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ESSENTIAL FEATURES: (6) Can enter into a joint venture with another when the
nature of the venture is in line with the business
1. EXISTENCE OF A VALID CONTRACT: authorized by its charter
Articles of Partnership states the name, nature / purpose, 1. Money currency which is legal tender in the PH;
location of firm, defining the powers, rights, duties, and checks, drafts, promissory notes payable to order are
liabilities of each partner not considered money.
2. Property real / personal, corporeal / incorporeal; credit
REQUISITES:
or promissory note are considered property
1. Consent and capacity of contracting parties 3. Industry active cooperation; services
2. Object which is the subject matter of the contract
3. Cause which is established A limited partner cannot contribute mere industry or
4. There must be valid consideration between partners services
Should be distinguished from a lessor of services
DELECTUS PERSONAE where mutual agency arises; (who is subject to the supervision of the other
allows them to have the power, not necessarily the right, to partners)
dissolve partnership (in good faith); involves trust and Proof of contribution proof is necessary with the
confidence between partners. intention of dividing the income / profits obtained
No one can become a member without the consent of
4. THERE MUST BE LAWFUL OBJECT:
all the other partners; has a fiduciary nature
The presence of a period for a specific duration or Effect of illegality no partnership can arise as the contract
statement of a particular purpose for its creation cannot is inexistent and void ab initio
prevent the dissolution of a partnership by an act or will
of a partner 5. PURPOSE IS TO OBTAIN PROFITS AND DIVIDE THE
Principle of Estoppel a partnership liability can be SAME AMONG PARTIES:
imposed upon a person under estoppel where he holds
Very reason of existence the idea of pecuniary profit or
himself out, or permits himself to be held out, as a gain should be principal, but not necessarily exclusive aim.
partner in an enterprise; there is no actual or legal
partnership relation but merely a partnership liability by
law in favor of 3rd persons.
2|PARTNERSHIP, AGENCY AND TRUST
1770: 1773:
OBJECT OR PURPOSE OF PARTNERSHIP: CONTRIBUTION OF IMMOVABLE PROPERTY:
b. PARTNERSHIP WITH A FIXED TERM existence is GR: property acquired by inheritance, legacy or donation
fixed or agreed upon or formed for a particular cannot be included by stipulation
undertaking
XPN: fruits thereof
4. AS TO LEGALITY: (2) Profits from other sources will become common
a. DE JURE PARTNERSHIP complied with all legal property only if there is a stipulation
requirements for its establishment
b. DE FACTO PARTNERSHIP failed to comply
1780:
5. AS TO REPRESENTATION TO OTHERS: (2) UNIVERSAL PARTNERSHIP OF PROFITS:
a. ORDINARY / REAL PARTNERSHIP one which
actually exist among the partners and also to 3rd 1. Partners retain their ownership over their present and
persons future property
b. OSTENSIBLE / BY ESTOPPEL in reality is not a 2. What is owned by the partnership are the profits,
partnership, but has partnership liability income, use of usufruct of the same
Profits acquired through chance (lottery) are not
6. AS TO PUBLICITY: (2) included
a. SECRET PARTNERSHIP existence to certain GR: fruits of property subsequently acquired do not belong
persons as partners is unknown to public / any of to the partnership
the partners
b. OPEN / NOTORIOUS existence is known to public XPN: if included by express stipulation
1777 1779: Where partners retained their separate interests
capital contributions were separately owned and
UNIVERSAL PARTNERSHIP OF ALL PRESENT PROPERTY: contributed before marriage
o Acquisition of an immovable property for the 3. ANSWER to the partnership for the fruits of the property
purpose of reselling it at a profit the contribution of which he delayed, from the date they
o Professional partnership should have been contributed up to the time of the
o Joint venture created for a temporary or limited actual delivery
purpose 4. PRESERVE property with diligence of a good father of a
family pending delivery to the partnership
OBLIGATIONS OF 5. INDEMNIFY partnership for any damage caused to it by
the retention of the same or by delay of contribution
GR: commences from the time of execution of the contract LIABILITY OF PARTNER IN CASE OF EVICTION:
XPN: when there is contrary stipulation Eviction takes place whenever by final judgment based
on a right prior to the sale or an act imputable to the
Registration in the SEC is not essential to give it juridical vendor, the vendee is deprived of the whole or a part of
personality the thing purchased
Necessary that all essential requisites are present
Partners may stipulate some other date for the LIABILITY OF PARTNER FOR FRUITS OF THE PROPERTY IN
commencement makes the partnership inchoate or CASE OF DELAY no demand is necessary to put partner in
unperformed, thus not yet consummated, havent default
started yet LIABILITY OF PARTNER FOR FAILURE TO PERFORM
SERVICE:
1785: GR: partner is generally not liable
CONTINUATION OF PARTNERSHIP BEYOND FIXED TERM:
XPNS: (3)
Term of existence has been agreed upon expressly
(when there is a definite period) or impliedly ( when a 1. If a partner neglects or refuses without reasonable
particular enterprise of transaction is undertaken) cause and the partnership suffered loss
Automatic dissolution upon expiration of term or 2. If partner is compelled to make good the loss, each
accomplishment of undertaking member of the firm, including himself, will receive his
Can be extended expressly (written or oral agreement) proportion of the amount in the distribution of the
or impliedly (by mere continuation of business after partnership assets and in no just sense can this be
termination of such term or undertaking without any regarded as compensation for the service individually
settlement / liquidation) rights and duties remain the rendered.
same 3. If under the circumstances of the case the proper
With such continuation, partnership for a fixed term or measure of the damages or loss is the value of the
particular undertaking is dissolved, and a new one is services wrongfully withheld, then defendant should be
created by implied agreement charged this value
Particular partnership is dissolved, partnership at will is
created 1787:
Any one of the partners can dissolve the partnership but APPRAISAL OF GOODS OR PROPERTY CONTRIBUTED:
IN GOOD FAITH
Mere hope / expectation is not equal to partnership Necessary when capital or part thereof of the
contribution consists of goods; to determine how much
3. After the goods have been contributed, partnership PROHIBITIONS AGAINST ENGAGING IN BUSINESS:
bears the risk or gets the benefit of subsequent
changes in their value 1. As regards an industrial partner prohibition is
absolute and applies whether to engage in same
business or any kind of business
In case of immovable property appraisal is made in
2. As regards capitalist partner prohibition extends only
the inventory of said property
to any operation which is of the SAME KIND of business
which partnership is engaged in
1788: XPN: stipulation to the contrary
IN CASES WHERE: (2)
1. CONTRIBUTE on the date due the amount he has XPN: Unless there is a stipulation to the contrary
undertaken to contribute
2. REIMBURSE any amount he may have taken and Not applicable to I.P. unless he also contributed capital
converted for own use aside from services
3. PAY the agreed / legal interest, if he fails to pay
contribution on time or when he uses common fund for
personal use
1791:
OBLIGATION OF CAPITALIST PARTNER TO CONTRIBUTE
4. INDEMNIFY the partnership for the damages caused by
ADDITIONAL CAPITAL:
the delay or conversion
GR: Partner is not bound to share more than agreed
LIABILITY OF GUILTY PARTNER FOR INTEREST &
DAMAGES: XPN: If there is no agreement to the contrary and there is
imminent loss, he is under obligation to: (2)
GR: He is liable for interest and damages from the time
contribution was due or from the time he converted amount 1. CONTRIBUTE additional share
for his own use 2. If he refuses to contribute, SELL his interest to other
partners
XPN: unless there is a stipulation fixing a different time
REQUISITES: (4)
LIABILITY FOR FAILURE TO RETURN MONEY RECEIVED:
1. There is imminent loss in the business
1. Where fraudulent misappropriation committed
2. Majority of the capitalist partners think that additional
partner is guilty of ESTAFA
contribution would save the business
2. Where there was mere failure to return no ESTAFA
3. A capitalist partner refuses deliberately to contribute
REMEDY: civil case arising from the partnership additional share (dahil kupal lang talaga siya)
contract for a liquidation of partnership and levy on 4. There is no agreement that even in case of imminent
its assets if there should be any loss, they are not obliged to contribute
1789: 1792:
OBLIGATIONS OF AN INDUSTRIAL PARTNER: OBLIGATION OF MANAGING PARTNER WHO COLLECTS
GR: He cannot engage in business for himself DEBT (WHEN THERE ARE TWO CREDITS):
REMEDIES OF PARTNERS FOR HIS VIOLATION: (2) 1. There exists at least 2 debts:
a. One from partnership
1. EXCLUDE him from firm (with right to damages) b. Another from a particular partner
2. AVAIL themselves of the benefits which he may have 2. Both debts are demandable
obtained in violation (with right to damages) 3. Partner who collects is authorized to manage and
actually manages the partnership
Partnership acquires an EXCLUSIVE RIGHT to avail of
the industrial partners services; engaging in business The sum received but the managing partner shall be
for himself is prejudicial to the interest of the other APPLIED to both credits in proportion to their amounts
partners o XPN: where he received it specifically for the
Action for specific performance to compel partner to partnership only, the whole sum should be applied
performed promised work or service is not applicable to partnership credit
will amount to involuntary servitude Does not apply where collecting partner for his own
Mere toleration by partnership will not exempt the credit only is NOT authorized to manage
industrial partner from liability Where the manner of management has not been agreed
upon and all the partners participate in the management
8|PARTNERSHIP, AGENCY AND TRUST
b. Purely industrial partners will not be liable for losses XPN: when the powers of the manager are specifically
restricted
1798: COMPENSATION FOR SERVICES RENDERED:
RD
DESIGNATION BY A 3 PERSON OF SHARE IN PROFITS &
GR: Partner is not entitled to compensation other than his
LOSSES:
share of profits
DELEGATION TO A 3RD PERSON delegation is made
XPN: Where law provides a contract for compensation:
through common consent
1. A partner engaged by his co-partners to perform
3rd person is not a partner
services not required of him in fulfillment of duties
To guarantee utmost impartiality in the distribution of
2. Where there is extraordinary neglect on the part of
shares of profits and losses
one partner to perform his duties toward the firms
His designation is generally binding unless manifestly
business, imposing entire burden on the remaining
inequitable (lantarang pandaraya?)
partner
A partner who has begun to execute the decision of the 3. One partner may employ his co-partner to do work
3rd person / fails to impugn the same W/IN 3 MONTHS for him outside and independent of co-partnership
from the time he had knowledge of it can no longer and become personally liable therefor
complain
1799: 1801:
RESPECTIVE DUTIES OF 2 / MORE MANAGING PARTNERS
STIPULATION EXCLUDING A PARTNER FROM ANY SHARE NOT SPECIFIED:
IN PROFITS / LOSSES:
Each one may separately perform acts of administration:
Law does not allow a stipulation excluding one or more
partners from any share in the profits and losses If one / more managing partners shall oppose the acts
of others, the decision of majority will prevail
Even if stipulation is void, partnership is still valid
Right to oppose can be exercised only by those
Profits and losses shall be apportioned as if stipulation entrusted with the management of the partnership and
did not exist not just by any partner
Stipulation expressly stipulating that there shall be no In case of tie: decided by the vote of the partners owning
liability for losses / party does not intend to share in the the controlling interest, that is, more than 50% of the
losses factor in determining that no partnership exists capital investment
Where the one excluded from profit / loss-sharing is not When partnership DO NOT SPECIFY respective duties:
intended to become a partner, stipulation is valid one partner has no more powers than the others in the
Industrial partner is excluded from loss-sharing conduct and management of the firms business
Unequal sharing is valid unless it is so gross as to If partnership SPECIFIES: decision of the partner
exclude partners from shares concerned shall prevail, but should act in GOOD FAITH
RIGHTS & OBLIGATIONS W/ RESPECT TO MANAGEMENT: 1. 2 / more partners have been appointed as managers
2. No specification of their respective duties
Each partner in a general partnership has equal voice in 3. No stipulation that one of them shall not act without the
management of business. consent of all the others
KINDS OF APPOINTMENTS: (2)
1803: 1806:
RULES WHEN MANNER OF MANAGEMENT HAS NOT BEEN DUTY TO RENDER INFORMATION:
AGREED UPON:
True and full information to every partner /
All partners have equal rights in the management of representative of deceased partner / partner under legal
partnership affairs disability upon request or demand
Whatever any one of them may do alone shall bind Also under the duty of voluntary disclosure of material
partnership facts relating to or affecting partnership affairs
In case of timely opposition of the partner, the matter No concealment, just GOOD FAITH
shall first be decided by the majority vote Does not arise with respect to information in the
In case of a tie: matter will be decided by the vote of the partnership books
partners representing the controlling interest
1810: 5.
exemption laws
Not subject to legal support
EXTENT OF PROPERTY RIGHTS OF A PARTNER:
1811: 1814:
NATURE OF PARTNERS RIGHT IN SPECIFIC REMEDIES OF SEPARATE JUDGMENT CREDITOR OF A
PARTNERSHIP PROPERTY: PARTNER: (2)
1815: Paragraph 3:
FIRM name, title, style under which a company transacts 1. Assign the property in trust for creditors / assignees
business promise to pay the debts of partnership
2. Dispose of the goodwill of the business
IMPORTANCE to distinguish partnership which has a 3. Do any act which would make it impossible to carry on
distinct and separate juridical personality from individuals or the ordinary business
other partnerships 4. Confess a judgment
5. Enter into a compromise concerning a partnership claim
RIGHT TO CHOOSE NAME can choose any name
/ liability
XPNS: (2) 6. Submit a partnership claim / liability to arbitration
7. Renounce claim of partnership
1. Use of misleading name
2. Use of names of deceased partners - unless the firm XPNS: (2)
indicates in all its communications that said partner is
1. When authorized by other partners
deceased
2. Unless theyve abandoned the business
LIABILITY FOR INCLUSION OF NAME persons who are not
Paragraph 4:
partners but include their names in the firm name do not
acquire partners right, only the liabilities insofar as 3 rd Partner is not liable to 3rd persons having actual /
persons without notice are concerned. presumptive knowledge of restrictions (BF), W/N apparently
carrying usual way of business
1816:
LIABILITY FOR CONTRACTUAL OBLIGATIONS: 1819:
CONVEYANCE OF REAL PROPERTY BELONGING TO THE
All partners, including industrial ones, shall be liable PRO PARTNERSHIP:
RATA (equally / jointly) with all their property and after all the
partnership assets have been exhausted, for contracts Paragraph 1:
entered by partnership
Title in partnership name
Partners become personally liable only after all the Conveyance in partnership name
partnership assets have been exhausted
EXAMPLE:
Industrial partner will have to pay but can recover
amount from capitalist partners A, B, C = X & Co.
o XPN: unless there is an agreement to the contrary
o He cannot be relieved from liability to 3rd persons A sold land to D w/o express authority:
Loss in terms of money among partners 1. Conveyance was not in the usual way of business
2. D had knowledge of lack of authority (BF)
1817: Paragraph 2:
STIPULATION AGAINST LIABILITY: Title in partnership name
rd
Any stipulation against the liability to 3 persons / creditors Conveyance in partners name
(1816) is VOID, except among partners. A sold land to D in his own name:
1. May acquire a valid title has the right to presume that 1. A partner is guilty of a wrongful act or omission in the
possession / interest of the partnership is consistent w/ ordinary course of business
record title 2. With the authority of co-partners, loss or injury is caused
2. No need for actual / constructive notice of any trust to any person, or penalty is incurred
2. C admitted to D (a 3rd person) of an act made by A with All partners are LIABLE SOLIDARILY with the partnership for
his consent: everything chargeable to the partnership
Statement by D in a litigation by B against C is
ADMISSIBLE
1825:
3. A, agent of C, acting within scope of authority: PARTNER/SHIP BY ESTOPPEL:
Any act / statement is ADMISSIBLE against C, who ESTOPPEL bar which precludes a person from denying /
is the principal asserting anything contrary to that which has been
established as a truth by his own deed / representation;
4. A acted in his own name, B loaned on a personal credit either express or implied
of A
As admission is NOT BINDING on the partnership GR: Persons who are not partners as to each other are not
partners to 3rd persons
EXISTENCE OF PARTNERSHIP:
XPN: one may be liable as a partner even though he is not a
1. Partnership relation must be shown and proof of fact partner in fact
must be made by independent evidence
2. Acts / statements / admissions while acting within CIRCUMSTANCES: (2)
scope of authority are ADMISSIBLE
1. DIRECTLY represents himself to anyone as a partner in
an existing / non-existing partnership
2. INDIRECTLY represents himself by consenting to
another representing him as a partner in an existing /
non-existing partnership
LIABILITIES: (3)
2.
previously existing partners
Only subsequent creditors have rights against separate
1830:
property of incoming / newly admitted partners CAUSES OF DISSOLUTION: (EXTRAJUDICIAL)
1834: 2.
partner, his legal rep / assignee
EXTRAJUDICIAL partners themselves w/o court
POWER TO BIND DISSOLVED PARTNERSHIP TO 3 RD intervention
PERSONS:
Nature of action for liquidation personal; could either be at
1. By an act appropriate for winding up affairs / completing the place of residence of P/D
unfinished transaction at dissolution
2. By any transaction which would bind the partnership if PERSONS AUTHORIZED: (4)
dissolution had not taken place, provided the other party: 1. Persons designated by agreement
a. Extended credit to partnership prior dissolution and 2. If none, all partners who have not wrongfully dissolved
had no knowledge / notice of such the partnership
b. Though didnt extend credit, had known partnership 3. Legal representative (executor / admin) of last surviving
prior to dissolution and had no knowledge of such partner (if all others are dead), not insolvent
because it wasnt advertised in the newspaper of 4. Receiver appointed by court
general circulation
Duty of liquidating surviving member/s of firm;
Will be satisfied out of partnership assets alone if: (2)
Legal representative of the deceased partner has no right to
1. Partner is unknown to the person with whom contract is interfere with the business
made
2. Dormant partner so far unknown and inactive POWER FOR LIQUIDATING PARTNER (PURPOSE OF
WINDING UP): (4)
PARTNERSHIP DOES NOT BIND:
1. MAKE new contracts
1. Where partnership is dissolved because it was unlawful 2. RAISE money to pay partnership debts
to carry on business 3. INCUR obligations to complete existing contracts /
2. Partner becomes insolvent preserve assets
3. Partner had no authority to wind up affairs 4. INCUR expenses necessary in the conduct of litigation
XPN: transaction with: (3)
One who extended credit prior to dissolution
and had no knowledge / notice of his want of 1837:
authority RIGHT OF PARTNER TO APPLICATION OF PARTNERSHIP
Didnt extend credit / had no knowledge of his PROPERTY ON DISSOLUTION:
lack of authority not advertised
GR: Rights of each partner in dissolution w/o violation (not
Character of notice required actual notice and thru in contravention) to the partnership: (2)
advertisement in a newspaper
1. To have partnership property applied to discharge the
liabilities of the partnership
1835: 2. To have surplus, if any, applied to pay in cash the net
EFFECT OF DISSOLUTION ON PARTNERS EXISTING amount owing to the respective partners
LIABILITY:
XPN: unless otherwise agreed
Dissolution of partnership is not equal to discharge of
If dissolution is caused by expulsion bona fide:
existing liability of partner
1. Expelled partner may be discharged from all liabilities
XPN: when there is said agreement between:
either by payment / agreement with him, the creditors
1. Himself and other partners
2. Partnership creditors 2. Can only receive in cash the net amount due him
3. Other partners
If dissolution is proper, no partner is liable for any loss
Consent is implied from their conduct
RIGHTS WHEN DISSOLUTION IS IN CONTRAVENTION:
Deceased Partners estate:
1. PARTNER WHO IS INNOCENT: (4)
Individual property of deceased partner is liable for all
a. Have the partnership property applied as payment
obligation of partnership incurred while he was still a
of its liabilities and to receive in cash his share of the
partner
surplus
With respect to his separate property priority is given b. Be indemnified for the damages caused by the guilty
to individual creditors over partnership creditors partner
c. Continue business in the same name during the
agreed term of partnership, by themselves / jointly
w/ others
d. Possess property should they decide to continue
business
17 | P A R T N E R S H I P , A G E N C Y A N D T R U S T
RIGHTS OF THE INJURED PARTNER: (3) REMEDY: can sue non-paying partner for
indemnification
1. RIGHT TO A LIEN on / retention of the surplus of
partnership property after satisfying liabilities for any
6. Liability of deceased partners individual property
sum of money paid / contributed by him
Liable for his share of contribution necessary to
2. RIGHT TO SUBROGATION in the place of creditors after
satisfy the liabilities of the partnership incurred
payment of liabilities
while he was a partner
3. RIGHT TO INDEMNIFICATION by guilty partner against
all debts and liabilities of the partnership
7. Priority of payments:
DOCTRINE OF MARSHALLING ASSETS:
1839: a. Partnership property pay first the partnership
PRIORITY SYSTEM FOR DISTRIBUTION OF PARTNERSHIP creditors
PROPERTY / SETTLING ACCOUNTS: b. Individual property pay first separate creditors
1840: 1842:
CAUSES OF DISSOLUTION BY CHANGE IN PARTNERSHIP: ACCRUAL & PRESCRIPTION OF PARTNERS RIGHT TO
(7) ACCOUNT HIS INTEREST: (2)
XPN: stipulation to the contrary 2. SHARE IN THE PARTNERSHIP partners share cannot
be returned w/o first dissolving and liquidating
When retiring / deceased partner sold interest to partnership, for the firms outside creditors have
partnership without final settlement with creditors, such preference over the assets of the enterprise and firms
have equitable lien on the consideration paid to the property cannot be diminished to their prejudice
retiring / deceased partner by purchaser
1. REQUIRE partnership books be kept at a principal place XPN: if he choose to elect to become a gen. partner
of business
WAIVED: in the event of the death of a partner the
2. INSPECT and copy at a reasonable hour
partnership shall be continued and the deceased partner
3. DEMAND true & full information of all things affecting
shall be represented by his heirs and assignees in said
the partnership
partnership as general partners
4. ASK for dissolution and winding up by decree of court
5. RECEIVE a share of profits / other compensation thru
income 1853:
6. RECEIVE the return of his contribution GENERAL + LTD PARTNER:
PROVIDED: partnership assets are in excess of all its
liabilities Gen + ltd partner in the same partnership, at the same time
is allowed:
1. Rights and powers are those of a general partner still 2. Consent of all members has been obtained except when
liable to 3rd persons return may be rightfully demanded
2. With respect to his contribution as a ltd partner, he has 3. Certificate is cancelled / amended to set forth the
a right of a ltd partner entitled to recover from the gen withdrawal / reduction of contribution
partners what he has paid to 3rd persons and in settling
accounts after dissolution, he shall have priority over WHEN RETURN IS A MATTER OF RIGHT: (3)
gen. partners in the return of their respective 1. On the dissolution of partnership
contributions 2. Upon the arrival of the date specified in the
certificate for return
1854: 3. After expiration of the 6 months notice in writing
given to other partners If no time is fixed in the
LOAN & OTHER BUSINESS TRANSACTIONS W/ LTD
certificate for the return of contribution / dissolution
PARTNERSHIP:
of partnership
ALLOWABLE TRANSACTIONS: (3)
RIGHT OF LTD PARTNER TO CASH IN RETURN FOR
1. Granting loans to the partnership CONTRIBUTION:
2. Transacting other business with it
GR: even if ltd partner has contributed property, he has only
3. Receiving pro rata share of partnership assets w/ gen.
the right to demand and receive CASH for his contribution
creditors if he is also not a gen. partner
XPNS: (2)
PROHIBITED: (2)
1. When there is stipulation to the contrary in the cert
1. Receiving / holding as collateral security any partnership
2. When all partners consent to the return other than cash
property
2. Receiving any payment, conveyance / release from WHEN LTD PARTNER MAY HAVE PARTNERSHIP
liability if it will prejudice the right of 3 rd persons DISSOLVED: (2)
Violation of prohibition = presumption of FRAUD
Doesnt prohibit absolutely the taking of collateral 1. Dissolution by partners ltd partner must ask the other
security by a ltd partner of any partnership property partners to have the partnership dissolved, if they refuse,
remedy is no. 2
PREFERENTIAL RIGHTS: 2. Dissolution by judicial decree additional grounds upon
petition of ltd partner (2)
Ltd partner is considered non-partner creditor
a. When demand for return of his contribution is
3rd persons are preferred insofar as partnership assets denied although has a right to such return
are concerned b. Contribution is not paid although he is entitled to its
return because the other liabilities of the partnership
1855: have not been paid / the partnership property is
insufficient for payment
PREFERRED LTD PARTNERS:
All gen + ltd partners may agree, as stated in the cert, that
priority / preference be given to some ltd partners over
1858:
others as to: LIABILITIES FOR UNPAID CONTRIBUTION OF A LTD
PARTNER: (2)
1. Return of their contributions
2. Compensation by way of income 1. For the difference between his actual contribution & that
3. Any other matter stated in the certificate he made
2. Unpaid contribution w/c he agreed in the certificate to
If not in the cert = all ltd partners shall stand on equal footing make in the future at the time and on the conditions
stated in the certificate
1856: LIABILITY AS TRUSTEE: (4)
COMPENSATION OF LTD PARTNER:
1. Specific property stated in the certificate as contributed
Creditors have priority over ltd partners rights by him but which he had not contributed
(partnership assets partnership liabilities = excess) 2. Specific property of partnership w/c had been
In determining partnership liabilities, exclude: (2) wrongfully returned to him
o Liabilities to ltd partners for contribution 3. Money wrongfully paid / conveyed to him on account of
o Gen partners W/N for contribution his contribution
4. Other property wrongfully paid / conveyed to him
ASSIGNEE WHO ISNT A SLP (LIMITATIONS): (2) 1. Due to CREDITORS, including ltd partners, except those
on account of their contributions, in the order of priority
1. Has no right to require information / account of the 2. Due to LIMITED PARTNERS in respect to their SHARE
partnership transactions or inspect books OF PROFITS and other compensation through income
2. Only entitled to receive share of profits / other on their contribution
compensation by way of income / return of his 3. Due to LIMITED PARTNERS for RETURN OF CAPITAL
contribution contribution
LIABILITY OF SLP / ASSIGNOR: (3) 4. LOANS due to GENERAL PARTNERS other than for
capital and profits
1. Liable for all liabilities of his assignor 5. Due to GENERAL PARTNERS in respect to PROFITS
a. XPN: only those of w/c he was ignorant at that time 6. Due to GENERAL PARTNERS for RETURN OF CAPITAL
he became a ltd partner and w/c couldnt be contribution
ascertained from the certificate
2. Liable to persons who suffered damage by reliance on CAUSES OF DISSOLUTION OF LTD PARTNERSHIP: (6)
false statement in the certificate 1. Misconduct of gen. partner
3. Liable to creditors who extended credit / whose claims 2. Fraud by gen. partner to the ltd partner
arose BEFORE substitution 3. Retirement, death, etc. of gen. partner
4. All ltd partners ceased to be such
1860: 5.
6.
Expiration of term
Mutual consent of partners before expiration of firms
EFFECT OF RETIREMENT, DEATH, ETC. OF A GEN
PARTNER: original term
GR: retirement, death, insolvency, insanity / civil interdiction SUIT FOR DISSOLUTION:
of a gen. partner DISSOLVES partnership 1. When there is MISCONDUCT of gen partner / there is
XPN: when continued by remaining gen partners: (2) INSOLVENCY:
a. REMEDY of ltd partner bring SUIT FOR
1. Under the right to do so as stated in the certificate DISSOLUTION of firm, an accounting, appointment
2. w/ consent of all members of receiver (misconduct)
b. REMEDY of creditors same (insolvency)
1861: 2. When ltd partner rightfully but unsuccessfully demands
the return of his contribution:
RIGHT OF EXECUTOR ON DEATH OF LTD PARTNER: (2) a. REMEDY: he can have partnership DISSOLVED and
1. Executor / administrator shall ACQUIRE ALL RIGHTS for affairs wound up
the purpose of settling affairs of the ltd partner b. XPN: liabilities to gen partners and to ltd partners on
2. Right to CONSTITUTE the deceaseds assignee as SLP account of their contributions
a. Only if deceased partner is empowered to do so in NOTICE OF DISSOLUTION: (2)
the certificate
b. Estate of the deceased ltd partner is liable for all his 1. When NOT needed when firm is dissolved by the
liabilities contracted while he was still a ltd partner EXPIRATION of term fixed in the certificate
2. When NEEDED when by express will of the partners,
certificate shall be cancelled before expiration
1. In writing
2. Signed & sworn to by all members
3. Filed for record with SEC
1. Personal Acts if personal performance is required by Where 2nd principal is aware of the dual employment but 1st
law or public policy or agreement of the parties principal is not, the latter has the right to affirm or rescind
a. Right to vote the transaction and recover damages from the 2 nd principal
b. Making a will and agent
c. Statements under oath If double employment is with knowledge and consent of 1 st
d. A member of the board of directors when attending principal, such is bound but he cannot recover from the
meetings other.
e. An agent cannot delegate to sub-agent the
performance of acts which he has been appointed Agent must not use or disclose secret information:
to perform in person
2. Criminal Acts / Acts not allowed by law an attempt to GR: Duty not to use or divulge confidential information
delegate to another authority to do an act which, if done obtained in the course of his agency for his own benefit to
by the principal would be illegal, is void. the principals injury or expense
NATURE OF RELATIONS BETWEEN PRINCIPAL & AGENT: XPN: After termination of agency. Provided, he must still not
use it to injure the principal
Relations fiduciary in character based on trust and
confidence on a degree which varies depending on the Agent must give notice of material facts agent must
situation make known to his principal every and all material facts;
Agent estopped from asserting interest adverse to his principal may also not keep from the agent any material
principal he cannot be allowed to create in himself an fact
interest (asserting or acquiring a title) in opposition to
that of his principal (CESTUI QUE TRUST) REMEDY: agent may be held liable for damages for any
By accepting agency, agent does not: loss suffered or injury incurred as a result of such breach
o Lose any prior claim which he himself may have to THEORY OF IMPUTED KNOWLEDGE knowledge of the
the property with which he deals agent is imputed to the principal even though the agent
o Nor is he estopped to assert that money or property never communicated such knowledge to the principal.
in his hands was not received by him as agent for
the principal GR: Knowledge of principal cannot be imputed to his agent.
o Or that the principal parted with his interest in the
XPNS:
property subsequent to the delivery to him as agent
Agent must not act AS an adverse party agents 1. Agents interest are adverse to those of the principal
cannot ac so as to bind their principals, where they have 2. Agents duty is not to disclose the information, as
an adverse interest in themselves. where he is informed by way of confidential
information
GR: an agent cannot acquire by purchase, even at public or
3. Person claiming the benefit of the rule colludes with
judicial auction, either in person or thru the mediation of
the agent to defraud the principal
another, the property whose administration or sale has been
entrusted to him AGENCY VS. LOAN:
XPNS: As to: AGENCY: LOAN:
1. Unless the principal consents Relationship Principal Agent Lender
2. After termination of such agency borrower
3. Or other properties different from those he has been
commissioned to sell Money Money advanced
REMEDY: principal may recover damages for the wrongful is expressly
sale regarded as loan;
lender has no
Agent must not act FOR an adverse party (dual interest or
employment): concern in the
manner of its
GR: cannot serve 2 masters conduct
Purpose of Given funds by Given money for
XPNS: Money the P to advance own purposes
1. Both consent business
2. He is a middleman with no independent initiative
1. Either principal may rescind / repudiate the transaction As to: AGENCY: LEASE SERVICE:
involved
26 | P A R T N E R S H I P , A G E N C Y A N D T R U S T
GR: The agents authority may be oral or written. 3. When the broker was the sufficient procuring cause in
bringing the sale.
XPN: The authority of an agent for a sale of a piece of land
(not any other real estate) shall be in writing otherwise it shall LAW ON DOUBLE AGENCY:
be void.
GR: An agent acting at once for both contracting parties
Includes only of an agency for sale of a piece of land or assumes double agency. Disapproved by law for being
any interest therein. against public policy and sound morality.
A written SPA is needed not only to protect the interest XPN: Where the agent acted with full knowledge and
of the unsuspecting owner from being prejudiced by the consent of the principals
unwarranted act of another but also to caution the buyer
to assure himself of the specific authorization of the RIGHT OF AGENT TO COMPENSATION IN CASE OF DOUBLE
putative agent. AGENCY:
The sale shall be considered merely voidable as it may
1. WITH knowledge of BOTH principals recovery can be
be ratified by the principal later.
had from both principals
Does not a real estate broker whose authority is limited
2. WITHOUT the knowledge of BOTH principals the agent
to finding prospective purchases and does not extend to
can recover from neither
making a contract to pass title.
3. WITH knowledge of ONE principal as to the principal
who knew of that fact and as to the agent, they are in
pari delicto and the courts shall leave them as they were,
the contract between them being void as against public
policy and good morals
30 | P A R T N E R S H I P , A G E N C Y A N D T R U S T
6.
its financial transactions
Attorney In Fact one who is given authority by his 1878:
principal to do a particular act not of a legal character SPA - An instrument in writing by which one person, as
principal, appoints another as his agent and confers upon
GENERAL VS. SPECIAL AGENT:
him the authority to perform certain specified acts or kinds
As to: GENERAL SPECIAL of acts on behalf of the principal.
AGENT AGENT
NOTE: It need not be notarized; except where it is executed
Scope of Usually Authorized to
in a foreign country, must be certified in accordance with the
authority authorized to do do only acts in
Rules of Court.
all acts pursuance of
connected particular
31 | P A R T N E R S H I P , A G E N C Y A N D T R U S T
Act must done must be legally identical with that authorized 7. To LOAN / BORROW money, unless the latters act be
to be done. urgent and indispensable for the preservation of the
things which are under administration;
INSTANCES WHEN SPA IS NECESSARY (Acts of Strict LOAN borrower is bound to pay to the creditor an
Dominion): equal amount of the same kind and quality
1. To make such PAYMENTS as are not usually considered This is not ordinarily an incident to a general
as acts of administration; managerial agency
PAYMENT delivery of money / performance in any Power to borrow cannot be interpreted as also
other manner of an obligation; act of ownership authorizing him to use the money as he pleases
because it involves the conveyance of ownership of Authority to borrow money for principal is not
money / property. implied from SPA to mortgage real estate
When payment is made in the ordinary course of Only refers to money and not to other fungible
management, it is considered a mere act of things
administration
SPA to make payment is implied from the authority 8. To LEASE any real property to another person for more
to buy a designated piece of land at a certain price than one year;
LEASE OF THINGS lessor gives to the lessee the
2. To effect NOVATION which put an end to obligations enjoyment or use of a thing for a price certain, and
already in existence at time the agency was constituted; for a period definite / indefinite
NOVATION extinction of an obligation through the Unrecorded lease of real estate is not binding upon
creation of a new one which substitutes it by 3rd persons
changing the object or principal conditions thereof, Requirement of SPA extends to renewal or
substituting a debtor, or subrogating another in the extension of lease of real property to another
right of the creditor Will only be enforceable if in writing
3. To COMPROMISE, to submit questions to arbitration, to 9. To bind the principal to RENDER SOME SERVICE without
renounce the right to appeal from a judgment, to waive compensation;
objections to the venue of an action or to abandon a If service is for compensation, power may be
prescription already acquired; implied
A judgment based on compromise entered into by
an attorney without specific authority is null and 10. To bind the principal in a CONTRACT OF PARTNERSHIP;
void CONTRACT OF PARTNERSHIP partners bind
COMPROMISE contract whereby the parties, by themselves to contribute money, property or
making reciprocal concessions, avoid a litigation or industry to a common fund with the intention of
put an end to one already commenced dividing the profits among themselves
ARBITRATION where parties submit their It creates obligations which requires act of strict
controversies to one or more arbitrators for decision ownership
Both are acts of ownership because they involve the Principal must personally have trust and confidence
possibility of disposing of the thing / right in the proposed partners
Same with CONFESSION OF JUDGMENT cannot
be done without the knowledge of client 11. To obligate the principal as GUARANTOR OR SURETY;
CONTRACT OF GUARANTY / SURETYSHIP
4. To WAIVE any obligation gratuitously; guarantor / surety binds himself to fulfill the
CONDONATION / REMISSION agent cannot waive obligation of the principal debtor in case the latter
a right belonging to the principal without valuable fails to do so.
consideration / even for a nominal consideration. Contingent commitment cannot be interpreted to
He cannot bind the principal who is the obligee mean guaranty = cannot be inferred from the use of
unless especially authorized to do so vague / general words
Unenforceable unless in writing
5. To enter into any contract by which the ownership of an
IMMOVABLE is transmitted or acquired either 12. To create or CONVEY real rights over immovable
gratuitously or for a valuable consideration; property;
6. To make GIFTS, except customary ones for charity or 13. To accept or repudiate an INHERITANCE;
those made to employees in the business managed by Any person having free disposal of his property may
the agents; accept or repudiate an inheritance
Act of strict dominion, therefore the need for SPA
GIFT / DONATION act of liberality whereby a
person disposes gratuitously of a thing / right in 14. To RATIFY or recognize obligations contracted before
favor of another who accepts it. the agency;
Making of customary gifts for charity / those made
to employees in the business managed by the agent 15. Any OTHER act of strict dominion
are considered acts of administration Sale / purchase of personal property act of strict
dominion; except if merely an act of administration
32 | P A R T N E R S H I P , A G E N C Y A N D T R U S T
A person, therefore, is not bound by the act of another in the (1) An action is not properly instituted when brought in the
following instances: name of an attorney-in-fact (aporado) and not in the
name of the principal, the real party-in-interest, and in
1. The latter acts without or beyond the scope of his such case the complaint must be dismissed not upon
authority in the formers name; and the merits, but on the ground that is has been improperly
2. The latter acts within the scope of his authority but in his instituted
own name, except when the transaction involves things (2) When the principal is bound by the act of the agent, the
belonging to the principal. action must be brought against the principal, not against
One who acts in his own behalf without authority from the agent. The bringing of the action against the agent
another, or in the name of a non-existent principal, naturally cannot have any legal effect except that of notifying the
binds himself alone. agent of the claim.
XPN: the principal ratifies the transaction before it is (1) Disclosed principal. if at the time of the transaction
revoked by the other contracting party or is in estoppel to contracted by the agent, the other party thereto has
deny the agents authority known that the agent is acting for a principal and of the
principals identity
3. FINISH BUSINESS UPON PRINCIPALS DEATH: 15. To bear the risk of collection, should he receive also on
It is agents obligation sale, a guarantee commission
Duty exists only should delay entail any danger 16. To indemnify the principal for damages for his failure to
Agency will remain in full force even after the death collect the credits of his principal at the time that they
of P if it has been constituted in the common become due
interest of the latter and of the agent, or in the 17. To be responsible for fraud or negligence
interest of the 3rd person who has accepted the
stipulation in his favor NOTE: A stipulation exempting the agent from the obligation
If agent uses PoA after the death of P, agent has the to render an account shall be VOID.
obligation to deliver the amount collected by him by GR: Knowledge of agent is knowledge of principal.
virtue of said power to the administrator of the
estate of the principal XPNs:
GR: Agent has to act with utmost good faith and loyalty 1. Agents interests are adverse to those of the principal
because of the fiduciary relationship (demanding conditions 2. Agents duty is not to disclose the information
of trust and confidence) (confidential information)
3. Where the person claiming the benefit of the rule
XPN: When no fiduciary relationship exists; when agent is colludes with the agent to defraud the principal
bound merely as an instrument, a servant.
the scope of permitted this interest even if in so doing he disobeys the Ps orders /
action injures his interest.
Instructions limiting the Limitations are operative
agents authority
insignificant as
are
those
as against those who have
/ charged with knowledge 1890:
dealing with the agent w/ of them OBLIGATION NOT TO LOAN TO HIMSELF:
neither knowledge nor
notice of them Agent cannot loan / borrow money without SPA:
rd
Not expected to be made Made known to the 3 1. If he has been expressly empowered to BORROW
known person dealing with agent MONEY, he MAY be the LENDER at the current rate of
interest there is no danger of the P suffering any
damage since current rate of interest would have to be
LIABILITY OF P TO 3RD PERSON:
paid if loan were obtained from a 3rd person
GR: If act is done within the apparent scope of authority, P
will be liable to 3rd person (Doctrine of Estoppel) 2. If agent has been authorized to LEND MONEY at interest
he CANNOT be the BORROWER
XPN: Unless the 3rd person w/ whom the agent dealt knew XPN: if with the consent of P because agent may prove
that he was exceeding his authority / violating his to be a bad debtor
instructions
OBLIGATION TO TURN OVER PROCEEDS OF THE AGENCY 1. Sub-agent appointed by agent W/O AUTHORITY from
duty of the agent to simultaneously turn over his principal:
collections. The sub-agent is a stranger to the principal who
originally gave life to the agency. The principal will
REPORT imports a statement of collections. not be liable to third parties for the sub-agents acts
ACCOUNTING settling of accounts of administration or but the agent will be liable to the principal or third
agency; delivery or payment of property funds or money parties if the sub-agent acts wrongfully.
coming into the hands of the agent; submission of a
statement of receipts and disbursements with the trust 2. Sub-agent appointed by agent WITH AUTHORITY from
funds coming into his hands and tender or turning over to principal:
the one to which he is liable, moneys and property in respect A fiduciary relationship exists between the principal
thereto. The payment is part of the accounting. and the agent, the agent and sub-agent, and the
principal and the sub-agent. Any act done by the
NOTE: All profits made and any advantage gained by an substitute or sub-agent in behalf of the principal is
agent in the execution of his agency should belong to the deemed an act of the principal.
principal.
NOTE: Neither the agent nor the substitute can be held
AGENTS POSSESSION OF POSSESSION OF TELLER personally liable so long as they act within the scope of their
GOODS of a BANK authority.
Agent can assert as Payment to the teller is 3. Effect of DEATH OF PRINCIPAL / AGENT:
against his principal when payment to the bank a. If the authority of the sub-agent proceeds from the
the principal fails to Teller is mere custodian or principal, the death of the agent who appointed him
reimburse him for keeper of funds received, does not affect his authority.
advances he has made, no independent right to b. But where the sub-agent is a substitute for the
and indemnify for retain or possess the same agent and acts under authority from him and to
damages suffered without against the bank whom he is accountable, the death of the agent
his fault. terminates his authority even though the power of
Where a sales agent A teller of a bank who substitution is given in the original power.
misappropriates or fails to misappropriates money
turn over to his principal received by him for the EFFECT OF SUBSTITUTION:
proceeds of things or bank is guilty of qualified
1. SUBSTITUTION PROHIBITED:
goods he was theft
commissioned or When the substitute is appointed by the agent
authorized to sell for the against the express prohibition of the principal, the
latter, he is guilty of estafa. agent exceeds the limits of his authority. The law
says that all acts of the substitute in such a case
shall be void. If the principal has not prohibited the
them. The principal has also a right of action against If the TORT is committed by the agent within scope of
the substitute. his authority, both the principal and the agent are liable.
An Agency is liable to third persons for injury resulting
1894:
from their misfeasance and malfeasance.
But and Agent is generally not responsible to third
NECESSITY OF CONCURRENCE WHERE THERE ARE 2 / persons for nonfeasance.
MORE AGENTS:
WHEN AGENT INCURS PERSONAL LIABILTY
GR: The responsibility of two or more agents even though
they have been appointed simultaneously, is not solidary but When the agent expressly binds himself, he thereby
JOINT. obligates himself personally and by his own acts.
When the agent exceeds his authority, he really acts
XPN: If solidarity has been expressly stipulated, liability is
without authority and therefore, the contract is
SOLIDARY.
unenforceable against the principal unless the latter
JOINT AGENTS agents appointed by one or more RATIFIES the act.
principals under such circumstances as to induce the When an agent by his act prevents performance on the
inference that it was the principals intent that all should act part of the principal, he can be held liable to third
in conjunction in consummating the transaction for which persons.
they were appointed. When a person acts as an agent without authority or
without principal, he himself regarded as principal,
Private Joint Agency the agency cannot be exercised possessed of all rights and subject to all liabilities of a
except by the concurrence of all agents principal.
Public Joint Agency the agency may be exercised by A person who purports to act as agent of an
a majority. incapacitated principal also incurs personal liability
SEVERAL AGENTS each one to act separately in a particular unless the third party was aware of the incapacity at the
branch of his principals business or in a particular locality. time of making of the contract.
GR: each of the agents is responsible for the non-fulfillment Instances in which a third party subjects himself to liability
of the agency, and for the fault or negligence of his fellow at the hands of an agent:
agents when SOLIDARITY has been agreed upon.
1. Where the agent contracts in his own name for an
XPN: In the latter case, when the fellow agents acted beyond undisclosed principal, in which case, the agent may sue
the scope of their authority. 3rd party to enforce contract.
2. Where the agent possesses a beneficial interest in the
JOINT OBLIGATION each debtor is liable only for subject matter of the agency.
proportionate part of the debt. 3. Where the agent pays money of his principal to a third
SOLIDARY OBLIGATION each debtor is liable for the entire party by mistake or under a contract which
obligation. subsequently to be illegal, the agent being ignorant with
respect to its illegal nature.
Innocent agent has a right later on to recover from guilty 4. Where the third party commits tort against the agent.
or negligent agent.
1898:
1896: EFFECT WHERE 3RD PERSON IS AWARE OF AGENTS
LIABILITY OF AGENT FOR INTEREST: POWERS LIMITS:
The agent who converted to his personal use the funds 1. If agent acts in the name of the principal and within
of the principal is LIABLE FOR INTEREST by way of scope of his authority:
compensation or indemnity which shall be computed Agent is NOT liable
from the day on which he did so (w/o prejudice to Representation is between principal and 3rd person
criminal action).
The agent who is found to owe the principal sums after 2. If agent acts in the name of the principal but in excess
the extinguishment of the agency is liable for interest of his authority:
from the date the agency is extinguished. Agent is personally LIABLE
Demand is not necessary for DELAY to exist. XPN: if there is subsequent ratification by principal
1. He may require payment in cash from the agent A is responsible to the P for fraud and negligence
2. He may ratify the sale on credit in which case it will have It is his duty to notify the P of all relevant and material
all the risks and advantages to him. facts or any information having a bearing on the
interests of the P as soon as reasonably possible after
1906:
learning them
The circumstance that the agency is or is not gratuitous
OBLIGATION OF COMMISSION AGENT WHERE SALE ON
will be considered by the courts in fixing the liability of
CREDIT IS AUTHORIZED:
the agent for NEGLIGENCE (not fraud).
P authorizes A to sell on credit Agency is presumed to be for compensation
But A fails to inform P that a sale was on credit with a Agent is liable when:
statement of the name of the buyer/s o He does not discharge the agency with due
PS REMEDY: to demand from A the payment IN promptness,
CASH. o Or not according to the instructions of his principal
But as far as the buyer is concerned, the sale is on credit o Or not within the limits of his authority
and he is not liable to pay before the arrival of the period o When he does not make use of the powers
agreed upon. conferred on him
If quasi-delict / tort committed by act or omission
An agent who guarantees payment of the customers XPN: P becomes solidarily liable if the tort was committed
account in consideration of the higher commission is by the A while performing his duties in furtherance of the Ps
called a del credere agent. business.
The purpose is to compensate the agent for the risks he GR: An agent who gratuitously assumes the agency
will have to bear in the collection of the credit due the obligation and neglects to carry it out is NOT LIABLE for his
principal nonfeasance
Applies to both cash and credit sales
XPN: where the agent knows / should know that the P, in
NATURE: reliance upon his promise to do the given act, will refrain
from doing the act himself, liability for nonfeasance
Liability of the del credere agent is a CONTINGENT
attaches.
PECUNIARY LIABILITY to make good in the event the
buyer fails the sum due.
But he is not primarily the debtor 1910:
The P may sue the buyer in his OWN NAME OBLIGATIONS OF A PRINCIPAL:
notwithstanding the del credere commission, so that the
latter amounts to no more than a guaranty The principal must comply with all the obligations which the
A del credere agent may sue in his name for the agent may have contracted within the scope of his authority.
purchase price in the event of non-performance by the
As for any obligation wherein the agent has exceeded his
buyer.
power, the principal is not bound except when he ratifies it
expressly or tacitly.
1908: OBLIGATIONS, IN GENERAL, OF P TO A:
OBLIGATION OF COMMISSION AGENT TO COLLECT
CREDITS OF PRINCIPAL: *duties and liabilities of the principal are primarily based
upon the contract between them.
A commission agent who has made an authorized sale
on credit must COLLECT the credits due the principal at *principal is under the obligation to deal fairly and in good
the time they become due and demandable faith with his agent
This does not apply to a case where there is guarantee
*Primary obligation of the principal to the agent is simply
commission
that of complying with the terms of their employment
GR: If he fails, he becomes liable for the for damages contract (if any).
41 | P A R T N E R S H I P , A G E N C Y A N D T R U S T
*Principal may refuse to perform his part of the contract (2) In tort - 3rd persons tort liability to the principal insofar
when the agent has already breached the contract. as the agent is involved in the tort, arises in 3 situations:
SPECIFIC OBLIGATIONS: (a) where the third person damages or injures property or
interest of the principal in the possession of the agent;
(**contract defines the obligations, in the absence of the
same, the law imposes certain obligations of the principal to (b) where 3rd person colludes with the agent to injure or
his agent**) defraud the principal; and
a. To comply with as all the obligations which the agent (c) where the 3rd person induces the agent to violate his
may have contracted within the scope of his authority contract w/ the principal to betray the trust reposed upon
(Arts. 1910, 1881, 1897) and in the name of the principal him by the principal.
(Arts. 1868, 1883).
b. To advance to the agent, should the latter so request, the (3) In respect with property received agent does not have
sums necessary for the execution of the agency. (Arts. legal title to property entrusted to his possession by the
1912) principal.
c. To reimburse the agent for all the advances made by With respect to negotiable instruments, the law protects
him provided he is free from fault. third parties who are holders in due course.
d. To indemnify the agent for all the damages which the
execution of the agency may have caused the latter LIABILITY OF P FOR MISMANAGEMENT OF BUSINESS BY
without fault or negligence on his part. (Art. 1913) HIS AGENT:
e. To pay the agent the compensation agreed upon, or if no
Mismanagement of business of a principal by his agents
compensation was specified, the reasonable value of
does not relieve the principal from the responsibility that he
the agents services. (Arts. 1875, 1306)
had contracted to third persons.
LIABILITY OF P TO 3RD PERSONS:
Where agents act binds the principal, the latter may seek
GR: principal will be liable to third persons for all acts recourse against the agent.
committed by the agent, and should bear the damage
LIABILITY OF P FOR TORT OF AGENT:
caused to third persons.
GR: Principal civilly liable to third persons for torts of an
Reason for liability: acts of the agent w/in his express
agent committed at the principals direction within the scope
authority are considered acts of the principal.
of the agents employment.
ESTOPPEL TO DENY (AGENCY BY ESTOPPEL):
Reason for Liability: He who does an act through another
The principal is bound by the act of his agent when he has does it himself.
placed the agent in such position that persons of ordinary
BUSINESS HAZARD THEORY: hazards of the business
prudence are thereby led to believe and assume that the
should be borne by the business directly.
agent is possessed of certain authority to deal with him in
reliance on such assumption. MOTIVATION-DEVIATION TEST: bounds of the agents
authority are not the limits to the principals tort liability, but
(Between two innocent parties, the one who made it possible
rather the scope of the employment which may or may not
for the wrong to be done should be the one to bear the
be within the bounds of authority.
resulting loss.)
2 FACTORS: (when present, liability is imposed)
WAIVE OF CLAIM AGAINST P:
(a) Satisfactory evidence that employee in doing the act was
If a third person waives his claim against the principal, he
motivated in part at least by a desire to serve his employer,
cannot assert them against the agent.
and
AGENCY FROM NECESSITY / BY OPERATION OF LAW:
(b) Satisfactory evidence that the act was not in extreme
An agency from necessity is created, or the ordinary powers deviation from the normal conduct of such employee.
of an agent may be enlarged, when an emergency occurs
REPRESENTATION, ESSENCE OF AGENCY:
and an employee or an agent is unable to get in touch with
his employer. (1) Agent acts in representative capacity (in behalf of the
principal to bind him as if he personally contracted)
LIABILITY OF 3RD PERSONS TO P:
(2) Agent acts within the limits of his authority (agent who
(1) In contract - 3rd person liable to the principal upon
exceeds authority is not deemed an agent of the principal)
contract entered into by his agent as if entered into by the
principal himself. RATIFICATION the adoption or the affirmance by a person
of a prior act which did not bind him, but which was done or
*third person cannot set allege any defense against the
professed to be done on his account thus giving effect to the
agent, in an action by the principal to enforce the contract.
acts as if originally authorized. (purely voluntary)
*notice to agent is notice to the principal; third party not
liable for damages for failure of the agent to give notice to
his principal.
42 | P A R T N E R S H I P , A G E N C Y A N D T R U S T
(4) The act must be capable of ratification ESTOPPEL is a bar which precludes a person from denying
or asserting anything contrary to that which has been
(5) The act must be done in behalf of the principal established as the truth by his own deed or representation
either express or implied.
FORMS: Express or Implied
Ratification Estoppel
PERSONS ENTITLED TO RATIFY - must have the power to
rests on intention, rests on prejudice rather
ratify the original act sought to be ratified
express or implied, than intention.
MEANING OF MATERIAL FACTS Those which reasonably regardless of
ought to be known by the principal prejudice to another,
the party is bound he is bound notwithstanding
In order to bind a principal by ratification, he must have been because he intended to the absence of such
in possession of all the facts and must have acted in light of be, intention
such facts. (Actual knowledge of relevant facts) because the other party will
be prejudiced and defrauded
Burden to show such knowledge: party seeking to rely on the by his
ratification. conduct, unless the law
treats him as legally bound.
Assumed when Principal have either actual knowledge of
retroactive and makes the estoppel operatesupon
material facts or sufficient knowledge or notice of some
agents something which has been
other facts so that it would have been easy to find out the
unauthorized act good done but after the
material facts. from the beginning, misleading act and in
Agent has duty to inform principal about relevant facts. reliance on it and may only
extend to so much of such
Ratification must be entire or not at all. act as can be shown to be
affected by the estopping
ACTS THAT MAY BE RATIFIED: conduct.
Ratification affects the Estoppel affects only the
1. VALID / VOID ACTS Those acts w/c may be
entire transaction and relevant parts of the
authorized may be ratified. Acts w/c are absolutely void
from the beginning, transaction and from that
cannot be authorized nor ratified.
time only when estoppel
2. VOIDABLE ACTS Merely voidable acts may be ratified
may be said to be spelled
3. UNREVOKED ACTS Acts must be done in behalf of the out.
principal. The substanceof the substance of estoppel is
EFFECTS OF RATIFICATION: ratification is the
confirmation of the principals inducement to
1. With respect to agentrelieves agent from liability for unauthorized act or another to act to his
the unauthorized transaction; he may recover contract after it has been prejudice;; Acts and conduct
compensation due done or made;; amounting to an estoppel in
2. With respect to principal himselfhe assumes ratification may pais may in some instances
responsibility for the unauthorized act be complete without any amount to a ratification
3. W/ respect to third personsbound by the ratified act elements of estoppel.
GR: Ratification operates to have retroactive effect. o The agent must have acted in the name of a disclosed
principal and the third person was not aware of the limits
XPNs: of the power granted by the principal.
o The third person with whom the agent dealt may sue
1. Where doing so would defeat the rights of third parties
either the agent or the principal alone, or both. The agent
which accrued between the time of making the
should be exempt from liability if he acted in good faith.
unauthorized contract and the time of ratification.
2. Where doing so would make wrongful an otherwise
rightful act or omission which has taken place between
the time of making the unauthorized contract and the
time of ratification
3. Where doing so would be to allow the circumvention of
the rule of law.
4. If third party has withdrawn from the contract.
43 | P A R T N E R S H I P , A G E N C Y A N D T R U S T
RULES:
1915: 1. MOVABLE PROPERTY:
NATURE OF LIABILITY OF 2/MORE PRINCIPALS TO THEIR
If the same thing should have been sold to different
AGENTS:
vendees, the ownership shall be transferred to the
If two or more persons have appointed an agent for a person who may have first taken possession thereof in
common transaction or undertaking, they shall be solidarily good faith
liable to the agent for all the consequences of the agency. 2. IMMOVABLE PROPERTY:
The ownership shall belong to the person acquiring it
JOINT PRINCIPALS relates to a group with substantially who in good faith first recorded it in the Registry of
identical interests, and contemplates the appointment of an Property.
agent or agents empowered to bind the members of the 3. NO INSCRIPTION:
group jointly (solidarily). The ownership shall pertain to the person who, in good
XPN: faith was first in the possession; and, in the absence
thereof, to the person who presents the oldest title,
Partnership agent appointed by the partnership or by a provided there is good faith.
partner thereof acting within the scope of the partnership
business binds all the partners by his valid acts or
transactions.
1917:
LIABILITY TO 3RD PERSON OF AGENT / PRINCIPAL WHO
The responsibility of two or more agents, even though CONTRACTS SEPARATELY:
they have been appointed simultaneously, is joint, not
solidary. In the case referred to in the preceding article, if the agent
has acted in good faith, the principal shall be liable in
REQUISITES FOR SOLIDARY LIABILITY: damages to the third person whose contract must be
rejected. If the agent acted in bad faith, he alone shall be
1. There are two or more principals;
responsible.
2. The principals have all concurred in the appointment of
the same agent; and
3. The agent is appointed for a common transaction or 1918:
undertaking. WHEN PRINCIPAL NOT LIABLE FOR EXPENSES INCURRED
BY AGENT:
Each principal may be sued by the agent for the entire
amount due and not just for his proportionate share. The principal is not liable for the expenses incurred by the
The solidarity arises from the common interest of the agent in the following cases:
principals and not from the act of constituting the 1. If the agent acted in contravention of the principals
agency. instructions, unless the latter should wish to avail
WHERE PRINCIPALS ARE MEMBERS OF A NON-PROFIT himself of the benefits derived from the contract;
ASSN: 2. When the expenses were due to the fault of the agent;
3. When the agent incurred them with knowledge that an
PRINCIPALS OF A PROFIT ASSN principals here are unfavorable result would ensue, if the principal was not
personally liable on all business contracts. aware thereof;
4. When it was stipulated that the expenses would be
PRINCIPALS OF A NON-PROFIT ASSN the principals or
borne by the agent, or that the latter would be allowed
members are liable personally only under two
only a certain sum.
circumstances:
show its termination; and the burden of proving a revocation DISSOLUTION OF FIRM / CORPORATION:
or other termination of an agency is on the party asserting it.
Dissolution of a firm or corporation which entrusted (as
TERMINATION OF AGENCY: principal) or accepted (as agent) the agency, extinguishes its
juridical existence as far as the right to go on doing ordinary
ASO business is concerned, except for the purpose of winding up
1. by agreement (Nos. 5, 6.); or its affairs.
2. by the subsequent acts of the parties which may be o The fulfillment of the purpose for which the agency is
either: created ipso facto terminates the agency, even though
a. by the act of both parties or by mutual consent; or expressed to be irrevocable.
b. by the unilateral act of one of them (Nos. 1, 2.); or o When the object or purpose of the agency is
c. by operation of law. (Nos. 3, 4.) accomplished and nothing else remains to be done,
ESSENTIAL REQUISITES FOR CONTINUANCE OF AGENCY: there would be no sense in continuing the relationship
beyond that point.
1. Presence o An agency relationship between the parties may also be
2. Capacity terminated by the non-accomplishment of the object or
3. Solvency purpose within a reasonable time.
GR: Agency is extinguished ipso jure upon the death of either 3. PERIOD IMPLIED - The period may be implied from:
principal or agent. a. the terms of the agreement
b. the purpose of the agency
XPNS:
c. the circumstances of the parties
(a) That the agency is coupled with an interest (Art. 1930.);
and The modes provided in the extinguishment of agency is
not exclusive. An agency may also be extinguished by
(b) That the act of the agent was executed without the modes of extinguishment of obligations in general
knowledge of the death of the principal and the third person when applicable, like loss of the thing or novation.
who contracted with the agent acted in good faith. Agency is terminated, as a matter of law, upon outbreak
POWER TO FORECLOSE SURVIVES DEATH OF A of war.
MORTGAGOR: An agency terminates if a change in the law makes the
purpose of the agency unlawful.
1. Under Act No. 3135 - The power of sale in a deed of
mortgage is not revoked by the death of the principal LOSS / DESTRUCTION OF SUBJECT MATTER:
(mortgagor) as it is not an ordinary agency that GR: In the absence of any agreement by the parties to the
contemplates exclusively the representation of the contrary, the loss or destruction of the subject matter of the
principal by the agent but is primarily an authority agency or the termination of the principals interest therein
conferred upon the mortgagee for the latters own terminates the agents authority to deal with reference to it.
protection.
2. Under the Rules of Court - It grants three (3) remedies XPNS:
to mortgagee that can be alternatively pursued in case
(a) If it is possible to substitute other material for that which
the mortgagor dies:
was destroyed without substantial detriment to either
A. to waive the mortgage and claim the entire debt
party or if the destroyed subject matter was not in fact
from the estate of the mortgagor as an ordinary
essential to the contract, the agency may continue.
action;.
(b) A partial loss or destruction of the subject matter
B. to foreclose the mortgage judicially and prove any
deficiency as an ordinary claim; and
C. to rely on the mortgage exclusively, foreclosing the
same at any time before it is barred by prescription
without right to file a claim for any deficiency.
46 | P A R T N E R S H I P , A G E N C Y A N D T R U S T
1923: 1925:
REVOCATION BY APPOINTMENT OF NEW AGENT: REVOCATION BY ONE OF 2 / MORE PRINCIPALS:
IMPLIED REVOCATION OF PREVIOUS AGENCY: When two or more principals have granted a power of
attorney for a common transaction, any one of them may
There is implied revocation of the previous agency when the revoke the same without the consent of the others.
principal appoints a new agent for the same business or
transaction provided there is incompatibility. Any one of the principals is granted the right to revoke the
power of attorney without the consent of the others.
To be effective between the principal and the agent, it is
required that it must be communicated in some way to the (Act of one is the act of all)
agent.
NOTE: 1926:
PARTIAL REVOCATION OF GENERAL POWER BY A SPECIAL
The rights of third persons who acted in good faith and
POWER:
without knowledge of the revocation will not be
prejudiced thereby. A general power of attorney is revoked by a special one
There is no implied revocation where the appointment of granted to another agent, as regards the special matter
another agent is not incompatible with the continuation involved in the latter.
of a like authority in the first agent, or the first agent is
not given notice of the appointment of the new agent. Partial revocation of general power by a special power.
3. When a partner is appointed manager of a partnership Agency coupled with an interest not a true agency.
in the contract of partnership and his removal from the
management is unjustifiable. Persons with a proprietary interest in the subject matter of
their agency are not true agents at all.
TERMINATION OF AGENCY:
Even if agency or power is made in terms irrevocable, that Even when the agent withdraws from the agency for a valid
fact will not prevent its revocation by the principal where the reason:
agency or power is not, in fact, coupled with an interest.
he must still continue to act
REVOCABILITY OF AGENCY COUPLED WITH INTEREST: until the principal appoints a new agent to remedy the
situation caused by the withdrawal
WHERE THERE IS NO JUST CAUSE: to prevent damage / prejudice to the principal
* Both the right and the power to revoke the agency without
the agents consent is taken away; any purported revocation
has no effect
1930:
WHEN DEATH OF PRINCIPAL DOES NOT TERMINATE
Unless by express provision the authority remains revocable AGENCY:
WHERE THERE IS JUST CAUSE: GR: Agency is terminated instantly by the death of the
principal.
* Authority certainly can be revoked for a just cause
XPNS:
Art. 1800 -- The powers of a partner, appointed as manager,
in the articles of partnership are irrevocable without just or 1. If the agency has been constituted in the common
lawful cause. interest of the principal and the agent
2. If it has been constituted in the interest of the 3rd person
Agents power may be given as security without who has accepted the stipulation in his favor
transferring to the agent any interest in the subject
matter of the agency
Power or authority given as security though irrevocable
during the principals lifetime, is revoked by his death.
49 | P A R T N E R S H I P , A G E N C Y A N D T R U S T
1. Notify the principal to enable the latter reasonable 1. TRUST IMPLIES CONFIDENCE IN A RELATIONSHIP:
opportunity to take such steps as may be necessary to
meet the situation Trust is often used in reference to the confidential
2. Adopt such measures as the circumstances may aspect of any kind of a bailment or possession by one
demand in the interest of the principal person of the property of another.
It is NOT the duty of the Principals heirs to inform the agent 2. TRUST CANNOT BE ESTABLISHED IN VIOLATION OF
of Principals death LAW:
CONTINUATION BY AGENTS HEIRS OF AGENCY: A trust is the right, enforceable in equity, to the beneficial
enjoyment of property the legal title to which is in
GR: An agency calls for personal services. The agents duties another.
cannot be performed by his personal representatives, and
therefore, agency is generally terminated. NOTE:
The event of the agents death terminates the agency What distinguishes a trust from the legal relations is the
relationship at least in those instances where personal separation of the legal title and the equitable ownership of
services and skill are required or cannot be performed the subject property between two (2) or more people.
50 | P A R T N E R S H I P , A G E N C Y A N D T R U S T
2. as Agent
PERSONS INVOLVED IN THE CREATION OF AN EXPRESS
TRUST: - a trustee has been regarded as an agent of beneficiaries of
the trust at least for certain purposes, such as for the
1. Trustor (creator/settlor/grantor) the person who purpose of imputing to the beneficiaries of the trust notice
intentionally creates or establishes the trust. He given to the trustee.
transfers legal ownership of property to a person for the
benefit of a third party, who owns the equitable little; 3. as fiduciary
2. Trustee the person who takes and holds the legal title
- A trustee, like an executor or administrator, holds an office
to the property in trust solely for the benefit of another,
of trust.
with certain powers and subject to certain duties;
3. Beneficiary or cestui que trust the person who has - Executor or Administrator his duties are fixed and/or
the equitable title or interest in the property and enjoys limited by law
the benefit of the administration of the trust by the
trustee. - Trustee - usually governed by the intention of the trustor or
- He may be a natural person or a legal entity. of the parties, if established by contract.
- The trust may provide for more than one beneficiary. NOTE:
TRUST PROPERTY: A trust is not void for indefiniteness if by its terms the whole
The juridical concept of a trust arises from or is the result of property will go to the beneficiary or beneficiaries who is/are
a fiduciary relation between the trustee who holds legal title undetermined but will be determined at the termination of
and the cestui que trust who has the equitable title as the trust, at the latest.
regards certain property.
51 | P A R T N E R S H I P , A G E N C Y A N D T R U S T
1441: 1443:
CLASSIFICATION OF TRUSTS: EVIDENCE TO PROVE EXPRESS TRUST:
Trusts are either express or implied. Express trusts are GR: The burden of proving the existence of a trust is on the
created by the intention of the trustor or of the parties. party alleging its existence, it is generally required that his
Implied trusts come into being by operation of law. proof be clear and satisfactory and convincing.
CLASSIFICATION OF TRUSTS: GR: The defense of the Statute of Frauds and the defense
that express trusts cannot be proved by parole evidence.
1. CREATION:
XPNS:
a. Express trust one which can come into existence only
by the execution of an intention to create it by the trustor 1. By failure to interpose timely objections against the
or the parties; presentation of oral evidence not admissible under the
b. Implied trust one which comes into being by law
operation of law; this latter trust being either: 2. By cross-examining the adverse party and his witnesses
along the prohibited lines
1. Resulting trust one in which the intention to
create trust is implied or presumed in law; NOTE:
2. Constructive trust one imposed by law Writing is necessary to prove an express trust
irrespective of, and even contrary to any such intention concerning an immovable or any interest therein not for
for the purpose of promoting justice. validity but for purposes of proof (STATUTE OF
FRAUDS)
In other words:
To affect third persons, a trust concerning an
1. Express trust a trust intentional in fact immovable or any interest therein must be embodied in
2. Resulting trust one intentional in law a public instrument and registered in the Registry of
3. Constructive trust one imposed irrespective of Property.
intention. An express trust over personal property or any interest
therein, and an implied trust, whether the property
2. EFFECTIVITY: subject to the trust is real or personal, may be proved by
oral evidence.
a. Testamentary trust - one which is to take effect upon
the trustors death.
b. Inter vivos trust - one established effective during the
owners life.
1444:
CREATION OF EXPRESS TRUST:
3. REVOCABILITY: EXPRESS TRUST are those trusts intentionally created by
a. Revocable trust - one which can be revoked or cancelled direct and positive act of the trustor, by some writing, deed,
by the trustor or another individual given the power will, or oral declaration evincing an intention to create the
b. Irrevocable trust - one which may not be terminated trust.
during the specified term of the trust. IMPLIED TRUST are respectively founded upon an
EXPRESS ELEMENTS OF TRUST: intention of the parties to a transaction implied in law, or
upon fraud or wrong irrespective of the intention of the
1. A competent trustor and trustee; parties concerned.
2. An ascertainable trust res; and
3. Sufficiently certain beneficiaries GR: No particular words are required or essential for the
creation of an express trust, it being sufficient that a trust is
In the case of an express trust, acceptance of trust by a 1. RESULTING TRUST a trust which is raised or created
trustee is necessary to charge him with the office of the by the act or construction of law;
trustee and the administration of the trust and to vest the Presumed always to have been contemplated by the
legal title in him. parties; intention found in the nature of their transaction,
but not expressed in the deed or instrument of
Q: Can an appointed/ designated trustee decline the conveyance.
responsibility and thereby be free from any legal or equitable based on the equitable doctrine that valuable
duty or liability in the matter? consideration and not legal title determines the
A: YES. Unless a contrary intention appears in the equitable title or interest
instrument constituting the trust (Art. 1145.), declination or
refusal or disqualification of a trustee does not operate to 2. CONSTRUCTIVE TRUST a trust not created by any
defeat or void the trust; nor does it operate to vest legal as words, but by the construction of equity in order to
well as equitable title in the beneficiary. satisfy the demands of justice and prevent unjust
enrichment.
NOTE: Does not arise by agreement or intention but by
operation of law against one who, by fraud, duress, or
A contract to renounce, for a pecuniary consideration, abuse of confidence obtains or holds the legal right to
the right to act as a trustee has generally been property which he ought not, in equity and good
recognized to be against public policy. conscience, to hold.
A renunciation of a trust after its acceptance can only be
by resignation or retirement with court approval or at If a person obtains legal title to property by fraud or
least, with agreement of beneficiaries and on concealment, courts of equity will impress upon the title a so
satisfaction of all legal liabilities growing out of the called constructive trust in favor of the defrauded party.
acceptance of the trust.
A constructive trust is not a trust in a technical sense.
When a person administering property in the character
of trustee inconsistently assumes to be holding in his It is substantially an appropriate remedy against unjust
own right, this operates as renunciation of the trust and enrichment.
the beneficiaries in the property are entitled to maintain
an action to declare their right and remove the unfaithful 3. EXPRESS TRUST a beneficiary and a trustee are linked
trustee. by a confidential or fiduciary relation
53 | P A R T N E R S H I P , A G E N C Y A N D T R U S T
IMPLIED TRUST founded upon equity. NOTE: constructive trust is subject to prescription; once the
resulting trust is repudiated, it is converted into a
CONSEQUENCES OF AN IMPLIED TRUST ARE: constructive trust, subject to prescription.
Principally, the implied trustee shall deliver the Action for reconveyance will not prescribe as long as the
possession and reconvey title to the property to the property stands in the name of the trustee.
beneficiary of the trust; and
pay to the latter the fruits and other net profits received REPUDIATION OF TRUST
from such property during the period of wrongful
1. BY TRUSTEE possession of a trustee is possession of
holding and otherwise, to adjust the equities between
the cestui que trust and, therefore, cannot be a good
the trustee holding the legal title and the beneficiary of
ground for title by prescription.
the trust.
Doctrine of implied trust if based on an illegal contract
Express trusts disable the trustee from acquiring for his
cannot be invoked; being founded in equity, a trust can
own benefit the property committed to his management
never result from acts violative of the law.
or custody, unless he repudiates the trust and makes
DISTINCTIONS BETWEEN EXPRESS TRUSTS AND IMPLIED such repudiation known to the beneficiary.
TRUSTS: trustee may claim title by prescription founded on
adverse possession where it appears that:
Express Trust Implied Trusts
Creation of ** created by ** by operation a. he has performed open and unequivocal acts of
trust the intention of of law. repudiation amounting to an ouster of the cestui que
the trustor or **intent is to be trust or the other co-owners;
parties taken from the b. such positive acts of repudiation have been made
**intention is circumstances
known to the cestui que trust or the other co-
clear
owners;
c. the evidence should be clear and conclusive
54 | P A R T N E R S H I P , A G E N C Y A N D T R U S T
The period will commence to run from and after said action for reconveyance is a legal remedy granted to a
repudiation and the knowledge thereof by the cestui que rightful owner of land wrongfully or erroneously
trust. registered, to compel the latter to reconvey the land to
him even after one (1) year from the issuance of the
2. By Third Persons a third person who holds actual,
decree of registration, for such action does not seek to
open, public, and continuous possession of a land,
set aside the decree which is respected as
adversely to the trust, acquires title to the land by
incontrovertible and no longer open to review, but
prescription as against such trust.
instead seeks to transfer or reconvey the land wrongfully
ACTS AMOUNTING TO REPUDIATION OF TRUST: or erroneously registered in another persons name from
said registered owner to the rightful owner or to one with
(1) ACTS NOT CONSIDERED ACTS OF REPUDIATION a better right
acts adverse to strangers may not be adverse to the
cestui que trust. (2) WHERE PERSON CLAIMING TO BE OWNER IN ACTUAL
POSSESSION OF PROPERTY the right to seek
a. Mere silent possession of trustee unaccompanied reconveyance in this case does not prescribe
by acts amounting to an ouster of of the cestui que
Reason: his undisturbed possession gives him the
trust cannot be construed as adverse possession.
continuing right to seek the aid of a court of equity to
ascertain and determine the nature of the adverse claim of a
b. mere receipt of rents and profits from the property,
third party and its effect on its own title
erection of buildings, payment of land taxes, do not
by themselves serve as proof of exclusive (3) WHEN PRESCRIPTIVE PERIOD BEGINS TO RUN 10
ownership year period of prescription of an action for reconveyance of
property (real or personal) based on an implied trust starts
c. action to compel the trustee to convey property from the moment the law creates the trust (when the cause
registered in his name for the benefit of the cestui of action arises)
que trust does not prescribe unless the trustee
repudiates the trust (a) Action for reconveyance of real property based on
constructive trust resulting from its fraudulent
d. denial of the trust made by a trustee who was a registration in the name of another-- the action may be
minor at the time of repudiation does not abrograte filed from the discovery of the fraud or notice thereof.
the trust relations constitutes repudiation; lapse of 10 years is
sufficient to vest title by adverse possession
(2) ACTS CONSIDERED ACTS OF REPUDIATION In (This rule applies only to the remedy of reconveyance which
Pangan vs CA, the SC laid down specific acts which are is available when of registration of property procured by
considered acts of repudiation: fraud, thereby creating a constructive trust.)
a. Filing by a trustee of an action in court against the (b) Where the ownership of land was sold fictitiously to
trustor to quiet title to property, or for recovery of avoid a foreclosure of mortgage-- the te10-year
ownership thereof prescriptive period should be counted from the date of
b. The issuance of the certificate of title would recording of the release of mortgage.
constitute an open and clear repudiation of any
trust, and in the lapse of more than 20 years, open (c) Where legitimate owner of the subject property which
and adverse possession as owner would certainly was fraudulently registered in the name of another had
suffice to vest title by prescription. always been in possession thereof---constructive
c. An action for the reconveyance of land based on notice rule cannot be applied; the action is
implied or constructive trust prescribes within 10 imprescriptible.
years.
d. The prescriptive period may only be counted from (d) Where the registration under the Torrens System
the time petitioners repudiated the trust relation in secured through fraudulent misrepresentation-- from
1955 upon the fi ling of the complaint for recovery of the time the true owner actually discovered the act of
possession defraudation.
e. There is clear repudiation of a trust when one who
is an apparent administrator of property causes the (e) an action for reconveyance of real property based
cancellation of the title thereto exclusively on fraud prescribes in four 4 years from the
f. when the defendants, alleged co-owners of the discovery of the fraud;
property in question, executed a deed of partition If based on implied or constructive trust--10 years
and on the strength thereof obtained the from the alleged fraudulent registration or date of
cancellation of the title in the name of their issuance of the certificate of title
predecessor bad faith in securing title over real property--
prescriptive period reckoned from the actual
PRESCRIPTIBILITY OF ACTION FOR RECONVEYANCE discovery of the fraud
BASED ON IMPLIED TRUST:
(4) WHERE RIGHTS OF THE BENEFICIARY ARE (3) SALE TO EVADE SOME RULE OF LAW:
RECOGNIZED BY THE TRUSTEE 10 years from the time
the trustee begins to assert his title or repudiate the trust What the parties then cannot expressly provide in their
contracts for being contrary to law, morals, good customs,
When failure to pay share of one of co-owners as public order, or public policy, they cannot impliedly or
promised by new co-owner constitute an act of implicitly do so in the guise of a resulting trust.
repudiation:
trust is invalid if its enforcement would be against public
Where there is an unequivocal act of refusal to make
policy, even though its performance does not involve the
payment, or a definite reneging from the promise.
commission of a criminal or tortious act by the trustee.
(5) WHEN TACKING OF POSSESSION NOT PERMITTED
Ex: property sold to X, who acquires title but price is paid by
only where there is privity between successive possessors;
Y.
does not apply where possessor came into possession of
the property in dispute by virtue of sale that is null and void By operation of law, an implied trust arises with X as the
ab initio trustee and Y, the beneficiary.
(6) WHERE PROPERTY IN POSSESSION OF THIRD PERSON **If X is the legitimate or illegitimate child of Y, no trust is
limitation upon the right of beneficiary to recover title over implied by law.
property held in trust: same must not have been transferred
to an innocent purchaser for value in which event, his PURCHASE BY A PERSON WITH HIS OWN FUNDS FOR
remedy is to ask for damages ANOTHER
1. TRUST IN FAVOUR OF LENDER: This expressly allows the 1st co-owner to register his
proportionate share in the name of the 2 nd co-owner in
GR: The use of borrowed money in making a purchase does
whose name the property is registered.
not raise a resulting trust in favor of the lender even where
The second co-owner serves as a legal trustee of the
the money is loaned to enable the borrower to purchase the
first co-owner insofar as the proportionate share of the
property in question and the borrower promises, but fails, to
latter is concerned.
execute a mortgage on the property after it is purchased to
secure the loan. REQUISITES FOR ART. 1452 TO APPLY:
2. TRUST IN FAVOR OF BORROWER: 1. The 1st co-owner needs to show that there is common
consent among the purchasing co-owners to put the
When money is borrowed to purchase property, and the legal title to the purchased property in the name of the
conveyance is made, not to the borrower, but to the 2nd co-owner for the benefit of all.
lender who takes title to the property in his own name in 2. Property must be capable of private ownership.
order to secure the loan, a resulting trust in the property,
binding the lender or payor (trustee) in favor of the
borrower (beneficiary), arises. IN THIS CASE, THE REAL
1453:
PURCHASER IS THE BORROWER CONVEYANCE UNDER A PROMISE TO HOLD FOR, OR
TRANSFER TO ANOTHER:
An agreement between the parties whereby the property
The trust established here is based on the PROMISE /
purchased shall be considered sold to the trustee in
REPRESENTATION of the grantee to hold the property
case the beneficiary fails to reimburse him is
conveyed for, or transfer it to another or the generator.
tantamount to a pactum commissorium, which is
The grantee is estopped from asserting ownership in
expressly prohibited by Art. 2208 of the NCC.
himself by denying him representation as against the
person for whose benefit the implied trust is created.
1451: This rule is founded upon EQUITY, where on the faith of
LEGAL TITLE TO LAND INHERITED BY HEIR PLACED IN the agreement or understanding, the grantee is enabled
NAME OF ANOTHER: to gain an advantage in the purchase of the property /
where the consideration / part thereof has been
SUCCESSION a mode of acquisition whereby property, furnished by or for another.
rights and obligations to the extent of the value of the
inheritance of a person are transmitted through his death to Ex:
another or others either thru a will / by operation of law.
1. Where property is taken by a person under an agreement
These are transmitted from the moment of decedents
to hold it for or convey it to another or to the grantor, or
death.
on certain conditions, a trust results for the benefit of
Where a person who has acquired land by inheritance such other or his heirs, which equity will enforce
causes the legal title to be placed in the name of another, according to the agreement.
a RESULTING TRUST is presumed in law in favor of the
heir (true owner). 2. A person who, before consolidation of property in the
The heir himself by his voluntary action, causes the purchaser under a contract of sale with pacto de retro,
registration of his legal title under the name of another agrees with the vendors to buy the property and
person administer it until all debts constituting an encumbrance
thereon shall have been paid after which the property
CONSTRUCTIVE TRUST Where through fraudulent shall be turned back to the original owners, is bound by
representations / by pretending to be the sole heir of the such agreement; upon buying the property under these
deceased, an heir succeeded in having the original title of a circumstances, such person becomes in effect a trustee
land in the name of the deceased cancelled and a new one and is bound to administer the property in this character.
is issued in his name, enabling him to possess the land and
get its produce.
1454:
No trust relationship can exist over a property in favor of ABSOLUTE CONVEYANCE TO A PERSON TO SECURE
an heir as beneficiary where it appears that the PERFORMANCE OF GRANTORS OBLIGATION:
deceased predecessor had no title to the property in
question. Ordinarily, the creditor will require the execution by the
debtor of a mortgage or pledge as security for the
There is a purchase by a trustee, guardian or other He may not successfully set up prescription as a
person holding a fiduciary relationship of property defense.
Where he takes conveyance in his own / 3rd persons
name, using trust funds for the purchase Mistake / fraud that results in an implied trust being
This establishes a RESULTING TRUST for the impressed upon the property involved, may be the
benefit of the person to whom the funds belong. mistake / fraud of a 3rd person, and need not be a
This rule goes to the fact of consideration, and has mistake / fraud committed directly by the trustee
nothing to do with fraud / breach of confidence. himself under the implied trust.
A constructive trust arises on a purchase with the
use of trust funds where there is fraud / breach of NOT TRUST IN THE TECHNICAL SENSE:
confidence This is constructive trust arising by operation of law
The rule in this Art. Is entirely independent of It is not trust in the technical sense
whether any fraud has intervened.
In a typical trust, confidence is reposed in one person for
No fraud, in fact, need be shown, and no excuse will the benefit of another respecting property which is held
be heard from the trustee. by the former for the benefit of the later
It is created by means of affording relief to the innocent,
1456: and constitutes a remedial device through which
preference of self is made subordinate to loyalty to
ACQUISITION OG PROPERTY THROUGH MISTAKE /
FRAUD: others
If property is acquired through the mistake / fraud, the REMEDY OF OWNER UNDER THE TORRENS SYSTEM:
person obtaining it is, by force of law, considered a trustee Where the land owner whose property has been
of an implied trust for the benefit of the person from whom wrongfully / erroneously registered under the Torrens
the property comes. system in anothers name
CONSTRUCTIVE TRUST CREATED: Remedy is: after 1 year from date of the decree of
registration, not set aside the decree but, respecting it as
A. This is created by law where a party acquires through incontrovertible and no longer open to review, to bring
mistake / fraud a legal title property to which another an ordinary action in the ordinary court of justice for
has a better right in favor of the aggrieved party who is reconveyance / if the property has passed into the
truly entitled to it / his successors-in-interest, and hands of an innocent purchaser for value, for damages.
grants to the latter the right to recover his / their title over Action for reconveyance does not prescribe unless and
the property by way of reconveyance while the same has until the property is registered / the instrument affecting
not yet passed to an innocent purchaser for value, in it is inscribed in accordance with law.
keeping with the primary principle of law and equity that
one should not unjustly enrich himself at the expense of TRUSTEE CANNOT REPUDIATE TRUST:
another.
GR: Principle of Conclusiveness of a certificate of title
B. The presence of fraud / mistake creates an implied trust XPN: The principle that a trustee who takes a Torrens title in
for the benefit of the rightful and legal owner giving him his name cannot repudiate the trust by relying on the
the right to seek reconveyance of the property. registration
What must be alleged in the complaint are: The beneficiary has the right to enforce the trust,
1. That the plaintiff was the owner of the property notwithstanding the irrevocability of the Torrens title,
2. That the defendant had illegally dispossessed him and the trustee and his successors-in-interest are
of the same bound to execute the deed of reconveyance.
Torrens system was never designed to shield and
The creation of a constructive trust is an appropriate protect on who had committed fraud /
remedy against unjust enrichment. misrepresentation and thus holds title in bad faith
It does not create / vest title but only confirms and
C. Ex: A buyer of a parcel of land at a public auction to
records title already existing and vested
satisfy a judgment against a widow, acquired only
interest on the land corresponding to the share of the Where one does not have any rightful claim over a real
widow and the other half belonging to the heirs of her property, the Torrens system of registration can confirm
husband became impressed with a constructive trust in / record nothing
behalf of said heirs.
1457:
PROOF OF IMPLIED TRUST: