ATENEO

DE MANILA
LAW SCHOOL
AGENCY &TRUSTS,PARTNERSHIPS DEANCESAR L. VILLANUEVA
&JOINT VENTURES1 ATTY. JOSE U. COCHINGYAN III
FIRST SEMESTER, SY 2019-20 ATTY. TERESA V. TIANSAY

A.LAW ON AGENCY
I. NATURE AND OBJECT OF AGENCY
1. Definition of ―Agency‖; Parties in an Agency Relationship (Art. 1868)
Under Art. 1868 of the Civil Code, an ―agency‖ is a contract whereby ―a person [agent] binds
himself to render some service or to do something in representation or on behalf of another
[principal], with the consent or authority of the latter.‖
Spanish term for ―principal‖ is ―mandante‖; and among the terms used for ―agent‖ are
―mandatario‖,―factor‖, ―broker‖, ―attorney-in-fact‖, ―proxy‖, ―delegate‖ or ―representative.‖

2. Root and Objectives of Agency (Arts. 1317 and 1403[1])

General rule is that what a man may do in person he may do through another. Thus, a
stockholder‘s right of inspection can be exercised either by himself or through an attorney-in-
fact.xPhilpotts v. Phil. Mfg. Co., 40 Phil 471 (1919).
Underlying principle of the contract of agency is to accomplish results—to do a great variety of
things—by using the services of another. Its aim is to extend the personality of the principal or the
party for whom another acts and from whom such agent derives the authority to act. xWestmont
Investment Corp. v. Francis, Jr., 661 SCRA 787 (2011).
Pursuant to Arts. 1317 and 1403(1) of the Civil Code, a contract entered into in the name of
another by one who has no authority, or who has acted beyond his powers, shall be
unenforceable, unless it is ratified, expressly or impliedly, by the person on whose behalf it has
been executed, before it is revoked by the other contracting party.‖ One can sell only what one
owns or is authorized to sell, and the buyer can acquire no more right than what the seller can
transfer legally. Accordingly, Spouses Bitte acquired no better title than what Andrea had over the
property, which was nil.xBitte v. Jonas, 777 SCRA 489 (2015).2

3. Elements of the Contract of Agency: Rallos v. Felix Go Chan & Sons Realty Corp., 81
SCRA 251 (1978) :
(a)Consent, express or implied, of the parties to establish the relationship;
(b)Object, which is theExecution of Juridical Acts in Relation to Third Parties;
(c)Agent acts as a representative and not for himself; and
(d)Agent acts within the scope of his authority.3

a. CONSENT (Arts. 1317 and 1403[1])

The basis for agency is representation; on principal‘s part, there must be an actual intention to
appoint,or such intention is naturally inferable from his words or actions; on part of the agent, there
must also be an intention to accept the appointment and act on it; in the absence of either of such
intents, there is no agency. xDominion Insurance Corp. v. CA, 376 SCRA 239 (2002).4
In agency, principal‘s personality is extended through the facility of the agent, who by legal
fiction becomes the principal, authorized to perform all acts which latter would have him do. Such a
relationship can only be effected with principal‘s consent, which must not, in any way, be
compelled by law or by any court. xLitonjua, Jr. v. Eternit Corp., 490 SCRA 204 (2006).

b. SUBJECT MATTER: Service – Execution of Juridical Acts in the Name of the Principal
and Within the Scope of Authority
It is clear from Art. 1868 that the basis of agency is representation. One factor which most
clearly distinguishes agency from other legal concepts is control: the agent agrees to act under the
control or direction of the principal; indeed, the very word ―agency‖ has come to connote control by
the principal. xVictorias Milling Co. v. Court of Appeals, 333 SCRA 663 (2000).5

1
Unless otherwise indicated, all references to articles pertain to the New Civil Code of the Philippines.
2
MCIAA v. Heirs of GavinaJjordan, 778 SCRA 250 (2016).
3
Yu Eng Cho v. Pan American World Airways, 328 SCRA 717 (2000); Manila Memorial Park v. Linsangan, 443 SCRA 377 (2004); Eurotech
Industrial Technologies v. Cuizon, 521 SCRA 584 (2007); Loadmasters Customs Services v. Glodel Brokerage Corp., 639 SCRA 69 (2011);
Urban Bank v. Pena, 659 418 (2011); Westmont Investment Corp. v. Francis, Jr., 661 SCRA 787 (2011); Villoria v. Continental Airlines, 663
SCRA 57 (2012); Jusayan v. Sombilla, 746 SCRA 437 (2015); Yulo v. Bank of PI, G.R. No. 217044, 16 Jan. 2019.
4
Urban Bank v. Peña, 659 SCRA 418 (2011).
5
Amon Trading Corp. v. CA, 477 SCRA 552 (2005).
 No contract of agency exists where a common carrier leases the trucks of another carrier, for
there is no power of representation by one with respect to the other nor do the terms of agreement
provide for any authority to represent the other. xLoadmasters Customs Services v. Glodel
Brokerage Corp., 639 SCRA 69 (2011).
c. CONSIDERATION: Agency Presumed to Be for Compensation,
Unless ThereIs Proof to the Contrary(Art. 1875)
Old Civil Code: Service rendered by the agent was deemed to be gratuitous; if it were true that
agent and principal had an understanding that the agent was to receive compensation aside from
the use and occupation of the houses of the deceased, it cannot be explained how the agent could
have rendered services for eight years without receiving and claiming any compensation from the
deceased. xAguña v. Larena, 57 Phil 630 (1932).
New Civil Code: Prescinding from the obligatory force of agency, the fact that ―other agents‖
intervened in the consummation of the sale and were paid their respective commissions could not
vary the terms of the agency with the plaintiff-agent who remains entitled to a 5% commission
based on the selling price. xDe Castro v. Court of Appeals, 384 SCRA 607 (2002).

4. ESSENTIAL CHARACTERISTICS OF AGENCY

a. Nominate and Principal
Acts done by one person in behalf of another who authorized such acts is the essential nature
one of agency—it will be an agency whether or not parties understood the exact nature of the
relation. The fact that two agents enter into a contract of behalf of their principals, even if principals
do not actually and personally know each other, does not affect their juridical standing as agents,
since the very purpose of agency is to extendprincipal‘s personality of through the facility of the
agent.xDoles v. Angeles, 492 SCRA 607 (2006).
Even when the Agreement provides that the manager shall be considered an independent
contractor and not an agent, nonetheless since the manager is expressly authorized to solicit and
remit offers to purchase interments spaces, it covers an agency arrangement. xManila Memorial
Park Cemetery v. Linsangan, 443 SCRA 377 (2004).
b. Unilateral6andPrimarily Onerous (Art. 1875)
Agency is presumed to be for compensation; when agent performs services for principal at
latter‘s request, principal’s intent to compensate the agent will be inferred from the principal's
request for the agent’s service. xUrban Bank v. Peña, 659 SCRA 418 (2011).
c. Consensual (Arts. 1869 and 1870)
In Agency, principal‘s personality is extended through the facility of the agent—who, by legal
fiction, becomes the principal, authorized to perform all acts which the latter would have him do.
Such a relationship can only be effected with the consent of the principal, which must not, in any
way, be compelled by law or by any court. Orient Air Services v. CA, 197 SCRA 645 (1991).7
d. Personal, Representative and Derivative (Art. 1868)
Agency is basically personal, representative, and derivative in nature. The authority of the agent
emanates from the powers granted to him by his principal; his act is the act of the principal if done
within the scope of the authority. Qui facit per aliumfacit per se. ―He who acts through another acts
himself.‖ Consequently, agency is extinguished by the death of the principal or agent. Rallos v.
Felix Go Chan & Sons Realty Corp., 81 SCRA 251 (1978).
CONSEQUENTLY:
A co-owner does not become an agent of other co-owners, and any exercise of an option to
buy a piece of land transacted with one co-owner does not bind other co-owners. The most
prudent thing for buyer should have done was to ascertain the extent of said co-owner‘s
authority; being negligent, buyer cannot seek relief on the basis of a supposed agency.
xDizon v. Court of Appeals, 302 SCRA 288 (1999).
Article 1897 reinforces the doctrine that an agentis not personally liable to the party with
whom he contracts; it is the principal who is liable on the contracts of the agent. xEurotech
Industrial Technologies, Inc. v. Cuizon, 521 SCRA 584 (2007).8
When an agent purchases the property in bad faith, the principal is deemed a purchaser in
bad faith. xCaram, Jr. v. Laureta, 103 SCRA 7 (1981).
Under principle that knowledge of agent is knowledge by principal, spouses cannot contend
lack of knowledge of the rules upon which they received their tickets from the airline
company since their travel agent, who handled their travel arrangements, was duly informed
by the airline representatives. xAir France v. Court of Appeals, 126 SCRA 448 (1983).

6
“As regards whether the agency has a unilateral or bilateral character, it is evident, in our considered opinion, from the point of view of the
Code, that the totality of cases involving agency will always be bilateral, not because, as one ordinarily supposes, there will be obligations
exclusively for the agent and rights exclusively for the principal. It is clear that at times it happens this way, but what is common in agency with
other contracts is the mutuality and the reciprocity that arises from the existence of an obligation against another obligation, a right against
another right.”11 MANRESA. COMENTARIOS AL CODIGO CIVIL ESPAÑOL 443 (1950)
7
Litonjua, Jr. v. Eternit Corp., 490 SCRA 204 (2006); Villoria v. Continental Airlines, 663 SCRA 57 (2012).
8
Tan v. Engineering Services, 498 SCRA 93 (2006); Country Bankers Insurance v Keppel Cebu Shipyard, 673 SCRA 427 (2012).

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 There is a rationale in the contract of agency, which flows from the ―doctrine of
representation,‖ that notice to the agentis notice to the principal. xBank of P.I. v. Laingo, 787
SCRA 541 (2016).
e. Fiduciary and Revocable
Uncle who was the agent/administrator of property belonging to a niece had procured Torrens
title in his own name is deemed to be a trustee, and must surrender the property and transfer title
to the niece. The relations of an agent to his principal are fiduciary and agent is estopped from
acquiring or asserting a title adverse to that of the principal. Consequently, an action in
personamwill lie against an agent to compel him to return or retransfer to his principal, or the
latter‘s estate, the real property committed to his custody as such agent and also to execute the
necessary documents of conveyance to effect such retransfer. xSeverino v. Severino, 44 Phil. 343
(1923).
Agency is generally revocable as it is a personal contract of representation based on trust and
confidence reposed by the principal on his agent. As the power of the agent to act depends on the
will and license of the principal he represents, the power of the agent ceases when the will or
permission is withdrawn by the principal. Thus, generally, the agency may be revoked by the
principal at will. xRepublic v. Evangelista, 466 SCRA 544 (2005).
f. Agency Is a ―Preparatory Contract‖– The object of agency is for the agent to enter on behalf
of the principal and within the scope of his authority into juridical acts with third parties. Rallos
v. Felix Go Chan & Sons Realty Corp., 81 SCRA 251 (1978).

5. DISTINGUISHED FROM OTHER SIMILAR CONTRACTS:

a. FROM BROKERAGE
Difference in the Nature of the “Service” Covered: Real estate broker is one who negotiates the
sale of real properties. His businessis only to find a purchaser who is willing to buy the land upon
terms fixed by the owner—he has no authority to sign the contract in behalf of the
principal.xLitonjua, Jr. v. Eternit Corp., 490 SCRA 204 (2006).9
On the Duties and Obligations Assumed:―The duties and liability of a broker to his employer
are essentially those which an agent owes to his principal. Consequently, the decisive legal
provisions on determining whether a broker is mandated to give to the employer the propina or gift
received from the buyer would be Articles 1891 and 1909 of the Civil Code.‖ (NOTE: Yet the facts
did indicate clearly that the real estate broker was appointed as an exclusive agent.) xDomingo v.
Domingo, 42 SCRA 131 (1971).
Since brokerage relationship is necessarily a contract for the employment of an agent,
principles of contract law also govern the broker-principal relationship [?]. xAbacus Securities
Corp. v. Ampil, 483 SCRA 315 (2006).
Entitlement to the Commission Agreed Upon:A real estate broker‘s business is only to find
a bona fide purchaser. The settled rule is that, in the absence of an express stipulation on the
matter, the broker becomes entitled to hiscommission only when he brings to his principal a party
who is able and willing to take the property and enter into a valid contract upon the terms then
named by the principal, although the particulars may be arranged and the matter negotiated and
completed between the principal and the purchaser directly. Macondray& Co. v. Sellner, 33
Phil. 370 (1916).
Thus, when the terms of the brokerage arrangement is to the effect that entitlement to the
commission was contingent on the purchase by a customer of a fire truck, the implicit condition
being that the broker would earn the commission if he was instrumental in bringing the sale about.
Since the agent had nothing to do with the sale of the fire truck, he is not entitled to any
commission at all. Guardex v. NLRC, 191 SCRA 487 (1990).
Agent receives a commission upon successful conclusion of a sale; whereas, broker earns his
pay merely by bringing the buyer and the seller together, even if no sale is eventually made. [?]
xHahn v. Court of Appeals, 266 SCRA 537 (1997); Tan v. Gullas, 393 SCRA 334 (2002).

Doctrine of ―Efficient Procuring Cause‖ –In an agency to sell where the entitlement of the
commission is subject to the successful consummation of the sale with the buyer located by agent,
said agent would still be entitled to the commission on sales consummated after the expiration of
his agency when the facts show that the agent was the ―efficient procuring cause in bringing about
the sale‖. Pratts v. Court of Appeals, 81 SCRA 360 (1978).
Although sale of object of agency was perfected three days after expiration of the agency,
agent would still be entitled to receive commission stipulated based on doctrine in Pratts v. Court of
Appeals, that when agent was the efficient procuring cause in bringing about the sale he was
entitled to compensation. Manotok Bros. Inc. v. Court of Appeals, 221 SCRA 224 (1993).
Although buyer was introduced by broker to seller, nonetheless broker was not entitled to
commission even with the consummation of the sale because the lapse of the period of more than
one (1) year and five (5) months between the expiration of broker‘s authority to sell and the
consummation of the sale to the buyer, is significant index of the broker‘s non-participation in the

9
Schmid and Oberly, Inc. v. RJL Martinez, 166 SCRA 493 (1988).

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 really critical events leading tothe consummation of said sale. Broker was not the efficient
procuring cause in bringing about the sale and therefore not entitled to the stipulated broker‘s
commission. Inland Realty v. Court of Appeals, 273 SCRA 70 (1997).
―Procuring cause‖ refers to a cause originating a series of events which, without break in their
continuity, result in the accomplishment of the prime objective of the employment of the broker—
producing a purchaser ready, willing and able to buy on the owner‘s terms. To be regarded as the
―procuring cause‖ to be entitled to a commission, a broker‘s efforts must have been the foundation
on which the negotiations resulting in a sale began. Medrano v. CA, 452 SCRA 77 (2005).10
To be regarded as the procuring cause of a sale, a broker‘s efforts must have been the
foundation of the negotiations which subsequently resulted in a sale. ―The broker must be the
efficient agent or the procuring cause of the sale. The means employed by him and his efforts must
result in the sale. He must find the purchaser, and the sale must proceed from his efforts acting as
broker.‖When there is a close, proximate and causal connection between the agent's efforts and
the sale of the property, the agents are entitled to their commission. Ticong v. Malim, 819
SCRA 116 (2017).
b. From Contract of Employment
The relationship betweencorporation which owns and operates a theatre, and security guard it
hires to maintain the peace and order at the entrance of the theatre is not that of principal and
agent, because the principle of representation was in no way involved. xDela Cruz v. Northern
Theatrical Enterprises, 95 Phil 739 (1954).11
The concept of a single person having the dual role of agent and employee must be viewed
with caution especially when it is devoid of any jurisprudential support or precedent. Read
without any clear understanding of fine legal distinctions, appears to speak of control by insurance
company over its agents. They are, however, controls aimed only at specific results in undertaking
an insurance agency, and are, in fact, parameters set by law in defining an insurance agency and
the attendant duties and responsibilities an insurance agent must observe and undertake. They do
not reach the level of control into the means and manner of doing an assigned task that
characterizes an employment relationship. xTongko v. Manufacturers Life Insurance Co. (Phils.),
640 SCRA 395 (2011).

c. From Contract for a Piece-of-Work

That operator remove or terminate him at will; that the service station belonged to the
company and bore its tradename and operator sold only the products of the company; that
equipment used by operator belonged to the company and were loaned to operator and company
took charge of their repair and maintenance; that an employee of the company supervised operator
and conducted periodic inspection of the company‘s gasoline and service station; that the price of
the products sold by the operator was fixed by the company and not by the operator; the finding of
the Court of Appeals that the operator was an agent of the company and not an independent
contractor should not be disturbed. xShell v. Firemen’s Ins. Co., 100 Phil 757 (1957).
d. Agency to Sell Differentiated from a Contract of Sale
When agency agreement compels agent to pay for the products received from principal within
the stipulated period, even when there has been no sale thereof to the public, therelationship is not
one of agency to sell, but one of actual sale. A true agent does not assume personal responsibility
for the payment of the price of the object of the agency; his obligation is merely to turn-over to the
principal the proceeds of the sale once he receives them from the buyer. Consequently, since the
underlying agreement is not an agency agreement, it cannot be revoked at the will of the principal.
xQuiroga v. Parsons, 38 Phil 502 (1918).
When under the agreement the agent becomes responsible for any changes in the acquisition
cost of the object he has been authorized to purchase from a supplier in the United States, the
underlying agreement is not a contract of agency to buy, since a true agent does not bear any risk
relating to the subject matter or the price. Being a contract of sale and not agency, any profits
realized by the purported agent from discounts received from the American supplier pertained to it
with no obligation to account for it, much less to turn it over, to the purported principal.
xGonzaloPuyat v. Arco, 72 Phil. 402 (1941).
Primordial difference between a sale and an agency to sell is the transfer of ownership or title
over the subject property. In an agency, the principal retains ownership and control over the
property and the agent merely acts on the principal‘s behalf and under his instructions in
furtherance of the objectives for which the agency was established. On the other hand, the contract
is clearly a sale if the parties intended that the delivery of the property will effect a relinquishment of
title, control and ownership in such a way that the recipient may do with the property as he pleases.
xSpousesViloria v. Continental Airlines, 663 SCRA 57 (2012).

e. From Agricultural Tenancy

There is no agency relationship existing in a tenancy arrangement over agricultural land, since the
tenant farmer, who has possession of the land,acts for his sole benefit and has sole discretion in all
matters of agricultural production. He is not under the control of landowner, whose only right is to

10
Phil. Healthcare Providers (Maxicare) v. Estrada, 542 SCRA 616 (2008)
11
Mamaril v. Boy Scouts of the Philippines, 688 SCRA 437 (2013).

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 demand delivery of agreed number of sacksof palay, with no sayonhow cultivation could be improved to
have better yields. xJusayanv.Sombilla, 746 SCRA 437 (2015).

II. FORMS AND KINDS OF AGENCY

1. How Agency May Be Constituted (Art. 1869)
There are legal provisions which require certain contractual formalities: First, when form is
required for the validity of the contract; second, when it is required to make the contract effective as
against third parties; third, when the form is required for the purpose of proving the contract‘s
existence. A contract of agency to sell on commission basis does not belong to any of these three
categories, hence it is valid and enforceable in whatever form in may be entered into.
Consequently, when the agent signs her signature on any face of the receipt showing that she
receives the jewelry for her to sell on commission, she is bound to the obligations of an agent.
Lim v. Court of Appeals, 254 SCRA 170 (1996).
Where there is no showing that Brigida consented to or authorized Deganos‘ acts, any
attempt to foist liability on her through the supposed agency relation with Deganos is inutile.
Petitioners were grossly negligent to entrust to Deganoson at least six occasions as evidenced by
receipts, several pieces of jewelry of substantial value without requiring a written authorization from
his alleged principal. Bordador v. Luz, 283 SCRA 374 (1997).
a. From Side of the Principal (Art. 1869)
An agency may be expressed or implied from the principal‘s act, from his silence or lack of
action, or failure to repudiate the agency. xLitonjua, Jr. v. Eternit Corp., 490 SCRA 204 (2006).
Where buyers failed for years to clear their title tothe property purchased and allowed seller-a-
retro to remain in possession in spite of expiration ofredemption period;the execution of
memorandum of repurchase by buyers‘ son-in-law, which stood for yearsunrepudiated, constituted
an implied agency under Art.1869, from their silence.xConde v. CA, 119 SCRA 245 (1982).
Where the principal has acquiesced in the act of his agent for a long period of time, and has
received and appropriated to his own use the benefits result in from the acts of his agent, courts
cannot declare the acts of the agent null and void. xLinan v. Puno, 31 Phil. 259 (1915).
Agency can be express or implied from the acts of the principal, from his silence or lack of
action, or his failure to repudiate the agency knowing that another person is acting on his behalf
without authority. The question is ultimately one of intention and may be inferred from all the
dealings between the parties. In this case, the bank client had an ongoing arrangement with the
bank officer to use her savings account to render bridge financing to bank customers who were
waiting for the release of their funds from the bank.Clearly, an agency was formed because the
bank officer bound herself in considerationfor a percentage of the profit as her commission, to
render some service in representation of the client, in the furtherance of their business
pursuit.xOliver v. Philippine Savings Bank, 788 SCRA 189 (2016).
b. From Side of the Agent (Arts. 1870, 1871 and 1872)
Whether or not an agency has been created is determined by the fact that one is representing
and acting for another. The law makes no presumption of agency; proving its existence, nature and
extent is incumbent upon the person alleging it. xUrban Bank v. Peña, 659 SCRA 418
(2011);xJusayan v. Sombilla, 746 SCRA 437 (2015).
c. From Side of Third Parties/Public (Arts. 1873 and 1408; 1921 and 1922)
(i) Agency Is Not Presumed to Exist – Since the basis for agency is representation, every
person dealing with an agent is put upon inquiry and must discover upon his peril the agent‘s
authority. xSafic Alcan & Cie. v. Imperial Vegetable Oil Co., 355 SCRA 559 (2001).
Agency is not legally presumed, and proving its existence, nature and extent is incumbent
upon the person alleging it. xYun Kwan Byung v. PAGCOR, 608 SCRA 107 (2009).12
Persons dealing with an agent must ascertain not only the fact of agency, but alsothenature
and extent of his authority—he must require the presentation of the power of attorney, or the
instructions as regards the agency. According to Art.1990 of New Civil Code, insofar as third
persons are concerned, an act is deemed to have been performed within the scope of the
agent’s authority, if such as is within the terms of the power of attorney, as written. Salvador
v. Rabaja, 749 SCRA 654 (2015).13
(ii) Agency by Estoppel With Respect to Third Parties – Registered owner who placed in the
hands of another an executed deed of transfer of registered land has effectively represented to
a third party that the holder of such document is authorized to deal with the property. xBlondeau
v. Nano, 61 Phil. 625 (1935).14CONSEQUENTLY:
When owner of a hotel/café business allows a person to use the title ―managing agent‖ and
allows such person to take charge of the business during his prolonged absence, then such
12
Nevada v. Casuga, 668 SCRA 441 (2012); Jusayan v. Sombilla, 746 SCRA 437 (2015).
13
Woodschild Holdings, v. Roxas Electric and Construction Co., 436 SCRA 235 (2004); Manila Memorial Park v. Linsangan, 443 SCRA 377
(2004); Country Bankers Insurance v Keppel Cebu Shipyard, 673 SCRA 427 (2012); Umipig v. People, 677 SCRA 53 (2012); Recio v. Heirs of
Spouses Altamirano, 702 SCRA 137 (2013); Bautista-Spille v. NICORP Management and Dev. Corp., 773 SCRA 67 (2015).
14
Domingo v. Robles, 453 SCRA 812 (2005).

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 owner is bound by the act of such person. ―One who clothes another apparent authority as
his agent, and holds him out to the public as such, can not be permitted to deny the authority
of such person to act as his agent, to the prejudice of innocent third parties dealing with such
person in good faith and in the following pre-assumptions or deductions, which the law
expressly directs to be made from particular facts, are deemed conclusive.‖ xMacke v.
Camps, 7 Phil 522 (1907).
When the law firm has allowed for quite a period the messenger of another office to receive
mails and correspondence on their behalf, an implied agency had been duly constituted,
especially when there is no showing that counsel had objected to such practice or took step
to put a stop to it. xEquitable PCI-Bank v. Ku, 355 SCRA 309 (2001).
Agency by estoppel or doctrine of apparent authority, requires proof of reliance upon the
representations made by purported principal, whichneeds proof that the representations
predated the action taken by the relying third party. Country Bankers Insurance v Keppel
Cebu Shipyard, 673 SCRA 427 (2012).
By agency by estoppel or doctrine of apparent authority, ―[t]he principal is bound by the acts
of his agent with the apparent authority which he knowingly permits the agent to assume, or
which he holds the agent out to the public as possessing. The respondents‘ acquiescence of
Hojilla‘s acts was made when they failed to repudiate the latter‘s acts. They knowingly
permitted Hojilla to represent them and petitioners were clearly misled into believing Hojilla‘s
authority.‖ Republic v. Bañez, 772 SCRA 297 (2015).
When the owners selling their cars actually leave the vehicle together with all the documents
of tile, spare keys, and deeds of sale signed in blank with a secondhand car dealer, an
implied agency has been constituted, and the disposition of the vehicle by the dealer in favor
of a buyer constitutes the latter as the owner of the vehicle, even when the dealer fails to
remit the price to the original owner. Consequently, a writ of replevin sought by the original
owner against the buyer will not prosper for the original owner has lost both title and right to
possess the vehicle. xSiy v. Tomlin, 824 SCRA 106 (2017).

2. KINDS OF AGENCY
a. Based on Business or Transactions Encompassed (Art. 1876): General or Universal
Agencyversus Special or Particular Agency – xSiasat v. IAC, 139 SCRA 238 (1985)
describes them as follows:
Universal Agent is authorized to do all acts for his principal which can lawfully be delegated
to an agent; such an agent may be said to have universal authority.
General Agent is authorized to do all acts pertaining to a business of a certain kind or at a
particular place, or all acts pertaining to a business of a particular class or series. He has
usually authority expressly conferred in general terms or in effect made general by the
usages, customs or nature of the business which he is authorized to transact.
Special Agent is authorized to do some particular act or to act upon some particular
occasion; he acts usually in accordance with specific instructions or under limitations
necessarily implied from the nature of the act to be done.

b. Whether It Covers Legal Matters: Attorney-at-Lawversus Attorney-in-Fact

The attorney-client relation is in many respects one of agency, and the general rules of agency
shall apply—the acts of an agent are deemed the acts of the principal only if the agent acts within
the scope of his authority. Only the employee-client, not his counsel, can impugn the consideration
of the compromise as being unconscionable. On the other hand, although a client has undoubtedly
the right to compromise a suit without the intervention of his lawyer, the same cannot be done to
defraud the lawyer of the earned fees. xJ-Phil Marine v. NLRC, 561 SCRA 675 (2008).
An attorney cannot, without a client‘s authorization, settle the action or subject matter of the
litigation, even when he believes that such a settlement will best serve his client‘s interest. xPhil.
Aluminum Wheels, Inc. v. FASGI Enterprises, Inc., 342 SCRA 722 (2000).
A law firm acting as counsel for one of the parties in the intestateproceedings cannot file a
petitionbefore the Court of Appeals to protect its own interest. In Agency, an agent is not personally
liable for the obligations of the principal unless he performs acts outside the scope of his authority
or he expressly binds himself to be personally liable; otherwise, the principal is solely liable. Here,
there was no showing that SRMO bound itself personally for Gerardo‘s obligations. SRMO also
acted within the bounds of the authority issued by Gerardo, as the transferee pendent lite of the
widow‘s interest, to receive the payment. xSiquion Reyna Montecillo and Ongsiako Law Office v.
Chinlo-Sia, 783 SCRA 56 (2016).

c. Whether It Covers Acts of Administration or Acts of Dominion:General Power of Attorney

versus Special Power of Attorney
(1) Formal Requisite: Must Be in Writing and Signed by Principal
When no particular formality is required by law, then the principal may appoint his agent in any
form which might suit his convenience or that of the agent, in this case a letter addressed to the
agent requesting him to file a protest in behalf of the principal with the Collector of Customs against

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 the appraisement of the merchandise imported into the country by the principal. xKuenzle and
Streiff v. Collector of Customs, 31 Phil 646 (1915).
A power of attorney need not be in a public instrument. A letter by the brother to her sister
authorizing her ―to sell one of my parcels of land‖ is sufficient power of attorney that when the sister
did sell one of his specified land was valid and binding on the brother as the act of his agent acting
within the scope of her authority.xJimenez v. Rabot, 38 Phil 378 (1918).
The dated letter relied upon by the petitioners was signed by Fernandez alone, without any
authority from the owners. There is no actuation of Fernandez in connection with her dealings with
the petitioners. As such, said letter is not binding on the respondents as owners of the subject
properties. xLitonjua v. Fernandez, 427 SCRA 478 (2004).
―A power of attorney is an instrument in writing by which one person, as principal, appoints
another as his agent and confers upon him the authority to perform certain specified acts or kinds of
acts on behalf of the principal. The written authorization itself is the power of attorney, and in fact
has been referred to as a ―letter of attorney.‖ xWee v. De Castro, 562 SCRA 695 (2008).

(2) How Powers of Attorney Construed or Interpreted

General rule is that a power of attorney must be strictly construed; it will be held to grant only
those powers that are specified, and the agent may neither go beyond nor deviate from the power
of attorney. xOlaguer v. Purugganan, Jr., 515 SCRA 460 (2007).
General powers of attorney, must be interpreted in accordance with the language used by the
parties—their real intention shall primarily be determined from the language used, and to be
gathered from the whole instrument. In case of doubt, resort must be had to the situation,
surroundings, and relations of the parties. Whenever it is possible, effect is to be given to every
word or clause used by the parties, for it is to be presumed that the parties said what they intended
to say and that they used each word or clause with sole purpose, and that purpose is, if possible, to
be ascertained and enforced. If the contract be open to two constructions, one of which would,
while the other would overthrow it, the former is to be chosen; if by one construction the contract
would be illegal, and by another equally permissible construction would be lawful, the latter must be
adopted. The acts of the parties will be presumed to be done in conformity with and not contrary to
the intent of the contract. The meaning of general words must be construed with reference to the
specific object to be accomplished and limited by the recitals made in reference to such object.
xLinan v. Puno, 31 Phil. 259 (1915).

(3) Notarized Power of Attorney

When a special power of attorney is duly notarized, the notarial acknowledgment is prima facie
evidence of the fact of its due execution—a buyer has every reason to rely on a person‘s authority
to sell a particular property owned by a corporation on the basis of a notarized board resolution—
undeniably the buyer is an innocent purchaser for value in good faith. xSt. Mary’s Farm, Inc. v.
Prima Real Properties, Inc., 560 SCRA 704 (2008).15

3. GENERAL POWERS OF ATTORNEY (Art. 1877)

Agency couched in general terms comprises only acts of administration, even if principal should
state that he withholds no power or that the agent may execute such acts as he may consider
appropriate, or even though the agency should authorize a general and unlimited management.
xYoshizaki v. Joy Training Center of Aurora, Inc., 702 SCRA 631 (2013).
―Acts of Administration‖ means to perform acts thatthe principal himself may pursue in the
ordinary course of the business, thus:
When agent has been given general control and management of the business, he is deemed
to have power to employ such agents and employees as are usual and necessary in the
conduct of the business, and needs no SPA for such purpose. xYu Chuck v. “Kong Li Po,‖ 46
Phil. 608 (1924).
A co-owner who is made an attorney-in-fact, with the same power and authority to deal with
the property which the principal might or could have had if personally present, may retain the
services of legal counsel to preserve the ownership and possession of the principal‘s
property. xGovernment of PI v. Wagner, 54 Phil. 132 (1929).
Admissions obtained by agent from the adverse party prior to the formal amendment of
complaint that includedprincipal as a party, can be availed of by the principal, since an agent
may do such acts as may be conducive to the accomplishment of the purpose of the agency,
admissions secured by the agent within the scope of the agency ought to favor the principal.
xBay View Hotel v. Ker & Co., 116 SCRA 327 (1982).
Power of administration does not include dispositions or encumbrances which are acts of
strict ownership. Authority to dispose cannot proceed from authority to administer, and vice
versa, for the two powers may only be exercised by an agent by following the provisions
Arts. 1876 to 1878. xAggabao v. Parulan Jr., 629 SCRA 562 (2010).16

4. SPECIAL POWERS OF ATTORNEY(Art. 1878)

15
Veloso v. CA, 260 SCRA 593 (1996).
16
Bautista-Spille v. NICORP Management and Dev. Corp., 773 SCRA 67 (2015).

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 Although document entitled ―Special Power of Attorney‖ its wordings show that only establishes
an agency that comprises all the business of the principal within the designated locality, but
couched in general terms, and consequently was limited only to acts of administration. A general
power permits the agent to do all acts for which the law does not require a special power, and only
covers acts of administration. Dominion Insurance Corp. v. CA, 376 SCRA 239 (2002).
Even when instrument‘s title is ―General Power of Attorney,‖ but its operative clause contains
an authority to sell, it constituted the requisite special power of attorney to sell a piece of land.
Thus, there was no need to execute a separate and special power of attorney since the general
power of attorney had expressly authorized the agent or attorney in fact the power to sell the
subject property. xVeloso v. Court of Appeals, 260 SCRA 593 (1996).
Article 1878 require that a special power of attorney must be in writing—aslong as the mandate
is express, such authority may be either oral or written. We unequivocably declare that the
requirement under Art. 1878 refers to the nature of the authorization and not to its form. Be that as it
may, the authority must be duly established by competent and convincing evidence other than the
self-serving assertion of the party claiming that such authority was verbally given. Patrimonio v.
Gutierrez, 724 SCRA 636 (2014).

a. WITH RESPECT TO MATTERS IN LITIGATION INVOLVING THE PRINCIPAL:

(1) To Compromise
(2) To Submit Questions to Arbitration
(3) To Renounce the Right to Appeal from a Judgment
(4) To Waive Objections to the Venue of an Action
(5) To Abandon a Prescription Already Acquired
Power to Compromise Excludes Power to Submit to Arbitration,vice versa(Art. 1880)
Power to Bring Suits in Behalf of the Principalto collect amounts accruing in the ordinary course
of business properly belonging to the class of acts described in Art. 1713 of the old Civil Code as
―acts of strict ownership‖. Nonetheless, the provision in the power of attorney to ―exact the payment
of sums of money by legal means‖ must be construed to be an express power to sue. xGermann v.
Donaldson, 1 Phil 63 (1901).
Although counsel asserted verbal authority to compromise, however, Sec. 23, Rule 138require
a ―special authority‖ for attorneys to compromise the litigation of their clients.While the same does
not state that the special authority be in writing, courts has every reason to expect, that, if not in
writing, the same be duly established by evidence other than the self-serving assertion of counsel
himself – for, authority to compromise cannot lightly be presumed. xHome Insurance Co. v. United
Shipping Lines, 21 SCRA 863 (1967).

b. WITH RESPECT TO MONEY OR FUNDS OF THE PRINCIPAL:

(1) To Make Payments ―Are Not Usually Considered as Acts of Administration‖
The payment of claims by the area manager of an insurance company is not an act of
administration, and that since the settlement of claims was not included among the acts
enumerated in the SPA issued by the insurance company, nor is of a character similar to the acts
enumerated therein, then a special power of attorney was required before such area manager
could settle the insurance claims of the insured. Consequently, the amounts paid by the area
manager to settle such claims cannot be reimbursed from the principal insurance company.
Dominion Insurance Corp. v. Court of Appeals, 376 SCRA 239 (2002).
(2) To Collect or Receive Payments on Behalf of the Principal
The right of an agent to indorse check will not be lightly inferred. A salesman with authority to
collect money for his principal does not have the implied authority to indorse checks received in
payment. Any person taking checks made payable to a corporation which can act only by agents
does so at his peril, and must abide by the consequence if the agent who indorses the same is
without authority. xInsular Drug v. PNB, 58 Phil. 684 (1933).
(3) To Loan or Borrow Money
EXCEPT: Agent May Borrow Money When It Is Urgent and Indispensable for the
Preservation of the Things Which Are Under Administration
An SPA is necessary for an agent to borrow money, unless it be urgent and indispensable for
the preservation of the things which are under administration. Yasuma v. HeirsofCecilio S. De Villa,
499 SCRA 466 (2006).17
Wife may not be held liable for the mortgage loan contracted by the husband personally, where
the power of attorney given to the husband was limited to a grant of authority to mortgage land
titled in the wife‘s name. De Villa v. Fabricante, 105 Phil. 672 (1959).
Entrusting by the principal of blank pre-signed checks to the agent, does not give the agent the
implied authority to enter into loan in the name of the principal. The contract of agency and the
special fiduciary relationship inherent in this contract must exist as a matter of fact. The person
alleging it has the burden of proof to show, not only the fact of agency, but also its nature and
extent. Patrimonio v. Gutierrez, 724 SCRA 636 (2014).
17
Gozun v. Mercado 511 SCRA 305 (2006).

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 Although an agency may be expressed or implied, nevertheless, an agent must possess a
special power of attorney if he intends to borrow money in his principal‘s behalf, to bind him as a
guarantor or surety, or to create of convey real rights over immovable property, including real
estate mortgages. While a special power of attorney may be oral or written, the authority must be
express. In other words, there must be ―a clear mandate from the principal specifically authorizing
the performance of the act,‖ not merely overt acts from which an agency may be inferred.
Consequently, the agent‘s ―authority must be duly established by competent and convincing
evidence other than the self-serving assertion of the party claiming such authority was verbally
given.‖ PITC v. Threshold Pacific Corp., G.R. No. 209119, 3 Oct. 2018.

c. WITH RESPECT TO OBLIGATIONS DUE TO/FROM THE PRINCIPAL:

(1) To Effect Novations Which Put an End to Obligations Already in Existence at the
Time the Agency Was Constituted
(2) To Waive Any Obligation Gratuitously
The SPAsdo not specifically include a provision empowering Wincorp to excuse Power Merge from
repaying the amounts it had drawn from its credit line via the Side Agreements. They merely
authorizedWincorp―to agree, deliver, sign, execute loan documents‖ relative to the borrowing of a corporate
borrower. Otherwise stated, Wincorp had no authority to absolve Power Merge from the latter‘s
indebtedness to its lenders. Doing so therefore violated the express terms of the SPAs that limited
Wincorp's authority to contracting the loan. Virata v. Ng Wee,830 SCRA 271 (2017).
(3) To Ratify or Recognize Obligations Contracted Before the Agency
Where a wife gave her husband a power of attorney ―to loan and borrow money‖ and to
mortgage her property, that fact does not carry with it or imply that he has a legal right to sign her
name to a promissory note which would make her liable for the payment of a pre-existing debt of
the husband or that of his firm, for which she was not previously liable, or to mortgage her property
to secure the pre-existing debt. xBank of P.I. v. De Coster, 47 Phil 594 (1925).
Where the power granted to attorney-in-fact was to the end that the principal-seller may be able
to collect the balance of the selling price of the printing establishment sold, such agent had no
power to enter into new sales arrangements with the buyer, or to novate the terms of the original
sale. xVilla v. Garcia Bosque, 49 Phil 126 (1926).

d. WITH RESPECT TO IMMOVABLE PROPERTIES:

(1) To Enter Into Any Contract by Which Ownership ofanImmovable Is Trans-
mitted or Acquired,Gratuitously or For a Valuable Consideration
(2) Sale of a Piece of Land or Interest Therein (Art. 1874)
Old Civil Code: Under Sec. 335 of the Code of Civil Procedure, an agreement for the leasing for
a longer period than one year, or for the sale of real property, or of an interest therein, is invalid if
made by the agent unless the authority of the agent be in writing and subscribed by the party
sought to be charged. Rio y Olabbarrietav.Yutec, 49 Phil 276 (1926).
Where nephew in his own name sold a house and lot to the company, when in fact it was the
uncle‘s property, but in the estafa case filed against nephew, the uncle swore that he had
authorized his nephew to sell the property, the uncle can be compelled in the civil action to execute
the deed of sale covering the property. ―It having been proven at the trial that he gave his consent
to the said sale, it follows that the defendant conferred verbal, or at least implied, power of agency
upon his nephew Duran, who accepted it in the same way by selling the said property. The
principal must therefore fulfill all the obligations contracted by the agent, who acted within the
scope of his authority.‖ Gutierrez Hermanos v. Orense, 28 Phil. 572 (1914).
Authority found in a power of attorney ―to sell any kind of realty that might belong‖ to the
principal is deem to include also such as the principal might afterwards have or acquire during the
time it was in force. xKatigbak v. Tai Hing Co., 52 Phil. 622 (1928).
New Civil Code: Article 1874 requires that power of attorney expressly empowers the agent ―to
sell land‖ belonging to the principal. It need not contain a specific description of the land to be sold,
such that giving the agent the power to sell ―any or all tracts, lots, or parcels‖ of land belonging to
the principal is adequate.xDomingo v. Domingo, 42 SCRA 131 (1971).
The rule under Art. 1874 that ―when the sale of a piece of land or any interest therein is through
an agent, the authority of the latter shall be in writing; otherwise, the sale shall be void,‖ applies
when the sale of corporate piece of land is pursued through an officer without written authority.
City-Lite Realty Corp. v. Court of Appeals, 325 SCRA 385 (2000).18
Under Art. 1878 any sale of real property by one purporting to be the agent of the registered
owner without any express authority to sell in writing from the said owner is null and void (?);
declarations of the agent alone are generally insufficient to establish the fact or extent of her
authority.‖ xLitonjua v. Fernandez, 427 SCRA 478 (2004).19
Under Art. 1892, when a special power of attorney to sell a piece of land does not contain a
clear prohibition against the agent in appointing a substitute, the appointment of a substitute to

18
San Juan Structural v. CA, 296 SCRA 631 (1998); AF Realty & Dev., Inc. v. Dieselman Freight Services Co., 373 SCRA 385 (2002); Firme v.
Bukal Enterprises and Dev. Corp., 414 SCRA 190 (2003); Bautista-Spille v. NICORP Management and Dev. Corp., 773 SCRA 67 (2015); MCIAA
v. Unchuan, 791 SCRA 581 (2016).
19
Litonjua, Jr. v. Eternit Corp., 490 SCRA 204 (2006).

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 execute the contract is within the limits of the authority given by the principal, but then agent would
have to be responsible for the acts of the sub-agent. Escueta v. Lim, 512 SCRA 411 (2007).
Under Art. 1878, an SPA is necessary for agent to enter into a contract by which the ownership
of an immovable property is transmitted or acquired, either gratuitously or for a valuable
consideration. Absence of a written authority makes sale of a piece of land is ipso jure void,
precisely to protect the interest of an unsuspecting owner from being prejudiced by the
unwarranted act of another.However, we apply estoppel principle to enforce of the sale with
respect to the principal. Pahud v. Court of Appeals, 597 SCRA 13 (2009).
As a general rule, an agency may be oral; however, Art. 1874 provides that SPA must be
written for the validity of the sale of a piece of land or any interest therein;otherwise, the sale shall
be void. A related provision, Art. 1878 states that special powers of attorney are necessary to
convey real rights over immovable properties. Yoshizaki v. Joy Training Center of Aurora, 702
SCRA 631 (2013).20
(3) Agents Cannot Buy Property of Principal Unless Authorized (Art. 1491[2])
Prohibition against agents purchasing property held for sale or management isnot absolute;
when so authorized by principal, agent is not disqualified from purchasing property held under an
agency to sell. xOlaguer v. Purugganan, Jr., 515 SCRA 460 (2007).
(4) Power to Sell Excludes Power to Mortgage, Vice Versa (Art. 1879)
Where SPA authorized agent ―By means of a mortgage of my real property, to borrow and lend
sums in cash, at such interest and for such periods and conditions as he may deem property and to
collect or to pay the principal and interest thereon when due,‖ butt did not authorize agent to
execute deeds of sale with right of repurchase, nonetheless would validate the main contract of
loan entered into with the deed of sale with right of repurchase constituting merely an equitable
mortgage. xRodriguez v. Pamintuan and De Jesus, 37 Phil 876 (1918).
Where SPA vested agent with authority ―for me and in my name to sign, seal and execute, and
as my act and deed, deliver any lease, any other deed for conveying any real or personal property‖
or ―any other deed for the conveying of any real or personal property,‖ it didnot empower that agent
to execute a promissory note or a mortgage.xPNBv. Tan OngSze, 53 Phil. 451 (1929).
An SPA to mortgage real estate is limited to such authority to mortgage and does not bind the
grantor personally to other obligations contracted by the grantee (in this case the personal loan
obtained by the agent in his own name from the PNB). In other words, the power to mortgage does
not include the power to obtain loans, especially when the grantors allege that they had no benefit
at all from the proceeds of the loan taken by the agent in his own name from the bank. xPNBv. Sta.
Maria, 29 SCRA 303 (1969).
In order to bind the principal by a mortgage on real property executed by an agent, it must upon
its face purport to be made, signed and sealed in the name of the principal; otherwise, it will bind
the agent only. xGozun v. Mercado 511 SCRA 305 (2006).

(5) To Lease Real Property for More Than One Year

Article1878 expresses that an SPA is necessary to lease any real property to another person for
more than one year, for such is considered not merely an act of administration but an act of strict
dominion or of ownership.xShopper’s Paradise Realty v. Roque, 419 SCRA 93 (2004).
Where lease contract involves the lease of real property for a period of more than one year was
entered into by an agent on behalf of principal, Art. 1878 requires that the agent be armed with an
SPA to lease the premises; otherwise, the provisions of the contract of lease, including the grant
therein of an option to purchase to the lessee, would be unenforceable. Vda. De Chua v. IAC, 229
SCRA 99 (1994).
e. WITH RESPECT TO SPECIFIC CONTRACTS ―DEEMED PERSONAL‖ TO THE PRINCIPAL:
(1) To Accept or Repudiate an Inheritance
(2) To Make Gifts
(3) To Bind the Principal to Render Some Service Without Compensation
(4) To Bind the Principal in a Contract of Partnership
(5) To Obligate the Principal as a Guarantor or Surety
When principal empowered his agent to mortgage his property, as well as a contract of surety,
but the agent only entered into a contract of mortgage, no inference can be made to make the
principal liable as a surety. xWise and Co. v. Tanglao, 63 Phil. 372 (1936).
Where a power of attorney is executed primarily to enable manager of a mercantile business, to
conduct its affairs for and on behalf of the principal-owner,i.e., ―act and deed delivery, any lease, or
any other deed for the conveying any real or personal property‖ and ―act and deed delivery, any
lease, release, bargain, sale, assignment, conveyance or assurance, or any other deed for the
conveying any real or personal property,‖ such cannot be interpreted as giving power to bind the

20
Estate of LinoOlaguer v. Ongjoco, 563 SCRA 373 (2008); Alcantara v. Nido, 618 SCRA 333 (2010); Camper Realty Corp. v. Pajo-Reyes, 632
SCRA 400 (2010); Recio v. Heirs of the Spouses Altamirano, 702 SCRA 137 (2013); Bautista v. Spouses Jalandoni, 710 SCRA 670 (2013);
MCIAA v. Unchuan, 791 SCRA 581 (2016).

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 principal to a contract of guaranty or suretyunconnected with the business. xDirector v. Sing Juco,
53 Phil 205 (1929).
SPA to approve loans does not carry power to bind the principal to a guaranty even to the
extent of the amount for which a loan could have been granted by agent. ―Guaranty is not
presumed, it must be expressed and cannot be extended beyond its specified limits (Director v.
Sing Juco, 53 Phil. 205). Where a wife gave her husband power to loan money, such fact did not
authorize him to make her liable as a surety for the payment of the debt of a third person. BA
Finance v. Court of Appeals, 211 SCRA 112 (1992).
A power of attorney authorizing agent to bind principal to a surety bond to a particular entity,
cannot be relied upon as sufficient authority to a surety bond issued to other persons or
entity.xCountry Bankers Insurance v Keppel Cebu Shipyard, 673 SCRA 427 (2012).
f.ANY OTHER ACT OF STRICT DOMINION
Instrument which grants agent power ―To follow-up, ask, demand, collect and receipt for my
benefit indemnities or sum due me relative to the sinking of M.V. NEMOS in the vicinity of El Jadida,
Casablanca, Morocco on the evening of February 17, 1986,‖ are SPAs, and exclude any intent to
grant a GPA or to constitute a universal agency. Being SPAs, they must be strictly construed, and
cannot be read to give power to the attorney-in-fact ―to obtain, receive, receipt from‖ the insurance
company the proceeds arising from the death of the seaman-insured, especially when the
commercial practice for group insurance of this nature is that it is the employer-policyholder who
took out the policy who is empowered to collect the proceeds on behalf of the covered insured or
their beneficiaries. Pineda v. Court of Appeals, 226 SCRA 754 (1993).
5. Doctrine of Implied Powers Emanating from Express Powers – Specific grants of ―Powers of
Dominion‖ necessarily includes those implied powers or those necessary to fulfill those powers of
ownership granted, thus:
Empowering the agent to sell hemp in a foreign country, carries with it implied power to make
and enter into the usual and customary contract for its sale, which may provide for settlement of
issues by arbitration.xRobinson Fleming v. Cruz, 49 Phil 42 (1926).
An SPA to make an assignment of credits, hire lawyers to take charge of actions necessary or
expedient for principal‘s interests, and defend suits brought against principal, necessarily implies
authority to pay for professional services thus engaged, which includes assignment of the
judgment secured for the principal in settlement of outstanding fees. Municipal Council of Iloilo v.
Evangelista, 55 Phil. 290 (1930).
SPAto sell ―for such price or amount‖ is broad enough to cover exchange in the Deed of
Assignment between the properties and the corresponding corporate shares in a corporation,
with the latter replacing the cash equivalent of the option money initially agreed to be paid by the
corporation under the MOA. xHernandez-Nievera v. Hernandez, 642 SCRA 646 (2011).

III. POWERS, DUTIES&OBLIGATIONS, RIGHTS OF THE AGENT

1. Obligation of a Person Who Declines Agency Who Has Custody of Goods:Agent Must
Observe Due Diligence in the Custody and Preservation of the Goods until New Agent
Appointed(Art. 1885)

2. General Obligation of Agent Who Accepts the Agency: Agent Is Bound to Carrythe
Agency to Its Completion for the Benefit of Principal(Art. 1884)
OTHERWISE: Agent Will Be Liable for Damages Which the Principal May Suffer Through His
Non-Performance.
COMPARE: Agent Who WithdrawsMust Continue to Act Until Principal Takes Necessary
Steps to Meet Situation.(Art. 1929)
In Event of Death of Principal,Agent Must Finish Business Already Begun
Should Delay Entail Any Danger – Even If Principal’s Death Extinguishes
Agency.(Art. 1919[3])
Since agency is a fiduciary relationship, it is the duty of the agent to carry out the agency in
good faith for the advancement of the interests of the principal. Here, BPI had the obligation to
carry out the agency by informing the beneficiary, who appeared before BPI to withdraw funds of
the insured who was BPI's depositor, not only of the existence of the insurance contract but also
the accompanying terms and conditions of the insurance policy in order for the beneficiary to be
able to properly and timely claim the benefit.Such duty prevailed even after the death of the
depositor. Bank of P.I. v. Laingo, 787 SCRA 541 (2016).

3. DUTY OF OBEDIENCE
a. Agent Must Act ―In the Name of the Principal, Within the Scope of His Authority‖
(Art. 1881)
(i) ActIs Deemed to Have Been Donewithin the Scope of Authority, If Such Act Is
Within the Terms of the Written Power of Attorney, Even If in Fact the Agent
Exceeded the Limits of the Authority According the Private Understanding With
the Principal. (Art. 1900)
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 (ii) Authority of Agent Shall Not Be Deemed Exceeded If Performed in a Manner More
Advantageous to Principal.(Art. 1882)21
b. Primary Obligation of Agent Is to Carry Out Agency in Accordance with Principal’s
Instructions (Art. 1887)
If Agent Followed Instructions, Principal Cannot Set-up Agent’s Ignorance or
Circumstance which Principal Was/Ought to Have Been Aware Of (Art. 1899)
Pursuant principals‘ instructions, agent purchased a piece of land in their names using the sums
given by principals, and thereafter principals had ratified the transaction and even received profits
arising from the investment in the land. Since there is nothing which would indicate that agent
failed to exercise reasonable care and diligence in the performance of his duty, or that he
undertook to guarantee the vendor‘s title to the land purchased, the eventual loss sustained by said
principals from a defect in the title in the land cannot be a basis to hold the agent personally liable
for damages. xNepomuceno v. Heredia, 7 Phil 563 (1907).
When an agent carries out the instructions of his principal, and does not appear to have
exceeded his authority or to have acted with negligence, deceit or fraud, he cannot be held
responsible for the failure of his principal to accomplish the object of the agency. Agents, although
they act in representation of the principal, are not guarantors for the success of the business
enterprise they are asked to manage. xGuiterrezHermanos v. OriaHermanos, 30 Phil. 491 (1915).
When bank officers, acting as agent, had not only gone against the instructions, rules and
regulations of the bank in releasing loans to numerous borrowers who were not qualified, they are
liable personally for the losses sustained by the bank. That bank had also filed suits against the
borrowers to recover the amounts given does not amount to ratification of the acts done by the
bank officers. xPNB v. Bagamaspad, 89 Phil. 365 (1951).
c. When Acts Done Within the Scope of Agent’s Authority:Valid, and Principal Is the One
Liable; Agent Is Not Personally Liable(Art. 1881)
Under Art. 1881,when agent acts within the scope of authority, principal is bound by acts
effected in his behalf, whether or not third person dealing with the agent believes that the agent
has actual authority. xSargasso Const.& Dev. Corp. v. PPA, 623 SCRA 260 (2010).
The legal impact of Art.1881 whichprovides that ―the agent must act within the scope of his
authority,‖ is that the gent is granted the right ―to affect the legal relations of his principal by the
performance of acts effectuated in accordance with the principal's manifestation of consent.‖
Pacific Rehouse Corp. v. EIB Securities, Inc., 633 SCRA 214 (2010).
d. When Act Beyond the Scope of Agent’s Authority: Unenforceable, Not
Void;UNLESS:PRINCIPAL RATIFIES, WHICH MAKE IT VALID (Arts. 1317, 1403 and 1898)
When money received as a deposit by an agentisgiven to principal, with notice that it is the
money of the depositor, principal is bound to return to depositor, even if his agent was not
authorized to receive such deposit. [There was, in effect, ratification of the unauthorized act of the
agent, thereby binding the principal]. xCason v. Rickards, 5 Phil 639 (1906).
When the administrator enters into a contract outside of the scope of authority, the contract
would nevertheless not be an absolute nullity, but simply voidable [unenforceable!] at the instance
of the parties who had been improperly represented, and only such parties can assert the nullity of
said contracts as to them.xZayco v. Serra, 49 Phil 985 (1925).
Under Art. 1898, acts of an agent beyond the scope of his authority do not bind the principal,
unless the latter ratifies the same expressly or impliedly. When third person knows that the agent
was acting beyond his power or authority, the principal cannot be held liable for the acts of the
agent. If the said third person is aware of the limits of the authority, he is to blame, and is not
entitled to recover damages from the agent, unless the latter undertook to secure the principal‘s
ratification. Cervantes v. Court of Appeals, 304 SCRA 25 (1999).22
Even when attorney-at-law in forging a compromise agreement, had exceeded his authority in
inserting a penalty clause,same is not void but merely voidable [unenforceable!], i.e., capable of
being ratified. Client‘s failure to question the inclusion of the penalty clause despite several
opportunities to do so and with the representation of new counsel, was tantamount to
ratification.xBorja, Sr. v. Sulyap, Inc., 399 SCRA 601 (2003).
Contracts entered in the name of another person by one who has been given no authority or
legal representation or who has acted beyond his powers are unauthorized contracts and are
unenforceable (!), unless they are ratified. xGozun v. Mercado 511 SCRA 305 (2006).
When the agent who has been authorized to purchase at an auction sale a Parañaqueproperty,
but instead bought the Manila property due to non-auctioning of the Parañaque property, even
when motivated by good intentions and by a sincere belief that the purchase of the Manila property
would benefit the spouses-principals, the agent still acted outside the scope of the authority given,
and entitles the spouses-principals to the return of the purchase money they remitted to the agent.
xGonzales-Saldaña v. Spouses Niamatali, G.R. No. 226587, 21 Nov. 2018.
e. Effects When Agent Acts in His Own Name (Art. 1883):

21
See application in Olaqguer v. Purugganan, Jr., 515 SCRA 460 (2007).
22
Safic Alcan v. Imperial Vegetable, 355 SCRA 559 (2001).

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 Principal Has No Right Against Third Person Contracting with Agent
Agent Is Directly Bound to Third Person as If the Transaction Were His Own
EXCEPT: When Contract Involves Things Belonging to Principal
It being established that agent acted in his own name in selling merchandise to the defendants
who fully believed that they were dealing with agent on his own, without any knowledge that he
was agent of the plaintiffs, and having paid him in full for the merchandise purchased, they are not
liable to the principals for said merchandise. xLim Tiu v. Ruiz &Rementeria, 15 Phil. 367(1910).
Even when the agent has written authority to convey real property, nevertheless when the deed
of sale was executed by the agent in her own name without showing the capacity in which she
acted, although the act was doubtless irregular, the deed operated to bind the principal who had
authorized the sale. xJimenez v. Rabot, 38 Phil. 378 (1918).
Under Art. 1883, if agent acts in his own name, principal has no right of action against the
persons he has contracted with; neither have such persons against the principal. It is the agent
who is directly bound in favor of the person he has contracted, as if the transaction were his own,
except when the contract involves things belonging to the principal.xSmith Bell v. SoteloMatti, 44
Phil. 874 (1922);xMarimperio Cia.Naviera, S.A. v. CA, 156 SCRA 368 (1987).
When agent executes a contract in his personal capacity, the fact that he is described in the
contract as agent of the principal and the properties mortgaged pertain to the principal, may not be
taken to mean that he enters into the contract in the name of the principal. A mortgage on real
property of the principal not made and signed in the name of the principal is not valid as to the
principal. xPhil.National Bank v. Palma Gil, 55 Phil. 639 (1931).23
Where a co-owner transfers the entirety of the mining claim to the buyer, who knew that it
included the one-half share pro-indiviso of another co-owner, the transaction may be considered as
one where the disposing co-owner acted as agent of the other co-owner. Under Art. 1883, such
other co-owner may sue the person with whom the agent dealt as a transaction involvingthings
belonging to the principal. xGoldstar v. Lim, 25 SCRA 597 (1968).
When a commission agent enters into a shipping contract in his own name to transportNFA
grains on a vessel owned by a shipping company, NFA cannot claim non-liability to the shipping
company under Art. 1883 when things belong to the principal are dealt with. If the principal can be
obliged to perform his duties under the contract, then it can also demand the enforcement of its
rights arising from the contract. xNFA v. IAC, 184 SCRA 166 (1990).
(1) Provisions Are Without Prejudice to Actions Between Principal and Agent
Where plaintiffs appointed defendant to purchase a vessel, giving him money for that purpose;
but agent purchased the boat and placed it in his own name, he has breached his fiduciary
obligation and is obliged to transfer the same to the plaintiffs, or the plaintiffs have a right to be
subrogated. According to the exception under Art. 1717 (old Civil Code) when things belonging to
the principal are dealt with,the agent is bound to the principal although he does not assume the
character of such agent and acts in his own name. xSy-Juco v. Sy-Juco, 40 Phil. 634 (1920).

4. DUTY OF DILIGENCE:
a. Agent Must Exercise Due Diligence in the Pursuit of the Principal’s Business
b. Agent Should Not Act If It Would Manifestly Result in Damage to Principal (Art. 1888)
c. Agent Liable Personallywith the Principalfor Fraud and Negligence Committed in Pursuit
of the Principal’s Affairs (Arts. 1884 and 1909)
What Shall Aggravate or Mitigate Liability Arising Out of Negligence – Whether
Agency Was for a Compensation or Was Gratuitous
He who seeks to make agent liable has the burden to show that the losses and damage were
occasioned by hisfault or negligence; mere allegation without substantiation is not enough to make
the agent personally liable. xHeredia v. Salina, 10 Phil 157 (1908).
While an agent who acts for a revealed principal does not become personally bound to the other
party, yet that rule does apply when the agent intercepted and appropriated for himself the thing
which the principal is bound to deliver, and thereby made the performance of the principal
impossible. The agent in any event must be precluded from doing any positive act that could
prevent performance on the part of his principal; otherwise the agent becomes liable also on the
contract. xPhil. National Bank v. Welsh Fairchild, 44 Phil 780 (1923).
Where holder of an exclusive and irrevocable power of attorney to make collections, failed to
collect the sums due to principal and thereby allowed the allotted funds to be exhausted by other
creditors, such agent has failed to act with the care of a good father of a family required under Art.
1887 and became personally liable for the damages which the principal may suffer through his
non-performance. xPhil. National Bank v. Manila Surety, 14 SCRA 776 (1965).
Metrobank seems to be suggesting that since it was acting only as collecting agent, it cannot be
liable to the principal. On the contrary, Art. 1909 clearly provides that the agent is responsible not
only for fraud, but also for negligence. xMetrobank v. Court of Appeals, 194 SCRA 169 (1991).
23
Philippine Sugar Estates Dev. Corp. v. Poizat, 48 Phil. 536 (1925); PNB v. Agudelo, 58 Phil 655 (1933); Rural Bank of Bombon v. CA, 212
SCRA 25 (1992); Gozun v. Mercado 511 SCRA 305 (2006).

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 The provision in mortgage contract that in case of accident or loss, finance company shall make
a proper claim against insurance company, was in effect an agency, and under Art.1884, finance
company was bound by its acceptance to carry out the agency.In spite of borrower‘sinstructions to
make such claims, itinsisted on having the vehicle repaired but eventually resulting in loss of the
insurance coverage, the finance company had breached its duty of diligence, and must assume the
damages suffered by borrower, and can no longer collect on the balance of the loan. BA Finance
v. CA, 201 SCRA 157 (1991);Int’l Exchange Bank v. Briones, 822 SCRA 103 (2017).
It is well-settled that agent is also responsible for any negligence in performance of its function
(Art. 1909) and is liable for damages which principal may suffer by reason of its negligent act. (Art.
1884). British Airways v. Court of Appeals, 285 SCRA 450 (1998).24
Of the established rules in Agency is thatan agent is bound to carry out the purpose of the agency
within the bounds of his authority. Though he may perform acts in a manner more advantageous to the
principal than that specified by him, in no case shall the agent carry out the agency if its execution
would manifestly result or damage to the principal. In this case, the benefit from the Side Agreements, if
any, redounded instead to the agent itself, Wincorp, which was able to hold Power Merge papers that
are more valuable than the outstanding Hottick obligations that it exchanged. In discharging its duties as
an alleged agent, Wincorp then elected to put primacy over its own interest than that of its principal, in
clear contravention of the law. And when Wincorp thereafter concealed from the investors the existence
of the Side Agreements, the company became liable for fraud even as an agent. Virata v. Ng
Wee,830 SCRA 271(2017).

5. DUTY OF LOYALTY:
a. Agent Shall Be Liable for Damages Sustained by the Principal Where in Case of Conflict-
of-Interests Situations, He Should Prefer His Own Interest. (Art. 1889)
b. Agent Is Prohibited from Buying Property Entrusted to Him for Administration or Sale
Without Principal’s Consent. (Art. 1491[2])
Where agent by means of misrepresentation of the condition of the market induces principal to
sell to him the property consigned to his custody at a price less than that for which he has already
contracted to sell part of it, and thereafter disposes of the whole at an advance, he is liable to
principal for the difference. Such conduct constituted fraud, entitling principal to annul the sale.
Although commission earned by agent on the fraudulent sale may be disallowed, nonetheless
commission earned from other transactions which were not tainted with fraud should be allowed.
xCadwallader v. Smith Bell, 7 Phil. 461 (1907).
General manager, who also was the majority stockholder, and designated to be the main
negotiator for the company with the Government for the sale of its large tract of land, having
special knowledge of commercial information that would increase the value of the shares in relation
to the sale of the land to the Government, can be treated legally as being an agent of the
stockholders, with a fiduciary obligation to reveal to other stockholders such special information
before proceeding to purchase from the other stockholders their shares of stock. If he purchases
the shares of a stockholder without having disclosed important facts or to render the appropriate
report on the expected increase in value of the company, there was fraud committed for which the
director shall be liable for the earnings earned against the stockholder on the sale of shares.
xStrong v. GuiterrezRepide, 41 Phil. 947 (1909).
Agent cannot represent both himself and his principal in a transaction involving the shifting to
another person of the agent‘s liability to the principal. xAboitiz v. De Silva, 45 Phil 883 (1924).
Under the Code of Commerce which declared that no agent shall purchase for himself or for
another that which he has been ordered to sell, then a sale by a broker to himself without the
consent of the principal would be void and ineffectual whether the broker has been guilty of
fraudulent conduct or not. Consequently, such broker is not entitled to receive any commission
under the contract, much less any reimbursement of expenses incurred in pursuing and closing
such sales. The same prohibition is now contained in Art.1491(2) of Civil Code.xBarton v. Leyte
Asphalt, 46 Phil 938 (1924).
As a necessary consequence of such breach of trust, an agent must then forfeit his right to the
commission and must return the part of the commission he received from his principal. Domingo
v. Domingo, 42 SCRA 131 (1971).
Where SPA empowersofficer of the corporation to bring an ejectment case against the occupant
and also ―to compromise … so far as it shall protect the rights and interest of the corporation in the
aforementioned lots,‖ and that agentexecuted a compromise which sold the lots to the occupant,
the compromise agreement is void for the power to sell by way of compromise could not be implied
to protect the interests of the principal to secure possession of the properties. Cosmic Lumber v.
Court of Appeals, 265 SCRA 168 (1996).
c. Agent Must Render an Accounting to Principal of All Matters Relating Agency (Art. 1891)
Stipulation Exempting Agent from Obligation to Render an Accounting Is Void
Agent Must Deliver to Principal Whatever Is Received by Virtue of Agency
Obligation Arises and Becomes Demandable at the Time Agency Ends

24
Metrobank v. CA, 194 SCRA 169 (1991).

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 An administrator of an estate is liable under [Art.1891] for failure to render an account of his
administration to the heirs, unless the heirs consented thereto or are estopped by having accepted
the correctness of his account previously rendered.xOjinaga v. Estate of Perez, 9 Phil 185 (1907).
When principal approves agent‘s report, he has no right to ask afterwards for a revision of the
same or for a detailed account of the business, unless he can show that there was fraud, deceit,
error or mistake in the approval of the accounts. xPastor v. Nicasio, 6 Phil. 152 (1906); xGuiterrez
Hermanos v. Oria Hermanos, 30 Phil. 491, 505 (1915).
Submission by administrator of four letter reports during the entire 18 years that he was
administering the property can hardly be considered as sufficient to keep the principal informed
and updated of the condition and status of the latter‘s properties. xSazon v. Vasquez-Menancio,
666 SCRA 707 (2012).
An insurance agent is guilty of estafa for failing to deliver sums of money paid to him as agent
for the account of his employer. Where nothing to the contrary appears, the provisions of Art. 1720
of Civil Code impose upon an agent the obligation to deliver to his principal all funds collected on
his account. xU.S. v. Kiene, 7 Phil 736 (1907)
A travelling sales agent who misappropriated or fails to return to his principal the proceeds of
the goods he was commissioned to sell, is liable for estafa. xGuzman v. CA, 99 Phil. 703 (1956).
An agentcan even assert, as against his own principal, when the principal fails to reimburse him
for advances he has made, and indemnify him for damages suffered without his fault. xChua-Burce
v. Court of Appeals, 331 SCRA 1 (2000).26
d. Rule If Agent Is Empowered to Borrow/Lend Money (Art. 1890)
If Empowered to Borrow Money, He May Be the Lender at Current Interest Rates;
If Empowered to Lend Money, He Cannot Borrow Without Principal’s Consent.
When agent was empowered to borrow money and mortgage principal‘s property to secure the
loan, it cannot be interpreted to include the authority to mortgage the properties to support agent‘s
personal loans for his own benefit. The lender who lends money to the agent knowing that is was
for personal purpose and not for the principal‘s account, is a mortgagee in bad faith and cannot
foreclose on the mortgage constituted.xHodges v. Salas and Salas, 63 Phil. 567 (1936).
e. Agent Is Liable to the Principalfor Interests (Art. 1896):
On Sums He Applied to His Own Use (from the Time He Used Them)
On Sums Owing the Principal (from the Time Agency Is Extinguished)
Art. 1724 provides that an agent shall be liable for interest upon any sums belonging to the
principal he may have applied to his own use, from the day on which he did so, and upon those
which he still owes, after the expiration of the agency, from the time of his default.xMendezonna v.
Vda. De Goitia, 54 Phil 557 (1930).
The principal‘s successor-in-interest is not entitled to collect interest from the agent of the father
for sums loaned to and collected by the agent from various persons for the deceased principal. In
all the aforementioned transactions, the defendant acted in his capacity as attorney-in-fact of the
deceased father, and there being no evidence showing that he converted the money entrusted to
him to his own use, he is not liable for interest thereon. xDeBorja v. De Borja, 58 Phil 811 (1933).
6. Agent Has No Obligation to Advance Funds (Art. 1886):
It Is Principal’s Obligation to Advance the Funds, But Principal to Pay Interest on
Advances Made by Agent from Day Advances Made. (Art. 1912)
EXCEPT:(1)If Stipulated in the Agency Agreement;
(2) Principal Is Insolvent; Insolvency Extinguishes the Agency (Art. 1919[3])

7. POWER OF AGENT TO APPOINT A SUB-AGENT (Art. 1892)

a.GENERAL RULE: Agent Must Act Himself, But May Appoint a Not-Prohibited
Substitute.Agent Is Responsible for Acts of Substitute When:
Agent Was Not Expressly Given the Power to Appoint a Substitute; or
Agent Was Given the Power, But Without Designating the Person and the Substitute
Was Notoriously Incompetent or Was Insolvent.
A sub-agent cannot be held at greater liability that the main agent, and when the sub-agent
has not received any special instructions from the agent to insure the object of the agency, the
sub-agent cannot be held liable for the loss of the thing from fire, which is merely force majeure.
xInt’lFilms (China) v. Lyric Film, 63 Phil. 778 (1936).
Agency allows the appointment of a sub-agent in the absence of an agreement to the
contrary. Agent who receives jewelry for sale or return cannot be charged with estafa for there
was no misappropriation when she delivered the jewelry to a sub-agent under the sale terms
which the agent received it, but a client of the sub-agent absconded with them and could no

26
Guzman v, CA, 99 Phil. 703, 706-707 (1956); Balertav.People of the Philippines, 743 SCRA 166 (2014).

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 longer be recovered;but the agent remains civilly liable to principal for the value of the jewelry.
xSerona v. Court of Appeals, 392 SCRA 35 (2002).27
The legal maxim potestas delegate non delegarepotest, a power once delegated cannot be
re-delegated, while applied primarily in political law to the exercise of legislative power, is a
principle of agency — for another, a re-delegation of the agency would be detrimental to the
principal as the second agent has no privity of contract with the former.(?)xBaltazar v.
Ombudsman 510 SCRA 74 (2006).
Article 1892 creates a presumption that an agent has the power to appoint a substitute, it
has three legal implications: First, the substitute becomes the agent of the principal, and the
latter is bound by the acts of the substitute as if these acts had been performed by the
principal‘s appointed agent. Second, the substitute assumes an agent‘s obligations to act within
the scope of authority, to act in accordance with the principal‘s instructions, and to carry out the
agency, among others. In order to make the presumption inoperative and relieve himself from its
effects, it is incumbent upon the principal to prohibitthe agent from appointing a substitute.Third,
Art. 1892 allocates responsibility to the agent for the acts of the substitute whenagent was not
expressly authorized by a specific person is not designated, the agent appoints a substitute who
is notoriously incompetent or insolvent. In these instances, the principal has aright of action
against both the agent and the substitute if the latter commits acts prejudicial to the principal.
Villaluz v. Land Bank of the Philippines, 814 SCRA 466 (2016).
b.All Acts of the Prohibited Substitute Are Void as to the Principal
Where SPA to sell a piece of land contains a prohibition to appoint a substitute, but agent
appoints a substitute who executes the deed of sale in name of the principal, while the agent
acted outside the scope of his authority, that did not make the sale void, but merely
unenforceable under the second paragraph of Art.1317. Principal‘s acceptance of the proceeds
thereof are tantamount to ratification thereof. Escueta v. Lim, 512 SCRA 411 (2007).
The case of Escueta v. Lim illustrates the prevailing rule. In that case, the father, through a
special power of attorney, appointed his daughter as his attorney-in-fact for the purpose of selling
real properties. The daughter then appointed a substitute or sub-agent to sell the properties. After
the properties were sold, the father sought to nullify the sale effected by the sub-agent on the ground
that he did not authorize his daughter to appoint a sub-agent. We refused to nullify the sale because
it is clear from the special power of attorney executed by the father that the daughter is not prohibited
from appointing a substitute. Applying Art. 1892, we held that the daughter ―merely acted within the
limits of the authority given by her father, but she will have to be ‗responsible for the acts of the sub-
agent,‘ among which is precisely the sale of the subject properties in favor of respondent.‖ Villaluz v.
Land Bank of the Philippines, 814 SCRA 466 (2016).
c. Rights of Principal Against Substitute (Art. 1893)
Principal is liable upon a sub-agency contract entered into by its selling agent in the name
of the principal, where it appears that the general agent was clothed with such broad powers as
to justify the interference that he was authorized to execute contracts of this kind, and it not
appearing from the record what limitations, if any, were placed upon his powers to act for his
principal, and more so when the principal had previously acknowledged the transactions of the
sub-agent. xDel Rosario v. La Badenia, 33 Phil. 316 (1916).

8. Liability When Two or More Agents Appointed by the Same Principal: Responsibility of
Agents Not Solidary (Art. 1894)
EXCEPT:Where Two or More Agents Agree to Be Solidarily Bound (Art. 1895)
COMPARE: Two Principals with Common Agent – PrincipalsSolidarilyLiable (Art. 1915)
When two letters of attorney are issued simultaneously to two different attorneys-in-fact, but
covering the same powers shows that it was not the principal‘s intention that they should act jointly
in order to make their acts valid; the separate act of one of the attorney-in-fact, even when not
consented to by the other attorney in fact, is valid and binding on the principal, especially the
principal did not only repudiate the act done, but continued to retain the said attorney-in-fact.
Municipal Council of Iloilo v. Evangelista, 55 Phil. 290 (1930).

9. RULE ON LIABILITY RULES TO THIRD PARTIES: Agent Not Bound to Third Parties; It Is the
Principal Who Is Bound by the Contracts Entered Into By the Agent (Art. 1897)
A promissory note and mortgages executed by agent for and on behalf of his principal, in
accordance with a power of attorney, are valid, and as provided by Art. 1727, the principal must
fulfill the obligations contracted by the agent. xPNB v. Palma Gil, 55 Phil. 639 (1931).
The settlement agent in the Philippines of a New York insurance company is no different from
any other agent from the point of view of his responsibility: whenever he adjusts or settles a claim,
he does it in behalf of principal, and his action is binding upon his principal, and the agent does not
assume any personal liability, and he cannot be sued on his own right; the recourse of the insured
is to press his claim against the principal. xSalonga v. Warner Barnes, 88 Phil 125 (1951).28

27
Lim v. CA, 271 SCRA 12 (1997).
28
E. Macias & Co. v. Warner, Barnes & Co., 43 Phil 155 (1922).

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 A resident agent, as a representative of the foreign insurance company, is tasked only to
receive legal processes on behalf of its principal and not to answer personally for the any
insurance claims. xSmith Bell v. Court of Appeals, 267 SCRA 530 (1997).
Where buyer effects payment of part of purchase price to one of seller‘s creditors pursuant to
the terms of the deed of sale, there is no subrogation that takes place, as the buyer then merely
acts as an agent of seller effecting payment that was due to the seller in favor of a third-party
creditor.xChemphil Export v. Court of Appeals, 251 SCRA 217 (1995).
Agents who have been authorized to sell parcels of land cannot claim personal damages in the
nature of unrealized commission where the buyer refuses to proceed with the sale. The rendering
of such service did not make them parties to the contracts of sale executed in behalf of the latter.
Since a contract may be violated only by the parties thereto as against each other, the real parties-
in-interest, in an action upon that contract must, generally, either be parties to said contract.xUy v.
Court of Appeals, 314 SCRA 69 (1999).29
A person acting as a mere representative of another acquires no rights whatsoever, nor does he
incur any liabilities arising from the said contract between his principal and another party. xAngeles
v. PNR, 500 SCRA 444 (2006).30
Article 1897 reinforces the familiar doctrine that an agent, who acts as such, is not personally
liable to the party with whom he contracts; it is the principal who is liable on the contracts of the
agent. Eurotech Industrial Technologies, Inc. v. Cuizon, 521 SCRA 584 (2007).31
Sincethe agency, as a contract, is binding only between the contradicting parties, then only the
parties, as well as the third person who transacts with the parties themselves, may question the
validity of the agency or the violation of the terms and conditions found therein. xVillegas v. Lingan,
526 SCRA 63 (2007).
A party acknowledging that a firm merely acts as an agent of the partnership has no cause of
action to sue the agent with the principal partnership for any cause of action against the principal
partnership. xStrickland v. Ernst & Young LLP, G.R. No. 193782, 1 Aug 2018.
a. EXCEPT:When Agent Expressly Binds Himself (Art. 1897)
When the attorney-in-fact of the owner of a parcel of land acted within the scope of his authority
by mortgaging the property, the principal is bound by the mortgage, and cannot use the fact that
the agent has also bound himself personally to the debt. There is nothing in law thatprohibits an
agent from binding himself personally for the debt incurred in behalf of the principal. In fact the law
recognizes such undertaking as valid and binding on agent. xTuason v. Orozco, 5 Phil 596 (1906).
Under Art. 1897, an agent who expressly binds himself to the contract entered into on behalf of
the principal becomes personally bound thereto. But the doctrine is not applicable vice–versa,
since everything agreed upon by the principal to be binding on himself is not legally binding
personally on the agent. Thus, when the previous agent of the union bound itself personally liable
on the contracts of the union, the new agent is not bound by the assumption undertaken by original
agent. xBenguet v. BCI Employees, 23 SCRA 465 (1968).
b. EXCEPT:When Agent Exceeds Authority Without Giving Notice of Limited Powers (Art.
1897) – Only the Agent Is Liable, Principal Is Not Liable Unless He Ratifies.
Under Art. 1897 when an agent acts in behalf of the principal, he cannot be held liable
personally, except when he acts outside the scope of his authority. Thus, a third party cannot
generally sue on the contract seeking both principal and agent to be liable thereon, for by suing the
principal, the agent is deemed not to be personally liable. On the other hand, if the agent is being
sued on the basis that he acted outside the scope of his authority, then it does not make sense to
be also suing the principal who cannot be held liable for the acts of the agent outside the scope of
his authority. At any rate, Art. 1897 does not hold that in cases of excess of authority, both the
agent and the principal are liable to the other contracting party. xPhil. Products Co. v. Primateria
Society Anonyme, 15 SCRA 301 (1965).32
Where an agent defies the instructions of its principal in New York not to proceed with the sale
due to non-availability of carriage, it has acted without authority or against its principal‘s
instructions and holds itself personally liable for the contract it entered into with the local company.
National Power Corp. v. NAMARCO, 117 SCRA 789 (1982).
c. EXCEPT: When Agent Acts with Fraud or Negligence: Solidarily Bound with Principal
The rule relied upon by the agent to avoid the imposition of the liquidated damages provided for
in the contract of sale that every person dealing with an agent is put upon inquiry and must
discover upon his peril the authority of the agent would apply if the principal is sought to be held
liable on the contract entered into by the agent. That is not so in this case for it is the agent that it
sought to be held liable on a contract which was expressly repudiated by the principal because the
agent took chances, it exceeded its authority, and, in effect, it acted in its own name.
xNAPOCORv. NAMARCO, 117 SCRA 789, 800 (1982).
The practice in group insurance businessis that the employer-policyholder who takes out the
insurance for its officers and employees, is the agent of the insurer who has authority to collect the

29
OrmocSugarcanePlanters’ Assn. v. CA, 596 SCRA 630 (2009).
30
Chua v. Total Office Products and Services, 471 SCRA 500 (2005); Tan v. Engineering Services, 498 SCRA 93 (2006); Chong v. CA, 527
SCRA 144 (2007); Heirs of Eugenio Lopez, Sr. v. Querubin, 753 SCRA 371 (2015).
31
Country Bankers Insurance v Keppel Cebu Shipyard, 673 SCRA 427 (2012).
32
Eurotech Industrial Technologies v. Cuizon, 521 SCRA 584 (2007).

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 proceeds from the insurer. In this case, the insurer, through the negligence of its agent, allowed a
purported attorney-in-fact whose instrument does not clearly show such power to collect the
proceeds, it was liable therefor under the doctrine that the principal is bound by the misconduct of
its agent. xPineda v. Court of Appeals, 226 SCRA 754 (1993).
Wherebank required borrower to obtain a mortgage-redemption-insurance and deducted the
premiums thereto from the proceeds, it was wearing two hats, as a lender and as insurance agent.
When it turned out that the bank knew or ought to have known that borrower was not qualified at
his age for MRI coverage which prevented his insurance coverage at the time of the borrower‘s
death, the bank was deemed to have been an agent who acted beyond the scope of its authority.
Under Art. 1897, if third person dealing with an agent is unaware of the limits of the authority
conferred by the principal and third person has been deceived by the non-disclosure thereof by the
agent, then the latter is liable for damages to him. This is founded upon the supposition that there
has been some wrong or omission on his part either in misrepresenting, or in affirming, or
concealing the authority under which he assumes to act. DBP v. CA, 231 SCRA 370 (1994).
Every principal is subject to liability for loss caused to another by the latter‘s reliance upon a
deceitful representation by an agent in the course of his employment (1) if the representation is
authorized; (2) if it is within the implied authority of the agent to make for the principal; or (3) if it is
apparently authorized, regardless of whether the agent was authorized by him or not to make the
representation. Pahud v. Court of Appeals, 597 SCRA 13 (2009).
d. Agent Is Criminally Liable for Crime Committed in the Pursuit of the Agency
The Law on Agency has no application in criminal cases, and no man can escape punishment
when he participates in the commission of a crime upon the ground that he simply acted as an
agent of any party. xPeople v. Chowdury, 325 SCRA 572 (2000).

10. Obligation Rules for Commission Agents: Sales on Consignment Arrangements

a.Commission Agent Responsible for Goods Received According to Terms and Conditions
and as Described in Consignment (Art. 1903)
EXCEPT:When Has Made Written Statement of Damage/Deterioration(Art. 1903)
In sale on consignment, as a form of agency, consignee-agent is relieved from his liability to
return the goods received from the consignor-principal when it is shown by preponderance of
evidence in the civil case brought that the goods were taken from the custody of the consignee by
robbery, and no separate conviction of robbery is necessary to avail of the exempting provisions
under Art.1174 for force majeure.xAustria v. Court of Appeals, 39 SCRA 527 (1971).
b. Agent Handling Various Goods for Different Owners (Art. 1904):He Must Distinguish
Them by Countermarks If Goods of Same Kind and Mark
PURPOSE: To Prevent Conflict of Interest Among Owners
COMPARE: Contracts of Deposit under Art. 1976:Depositary May Commingle Grain or
Other Articles of Similar Nature and Quality – Ownership pro-rata
c. Commission Agent Cannot Sell on Credit Without Principal’s Consent (Art. 1905)
OTHERWISE: Considered as Cash Sales
Whether as an agency to sell or a contract of sale, liability of Green Valley is indubitable.
Adopting Green Valley‘s theory that the contract is an agency to sell, it is liable because it sold on
credit without authority from its principal. Under Art. 1905, without the express or implied consent of
principal, commission agent cannot sell on credit; should it do so principal may demand from him
payment in cash. Green Valley v. Intermediate Appellate Court, 133 SCRA 697 (1984).
d. When With Principal’s Authority to Sell on Credit: (Art. 1906)
Inform the Principal with Statement of Buyer’s Names;
Effect of Non-Compliance – Considered Cash Sale
e. Effect When Agent Receives Guaranty or Del Credere Commissions (Art. 1907):
He Shall Bear the Risk of Collection
He Shall Pay Principal the Proceeds on Same Terms Agreed with Purchaser
f. Liability for Failure to Collect Principal’s Credit When Due (Art. 1908)
Liability for Damages
Unless Due Diligence Proven

IV. OBLIGATIONS OF THE PRINCIPAL

1. OBLIGATIONS OF PRINCIPAL WITH THIRD PARTIES WITH WHOM THE AGENT CONTRACTS
a. The Principal Is Bound By the Contracts Entered Into by the Agent:
In the Name of the Principal (Art. 1883)
Within Agent’s Scope of Authority (Art. 1897)

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 Even When the Agent Acts with Negligence or Fraud (Art. 1909)
Where authorized agent failed to indicate in the mortgage that she was acting for and on behalf
of her principal; and the Real Estate Mortgage explicitly shows on its face that it was signed by
agent in her own name and in her own personal capacity; then, consistent with the law on agency,
the principal cannot be bound by the acts of the agent. The third-party bank has no one to blame
but itself. xBucton v. Rural Bank of El Salvador, Inc.,717 SCRA 278 (2014).
Since the general rule is that the principal is bound by the acts of his agent in the scope of the
agency, where the agent had full authority to make the tax returns and file them, together with the
check payments, with Collector of Internal Revenue, then the effects of dishonesty of the agent
must be borne by the principal, not by an innocent third party who has dealt in good faith with the
dishonest agent. xLim Chai Seng v. Trinidad, 41 Phil. 544 (1921).
A person with whom an agent has contracted in the name of his principal, has a right of action
against the purported principal, even when the latter denies the authority of the agent, in which
case the party suing has the burden of proving the existence of the agency. If the agency relation
is proved, then principal shall be held liable, and the agent who is made a party to the suit cannot
be held personally liable. On the other hand, if the agency is not proven, it would be the agent who
would become liable personally on the contract. xNantes v. Madriguera, 42 Phil. 389 (1921).
As a general rule, the mismanagement of the business by his agents does not relieve said
party-principal from the responsibility that he had contracted with third persons. xCommercial Bank
& Trust Co. v. Republic Armored Car Services Corp., 8 SCRA 425 (1963).
Where petitioner had issued a check in payment of the judgment debt and made arrangements
with the bank to allow the encashment thereof, but check was dishonored by the bank which
increased the amount of the judgment debt, the defense of petitioner that he cannot be held liable
for the oversight of the bank is untenable: Principal is responsible for the acts of the agent, done
within the scope of his authority, and should bear the damages caused. Petitioner‘s remedy is
recover from the bank.xLopez v. Alvendia, 12 SCRA 634 (1964).
Where principal issued the checks in full payment of the taxes due, but his agents had
misapplied the check proceeds, the principal would still be liable, because when a contract of
agency exists, the agent‘s acts bind his principal, without prejudice to the latter seeking recourse
against the agent in an appropriate civil or criminal action. xDyPeh v. CIR, 28 SCRA 216 (1969).
When a third party sues both the principal and the agent on an alleged breach of acontract, and
in fact later on dismisses the suit insofar as the principal is concerned, there can be no cause of
action against the agent. Since it is the principal who should be answerable for the obligation
arising from the agency, it is obvious that if a third person waives his claims against the principal,
he cannot assert them against the agent. xBedia v. White, 204 SCRA 273 (1991).
The fact that agent defrauded the principal in not turning over the proceeds of the transactions
cannot in any way relieve or exonerate such principal from liability to the third persons who relied
on his agent‘s authority. It is an equitable maxim that as between two innocent parties, the one
who made it possible for the wrong to be done should be the one to bear the resulting loss.
xCuison v. Court of Appeals, 227 SCRA 391 (1993).
Principal is liable for damages sustained by its buyer based on the fault primarily caused by its
agent in pointing to the wrong lot, since under Arts. 1909 and 1910, the liability of the principal for
acts done by the agent within the scope of his authority do not exclude those done
negligently.xPleasantville Dev. v. Court of Appeals, 253 SCRA 10 (1996).
b. Agent’s Written Power of Attorney, Insofar as Concerns Third Persons, Governs on
Questions Whether Agent Acted Within Scope of Authority Even if it Exceeds Authority
According to Understanding Between Principal and Agent (Art. 1900)
As far as third persons are concerned, an act is deemed to have been performed within the
scope of the agent‘s authority, if such is within the terms of the power of attorney, as written, even
if the agent has in fact exceeded the limits of his authority according to an understanding between
the principal and his agent. xEugenio v. Court of Appeals, 239 SCRA 207 (1994). CONSEQUENTLY:
Spouses Rabaja did not recklessly enter into a contract to sell with Gonzales. They required
her presentation of the power of attorney before they transacted with her principal. And when
Gonzales presented the SPA to Spouses Rabaja, the latter had no reason not to rely on
it.Salvadorv.Rabaja, 749 SCRA 654 (2015).
Where wife gave husband an SPA―to loan and borrow money,‖ and for such purpose to
mortgage her property, the resulting transactions are binding upon the wife regardless of
what the husband may have done with the loan proceeds. Bank of P.I. v. De Coster, 47 Phil
594 (1925).
When the power of the agent to sell are governed by the written form, it is beyond the
authority of the agent as a fact that is deemed known and accepted by the third person, to
offer terms and conditions outside of those provided in writing. Manila Memorial Park
Cemetery v. Linsangan, 443 SCRA 377 (2004).
It is a settled rule that third persons dealing with an assumed agent, whether the assumed
agency be a general or special one, are bound at their peril if they would hold the principal liable, to
act with ordinary prudence and reasonable diligence to ascertain (i) not only the fact of agency, (ii)

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 but also the nature and extent of authority, and in case either is controverted, the burden of proof is
upon them to establish it. Harry Keeler v. Rodriguez, 4 Phil. 19 (1922).33CONSEQUENTLY:
Where bank accepted a letter of guarantee signed by a mere credit administrator on behalf of
the finance company, the burden was on the bank to prove that the credit acted within the
authority given to him by his principal. xBA Finance v. CA, 211 SCRA 112 (1992).
When one knowingly deals with the sales representative of a car dealer company, it is
incumbent upon such person to know the extent of the sales representative‘s authority as an
agent in respect of contracts to sell the vehicles. Such person ought to know that he is dealing
with an agent, normal business practice does not warrant a sales representative to have
power to enter into a valid and binding contract of sale for the company. xToyota Shaw, Inc. v.
Court of Appeals, 244 SCRA 320 (1995).
Mere representation or declaration of one that he is authorized to act on behalf of another
cannot of itself serve as proof of his authority to act as agent or of the extent of his authority as
agent. xYuEng Cho v. PANAM, 328 SCRA 717 (2000).
Burden of proof of the authority of the agent is not overcome when the agent himself
specifically denied that she was authorized by the respondents-owners to sell the properties,
both in her answer to the complaint and when she testified. xLitonjua v. Fernandez, 427 SCRA
478 (2004).
Where the person applying for the loan is other than the registered owner of the real property
being mortgaged should have already raised a red flag with the bank and which should have
induced it to make inquiries into and confirm Santos‘ authority to mortgage. xBank of
Commerce v. San Pablo, Jr., 522 SCRA 713 (2007).
Undue haste in granting the loan without inquiring into the ownership of the subject properties
being mortgage, as well as the authority of the supposed agent to constitute the mortgages on
behalf of owners, bank accepting the mortgage cannot be deemed a mortgagee in good faith.
xSan Pedro v. Ong, 569 SCRA 767 (2008).

c. Principal Not Bound to Contracts Entered Outside of Agent’s Authority (Arts. 1898 and
1910)
(i) When Principal Ratifies, Expressly or Impliedly (Art. 1901)
Where a sale of land is effected through an agent who made misrepresentations to the buyer
that the property can be delivered physically to the buyer when in fact it was in adverse possession
of third parties, the seller-principal is bound for such misrepresentations and cannot insist that the
contract is valid and enforceable; the seller-principal cannot accept the benefits derived from such
representations of the agent and at the same time deny the responsibility for them. Gonzales v.
Haberer, 47 Phil. 380 (1925).
For ratification to take place, it is required that the principal must have full knowledge at the time
of ratification of all the material facts and circumstances relating to the unauthorized act of the
person who assumed to act as agent; and that is such material facts were suppressed or unknown,
there can be no valid ratification. Nevertheless, if the principal‘s ignorance of the material facts and
circumstances was willful, or that the principal chooses to act in ignorance of the facts, there would
still be ratification. Only the principal can ratify; the agent cannot ratify his own unauthorized acts.
Moreover, the principal must have knowledge of the acts he is to ratify.xManila Memorial Park
Cemetery, Inc. v. Linsangan, 443 SCRA 377, 394 (2004).
Since the basis of agency is representation, then the question of whether an agency has been
created is ordinarily a question which may be established in the same way as any other fact, either
by direct or circumstantial evidence. Though that fact or extent of authority of the agents may not,
as a general rule, be established from the declarations of the agents alone, if one professes to act
as agent for another, she may be estopped to deny her agency both as against the asserted
principal and the third persons interested in the transaction in which he or he is engaged. xDoles v.
Angeles, 492 SCRA 607 (2006).
Even when agent exceeds his authority, principal is still solidarily liable with the agent, if
principal allowed agent to act as though the agent had full powers. In other words, the acts of an
agent beyond the scope of his authority do not bind the principal, unless the principal ratifies them,
expressly or implied. Ratification in agency is the adoption or confirmation by one person of an act
performed on his behalf by another without authority.‖ Innocent third persons should not be
prejudiced if the principal failed to adopt the needed measures to prevent misrepresentation, much
more so if the principal ratified his agent‘s acts beyond the latter‘s authority. Filipinas Life
Assurance Co. v. Pedroso, 543 SCRA 542 (2008).
Under Arts. 1898 and 1910, agent‘s act done beyond the scope of authority may bind principal if
he ratifies them, whether expressly or tacitly. Only the principal, and not the agent, can ratify the
unauthorized acts, which the principal must have knowledge of. Thus, where the special power of
attorney that an agent for the insurance company provides clearly the limit of the entities to whom
he can issue a surety bond, as well as the limit of the amounts that it can cover, an insured who
does not fall within such authority cannot claim good faith as to make the surety issued outside of

33
Strong v. Repide, 6 Phil. 680 (1906); Deen v. Pacific Commercial Co., 42 Phil. 738 (1922); Veloso v. La Urbana, 58 Phil. 681 (1933); Pineda
v. CA, 226 SCRA 754 (1993); Bacaltos Coal Mines v. CA, 245 SCRA 460 (1995); Litonjua, Jr. v. Eternit Corp., 490 SCRA 204 (2006); Escueta v.
Lim, 512 SCRA 411 (2007); Soriamont Steamship Agencies v. Sprint Transport Services, 592 SCRA 622 (2009).

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the scope of authority binding on the insurance company. xCountry Bankers Insurance v Keppel
Cebu Shipyard, 673 SCRA 427 (2012).
(ii) Third Person Cannot Set-up Facts of Agent’s Exceeding Authority Where Principal
Ratified or Signified Willingness to Ratify Agent’s Acts (Art. 1901)
Principal Should Be the One to Question Agent’s Lack/Excess of Authority
Power of Attorney (Must) Be Required by Third Party(Art. 1902)
Private or Secret Orders of Principal Do Not Prejudice Third Persons Who Relied
Upon Agent’s Power of Attorney or Principal’s Instruction(Art. 1902)
In an expropriation proceeding, the State cannot raise the alleged lack of authority of the
counsel of the owner to bind his client in a compromise agreement because such lack of authority
may be questioned only by the principal or client. [Since it is within the right or prerogative of the
principal to ratify even the unauthorized acts of the agent]. xCommissioner of Public Highways v.
San Diego, 31 SCRA 617 (1970)

(iii) Where Agent Acts in Excess of Authority, But the Principal Allowed Agent to Act as
Though Agent Had Full Powers (Art. 1911)
Doctrine of Apparent Authority
Where bank, by its acts and failure to act, has clearly clothed its manager with apparent
authority to sell apiece of land in the normal course of business, it is legally obliged to confirm the
transaction by issuing a board resolution to enable the buyers to register the property in their
names. xRural Bank of Milaor v. Ocfemia, 325 SCRA 99 (2000).
The doctrine of apparent authority focuses on two factors:first the principal‘s manifestations of
the existence of agency which need not be expressed, but may be general and implied; and
second, is the reliance of third persons upon the conduct of the principal or agent. Under the
doctrine, the question in every case is whether the principal has by his voluntary act placed the
agent in such a situation that a person of ordinary prudence, conversant with business usages
and the nature of the particular business, is justified in presuming that such agent has authority to
perform the particular act in question.xProfessional Services, Inc. v. Court of Appeals, 544 SCRA
170 (2008); 611 SCRA 282 (2010).
Easily discernible from the foregoing is that apparent authority is determined only by the acts
of the principal and not by the acts of the agent. The principal is, therefore, not responsible where
the agent‘s own conduct and statements have created the apparent authority. xSargasso
Construction & Dev. Corp. v. PPA, 623 SCRA 260 (2010).
There can be no apparent authority of an agent without acts or conduct on the part of the
principal, which must have been known and relied upon in good faith as a result of the exercise of
reasonable prudence by a third party claimant, and which must have produced a change of
position to the third party‘s detriment. There is no basis to apply the doctrine where there is no
evidence showing manner by which the supposed principal, has ―clothed‖ or ―held out‖ its branch
manager as having the power to enter into an agreement, as claimed by petitioners. xBanate v.
Philippine Countryside Rural Bank, 625 SCRA 21 (2010).
Basic is the rule that the revocation of an agency becomes operative, as to the agent, from the
time it is made known to him. Third parties dealing bona fide with one who has been accredited to
them as an agent, however, are not affected by the revocation of the agency, unless notified of
such renovation. This refers to the doctrine of apparent authority. Under the said doctrine, acts
and contracts of the agent within the apparent scope of the authority conferred to him, although
no actual authority to do such acts or has been before hand withdrawn, revoked or terminated,
bind the principal. Hence, apparent authority may survive the termination of actual authority or of
an agency relationship. Bitte v. Jonas, 777 SCRA 489 (2015).
Agency by Estoppel
By opening of branch office with the appointment of its branch manager and honoring several
surety bonds issued in its behalf, insurance company induced the public to believe that its branch
manager had authority to issue such bonds. Insurance company was estopped from pleading
against a regular customer thereof, that the branch manager had no authority. xCentral Surety &
Insurance Co. v. C.N. Hodges, 38 SCRA 159 (1971).
Even when agent of real estate company acts unlawfully and outside the scope of authority,
the principal can be held liable when by its own act it accepts without protest the proceeds of the
sale of the agents which came from double sales of the same lots, as when learning of the
misdeed, it failed to take necessary steps to protect the buyers and failed to prevent further wrong
from being committed when it did not advertise the revocation of the authority of the culprit agent.
In such case the liabilities of both the principal and the agent is solidary.xManila Remnants v.
Court of Appeals, 191 SCRA 622 (1990).
For an agency by estoppel to exist, following must be proved: (1) principal manifested a
representation of the agent‘s authority or knowingly allowed the agent to assume such authority;
(2) third person, in good faith, relied upon such representation; (3) relying upon such
representation, such third person has changed his position to his detriment. An agency by
estoppel, which is similar to doctrine of apparent authority, requires proof of reliance upon

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 representations, which needs proof that the representations predated the action taken in reliance.
Litonjua, Jr. v. Eternit Corp., 490 SCRA 204 (2006).34
For one to successfully claim the benefit of estoppel, he must show that he was not misled
through his own want of reasonable care and circumspection.xCountry Bankers Insurance v.
Keppel Cebu Shipyard, 673 SCRA 427 (2012).
A letter-authority granting corporate representatives authority to ―collaborate and continue
negotiating and discussing with ALI terms and conditions that are mutually beneficial‖ cannot be
construed as a virtual carte blanche for the representatives to enter into a Contract to Sell
regarding the real property of the company. It is settled that a person dealing with an agent is
bound at his peril, if they would hold the principal liable, to ascertain not only the fact of agency but
also the nature and extent of the agent’s authority, and in case either is controverted, the
burden of proof is upon him to establish it. Ayala Land, Inc. v. ASB Realty Corp., G.R. No.
210043, 26 Sept. 2018.

2. Rights of Persons Who Contracted for Same Thing, One With Principal and the Other
With Agent (Art. 1916):
That of Prior Date Is Preferred
If a Double Sale Situation – Art. 1544 Governs
IN WHICH CASE: Liability to Third Person Whose Contract Must Be Rejected Shall Be as
Follows: (Art. 1917):
If Agent in Good Faith – Principal Liable
If Agent in Bad Faith – Agent Alone Liable

3. Liability of Principal to Third Persons for Acts of the Agent’s Employees

That the employee of the airline company‘s agent has committed a tort is not sufficient to hold
the airline company liable—there is no vinculum juris between the airline company and its agent's
employees and the contractual relationship between the airline company and its agent does not
operate to create a juridical tie between the airline company and its agent‘s employees. Article
2180 does not make the principal vicariously liable for the tort committed by its agent‘s employees
and the principal-agency relationship per se does not make the principal a party to such tort;
hence, the need to prove the principal‘s own fault or negligence. xSpousesViloria v. Continental
Airlines, Inc., 663 SCRA 57 (2012).
COMPARE: Villaruz was acting as the agent of petitioner Petron on the delivery of the petroleum for
a fee; and notably, Petron even imposed a penalty clause in instances when there was a violation
of the hauling contract, wherein it may impose a penalty ranging from a written warning to the
termination of the contract. Therefore, as far as the dealer was concerned with regard to the terms
of the dealership contract, acts of Villaruz and his employees are also acts of Petron. xPetronCorp.
v. SpousesCudilla, 663 SCRA 172 (2012).

4. OBLIGATIONS OF THE PRINCIPAL WITHIN THE AGENCY ARRANGEMENT

a. Obligation to Pay Agent’s Compensation (Art. 1875)
b. Obligation to Advance Sums Requested for Execution of Agency (Art. 1912)
(1)Agent Has Right to Reimbursement for Expenses Advanced Including Interest from
the Day It Was Advanced
COMPARE: Where Agent Consents and Is Bound to Advance the Sums as Stipulated
(Art. 1886)
(2)Where Principle Not Liable to Agent for Expenses Incurred (Art. 1918)
Where BMW periodically inspected the service centers to see to it that BMW standards were
maintained. Indeed, it would seem from BMW‘s letter to Hahn that it was for Hahn‘s alleged
failure to maintain BMW standards that BMW was terminating Hahn's dealership. The fact that
Hahn invested his own money to put up these service centers and showrooms does not
necessarily prove that he is not an agent of BMW. For as already noted, there are facts in the
record which suggest that BMW exercised control over Hahn‘s activities as a dealer and made
regular inspections of Hahn‘s premises to enforce compliance with BMW standards and
specifications. Hahn v. Court of Appeals, 266 SCRA 537 (1997).
While Agency Law prohibits the area manager from obtaining reimbursement, his right to
recover may still be justified under the Law on Contracts, particularly Art. 1236 on payment by a
third party of the obligation of the debtor, allows recovery ―only insofar as the payment has been
beneficial to the debtor.‖ Thus, to the extent that the obligation of the insurance company has
been extinguished, the area manager may demand for reimbursement from his principal;
otherwise, it would result in unjust enrichment of petitioner. Dominion Insurance Corp. v.
Court of Appeals, 376 SCRA 239 (2002).
c. Obligation to Indemnify Agent for Damages Sustained in Pursuing Agency (Art. 1913)
COMPARE: Liability for Damages for Non-Performance of Agency (Art. 1884)

34
Yun Kwan Byung v. PAGCOR, 608 SCRA 107 (2009).

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 Wherecopra purchased by a company from another company is by way of sale rather than
an agency to purchase,the former is not liable to reimburse the latter for expenses incurred by
the latter in maintaining it purchasing organization intact over a period during which the actual
buying of copra was suspended. xAlbaladejo y Cia. v. PRC, 45 Phil 556 (1923).
d. Agent’s Rightto Retain Object as Pledge for Advances and Damages (Art. 1914)
(1)Agent Bound to Deliver to Principal Everything Received,EvenIf Not Due the Principal
(Art. 1891).
(2) Thing Pledged May Be Sold Only After Demand of Amount Due (Art. 2122):
Public auction to take place within one (1) month after demand
Debtor may demand return of not sold within this period

3. Two or More Principals Appoint Agent for Common Transactions (Art. 1915)
a. Obligation of the Principals Is Solidary Because of Their Common Interest
COMPARE: Two or More Agents with One Principal – Agents’ ObligationNOT Solidary,
unless otherwise expressed. (Art. 1894)
b.Any of the Principal May Validly Revoke Agent’s Authority(Art. 1925)
When the law expressly provides for solidaryobligation, as in the liability of co-principals in
agency, each obligor may be compelled to pay the entire obligation, and agent may recover the
whole compensation from any one of the co-principals.xDe Castro v. CA, 384 SCRA 607 (2002).

V.EXTINGUISHMENT OF AGENCY
1. Agency ExtinguishedBy (Art. 1919):
a. Principal’s Express or Implied Revocation
b. Agent’s Withdrawal
c. Death, Civil Interdiction, Insanity or Insolvency of the Principal or the Agent
d. Dissolution of the Juridical Entity Which Entrusted or Accepted the Agency
e. Accomplishment of the Object or Purpose of the Agency
f. Expiration of the Period for Which Agency Was Constituted

2. EXPRESS REVOCATION: Principal May Revoke an ―Agency at Will‖

a. In Which Case, Principal May Compel Agent to Return Power of Attorney (Art. 1920)
b. In Case of Multiple Principals, Any of the Principals Can Revoke the Authority of Their
Common Agent, Without the Consent of the Others (Art. 1925)
Obligation of Several Principals to a Common Agent Is Solidary (Art. 1915)
c. Rulings on Power of Principal to Revoke the Agency
Revocation Based on Breach of Trust: Art. 300 of the Code of Commerce expressly authorizes
a merchant to discharge his employee or agent for fraud or breach of trust, or engaging in any
commercial transaction for their own account without the express knowledge and permission of the
principal. xBarretto v. Santa Marina, 26 Phil 440 (1913); xManila Trading v. Manila Trading
Laborers Assn., 83 Phil 297 (1949).
Where no time for continuance of the agency is fixed by the terms, principal is at liberty to
terminate it at will, subject only to the requirements of good faith. xDañon v. Brimo, 42 Phil 133
(1921); xBarretto v. Santa Marina, 26 Phil 440 (1913).
Revocation of a special power of attorney, although embodied in a private writing is valid and
binding between the parties. Phil. National Bank v. IAC, 189 SCRA 680 (1990).
When the terms of the agency allowed the agent ―to dispose of, sell, cede, transfer and convey
until all the subject property as subdivided is fully disposed of,‖ the agency is one with a period and
it is not extinguished until all the lots have been disposed of. Consequently, if the contract is
terminated by the principal before all the subdivision lots has been disposed of, there is a breach
for which the principal would be liable for damages. xDialosa v. CA, 130 SCRA 350 (1984).
Weset aside the portion of the decision reinstating Orient Air as general sales agent of
American Air, even when the revocation was done without proper cause, for courts are without
authority to reinstate an agency arrangement that has been revoked or terminated by the principal.
xOrient Air Services v. Court of Appeals, 197 SCRA 645, 656 (1991).

3. IMPLIED REVOCATION
a. Appointment of New Agent for Same Business/Transaction (Art. 1923)
Impliedly Revoked as to Agent Only
As to Third Persons, Notice to Them Is Necessary (Art. 1922)

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 In litigation, the fact that a second attorney enters an appearance on behalf of a litigant does not
authorize a presumption that the authority of the first attorney has been withdrawn. xAznar v.
Morris, 3 Phil. 636 (1904).
Where the father first gave a power of attorney over the business to his son, and subsequently
to the mother, without evidence showing that the son was informed of the power of attorney to the
mother, the transaction effected by the son pursuant to his power of attorney, was valid and
binding.xGarcia v. De Manzano, 39 Phil 577 (1919).

b. Principal Directly Manages Business Entrusted to Agent (Art. 1924)

If the purpose of the principal in dealing directly with the purchaser and himself effecting the
sale of the principal‘s property is to avoid payment of his agent‘s commission, the implied
revocation is deemed made in bad faith and cannot be sanctioned without according to the agent
the commission which is due him. xInfante v. Cunanan, 93 Phil 693 (1953).
Where purported agent was given only authority to ―follow up‖ the purchase of fire truck with
municipal government, there was no authority to make a sale for and in behalf of the seller. But
even if purported agent is considered to have been constituted as an agent to sell the fire truck,
such agency would have been deemed revoked upon resumption of direct negotiations between
seller-principal and the municipality, the purported agent having in the meantime abandoned all
efforts to secure the deal in the seller‘s behalf. xGuardex v. NLRC, 191 SCRA 487 (1990).
The act of contractor, who, after executing an SPA to collect whatever amounts may be due to
him from the Government, and thereafter demanded and collected from the government the money
the collection, constituted revocation of the agency in favor of the attorney-in-fact. New Manila
Lumber Co., Inc. v. Republic of the Philippines, 107 Phil. 824 (1960).
Damages are generally not awarded to the agent for the revocation of the agency, and the case
at bar is not one falling under the exception mentioned, which is to evade the payment of the
agent‘s commission. CMS Logging v. Court of Appeals, 211 SCRA 374 (1992).
Under Art. 1924 of the New Civil Code, ―an agency is revoked if the principal directly manages
the business entrusted to the agent, dealing directly with third persons.‖ Logic dictates that when a
principal disregards or bypasses the agent and directly deals with such person in an incompatible
or exclusionary manner, said third person is deemed to have knowledge of the revocation of the
agency. They are expected to know circumstances that should have put them on guard as to the
continuing authority of that agent. The mere fact of the principal dealing directly with the third
person, after the latter had dealt with an agent, should be enough to excited the third person‘s
inquiring mind on the continuation of his authority. Bitte v. Jonas, 777 SCRA 489 (2015).
c. General Power of Attorney Is Revoked by a Special One Granted to Another Agent, As
Regards the Special Matter Involved in the Latter (Art. 1926)
A special power of attorney giving the son the authority to sell the principals properties is
deemed revoked by a subsequent general power of attorney that does not give such power to the
son, and any sale effected thereafter by the son in the name of the father would be void.
DyBuncio and Co. v. Ong Guan Ca, 60 Phil 696 (1934).

4. CASES OF IRREVOCABLE AGENCIES (Art. 1927): ―Agency Coupled with Interest‖

a. When a Bilateral Contract Depends Upon the Continued Existence of the Agency
An exception to the revocability of a contract of agency is when it is coupled with interest, i.e., if
a bilateral contract depends upon the agency. The reason for its irrevocability is because the
agency becomes part of another obligation or agreement. It is not solely the rights of the principal
but also that of the agent and third persons which are affected. Republic v. Evangelista, 466
SCRA 544 (2005).
When the bank has been constituted with an irrevocable power of attorney to file a claim in case
of loss or damage to the mortgaged vehicle, and fails to make such claim and instead compels the
spouses-borrowers to continue paying the installments, the resort of the spouses to directly file a
claim with the insurance company does not of itself amount to a revocation of the agency
arrangement as to relieve the bank of its duty of diligence. Besides the agency was irrevocable
towards allowing the bank to seek proceeds for the full payment of the loan; failing in such duty, the
bank can no longer collect on the unpaid balance of the loan. Int’l Exchange Bank v. Briones,
822 SCRA 103 (2017).
b. When It Is the Means of Fulfilling an Obligation Already Contracted
Unlike simple SPAs, anagency coupled with interestscannot be revoked at will, since it had
been created for the mutual interest of the agent and the principal. It appears that LinaSevilla is a
bona fide travel agent herself, and had acquired an interest in the business entrusted to her: she
had assumed a personal obligation for the operation thereof, holding herself solidarily liable for the
payment of rentals; she used her own name in pursuing the business, after Tourist World had
stopped further operations. Her interest, obviously, is not limited to the commissions she earned as
a result of her business transactions, but one that extends to the very subject matter of the power
of management delegated to her. It is an agency that cannot be revoked at the pleasure of the
principal. Sevilla v. Court of Appeals,160 SCRA 171 (1988).
―In the insurance business, the most difficult and frustrating period is the solicitation and
persuasion of the prospective clients to buy insurance policies. To sell policies, an agent exerts

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 great effort, patience, perseverance, ingenuity, tact, imagination, time and money.Therefore, the
respondents cannot state that the agency relationship between Valenzuela and Philamgen is not
coupled with interest. ―There may be cases in which an agent has been induced to assume a
responsibility or incur a liability, in reliance upon the continuance of the authority under such
circumstances that, if the authority be withdrawn, the agent will be exposed to personal loss or
liability. Furthermore, there is an exception to the principle that an agency is revocable at will and
that is when the agency has been given not only for the interest of the principal but for the interest
of third persons or for the mutual interest of the principal and the agent. In these cases, it is evident
that the agency ceases to be freely revocable by the sole will of the principal.‖ Valenzuela v.
Court of Appeals, 191 SCRA 1 (1990).
Relationship between NASUTRA/SRA and PNB when the former constituted the latter as its
attorney-in-fact is not a simpIe agency, because NASUTRA/SRA has assigned and practically
surrendered its rights in favor of PNB for a substantial consideration. To reiterate, NASUTRA/SRA
executed promissory notes in favor of PNB every time it availed of the credit line. The agency
established is one coupled with interest which cannot be revoked at will by any of the parties.‖
National Sugar Trading v. PNB, 396 SCRA 528 (2003).
There is no question that the SPA executed is a contract of agency coupled with interest.But in
this case, although the revocation was done in bad faith, respondents did not act in a wanton,
fraudulent, reckless, oppressive or malevolent manner. They revoked the SPA because they were
not satisfied with the amount of the loan approved. Thus, petitioners are not entitled to exemplary
damages. Ching v. Bantolo, 687 SCRA 134 (2012).
Even an agency coupled with interest may be revoked based on fraud clearly proven to have
been committed by agent, which is an act of rescission. xBacaling v. Muya, 380 SCRA 714 (2002).
c. Unjustified Removal of a Managing Partner – Revocation Needs the Vote of Controlling
Partners (Art. 1800)
A power of attorney coupled with interest in a partnership can be revoked for a just cause, such
as when the attorney-in-fact betrays the interest of the principal. The irrevocability of the power of
attorney may not be used to shield the perpetration of acts in bad faith, breach of confidence, or
betrayal of trust, by the agent for that would to authorizing the agent to commit frauds against the
principal.xColeongco v. Claparols, 10 SCRA 577 (1964).

5. Effects of Revocation on Third Parties

a. Agency Created With Reference to Specified Third Parties, Revocation Affects Such
Third Parties Only When So Notified (Art. 1921)
Where principal had revoked agent‘s power to handle the business, but such revocation was not
conveyed to a long-standing client to whom the agent had been specifically endorsed in the past by
the principal, the revocation was not deemed effective as to such client and the contracts entered
into by agent for the principal after the revocation would still be valid and binding against the
principal. Rallos v. Yangco, 20 Phil 269 (1911).35
Where the land‘s principal owner executes an SPA giving agent the power to mortgage the
same, even when there has been a revocation thereof, but the same has not been made known to
third parties, then those who receive a mortgage on the properties in good faith will be protected
pursuant to principle embodied in Art. 1921 that if an agency has been entrusted for the purpose of
contracting with specified persons, its revocation shall not prejudice the latter who were not given
notice. xLustan v. Court of Appeals, 266 SCRA 663 (1997).
b. Revocation of Agent’s General Powers Effective Against Third Persons (Art. 1922)
Refers to Agency Created to Deal with the General Public
Revocation Will Not Prejudice Third Persons Who Deal with the Agent in Good
Faith and Without Knowledge of Revocation
However Notice of Revocation in a Newspaper of General Circulation Is Sufficient
Warning
While Art. 1358 requires that the contracts involving real property must appear in a proper
document, a revocation of a special power of attorney to mortgage a parcel of land, embodied in a
private writing, is valid and binding between the parties, such requirement of Art.1358 being only
for the convenience of the parties and to make the contract effective as against third persons.xPNB
v. Intermediate Appellate Court, 189 SCRA 680 (1990).
In a case covering a power of attorney to deal with the general public, the fact that the
revocation was advertised in a newspaper of general circulation would be sufficient warning to third
persons. xRammani v. Court of Appeals, 196 SCRA 731 (1991).

6. Right of Agent to Withdraw from Agency (Art. 1928)

By Giving Due Notice to Principal
Agent to Indemnify Principal Should He Suffer Any Damage
UNLESS: Withdrawal Is Due to Impossibility of Continuing Agency Without Grave
Detriment to Agent

35
Cia. Gen. De Tobacos v. Diaba, 20 Phil 321 (1911).

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 Even If Agent Withdraws from the Agency for a Valid Reason, He Must Continue to Act
Until the Principal Has Had Reasonable Opportunity to Take Necessary Steps to Meet
the Situation (Art. 1929)
When agent informs principal by letter that for reasons of health and medical treatment he will
depart from the place where the said property is situated, turns property over to a third party,
renders accounts of its revenues up to the date on which he ceases to hold his position and
transmits to his principal a general statement which summarizes and embraces all the balances of
his accounts since he began administration to date of termination of his trust, and asked principal
to execute a power of attorney in favor of another person who took charge of the administration of
the said property, said agent had expressly renounced his agency and that such agency was duly
terminated. xDela Pena v. Hidalgo, 16 Phil 450 (1910).
Where agent institutes an action against his principal for the recovery of the balance in his favor
resulting from the liquidation of the accounts between them arising from the agency, and renders a
final account, is equivalent to an express renunciation of the agency, and terminates the juridical
relation between them. The subsequent purchase by the former agent of the principal‘s usufruct
rights in a public auction therefore was valid, since no fiduciary relationship existed between them
at that point. xValera v. Velasco, 51 Phil 695 (1928).

7. Death of the Principal Extinguishes the Agency (Arts. 1919[3], 1931)

By reason of the very nature of the relationship between principal and agent, agency is
extinguished by the death of the principal or the agent. xRallos v. Felix Go Chan & Sons Realty
Corp., 81 SCRA 251 (1978).
Death of a client divests his lawyer of authority to represent him as counsel.xLavina v. Court of
Appeals, 171 SCRA 691 (1988).36
a. When the Agency Continues Despite Death of Principal (Art. 1930):
If It Was Constituted for Common Interest of Principal and Agent; or
In Favor of Third Person Who Accepted Stipulation in His Favor.
It is an agency coupled with interest when a power of attorney is constituted in real estate
mortgage pursuant to the requirement of Act No. 3135, which would empower the mortgagee upon
the default of the mortgagor to payment the principal obligation, to effect the sale of the mortgage
property through extrajudicial foreclosure. The death of the principal-debtor did not extinguished
the power of the Bank to sell the property at a public sale; the power to foreclose is not an ordinary
agency that contemplates exclusively the representation of the principal by the agent but is
primarily an authority conferred upon the mortgagee for the latter‘s own protection. Perez v.
PNB, 17 SCRA 833 (1966).37
b. Art. 1931: Acts Done by Agent Without Knowledge of Principal’s Death Are Valid,
PROVIDED:
Agent Does Not Know of Death or Other Cause of Extinguishment of Agency;
Third Persons Must Also Be in Good Faith (Not Aware of Death or Other Cause).
Under Art. 1931, we must uphold the validity of the sale of the land effected by the agent only
after the death of the principal, when no evidence was adduced to show that at the time of sale
both the agent and the buyers were unaware of the death of the principal. xBauson v. Panuyas,
105 Phil 795 (1959); xHerrera v. Uy Kim Guan, 1 SCRA 406 (1961).

8. Death of the Agent Extinguishes the Agency (Art. 1932): Obligation of Agent’s Heirs in
Case of Agent’s Death:
Notify Principal
Adopt Measures as Circumstances Demand in Principal’s Interest
A contract of management entered into by the Municipality with a private individual which
authorizes the latter to sell forest products is one of agency. It extinguished by the death of the
agent, and his rights and obligations arising from the contract of agency are not transmittable to his
heirs. xTerrado v. Court of Appeals, 131 SCRA 373 (1984).

36
Barrameda v. Barbara, 90 Phil. 718 (1952); Caisip v. Hon. Cabangon, 109 Phil. 150 (1952); Lopez v. Court of Appeals, G.R. No. 163959, 1
Aug 2018.
37
SupersededPasno v. Ravina, 54 Phil. 382 (1930) and Del Rosario v. Abad, 104 Phil. 648 (1958).

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 B.BUSINESS TRUSTS
I. NATURE AND CLASSIFICATION OF TRUSTS
1. Definition and Essential Characteristic of Trust (Art. 1440)
Trust is a ―fiduciary relationship with respect to property which involves the existence of
equitable duties imposed upon the holder of the title to the property to deal with it for the benefit of
another.‖xGoyanko v. UCPB, 690 SCRA 79 (2013).38
Its characteristics are: (a) it is a relationship; (b) it is a relationship of fiduciary character; (c) It
is a relationship with respect to property, not one involving merely personal duties; (d) it involves
the existence of equitable duties imposed upon the holder of the title to the property to deal with it
for the benefit of another; and (e) it arises as a result of a manifestation of intention to create the
relationship. Morales v. Court of Appeals, 274 SCRA 282 (1997).
a. Trusts Are Based on Equity (Common Law)Principles (Art. 1442)
As trusts has been much more frequently applied in England and in the United States than in
Spain, we may draw freely upon American precedents in determining the effect of the testamentary
trust under consideration, especially so as the trusts known to American and English equity
jurisprudence are derived from the fidei-commissa of Roman law and are based entirely upon Civil
Law principles. xGovernment v. Abadilla, 46 Phil. 642 (1924).39
Article 1442 incorporates a large part of the American law on trusts, and thereby the Philippine
legal system will be amplified and will be rendered more suited to a just and equitable solution of
many questions. Report of the Code Commission, at p. 60.
b. Distinguished from Agency
(1) While both trust and agency relationships are fiduciary in nature; agency is essentially
revocable, while a trust contract is essentially obligatory in its terms and period, and can
only be rescinded based on breach of trust, unless otherwise stipulated;
(2) Trustee takes legal or naked title to the trust property, and acts on his own business
discretion; agent possesses property under the agency for and in the name of the owner
and must act upon instructions of the owner;
(3) Trustee enters into contracts pursuant to the trust in his own name as legal or naked title
holder, while agent enters into contract in the name of the principal; and
(4) Trustee is liable directly and may be sued, albeit in his trust capacity; while agent cannot be
sued since it is the principal that must be held liable on the suit.
An investment management account, where the written instrument provides that bank shall
purchase debt securities on behalf of client and will handle the accounts in accordance with client‘s
instructions, creates a principal-agent relationship, and not a trust relationship nor an ordinary bank
deposit account. Consequently, under Art. 1910, the client assumed all obligations or inherent risks
entailed by transactions emanating from the arrangement, and the bank may be held liable as an
agent, only when it exceeds its authority, or acts with fraud, negligence or bad faith. Panlilio v.
Citibank, 539 SCRA 69 (2007).

2. Kinds of Trusts: (a) Express Trusts, and (b) Implied Trusts(Art. 1441)
Ramos v. Ramos, 61 SCRA 284, 298 (1974):Express trusts are those which are created by the
direct and positive acts of the parties, by some writing or deed, or will, or by words either
expressly or impliedly evincing an intention to create a trust.40
Implied trusts are those which, without being expressed, are deducible from the nature of the
transactions as matters of intent, or which are superinduced on the transaction by operation of
law as matters of equity, independently of the particular intention of the parties. They are
ordinarily subdivided into resulting and constructive trusts (89 C.J.S. 722).41
A resulting trust is raised or created by the act or construction of law, but in its more restricted
sense it is a trust raised by implication of law and presumed always to have been
contemplated by the parties, the intention as to which is to be found in the nature of their
transaction, but not expressed in the deed or instrument of conveyance‖ (89 C.J.S. 725). Arts.
1448 to 1455 are examples of resulting trusts.42
In a restricted sense, a constructive trust is ―a trust not created by any words, either expressly
or implied evincing a direct intention to create a trust, but by the construction of equity in order
to satisfy the demands of justice. It does not arise by agreement or intention but by operation
38
Huang v. CA, 236 SCRA 429 (1994); Rizal Surety & Insurance Co. v. CA, 261 SCRA 69 (1996); Tala Realty Services v. Banco Filipino
Savings Bank, 392 SCRA 506 (2002); DBP v. COA, 422 SCRA 459 (2004); Heirs of TranquilinoLabiste v. Heirs of Jose Labiste, 587 SCRA 417
(2009); Metropolitan Bank v. Board of Trustees of Riverside Mills Corp. Provident and Retirement Fund, 630 SCRA 360 (2010); PNB v. Aznar,
649 SCRA 214 (2011); Torbela v. Rosario, 661 SCRA 633 (2011); Estate of Margarita D. Cabacungan v. Laigo, 655 SCRA 366 (2011); Advent
Capital and Finance Corp. v. Alcantara, 664 SCRA 224 (2012).
39
Miguel v. CA, 29 SCRA 760 (1969); Spouses Rosario v. CA, 310 SCRA 464 (1999).
40
Spouses Rosario v. CA, 310 SCRA 464 (1999);Cañezo v. Rojas, 538 SCRA 242 (2007); Peñalber v. Ramos, 577 SCRA 509 (2009); DBP v.
COA, 422 SCRA 459 (2004).
41
Salao v. Salao, 70 SCRA 65, 80 (1976); Tigno v. CA, 280 SCRA 271 (1997); Policarpio v. CA, 269 SCRA 344 (1997); Spouses Rosario v.
CA, 310 SCRA 464 (1999); Cañezo v. Rojas, 538 SCRA 242 (2007); Peñalber v. Ramos, 577 SCRA 509 (2009).
42
Salao v. Salao, 70 SCRA 65 (1976). Constructive trusts are created by the construction of equity in order to satisfy the demands of justice
and prevent unjust enrichment. They arise contrary to intention against one who, by fraud, duress or abuse of confidence, obtains or hold the
legal right to property which he ought not, in equity and good conscience, to hold. Spouses Rosario v. CA, 310 SCRA 464 (1999).

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 of law.‖ ―If a person obtains legal title to property by fraud or concealment, courts of equity will
impress upon the title a so-called constructive trust in favor of the defrauded party.‖
Constructive trust is not a trust in the technical sense.43
Trust is the right to beneficial enjoyment of property, legal title to which is vested in another—
fiduciary relation that obliges trustee to deal with the property for the benefit of the beneficiary.
Express trust is created by intention of the trustor or of the parties, while implied trust comes into
being by operation of law. xTorbela v. Rosario, 661 SCRA 633 (2011).44
A trust by operation of law is the right to the beneficial enjoyment of a property whose legal
title is vested in another. A trust presumes the existence of a conflict involving one and the same
property between two parties, one having the rightful ownership and the other holding the legal
title. There is no trust created when the property owned by one party is separate and distinct from
that which has been registered in another‘s name. Here, the evidence showed that the parcel of
land sold to the petitioners is distinct from the consolidated parcels of land sold by Caparas to the
spouses Perez.xChu, Jr. v.Caparas, 696 SCRA 325 (2013).

II. EXPRESS TRUSTS

1. Essential Elementsof Express Trusts (Art. 1440)
Trust, which in a broad sense involves, arises from, or is the result of, a fiduciary relation
between the trustee and the cestuique trust as regards certain property—real, personal, funds or
money, or choses in action—must not be confused with an action for specific performance. Thus,
when claimants to several parcels of land withdraw their claims in court relying on the assurance
and promise of Yulo made in open court that he would convey the lots claimed after the
proceedings had terminated, then ―a trust or a fiduciary relation between them arose, or resulted
therefrom, or was created thereby. The trustee cannot invoke the statute of limitations to bar the
action and defeat the rights of the cestuisquetrustent.‖ Pacheco v. Arro, 85 Phil. 505 (1950).45
Where the shares of stock in an operating family company are placed by the parents-
controlling stockholders in the name of a holding company expressly for the benefit of their three
daughters, an express trust is duly constituted pursuant to the terms of Art. 1440 as to prevent the
holding company the right to refuse to transfer the shares to the daughters. xGuy v. Court of
Appeals, 539 SCRA 584 (2007).
Where no competent evidence is adduced to show that the alleged trustee, UCPB in opening
the account in the name of PALII undertook any equitable duty to deal with or given any power of
administration over the account for the benefit of the heirs of the member of PALII, then no express
trust was constituted over the bank account. On the contrary, it was PALII that undertook the duty
to hold the title to the account for the benefit of the heirs. Therefore, UCPB cannot be held liable for
any breach of trust for allowing PALII to withdraw the amounts in the account.xGoyanko v. UCPB,
690 SCRA 79 (2013).
Elements for an express trust are: (1) a trustor or settlor who executes the instrument creating
the trust; (2) a trustee, who is the person expressly designated to carry out the trust; (3) the trust
res, consisting of duly identified and definite real properties; and (4) the cestuique trust, or
beneficiaries whose identity must be clear.Furthermore, there must be a present and complete
disposition of the trust property, notwithstanding that the enjoyment in the beneficiary will take
place in the future. It is essential, too, that the purpose be an active one to prevent trust from being
executed into a legal estate or interest, and one that is not in contravention of some prohibition of
statute or rule of public policy. Mindanao Dev. Authority v. CA, 113 SCRA 429 (1982).

2. Parties in an Express Trust

a. TheTrustor – A person who establishes a trust is called the ―trustor‖.53
b. The Trustee – One in whom confidence is reposed is known as the ―trustee‖.54
Trustee Must Have Legal Capacity to Accept the Trust
Failure of Trustee to Assume the Position(Art. 1445)
Obligations of the Trustee(Rule 98, Rules of Court)
Generally, Trustee Does Not Assume Personal Liability on the Trust as to Properties
Outside of the Trust Estate – When a trustee enters into a contract that gives rise to
liability, he must clearly indicate that he enters into the contract as trustee, so that he would
be liable individually only to the extent of the trust properties: ―In other words, when the
transaction at hand could have been entered into by a trustee either as such or in
hisindividual capacity, then it must be clearly indicated that the liabilities arising therefrom
shall be chargeable to the trust estate, otherwise they are due from the trustee in his
personal capacity. TanSenguan and Co. v. Phil. Trust Co., 58 Phil. 700 (1933).

43
Guy v. CA, 539 SCRA 584 (2007).
44
Vda. De Esconde v. CA, 253 SCRA 66 (1996); Spouses Rosario v. CA, 310 SCRA 464 (1999); DBP v. COA, 422 SCRA 459 (2004);Guy v.
Court of Appeals, 539 SCRA 584 (2007);Metropolitan Bank v. Board of Trustees of Riverside Mills Corp. Provident and Retirement Fund, 630
SCRA 350 (2010).
45
Peñalber v. Ramos, 577 SCRA 509 (2009).
53
DBP v. COA, 422 SCRA 459 (2004); Peñalber v. Ramos, 577 SCRA 509 (2009).
54
DBP v. COA, 422 SCRA459 (2004); Peñalber v. Ramos, 577 SCRA 509 (2009).

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 Where insurance company deposited proceeds of an insurance policy in its own account
under express declaration to hold the same for the benefit and joint resolution of two
conflicting claiming companies, then an express trust has been constituted. The failure
insurance company to comply with the instructions to place the amount in an interest-bearing
account makes the trustee liable for the lost income as violation of its duty as a trustee.
Rizal Surety & Insurance v. Court of Appeals, 261 SCRA 69 (1996).
Trustee Generally Entitled to Receive Compensation for His Services.xLorenzo v.
Pasadas, 64 Phil. 353 (1937).
c. Beneficiary (Arts. 1440 and 1446) –Person for whose benefit the trust is created.55
In order that a trust may become effective there must, of course, be a trustee and a cestuique
trust. In regard to private trusts it is not always necessary the cestuique trust should be named, or
even be in esseat the time the trust is created in his favor. Thus a devise a father in trust for
accumulation for his children lawfully begotten at the time of his death has been held to be good
although the father had no children at the time of the vesting of the funds in him as trustee. In
charitable trusts such as the one here under discussion, the rule is still further
relaxed. Government v. Abadilla, 46 Phil. 642 (1924).
Acceptance by beneficiary of gratuitous trust is not subject to the rules for the formalities of
donations.xCristobal v. Gomez, 50 Phil. 810 (1927).
A person is considered as a beneficiary if there is a manifest intention to give such a person the
beneficial interest over the trust properties. Here, the categorical declaration in the trust agreement
that Legacy bound itself to provide for the sound, prudent and efficient management and
administration of such portion of the collection ―for the benefit and account of the planholders,‖
through LBP (as the trustee) indicates that the intention of the trustor is to make the planholders
the beneficiaries of the trust properties, and not Legacy, which is left without any iota of interest in
the trust fund. Thus, the receiver of Legacy has no cause of action to seek recovery of the trust
funds to answer for the claims of the creditors of Legacy. xSEC v. Laigo, 768 SCRA 633 (2015).
d. The Corpus, Res, or Trust Estate
Where DBP establishes a pension trust for its officers and employees and appoints a board of
trustees for the fund, it transferred legal title over the income and properties of the fund. Since the
trust agreement established the fund precisely so that it would eventually be sufficient to pay for
the retirement benefits of DBP officers and employees, then the income and profits thereof cannot
be booked by DBP as its own, and DBP cannot be directed by COA to treat such income as it own.
Development Bank of the Phils. v. Commission of Audit, 422 SCRA 459 (2004).

3. Kinds of Express Trusts

a. Contractual versus Intervivos Trusts
b. Charitable Trusts
c. Testamentary Trust
A testamentary trust is created by a provision in the will whereby the testator directs the creation
of a trust for the benefit of a secondary school to be established in the town of Tayabas, naming as
trustee the ayutamientoor if there be no ayutamiento, then the civil governor of the Province of
Tayabas. xGovernment of P.I. v. Abadilla, 46 Phil. 642 (1924).
Although the will did not use the words ―trust‖ or ―trustee‖, the intention to create one is clear
since testator ordered therein that certain properties be kept together undisposed during a fixed
period, for a stated purpose. No particular or technical words are required to create a testamentary
trust; hence, probate court exercised sound judgment in appointing a trustee to carry the
proivisionsinto effect. xLorenzo v. Posadas, 64 Phil. 353 (1937).
d. Pension or Retirement Trusts
A foundation existing for the purpose of holding title to, and administering, the tax-exempt
Employees‘ Trust Fund established for the benefit of the employees, has the personality to claim
tax refunds due the Employers‖ Trust Fund. xMiguel J. Ossorio Pension Foundation, Inc. v. Court
of Appeals, 621 SCRA 606 (2010).
Employees‘ trust or benefit plans are intended to provide economic assistance to employees
upon the occurrence of certain contingencies, particularly, old age retirement, death, sickness, or
disability. They give security against certain hazards to which members of the Plan may be
exposed. They are independent and additional sources of protection for the working group and
established for their exclusive benefit and for no other purpose. The provident and retirement fund
of the employees cannot be used by the trustee-bank to pay for the obligations of the employer
corporation. xMetropolitan Bank v. Board of Trustees of Riverside Mills Corp. Provident and
Retirement Fund, 630 SCRA 350 (2010); xCIR v. Court of Appeals, 207 SCRA 487 (1992).
4. How to Prove Express Trusts(Arts. 1443 and 1444)

55
DBP v. COA, 422 SCRA459 (2004); Peñalber v. Ramos, 577 SCRA 509 (2009).

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 As a rule, however, the burden of proving the existence of a trust is on the party asserting its
existence, and such proof must be clear and satisfactorily show the existence of the trust and its
elements. xMorales v. Court of Appeals, 274 SCRA 282 (1997).56
The provision in the Deed of Sale of a parcel of land that the seller ―agrees to work for the
titling of the entire area of my land under my own expenses and the expenses for the titling of the
portion sold by me to the buyer shall be for the expense of the buyer,‖ merely sets the parameters
of who will shoulder the expenses for titling, and do not constitute a creation of an express trust.It is
essential for the creation of trust over property that the purported trustee must clearly and
unequivocably hold title to the property in trust for some other entity. Mindanao Dev. Authority v.
Court of Appeals, 113 SCRA 429 (1982).
a. GENERAL RULE: Parol Evidence Is Insufficient to Prove an Express Trust Over Immovables
Plaintiff sought to prove by testimonial evidence that an express trust over certain immovables
was established in favor of Anacleto by the other children of CeledonioMeneses and Ana
Asuncion. Held:Under Article 1443, no express trust concerning an immovable or any interest
therein may be proved by parol evidence. xPascual v. Meneses, 20 SCRA 219 (1967).
We find it clear that the plaintiffs alleged an express trust over an immovable, especially since
it is alleged that the trustor expressly told the defendants of his intention to establish the trust. Such
a situation definitely falls under Art. 1443, and cannot be proven by parol evidence. xCuaycong v.
Cuaycong, 21 SCRA 1192 (1967).57
b. EXCEPTION: Parol Evidence Must Be on the Part of Purported Trustee Who
Binds Himself to Hold Title for the Benefit of the Beneficiary
Technical or particular forms of words or phrases are not essential to create or establish a
trust;nor would the use of some such words as ―trust‖ or ―trustee‖ essential to the constitution of a
trust; and conversely, the fact that such terms were employed would not necessarily prove an
intention to create a trust. What is important is whether trustor manifested an intention to create the
kind of relationship which in law is known as a trust. It is important that the trustor should know that
the relationship ―which intents to create is called a trust, and whether or not he knows the precise
characteristics of the relationship which is called a trust. Here, that trust is effective as against
defendants and in favor of the beneficiary thereof, plaintiff Victoria Julio, who accepted it in the
document itself.‖ Julio v. Dalandan, 21 SCRA 543 (1967).58
Under Art. 1444 ―No particular words are required for the creation of an express trust, it being
sufficient that a trust is clearly intended.‖ The Affidavit of Epifanio is in the nature of a trust
agreement. Epifanio affirmed the lot brought in his name was co-owned by him, as one of the heirs
of Jose, and his uncle Tranquilino. And by agreement, each of them has been in possession of half
of the property. Their arrangement was corroborated by the subdivision plan prepared by Engr.
Bunagan and approved by Jose P. Dans, Acting Director of Lands. xHeirs of TranquilinoLabiste v.
Heirs of Jose Labiste, 587 SCRA 417 (2009).

c. HENCE: Parol Evidence on the Part of the Purported Beneficiary Generally Fail
A person who has held legal title to land, coupled with possession and beneficial use of the
property for more than ten years, will not be declared to have been holding such title as trustee for
himself and his brothers and sisters upon doubtful oral proof tending to show a recognition by such
owner of the alleged rights of his brother and sisters to share in the produce of the land. [Ergo: The
requirement that express trust over immovable must be in writing should be added as being
governed by the Statute of Frauds.]xGamboa v. Gamboa, 52 Phil. 503 (1928).
What distinguishes a trust is the separation of legal title and equitable ownership of the
property—legal title is vested in the fiduciary while equitable ownership is vested in a cestuique
trust. The petitioner alleged that the tax declaration of the land was transferred to the name of
Crispulo without her consent. Had it been her intention to create a trust and make Crispulo her
trustee, she would not have made an issue out of this because in a trust agreement, legal title is
vested in the trustee. Trustee would necessarily have the right to transfer the tax declaration in his
name and to pay the taxes on the property—these acts would be treated as beneficial to the cestui
qui trust and would not amount to an adverse possession. Express trust must be proven by some
writing or deed. In this case, the only evidence to support the claim that an express trust existed
between the petitioner and her father was the self-serving testimony of the petitioner. Bare
allegations do not constitute evidence adequate to support a conclusion. Cañezo v. Rojas, 538
SCRA 242 (2007).
In accordance with Art. 1443, when an express trust concerns an immovable property or any
interest therein, the same may not be proved by parol or oral evidence. However, when the
oppositors failed to timely object when the petitioner tried to prove by parol evidence the existence
of an express trust over immovable, there is deemed to be a waiver since Art. 1443 ―is in the
nature of a statute of frauds.‖ Nevertheless, when the oral evidence merely contains an
assortmenton the part of the purported beneficiaries and their witnesses that the titleholder is
bound to hold the property for their benefit, such evidence will not support to establish the alleged
trust. Peñalber v. Ramos, 577 SCRA 509 (2009).

56
Booc v. Five Star Marketing, 538 SCRA 42 (2008).
57
Ramos v. Ramos, 61 SCRA 284 (1974).
58
Lorenzo v. Posadas, 64 Phil. 353 (1937).

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 Tamayo v. Callejo, 46 SCRA 27 (1972), recognized that a trust may have a constructive or
implied nature in the beginning, but the registered owner‘s subsequent express acknowledgment in
a public document of a previous sale of the property to another party, had the effect of imparting to
the aforementioned trust the nature of an express trust. The same situation applies in this case,
where the buyer who has titled issued his name subsequently executes a Deed of Absolute
Quitclaim that he acquired the title only as an accommodation by the sellers of his intention to use
it as collateral to obtain a bank loan the proceeds of which will be used to build improvements on
the property. xTorbela v. Spouses Rosario, 661 SCRA 633 (2011).
The language of the original registered owner of the land in a subsequent letter unequivocally
and absolutely declared her intention of transferring the title over the subject property to her
daughter and common-law husband in order to merely accommodate them in securing a loan from
the GSIS. She likewise stated clearly that she was retaining her ownership over the subject
property and articulated her wish to have her heirs share equally therein. Since both the daughter
and husband signed at the bottom of the letter, what may have started out in the beginning (the
earlier transfers by the mother of the title to the land) as an implied trust, the execution many years
later of the letter settled, once and for all, the nature of the trust established between them as an
express one, their true intention irrefutably extant thereon. Go v. Estate of FelisaTamio de
Buenaventura, 763 SCRA 632 (2015).

5. Termination of Express Trusts

a. Where the Trust Fails (Art. 1445)
Under an ordinary devise of land in trust, the trustee holds the legal title and the cestuique
trust the beneficial title and the natural heirs of the testator who are neither trustees nor
cestuisquetrustenthave no remaining interest in the land devised except the right to the reversion in
the event the devise should fail, or the trust for other reasons terminates. xGovernment v. Abadilla,
46 Phil. 642 (1924).
b. Upon the Death of Trustee
Atrust relation is terminated upon thetrustee‘s death, since the trust was personal to the
trustee in the sense that the trustor intended no other person to administer it; it cannot be said that
such appointment was intended to be conveyed to the respondent or any of trustee‘s other heirs.
Hence, upon trustee‘s death, the respondent had no right to retain possession of the property; and
a constructive trust would be created over the property by operation of law. Where one mistakenly
retains property which rightfully belongs to another, a constructive trust is the proper remedial
devise to correct the situation. Cañezo v. Rojas, 538 SCRA 242 (2007).

III. IMPLIED TRUSTS

A. IMPLIED TRUSTS—IN GENERAL
a. Listing of Implied Trusts Not Exclusive: FOUNDED ON EQUITY (Art. 1447)
Although an implied trust arising from mortgage contracts is not among those enumerated, Art.
1147provides that such listing ―does not exclude others established by general law on trust.‖ Under
the general principles on trust, equity converts the holder of a property right as trustee for the
benefit of another if the circumstances of its acquisition makes the holder ineligible ―in good
conscience to hold and enjoy it.‖59Implied trusts are remedies against unjust enrichment, the ―only
problem of great importance in constructive trusts is whether in the numerous and varying factual
situations presentedthere is a wrongful holding of property and hence, a threatened unjust
enrichment of the defendant. Juan v. Yap, Sr., 646 SCRA 753 (2011).61
There can be no implied trust created over land in favor of a foreigner that would amount to a
violation of the constitution. xEncarnacion v. Johnson, G.R. No. 192285, 11 July 2018.

b. How to Prove Implied Trusts(Art. 1457)

Burden of proving the existence of a trust is on the party asserting its existence, and such proof
must be clear and satisfactorily show the existence of the trust and its elements. While implied
trusts may be proven by oral evidence, the evidence must be trustworthy and received by the
courts with extreme caution, and should not be made to rest on loose, equivocal or indefinite
declarations. Trustworthy evidence is required because oral evidence can easily be fabricated.
Heirs of Narvasa, Sr. v. Imbornal, 732 SCRA 171 (2014).
An implied trust in order to be recognized must measure up to the yardstick that a trust must be
proven by clear, satisfactory and convincing evidence, and cannot rest on vague and uncertain
evidence or on loose, equivocal or indefinite declarations. Salao v. Salao, 70 SCRA 65 (1976).
CONSEQUENTLY:
Existence of public records other than the Torrens title indicating a proper description of the
land, and not the technical description thereof, and clearly indicating the intention to create a

59
Roa, Jr. v. CA, 123 SCRA 3 (1983).
61
Heirs of Moreno v. Mactan-Cebu Int.’l Airport Authority, 413 SCRA 5023 (2003).

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 trust, is considered sufficient proof to support the claim of the cestuique trust. xMunicipality
ofVictorias v. CA, 149 SCRA 32 (1987).
An affidavit of the fact of resulting trust against contrary affidavits, as well as the transfer
certificates of title and tax declarations to the contrary, do not support clearly the existence of
trust.xBooc v. Five Start Marketing Co., Inc., 538 SCRA 42 (2007).63
In order to establish an implied trust in real property by parol evidence, the proof should be
as fully convincing as if the acts giving rise to the trust obligation are proven by an authentic
document. In the present case, there was no evidence of any transaction between the
petitioner and her father from which it can be inferred that a resulting trust was intended.‖
Cañezo v. Rojas, 538 SCRA 242 (2007).

b. Implied Trusts Distinguished from Quasi-Contracts –The Civil Code incorporated

―constructive trusts, on top of quasi-contracts, both of which embody the principle of equity
above strict legalism.‖ PNB v. Court of Appeals, 217 SCRA 347 (1993).

c. Distinctions Between Resulting Trusts and Constructive Trusts–Resulting trusts are based
on the equitable doctrine that valuable consideration and not legal title determines the equitable
title or interest and are presumed always to have been contemplated by the parties. They arise
from the nature of circumstances of the consideration involved in a transaction whereby one
person thereby becomes invested with legal title but is obliged in equity to hold his legal title for
the benefit of another. Whereas, constructive trusts are created by the construction of equity in
order to satisfy the demands of justice and prevent unjust enrichment. They arise contrary to
intention against one who, by fraud, duress or abuse of confidence, obtains or holds the legal
right to property which he ought not, in equity and good conscience, to hold.xAznar Brothers
Realty Co. v. Aying, 458 SCRA 496 (2005).64

B. RESULTING TRUSTS
Resulting trusts are species of implied trusts that are presumed always to have been contemplated
by the parties‘ intention, which can be found in the nature of their transaction although not expressed in
a deed or instrument of conveyance; they are based on the equitable doctrine that valuable
consideration and not legal title determines the equitable title or interest.xOssorio Pension Foundation
v. Court of Appeals, 621 SCRA 606 (2010).65
Resulting trusts arise from the nature or circumstances of consideration involved in a transaction
whereby one person thereby becomes invested with full legal title but is obligated in equity to hold his
title for the benefit of another. xRosario v. Court of Appeals, 310 SCRA 464 (1999).
In a resulting trust, the beneficiary‘s cause of action arises when the trustee repudiates the trust,
not when the trust was created. xParingit v. Bajit, 631 SCRA 584 (2010).

1. Purchase of Property Where Beneficial Title Constituted in One Person, But

Price Paid by Another Person (Art. 1448)
RATIONALE: One who pays for something usually does so for his own benefit. UyAloc v. Cho Jan
Jing, 19 Phil. 202 (1911).
EXCEPTION: Although the father was the source of the funds in the purchase of a parcel of land
which was titled in the name of his son, no implied trust is deemed to have been established since
under Art. 1448, if the person to whom the title is conveyed is the child of the one paying the price
of the sale, no trust is implied by law, and instead a donation is disputably presumed in favor of the
child. The successors of the deceased father had not shown that no such donation was
intended. Ty v. Ty, 553 SCRA 306 (2008).
Where Nadera supplies the money to allow spouses-members to buy-back his foreclosed
property from GSIS pursuant to an understanding that the spouses-members had previously sold
the right to redeem the property from GSIS to Nadera, then: ―If the resale by [GSIS] upon payment
of the price of redemption by Nadera was made in favor of … spouses, it was purely a matter of
form since they were the mortgagor debtors, and the least that can be said … is that they should
be considered as trustees under a … resulting trust for the benefit of the real owner Nadera
pursuant to Art. 1448.‖xPadilla v. Court of Appeals, 53 SCRA 168 (1973).
Where money is supplied by the stockholders to allow properties to be bought and placed in
name of the corporation under financial distress for the purpose of helping the corporation to
regain financial stability, the lien over the properties annotated on the titles for the benefit of
stockholders advancing the money merely constitute a security measure, and not an express nor
implied trust. Phil. National Bank v. Aznar, 649 SCRA 214 (2011).66
In Thomson v. Court of Appeals, 298 SCRA 280 (1998), we held that a trust arises in favor of
one who pays the purchase price of a property in the name of another, because of the presumption
that he who pays for a thing intends a beneficial interest for himself. Where the club share was
bought and paid for by Sime Darby and placed in the name of its officer Mendoza, a resulting trust
63
Tigno v. CA, 280 SCRA 262 (1997); Morales v. CA, 274 SCRA 282 (1997).
64
Spouses Rosario v. CA, 310 SCRA 464 (1999); Estate of Margarita D. Cabacungan, v. Laigo, 655 SCRA 366 (2011).
65
Cañezo v. Rojas, 538 SCRA 242 (2007).
66
De Leon v. Peckson, 62 O.G. 994; Ringor v. Ringor, 436 SCRA 484 (2004); Figuracion v. Figuracion-Gerilla, 690 SCRA 495 (2013); Medina
v. CA, 109 SCRA 437, 445 (1981); Advent Capital and Finance Corp. v. Alcantara,664 SCRA 224 (2012).

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 is presumed as a matter of law. The burden shifts to the transferee to show otherwise. Sime
Darby Pilipinas v. Mendoza, 699 SCRA 290 (2013).
Article 1448 provides that there is an implied trust when property is purchased, and the legal
estate is granted to one party but the price is paid by another for the purpose of having the
beneficial interest of the property. The former is the trustee, while the latter is the beneficiary. The
trust created here, which is also referred to as a ―purchase money resulting trust,‖ occurs when
there is (a) an actual payment of money, property or services, or an equivalent, constituting
valuable consideration; (2) and such consideration must be furnished by the alleged beneficiary of
a resulting trust. These two elements are present here: The heirs of Melecia, who are in
possession of the real estate in controversy, were able to establish that Melecia‘s money was used
in buying the property, but its title was placed in Godofredo‘s name; thatMelecia entrusted the
money to Godofredo because he was in Cagayan de Oro, and per Melecia‘s instruction, the deed
of sale covering the property was placed in his name. It was allegedly her practice to buy
properties and place them in her children's name, but it was understood that she and her children
co-own the properties. Gabutan v. Nacalaban, 795 SCRA 115 (2016).

2. Purchase of Property Where Title Is Placed in the Name of Person Who Loaned the
Purchase Price As Security for the Loan (Art. 1450) – Equitable Mortgage
Resulting trust under Art. 1450 presupposes a situation where a person, using his own funds,
buys property on behalf of another, who in the meantime may not have the funds to purchase it—
title to the property is for the time being placed in the name of the payor-trustee, until he is
reimbursed by the beneficiary—person for whom the land is bought. It is only after the beneficiary
reimburses the trustee of the purchase price that the former can compel conveyance of the
property from the latter. Paringit v. Bajit, 631 SCRA 584 (2010).

3. When Absolute Conveyance of Property Effected Only as a Means to Secure

Performance of Obligation of the Grantor (Art. 1454) – Equitable Mortgage
When a deed of sale a retro was really intended to cover a loan made by the purported seller
from the purported buyer, then the doctrines upheld in UyAloc v. Cho Jan Ling, 19 Phil. 202;
Camacho v. Municipality of Baliaug, 28 Phil. 46; and Severino v. Severino, 44 Phil., 343; are
applicable in the instant case in the sense that the defendants only hold the certificate of transfer in
trust for the plaintiffs as to the portion of the lot containing 1,300 coconut trees, and therefore, said
defendants are bound to execute a deed in favor of the plaintiffs transferring said portion to them.
De Ocampo v. Zaporteza, 53 Phil. 442 (1929).

4. Several Persons Jointly Purchase Property, But Place Title In One of Them (Art. 1452)
Article 1452 allows a co-owner (first co-owner) of a parcel of land to register his proportionate
share in the name of his co-owner (second co-owner) in whose name the entire land is registered.
The second co-owner serves as a legal trustee insofar as the proportionate share of the first co-
owner is concerned; the first co-owner remains the owner of his proportionate share. For Art. 1452
to apply, all that a co-owner needs to show is that there is ―common consent‖ among the
purchasing co-owners to put the legal title to the purchased property in the name of one co-owner
for the benefit of all. Once this ―common consent‖ is show, ―a trust is created by force of law.‖
Miguel J. Ossorio Pension Foundation, v. CA, 621 SCRA 606 (2010).
COMPARE: Decedent had married legitimately three successive times without liquidation of conjugal
partnerships formed during the first and second marriages. The only male issue managed to
convince his co-heirs that he should act as administrator of the estate, but instead obtained a
certificate of title in his own name to the valuable piece of property of the estate. Held: Where the
son, through fraud was able to secure a title in his own name to the exclusion of his co-heirs who
equally have the right to a share of the land covered by the title, an implied trust was created in
favor of said co-heirs, and that said son was deemed to merely hold the property for their and his
benefit. Heirs of TanakPangaaranPatiwayon v. Martinez, 142 SCRA 252 (1986).

5. Property Conveyed to a Person Merely as Holder Thereof(Art. 1453)

Where real property is taken by a person under an agreement to hold it for, or convey it to
another, a resulting trust arises in favor of the intended beneficiary, which is enforceable even
when the agreement is not in writing. It is not an express trust which requires that it be in writing to
be enforceable. xMartinez v. Graño, 42 Phil. 35 (1921).
Where original purchaser of the immovable property had sold all his interest thereto to his
brother who reimbursed him all amounts previously, but continued to pay the balance of the
installments in the name of the original buyer with understanding that upon full payment the title
would be transferred to the buyer, am implied trust had been constituted. Heirs of Emilio
Candelaria v. Romero, 109 Phil. 500 (1960).
Alleged beneficiariesargues the application of Art. 1453 to construe an implied trust that
provides that ―When property is conveyed to a person in reliance upon his declared intentions to
hold it for or transfer it to another or the grantor, there is an implied trust in favor of the person
whose benefit is contemplated.‖The argument is untenable, even considering the whole
complaintwhich alleges the clear intentionof the trustor to establish a trust, making it an express
trust. Article 1453 would apply only if the person conveying the property did not expressly state that

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 he was establishing the trust, unlike the case at bar where he was alleged to have expressed such
intent. Cuaycong v. Cuaycong, 21 SCRA 1192 (1967).
Where a lot was taken by a person under an agreement to hold it for, or convey it to another or
to the grantor, a resulting trust arises in favor of the person for whose benefit the property was
intended. xRosario v. Court of Appeals, 310 SCRA 464 (1999).

6. Donation of Property to a Donee Who Shall Have No Beneficial Title (Art. 1449)
Where father formally donates a piece of land in the name of the daughter with verbal notice
that the other half would be held by her for the benefit of a younger brother, coupled with a deed of
waiver subsequently executed by the daughter that she held the land for the common benefit of her
brother, created an implied trust in favor of the brother under Art.1449[not express
trust?]. Adaza v. Court of Appeals, 171 SCRA 369 (1989).

7. Land Passes By Succession, But Heir Places Title in a Trustee (Art. 1451)
When the eldest sibling had registered land inherited from the parents in his name, he was
acting in a trust capacity and as representative of all his co-heirs. As a consequence it is proper for
the courts to declare that the other co-heirsare entitled to their several pro rata shares.xSeverino v.
Severino, 44 Phil. 343 (1923);xCastro v. Castro, 57 Phil. 675 (1932).
In a situation where a Chinese resident had caused land to be placed in the name of the
trustee who was bound to hold the same for the benefit of the trustor and his family in the event of
death, the application of implied trust under Art.1451 by the heirs of the trustor cannot be upheld
―because the prohibition against an alien from owning lands of the public domain is absolute and
not even an implied trust can be permitted to arise on equity consideration.‖ xTing Ho, Jr. v.
TengGui, 558 SCRA 421 (2008).

C. CONSTRUCTIVE TRUSTS
1. General Doctrines for Constructive Trusts
Constructive trust is a rule of equity, independent of the particular intentions of the parties.
Paringit v. Bajit, 631 SCRA 584 (2010). Therefore, in constructive trusts there is neither promise
nor fiduciary relations; the ― trustee‖ does not recognize any trust, with no intent to hold property for
the beneficiary. Diaz v. Gorricho and Aguado, 103 Phil. 261 (1958).67
A constructive trustis a trust by operation of law which arises contrary to intention and in invitum,
against one who, by fraud, actual or constructive, by duress or abuse of confidence, by
commission of wrong, or by any form of unconscionable conduct, artifice, concealment, or
questionable means, or who in any way against equity and good conscience, has obtained or holds
the legal right to property which he ought not, in equity and good conscience, hold and enjoy.
xSumaoang v. Judge, RTC Br. XXXI, Buimba, Nueva Ecija, 215 SCRA 136 (1992).68
Constructive trusts are fictions of equity that courts use as devices to remedy any situation in
which the holder of the legal title, the purported trustee, should not, in good conscience, retain title
over a property. xVda. deOuano v. Republic, 642 SCRA 384 (2011).
This Court recognized unconventional implied trusts in contracts: involving purchase of housing
units by officers of tenants‘ associations in breach of their obligations,69 the partitioning of realty
contrary to the terms of a compromise agreement,70 and the execution of a sales contract indicating
a buyer distinct from the provider of the purchase money.71 In all these cases, the title-holders were
deemed trustees obliged to transfer title to the beneficiaries in whose favor the trusts were deemed
created. We see no reason to bar the recognition of the same obligation in a mortgage contract
meeting the standards for the creation of an implied trust. xJuan v. Yap, Sr., 646 SCRA 753 (2011).
When some of the co-heirs fraudulently register the property of the decedent in their names to
the exclusion of other heirs, then an implied trust arose, and the action for reconveyance by the
excluded heirs (who are not in possession of the property) must be filed within ten (10) years from
the date of registration of the deed or the date of the issuance of the certificate of title over the
property. xPontigon v. Heirs of Meliton Sanchez, 812 SCRA 274 (2016).

2. When a Fiduciary Uses Funds or Property Held in Trust to Purchase Property Which
Is Registered in Fiduciary’s Name or a Third Party (Art. 1455)
A confidential employee who, knowing that his principal was negotiating with the owner of some
land for the purchase thereof, surreptitiously succeeds in buying it in the name of his wife, commits
an act of disloyalty and infidelity to his principal, whereby he becomes liable, among other things,
for the damages caused, which meant to transfer the property back to the principal under the terms
and conditions offered to the original owner. Sing Juco and Sing Bengco v. Sunyantong and
Llorente, 43 Phil. 589 (1922).
A verbal assertion of a partner that partnership funds were used to purchase real properties
registered solely in the name of the other partners-spouses, without further evidence, does not

67
Carantes v. CA, 76 SCRA 514 (1977); Marcado v. Espinocilla, 664 SCRA 724 (2012).
68
Roa, Jr. v. CA, 123 SCRA 3 (1983).
69
Policarpio v. CA, 269 SCRA 344 (1997); Arlequi v. CA, 378 SCRA 322 (2002).
70
Roa, Jr. v. CA, 123 SCRA 3 (1983).
71
Tigno v. CA, 280 SCRA 262 (1997).

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 overcome the Torrens title issued showing exclusive ownership in the name of the partners-
spouses, and cannot also be used to establish an implied trust over said properties in favor of
alleging partner. xJarantilla, Jr. v. Jarantilla, 636 SCRA 299 (2010).
Relation of agent to his principal is fiduciary and, an agent is estopped from acquiring or
asserting a title adverse to that of the principal—a position analogous to that of a trustee—he
cannotbe allowed to create in himself an interest in opposition to that of his principal or cestuique
trust. Hernandez v. Hernandez, 645 SCRA 24 (2011).

3. When Property Acquired Through Mistake or Fraud(Art. 1456)

a. Old Civil Code:
Where a mother and her minor daughter inherited a large tract of land, and had it applied for
cadastral survey, but title was issued only in the name of the mother, courts of equity will impress
upon the title, a condition which is generally in a broad sense termed ―constructive trust‖ in favor of
the defrauded party (daughter), but use of ―trust‖ in this sense is not technically
accurate. Gayondato v. Treasurer, 49 Phil. 244 (1926).
When an agent, taking advantage of the illiteracy of the principal, claims for himself the
property which he was designated to claim for the principal and manages to have it registered in
his own name and became part of his estate when the agent died, the estate is in equity bound to
execute the deed of conveyance of the lot to the cestuiquetrust. The courts have therefore shielded
fiduciary relations against every manner of chicanery or detestable designed cloaked by legal
technicalities. Torrens system was never calculated to foment betrayal in the performance of a
trust. Escobar v. Locsin, 74 Phil. 86 (1943).72

b. New Civil Code:

Where father sold unregistered land to Buyer, and thereafter fraudulently caused the issuance
of free patent and title to the land in the name of his son, a constructive trust is constituted under
Art. 1456 in behalf of the Buyer who has 10 years from the registration of title in the name of the
son to bring an action for recovery. xGonzales v. Jimenez, Sr., 13 SCRA 80 (1964).
Where the husband-trustee in a testamentary trust established by the wife over her
paraphernalproperties for the benefit of deservingstudents obtains a court order from the probate
court to register some of the properties as his own as part of his successional rights to the estate
of the deceased wife and thereby exclude them from the express testamentary trusts, then a
constructive trust has been constituted under Art. 1456 in favor of the intended beneficiaries, and
the action for reconveyance would be extinguished at the end of 10 years from the registration of
the titles to the properties in the name of the husband. Lopez v. CA, 574 SCRA 26 (2008).73
Under Art. 1456on constructive trust, registration of property by one person in his name,
whether by mistake or fraud, the real owner being another person, impresses upon the title so
acquired the character of a constructive trust for the real owner, which would justify an action for
reconveyance within a period of 10 years from registration. In the action for reconveyance, the
decree of registration is respected as incontrovertible, and what is sought instead is the transfer of
the property wrongfully or erroneously registered in another‘s name to its rightful owner or to one
with a better right. Pasiño v. Monterroyo, 560 SCRA 739 (2008).74
The rule that a fraudulently acquired free patent may only be assailed by the government in an
action for reversion pursuant to the Public Land Act is not without exception: where claimant seeks
direct reconveyance from defendant of public land unlawfully and in breach of trust titled by him, on
the principle of enforcement of a constructive trust.xHortizuela v. Tagufa, 751 SCRA 371 (2015).
Conveyance made by seller of a property acquired through pactumcommisoriumis void, and
thus not vest title to the buyer. Such a situation falls squarely under Art. 1456, where the buyer is
deemed to have acquired the property by mistake or through ineffectual transfer.[Title
void?] Home Guaranty Corp. v. La Savoje Dev. Corp., 748 SCRA 312 (2015).

IV. RULES OF PRESCRIPTION ON TRUSTS

1. Summary of Rulings for Express Trusts:
GENERAL RULE: Express trusts are generally imprescriptible:The express undertaking to hold title
for the benefit of the beneficiary disables the trustee from acquiring for himself the property
committed to his management or custody.76

72
Pacheco v. Arro, 85 Phil. 505.
73
Vda. De Esconde v. CA, 253 SCRA 66 (1996); Iglesia Filipina Independiente v. Heirs of Taeza, 715 SCRA 138 (2014).
74
Ruiz v. CA, 79 SCRA 525 (1977); Heirs of TanakPangaaranPatiwayon v. Martinez, 142 SCRA 252 (1986); Municipality of Victorias v. CA,
149 SCRA 32 (1987); Mendizabel v. Apao, 482 SCRA 587 (2006); Heirs of Tabia v. CA, 516 SCRA 431 (2007); Pedrano v. Heirs of
BenedictoPedrano, 539 SCRA 401 (2007); Heirs of Valeriano S. Concha, Sr. v. Lumocso, 540 SCRA 1 (2007); Leoveras v. Valdez, 652 SCRA
61 (2011); PNB v. Jumamoy, 655 SCRA 54 (2011); Toledo v. CA, 765 SCRA 104 (2015).
76
A trustee cannot acquire by prescription the ownership of property entrusted to him (Palma v. Cristobal, 77 Phil. 712); an action to compel a
trustee to convey property registered in his name in trust for the benefit of the cestui qui trust does not prescribe (Manalang v. Canlas, 94 Phil.
776; Cristobal v. Gomez, 50 Phil. 810); the defense of prescription cannot be set up in an action to recover property held by a person in trust for
the benefit of another (Sevilla v. Delos Angeles, 97 Phil. 875); property held in trust can be recovered by the beneficiary regardless of the lapse of
time (Marabilles v. Quito, 100 Phil. 64; Bancairen v. Diones, 98 Phil. 122, Juan v. Zuñiga, 4 SCRA 1221; Vda de Jacinto v. Vda. de Jacinto, 5
SCRA 370 (1962). Ramos v. Ramos, 61 SCRA 284, 299 (1974).

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 The beneficiary‘s alleged delay in seeking recovery of the property is directly attributable to the
trustee who undertakes to hold the property for the former. Trustee‘s possession is, therefore, not
adverse to the beneficiary, until and unless the latter is made aware that the trust has been
repudiated.xDiaz v. Gorricho and Aguado, 103 Phil. 261 (1958).77
EXCEPTION: For acquisitive prescription to bar recovery against the trustee, it must be shown that:78
(1) Trustee performed unequivocal acts of repudiation to oust cestuique trust;
(2) Such positive acts of repudiation have been made known to the cestuique trust;
(3) Evidence is clear and conclusive: a clear repudiation of the trust duly communicated to the
beneficiary:A trustee who obtains a Torrens title over the property held in trust for another
cannot repudiate the trust by relying on the registration. The rule requires a clear repudiation
of the trust duly communicated to the beneficiary, which can only cover where respondents
filed the petition for reconstitution seeking registration only in his name,xHeirs of
TranquilinoLabiste v. Heirs of Jose Labiste, 587 SCRA 417 (2009);79and
(4) Lapse of 10 years after repudiation.xEscay v. Court of Appeals, 61 SCRA 369 (1974).
HOWEVER: Though prescription does not run between the trustee and cestuique trust as long as
the trust relations subsist, it runs between against the trustee and in favor of a third person who
holds actual, open, public, and continuous possession adverse to the trust, of land for over 10
years. xGovernment v. Abadilla, 46 Phil. 642 (1924).
There is repudiation of an express trust when trustee fails to deliver the title to the land in the
beneficiary‘ name, as was the main obligations assumed, and his heirs subsequently sold the
property to a third party who is not privy thereto.xSecuya v. Vda. de Selma, 326 SCRA 244 (2000).

2. Summary of Rulings for Resulting Trusts:

GENERAL RULE:As a rule, resulting trusts do not prescribe except when the trustee repudiates the
trust. Further, the action to reconvey does not prescribe so long as the property stands in the name
of the trustee. To allow prescription would be tantamount to allowing a trustee to acquire title
against his principal and true owner. Tong v. Go Tiat Kun, 722 SCRA 623 (2014).
The imprescriptibility of the action to recover applies to resulting trusts as long as the trustee
has not repudiated the trust. The continuous recognition of a resulting trust, therefore, precludes
any defense of laches in a suit to declare and enforce the trust. After all, the beneficiary in a
resulting trust may, without prejudice to his right to enforce the trust, prefer the trust to persist and
demand no conveyance from the trustee.xHeirs of Candelaria v. Romero, 109 Phil. 500 (1960).80
A co-ownership is a form of trust, with each owner being a trustee for each other. Mere actual
possession by one will not give rise to the inference that the possession was adverse because a
co-owner is, after all, entitled to possession of the property. Thus, as a rule, prescription does not
run in favor of a co-heir or co-owner as long as he expressly or impliedly recognizes the co-
ownership. An action to demand partition among co-owners is imprescriptible, and each co-owner
may demand at any time the partition of the common property.xHeirs of Yambao v. Heirs of
Yambao, 789 SCRA 361 (2016).
EXCEPTION:In resulting trusts, acquisitive prescription run in favor of the trustee only when he
repudiates expressly the trusts and makes known such repudiation to the beneficiary, and there is
a lapse of 10 years from:
(1) Notice of repudiation served upon the beneficiary;81
(2) Registration of title in name of trusteethat constitutes a clear act of repudiation:82
Such as registration by one of the co-owners of title in his sole name in fraud of the other
co-owners (which makes it a constructive trust).83

3. Summary of Rulings for Constructive Trusts:

GENERAL RULE: In constructive trusts, laches constitutes a bar to actions to enforce the trust,
without need of prior repudiation,84 and that acquisitive prescription runs in favor of the trustee after
10 years from the registration of title in trustee‘s name.85

77
Laguna v. Levantino, 71 Phil. 566 (1941); Sumira v. Vistan, 74 Phil. 138 (1943); Golfeo v. CA, 12 SCRA 199 (1964); Caladiao v. Santos, 10
SCRA 691, (1964);Torbela v. Rosario, 661 SCRA 633 (2011).
78
Pilapil v. Heirs of Maximino R. Briones, 514 SCRA 197 (2007); Cañezo v. Rojas, 538 SCRA 242 (2007); Heirs of TranquilinoLabiste v. Heirs
of Jose Labiste, 587 SCRA 417 (2009).
79
Torbela v. Rosario, 661 SCRA 633 (2011)
80
Martinez v. Graño, 42 Phil. 35 (1921); Buencamino v. Matias, 16 SCRA 849 (1966)]. Ramos v. Ramos, 61 SCRA 284 (1974).
81
Castro v. Echarri, 20 Phil. 23; Bargayo v. Camumot, 40 Phil. 857 (1920); Ramos v. Ramos, 45 Phil. 362 (1923); VarsityHills v. Navarro, 43
SCRA 503 (1972).
82
Cañezo v. Rojas, 538 SCRA 242 (2007).
83
Vda. de Jacinto v. Vda. de Jacinto, 5 SCRA 370 (1962); Castrillo v. CA, 10 SCRA 549 (1964); Lopez v. Gonzaga, 10 SCRA 167 (1974);
Gerona v. De Guzman, 11 SCRA 153 (1964); Mariano v. Judge De Vega, 148 SCRA 342 (1987); Figuracion v. Figuracion-Gerilla, 690 SCRA
495 (2013).
84
Boñaga v. Soler, 11 Phil. 651; Claridad v. Henares, 97 Phil. 973; Cuison v. Fernandez and Bengzon, 105 Phil. 135 (1959); Candelaria v.
Romero, 109 Phil. 500 (1960); De Pasion v. De Pasion, 112 Phil. 403;J.M. Tuazon& Co. v. Mandanagal, 4 SCRA 84 (1962); Alzona v. Capunitan,
4 SCRA 450 (1962); Vda. De Jacinto v. Vda. De Jacinto, 5 SCRA 371 (1962); Gerona v. De Guzman, 11 SCRA 153 (1964); Gonzales v.
Jimenez, 13 SCRA 80 (1965); Fabian v. Fabian, 22 SCRA 231 (1968); Bueno v. Reyes, 27 SCRA 1179 (1969); Ramos v. Ramos, 61 SCRA 284
(1974); Estate of Margarita D. Cabacungan, v. Laigo, 655 SCRA 366 (2011).
85
Boñaga v. Soler, 2 SCRA 755 (1961); J. M. Tuason& Co., Inc. v. Magdangal, 4 SCRA 123 (1962); Alzona v. Capunitan, 4 SCRA 450 (1962);
Gonzales v. Jimenez, 13 SCRA 80 (1965); Cuaycong v. Cuaycong, 21 SCRA 1192 (1967); VarsityHills v. Navarro, 43 SCRA 503 (1972); Escay
v. CA, 61 SCRA 369 (1974); Carantes v. CA, 76 SCRA 514 (1977); Gonzales v. IAC, 204 SCRA 106 (1991); Pedrano v. Heirs of Benedicto
Pedrano, 539 SCRA 401 (2007); Cavile v. Litania-Hong, 581 SCRA 408 (2009); Heirsof Domingo Valientes v. Ramas, 638 SCRA 444 (2010).

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 In constructive trusts, there is neither promise nor fiduciary relation; the so-called trustee does
not recognize any trust and has no intent to hold for the beneficiary; therefore, the beneficiary is not
justified in delaying action to recover his property; it is his fault if he delays; hence, he may be
estopped by his own laches.86
EXCEPTIONS: The acquisitive prescription of 10 years upon registration of title does not apply to
favor the supposed ―trustee‖ in the following cases:
(1) Where Trustee Recognizes the Rights ofCestuiQue Trust– Prescription may not apply by mere
registration of the title in the name of the trustee, where the trustee formally recognized the
beneficial right of thecestuique trust.xGeronimo and Isidro v. Nava and Aquino, 105 Phil. 145
(1959); xAdaza v. Court of Appeals, 171 SCRA 369 (1989).
(2) When the CestuiQue Trust Is a Minor – When the act of repudiation of the trustee was
effected at the time the cestuique trust was still a minor, then such act does not prejudice the
latter: ―We … are unable to see how a minor with whom another is in trust relation can be
prejudiced by repudiation of the trustee addressed to him by the person who is subject to the
trust obligation.‖ xCastro v. Castro, 57 Phil. 675 (1932).
(3) When CestuiQue Trust Is a Close Relation of Trustee–The existence of a confidential
relationship based upon consanguinity is an important circumstance for consideration; hence,
laches being rooted in equity, is not to be applied mechanically as between near
relatives.xAdaza v. Court of Appeals, 171 SCRA 369 (1989).87
(4) Where CestuiQue Trust Is in Possession of Trust Property – An action for reconveyance
based is imprescriptible if the person enforcing the trust is in possession of the property—it is
really an action to quiet title, which does not prescribe. Reason:One in actual possession
claiming to be its owner may wait until his possession is disturbed or his title is attacked before
taking steps to vindicate his right. His undisturbed possession gives him a continuing right to
seek the aid of a court of equity to ascertain and determine the nature of the adverse claim of
a third party and its effect on his own title, which right can be claimed only by one who is in
possession.xGabutan v. Nacalaban, 795 SCRA 115 (2016).88
Given the falsity of the ESW, it becomes apparent that petitioner obtained the registration
through fraud. This wrongful registration gives occasion to the creation of an implied or
constructive trust under Art.1456. An action for reconveyance based on an implied trust
generally prescribes in ten years. However, if the plaintiff remains in possession of the
property, the prescriptive period to recover title of possession does not run against him. In
such case, his action is deemed in the nature of a quieting of title, an action that is
imprescriptible.xOcampo v. Ocampo, Sr.,830 SCRA 418 (2017).
(5) Where Trustee’sTitle Is Void– Where signatures of the petitioners, being forced heirs, in the
extrajudicial settlement with sale have been forged, although title to the land had been
registered in the name of the buyer, contract is void, and action to seek the declaration of
nullity is imprescriptible.xMacababbad v. Masirag, 576 SCRA 70 (2009).90
(6) Where Property Is in the Hands of an Innocent Purchaser– Aggrieved party may no longer file
an action for reconveyance based on a constructive trust, when the property has been
acquired by an innocent purchaser for value. xKhoemani v. Heirs of Anastacio Trinidad, 540
SCRA 83 (2007).91

—ooO—MID-TERM EXAMINATION COVERAGE—Ooo—

86
Diaz v. Gorricho and Aguado, 103 Phil. 261 (1958); Cañezo v. Rojas, 538 SCRA 242 (2007).
87
Estate of Margarita D. Cabacungan, v. Laigo, 655 SCRA 366 (2011).
88
Armamento v. Guererro, 96 SCRA 178 (1980); Gonzales v. IAC, 204 SCRA106 (1991); Heirsof Domingo Valientes v. Ramas, 638 SCRA 444
(2010); Brito v. Dianala, 638 SCRA 529 (2010); PNB v. Jumamoy, 655 SCRA 54 (2011); TiongcoYared v. Tiongco, 659 SCRA 545 (2011),
Zuñiga-Santos v. Santos-Gran, 738 SCRA 33 (2014); Toledo v. CA, 765 SCRA 104 (2015).
90
Cuison v. Fernandez and Bengzon, 105 Phil. 135 (1959).
91
Cavile v. Litania-Hong, 581 SCRA 408 (2009).

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 C. PARTNERSHIPS
I. XHISTORICAL BACKGROUND
1. Old Branches of Partnership Law
Civil Partnerships– Not pursued in mercantile manner, non-habitual or ―not pursued in the
regular course of business.‖
Commercial Partnerships– in pursuit of industry or commerce; characterized by habituality or
―pursuit in the regular course of business.‖
Distinguishing between civil and commercial partnerships was critical in the old set-up because
it determined the applicable rules for registration, personal liability of members, and rights and
manner of dissolution. Compañia Agricola de Ultramar v. Reyes, 4 Phil. 2 (1904).

a. Commercial Partnerships Were Deemed to Be, and Subject to

Code of Commerce Provisions for, Merchants
A commercial partnership is distinguished from a civil one by the object to which it is devoted
and not by the manner with which it is organized. A commercial partnership has for its object the
pursuit of industry or commerce, and is then a ―merchant‖ that must be governed by, and comply
with the registration requirements of, the Code of Commerce to lawfully come into existence; it
cannot choose to be organized under the Civil Code to make it a civil partnership. Prautch v.
Hernandez, 1 Phil. 705 (1903).
CONTRA: ―We are inclined to the belief that the respective codes, Civil and Commercial, have
adopted a complete system for the organization, control, continuance, liabilities, dissolutions, and
juristic personalities of associations organized under each … that associations organized under the
different codes are governed by the provisions of the respective codes.‖ Compañia Agricola de
Ultramar v. Reyes, 4 Phil. 2 (1904).
A commercial partnership that fails to register in the mercantile registry under Art. 119 of Code
of Commerce, does not become a juridical person with a personality distinct from those of the
individuals who composed it. Hung-Man-Yocv.Kieng-Chiong-Seng, 6 Phil. 498 (1906); Bourns v.
Carman, 7 Phil. 117 (1906); AngSengQuen v. Te Chico, 7 Phil. 541 (1907).
CONSEQUENTLY:
It cannot maintain an action in its name,Prautch v. Hernandez, 1 Phil. 705 (1903); neither in
the name of one or more of the members on behalf of the associates; nevertheless the
individual members may sue jointly as individuals, and persons dealing with them in their joint
capacity will not be permitted to deny their right to do so. Prautch v. Jones, 8 Phil. 1 (1907);
Ang SengQuen v. Te Chico, 12 Phil. 547 (1909).
Without a separate juridical personality, what was applicable was Art. 120 which made
―persons in charge of the management of the association‖ liable for the debts incurred by such
―partnership de facto‖. Kwong-Wo-Sing v. Kieng-Chiong-Seng, 6 Phil. 498 (1906).
b.RegistrationKey for Commercial Partnerships Coming into Existence (Arts. 118-119,
Code of Commerce); While Mere Consent Perfected the Civil Partnership
A laundry business is a civil partnership governed by the Civil Code, and it validly existseven
when no formal partnership agreement was registered.The obligations of the partners for
partnership debts would be pro rata. Dietrich v. Freeman,18 Phil. 341 (1911).
c. OnPartnership Debts:Commercial Partners Were Solidarily But SubsidiarilyLiable;While
Civil Partners Were Primarily But Only Jointly Liable
In a civil partnership, each member is bound to pay his pro rata share of the partnership
debts.Co-Pitco v. Yulo, 8 Phil. 544 (1907).
In a commercial partnership, although partners are only subsidiarily liable (i.e., benefit of
excussion) they are liable solidarily.Viuda de Chan Diaco v. Peng, 53 Phil. 906 (1928).
Both partnership and the partners may be joined in one action, but the private property of the
partners cannot be taken in payment of the partnership debts until the partnership property has been
exhausted. La CompañiaMaritima v. Muñoz, 9 Phil. 326 (1907).
Partners‘right of excussion is deemed satisfied where the judgment debts remain unsatisfied after
exhaustion of partnership assets.De los Reyes v. Lukban, 35 Phil. 757 (1916); PNB v. Lo, 50 Phil.
802 (1927).

II. NATURE AND ATTRIBUTES OF THE PARTNERSHIP

1. Definition of Partnership (Art. 1767)
Since a partnership requires the meeting of minds to contribute to a common fund with the
intention of dividing the profits from that common fund, necessarily an ―Acknowledgment of
Participating Capital‖ issued by managing partners in favor of silent partners can only cover
business enterprises specifically enumerated in said document and cannot be construed to include

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 all other businesses and properties registered in the separate names of the managing partners.
xJarantilla, Jr. v. Jarantilla, 636 SCRA 299 (2010).

2. TRI-LEVEL EXISTENCE/LEGAL RELATIONSHIPS IN A PARTNERSHIP SETTING

a. PRIMARILY A CONTRACTUAL RELATIONSHIP (Arts. 1767, 1771 and 1784)
b. SEPARATE JURIDICAL PERSONALITY(Art. 1768)
c. UNDERLYING BUSINESS ENTERPRISE AS THE PRIMARY OBJECTIVE
When original partners sell their equity interests, the original juridical person was extinguished
and the new set of partners constituted a new partnership arrangement with a new juridical
personality. Yet the underlying business enterprise remained the same between the two sets of
investors and the succession of liability rule pertaining to the underlying business enterprise must
be respected. Yu v. NLRC, 224 SCRA 75 (1993).

3. ESSENTIAL ATTRIBUTES OF THE PARTNERSHIP

a. FOREMOST, ITISA CONTRACTUAL RELATIONSHIP (Arts. 1767, 1771, 1784)
b. BOUNDED BY ATTRIBUTE OF ―MUTUAL AGENCY‖ (Arts. 1803[1], 1818, 1819, 1821 to 1823)
c. BOUNDED BY ATTRIBUTE OF ―DELECTUS PERSONAE‖
Assignment of Share Does NOT Make Assignee a Partner(Arts. 1804, 1813)
The right to choose with whom to associate himself is the very foundation and essence of
the partnership. Its continued existence is, in turn, dependent on the constancy of that
mutual resolve, along with each partner‘s capability to give it, and the absence of a cause for
dissolution provided by the law itself. Ortega v. Court of Appeals, 245 SCRA 529 (1995).
b. ALBEIT,ENTERPRISE GRANTEDSEPARATE JURIDICAL PERSONALITY(Arts. 44[3], 1768, 1774)
e. YET, PARTNERS ARE ―UNLIMITEDLY LIABLE‖ TO PARTNERSHIP DEBTS(Arts. 1816, 1817, 1824,
1839[4] and [7])

4. KINDS OF PARTNERSHIPS
a. As to Object (Art. 1776, 1st par.)
i. Universal Partnership (Arts. 1777 to 1782)
- Deemed a ―Universal Partnership of Profits‖ when articles do not specify the
partnership’s nature. (Art. 1781)
- Persons who are prohibited from giving each other any donation or advantage
cannot enter into a universal partnership. (Art. 1782)
ii. Particular Partnership(Art. 1783)
Usefulness of Such Distinction: Lyons v. Rosenstock, 56 Phil. 632 (1932).
b. As to Duration (Art. 1785)
i. Partnership with Fixed Term
ii. Partnership for a Particular Undertaking
iii. Partnership at Will
c. As to the Nature of the Liabilities of Partners
i. General Partnership (Art. 1776, 2nd par.)
ii. Limited Partnership(Sociedad en Comandita) (Arts. 1843 to 1867)

5. COMPARED WITH OTHER MEDIA OF DOING BUSINESS

a. Co-Ownership (Arts. 484 to 486)
Article 1769 of Civil Code, which lays down the rule for determining when a transaction should
be deemed a partnership or a co-ownership, means that aside from the circumstance of profit, the
presence of other elements constituting partnership is necessary, such as the clear intent to form a
partnership, the existence of a juridical personality different from that of the individual partners, and
the freedom to transfer or assign any interest in the property by one with the consent of the others.
xJarantilla, Jr. v. Jarantilla, 636 SCRA 299 (2010).
b. Sole Proprietorship
A sole proprietorship does not possess a juridical personality separate and distinct from the
personality of the owner of the enterprise. Only natural or juridical persons or entities authorized by
law may be parties to a civil action and every action must be prosecuted and defended in the name
of the real parties-in-interest. xEjercito v. M.R. Vargas Construction, 551 SCRA 97 (2008).
c. Agency
Agent cannot escape an estafacharge for conversion of principal‘s funds by claiming that he
had become a partner when the books of accounts for the business showed that the amount was
charged to him since the same was ―merely a method of keeping an account of the business, so

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 that the parties would know how much money had been invested and what the condition thereof
was at any particular time.‖ xU.S. v. Muhn, 6 Phil. 164 (1906).
Just because agent has made personal advances for the expenses of the business under
administration does not make him a partner of his principal. xBinglangawa v. Constantino, 109 Phil.
168 (1960).
d. Business Trust
e. Corporations
f.Cooperatives

III. PARTNERSHIP AS PRIMARILY A CONTRACTUAL RELATIONSHIP

1. ESSENTIAL ELEMENTS AND PURPOSE OF THE PARTNERSHIP
a. CONSENT:―Partnership Must Necessarily Arise from a Contractual Relationship.‖
Persons Who Are Not Partners to One Another Are Not Partners as to
Third Persons (Art. 1769[1])
EXCEPT: Partnership by Estoppel (Art. 1825)

b. SUBJECT MATTER: ―Partners Undertake to Jointly Pursue a Business Enterprise‖(Art.

1767), through their Agreements to:(i) Contribute to a Common Fund; and(ii)Divide the
Profits and Losses; EXCEPT:A Professional Partnership
Partnership Must Be Established for Common Benefit of the Parties(Art. 1770)
“The obtaining of profit or gain from the business to be carried on” is the very reason for the
existence of a partnership; it is the element that distinguishes the partnership from voluntary
religious or social organizations. xFernandez v. De la Rosa, 1 Phil. 671 (1903).
An agreement to operate a cockpit, where one contributes his services and the other to
provide the capital, the profits to be divided between them, constitutes a partnership. The
performance of services in connection with the business and that defendant not only rendered
an accounting of the business and paid him his share of the profits, were competent proof to
establish the partnership. xDuterte v. Rallos, 2 Phil. 509 (1903).
Where the society is not constituted for the purpose of gain, it does not fall within this article
of the Civil Code [on partnerships]. Such an organization is fully covered by the Law of
Associations of 1887, but that law was never extended to the Philippine Islands.xCouncil of Red
Men v. Veterans Army, 7 Phil. 685 (1907).

c. CONSIDERATION:Undertakings to Contribute Money,Property or Industryto a Common

Fund(Art. 1767)
d. Rules on Determining Perfected Partnership (Art. 1769)
The issue as to whether there is a partnership between the parties is a factual matter.
xAlicbusan v. Court of Appeals, 269 SCRA 336 (1997).
Although a partnership cannot be established by general reputation, rumor, or hearsay,
nonetheless, a verbal partnership is valid and may be proven by competent evidence, and intention
of the parties to form a partnership may be gathered from the facts and ascertained from their
language and conduct. xKiel v. Estate of P.S. Sabert, 46 Phil. 193 (1924).
When facts proven show that purported partner never furnished the P20,000 capital, nor
rendered any help or intervention in the management of the purported partnership business, much
less demanded an accounting of its affairs and its earnings, there was never intended a real
partnership despite the articles of partnership executed. All that the purported partner did was to
receive her share of P3,000 a month, and was in accordance with the original letter of defendant
(Exh. ―A‖), which shows that both parties considered themselves as lessor-lessee under a contract
of lease. Yulo v. Yang ChiaoSeng, 106 Phil. 111 (1959).
When family members lease out to SHELL a family lot for the establishment of a gasoline
station, and invested the advanced rentals and deposits to allow one of their members to use the
amounts as the registered dealer of SHELL under its of ―one station, one dealer‖ policy, and that
the registered dealer had accounted for the operations to the other members of the family, there
was a partnership formed, for which the registered dealer can be compelled to execute the
covering articles of partnership, for accounting and distribution of the shares in profits of the other
partners. Estanislao, Jr. v. Court of Appeals, 160 SCRA 830 (1988).

(1)Co-Ownership or Co-Possession Does Not Itself Establish a Partnership,

Even When Profits Are Shared
Mere co-ownership or co-possession of property does not necessarily constitute the co-owners
or co-possessors are partners in the absence of express or implied meeting of minds to enter into a
partnership. xNavarro v. Court of Appeals, 222 SCRA 675 (1993).
When land is purchased with funds contributed by the parties and thereafter divided equally
among them, there was no partnership—it was a mere joint acquisition of land, and there was no
agreement to pursue a business undertaking. xGallemet v. Tabilaran, 20 Phil. 241 (1911).
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 When fifteen people contributed money to buy a sweepstakes ticket with the intention to divide
the prize, and in fact the ticket won third prize, a partnership was constituted. xGatchalian v.
Collector of Internal Revenue, 67 Phil. 666 (1939).
First element of ―an agreement to contribute money, property or industry to a common fund,‖ is
undoubtedly present wherepetitioners have agreed to, and did, contribute money and property to a
common fund. Second element of ―intent to divide the profits among themselves,‖ was present
when the facts showed that their purpose was to engage in real estate transactions for monetary
gain and then divide the same among themselves, displaying the character of habituality peculiar
to business transactions engaged in for purposes of gain.‖ Evangelista v. Collector of Internal
Revenue, 102 Phil. 140 (1957).
Where father and son purchased lot and building and had it administered with the original
purpose of dividing the net income from the property, a partnership was constituted. xReyes v.
Commissioner of Internal Revenue (CIR), 24 SCRA 198 (1968).
When after partition of the estate, heirs agreed to retain the properties and income into common
enterprise and divide profits in proportion to their shares in the inheritance, co-ownership was
converted into a partnership. Oña v. Commissioner of Internal Revenue, 45 SCRA 74 (1972).
When four brothers and sisters acquired lots with the original purpose to divide the lots for
residential purposes, and later they found it not feasible to build their residences on the lots
because of the high cost of construction, then they had no choice but to resell the same to dissolve
the co-ownership. The division of the profit was merely incidental to the dissolution of the co-
ownership which was in the nature of things a temporary state. It had to be terminated sooner or
later. xObillos, Jr. v. CIR, 139 SCRA 436 (1985).
In contrast with Evangelista, when the only facts proven was the existence of co-ownership
between the parties covering two isolated purchase of parcels of land and the sharing of profits on
the subsequent sales thereof, there can be no deduction that an unregistered partnership has been
constituted; the transactions were isolated, the parcels purchased were not managed or even
leased out. Pascual v. Commissioner of Internal Revenue, 166 SCRA 560 (1988).

(2)Sharing in the Gross Return/Receiptsof a Business Does Not Create Partnership

An exclusive agent mandated to develop a parcel of land and entitled to receive a 20%
commission on the gross sales, cannot claim to be a partner to the venture simply on the basis that
he had made personal ―advances‖ for the expenses incurred in the development and
administration of the property, since the amounts were never considered contributions into the
business. xBiglangawa and Espiritu v. Constantino, 109 Phil. 168 (1960).

(3)Receipt by a Person of a Share of the Profits of a Business

Where there is no written partnership agreement, nor proof that the claimant received a share in
the profits, nor that he had any participation with the running of the business, then no partnership
claim can be sustained. xSy v. CA, 398 SCRA 301 (2003); Heirs of Jose Lim v. Lim, 614 SCRA
141 (2010).
Although the Olivas were mere creditors, not partners, the Antons agreed to compensate them
for the risks they had taken. The Olivas gave the loans with no security and they were to be paid
such loans only if the stores made profits. Had the business suffered loses and could not pay what
it owed, the Olivas would have ultimately assumed those loses just by themselves. Still there was
nothing illegal or immoral about this scheme. Anton v. Oliva, 647 SCRA 506 (2011).

(4)WhenEntitlement to Net Profits Does Not Create Presumption of Partnership:

As Installment Payments of Debt or Interest Thereof
There is no partnership where a loan was obtained to purchase a venture under the condition
that the lender would receive part of the profits of the business in lieu of interest. xPastor v.
Gaspar, 2 Phil. 592 (1903).
A creditor of a business cannot recover his claim against a person who gave personal
guarantees to some other obligations of the business enterprise and who is without any right to
participate in the profits and cannot be deemed a partner in the business enterprise, since the
essence of partnership is that the partners share in the profits and losses. xTocao v. Court of
Appeals, 365 SCRA 463 (2001).
As Wages of an Employee
Manager of the partnership would naturally have some degree of control over the business
operations and maintenance, but the fact that he had received 50% of the net profits does not
conclusively establish that he was a partner—Art. 1769(4) is explicit that no inference of being a
partner shall be drawn if such profits were received in payment as wages of an employee.
xSardane v. CA, 167 SCRA 524 (1988); xFortis v Gutierrez Hermanos, 6 Phil. 100 (1906).
The payroll of the company indicating that the brother was listed as an employee receiving
only wages from the company militates against his claim of being a partner. xHeirs of Tang
EngKee v. Court of Appeals, 341 SCRA 740 (2000).
The fact that in their articles the parties agreed to divide the profits of a lending business in a
stipulated proportion shows a partnership exists, even when the other parties to the agreement

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 were given separate compensations as bookkeeper and credit investigator. xSantos v. Reyes,
368 SCRA 261 (2001).
As Rent Payments to a Landlord
As Annuity to a Widow or Representative of Deceased Partner
As the Consideration on the Sale of Goodwill or Other Property

2. ESSENTIAL CHARACTERISTICS OF THE CONTRACT OF PARTNERSHIP(Art. 1767)

a. Nominate and Principal
b. Consensual
Action to compel a party to execute the contract of partnership to enforce the terms by which an
enterprise had been constituted is an enforcement of an obligation to do, which is contrary to policy
against involuntary servitude. Woodhouse v. Halili, 93 Phil. 526 (1953).
BUT SEE:There was indeed a partnership formed among themselves, for which the registered
dealer can be compelled to execute the covering articles of partnership, for accounting and
distribution of the shares in profits of the other partners. Estanislao, Jr. v. Court of Appeals,
160 SCRA 830 (1988).
c. Onerous and Commutative
A partnership is deemed constituted among parties who agree to borrow money to pursue a
business and to divide the profits that may arise therefrom, even if it is shown that they have not
contributed to any capital of their own to a ―common fund.‖ Their contribution may be in the form of
credit or industry, not necessarily cash or fixed assets. Being partners, they are liable for debts
incurred by or on behalf of the partnership. Lim Tong Lim v. Phil. Fishing Gear Industries, 317
SCRA 728 (1999).
d. Bilateral and Reciprocal
e. Preparatory and Progressive
If the contract contains the elements of ―common fund‖ and ―joint interest in the profits,‖ the
partnership relation results, and the law fixes the incidents of this relation if the parties fail to do so.
It is of no importance that the parties have failed to reach an agreement with respect to the minor
details of contract—these details pertain to the accidental and not to the essential part of
thecontract of partnership. Fernandez v. Dela Rosa, 1 Phil. 671 (1902).

IV. PARTNERSHIP AS A JURIDICAL PERSON(Arts. 44(3), 45, 1768and 1784)

1. CONSEQUENCESOFPARTNERSHIPBEING A JURIDICAL PERSON:
a. Entity Has Legal Capacity to Enter into Contracts and Incur Obligations (Art. 46)
b. It May Acquire Properties in Its Own Name(Arts. 46 and 1774)
c. It May Sue and Be Sued in Its Firm Name(Art. 46)
In a bankruptcy proceeding against a partnership, since it is a separate juridical person one
partner is not entitled to be made a party as an individual separate from the firm; yet precisely
because it is a juridical person, there can be proper service to the firm of court notices upon service
to any partner found within the jurisdiction of the court. xHSBC v. Jurado& Co., 2 Phil. 671 (1903).
Death of a partner does not constitute a ground for dismissal of the suit against the
partnership, since the partnership has a separate juridical personality. xNgoTianTek v. Phil.
Education Co., 78 Phil. 275 (1947); xWahl v. Donaldson Sim& Co., 5 Phil. 11 (1905).
The universal practice in the Philippine Islands since American occupation, to treat
partnerships as juridical entities and to permit them to sue and be sued in the name of the
company, the summons being served solely on the managing agent or other official of the
company.xVargas& Co. v. Chan, 29 Phil. 446 (1915).
A partnership may sue and be sued in its name, and when it has a designated managing
partner, he may execute all acts of administration including the right to sue debtors of the
partnership. xTai Tong Chuache& Co. v. Insurance Commission, 158 SCRA 366 (1988).
d. It Would Have Domicile:Place Where Legal Representation Is Established or Where It
Exercises Its Principal Functions(Art. 51)
e. It Is Taxed as a Corporate TaxpayerxTan v. Del Rosario, 237 SCRA 234 (1994).
f. It May Be Declared Insolvent Even If the Partners Are NotxCampos Rueda & Co. v. Pacific
Commercial & Co., 44 Phil. 916 (1923).
In view of the separate juridical personality of the partnership, the partners cannot be sued
personally under a contract entered into in the name of the partnership, unless it is shown that the
legal fiction is being used for a fraudulent, unfair or illegal purpose, or when partnership assets
have been exhausted to make partners personally liable for partnership debts as provided in Art.
1816. xAguila, Jr. v. Court of Appeals, 316 SCRA 246 (1999).

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 g. Partnership Is a Person Entitled to Constitutional Rights – A partnership being a person
before the law is entitled to the constitutional right:
To due process and equal protection. cfSmith, Bell & Co. v. Natividad, 40 Phil. 136
(1919);xBache& Co. (Phil.), Inc. v. Ruiz, 37 SCRA 823 (1971).
Against unreasonable searches and seizures.cfStonehill v. Diokno,20 SCRA 383 (1967).
Partnership obtains its personality from the State and therefore not entitled to invoke the right
against self-incrimination. [?]cfBataan Shipyard &Eng’ng Co. v. PCGG, 150 SCRA 181 (1987).

2. Provisions Contravening the Attribute of Separate Juridical Personality:

a.Partners Are Co-owners of Partnership Properties(Arts. 1811)
b.Partners May Individually Dispose of Real Property of the Partnership Even When in
Partnership Name(Art. 1819)
c.Partners Are Personally Liable for Partnership Debts After Exhaustion of Partnership
Assets(Arts. 1816, 1817, 1824, 1839[4] and [7])

V. FORMALITIES REQUIRED FOR THE CONTRACT OF PARTNERSHIP

1. A Partnership Begins from the Moment of Meeting of the Minds to Pursue a Business
Jointly;UNLESS:It Is Otherwise Stipulated (Art. 1784)

2. FORMALITIES REQUIRED:
a. GENERAL RULE: Being Consensual in Character, a Partnership May Be Constituted in Any
Form (Art. 1771)
Old Civil Code and Code of Commerce: Third parties without knowledge of the partnership‘s
existence,who deal with the property registered in the name of one partner have a right to
expecteffectivity of such transaction on the property, in spite of the protest of other partners and
partnership creditors. xBorja v. Addison, 44 Phil. 895 (1922).
b.EXCEPT:When Capital Contribution Is P3,000 or More:
AoPMust Appear in a Public Instrument; and
Registered with SEC
BUT: Failure to Comply with Requirements Shall Not Affect the Liability of the
Partnership and Its Members to Third Persons (Art. 1784)
When the articles of partnership provide that the venture is established ―to operate a
fishpond,‖ it does not necessarily mean that immovable properties or real rights have been
contributed into the partnership which would trigger the operation of Article 1773. xAgad v. Mabato,
23 SCRA 1223 (1968).
c. EXCEPT: Where Immovable Property or Real Rights Are Contributed
AoPMust Be In a Public Instrument (Art. 1771)
Would Be Void If Inventory of the Property Is Not Made, Signed by the Partiers
and Attached to the Public Instrument (Art. 1773)
d. Legal Value of the Formal Requirements for Partnerships
An oral partnership is valid and binding between the parties, even if the amount of capital
contributed is in excess of the sum of 1,500 pesetas. The provisions of law requiring a contract to
be is a particular form should be understood to grant to the parties the remedy to compel that the
form mandated by law be complied with, but does not prevent them from claiming under an oral
contract which is otherwise valid without first seeking compliance with such form. xThungaChui v.
Que Bentec, 2 Phil. 561 (1903); xMagalona v. Pesayco, 59 Phil. 453 (1934).
An instrument purporting to be the contract of partnership which is unsigned and undated,
does not meet the public instrumentation requirements exacted under Art.1771, not even
registrable with the SEC as called for under Art. 1772, and which also does not meet the inventory
requirement under Art. 1773 since the claims involve contributions of immovable properties, does
not warrant a finding that a contract of partnership or joint venture exist. Litonjua, Jr. v. Litonjua,
Sr., 477 SCRA 576 (2005).
The best evidence of the existence of a partnership would have been the article of partnership
itself, but here there is none. The alleged partnership, though, was never formally organized. The
net effect is that we are asked to determine whether a partnership existed basedpurely on
circumstantial evidence. Here the evidence adduced fall short of the quantum of proof required to
establish a partnership. Besides, it is indeed odd, if not unnatural, that despite the forty years the
partnership was allegedly in existence, Tan EngKee never asked for an accounting,since the
essence of a partnership is that the partners share in the profits and losses, where each partner
has a right to demand an accounting as long as the partnership exists. A demand for periodic
accounting is evidence of a partnership. Heirs of Tan EngKee v. CA, 341 SCRA 740 (2000).
When there has been duly registered articles of partnership, and subsequently the original
partners accept an industrial partner but do not register a new partnership, and thereafter the

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 industrial partner retires from the business, and the original partners continue under the same set-
up as the original partnership, then although the second partnership was dissolved with the
withdrawal of the industrial partner, there resulted a reversion back into the original partnership
under the terms of the registered articles of partnership. There is not constituted a new partnership
at will. Rojas v. Maglana, 192 SCRA 110 (1990).
Failure to prepare an inventory of immovable property contributed, would not render the
partnership void when: (a) No third-party is involved since Art. 1773 was intended for the
protection of third parties; and (b) partners have made a claim on the partnership agreement which
is deemed binding between them as any other contract. Torres v. CA, 320 SCRA 428 (1999).
Failure to register the partnership with the SEC does not invalidate a contract that has the
essential requisites of partnership – agreement to contribute to a common fund and the division of
profits and losses would bring about the existence of a partnership. A partnership may exist even if
the partners do not use the words ―partner‖ or ―partnership‖. Angeles v. Secretary of Justice,
465 SCRA 106 (2005).
Registration of the partnership is the best evidence to prove the existence of the partnership
among the partners. Heirs of Tan EngKee v. Court of Appeals, 341 SCRA 740 (2000); Heirs of
Jose Lim v. Lim, 614 SCRA 141 (2010).

3. OTHER RULES ON THE CONSTITUTION OF A PARTNERSHIP

a. A Partnership Must Have a Lawful Object or Purpose (Art. 1770)
The action which may arise under Art. 1666 of old Civil Code in the case of an unlawful
partnership, is that for the recovery of the amounts paid in by the members from those in charge of
the administration of said partnership, and it is not necessary for the said partners to base their
action on the existence of the partnership, but on the fact of having contributed some money to the
partnership capital. xArbes v. Polistico, 53 Phil. 489 (1929).
The contract of partnership to divide the fishpond between the parties after the administrative
agency shall have approved the arrangement became illegal under the Fisheries Act. A partnership
cannot be formed for an illegal purpose or one contrary to public policy and that where the object of
a partnership is the prosecution of an illegal business or one which is contrary to public policy, the
partnership is void.xDeluao v. Casteel, 29 SCRA 350 (1969).

b. When Articles Kept Secret Among Members and One Member May Contract in His Own
Name (Art. 1775):
Shall Have No Separate Juridical Personality
Shall Be Governed by the Provisions Relating to Co-Ownership
c. RULES ON PARTNERSHIP NAME (Art. 1815):
Every Partnership Must Operate Under a Firm Name
Which May or May Not Include the Name of One or More of the Partners
A Person Who Allows His Name to Be in the Firm Name Shall Be Subject to the
Liability of a Partner
The Use by the Person or Partnership Continuing the Partnership Business of the
Partnership Name, or the Name of a Decease Partner (Art. 1840, last paragraph): Shall
Not of Itself Make the Individual Property of the Deceased Partner Liable for Any Debts
Contracted by Such Person or Partnership.
The requirement under the Code of Commerce that the partnership name contain the names of
all the partners was meant to protect from fraud the public dealing with the partnership; it cannot be
invoked by the partners to allege partnership‘s non-existence. xJo Chung Cang v. Pacific
Commercial Co., 45 Phil. 142 (1923); xPNB v. Lo, 50 Phil. 802 (1927).

d. RULE 3.02, Code of Professional Responsibility: “The continued use of the name of a
deceased partner in a professional partnership is permissible, provided that the firm
indicates in all its communications that said partner is deceased.‖
The contention that Art. 1840 regulating the use of partnership name allows a partnership from
continuing its business under a firm name which includes the name of a deceased partner has been
denied when it comes to a law partnership on the following grounds: (a) it contravenes the provision
of Arts. 1815 and 1825, which impose liability on a person whose name is included in the firm name,
which cannot cover a deceased person who can no longer be subject to any liability; (b) public
relations value of the use of an old firm name can tend to create undue advantages and
disadvantages in the practice of the profession; (c) Art. 1840 covers dissolution and winding up
scenarios and cannot be taken to mean to cover firms that are intended as going concerns, and
cover more commercial partnerships; and (d) when it comes to other professions, there is legislative
authority for them to use in their firm names those of deceased partners. xIn the Matter of the
Petition for Authority to Continue Using Firm Names, 92 SCRA 1 (1979).

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VI. PARTNERS’ RIGHTS, POWER & AUTHORITY, DUTIES AND OBLIGATIONS
1. Kinds of Partners
(a) Industrial and Capitalist Partners
(b) Ostensible, Nominal and Dormant Partners
(c) Original and Incoming Partners
(d) Managing and Liquidating Partners
(e) General and Limited Partners
(f) Retiring, Surviving and Continuing Partners

2. PROPERTY RIGHTS OF PARTNERS

a. CO-OWNERSHIPRIGHTS to Specific Partnership Properties (Arts. 1810 and 1811)
Equal Right to Possess, But for Partnership Purpose OnlyxCelino v. Court of
Appeals,163 SCRA 97 (1988).
Non-Assignable(Art. 1811[2])
Not Subject to Attachment/Execution by Partners’ Separate Creditors nor for a
Partner’s Legal Support Obligations (Art. 1811[3])

b. MUTUAL AGENCY: Right to Participate in Management of the Partnership

(i) General Rule on Agency
All Partners Shall Be Considered Agents and Whatever Any One of Them May Do
Alone Shall Bind the Partnership(Arts. 1803[1])
Every Partner Is an Agent of the Partnership for Apparently Carrying-on the Usual
Way the Business of the Partnership (Art. 1818)
Partnership Shall Answer to Each Partner for the Obligation a Partner May Have
Contracted in Good Faith in the Interest of the Partnership Business, and the
Risks in Consequence of Its Management(Art. 1796)
(ii) Other Powers or Rights Relating to Mutual Agency:
Can Dispose of Partnership Property Even When in Partnership Name (Art. 1819)
Admission or Representation Made by Any Partner Concerning Partnership
Affairs Is Evidence Against the Partnership(Art. 1820)
Notice to Any Partner Relating to Partnership Affairs Is Notice to the
Partnership(Art. 1821)
Wrongful Act or Omission of Any Partner Acting for Partnership Affairs Makes the
Partnership liable(Art. 1822)
Partnership Bound to Make Good Losses for Acts or Misapplications of
Partners(Art. 1823)
(iii) Acts Requiring Unanimous Consent (Art. 1818)
(iv) Consent Required in Making Alterations on Immovable Property (Art. 1803[2])
(v) When There Is Designation of Managing Partner in AoP(Arts. 1800 to 1802)
In the ordinary course of business, a partner has authority to purchase goods,xSmith, Bell
& Co. v. Aznar, 40 O.G. 1882 (1941); to hire employees for the partnership, xGarcia Ron v. La
Cia. de Minas de Batau, 12 Phil. 130 (1908); as well as dismissthem,xMartinez v. Cordoba&
Conde, 5 Phil. 545 (1906).
The stipulation in the AoP that the managing partners may contract and sign in the name of
the partnership with the consent of the other creates an obligation between the two partners,
which consists in asking the other‘s consent before contracting for the partnership. This
obligation of course is not imposed upon a third person who contracts with the partnership. A
third person has a right to presume that the partner with whom he contracts has, in the ordinary
and natural course of business, the consent of his copartner Third person would naturally not
presume that the partner with whom he enters into the transaction is violating the AoP, but on
the contrary, is acting in accordance therewith. Litton v. Hill &Ceron, 67 Phil. 509 (1935).
In a transaction within the ordinary course of the partnership business effected by the
industrial partner without the consent of the capitalist partner, the provisions in the AoP that the
industrial partner ―shall manage, operate and direct the affairs, businesses and activities of the
partnership,‖ constitute sufficient authority to make such transaction binding against the
partnership, as against another provision of the AoPby which the industrial partner is authorized
―To make, sign, seal, execute and deliver contracts …upon terms and conditions acceptable to
him duly approved in writing by the capitalist partner.‖xSmith, Bell & Co. v. Aznar, 40 O.G. 1881
(1941).
When partnership real property had been mortgaged and foreclosed, the redemption by
any of the partners, even when using his separate funds, does not allow such redemption to be

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 in his sole favor, under the general principle of law under Art. 1818 that a partner is an agent of
the partnership.Under Art. 1807, every partner becomes a trustee for his copartner with regard
to any benefits or profits derived from his act as a partner. xCatalan v. Gatchalian, 105 Phil.
1270 (1959).
In spite of Art.129 of Code of Commerce that ―If the management of the general partnership
has not been limited by special agreement to any of the members, all shall have the power to
take part in the direction and management of the common business, and the members present
shall come to an agreement for all contracts or obligations which may concern the association,‖
such obligation is imposed by law amongthe partners, that does not necessarily affect the
validity of the acts of a partner, while acting in the ordinary course of business of the
partnership, as regards third persons without notice. The latter may rightfully assume that the
contracting partner was duly authorized to contract for and in behalf of the firm and that,
furthermore, he would not ordinarily act to the prejudice of his co-partners. Goquiolay v.
Sycip, 108 Phil. 947 (1960); 9 SCRA 663 (1969).
A partner is presumed to be an authorized agent for the firm to bind it in carrying on the
partnership transaction. Muñasque v. Court of Appeals, 139 SCRA 533 (1985).

c. EQUITY RIGHTS: Right to Shares in Profits and Losses(Arts. 1810 and 1812)
VOID: Stipulation Excluding Partner from Sharing in Profits or Losses(Art. 1799)
(i) Participation in Profits and Losses (Art. 1797):
Distributed in Accordance with Stipulation
If Share In Profits Only Stipulated, Share in the Losses Shall Be the Same
If No Stipulation on Sharing, Partners Share Profits and Losses in Proportion to
their Capital Contributions
Industrial Partner: In the Absence of Stipulation, He Shall Receive Such Share in
the Profits as May Be Just and Equitable under the Circumstances.
(ii) Third-Party May Be Designated to Determine Profit-Loss Sharing (Art. 1798)
Third-Party Determination May Be Impugned Only When Manifestly Inequitable
But Such Right to Impugn Is Lost:
When Partnership Has Began to Execute the Third Party Decision; or
3 Months Have Lapsed from Knowledge of Such Decision
When the agreement in a partnership to pay a high commission to one of the partners was
in anticipation of large profits being made from the venture, which eventually sustained
losses,there is no legal basis to demand for the payment of the commissions since the essence
of the partnership is the sharing of profits and losses. Moran, Jr. v. CA, 133 SCRA 88 (1984).
Article 1797 covers the distribution of losses among the partners in the settlement of
partnership affairs and does not cover the obligations of partners to third persons which is
covered by Art. 1816. Ramnani v. Court of Appeals, 196 SCRA 731 (1991).
An MOU executed by the partners to shift losses to the principal partner does not change
the nature of the arrangement as a partnership and the terms of the MOU are binding among
the partners, but not as to the creditors of the partnership. Saludo v. Phil. National Bank,
G.R. No. 193138, 20 Aug. 2018.
d. Art. 1813: Conveyance By Partner of His Whole Partnership Interest: Merely Entitles
Assignee to Receive Profits to Which Assignor Is Entitled To;
BUT DOES NOT:
Dissolve the Partnership;
Entitle Assignee to Interfere with Management/Administration of Partnership;
Entitle Assignee to Require Information/Accounting of Partnership Matters, Much
Less to Inspect Partnership Books
IN CASE OF DISSOLUTION:Assignee is entitled to receive his assignor’s interest and may
require an account from the date only of the last account agreed to by all the partners.
Any partner may transfer his interest and his assignee may demand an accounting from the
remaining partners and a third person into whose hands the partnership property has passed in
satisfaction of the firm‘s debt. xJackson v. Blum, 1 Phil. 4 (1901).
e. Other Proprietary Rights of Partners:
(1)Right to Inspect Partnership Books and Records (Art. 1805)
(2)Right to Full Information (Art. 1806)
(3)Right to Formal Accounting (Art. 1809)
Partner‘s right to accounting for partnership properties in the custody of the other partners
shall apply only when there is proof that such properties, registered in the individual names of
the other partners, have been acquired thru partnership funds, thus: ―Accordingly, the

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 defendants have no obligation to account to anyone for such acquisitions in the absence of
clear proof that they had violated the trust of [one of the partners] during the existence of the
partnership.‖ xLimTanhu v. Ramolete, 66 SCRA 425 (1975).
(4)Right to Reimbursement for Advances (Art. 1796)
The rule is inapplicable where no money other than what was contributed as capital is
involved. xMartinez v. Ong Pong Co., 14 Phil. 726 (1910).
(5)DELECTUS PERSONAE: Right to Dissolve the Partnership (Art. 1830[2])
Under Art.1830(2), even if there is a specified term, one partner can cause its dissolution by
expressly withdrawing before expiration of the period, with or without justifiable cause. Of
course, if the cause is not justified, the withdrawing partner is liable for damages but in no case
can he be compelled to remain in the firm. With his withdrawal, the number of members is
decreased, hence, the dissolution. Rojas v. Maglana, 192 SCRA 110 (1990).

3. OBLIGATIONS OF PARTNERS TO THE PARTNERSHIP

a. OBLIGATION TO CONTRIBUTE TO THE COMMON FUND:
Every Partner Is a Debtor of the Partnership for Whatever He Has Promised to
Contribute to the Common Fund(Art. 1786)
Unless There Is a Stipulation to the Contrary, Partners Shall Contribute Equal Shares
to the Partnership Capital (Art. 1790)
When a partner fails to pay his promised contribution, he becomes indebted to it for the
remainder of what is due, with interest and any damages occasioned thereby, but it does not
authorize the other partners to seek rescission of the partnership contract under Art. 1191, since
the remedies are provided for in particular under now Arts. 1786 to 1788.xSancho v. Lizarraga, 55
Phil. 601 (1931).
A partner who promises to contribute to a partnership becomes a promissory debtor of the
partnership, including liability for interests and damages caused for failure to pay, and which
amounts may be deducted upon dissolution of the partnership from his share in the profits and net
assets. Rojas v. Maglana, 192 SCRA 110 (1990).92
b. When Bound to Contribute Money: Liable to the Partnership for Interest and Damages
from the Time Contribution Became Due (Art. 1788)
c.WHEN BOUND TO CONTRIBUTE PROPERTY:
(1) When Property Contributed Is Specific/Determinate (Art. 1786):
Bound to the Warranty Against Eviction
Liable for the Fruits Thereof from the Time They Should Have Been Delivered,
Without Need of Demand
(2) When Property Contributed Are Fungible/Cannot Be Kept Without Deterioration:
Risk of Loss Borne by the Partnership
(3) When Contribution in Goods:
Must Be Appraised to Establish Value; Subsequent Change of Value for the
Partnership’s Account(Arts. 1787 and 1795)
(4)When Real Property Contributed:
Inventory of Immovable Property Must Be Made and Attached to Articles of
Partnership Registered with SEC (Arts. 1772 and 1773)
―Credit‖, such as a promissory note, or even goodwill, may be validly contributed into the
partnership. xCity of Manila v. Cumbe, 13 Phil. 677 (1909).
d.Art. 1791: Additional Contributionin Case of Imminent Loss: Unless Otherwise Agreed,
Partner Who Refuses to Contribute Additional Capital, Except an Industrial Partner, to
Save the Venture, Shall Be Obliged to Sell His Interest to Other Partners

4. FIDUCIARY DUTIES OF PARTNERS

a. DUTY OF DILIGENCE: Each Partner Is Responsible to the Partnership for Damages Suffered
By It Through His Fault(Art. 1794)
Partner at Fault Cannot Compensate Such Damages with the Profits and Benefits
Which He May Have Earned for the Partnership from His Industry
However, the Courts May Equitably Lessen If Partner’s Extraordinary Efforts in Other
Activities of the Partnership, Unusual Profits Have Been Realized
b. DUTY TO ACCOUNT: Every Partner Must Account for Any Benefit, and Hold as Trustee Any
Profits Derived by Him Without the Consent of Other Partners from Any Transaction
Connected with the Formation, Conduct, or Liquidation of the Partnership or from Any
Use by Him of Its Property(Arts. 1807 and 1809)

92
Moran, Jr. v. CA, 133 SCRA 88 (1984).

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 c. DUTY OF LOYALTY:
(1)On Recovery of Demandable Sum (Art. 1792):
Received for Partner’s Account: Share Proportionately With Partnership
Received for Partnership Account: All for to the Partnership’s Account
(2)On Receiving Partnership Credits (Art. 1793):
Partner Receiving Capital When Others Have Not, Obliged to Bring Sum to the
Partnership Capital in the Event Partnership Becomes Insolvent
(3)Partners in General Cannot Engage in Competitive Business:
Capitalist Partners Cannot Engage for Their Own Account in Similar
Partnership Business(Art. 1808)
Industrial Partner Cannot Engage in Any Form of Business (Art. 1789)
When the partnership has been terminated, the former partners are no longer prohibited in
pursuing the same business as that for which the partnership was constituted. xHalon v.
Haussermann, 40 Phil. 796 (1920).
When mortgaged partnership real property had been foreclosed, redemption by any of the
partners, even when using his separate funds, does not allow such redemption to be in his sole
favor, since under Art. 1818 that a partner is an agent of the partnership, and under Art. 1807,
every partner becomes a trustee for his copartner with regard to any benefits or profits derived
from his act as a partner. xCatalan v. Gatchalian, 105 Phil. 1270 (1959).93
An industrial partner is not deemed to have violated his fiduciary duties to the other partners by
having delivered on the particular service required of her and devoting her time serving in the
judiciary which is not considered to be engaged in an activity for profit. Evangelista & Co. v.
Abad Santos, 51 SCRA 416 (1973).
Former partners have no obligation to account on how they acquired properties in their names,
when such acquisition were effected long after the partnership had been dissolved, especially in
the absence of clear proof that they had violated the trust of managing partner during the existence
of the partnership. xLimTanhu v. Remolete, 66 SCRA 425 (1975).
When a partner engages in a separate business enterprise that is competitive with that of the
partnership, the other partner‘s withdrawal becomes thereby justified and for which the latter
cannot be held liable for damages. Rojas v. Maglana, 192 SCRA 110 (1990).

5. PARTNERSSUBJECT TO UNLIMITED LIABILITY FOR PARTNERSHIP DEBTS

a. Partners Liable Pro-Rata with Their Separate Properties After Partnership Assets Have
Been Exhausted, for All Partnership Debts(Art. 1816)
Any Stipulation Against Personal Liability of Partners, Even Industrial Partners, for
Partnership Debts Is Void, Except as Among Themselves (Art. 1817)
The meaning of ―pro rata‖ to determine the unlimited liability of partners in a general
partnership means that they shall equally divide among themselves the partnership debts
remaining after exhaustion of partnership assets. xCo-Pitco v. Yulo, 8 Phil 544 (1907); xIsland
Sales v. United Pioneers General Construction Co., 65 SCRA 554 (1975).
Art. 1816 provides: First, partners‘ obligation to partnership liabilities is subsidiary in nature—
they shall only be liable with their property after all partnership assets have been exhausted.
Resort to properties of a partner may be made only after efforts in exhausting partnership assets
have failed or that such partnership assets are insufficient to cover the entire obligation. Second,
that partners‘ obligation to third persons with respect to partnership liability is pro rata or joint, i.e.,
liable only for the payment of only a proportionate part of the debt. Joint liability of partners is a
defense that can be raised by a partner impleaded in a complaint against partnership. Guy v.
Gacott,780 SCRA 579 (2016).

b. Art. 1824: All Partners Solidarily Liablewith Partnership for Everything Chargeable to the
Partnership When Caused By:
Wrongful Act or Omission of Any Partner Acting—
In the Partnership’s Ordinary Course of Business; or
With Authority from the Other Partners(Art. 1822)
Partner’s Act or Misapplication of Properties of Third Parties—
Where Partner Receives Property Acting With Apparent Authority; or
Partnership Received Property in the Ordinary Course of Business (Art. 1823)
Partners‘ are solidarily liable for employees‘ workmen‘s compensation claims.xLiwanag and
Reyes v. Workmen’s Compensation Commission, 105 Phil. 741 (1959).
c. Limited Liability: Newly Admitted Partner into an Existing Partnership Is Liable Only Out
of Partnership Property Shares and Contributions, for All the Obligations of the
Partnership Arising Before His Admission(Art. 1826)

93
Director of Lands v. Lope Alba, 105 Phil. 2171 (1959).

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 d. Partnership Creditors Have Preference Overthe Personal Creditors of Each of the
Partners as Regards the Partnership Property (Art. 1827)
Remedy of Partner’s Separate Creditors (Art. 1814):Apply with the Courts That
Entered the Judgment Debt—
To Charge the Debtor’s Equity Interests for the Payment from His Share in the
Profits or Any Other Money Due from the Partnership
Which Interest Charged May Be Redeemed at Any Time Before Foreclosure by the
Other Partners or the Partnership Itself
6. Art. 1825: Liability Rules When Non-Partner Represents Himself to Third Parties as a
Partner in an Existing Partnership:
a. Liable to Third Parties Who Act in Good Faith—
When Partnership Liability Results, He Is Liable as Though He Were an Actual Member
of the Partnership
When No Partnership Liability Results, Liable Pro Rata with the Other Persons, If Any,
So Consenting to the Contract or Representation as to Incur Liability, Otherwise
Separately
b. When It Is the Firm That Has Made Such Representation, He Is an Agent and May Bind
the Representers to the Same Extent as Though He Were in Fact a Partner

VII. DISSOLUTION, WINDING-UP AND TERMINATION OF PARTNERSHIP

1. TYPES AND CAUSES OF DISSOLUTION
a. NON-JUDICIAL/IPSO JURE DISSOLUTION(Arts. 1830, 1833, and 1840[1])
(1) Without Violation of the Partnership Agreement (Without Breach):
Expiration of the Partnership Term or Achievement of Undertaking
By the Express Will of a Partner Acting in Good Faith in a Partnership at Will
Mutual Assent of the Partners to Dissolve or Accept a New Partner
Expulsion of a Partner Pursuant to an Agreement Granting Such Right
The legal effect of the changes in the membership of the partnership would be the
dissolution of the old partnership. Yu v. NLRC, 224 SCRA 75 (1993).

(2)In Contravention of Agreement(Art. 1830[2]): Where Circumstances Do Not Permit

Dissolution Under Any Other Provision, By Express Will of Any Partner at Any Time
A mere falling out or misunderstanding among the partners does not convert the partnership
into a sham organization, since the partnership exists and is dissolved under the law.
Muñasque v. Court of Appeals, 139 SCRA 533, 540 (1985).
Partner who effect a dissolution by his withdrawal in contravention of an agreement renders
himself liable for damages which may be deducted from his partnership account, and he loses
his right to wind-up. Rojas v. Maglana, 192 SCRA 110 (1990).
―An unjustified dissolution by a partner can subject him to action for damages because by the
mutual agency that arises in a partnership, the doctrine of delectus personae allows the
partners to have the power, although not necessarily the right, to dissolve the partnership.‖
Tocao v. Court of Appeals, 342 SCRA 20 (2000).

(3) By Operation of Law (Art. 1830)

Supervening Illegality of the Partnership Business
Loss of Specific Thing Contributed
Death, Insolvency or Civil Interdiction of a Partner
Absence of any clear stipulation, the acceptance back of part of the contribution by the
partner does not necessarily mean his withdrawal from, or dissolution of, the partnership.
Fernandez v. Dela Rosa, 1 Phil. 671 (1902).
The death of a partner dissolves the partnership, but the liquidation of its affairs is by law
entrusted not to the executors of the deceased partner, but to the surviving partners or to the
liquidators appointed by them. xWahl v. Donaldson Sim& Co., 5 Phil. 11 (1905).
A partnership is dissolved by a partner‘sdeath there being no stipulation in the partnership
contract of its subsistence to the contrary, and it thereby attains the status of a partnership in
liquidation, and only the rights inherited by the heirs of the deceased partner were those
resulting from the said liquidation and nothing more. If there would be a continuation of the
partnership a clear agreement on meeting of the minds must be made, otherwise, a new
partnership arrangement cannot be presumed to have arisen among the heirs and the
remaining partners. xBearneza v. Dequilla, 43 Phil. 237 (1922).
In equity, surviving partners are treated as trustees in regard to the interest of the deceased
partner in the firm, and it is their duty to render an account of the performance of their trust to
the personal representatives of the deceased partner, and to pay over to them the share of such

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 deceased member in the surplus of firm property, whether it consists of real or personal assets.
xGuidote v. Borja, 53 Phil. 900 (1928).

b. BY JUDICIAL DECREE OF DISSOLUTION:

(1)A Partnership With an Unlawful Object or Purpose May Be Dissolved by Judicial
Decree, and the Profit Confiscated in Favor of the State(Art. 1770)
(2)By the Decree of a Court on Application By or For a Partner (Art. 1831):
Partner Judicially Declared Insane or Shown to Be of Unsound Mind
Partner Becomes in Any Other Way Incapable of Performing His Contract
A Partner Has Been Guilty of Such Conduct as Tends to Affect Prejudicially the
Carrying on of the Partnership Business
A Partner Willfully or Persistently Commits a Breach of the Agreement That It Is
Not Reasonably Practicable to Carry-on the Partnership Business with Him
When Partnership Business Can Only Be Carried-on at a Loss
Other Circumstances That Render a Dissolution Equitable
Assignee of Partner’s Interest May Seek Court Order:
Upon Termination of the Specified Term or the Particular Undertaking; or
At Any Time in a Partnership at Will
Sustaining of losses is valid basis to dissolve the partnership. xMoran, Jr. v. Court of Appeals,
133 SCRA 88 (1984).
Courts can dissolve a partnership without formal application when ―the continuation of the
partnership has become inequitable.‖ xFue Leung v. IAC, 169 SCRA 746 (1989).

2. OPTIONS ARISING BY REASON OF DISSOLUTION:

a. When Dissolution Is Without Contravention of Partnership Agreement:Each Partner May
Demand for the Winding-Up of the Partnership (Art. 1837):
Partnership Properties Applied to Discharge Liabilities, and Surplus Applied to Pay in
Cash the Net Amount Owing to the Respective Partners
b. When Dissolution Caused by Bona Fide Expulsion of a Partner Who Is Discharged from
Partnership Liabilities (Art. 1837):
Expelled Partner Shall Receive in Cash Only Net Amount Due Him, i.e., Less Damages
Partnership Business Continues with the Remaining Partners
c. When Dissolution Is in Contravention of Partnership Agreement:
Each Non-Breaching Partner Shall Have the Right To (Art. 1837):
Liquidate the Partnership (i.e., Have Partnership Properties Applied to Discharge
Liabilities and Receive His Share of the Surplus
Recover Damages Against Each Breaching Partner
All Breaching Partners Are Limited (Art. 1837):
If Partnership Business Not Continued: To Receive Their Net Share in the Surplus
After Payment of All Liabilities
If Partnership Business Continued: To Have Net Value of Their Interests
Ascertained (Excluding Goodwill) and Paid to Them in Cash or Payment Is Secured
by a Bond, and to Be Released from All Existing Partnership Liabilities
All Non-Breaching Partners, If They All Desire, May Continue the Business:
Provided They Secure the Payment by Bond or Pay to Any Breaching Partner the
Value of His Interest, Net the Damages, and Indemnity Him Against All Present or
Future Partnership Liabilities (Art. 1837)
A New Partnership Is Thereby Constituted Among the Continuing Partners
d. When Dissolution is By Operation of Law:
When a Partner Retires or Dies and Business Is Continued Without Settlement of
Accounts, Such Partner or His Representative Shall Against Such Person or
Partnership (Art. 1841):
Have the Value of His Interest the Dissolution Ascertained
Receive as an Ordinary Creditor an Amount Equal to the Value of His Interest
Option to Receive Interest on Such Value or the Profits Attributable to the Use of
His Right in the Property of the Dissolved Partnership
BUT: Partnership Creditors Have Priority OverPartner’sSeparate Creditors

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 A partnership guilty of an act of insolvency may be proceeded against and declared bankrupt in
insolvency proceedings despite the solvency of each of the partners composing it. xCampos
Rueda & Co. v. Pacific Commercial Co., 44 Phil. 916 (1922).

e.Where the Partnership Contract Is Rescinded on the Ground of Fraud or

Misrepresentation of One of the Parties(Art. 1838), Party Rescinding Is Entitled, After
Payment of All Partnership Liabilities to Third Persons, To:
Lien or Right of Retention of Surplus of the Remaining Partnership Property for
Any Sum Paid by Him for Purchase of an Interest in the Partnership and for Any
Capital or Advances Contributed by Him
Standin Place of the Creditors of the Partnership for Any Payments Made by Him in
Respect of Partnership Liabilities
Be Indemnified by Person Guilty of Fraud or Making the Representation Against All
Debts and Liabilities of the Partnership
Failure of partner to have published her withdrawal, and her agreeing to have remaining
partners proceed with running the partnership business instead of insisting on the liquidation of the
partnership, will not relieve withdrawing partner from her liability to the partnership creditors. Even
if withdrawing partner acted in good faith, this cannot overcome the position of creditors who also
acted in good faith, without knowledge of her withdrawal from the partnership. Thus, when the
partnership executes a chattel mortgage over its properties in favor of a withdrawing partner, and
the withdrawal was not published to bind the partnership creditors, and in fact the partnership itself
was not dissolved but allowed to be operated as a going concern by the remaining partners, the
partnership creditors have standing to seek the annulment of the chattel mortgage for having been
entered into adverse to their interests. Singson v. Isabela Sawmill, 88 SCRA 623 (1979).
When new partners continue the partnership business which has been dissolved by the
withdrawal of its original partners, the new partnership is liable for the existing liabilities of the
business enterprise even when they were incurred under the old partnership arrangement, as
clearly governed under the provisions of Art.1840. However, new partnership is not compelled to
retain the services of managers and employees of the old partnership and may choose their
personnel. xYu v. NLRC, 224 SCRA 75 (1993).
The remedy of a partner who furnished the capital for the recovery of his money is not a action
for estafa, but a civil one arising from the partnership contract for a liquidation of the partnership
and a levy on its assets if there should be any. xU.S. v. Clarin, 17 Phil. 84 (1910).
BUT:When an individual has been deceived by fraud to invest in a venture for which there was
never intention on the part of the receiving party to invest it for the particular purpose for which it
was invested the receiving partner is liable for estafa.Celino v. Court of Appeals,163 SCRA 97
(1988); xLiwanag v. Court of Appeals, 281 SCRA 225 (1997).

3. NATURE AND EFFECTS OF DISSOLUTION:

a. As Between and Among the Partners:
Dissolution Is the Change in the Relationship of the Partners Caused by Any Partner
Ceasing to Be Associated in Carrying On the Partnership(Arts. 1828)
It Terminates All Authority of Any Partner to Act for the Partnership, Except as May Be
Necessary to Wind–up Partnership Affairs(Art. 1832)
In the Absence of Any Agreement to the Contrary, the Right to an Accounting of His
Interest Shall Accrue to Any Partner (or His Representative) as Against the Winding-
up Partners, or the Surviving Partners, or the Person or Partnership Continuing the
Business (Art. 1842)
Right to accounting does not prescribe during the life of the partnership, and that prescription
begins to run only upon the dissolution of the partnership and final accounting is done. xFue
Leung v. IAC, 169 SCRA 746 (1989).
b. On the Partnership Itself:
Partnership Continues Only For Purposes of Winding-up (Art. 1829)
EXCEPT: When the Non-Breaching Partners Choose to Continue the Partnership
Business Under a New Partnership
An action to dissolve the partnership and for the appointment of a receiver must include the
partnership since it is entitled to be heard ―in matters affecting its existence as well as the
appointment of a receiver.‖ xClaudio v. Zandueta, 64 Phil. 812 (1937).
Although the dissolution of a partnership is caused by any partner withdrawing from the
partnership, the partnership is not terminated but continuous until the winding up of the business.
xSingson v. Isabela Sawmill, 88 SCRA 623 (1979).
The legal personality of an expiring partnership persists for the limited purpose of winding-up
and closing its affairs. xYu v. NLRC, 224 SCRA 75 (1993).

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 c. On the Authority of the Partners:
Terminates All Partners’ Authority to Bind the Partnership, Except for Winding-up of
Partnership Affairs (Art. 1832)
A Partner Can Still Bind the Partnership (Art. 1834):
By Any Act or Contract Appropriate for Winding-up Partnership Affairs
By Non-Winding-up Contracts When Third Party Had Extended Credit to the
Partnership in Good Faith (Not Having Knowledge or Notice of Dissolution)
But Unknown Partners Not Liable to Such Creditors with their Separate Properties.
Where Dissolution Is Caused by Act, Death or Insolvency of Partner (Art. 1833): Each
Partner Is Liable to Co-Partners for His Share of Any Liability Created by Any Partner
Acting for Partnership as If Partnership Had Not Been Dissolved
UNLESS: Partner Acting Had Knowledge of the Dissolution or Notice of the Death or
Insolvency of Another Partners
d. On the Existing Liabilities of the Partners (Art. 1834):
Dissolution Itself Does Not Discharge Existing Liability of Any Partner
EXCEPT: When Partner Is Discharged By Reason of an Express Agreement Between
the Continuing Partners and the Creditors

4. WINDING-UPAND TERMINATION OF THE PARTNERSHIP BUSINESS ENTERPRISE: ―Winding-up‖ is

process of settling business affairs after dissolution, which includes the paying of previous
obligations; collecting of assets previously demandable;even new business if needed to wind up, as
contracting with a company for demolition of the garage used in a ‗used car‘
partnership.―Termination‖ is the ―point in time after all the partnership affairs have been wound up.‖
Idos v. Court of Appeals, 296 SCRA 194 (1998).
a. Partners’ Authority Would Only Be for Purposes of Winding-Up (Art. 1834)
b. Authority to Wind-Up (Art. 1836): Only the Partners Who Have Not Wrongfully Dissolved
the Partnership or the Legal Representative of the Last Surviving Partner
c. Upon Dissolution (Art. 1839[4] and [7]):Partners Shall Contribute Amounts Necessary to
Satisfy Partnership Debts Not Covered by Partnership Assets
HOWEVER:Separate Creditors of Deceased Partner Shall Have Priority Over His
Separate Properties (Art. 1835)
d. SETTLEMENT OF LIABILITIES AND PARTNERSHIP CLAIMS (Art. 1839):
Partnership Assets Covers Partnership Properties and Partners’ Required
Contributions under the ―Unlimited Liability Rule‖
Partnership Liabilities Shall Be Paid in the Following Order of Payment:
Those Owing to Creditors Other Than the Partners
Those Owing to Partners Other Than for Capital and Profits
Those Owing to Partners in Respect of Capital
Those Owing to Partners in Respect of Profits
When a partner withdraws from the partnership, he is entitled to the payment of what may be
due him after liquidation. But no liquidation is necessary where there was already a settlement or
an agreement as to what the retiring partner shall receive, and the latter was in fact reimbursed
pursuant to the agreement. xBonnevie v. Hernandez, 95 Phil. 175 (1954).
Managing partner is not personally liable for payment of partners‘ shares. It is the partnership
that must refund the shares of retiring partners, which cannot be returned without first dissolving
and liquidating the partnership, for the return is dependent on the discharge of the creditors, whose
claims enjoy preference over those of the partners. All partners are interested in his assets and
business, and are entitled to be heard in the matter of the firm‘s liquidation and the distribution of
its property. xMagdusa v. Albaran, 5 SCRA 511 (1962).
Upon the dissolution of a partnership, the withdrawing partners have no cause of action to
demand the return of their equity from the other partners; it is the partnership that must refund the
equity of the retiring partners. However, before partners can be paid their shares,partnership
creditors must first be compensated; whatever is left thereafter becomes available for the payment
of the partners‘ shares. It is wrong to presume that capital contributions at the beginning of the
partnership remains intact, unimpaired and available for distribution or return to the partners, or
that the total capital contribution in a partnership is equivalent to the gross assets to be distributed
to the partners at the time of dissolution of the partnership. In the pursuit of a partnership business,
its capital is either increased by profits earned or decreased by losses sustained; it does not
remain static and unaffected by the changing fortunes of the business. When partners venture into
business together, they should have prepared for the fact that their investment would either grow or
shrink. Villareal v. Ramirez, 406 SCRA 145 (2003).

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VIII. LIMITED PARTNERSHIPS
1. BACKGROUND AND DEFINITION
a. Origin, Concept and Purpose of Limited Partnership
See excerpts from Ames v. Downing, N.Y. Surr. Cit. reproduced in BAUTISTA, TREATISE ON
PHILIPPINE PARTNERSHIP LAW, 1995 ed., at pp. 336-227.
Civil Code provisions on Limited Partnership were taken from Uniform Limited Partnership Act.
See TOLENTINO, CIVIL CODE OF THE PHILIPPINES, Vol V., 1992 ed., at pp. 382-395.
Prohibition against formation of a universal partnership betweenspouses does not apply when
the partners entered into a limited partnership, the man being the general partner and the woman
being the limited partner, and a year later the two get married. Commissioner of Internal
Revenue v. Suter, 27 SCRA 152 (1969).
b. DEFINITION(Art. 1843): A Limited Partnership Is One That Is:
Formed By At Least One General Partner and At Least One Limited Partner
Who Shall Sign and Swear to the Articles of Limited Partnership (―Certificate‖)
WhichCertificateMust Be Registered with the SEC
A limited partnership that does not comply with the registration requirements shall be treated
as a general partnership in which all the members are liable for partnership debts. Jo Chung
Cang v. Pacific Commercial Co., 45 Phil. 142 (1923).

2. FORMATION AND STATUTORY REQUIREMENTS(Art. 1844)

a. Contents of the Articles of Limited Partnership(the ―Certificate‖)
Partnership Name, Add the Word ―Limited‖
Name of the Limited Partner Cannot Appear in Partnership Name (Art. 1846)
Character and Location of Business
Term of Existence of the Partnership
On the Partners:
Name and Residence of Each General and Limited Partners, and Their
Designation as Such Being SpecificallyDelineated
Amount/Description of Contributions,Details of Future Contributions,IfAny, to Be
Made by Limited Partners.
Right of Limited Partners to Demand/Receive Partnership Property Other Than
Cash in Return for His Contribution
Shares of Profits, and Compensation by Way of Income of Limited Partners
Priority Rights Among the Limited Partners
Right of Substitution or Assignment by Limited Partners
Admission of Additional Limited Partners
Right to Continue the Business by the Remaining General Partners Upon Death,
Retirement, Civil Interdiction, Insanity or Insolvency of General Partner
b. Substantial Compliance (Art. 1844): Limited Partnership Is Formed If There Has Been
Substantial Compliance in Good Faith With Requirements Mandated by Law
Substantial, rather than strict, compliance in good faith with the legal requirements is all that is
necessary for the formation of a limited partnership; otherwise, when there is not even substantial
compliance, the partnership becomes a general partnership as far as third persons are concerned.
Jo Chung Cang v. Pacific Commercial Co., 45 Phil. 142 (1923).
c. Effects of False Statement in Certificate (Art. 1847): One Who Suffers Loss Relying on
Such Statement May Hold Liable Any Party to the Certificate Who Knew the Statement to
Be False.
d. Cancellation or Amendment of Certificate (Arts. 1864 and 1865):
Certificate Must Be Cancelled When:
Partnership Is Dissolved
There Cease to Be Limited Partners
Certificate Must Be Amended When (Art. 1849):
Change in: Firm Name, in Character of the Partnership Business, in the Period, or
a Time Is Fixed for Its Dissolution; Amount or Character of Contributions of
Limited Partners, in Time for Return of a Contribution
An Additional Limited Partner and/or General Partners Is Admitted, or a Person Is
Substituted as a Limited Partners

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 A General Partner Retires, Dies, Becomes Insolvent or Insane, or Is Under Civil
Interdiction and the Business Is Continued
A False or Erroneous Statement in Certificate or to Make a Change in Any Other
Statement in Order It Shall Accurately Represent Their Agreement.

3. GENERAL PARTNERS(Art. 1850)

a. General Partners Have the Rights and Powers and Be Subject to All the Restrictions and
Liabilities of a Partnership Without Limited Partners.
b. HOWEVER: A General Partner Shall Have Authority to Do the FollowingOnly With the
Written Consent or Ratification of the Limited Partners:
Do Any Act in Contravention of the Certificate
Do Any Act Making It Impossible to Carry onPartnership Business
Confess a Judgment Against the Partnership
Possess Partnership Property or Assign Rights Other Than Partnership Purpose
Admit a New General Partner
Admit a New Limited Partner, Unless Right to Do So Is Given in the Certificate
COMPARE: Art. 1818
c. General Partner May Also Be a Limited Partner (Art. 1853):
Provided Such Fact Shall Be Stated in the Certificate
Shall Have All the Rights/Powers, Subject to All Restrictions of General Partner
EXCEPT: In Respect to His Contribution, He Shall Have the Rights Against the Other
Members Which He Would Have Had If He Were Not Also a General Partner

4. LIMITED PARTNERS
a. He May Contribute Money or Property, But Never Service (Art. 1845)
b. He Shall Not Be Liable As Such to the Obligations of the Partnership (Art. 1843)
EXCEPT:
When He Allows His Surname to Be Part of the Partnership Name (Art. 1846)
He Takes Part in the Control of the Partnership Business (Art. 1848)
c. He Shall Have the Same Right as a General Partner to (Art. 1851):
Have Partnership Books Kept at Principal Place of Business, to Inspect and/or Copy
Them at Reasonable Hours
Have on Demand True and Full Information of Things Affecting the Partnership
A Formal Account of Partnership Affairs
Have the Dissolution and Winding-up by Judicial Decree
d. He May Loan Money to, and Transact Business with, the Partnership and Receive on
Account of the Resulting Claims Against the Partnership, with General Creditors
But He Cannot in Respect to Such Claims Receive or Hold a Collateral Security on
Partnership Assets;
Nor a Payment, Conveyance or Release When Assets of the Partnership Not
Sufficient to Cover All Liabilities to Third Parties. (Art. 1854)
e. He Shall Have Priority of Settlement of Their Claims as Agreed Upon Them or as Provided
in the Certificate.
In the Absence of Agreement or Provision in the Certificate, Limited Partners Shall
Stand Upon Equal Footing (Art. 1855)
f. He May Receive the Stipulated Share in the Profits and/or Compensation By Way of
Income, Provided That After Such Payment the Partnership Assets Are Sufficient to
Cover Liabilities to Third Parties (Art. 1856)
g. He Has the Right to Demand Return of His Contribution (Art. 1857):
When the Date Specified in the Certificate for Its Return Has Arrived
On Dissolution of the Partnership
If No Time Is Specified in Certificate for Return of Contribution or for Dissolution of
Partnership: After He Has Given 6Months’ Written Notice to All Members
h. He Shall Not Receive Any Part of His Contribution Until (Art. 1857):
All Liabilities to Third Parties Have Been Paid or There Remains Property of the
Partnership Sufficient to Pay;
Such Return Is With Consent of All Members, or Return Is Rightfully Demanded;
Certificate Is Cancelled or Amended.

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 i. He Is Not Liable for the Partnership Debts Beyond His Contribution(Art. 1858);
EXCEPT:
For Difference Between His Contribution as Actually Made and That Stated in
Certificate as Having Been Made
For Any Unpaid Contribution Which He Agreed in the Certificate in the Future
A Limited Partner Holds as Trustee for Partnership
Specific Property Stated in the Certificate as Contributed by Him, But Which Was
Not Contributed or Wrongfully Returned
Money or Other Property Wrongfully Paid or Conveyed to Him on Account of His
Contribution
j. Limited Partners’ Right to ―Assign‖ Their Rights or Substitute Another(Art. 1859):
A Limited Partner’s Interest Is Assignable
A ―Substituted Limited Partner‖ Is a Person Admitted to All the Rights of a Limited
Partner Who Dies or Has Assigned His Interest
Assignee Shall Have the Right to Become a Substituted Limited Partner Only If:
All the Members Consent; OR
Assignor Gives Assignee Such Right under the Terms of the Certificate
AND the Certificate Is Appropriately Amended
Substituted Limited Partner Has All the Rights and Powers, and Is Subject to All the
Restrictions and Liabilities of Assignor; EXCEPT: Those Liabilities of Which He Was
Ignorant and Which Could Not Be Ascertained from the Certificate
Substitution Does Not Release Assignor From Partnership Liabilitiesfor:
False Statements in the Certificate (Art. 1847)
The Difference or What Is Due From Him for His Contributions (Art. 1858)
An Assignee Who Is Not Substituted Limited Partner Has Only One Right: To
Receive the Share of the Profits or the Return of the Contribution Which the
Assignor Was Entitled To
k. Application by Creditors of Limited Partner (Art. 1862): A Limited Partner’s Creditors May
Apply With the Courts To:
Charge His Partnership Interests with Payment of Unsatisfied Amount of Such
Claims, Appoint a Receiver, Make All Other Orders Which May Be Appropriate
Interest May Be Redeemed With Separate Property of Any General Partner, But Not
Partnership Property
l. Limited Partner Is Not a Proper Party to Proceedings By or Against the Partnership
EXCEPT: Where Object Is to Enforce a His Right Against or Liability to the
Partnership(Art. 1866)
m.A Person Who Has Contributed to Capital of a Business Conducted as a Partnership,
Believing that He Has Become a Limited Partner:
Is Not a General Partner By Reason of Exercise of Such Rights; PROVIDED: On
Ascertaining Mistake, He Promptly Renounces His Interest in the Profits of the
Business or Other Compensation by Way of Income
EXCEPT: When He Allows His Surname to Be Part of the Firm Name(Art. 1852)

5. DISSOLUTION AND WINDING UP

a. Causes Affecting the General Partners (Art. 1860):
Death, Insolvency, Civil Interdiction, Insanity or Retirement, of a General Partner
Dissolves the Partnership
UNLESS: Business Is Continued by Remaining General Partners–
Under a Right To Do So in the Certificate;OR
With the Consent of All Members
b. Causes Pertaining to the Limited Partner:
Death of a Limited PartnerDoes Not Dissolve the Partnership
BUT:Executor/Administrator Shall Step-in for Purposes of Settling His Estate,
Including the Power to Constitute an Assignee(Arts. 1861 and 1864)
When There Cease to Be Limited Partners, the Partnership Is Dissolved and the
Certificate Must Be Cancelled(Art. 1864)
A Limited Partner May Demand Dissolution and Winding-up When(Art. 1857):
He Rightfully But Unsuccessfully Demands Return of His Contribution; OR

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 Liabilities to Third Parties Have Not Be Paid, Partnership Property Insufficient for
Their Payment, But Limited Partner Would Otherwise Be Entitled to the Return of
His Contribution
c. Order of Settlement of Accounts (Art. 1863):
Those to Creditors, Including Limited Partners’ Claims Other Than for Contributions
and Share in the Profits
Those to Limited Partners as Shares in Profits/Compensation by Way of Income
Those to Limited Partners in Respect to Their Contributions
Those to General Partners Other Than for Capital and Profits
Those to General Partners In Respect to Profits
Those to General Partners in Respect to Capital

D. JOINT VENTURE ARRANGEMENTS

I. THE ESSENCE OF JOINT VENTURE ARRANGEMENTS (JVA)
1. Joint Ventures Are Species of the Partnership
The prevailing school of thoughtin the Philippines is that joint venturesarespecies of partnership,
and issues arising are to be resolved under the Law on Partnerships. Therefore, the same rules for
determining whether a partnership exists would also apply to a purported joint venture
arrangement.xHeirs of Tan EngKee v. Court of Appeals, 341 SCRA 740 (2000).
The CA did not errin decreeing the close characteristics of ―partnerships‖ and ―joint venture
agreements.‖ There is also no merit in the assertion that before this particular partnership can be
formed, it should have been formally reduced into writing since the capital involved is more
PhP3,000, so that there is no evidence of written agreement to form a partnership between
petitioners and MBMI, no partnership was created.A partnership is defined as two or more persons
who bind themselves to contribute money, property, or industry to a common fund with the intention
of dividing the profits among themselves. On the other hand, joint ventures have been deemed to be
―akin‖ to partnerships since it is difficult to distinguish between joint ventures and partnerships.
xNarra Nickel Mining and Dev. Corp. v. Redmont Consolidated Mines Corp., 722 SCRA 382 (2014).
Generally understood to mean an organization formed for some temporary purpose, a joint
venture is likened to a particular partnership. Joint ventures are governed by the law on partnerships
which are, in turn, based on mutual agency or delectus personae. Applying therefore Art. 1813, it is
evident that ―(t)he transfer by a partner of his partnership interest does not make the assignee of
such interest a partner of the firm, nor entitle the assignee to interfere in the management of the
partnership business or to receive anything except the assignee's profits.‖ Realubit v. Jaso, 658
SCRA 146 (2011).

2. Special Joint Venture Definitions and Concepts

a. Revised Guidelines for Entering into Joint Venture (JV) Agreement Between Government
and Private Entities Per Section 8 of E.O. 42395(03 May 2013)
(i) 5.7 Joint Venture (JV). An arrangement whereby a private sector entity or a group of private
sector entities on one hand, and a Government Entity or a group of Government Entities on
the other hand, contribute money/capital, services, assets (including equipment, land,
intellectual property or anything of value), or a combination of any or all of the foregoing to
undertake an investment activity. The investment activity shall be for the purpose of
accomplishing a specific goal with the end view of facilitating private sector initiative in a
particular industry or sector, and eventually transfer the activity to either the private sector
under competitive market conditions or to the government. The JV involves a community or
pooling of interests in the performance of the investment activity, and each party shall have
the right to direct and govern the policies in connection therewith with the intention to share
both profits and, risks and losses subject to agreement by the parties. A JV may be a
Contractual JV or a Corporate JV (JV Company).
(ii) 5.3 Contractual JV. A legal and binding agreement under which the JV Partners shall
perform the primary functions and obligations under the JVA without forming a JV Company.
(iii) 5.8 JV Company. A stock corporation incorporated and registered in accordance with the
provisions of the Corporation Code of the Philippines, and based on the prevailing rules and
regulations of the SEC of which fifty percent (50%) or less of the outstanding capital stock is
owned by the government. The JV Company shall be registered by the JV partners that shall
perform the primary functions and obligations of the JV as stipulated under the JV

95
http://www.neda.gov.ph/references/Guidelines/RevisedGuidelines.pdf

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 Agreement. The JV Company shall possess the characteristics stipulated under these
Guidelines.

b. Regulating Combinations in Restraint of Trade and Unfair Competition: Rules and

Regulations to Implement Rep. Act No. 10667 (Philippine Competition Act)
Rule 2(i): ―Joint venture‖ refers to a business arrangement whereby an entity or group of entities
contribute capital, services, assets, or a combination of any or all of the foregoing, to undertake
an investment activity or a specific project, where each entity shall have the right to direct and
govern the policies in connection therewith, with the intention to share both profits and risks and
losses subject to agreement by the entities.

II. JURISPRUDENTIAL RULES ON THREE TYPES OF JV ARRANGEMENTS

1. INFORMAL OR CONTRACTUAL JV ARRANGEMENT WITHOUT A ―SEPARATE FIRM‖
(SEC Opinion, 22 Dec. 1966; SEC Opinion, 29 Feb.1980; SEC Opinion, 03 Sept. 1984)
Contract of Lease violates PCSO‘s charter which prohibits it ―to hold and conduct charity
sweepstakes races, lotteries and other similar activities,‖ ―in collaboration, association or joint
venture‖ with any other party, because it mandates lessee to contribute resources into the venture
and to manage and operate directly the facilities, and makes lessee participate not only in the
revenues generated from the venture, and in fact absorb most of the risks involved therein. AJVA
has really been constituted between purported lessor and lessee, since under the Law on
Partnership, whenever there is an agreement to contribute money, property or industry to a common
fund, with an agreement to share the profits and losses, then a partnership arises. Kilosbayan,
Inc. v. Guingona, Jr., 232 SCRA 110 (1994).
When the purported primary co-venturer in a consortium (which is an association of corporation
bound in a joint venture arrangement) declares unilaterally that the other four members are part of a
consortium, but there is no affirmation from any of the other members, nor is there a showing
through a formal joint venture agreement of a community of interest, a sharing of risks, profits and
losses in the project bidded for, then there is really no joint venture constituted among them, lacking
the essential elements of what makes a partnership. Information Technology Foundation v.
COMELEC, 419 SCRA 141 (2004).

a. Informal JVAs Must Be Construed and Enforced as Contracts Among Co-Venturers

Although parties executed a ―Power of Attorney‖ and referred to themselves as ―Principal‖ and
―Manager‖, it reveals that a joint venture was indeed intended by the parties. Perusal of the
agreement indicates that the parties had intended to create a partnership and establish a common
fund for the purpose. They also had a joint interest in the profits of the business as shown by a 50-50
sharing in the income of the mine. While a corporation, like petitioner, cannot generally enter into a
contract of partnership unless authorized by law or its charter, it has been held that it may enter into
a joint venture which is akin to a particular partnership relationship. Philex Mining Corp. v.
Commissioner of Internal Revenue (CIR), 551 SCRA 428 (2008).
The fact that the instrument does not clearly provide for an option, and not an obligation, on the
part of one of the co-venturers to make contributions into the business enterprise, will not detract
from the legal fact that they constituted a partnership between themselves: ―The wording of the
parties‘ agreement as to petitioner‘s contribution to the common fund does not detract from the fact
that petitioner transferred its funds and property to the project as specified in paragraph 5, thus
rendering effective the other stipulations of the contract, particularly paragraph 5(c) which prohibits
petitioner from withdrawing the advances until termination of the parties‘ business relations. As can
be seen, petitioner became bound by its contributions once the transfers were made. The
contributions acquired an obligatory nature as soon as petitioner had chosen to exercise the option.‖
Philex Mining Corp. v. CIR, 551 SCRA 428 (2008).
When principal and agent have entered into a ―Power of Attorney‖ covering a construction
project, with the principal contributing thereto his contractor‘s license and expertise, while the agent
would provide and secure the needed funds for labor, materials and services, deal with the suppliers
and sub-contractors; and in general and together with the principal, oversee the effective
implementation of the project, for which the principal would receive as his share 3% of the project
cost while the rest of the profits shall go to the agent, the parties have in effect entered into a
partnership, and the revocation of the powers of management of the agent is deemed a breach of
the contract. Mendoza v. Paule, 579 SCRA 349 (2009).
In an informal joint venture arrangement, because no separate firm or business enterprise has
been constituted as to the dealing public, then the effects of the attributes of ―mutual agency‖ and
―unlimited liability‖ are not made to apply with respect to creditors. Traveño v. Bobongon Banana
Growers Multi-Purpose Cooperative, 598 SCRA 27 (2009).
SEE: Despite agreement that Bastida was to receive 35% of the profit from the business of
mixing and distributing fertilizer registered in the name of Menzi& Co., there was never any contract
of partnership constituted on the following key elements: (a) there was never any common fund
created between the parties, since the entire business as well as the expenses and disbursements
for operating it were entirely for the account of Menzi& Co.; (b) there was no provision in the
agreement for reimbursing Menzi& Co. in case there should be no profits at the end of the year; and

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 (c) the fertilizer business was just one of the many lines of business of Menzi& Co., and there were
no separate books and no separate bank accounts kept for that particular line of business.The
arrangement was one of employment. Bastida v. Menzi& Co., 58 Phil. 188 (1933).

2. FORMAL JV ARRANGEMENT: A FORM OF PARTNERSHIP WITH A FIRM ESTABLISHED

When a ―Joint Venture Agreement‖ covers the terms for the development of a subdivision
project, the contributions of co-venturers, and manner of distribution of the profits, then a partnership
has been duly constituted under Art. 1767 of Civil Code, and although no inventory was prepared
covering the parcels of land contributed to the venture, much less was a certificate of registrations
filed with the SEC. The partnership was not void because: (a) Art. 1773 is intended for the protection
of the partnership creditors and cannot be invoked when the issue is between and among the
partners; and (b) the alleged nullity of the partnership will not prevent courts from considering the
JVA as an ordinary contract form which the parties rights and obligations to each other should be
inferred and enforced. Torres v. Court of Appeals, 320 SCRA 428 (1999).
Since the parties entered into a joint venture as evidenced by their JVA, the issues shall be
governed by the laws on partnership. Since it has been proven that Primelink as developer of the
subdivision project has defrauded the Lazatins from their share in the income, it was proper for the
trial court to give possessionof the property under development to the Lazatins who had sought
rescissionof the JVA. However, the property is held by the Lazatins for purposes of winding-up the
affairs of the joint venture as provided under Art. 1836. Until there is proper winding-up of the affairs
which requires the settlement of all claims of partnership creditors, it would be premature for
Primelink to demand the value of the improvements it has introduced on the property contributed by
the Lazatins. Primelink Properties and Dev. Corp. v. Lazatin-Magat, 493 SCRA 444 (2006).
JV is governed by Law on Partnerships. Here, the JVA parties agreed on a 50-50 ratio on the
proceeds of the project, although they did not provide for the splitting of losses, which therefore puts
into application Art. 1797: the same ratio applies in splitting the obligation-loss of the joint venture.
There being a JVA, not allowing MarsmanDrysdale to recover from Gotesco what it paid to PGI
would not only be contrary to the law on partnership on division of losses but would partake of a
clear case of unjust enrichment at Gotesco‘s expense. MarsmanDrysdale Land, Inc.
v.PhilippineGeoanalytics, Inc., 622 SCRA 281 (2010).
A joint venture is a partnership and governed by the Law of Partnerships. Art. 1824 provides all
partnerssolidarily liable with the partnership due to any wrongful act or omission of any partner
acting in the ordinary course of the business of the partnership or with the authority of his co-
partners. Whether innocent or guilty, all the partners are solidarily liable with the partnership itself.
J. Tiosejo Investment Corp. v. Ang, 630 SCRA 334 (2010).
Co-Venturers Are Liable Only for Liabilities Pursued in the Name of and Pursuant to the
Purpose of the JV Arrangement. – While Jebson, as developer, and SpousesSalonga, as land
owner, entered into a joint venture, which — based on case law — may be considered as a form of
partnership, the fact remains that their joint venture was never privy to any obligation with Buenviaje.
It must be pointed out that the JVA between Jebson and SpousesSalonga was limited to the
construction of the residential units under the Brentwoods Project, and thereafter the distribution of
specified units between the co-ventures; and that Jebson had the sole hand in marketing the units
allocated to it to third persons, such as Buenviaje.Hence, liability cannot be imputed against the joint
venture based on the same principle of relativity as above-mentioned. In fact, under the express
terms of the JVA, Jebson, as the developer, had even stipulated to hold SpousesSalonga free from
any liability to third parties for non-compliance with HLURB rules and regulations. As things stand,
only Jebson should be held liable for its obligations to Buenviaje under the subject CTS. Buenviaje
v. Spouses Salonga,805 SCRA 369 (2016).

3. ARRANGEMENT PURSUE THROUGH A JV CORPORATION

a. Status of the JVA Prior to the Incorporation of the JV Corporation

A verbal JVA to incorporate a company that would hold parties‘ shares and serve a business
vehicle for their food enterprise, is valid and binding. JVA created between them reciprocal
obligations that must be performed in order to fully consummate the contract and achieve the
purpose for which it was entered into. JVAis deemed extinguished through rescission under Art.1192
in relation with Art. 1191. Dueñas must therefore return the P5 Million that Fong initially contributed
since rescission requires mutual restitution. After rescission, parties must go back to their original
status before the agreement. Fong v. Dueñas, 757 SCRA 412 (2015).

b. Emerging Doctrinal Rules under a JV Arrangement Pursued Through a JV Corporation

The manner of nomination of the members of the Board of Directors provided in the Joint
Venture Agreement must be made effective and reconciled with the statutory provision on
cumulative voting made applicable by the Corporation Code to stock corporations. Aurbach v.
Sanitary Wares Manufacturing Corp., 180 SCRA 130 (1989).
The right of first refusal in the JVA under which the corporation is organized constitutes a legal
means by which the corporate venture would include the delectus personae characteristic within the
JV arrangement, allowing stockholders the ability to prevent equity interests from being transferred

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to third parties. The JVA‘s right of first refusalmust be made to apply and be binding to the
Government and the bidder at a public bidding held on the shares of the JV corporation. JG
Summit Holdings, Inc. v. Court of Appeals, 412 SCRA 10 (2003).
JV is an association of companies jointly undertaking a commercial endeavor, with all
contributing assets and sharing risks, profits, and losses. It is hardly distinguishable from a
partnership considering that their elements are similar and, thus, generally governed by the law on
partnership. In the JVA PNCC contributes its franchise, while the partner contributes the financing —
both necessary for the construction, maintenance, and operation of the toll facilities. PNCC did not
thereby lease, transfer, grant the usufruct of, sell, or assign its franchise or other rights or privileges.
This istrue even though the partnership acquires a separate personality or leads to a JVCompany.
Hontiveros-Baraquel v. Toll Regulatory Board, 751 SCRA 271(2015).
Joint venture betweenMabuhay, IDHI and Sembcorp was pursued under the JV Corporations,
WJSC and WJNA. By choosing to adopt a corporate entity as the medium to pursue the joint venture
enterprise, the parties are bound by Corporate Law principles, among which is the limited liability
doctrine. The use of a joint venture aloows the co-venturer to take full advantage of the limited
liability feature of the corporate vehicle which is not present in a formal partnership arrangement.
Mabuhay Holdings Corp. v. Sembcorp Logistics Ltd., G.R. No. 212 734, 5 Dec. 2018.

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