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A. LAW ON AGENCY
I. NATURE AND OBJECT OF AGENCY
1. Definition of Agency; Parties in an Agency Relationship (Art. 1868)
Under Article 1868, a contract of agency is one whereby a person binds himself to render some service or to
do something in representation or on behalf of another, with the consent or authority of the latter.
Spanish term for principal is mandante; and among the terms used for agent are mandatario, factor,
broker, attorney-in-fact, proxy, delegate or representative.
b. SUBJECT MATTER: Service Execution of Juridical Acts in Behalf of 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. CA, 333
SCRA 663 (2000).4
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 and neither was there any authority to represent the other by
the terms of the arrangements. xLoadmasters Customs Services v. Glodel Brokerage Corp., 639 SCRA 69
(2011).
c. CONSIDERATION: Agency Presumed to Be for Compensation,
Unless There Is 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. xAgua v. Larena, 57 Phil 630 (1932).
1
Unless otherwise indicated, all references to articles pertain to the New Civil Code of the Philippines.
2Reiterated in 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).
3Urban Bank v. Pea, 659 SCRA 418 (2011).
4Amon Trading Corp. v. CA, 477 SCRA 552 (2005).
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).
5A unilateral contract has been defined as A contract in which one party makes a promise or undertakes a performance. Thus, it was observed that [M]any
unilateral contacts are in reality gratuitous promises enforced for good reason with no element of bargain. [BLACKS LAW DICTIONARY 326 (1990)] It is perhaps in this
sense that agency is unilateral because it is the agent who undertakes the performance of the agency. However, one must not forget that agency is still a contract
with a bilateral character. Manresa explains: 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 ESPAOL 443 (1950)
6Litonjua, Jr. v. Eternit Corp., 490 SCRA 204 (2006); Villoria v. Continental Airlines, 663 SCRA 57 (2012).
7Tan v. Engineering Services, 498 SCRA 93 (2006); Country Bankers Insurance v Keppel Cebu Shipyard, 673 SCRA 427 (2012).
8Schmid and Oberly, Inc. v. RJL Martinez, 166 SCRA 493 (1988).
9Reiterated in Phil. Healthcare Providers (Maxicare) v. Estrada, 542 SCRA 616 (2008).
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The relationship between corporation 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).10
The concept of a single person having the dual role of agent and employee while doing the same task is a
novel one in our jurisprudence, which 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 invariably characterizes
an employment relationship as defined by labor law. xTongko v. Manufacturers Life Insurance Co. (Phils.), 640
SCRA 395 (2011).
2. KINDS OF AGENCY
a. Based on Business or Transactions Encompassed (Art. 1876): General or Universal Agency versus
Special or Particular Agency
Siasat 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.
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).
13Domingo v. Robles, 453 SCRA 812 (2005).
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 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 to convey real property need not be in a public document, it need only be in writing,
since a private document is competent to create, transmit, modify, or extinguish a right in real property. 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).
In a case involving authority to act in barangay conciliation cases covering an ejectment for failure to pay
rentals: 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 this is clearly indicated by the fact that it
has also been called a letter of attorney. xWee v. De Castro, 562 SCRA 695 (2008).
16San 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
Recio v. Heirs of the Spouses Altamirano, 702 SCRA 137 (2013); Bautista v. Spouses Jalandoni, 710 SCRA 670 (2013).
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(5-B) To Make Gifts
(5-C) To Bind the Principal to Render Some Service without Compensation
(5-D) To Bind the Principal in a Contract of Partnership
(5-E) 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 the manager power to bind the principal to a contract of guaranty or surety
unconnected 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 authorized 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).
(6) ANY OTHER ACT OF STRICT DOMINION
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 principals 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).
SPA to 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).
6. Express Power of Attorney Excludes Powers of Administration (e.g., General
Power of Attorney)
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).
2. Obligation of Agent 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)
3. DUTY OF OBEDIENCE
d. Effects When Agents Act Beyond the Scope of His Authority: Unenforceable, Not Void; UNLESS
PRINCIPAL RATIFIES, WHICH MAKE IT VALID (Arts. 1317, 1403 and 1898)
When money received as a deposit by an agent is given 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 has, 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 that is 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 principals ratification. Cervantes v. Court of Appeals, 304 SCRA 25 (1999).20
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. Clients
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).
e. Effects When Agent Acts in His Own Name (Art. 1883):
Principal Has No Right Against Third Person Contracting with Agent
4. DUTY OF DILIGENCE:
a. Agent Must Exercise Due Diligence in the Pursuit of the Principals Business
b. Agent Should Not Act If It Would Manifestly Result in Damage to Principal (Art. 1888)
c. Agent Also Liable Personally (with the Principal) for Fraud and Negligence Committed in Pursuit of
the Principals Affairs (Arts. 1884 and 1909)
The provision is clear that an agent is bound to carry out the agency. The relationship existing between
principal and agent is a fiduciary one, demanding conditions of trust and confidence. It is the duty of the agent to
act in good faith for the advancement of the interests of the principal. In this case, 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.
Bank of the Philippine Islands v. Laingo, G.R. No. 205206, 16 March 16, 2016.
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
his fault 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
21Reiterated in 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
It is wWell-settled is the rule is that an agent is also responsible for any negligence in the performance of its
function (Art. 1909) and is liable for the damages which principal may suffer by reason of its negligent act. (Art.
1884). British Airways v. Court of Appeals, 285 SCRA 450 (1998).22
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
Principals 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 who thereafter disposes of the whole at an advance, 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. Guiterrez Repide, 41 Phil. 947
(1909).
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. xSing
Juco and Sing Bengco v. Sunyantong and Llorente, 43 Phil 589 (1922).
Uncle who was acting as 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 personam will lie against an agent to compel him to return or retransfer
to his principal, or the latters 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).
AAn agent cannot represent both himself and his principal in a transaction involving the shifting to another
person of the agents liability for a debt to the principal. xAboitiz v. De Silva, 45 Phil 883 (1924).
Under Art. 267 of 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).
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 Principals Solidarily Liable (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 principals 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).
25Also E Macias & Co. v. Warner, Barnes & Co., 43 Phil 155 (1922).
26Ormoc Sugarcane Planters Assn. v. CA, 596 SCRA 630 (2009).
27Chua 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).
28Country Bankers Insurance v Keppel Cebu Shipyard, 673 SCRA 427 (2012).
29Reiterated in Eurotech Industrial Technologies v. Cuizon, 521 SCRA 584 (2007).
c. Principal Not Bound to Contracts Entered Into By Agent Outside of His 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
30
Also 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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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).
In agency, ratification is the adoption/ or confirmation by the principal of an act performed on his behalf by
another without authoritythe substance of the doctrine is confirmation after conduct, amounting to a substitute
for a prior authority. 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, this principle does not apply if the principals 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. Manila 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 the agent exceeds his authority, the principal is still solidarily liable together with the agent, if the
principal allowed the agent to act as though the agent had full powers. 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 agents acts beyond the latters
authority. Filipinas Life Assurance Co. v. Pedroso, 543 SCRA 542 (2008).
Under Arts. 1898 and 1910, agents 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 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 Agents Exceeding Authority Where Principal Ratified or
Signified Willingness to Ratify Agents Acts (Art. 1901)
Principal Should Be the One to Question Agents 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 Agents
Power of Attorney or Principals 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 a
piece of land in the normal course of business, it is legally obliged to confirm the transaction by issuing a board
resolution to enable the buyers to register the property in their names. xRural Bank of Milaor v. Ocfemia, 325
SCRA 99 (2000).
The doctrine of apparent authority focuses on two factors: first the principals 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. CA, 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 agents 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 partys detriment. There is
no basis to apply the doctrine where there is no evidence showing manner by which the supposed principal,
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: the 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. 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 Obligation NOT Solidary, unless
otherwise expressed. (Art. 1894)
b. Any of the Principal May Validly Revoke Agents Authority (Art. 1925)
When the law expressly provides for solidarity of the obligation, as in the liability of co-principals in a contract
of agency, each obligor may be compelled to pay the entire obligation. The agent may recover the whole
compensation from any one of the co-principals, as in this case. xDe Castro v. Court of Appeals, 384 SCRA 607
(2002).
V. EXTINGUISHMENT OF AGENCY
1. How and When Agency Extinguished (Art. 1919)
a. By Principals Revocation (Express or Implied) of the Agency
b. By Agents Withdrawal from the Agency
c. By Death, Civil Interdiction, Insanity or Insolvency of the Principal or the Agent
d. By Dissolution of the Juridical Entity Which Entrusted or Accepted the Agency
e. By the Accomplishment of the Object or Purpose of the Agency
f. By the Expiration of the Period for Which Agency Was Constituted
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)
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).
8. Death of the Agent Extinguishes the Agency (Art. 1932): Obligation of Agents Heirs in Case of
Agents Death:
Notify Principal
Adopt Measures as Circumstances Demand in Principals 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, and 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).
B. BUSINESS TRUSTS
I. NATURE AND CLASSIFICATION OF TRUSTS
1. Definition and Essential Characteristic of Trust (Art. 1440)
A 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.35 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).
33
Also Barrameda v. Barbara, 90 Phil. 718 (1952); Caisip v. Hon. Cabangon, 109 Phil. 150 (1952).
34Superseded
Pasno v. Ravina, 54 Phil. 382 (1930) and Del Rosario v. Abad, 104 Phil. 648 (1958).
35Also
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 Tranquilino Labiste 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); Goyanko v.
UCPB, 690 SCRA 79 (2013).
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a. Trusts Are Based on Equity Principles (Common-law) (Art. 1442)
As the law of 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 here under
consideration, especially so as the trusts known to American and English equity jurisprudence are derived from
the fidei commissa of the Roman law and are based entirely upon Civil Law principles. xGovernment v. Abadilla,
46 Phil. 642 (1924).36
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.
(2) Trustee takes legal or naked title to the subject matter of trust, and acts on his own business discretion;
agent possesses property under agency for and in the name of the owner and must act upon instructions
of the owner;
(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 clients 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. Principals are solely obliged to observe the solemnity of the transaction entered into by
the agent on their behalf, absent any proof that the latter acted beyond its authority, and concomitant to this
obligation is that the principal also assumes the risks that may arise from the transaction. 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.37
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).38
A resulting trust is 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.39
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 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.40
Trust is the right to beneficial enjoyment of property, legal title to which is vested in another. It is a fiduciary
relationship 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).41
36Reiterated in Miguel v. CA, 29 SCRA 760 (1969); Spouses Rosario v. CA, 310 SCRA 464 (1999).
37Reiterated in Spouses Rosario v. CA, 310 SCRA 464 (1999); Caezo v. Rojas, 538 SCRA 242 (2007); Pealber v. Ramos, 577 SCRA 509 (2009); DBP v. COA,
SCRA 464 (1999); Caezo v. Rojas, 538 SCRA 242 (2007); Pealber v. Ramos, 577 SCRA 509 (2009).
39Reiterated in 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).
40
Reiterated in Guy v. CA, 539 SCRA 584 (2007).
41Vda. De Esconde v. CA, 253 SCRA 66 (1996); Spouses Rosario v. CA, 310 SCRA 464 (1999); DBP v. COA, 422 SCRA 459 (2004); Metropolitan Bank v. Board
of Trustees of Riverside Mills Corp. Provident and Retirement Fund, 630 SCRA 350 (2010).
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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. Guy v. Court of Appeals, 539 SCRA 584 (2007).
2. Essentially Contractual in Nature; Need No Particular Wordings (Art. 1444)
For, technical or particular forms of words or phrases are not essential to the manifestation of intention to
create a trust or to the establishment thereof. Nor would the use of some such words as trust or trustee
essential to the constitution of a trust; conversely, the mere fact that such terms were employed would not
necessarily prove an intention to create a trust. What is important is whether the 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).42
Express trusts are created by direct and positive acts of the parties, by some writing or deed, or will, or by
words either expressly or implied evincing an intention to create a trust. 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. Heirs of Tranquilino Labiste v. Heirs of Jose
Labiste, 587 SCRA 417 (2009).
The creation of an express trust must be manifested with reasonable certainty and cannot be inferred from
loose and vague declarations or from ambiguous circumstances susceptible of other interpretations. No such
reasonable certitude in the creation of an express trust obtains in the case at bar. In fact, a careful scrutiny of the
plain and ordinary meaning of the terms used in the Minutes does not offer any indication that the parties thereto
intended that Aznar, et al., become beneficiaries under an express trust and that RISCO serve as trustor. PNB
v. Aznar, 649 SCRA 214 (2011).43
In Tamayo v. Callejo, 46 SCRA 27 (1972), the Court recognized that a trust may have a constructive or implied
nature in the beginning, but the registered owners subsequent express acknowledgement 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. Torbela v. Spouses Rosario, 661 SCRA 633 (2011).
It is possible to create a trust without using the word "trust" or "trustee." Conversely, the mere fact that these
words are used does not necessarily indicate an intention to create a trust. The question in each case is whether
the trustor manifested an intention to create the kind of relationship which to lawyers is known as trust. It is
immaterial whether or not he knows that the relationship which he intends to create is called a trust, and whether
or not he knows the precise characteristics of the relationship which is called a trust. Go v. Estate of Felisa
Tamio de Buenaventura, 763 SCRA 632 (2015).
a. Express Trust Cannot Be Proven by Parol Evidence (Art. 1443)
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).44
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).45
A trust must be proven by clear, satisfactory, and convincing evidence; it cannot rest on vague and uncertain
evidence or on loose, equivocal or indefinite declarations De Leon v. Peckson, 62 O.G. 994.46
b. Ultimately Existence of Express Trust Requires That Legal Title Is Held By One, and the Equitable or
Beneficial Title Is Held by Another (65 CORPUS JURIS 212)
Trust, in its technical sense, is a right of property, real or personal, held by one party for the benefit of another
it is a fiduciary relationship with respect to property, subjecting the person holding the same to the obligation of
dealing with the property for the benefit of another person. xGuy v. Court of Appeals, 539 SCRA 584 (2007).
What distinguishes a trust from other relations is the separation of legal title and equitable ownership of the
propertylegal title is vested in the fiduciary while equitable ownership is vested in a cestui que 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 propertythese 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
42Also Lorenzo v. Posadas, 64 Phil. 353 (1937); Torbela v. Rosario, 661 SCRA 633 (2011); Goyanko v. UCPB, 690 SCRA 79 (2013).
43Medina
Formatted: English (United States)
v. CA, 109 SCRA 437, 445 (1981); Advent Capital and Finance Corp. v. Alcantara, 664 SCRA 224 (2012).
44
Reiterated Caezo v. Rojas, 538 SCRA 242 (2007); Booc v. Five Star Marketing, 538 SCRA 42 (2008).
45Also Pascual v. Meneses, 20 SCRA 219 (1967); Ramos v. Ramos, 61 SCRA 284 (1974).
46Reiterated in Ringor v. Ringor, 436 SCRA 484 (2004); Figuracion v. Figuracion-Gerilla, 690 SCRA 495 (2013).
47Reiterated in Ramos v. Ramos, 61 SCRA 284 (1974); Pealber v. Ramos, 577 SCRA 509 (2009).
48AlsoFilipinas Port Services, Inc. v. Go, 518 SCRA 453 (2007); Caezo v. Rojas, 538 SCRA 242 (2007); Goyanko v. UCPB, 690 SCRA 79 (2013).
49
DBP v. COA, 422 SCRA 459 (2004); Pealber v. Ramos, 577 SCRA 509 (2009).
50DBP v. COA, 422 SCRA459 (2004); Pealber v. Ramos, 577 SCRA 509 (2009).
51DBP v. COA, 422 SCRA459 (2004); Pealber v. Ramos, 577 SCRA 509 (2009).
2. RESULTING TRUSTS
Resulting trusts are species of implied trust 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).56
a. Purchase of Property Where Beneficial Title in One Person, But Price Paid
by Another Person (Art. 1448)
RATIONALE: One who pays for something usually does so for his own benefit. Uy Aloc 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).
While the share was bought by Sime Darby and placed under the name of Mendoza, his title is only limited to
the usufruct, or the use and enjoyment of the clubs facilities and privileges while employed with the company. 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. While Sime Darby paid for the purchase of the club share, Mendoza was
given the legal title. Thus, a resulting trust is presumed as a matter of law. The burden shifts to the transferee to
show otherwise. Sime Darby Pilipinas, Inc. v. Mendoza, 699 SCRA 290 (2013).
b. Purchase of Property Where Title Is Placed in the Name of Person Who Loaned the
Purchase Price (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 ittitle to the property is for the
time being placed in the name of the trustee, the person who pays for it, until he is reimbursed by the beneficiary,
the person for whom the trustee bought the land. 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).
f. Donation of Property to a Donee Who Shall Have No Beneficial Title (Art. 1449)
Where father donates a piece of land in the name of the daughter but with verbal notice that the other half
would be held by her for the benefit of a younger brother, coupled with a deed of waiver 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. Adaza v. Court of Appeals, 171 SCRA 369 (1989). [Express trust?]
g. 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 brothers and sisters. As a consequence he is now holding the registered
title thereto in a trust capacity, and it is proper for the court to declare that the other siblings are 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 the
doctrine of implied trust under Art. 1451 by the heirs of the trustor cannot be upheld. This contention must fail
because the prohibition against an alien from owning lands of the public domain is absolute and not even an
implied trust can be permitted to arise on equity consideration. xTing Ho, Jr. v. Teng Gui, 558 SCRA 421 (2008).
3. CONSTRUCTIVE TRUSTS
a. 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).57
A constructive trust (trust ex maleficio, trust ex delicto, trust de son tort, an involuntary trust) is 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).58
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, may not, in good conscience, retain the beneficial interest. xVda. de
Ouano v. Republic, 642 SCRA 384 (2011).
This Court recognized unconventional implied trusts in contracts involving the purchase of housing units by
officers of tenants associations in breach of their obligations,59 the partitioning of realty contrary to the terms of a
compromise agreement,60 and the execution of a sales contract indicating a buyer distinct from the provider of
the purchase money.61 In all these cases, the formal holders of title were deemed trustees obliged to transfer title
to the beneficiaries in whose favor the trusts were deemed created. 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).
b. When Fiduciary Uses Funds or Property Held in Trust to Purchase Property Which
Is Registered in Fiduciarys Name (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, and is liable for damage. The reparation of the damage must consist in respecting the
contract which was about to be concluded, and transferring the said land for the same price and upon the same
terms as those on which the purchase was made for the land sold to the wife of said employee passed to them
as what might be regarded as equitable trust, by virtue of which the thing thus acquired by an employee is deemed
to have been acquired not for his own benefit or that of any other person but for his principal and held in trust for
the latter. 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 overcome the Torrens title issued
showing exclusive ownership in the name of the partners-spouses, but cannot also be used to establish an implied
trust over said properties in favor of the alleging partner. xJarantilla, Jr. v. Jarantilla, 636 SCRA 299 (2010).
57Reiterated in Carantes v. CA, 76 SCRA 514 (1977); Marcado v. Espinocilla, 664 SCRA 724 (2012).
58Also Roa, Jr. v. CA, 123 SCRA 3 (1983).
59
Policarpio v. CA, 269 SCRA 344 (1997); Arlequi v. CA, 378 SCRA 322 (2002).
60Roa, Jr. v. CA, 123 SCRA 3 (1983).
61Tigno v. CA, 280 SCRA 262 (1997).
(1987); Mendizabel v. Apao, 482 SCRA 587 (2006); Heirs of Tabia v. CA, 516 SCRA 431 (2007); Pedrano v. Heirs of Benedicto Pedrano, 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).
64Also Vda. De Esconde v. CA, 253 SCRA 66 (1996); Iglesia Filipina Independiente v. Heirs of Taeza, 715 SCRA 138 (2014).
65A 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. Zuiga, 4 SCRA 1221; Vda de Jacinto v. Vda. de Jacinto, 5 SCRA 370 (1962). Ramos v. Ramos, 61 SCRA 284, 299 (1974).
66Laguna 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);
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;70
(2) Registration of title in name of trustee, when such registration is equivalent to a clear act of repudiation said
notice of repudiation:71
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 class of constructive trust).72
c. 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,73 and that acquisitive prescription runs in favor of the trustee after 10 years from the registration
of title in trustees name.74
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.75
EXCEPTIONS: The acquisitive prescription of 10 years upon registration of title does not apply to favor the trustee
in the following cases:
(1) Where Trustee Recognizes the Rights of Cestui Que 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 the cestui que trust.
xGeronimo and Isidro v. Nava and Aquino, 105 Phil. 145 (1959); xAdaza v. Court of Appeals, 171 SCRA 369
(1989).
(2) When the Cestui Que Trust Is a Minor. When the act of repudiation of the trustee was effected at the time the
cestui que 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).
11 SCRA 153 (1964); Mariano v. Judge De Vega, 148 SCRA 342 (1987); Figuracion v. Figuracion-Gerilla, 690 SCRA 495 (2013).
73Boaga 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).
74Boaga 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); Varsity Hills v. Navarro, 43 SCRA 503 (1972); Escay v. CA, 61 SCRA 369 (1974);
Carantes v. CA, 76 SCRA 514 (1977); Gonzales v. Intermediate Appellate Court, 204 SCRA 106 (1991); Pedrano v. Heirs of Benedicto Pedrano, 539 SCRA 401
(2007); Cavile v. Litania-Hong, 581 SCRA 408 (2009); Heirs of Domingo Valientes v. Ramas, 638 SCRA 444 (2010).
75Diaz v. Gorricho and Aguado, 103 Phil. 261 (1958); Caezo v. Rojas, 538 SCRA 242 (2007).
C. PARTNERSHIPS
I. X HISTORICAL 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. Compaia
Agricola de Ultramar v. Reyes, 4 Phil. 2 (1904).
b. Registration Key for Commercial Partnerships Coming into Existence (Arts. 118-119, Code of
Commerce); While Mere Consent Perfected the Civil Partnership
(2010); PNB v. Jumamoy, 655 SCRA 54 (2011); Tiongco Yared v. Tiongco, 659 SCRA 545 (2011), Zuiga-Santos v. Santos-Gran, 738 SCRA 33 (2014); Toledo v.
CA, 765 SCRA 104 (2015).
78Also Cuison v. Fernandez and Bengzon, 105 Phil. 135 (1959).
79Cavile v. Litania-Hong, 581 SCRA 408 (2009).
c. On Partnership Debts: Commercial Partners Were Solidarily Liable, Albeit Subsidiarily; 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 Compaia
Maritima v. Muoz, 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).
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 partnerships
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)
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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)
b. SUBJECT MATTER: Partners Undertake to Jointly Pursue a Business Enterprise (Art. 1767), through
their Agreements/Intentions 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).
IV. PARTNERSHIP AS A JURIDICAL PERSON (Arts. 44(3), 45, 1768 and 1784)
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1. CONSEQUENCES OF PARTNERSHIP BEING 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. xNgo Tian Tek 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 Taxpayer. xTan v. Del Rosario, 237 SCRA 234 (1994).
f. It May Be Declared Insolvent Even If the Partners Are Not. xCampos 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).
g. Partnership Is a Person Entitled to Constitutional Rights A partnership beingng a person before the law
is entitled to the constitutional right:
To due process and equal protection. cf xSmith, Bell & Co. v. Natividad, 40 Phil. 136 (1919); xBache &
Co. (Phil.), Inc. v. Ruiz, 37 SCRA 823 (1971).
Against unreasonable searches and seizures. cf xStonehill v. Diokno, 20 SCRA 383 (1967).
Partnership obtains its personality from the State and therefore not entitled to the constitutional right against
self-incrimination. cf xBataan Shipyard & Engineering Co. v. PCGG, 150 SCRA 181 (1987).
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 partnerships existence, who
deal with the property registered in the name of one partner have a right to expect effectivity 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 Coxntribution Is P3,000 or More:
Must Appear in a Public Instrument; and
Registered with the SEC.
BUT: Failure to Comply with Requirements Shall Not Affect the Liability of the Partnership and Its
Members to Third Persons (Art. 1784)
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).
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
In the Absence of Stipulation, an Industrial Partner 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)
Determination by Designated Third-Party 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.
In a partnership arrangement, when the agreement to pay a high commission to one of the partners was in
anticipation of large profits being made from the venture, but that eventually the venture sustained losses,
b. All Partners Solidarily Liable with Partnership (Art. 1824) for Everything Chargeable to the Partnership
When Caused By:
Wrongful Act or Omission of Any Partner Acting
In the Partnerships Ordinary Course of Business; or
With Authority from the Other Partners (Art. 1822)
Partners 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 workmens compensation claims. xLiwanag and Reyes v.
Workmens Compensation Commission, 105 Phil. 741 (1959).
c. 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)
d. Partnership Creditors Have Preference Over the Personal Creditors of Each of the Partners as Regards
the Partnership Property (Art. 1827)
Remedy of Partners Separate Creditors (Art. 1814): May Apply with the Courts That Entered the
Judgment Debt
To Charge the Debtors 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. Liability Rules When Non-Partner Represents Himself to Third Parties as a Partner in an Existing
Partnership (Art. 1825):
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
4. LIMITED PARTNERS
a. He May Contribute Money or Property, But Never Service (Art. 1845)
b. 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, and 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 the Certificate for the Return of the Contribution or for the Dissolution of
the Partnership: After He Has Given Six 6 Months Written Notice in Writing to All Other 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.
i. He Is Not Liable for the Partnership Debts Beyond His Contribution (Art. 1858);
EXCEPT:
For the Difference Between His Contribution as Actually Made and That Stated in the 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 Partners Interest Is Assignable
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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 Liabilities For:
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 of a Creditor of Limited Partner (Art. 1862): A Limited Partners Creditors May Apply With
the Courts To:
Charge His Partnership Interests with Payment of Unsatisfied Amount of Such Claims, Appoint a
Receiver, and 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 the Capital of a Business Conduced as a Partnership, Believing that
He Has Become a Limited Partner:
Is Not a General Partner By Reason of Exercise of Such Rights, a General Partner; 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)
D. JOINT VENTURES
I. JOINT VENTURES ARE SPECIES OF PARTNERSHIP
When a partner transfers his interest to an assignee, such assignee does not become a partner
There was no agreement between the firms that they were going to form a JV or consortium
82Reiterated in Primelink Properties and Dev. Corp. v. Lazatin-Magat, 493 SCRA 444 (2006).
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a. JVAs Must Be Construed and Enforced as Contracts Among Co-Venturers
When a Joint Venture Agreement has been executed among the co-venturers coversing the terms for the
development of a subdivision project, the contributions of the co-venturers and the manner of distribution of the
profits, 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).
Joint ventures are treated like informal partnerships. Even though the agreement between the parties as a JV,
what applies under the Civil Code are rules for partnership. But this is only for an INFORMAL JOINT VENTURE.
Although parties executed the instrument as a Power of Attorney and referred to themselves as Principal
and Manager, it reveals that a partnership or 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 RevenueCIR, 551 SCRA 428
(2008).
This was really an informal JV because it had no name or created a separate name for the JV.
When principal and agent have entered into a Power of Attorney covering a construction project, with the
principal contributing thereto his contractors 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).
JV are created for specific purposes only (commercial). In a JV, the court only imposes a JV when all the elements of a partnership are in
place. Check the purpose. For a partnership, its an ONGOING BUSINESS but for a JV, the purpose is VERY LIMITED only for a
PARTICULAR transaction (and the other parties are actually allowed to do other businesses)
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.Traveo v. Bobongon Banana Growers Multi-Purpose
Cooperative, 598 SCRA 27 (2009). [See contrary ruling in Bastida v. Menzi and Co., 58 Phil. 188 [1933])
When you have an informal JV agreement, no separate firm or entity was created and therefore, the doctrine on mutual
agency and delectus personae DO NOT APPLY, which is inimical to the concept of GENERAL PARTNERSHIP. This is why
JVA can be a way to circumvent labor laws.
Even whenThe fact that the wording of 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 petitioners 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.
Commissioner of Internal Revenue, 551 SCRA 428 (2008).
A joint venture is governed by the Law on Partnerships. Parties in the JVA, theHere, 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.
The appellate courts decision must be modified, however, there being a joint venture, there is no need for
A joint venture is a partnership and governed by the Law of Partnerships. Art. 1824 provides all partners
solidarily 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).
A true JV agreement was crafted by the parties indicating terms of the JV and they intended a separate
personality with the JV (partners maintain separate entities). This case is a clear example of a formal JV.
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).
Characteristics of Corporation
JVC is usually a CLOSED corporation under Corporation Law
1. Stockholders are not more than 20
2. Theres a RfR between stockholders
3. Not registered under PSE
When a corporation has been organized under the terms of a JVA, the right of first refusal provided therein
constitutes a legal means by which the corporate venture would include the delectus personae characteristic
within the JV arrangement, which allows the co-venturers-stockholders the ability to prevent equity interests from
being transferred to third parties. The JVAs right of first refusal must 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 constituted pursuant to
the JVA. JG Summit Holdings, Inc. v. Court of Appeals, 412 SCRA 10 (2003).
Joint venture 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. Under JV Agreement, 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 remains true even though the
partnership acquires a distinct and separate personality from that of the joint venturers or leads to the formation
of a joint venturenew company that is the product of such joint venture, such as PSC and SOMCO in this case.
Hontiveros-Baraquel v. Toll Regulatory Board, 751 SCRA 271 (2015).
A verbal JVA to incorporate a company that would hold parties shares and serve as the business vehicle for
their food enterprise, is valid and bindinga valid agreement, even though it be verbal in character. 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. In these lights, the JVA is deemed extinguished through
rescission under Article 1192 in relation with Article 1191 of the Civil Code. Dueas must therefore return
the P5 Million that Fong initially contributed since rescission requires mutual restitution. After rescission, the
parties must go back to their original status before they entered into the agreement. Fong v. Dueas,
757 SCRA 412 (2015).
83
http://www.neda.gov.ph/references/Guidelines/RevisedGuidelines.pdf
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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
Securities and Exchange Commission (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 Agreement. The JV Company
shall possess the characteristics stipulated under these Guidelines.
2. 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.
oOo