Professional Documents
Culture Documents
& JOINT VENTURES1 ATTY. JOSE U. COCHINGYAN III Formatted: Font: Bold, Underline
FIRST SEMESTER, SY 20176-18 7ATTY. TERESA V. TIANSAY Formatted: Font: 12 pt, Bold, Underline
Formatted: Font: 14 pt, Bold, Underline
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A. LAW ON AGENCY Formatted: Font: 14 pt, Bold, Underline
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I. NATURE AND OBJECT OF AGENCY Formatted: Indent: Left: 0", Hanging: 0.17"
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1. Definition of “Agency”; Parties in an Agency Relationship (Art. 1868)
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Under Article 1868 of the Civil Code, an “a contract of agency” is a contract one whereby
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“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.” Formatted: Font: 24 pt
Spanish term for “principal” is “mandante”; and among the terms used for “agent” are Formatted: Font: 24 pt
“mandatario”, “factor”, “broker”, “attorney-in-fact”, “proxy”, “delegate” or “representative.” Formatted: Space Before: 15 pt, Tab stops: 0.5", Left +
1", Left + 1.5", Left + 2", Left + 2.5", Left + 3", Left +
2. Root and Objectives of Agency (Arts. 1317 and 1403[1]) 5.29", Left
General rule is that what a man may do in person he may do through another. Thus, aA Formatted: Font: Italic
stockholder’s right of inspection can be exercised either by himself or throughby an attorney-in- Formatted: Indent: First line: 0.33", Space After: 4 pt
fact. ,with or without the stockholder’s attendance. xPhilpotts v. Phil. Mfg. Co., 40 Phil 471 (1919).
Underlying principle of the contract of agency is to accomplish results—to do a great Formatted: Indent: First line: 0.33"
variety of things— by using the services of anothers—to do a great variety of things. Its aim is to
extend the personality of the principal or the party for whom another acts and from whom he or
shesuch agent derives the authority to act. xWestmont Investment Corp. v. Francis, Jr., 661
SCRA 787 (2011).
Pursuant to Article 1317 and 1403 (1) of the Civil Code, aA 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 Formatted: Font: Bold
been executed, before it is revoked by the other contracting party.,” pursuant to Article 1317 and
1403 (1) of the Civil Code. 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 Formatted: Font: 9 pt
b. SUBJECT MATTER: Service – Execution of Juridical Acts in the Name of the Behalf of Formatted: Font: Italic
Principal and Within the Scope of Authority
It is clear from Art. 1868 that the basis of agency is representation.One 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).5
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 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).
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After: 3 pt
c. CONSIDERATION: Agency Presumed to Be for Compensation,
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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. xAguña v. Larena, 57 Phil 630 (1932).
New Civil Code: Prescinding from the obligatory force of agency, the fact that “other agents” Formatted: Underline
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).
5
Amon Trading Corp. v. CA, 477 SCRA 552 (2005).
6
A 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.” [BLACK’S
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 ESPAÑOL 443 (1950)
7
Litonjua, Jr. v. Eternit Corp., 490 SCRA 204 (2006); Villoria v. Continental Airlines, 663 SCRA 57 (2012).
CONSEQUENTLY: Formatted: Indent: First line: 0", Space Before: 6 pt, After:
4 pt
Basis for agency is representation, and therefore every person dealing with an agent is put
upon inquiry and must discover upon his peril the authority of the agent. xSafic Alcan & Cie. v.
Imperial Vegetable Oil Co., Inc., 355 SCRA 559 (2001).CONSEQUENTLY:
Where there is no showing that Brigida consented to or authorized the acts of Deganos,
any attempt to foist liability on her through the supposed agency relation with Deganos is
groundless. It was grossly negligent of petitioners to entrust to Deganos, not once or twice
but on 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 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).
Art. 1897 reinforces the doctrine that an agent is 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. CA, 126 SCRA 448 (1983).
There is a rationale in the contract of agency, which flows from the “doctrine of
representation,” that notice to the agent is notice to the principal. xBank of P.I. v. Laingo,
787 SCRA 541 (2016).
e. Fiduciary and Revocable
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 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).
The relationship of the agent and the principal of an agent to his principal are fiduciary and
in regard to the property forming the subject matter thereof, he is estopped from acquiring or
asserting a title adverse to that of the principal. 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 Formatted: Indent: Hanging: 0.2", Space Before: 8 pt,
behalf of the principal and within the scope of his authority into juridical acts with third After: 4 pt, Tab stops: 0.49", Left
parties. Rallos v. Felix Go Chan & Sons Realty Corp., 81 SCRA 251 (1978). Formatted: Font: Not Bold
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5. DISTINGUISHED FROM OTHER SIMILAR CONTRACTS:
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a. FROM BROKERAGE
8
Tan v. Engineering Services, 498 SCRA 93 (2006); Country Bankers Insurance v Keppel Cebu Shipyard, 673 SCRA 427 (2012).
9
Schmid and Oberly, Inc. v. RJL Martinez, 166 SCRA 493 (1988).
10
Reiterated in Phil. Healthcare Providers (Maxicare) v. Estrada, 542 SCRA 616 (2008).
11
Mamaril v. Boy Scouts of the Philippines, 688 SCRA 437 (2013).
Where buyers failed for several years to clear their title to the property purchased, and Formatted: Font: Not Italic
allowed seller-a-retro to remain in possession in spite of expiration of redemption period, the Formatted: Indent: First line: 0.25"
execution of memorandum of repurchase by buyers’ son-in-law, which stood for years
unrepudiated, constituted an implied agency under Art.1869, from their silence or lack of action,
or their failure to repudiate the agency. xConde v. Court of Appeals, 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 Formatted: Indent: Left: 0.25", First line: 0.25"
action, or his failure to repudiate the agency knowing that another person is acting on his behalf
without authority. 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. 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 consideration for 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) Formatted: Indent: Hanging: 0.24", Tab stops: Not at
0.31"
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); .
Whether or not an agency has been created is determined by the fact that one is Formatted: Indent: First line: 0.25", Space After: 3 pt
representing and acting for another. xJusayan v. Sombilla, 746 SCRA 437 (2015).
c. From Side of Third Parties/Public (Arts. 1873 and 1408; 1921 and 1922) Formatted: Indent: Left: 0.25", Hanging: 0.24"
Since the basis for agency is representation, every person dealing with an agent is put upon Formatted: Font: Not Bold
inquiry and must discover upon his peril the agent’s authority. xSafic Alcan & Cie. v. Imperial Formatted: Indent: Left: 0.25", Hanging: 0.25", Space
Vegetable Oil Co., 355 SCRA 559 (2001). Before: 6 pt, After: 4 pt, Tab stops: 0.5", Left
Registered owner who placed in the hands of another an executed deed of transfer of the Formatted: Indent: Left: 0.33", Hanging: 0.26", Space
Before: 6 pt, Tab stops: 0.59", Left
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).14 Formatted: Font: 7.5 pt, Not Superscript/ Subscript
CONSEQUENTLY: Formatted: Font: 10.5 pt, Not Superscript/ Subscript
When owner of a hotel/café business allows a person to use the title “managing agent” Formatted: Font: 10.5 pt
and allows such person to take charge of the business during his prolonged absence, Formatted: Indent: Left: 0.25", Hanging: 0.25", Space
performing the duties usually entrusted to managing agent, then such owner is bound by Before: 6 pt, After: 6 pt, Tab stops: 0.5", Left
the act of such person. “One who clothes another apparent authority as his agent, and Formatted: Font: Not Bold
holds him out to the public as such, can not be permitted to deny the authority of such Formatted: Font: 8 pt
person to act as his agent, to the prejudice of innocent third parties dealing with such
Formatted: Not Superscript/ Subscript, Small caps
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. Formatted: Font: Bold, Italic
Camps, 7 Phil 522 (1907). Formatted: Font: 10.5 pt, Not Superscript/ Subscript
When the law firm has allowed for quite a period the messenger of another office to Formatted: List Paragraph, Indent: Left: 0.5", Hanging:
receive mails and correspondence on their behalf, an implied agency had been duly 0.19", Bulleted + Level: 1 + Aligned at: 0.74" + Indent at:
0.99", Tab stops: 0.69", Left
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). Formatted: Font: 10.5 pt
An agency by estoppel or , which is similar to the doctrine of apparent authority, requires Formatted: Font: 10.5 pt, Not Superscript/ Subscript
proof of reliance upon the representations made by purported principal, and that,which in Formatted: Font: 10.5 pt, Not Superscript/ Subscript
turn, needs proof that the representations predated the action taken by the relying third Formatted: Font: 10.5 pt
party in reliance. Country Bankers Insurance v Keppel Cebu Shipyard, 673 SCRA
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427 (2012).
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By Assuming that Hojilla exceeded his authority, the respondents are still solidary liable
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because they allowed Hojilla to act as though he had full powers by impliedly ratifying his
actions – through action by omission. This is the import of the principle of agency by Formatted: Font: 10.5 pt, Not Superscript/ Subscript
estoppel or the doctrine of apparent authority, “[t]he principal is bound by the acts of his Formatted: Font: Italic
agent with the apparent authority which he knowingly permits the agent to assume, or Formatted: Font: Italic
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). Formatted: Font: Bold, Not Superscript/ Subscript
Formatted: Font: Bold
2. KINDS OF AGENCY
a. Based on Business or Transactions Encompassed (Art. 1876): General or Universal
Agency versus Special or Particular Agency
xSiasat v. Intermediate Appellate CourtAC, 139 SCRA 238 (1985) describes them as
follows:
Universal Aagent 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 Aagent 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 Aagent is authorized to do some particular act or to act upon some particular Formatted: Space After: 6 pt
occasion; he acts usually in accordance with specific instructions or under limitations
necessarily implied from the nature of the act to be done.
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). Formatted: Font: 7.5 pt
14
Domingo v. Robles, 453 SCRA 812 (2005).
When no particular formality is required by law, then the principal may appoint his agent in Formatted: Indent: Left: 0.25", First line: 0.25"
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 need not be in a public instrument. AA 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. 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 baranggay 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).
a. CASES WHERE SPECIAL POWERS OF ATTORNEY ARE NECESSARY (Art. 1878) Formatted: Font: Not Bold, Not Superscript/ Subscript
Article 1878 does not state that a special power of attorney must be in writing. As long as the Formatted: Font: Not Bold, Not Superscript/ Subscript
mandate is express, such authority may be either oral or written. We unequivocably declared Formatted: Indent: Left: 0.25", First line: 0.25", Right:
that the requirement under Art. 1878 refers to the nature of the authorization and not to its form. 0.02", Space Before: 0 pt, After: 5 pt
Be that as it may, the authority must be duly established by competent and convincing evidence Formatted: Indent: Left: 0.25", First line: 0.25"
other than the self serving assertion of the party claiming that such authority was verbally given.
Patrimonio v. Gutierrez, 724 SCRA 636 (2014).).
17
Gozun v. Mercado 511 SCRA 305 (2006).
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).
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 Formatted: Font: 7.5 pt
(2015); MCIAA v. Unchuan, 791 SCRA 581 (2016).
19
Litonjua, Jr. v. Eternit Corp., 490 SCRA 204 (2006).
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)..
III. POWERS, DUTIES AND & OBLIGATIONS, RIGHTS OF THE AGENT Formatted: Font: 12 pt
1. Obligation of a Person Who Declines Agency Who Has Custody of Goods: Agent Formatted: Space Before: 6 pt
Must Observe Due Diligence in the Custody and Preservation of the Goods until New
Agent Appointed (Art. 1885)
21. General Obligation of Agent Who Accepts the Agency: Agent Is Bound to Carry the
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 Withdraws From the Agency (Art. 1929): He Must Continue to Formatted: Font: Italic
Act Until Principal Takes Necessary Steps to Meet Situation. (Art. 1929)
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
a. Agent Must Act “In the Name of the Principal, Within the Scope of His Authority” (Art.
1881)
(i) Act Is Deemed to Have Been Performed Done within the Scope of Agent’s
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)
(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 in executing the orders and commissions of his principal carries out the
instructions he has received from 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. xGuiterrez Hermanos v. Oria Hermanos, 30 Phil. 491 (1915).
When bank officerss, 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, then
such bank officersthey 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. Effects ofWhen 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 which provides 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).
Formatted: Indent: Left: 0.3", First line: 0.2", Space After:
3 pt
21
See application in Olaqguer v. Purugganan, Jr., 515 SCRA 460 (2007).
22
Reiterated in Safic Alcan v. Imperial Vegetable, 355 SCRA 559 (2001).
23
Reiterated 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 25 (1992); Gozun v. Mercado 511 SCRA 305 (2006).
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 Also Liable Personally (with the Principal )for Fraud and Negligence Committed
in Pursuit of the Principal’s Affairs (Arts. 1884 and 1909)
The provision is clear that an agent is bound to carry out the agency. The relationship existing Formatted: Indent: Left: 0", First line: 0"
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. xBank of the Philippine Formatted: Font: Not Bold, Not Superscript/ Subscript
IslandsP.I. v. Laingo, G.R. No. 205206, March 16,787 SCRA 541 (2016). Formatted: Font: Not Bold, Not Superscript/ Subscript
Formatted: Font: Not Bold, Not Italic, Not Superscript/
What Shall Aggravate or Mitigate Liability Arising Out of Negligence – Whether Subscript
Agency Was for a Compensation or Was Gratuitous Formatted: Font: Not Bold, Not Italic, Not Superscript/
Subscript
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 Formatted: Font: Not Bold, Not Italic, Not Superscript/
Subscript
to make the agent personally liable. xHeredia v. Salina, 10 Phil 157 (1908).
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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 Formatted: Indent: Left: 0.3"
thing which the principal is bound to deliver, and thereby made the performance of the principal Formatted: Space After: 5 pt
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).
In stressing that it was acting only as a collecting agent, Metrobank seems to be suggesting
that as a mere agent it cannot be liable to the principal; this is not exactly true. 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).
Provision in mortgage contract that in the eventcase of accident or loss, finance company
shall make a proper claim against insurance company, was in effect an agency, and that under
Art. 1884, the finance company was bound by its acceptance to carry out the agency. ,Iand in
spite of the borrower’s instructions of the borrowers to make such claims, it instead insisted on
having the vehicle repaired but eventually resulting in loss of the insurance coverage, the
finance company had breached its duty of diligence, and must assume the damages suffered by
the borrowers, and consequently can no longer collect on the balance of the mortgage loan
secured thereby.BA Finance v. Court of AppealsCA, 201 SCRA 157 (1991).
It is wWell-settled is the rule is that an agent is also responsible for any negligence in the Formatted: Space After: 3 pt
performance of its function (Art. 1909) and is liable for the damages which principal may suffer
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 Formatted: Space After: 4 pt
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 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).
AAn agent cannot represent both himself and his principal in a transaction involving the
shifting to another person of the agent’s liability for a debt to the principal. xAboitiz v. De Silva,
45 Phil 883 (1924).
Under Art. 267 ofthe 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 Formatted: Indent: First line: 0.2", Space After: 4 pt
the commission and must return the part of the commission he received from his principal.
Domingo v. Domingo, 42 SCRA 131 (1971). Formatted: Font: Bold
Where SPA primarily empowered the agent of the corporation to bring an ejectment case Formatted: Space After: 4 pt
against the occupant and also “to compromise . . . so far as it shall protect the rights and
interest of the corporation in the aforementioned lots,” and that the agent did execute a
compromise in the legal proceedings filed 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. When an agent is involved in
the perpetration of fraud upon his principal for his extrinsic benefit, he is not really acting for the
principal but is really acting for himself, entirely outside the scope of his agency – the basic
tenets of agency rest on the highest consideration of justice, equity and fair play, and an agent
24
Also Metrobank v. CA, 194 SCRA 169 (1991).
An insurance agent is guilty of estafa for failing to deliver sums of money paid to him Formatted: Font: Italic, Small caps
as agent for the account of his employer. Where nothing to the contrary appears, the provisions Formatted: Portuguese (Brazil)
of Art. 1720 of Civil Code impose upon an agent the obligation to deliver to his principal all Formatted: Indent: Left: 0.31", First line: 0.19", Space
funds collected on his account. xU.S. v. Kiene, 7 Phil 736 (1907) After: 4 pt, No bullets or numbering
A travelling sales agent who misappropriated or failed to return to his principal the
proceeds of the things or goods he was commissioned or authorized to sell, is liable for estafa.
xGuzman v. Court of Appeals, 99 Phil. 703 (1956).
Whereas, bank teller or cash custodian, being merely an employee of the bank,
cannot be held liable for estafa, but rather for theft. xChua-Burce v. Court of Appeals, infra.
As a necessary consequence of such breach of trust, an agent must then forfeit his right to Formatted: Space After: 4 pt
the commission and must return the part of the commission he received from his principal.
Domingo v. Domingo, 42 SCRA 131 (1971).An agent can 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
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).
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 power granted to agent was only to borrow money and mortgage principal’s property
to secure the loan, it cannot be interpreted to include the authority to mortgage the properties to
25
Also Guzman v, CA, 99 Phil. 703, 706-707 (1956); Balerta v.People of the Philippines, 743 SCRA 166 (2014).
26
Also Guzman v, CA, 99 Phil. 703, 706-707 (1956); Balerta v.People of the Philippines, 743 SCRA 166 (2014).
a. General Rule: Agent Must Act Himself, But May Appoint a Not-Prohibited Substitute. Formatted: Space Before: 5 pt
Agent Is Responsible for Acts of Substitute When:
Agent Was Not Expressly Given the Power to Appoint a Substitute
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. xInternational xInternationa’l Films (China) v. Lyric Film, 63 Phil. 778 (1936).
Law on Agency allows the appointment by an agent of a substitute or sub-agent in the
absence of an express agreement to the contrary between the agent and the principal.
Therefore, an aAgent 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 longer be recovered; .The appointment of a sub-agent and delivery of the jewelry, in
the absence of a prohibition, does not amount to conversion or misappropriation as to
constitute estafa; but the agent remains civilly liable for the value of the jewelry to the principal.
xSerona v. Court of Appeals, 392 SCRA 35 (2002).27
The legal maxim potestas delegate non delegare potest, 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).
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 by the agent of a
substitute to execute the contract is within the limits of the authority given by the principle,
although the agent then would have to be responsible for the acts of the sub-agent. Escueta
v. Lim, 512 SCRA 411 (2007).
c. All Acts of Substitute Appointed Against Principal’s Prohibition
Are Void as to the Principal.
Where the 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
may have acted outside the scope of his authority, that did not make the sale void, but merely
27
Also Lim v. CA, 271 SCRA 12 (1997).
8. Liability When Two oOr 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 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 or adjustment 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 his 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
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, either as plaintiff or defendant, 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
Art. 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
Since, as a rule, the agency, as a contract, is binding only between the contradicting parties,
then only the parties, as well as the third person who transacts with the parties themselves, may
question the validity of the agency or the violation of the terms and conditions found therein.
xVillegas v. Lingan, 526 SCRA 63 (2007).
a. EXCEPT: When Agent Expressly Binds Himself (Art. 1897):
28
Also E Macias & Co. v. Warner, Barnes & Co., 43 Phil 155 (1922).
29
Ormoc Sugarcane Planters’ 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
Reiterated 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
33
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).
(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 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,
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
34
Yun Kwan Byung v. PAGCOR, 608 SCRA 107 (2009).
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 Agent’s 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.
1. How and When Agency Extinguished (Art. 1919)By (Art. 1919): Formatted: Space Before: 8 pt
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).
35
Reiterated in Cia. Gen. De Tobacos v. Diaba, 20 Phil 321 (1911).
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, 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).
36
Also Barrameda v. Barbara, 90 Phil. 718 (1952); Caisip v. Hon. Cabangon, 109 Phil. 150 (1952).
37
Superseded Pasno v. Ravina, 54 Phil. 382 (1930) and Del Rosario v. Abad, 104 Phil. 648 (1958).
Formatted: Font: 18 pt
B. BUSINESS TRUSTS Formatted: Space Before: 30 pt
Formatted: Font: 24 pt
I. NATURE AND CLASSIFICATION OF TRUSTS Formatted: Font: 24 pt
1. Definition and Essential Characteristic of Trust (Art. 1440) Formatted: Space Before: 12 pt
A tTrust 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.”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 Formatted: Font: Italic, Not Superscript/ Subscript
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 Principles (Common-law) Principles (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).39 Formatted: Font: 8 pt
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 subject matter of 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 Formatted: Space After: 4 pt
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 Formatted: Indent: Left: 0.3", First line: 0.3"
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
38Also 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).
39
Reiterated in Miguel v. CA, 29 SCRA 760 (1969); Spouses Rosario v. CA, 310 SCRA 464 (1999).
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 Formatted: Font: Italic
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 Formatted: Font: 8 pt
Implied trusts are those which, without being expressed, are deducible from the nature of Formatted: Font: Italic
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 Formatted: Font: 8 pt
A resulting trust is is raised or created by the act or construction of law, but in its more Formatted: Space After: 5 pt
restricted sense it is a trust raised by implication of law and presumed always to have been Formatted: Font: Italic
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 Formatted: Font: Italic
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.43 Formatted: Font: Italic
Trust, in its technical sense, is a right of property, real or personal, held by one party for the Formatted: Indent: Left: 0", First line: 0.3"
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 Formatted: Font: 7.5 pt, Not Superscript/ Subscript
v. Court of Appeals, 539 SCRA 584 (2007).
Trust is the right to beneficial enjoyment of property, legal title to which is vested in Formatted: Space After: 4 pt
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).44
We also see no trust, express or implied, created between the petitioners and the spouses Formatted: Font: (Default) Arial, 10.5 pt, Font color: Auto
Perez over the subject property. A trust by operation of law is the right to the beneficial Formatted: Space After: 4 pt, No widow/orphan control,
enjoyment of a property whose legal title is vested in another. A trust presumes the existence of Don't adjust space between Latin and Asian text, Don't adjust
a conflict involving one and the same property between two parties, one having the rightful space between Asian text and numbers
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 Formatted: Font: 10.5 pt
name. Here, the evidence showed that the parcel of land sold to the petitioners is distinct from Formatted: Font: (Default) Arial, 10.5 pt, Font color: Auto
the consolidated parcels of land sold by Caparas to the spouses Perez. xA trust by operation of
Formatted: Font: 10.5 pt
law is the right to the beneficial enjoyment of a property whose legal title is vested in another. A
property between two parties, one having the rightful ownership and property owned by one Formatted: Font: (Default) Arial, 10.5 pt, Font color: Auto
party is separate and distinct from that which has been registered in another’s name. Chu, Jr. Formatted: Font: (Default) Arial, 10.5 pt, Font color: Auto
vs. Caparas, 696 SCRA 325 (2013). Formatted: Font: (Default) Arial, 10.5 pt, Not Bold, Font
color: Auto
Formatted: Font: (Default) Arial, 10.5 pt, Font color: Auto
Formatted: Font: 10.5 pt
II. EXPRESS TRUSTS
Formatted: Font: Not Bold
1. Essence and tial Definition Elements of Express Trusts (Art. 1440) Formatted: Font: Not Bold
Formatted: Font: Not Bold, Not Italic
Formatted: Indent: First line: 0.3", Space After: 6 pt
40
Reiterated in 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). Formatted: Space Before: 18 pt
41
Reiterated in Salao v. Salao, 70 SCRA 65, 80 (1976); Tigno v. CA, 280 SCRA 271 (1997); Policarpio v. CA, 269 SCRA 344 (1997); Formatted: Font: 15 pt
Spouses Rosario v. CA, 310 SCRA 464 (1999); Cañezo v. Rojas, 538 SCRA 242 (2007); Peñalber v. Ramos, 577 SCRA 509 (2009).
Formatted: Space After: 4 pt
42
Reiterated 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).
43
Reiterated in Reiterated in 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).
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.,
45
Peñalber v. Ramos, 577 SCRA 509 (2009).
46
Also Lorenzo v. Posadas, 64 Phil. 353 (1937); Torbela v. Rosario, 661 SCRA 633 (2011); Goyanko v. UCPB, 690 SCRA 79 (2013). Formatted: English (United States)
Medina v. CA, 109 SCRA 437, 445 (1981); Advent Capital and Finance Corp. v. Alcantara,664 SCRA 224 (2012).
48ReiteratedCañezo v. Rojas, 538 SCRA 242 (2007); Booc v. Five Star Marketing, 538 SCRA 42 (2008).
49
Also Pascual v. Meneses, 20 SCRA 219 (1967); Ramos v. Ramos, 61 SCRA 284 (1974).
50Reiterated in Ringor v. Ringor, 436 SCRA 484 (2004); Figuracion v. Figuracion-Gerilla, 690 SCRA 495 (2013).
51
Reiterated in Ramos v. Ramos, 61 SCRA 284 (1974); Peñalber v. Ramos, 577 SCRA 509 (2009).
b. Exception: Parol Evidence Must Be on the Part of Purported Trustee Formatted: Font: 11 pt
Who Binds Himself to Hold Title for the Benefit of the Beneficiary Formatted: Indent: Left: 0.3", Hanging: 0.2", Right: 0.98",
Technical or particular forms of words or phrases are not essential to create or establish a Space Before: 8 pt
trust; nor would the use of some such words as “trust” or “trustee” essential to the constitution of Formatted: Space After: 4 pt
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
Tranquilino Labiste v. Heirs of Jose Labiste, 587 SCRA 417 (2009).
c. Hence: Parol Evidence on the Part of the Purported Beneficiary Generally Fail Formatted: Font: 11 pt
A person who has held legal title to land, coupled with possession and beneficial use of the Formatted: Space Before: 12 pt
property for more than ten years, will not be declared to have been holding such title as trustee Formatted: Indent: First line: 0.3", Space After: 4 pt
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 from other relations 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 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 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
assortment on 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).
Tamayo v. Callejo, 46 SCRA 27 (1972), recognized that a trust may have a constructive or Formatted: Space After: 4 pt
implied nature in the beginning, but the registered owner’s subsequent express acknow- Formatted: Font: 10 pt
ledgement 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). Formatted: Font: Not Bold
The language of the original registered owner of the land in a subsequent letter Formatted: Indent: First line: 0.3"
unequivocally and absolutely declared her intention of transferring the title over the subject Formatted: Font: (Default) Arial, 10.5 pt, Font color: Auto
property to her daughter and common-law husband in order to merely accommodate them in
Formatted: Font: (Default) Arial, 10.5 pt, Font color: Auto
57
Ramos v. Ramos, 61 SCRA 284 (1974).
58
Lorenzo v. Posadas, 64 Phil. 353 (1937).
a. Listing of Implied Trusts Not Exclusive: FOUNDED ON EQUITY (Art. 1447) Formatted: Not Superscript/ Subscript, Not Small caps
The concept of implied trusts is that from the facts and circumstances of a given case (i.e., Formatted: Font: 12 pt, Not Superscript/ Subscript
the structure of the transactions that vest title to property)the existence of a trust relationship is Formatted: Not Small caps
inferred in order to effect the presumed (in this case it is even expressed) intention of the parties Formatted: Not Superscript/ Subscript
(i.e., resulting trust) or to satisfy the demands of justice or to protect against fraud (i.e.,
Formatted: Font: Italic, Not Superscript/ Subscript
constructive trusts). Padilla v. Court of Appeals, 53 SCRA 168 (1973).
Formatted: Not Superscript/ Subscript
Although an implied trust arising from mortgage contracts is not among those enumerated,
Art. 1147 of Civil Code provides 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 “inx x x good conscience [to] hold and enjoy [it].”59 As iImplied trusts are
remedies against unjust enrichment, the “only problem of great importance in constructive trusts
is whether in the numerous and varying factual situations presented there is a wrongful holding
of property and hence, a threatened unjust enrichment of the defendant. 60Juan v. Yap, Sr.,
646 SCRA 753 (2011).61 Formatted: Font: 8 pt
59
Roa, Jr. v. CA, 123 SCRA 3 (1983).
of Moreno v. Mactan-Cebu Int.’l Airport Authority, 413 SCRA 5023 (2003).
60Heirs
Heirs of Moreno v. Mactan-Cebu Int.’l Airport Authority, 413 SCRA 5023 (2003).
61
62
Also Aznar Brothers Realty Co. v. Aying, 458 SCRA 496 (2005); Spouses Rosario v. CA, 310 SCRA 464 (1999); Estate of Margarita D.
Cabacungan, v. Laigo, 655 SCRA 366 (2011).
bc. ImplliedImplied Trusts Distinguished from Quasi-Contracts – The Civil Code Formatted: Font: 11 pt
incorporated “constructive trusts, on top of quasi-contracts, both of which embody the Formatted: Justified, Space Before: 12 pt
principle of equity above strict legalism.” PNB v. Court of Appeals, 217 SCRA 347 (1993).
Formatted: Font: 11 pt, Italic, Not Superscript/ Subscript
c. Distinctions Between Resulting Trusts and Constructive Trusts – Resulting trusts are Formatted: Font: 11 pt
based on the equitable doctrine that valuable consideration and not legal title determines the Formatted: Font: 11 pt, Italic, Not Superscript/ Subscript
equitable title or interest and are presumed always to have been contemplated by the Formatted: Font: 11 pt
parties. They arise from the nature of circumstances of the consideration involved in a
Formatted: Font: 11 pt, Italic, Not Superscript/ Subscript
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 Formatted: Font: 10.5 pt
In anresultinga resulting trust, the beneficiary’s cause of action arises when the trustee Formatted: Font: Not Italic, Not Superscript/ Subscript
repudiates the trust, not when the trust was created. xParingit v. Bajit, 631 SCRA 584 (2010). Formatted: Font: 8 pt
Where Nadera supplies the money to allow spouses-members to buy-back his foreclosed Formatted: Indent: First line: 0.28", Space After: 4 pt
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). Formatted: Font: Not Bold
Article 1448 of the Civil Code provides in part that there is an implied trust when property is Formatted: Font: Not Bold
soldpurchased, and the legal estate is granted to one party but the price is paid by another for Formatted: Font: 10.5 pt
the purpose of having the beneficial interest of the property. The former is the trustee, while the
Formatted: Font: 10.5 pt
63
Also 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).
EXCEPTION: Although the father was the source of the funds in the purchase of a parcel of Formatted: Font: 10.5 pt
land which was titled in the name of his son, no implied trust is deemed to have been Formatted: Font: 10.5 pt
established since under Art. 1448, if the person to whom the title is conveyed is the child of the Formatted: Font: 10.5 pt
one paying the price of the sale, no trust is implied by law, and instead a donation is disputably
Formatted: Font: 10.5 pt
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 money is supplied by the Formatted: Indent: Left: 0.31", First line: 0.28", Space
After: 4 pt
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. Philippine
National Bank v. Aznar, 649 SCRA 214 (2011).66
While the share was bought by Sime Darby and placed under the name of Mendoza, his Formatted: Indent: Left: 0.31", First line: 0.28", Space
title is only limited to the usufruct, or the use and enjoyment of the club’s facilities and privileges After: 6 pt
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. WhileWhere the club share was bought and paid for by Sime Darby and placed in
the name of its officer Mendoza, 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).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 Formatted: Font: Italic
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).
Formatted: Indent: Left: 0.31", Space After: 3 pt
b.Purchase2b. Purchase of Property Where Title Is Placed in the Name of Formatted: Right: 0.39", Space Before: 14 pt
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,
the person who pays for it, until he is reimbursed by the beneficiary—, the person for whom the
trustee land is 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).
3c. When Absolute Conveyance of Property Effected Only as a Means to Secure Formatted: Space Before: 14 pt
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 Uy Aloc vs. 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
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).
4d. Several Persons Jointly Purchase Property, But Places Title Formatted: Space Before: 14 pt
In One of Them (Art. 1452)
Article 1452 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 decedent’s 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. xGonzales v. Jimenez, Sr., 13 SCRA 73 (1964).
Law expressly allows a first co-owner (first co-owner) of a parcel of land to register his Formatted: Space After: 5 pt
proportionate share in the name of his secondhis co-owner (second co-owner) in whose name
the entire land is registered. T—the second co-owner serves as a legal trustee of the first co-
owner insofar as the proportionate share of the first co-owner is concerned; t. he first co-owner
remains the owner of his proportionate share. For Article 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.” expressly authorizes a Formatted: Font: Bold, Not Superscript/ Subscript
person to purchase a property with his own money and to take conveyance in the name
of another. xMiguel J. Ossorio Pension Foundation, v. Court of Appeals, 621 SCRA 606
(2010).
COMPARE: Decedent had married legitimately three successive times without liquidation of Formatted: Font: Bold, Italic, Underline, Not Superscript/
conjugal partnerships formed during the first and second marriages. The only male issue Subscript, Small caps
managed to convince his co-heirs that he should act as administrator of the estate, but instead Formatted: Font: Bold, Italic, Not Superscript/ Subscript
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 Tanak Pangaaran Patiwayon v. Martinez, 142 Formatted: Font: Bold, Not Superscript/ Subscript
SCRA 252 (1986). Formatted: Font: Bold, Not Superscript/ Subscript
Formatted: Font: Bold, Not Superscript/ Subscript
5e. Property Conveyed to a Person Merely as Holder Thereof (Art. 1453)
Formatted: Font: Bold, Italic
Where real property is taken by a person under an agreement to hold it for, or convey it to
Formatted: Indent: Left: 0", Hanging: 0.3", Space Before:
another, a resulting trust arises in favor of the intended beneficiary, which is enforceable even 14 pt, Tab stops: 0.3", Left
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). Formatted: Indent: First line: 0.3", Space After: 4 pt
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 beneficiaries argues the application of Article 1453 to construe an implied trust that Formatted: Font: (Default) Arial, 10.5 pt, Font color: Auto
provides that “When property is conveyed to a person in reliance upon his declared intentions to Formatted: Font: (Default) Arial, 10.5 pt, Font color: Auto
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 Formatted: Font: (Default) Arial, 10.5 pt, Font color: Auto
complaint which alleges the clear intention of the trustor to establish a trust, making it an Formatted: Font: (Default) Arial, 10.5 pt, Font color: Auto
express trust. Article 1453 would apply only if the person conveying the property did not
Formatted: Font: (Default) Arial, 10.5 pt, Font color: Auto
expressly state that he was establishing the trust, unlike the case at bar where he was alleged
to have expressed such intent. Art. 1453 would apply if the person conveying the property did Formatted: Font: (Default) Arial, 10.5 pt, Font color: Auto
not expressly state that he was establishing the trust, unlike the case at bar where he was
alleged to have expressed such intent. Consequently, lower court did not err in dismissing the
complaint,” on the ground that since complaint sought to recover an express trust over
immovables, under Art. 1443 the same may not be proved by parol evidence. xCuaycong v. Formatted: Font: Bold
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 or implied trust arises in favor of the person for whose
benefit the property was intended. xRosario v. Court of Appeals, 310 SCRA 464 (1999).
6f. Donation of Property to a Donee Who Shall Have No Beneficial Title (Art. 1449) Formatted: Space Before: 14 pt
7g. Land Passes By Succession, But Heir Places Title in a Trustee (Art. 1451) Formatted: Space Before: 14 pt
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 sistersco-heirs. As a
consequence he is now holding the registered title thereto in a trust capacity, and it is proper for
the courts to declare that the other siblings co-heirs 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 Formatted: Indent: Left: 0.3", First line: 0.3"
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).
2b. When a Fiduciary Uses Funds or Property Held in Trust to Purchase Formatted: Indent: Left: 0", Hanging: 0.3", Right: 0.22",
PropertyWhichProperty Which Is Registered in Fiduciary’s Name or a Third Party Space Before: 15 pt, Tab stops: Not at 5.51"
(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. xSing Juco and Sing Bengco v.
Sunyantong and Llorente, 43 Phil 589 (1922).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
67
Reiterated in Carantes v. CA, 76 SCRA 514 (1977); Marcado v. Espinocilla, 664 SCRA 724 (2012).
68
Also 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).
c.When3c. When Property Acquired Through Mistake or Fraud (Art. 1456) Formatted: Space Before: 15 pt
4IV. DO EXPRESS OR IMPLIED TRUST PRESCRIBE OR BE DEFEATED BY Formatted: Font: 12 pt, Not Superscript/ Subscript
2b. Summary of Rulings for Resulting Trusts: Formatted: Indent: Left: 0", Hanging: 0.3", Space Before:
12 pt
GENERAL RULE: As a rule, implied resulting trusts do not prescribe except when the trustee
Formatted: Font: 11 pt, Not Superscript/ Subscript
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 Formatted: Font: 11 pt, No underline, Not Superscript/
Subscript, Not Small caps
Formatted: Font: Italic, Not Superscript/ Subscript
75
Also Vda. De Esconde v. CA, 253 SCRA 66 (1996); Iglesia Filipina Independiente v. Heirs of Taeza, 715 SCRA 138 (2014).
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).
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 Tranquilino Labiste v.
Heirs of Jose Labiste, 587 SCRA 417 (2009).
79
Reiterated in Torbela v. Rosario, 661 SCRA 633 (2011)
80
Formatted: Font: 10.5 pt, Not Superscript/ Subscript
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); Varsity Hills v. Navarro, Formatted: Font: 10.5 pt
43 SCRA 503 (1972).
82Cañezo v. Rojas, 538 SCRA 242 (2007). Formatted: Font: 10.5 pt, Not Superscript/ Subscript
83Vda. de Jacinto v. Vda. de Jacinto, 5 SCRA 370 (1962); Castrillo v. CA, 10 SCRA 549 (1964); Lopez v. Gonzaga, 10 SCRA 167 (1974);
Formatted: Font: 10.5 pt, Not Superscript/ Subscript
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
Formatted: Font: 10.5 pt, Not Superscript/ Subscript
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).
85Boñaga 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 CourtIAC, 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).
86
Diaz v. Gorricho and Aguado, 103 Phil. 261 (1958); Cañezo v. Rojas, 538 SCRA 242 (2007).
Formatted: Font: 20 pt
a. a.Commercial Partnerships Were Deemed to Be, Formatted: Font: 10.5 pt, Bold, Not Superscript/ Subscript
andSubjectand Subject to Code of Commerce Provisions for, Formatted: List Paragraph, Indent: Left: 0.3", Hanging:
Merchants 0.2", Space After: 3 pt, Numbered + Level: 1 + Numbering
A commercial partnership is distinguished from a civil one by the object to which it is devoted Style: a, b, c, … + Start at: 1 + Alignment: Left + Aligned at:
0.3" + Indent at: 0.55"
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 Formatted: Font: 10.5 pt, Bold, Not Superscript/ Subscript
comply with the registration requirements of, the Code of Commerce to lawfully come into Formatted: Font: 10.5 pt, Bold
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 Formatted: Indent: First line: 0.2", Space After: 4 pt
Code of Commerce, does not become a juridical person with a personality distinct from those of
the individuals who composed it. Hung-Man-Yoc v.Kieng-Chiong-Seng, 6 Phil. 498 (1906);
Bourns v. Carman, 7 Phil. 117 (1906); Ang Seng Quen v. Te Chico, 7 Phil. 541 (1907).
CONSEQUENTLY: Formatted: Space Before: 0 pt
It cannot maintain an action in its name, Prautch v. Hernandez, 1 Phil. 705 (1903); neither Formatted: Font: 10.5 pt
in the name of one or more of the members on behalf of the associates; nevertheless the Formatted: Space After: 3 pt, Tab stops: Not at 1.75"
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 Seng Quen 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. Registration Key for Commercial Partnerships Coming into Existence (Arts. 118-119, Formatted: Space Before: 8 pt
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 exists
validly even when no formal partnership agreement was entered into and registered.T, and the
obligations of the partners for partnership debts would be pro rata. Dietrich v. Freeman, 18 Phil.
341 (1911).
c. On Partnership Debts: Commercial Partners Were Solidarily But Subsidiarily Liable, Formatted: Space Before: 8 pt
Albeit Subsidiarily; While Civil Partners Were Primarily But Only Jointly Liable Formatted: Font: Italic
In a civil partnership, each member is bound to pay his pro rata share of the partnership Formatted: Indent: First line: 0.2"
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 Compañia Maritima v. Muñoz, 9 Phil. 326 (1907).
Partners’ right of excussion is deemed satisfied where the judgment debts remain unsatisfied Formatted: Indent: Left: 0.3", First line: 0.2"
after exhaustion of partnership assets., De los Reyes v. Lukban, 35 Phil. 757 (1916); PNB v. Lo,
50 Phil. 802 (1927)..
Assignment of Share Does NOT Make Assignee a Partner (Arts. 1804, 1813) Formatted: Space After: 3 pt
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 GRANTED SEPARATE JURIDICAL PERSONALITY (Arts. 44[3], 1768, Formatted: Indent: Hanging: 0.2", Space Before: 0 pt
1774)d.BOUNDED BY ATTRIBUTE OF “MUTUAL AGENCY” (Arts. 1803[1], 1818, 1819, 1821 to
1823)
e. PYET, PARTNERS ARE “UNLIMITEDLY LIABLE” TO PARTNERSHIP DEBTS (Arts. 1816, 1817, Formatted: Indent: Left: 0.3", Hanging: 0.2"
1824, 1839[4] and [7]) Formatted: Font: 10.5 pt
4. KINDS OF PARTNERSHIPS
a. As to Object (Art. 1776, 1st par.)
i. Universal Partnership (Arts. 1777 to 1782) Formatted: Font: Italic
- 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 Formatted: Space After: 4 pt
advantage cannot enter into a universal partnership. (Art. 1782)
ii. Particular Partnership (Art. 1783) Formatted: Font: Italic
b. SUBJECT MATTER: “Partners Undertake to Jointly Pursue a Business Enterprise” (Art. Formatted: Font: Italic
1767), through their Agreements/Intentions to: (i) Contribute to a Common Fund; and Formatted: Font: Italic, Not Superscript/ Subscript
(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 Industry to Formatted: Indent: Left: 0.3", Hanging: 1.38", Space
to a Common Fund (Art. 1767) After: 0 pt
Formatted: Font: Italic
d. Rules on Determining Perfected Partnership (Art. 1769)
Formatted: Indent: Left: 1.67", First line: 0", Space Before:
The issue as to whether there is a partnership between the parties is a factual matter. 0 pt
xAlicbusan v. Court of Appeals, 269 SCRA 336 (1997).
Formatted: Space Before: 6 pt
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 Chiao Seng, 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
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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).
(ii) Sharing in the Gross Return/Receipts of a Business Does Not Create Partnership Formatted: Space Before: 10 pt
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).
(iii) Receipt by a Person of a Share of the Profits of a Business Formatted: Space Before: 10 pt
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 (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 and
Co., 58 Phil. 188 (1933).
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
(iv) When Entitlement to Net Profits Does Not Create Presumption of Partnership: Formatted: Space Before: 10 pt
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. CA, 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 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 onf the Sale of Goodwill or Other Property
Formatted: Indent: Left: 0.59", Hanging: 0.2", Space
Before: 3 pt, After: 3 pt, Bulleted + Level: 1 + Aligned at:
0.75" + Indent at: 1"
IV. PARTNERSHIP AS A JURIDICAL PERSON (Arts. 44(3), 45, 1768 and 1784) Formatted: No underline, Not Superscript/ Subscript
Formatted: Space Before: 18 pt
1. CONSEQUENCES OFPARTNERSHIPBEING A JURIDICAL PERSON:
a. Entity Has Legal Capacity to Enter into Contracts and Incur Obligations (Art. 46) Formatted: Font: Italic
b. It May Acquire Properties in Its Own Name (Arts. 46 and 1774) Formatted: Font: Italic
c. It May Sue and Be Sued in Its Firm Name (Art. 46) Formatted: Font: Italic
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 Formatted: Font: Italic
Exercises Its Principal Functions (Art. 51)
e. It Is Taxed as a Corporate Taxpayer. xTan v. Del Rosario, 237 SCRA 234 (1994). Formatted: Font: Italic
f. It May Be Declared Insolvent Even If the Partners Are Not. xCampos Rueda & Co. v. Formatted: Font: Italic
Pacific Commercial & Co., 44 Phil. 916 (1923). Formatted: Font: Not Bold, Not Superscript/ Subscript
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. cfxSmith, Bell & Co. v. Natividad, 40 Phil. 136 Formatted: Font: 10 pt, Not Superscript/ Subscript
(1919); xBache & Co. (Phil.), Inc. v. Ruiz, 37 SCRA 823 (1971). Formatted: Font: 10 pt, Not Superscript/ Subscript
Against unreasonable searches and seizures. cfxStonehill v. Diokno,20 SCRA 383 (1967).
Formatted: Font: 10 pt, Not Superscript/ Subscript
Partnership obtains its personality from the State and therefore not entitled to the
Formatted: Font: 10 pt, Not Superscript/ Subscript
constitutional right against self-incrimination.[?] cfxBataan Shipyard & Engineering Co. v.
PCGG, 150 SCRA 181 (1987).
2. Provisions Contravening the Attribute of Separate Juridical Personality: Formatted: Space After: 5 pt
a. Partners Are Co-owners of Partnership Properties (Arts. 1811) Formatted: Left, Space After: 5 pt
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 Formatted: Indent: Hanging: 0.2", Space Before: 0 pt,
Assets (Arts. 1816, 1817, 1824, 1839[4] and [7]) After: 6 pt, Tab stops: 0.49", Left + Not at 0.59"
2. FORMALITIES REQUIRED:
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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 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.EXCEPTb. EXCEPT: When Capital Coxntribution Is P3,000 or More: Formatted: Font: Italic, Not Superscript/ Subscript
AoP Must Appear in a Public Instrument; and; and Formatted: Space After: 4 pt
Registered with the SEC. Formatted: Font: Italic, Not Superscript/ Subscript
Formatted: Space Before: 0 pt, After: 4 pt
BUT: Failure to Comply with Requirements Shall Not Affect the Liability of the
Partnership and Its Members to Third Persons (Art. 1784) Formatted: Space Before: 0 pt
When the articles of partnership provide that the venture is established “to operate a Formatted: Font: Italic, Not Superscript/ Subscript
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).
Failure to prepare an inventory of the immovable property contributed, in spite of Art. 1773
declaring the partnership void, 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) the partners
have made a claim on the partnership agreement which is deemed binding between them as
any other contract. xTorres v. Court of Appeals, 320 SCRA 428 (1999). Formatted: Font: Bold, Not Superscript/ Subscript
While the sale of land appearing in a private deed is binding between the parties, it cannot
be considered binding on third persons if it is not embodied in a public instrument and recorded
in the Registry of Deeds. When it comes to contributions of real estate to a partnership,
especially when it covers registered land, then the peremptory provisions of the Property
Registration Decree (P.D. 1459) will prevail as to who has a better claim, right or lien on the
property, since “registration in good faith and for value,” is the operative rule under the Torrens
system. xSecuya v. Vda. de Selma, 326 SCRA 244 (2000).
c. EXCEPT: Where Immovable Property or Real Rights Are Contributed Formatted: Indent: Left: 0.3", First line: 0", Space Before:
8 pt
AoP Must 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)
Failure to register the partnership with the SEC does not invalidate a contract that has the essential Formatted: Indent: Left: 0", First line: 0"
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).
Unregistered partnership having all the essential requisites is valid as among the partners, Formatted: Indent: First line: 0", Space After: 4 pt
because the main purpose of registration is to give notice to third parties. The failure to register
does not affect the liability of the partnership and of the partners to third persons, much less that
of its juridical personality; it can be assumed that the members themselves knew of the contents
of their contract. Ma v. Fernandez, Jr., 625 SCRA 566 (2010).
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. xThunga
Chui 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 Article 1771, not even
registrable with the SEC as called for under Article 1772, and which also does not meet the
inventory requirement under Article 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).
Formatted: Indent: First line: 0.3"
Undoubtedly, the best evidence of the existence of a partnership would have been the Formatted: Indent: First line: 0.3", Space After: 3 pt
article of partnership itself, but here there is none. The alleed partnership, though, was never
formally organized. . . . The net effect is that we are asked to determine whether a patnershp
existed based purely on circumstantial evidence. Here the evidence adduced fall short of the
3. xWhen Corporate Venture Fails to Formally Incorporate, Do the Incorporators Formatted: Font: 10 pt
Become Partners?
Cases: Pioneer Insurance v. Court of Appeals, 175 SCRA 668 (1989).
Lim Tong Lim v. Philippine Fishing Gear Industries, 317 SCRA 728 (1999).
b. When Articles Kept Secret Among Members and One Member May Contract in His Own
Name (Art. 1775):
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).
VI. PARTNERS’ RIGHTS, POWER & AUTHORITY, DUTIES AND OBLIGATIONS OF Formatted: Left, Right: 0.1", Space Before: 15 pt
THE PARTNERS
1. Kinds of Partners Formatted: Space After: 3 pt
(a) Industrial and Capitalist Partners Formatted: Space After: 3 pt, Tab stops: 0.5", Left + 1",
Left + 1.5", Left + 2", Left + 2.5", Left + 3", Left + 3.75",
(b) Ostensible, Nominal and Dormant Partners Left
(c) Original and Incoming Partners Formatted: Space After: 3 pt
(d) Managing and Liquidating Partners
(e) General and Limited Partners
(f) Retiring, Surviving and Continuing Partners Formatted: Indent: Left: 0.39", Hanging: 0.3"
Formatted: Font: Bold, Italic
2. PROPERTY RIGHTS OF PARTNERS
a. CO-OWNERSHIP RIGHTS to Specific Partnership Properties (Arts. 1810 and 1811)
Equal Right to Possess, But for Partnership Purpose Only. xCelino v. Court of Formatted: Indent: Left: 0.49", Hanging: 0.2", Space
Appeals, 163 SCRA 97 (1988). After: 4 pt, Add space between paragraphs of the same style
91
Reiterated in Moran, Jr. v. CA, 133 SCRA 88 (1984).
b. Art. 1824: All Partners Solidarily Liable with Partnership (Art. 1824) for Everything Formatted: No underline, Not Superscript/ Subscript
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).
92
Director of Lands v. Lope Alba, 105 Phil. 2171 (1959).
(iii) By Operation of Law (Art. 1830) Formatted: Indent: Left: 0.49", Hanging: 0.3"
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). Formatted: Font: 11 pt
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).
4. WINDING-UP AND TERMINATION OF THE PARTNERSHIP BUSINESS ENTERPRISE Formatted: Indent: Left: 0", Hanging: 0.2", Tab stops:
0.2", Left + Not at 0.3"
“Winding-up” isthe process of settling business affairs after dissolution, which includes the
paying of previous obligations; the collecting of assets previously demandable; even new
business if needed to wind up, as the contracting with a demolition company forthe 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) Formatted: Font: Italic
b. Authority to Wind-Up (Art. 1836): Only the Partners Who Have Not Wrongfully Dissolved Formatted: Font: Italic
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 Formatted: Font: Italic
Satisfy Partnership Debts Not Covered by Partnership Assets Formatted: Font: Italic
An Additional Limited Partner and/or General Partners Is Admitted(Art. 1849), or Formatted: Font: 10.5 pt, Bold, Italic
a Person Is Substituted as a Limited Partners
A General Partner Retires, Dies, Becomes Insolvent or Insane, or Is Under Civil
Interdiction and the Business Is Continued
There Is aA False or Erroneous Statement in Certificate or to Make a Change in
Any Other Statement in Order It Shall Accurately Represent Their Agreement.
4. LIMITED PARTNERS
a. He May Contribute Money or Property, But Never Service (Art. 1845) Formatted: Font: Italic
b. He Shall Not Be Liable As Such to the Obligations of the Partnership (Art. 1843) Formatted: Font: Italic
;EXCEPT: Formatted: Space Before: 0 pt
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): Formatted: Font: Italic
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 Formatted: Font: Italic
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 Formatted: Font: Italic
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 Formatted: Font: Italic
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): Formatted: Font: Italic
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 6Months’ Written Notice in
Writing to All Other Members
h. He Shall Not Receive Any Part of His Contribution Until (Art. 1857): Formatted: Font: Italic
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); Formatted: Font: Italic
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
Substituted Limited Partner Has All the Rights and Powers, and Is Subject to All the Formatted: Font: Italic
Restrictions and Liabilities of Assignor; , EXCEPT: Those Liabilities of Which He Formatted: Underline, Small caps
Was Ignorant and Which Could Not Be Ascertained from the Certificate
Substitution Does Not Release Assignor From Partnership Liabilities fFor: Formatted: Font: Italic
False Statements in the Certificate (Art. 1847) Formatted: Font: Italic
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 Formatted: Font: Italic
Receive the Share of the Profits or the Return of the Contribution Which the
Assignor Was Entitled To
k. Application of aby Creditors of Limited Partner (Art. 1862): A Limited Partner’s Formatted: Font: Italic
Creditors May Apply With the Courts To: Formatted: Font: Italic
Charge His Partnership Interests with Payment of Unsatisfied Amount of Such Formatted: Font: Italic
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 Formatted: Font: Italic
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 Conducted as a Formatted: Indent: Left: 0.3", Hanging: 0.2", Tab stops:
Partnership, Believing that He Has Become a Limited Partner: 0.49", Left + Not at 0.69"
Is Not a General Partner By Reason of Exercise of Such Rightss, a General Partner; Formatted: Font: Italic
PROVIDED: On Ascertaining Mistake, He Promptly Renounces His Interest in the Formatted: Font: Italic
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)
93
Reiterated in Primelink Properties and Dev. Corp. v. Lazatin-Magat, 493 SCRA 444 (2006). Formatted: Font: 10.5 pt
94http://www.neda.gov.ph/references/Guidelines/RevisedGuidelines.pdf
b. Regulating Combinations in Restraint of Trade and Unfair Competition: Rules and Formatted: Font: 10.5 pt
Regulations to Implement Rep. Act No. 10667 (Philippine Competition Act) Formatted: Right: 0", Space Before: 10 pt
Rule 2(i): “Joint venture” refers to a business arrangement whereby an entity or group of Formatted: Font: 10.5 pt, Italic
entities contribute capital, services, assets, or a combination of any or all of the foregoing, to
Formatted: Font: 10.5 pt
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 Formatted: Indent: Left: 0.39", First line: 0", Space After:
6 pt, No widow/orphan control, Don't adjust space between
and risks and losses subject to agreement by the entities. Latin and Asian text, Don't adjust space between Asian text
and numbers
II. TJURISPRUDENTIAL RULES ON THREE TYPES OF JOINT VENTUREJV Formatted: Font: 10.5 pt
Formatted: Space Before: 18 pt
ARRANGEMENTS
1. INFORMAL OR CONTRACTUAL JV ARRANGEMENT WITHOUT A “SEPARATE FIRM” Formatted: Space Before: 10 pt
(SEC Opinion, 22 Dec. 1966; SEC Opinion, 29 Feb.1980; SEC Opinion, 03 Sept. 1984)
Petitioners claim that the CA erredin decreeing the close characteristics of “partnerships” and Formatted: Font: Italic
“joint venture agreements,” and further assertthat before this particular partnership can be Formatted: Font: Italic
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. We disagree.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. Narra Nickel Mining and Dev. Corp. v. Redmont Consolidated Mines Formatted: Font: Not Bold
Corp., 722 SCRA 382 (2014). Formatted: Font: Not Bold
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 Formatted: Right: 0", Space Before: 12 pt
Formatted: Font: Italic
When a “Joint Venture Agreement” has been executed among the co-venturers covering the
Formatted: Indent: Left: 0.2", Hanging: 0.2", Space
terms for the development of a subdivision project, the contributions of the co-venturers and Before: 12 pt
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
When principal and agent have entered into a “Power of Attorney” covering a construction Formatted: Font: Italic
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).
BUT SEE: Despite the formal agreement that Bastida was to receive 35% of the profit from Formatted: Small caps
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 (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 and Co., 58
Phil. 188 (1933).
[See contrary ruling in Bastida v. Menzi and Co., 58 Phil. 188 [1933])
Acceptance of Capital Contributions in a Aborted Joint Venture Is Not Fraud Formatted: Highlight
. . . the records do not show that the prosecution was able to prove the existence of Formatted: Normal, Indent: Left: 0.31", First line: 0.19",
malicious intent when the petitioners used the money they received to construct two-door studio-type Space After: 6 pt, No bullets or numbering
apartments, one of which would serve as the garments factory. To reiterate, the purpose of the
money was achieved. Furthermore, the factual precedents of the case do not sufficiently warrant
conviction for the crime of estafa, much less deserve deprivation of liberty. At best, the petitioners
could be held liable for damages for violating the tenor of their agreement. . . . Ultimately, the
amount of P400,000.00 given to the petitioners could hardly be considered as the damage sustained
by the private complainants. Damage, as an element of estafa, may consist in: (1) the offended party
being deprived of his money or property as a result of the defraudation; (2) disturbance in property
right; or (3) temporary prejudice. In this case, the amount was voluntarily given pursuant to a joint
venture agreement for the construction of a garments factory, and with which the petitioners
complied. Absent the element of misappropriation, the private complainants could not have been
deprived of their money through defraudation. Moreover, the allegation of lost profits, which could
have arisen from the aborted joint venture, is conjectural in nature and could barely be contemplated
as prejudice suffered. . . . While the petitioners cannot be made criminally liable on the grounds of
absence of some of the elements of estafa, and of reasonable doubt, it is undisputed that they
Basic Rules of Privity of Contract Applies Formatted: Normal, Indent: Left: 0.2", Hanging: 0.2",
Right: 0.98", Space Before: 12 pt, No bullets or numbering
While Jebson, as developer, and Sps. Salonga, 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; hence, liability cannot be
imputed against the joint venture based on the same principle of relativity as above-mentioned.
Besides, it should be pointed out that the JVA between Jebson and Sps. Salonga was limited to
the construction of the residential units under the Brentwoods Project and that Jebson had the
sole hand in marketing the units allocated to it to third persons, such as Buenviaje. In fact, under
the express terms of the JVA, Jebson, as the developer, had even stipulated to hold Sps.
Salonga 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, G.R. No. 216023, October 5, 2016.
2. FORMAL JV ARRANGEMENT: A FORM OF PARTNERSHIP WITH A FIRM ESTABLISHED Formatted: Space Before: 18 pt
When a “Joint Venture Agreement” covers the terms for the development of a subdivision Formatted: Indent: Left: 0.2", Space After: 6 pt
project, the contributions of co-venturers, and manner of distribution of the profits, then a Formatted: Font: Italic
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 possession of the property under development to the Lazatins who had
sought rescission of the JVA. However, the property is held by the Lazatins for purposes of
winding-up the affairs of the joint venture as provided under Article 1836 of the Civil Code. 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. Formatted: Font: Bold
v. Lazatin-Magat, 493 SCRA 444 (2006). Formatted: Font: Bold
Even when 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 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. Commissioner
of Internal Revenue, 551 SCRA 428 (2008).
A joint ventureJV 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. TThe appellate court’s decision must be modified,
however, there being a joint ventureJVA, there is no need for Gotesco to reimburse Marsman
Drysdale for “50% of the aggregate sum due” to PGI since not allowing Marsman Drysdale 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.
Marsman Drysdale Land, Inc. v. Philippine Geoanalytics, Inc., 622 SCRA 281 (2010).
A joint venture is a partnership and governed by the Law of Partnerships. Art. 1824 provides Formatted: Indent: Left: 0.2", First line: 0.3", Right: 0",
all partners solidarily liable with the partnership due to any wrongful act or omission of any partner Space Before: 0 pt
acting in the ordinary course of the business of the partnership or with the authority of his co-
a. Status of the JVA Prior to the Incorporation of the JV Corporation Formatted: Space Before: 10 pt, After: 4 pt
A verbal JVA to incorporate a company that would hold parties’ shares and serve a business Formatted: Font: Italic
vehicle for their food enterprise, is valid and binding. JVA created between them reciprocal Formatted: Font: Bold
obligations that must be performed in order to fully consummate the contract and achieve the
purpose for which it was entered into. JVA is deemed extinguished through rescission under
Article 1192 in relation with Article 1191 of the Civil Code. Dueñas 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. Dueñas, 757 SCRA 412 (2015).
b. Emerging Doctrinal Rules under a JV Arrangement Pursued Through a JV Corporation Formatted: Font: Bold
The manner of nomination of the members of the Board of Directors provided in the Joint Formatted: Indent: Left: 0.2", Hanging: 0.2", Space
Venture Agreement must be made effective and reconciled with the statutory provision on Before: 12 pt
cumulative voting made applicable by the Corporation Code to stock corporations. Aurbach v. Formatted: Font: Bold, Italic
Sanitary Wares Manufacturing Corp., 180 SCRA 130 (1989). Formatted: Font: Bold
Wheren a corporation has beenis organized under the terms of a The right of first refusal in
the JVA under which the corporation is organized , 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-allowing stockholders
the ability to prevent equity interests from being transferred to third parties. The JVA’s 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 AppealsCourt of Appeals, 412 SCRA 10 (2003).
Joint ventureJV 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, 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 remains is true even though the partnership
acquires a distinct and separate personality from that of the joint venturers or leads to the
formation of a JVnew cCompany. that is the product of such joint venture, such as PSC and
SOMCO in this case.Hontiveros-Baraquel v. Toll Regulatory BoardTRB, 751 SCRA 271
(2015).
JVA to incorporate a company that would hold parties’ shares and serve as the business Formatted: Font: 11 pt
vehicle for their food enterprise, is a 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. Dueñas must therefore return the P5 Million that Fong Formatted: Font: 11 pt
initially contributed since rescission requires mutual restitution. After rescission, the parties
Formatted: Font: 11 pt
must go back to their original status before they entered into the agreement.Fong v.
Dueñas, 757 SCRA 412 (2015). Formatted: Font: 12 pt
Formatted: Font: 14 pt, Underline
Formatted: Indent: Left: 0.2", First line: 0.3", Space
III. SPECIAL JOINT VENTURE DEFINITIONS AND CONCEPTS Before: 15 pt, After: 6 pt
2. A JV Consortium Undertaking Construction Projects or Engaging in Petroleum, Formatted: Indent: Left: 0.2", First line: 0.3", Right: 0"
Coal, Geothermal and Other Energy Operations Pursuant to an Operating or Consortium
Agreement under a Service Contract with the Government, Shall Not Be Taxed Separately
as a Corporate Taxpayer. (Sec. 22(B), NIRC of 1997)
95http://www.neda.gov.ph/references/Guidelines/RevisedGuidelines.pdf