
reimbursed from the principal insurance company. ,o'inion 0nsurance Corp. v. Court of
#ppeals, 9:* SCRA 29> '2002+.
'2+ T& E""!0% N&8-%#&$. W3#03 P@% -$ E$5 %& O62#/-%#&$. A2(!-51 #$ EE#.%!$0! -% %3!
T#=! %3! A/!$01 W-. C&$.%#%@%!5
'9+ T& C&=4(&=#.!, T& S@6=#% H@!.%#&$. %& A(6#%(-%#&$, T& R!$&@$0! %3! R#/3% %&
A44!-2 "(&= - J@5/=!$%, T& W-#8! O67!0%#&$. %& %3! V!$@! &" -$ A0%#&$, &( T&
A6-$5&$ - P(!.0(#4%#&$ A2(!-51 A0I@#(!5
T3! 4&C!( %& 0&=4(&=#.! !E02@5!. %3! 4&C!( %& .@6=#% %& -(6#%(-%#&$. I% C&@25
-2.& 6! (!-.&$-62! %& 0&$02@5! %3-% %3! 4&C!( %& .@6=#% %& -(6#%(-%#&$ 5&!. $&%
0-((1 C#%3 #% %3! 4&C!( %& 0&=4(&=#.!. ,A(%. 1))0.
1hen an agent has been empowered to sell hemp in a foreign country, that e&press power
carries with it the implied power to ma%e and enter into the usual and customary contract for
its sale, which sale contract may provide for settlement of issues by arbitration. 1e are clearly
of the opinion that the contract in 4uestion is valid and binding upon the defendant AprincipalE,
and that authority to ma%e and enter into it for and on behalf of the defendant AprincipalE, but
as a matter of fact the contract was legally ratified and approved by the subse4uent acts and
conducts of the defendant AprincipalE. !o)inson 3leming v. Cru0, (- *hil (! ,1-!6..
"rue, said counsel asserted that he had verbal authority to compromise the case. "he
/ules, however, re4uire, for attorneys to compromise the litigation of their clients, a special
authority ,#ection !2, /ule 128, /ules of Court.. And while the same does not state that the
special authority be in writing, the court has every reason to e&pect, that, if not in writing, the
same be duly established by evidence other than the self'serving assertion of counsel himself
that such authority was verbally given to him. Qor, authority to compromise cannot lightly be
presumed. 5o'e 0nsurance Co. v. (S), 21 SCRA )*9 '1>*:+.
Old Civil Code3 "he power to bring suit in order to collect sums of money accruing in the
ordinary course of business as properly belonging to the class of acts described in article 1+12
of the Civil Code as acts of Rstrict ownership>. 6t seems rather to be something which is
necessarily a part of the mere administration of such a business as that described in the
instrument in 4uestion and only incidentally, if at all, involving a power to dispose of the title to
property. A6n any event, the provision to e&act the payment of sums of money by legal means
was construed to be e&press power to sue.E %ermann v. ,onaldson, 1 *hil 62 ,1-)1..
'4+ T& W-#8! A$1 O62#/-%#&$ G(-%@#%&@.21
'5+ T& E$%!( I$%& A$1 C&$%(-0% 61 W3#03 %3! OC$!(.3#4 &" -$ I==&8-62! I.
T(-$.=#%%!5 &( A0I@#(!5 E#%3!( G(-%@#%&@.21 &( "&( - V-2@-62! C&$.#5!(-%#&$
According to the provisions of Article 18+( on Agency, when the sale of a piece of land or
any interest therein is made through an agent, the authority of the latter shall be in writing.
Absent this re4uirement, the sale shall be void. Also, under Article 18+8, a special power of
attorney is necessary in order for an agent to enter into a contract by which the ownership of
an immovable property is transmitted or ac4uired, either gratuitously or for a valuable
consideration. !state of )ino Ola-uer v. On-joco+ 5*9 SCRA 9:9 '200)+.
Article 18+8 provides that a special power of attorney is necessary to enter into any
contract by which the ownership of an immovable is transmitted or ac4uired either gratuitously
or for a valuable consideration, or to create or convey real rights over immovable property, or
for any other act of strict dominion. Any sale of real property by one purporting to be the agent
of the registered owner without any authority therefore in writing from the said owner is null
and void$ declarations of the agent alone are generally insufficient to establish the fact or
e&tent of her authority. )itonjua v. Fernande*, 42: SCRA 4:) '2004+.
"he power e&pressly conferred on the agent to sell for such price or amount is broad
enough to cover the e&change contemplated in the @eed of Assignment and Conveyance
between the properties and the corresponding corporate shares in a corporation, with the latter
replacing the cash e4uivalent of the option money initially agreed to be paid by the said
corporation under the Gemorandum of Agreement. A special power of attorney to sell is
sufficient to enable the agent to ma%e a binding commitment under the @eed of Assignment
and Conveyance. ernande0->ievera v. ernande0, 6(! #C/A 6(6 ,!)11..
'5-A+ S-2! &" - P#!0! &" L-$5 &( I$%!(!.% T3!(!#$ 'A(%. 1):4+
AArticle 18+( and Aritcle 18+0 ,0. e&plicitly re4uire a written authority when the sale of a
piece of land is through an agent, whether the sale is gratuitously or for a valuable
consideration. Absent such authority in writing, the sale is null and void. S 6n the case at bar,
it is undisputed that the sale of the subMect lots to #pouses ?autista was void. ?ased on the
records, 5asino had no written authority from #pouses Lalandoni to sell the subMect lots. "he
testimony of <liseo that 5asino was empowered by a special power of attorney to sell the
subMect lots was bereft of merit as the alleged special power attorney was neither presented in
court nor was it referred to in the deeds of absolute sale. ?are allegations, unsubstantiated by
evidence, are not e4uivalent to proof under the /ules of Court. $autista v. Spouses
"alandoni ;G.R. N&. 1:14*4. N&8!=6!( 2:, 2019.<
1here the nephew in his own name sold a parcel of land with a masonry house
constructed thereon to the company, when in fact it was property owned by the uncle, but in
the estafa case filed by the company against the nephew, the uncle swore under oath that he
had authori9ed his nephew to sell the property, the uncle can be compelled in the civil action
to e&ecute the deed of sale covering the property. 6t having been proven at the trial that he
gave his consent to the said sale, it follows that the defendant conferred verbal, or at least
implied, power of agency upon his nephew @uran, who accepted it in the same way by selling
the said property. "he principal must therefore fulfill all the obligations contracted by the agent,
who acted within the scope of his authority. ,Arts. 1+)-, 1+1) and 1+!+. Gutierre*
5er'anos v. Orense, 2) P3#2. 5:2 '1>14+.
1hen no particular formality is re4uired by law, rules or regulation, then the principal may
appoint his agent in any form which might suit his convenience or that of the agent, in this
case a letter addressed to the agent re4uesting him to file a protest in behalf of the principal
with the Collector of Customs against the appraisement of the merchandise imported into the
country by the principal. =uen0le and Streiff v. Collector of Customs, 21 *hil 6(6 ,1-10..
A power of attorney to convey real property need not be in a public document, it need only
be in writing, since a private document is competent to create, transmit, modify, or e&tinguish a
right in real property. .imene0 v. !a)ot, 28 *hil 2+8 ,1-18..
Under #ec. 220 of the Code of Civil *rocedure, an agreement for the leasing for a longer
period than one year, or for the sale of real property, or of an interest therein, is invalid if made
by the agent unless the authority of the agent be in writing and subscribed by the party sought
to be charged. !io y Ola))arrieta v.1utec, (- *hil !+6 ,1-!6..
"he e&press mandate re4uired by Article 18+( to enable an appointee of an agency
couched in general terms to sell must be one that e&pressly mentions a sale of a piece of land
or that includes a sale as a necessary ingredient of the act mentioned. "he power of attorney
need not contain a specific description of the land to be sold, such that giving the agent the
power to sell any or all tracts, lots, or parcels of land belonging to the principal is ade4uate.
,omingo v. ,omingo, (! #C/A 121 ,1-+1..
1here the special power of attorney primarily empowered the agent of the corporation to
bring an eMectment case against the occupant and also to compromise . . . so far as it shall
protect the rights and interest of the corporation in the aforementioned lots, and that the agent
did e&ecute a compromise in the legal proceedings filed which sold the lots to the occupant,
the compromise agreement is void for the power to sale by way of compromise could not be
implied to protect the interests of the principal to secure possession of the properties.
Cos'ic )u'ber v. Court of #ppeals, 2*5 SCRA 1*) '1>>*+.
Article 18+8 provides that in the sale of a parcel of land or any interest therein made
through an agent, a special power of attorney is essential$ Article 18+( provides that such
authority must be in writing, otherwise the sale shall be void. %ineda v. Court of #ppeals,
9:* SCRA 222 '2002+.
Agency may be oral unless the law re4uires a specific form. Fowever, to create or convey
real rights over immovable property, a special power of attorney is necessary. "hus, when a
sale of a piece of land or any portion thereof is through an agent, the authority of the latter
shall be in writing, otherwise, the sale shall be void. )itonjua+ "r. v. !ternit Corp.+ 4>0
SCRA 204 '200*+. ACLV ; 5otice that the article does not declare the agency to be void, but
the resulting contract of sale effected by the agent. $s the agency itself voidCE
Under Article 18+8 of the Civil Code, a special power of attorney is necessary for an agent
to enter into a contract by which the ownership of an immovable property is transmitted or
ac4uired, either gratuitously or for a valuable consideration. Absence of a written authority to
sell a piece of land is ipso -ure void, precisely to protect the interest of an unsuspecting owner
from being preMudiced by the unwarranted act of another. %ahud v. Court of #ppeals, 5>:
SCRA 19 '200>+.
6n sales involving real property or any interest therein, a written authority in favor of the
agent is necessary, otherwise the sale is void. As a general rule, a contract of agency may be
oral. Fowever, it must be written when the law re4uires a specific form. #pecifically, Article
18+( of the Civil Code provides that the contract of agency must be written for the validity of
the sale of a piece of land or any interest therein. 7therwise, the sale shall be void. A related
provision, Article 18+8 of the Civil Code, states that special powers of attorney are necessary
to convey real rights over immovable properties. 3oshi*a2i v. "oy 1rainin- Center of
#urora+ 0nc., :02 SCRA *91 '2019+.
11
'#+ C&(4&(-%! S-2! &" L-$5. ; 1hen the sale of a piece of land or any interest therein is
through an agent, the authority of the latter shall be in writing$ otherwise, the sale shall
be void. "he same situation applies when the sale of corporate piece of land is pursued
through an officer without written authority. City)ite Realty Corp. v. Court of
#ppeals, 925 SCRA 9)5 '2000+.
1hen the corporation>s primary purpose is to mar%et, distribute, e&port and import
merchandise, the sale of land is not within the actual or apparent authority of the
corporation acting through its officers, much less when acting through the treasurer.
Bi%ewise, Arts. 18+( and 18+8 re4uire that when land is sold through an agent, the
agent>s authority must be in writing, otherwise the sale is void. San .uan Structural v.
CA, !-6 #C/A 621 ,1--8..
1!
'5-+ A/!$%. C-$$&% @1 P(&4!(%1 &" P(#$0#4-2 U$2!.. A@%3&(#J!5 'A(%. 14>1;2<+
"he prohibition against agents purchasing property in their hands for sale or management
is, however, clearly, not absolute. 1hen so authori9ed by the principal, the agent is not
dis4ualified from purchasing the property he holds under a contract of agency to sell. Olaguer
v. Purugganan# .r., 010 #C/A (6) ,!))+..
'*+ T& L!-.! R!-2 P(&4!(%1 "&( M&(! T3-$ O$! Y!-(
Article 18+8 of the Civil Code e&presses that a special power of attorney is necessary to
lease any real property to another person for more than one year. "he lease of real property
for more than one year is considered not merely an act of administration but an act of strict
dominion or of ownership. A special power of attorney is thus necessary for its e&ecution
through an agent. ShopperAs Paradise !ealty v. !o<ue, (1- #C/A -2 ,!))(..
1here the lease contract involves the lease of real property for a period of more than one
year, and it was entered into by the agent of the lessor and not the lessor herself, in such a
case, Article 18+8 of the Civil Code re4uires that the agent be armed with a special power of
attorney to lease the premises. Conse4uently, the provisions of the contract of lease, including
the grant therein of an option to purchase to the lessee, would be unenforceable. 4da. ,e
Chua v. $AC, !!- #C/A -- ,1--(..
11
Alcantara v. >ido# 618 #C/A 222 ,!)1).$ Camper !ealty Corp. v. Pa-o-!eyes, 62! #C/A ()) ,!)1).$ !ecio v. eirs of the
Spouses Altamirano, +)! #C/A 12+ ,!)12.$
12
A3 !ealty & ,ev.# $nc. v. ,ieselman 3reight Services Co.# 2+2 #C/A 280 ,!))!.$ 3irme v. &u'al +nterprises and ,ev. Corp.,
(1( #C/A 1-) ,!))2..
1hen the attorney'in'fact was empowered by his principal to ma%e an assignment of
credits, rights, and interests, in payment of debts for professional serviced rendered by laws,
and the hiring of lawyers to ta%e charge of any actions necessary or e&pedient for the interests
of his principal, and to defend suits brought against the principal, such powers necessarily
implies the authority to pay for the professional services thus engaged, which includes
assignment of the Mudgment secured for the principal in settlement of outstanding professional
fees. Municipal Council of $loilo v. +vangelista, 00 *hil. !-) ,1-2)..
':+ T& C(!-%! &( C&$8!1 R!-2 R#/3%. &8!( I==&8-62! P(&4!(%1
')+ T& M-A! G#"%.
'>+ T& L&-$ &( &((&C M&$!1
EE0!4%? "he agent may borrow money when it s urgent and indispensable for the
preservation of the things which are under administration.
P&C!( %& S!22 EE02@5!. P&C!( %& M&(%/-/! -$5 4ice 4ersa 'A(%. 1):>+
A special power of attorney is necessary for an agent to borrow money, unless it be urgent
and indispensable for the preservation of the things which are under administration. 1asuma
v. eirs of Cecilio S. ,e 4illa# (-- #C/A (66 ,!))6..
12
6t is a general rule in the law agency that, in order to bind the principal by a mortgage on
real property e&ecuted by an agent, it must upon its face purport to be made, signed and
sealed in the name of the principal, otherwise, it will bind the agent only. %o0un v. Mercado
011 #C/A 2)0 ,!))6..
A power of attorney, li%e any other instrument, is to be construed according to the natural
import of its language$ and the authority which the principal has conferred upon his agent is
not to be e&tended by implication beyond the natural and ordinary significance of the terms in
which that authority has been given. "he attorney has only such authority as the principal has
chosen to confer upon him, and one dealing with him must ascertain at his own ris% whether
his acts will bind the principal. "hus, where the power of attorney which vested the agent with
authority for me and in my name to sign, seal and e&ecute, and as my act and deed, delivery
any lease, any other deed for conveying any real or personal property or any other deed for
the conveying of any real or personal property, it does not carry with it or imply that the agent
for and on behalf of his principal has the power to e&ecute a promissory note or a mortgage to
secure its payment. >ational &an' v. /an Ong S0e, 02 *hil. (01 ,1-!-..
1here the power of attorney e&ecuted by the principal authori9ed the agent ?y means of a
mortgage of my real property, to borrow and lend sums in cash, at such interest and for such
periods and conditions as he may deem property and to collect or to pay the principal and
interest thereon when due, while it did not authori9e the agent to e&ecute deeds of sale with
right of repurchase over the property of the principal, nonetheless would validate the main
contract of loan entered into with the deed of sale with right of repurchase constituting merely
an e4uitable mortgage, both contracts of which were within the scope of authority of the agent.
!odrigue0 v. Pamintuan and ,e .esus, 2+ *hil 8+6 ,1-18..
An #*A to mortgage real estate is limited to such authority to mortgage and does not bind
the grantor personally to other obligations contracted by the grantee ,in this case the personal
loan obtained by the agent in his own name from the *5?. in the absence of any ratification or
other similar act that would estop the grantor from 4uestioning or disowning such other
obligations contracted by the grantee. P>& v. Sta. Maria, !- #C/A 2)2 ,1-6-..
6n other words, the power to mortgage does not include the power to obtain loans,
especially when the grantors allege that they had no benefit at all from the proceeds of the
loan ta%en by the agent in his own name from the ban%. 6t is not unusual in family and
business circles that one would allow his property or an undivided share in real estate to be
mortgaged by another as security, either as an accommodation or for valuable consideration,
but the grant of such authority does not e&tend to assuming personal liability, much less
solidary liability, for any loan secured by the grantee in the absence of e&press authority so
given by the grantor. P>& v. Sta. Maria, !- #C/A 2)2, 21) ,1-6-..
"he wife may not be held liable for the payment of the mortgage debt contracted by the
husband, where the power of attorney given to the husband was limited to a grant of authority
to mortgage land titled in the wife>s name. ,e 4illa v. 3a)ricante, 1)0 *hil. 6+! ,1-0-..
'10+ T& #$5 %3! P(#$0#4-2 %& R!$5!( S&=! S!(8#0! W#%3&@% C&=4!$.-%#&$
'11+ T& #$5 %3! P(#$0#4-2 #$ - C&$%(-0% &" P-(%$!(.3#4
13
%o0un v. Mercado 011 #C/A 2)0 ,!))6..
'12+ T& O62#/-%! %3! P(#$0#4-2 -. - G@-(-$%&( &( S@(!%1
1here a power of attorney is e&ecuted primarily to enable the attorney'in'fact, as manager
of a mercantile business, to conduct its affairs for and on behalf of the principal, who is the
owner of the business, and to this end the attorney'in'fact is authori9ed to e&ecute contracts
relating to the principal>s property Aact and deed delivery, any lease, or any other deed for the
conveying any real or personal property and act and deed delivery, any lease, release,
bargain, sale, assignment, conveyance or assurance, or any other deed for the conveying any
real or personal propertyE , such power will not be interpreted as giving the attorney'in'fact
power to bind the principal by a contract of independent guaranty or surety unconnected with
the conduct of the mercantile business. Heneral words contained in such power will not be
interpreted to e&tend power to the ma%ing of a contract of suretyship, but will be limited, under
the well'%now rule of construction indicated in the e&press in e-usdem generis, as applying to
matters similar to those particularly mentioned. ,irector v. Sing .uco, 02 *hil !)0 ,1-!-..
7ur law mandates an agent to act within the scope of his authority ,Art. 1881., which is
what appears in the written terms of the power of attorney granted upon him ,Art. 1-)). Under
Article 18+8,11. of the Civil Code, - .4!0#-2 4&C!( &" -%%&($!1 is necessary to obligate the
principal as a guarantor or surety. Country &an'ers $nsurance Corp. v =eppel Ce)u Shipyard,
6+2 #C/A (!+ ,!)1!..
'19+ T& A00!4% &( R!4@5#-%! -$ I$3!(#%-$0!
'14+ T& R-%#"1 &( R!0&/$#J! O62#/-%#&$. C&$%(-0%!5 !"&(! %3! A/!$01
1here a wife gave her husband a power of attorney to loan and borrow money and to
mortgage her property, that fact does not carry with it or imply that he has a legal right to sign
her name to a promissory note which would ma%e her liable for the payment of a pre'e&isting
debt of the husband or that of his firm, for which she was not previously liable, or to mortgage
her property to secure the pre'e&isting debt. &.P.$. v. ,e Coster, (+ *hil 0-( ,1-!0..
1here the power granted to substituted attorney'in'fact was to the end that the principal'
seller may be able to collect the balance of the selling price of the printing establishment sold,
such substitute agent had no power to enter into new sales arrangements with the buyer, or to
novate the terms of the original sale. 4illa v. %arcia &os<ue, (- *hil 1!6 ,1-!6..
!. N&%-(#J!5 P&C!( &" A%%&($!1
A notari9ed power of attorney carries with it the evidentiary weight conferred upon it with
respect to its due e&ectuion. 4elso v. Court of Appeals, !6) #C/A 0-2 ,1--6..
1hen a special power of attorney is duly notari9ed, the notarial ac%nowledgment is prima
facie evidence of the fact of its due e&ecutionNa buyer has every reason to rely on a person>s
authority to sell a particular property owned by a corporation on the basis of a notari9ed board
resolutionNundeniably the buyer is an innocent purchaser for value in good faith. St. MaryAs
3arm# $nc. v. Prima !eal Properties# $nc., 06) #C/A +)( ,!))8..
III. POWER AND OLIGATIONS OF THE AGENT
1. G!$!(-2 O62#/-%#&$ &" A/!$% W3& A00!4%. %3! A/!$01 'A(%. 1))4+
-. U4&$ A00!4%-$0! &" A44&#$%=!$%? A/!$% I. &@$5 %& C-((1 &$
A/!$01 %& I%. C&=42!%#&$ -$5 "&( %3! !$!"#% &" P(#$0#4-2
OTHERWISE 3 A/!$% W#22 ! L#-62! "&( D-=-/!. C3#03 T3(&@/3 H#. N&$-P!("&(=-$0! %3!
P(#$0#4-2 M-1 S@""!( D-=-/!.
6. I$ E8!$% &" D!-%3 &" P(#$0#4-2? A/!$% M@.% F#$#.3 @.#$!.. A2(!-51 !/@$ S3&@25
D!2-1 E$%-#2 A$1 D-$/!( ,$(1 S!!? A(%. 1>1>'9+ - D!-%3 EE%#$/@#.3!. A/!$01.
6n construing the original version of Article 188( ,Article 1+18 of the old Civil Code., the
#upreme Court held that the burden is on the person who see%s to ma%e an agent liable to show
that the losses and damage caused were occasioned by the fault or negligence of the agent$
mere allegation without substantiation is not enough to ma%e the agent personally liable. eredia
v. Salina, 1) *hil 10+ ,1-)8..
1here the holder of an e&clusive and irrevocable power of attorney to ma%e collections, failed
to collect the sums due to the principal and thereby allowed the allotted funds to be e&hausted by
other creditors, such agent has failed to act with the care of a good father of a family re4uired
under Article 188+ and became personally liable for the damages which the principal may suffer
through his non'performance. P>& v. Manila Surety, 1( #C/A ++6 ,1-60..
Under Article !6+ of the Code of Commerce which declared that no agent shall purchase for
himself or for another that which he has been ordered to sell, then a sale by a bro%er to himself
without the consent of the principal would be void and ineffectual whether the bro%er has been
guilty of fraudulent conduct or not. Conse4uently, such bro%er is not entitled to receive any
commission under the contract, much less any reimbursement of e&penses incurred in pursuing
and closing such sales. "he same prohibition is now contained in Article 1(-1,1. of the Civil
Code. &arton v. "eyte Asphalt, (6 *hil -28 ,1-!(..
1hen the finance company e&ecutes a mortgage contract that contains a provision that in the
event of accident or loss, it shall ma%e a proper claim against the insurance company, was in
effect an agency relation, and that under Article 188(, the finance company was bound by its
acceptance to carry out the agency, and in spite of the instructions of the borrowers to ma%e such
claims instead insisted on having the vehicle repaired but eventually resulting in loss of the
insurance coverage, the finance company had breached its duty of diligence, and must assume
the damages suffered by the borrowers, and conse4uently can no longer collect on the balance of
the mortgage loan secured thereby. $# Finance v. Court of #ppeals, 201 SCRA 15: '1>>1+.
"he well'settled rule is that an agent is also responsible for any negligence in the performance
of its function ,Art. 1-)-. and is liable for the damages which the principal may suffer by reason of
its negligent act. ,Art. 188(.. $ritish #irways v. Court of #ppeals, 2)5 SCRA 450 '1>>)+.
2. O62#/-%#&$ &" A/!$% W3& D!02#$!. A/!$01 'A(%. 1))5+
-. I" G&&5. A(! F&(C-(5!5 %& H#=? 7bserve diligence of a good father of a family in custody
and preservation of goods until new agent appointed
6. C&=4-(! C#%3 A(%. 1>2> ; 7bligation of an agent who withdraws form an agency ; he must
continue to act until principal ta%es necessary steps to meet situation
9. G!$!(-2 R@2! &$ EE!(0#.! &" P&C!(
-. A/!$% M@.% A0% FW#%3#$ %3! S0&4! &" H#. A@%3&(#%1G 'A(%. 1))1+
'1+ Meanin- of .%erfor'ance 6ithin the Scope of #uthority/ 'A(%. 1>00+
'2+ 5e May %erfor' #cts Conducive to #cco'plish'ent of #-ency %urpose
Under Art. 1881 the agent must act within the scope of his authority to bind his principal. #o
long as the agent has authority, e&press or implied, the principal is bound by the acts of the
agent on his behalf, whether or not the third person dealing with the agent believes that the
agent has actual authority. "hus, all signatories in a contract should be clothed with authority
to bind the parties they represent. Sargasso Construction & ,ev. Corp. v. PPA, 6!2 #C/A
!6) ,!)1)..
Art. 1881 provides that the agent must act within the scope of his authority. *ursuant to
the authority given by the principal, the agent is granted the right to affect the legal relations of
his principal by the performance of acts effectuated in accordance with the principal=s
manifestation of consent. Pacific !ehouse Corp. v. +$& Securities# $nc., 622 #C/A !1(
,!)1)..
6. C&=4-(! C#%3 A(%. 1)): ; A/!$% M@.% F&22&C I$.%(@0%#&$. &" %3! P(#$0#4-2
0. A@%3&(#%1 &" A/!$% N&% D!!=!5 EE0!!5!5 I" P!("&(=!5 #$ -
M-$$!( M&(! A58-$%-/!&@. %& P(#$0#4-2 'A(%. 1))2+
'1+ C&=4-(!? #-ent Should &ot #ct 0f 0t 6ould Manifestly
Result in )oss or ,a'a-e to %rincipal 'A(%. 1)))+
Article 188! of the Civil Code provides that the limits of an agent>s authority shall not be
considered e&ceeded should it have been performed in a manner advantageous to the
principal than that specified by him. Olaguer v. Purugganan# .r., 010 #C/A (6) ,!))+..
Admissions obtained by the agent from the adverse party prior to the formal amendment of
the complaint that included the principal as a party to the suit, can be availed of by the
principal since an agent may do such acts as may be conducive to the accomplishment of the
purpose of the agency, admissions secured by the agent within the scope of the agency ought
to favor the principal. "his has to be the rule, for the act or declarations of an agent of the party
within the scope of the agency and during its e&istence are considered and treated in turn as
declarations, acts and representations of his principal and may be given in evidence against
such party &ay 4iew otel v. =er & Co., 116 #C/A 2!+ ,1-8!..
5. E""!0%. &" N&$-R-%#"#!5 A0%. D&$! 61 A/!$% #$ EE0!.. &" H#.
A@%3&(#%1? U$!$"&(0!-62!, N&% V&#5 'A(%.. 191:, 1409 -$5 1)>)+
1hen money is received as a deposit by an agent, and that money is turned over by the agent
to the principal, with notice that it is the money of the depositor, the principal is bound to deliver to
the depositor, even if his agent was not authori9ed to receive such deposit. A"here has, in effect,
ratification of the unauthori9ed act of the agent, thereby binding the principalE. Cason v. !ic'ards,
0 *hil 62- ,1-)6..
1hen the administrator enters into a contract that is outside of the scope of authority, the
contract would nevertheless not be an absolute nullity, but simply voidable AunenforceableE at the
instance of the parties who had been improperly represented, and only such parties can assert
the nullity of said contracts as to them. Dayco v. Serra, (- *hil -80 ,1-!0..
Under Article 18-8, the acts of an agent beyond the scope of his authority do not bind the
principal, unless the latter ratifies the same e&pressly or impliedly. Qurthermore, when the third
person . . . %nows that the agent was acting beyond his power or authority, the principal cannot
be held liable for the acts of the agent. 6f the said third person is aware of the limits of the
authority, he is to blame, and is not entitled to recover damages from the agent, unless the latter
undertoo% to secure the principal>s ratification. Cervantes v. Court of #ppeals, 904 SCRA 25
'1>>>+$ Safic Alcan v. $mperial 4egeta)le, 200 #C/A 00- ,!))1..
<ven when the agent, in this case the attorney'at'law who represented the client in forging a
compromise agreement, has e&ceeded his authority in inserting penalty clause, the status of the
said clause is not void but merely voidable, i.e.# capable of being ratified. 6ndeed, the client>s
failure to 4uestion the inclusion of the penalty in the Mudicial compromise despite several
opportunities to do so and with the representation of new counsel, was tantamount to ratification.
Fence, the client is stopped from assailing the validity thereof. $orja+ Sr. v. Sulyap, 0nc., 9>>
SCRA *01 '2009+.
Contracts entered in the name of another person by one who has been given no authority or
legal representation or who has acted beyond his powers are classified as unauthori9ed contracts
and are unenforceable, unless they are ratified. Go*un v. Mercado 511 SCRA 905 '200*+.
!. C&$.!I@!$0!. W3!$ A/!$% A0%. #$ H#. OC$ N-=! 'A(%. 1))9+
'1+ %rincipal 5as &o Ri-ht #-ainst 1hird %erson 0f #-ent #cts in 5is Own &a'e
Article 1+1+ of the old Civil Code provides that 1hen an agent acts in his own name, the
principal shall have no action against the persons with whom the agent has contracted, nor the
said persons against the principal. Article !(6 of the Code of Commerce provides that 1hen
an agent transacts business in his own name, it shall not be necessary for him to state who is
the principal, and he shall be directly liable as if the business were for his own account, to the
persons with whom he transacts the same, said person not having any right of action against
the principal, nor the latter against the former, the liabilities of the principal and the agent to
each other always reserved. 6t being established by a preponderance of the evidence that the
agent acted in his own name in selling the merchandise to the defendants, and that the
defendants fully believed that they were dealing with the said agent, without any %nowledge of
the fact that he was the agent of the plaintiffs, and having paid him in full for the merchandise
purchased, they are not liable to the plaintiffs, for said merchandise. "his is true whether the
transaction is covered by the provisions of the Civil Code or by the provisions of the
Commercial Code. "im /iu v. !ui0 & !ementeria, 10 *hil. 26+, 2+) ,1-1)..
1hen an agent acts in his own name, the principal has no right of action against the
persons with whom the agent has contracted, or such persons against the principal. 6n such
case, the agent is directly liable to the person with whom he has contracted, as if the
transactions were his own. Smith &ell v. Sotelo Matti, (( *hil. 8+( ,1-!!..
<ven when the agent has a special power of attorney to mortgage the property of the
principal, when such agent nevertheless e&ecuted the real estate mortgage in his own name,
then it is not valid and binding on the principal pursuant to the provisions of Article 1882 of the
Civil Code. Philippine Sugar +states ,ev. Corp. v. Poi0at, (8 *hil. 026 ,1-!0.$ !ural &an' of
&om)on v. Court of Appeals, !1! #C/A !0 ,1--!..
Under Article 1882 of the Civil Code, 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. 6n 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, e&cept when the
contract involves things belonging to the principal. #ince the principals have caused their
agent to enter into a charter party in his own name and without disclosing that he acts for any
principal, then such principals have no standing to sue upon any issue or cause of action
arising from said charter party. Marimperio Compania >aviera# S.A. v. Court of Appeals, 106
#C/A 268 ,1-8+..
'2+ #-ent 0s ,irectly $ound to 1hird %erson as 0f the 1ransaction 6ere 5is Own
1hen the agent e&ecutes a contract in his personal capacity, the fact that he is described
in the contract as the agent of the principal and the properties mortgaged pertain to the
principal, may not be ta%en to mean that he enters into the contract in the name of the
principal. A mortgage on real property of the principal not made and signed in the name of the
principal is not valid as to the principal. >ational &an' v. Palma %il, 00 *hil. 62- ,1-21.$
>ational &an' v. Agudelo, 08 *hil 600 ,1-22..
A party who signs a bill of e&change as an agent ,as the *resident of the company., but
failed to disclose his principal becomes personally liable for the drafts he accepted, even when
he did so e&pressly as an agent. #ection !) of the 5egotiable 6nstruments Baw says provides
e&pressly that when an agent signs in an representative capacity, but does not indicate or
disclose his principal would incur personal liability on the bill of e&change. Phil. &an' of
Commerce v. Aruego, 1)! #C/A 02) ,1-81..
EKCEPTION ? W3!$ C&$%(-0% I$8&28!. T3#$/. !2&$/#$/ %& P(#$0#4-2
<ven when the agent has written authority to convey real property, nevertheless when the
deed of sale was e&ecuted by the agent in her own name without showing the capacity in
which she acted, although the act was doubtless irregular, the deed operated to bind the
principal who had authori9ed the sale. .imene0 v. !a)ot, 28 *hil. 2+8 ,1-18..
1here the plaintiffs appointed the defendant to purchase a vessel and giving him money
for that purpose, but the agent purchased the boat and placed it in his own name, he has
breached his fiduciary obligation and is obliged to transfer the same to the plaintiffs, or the
plaintiffs have a right to be subrogated. According to the e&ception under Art. 1+1+ of the old
Civil Code ,when things belonging to the principal are dealt with. the agent is )ound to the
principal although he does not assume the character of such agent and appears acting in his
own name. "he money with which the launch was bought having come from the plaintiff, the
e&ception established in Art. 1+1+ is applicable to the instant case. #y-.uco v. Sy-.uco, ()
*hil. 62( ,1-!)..
1here a co'owner transfers the entirety of the mining claim to the buyer, where the buyer
%new that it included the one'half share pro-indiviso of the other co'owner, then the transaction
may be considered as one where the disposing co'owner acted as agent of the other co'
owner. Conse4uently, under Article 1882 of the Civil Code, such other co'owner may sue the
person with whom the agent dealt with in his ,agent>s. own name, when the transaction
involves things belong to the principal. %oldstar v. "im, !0 #C/A 0-+ ,1-68..
1hen a commission agent enters into a shipping contract in his own name to transport the
grains of 5QA on a vessel owned by a shipping company, 5QA cannot claim it is not liable to
the shipping company under Article 1882 when things belong to the principal are dealt with,
the agent is bound to the principal although he does not assume the character of such agent
and appears acting in his own name. 6n other words, the agent> apparent representation yields
to the principal>s true representation and that, in reality and in effect, the contract must be
considered as entered into between the principal and the third person Corollarily, if the
principal can be obliged to perform his duties under the contract, then it can also demand the
enforcement of its rights arising from the contract. >3A v. $AC, 18( #C/A 166 ,1--)..
'9+ %rovisions #re 6ithout %rejudice to #ctions $etween %rincipal and #-ent
7See discussions below on breach by a-ent of his duty of loyalty<
4. S4!0#"#0 O62#/-%#&$ R@2!. "&( A/!$%.
-. N& O62#/-%#&$ %& A58-$0! F@$5. 'A(%. 1))*+?
0t is %rincipal8s obli-ation to advance the funds+ but %rincipal to pay interest on
advances 'ade by #-ent fro' day he advances the 'oney 'A(%. 1>12+.
EKCEPT ? '1+ I" S%#4@2-%!5 #$ %3! A/!$01 A/(!!=!$%
'2+ W3!(! 4(#$0#4-2 #. #$.&28!$% 'S!! A(%. 1>1>;9<? I$.&28!$01
!E%#$/@#.3!. -$ -/!$01+
6. S3-22 C-((1 O@% A/!$01 #$ A00&(5-$0! C#%3 P(#$0#4-2L. I$.%(@0%#&$. 'A(%. 1)):+
'1+ I" A/!$% F&22&C!5 I$.%(@0%#&$., P(#$0#4-2 C-$$&% S!%-@4 A/!$%L. I/$&(-$0! &(
C#(0@=.%-$0! C3#03 P(#$0#4-2 W-.DO@/3% %& H-8! !!$ AC-(! O" ,A(%. 1)>>.
*ursuant to the instructions of the principals, the agent purchased a piece of land in their
names and in the sums given to him by the principal, and that after the fact of purchase the
principals had ratified the transaction and even received profits arising from the investment in
the land, but that eventually a defect in the title to the land arose, the said principals cannot
recover their lost investment from the agent. "here is nothing in the record which would
indicate that the defendant failed to e&ercise reasonable care and diligence in the performance
of his duty as such agent, or that he undertoo% to guarantee the vendor>s title to the land
purchased by direction of the plaintiffs. >epomuceno v. eredia, + *hil 062 ,1-)+..
1hen an agent in e&ecuting the orders and commissions of his principal carries out the
instructions he has received from his principal, and does not appear to have e&ceeded his
authority or to have acted with negligence, deceit or fraud, he cannot be held responsible for
the failure of his principal to accomplish the obMect of the agency. Agents# although they act in
representation of the principal# are not guarantors for the success of the )usiness enterprise
they are as'ed to manage. %uiterre0 ermanos v. Oria ermanos, 2) *hil. (-1 ,1-10..
0. O62#/-%#&$ N&% C-((1 O@% A/!$01 I" EE!0@%#&$ W&@25 M-$#"!.%21
R!.@2% #$ L&.. &( D-=-/! %& P(#$0#4-2 'A(%. 1)))+
1hile it is true that an agent who acts for a revealed principal in the ma%ing of a contract does
not become personally bound to the other party in the sense that an action can ordinarily be
maintained upon such contract directly against the agent, yet that rule does not control when the
agent cannot intercept and appropriate the thing which the principal is bound to deliver, and
thereby ma%e the performance of the principal impossible. "he agent in any event must be
precluded from doing any positive act that could prevent performance on the part of his principal,
otherwise the agent becomes liable also on the contract. >ational &an' v. 2elsh 3airchild, ((
*hil +8) ,1-!2..
5. DUTY OF LOYALTY ? O62#/-%#&$ #$ - C&$"2#0% &" I$%!(!.% S#%@-%#&$ 'A(%. 1))>+
'1+ A/!$% .3-22 6! 2#-62! %& %3! 4(#$0#4-2 "&( 5-=-/!. .@.%-#$!5 61 %3! 2-%%!( C3!(! #$
0-.! &" 0&$"2#0% &" #$%!(!.% .#%@-%#&$, -$5 -/!$% 4(!"!((!5 3#. &C$ #$%!(!.%.
'2+ A/!$% 4(&3#6#%!5 "(&= 6@1#$/ 4(&4!(%1 !$%(@.%!5 %& 3#= "&( -5=#$#.%(-%#&$ &( .-2!
C#%3&@% 4(#$0#4-2L. 0&$.!$% 'A(%. 14>1;2<+.
An agent cannot represent both himself and his principal in a transaction involving the
shifting to another person of the agent>s liability for a debt to the principal. A)oiti0 v. ,e Silva,
(0 *hil 882 ,1-!(..
"he directorOgeneral manager of the corporation, who also was the maMority stoc%holder,
and was designated to be the main negotiator for the company with the Hovernment for the
sale of its large tract of land, having special %nowledge of commercial information that would
increase the value of the shares in relation to the sale of the parcels of land to the
Hovernment, can be treated legally as being an agent of the stoc%holders of the company,
with a fiduciary obligation to reveal to the other stoc%holders such special information before
proceeding to purchase from the other stoc%holders their shares of stoc%. 6f such director
obtains the purchase of the shares of a stoc%holder without having disclosed important facts or
to render the appropriate report on the e&pected increase in value of the company, there was
fraud committed for which the director shall be liable for the earnings earned against the
stoc%holder on the sale of shares. Strong v. %uiterre0 !epide, (1 *hil. -(+ ,1-)-..
A confidential employee who, %nowing that his principal was negotiating with the owner of
some land for the purchase thereof, surreptitiously succeeds in buying it in the name of his
wife, commits an act of disloyalty and infidelity to his principal, whereby he becomes liable,
among other things, for the damages caused, which meant to transfer the property bac% to the
principal under the terms and conditions offered to the original owner. Sing .uco and Sing
&engco v. Sunyantong and "lorente, (2 *hil 08- ,1-!!..
1here an uncle who was acting as agent or administrator of property belonging to a niece
had procured a "orrens title in his own name to said property, he is deemed to be a trustee,
and he must surrender the property to the niece and transfer title to her. "he relations of an
agent to his principal are fiduciary and in regard to the property forming the subMect'matter of
the agency, he is estopped from ac4uiring or asserting a title adverse to that of the principal.
Conse4uently, an action in personam will lie against an agent to compel him to return or
retransfer to his principal, or the latter>s estate, the real property committed to his custody as
such agent and also to e&ecute the necessary documents of conveyance to effect such
retransfer. Severino v. Severino, (( *hil. 2(2 ,1-!2..
!. R@2! I" A/!$% I. E=4&C!(!5 %& &((&CDL!$5 M&$!1 'A(%. 1)>0+
'1+ I" !=4&C!(!5 %& 6&((&C =&$!1, 3! =-1 6! %3! 2!$5!( -% 0@((!$% #$%!(!.%,
'2+ I" !=4&C!(!5 %& 2!$5 =&$!1 -% #$%!(!.%, 3! 0-$$&% 6&((&C C#%3&@% 4(#$0#4-2L.
0&$.!$%.
1hen power granted to agent was only to borrow money and mortgage principal>s property
to secure the loan, it cannot be interpreted to include the authority to mortgage the properties
to support the agent>s personal loans and use the proceeds thereof for his own benefit. "he
lender who lends money to the agent %nowing that is was for personal purpose and not for the
principal>s account, is a mortgagee in bad faith and cannot foreclose on the mortgage thus
constituted. odges v. Salas and Salas, 62 *hil. 06+ ,1-26..
". O62#/-%#&$ &" A/!$% %& R!$5!( A00&@$% 'A(%. 1)>1+
'1+ A/!$% M@.% R!$5!( A00&@$% %& P(#$0#4-2
An administrator of an estate was made liable under Article 1+!) ,now Art. 18-1. for failure
to render an account of his administration to the heirs, unless the heirs consented thereto or
are estopped by having accepted the correctness of his account previously rendered. O-inaga
v. +state of Pere0, - *hil 180 ,1-)+..
As a necessary conse4uence of such breach of trust, an agent must then forfeit his right to
the commission and must return the part of the commission he received from his principal.
,o'in-o v. ,o'in-o, 42 SCRA 191 '1>:1+.
*etitioner was the administrator of respondent=s properties for 18 years, and four letters
within 18 years can hardly be considered as sufficient to %eep the principal informed and
updated of the condition and status of the latter=s properties. Sa*on v. 4as9ue*Menancio,
*** SCRA :0: '2012+.
'2+ D!2#8!( %& P(#$0#4-2 W3-%!8!( I. R!0!#8!5 61 V#(%@! &" A/!$01
6hy include those not due the principal: $ecause le-ally+ it is the principal who
receives the' and therefore a-ent has to account for the'
"he possession of an agent of the money or property of his principal is termed Muridical
possession which means a possession which gives the transferee a right over the thing which
the transferee may set up even against the owner. Chua-&urce v. Court of Appeals, 221
#C/A 1 ,!))).. Conse4uently3
An insurance agent may be convicted of estafa for his failure to deliver sums of money
paid to him as an insurance agent for the account of his employer. 1here nothing to the
contrary appears, the provisions of article 1+!) of the Civil Code impose upon an agent
the obligation to deliver to his principal all funds collected on his account. (.S. v. =iene,
+ *hil +26 ,1-)+.
A travelling sales agent who misappropriated or failed to return to his principal the
proceeds of the things or goods he was commissioned or authori9ed to sell, is liable for
estafa. %u0man v. Court of Appeals, -- *hil. +)2 ,1-06..
1hereas, a ban% teller or cash custodian, being merely an employee of the ban%,
cannot be held liable for estafa, but rather for theft. Chua-&urce v. Court of Appeals, 221
#C/A 1 ,!)))..
"he relation of an agent to his principal is fiduciary and it is elementary that in regard to
property subMect matter of the agency, an agent is estopped from ac4uiring or asserting a title
adverse to that of the principalNa position analogous to that of a trusteeNhe cannot,
consistently with the principles of good faith, be allowed to create in himself an interest in
opposition to that of his principal or cestui <ue trust. 5ernande* v. 5ernande*+ *45 SCRA
24 '2011+.
'9+ Obli-ation #rises and $eco'es ,e'andable at #-ency8s !nd
'4+ Stipulation !xe'ptin- #-ent fro' Obli-ation to Render an #ccountin- 0s 4oid
1hen accounts of the agent to the principal are once approved by the principal, the latter
has no right to as% afterwards for a revision of the same or for a detailed account of the
business, unless he can show that there was fraud, deceit, error or mista%e in the approval of
the accountsNfacts not proven in this case. %uiterre0 ermanos v. Oria ermanos, 2) *hil.
(-1, 0)0 ,1-10., <uoting from Pastor v. >icasio, 6 *hil. 10! ,1-)6..
/. L#-6#2#%1 &" A/!$% "&( I$%!(!.% 'A(%. 1)>*+
'1+ A/!$% I. L#-62! "&( I$%!(!.%?
'-+ On Su's 5e #pplied to 5is Own (se ;fro' the 1i'e 5e (sed 1he'<
'6+ On Su's Owin- the %rincipal ;fro' the 1i'e #-ency 0s !xtin-uished<
As to the interest imposed in the Mudgment on the amounts received by the agent which
were not turned over to the principal, it is sufficient to cite article 1+!( of the Civil Code,
which provides that an agent shall be liable for interest upon any sums he may have
applied to his own use, from the day on which he did so, and upon those which he still
owes, after the e&piration of the agency, from the time of his default. Mende0onna v. 4da.
,e %oitia, 0( *hil 00+ ,1-2)..
"he successor'in'interest of the principal is not entitled to collect interest from the agent
of the father for sums loaned to and collected by the agent from various persons for the
deceased principal. 6n all the aforementioned transactions, the defendant acted in his
capacity as attorney'in'fact of the deceased father, and there being no evidence showing
that he converted the money entrusted to him to his own use, he is not liable for interest
thereon, in accordance with the provisions of article 1+!( of the Civil Code. ,e &or-a v. ,e
&or-a, 08 *hil 811 ,1-22..
3. DUTY OF DILIGENCE ? A/!$% L#-62! "&( F(-@5 -$5 N!/2#/!$0! 'A(%.. 1))4 -$5 1>0>+
'1+ W3-% S3-22 A//(-8-%! &( M#%#/-%! L#-6#2#%1 A(#.#$/ O@% &" N!/2#/!$0! M W3!%3!(
A/!$01 W-. "&( - C&=4!$.-%#&$ &( W-. G(-%@#%&@.
1here the agent by means of misrepresentation of the condition of the mar%et induces his
principal to sell to him the property consigned to his custody at a price less than that for which
he has already contracted to sell part of it, and who thereafter disposes of the whole at an
advance, is liable to principal for the difference. #uch conduct on the part of the agent
constituted fraud, entitling the principal to annul the contract of sale. Although commission
earned by the agent on the fraudulent sale may be disallowed, nonetheless commission
earned from other transactions which were not tainted with fraud should be allowed the agent.
Cadwallader v. Smith &ell, + *hil. (61 ,1-)+..
6n consignment of goods for sale, as a form of agency, the consignee'agent is relieved from
his liability to return the goods received from the consignor'principal when it is shown by
preponderance of evidence in the civil case brought that the goods were ta%en from the
custody of the consignee by robbery, and no separate conviction of robbery is necessary to
avail of the e&empting provisions under Article 11+( for force ma-eure. Austria v. Court of
Appeals, 2- #C/A 0!+ ,1-+1..
6n stressing that it was acting only as a collecting agent for Holden #avings, Getroban%
seems to be suggesting that as a mere agent it cannot be liable to the principal$ this is not
e&actly true. 7n the contrary, Article 1-)- clearly provides that the agent is responsible not
only for fraud, but also for negligence. Metro)an' v. Court of Appeals, 1-( #C/A 16- ,1--1..
1hen an agent is involved in the perpetration of fraud upon his principal for his e&trinsic
benefit, he is not really acting for the principal but is really acting for himself, entirely outside
the scope of his agency ; the basic tenets of agency rest on the highest consideration of
Mustice, e4uity and fairplay, and an agent will not be permitted to pervert his authority to his
own personal advantage. Cos'ic )u'ber v. Court of #ppeals, 2*5 SCRA 1*) '1>>*+.
"he well'settled rule is that an agent is also responsible for any negligence in the
performance of its function ,Art. 1-)-. and is liable for the damages which the principal may
suffer by reason of its negligent act. ,Art. 188(.. $ritish #irways v. Court of #ppeals, 2)5
SCRA 450 '1>>)+.
5. W3!$ A/!$% A44&#$%. - S@6.%#%@%! 'A(%. 1)>2+
-. G!$!(-2 R@2!? A/!$% M@.% A0% H#=.!2", @% M-1 A44&#$% - N&%-P(&3#6#%!5 S@6.%#%@%!
Under the terms of Art. 18-!, when a special power of attorney to sell a piece of land does not
contain a clear prohibition against the agent in appointing a substitute, the appointment by the
agent of a substitute to e&ecute the contract is within the limits of the authority given by the
principle, although the agent then would have to be responsible for the acts of the sub'agent.
!scueta v. )i'+ 512 SCRA 411 '200:+.
6. E""!0%. W3!$ A/!$% A44&#$%. - S@6.%#%@%!? H! I. R!.4&$.#62! "&( A0%. &" S@6.%#%@%!
'1+ 5e was not -iven power to appoint one
'2+ 5e was -iven such power without desi-natin- the person and substitute is
notoriously inco'petent or insolvent.
A subagent cannot be held at greater liability that the main agent, and when the subagent
has not received any special instructions from the agent to insure the obMect of the agency, the
subagent cannot be held liable for the loss of the thing from fire, which is merely force
maMeure. $nternational 3ilms ?China@ v. "yric 3ilm, 62 *hil. ++8 ,1-26..
0. A22 A0%. &" S@6.%#%@%! A44&#$%!5 A/-#$.% P(#$0#4-2L. P(&3#6#%#&$
A(! V&#5 '-. A/-#$.% %3! P(#$0#4-2+
"he law on agency in our Murisdiction allows the appointment by an agent of a substitute or
sub'agent in the absence of an e&press agreement to the contrary between the agent and the
principal. "herefore, an agent who receives Mewelry for sale or return cannot be charged with
estafa for there was no misappropriation when she delivered the Mewelry to a sub'agent under the
sale terms which the agent received it, but a client of the sub'agent absconded with them and
could no longer be recovered. "he appointment of a sub'agent and delivery of the Mewelry, in the
absence of a prohibition, does not amount to conversion or misappropriation as to constitute
estafa$ but the agent remains civilly liable for the value of the Mewelry to the principal. Serona v.
Court of #ppeals, 9>2 SCRA 95 '2002+.
1(
"he legal ma&im potestas delegate non delegare potestE a power once delegated cannot be
re'delegated, while applied primarily in political law to the e&ercise of legislative power, is a
principle of agency N for another, a re'delegation of the agency would be detrimental to the
principal as the second agent has no privity of contract with the former. ,T. &alta0ar v.
Om)udsman 01) #C/A +( ,!))6..
6n a situation where the special power of attorney to sell a piece of land contains a prohibition
to appoint a substitute, but nevertheless the agent appoints a substitute who e&ecutes the deed
of sale in name of the principal, while it may be true that the agent may have acted outside the
scope of his authority, that did not ma%e the sale void, but merely unenforceable under the
second paragraph of Article 121+ of the Civil Code. And only the principal denied the sale, his
acceptance of the proceeds thereof are tantamount to ratification thereof. !scueta v. )i', 512
SCRA 411 '200:+.
5. R#/3%. &" P(#$0#4-2 A/-#$.% S@6.%#%@%! 'A(%. 1)>9+
"he principal is liable upon a sub'agency contract entered into by its selling agent in the name
of the principal, where it appears that the general agent was clothed with such broad powers as
to Mustify the interference that he was authori9ed to e&ecute contracts of this %ind, and it not
appearing from the record what limitations, if any, were placed upon his powers to ace for his
principal, and more so when the principal had previously ac%nowledged the transactions of the
subagent. ,el !osario v. "a &adenia, 22 *hil. 216 ,1-16..
*. R@2! &$ L#-6#2#%1 W3!$ TC& &( M&(! A/!$%. A44&#$%!5 61 %3! S-=! P(#$0#4-2
-. R!.4&$.#6#2#%1 &" TC& &( M&(! A/!$%. N&% S&2#5-(1 'A(%. 1)>4+
'1+ C&=4-(!3 TC& 4(#$0#4-2. C#%3 0&==&$ -/!$% - E-03 P(#$0#4-2 S&2#5-(#21 L#-62! 'A(%.
1>15+
1hen two letters of attorney are issued simultaneously to two different attorneys'in'fact, but
covering the same powers shows that it was not the principal>s intention that they should act
Mointly in order to ma%e their acts valid$ the separate act of one of the attorney'in'fact, even
when not consented to by the other attorney in fact, is valid and binding on the principal,
especially the principal did not only repudiate the act done, but continued to retain the said
attorney'in'fact. Municipal Council of 0loilo v. !van-elista, 55 P3#2. 2>0 '1>90+.
6. W3!(! TC& &( M&(! A/!$%. A/(!! %& ! S&2#5-(#21 &@$5 'A(%. 1)>5+
:. R@2! &$ L#-6#2#%1 %& T3#(5 P-(%#!.? A/!$% N&% &@$5 %& T3#(5 P-(%1 'A(%. 1)>:+
"he settlementOadMustment agent in the *hilippines of a 5ew Dor% insurance company is no
different from any other agent from the point of view of his responsibility3 whenever he adMusts or
settles a claim, he does it in behalf of his principal, and his action is binding not upon himself but
upon his principal, and the agent does not assume any personal liability, and he cannot be sued
on his own right$ the recourse of the insured is to press his claim against the principal. Salonga v.
2arner &arnes, 88 *hil 1!0 ,1-01..
6n the same manner, a resident agent, as a representative of the foreign insurance company,
is tas%ed only to receive legal processes on behalf of its principal and not to answer personally for
the any insurance claims. Smith &ell v. Court of Appeals, !6+ #C/A 02) ,1--+..
-. P(#$0#4-2 I. %3! O$! &@$5
An insurance agent who acts for fully disclosed foreign insurance companies cannot be made
personally liable for the claims arising from the contracts of insurance made on behalf of the
principals. + Macias & Co. v. 2arner# &arnes & Co., (2 *hil 100 ,1-!!..
A promissory note and two mortgages e&ecuted by the agent for and on behalf of his principal,
in accordance with a power of attorney e&ecuted by the principal in favor of the agent, are valid,
and as provided by article 1+!+ of the Civil Code, the principal must fulfill the obligations
contracted by the agent. >ational &an' v. Palma %il, 00 *hil. 62- ,1-21..
14
"his reiterates the ruling in People v. >epomuceno, CA (6 7.H. 61!8 ,1-(-.$ "im v. Court of Appeals, !+1 #C/A 1! ,1--+.$
People v. /rinidad, CA 02 7.H. +2! ,1-06..
1hen the buyer of shares of stoc%, pursuant to the terms of the deed of sale, effects payment
of part of the purchase price to one of the seller>s creditors, then there is no subrogation that
ta%es place, as the buyer then merely acts as an agent of the seller effecting payment of money
that was due to the seller in favor of a third'party creditor. Che'phil !xport v. Court of
#ppeals, 251 SCRA 21: '1>>5+.
Agents who have been authori9ed to sell parcels of land cannot claim personal damages in
the nature of unreali9ed commission by reason of the act of the buyer is refusing to proceed with
the sale. "he rendering of such service did not ma%e them parties to the contracts of sale
e&ecuted in behalf of the latter. #ince a contract may be violated only by the parties thereto as
against each other, the real parties'in'interest, either as plaintiff or defendant, in an action upon
that contract must, generally, either be parties to said contract. (y v. Court of #ppeals, 914
SCRA *> '1>>>+.
10
A person acting as a mere representative of another ac4uires no rights whatsoever, nor does
he incur any liabilities arising from the said contract between his principal and another party.
#n-eles v. %&R, 500 SCRA 444 '200*+.
16
Article 18-+ reinforces the familiar doctrine that an agent, who acts as such, is not personally
liable to the party with whom he contracts. +urotech $ndustrial /echnologies# $nc. v. Cui0on# 0!1
#C/A 08( ,!))+..
#ince, as a rule, the agency, as a contract, is binding only between the contradicting parties,
then only the parties, as well as the third person who transacts with the parties themselves, may
4uestion the validity of the agency or the violation of the terms and conditions found therein.
4illegas v. "ingan# 0!6 #C/A 62 ,!))+..
<very principal is subMect to liability for loss caused to another by the latter>s reliance upon a
deceitful representation by an agent in the course of his employment ,1. if the representation is
authori9ed$ ,!. if it is within the implied authority of the agent to ma%e for the principal$ or ,2. if it is
apparently authori9ed, regardless of whether the agent was authori9ed by him or not to ma%e the
representation. Pahud v. CA, 0-+ #C/A 12 ,!))-..
6. EE0!4% W3!$ A/!$%?
'1+ EE4(!..21 &@$5 H#=.!2"
1hen the attorney'in'fact of the owner of a parcel of land acted within the scope of his
authority by mortgaging the property of the principal, the principal is bound by the mortgage,
and cannot use the fact that the agent has also bound himself personally to the debt. "here is
nothing in the law which prohibits an agent from binding himself personally for the debt
incurred in behalf of the principal. 6n fact the law recogni9es such underta%ing as valid and
binding on the agent. /uason v. Oro0co, 0 *hil 0-6 ,1-)6..
Under Article 18-+, when the agent e&pressly binds himself to the contract entered into on
behalf of the principal, then he become personally bound thereto to the same e&tent as the
principle. ?ut the doctrine is not applicable viceBversa, since everything agreed upon by the
principal to be binding on himself is not legally binding personally on the agent. "hus when the
previous agent of the union bound itself personally liable on the contracts of the union, the
new agent is need deemed bound by the assumption underta%en by the original agent.
&enguet v. &C$ +mployees, !2 #C/A (60 ,1-68..
'2+ H! EE0!!5. H#. A@%3&(#%1 W#%3&@% G#8#$/ N&%#0! &" L#=#%!5 P&C!(.
Under Article 18-+ when an agent acts in behalf of the principal, he cannot be held liable
personally, e&cept when he acts outside the scope of his authority, or even when acting within
the scope of his authority, he e&pressly binds himself personally liable to the contract entered
into in the name of the principal. "herefore, a third party cannot generally sue on the contract
see%ing both the principal and the agent to be liable thereon, for by suing the principal on the
contract, the agent is deemed not to be personally liable. 7n the other hand, if the agent is
being sued on the basis that he acted outside the scope of his authority, then it does not ma%e
sense to be also suing the principal who cannot be held liable for the acts of the agent outside
the scope of his authority. At any rate, Article 18-+ does not hold that in cases of e&cess of
authority, )oth the agent and the principal are liable to the other contracting party. Phil.
Products Co. v. Primateria Society Anonyme, 10 #C/A 2)1 ,1-60..
1here an agent defies the instructions of its principal in 5ew Dor% not to proceed with the
sale due to non'availability of carriage, it has acted without authority or against its principal>s
instructions and holds itself personally liable for the contract it entered into with the local
company. &ational %ower v. &#M#RCO, 11: SCRA :)> '1>)2+.
15
Ormoc Sugarcane PlantersA Association# $nc. ?OSPA@ v. Court of Appeals, 0-6 #C/A 62) ,!))-.. Ormoc Sugarcane PlantersA
Association# $nc. ?OSPA@ v. Court of Appeals, 0-6 #C/A 62) ,!))-..
16
Chua v. /otal Office Products and Services ?/opros@# $nc.# (+1 #C/A 0)) ,!))0.$ /an v. +ngineering Services# (-8 #C/A -2
,!))6.$ Chong v. Court of Appeals# 0!+ #C/A 1(( ,!))+..
"he special power to approve loans does not carry with it the power to bind the principal to
a contract of guaranty even to the e&tent of the amount for which a loan could have been
granted by the agent. Huaranty is not presumed, it must be e&pressed and cannot be
e&tended beyond its specified limits ,@irector v. #ing Luco, 02 *hil. !)0. 6n one case, where it
appears that a wife gave her husband power of attorney to loan money, this Court ruled that
such fact did not authori9ed him to ma%e her liable as a surety for the payment of the debt of a
third person. $# Finance v. Court of #ppeals, 211 SCRA 112 '1>>2+.
Article 18-+ declares that the principal is liable in cases when the agent acted within the
bounds of his authority$ under this, the agent is completely absolved of any liability. "he
second part of the said provision presents the situations when the agent himself becomes
liable to a third party when he e&pressly binds himself or he e&ceeds the limits of his authority
without giving notice of his powers to the third person. Fowever, it must be pointed out that in
case of e&cess of authority by the agent, li%e what petitioner claims e&ists here, the law does
not say that a third person can recover from both the principal and the agent. 6t is well to state
here that Article 18-+ upon which petitioner anchors its claim does not hold that in case of
e&cess of authority, both the agent and the principal are liable to the other contracting party.
+urotech $ndustrial /echnologies# $nc. v. Cui0on# 0!1 #C/A 08( ,!))+..
'9+ W3!$ %3! A/!$% A0%. C#%3 F(-@5 &( N!/2#/!$0!
"he rule relied upon by the Aagent to avoid the imposition of the li4uidated damages
provided for in the contract of saleE that every person dealing with an agent is put upon in4uiry
and must discover upon his peril the authority of the agent would apply in this case if the
principal is sought to be held liable on the contract entered into by the agent. "hat is not so in
this case. Fere, it is the agent that it sought to be held liable on a contract of sale which was
e&pressly repudiated by the principal because the agent too% chances, it e&ceed its authority,
and, in effect, it acted in its own name.. >ational Power v. >AMA!CO, 11+ #C/A +8-, 8))
,1-8!..
"he practice in group insurance business, which is consistent with the Murisprudence
thereon in the #tate of California from whose laws our 6nsurance Code has been mainly
patterned, is that the employer'policyholder who ta%es out the insurance for its officers and
employees, is the agent of the insurer who has authority to collect the proceeds from the
insurer. 6n this case, the insurer, through the negligence of its agent, allowed a purported
attorney'in'fact whose instrument does not clearly show such power to collect the proceeds, it
was liable therefor under the doctrine that the principal is bound by the misconduct of its
agent.. %ineda v. Court of #ppeals, 22* SCRA :54 '1>>9+.
1hen the ban% in e&tending a loan re4uired the principal borrower to obtain a mortgage'
redemption'insurance and deducted the premiums pertaining thereto from the loan proceeds,
it was wearing two hats, as a lender and as insurance agent. And when it turned out that the
ban% %new or ought to have %nown that the principal borrower was not 4ualified at his age for
G/6 coverage which prevented his insurance coverage from being made by the insurance
company at the time of the borrower>s death, the ban% was deemed to have been an agent
who acted beyond the scope of its authority. Under Article 18-+, the agent who acts as such is
not personally liable to the party with whom he contracts, unless he e&ceeds the limits of his
authority without giving such party sufficient notice of his powers. 6f the third person dealing
with an agent is unaware of the limits of the authority conferred by the principal on the agent
and he ,third person. has been deceived by the non'disclosure thereof by the agent, then the
latter is liable for damages to him. "he rule that the agent is liable when he acts without
authority is founded upon the supposition that there has been some wrong or omission on his
part either in misrepresenting, or in affirming, or concealing the authority under which he
assumes to act. 6nasmuch as the non'disclosure of the limits of the agency carries with it the
implication that a deception was perpetrated on the unsuspecting client, the provisions of
Articles 1-, !) and !1 of the Civil Code come into play. ,$% v. Court of #ppeals, 291
SCRA 9:0 '1>>4+.
0. A/!$% I. C(#=#$-221 L#-62! "&( C(#=! C&==#%%!5 #$ %3! P@(.@#% &" %3! A/!$01
"he Baw on Agency has no application in criminal cases, and no man can escape
punishment when he participates in the commission of a crime upon the ground that he simply
acted as an agent of any party. People v. Chowdury, 2!0 #C/A 0+! ,!)))..
5. A/!$%L. W(#%%!$ P&C!( &" A%%&($!1, I$.&"-( -. C&$0!($. T3#(5 P!(.&$., G&8!($. &$
H@!.%#&$. W3!%3!( A/!$% A0%!5 W#%3#$ S0&4! &" A@%3&(#%1 E8!$ #" #% EE0!!5. A@%3&(#%1
A00&(5#$/ %& U$5!(.%-$5#$/ !%C!!$ P(#$0#4-2 -$5 A/!$% 'A(%. 1>00+
1here wife gave husband a power of attorney to loan and borrow money, and for such
purpose to mortgage her property, and where the husband signed his wife>s name to a note and
gave a mortgage on her property to secure the note and the amount of the loan was actually paid
to husband in money at the time the note and mortgage were e&ecuted, the transaction is binding
upon the wife under her power of attorney, regardless of what the husband may have done with
the money which he obtained on the loan. &an' of P.$. v. ,e Coster, (+ *hil 0-( ,1-!0..
6t is a settled rule that persons dealing with an assumed agent, whether the assumed agency
be a general or special one are bound at their peril if they would hold the principal liable, to
ascertain not only the fact of agency but also the nature and e&tent of authority, and in case either
is controverted, the burden of proof is upon them to establish it. arry =eeler v. !odrigue0, ( *hil.
1-.. Fence, when the ban% accepted a letter of guarantee signed by a mere credit administrator
on behalf of the finance company, the burden was on the ban% to satisfactorily prove that the
credit administrator with whom they transacted acted within the authority given to him by his
principal. $# Finance v. Court of #ppeals, 211 SCRA 112 '1>>2+.
As far as third persons are concerned, an act is deemed to have been performed within the
scope of the agent>s authority, if such is within the terms of the power of attorney, as written, even
if the agent has in fact e&ceeded the limits of his authority according to an understanding between
the principal and his agent. !u-enio v. Court of #ppeals, 29> SCRA 20: '1>>4+.
1hen one %nowingly deals with the sales representative of a car dealership company, one
must reali9e that one is dealing with a mere agent, and it is incumbent upon such person to act
with ordinary prudence and reasonable diligence to %now the e&tent of the sales representative>s
authority as an agent in respect of contracts to sell the vehicles. A person dealing with an agent is
put upon in4uiry and must discover upon his peril the authority of the agent. A5ormal business
practice does not warrant a sales representative to have power to enter into a valid and binding
contract of sale for the company.E 1oyota Shaw+ 0nc. v. C#, 244 SCRA 920 '1>>5+.
<very person dealing with an agent is put upon in4uiry and must discover upon his peril the
authority of the agent. 6f he does not ma%e such in4uiry, he is chargeable with %nowledge of the
agent>s authority, and his ignorance of that authority will not be any e&cuse. *ersons dealing with
an assumed agent, whether the assumed agency be a general or special one, are bound at their
peril, if they would hold the principal, to ascertain not only the fact of the agency but also the
nature and e&tent of the authority, and in case either is controverted, the burden of proof is upon
them to establish it. $acaltos Coal Mines v. Court of #ppeals, 245 SCRA 4*0 '1>>5+.
1+
"he fact that one is dealing with an agent, whether the agency be general or special, should
be a danger signal. "he mere representation or declaration of one that he is authori9ed to act on
behalf of another cannot of itself serve as proof of his authority to act as agent or of the e&tent of
his authority as agent. 3u !n- Cho v. %#&#M, 92) SCRA :1: '2000+.
"he settled rule is that persons dealing with an assumed agent are bound at their peril, and if
they would hold the principal liable, to ascertain not only the fact of agency but also the nature
and e&tent of authority, and in case either is controverted, the burden of proof is upon them to
prove it. 6n this case, respondent Qernande9 specifically denied that she was authori9ed by the
respondents'owners to sell the properties, both in her answer to the complaint and when she
testified. )itonjua v. Fernande*, 42: SCRA 4:) '2004+.
"he ignorance of a person dealing with an agent as to the scope of the latter>s authority is no
e&cuse to such person and the fault cannot be thrown upon the principal. A person dealing with
an agent assumes the ris% of lac% of authority of the agent. Fe cannot charge the principal by
relying upon the agent>s assumption of authority that proves to be unfounded. "he principal, on
the other hand, may act on the presumption that third persons dealing with his agent will not be
negligent in failing to ascertain the e&tent of his authority as well as the e&istence of his agency.
Manila Me'orial %ar2 Ce'etery+ 0nc. v. )insan-an, 449 SCRA 9:: '2004+.
A person dealing with a %nown agent is not authori9ed, under any circumstances, blindly to
trust the agents$ statements as to the e&tent of his powers$ such person must not act negligently
but must use reasonable diligence and prudence to ascertain whether the agent acts within the
scope of his authority. "he settled rule is that, persons dealing with an assumed agent are bound
at their peril, and if they would hold the principal liable, to ascertain not only the fact of agency but
also the nature and e&tent of authority, and in case either is controverted, the burden of proof is
upon them to prove it. 6n this case, the petitioners failed to discharge their burden$ hence,
petitioners are not entitled to damages from respondent <C. "iton-ua# .r. v. +ternit Corp.# (-)
#C/A !)( ,!))6.$ Soriamont Steamship Agencies# $nc. v. Sprint /ransport Services# $nc., 0-!
#C/A 6!! ,!))-..
1hen dealing with an assumed agent, a third party should ascertain not only the fact of
agency, but also the nature and e&tent of his authority. +scueta v. "im, 01! #C/A (11 ,!))+..
"he ?an% clearly failed to observe the re4uired degree of caution in ascertaining the
genuineness and e&tent of the authority of #antos to mortgage the subMect property. 6t should not
have simply relied on the face of the documents submitted by #antos, as its underta%ing to lend a
17
Citing Pineda v. Court of Appeals, !!6 #C/A +0( ,1--2.$ 4eloso v. "a (r)ana, 08 *hil. 681 ,1-22.$ arry +. =eller +lectric Co.
v. !odrigue0, (( *hil. 1- ,1-!!.$ ,een v. Pacific Commercial Co., (! *hil. +28 ,1-!!.$ and Strong v. !epide, 6 *hil. 68) ,1-)6..
considerable amount of money re4uire of it a greater degree of diligence. "hat the person
applying for the loan is other than the registered owner of the real property being mortgaged
should have already raised a red flag and which should have induced the ?an% to ma%e in4uiries
into and confirm #antos> authority to mortgage. A person who deliberately ignores a significant
fact that could create suspicion in an otherwise reasonable person is not an innocent purchaser
for value. &an' of Commerce v. San Pa)lo# .r., 0!! #C/A +12 ,!))+..
"he Court has stressed time and again that every person dealing with an agent is put upon
in4uiry, and must discover upon his peril the authority of the agent, and this is especially true
where the ac of the agent is of unusual nature. 6f a person ma%es no in4uiry, he is chargeable
with %nowledge of the agent>s authority, and his ignorance of that authority will not be any e&cuse.
"hus, the undue haste in granting the loan without in4uiring into the ownership of the subMect
properties being mortgage, as well as the authority of the supposed agent to constitute the
mortgages on behalf of the owners, ban% accepting the mortgage cannot be deemed a
mortgagee in good faith. San Pedro v. Ong, 06- #C/A +6+ ,!))8..
!. T3#(5 P!(.&$ C-$$&% S!%-@4 F-0%. &" A/!$%L. EE0!!5#$/ A@%3&(#%1 W3!(! P(#$0#4-2
R-%#"#!5 &( S#/$#"#!5 W#22#$/$!.. %& R-%#"1 A/!$%L. A0%. 'A(%. 1>01+
'1+ P(#$0#4-2 S3&@25 ! %3! O$! %& H@!.%#&$ A/!$%L. L-0ADEE0!.. &" A@%3&(#%1
'2+ P&C!( &" A%%&($!1 'M@.%+ ! R!I@#(!5 61 T3#(5 P-(%1 'A(%. 1>02+
'9+ P(#8-%! &( S!0(!% O(5!(. &" P(#$0#4-2 D& N&% P(!7@5#0! T3#(5 P!(.&$. W3& R!2#!5
U4&$ A/!$%L. P&C!( &" A%%&($!1 &( P(#$0#4-2L. I$.%(@0%#&$ 'A(%. 1>02+
6n an e&propriation proceeding, the #tate cannot raise the alleged lac% of authority of the
counsel of the owner to bind his client in a compromise agreement because such lac% of
authority may be 4uestioned only by the principal or client. A#ince it is within the right or
prerogative of the principal to ratify even the unauthori9ed acts of the agentE. Commissioner of
Pu)lic ighways v. San ,iego, 21 #C/A 61+ ,1-+)..
). O62#/-%#&$. &" C&==#..#&$ A/!$%.
-. C&==#..#&$ A/!$% R!.4&$.#62! "&( G&&5. R!0!#8!5 A00&(5#$/ %& T!(=. -$5
C&$5#%#&$. -$5 -. D!.0(#6!5 #$ C&$.#/$=!$% 'A(%. 1>09+
EKCEPT ? W3!$ H-. M-5! W(#%%!$ S%-%!=!$% &" D-=-/!DD!%!(#&(-%#&$ 'A(%. 1>09+
6. O62#/-%#&$ #$ H-$52#$/ V-(#&@. G&&5. "&( D#""!(!$% OC$!(. 'A(%. 1>04+?
'1+ D#.%#$/@#.3 T3!= 61 C&@$%!(=-(A. I" G&&5. &" S-=! B#$5 -$5 M-(A
%(R%OS! ? T& P(!8!$% C&$"2#0% &" I$%!(!.% A=&$/ OC$!(.
'2+ D#.%#$/@#.3 "(&= A(%. 1>:* 'C&$%(-0% &" D!4&.#%+ M D!4&.#%-(1 M-1 C&==#$/2! G(-#$
&( O%3!( A(%#02!. &" S#=#2-( N-%@(! -$5 H@-2#%1 M &C$!(.3#4 prorata
0. H! C-$$&% S!22 &$ C(!5#% W#%3&@% P(#$0#4-2L. C&$.!$% 'A(%. 1>05+
'1+ OTHERWISE ? C&$.#5!(!5 -. C-.3 S-2!.
1hether viewed as an agency to sell or as a contract of sale, the liability of Hreen Ialley is
indubitable. Adopting Hreen Ialley>s theory that the contract is an agency to sell, it is liable
because it sold on credit without authority from its principal. Under Article 1-)0, it is provided
that the commission agent cannot, without the e&press or implied consent of the principal, sell
on credit, and should it do so the principal may demand from him payment in cash. Green
4alley v. 0#C, 199 SCRA *>: '1>)4+.
5. W3!$ W#%3 P(#$0#4-2L. A@%3&(#%1 %& S!22 &$ C(!5#%? 'A(%. 1>0*+
'1+ I$"&(= %3! P(#$0#4-2 C#%3 S%-%!=!$% &" @1!(L. N-=!.,
'2+ E""!0% &" N&$-C&=42#-$0! M C&$.#5!(!5 S-.3 S-2!
!. E""!0% W3!$ A/!$% R!0!#8!. G@-(-$%1 &( ,el Credere C&==#..#&$. 'A(%. 1>0:+
'1+ H! S3-22 S!-( %3! R#.A &" C&22!0%#&$
'2+ H! S3-22 P-1 P(#$0#4-2 %3! P(&0!!5. &" S-2! &$ S-=! T!(=. A/(!!5 C#%3 P@(03-.!(
". L#-6#2#%1 "&( F-#2@(! %& C&22!0% P(#$0#4-2L. C(!5#% W3!$ D@! 'A(%. 1>0)+
'1+ L#-6#2#%1 "&( D-=-/!.
'2+ U$2!.. D@! D#2#/!$0! P(&8!$
IV. OLIGATIONS OF THE PRINCIPAL
1. #$5#$/ E""!0% &$ P(#$0#4-2 &" C&$%(-0%. M-5! 61 %3! A/!$%
-. M@.% 6! 5&$! #$ %3! $-=! &" %3! P(#$0#4-2
#imilarly, in this case, the authori9ed agent failed to indicate in the mortgage that she was acting for
and on behalf of her principal. "he /eal <state Gortgage, e&plicitly shows on its face, that it was
signed by Concepcion in her own name and in her own personal capacity. 6n fact, there is nothing in
the document to show that she was acting or signing as an agent of petitioner. "hus, consistent with
the law on agency and established Murisprudence, petitioner cannot be bound by the acts of
Concepcion. S At this point, we find it significant to mention that respondent ban% has no one to
blame but itself. 5ot only did it act with undue haste when it granted and released the loan in less than
three days, it also acted negligently in preparing the /eal <state Gortgage as it failed to indicate that
Concepcion was signing it for and on behalf of petitioner. 1e need not belabor that the words 8as
attorney'in'fact of,8 8as agent of,8 or 8for and on behalf of,8 are vital in order for the principal to be
bound by the acts of his agent. 1ithout these words, any mortgage, although signed by the agent,
cannot bind the principal as it is considered to have been signed by the agent in his personal capacity.
$ucton v. Rural $an2 of !l Salvador+ 0nc. AH./. 5o. 1+-6!0. Qebruary !(, !)1(.E
6. W3!$ D&$! W#%3#$ A/!$%L. S0&4! &" A@%3&(#%1? P(#$0#4-2 &@$5 'A(%. 1)>:+
6n investment management account, where the written instrument provides that the ban% shall
purchase debt securities on behalf of the client and will handle the accounts in accordance with
the instructions of the client, creates a principal'agent relationship, and not a trust relationship or
an ordinary ban% deposit account. Conse4uently, under Article 1-1), the client assumed all
obligations or inherent ris%s entailed by transactions emanating from the arrangement, and the
ban% may be held liable, as an agent, only when it e&ceeds its authority, or acts with fraud,
negligence or bad faith. *rincipals are solely obliged to observe the solemnity of the transaction
entered into by the agent on their behalf, absent any proof that the latter acted beyond its
authority, and concomitant to this obligation is that the principal also assumes the ris%s that may
arise from the transaction. %anlilio v. Citiban2+, 59> SCRA *> '200:+.
0. W3!$ D&$! O@%.#5! &" A/!$%L. A@%3&(#%1? P(#$0#4-2 N&% &@$5 'A(%. 1>10+
1here the memorial par% company has authori9ed its agent to solicit and remit offers to
purchase internment spaces obtained on forms provided by the company, then the terms of the
offer to purchase, therefore, are contained in such forms and, when signed by the buyer and an
authori9ed officer of the company, becomes binding on both the company and said buyer. And
the fact that the buyer and the agent had an agreement different from that contained in the forms
accepted does not bind the company, since the same were made obviously outside the agent>s
authority. 1hen the power of the agent to sell are governed by the written form, it is beyond the
authority of the agent as a fact that is deemed %nown and accepted by the third person, to offer
terms and conditions outside of those provided in writing. Manila Me'orial %ar2 Ce'etery v.
)insan-an, 449 SCRA 9:: '2004+.
0. EKCEPT?
'1+ W3!$ P(#$0#4-2 R-%#"#!., EE4(!..21 &( I=42#!521 'A(%. 1>01+
#ince the general rule is that the principal is bound by the acts of his agent in the scope of
the agency, therefore when the agent had full authority to ma%e the ta& returns and file them,
together with the chec% payments, with the Collector of 6nternal /evenue on behalf of the
principal, then the effects of dishonesty of the agent must be borne by the principal, not by an
innocent third party who has dealt with the dishonest agent in good faith. "im Chai Seng v.
/rinidad, (1 *hil. 0(( ,1-!1..
A person with whom an agent has contracted in the name of his principal, has a right of
action against the purported principal, even when the latter denies the commission or authority
of the agent, in which case the party suing has the burden of proving the e&istence of the
agency notwithstanding the purported principal>s denial thereof. 6f the agency relation is
proved, then the principal shall be held liable, and the agent who is made a party to the suit
cannot be held personally liable. 7n the other hand, if the agency relationship is not proven, it
would be the agent who would become liable personally on the contract entered into. >antes
v. Madriguera, (! *hil. 28- ,1-!1..
1here a sale of land is effected through an agent who made misrepresentations to the
buyer that the property can be delivered physically to the control of the buyer when in fact it
was in adverse possession of third parties, the seller'principal is bound for such
misrepresentations and cannot insist that the contract is valid and enforceable$ the seller'
principal cannot accept the benefits derived from such representations of the agent and at the
same time deny the responsibility for them. %on0ales v. a)erer, (+ *hil. 28) ,1-!0..
1hen an agent has been empowered to sell hemp in a foreign country, that e&press power
carries with it the implied power to ma%e and enter into the usual and customary contract for
its sale, which sale contract may provide for settlement of issues by arbitration. 1e are clearly
of the opinion that the contract in 4uestion is valid and binding upon the defendant AprincipalE,
and that authority to ma%e and enter into it for and on behalf of the defendant AprincipalE, but
as a matter of fact the contract was legally ratified and approved by the subse4uent acts and
conducts of the defendant AprincipalE. !o)inson# 3leming and Co. v. Cru0, (- *hil. (! ,1-!6..
"he authority to sell any %ind of realty that might belong to the principal was held to
include also such as the principal might afterwards have during the time it was in force.
=atig)a' v. /ai ing Co., 0! *hil. 6!! ,1-!8..
"he registered owner who placed in the hands of another an e&ecuted document of transfer
of the registered land, was held to have effectively represented to a third party that the holder
of such document is authori9ed to deal with the property. &londeau v. >ano,. 61 *hil. 6!0
,1-20.$ ,omingo v. !o)les, (02 #C/A 81! ,!))0..
1hen the principal has duly empowered his agent to enter into a contract of mortgage over
his property as well as a contract of surety, but the agent only entered into a contract of
mortgage, no inference from the power of attorney can be made to ma%e the principal liable as
a surety, because under the law, a surety must be e&press and cannot be presumed. 2ise
and Co. v. /anglao, 62 *hil. 2+! ,1-26..
1hen ban% officers, acting as agent, had not only gone against the instructions, rules and
regulations of the ban% in releasing loans to numerous borrowers who were 4ualified, then
such ban% officers are liable personally for the losses sustained by the ban%. "he fact that the
ban% had also filed suits against the borrowers to recover the amounts given does not amount
to ratification of the acts done by the ban% officers. P>& v. &agamaspad, 8- *hil. 260 ,1-01..
As a general rule, the mismanagement of the business of a party by his agents does not
relieve said party from the responsibility that he had contracted with third persons.
Commercial &an' & /rust Co. v. !epu)lic Armored Car Services Corp., 8 #C/A (!0 ,1-62..
*ursuant to the terms of the Mudgment, petitioners had issued a chec% in payment of the
Mudgment debt and made arrangements with the ban% for the latter to allow the encashment
thereof$ but the chec% was dishonored by the ban% which increased the amount of the
Mudgment debt. 1hen the petitioner sought not to be made liable for the alleged oversight of
the ban%, the Court denied such defense on the ground that "he principal is responsible for
the acts of the agent, done within the scope of his authority, and should bear the damages
caused upon third parties. 6f the fault or oversight lies on the agent ban%, the petitioners are
free to sue said ban% for damages occasioned thereby. "ope0 v. Alvendia, 1! #C/A 62(
,1-6(..
1here the principal issued the chec%s in full payment of the ta&es due, but his agents had
misapplied the chec% proceeds, it was held that the principal would still be liable, because
when a contract of agency e&ists, the agent>s acts bind his principal, without preMudice to the
latter see%ing recourse against the agent in an appropriate civil or criminal action. ,y Peh v.
Collector of $nternal !evenue, !8 #C/A !16 ,1-6-..
Under the principle that %nowledge of the agent is considered %nowledge by the principle,
the Court ruled that the spouses cannot defend by contending lac% of %nowledge of the rules
upon which they received their tic%ets from the airline company since the evidence bore out
that their travel agent, who handled their travel arrangements, was duly informed by proper
representatives of the airline company. Air 3rance v. Court of Appeals, 1!6 #C/A ((8 ,1-82..
1hen a third party admitted in her written correspondence that she had contracted with the
principal through an duly authori9ed agent, and then sues both the principal and the agent on
an alleged breach of that contract, and in fact later on dismisses the suit insofar as the
principal is concerned, there can be no cause of action against the agent. #ince it is the
principal who should be answerable for the obligation arising from the agency, it is obvious
that if a third person waives his claims against the principal, he cannot assert them against the
agent. &edia v. 2hite, !)( #C/A !+2 ,1--1..
"he fact that the agent defrauded the principal in not turning over the proceeds of the
transactions to the latter cannot in any way relieve or e&onerate such principal from liability to
the third persons who relied on his agent>s authority. 6t is an e4uitable ma&im that as between
two innocent parties, the one who made it possible for the wrong to be done should be the one
to bear the resulting loss. Cuison v. Court of #ppeals+ 22: SCRA 9>1 '1>>9+.
7n the basis of the general principle that the principal is responsible for the acts of the
agent, done within the scope of his authority, and should bear the damage caused to third
persons, the principal cannot absolve itself from the damages sustained by its buyer on the
premise that the fault was primarily caused by its agent in pointing to the wrong lot, since the
agent was acting within its authority as the sole real estate representative Aof the principal'
sellerE when it made the delivery to the buyer, although AiEn acting within its scope of
authority, Athe agentE was, however, negligent, since it is negligence that is the basis of
principal>s liability since under Arts. 1-)- and 1-1), the liability of the principal for acts done by
the agent within the scope of his authority do not e&clude those done negligently.
%leasantville ,ev. v. Court of #ppeals, 259 SCRA 10 '1>>*+.
1hen a ban%, by its acts and failure to act, has clearly clothed its manager with apparent
authority to sell an ac4uired asset ,piece of land. in the normal course of business, it is legally
obliged to confirm the transaction by issuing a board resolution to enable the buyers to register
the property in their names. !ural &an' of Milaor v. Ocfemia, 2!0 #C/A -- ,!)))..
/atification in agency is the adoption or confirmation by one person of an act performed on
his behalf by another without authority. "he substance of the doctrine is confirmation after
conduct, amounting to a substitute for a prior authority. 7rdinarily, the principal must have full
%nowledge at the time of ratification of all the material facts and circumstances relating to the
unauthori9ed act of the person who assumed to act as agent. "hus, if material facts were
suppressed or un%nown, there can be no valid ratification and this regardless of the purpose or
lac% thereof in concealing such facts and regardless of the parties between whom the 4uestion
of ratification may arise. 5evertheless, this principle does not apply if the principal>s ignorance
of the material facts and circumstances was willful, or that the principal chooses to act in
ignorance of the facts. Fowever, in the absence of circumstances putting a reasonably prudent
man on in4uiry, ratification cannot be implied as against the principal who is ignorant of the
facts. "hus, the acts of an agent beyond the scope of his authority do not bind the principal,
unless he ratifies them, e&pressly or impliedly. 7nly the principal can ratify$ the agent cannot
ratify his own unauthori9ed acts. Goreover, the principal must have %nowledge of the acts he
is to ratify. Manila Me'orial %ar2 Ce'etery+ 0nc. v. )insan-an, 449 SCRA 9::, 9>4
'2004+.
#ince the basis of agency is representation, then the 4uestion of whether an agency has
been created is ordinarily a 4uestion which may be established in the same way as any other
fact, either by direct or circumstantial evidence. "hough that fact or e&tent of authority of the
agents may not, as a general rules, be established from the declarations of the agents alone, if
one professes to act as agent for another, she may be estopped to deny her agency both as
against the asserted principal and the third persons interested in the transaction in which he or
he is engaged. ,oles v. Angeles# (-! #C/A 6)+ ,!))6..
"he general rule is that the principal is responsible for the acts of its agent done within the
scope of its authority, and should bear the damage caused to third persons. 1hen the agent
e&ceeds his authority, the agent becomes personally liable for the damage. ?ut even when the
agent e&ceeds his authority, the principal is still solidarily liable together with the agent if the
principal allowed the agent to act as though the agent had full powers. 6n other words, the acts
of an agent beyond the scope of his authority do not bind the principal, unless the principal
ratifies them, e&pressly or implied. /atification in agency is the adoption or confirmation by one
person of an act performed on his behalf by another without authority. Filipinas )ife
#ssurance Co. v. %edroso, 549 SCRA 542 '200)+.
Under Article 18-8 and 1-1), an agent>s act, even if done beyond the scope of his
authority, may bind the principal if he ratifies them, whether e&pressly or tacitly. 6t must be
stressed though that only the principal, and not the agent, can ratify the unauthori9ed acts,
which the principal must have %nowledge of. "hus, where the special power of attorney that an
agent for the insurance company provides clearly the limit of the entities to whom he can issue
a surety bond, as well as the limit of the amounts that it can cover, an insured who does not
fall within such authority cannot claim good faith as to ma%e the surety issued outside of the
scope of authority binding on the principal insurance company. Country &an'ers $nsurance
Corp. v =eppel Ce)u Shipyard, 6+2 #C/A (!+ ,!)1!..
'2+ W3!(! A/!$% A0%. #$ EE0!.. &" A@%3&(#%1, W3!(! %3! P(#$0#4-2 A22&C!5 A/!$% %& A0%
-. T3&@/3 A/!$% H-5 F@22 P&C!(. 'A(%. 1>11+
'-+ EE0!4%#&$ %& %3! R@2! %3-% O62#/-%#&$. A(! P(!.@=!5 %& ! J&#$%
'6+ D&0%(#$! &" A44-(!$% A@%3&(#%1
"he doctrine of apparent authority focuses on two factors, first the principal>s
manifestations of the e&istence of agency which need not be e&pressed, but may be
general and implied, and second is the reliance of third persons upon the conduct of the
principal or agent. Under the doctrine, the 4uestion in every case is whether the principal
has by his voluntary act placed the agent in such a situation that a person of ordinary
prudence, conversant with business usages and the nature of the particular business, is
Mustified in presuming that such agent has authority to perform the particular act in 4uestion.
Professional Services# $nc. v. CA# 0(( #C/A 1+) ,!))8.$ 611 #C/A !8! ,!)1)..
<asily discernible from the foregoing is that apparent authority is determined only by the
acts of the principal and not by the acts of the agent. "he principal is, therefore, not
responsible where the agent>s own conduct and statements have created the apparent
authority. Sargasso Construction & ,ev. Corp. v. PPA, 6!2 #C/A !6) ,!)1)..
"here can be no apparent authority of an agent without acts or conduct on the part of
the principal, which must have been %nown and relied upon in good faith as a result of the
e&ercise of reasonable prudence by a third party claimant, and which must have produced
a change of position to the third party>s detriment. "herefore, there is no basis for the courts
to apply the doctrine where there is no evidence showing the manner by which the
supposed principal, has clothed or held out its branch manager as having the power to
enter into an agreement, as claimed by petitioners. &anate v. Philippine Countryside !ural
&an', 6!0 #C/A !1 ,!)1)..
'0+ A/!$01 61 E.%&44!2
?y the opening of branch office with the appointment of its branch manager and
honoring several surety bonds issued in its behalf, the insurance company induced the
public to believe that its branch manager had authority to issue such bonds. As a
conse4uence, the insurance company was estopped from pleading, particularly against a
regular customer thereof, that the branch manager had no authority. Central Surety &
$nsurance Co. v. C.>. odges, 28 #C/A 10- ,1-+1..
<ven when the agent of the real estate company acts unlawfully and outside the scope
of authority, the principal can be held liable when by its own act it accepts without protest
the proceeds of the sale of the agents which came from double sales of the same lots, as
when learning of the misdeed, it failed to ta%e necessary steps to protect the buyers and
failed to prevent further wrong from being committed when it did not advertise the
revocation of the authority of the culprit agent. 6n such case the liabilities of both the
principal and the agent is solidary. Manila Re'nants v. Court of #ppeals, 1>1 SCRA
*22 '1>>0+
Qor an agency by estoppel to e&ist, the following must be established3 ,1. the principal
manifested a representation of the agent>s authority or %nowingly allowed the agent to
assume such authority$ ,!. the third person, in good faith, relied upon such representation$
,2. relying upon such representation, such third person has changed his position to his
detriment. An agency by estoppel, which is similar to the doctrine of apparent authority,
re4uires proof of reliance upon the representations, and that, in turn, needs proof that the
representations predated the action ta%en in reliance. )itonjua+ "r. v. !ternit Corp.+ 4>0
SCRA 204 '200*+.
Qor one to successfully claim the benefit of estoppel on the ground that he has been
misled by the representations of another, he must show that he was not misled through his
own want of reasonable care and circumspection. Country &an'ers $nsurance Corporation
v. =eppel Ce)u Shipyard# 6+2 #C/A (!+ ,!)1!..
6nnocent third persons should not be preMudiced if the principal failed to adopt the
needed measures to prevent misrepresentation, much more so if the principal ratified his
agent>s acts beyond the latter>s authority. 3ilipinas "ife Assurance Co. v. Pedroso, 0(2
#C/A 0(! ,!))8..
"he law ma%es no presumption of agency and proving its e&istence, nature and e&tent is
incumbent upon the person alleging its e&istence, nature and e&tent is incumbent upon the
person alleging it. An agency by estoppel, which is similar to the doctrine of apparent
authority re4uires the proof of reliance upon the representation, and that, in turn, needs
proof that the representations predated the action ta%en in reliance. 1un =wan &yung v.
PA%CO!, 6)8 #C/A 1)+ ,!))-..
2. O62#/-%#&$. &" %3! P(#$0#4-2
-. O62#/-%#&$ %& P-1 A/!$%L. C&=4!$.-%#&$ 'A(%. 1):5+
Although the sale of the obMect of the agency to sell was perfected three days after the
e&piration of the agency period, the agent would still be entitled to receive the commission
stipulated based on the doctrine held in Prats v. Court of Appeals, 81 #C/A 26) ,1-+8., that
when the agent was the efficient procuring cause in bringing about the sale that the agent was
entitled to compensation. 6n the earlier case of !eyes v. Manaoat, 8 C.A. /ep. !d 268 ,1-60.,
this Court ruled that when there is a close, pro&imate and causal connection between the agent=s
efforts and labor and the principal=s sale of his property, the agent is entitled to a commission.
Manoto2 $ros. 0nc. v. C, 221 SCRA 224 '1>>9+.
Although the ultimate buyer was introduced by the agent to the principal during the term of the
agency, nevertheless, the lapse of the period of more than one year and five months between the
e&piration of petitioners= authority to sell and the consummation of the sale, cannot authori9e
compelling the principal to pay the stipulated bro%er>s fee, since the agent was no longer entitled
thereto. "he Court ta%es into strong consideration that utter lac% of evidence of the agent showing
any further involvement in the negotiations between principal and buyer during that period and in
the subse4uent processing of the documents pertinent to said sale. "he bro%er was not the
efficient procuring cause in bringing about the sale in 4uestion, and are therefore not entitled to
the stipulated bro%er>s commission. $nland !ealty v. Court of Appeals, !+2 #C/A +) ,1--+..
6. O62#/-%#&$ %& A58-$0! S@=. R!I@!.%!5 "&( EE!0@%#&$ &" A/!$01 'A(%. 1>12+
'1+ A/!$% H-. R#/3% %& R!#=6@(.!=!$% "&( EE4!$.!. A58-$0!5 I$02@5#$/ I$%!(!.% "(&=
%3! D-1 I% W-. A58-$0!5
'2+ C&=4-(!? W3!(! A/!$% C&$.!$%. -$5 I. &@$5 %& A58-$0! %3! S@=. -. S%#4@2-%!5
'A(%. 1))*+
'9+ W3!(! P(#$0#42! N&% L#-62! %& A/!$% "&( EE4!$.!. I$0@((!5 'A(%. 1>1)+
According to Fahn, ?G1 periodically inspected the service centers to see to it that ?G1
standards were maintained. 6ndeed, it would seem from ?G1=s letter to Fahn that it was for
Fahn=s alleged failure to maintain ?G1 standards that ?G1 was terminating Fahn=s
dealership. "he fact that Fahn invested his own money to put up these service centers and
showrooms does not necessarily prove that he is not an agent of ?G1. Qor as already noted,
there are facts in the record which suggest that ?G1 e&ercised control over Fahn=s activities
as a dealer and made regular inspections of Fahn=s premises to enforce compliance with
?G1 standards and specifications. 5ahn v. Court of #ppeals, 2** SCRA 59: '1>>:+.
Fowever, while the law on agency prohibits the area manager from obtaining
reimbursement, his right to recover may still be Mustified under the general law on obligations
and contracts, particularly Article 1!26 of the Civil Code on payment by a third party of the
obligation of the debtor, allows recovery only insofar as the payment has been beneficial to
the debtor. "hus, to the e&tent that the obligation of the insurance company has been
e&tinguished, the area manager may demand for reimbursement from his principal. "o rule
otherwise would result in unMust enrichment of petitioner. ,o'inion 0nsurance Corp. v.
Court of #ppeals, 9:* SCRA 29> '2002+.
0. O62#/-%#&$ %& I$5!=$#"1 A/!$% "&( D-=-/!. 'A(%. 1>19+
'1+ C&=4-(!? )iability for ,a'a-es for &on%erfor'ance of #-ency 'A(%. 1))4+
1hen the purchase by one company of the copra of another company is by way of contract
of purchase rather than an agency to purchase, the former is not liable to reimburse the latter
for e&penses incurred by the latter in maintaining it purchasing organi9ation intact over a
period during which the actual buying of copra was suspended. #lbaladejo y Cia v. %RC,
45 P3#2 55* '1>29+.
5. R#/3% %& R!%-#$ O67!0% &" A/!$01 #$ P2!5/! "&( A58-$0!. -$5 D-=-/!. 'A(%. 1>14+
'1+ A/!$% &@$5 %& 5!2#8!( %& 4(#$0#4-2 !8!(1%3#$/ 3! (!0!#8!5 even if not due the
principal 'A(%. 1)>1+.
'2+ T3#$/ P2!5/!5 M-1 ! S&25 O$21 A"%!( D!=-$5 &" A=&@$% D@! 'A(%. 2122+?
*ublic auction to ta%e place within one ,1. month after demand
@ebtor may demand return of not sold within this period
9. TC& &( M&(! P(#$0#4-2. %& A/!$% A44&#$%!5 "&( C&==&$ T(-$.-0%#&$. 'A(%. 1>15+
-. O62#/-%#&$ &" %3! P(#$0#4-2. I. S&2#5-(1 !0-@.! &" T3!#( C&==&$ I$%!(!.%
1hen the law e&pressly provides for solidarity of the obligation, as in the liability of co'
principals in a contract of agency, each obligor may be compelled to pay the entire obligation.
"he agent may recover the whole compensation from any one of the co'principals, as in this
case. ,e Castro v. Court of #ppeals, 9)4 SCRA *0: '2002+.
6. Co'pare A(%. 1)>4? TC& &( M&(! A/!$%. C#%3 O$! P(#$0#4-2 M A/!$%L. O62#/-%#&$ I.
S&2#5-(1
0. R#/3% &" E-03 P(#$0#4-2 %& R!8&A! A@%3&(#%1 &" C&==&$ A/!$% 'A(%. 1>25+
4. R#/3%. &" P!(.&$. W3& C&$%(-0%!5 "&( S-=! T3#$/, O$! W#%3 P(#$0#4-2 -$5 %3! O%3!(
W#%3 A/!$% 'A(%. 1>1*+
-. T3-% &" P(#&( D-%! I. P(!"!((!5
6. I" - D&@62! S-2! S#%@-%#&$ M A(%. 1544 G&8!($.
5. L#-6#2#%1 &" P(#$0#4-2 -$5 A/!$% %& T3#(5 P!(.&$. W3&.! C&$%(-0% M@.% ! R!7!0%!5
P@(.@-$% %& A(%. 1>1* 'A(%. 1>1:+
-. I" A/!$% #$ G&&5 F-#%3 ; P(#$0#4-2 L#-62!
6. I" A/!$% #$ -5 F-#%3 ; A/!$% -2&$! L#-62!
*. L#-6#2#%1 &" P(#$0#4-2 %& T3#(5 P!(.&$. "&( A0%. &" %3! A/!$%L. E=42&1!!.
"he mere fact that the employee of the airline company>s agent has committed a tort is not
sufficient to hold the airline company liableNthere is no vinculum -uris between the airline
company and its agent=s employees and the contractual relationship between the airline company
and its agent does not operate to create a Muridical tie between the airline company and its
agent>s employees. Article !18) of the Civil Code does not ma%e the principal vicariously liable
for the tort committed by its agent>s employees and the principal'agency relationship per se does
not ma%e the principal a party to such tort$ hence, the need to prove the principal>s own fault or
negligence. Spouses 4iloria v. Continental Airlines# $nc., 662 #C/A 0+ ,!)1!..
Co'pare= 1ith regard to the delivery of the petroleum, Iillaru9 was acting as the agent of
petitioner *etron3 for a fee, he delivered the petroleum products on its behalf$ and notably, *etron
even imposed a penalty clause in instances when there was a violation of the hauling contract,
wherein it may impose a penalty ranging from a written warning to the termination of the contract.
"herefore, as far as the dealer was concerned with regard to the terms of the dealership contract,
acts of Iillaru9 and his employees are also acts of *etron. Petron Corp. v. Spouses Cesar .overo
& +rma 3. Cudilla# 662 #C/A 1+! ,!)1!..
V. EKTINGUISHMENT OF AGENCY
1. H&C -$5 W3!$ A/!$01 EE%#$/@#.3!5 'A(%. 1>1>+
-. 1 P(#$0#4-2L. R!8&0-%#&$ &" A/!$01 'EE4(!.. &( I=42#!5+
6. 1 A/!$%L. W#%35(-C-2 "(&= A/!$01
0. 1 D!-%3, C#8#2 I$%!(5#0%#&$, I$.-$#%1 &( I$.&28!$01 &" %3! P(#$0#4-2 &( %3! A/!$%
5. 1 D#..&2@%#&$ &" %3! J@(#5#0-2 E$%#%1 W3#03 E$%(@.%!5 &( A00!4%!5 %3! A/!$01
!. 1 %3! A00&=42#.3=!$% &" %3! O67!0% &( P@(4&.! &" A/!$01
". 1 %3! EE4#(-%#&$ &" %3! P!(#&5 "&( W3#03 A/!$01 W-. C&$.%#%@%!5
2. EE4(!.. R!8&0-%#&$? T3! P(#$0#4-2 M-1 R!8&A! -$ F#-ency at 6illG
-. I$ W3#03 C-.!, P(#$0#4-2 M-1 C&=4!2 A/!$% %& R!%@($ %3! D&0@=!$% E8#5!$0#$/ %3!
A/!$01 'A(%. 1>20+
1here no time for the continuance of the agency is fi&ed by the terms, the principal is at liberty
to terminate it at will subMect only to the re4uirements of good faith. ,a*on v. &rimo, (! *hil 122
,1-!1..
6. R#/3% &" E#%3!( TC& &( M&(! P(#$0#4-2. %& R!8&A!
'1+ Obli-ation of Several %rincipals to a Co''on #-ent 0s Solidary 'A(%. 1>15+
'2+ #ny of the %rincipals Can Revo2e the #uthority of 1heir Co''on #-ent+ 6ithout the
Consent of the Other;s< ,A(%. 1>25.
9. I=42#!5 R!8&0-%#&$
-. A44&#$%=!$% &" N!C A/!$% "&( S-=! @.#$!..DT(-$.-0%#&$ ,A(%. 1>29.
'1+ 0'pliedly Revo2ed as to #-ent Only
'2+ #s to 1hird %ersons+ &otice to 1he' 0s &ecessary ,A(%. 1>22.
6n litigation, the fact that a second attorney enters an appearance on behalf of a litigant
does not authori9e a presumption that the authority of the first attorney has been withdrawn.
A0nar v. Morris, 2 *hil. 626 ,1-)(..
1here the father first gave a power of attorney over the business to his son, and
subse4uently to the mother, the Court held that without evidence showing that the son was
informed of the issuance of the power of attorney to the mother, the transaction effected by the
son pursuant to his power of attorney, was valid and binding. Garcia v. ,e Man*ano, 9>
P3#2 5:: '1>1>+.
6. W3!$ P(#$0#4-2 D#(!0%21 M-$-/!. @.#$!.. E$%(@.%!5 %& A/!$% 'A(%. 1>24+
6f the purpose of the principal in dealing directly with the purchaser and himself effecting the
sale of the principal>s property is to avoid payment of his agent>s commission, the implied
revocation is deemed made in bad faith and cannot be sanctioned without according to the agent
the commission which is due him. $nfante v. Cunanan, -2 *hil 6-2 ,1-02..
"he act of a contractor, who, after e&ecuting powers of attorney in favor of another
empowering the latter to collect whatever amounts may be due to him from the Hovernment, and
thereafter demanded and collected from the Hovernment the money the collection of which he
entrusted to his attorney'in'fact, constituted revocation of the agency. >ew Manila Co. v.
!epu)lic, 1)+ *hil 8!( ,1-6)..
"he revocation of a special power of attorney, although embodied in a private writing is valid
and binding between the parties. P>& v. $AC, 18- #C/A 68) ,1--)..
1here purported agent was given only authority to follow up the purchase of fire truc% with
municipal government, there was no authority to sell nor was he empowered to ma%e a sale for
and in behalf of the seller. ?ut even if the purported agent is considered to have been constituted
as an agent to sell the fire truc%, such agency would have been deemed revo%ed upon the
resumption of direct negotiations between the seller and the municipality, the purported agent
having in the meantime abandoned all efforts ,if indeed any were e&erted. to secure the deal in
the seller>s behalf. %uardex v. >"!C, 1-1 #C/A (8+ ,1--)..
*rincipal may revo%e, e&press or impliedly, a contract of agency at will, and may be availed of
even if the period fi&ed in the contract of agency has not yet e&pired. As the principal has this
absolute right to revo%e the agency, the agent can not obMect thereto$ neither may he claim
damages arising from such revocation, unless it is shown that such was done in order to evade
the payment of agent>s commission. "he act of a contractor, who, after e&ecuting powers of
attorney in favor another empowering the latter to collect whatever amounts may be due to him
from the Hovernment, and thereafter demanded and collected from the government the money
the collection of which he entrusted to his attorney'in'fact, constituted revocation of the agency in
favor of the attorney'in'fact. >ew Manila "um)er Co.# $nc. v. !epu)lic of the Philippines, 1)+ *hil.
8!( ,1-6).$ CMS )o--in- v. Court of #ppeals, 211 SCRA 9:4 '1>>2+.
@amages are generally not awarded to the agent for the revocation of the agency, and the
case at bar is not one falling under the e&ception mentioned, which is to evade the payment of
the agent>s commission. CMS )o--in- v. Court of #ppeals, 211 SCRA 9:4 '1>>2+.
0. G!$!(-2 P&C!( &" A%%&($!1 I. R!8&A!5 61 - S4!0#-2 O$! G(-$%!5 %& A$&%3!( A/!$%, A.
R!/-(5. %3! S4!0#-2 M-%%!( I$8&28!5 #$ %3! L-%%!( 'A(%. 1>2*+
<ven though a period is stipulated during which the agent is to hold his position in the
mercantile establishment, yet the latter may, for any of the special reasons specified in Art. 2)) of
the Code of Commerce, dismiss such agent or employee even before the termination of the
period. &arretto v. Santa Marina, !6 *hil (() ,1-12..
A special power of attorney giving the son the authority to sell the principals properties is
deemed revo%ed by a subse4uent general power of attorney that does not give such power to the
son, and any sale effected thereafter by the son in the name of the father would be void. ,y
$uncio and Co. v. On- Guan Ca, *0 P3#2 *>* '1>94+.
6t is now well'settled that a principal may discharge or dismiss his agent for Must cause for
malfeasance or misfeasance in the performance of his duties. "he provisions of article 2)) of the
Code of Commerce e&pressly authori9es a merchant to discharge his employee or agent for fraud
or breach of trust, or engaging in any commercial transaction for their own account without the
e&press %nowledge and permission of the principal. Manila /rading v. Manila /rading "a)orers
Assn., 82 *hil !-+ ,1-(-..
1hen the terms of the agency contract allowed the agent to dispose of, sell, cede, transfer
and convey & & & until all the subMect property as subdivided is fully disposed of, the agency is
one with a period and it is not e&tinguished until all the lots have been disposed of. Conse4uently,
if the contract is terminated by the principal before all the lots in the subdivision has been
disposed of, there is a breach of contract for which the principal would be liable for damages.
,ialosa v. Court of Appeals, 12) #C/A 20) ,1-8(..
1hen the revocation of the agency was effected by the principal primarily because of the
refusal of the agent to share fifty percent of the commissions earned under the contract of
agency, such revocation was done in bad faith, and for which the principal can be held liable for
damages including the payment of full commissions earned by the agent at the time of the
revocation of the agency. 4alen0uela v. Court of Appeals# 1-1 #C/A 1 ,1--)..
Courts are without authority to reinstate an agency arrangement that has been revo%ed or
terminated by the principal. 6n an agent'principal relationship, the personality of the principal is
e&tended through the facility of the agent. 6n so doing, the agent, by legal fiction, becomes the
principal, authori9ed to perform all acts which the latter would have him do. #uch a relationship
can only be effected with the consent of the principal, which must not, in any way, be compelled
by law or by any court. "he Agreement itself between the parties states that either party may
terminate the Agreement without cause by giving the other 2) days> notice by letter, telegram or
cable. ,emphasis supplied. 1e, therefore, set aside the portion of the ruling of the respondent
appellate court reinstating 7rient Air as general sales agent of American Air. Orient Air Services
v. Court of Appeals, 1-+ #C/A 6(0, 606 ,1--1..
4. C-.!. &" I((!8&0-62! A/!$0#!. 'A(%. 1>2:+?
-. W3!$ - #2-%!(-2 C&$%(-0% D!4!$5. &$ I%
An e&ception to the revocability of a contract of agency is when it is coupled with interest, i.e.,
if a bilateral contract depends upon the agency. "he reason for its irrevocability is because the
agency becomes part of another obligation or agreement. 6t is not solely the rights of the principal
but also that of the agent and third persons which are affected. Fence, the law provides that in
such cases, the agency cannot be revo%ed at the sole will of the principal. Republic v.
!van-elista, 4** SCRA 544 '2005+.
Agency is e&tinguished by death of the principal$ the only e&ception where the agency shall
remain in full force after the death of the principal is when 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. Sasa)a v. 4da. ,e /e, 0-( #C/A (1) ,!))-..
6. W3!$ I% I. %3! M!-$. &" F@2"#22#$/ -$ O62#/-%#&$ A2(!-51 C&$%(-0%!5
Unli%e simple grants of a power of attorney, the agency that we hereby declare to be
compatible with the intent of the parties cannot be revo%ed at will. "he reason is that it is one
coupled with an interest, the agency having been created for the mutual interest of the agent and
the principal. 6t appears that Bina #evilla is a bona fide travel agent herself, and as such, she had
ac4uired an interest in the business entrusted to her. Goreover, she had assumed a personal
obligation for the operation thereof, holding herself solidarily liable for the payment of rentals. #he
continued the business, using her own name, after "ourist 1orld had stopped further operations.
Fer interest, obviously, is not limited to the commissions she earned as a result of her business
transactions, but one that e&tends to the very subMect matter of the power of management
delegated to her. 6t is an agency that cannot be revo%ed at the pleasure of the principal. Sevilla
v. Court of #ppeals, 1*0 SCRA 1:1 '1>))+.
#-ency Coupled with 0nterest= 6n the insurance business . . . , the most difficult and
frustrating period is the solicitation and persuasion of the prospective clients to buy insurance
policies. 5ormally, agents would encounter much embarrassment, difficulties, and oftentimes
frustrations in the solicitation and procurement of the insurance policies. "o sell policies, an agent
e&erts great effort, patience, perseverance, ingenuity, tact, imagination, time and money. . .
"herefore, the respondents cannot state that the agency relationship between Ialen9uela and
*hilamgen is not coupled with interest. "here may be cases in which an agent has been induced
to assume a responsibility or incur a liability, in reliance upon the continuance of the authority
under such circumstances that, if the authority be withdrawn, the agent will be e&posed to
personal loss or liability. . . . Qurthermore, there is an e&ception to the principle that an agency is
revocable at will and that is when the agency has been given not only for the interest of the
principal but for the interest of third persons or for the mutual interest of the principal and the
agent. 6n these cases, it is evident that the agency ceases to be freely revocable by the sole will
of the principal. 4alen*uela v. Court of #ppeals+ 1>1 SCRA 1 '1>>0+.
Also, the relationship between 5A#U"/AO#/A and *5? when the former constituted the latter
as its attorney'in'fact is not a simp6e agency. 5A#U"/AO#/A has assigned and practically
surrendered its rights in favor of *5? for a substantial consideration. "o reiterate,
5A#U"/AO#/A e&ecuted promissory notes in favor of *5? every time it availed of the credit line.
"he agency established between the parties is one coupled with interest which cannot be
revo%ed or cancelled at will by any of the parties. &ational Su-ar 1radin- v. %hilippine
&ational $an2, 9>* SCRA 52) '2009+.
"here is no 4uestion that the #*A e&ecuted by respondents in favor of petitioners is a contract
of agency coupled with interest. . . .A?utE in this case, we agree with the CA that although the
revocation was done in bad faith, respondents did not act in a wanton, fraudulent, rec%less,
oppressive or malevolent manner. "hey revo%ed the #*A because they were not satisfied with
the amount of the loan approved. "hus, petitioners are not entitled to e&emplary damages.
Chin- v. $antolo, *): SCRA 194 '2012+.
<ven an agency coupled with interest may indeed be revo%ed on the ground of fraud
committed by the agent, which is really an act of rescission, the same must be clearly be proven.
&acaling v. Muya, 28) #C/A +1( ,!))!..
0. U$7@.%#"#!5 R!=&8-2 &" M-$-/#$/ P-(%$!( M R!8&0-%#&$ N!!5. %3! V&%! &" C&$%(&22#$/
P-(%$!(. 'A(%. 1)00+
. . . it must not be forgotten that a power of attorney although coupled with interest in a
partnership can be revo%ed for a Must cause, such as when the attorney'in'fact betrays the
interest of the principal, as happened in this case. 6t is not open to serious doubt that the
irrevocability of the power of attorney may not be used to shield the perpetration of acts in bad
faith, breach of confidence, or betrayal of trust, by the agent for that would amount to holding that
a power coupled with an interest authori9es the agent to commit frauds against the principal.
Coleon-co v. Claparols, 10 SCRA 5::, 5)1-5)2 '1>*4+.
6n an agency coupled with interest, it is the -/!$01 that cannot be revo%ed or withdrawn 61
%3! 4(#$0#4-2 due to an interest of a third party that depends upon it, or the mutual interest of
both principal and agent. 6n this case, the non'revocation or non'withdrawal under paragraph 0,c.
Aof the *ower of AttorneyE applies to the -58-$0!. made by petitioner AagentE who is
supposedly the -/!$% and not the principal under the contract. "hus, it cannot be inferred from
the stipulation that the parties> relation under the agreement is one of agency coupled with an
interest and not a partnership. Philex Mining Corp. v. C$!, 001 #C/A (!8 ,!))8..
5. E""!0%. &" R!8&0-%#&$ &$ T3#(5 P-(%#!.
-. W3!$ I% A""!0%. D!-2#$/ C#%3 S4!0#"#!5 T3#(5 P-(%#!. 'A(%. 1>21+
'1+ Refers to an #-ency Created by %rincipal to ,eal with Specified 1hird %ersons
'2+ For Revocation to %rejudice 1he'+ &otice 0s &eeded
'9+ C&=4-(!? !ffect of Special &otice or %ublic #dvertise'ent re= #ppoint'ent and
Revocation of #-ent 'A(%. 1):9+.
1here principal had e&pressly revo%ed the agent>s power to handle the business, but such
revocation was not conveyed to a long'standing client to whom the agent had been specifically
endorsed in the past by the principal, the revocation was not deemed effective as to such
client and the contracts entered into by the agent in the name of the principal after the
revocation would still be valid and binding against the principal. Rallos v. 3an-co, 20 P3#2
2*> '1>11+.
6n a case covering a power of attorney to deal with the general public, the fact that the
revocation was advertised in a newspaper of general circulation would be sufficient warning to
third persons. !ammani v. Court of Appeals, 1-6 #C/A +21 ,1--1..
6. R!8&0-%#&$ &" A/!$%L. G!$!(-2 P&C!(. E""!0%#8! A/-#$.% T3#(5 P!(.&$. 'A(%. 1>22+
Refers to #-ency Created to ,eal with the General %ublic
Revocation 6ill not %rejudice 1hird %ersons 6ho ,eal with the #-ent in Good
Faith and 6ithout >nowled-e of Revocation
5owever &otice of Revocation in a &ewspaper of General Circulation 0s Sufficient
6arnin-
1here a principal has been engaged, through his agent, in a series of purchase and sell
transactions with a merchant, and purported suspended the agent without informing the merchant,
the suspension of the agent could not wor% to the detriment of the merchant, thus3 "here is no
convincing proof in the record that the orders given by the plaintiff to its agent ,Hutierre9. had ever
been communicated to the defendant. "he defendant had a perfect right to believe, until otherwise
informed, that the agent of the plaintiff, in his purchase of abaca and other effects, was still
representing the plaintiff in said transactions. "he Court also found anomalous the position ta%en
by the principal whereby he was willing to ratify the acts of the agent in selling goods to the
merchant, but unwilling to ratify the agent>s acts in purchasing goods from the same merchant. Cia.
%en. ,e /o)acos v. ,ia)a, !) *hil 2!1 ,1-11..
1hile Art. 1208 of Civil Code re4uires that the contracts involving real property must appear in
a proper document, a revocation of a special power of attorney to mortgage a parcel of land,
embodied in a private writing, is valid and binding between the parties, such re4uirement of
Article 1208 being only for the convenience of the parties and to ma%e the contract effective as
against third persons. P>& v. $AC# 18- #C/A 68) ,1--)..
1hen the principal owner of land e&ecutes a special power of attorney giving her agent the
power to mortgage the same, even when there has been a revocation thereof, but the same has
not been made %nown to third parties, then those who receive a mortgage on the properties in
good faith will be protected in their contract, for under Art. 1-!1 of the Civil Code, if an agency
has been entrusted for the purpose of contracting with specified persons, its revocation shall not
preMudice the latter if they were not given notice thereof. )ustan v. C#, 2** SCRA **9 '1>>:+.
*. R#/3% &" A/!$% %& W#%35(-C 'R!.#/$+ "(&= A/!$01 'A(%. 1>2)+
-. 1 G#8#$/ D@! N&%#0! %& P(#$0#4-2
6. A/!$% %& I$5!=$#"1 P(#$0#4-2 S3&@25 ! S@""!( A$1 D-=-/!
0. U$2!.. W#%35(-C-2 I. D@! %& I=4&..#6#2#%1 &" C&$%#$@#$/ A/!$01 W#%3&@% G(-8!
D!%(#=!$% %& A/!$%
1hen the agent and administrator of property informs his principal by letter that for reasons of
health and medical treatment he is about to depart from the place where he is e&ecuting his trust
and wherein the said property is situated, and abandons the property, turns it over to a third party,
renders accounts of its revenues up to the date on which he ceases to hold his position and
transmits to his principal a general statement which summari9es and embraces all the balances
of his accounts since he began the administration to the date of the termination of his trust, and,
without stating when he may return to ta%e charge of the administration of the said property, as%s
his principal to e&ecute a power of attorney in due form in favor of and transmit the same to
another person who too% charge of the administration of the said property, it is but reasonable
and Must to conclude that the said agent had e&pressly and definitely renounced his agency and
that such agency was duly terminated, in accordance with the provisions of article 1+2! ,now
Arts. 1-1- and 1-!8. of the Civil Code. ,ela Pena v. idalgo, 16 *hil (0) ,1-1)..
"he fact that an agent institutes an action against his principal for the recovery of the balance
in his favor resulting from the li4uidation of the accounts between them arising from the agency,
and renders a final account of his operations, is e4uivalent to an e&press renunciation of the
agency, and terminates the Muridical relation between them. "he subse4uent purchase by the
former agent of the principal>s usufruct rights in a public auction therefore was valid, since no
fiduciary relationship e&isted between them at that point. 4alera v. 4elasco, 01 *hil 6-0 ,1-!8..
5. A/!$%L. O62#/-%#&$ %& A0% E8!$ A"%!( W#%35(-C#$/ F(&= A/!$01 'A(%. 1>2>+
!ven 0f #-ent 6ithdraws fro' the #-ency for a 4alid Reason+
5e Must Continue to #ct?
(ntil %rincipal has had reasonable opportunity to 1a2e
&ecessary Steps to Meet Situation?
'1+ C&=4-(!? #-ent ,eclines the #-ency 'A(%. 1))5+
:. D!-%3 &" %3! P(#$0#4-2 EE%#$/@#.3!. %3! A/!$01 'A(%.. 1>1>;9<, 1>91+
"he time during which the agent may hold his position is indefinite or undertermined, when no
period has been fi&ed in his commission and so long as the confidence reposed in him by the
principal e&ist$ but as soon as this confidence disappears the principal has a right to revo%e the
power he conferred upon the agent, especially when the latter has resigned his position for good
reasons. &arretto v. Santa Marina, !6 *hil (() ,1-12..
<ven though a period is stipulated during which the agent is to hold his position in the service
of the owner or head of a mercantile establishment, yet the latter may, for any of the special
reason specified in article 2)) of the Code of commerce, dismiss such agent even before the
termination of the period. &arretto v. Santa Marina, !6 *hil. (() ,1-12..
?y reason of the very nature of the relationship between principal and agent, agency is
e&tinguished by the death of the principal or the agent. "his is the law in this Murisdiction. !allos v.
3elix %o Chan & Sons !ealty Corp., 81 #C/A !01 ,1-+8..
@eath of a client divests his lawyer of authority to represent him as counsel, since a dead
client has no personality and cannot be represented by an attorney. "avina v. CA, 1+1 #C/A 6-1
,1-88..
18
-. W3!$ %3! A/!$01 C&$%#$@!. D!.4#%! D!-%3 &" P(#$0#4-2 'A(%. 1>90+?
'1+ 0f 0t 6as Constituted for Co''on 0nterest of %rincipal and #-ent? or
'2+ 0n Favor of 1hird %erson 6ho #ccepted Stipulation in 5is Favor.
An e&ample of an agency coupled with interest is when a power of attorney is constituted in
a contract of real estate mortgage pursuant to the re4uirement of Act 5o. 2120, which would
empower the mortgagee upon the default of the mortgagor to payment the principal obligation,
to effect the sale of the mortgage property through e&traMudicial foreclosure. "he argument
that foreclosure by the ?an% under its power of sale is barred upon death of the debtor,
because agency is e&tinguished by the death of the principal, under . . . Article 1-1- of the
Civil Code neglects to ta%e into account that the power to foreclose is not an ordinary agency
that contemplates e&clusively the representation of the principal by the agent but is primarily
an authority conferred upon the mortgagee for the latter>s own protection. 6t is, in fact, an
ancillary stipulation supported by the same causa or consideration for the mortgage and forms
an essential and inseparable part of that bilateral agreement. %ere* v. %&$, 1: SCRA )99
'1>**+. Superseded the rule laid down in Pasno v. !avina, 0( *hil. 28! ,1-2). and ,el
!osario v. A)ad, 1)( *hil. 6(8 ,1-08..
Agency is e&tinguished by the death of the principal. "he only e&ception where the agency
shall remain in full force and effect even after the death of the principal is when 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. Sasa)a v. 4da. ,e /e, 0-( #C/A (1)
,!))-..
6. E""!0% &" A0%. D&$! 61 A/!$% W#%3&@% B$&C2!5/! &" P(#$0#4-2L. D!-%3 'A(%. 1>91+
'1+ #cts #re 4alid %rovided?
'#+ #-ent ,oes &ot >now of ,eath or Other Cause of !xtin-uish'ent of
#-ency?
'##+ 1hird %erson ,ealin- with #-ent Must #lso $e in Good Faith ;&ot #ware
of ,eath or Other Cause<.
Under Article 1-21 of the Civil Code, we must uphold the validity of the sale of the land
effected by the agent only after the death of the principal, when no evidence was adduced
to show that at the time of sale both the agent and the buyers were unaware of the death of
the principal. &uason v. Panuyas, 1)0 *hil +-0 ,1-0-.$ errera v. (y =im %uan, 1 #C/A
()6 ,1-61..
). D!-%3 &" %3! A/!$% EE%#$/@#.3!. %3! A/!$01
-. O62#/-%#&$ &" A/!$%L. H!#(. #$ C-.! &" A/!$%L. D!-%3 'A(%. 1>92+?
'1+ &otify %rincipal
'2+ #dopt Measures as Circu'stances ,e'and in %rincipal8s 0nterest
NOTE ? I" P(#$0#4-2 D#!., %3! L-C I. S#2!$% &$ W3!%3!( H#. H!#(. H-8! A$1
O62#/-%#&$ %& N&%#"1 %3! A/!$%
"he contract of agency establishes a purely personal relationship between the principal and
the agent, such that the agency is e&tinguished by the death of the agent, and his rights and
obligations arising from the contract of agency are not transmittable to his heirs. 1errado v.
Court of #ppeals, 191 SCRA 9:9 '1>)4+.
B. BUSINESS TRUSTS
I. NATURE AND CLASSIFICATION OF TRUSTS
18
Also &arrameda v. &ar)ara, -) *hil. +18 ,1-0!.$ Caisip v. on. Ca)angon, 1)- *hil. 10) ,1-0!..
1. D!"#$#%#&$ -$5 E..!$%#-2 C3-(-0%!(#.%#0 &" T(@.% 'A(%. 1440+
A trust is a fiduciary relationship with respect to property which involves the e&istence of
e4uitable duties imposed upon the holder of the title to the property to deal with it for the benefit
of another. ,&P v. COA, (!! #C/A (0- ,!))(..
1-
A trust is the legal relationship between one person having an e4uitable ownership in property
and another person owning the legal title to such property, the e4uitable ownership of the former
entitling him to the performance of certain duties and the e&ercise of certain powers by the latter.
"he characteristics of a trust are3 ,a. it is a relationship$ ,b. it is a relationship of fiduciary
character$ ,c. 6t is a relationship with respect to property, not one involving merely personal
duties$ ,d. it involves the e&istence of e4uitable duties imposed upon the holder of the title to the
property to deal with it for the benefit of another$ and ,e. it arises as a result of a manifestation of
intention to create the relationship. Morales v. Court of #ppeals, 2:4 SCRA 2)2 '1>>:+.
6n its technical legal sense, a trust is defined as the right, enforceable solely in e4uity, to the
beneficial enMoyment of property, the legal title to which is vested in another$ but the word trust is
fre4uently employed to indicate duties, relations, responsibilities which are not strictly technical
trusts.%e@alber v. Ra'os+ 5:: SCRA 50> '200>+.
-. -.!5 &$ EI@#%1 'C&==&$-2-C+ ,A(%. 1442.
Article 1((! incorporates a large part of the American law on trusts, and thereby the *hilippine
legal system will be amplified and will be rendered more suited to a Must and e4uitable solution of
many 4uestions. !eport of the Code Commission# at p. 6F.
As the law of trusts has been much more fre4uently applied in <ngland and in the United
#tates than it has in #pain, we may draw freely upon American precedents in determining the
effect of the testamentary trust here under consideration, especially so as the trusts %nown to
American and <nglish e4uity Murisprudence are derived from the fidei commissa of the /oman law
and are based entirely upon Civil Baw principles. %overnment v. A)adilla, (6 *hil. 6(! ,1-!(..
!)
6. D#.%#$/@#.3!5 "(&= A/!$01
,1. 1hile both trust and agency relationships are fiduciary in nature$ agency is essentially
revocable, while a trust contract is essentially obligatory in its terms and period, and can
only be rescinded based on breach of trust.
,!. "rustee ta%es legal or na%ed title to the subMect matter of trust, and acts on his own
business discretion$ agent possesses property under agency for and in the name of the
owner and must act upon instructions of the owner$
,2. "rustee enters into contracts pursuant to the trust in his own name as legal or na%ed title
holder, while agent enters into contract in the name of the principal$ and
,(. "rustee is liable directly and may be sued, albeit in his trust capacity$ while agent cannot
be sued since it is the principal that must be held liable on the suit.
2. B#$5. &" T(@.%3 '-+ EE4(!.. T(@.%., -$5 '6+ I=42#!5 T(@.%. ,A(%. 1441.
"rust is the right to the beneficial enMoyment of property, the legal title to which is vested in
another. 6t is a fiduciary relationship that obliges the trustee to deal with the property for the
benefit of the beneficiary. "rust relations between parties may either be e&press or implied. An
e&press trust is created by the intention of the trustor or of the parties, while an implied trust
comes into being by operation of law. /or)ela v. !osario, 661 #C/A 622 ,!)11..
!1
II. EKPRESS TRUSTS
1. E..!$0! -$5 D!"#$#%#&$ &" EE4(!.. T(@.%.
<&press trusts are those created by the direct and positive acts of the parties, by some writing
or deed or will or by words evidencing an intention to create a trust. . . .1e find it clear that the
plaintiffs alleged an e&press trust over an immovable, especially since it is alleged that the trustor
expressly told the defendants of his intention to establish the trust. #uch a situation definitely falls
under Article 1((2 of the Civil Code, and cannot be proven by parol evidence. Cuaycong v.
Cuaycong, !1 #C/A 11-! ,1-6+..
19
Also uang v. Court of Appeals, !26 #C/A (!- ,1--(.$ /ala !ealty Services Corp. v. &anco 3ilipino Savings and Mortgage
&an', 2-! #C/A 0)6 ,!))!.$ eirs of /ran<uilino "a)iste v. eirs of .ose "a)iste, 08+ #C/A (1+ ,!))-.$ Advent Capital and
3inance Corporation v. Alcantara# 66( #C/A !!( ,!)1!..
20
!eiterated in Miguel v. Court of Appeals, !- #C/A +6) ,1-6-.$ Spouses !osario v. Court of Appeals, 21) #C/A (6( ,1---..
21
4da. ,e +sconde v. CA, !02 #C/A 66 ,1--6.$ Spouses !osario v. Court of Appeals, 21) #C/A (6( ,1---.$ ,&P v. COA, (!!
#C/A (0- ,!))(.$ Metropolitan &an' v. &oard of /rustees of !iverside Mills Corp. Provident and !etirement 3und, 62) #C/A 20)
,!)1)..
<&press 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 either e&pressly or impliedly evincing an intention to
create a trust. ,8- C.L.#. +!!.. !amos v. !amos, 61 #C/A !8(, !-8 ,1-+(..
!!
6n /amayo v. Calle-o, the Court recogni9ed that a trust may have a constructive or implied
nature in the beginning, but the registered owner=s subse4uent e&press ac%nowledgement in a
public document of a previous sale of the property to another party, had the effect of imparting to
the aforementioned trust the nature of an e&press trust. 1orbela v. Spouses Rosario, **1
SCRA *99 '2011+.
-. E..!$%#-221 C&$%(-0%@-2 #$ N-%@(!, N!!5 N& P-(%#0@2-( W&(5#$/. ,A(%. 1444.
Qor, technical or particular forms of words or phrases are not essential to the manifestation of
intention to create a trust or to the establishment thereof. 5or would the use of some such words
as trust or trustee essential to the constitution of a trust as we have held in "oren0o v.
Posadas# 6( *hil. (02, 268. Conversely, the mere fact that the word trust or trustee was
employed would not necessarily prove an intention to create a trust. 1hat is important is whether
the trustor manifested an intention to create the %ind of relationship which in law is %nown as a
trust. 6t is important that the trustor should %now that the relationship which intents to create is
called a trust, and whether or not he %nows the precise characteristics of the relationship which is
called a trust. Fere, that trust is effective as against defendants and in favor of the beneficiary
thereof, plaintiff Iictoria Lulio, who accepted it in the document itself. "ulio v. ,alandan, 21
SCRA 549, 550-551 '1>*:+.
Although no particular words are re4uired for the creation of an e&press trust, a clear intention
to create a trust must be shown, and the proof of fiduciary relationship must be clear and
convincing. "he creation of an e&press trust must be manifested with reasonable certainty and
cannot be inferred from loose and vague declarations or from ambiguous circumstances
susceptible of other interpretations. Ca@e*o v. Rojas, 59) SCRA 242 '200:+.
!2
6n other words, the creation of an e&press trust must be manifested with reasonable certainty
and cannot be inferred from loose and vague declarations or from ambiguous circumstances
susceptible of other interpretations. 5o such reasonable certitude in the creation of an e&press
trust obtains in the case at bar. 6n fact, a careful scrutiny of the plain and ordinary meaning of the
terms used in the Ginutes does not offer any indication that the parties thereto intended that
A9nar, et al., become beneficiaries under an e&press trust and that /6#C7 serve as trustor.
%&$ v. #*nar+ *4> SCRA 214 '2011+.
<&press trusts are created by direct and positive acts of the parties, by some writing or deed,
or will, or by words either e&pressly or implied evincing an intention to create a trust. Under Article
1((( of the Civil Code, AnEo particular words are re4uired for the creation of an e&press trust, it
being sufficient that a trust is clearly intended. "he Affidavit of <pifanio is in the nature of a trust
agreement. <pifanio affirmed the lot brought in his name was co'owned by him, as one of the
heirs of Lose, and his uncle "ran4uilino. And by agreement, each of them has been in possession
of half of the property. "heir arrangement was corroborated by the subdivision plan prepared by
<ngr. ?unagan and approved by Lose *. @ans, Acting @irector of Bands. 5eirs of 1ran9uilino
)abiste v. 5eirs of "ose )abiste, 5): SCRA 41: '200>+.
Under Article 1((( of the Civil Code, AnEo particular words are re4uired for the creation of an
e&press trust, it being sufficient that a trust is clearly intended. 6t is possible to create a trust
without using the word trust or trustee. Conversely, the mere fact that these words are used
does not necessarily indicate an intention to create a trust. /or)ela v. !osario, 661 #C/A 622
,!)11..
6. -.!5 &$ P(&4!(%1 R!2-%#&$.3#4, W3!(! L!/-2 T#%2! I. H!25 1 O$!, -$5 %3! EI@#%-62! &(
!$!"#0#-2 T#%2! I. H!25 61 A$&%3!( ,60 C7/*U# LU/6# !1!.
A trust is a legal relationship between one person having an e4uitable ownership of the
property and another person owning the legal title to such property, the e4uitable ownership of
the former entitling him to the performance of certain duties and the e&ercise of certain powers by
the latter. 1hat distinguishes a trust from other relations is the separation of legal title and
e4uitable ownership of the property. 6n a trust relation, legal title is vested in the fiduciary while
e4uitable ownership is vested in a cestui <ue trust. "he petitioner alleged in her complaint that the
ta& declaration of the land was transferred to the name of Crispulo without her consent. Fad it
been her intention to create a trust and ma%e Crispulo her trustee, she would not have made an
issue out of this because in a trust agreement, legal title is vested in the trustee. "he trustee
would necessarily have the right to transfer the ta& declaration in his name and to pay the ta&es
22
!eiterated in Spouses !osario v. Court of Appeals, 21) #C/A (6( ,1---.$ Ca*e0o v. !o-as, 028 #C/A !(! ,!))+.$ Pe*al)er
v. !amos, 0++ #C/A 0)- ,!))-.$ ,&P v. COA, ,&P v. COA, (!! #C/A (0- ,!))(..
!2
Medina v. Court of Appeals, 1)- #C/A (2+, ((0 ,1-81.$ Advent Capital and 3inance Corporation v. Alcantara, 66( #C/A !!(
,!)1!..
on the property. "hese acts would be treated as beneficial to the cestui <ui trust and would not
amount to an adverse possession. Ca@e*o v. Rojas, 59) SCRA 242, 255 '200:+.
"rust, in its technical sense, is a right of property, real or personal, held by one party for the
benefit of another ; it is a fiduciary relationship with respect to property, subMecting the person
holding the same to the obligation of dealing with the property for the benefit of another person.
%uy v. Court of Appeals# 02- #C/A 08( ,!))+..
0. U$#2-%!(-2 -$5 P(#=-(#21 O$!(&@. '0-$ 6! G(-%@#%&@.+
5. F#5@0#-(1
"he Muridical concept of a trust, which in a broad sense involves, arises from, or is the result of,
a fiduciary relation between the trustee and the cestui <ue trust as regards certain propertyNreal,
personal, funds or money, or choses in actionNmust not be confused with an action for specific
performance. "hus, when claimants to several parcels of land withdraw their claims in court
relying on the assurance and promise of Dulo made in open court that he would convey the lots
claimed after the proceedings had terminated, then a trust or a fiduciary relation between them
arose, or resulted therefrom, or was created thereby. A trustee cannot invo%e the statute of
limitations to bar the action and defeat the rights of the cestuis <ue trustent. %acheco v. #rro,
)5 P3#2. 505 '1>50+.
!(
2. EE4(!.. T(@.% M@.% ! P(&8!$
A trust must be proven by clear, satisfactory, and convincing evidence$ it cannot rest on vague
and uncertain evidence or on loose, e4uivocal or indefinite declarations ,,e "eon v. Pec'son, 6!
7.H. --(.. As already noted, an e&press trust cannot be proven by parol evidence , Pascual v.
Menses, !) #C/A !1- ,1-6+.$ Cuaycong v. Cuaycong, !1 #C/A 11-! ,1-6+.. !amos v. !amos,
61 #C/A !8( ,1-+(..
As a rule, however, the burden of proving the e&istence of a trust is on the party asserting its
e&istence, and such proof must be clear and satisfactorily show the e&istence of the trust and its
elements. Morales v. Court of Appeals, !+( #C/A !8! ,1--+..
!0
1hat is crucial is the intention to create a trust. 1hile oftentimes the intention is manifested
by the trustor in e&press or e&plicit language, such intention may be manifested by inference from
what the trust has said or done, from the nature of the transaction, or from the circumstances
surrounding the creation of the purported trust. Fowever, an inference of the intention to create a
trust, made from language, conduct or circumstances, must be made with reasonable certainty. 6t
cannot rest on vague, uncertain or indefinite declarations. An inference of intention to create a
trust, predicated only on circumstances, can be made only where they admit of no other
interpretation. !ingor v. !ingor, (26 #C/A (8( ,!))(..
!6
!e<uirements &efore an +xpress /rust 2ill )e !ecogni0ed5 ?asically, these elements include
a competent trustor and trustee, an ascertainable trust res# and sufficiently certain beneficiaries.
&&& each of the above elements is re4uired to be established, and, if any one of them is missing,
it is fatal to the trusts. Qurthermore, there must be a present and complete disposition of the trust
property, notwithstanding that the enMoyment in the beneficiary will ta%e place in the future. 6t is
essential, too, that the purpose be an active one to prevent trust from being e&ecuted into a legal
estate or interest, and one that is not in contravention of some prohibition of statute or rule of
public policy. "here must also be some power of administration other than a mere duty to perform
a contract although the contract is for a third'party beneficiary. A declaration of terms is essential,
and these must be state with reasonable certainty in order that the trustee may administer, and
that the court, if called upon so to do, may enforce, the trust. Ri*al Surety & 0nsurance Co. v.
Court of #ppeals, 2*1 SCRA *> '1>>*+.
Under these standards, we hold that no e&press trust was created. F#(.%, while an
ascertainable trust res and sufficiently certain beneficiaries may e&ist, a competent trustor and
trustee do not. S!0&$5, UC*?, as trustee of the ACC7U5", was never under any e4uitable duty
to deal with or given any power of administration over it. 7n the contrary, it was *AB66 that
undertoo% the duty to hold the title to the ACC7U5" for the benefit of the F<6/#. "hird, *AB66, as
the trustor, did not have the right to the beneficial enMoyment of the ACC7U5". Qinally, the terms
by which UC*? is to administer the ACC7U5" was not shown with reasonable certainty. 1hile
we agree with the petitioner that a trust=s beneficiaries need not be particularly identified for a
trust to exist# the #$%!$%#&$ %& 0(!-%! -$ !E4(!.. %(@.% =@.% "#(.% 6! "#(=21 !.%-62#.3!5, along
with the other elements laid above$ absent these, no e&press trust e&ists. Goyan2o v. (C%$,
*>0 SCRA :> '2019+.
24
!eiterated in !amos v. !amos, 61 #C/A !8( ,1-+(.$ Pe*al)er v. !amos, 0++ #C/A 0)- ,!))-..
25
!eiterated Ca*e0o v. !o-as, 028 #C/A !(! ,!))+.$ &ooc v. 3ive Star Mar'eting Co.# $nc., 028 #C/A (! ,!))8..
26
!eiterated in 3iguracion v. 3iguracion-%erilla# 6-) #C/A (-0 ,!)12..
9. B#$5. &" EE4(!.. T(@.%
-. EE4(!.. T(@.% I$8&28#$/ I==&8-62! 'A(%. 1449+
A person who has held legal title to land, coupled with possession and beneficial use of the
property for more than ten years, will not be declared to have been holding such title as trustee
for himself and his brothers and sisters upon doubtful oral proof tending to show a recognition by
such owner of the alleged rights of his brother and sisters to share in the produce of the land.
A<rgo3 "he re4uirement that e&press trust over immovable must be in writing should be added as
being governed by the #tatute of Qrauds.E Ga'boa v. Ga'boa, 52 P3#2. 509 '1>2)+.
6n one case A!ingor v. !ingor, (26 #C/A (8( ,!))(.E, the Court allowed oral testimony to
prove the e&istence of a trust, which had been partially performed. 6t was stressed therein that
what is important is that there should be an intention to create a trust. <ven when the purported
trust res is unregistered land, "he e&istence of e&press trusts concerning real property may not
be established by parol evidence. AArt. 1((2E. 6t must be proven by some writing or deed. 6n this
case, the only evidence to support the claim that an e&press trust e&isted between the petitioner
and her father was the self'serving testimony of the petitioner. ?are allegations do not constitute
evidence ade4uate to support a conclusion. "hey are not e4uivalent to proof under the /ules of
Court. Ca*e0o v. !o-as, 028 #C/A !(! ,!))+..
An e&press trust over real property cannot be constituted when nothing in writing was
presented to prove it$ but it may be proved as an implied trust. 1y v. 1y+ 559 SCRA 90* '200)+.
6n accordance with Article 1((2, when an e&press trust concerns an immovable property or
any interest therein, the same may not be proved by parol or oral evidence. Fowever, when the
oppositors failed to timely obMect when the petitioner tried to prove by parol evidence the
e&istence of an e&press trust over immovable, there is deemed to be a waiver since Article 1((2
is in the nature of a statute of frauds. "he term statute of frauds is descriptive of statutes which
re4uire certain classes of contracts in writing. "he statute does not deprive the parties of the right
to contract with respect to the matters therein involved, but merely regulates the formalities of the
contract necessary to render it enforceable. "he effect of non'compliance is simply that no action
can be proved unless the re4uirement is complied with. 7ral evidence of the contract will be
e&cluded upon timely obMection. ?ut if the parties to the action, during the trial, ma%e no obMection
to the admissibility of the oral evidence to support the contract covered by the statute, and
thereby permit such contract to be proved orally, it will be Must as binding upon the parties as if it
had been reduced to writing. %e@alber v. Ra'os, 5:: SCRA 50> '200>+.
6. C&$%(-0%@-2DI$%!(8#8&. T(@.%
0. T!.%-=!$%-(1 T(@.%
A testamentary trust was created by a provision in the will whereby the testator proposed to
create trust for the benefit of a secondary school to be established in the town of "ayabas,
naming as trustee the ayutamineto of the town or if there be no ayutamiento, then the civil
governor of the *rovince of "ayabas. %overnment of P.$. v. A)adilla, (6 *hil. 6(! ,1-!(..
Although the will e&ecuted by the testator did not use the words trust or trustee, but the
intention to create one is clear since he ordered in his will that certain of his properties be %ept
together undisposed during a fi&ed period, for a stated purpose. 5o particular or technical words
are re4uired to create a testamentary trust. ,6- C.L., p. +11.. Fence, the probate court certainly
e&ercised sound Mudgment in appointing a trustee to carry into effect the provisions of the will.
"oren0o v. Pasadas, 6( *hil. 202 ,1-2+..
5. P!$.#&$ &( R!%#(!=!$% T(@.%.
A foundation e&isting for the purpose of holding title to, and administering, the ta&'e&empt
<mployees> "rust Qund established for the benefit of the employees, has the personality to claim
ta& refunds due the <mployers "rust Qund. Miguel .. Ossorio Pension 3oundation# $nc. v. Court
of Appeals, 6!1 #C/A 6)6 ,!)1)..
<mployees> trust or benefit plans are intended to provide economic assistance to employees
upon the occurrence of certain contingencies, particularly, old age retirement, death, sic%ness, or
disability. "hey give security against certain ha9ards to which members of the *lan may be
e&posed. "hey are independent and additional sources of protection for the wor%ing group and
established for their e&clusive benefit and for no other purpose. "he provident and retirement
fund of the employees cannot be used by the trustee'ban% to pay for the obligations of the
employer corporation. Metropolitan &an' v. &oard of /rustees of !iverside Mills Corp. Provident
and !etirement 3und, 62) #C/A 20) ,!)1)., citing Commissioner of $nternal !evenue v. Court
of Appeals, !)+ #C/A (8+ ,1--!..
!. C3-(#%-62! T(@.%.
4. P-(%#!. %& -$ EE4(!.. T(@.%
As a rule, however, the burden of proving the e&istence of a trust is on the party asserting its
e&istence, and such proof must be clear and satisfactorily show the e&istence of the trust and its
elements. "he presence of the following elements must be proved3 ,1. a trustor or settlor who
e&ecutes the instrument creating the trust$ ,!. a trustee, who is the person e&pressly designated
to carry out the trust$ ,2. the trust res, consisting of duly identified and definite real properties$ and
,(. the cestui <ue trust, or beneficiaries whose identity must be clear. 3ilipinas Port Services# $nc.
v. %o., 018 #C/A (02 ,!))+..
!+
-. T3! T(@.%&(
A person who establishes a trust is called the trustor. ,&P v. COA, (!! #C/A(0- ,!))(.$
Pe*al)er v. !amos, 0++ #C/A 0)- ,!))-..
6. T3! T(@.%!!
7ne in whom confidence is reposed is %nown as the trustee. ,&P v. COA, (!! #C/A(0-
,!))(.$ Pe*al)er v. !amos, 0++ #C/A 0)- ,!))-..
'1+ 1rustee Must 5ave )e-al Capacity to #ccept the 1rust?
'2+ Failure of 1rustee to #ssu'e the %osition ,A(%. 1445.$
'9+ Obli-ations of the 1rustee ,R@2! >), R@2!. &" C&@(%.$
'4+ Generally+ 1rustee ,oes &ot #ssu'e %ersonal )iability on the
1rust as to %roperties Outside of the 1rust !state.
"here is an implication by the #upreme Court that when a trustee enters into a contract
that gives rise to liability, but there is no clear indication that he enters into the contract as
trustee, then the trustee would be held individually liable on the liability arising from the
contract3 ?ut even if the contract had been authori9ed by the trust indenture, the *hilippine
"rust Company in its individual capacity would still be responsible for the contract as there
was no e&press stipulation that the trust estate and not the trustee should be held liable on
the contract in 4uestion. 6n other words, when the transaction at hand could have been
entered into by a trustee either as such or in its individual capacity, then it must be clearly
indicated that the liabilities arising therefrom shall be chargeable to the trust estate,
otherwise they are due from the trustee in his personal capacity. 1an Sen-uan and Co.
v. %hil. 1rust Co.+ 5) P3#2. :00 '1>99+.
'5+ 1rustee Generally !ntitled to Receive a Fair Co'pensation for 5is Services. "oren0o
v. Pasadas, 6( *hil. 202 ,1-2+., citing &arney v. Saunders, 16 Fow. 020$ 1( Baw. <d.
1)(+.
0. !$!"#0#-(1 ,A(%.. 1440 -$5 144*.
"he person for whose benefit the trust has been created is referred to as the )eneficiary.
,&P v. COA, (!! #C/A(0- ,!))(.$ Pe*al)er v. !amos, 0++ #C/A 0)- ,!))-..
6n order that a trust may become effective there must, of course be a trustee and a cestui <ue
trust. "he e&istence of an e4uivalent designated position in the testamentary trust to act as
trustee ,i.e., the Civil Hovernor of "ayabas. complies with the re4uirement of a trustee. 6n regard
to private trusts it is not always necessary the the cestui <ue trust should be named, or even be
in esse at the time the trust is created in his favor. "hus a devise a father in trust for accumulation
for his children lawfully begotten at the time of his death has been held to be good although the
father had no children at the time of the vesting of the funds in him as trustee. 6n charitable trusts
such as the one here under discussion, the rule is still further rela&ed. Govern'ent v.
#badilla, 4* P3#2. *42, *4: '1>24+.
Acceptance by beneficiary of gratuitous trust is not subMect to the rules for the formalities of
donations. Cristobal v. Go'e*, 50 P3#2. )10 '1>2:+.
5. 1he Corpus or the Res
1here @?* establishes a pension trust for its officers and employees and appoints trustees
for the fund whereby the trust agreement transferred legal title over the income and properties of
the fund, then the principal and the income of the fund together constitute the res or subMect
matter of the trust. #ince the trust agreement established the fund precisely so that it would
eventually be sufficient to pay for the retirement benefits of @?* officers and employees, then the
income and profits thereof cannot be boo%ed by @?* as its own, and @?* cannot be directed by
C7A to treat such income as it own. ,$% v. CO#, 422 SCRA 45> '2004+.
27
Ca*e0o v. !o-as, 028 #C/A !(! ,!))+..
5. H&C EE4(!.. T(@.% T!(=#$-%!5
-. W3!(! %3! T(@.% F-#2.
Under an ordinary devise of land in trust, the trustee holds the legal title and the cestui <ue
trust the beneficial title and the natural heirs of the testator who are neither trustees nor cestuis
<ue trustent have no remaining interest in the land devised e&cept the right to the reversion in the
event the devise should fail, or the trust for other reasons terminate. %overnment v. A)adilla, (6
*hil. 6(! ,1-!(..
6. U4&$ %3! D!-%3 &" T(@.%!!
Assuming that such a AtrustE relation e&isted, it terminated upon Crispulo>s death in 1-+8. A
trust terminates upon the death of the trustee where the trust is personal to the trustee in the
sense that the trustor intended no other person to administer it. 6f Crispulo was indeed appointed
as trustee of the property, it cannot be said that such appointment was intended to be conveyed
to the respondent or any of Crispulo>s other heirs. Fence, after Crispulo>s death, the respondent
had no right to retain possession of the property. At such point, a constructive trust would be
created over the property by operation of law. 1here one mista%enly retains property which
rightfully belongs to another, a constructive trust is the proper remedial devise to correct the
situation. Ca@e*o v. Rojas, 59) SCRA 242 '200:+.
0. G!$!(-221 EE4(!.. T(@.%. N&% S@.0!4%#62! %& P(!.0(#4%#&$
"o apply the 1)'year prescriptive period, which would bar a beneficiary=s action to recover in
an e&press trust, the repudiation of the trust must be proven by clear and convincing evidence
and made %nown to the beneficiary. "he e&press trust disables the trustee from ac4uiring for his
own benefit the property committed to his management or custody, at least while he does not
openly repudiate the trust, and ma%es such repudiation %nown to the beneficiary or cestui 4ue
trust. Qor this reason, the old Code of Civil *rocedure ,Act 1-). declared that the rules on
adverse possession do not apply to 8continuing and subsisting8 ,i.e., unrepudiated. trusts. 6n an
e&press trust, the delay of the beneficiary is directly attributable to the trustee who underta%es to
hold the property for the former, or who is lin%ed to the beneficiary by confidential or fiduciary
relations. "he trustee=s possession is, therefore, not adverse to the beneficiary, until and unless
the latter is made aware that the trust has been repudiated. 1orbela v. Spouses Rosario, **1
SCRA *99 '2011+.
1hen there e&ists an e&press trust, prescription and laches will run only from the time the
e&press trust is repudiated. "he Court has held that for ac4uisitive prescription to bar the action of
the beneficiary against the trustee in an e&press trust for the recovery of the property held in trust
it must be shown that3 ,a. the trustee has performed une4uivocal acts of repudiation amounting to
an ouster of the cestui <ue trustE ,b. such positive acts of repudiation have been made %nown to
the cestui <ue trustE and ,c. the evidence thereon is clear and conclusive. 5eirs of 1ran9uilino
)abiste v. 5eirs of "ose )abiste, 5): SCRA 41: '200>+.
!8
A trustee who obtains a "orrens title over the property held in trust by him for another cannot
repudiate the trust by relying on the registration. "he rule re4uires a clear repudiation of the trust
duly communicated to the beneficiary. "he only act that can be construed as repudiation was
when respondents filed the petition for reconstitution see%ing registration only in his name.
5eirs of 1ran9uilino )abiste v. 5eirs of "ose )abiste, 5): SCRA 41: '200>+.
O), R()! = "here is a rule that a trustee cannot ac4uire by prescription the ownership of
property entrusted to him ,Palma v. Cristo)al, ++ *hil. +1!., or that an action to
compel a trustee to convey property registered in his name in trust for the benefit
of the cestui <ui trust does not prescribe ,Manalang v. Canlas, -( *hil. ++6$
Cristo)al v. %ome0, 0) *hil. 81)., or that the defense of prescription cannot be set
up in an action to recover property held by a person in trust for the benefit of
another ,Sevilla v. ,elos Angeles, -+ *hil. 8+0., or that property held in trust can
be recovered by the beneficiary regardless of the lapse of time ,Mara)illes v.
;uito, 1)) *hil. 6($ &ancairen v. ,iones, -8 *hil. 1!!, .uan v. Du*iga, ( #C/A
1!!1$ 4da de .acinto v. 4da. de .acinto, 0 #C/A 2+) ,1-6!.. #ee /amayo v.
Call-o, 1(+ *hil. 21, 21+.. U "he AforegoingE rule applies s4uarely to e&press trusts.
"he basis of the rule is that the possession of a trustee is not adverse. 5ot being
adverse, he does not ac4uire by prescription the property held in trust. "hus,
section 28 of Act 1-) provides that the law of prescription does not apply in the
case of a continuing and subsisting trust ,,ia0 v. %orricho and Aguado, 1)2 *hil.
!61 ,1-08.$ "aguna v. "evantino, +1 *hil. 066$ Sumira v. 4istan, +( *hil. 128$
%olfeo v. Court of Appeals, 1! #C/A 1--$ Caladiao v. Santos, 1) #C/A 6-1..
!amos v. !amos, 61 #C/A !8(, !-- ,1-+(..
28
Pilapil v. eirs of Maximino !. &riones, 01( #C/A 1-+ ,!))+.$ Ca*e0o v. !o-as, 028 #C/A !(! ,!))+..
III. IMPLIED TRUSTS
1. L#.%#$/ &" I=42#!5 T(@.%. N&% EE02@.#8!? F&@$5!5 &$ EI@#%1 'A(%. 144:+.
"he concept of implied trusts is that from the facts and circumstances of a given case the
e&istence of a trust relationship is inferred in order to effect the presumed ,in this case it is even
e&pressed. intention of the parties or to satisfy the demands of Mustice or to protect against fraud.
Padilla v. Court of Appeals, 02 #C/A 168 ,1-+2..
6mplied trusts are those which, without being e&pressed, are deducible from the nature of the
transactions as matters of intent# or which are superinduced on the transaction by operation of
law as matters of e<uity# independently of the particular intention of the parties. "hey are
ordinarily subdivided into resulting and constructive trusts ,8- C.L.#. +!!.. Ra'os v. Ra'os,
*1 SCRA 2)4, 2>) '1>:4+.
!-
6mplied trust is a rule of e4uity, independent of the particular intention of the parties. Paringit v.
&a-it, 621 #C/A 08( ,!)1)..
6n an implied trust, the beneficiaryRs cause of action arises when the trustee repudiates the
trust, not when the trust was created. Paringit v. &a-it, 621 #C/A 08( ,!)1)..
6mplied trust under Article 1(0) of the Civil Code presupposes a situation where a person,
using his own funds, buys property on behalf of another, who in the meantime may not have the
funds to purchase itNtitle to the property is for the time being placed in the name of the trustee,
the person who pays for it, until he is reimbursed by the beneficiary, the person for whom the
trustee bought the land. Paringit v. &a-it, 621 #C/A 08( ,!)1)..
An implied trust arising from mortgage contracts is not among the trust relationships the Civil
Code enumerates. "he Code itself provides, however, that such listing does not e&clude others
established by general law on trust & & &. AArt. 11(+, Civil CodeE Under the general principles on
trust, e4uity converts the holder of a property irght as trustee for the benefit of another if the
circumstances of its ac4uisition ma%es the holder ineligible in & & & good conscience AtoE hold and
enMoy AitE.
2)
As implied trusts are remedies against unMust enrichment, the only problem of great
importance in the field of constructive trusts is whether in the numerous and varying factual
situations presented & & & there is a wrongful holding of property and hence, a threatened unMust
enrichment of the defendant.
21
.uan v. 1ap# Sr.# 6(6 #C/A +02 ,!)11..
Applying these principles, this Court recogni9ed unconventional implied trusts in contracts
involving the purchase of housing units by officers of tenants> associations in breach of their
obligations,
2!
the partitioning of realty contrary to the terms of a compromise agreement,
22
and the
e&ecution of a sales contract indicating a buyer distinct from the provider of the purchase
money.
2(
6n all these cases, the formal holders of title were deemed trustees obliged to transfer
title to the beneficiaries in whose favor the trusts were deemed created. 1e see no reason to bar
the recognition of the same obligation in a mortgage contract meeting the standards for the
creation of an implied trust. .uan v. 1ap# Sr.# 6(6 #C/A +02 ,!)11..
6f property is ac4uired through mista%e 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. Philippine >ational &an' v. .umamoy, 600 #C/A 0( ,!)11..
-. R!.@2%#$/ T(@.%.
A resulting trust is based on the e4uitable doctrine that valuable consideration and not legal
title determines the e4uitable interest and is presumed to have been contemplated by the parties.
Miguel .. Ossorio Pension 3oundation# $nc. v. Court of Appeals, 6!1 #C/A 6)6 ,!)1)..
"he rule of imprescriptibility of an action to recover property held in trust may possible apply to
a resulting trust as long as the trustee has not repudiated the trust. A resulting trust is broadly
defined as a trust which is raised or created by the act or construction of law, but in its more
restricted sense it is a trust raised by implication of law and presumed always to have )een
contemplated )y the parties# the intention as to which is to be found in the nature of their
transaction, but not e&pressed in the deed or instrument of conveyance ,8- C.L.#. +!0..
<&amples of resulting trusts are found in articleAsE 1((8 to 1((0 of the Civil Code. Ra'os v.
Ra'os, *1 SCRA 2)4 '1>:4+.
20
29
!eiterated in Salao v. Salao, +) #C/A 60, 8) ,1-+6.$ /igno v. Court of Appeals, !8) #C/A !+1 ,1--+.$ Policarpio v. Court of
Appeals, !6- #C/A 2(( ,1--+.$ Spouses !osario v. Court of Appeals, 21) #C/A (6( ,1---.$ Ca*e0o v. !o-as, 028 #C/A !(!
,!))+.$ Pe*al)er v. !amos, 0++ #C/A 0)- ,!))-..
30
!oa# .r. v. Court of Appeals, 1!2 #C/A 2 ,1-82..
31
eirs of Moreno v. Mactan-Ce)u $nt.Al Airport Authority, (12 #C/A 0)!2 ,!))2..
32
Policarpio v. Court of Appeals, !6- #C/A 2(( ,1--+.$ Arle<ui v. Court of Appeals, 2+8 #C/A 2!! ,!))!..
33
!oa# .r. v. Court of Appeals, 1!2 #C/A 2 ,1-82..
34
/igno v. Court of Appeals, !8) #C/A !6! ,1--+..
20
!eiterated in Salao v. Salao, +) #C/A 60 ,1-+6.. Constructive trusts are created by the construction of e4uity in &(5!( to
satisfy the demands of Mustice and prevent unMust enrichment. "hey arise contrary to intention against one who, by fraud, duress or
/esulting trusts are based on the e4uitable doctrine that valuable consideration and not legal
title determines the e4uitable title or interest and are presumed always to have been
contemplated by the parties. "hey arise from the nature or circumstances of the consideration
involved in a transaction whereby one person thereby becomes invested with legal title but is
obligated in e4uity to hold his title for the benefit of another. Spouses !osario v. CA, 21) #C/A
(6( ,1---..
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 e&pressed in a deed or instrument of conveyance. A resulting trust is
based on the e4uitable doctrine that it is the more valuable consideration than the legal title that
determines the e4uitable interests in property. Ca@e*o v. Rojas, 59) SCRA 242 '200:+.
6. C&$.%(@0%#8! T(@.%.
7n the other hand, a constructive trust is a trust raised by construction of law, or arising by
operation of law. 6n a more restricted sense and as contradistinguished from a resulting trust, a
constructive trust is a trust not created by any words, either e&pressly or implied evincing a direct
intention to create a trust, but by the construction of e<uity in order to satisfy the demands of
-ustice. 6t does not arise by agreement or intention but by operation of law. 6f a person obtains
legal title to property by fraud or concealment, courts of e4uity will impress upon the title a so'
called constructive trust in favor of the defrauded party. A constructive trust is not a trust in the
technical sense. Ra'os v. Ra'os, *1 SCRA 2)4 '1>:4+.
26

6n constructive trusts there is neither promise nor fiduciary relations$ the so'called trustee does
not recogni9e any trust and has no intent to hold the property for the beneficiary. ,ia* v.
Gorricho and #-uado, 109 P3#2. 2*1 '1>5)+.
2+
A constructive trust, otherwise %nown as a trust e& maleficio, a trust e& delicto, a trust de son
tort, an involuntary trust, or an implied trust, is a trust by operation of law which arises contrary to
intention and in invitum, against one who, by fruad, actual or constructive, by duress or abuse of
confidence, by commission of wrong, or by any form of unconcscionable conduct, artifice,
concealment, or 4uestionable means, or who in any way against e4uity and good conscience,
either has obtained or holds the legal right to property which he ought not, in e4uity and good
conscience, hold and enMoy. 6t is raised by e4uity to satisfy the demands of Mustice. Sumaoang v.
.udge# !/C# &r. GGG$# &uim)a# >ueva +ci-a, !10 #C/A 126 ,1--!..
28
A constructive trust is one created not by any word or phrase, either e&pressly or impliedly,
evincing a direct intention to create a trust, but one which arises in order to satisfy the demands
of Mustice. 6t does not come about by agreement or intention but in the main by operation of law,
construed as against one who, by fraud, duress or abuse of confidence, obtains or holds the legal
right to property which he ought not, in e4uity and good conscience, to hold. Ca@e*o v. Rojas,
59) SCRA 242 '200:+.
Under the principle of constructive trust, registration of property by one person in his name,
whether by mista%e or fraud, the real owner being another person, impresses upon the title so
ac4uired the character of constructive trust for the real owner, which would Mustify an action for
reconveyance. Pasi*o v. Monterroyo, 06) #C/A +2- ,!))8..
Constructive trusts are fictions of e4uity that courts use as devices to remedy any situation in
which the holder of the legal title, GC6AA in this case, may not, in good conscience, retain the
beneficial interest. 4da. de Ouano v. Republic of the %hilippines, *42 SCRA 9)4 '2011+.
"he law e&pressly allows a co'owner ,first co'owner. of a parcel of land to register his
proportionate share in the name of his co'owner ,second co'owner. in whose name the entire
land is registeredNthe second co'owner serves as a legal trustee of the first co'owner insofar as
the proportionate share of the first co'owner is concerned. Miguel .. Ossorio Pension 3oundation#
$nc. v. Court of Appeals, 6!1 #C/A 6)6 ,!)1)..
Article 1(0! of the Civil Code e&pressly authori9es a person to purchase a property with his
own money and to ta%e conveyance in the name of another. Miguel .. Ossorio Pension
3oundation# $nc. v. Court of Appeals, 6!1 #C/A 6)6 ,!)1)..
6n a constructive trust, there is neither a promise nor any fiduciary relation to spea% of and the
so'called trustee neither accepts any trust nor intends holding the property for the beneficiary.
Marcado v. +spinocilla, 66( #C/A +!( ,!)1!..
0. D#.%#$0%#&$ !%C!!$ R!.@2%#$/ T(@.% -$5 C&$.%(@0%#8! T(@.%
abuse of confidence, obtains or hold the legal right to property which he ought not, in e4uity and good conscience, to hold. Spouses
!osario v. Court of Appeals, 21) #C/A (6( ,1---..
36
!eiterated in %uy v. Court of Appeals, 02- #C/A 08( ,!))+..
2+
!eiterated in Carantes v. Court of Appeals, +6 #C/A 01( ,1-++..
38
Also !oa# .r. v. Court of Appeals, 1!2 #C/A 2 ,1-82..
/esulting trusts are based on the e4uitable doctrine that valuable consideration and not legal
title determines the e4uitable title or interest and are presumed always to have been
contemplated by the parties. "hey arise from the nature of circumstances of the consideration
involved in a transaction whereby one person thereby becomes invested with legal title but is
obliged in e4uity to hold his legal title for the benefit of another. 7n the other hand, constructive
trusts are created by the construction of e4uity in order to satisfy the demands of Mustice and
prevent unMust enrichment. "hey 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 e4uity and
good conscience, to hold. )ope* v. Court of #ppeals+ 5:4 SCRA 2* '200)<.
2-
5. H&C %& P(&8! I=42#!5 T(@.% 'A(%. 145:+
An implied trust in order to be recogni9ed must measure up to the yardstic% that a trust must
be proven by clear, satisfactory and convincing evidence, and cannot rest on vague and
uncertain evidence or on loose, e4uivocal or indefinite declarations. Salao v. Salao, :0 SCRA
*5 '1>:*+.
"he e&istence of public records other than the "orrens title indicating a proper description of
the land, and not the technical description thereof, and clearly indicating the intention to create a
trust, was considered sufficient proof to support the claim of the cestui <ue trust. Municipality
of 4ictorias v. C#, 14> SCRA 92 '1>):+.
As a rule, the burden of proving the e&istence of a trust is on the party asserting its e&istence
and such proof must be clear and satisfactorily show the e&istence of the trust and its elements.
AAn affidavit of the fact of resulting trust against contrary affidavits, as well as the transfer
certificates of title and ta& declarations to the contrary, do not support clearly the e&istence of
trustE &ooc v. 3ive Start Mar'eting Co.# $nc., 028 #C/A (! ,!))+..
()
1hile implied trust may be proved by oral evidence, the evidence must be trustworthy and
received by the courts with e&treme caution, and should not be made to rest on loose, e4uivocal
or indefinite declarations. "rustworthy evidence is re4uired because oral evidence can easily be
fabricated. 6n order to establish an implied trust in real property by parol evidence, the proof
should be as fully convincing as if the acts giving rise to the trust obligation are proven by an
authentic document. An implied trust, in fine, cannot be established upon vague and inconclusive
proof. 6n the present case, there was no evidence of any transaction between the petitioner and
her father form which it can be inferred that a resulting trust was intended. ,at p. !06. Ca@e*o
v. Rojas, 59) SCRA 242 '200:+.
!. D#.%#$/@#.3!5 "(&= Auasi-C&$%(-0%.
7ur present Civil Code incorporated implied trust, which includes constructive trusts, on top of
4uasi'contracts, both of which embody the principle of e4uity above strict legalism. %&$ v.
Court of #ppeals, 21: SCRA 94: '1>>9+.
2. P@(03-.! &" P(&4!(%1 W3!(! !$!"#0#-2 T#%2! #$ O$!
P!(.&$, @% P(#0! P-#5 61 A$&%3!( P!(.&$ 'A(%. 144)+
R-%#&$-2!? 7ne who pays for something usually does so for his own benefit. (y Aloc v. Cho .an
.ing, 1- *hil. !)! ,1-11..
Although it may have been proven that the father was the source of the funds in the purchase
of a parcel of land which was titled in the name of his son, no implied trust is deemed to have
been established since under Article 1((8 of the Civil Code, if the person to whom the title is
conveyed is the child of the one paying the price of the sale, no trust is implied by law, and
instead a donation is disputably presumed in favor of the child. "he successors of the deceased
father had not shown that no such donation was intended. 1y v. 1y+ 559 SCRA 90* '200)+.
1hile the share was bought by #ime @arby and placed under the name of Gendo9a, his title is
only limited to the usufruct, or the use and enMoyment of the club>s facilities and privileges while
employed with the company. 6n /homson v. Court of Appeals, !-8 #C/A !8) ,1--8., we held
that a trust arises in favor of one who pays the purchase price of a property in the name of
another, because of the presumption that he who pays for a thing intends a beneficial interest for
himself. 1hile #ime @arby paid for the purchase price of the club share, Gendo9a was given the
legal title. "hus, a resulting trust is presumed as a matter of law. "he burden shifts to the
transferee to show otherwise. Si'e ,arby %ilipinas+ 0nc. v. Mendo*a, *>> SCRA 2>0 '2019+.
9. P@(03-.! &" P(&4!(%1 W3!(! T#%2! I. P2-0!5 #$ %3! N-=! &" P!(.&$
W3& L&-$!5 %3! P@(03-.! P(#0! 'A(%. 1450+ M !9uitable Mort-a-e
2-
Also A0nar &rothers !ealty Company v. Aying, (08 #C/A (-6 ,!))0.$ Spouses !osario v. Court of Appeals, 21) #C/A (6(
,1---.$ +state of Margarita ,. Ca)acungan# v. "aigo# 600 #C/A 266 ,!)11..
40
Also /igno v. Court of Appeals, !8) #C/A !6! ,1--+.$ Morales v. Court of Appeals, !+( #C/A !8! ,1--+..
6mplied trust under Article 1(0) presupposes a situation where a person, using his own funds,
buys property on behalf of another, who in the meantime may not have the funds to purchase it.
"itle to the property is for the time being placed in the name of the trustee, the person who pays
for it, until he is reimbursed by the beneficiary, the person for whom the trustee bought the land. 6t
is only after the beneficiary reimburses the trustee of the purchase price that the former can
compel conveyance of the property from the latter. %arin-it v. $ajit, *91 SCRA 5)4 '2010+.
4. W3!$ A6.&2@%! C&$8!1-$0! &" P(&4!(%1 E""!0%!5 O$21 -. - M!-$. %& S!0@(!
P!("&(=-$0! &" O62#/-%#&$ &" %3! G(-$%&( 'A(%. 1454+ M !9uitable Mort-a-e
1hen a deed of sale with right of repurchase was really intended to cover a loan made by the
purported seller from the purported buyer, then the doctrines upheld in the cases of (y Aloc vs.
Cho .an "ing, 1- *hil. !)!$ Camacho v. Municipality of &aliaug, !8 *hil. (6$ and Severino v.
Severino, (( *hil.,2(2, are applicable in the instant case in the sense that the defendants only
hold the certificate of transfer in trust for the plaintiffs as to the portion of the lot containing 1,2))
coconut trees, and therefore, said defendants are bound to e&ecute a deed in favor of the
plaintiffs transferring said portion to them. ,e Ocampo v. Daporte0a, 02 *hil. ((! ,1-!-..
5. S!8!(-2 P!(.&$. J&#$%21 P@(03-.! P(&4!(%1, P2-0!. T#%2! I$ O$! &" T3!= 'A(%. 1452+
*. P(&4!(%1 C&$8!1!5 %& P!(.&$ M!(!21 -. H&25!( T3!(!&" 'A(%. 1459+
1here real property is ta%en by a person under an agreement to hold it for, or convey it to
another or the grantor, a resulting or implied trust arises in favor of the person for whose benefit
the property was intended. #uch implied trust is enforceable even when the agreement is not in
writing, and is not an e&press trust which re4uires that it be in writing to be enforceable. "his rule,
which has been incorporated in the new Civil Code in Art. 1(02 thereof, is founded upon e4uity.
Martine0 v. %ra*o, (! *hil. 20 ,1-!1..
1here the original purchaser of the immovable property had sold all his interest thereto to his
brother who reimbursed him all amounts previously, but continued to pay the balance of the
installments in the name of the original buyer with understanding that upon full payment the title
would be transferred to the buyer, am implied trust had been constituted. 5eirs of !'ilio
Candelaria v. Ro'ero, 10> P3#2. 500 '1>*0+.
"he Court denied the application of the provisions of Article 1(02 to establish an implied trust .
. . #aid arguments are untenable, even considering the whole complaint. "he intention of the
trustor to establish the alleged trust may be seen in paragraphs 0 and 6. Article 1(02 would apply
if the person conveying the property did not e&pressly state that he was establishing the trust,
unli%e the case at bar where he was alleged to have e&pressed such intent. Conse4uently, the
lower court did not err in dismissing the complaint, ,at p. 11-8. on the ground that since the
complaint sought to recover an e&press trust over immovables, then under Article 1((2 of the
Civil Code, the same may not be proved by parol evidence. Cuaycong v. Cuaycong, !1 #C/A
11-! ,1-6+..
1here a lot was ta%en by a person under an agreement to hold it for, or convey it to another or
to the grantor, a resulting or implied trust arises in favor of the person for whose benefit the
property was intended. Spouses !osario v. Court of Appeals, 21) #C/A (6( ,1---..
:. D&$-%#&$ &" P(&4!(%1 %& - D&$!! W3& S3-22 H-8! N& !$!"#0#-2 T#%2! 'A(%. 144>+
1here the father donates a piece of land in the name of the daughter but with verbal notice
that the other half would be held by her for the benefit of a younger brother, coupled with a deed
of waiver later on e&ecuted by the daughter that she held the land for the common benefit of her
brother, created an implied trust in favor of the brother under Article 1((- of the Civil Code.
#da*a v. Court of #ppeals, 1:1 SCRA 9*> '1>)>+.
). L-$5 P-..!. 1 S@00!..#&$ @% H!#( P2-0!. T#%2! #$ - T(@.%!! 'A(%. 1451+.
1hen the eldest sibling in the family had registered land inherited from the parents in his
name, he was acting in a trust capacity and as representative of all his brothers and sisters. As a
conse4uence he is now holding the registered title thereto in a trust capacity, and it is proper for
the court to declare that the plaintiffs are entitled to their several pro rata shares, notwithstanding
the fact that the certificate of registration is in the name of the defendant alone, in accordance
with the doctrine held in Severino v. Severino, (( *hil. 2(2 ,1-!2.. Castro v. Castro, 0+ *hil. 6+0
,1-2!..
6n a situation where a Chinese resident had caused land to be placed in the name of the
trustee who was bound to hold the same for the benefit of the trustor and his family in the event of
death, the application of the doctrine of implied trust under Article 1(01 by the heirs of the trustor
cannot be upheld. "his contention must fail because the prohibition against an alien from owning
lands of the public domain is absolute and not even an implied trust can be permitted to arise on
e4uity consideration. /ing o# .r. v. /eng %ui# 008 #C/A (!1 ,!))8..
>. W3!$ T(@.% F@$5 U.!5 %& P@(03-.! P(&4!(%1 W3#03
I. R!/#.%!(!5 #$ T(@.%!!L. N-=! 'A(%. 1455+
A confidential employee who, %nowing that his principal was negotiating with the owner of
some land for the purchase thereof, surreptitiously succeeds in buying it in the name of his wife,
commits an act of disloyalty and infidelity to his principal, and is liable for damage. "he reparation
of the damage must consist in respecting the contract which was about to be concluded, and
transferring the said land for the same price and upon the same terms as those on which the
purchase was made for the land sold to the wife of said employee passed to them as what might
be regarded as e4uitable trust, by virtue of which the thing thus ac4uired by an employee is
deemed to have been ac4uired not for his own benefit or that of any other person but for his
principal and held in trust for the latter. Sin- "uco and Sin- $en-co v. Sunyanton- and
)lorente, 49 P3#2. 5)> '1>22+.
An mere verbal assertion of a partner that partnership funds were used to purchase real
properties registered solely in the name of the other partners'spouses, without further evidence,
do not overcome the "orrens title issued showing e&clusive ownership in the name of the
partners'spouses, but cannot also be used to establish an implied trust over said properties in
favor of the alleging partner. .arantilla# .r. v. .arantilla, 626 #C/A !-- ,!)1)..
10. CONSTRUCTIVE TRUSTS ? W3!$ P(&4!(%1 #. A0I@#(!5 T3(&@/3 M#.%-A! &( F(-@5
'A(%. 145*+
6n the present case, however, respondents= predecessor'in'interest, ?ernardino "ae9a, had already
obtained a transfer certificate of title in his name over the property in 4uestion. #ince the person
supposedly transferring ownership was not authori9ed to do so, the property had evidently been
ac4uired by mista%e. 6n Ida. de <sconde v. Court of Appeals, the Court affirmed the trial court=s ruling
that the applicable provision of law in such cases is Article 1(06 of the Civil Code which states that 8AiEf
property is ac4uired through mista%e 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.8 0-lesia
Filipina 0ndependiente v. 5eirs of 1ae*a ;G.R. N&. 1:>5>:. F!6(@-(1 9, 2014.<

1e also see no trust, e&press or implied, created between the petitioners and the spouses
*ere9 over the subMect property. A trust by operation of law is the right to the beneficial
enMoyment of a property whose legal title is vested in another. A property between two parties,
one having the rightful ownership and property owned by one party is separate and distinct from
that which has been registered in another>s name. Chu+ "r. vs. Caparas, *>* SCRA 925
'2019+.
?y fraudulently causing the transfer of the registration of title over the disputed property in his
name, the petitioner holds the title to this disputed property in trust for the benefit of the
respondent as the true owner$ registration does not vest title but merely confirms or records title
already e&isting and vested. "eoveras v. 4alde0, 60! #C/A 61 ,!)11..
Co'heirs or co'owners cannot ac4uire by ac4uisitive prescription the share of the other co'
heirs or co'owners absent a clear repudiation of the co ownership. 6n addition, when Filaria and
Qelipa registered the lot in their names to the e&clusion of <milia, an implied trust was created by
force of law and the two of them were considered a trustee of the respondent=s undivided share.
As trustees, they cannot be permitted to repudiate the trust by relying on the registration.
3iguracion v. 3iguracion-%erilla# 6-) #C/A (-0 ,!)12..
"he decedent during his lifetime had married legitimately three successive times, but without
li4uidation of the conMugal partnerships formed during the first and second marriages. "he only
male issue managed to convince his co'heirs that he should act as administrator of the properties
left by the decedent, but instead obtained a certificate of title in his own name to the valuable
piece of property of the estate. eld5 1here the son, through fraud was able to secure a title in
his own name to the e&clusion of his co'heirs who e4ually have the right to a share of the land
covered by the title, an implied trust was created in favor of said co'heirs, and that said son was
deemed to merely hold the property for their and his benefit. %on0ales v. .imene0# Sr., 12 #C/A
+2 ,1-6(..
"he rules are well'settled that when a person through fraud succeeds in registering the
property in his name, the law creates what is called a constructive or implied trust in favor of the
defrauded party and grants the latter the right o recover the property fraudulently registered
within a period of ten years. ,#ee !ui0 v. Court of Appeals, +- #C/A 0!0.. eirs of /ana'
Pangaaran Patiwayon v. Martine0, 1(! #C/A !0! ,1-86..
1here the land is decreed in the name of a person through fraud or mista%e, such person is
by operation of law AArticle 1(06E considered a trustee of an implied trust for the benefit of the
persons from whom the property comes. "he beneficiary shall have the right to enforce the trust,
notwithstanding the irrevocability of the "orrens title and the trustee and his successors'in'
interest are bound to e&ecute the deed of reconveyance. ,Pacheco v. Arro, 80 *hil. 0)0$ +sco)ar
v. "ocsin, +( *hil. 86.. Municipality of 4ictorias v. Court of Appeals, 1(- #C/A 2! ,1-8+..
1hen property is registered in one person, but who e&pressly ac%nowledged that the right of
his siblings thereto, it is a situation of an implied trust covered under Article 1(06 of the Civil
Code, which states that if property is ac4uired through mista%e 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. 6t is well settled that an action for reconveyance of real property to
enforce an implied trust prescribes in ten year, the period rec%oned from the issuance of the
adverse title to the property which operates as a constructive notice. %on0ales v. $ntermediate
Appellate Court, !)( #C/A1)6 ,1--1..
comes. Pedrano v. eirs of &enedicto Pedrano# 02- #C/A ()1 ,!))+..
1here the shares of stoc% in an operating family company are placed by the parents'
controlling stoc%holders in the name of a holding company e&pressly for the benefit of their three
daughters, an e&press trust is duly constituted pursuant to the terms of Article 1(() of the Civil
Code. %uy v. Court of Appeals, 02- #C/A 08( ,!))+..
An action for reconveyance respects the decree of registration as incontrovertible but see%s
the transfer of property, which has been wrongfully or erroneously registered in other person>s
names, to its rightful and legal owners, or to those who claim to have a better right. "here is no
special ground for an action for reconveyance. 6t is enough that the aggrieved party has a legal
claim on the property superior to that of the registered owner and that the property has not yet
passed to the hands of an innocent purchaser for value. "hese cases may also be considered
as actions to remove cloud on one>s title as they are intended to procure the cancellation of an
instrument constituting a claim on petitioners> alleged title which was used to inMure or ve& them in
the enMoyment of their alleged title. eirs of 4aleriano S. Concha# Sr. v. "umocso, 0() #C/A 1
,!))+..
Under the principle of constructive trust, registration of property by one person in his name,
whether by mista%e or fraud, the real owner being another person, impresses upon the title so
ac4uired the character of a constructive trust for the real owner, which would Mustify an action for
reconveyance. ,Citing eirs of /a)ia v. Court of Appeals, 016 #C/A (21 A!))+E. 6n the action for
reconveyance, the decree of registration is respected as incontrovertible but what is sought
instead is the transfer of the property wrongfully or erroneously registered in another>s name to its
rightful owner or to one with a better right. ,$)id. 6f the registration of the land is fraudulent, the
person in whose name the land is registered holds it as a mere trustee, and the real owner is
entitled to file an action for reconveyance of the property. ,citing Mendi0a)el v. Apao, (8! #C/A
08+ A!))6E. ,at p. +01. %asi@o v. Monterroyo+ 5*0 SCRA :9> '200)+.
1hen the respondents are able to establish that they have a better right to the parcel of land
since they had long been in possession of the property in the concept of owners, by themselves
and through their predecessors'in'interest, then despite the irrevocability of the "orrens titles
issued in the names of the petitioners and even if they are already the registered owners under
the "orrens system, the petitioners may still be compelled under the law to reconvey the property
to respondents. %asi@o v. Monterroyo+ 5*0 SCRA :9> '200)+.
1here in her notarial will the testator e&pressed that she wished to constitute a trust fund for
her paraphernal properties, denominated as 3ideicomiso de .uliana "ope0 Man0ano
?3ideicomiso@, to be administered by her husband. . . "wo'thirds ,!O2. of the income from rentals
over theses properties were to answer for the education of deserving but needy honor students,
while one'third ,1O2. was to shoulder the e&penses and fees of the administrator, but that
eventually in the probate of the will the properties were adMudicated to the husband as sole heir,
the Court ruled that 7n the premise that the disputed properties are the paraphernal properties
of Luliana which should have been included in the 3ideiocomiso, their registration in the name of
Lose would be erroneous and Lose>s possession would be that of a trustee in an implied trust . . .
Awhich fromE the factual milieu of this case is provided in Article 1(06 of the Civil Code. . . . "he
apparent mista%e in the adMudication of the disputed properties to Lose created mere implied trust
of the constructive variety in favor of the beneficiaries of the 3ideicomiso. "ope0 v. Court of
Appeals, 0+( #C/A !6 ,!))8..
0& CO&1R#S1 = 1here a mother and her minor daughter inherited a large tract of land, and had
it applied for cadastral survey, but title was issued only in the name of the mother, courts of e4uity
will impress upon the title, a condition which is generally in a broad sense termed constructive
trust in favor of the defrauded party, but the use of the word trust in this sense is not technically
accurate and is not the %ind of trust. Gayondato v. 1reasurer, 4> P3#2. 244 '1>2*+.
1hen a designated agent, ta%ing advantage of the illiteracy of the principal, claims for himself
the property which he was designated to claim for the principal and manages to have it registered
in his own name and became part of his estate when the agent died, the estate is in e4uity bound
to e&ecute the deed of conveyance of the lot to the cestui <ue trust. U A trustNsuch as that which
was created between the plaintiff and @omingo #umangilNis sacred and inviolable. "he Courts
have therefore shielded fiduciary relations against every manner of chicanery or detestable
designed cloa%ed by legal technicalities. "he "orrens system was never calculated to foment
betrayal in the performance of a trust. !scobar v. )ocsin, :4 P3#2. )* '1>49+.
(1
<ven in the absence of fraud in obtaining registration or even after the lease of one year after
the issuance of a decree of registration, a co'owner of land who applied for and secured its
adMudication and registration in his name %nowing that it had not been allotted to him in the
partition, may be compelled to convey the same to whoever received it in the apportionment, so
long as no innocent third party had ac4uired rights therein, in the meantime for a valuable
consideration. 6ndeed, any rule to the contrary would sanction one>s enrichment at the e&pense
of another. *ublic policy demands that a person guilty of fraud or, at least, of breach of trust,
should not be allowed to use a "orrens title as a shield against the conse4uences of his
wrongdoing. 4da. de .acinto v. 4da. de .acinto, 0 #C/A 2+) ,1-6!..
Bastly, the claim of the heirs of *edro Lacinto that the latter had ac4uired ownership of the
property in litigation by prescription, is li%ewise untenable. As we had recently held in .uan v.
Du*iga, ( #C/A 1!!1 ,1-6!., an action to enforce a trust is imprescriptible. Conse4uently, a
coheir who, through fraud, succeeds in obtaining a certificate of title in his name to the preMudice
of his coheirs, is deemed to hold the land in trust for the latter, and the action by them to recover
the property does not prescribe. 4da. de .acinto v. 4da. de .acinto, 0 #C/A 2+) ,1-6!..
1here the children of the decedent by his second marriage have ta%en over properties of the
estate, e&cluding therefrom grandchildren of the decedent by his first marriage, the situation is
one that is governed by the rules of co'ownership under Article (-( of the Civil Code which
provides that no prescription shall run in favor of a co'owner or co'heir against his co'owners or
co'heirs so long as he e&pressly or impliedly recogni9es the co'ownership. 6n view of a clear
repudiation of the co'ownership duly communicated to the co'heirs, no prescription occurred and
the filing of the action for partition and delivery of possession covering their corresponding shares
!8 years after the death of the decedent was not filed out of time. Mariano v. .udge ,e 4ega, 1(8
#C/A 2(! ,1-8+..
11. D&!. I=42#!5 T(@.% P(!.0(#6! &( M-1 I% ! D!"!-%!5 61 L-03!.N
Recent Cases=
"he trustor'beneficiary is not estopped from proving its ownership over the property held in
trust by the trustee when the purpose is not to contest the disposition of encumbrance of the
property in favor of an innocent third'party purchaser for value. "he "orrens system was not
established to foreclose a trustor or beneficiary from proving its ownership of a property titled in
the name of another person when the rights of an innocent purchaser or lienholder are not
involved. Miguel .. Ossorio Pension 3oundation# $nc. v. Court of Appeals, 6!1 #C/A 6)6 ,!)1)..
An action for reconveyance based on an implied trust prescribes in ten years, the rec%oning
point of which is the date of registration of the deed or the date of issuance of the certificate of
title over the property. &rito# Sr. v. ,ianala, 628 #C/A 0!- ,!)11.. +xcept5 1hen the plaintiff is in
possession of the subMect property, the action, being in effect that of 4uieting of title to the
property, does not prescribe. eirs of ,omingo 4alientes v. !amas, 628 #C/A ((( ,!)11..
An action for reconveyance based on implied trust prescribed in 1) years as it is an obligation
created by law, to be counted from the date of issuance of the "orrens title over the property. "his
rule, however, applies only when the plaintiff or the person enforcing the trust is not in possession
of the property. Philippine >ational &an' v. .umamoy, 600 #C/A 0( ,!)11..
Unrepudiated written e&press trust is imprescriptible. <&press trusts prescribe in 1) years from
the repudiation of the trust. "o apply the 1)'year prescriptive period, which would bar a
beneficiay>s action to recover in an e&press trust, the repudiation of the trust must be proven by
clear and convincing evidence and made %nown to the beneficiary. /or)ela v. !osario, 661
#C/A 622 ,!)11..
Old Cases=
6t is settled that an action for reconveyance based on a constructive implied trust prescribes in
1) years. Det not li%e in the case of a resulting implied trust and an e&press trust, prescription
supervenes in a constructive implied trust even if the trustee does not repudiate the relationship.
41
!eiterated in Municipality of 4ictorias v. Court of Appeals, 1(- #C/A 2! ,1-8+..
6n other words, repudiation of said trust is not a condition precedent to the running of the
prescriptive period. +state of Margarita ,. Ca)acungan# v. "aigo# 600 #C/A 266 ,!)11..
1hen the registered owner, be he the patentee or his successor'in'interest to whom the free
patent was transferred, %new that the parcel of land described in the patent and in the "orrens
title belonged to another, who together with his predecessors'in'interest had been in possession
thereof, and if the patentee and his successor'in'interest were never in possession thereof, the
true owner may bring an action to have the ownership of or title to the land Mudicially settled. #uch
aggrieved party may still file an action for reconveyance based on implied or constructive trust,
which prescribes in 1) year from the date of the issuance of the certificate of title over the
property, provided that the property has not been ac4uired by an innocent purchaser for value.
Cavile v. )itania5on-+ 5)1 SCRA 40) '200>+.
"he Court has held that for ac4uisitive prescription to bar the action of the beneficiary against
the trustee in an e&press trust for the recovery of the property held in trust it must be shown that3
,a. the trustee has performed une4uivocal acts of repudiation amounting to an ouster of the
cestui <ue trust$ ,b. such positive acts of repudiation have been made %nown to the cestui <ue
trust, and ,c. the evidence thereon is clear and conclusive. "he rule re4uires a clear repudiation
of the trust duly communicated to the beneficiary. eirs of /ran<uilino "a)iste v. eirs of .ose
"a)iste, 08+ #C/A (1+ ,!))-..
S there is but one instance when prescription cannot be invo%ed in an action for
reconveyance, that is, when the plaintiff is in possession of the land to be reconveyed. 6n Feirs of
*omposa #aludares, this Court e&plained that the Court in a series of cases, has permitted the
filing of an action for reconveyance despite the lapse of more than ten ,1). years from the
issuance of title to the land and declared that said action, when based on fraud, is imprescriptible
as long as the land has not passed to an innocent buyer for value. ?ut in all those cases, the
common factual bac%drop was that the registered owners were never in possession of the
disputed property. "he e&ception was based on the theory that registration proceedings could not
be used as a shield for fraud or for enriching a person at the e&pense of another. 6n Alfredo v.
?orras, the Court ruled that prescription does not run against the plaintiff in actual possession of
the disputed land because such plaintiff has a right to wait until his possession is disturbed or his
title is 4uestioned before initiating an action to vindicate his right. Fis undisturbed possession
gives him the continuing right to see% the aid of a court of e4uity to determine the nature of the
adverse claim of a third party and its effect on his title. !strella 1ion-co 3ared v. "ose
1ion-co, *5> SCRA 545 '2011+.
comes.8 An action for reconveyance based on implied trust prescribes in 1) years as it is an
obligation created by law, to be counted from the date of issuance of the "orrens title over the
property. "his rule, however, applies only when the plaintiff or the person enforcing the trust is
not in possession of the property. S there is no prescription when in an action for reconveyance,
the claimant is in actual possession of the property because this in effect is an action for 4uieting
of title. %&$ v. "u'a'oy, *55 SCRA 54 '2011+.
Goreover, the prescriptive period applies only if there is an actual need to reconvey the
property as when the plaintiff is not in possession thereof. 7therwise, if the plaintiff is in
possession of the property, prescription does not commence to run against him. "hus, when an
action for reconveyance is nonetheless filed, it would be in the nature of a suit for 4uieting of title,
an action that is imprescriptible. &rito v. ,ianala, 628 #C/A 0!- ,!)1)..
1hen the plaintiff in such action #. $&% #$ 4&..!..#&$ of the subMect property, the action
prescribes in 1) years from the date of registration of the deed or the date of the issuance of the
certificate of title over the property. 1hen the plaintiff #. #$ 4&..!..#&$ of the subMect property,
the action, being in effect that of 4uieting of title to the property, does not prescribe. 6n the case at
bar, petitioners are not in possession of the subMect property. 6f it were to be considered as that of
enforcing an implied trust, should have therefore been filed within 1)n years from the issuance of
"C" on @ecember !!, 1-6-. "he case was, however, filed on August !), 1--8, which was way
beyond the prescriptive period. eirs of ,omingo 4alientes v. !amas, 628 #C/A ((( ,!)1)..
%rescription Cannot #pply 6hen 1itle of 1rustee 4oid ,ue to For-ery ; 6t is well settled
that an action for reconveyance of real property to enforce an implied trust prescribes in ten year,
the period rec%oned from the issuance of the adverse title to the property which operates as a
constructive notice. %on0ales v. $ntermediate Appellate Court, !)( #C/A 1)6 ,1--1..
As previously stated, the rule that a trustee cannot, by prescription, ac4uire ownership over
property entrusted to him until and unless he repudiates the trust, applies to e&press trust and
resulting implied trusts, owever# in constructive trusts# prescription may supervene even if the
trustee does not repudiate the relationship. 5ecessarily, repudiation of the said trust is not a
condition precedent to the running of the prescriptive period. A constructive trust, unli%e an
e&press trust, does not emanate from, or generate a fiduciary relation. 1hile in an e&press trust,
a beneficiary and a trustee are lin%ed by confidential or fiduciary relations, in a constructive trust,
there is neither a promise nor any fiduciary relation to spea% of and the so'called trustee neither
accepts any trust nor intends holding the property for the beneficiary. "he relation of trustee and
cestui <ue trust does not in fact e&ist, and the holding of a constructive trust is for the trustee
himself, and therefore, at all times adverse. Ca*e0o v. !o-as, 028 #C/A !(! ,!))+..
An action for the reconveyance of a parcel of land based on implied or constructive trust
prescribes in 1) years, the point of reference being the date of registration of the deed or the date
of the issuance of the certificate of title of the property. 1ithout an 7C", the date from whence
the prescriptive period could be rec%oned is un%nown and it could not be determined if indeed the
period had already lapsed or not. Pedrano v. eirs of &enedicto Pedrano# 02- #C/A ()1 ,!))+..
An aggrieved party may file an action for reconveyance based on implied or constructive trust,
which prescribes in ten years from the date of issuance of the certificate of title over the property
provided that the property has not been ac4uired by an innocent purchaser for value. =hemani v.
eirs of Anastacio /rinidad# 0() #C/A 82 ,!))+..
1here the facts deemed admitted showed that the signature of the petitioners, being forced
heirs, in the e&traMudicial settlement with sale has been forged, and although title to the land had
been registered in the name of the buyer, the contract is void, and the action to see% the
declaration of nullity is imprescriptible under Art. 1(1), and is not to be governed by the principles
of implied trust. Maca)a))ad v. Masirag# 0+6 #C/A +) ,!))-..
Close Relationship and Continued Reco-nition of 1rust Relationship ; 7n the other
hand, laches, being rooted in e4uity, is not always to be applied strictly in a way that would
obliterate an otherwise valid claim especially between blood relatives. "he e&istence of a
confidential relationship based upon consanguinity is an important circumstance for
consideration$ hence, the doctrine is not to be applied mechanically as between near relatives.
+state of Margarita ,. Ca)acungan# v. "aigo# 600 #C/A 266 ,!)11..
"he doctrine of laches ,here, 1- years from the time the @eed of @onation was e&ecuted by
the father in the name of the sister, but for the e4ual benefit of the brother. is not to be applied
mechanically as between near relatives which would tend to e&cuse what otherwise may be
considered a long delay in ta%ing action. Goreover, continued recognition of the e&istence of the
trust, in this case by letters written by the sister to the brother, recogni9ing the trust relationship,
precludes the defense of laches. Ada0a v. CA, 1+1 #C/A 26- ,1-8-..
BHISTORICAL JURISPRUDENCE ?
/hough the Statute of "imitations does not run )etween the trustee and cestui <ue trust as
long as the trust relations su)sist, it runs between the trust and a third person who holds actual,
open, public, and continuous possession of land for over ten years, adversely to the trust,
ac4uires title to the land by prescription as against such trust. %ovAt v. A)adilla, (6 *hil. 6(!
,1-!(..
%rescription Cannot #pply #-ainst a Minor $eneficiary in 0'plied 1rust B 6n an implied
trust, when the act of repudiation of the trustee was effected at the time the cestui <ue trust was
still a minor, then such act does not preMudice the latter3 1e note, however, that this supposed
repudiation of the trust first too% place before Ganuel Castro had reached his maMority, and we
are unable to see how a minor with whom another is in trust relation can be preMudiced by
repudiation of the trustee addressed to him by the person who is subMect to the trust obligation.
"he defendant in our opinion is not entitled to the benefit of prescription from his supposed
repudiation of the trust. Castro v. Castro, 0+ *hil. 6+0 ,1-2!..
"he e&press trusts disable the trustee from ac4uiring for his own benefit the property
committed to his management or custody, at least while he does not openly repudiate the trust,
and ma%es such repudiation %nown to the beneficiary or cestui <ue trust. Qor this reason, the old
Code of Civil *rocedure ,Act 1-). declared that the rules on adverse possession do not apply to
continuing and subsisting ,i.e., unrepudiated. trusts. ?ut in 0&$.%(@0%#8! %(@.%., the rule is that
laches constitutes a bar to actions to enforce the trust, and repudiation is not re4uired, unless
there is concealment of the facts giving rise to the trust. "he reason for the difference in treatment
is obvious. I$ !E4(!.. %(@.%., %3! 5!2-1 &" %3! 6!$!"#0#-(1 #. 5#(!0%21 -%%(#6@%-62! %& %3!
%(@.%!! C3& @$5!(%-A!. %& 3&25 %3! 4(&4!(%1 "&( %3! "&(=!(, &( C3& #. 2#$A!5 %& %3!
6!$!"#0#-(1 61 0&$"#5!$%#-2 &( "#5@0#-(1 (!2-%#&$.. "he trustee=s possession is, therefore, not
adverse to the beneficiary, until and unless the latter is made aware that the trust has been
repudiated. ?ut in 0&$.%(@0%#8! %(@.%. ,that are imposed by law., there is neither promise nor
fiduciary relation$ the so'called trustee does not recogni9e any trust and has no intent to hold for
the beneficiary$ therefore, the latter is not Mustified in delaying action to recover his property. I% #.
3#. "-@2% #" 3! 5!2-1., 3!$0!, 3! =-1 6! !.%&44!5 61 3#. &C$ 2-03!.. 7f course, the
e4uitable doctrine of estoppel by laches re4uires that the one invo%ing it must show, not only the
unMustified inaction, but that some unfair inMury would result to him unless the action is held
barred. ,ia0 v. %orricho and Aguado, 1)2 *hil. !61 ,1-08..
ConMugal partnership property could not be sold by the surviving spouse without the formalities
established for the sale of property of the deceased persons, and such sale by the surviving
spouse is void as to the share of the deceased spouse and the vendee becomes a trustee of the
share of the deceased spouse for the benefit of her heirs, the cestuis <ue trustent. *rescription
cannot be set up as a defense in an action that see%s to recover the property held in trust for the
benefit of another and neither could laches be set up as a defense, it being similar to prescription.
Cuison v. 3ernande0 and &eng0on, 1)0 *hil. 120 ,1-0-..
1hen the trial court declared in a decision that had become final and e&ecutory that appellees
had the right to redeem the property in 4uestion and ordered appellants to ma%e the resale of the
property in favor of appellees, there was created a constructive trust, in the sense that although
appellants had the na%ed title issued in their names, and which they retained, nevertheless, they
were to hold said property in trust for appellees to redeem, subMect to the payment of the
redemption price. $n the latter instance of constructive trust# prescription may apply only where
the trustee asserts a right adverse to that of the cestui <ue trust# such as# asserting acts of
ownership over the property )eing held in trust. ?ut the facts showed that no e&ercise of adverse
rights could be claimed by the appellants, since after the decision aforementioned had become
final and e&ecutory, appellants began to recogni9e the right of the appellees to collect rentals
from the tenant of the property, and when the tenant left the house, appellees too% possession of,
and e&ercised acts of ownership over, the house and appellants, all along, showed conformity
thereto. %eronimo and $sidro v. >ava and A<uino, 1)0 *hil. 1(0 ,1-0-..
Constructive or implied trusts may, of course, be barred by lapse of time. /he rule in such
trusts is that laches constitutes a )ar to actions to enforce the trust# and repudiation is not
re<uired# unless there is concealment of the facts giving rise to the trust. ,,ia0# et al. v. %orricho,
1)2 *hil. !61. Continuous recognition of a resulting trust, however, precludes any defense of
laches in a suit to declare and enforce the trust. . . . "he beneficiary of a resulting trust may,
therefore, without preMudice to his right to enforce the trust, prefer the trust to persist and demand
no conveyance from the trustee. eirs of +milio Candelaria v. "ucia !omero, 1)- *hil. 0))
,1-6)..
"he case at bar involves an implied or constructive trust upon the defendant'appellees. "he
Court of Appeals declared that 6ldefonsa held in trust the V legally belonging to the plaintiffs$ of
which condition, the defendants had full %nowledge. "he sale made by 6ldefonsa in favor of the
defendants, was not void or ine&istent contract, action on which is imprescriptible ,Art. 1(0),
5.C.C... 6t is voidable, at most, and as such in valid until revo%ed within the time prescribed by
law for it revocation, and that is undoubtedly the reason why the Court of Appeals pronounced
that the Appellees had the right to as% for a reconveyance of their share, unless the action is
barred by prescription. /he prescripti)ility of an action for reconveyance )ased on implied or
constructive trust# is now a settled <uestion in this -urisdiction. $t prescri)es in ten ?HF@ years
A&o*aga v. Soler, ! #C/A +00 ,1-61.$ .. M. /uason & Co.# $nc. v. Magdangal, ( #C/A 1!2
,1-6!.E. Al0ona v. Capunitan and !eyes, ( #C/A (0) ,1-6!..
,ecided just 'onths later= 6f a person obtains legal title to property by fraud or concealment,
a constructive trust is created in favor of the defrauded party and the latter has the right to
vindicate the property regardless of the lapse of time. "he rule that registration of real property
under the "orrens system had the effect of a constructive notice to the whole world cannot be
availed of when the purpose of the action is to compel a trustee to convey the property registered
in his name for the benefit of the cestui <ue trust. $n other words# the defense of prescription
cannot )e set up in an action to enforce a trust. 72e need not reiterate those cases holding
imprescripti)le the action to enforce a trust. ACastro v. Castro, 0+ *hil. 6+0$ Cristo)al v. %ome0,
0) *hil. 81E. A different view could encourage fraud and permit one person unMustly to enrich
himself at the e&pense of another. .uan v. Du*iga, ( #C/A 1!!1 ,1-6!..
1here the administrator of the estate of the decedent had been duly instituted as the sole heir
in the will of the decedent which was duly probated, even assuming that the administrator had
acted as trustee for the other heirs, the obtaining of the transfer certificates of titles in the
administrator>s name of all registered land of the estate would constitute an open and clear
repudiation of any trust, and the lapse of more than twenty years> open and adverse possession
as owner would certainly suffice to vest title by prescription in said administrator. "ope0 v.
%on0aga, 1) #C/A 16+ ,1-+(..
6n constructive trusts among co'heirsOco'owners, the prescriptive period begins on the date
when the trustee registers the deed that see%s to e&clude the cestuis <ue trustant from title to the
property and see%ing to have new title issued only in trustee>s name. Castrillo v. CA, 1) #C/A
0(- ,1-6(..
1here the owner of an unregistered land had sold the property to another under a sale with a
right of repurchase but was never able to e&ercise the right of repurchase, the registration by the
seller of the property in his name under the "orrens system was done in bad faith, and he is
deemed to have constituted himself as trustee for the buyer of the property to whom ownership
was consolidated and who had been in possession thereof for many years. "he action of the
buyer or his successors'in'interest to have a reconveyance of the title even when filed more than
twenty years after the seller had obtained title thereto was imprescriptible. Under Act 1-) ,the old
Code of Civil *rocedure., section 28, which is the governing statute, prescription does not apply
to continuing and subsisting trusts$ so that actions against a trustee to recover trust property
held by him are imprescriptible. Actions for the reconveyance of property wrongfully registered
are of this category. Caladiao v. 4da de &las, 1) #C/A 6-1 ,1-6(..
"he petitioners and private respondents were co'heirs, and the petitioner>s action for partition
and reconveyance was based upon a constructive trust resulting from fraud, the Court held that
the discovery of the fraud is deemed to have ta%en place, in the case at bar, on Lune !2, 1-(8,
when said instrument was filed with the /egister of @eeds and new certificates of title were
issued in the name of respondents e&clusively, for the registration of the deed of e&tra'Mudicial
settlement constituted constructive notice to the whole word. %erona v. ,e %u0man, 11 #C/A
102 ,1-6(..
Although as a general rule, an action for partition among co'heirs does not prescribe, this is
true only as long as the defendants do not hold the property in 4uestion under an adverse title
,Cordova v. Cordova, B'--26, 1( Lanuary 1-(8.. "he statute of limitations operates as in other
cases, from the moment such adverse title is asserted by the possessor of the property ,!amos
v. !amos, (0 *hil. 26!$ &argayo v. Camumot, () *hil. 80+ ,1-!).$ Castro v. +charri, !) *hil. !2..
U Although, there are some decisions to the contrary ,.acinto v. Mendo0a, 80 *hil. !06 ,1-0).$
Cuison v. 3ernande0, 1)0 *hil. 120 ,1-0-.$ Mari)iles v. ;uinto, 1)) *hil. 6( ,1-06.$ and Sevilla
v. ,e los Angeles, 1)! *hil. 010 ,1-00., it is already settled in this Murisdiction that an action for
reconveyance of real property based upon a constructive or implied trust, resulting from fraud,
may be barred by the statute of limitations ,Candelaria v. !omero, 1)- *hil. 0)) ,1-6).$ Al0ona
v. Capunita, ( #C/A (0) ,1-6!.. U 6nasmuch as petitioner see% to annul the aforementioned
deed of e&tra'Mudicial settlement upon the ground of fraud in the e&ecution thereof, the action
therefor may be filed within ( years from the discovery of the fraud ,Mauricio v. 4illanueva, B'
11)+!, !( #eptember 1-0-.. #uch discovery is deemed to have ta%en place, when said
instrument was filed with the /egister of @eeds and new certificates of title were issued in the
name of respondents e&clusively, for the registration of the deed of e&tra'Mudicial settlement
constitute constructive notice to the whole world A,ia0 v. %orricho, 1)2 *hil. !61 ,1-08.$ Avecilla
v. 1atco, 1)2 *hil. 666 ,1-08.$ ..M. /ua0on & Co.# $nc. v. Magdangal, ( #C/A 8( ,1-6!.$ "ope0
v. %on0aga, 1) #C/A 16+ ,1-+(.E. %erona v. Carmen de %u0man, 11 #C/A 102 ,1-6(..
?esides, even assuming the alleged trust to be an implied one, the right alleged by plaintiffs
would have already prescribed since starting in 1-26 when the trustor died, plaintiffs had already
been allegedly refused by the aforesaid defendants in their demands over the land, and the
complaint was filed only in 1-61Nmore than the 1)'year period of prescription for the
enforcement of such rights under the trust. 6t is settled that the right to enforce an implied trust in
one>s favor prescribes in ten ,1). years. A%on0ales v. .imene0, 12 #C/A 8) ,1-60.E Cuaycong v.
Cuaycong, !1 #C/A 11-! ,1-6+..
1hile there are some decisions which hold that an action upon a trust is imprescriptible,
without distinguishing between e&press and implied trust, the better rule, as laid down by the
#upreme Court in other decisions, is that prescription does supervene where the trust is merely
an implied one. &ueno v. !eyes, !+ #C/A 11+- ,1-6-..
Actions on implied and constructive trusts ,as distinguished from e&press ones. are
e&tinguished by laches or prescription of ten years. 4arsity ills v. 5avarro, (2 #C/A 0)2 ,1-!!..
"he rule of imprescriptibility of the action to recover property held in trust may possibly apply to
resulting trusts as long as the trustee has not repudiated the trust Aeirs of Candelaria v. !omero,
1)- *hil. 0)) ,1-6).$ Martine0 v. %ra*o, (! *hil. 20 ,1-!1.$ &uencamino v. Matias, 16 #C/A 8(-
,1-66.E. !amos v. !amos, 61 #C/A !8( ,1-+(..
"he rule of imprescriptibility does not apply to constructive trusts, and was therefore
misapplied to constructive trusts in %eronimo and $sidoro vs. >ava and A<uino, 1)0 *hil. 1(0
,1-0-.. Compare with Cuison v. 3ernande0 and &eng0on, 1)0 *hil. 120 ,1-0-.$ ,e Pasion v. ,e
Pasion, 11! *hil. ()2 $ !amos v. !amos, 61 #C/A !8(, !--'2)) ,1-+(..
1ith respect to constructive trusts, the rule is different Aas compared to e&press trustE. /he
prescripti)ility of an action for reconveyance )ased on constructive trust is now settled ,Al0ona v.
Capunitan, ( #C/A (0) ,1-6!.$ %erona v. ,e %u0man, 11 #C/A 102 ,1-6(.$ Claridad v.
enares, -+ *hil. -+2$ %on0ales v. .imene0, 12 #C/A 8) ,1-60.$ &o*aga v. Soler, 11 *hil. 601$
..M. /ua0on & Co. v. Mandanagal, ( #C/A 8( ,1-6!.. Prescription may supervene in an implied
trust ,&ueno v. !eyes, !+ #C/A 11+- ,1-6-.$ 3a)ian v. 3a)ian, !! #C/A !21 ,1-68.$ 4da. ,e
.acinto v. 4da. ,e .acinto, 0 #C/A 2+1 ,1-6!.. And whether the trust is resulting or
constructive# its enforcement may )e )arred )y laches ,,ia0 v. %orricho and Aguado, 1)2 *hil.
!61 ,1-08.. Compare with Me-ia v. %ampona, 1)) *hil. !++ ,1-06.. !amos v. !amos, 61 #C/A
!8(, 2)) ,1-+(..
"he prescriptibility of an action for reconveyance based on implied or constructive trust, is now
a settled 4uestion in this Murisdiction. 6t prescribes in ten years. 7n the other hand e&press trusts
prescribe 1) years from the repudiation of the trust +scay v. Court of Appeals, 61 #C/A 26-
,1-+(..
Constructive notice is applicable in cases of constructive trusts, as borne out by the decisions
in "ope0 and %erona, 6n any event, it is now settled that an action for reconveyance based on
implied or constructive trust is prescriptible$ it prescribes in ten years. "here is a clear
repudiation of a trust where on who is an apparent administrator of property causes the
cancellation of the title thereto in the name of the apparent beneficiaries and gets a new
certificate of title in his own name. Carantes v. Court of Appeals, +6 #C/A 01( ,1-++..
1here a possessor of registered land see%s a reconveyance of title to him from the registered
owner on the ground of implied trust under Article 1(06 of the Civil Code, then the trial court
committed serious error in dismissing the case on the ground that the petitioner had no standing
to sue. Bi%ewise to satisfy the demands of Mustice, the doctrine of implied trust may be made to
operate in plaintiff>s favor, assuming that he can prove his allegation that defendant had ac4uired
legal title by fraud. ,p. 182.. *laintiff>s action for reconveyance may not be said to have
prescribed, for, basing the present action on implied trust, the prescriptive period is ten years.
Armamento v. %uererro, -6 #C/A 1+8 ,1-8)..
O&O&O
C. PARTNERSHIPS
I. HISTORICAL ACBGROUND
1. O25 (-$03!. &" P-(%$!(.3#4 L-C
C#8#2 P-(%$!(.3#4. ' not pursued in mercantile manner, non'habitual or not pursued in the
regular course of )usiness
C&==!(0#-2 P-(%$!(.3#4. ' in pursuit of industry or commerce$ characteri9ed by
ha)ituality or in the regular pursuit of )usiness
@istinguishing between civil and commercial partnerships was critical under the old set'up
because it determined the applicable rules for registration, personal liability of members, and the
rights and manner of dissolution. Compa*ia Agricola de (ltramar v. !eyes, ( *hil. ! ,1-)(..
'-+ C&==!(0#-2 4-(%$!(.3#4. C!(! 5!!=!5 %& 6!, -$5 .@67!0% %& C&5! &" C&==!(0!
4(&8#.#&$. "&(, =!(03-$%.?
A commercial partnership is distinguished from a civil one )y the o)-ect to which it is
devoted and not )y the manner with which it is organi0ed. A commercial partnership has for its
obMect the pursuit of industry or commerce, and is then a merchant that must be governed
by, and comply with the registration re4uirements of, the Code of Commerce to lawfully come
into e&istence$ it cannot choose to be organi9ed under the Civil Code to ma%e it a civil
partnership. Prautch v. ernande0, 1 *hil. +)0 ,1-)2..
Contra= 1e are inclined to the belief that the respective codes, Civil and Commercial,
have adopted a complete system for the organi9ation, control, continuance, liabilities,
dissolutions, and Muristic personalities of associations organi9ed under each. . . . that
associations organi9ed under the different codes are governed by the provisions of the
respective codes. Compa*ia Agricola de (ltramar v. !eyes, ( *hil. ! ,1-)(..
A commercial partnership that fails to register its articles in the mercantile registry under
Art. 11- of the Code of Commerce, does not become a Muridical person with a personality
distinct from those of the individuals who composed it. ung-Man-1oc v.=ieng-Chiong-Seng, 6
*hil. (-8 ,1-)6.$ &ourns v. Carman, + *hil. 11+ ,1-)6.$ Ang Seng ;uen v. /e Chico, + *hil.
0(1 ,1-)+..
Conse9uently=
6t cannot maintain an action in its name. Prautch v. ernande0, 1 *hil. +)0 ,1-)2..
5either in the name of one nor more of the members on behalf of his associates$
nevertheless the individual members may sue Mointly as individuals, and persons dealing
with them in their Moint capacity will not be permitted to deny their right to do so. Prautch
v. .ones, 8 *hil. 1 ,1-)+.$ Ang Seng ;uen v. /e Chico, 1! *hil. 0(+ ,1-)-..
1ithout a separate Muridical personality, what was applicable was Art. 1!) which made
persons in charge of the management of the association liable for the debts incurred
by such partnership de facto. =wong-2o-Sing v. =ieng-Chiong-Seng, 6 *hil. (-8
,1-)6..
'6+ R!/#.%(-%#&$ C-. %3! A!1 !2!=!$% "&( 0&==!(0#-2 4-(%$!(.3#4. 'A(%.. 11)-11>, C&5!
&" C&==!(0!+ 0&=#$/ #$%& !E#.%!$0!D6!0&=#$/ 7@(#5#0-2 4!(.&$., W3#2! #% C-. =!(!
4!("!0%#&$ &" %3! 0&$%(-0% "&( 0#8#2 4-(%$!(.3#4.?
A partnership business that is in laundry is a civil partnership and governed by the
provisions of the Civil Code, and it e&isted validly even when no formal partnership agreement
was entered into and registered, and thereby the obligations of the partners for partnership
debts would be pro rata. ,ietrich v. 3reeman, 18 *hil. 2(1 ,1-11..
'0+ F&( 4-(%$!(.3#4 5!6%., 0&==!(0#-2 4-(%$!(. C!(! .&2#5-(#21 2#-62!, albeit .@6.#5#-(#21,
C3#2! 0#8#2 4-(%$!(. C!(! 4(#=-(#21 6@% &$21 7&#$%21 2#-62!?
6n a civil partnership, each member is not bound to pay all the debts of the concern, but
simply his pro rata share, Co-Pitco v. 1ulo, 8 *hil. 0(( ,1-)+..
6n a commercial partnership, although the partners are only subsidiarily liable ,i.e.# they
enMoy the benefit of e&cussion. they are liable solidarily, 4iuda de Chan ,iaco v. Peng, 02 *hil.
-)6 ,1-!8.$ both the partnership and the partners may be Moined in one action, but the private
property of the partners cannot be ta%en in payment of the partnership debts until the common
property of the firm has been e&hausted. "a Compa*ia Maritima v. Mu*o0, - *hil. 2!6 ,1-)+.$
and their right of excussion is deemed already satisfied where at the time the Mudgment is
e&ecuted against the partnership they are unable to show that there are still partnership
assets, or when a writ of e&ecution against the partnership has been returned not fully
satisfied, ,e los !eyes v. "u')an, 20 *hil. +0+ ,1-16.$ P>& v. "o, 0) *hil. 8)! ,1-!+..
II. NATURE AND ATTRIUTES OF THE PARTNERSHIP
1. D!"#$#%#&$ &" P-(%$!(.3#4 'A(%. 1:*:+
#ince by definition a partnership re4uires the meeting of minds to contribute to a common fund
with the intention of dividing the profits from the common fund formed, necessarily an
Ac%nowledgment of *articipating Capital issued by the managing partners in favor of the silent
partners can only cover the business enterprises specifically enumerated in said document and
cannot be construed to include all other businesses and properties registered solely in the
separate names of the managing partners. .arantilla# .r. v. .arantilla, 626 #C/A !-- ,!)1)..
2. TRI-LEVEL EKISTENCEDLEGAL RELATIONSHIPS IN A PARTNERSHIP SETTING
-. %R0M#R0)3 # CO&1R#C1(#) R!)#10O&S50% 'A(%.. 1:*:, 1::1 -$5 1:)4+
6. S!%#R#1! "(R0,0C#) %!RSO&#)013 #S 15! M!,0(M 1O %(RS(! $(S0&!SS 'A(%. 1:*)+
0. (&,!R)30&G $(S0&!SS !&1!R%R0S! #S 15! %R0M#R3 O$"!C104!
1hen the original partners sell their e4uity interest in the company, the original Muridical person
was e&tinguished and the new set of partners constituted a new partnership arrangement with a
new Muridical personality. Det the underlying business enterprise remained the same between the
two sets of investors and succession of liability rules pertaining to the underlying business
enterprise must be respected. 3u v. &)RC, 224 SCRA :5 '1>>9+.
9. ESSENTIAL ATTRIUTES OF THE PARTNERSHIP
-. %R0M#R0)3 # CO&1R#C1(#) R!)#10O&S50% 'A(%.. 1:*:, 1::1, 1:)4+
6. 0&FORM#)CCO&S!&S(#)C6!#> "(R0,0C#) %!RSO&#)013 'A(%.. 44;9<, 1:*), 1::4+
0. ,!)!C1(S %!RSO&#!
'#+ #ssi-n'ent of a %artner of 5is Share ,oes &O1 Ma2e #ssi-nee a %artner 'A(%.. 1)04,
1)19+
"he birth and life of a partnership at will is predicated on the mutual desire and consent of
the partners. "he right to choose with whom a person wishes to associate himself is the very
foundation and essence of that partnership. 6ts continued e&istence is, in turn, dependent on
the constancy of that mutual resolve, along with each partner>s capability to give, it, and the
absence of a cause for dissolution provided by the law itself. Orte-a v. Court of #ppeals,
245 SCRA 52> '1>>5+.
An unMustified dissolution by a partner can subMect him to action for damages because by
the mutual agency that arises in a partnership, the doctrine of delectus personae allows the
partners to have the power, although not necessarily the right, to dissolve the partnership.
/ocao v. Court of Appeals# 2(! #C/A !) ,!)))..
5. M(1(#) #G!&C3 'A(%.. 1)09;1<, 1)1), 1)1>, 1)21 %& 1)29+
!. (&)0M01!, )0#$0)013 FOR %#R1&!RS 'A(%.. 1)1*, 1)1:, 1)24, 1)9>;4< -$5 ;:<+
4. B#$5. &" P-(%$!(.3#4.
-. #s to Object 'A(%. 1::*, 1
.%
4-(.+
#. U$#8!(.-2 P-(%$!(.3#4 'A(%.. 1::: %& 1:)2+
- D!!=!5 - FU$#8!(.-2 P-(%$!(.3#4 &" P(&"#%.G C3!$ -(%#02!. 5& $&% .4!0#"1 %3!
4-(%$!(.3#4L. $-%@(!. 'A(%. 1:)1+
- P!(.&$. C3& -(! 4(&3#6#%!5 "(&= /#8#$/ !-03 &%3!( -$1 5&$-%#&$ &( -58-$%-/!
0-$$&% !$%!( #$%& - @$#8!(.-2 4-(%$!(.3#4. 'A(%. 1:)2+
##. P-(%#0@2-( P-(%$!(.3#4 'A(%. 1:)9+
- (sefulness of the distin-uishin- between universal and particular partnerships.
)yons v. Rosenstoc2, 5* P3#2. *92 '1>92+.
(!
6. #s to ,uration 'A(%. 1:)5+
#. P-(%$!(.3#4 C#%3 F#E!5 T!(=
##. P-(%$!(.3#4 "&( - P-(%#0@2-( U$5!(%-A#$/
###. P-(%$!(.3#4 -% W#22
0. #s to the &ature of the )iabilities of %artners
#. G!$!(-2 P-(%$!(.3#4 'A(%. 1::*, 2
$5
4-(.+
##. L#=#%!5 P-(%$!(.3#4 'Sociedad en Co'andita+ 'A(%.. 1)49 %& 1)*:+
5. Co'pared with Other Media of ,oin- $usiness
#. C&-OC$!(.3#4 'A(%.. 4)4 %& 4)*+
Article 1+6- of Civil Code, which lays down the rule for determining when a transaction
should be deemed a partnership or a co'ownership, that those who agree to form a co'
ownership share or do not share any profits made by the use of the property held in common
does not convert their venture into a partnership$ or the sharing of the gross returns does not
of itself establish a partnership whether or not the persons sharing therein have a Moint or
common right or interest in the property. "his means that aside from the circumstance of profit,
the presence of other elements constituting partnership is necessary, such as the clear intent
to form a partnership, the e&istence of a Muridical personality different from that of the individual
partners, and the freedom to transfer or assign any interest in the property by one with the
consent of the others. .arantilla# .r. v. .arantilla, 626 #C/A !-- ,!)1)..
##. S&2! P(&4(#!%&(.3#4
A sole proprietorship does not possess a Muridical personality separate and distinct from the
personality of the owner of the enterprise. "he law does not vest a separate legal personality
on the sole proprietorship or empower it to file or defend an action in court. 7nly natural or
Muridical persons or entities authori9ed by law may be parties to a civil action and every action
must be prosecuted and defended in the name of the real parties'in'interest. +-ercito v. M.!.
4argas Construction, 001 #C/A -+ ,!))8..
###. A/!$01
Agent cannot escape liabilities of estafa for conversion of the funds given to him by his
principal by claiming that he had become a partner when the boo%s of accounts %ept for the
business showed that the amount was charged to him since the same was merely a method
(!
4illareal v. !amire0, ()6 #C/A 1(0 ,!))2..
of %eeping an account of the business, so that the parties would %now how much money had
been invested and what the condition thereof was at any particular time. (.S. v. Muhn, 6 *hil.
16( ,1-)6..
Lust because a duly appointed agent has made personal advances for the e&penses of the
business venture that he had been designated to administer, does not ma%e him a partner of
his principal. &inglangawa v. Constantino, 1)- *hil. 168 ,1-6)..
#8. @.#$!.. T(@.%
8. C&(4&(-%#&$.
8#. C&&4!(-%#8!.
III. PARTNERSHIP AS PRIMARILY A CONTRACTUAL RELATIONSHIP
1. E..!$%#-2 E2!=!$%. -$5 P@(4&.! &" %3! P-(%$!(.3#4
-. CONSENT ? %artnership 'ust necessarily arise fro' a contractual relationship.
P!(.&$. C3& -(! $&% 4-(%$!(. %& &$! -$&%3!( -(! $&% 4-(%$!(. -. %& %3#(5 4!(.&$.
'A(%. 1:*>;1<+.
EKCEPT ? P-(%$!(.3#4 61 !.%&44!2 'A(%. 1)25+
6. SUJECT MATTER ? F%artners See2 the "oint %ursuit of a $usiness 4enture or $usiness
!nterpriseG -. 02!-(21 #$5#0-%!5 61?
#-ree'ent to Contribute to a Co''on Fund$ and
#-ree'ent or 0ntention to ,ivide the %rofits and )osses.
EKCEPT ? J&#$% 4@(.@#% &" - 4(&"!..#&$ 5&$! %3(&@/3 - 4(&"!..#&$-2 4-(%$!(.3#4.
'#+ # partnership 'ust be established for the co''on benefit or interest of the parties
'A(%. 1::0+.
'##+ # stipulation excludin- a partner fro' participation in the profits and losses is void
'A(%. 1:>>+.
7/he o)taining of profit or gain from the )usiness to )e carried on8 is the very reason for the
e&istence of a partnership$ it is the element that distinguishes the contract of partnership from
voluntary religious or social organi9ations. 3ernande0 v. ,e la !osa, 1 *hil. 6+1 ,1-)2..
An agreement between two persons to operate a coc%pit, by which one is to contribute his
services and the other to provide the capital, the profits to be divided between them,
constitutes a partnership. "he performance of services in connection with the business and
that defendant not only rendered an accounting of the business and paid him his share of the
profits, were competent proof to establish the partnership. ,uterte v. !allos, ! *hil. 0)-
,1-)2..
1here the society is not constituted for the purpose of gain, it does not fall within this article
of the Civil Code Aon partnershipsE. #uch an organi9ation is fully covered by the Baw of
Associations of 188+, but that law was never e&tended to the *hilippine 6slands. Council of
!ed Men v. 4eterans Army, + *hil. 680 ,1-)+..
0. CONSIDERATION = (nderta2in- to Contribute Money+
%roperty or 0ndustry to a Co''on Fund
5. P-(%#0@2-( R@2!. &$ T!.%#$/ P!("!0%!5 P-(%$!(.3#4 'A(%. 1:*>.
Although the e&istence of a partnership cannot be established by general reputation, rumor, or
hearsay, nonetheless, a verbal partnership is valid and may be proven by competent evidence,
and the intention of the parties, to form a partnership may be gathered from the facts and
ascertained from their language and conduct, and once so established should be given effect.
=iel v. +state of P.S. Sa)ert, (6 *hil. 1-2 ,1-!(..
"he issue as to whether there is a partnership between the parties is a factual matter.
Alic)usan v. Court of Appeals, !6- #C/A 226 ,1--+..
1hen members of the same family lease out to #F<BB a family commercial lot for the
establishment of a gasoline station, and invested the advanced rentals and deposits to allow one
of their members to use the amounts as the registered dealer of #F<BB under the latter>s policy
of one station, one dealer, and that the registered dealer had accounted for the operations to
the other members of the family, there was indeed a partnership formed among themselves, for
which the registered dealer can be compelled to e&ecute the covering articles of partnership, for
accounting and distribution of the shares in profits of the other partners. !stanislao+ "r. v.
Court of #ppeals, 1*0 SCRA )90 '1>))+.
1hen facts proven show that purported partner never furnished the supposed *!),))) capital,
nor rendered any help or intervention in the management of the purported partnership business,
much less demanded an accounting of its affairs and its earnings, there was never intended a
real partnership despite the articles of partnership e&ecuted. All that the purported partner did
was to receive her share of *2,))) a month, which can not be interpreted in any manner than a
payment for the use of the premises which she had leased from the owners, and was in
accordance with the original letter of defendant ,<&h. A., which shows that both parties
considered themselves as lessor'lessee under a contract of lease. 3ulo v. 3an- Chiao Sen-,
10* P3#2. 111 '1>5>+.
'#+ C&-OC$!(.3#4 &( C&-P&..!..#&$ D&!. N&% I%.!2" E.%-62#.3 - P-(%$!(.3#4,
E8!$ W3!$ P(&"#%. A(! S3-(!5
1hen land is purchased with the funds contributed by the parties and thereafter divided
e4ually among them, there could not have been formed a partnership. %allemet v. /a)ilaran,
!) *hil. !(1 ,1-11..
1hen fifteen people contributed money to buy a sweepsta%es tic%et with the intention to
divide the pri9e which they may win, and in fact the tic%et won third pri9e, they formed a
partnership, which was subMect to ta& as a corporate ta&payer. %atchalian v. Collector of
$nternal !evenue, 6+ *hil. 666 ,1-2-..
"he first element of an agreement to contribute money, property or industry to a common
fund, is undoubtedly present in the case at bar, for, admittedly, petitioners have agreed to,
and did, contribute money and property to a common fund. "he issue remains as to the
second element of intent to divide the profits among themselves. Upon consideration of all
the facts and circumstances surrounding the case, we are fully satisfied that their purpose was
to engage in real estate transactions for monetary gain and then divide the same among
themselves. 6n other words one cannot but perceive a character of habituality peculiar to
business transactions engaged in for purposes of gain. !van-elista v. Collector of
0nternal Revenue, 102 P3#2. 140 '1>5:+.
1here father and son purchased lot and building and had it administered with the original
purpose of dividing the net income from the property, then a partnership was constituted.
!eyes v. Commissioner of $nternal !evenue, !( #C/A 1-8 ,1-68..
1hen the heirs agreed after partition of the estate, to use common properties and income
as a common fund with the intention of ma%ing profit for them in proportion to their shares in
the inheritance, the co'ownership was converted into a partnership. O@a v. Co''issioner
of 0nternal Revenue, 45 SCRA :4 '1>:2+.
1hen four brothers and sisters ac4uired lots from their purpose with the original purpose to
divide the lots for residential purposes, and later they found it not feasible to build their
residences on the lots because of the high cost of construction, then they had no choice but to
resell the same to dissolve the co'ownership. "he division of the profit was merely incidental to
the dissolution of the co'ownership which was in the nature of things a temporary state. 6t had
to be terminated sooner or later. O)illos# .r. v. Commissioner of $nternal !evenue, 12- #C/A
(26 ,1-80..
6n contrast with +vangelista# when the only facts proven was the e&istence of co'ownership
between the parties covering two isolated purchase of parcels of land and the sharing of
profits on the subse4uent sales thereof, there can be no deduction that an unregistered
partnership has been constituted to ma%e it separately liable for corporate income ta&3 the
transactions were isolated, the parcels purchased were not managed or even leased out. "he
sharing of returns does not in itself establish a partnership whether or not the persons sharing
therein have Moint or common right of interest in the property. "here must be clear intent to
form a partnership, the e&istence of a Muridical personality different from the individual partners,
and the freedom of each party to transfer or assign the whole property. %ascual v.
Co''issioner of 0nternal Revenue, 1** SCRA 5*0 '1>))+.
Gere co'ownership or co'possession of property does not necessarily constitute the co'
owners or co'possessors are partners in the absence of an agreement to enter into a
partnership. >avarro v. Court of Appeals, !!! #C/A 6+0 ,1--2..
Sharin- of Gross Return ,oes &ot Create %artnership5
An e&clusive agent to develop a parcel of land who is entitled to receive a !):
commission on the gross sales, cannot claim to be a partner to the venture simply on the
basis that he had made personal advances for the e&penses incurred in the development
and administration of the property, since the amounts were never considered contributions
into the business. &iglangawa and +spiritu v. Constantino, 1)- *hil. 168 ,1-6)..
Receipt by a %erson of a Share of the %rofits of a $usiness=
@espite the agreement that ?astida was to receive 20: of the profit from the business
of mi&ing and distributing fertili9er registered in the name of Gen9i K Co., there was never
any contract of partnership constituted between them based on the following %ey elements3
,a. there was never any common fund created between the parties, since the entire
business as well as the e&penses and disbursements for operating it were entirely for the
account of Gen9i K Co.$ ,b. there was no provision in the agreement for reimbursing Gen9i
K Co. in case there should be no profits at the end of the year$ and ,c. the fertili9er
business was Must one of the many lines of business of Gen9i K Co., and there were no
separate boo%s and no separate ban% accounts %ept for that particular line of business. "he
arrangement was deemed to be one of employment, with ?astida contributing his services
to manage the particular line of business of Gen9i K Co.$astida v. Men*i and Co., 5)
P3#2. 1)) '1>99+.
1here there is no written partnership agreement, nor proof that the claimant received a
share in the profits, nor that he had any participating with respect to the running of the
business, then no partnership claim can be sustained. Sy v. Court of Appeals, 2-8 #C/A
2)1 ,!))2.$ eirs of .ose "im v. "im, 61( #C/A 1(1 ,!)1)..
Although the 7livas were mere creditors, not partners, the Antons agreed to
compensate them for the ris%s they had ta%en. "he 7livas gave the loans with no security
and they were to be paid such loans only if the stores made profits. Fad the business
suffered loses and could not pay what it owed, the 7livas would have ultimately assumed
those loses Must by themselves. #till there was nothing illegal or immoral about this
compensation scheme. #nton v. Oliva, *4: SCRA 50* '2011+.
W3!$ R!0!#4% &" P(&"#%. D&!. N&% C(!-%! P(!.@=4%#&$ &" P-(%$!(.3#43
o #s 0nstall'ent %ay'ents of ,ebt or 0nterest 1hereof
"here is no partnership formed when a loan was obtained to purchase a venture
under the condition that the lender would receive part of the profits of the business in
lieu of interest. Pastor v. %aspar, ! *hil. 0-! ,1-)2..
A creditor of a business enterprise cannot recover his claim against a person who
gave personal guarantees to some other obligations of the business enterprise and who
is without any right to participate in the profits and cannot be deemed a partner in the
business enterprise, since the essence of partnership is that the partners share in the
profits and losses. 1ocao v. Court of #ppeals, 9*5 SCRA 4*9 '2001+.
o #s 6a-es of an !'ployee
A manager of the partnership would naturally have some degree of control over the
business operations and maintenance. "he fact that he had received 0): of the net
profits does not conclusively establish that he was a partnerNArt. 1+6-,(. is e&plicit that
while 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, no such inference shall be drawn if such
profits were received in payment as wages of an employee. Qurthermore, herein
petitioner had no voice in the management of the affairs of the partnership. Sardane v.
CA, 16+ #C/A 0!( ,1-88.$ 3ortis v %utierre0 ermanos, 6 *hil. 1)) ,1-)6..
"he payroll of the company indicating that the brother was listed as an employee
receiving only wages from the company militates against his claim of being a partner.
eirs of /ang +ng =ee v. CA, 2(1 #C/A +() ,!)))..
"he fact that in their articles the parties agreed to divide the profits of a lending
business in a stipulated proportion shows a partnership e&ists, even when the other
parties to the agreement were given separate compensations as boo%%eeper and credit
investigator. Santos v. !eyes, 268 #C/A !61 ,!))1..
o #s Rent %ay'ents to a )andlord
o #s #nnuity to a 6idow or Representative of ,eceased %artner
o Consideration of Sale of Goodwill or Other %roperty
2. E..!$%#-2 C3-(-0%!(#.%#0. &" %3! C&$%(-0% &" P-(%$!(.3#4 'A(%. 1:*:+
-. &o'inate and %rincipal
6f the contract contains the elements of common fund and Moint interest in the profits, the
partnership relation results, and the law fi&es the incidents of this relation if the parties fail to do
so. 6t is of no importance that the parties have failed to reach an agreement with respect to the
minor details of contractNthese details pertain to the accidental and not to the essential part of
the contract of partnership. Fernande* v. ,ela Rosa, 1 P3#2. *:1 '1>02+.
'#+ # %artnership Must 5ave a )awful Object or %urpose 'A(%. 1::0+
"he contract of partnership to divide the fishpond between the parties after the
administrative agency shall have approved the arrangement became illegal under the
Qisheries Act. As such, it cannot be made subMect to any suspensive condition the fulfillment
of which could allegedly ma%e the ultimate underta%ing therein a demandable obligation. 6t is
an elementary rule in law that a partnership cannot be formed for an illegal purpose or one
contrary to public policy and that where the obMect of a partnership is the prosecution of an
illegal business or one which is contrary to public policy, the partnership is void. ,eluao v.
Casteel, !- #C/A 20) ,1-6-..
Under Art. 1666 of the old Civil Code, an action to declare a partnership as an unlawful
partnership does not re4uire that the charitable institution to which the partnership funds shall
be turned over should be included as a party in the suit, because no charitable institution is
necessary for the determination of the rights of the parties, who are partners in the unlawful
partnership3 "he action which may arise from said article, in the case of an unlawful
partnership, is that for the recovery of the amounts paid in by the members from those in
charge of the administration of said partnership, and it is not necessary for the said partners to
based their action on the e&istence of the partnership, but on the fact of having contributed
some money to the partnership capital. Ar)es v. Polistico, 02 *hil. (8- ,1-!-..
6. Consensual
Action to compel a party to e&ecute the contract of partnership to enforce the terms by which
an enterprise had been constituted is an enforcement of an obligation to do, which is contrary to
public policy against involuntary servitude. 6oodhouse v. 5alili, >9 P3#2. 52* '1>59+.
S!!= "here was indeed a partnership formed among themselves, for which the registered
dealer can be compelled to e&ecute the covering articles of partnership, for accounting and
distribution of the shares in profits of the other partners. !stanislao+ "r. v. Court of #ppeals,
1*0 SCRA )90 '1>))+.
0. Onerous and Co''utative
A partnership may be deemed to e&ist among parties who agree to borrow money to pursue a
business and to divide the profits and losses that may arise therefrom, even if it is shown that
they have not contributed to any capital of their own to a common fund. "heir contribution may
be in the form of credit or industry, not necessarily cash or fi&ed assets. ?eing partners, they are
liable for debts incurred by or on behalf of the partnership. "he liability for a contract entered into
on behalf of an unincorporated association or ostensible corporation may lie in a person who may
not have directly transacted on its behalf, but reaped benefits from that contract. "im /ong "im v.
Phil. 3ishing %ear $ndustries# $nc., 21+ #C/A +!8, +21 ,1---..
5. $ilateral and Reciprocal
!. %reparatory and %ro-ressive
IV. PARTNERSHIP AS A JURIDICAL PERSON 'A(%#02!. 44'9+, 45, 1:*) -$5 1:)4+
1. C&$.!I@!$0!. -. - J@(#5#0-2 P!(.&$?
-. )e-al Capacity to !nter into Contracts and 0ncur Obli-ations 'A(%. 4*+
6. May #c9uire %roperties in 0ts Own &a'e 'A(%.. 4* -$5 1::4+
0. May Sue and $e Sued in 0ts Fir' &a'e 'A(%. 4*+
6n a ban%ruptcy proceeding against a general partner, since the partnership is a separate
Muridical person one partner is not entitled to be made a party as an individual separate from the
firm$ and, yet precisely because a partnership is a Muridical person, there can be proper service to
the firm of court notices upon service to any partner of the partnership found within the Murisdiction
of the court. ong'ong &an' v. .urado & Co., ! *hil. 6+1 ,1-)2..
"he death of a partner does not constitute a ground for dismissal of the suit against the
partnership, since the partnership has a separate Muridical personality. >go /ian /e' v. Phil.
+ducation Co., +8 *hil. !+0 ,1-(+.$ 2ahl v. ,onaldson Sim & Co.# 0 *hil. 11 ,1-)0..
A6Et has been the universal practice in the *hilippine 6slands since American occupation, and
was the practice prior to that time, to treat companies of the class to which the plaintiff belongs as
legal or Muridical entities and to permit them to sue and be sued in the name of the company, the
summons being served solely on the managing agent or other official of the company by the
section of the Code of Civil *rocedure. 4argas & Co. v. Chan, !- *hil. ((6 ,1-10..
A partnership may sue and be sued in its name or by its duly authori9ed representative, and
when it has a designated managing partner, he may e&ecute all acts of administration including
the right to sue debtors of the partnership. /ai /ong Chuache & Co. v. $nsurance Commission,
108 #C/A 266 ,1-88..
5. 5as ,o'icile? P2-0! C3!(! %3!#( 2!/-2 (!4(!.!$%-%#&$ #. !.%-62#.3!5 &( C3!(! %3!1
!E!(0#.! %3!#( 4(#$0#4-2 "@$0%#&$. 'A(%. 51+
!. 1axable as a Corporate 1axpayer. /an v. ,el !osario, !2+ #C/A !2( ,1--(..
". May $e ,eclared 0nsolvent !ven 0f 0ts %artners #re &ot
A limited partnership that commits acts of insolvency may be the subMect of an involuntary
petition for insolvency, even when its general partners are very much still solvent. "his is on the
basis that a limited partnership has a separate Muridical personality from its partners. Campos
!ueda & Co. v. Pacific Commercial & Co., (( *hil. -16 ,1-!2..
6n view of the separate Muridical personality possessed by the partnership, the partners cannot
be sued personally under a contract entered into in the name of the partnership, unless it is
shown that the legal fiction is being used for a fraudulent, unfair or illegal purpose, or when
partnership assets have been e&hausted to ma%e partners personally liable for partnership debts
as provided in Art. 1816. Aguila# .r. v. Court of Appeals, 216 #C/A !(6 ,1---..
/. 0s a %erson !ntitled to Constitutional Ri-hts
A partnership being a person before the law is entitled to constitutional right to due process
and e4ual protection. cf Smith# &ell & Co. v. >atividad, () *hil. 126 ,1-1-.$ &ache & Co. ?Phil.@#
$nc. v. !ui0, 2+ #C/A 8!2 ,1-+1..
A partnership being a person before the law is entitled to the constitutional right against
unreasonable searches and sei9ures. cf Stonehill v. ,io'no, !) #C/A 282 ,1-6+..
A partnership obtains its personality from the #tate and therefore not entitled to the
constitutional right against self'incrimination. cf &ataan Shipyard & +ngineering Co. v. PC%%,
10) #C/A 181 ,1-8+..
2. P(&8#.#&$. C&$%(-8!$#$/ P(#$0#42! &" S!4-(-%! J@(#5#0-2 P!(.&$-2#%1
-. %artners #re Coowners of %artnership %roperties 'A(%.. 1)11+
6. %artners May 0ndividually ,ispose of Real %roperty of the %artnership !ven 6hen in
%artnership &a'e 'A(%. 1)1>+
0. %artners #re %ersonally )iable for %artnership ,ebts #fter !xhaustion of %artnership
#ssets ''A(%.. 1)1*, 1)1:, 1)24, 1)9>;4< -$5 ;:<+
V. FORMALITIES REHUIRED FOR THE CONTRACT OF PARTNERSHIP
1. C&==!$0!=!$% -$5 F&(= R!I@#(!5 'A(%.. 1::1 -$5 1:)4+
2. R!/#.%(-%#&$ R!I@#(!=!$%.
Old Civil Code and Code of Co''erce= "hird parties without %nowledge of the e&istence of
the partnership who deal with the property still registered in the name of one of the partners have
a right to e&pect full effectivity of such transaction on the property, in spite of the protestation of
the other partners and perhaps even the partnership creditors. &or-a v. Addison, (( *hil. 8-0
,1-!!..
-. 6hen Capital is %D+EEE or More 'A(%. 1::2+
"he agreement to the contribution to a common fund and the division of profits and losses
would bring about the e&istence of a partnership. Gere failure to register the contract of
partnership with the #<C does not invalidate a contract that has the essential re4uisites of
partnership ; a partnership may e&ist even if the partners do not use the words partner or
partnership. #n-eles v. Secretary of "ustice, 4*5 SCRA 10* '2005+.
An unregistered contract of partnership is valid as among the partners, so long as it has the
essential re4uisites, because the main purpose of registration is to give notice to third parties.
"he failure to register the contract does not affect the liability of the partnership and of the
partners to third persons, and that neither does such failure affect the partnership>s Muridical
personality$ and it can be assumed that the members themselves %new of the contents of their
contract. Ma v. Fernande*+ "r., *25 SCRA 5** '2010+.
6. 6hen 0''ovable %roperty Contributed 'A(%.. 1::1 -$5 1::9+
"he e&ecution of a written agreement was not necessary in order to give efficacy to the verbal
contract of partnership as a civil contract, the contributions of the partners not having been in the
form of immovables or rights therein. "he special provision cited, re4uiring the e&ecution of a
public writing in the single case mentioned and dispensing with all formal re4uirements in other
cases, renders inapplicable to this species of contract the general provisions of Art. 1!8) of the
old Civil Code. Fernande* v. ,ela Rosa, 1 P3#2. *:1 '1>02+.
1hen the articles of partnership provide that the venture is established to operate a fishpond,
it does not necessarily mean that immovable properties or real rights have been contributed into
the partnership which would trigger the operation of Article 1++2. Agad v. Ma)ato, !2 #C/A 1!!2
,1-68..
Qailure to prepare an inventory of the immovable property is contributed, in spite of Art. 1++2
declaring the partnership void, would not render the partnership void when3 ,a. 5o third'party is
involved since Art. 1++2 was intended for the protection of third'parties$ and ,b. the partners have
made a claim on the partnership agreement which is deemed binding between them as any other
contract. 1orres v. Court of #ppeals, 920 SCRA 42) '1>>>+.
1hile the sale of land appearing in a private deed is binding between the parties, it cannot be
considered binding on third persons if it is not embodied in a public instrument and recorded in
the /egistry of @eeds. 1hen it comes to contributions of real estate to a partnership, especially
when it covers registered land, then the peremptory provisions of the *roperty /egistration
@ecree ,*.@. 1(0-. will prevail as to who has a better claim, right or lien on the property, since
registration in good faith and for value, is the operative rule under the "orrens system. Secuya
v. 4da. de Selma, 2!6 #C/A !(( ,!)))..
An instrument purporting to be the contract of partnershipOMoint venture, which is unsigned and
undated, and does not meet the public instrumentation re4uirements e&acted under Article 1++1
of the Civil Code, and not even registrable with the #<C as called for under Article 1++!, and
which also does not meet the inventory re4uirement under Article 1++2 since the claims involve
contributions of immovable properties, does not warrant a finding that a contract of partnership or
Moint venture e&ist. "iton-ua# .r. v. "iton-ua# Sr., (++ #C/A 0+6 ,!))0..
0. )e-al 4alue of the For'al Re9uire'ents for %artnerships
An oral partnership is valid and binding between the parties, even if the amount of capital
contributed is in e&cess of the sum of 1,0)) pesetas. "he provisions of law re4uiring a contract to
be is a particular form should be understood to grant to the parties the remedy to compel that the
form mandated by law be complied with, but does not prevent them from claiming under an oral
contract which is otherwise valid without first see%ing compliance with such form. /hunga Chui v.
;ue &entec, ! *hil. 061 ,1-)2.$ Magalona v. Pesayco, 0- *hil. (02 ,1-2(..
/egistration of the partnership is the best evidence to prove the e&istence of the partnership
among the partners. eirs of /an +ng =ee v. Court of Appeals, 2(1 #C/A +() ,!))).$ eirs of
.ose "im v. "im, 61( #C/A 1(1 ,!)1)..
1hen there has been duly registered articles of partnership, and subse4uently the original
partners accept an industrial partner but do not register a new partnership, and thereafter the
industrial partner retires from the business, and the original partners continue under the same
set'up as the original partnership, then although the second partnership was dissolved with the
withdrawal of the industrial partner, there resulted a reversion bac% into the original partnership
under the terms of the registered articles of partnership. "here is not constituted a new
partnership at will. Rojas v. Ma-lana, 1>2 SCRA 110 '1>>0+.
9. 6hen Corporate 4enture Fails to For'ally 0ncorporate+ ,o the
0ncorporators $eco'e %artners:
C-.!.? %ioneer 0nsurance v. Court of #ppeals, 1:5 SCRA **) '1>)>+.
)i' 1on- )i' v. %hilippine Fishin- Gear 0ndustries+ 0nc., 91: SCRA :2) '1>>>+.
4. O%3!( R@2!. &$ %3! C&$.%#%@%#&$ &" - P-(%$!(.3#4
-. 6hen #rticles >ept Secret #'on- Me'bers 'A(%. 1::5+
6. Rules on %artnership &a'e 'A(%. 1)15, SEC M!=& C#(0@2-( N&. 5, .. 200)+
"he re4uirement under the Code of Commerce that the partnership name contain the names
of all the partners, is meant to protect from fraud the public dealing with the partnership$ it cannot
be invo%ed by the partners to allege the non'e&istence of the partnership. .o Chung Cang v.
Pacific CommA Co., (0 *hil. 1(! ,1-!2.$ P>& v. "o, 0) *hil. 8)! ,1-!+..
"he contention that the last paragraph of Art. 18() of Civil Code regulating the continuation of
the business of the partnership name, or the name of a deceased part as part thereof, allows a
partnership from continuing its business under a firm name which includes the name of a
deceased partner has been denied when it comes to a law partnership on the following grounds3
,a. it contravenes the provision of Arts. 1810 and 18!0, which impose liability on a person whose
name is included in the firm name, which cannot cover a deceased person who can no longer be
subMect to any liability$ ,b. public relations value of the use of an old firm name can tend to create
undue advantages and disadvantages in the practice of the profession$ ,c. Art. 18() covers
dissolution and winding up scenarios and cannot be ta%en to mean to cover firms that are
intended as going concerns, and cover more commercial partnerships$ and ,d. when it comes to
other professions, there is legislative authority for them to use in their firm names those of
deceased partners. $n the Matter of the Petition for Authority to Continue (sing 3irm >ames, etc.,
-! #C/A 1 ,1-+-..
RULE 9.02, C&5! &" P(&"!..#&$-2 R!.4&$.#6#2#%1? "he continued use of the name of a
deceased partner is permissible provided that the firm indicates in all its communications that said
partner is deceased.
VI. RIGHTS, DUTIES AND OLIGATIONS OF THE PARTNERS
1. B#$5. &" P-(%$!(.
-. General and )i'ited %artners
6. 0ndustrial and Capitalist %artners
0. Ostensible+ &o'inal and ,or'ant %artners
5. Ori-inal and 0nco'in- %artners
!. Mana-in- and )i9uidatin- %artners
". Retirin-+ Survivin- and Continuin- %artners
2. PROPERTY RIGHTS OF PARTNERS
-. Ri-hts to Specific %artnership %roperty 'A(%.. 1)10 -$5 1)11+
!9ual Ri-ht to %ossess+ $ut for %artnership %urpose Only. (.S. v. Clarin, 1+ *hil. 8(
,1-1).$ People v. Alegre, (8 7.H. 02(1 ,1-0!.$ Celino v. CA# 162 #C/A -+ ,1-88..
&on#ssi-nable 'A(%. 1)11;2<+
&ot Subject to #ttach'ent or !xecution or to )e-al Support 'A(%. 1)11;9<+
Re'edy of %artner8s Separate Creditors 'A(%. 1)14+
6. M(1(#) #G!&C3 = Ri-ht to %articipate in Mana-e'ent of the %artnership
'#+ General Rule on #-ency 'A(%.. 1)09;1< -$5 1)1)+
6n the ordinary course of business, a partner has authority to purchase goods ,Smith# &ell &
Co. v. A0nar, () 7.H. 188! A1-(1E., to hire employees of the partnership. ,%arcia !on v. "a
Compania de Minas de &atau, 1! *hil. 12) A1-)8E$ as well as dismiss them ,Martine0 v.
Cordo)a & Conde, 0 *hil. 0(0 A1-)6E..
1hen partnership real property had been mortgaged and foreclosed, the redemption by
any of the partners, even when using his separate funds, does not allow such redemption to
be in his sole favor under the general principle of law under Art. 1818 that a partner is an
agent of the partnership. Under Art. 18)+, every partner becomes a trustee for his copartner
with regard to any benefits or profits derived from his act as a partner. Catalan v. %atchalian,
1)0 *hil. 1!+) ,1-0-..
"he stipulation in the articles of partnership that the two managing partners may contract
and sign in the name of the partnership with the consent of the other, undoubtedly creates an
obligation between the two partners, which consists in as%ing the other>s consent before
contracting for the partnership. "his obligation of course is not imposed upon a third person
who contracts with the partnership. 5either is it necessary for the third person to ascertaining if
the managing partner with whom he contracts has previously obtained the consent of the
other. A third person may and has a right to presume that the partner with whom he contracts
has, in the ordinary and natural course of business, the consent of his copartner$ for otherwise
he would not enter into the contract. "he 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. )itton v. 5il & Ceron, *: P3#2. 50> '1>95+.
6n a transaction within the ordinary course of the partnership business effected by the
industrial partner without the consent of the capitalist partner, the provisions in the articles of
partnership that the industrial partner shall manage, operate and direct the affairs, businesses
and activities of the partnership, constitute sufficient authority to ma%e such transaction
binding against the partnership, as against another provision of the articles by which the
industrial partner is authori9ed "o ma%e, sign, seal, e&ecute and deliver contracts . . upon
terms and conditions acceptable to him duly approved in writing by the capitalist partner
Smith# &ell & Co. v. A0nar, () 7.H. 1881 ,1-(1..
6n spite of the provision of Article 1!- of the Code of Commerce to the effect that 6f the
management of the general partnership has not been limited by special agreement to any of
the members, all shall have the power to ta%e part in the direction and management of the
common business, and the members present shall come to an agreement for all contracts or
obligations which may concern the association, such obligation is one imposed by law on the
partners among themselves, that does not necessarily affect the validity of the acts of a
partner, while acting within the scope of the ordinary course of business of the partnership, as
regards third persons without notice. "he latter may rightfully assume that the contracting
partner was duly authori9ed to contract for and in behalf of the firm and that, furthermore, he
would not ordinarily act to the preMudice of his co'partners. "he regular course of business
procedure does not re4uire that each time a third person contracts with one of the managing
partners, he should in4uire as to the latter=s authority to do so, or that he should first ascertain
whether or not the other partners had given their consent thereto. Go9uiolay v. Sycip, 10)
P3#2. >4: '1>*0+.
A presumption e&ists that each partner is an authori9ed agent for the firm and that he has
authority to bind it in carrying on the partnership transaction. Mu*as<ue v. Court of Appeals,
12- #C/A 022 ,1-80..
5one of the partners and the partnership itself cannot be held liable for estafa when they
fail or refuse to return the contributions or share in profits of the partner. (.S. v. Clarin, 1:
P3#2. )4 '1>10+. $(1 = 1hen partner receives funds from another partner for a particular
purpose and he misappropriate it, then the receiving partner is liable for estafa. "iwanag v.
Court of Appeals, !81 #C/A !!0 ,1--+..
'##+ #cts Re9uirin- (nani'ous Consent 'A(%. 1)1)+
'###+ Re9uired Consent in Ma2in- #lterations on 0''ovable %roperty 'A(%. 1)09;2<+
'#8+ 6hen 1here 0s ,esi-nation of Mana-er or Mana-e'ent %rero-atives 'A(%.. 1)00 %&
1)02+
'8+ Specified %owers of %artners?
'1+ C-$ 5#.4&.! &" 4-(%$!(.3#4 4(&4!(%1 !8!$ C3!$ #$ 4-(%$!(.3#4 $-=! 'A(%. 1)1>,
%o<uiolay v. Sycip, - #C/A 662 A1-6-E+.
'2+ A5=#..#&$ &( (!4(!.!$%-%#&$ =-5! 61 -$1 4-(%$!( 0&$0!($#$/ 4-(%$!(.3#4 -""-#(.
#. !8#5!$0! -/-#$.% %3! 4-(%$!(.3#4 'A(%. 1)20+.
'9+ N&%#0! %& -$1 4-(%$!( &" -$1 =-%%!( (!2-%#$/ %& 4-(%$!(.3#4 -""-#(. #. $&%#0! %& %3!
4-(%$!(.3#4 'A(%. 1)21+.
'4+ W(&$/"@2 -0% &( &=#..#&$ &" -$1 4-(%$!( -0%#$/ "&( 4-(%$!(.3#4 -""-#(. =-A!. %3!
4-(%$!(.3#4 2#-62! 'A(%. 1)22+.
'5+ P-(%$!(.3#4 6&@$5 %& =-A! /&&5 2&..!. "&( -0%. &( =#.-442#0-%#&$. &" 4-(%$!(.
'A(%. 1)29+.
'8#+ F@22 I$"&(=-%#&$ -$5 A00&@$%#$/ %& O%3!( P-(%$!(. 'A(%. 1)0*+
0. !A(013 0&1!R!S1 0& 15! %#R1&!RS50% 4!&1(R! 'A(%.. 1)10 -$5 1)12+
'#+ %articipation in %rofits and )osses
'1+ # Stipulation !xcludin- a %artner fro' #ny Share in the %rofits or )osses 0s 4oid
'A(%. 1:>>+
'2+ ,istribution of %rofits and )osses 'A(%. 1:>:+
6n a partnership arrangement, when the agreement to pay a high commission to one of
the partners was in anticipation of large profits being made from the venture, but that
eventually the venture sustained losses, then there is no legal basis to demand for the
payment of the commissions since the essence of the partnership is the sharing of profits
and losses. Moran+ "r. v. Court of #ppeals, 199 SCRA )) '1>)4+.
Art. 1+-+ covers the distribution of losses among the partners in the settlement of
partnership affairs and does not cover the obligations of partners to third persons which is
covered by Article 1816. !amnani v. Court of Appeals, 1-6 #C/A +21 ,1--1..
'9+ 6hen 1hird%arty ,esi-nated to Share 'A(%. 1:>)+
'##+ Ri-ht to ,ispose of Such 0nterest 'A(%. 1)19+
Any partner may transfer his interest and his assignee may demand an accounting from the
remaining partners and a third person into whose hands the partnership property has passed
in satisfaction of the firm>s debt. .ac'son v. &lum, 1 *hil. ( ,1-)1..
'###+ Ri-ht of %artner8s Creditors to !xecute (pon 0t 'A(%. 1)14+
5. O%3!( P(&4(#!%-(1 R#/3%. &" P-(%$!(.
'#+ Ri-ht to Rei'burse'ent for #dvances and 0nde'nification for Ris2s 'A(%.. 1:>5 -$5
1:>*+
"he rule is inapplicable where no money other than that contributed as capital is involved.
Martine0 v. Ong Pong Co., 1( *hil. +!6 ,1-1)..
'##+ #ccess to %artnership $oo2s and Records 'A(%. 1)05+
'###+ Ri-ht to For'al #ccountin- 'A(%. 1)0>+
A partner>s right to accounting for partnership properties that are within the custody or
control of the other partners shall apply only when there is proof that such properties,
registered in the individual names of the other partners, have been ac4uired from the use of
partnership funds, thus3 Accordingly, the defendants have no obligation to account to anyone
for such ac4uisitions in the absence of clear proof that they had violated the trust of Aone of the
partnersE during the e&istence of the partnership. "im /anhu v. !amolete, 66 #C/A (!0
,1-+0..
'#8+ Ri-ht to ,issolve the %artnership 'A(%. 1)90;2<+
<ven in a partnership not at will, a partner can unilaterally dissolve the partnership by a
notice of dissolution, which in effect is a notice of withdrawal. Under Art.182),!., even if there
is a specified term, one partner can cause its dissolution by e&pressly withdrawing even before
the e&piration of the period, with or without Mustifiable cause. 7f course, if the cause is not
Mustified or no cause was given, the withdrawing partner is liable for damages but in no case
can he be compelled to remain in the firm. 1ith his withdrawal, the number of members is
decreased, hence, the dissolution. Rojas v. Ma-lana, 1>2 SCRA 110 '1>>0+.
9. OLIGATIONS OF PARTNERS TO THE PARTNERSHIP
-. O62#/-%#&$ %& C&$%(#6@%! %& %3! C&==&$ F@$5 'A(%.. 1:)*+
'#+ 6hen Su' of Money 'A(%.. 1:)* -$5 1:))+
'##+ 6hen %roperty F 0n General 'A(%. 1:>5+
6ho $ears Ris2 of )oss for ,eter'inate 1hin- 'A(%.1)90;4<+
'###+ 6hen Contribution in Goods 'A(%.. 1:): -$5 1:>5+
'#8+ 6hen Real %roperty 'A(%.. 1::2 -$5 1::9+,
'8+ 6hen in Service 'A(%.. 1:)>+
'8#+ %resu'ption as to %ercenta-e of Capital 'A(%. 1:>0+
'8##+ #dditional Contribution+ in Case of 0''inent )oss 'A(%. 1:>1+
Credit, such as a promissory note or other evidence of obligation, or even goodwill, may
be validly contributed into the partnership. City of Manila v. Cum)e, 12 *hil. 6++ ,1-)-..
1hen a partner fails to pay his promised contribution, he becomes indebted to it for the
remainder of what is due, with interest and any damages occasioned thereby, but it does not
authori9e the other partners to see% rescission of the partnership contract under Article 11-1
of Civil Code, since the remedies are provided for in particular under now Arts. 1+86 to 1+88 of
Civil Code. Sancho v. "i0arraga, 00 *hil. 6)1 ,1-21..
A partner who promises to contribute to a partnership becomes a promissory debtor of the
partnership, including liability for interests and damages caused for failure to pay, and which
amounts may be deducted upon dissolution of the partnership from his share in the profits and
net assets. !o-as v. Maglana, 1-! #C/A 11) ,1--)..
(2
6. O$ R!0&8!(1 &" D!=-$5-62! S@= 'A(%. 1:>2+.
0. O$ R!0!#8#$/ P-(%$!(.3#4 C(!5#%. 'A(%. 1:>9+.
5. A. %& T3#(5 P!(.&$. D!-2#$/ C#%3 %3! P-(%$!(.3#4.
4. FIDUCIARY DUTIES OF PARTNERS
-. DUTY OF DILIGENCE 'A(%. 1:>4+
6. DUTY TO ACCOUNT 'A(%. 1)0:+
0. DUTY OF LOYALTY?
Capitalist %artners Cannot !n-a-e for 1heir Own #ccount in Si'ilar
%artnership $usiness 'A(%. 1)0)+
0ndustrial %artner Cannot !n-a-e in #ny For' of $usiness 'A(%. 1:)>+
%artners in General Cannot !n-a-e in Co'petitive $usiness
1hen the partnership has been terminated, the former partners are no longer prohibited in
pursuing the same business as that for which the partnership was constituted. alon v.
aussermann, () *hil. +-6 ,1-!)..
1hen partnership real property had been mortgage and foreclosed, the redemption by any of
the partners, even when using his separate funds, does not allow such redemption to be in his
sole favor. Catalan v. %atchalian, 1)0 *hil. 1!+) ,1-0-.$ ,irector of "ands v. "ope Al)a, B'116(8,
!! April 1-0-, 1)0 *hil. !1+1.
An industrial partner is not deemed to have violated his fiduciary duties to the other partners
by having delivered on the particular service re4uired of her and devoting her time serving in the
Mudiciary which is not considered to be engaged in an activity for profit. !van-elista & Co. v.
#bad Santos, 51 SCRA 41* '1>:9+.
Qormer partners have no obligation to account on how they ac4uired properties in their names,
when such ac4uisition were effected long after the partnership had been automatically dissolved
as a result of the death of the primary managing partner, especially in the absence of clear proof
that they had violated the trust of managing partner during the e&istence of the partnership. "im
/anhu v. !emolete, 66 #C/A (!0 ,1-+0..
1hen a partner engages in a separate business enterprise that is competitive with that of the
partnership, the other partner>s withdrawal from the partnership becomes thereby Mustified and for
which the latter cannot be held liable for damages. !o-as v. Maglana, 1-! #C/A 11) ,1--)..
5. PARTNERSL UNLIMITED LIAILITY
-. P-(%$!(. L#-62! %roRata C#%3 T3!#( S!4-(-%! P(&4!(%#!. A"%!( P-(%$!(.3#4 A..!%. H-8!
!!$ EE3-@.%!5, "&( A22 P-(%$!(.3#4 D!6%.. 'A(%. 1)1*, 0sland Sales+ 0nc. v. (nited
%ioneers General Construction Co.+ *5 SCRA 554 ;1>:5<+.
#ny Stipulation #-ainst %ersonal )iability of %artners for %artnership ,ebts 0s 4oid+
!xcept as #'on- 1he'selves 'A(%. 1)1:+.
6. A22 P-(%$!(. L#-62! S&2#5-(#21 C#%3 P-(%$!(.3#4 "&( E8!(1%3#$/ C3-(/!-62! %& %3!
P-(%$!(.3#4 W3!$ C-@.!5 1?
6ron-ful #ct or O'ission of #ny %artner #ctin-
o in the Ordinary Course of $usiness of the %artnership? or
o with #uthority fro' the Other %artners and
%artner8s #ct or Misapplication of %roperties. 'A(%. 1)24+
43
!eiterated in Moran# .r. v. Court of Appeals, 122 #C/A 88 ,1-8(..
*artner>s liability for employees claims. "iwanag and !eyes v. 2or'menAs Compensation
Commission, 1)0 *hil. +(1 ,1-0-..
0. N!C21 A5=#%%!5 P-(%$!( #$%& -$ EE#.%#$/ P-(%$!(.3#4 I. L#-62! O$21 O@% &" P-(%$!(.3#4
P(&4!(%1 S3-(!. -$5 C&$%(#6@%#&$., "&( A22 %3! O62#/-%#&$. &" %3! P-(%$!(.3#4 A(#.#$/
!"&(! H#. A5=#..#&$ 'A(%. 1)2*+.
5. P-(%$!(.3#4 C(!5#%&(. A(! P(!"!((!5 %& T3&.! &" E-03 &" %3! P-(%$!(. -. R!/-(5. %3!
P-(%$!(.3#4 P(&4!(%1. 'A(%. 1)2:+.
*. R!2-%#&$. -$5 D!-2#$/. C#%3 T3#(5 P!(.&$.
-. R!4(!.!$%-%#&$ -. - P-(%$!( %& T3#(5 P-(%#!. 'A(%. 1)25+.
VII. DISSOLUTION, WINDING-UP, AND TERMINATION OF PARTNERSHIP
1. N-%@(! -$5 E""!0%. &" D#..&2@%#&$
/ermination of a partnership is the point in time after all the partnership affairs have been
wound up. 0dos v. Court of #ppeals, 2>* SCRA 1>4 '1>>)+.
((
-. A. %& %3! R!2-%#&$.3#4 &" %3! P-(%$!(. 'A(%.. 1)2) -$5 1)92+
#ince a partnership has a separate Muridical personality, then upon its dissolution, the
withdrawing partners have no cause of action to demand the return of their e4uity from the other
partners$ it is the partnership that must refund the e4uity of the retiring partners. 6n other words, it
can only pay out of what it has in its coffers, which consists of all its assets. Fowever, before the
partners can be paid their shares, the creditors of the partnership must first be compensated$
whatever is left thereafter becomes available for the payment of the partners> shares. 4illareal
v. Ra'ire*+ 40* SCRA 145 '2009+.
6. O$ %3! P-(%$!(.3#4 I%.!2" 'A(%. 1)2>+
An action to dissolve the partnership and for the appointment of a receiver for the purpose
must include the partnership since it is entitled to be heard in matters affecting its e&istence as
well as the appointment of a receiver. Claudio v. Gandueta, *4 P3#2. )12 '1>9:+.
0. O$ %3! A@%3&(#%1 &" %3! P-(%$!(. 'A(%.. 1)92, 1)99 -$5 1)94+
5. O$ %3! L#-6#2#%#!. &" %3! P-(%$!(. 'A(%. 1)95+
'#+ (pon ,issolution of the %artnership+ %artners Shall Contribute the #'ounts
&ecessary to Satisfy the %artnership )iabilities. 'A(%. 1)9>;4< -$5 ;:<+
A partnership guilty of an act of insolvency may be proceeded against and declared
ban%rupt in insolvency proceedings despite the solvency of each of the partners composing it.
Campos !ueda & Co. v. Pacific Commercial Co., (( *hil. -16 ,1-!!..
2. T14!. 'C-@.!.+ &" D#..&2@%#&$ 'A(%.. 1)90 -$5 1)40+
-. N&$-J@5#0#-2 D#..&2@%#&$ 'A(%.. 1)90, 1)99, -$5 1)40;1<+
'#+ W#%3&@% V#&2-%#&$ &" %3! P-(%$!(.3#4 A/(!!=!$%?
!xpiration of 1er' or (nderta2in-
$y the !xpress 6ill of a %artner in a %artnership at 6ill
Mutual #ssent of the %artners
!xpulsion of a %artner %ursuant to an #-ree'ent Grantin- Such Ri-ht
"he legal effect of the changes in the membership of the partnership would be the
dissolution of the old partnership. 1u v. >"!C, !!( #C/A +0 ,1--2..
1hen a new member is accepted into an e&isting partnership, legally there has been a
dissolution of the old and a formation of a new partnership. +llingson v. 2als# OAConnor &
&arneson, 1)( *. !d 0)+ ,1-()..
'##+ I$ C&$%(-8!$%#&$ &" A/(!!=!$% 'A(%.. 1)2* -$5 1)90;2<+
A mere falling out or misunderstanding among the partners does not convert the
partnership into a sham organi9ation, since the partnership e&ists and is dissolved under the
44
citing *aras, Civil Code of the *hilippines, Iol. I, +th ed., p. 016.
law. Mu@a9ue v. Court of #ppeals, 19> SCRA 599, 540 '1>)5+$ 1ocao v. Court of
#ppeals, 942 SCRA 20, 9: '2000+.
*artners who effect a dissolution by his withdrawal in contravention of an agreement
renders himself liable for damages which may be deducted from his partnership account, and
he loses his right to wind'up. !o-as v. Maglana, 1-! #C/A 11) ,1--)..
'###+ 1 O4!(-%#&$ &" L-C 'A(%. 1)90+
Supervenin- 0lle-ality
)oss of Specific 1hin- Contributed
,eath+ 0nsolvency or Civil 0nterdiction of a %artner
Absence of any clear stipulation, the acceptance bac% of part of the contribution by the
partner does not necessarily mean his withdrawal from, or dissolution of, the partnership.
3ernande0 v. ,ela !osa, 1 *hil. 6+1 ,1-)!..
"he death of one of the partners dissolves the partnership, but that the li4uidation of its
affairs is by law entrusted not to the e&ecutors of the deceased partner, but to the surviving
partners or to the li4uidators appointed by them. 2ahl v. ,onaldson Sim & Co.# 0 *hil. 11
,1-)0.$ %uidote v. &or-a, 02 *hil. -)) ,1-!8..
A particular partnership is dissolved by the death of one of its partners there being no
stipulation in the contract of partnership of its subsistence after the death of a partner, and it
thereby attains the status of a partnership in li4uidation, and only the rights inherited by the
heirs of the deceased partner were those resulting from the said li4uidation and nothing more.
6f there would be a continuation of the partnership a clear agreement on meeting of the minds
must be made, otherwise, a new partnership arrangement cannot be presumed to have arisen
among the heirs and the remaining partners. &earne0a v. ,e<uilla, (2 *hil. !2+ ,1-!!..
6n e4uity, surviving partners are treated as trustees of the representatives of the deceased
partner, in regard to the interest of the deceased partner in the firm. As a conse4uence of this
trusteeship, surviving partners are held in their dealings with the firm assets and the
representatives of the deceased to that nicety of dealing and that strictness of accountability
re4uired of and incident to the position of one occupying a confidential relation. 6t is the duty of
surviving partners to render an account of the performance of their trust to the personal
representatives of the deceased partner, and to pay over to them the share of such deceased
member in the surplus of firm property, whether it consists of real or personal assets. %uidote
v. &or-a, 02 *hil. -)) ,1-!8..
6. J@5#0#-2 D#..&2@%#&$ 'A(%.. 1::0 -$5 1)91+
"he courts can dissolve a partnership without formal application when the continuation of the
partnership has become ine4uitable. 3ue "eung v. $AC, 16- #C/A +(6 ,1-8-..
#ustaining of losses is valid basis to dissolve the partnership. Moran# .r. v. Court of Appeals,
122 #C/A 88 ,1-8(..
Qrom the foregoing provision, it is evident that ,t.he transfer by a partner of his partnership
interest does not ma%e the assignee of such interest a partner of the firm, nor entitle the assignee
to interfere in the management of the partnership business or to receive anything e&cept the
assignee=s profits. "he 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.8 Realubit v. "aso, *5)
SCRA 14* '2011+.
9. W#$5#$/-@4 &" %3! P-(%$!(.3#4 @.#$!.. E$%!(4(#.!
2inding-up as the process of settling business affairs after dissolution,
(0
and it cites as
e&amples of winding'up process, the following3 <&amples of winding up3 the paying of previous
obligations$ the collecting of assets previously demandable$ even new business if needed to wind
up, as the contracting with a demolition company for the demolition of the garage used in a Rused
car> partnership. $dos v. Court of Appeals, !-6 #C/A 1-( ,1--8..
Although the dissolution of a partnership is caused by any partner withdrawing from the
partnership, nonetheless the partnership is not terminated but continuous until the winding up of
the business. Singson v. $sa)ela Sawmill, 88 #C/A 6!2 ,1-+-..
45
$dos v. Court of Appeals, !-6 #C/A 1-( ,1--8..
"he legal personality of an e&piring partnership persists for the limited purpose of winding'up
and closing its affairs. 1u v. >"!C, !!( #C/A +0 ,1--2..
-. #$5#$/ A@%3&(#%1 &" P-(%$!(. A"%!( D#..&2@%#&$ 'A(%. 1)94+
6. W3& H-. A@%3&(#%1 %& W#$5-U4 'A(%. 1)9*+
6. D#.03-(/! &" L#-6#2#%#!. 'A(%.. 1)95 -$5 1)9:+
0. W3!$ T3!(! #. F(-@5 &( M#.(!4(!.!$%-%#&$ 'A(%. 1)9)+
5. M-$$!( &" S!%%2#$/ A00&@$%. A=&$/ %3! P-(%$!(. 'A(%. 1)9>+
As a general rule, when a partner retires or withdraws from the partnership, he is entitled to
the payment of what may be due him after li4uidation. ?ut no li4uidation is necessary where there
was already a settlement or an agreement as to what the retiring partner shall receive, and the
latter was in fact reimbursed pursuant to the agreement. &onnevie v. ernande0, -0 *hil. 1+0
,1-0(..
"he managing partner cannot be held personally liable for the payment of partners> shares, for
he does not hold them e&cept as a manager, of, or trustee for, the partnership. 6t is the
partnership that must refund their shares to the retiring partners. Magdusa v. Al)aran, 0 #C/A
011 ,1-6!..
A partner>s share cannot be returned without first dissolving and li4uidating the partnership, for
the return is dependent on the discharge of the creditors, whose claims enMoy preference over
those of the partners$ and it is self'evident that all members of the partnership are interested in
his assets and business, and are entitled to be heard in the matter of the firm>s li4uidation and the
distribution of its property. Magdusa v. Al)aran, 0 #C/A 011 ,1-6!..
"he right to accounting does not prescribe during the life of the partnership, and that
prescription begins to run only upon the dissolution of the partnership and final accounting is
done. 3ue "eung v. $AC, 16- #C/A +(6 ,1-8-..
6t is wrong to presume that the total capital contribution in a partnership is e4uivalent to the
gross assets to be distributed to the partners at the time of dissolution of the partnership. 1e
cannot sustain the underlying idea that the capital contribution at the beginning of the partnership
remains intact, unimpaired and available for distribution or return to the partners. #uch idea is
speculative, conMectural and totally without factual or legal support. Henerally, in the pursuit of a
partnership business, its capital is either increased by profits earned or decreased by losses
sustained$ it does not remain static and unaffected by the changing fortunes of the business.
1hen partners venture into business together, they should have prepared for the fact that their
investment would either grow or shrin%. 4illareal v. Ra'ire*+ 40* SCRA 145 '2009+.
!. C2-#=. &" C(!5#%&(. 'A(%. 1)40+
Qailure of a partner to have published her withdrawal from the partnership, and her agreeing to
have the remaining partners proceed with running the partnership business instead of insisting on
the li4uidation of the partnership, will not relieve such withdrawing partner from her liability to the
partnership creditors. <ven if the withdrawing partner acted in good faith, this cannot overcome
the position of partnership creditors who also acted in good faith, without %nowledge of her
withdrawal from the partnership. "hus, when the partnership e&ecutes a chattel mortgage over its
properties in favor of a withdrawing partner, and the withdrawal was not published to bind the
partnership creditors, and in fact the partnership itself was not dissolved but allowed to be
operated as a going concern by the remaining partners, the partnership creditors have standing
to see% the annulment of the chattel mortgage for having been entered into adverse to their
interests. Sin-son v. 0sabela Saw'ill, )) SCRA *29 '1>:>+.
1hen new partners continue the same partnership business which has been dissolved by the
withdrawal of its original partners, the new partnership is liable for the e&isting liabilities of the
business enterprise even when they were incurred under the old partnership arrangement, as
clearly governed under the provisions of Article 18() of the Civil Code. Fowever, the new
partnership is not compelled to retain the services of the managers and employees of the old
partnership and may choose their personnel. 1u v. >"!C, !!( #C/A +0 ,1--2..
". E""!0% &$ D!0!-.!5 &( R!%#(#$/ P-(%$!( W3!$ P-(%$!(.3#4 @.#$!.. C&$%#$@!5 A"%!(
D#..&2@%#&$ 'A(%. 1)41+.
'#+ Ri-ht of !xpelled %artner 'A(%. 1)95+
/. R#/3% %& R!0!#8#$/ P(&4!( A00&@$% "&( P-(%$!(.3#4 I$%!(!.% 'A(%. 1)42+
"he right to accounting does not prescribe during the life of the partnership, and that
prescription begins to run only upon the dissolution of the partnership and final accounting is
done. 3ue "eung v. $AC, 16- #C/A +(6 ,1-8-..
3. R#/3% %& C&$%#$@! @.#$!.. W3!$ P-(%$!(.3#4 W(&$/"@221 D#..&28!5 'A(%. 1)9:;2<+
VIII. LIMITED PARTNERSHIPS
1. O(#/#$, C&$0!4% -$5 P@(4&.! 'A(%. 1)49+
See excerpts from #'es v. ,ownin-, N.Y. S@((. C#%. reproduced in ?AU"6#"A, "/<A"6#< 75
*F6B6**65< *A/"5</#F6* BA1, 1--0 ed., at pp. 226'!!+..
"he provisions of the Civil Code on limited partnership were ta%en from the Uniform Bimited
*artnership Act. See annotations in "7B<5"657, C6I6B C7@< 7Q "F< *F6B6**65<#, Iol I. at pp. 28!'
2-0 ,1--! ed..
2. F&(=-%#&$ -$5 S%-%@%&(1 R!I@#(!=!$%.
-. R!I@#(!=!$%. "&( F&(=-%#&$ 'A(%.. 1)44 -$5 1)*:+
*rohibition against formation of a universal partnership among spouses does not apply when
the partners entered into a limited partnership, the man being the general partner and the woman
being the limited partner, and a year later the two get married. Co''issioner of 0nternal
Revenue v. Suter, 2: SCRA 152 '1>*>+.
6. SC&($ C!(%#"#0-%! &" L#=#%!5 P-(%$!(.3#4 F#2!5 C#%3 SEC 'A(%. 1)45+
%artnership &a'e #dded the word .)i'ited/
o N-=! &" %3! 2#=#%!5 4-(%$!( 0-$$&% -44!-( #$ %3! 4-(%$!(.3#4 $-=! 'A(%.
1)4*+
Character and )ocation of $usiness
On the %artners=
o N-=! -$5 (!.#5!$0! &" !-03 /!$!(-2 -$5 2#=#%!5 4-(%$!(. 6!#$/ (!.4!0%#8!21
5!.#/$-%!5
o A=&@$%D5!.0(#4%#&$ &" 0&$%(#6@%#&$., -$5 5!%-#2. &" "@%@(! 0&$%(#6@%#&$. #"
-$1 %& 6! =-5! 61 2#=#%!5 4-(%$!(., -$5 C3!$ 0&$%(#6@%#&$. (!%@($!5
o S3-(!. &" 4(&"#%., -$5 0&=4!$.-%#&$ 61 C-1 &" #$0&=! &" 2#=#%!5 4-(%$!(.
o R#/3% &" .@6.%#%@%#&$ &( -..#/$=!$% 61 2#=#%!5 4-(%$!(.
o A5=#..#&$ &" -55#%#&$-2 2#=#%!5 4-(%$!(.
o P(#&(#%1 (#/3%. &8!( &%3!( 2#=#%!5 4-(%$!(.
o R#/3% &" (!=-#$#$/ /!$!(-2 4-(%$!(. %& 0&$%#$@! 6@.#$!.. @4&$ 5!-%3,
(!%#(!=!$%, 0#8#2 #$%!(5#0%#&$, #$.-$#%1 &( #$.&28!$01 &" - /!$!(-2 4-(%$!(
o R#/3% &" 2#=#%!5 4-(%$!(. %& 5!=-$5D(!0!#8! 4(&4!(%1 &%3!( %3-$ 0-.3 #$
(!%@($ "&( 3#. 0&$%(#6@%#&$
0. D&0%(#$! &" S@6.%-$%#-2 C&=42#-$0! 'A(%. 1)44, 2-.% 4-(.+
#ubstantial, rather than strict, compliance in good faith with the legal re4uirements is all that is
necessary for the formation of a limited partnership$ otherwise, when there is not even substantial
compliance, the partnership becomes a general partnership as far as third persons are
concerned. "o Chun- Can- v. %acific Co''ercial Co.+ 45 P3#2. 142 '1>29+.
5. E""!0%. &" F-#2@(! %& C&=421 C#%3 R!/#.%(-%#&$ R!I@#(!=!$%.
A limited partnership that does not comply with the registration re4uirements shall be treated
as a general partnership in which all the members are liable for partnership debts. "o Chun-
Can- v. %acific Co''ercial Co., 45 P3#2. 142 '1>29+.
!. E""!0%. &" F-2.! S%-%!=!$% #$ C!(%#"#0-%! 'A(%. 1)4:+
". A=!$5=!$% &" C!(%#"#0-%! 'A(%.. 1)*4 -$5 1)*5+
9. R#/3%., P&C!(., R!.%(#0%#&$. -$5 L#-6#2#%#!. &$ P-(%$!(.
-. G!$!(-2 P-(%$!( 'A(%. 1)50+ Allen v. Stein)erg, !!2 A. d !() ,1-66.$ Mist Properties# $nc. v.
3it0simmons !ealty Co., !!8 5.D.#. d ()6 ,1-6!..
6. L#=#%!5 P-(%$!(. -% F&(=-%#&$ 'A(%.. 1)4), 1)51, 1)54+
Contributions May $e CashC%roperty $ut &ot Services 'A(%. 1)45+
%riority #-ree'ents #'on- )i'ited %artners 'A(%. 1)55+
Stipulation on %rofits and Co'pensation 'A(%. 1)5*+. orn v. &uilder Supply
Company of "ongview, ()1 #.1. d. ,1-66..
Stipulation on 6hen Contribution Received 'A(%. 1)5:+
)iabilities to the %artnership 'A(%. 1)5)+
#dditional )i'ited %artners 'A(%. 1)4>+
.#ssi-nability/ of Ri-hts 'A(%. 1)5>+
&o Standin- to Sue for %artnership 'A(%. 1)**+
Bimited partners have a right to be informed and to formal accounting. !iviera Con)ress
Associates v. 1ass'y, !0 A.@. d !1, !68 5.D.#. d. 80( ,1-66..
Bimited partner may loan money to the partnership. ughes v. @ash, 2)- Q.d ,1-6!.$ A./.+.
3inancial Services# $nc. v. Corson# !68 A. d +2 ,1-+)..
0. L#-6#2#%1 &" O$! !2#!8#$/ H#=.!2" %& ! L#=#%!5 P-(%$!( 'A(%. 1)52+. 4idric'sen v. %rover,
262 Q. d 2+! ,1-66.$ %iles v. 4ette, !62 U.#. 002, 68 B..<d. ((1 ,1-!(.$ %ilman Paint &
4arnish Co. v. "egum, 8) A.d -)6 ,1-61..
5. G!$!(-2 P-(%$!( A2.& -. L#=#%!5 P-(%$!( 'A(%. 1)59+
4. D#..&2@%#&$ -$5 W#$5#$/ U4
-. C-@.!. A""!0%#$/ %3! G!$!(-2 P-(%$!( 'A(%. 1)*0+
6. C-@.!. P!(%-#$#$/ %& %3! L#=#%!5 P-(%$!( 'A(%.. 1)*1 -$5 1)*4+ ol0man v. ,e +scamilla,
1-0 *. d 822 ,1-(8..
0. D!-2#$/. &" L#=#%!5 P-(%$!(. C#%3 P-(%$!(.3#4 A""-#(.. Plasteel Products Corp v. elman,
!+1 Q. d 20( ,1-0-.$ 2eil v. ,iversified Properties, 21- Q.#upp. ++8 ,1-+).$ Silvola v. /owlett,
!+! *.d. !8+ ,1-0(..
5. A442#0-%#&$ &" - C(!5#%&( &" L#=#%!5 P-(%$!( 'A(%. 1)*2+
!. S!%%2!=!$% &" A00&@$%. 'A(%. 1)*9+
Creditors preferred over limited partners. >exsen v. >ew 1or' Stoc' +xchange, !61 5.D.#.
+8) ,1-60.$ Chalmers v. 2eed, !0 5.D.#. d. 1-0 ,1-(1.
IK. SEC JURISDICTION ON PARTNERSHIP MATTERS
1. S!0.. 5 -$5 *, P(!.. D!0(!! N&. >02-A
2. S!0%#&$ 5.1 &" %3! S!0@(#%#!. R!/@2-%#&$ C&5! 'R.A. N&. ):>>+
9. I$%!(#= R@2!. &" P(&0!5@(! "&( I$%(--C&(4&(-%! D#.4@%!.
D. JOINT VENTURES
I. JOINT VENTURES ARE SPECIES OF PARTNERSHIP
1hen a Contract of Bease mandates contribution into the venture on the part of the purported
lessee, and ma%es the lessee participate not only in the revenues generated from the venture, and
in fact absorb most of the ris%s involved therein, then a Moint venture arrangement has really been
constituted between the purported lessor and lessee, since under the Baw on *artnership, whenever
there is an agreement to contribute money, property or industry to a common fund, with an
agreement to share the profits and losses therein, then a partnership arises. >ilosbayan+ 0nc. v.
Guin-ona+ "r., 292 SCRA 110 '1>>4+.
6n the *hilippines, the prevailing school of though is that a Moint venture is a species of
partnership. eirs of /an +ng =ee v. Court of Appeals, 2(1 #C/A +() ,!)))..
(6
1hen the purported primary venturer in a consortium ,which is an association of corporation
bound in a Moint venture arrangement. declares unilaterally that the other four members are part of a
consortium, but there is no affirmation from any of the other members, nor is there a showing of a
46
!eiterated in Primelin' Properties and ,ev. Corp. v. "a0atin-Magat, (-2 #C/A ((( ,!))6.$ $nformation /echnology 3oundation
of the Philippines v. COM+"+C, (1- #C/A 1(1 ,!))(..
community of interest, a sharing of ris%s, profits and losses in the proMect bidded for, then there is
really no Moint venture constituted among them, lac%ing the essential elements of what ma%es a
partnership. 0nfor'ation 1echnolo-y Foundation of the %hilippines v. COM!)!C, 41> SCRA
141 '2004+.
Henerally understood to mean an organi9ation formed for some temporary purpose, a Moint
venture is li%ened to a particular partnership or one which 8has for its obMect determinate things, their
use or fruits, or a specific underta%ing, or the e&ercise of a profession or vocation.8 "he rule is settled
that Moint ventures are governed by the law on partnerships which are, in turn, based on mutual
agency or delectus personae. Realubit v. "aso, *5) SCRA 14* '2011+.
II. JOINT VENTURE AGREEMENT 'JVA+ MUST E CONSTRUED AND
ENFORCED AS A CONTRACT ETWEEN AND AMONG CO-VENTURERS
1hen a Loint Ienture Agreement has been e&ecuted among the co'venturers covering the
terms for the development of a subdivision proMect, the contributions of the co'venturers and the
manner of distribution of the profits, a partnership has been duly constituted under Art. 1+6+ of Civil
Code, and although no inventory was prepared covering the parcels of land contributed to the
venture, much less was a certificate of registrations filed with the #<C, the partnership was not void
because ,a. Art. 1++2 is intended for the protection of the partnership creditors and cannot be
invo%ed when the issue is between and among the partners$ and ,b. the alleged nullity of the
partnership will not prevent courts from considering the LIA as an ordinary contract form which the
parties rights and obligations to each other may be inferred and enforced. 1orres v. Court of
#ppeals, 920 SCRA 42) '1>>>+.
III. TYPES OF JOINT VENTURE ARRANGEMENTS
1. I$"&(=-2 &( C&$%(-0%@-2 JV A((-$/!=!$% W#%3&@% - S!4-(-%! F#(=
,#<C 7pinion, !! @ecember 1-66, #<C Q7B67 1-6)'1-+6$ #<C 7pinion, !-
Qebruary 1-8)$ #<C 7pinion, )2 #ept. 1-8(..
1hen the principal and the agent have entered into a power of attorney covering a construction
proMect, with the principal contributing thereto his contractor>s license and e&pertise, while the agent
would provide and secure the needed funds for labor, materials and services, deal with the suppliers
and sub'contractors$ and in general and together with the principal, oversee the effective
implementation of the proMect, for which the principal would receive as his share 2: of the proMect
cost while the rest of the profits shall go to the agent, the parties have in effect entered into a
partnership, and the revocation of the powers of management of the agent is deemed a breach of
the contract. Mendo*a v. %aule+ 5:> SCRA 94> '200>+.
Although the parties e&ecuted the instrument as a *ower of Attorney and referred to
themselves as *rincipal and Ganager, the contractual relationship created was not that of Agency
or Ganagement Contract. A e&amination of the R*ower of Attorney> reveals that a partnership or
Moint venture was indeed intended by the parties. Under a 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. 1hile a corporation, li%e petitioner, cannot
generally enter into a contract of partnership unless authori9ed by law or its charter, it has been held
that it may enter into a Moint venture which is a%in to a particular partnership relationship3 & & &
*erusal of the agreement denominated as the R*ower of Attorney> indicates that the parties had
intended to create a partnership and establish a common fund for the purpose. "hey also had a Moint
interest in the profits of the business as shown by a 0)'0) sharing in the income of the mine.
%hilex Minin- Corp. v. Co''issioner of 0nternal Revenue, 551 SCRA 42) '200)+.
6n an informal Moint venture arrangement, because no separate firm or business enterprise has
been constituted as to the dealing public, then the effects of the attributes of mutual agency and
unlimited liability are not made to apply with respect to creditors.1rave@o v. $obon-on $anana
Growers Multi%urpose Cooperative, 5>) SCRA 2: '200>+.
2. A. - F&(= &" P-(%$!(.3#4 %& P@(.@! %3! E$%!(4(#.! -. - F#(=
<ven when the wording of the instrument does not clearly provide for an option, and not a
obligation, on the part of one of the co'venturers to ma%e contributions into the business enterprise,
will not detract from the legal fact that they constituted a partnership between themselves. "he
wording of the parties> agreement as to petitioner>s contribution to the common fund does not detract
from the fact that petitioner transferred its funds and property to the proMect as specified in paragraph
0, thus rendering effective the other stipulations of the contract, particularly paragraph 0,c. which
prohibits petitioner from withdrawing the advances until termination of the parties> business relations.
As can be seen, petitioner became bound by its contributions once the transfers were made. "he
contributions ac4uired an obligatory nature as soon as petitioner had chosen to e&ercise the option.
%hilex Minin- Corp. v. Co''issioner of 0nternal Revenue, 551 SCRA 42) '200)+.
A Moint venture being a form of partnership, it is to be governed by the Baw on *artnerships. 6n
the LIA, the parties agreed on a 0)'0) ratio on the proceeds of the proMect, although they did not
provide for the splitting of losses, which therefore puts into application Art. 1+-+3 the same ratio
applies in splitting the obligation'loss of the Moint venture. "he appellate court=s decision must be
modified, however, there being a Moint venture, there is no need for Hotesco to reimburse Garsman
@rysdale for 0): of the aggregate sum due to *H6 since not allowing Garsman @rysdale to
recover from Hotesco what it paid to *H6 would not only be contrary to the law on partnership on
division of losses but would parta%e of a clear case of unMust enrichment at Hotesco=s e&pense.
Mars'an ,rysdale )and# 0nc. v. %hilippine Geoanalytics# 0nc., *22 SCRA 2)1 '2010+.
A Moint venture is considered in this Murisdiction as a form of partnership and is, accordingly,
governed by the law of partnerships. Under Art. 18!( of Civil Code, all partners are solidarily liable
with the partnership for everything chargeable to the partnership, including loss or inMury caused to a
third person or penalties incurred due to 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. 1hether
innocent or guilty, all the partners are solidarily liable with the partnership itself. ". 1iosejo
0nvest'ent Corp. v. #n-, *90 SCRA 994 '2010+.
9. T3(&@/3 - J&#$% V!$%@(! C&(4&(-%#&$
"he manner of nomination of the members of the ?oard of @irectors provided in the Loint
Ienture Agreement must be made effective and reconciled with the statutory provision on
cumulative voting made applicable by the Corporation Code to stoc% corporations. #urbach v.
Sanitary 6ares Mnf-. Corp., 1)0 SCRA 190 '1>)>+.
A right of first refusal agreed to by the Hovernment in the Loint Ienture Agreement entered into
with its co'venturer must be made to apply and be binding to the Hovernment and the bidder at a
public bidding held on the shares of the Moint venture corporation constituted pursuant to the
agreement. "G Su''it 5oldin-s+ 0nc. v. Court of #ppeals, 412 SCRA 10 '2009+.
4. REVISED GUIDELINES AND PROCEDURES FOR ENTERING INTO JOINT VENTURE
'JV+ AGREEMENT ETWEEN GOVERNMENT AND PRIVATE ENTITIES PER
SECTION ) OF E.O. 429
4:
,5<@A Circular approved on )2 Gay !)12.
-. D!"#$#%#&$ &" ."oint 4enture/ M
5.: J&#$% V!$%@(! 'JV+. An arrangement whereby a private sector entity or a group of private
sector entities on one hand, and a Hovernment <ntity or a group of Hovernment <ntities on the
other hand, contribute moneyOcapital, services, assets ,including e4uipment, land, intellectual
property or anything of value., or a combination of any or all of the foregoing to underta%e an
investment activity. "he investment activity shall be for the purpose of accomplishing a
specific goal with the end view of facilitating private sector initiative in a particular industry or
sector, and eventually transfer the activity to either the private sector under competitive mar%et
conditions or to the government. "he LI involves a community or pooling of interests in the
performance of the investment activity, and each party shall have the right to direct and govern
the policies in connection therewith with the intention to share both profits and, ris%s and losses
subMect to agreement by the parties. A LI may be a Contractual LI or a Corporate LI ,LI
Company..
6. D!"#$#%#&$ &" .Contractual "4/ M
5.9 C&$%(-0%@-2 JV. A legal and binding agreement under which the LI *artners shall perform
the primary functions and obligations under the LI Agreement without forming a LI Company.
0. D!"#$#%#&$ &" ."4 Co'pany/ M
5.) JV C&=4-$1. A stoc% corporation incorporated and registered in accordance with the
provisions of ?atas *ambansa ?ilang 68, otherwise %nown as the Corporation Code of the
*hilippines, as amended, and based on the prevailing rules and regulations of the #ecurities
and <&change Commission ,#<C. of which fifty percent ,0):. or less of the outstanding
capital stoc% is owned by the government. "he LI Company shall be registered by the LI
partners that shall perform the primary functions and obligations of the LI as stipulated under
the LI Agreement. "he LI Company shall possess the characteristics stipulated under these
Huidelines.
IV. TAK RECOGNITION AND TREATMENT OF JOINT VENTURES
47
http3OOwww.neda.gov.phOreferencesOHuidelinesO!)12:!)/evised:!)LI:!)Huidelines.pdf
1. G!$!(-221, - J&#$% V!$%@(!, L#A! - P-(%$!(.3#4 I. T(!-%!5 -. C&(4&(-%! T-E4-1!(.
2. A JV C&$.&(%#@= U$5!(%-A#$/ C&$.%(@0%#&$ P(&7!0%. &( E$/-/#$/ #$ P!%(&2!@=, C&-2,
G!&%3!(=-2 -$5 O%3!( E$!(/1 O4!(-%#&$. P@(.@-$% %& -$ O4!(-%#$/ &( C&$.&(%#@=
A/(!!=!$% @$5!( - S!(8#0! C&$%(-0% C#%3 %3! G&8!($=!$%, S3-22 N&% ! T-E!5 S!4-(-%!21
-. - C&(4&(-%! T-E4-1!(. 'S!0. 22'+, NIRC &" 1>>:+
No7oN
UPDATED? 0: MAY 2014 M SCRA :0:

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