Agency Reviewer
Agency Reviewer
Agency Reviewer
ATTY.
CESAR L.
ATTY.
A.
LAW ON AGENCY
Thus, it was
observed that [M]any unilateral contacts are in reality gratuitous promises enforced for good reason with no element of
bargain. [BLACKS LAW DICTIONARY 326 (1990)] It is perhaps in this sense that agency is unilateral because it is the agent who
undertakes the performance of the agency. However, one must not forget that agency is still a contract with a bilateral
character. Manresa explains: As regards whether the agency has a unilateral or bilateral character, it is evident, in our
considered opinion, from the point of view of the Code, that the totality of cases involving agency will always be bilateral, not
because, as one ordinarily supposes, there will be obligations exclusively for the agent and rights exclusively for the principal.
It is clear that at times it happens this way, but what is common in agency with other contracts is the mutuality and the
reciprocity that arises from the existence of an obligation against another obligation, a right against another right. 11
MANRESA. COMENTARIOS AL CODIGO CIVIL ESPAOL 443 (1950)
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to her transaction with purported buyer. The most prudent thing the purported buyer should have
done was to ascertain the extent of the authority said co-owner; being negligent in this regard, the
purported buyer cannot seek relief on the basis of a supposed agency. Dizon v. Court of Appeals,
302 SCRA 288 (1999).
When an agent purchases the property in bad faith, the principal should also be
deemed a purchaser in bad faith. Caram, Jr. v. Laureta, 103 SCRA 7 (1981).
Notice to the agent is notice to the principal. Air France v. Court of Appeals,
126 SCRA 448 (1983).
The basis for agency is representation and a person dealing with an agent is
put upon inquiry and must discover upon his peril the authority of the agent.
Safic Alcan & Cie v. Imperial Vegetable Oil Co., Inc., 355 SCRA 559 (2001).
It is clear from Article 1868 that the basis of agency is representation. On the part of the principal,
there must be an actual intention to appoint or an intention naturally inferable from his words or
actions; and on the part of the agent, there must be an intention to accept the appointment and act on
it, and in the absence of such intent, there is generally no agency. One factor which most clearly
distinguishes agency from other legal concepts is control; one person - the agent - agrees to act
under the control or direction of another - the principal. Indeed, the very word "agency" has come to
connote control by the principal. Victorias Milling Co. v. Court Appeals, 333 SCRA 663 (2000).5
In a situation where two agents enter into a contract of behalf of their principals, even if the
principals do not actually and personally know each other, such ignorance does not affect their
juridical standing as agents, especially since the very purpose of agency is to extent the personality
of the principal through the facility of the agent. Doles v. Angeles, 492 SCRA 607 (2006).
c. From Broker
The question as to what constitutes a sale so as to entitle a real estate broker to his commissions
is extensively annotated in the case of Lunney vs. Healey (Nebraska) . . . 44 Law Rep. Ann. 593 ,
and the long line of authorities there cited support the following rule: # The business of a real estate
broker or agent, generally, is only to find a purchaser, and the settled rule as stated by the courts is
that, in the absence of an express contract between broker and his principal, the implication
generally is that the broker becomes entitled to the usual commissions whenever he brings to his
principal a party who is able and willing to take the property and enter into a valid contract upon the
terms then named by the principal, although the particulars may be arranged and the matter
negotiated and completed between the principal and the purchaser directly. Macondray & Co. v.
Sellner, 33 Phil. 370 (1916).
The duties and liability of a broker to his employer are essentially those which an agent owes to
his principal. Consequently, the decisive legal provisions on determining whether a broker is
mandated to give to the employer the propina or gift received from the buyer would be Articles 1891
and 1909 of the Civil Code. (Yet the facts did indicate clearly that the real estate broker was
appointed as an exclusive agent.) Domingo v. Domingo, 42 SCRA 131 (1971).
Where the purported agent was orally given authority to follow up the purchase of the fire truck
with the municipal government, there is no authority to sell nor has the purported agent been
empowered to make a sale for and in behalf of the seller. Guardex v. NLRC, 191 SCRA 487 (1990).
6Litonjua, Jr. v. Eternit Corp., 490 SCRA 204 (2006).
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When the terms of the agency arrangement is to the effect that entitlement to the commission
was contingent on the purchase by a customer of a fire truck, the implicit condition being that the
agent would earn the commission if he was instrumental in bringing the sale about. Since the agent
had nothing to do with the sale of the fire truck, and is not therefore entitled to any commission at
all. Guardex v. NLRC, 191 SCRA 487 (1990).
A broker is one who is engaged, for others, on a commission, negotiating contracts relative to
property with the custody of which he has no concern; the negotiator between the other parties,
never acting in his own name but in the name of those who employed him. His occupation is to
bring the parties together, in matter of trade, commerce or navigation. Schmid and Oberly, Inc.
v. RJL Martinez, 166 SCRA 493 (1988). An agent receives a commission upon the successful
conclusion of a sale. On the other hand, a broker earns his pay merely by bringing the buyer and
the seller together, even if no sale is eventually made. Tan v. Gullas, 393 SCRA 334 (2002).
In relation thereto, we have held that the term procuring cause in describing a brokers activity,
refers to a cause originating a series of events which, without break in their continuity, result in the
accomplishment of the prime objective of the employment of the brokerproducing a purchaser
ready, willing and able to buy on the owners terms. To be regarded as the procuring cause of a
sale as to be entitled to a commission, a brokers efforts must have been the foundation on which
the negotiations resulting in a sale began. Medrano v. Court of Appeals, 452 SCRA 77 (2005).7
A real estate broker is one who negotiates the sale of real properties. His business, generally
speaking, is only to find a purchaser who is willing to buy the land upon terms fixed by the owner.
He has no authority to bind the principal by signing a contract of sale. Indeed, an authority to find a
purchaser of real property does not include an authority to sell. Litonjua, Jr. v. Eternit Corp., 490
SCRA 204 (2006).
Since brokerage relationship is necessary a contract for the employment of an agent, principles
of contract law also govern the broker-principal relationship. xAbacus Securities Corp. v. Ampil, 483
SCRA 315 (2006).
Contrary to the appellate court's conclusion, this arrangement shows an agency. An agent
receives a commission upon the successful conclusion of a sale. On the other hand, a broker earns
his pay merely by bringing the buyer and the seller together, even if no sale is eventually made.
(Obiter the issue was whether it was an independent distributor of BMW cars in the Philippines )
xHahn v. Court of Appeals, 266 SCRA 537 (1997).
d. From Sale
When the terms of the agreement compels the purported agent to pay for the products received
from the purported principal within the stipulated period, even when there has been no sale thereof
to the public, the underlying relationship is not one of contract of agency to sell, but one of actual
sale. A real agent does not assume personal responsibility for the payment of the price of the object
of the agency; his obligation is merely to turn-over to the principal the proceeds of the sale once he
receives them from the buyer. Consequently, since the underlying agreement is not an agency
agreement, it cannot be revoked except for cause. Quiroga v. Parsons, 38 Phil 502 (1918).
When under the agreement the purported agent becomes responsible for any changes in the
acquisition cost of the object he has been authorized to purchase from a supplier in the United
States, the underlying agreement is not an contract of agency to buy, since a true agent does not
bear any risk relating to the subject matter or the price. Being a contract of sale and not agency, any
profits realized by the purported agent from discounts received from the American supplier
pertained to it with no obligation to account for it, much less to turn it over, to the purported principal.
Gonzalo Puyat v. Arco, 72 Phil. 402 (1941).
The distinctions between a sale and an agency are not difficult to discern and this Court, as early
as 1970, had already formulated the guidelines that would aid in differentiating the two (2) contracts.
that the primordial differentiating consideration between the two (2) contracts is the transfer of
ownership or title over the property subject of the contract. In an agency, the principal retains
ownership and control over the property and the agent merely acts on the principal's behalf and
under his instructions in furtherance of the objectives for which the agency was established. On the
other hand, the contract is clearly a sale if the parties intended that the delivery of the property will
effect a relinquishment of title, control and ownership in such a way that the recipient may do with
the property as he pleases. Spouses Viloria v. Continental Airlines, Inc., G.R. No. 188288. 16
January 2012.
c. From Side of Third Parties/Public (Arts. 1873 and 1408; 1921 and 1922)
A long-standing client, acting in good faith and without knowledge, having sent goods to sell on
commission to the former agent of the defendant, can recover of the defendant, when no previous
notice of the termination of agency was given said client. Having advertised the fact that Collantes
was his agent and having given special notice to the plaintiff of that fact, and having given them a
special invitation to deal with such agent, it was the duty of the defendant on the termination of the
relationship of principal and agent to give due and timely notice thereof to the plaintiffs. Failing to
do so, he is responsible to them for whatever goods may have been in good faith and without
negligence sent to the agent without knowledge, actual or constructive, of the termination of such
relationship. Rallos v. Yangco, 20 Phil 269 (1911)
When the owner of a hotel/caf business allows a person to use the title managing agent and
during his prolonged absences allows such person to take charge of the business, performing the
duties usually entrusted to managing agent, then such owner is bound by the act of such person.
One who clothes another apparent authority as his agent, and holds him out to the public as such,
can not be permitted to deny the authority of such person to act as his agent, to the prejudice of
innocent third parties dealing with such person in good faith and in the following pre-assumptions
or deductions, which the law expressly directs to be made from particular facts, are deemed
conclusive. The hotel owner is bound by the contracts entered into by said managing agent that
are within the scope of authority pertinent to such position, including the purchasing such
reasonable quantities of supplies as might from time to time be necessary in carrying on the
business of hotel bar. Macke v. Camps, 7 Phil 522 (1907).
When the law firm has allowed for quite a period the messenger of another office to receive
mails and correspondence on their behalf, an implied agency had been duly constituted, specially
when there is no showing that counsel had objected to such practice or took step to put a stop to
it. Equitable PCI-Bank v. Ku, 355 SCRA 309 (2001).
2. Kinds of Agency
a. Based on Business or Transactions Encompassed (Art. 1876)
(1) General or Universal Agency
An agent may be (1) universal; (2) general, or (3) special. A universal agent is one authorized
to do all acts for his principal which can lawfully be delegated to an agent. So far as such a
condition is possible, such an agent may be said to have universal authority. A general agent is one
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 either 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. An agent, therefore, who is empowered to transact all
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the business of his principal of a particular kind or in a particular place, would for this reason, be
ordinarily deemed a general agent. A special agent is one authorized to do some particular act or
to act upon some particular occasion. He acts usually in accordance with specific instructions or
under limitations necessarily implied from the nature of the act to be done. Siasat v. IAC, 139 SCRA
238 (1985).
(2) Attorney-in-Fact
The relationship of attorney and client is in many respects one of agency, and the general
rules of agency apply to such relation. The acts of an agent are deemed the acts of the principal
only if the agent acts within the scope of his authority. Thus, when the lawyer files an opposition to
the compromise agreement that has been validly entered into by his client, he is acting beyond the
scope of his authority. TJ-Phil. Marine, Inc. v. NLRC, 561 SCRA 675 (2008).
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It is a general rule that a power of attorney must be strictly construed; the instrument will be
held to grant only those powers that are specified, and the agent may neither go beyond nor
deviate from the power of attorney. Olaguer v. Purugganan, Jr., 515 SCRA 460 (2007).
Although a Special Power of Attorney was issued by the insurance company to its agency
manager, it wordings show that it sought only to establish an agency that comprises all the
business of the principal within the designated locality, but couched in general terms, and
consequently was limited only to acts of administration. A general power permits the agent to do
all acts for which the law does not require a special power. Thus, the acts enumerated in or similar
to those enumerated in the Special Power of Attorney (i.e., really a general power of attorney)
did not require a special power of attorney, and could only cover acts of administration.
Dominion Insurance Corp. v. Court of Appeals, 376 SCRA 239 (2002).
Even when the title given to a deed is as a General Power of Attorney, but its operative
clause contains an authority to sell, it constituted the requisite special power of attorney to sell a
piece of land. Thus, there was no need to execute a separate and special power of attorney since
the general power of attorney had expressly authorized the agent or attorney in fact the power to
sell the subject property. The special power of attorney can be included in the general power when
it is specified therein the act or transaction for which the special power is required. Veloso v.
Court of Appeals, 260 SCRA 593 (1996).
When an agent has been given general control and management of the business, he is
deemed to have power to employ such agents and employees as are usual and necessary in the
conduct of the business, and needs no special power of attorney for such purpose. Yu Chuck v.
Kong Li Po, 46 Phil. 608 (1924).
An attorney-in-fact empowered to pay the debts of the principal and to employ legal counsel to
defend the principals interest, has certainly the implied power to pay on behalf of the principal the
attorneys fees charged by the lawyer. Municipal Council of Iloilo v. Evangelista, 55 Phil. 290
(1930).
A co-owner who is made an attorney-in-fact, with the same power and authority to deal with
the property which the principal might or could have had if personally present, may adopt the
usual legal means to accomplish the object, including acceptance of service and engaging of legal
counsel to preserve the ownership and possession of the principals property. Government of PI v.
Wagner, 54 Phil. 132 (1929).
Contracts of agency, as well as a general power of attorney, must be interpreted in
accordance with the language used by the parties. The real intention of the parties is primarily to
be determined from the language used. The intention is to be gathered from the whole instrument.
In case of doubt, resort must be had to the situation, surroundings, and relations of the parties.
Whenever it is possible, effect is to be given to every word or clause used by the parties. It is to be
presumed that the parties said what they intended to say and that they used each word or clause
with sole purpose, and that purpose is, if possible, to be ascertained and enforced. If the contract
be open to two constructions, one of which would while the other would overthrow it, the former is
to be chosen. If by one construction the contract would be illegal, and by another equally
permissible construction would be lawful, the latter must be adopted. The acts of the parties will be
presumed to be done in conformity with and not contrary to the intent of the contract. The meaning
of general words must be construed with reference to the specific object to be accomplished and
limited by the recitals made in reference to such object. Linan v. Puno, 31 Phil. 259 (1915).
required before such area manager could settle the insurance claims of the insured.
Consequently, the amounts paid by the area manager to settle such claims cannot be reimbursed
from the principal insurance company. Dominion Insurance Corp. v. Court of Appeals, 376
SCRA 239 (2002).
(5-A) Sale of a Piece of Land or Interest Therein (Art. 1874; City- Lite Realty Inc.
v. Court of Appeals, 325 SCRA 385 [2000]).
Absence of a written authority to sell 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.
Pahud v. Court of Appeals, 597 SCRA 13 (2009).
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Under Article 1874, when a sale of a piece of land or any interest therein is through an agent,
the authority of the agent shall be in writing, otherwise the sale shall be void. [ See Litonjua, Jr. v.
Eternit Corp., 490 SCRA 204 (2006).] Notice that the article does not declare the agency to be
void, but the resulting contract of sale effected by the agent. Is the agency itself void?
Agency may be oral unless the law requires a specific form. However, to create or convey
real rights over immovable property, a special power of attorney is necessary. Thus, when a sale
of a piece of land or any portion thereof is through an agent, the authority of the latter shall be in
writing, otherwise, the sale shall be void. Litonjua, Jr. v. Eternit Corp., 490 SCRA 204 (2006).
The Civil Code provides that in the sale of a parcel of land or any interest therein made
through an agent, a special power of attorney is essential. [Article 1878]. This authority must be
in writing, otherwise the sale shall be void. [Article 1874] Pineda v. Court of Appeals, 376
SCRA 222, 228 (2002).
Where in the special power of attorney the agent was primarily empowered by the
corporation to bring an ejectment case against the occupant and also to compromise . . . so far
as it shall protect the rights and interest of the corporation in the aforementioned lots, and that
the agent did execute a compromise in the legal proceedings filed which sold the lots to the
occupant, the compromise agreement that effected a sale of the lots is void for the power to sale
by way of compromise could not be implied to protect the interests of the principal to secure
possession of the properties. Cosmic Lumber v. Court of Appeals, 265 SCRA 168 (1996).
The express mandate required by Article 1874 to enable an appointee of an agency couched
in general terms to sell must be one that expressly mentions a sale of a piece of land or that
includes a sale as a necessary ingredient of the act mentioned. The power of attorney need not
contain a specific description of the land to be sold, such that giving the agent the power to sell
any or all tracts, lots, or parcels of land belonging to the principal is adequate. Domingo v.
Domingo, 42 SCRA 131 (1971).
When no particular formality is required by law, rules or regulation, then the principal may
appoint his agent in any form which might suit his convenience or that of the agent, in this case a
letter addressed to the agent 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. Kuenzle and Streiff v. Collector of Customs, 31 Phil 646 (1915).
Where the nephew in his own name sold a parcel of land with a masonry house constructed
thereon to the company, when in fact it was property owned by the uncle, but in the estafa case
filed by the company against the nephew, the uncle swore under oath that he had authorized his
nephew to sell the property, the uncle can be compelled in the civil action to execute the deed of
sale covering the property. It having been proven at the trial that he gave his consent to the said
sale, it follows that the defendant conferred verbal, or at least implied, power of agency upon his
nephew Duran, who accepted it in the same way by selling the said property. The principal must
therefore fulfill all the obligations contracted by the agent, who acted within the scope of his
authority. (Arts. 1709, 1710 and 1727) Gutierrez Hermanos v. Orense, 28 Phil. 572 (1914).
Under Sec. 335 of the Code of Civil Procedure, an agreement for the leasing for a longer
period than one year, or for the sale of real property, or of an interest therein, is invalid if made by
the agent unless the authority of the agent be in writing and subscribed by the party sought to be
charged. Rio y Olabbarrieta v.Yutec, 49 Phil 276 (1926).
A power of attorney to convey real property need not be in a public document, it need only be
in writing, since a private document is competent to create, transmit, modify, or extinguish a right
in real property. Jimenez v. Rabot, 38 Phil 378 (1918).
(5-B) Agents Cannot Buy Property of Principal Unless Authorized (Art. 1491[2])
The prohibition against agents purchasing property in their hands for sale or management is,
however, clearly, not absolute. When so authorized by the principal, the agent is not disqualified
8AF Realty & Dev., Inc. v. Dieselman Freight Services Co., 373 SCRA 385 (2002); Firme v. Bukal Enterprises and Dev. Corp., 414
SCRA 190 (2003).
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from purchasing the property he holds under a contract of agency to sell. Olaguer v. Purugganan,
Jr., 515 SCRA 460 (2007).
Power to Sell Excludes Power to Mortgage and Vice Versa (Art. 1879)
main contract of loan entered into with the deed of sale with right of repurchase constituting
merely an equitable mortgage, both contracts of which were within the scope of authority of
the agent to enter into in the name of the principal. Rodriguez v. Pamintuan and De Jesus, 37
Phil 876 (1918).
A special power of attorney to mortgage real estate is limited to such authority to
mortgage and does not bind the grantor personally to other obligations contracted by the
grantee (in this case the personal loan obtained by the agent in his own name from the PNB)
in the absence of any ratification or other similar act that would estop the grantor from
questioning or disowning such other obligations contracted by the grantee. Philippine
National Bank v. Sta. Maria, 29 SCRA 303 (1969).
In other words, the power to mortgage does not include the power to obtain loans,
especially when the grantors allege that they had no benefit at all from the proceeds of the
loan taken by the agent in his own name from the bank. It is not unusual in family and
business circles that one would allow his property or an undivided share in real estate to be
mortgaged by another as security, either as an accommodation or for valuable consideration,
but the grant of such authority does not extend to assuming personal liability, much less
solidary liability, for any loan secured by the grantee in the absence of express authority so
given by the grantor. Philippine National Bank v. Sta. Maria, 29 SCRA 303, 310 (1969).
Where the power of attorney given to the husband by the wife was limited to a grant of
authority to mortgage a parcel of land titled in the wifes name, the wife may not be held liable
for the payment of the mortgage debt contracted by the husband, as the authority to
mortgage does not carry with it the authority to contract obligation. De Villa v. Fabricante, 105
Phil. 672 (1959).
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Article 1881 of the Civil Code provides that "the agent must act within the scope of his
authority." Pursuant to the authority given by the principal, the agent is granted the right "to
affect the legal relations of his principal by the performance of acts effectuated in accordance
with the principal's manifestation of consent." Pacific Rehouse Corp. v. EIB Securities,
Inc., 633 SCRA 214 (2010).
b. Compare with Art. 1887 Agent Must Follow Instructions of the Principal
c. Authority of Agent Not Deemed Exceeded If Performed in a Manner More
Advantageous to Principal (Art. 1882)
(1) Compare: Agent Should Not Act If It Would Manifestly Result in Loss or
Damage to Principal (Art. 1888).
Article 1882 of the Civil Code provides that the limits of an agents authority shall not be
considered exceeded should it have been performed in a manner advantageous to the
principal than that specified by him. Olaguer v. Purugganan, Jr., 515 SCRA 460 (2007).
The admissions obtained by the agent from the adverse party prior to the formal
amendment of the complaint that included the principal as a party to the suit, can be availed
of by the principal since an agent may do such acts as may be conducive to the
accomplishment of the purpose of the agency, admissions secured by the agent within the
scope of the agency ought to favor the principal. This has to be the rule, for the act or
declarations of an agent of the party within the scope of the agency and during its existence
are considered and treated in turn as declarations, acts and representations of his principal
and may be given in evidence against such party Bay View Hotel v. Ker & Co., 116 SCRA
327 (1982).
account, to the persons with whom he transacts the same, said person not having any right
of action against the principal, nor the latter against the former, the liabilities of the principal
and the agent to each other always reserved. It being established by a preponderance of the
evidence that the agent acted in his own name in selling the merchandise to the defendants,
and that the defendants fully believed that they were dealing with the said agent, without any
knowledge of the fact that he was the agent of the plaintiffs, and having paid him in full for the
merchandise purchased, they are not liable to the plaintiffs, for said merchandise. This is true
whether the transaction is covered by the provisions of the Civil Code or by the provisions of
the Commercial Code. Lim Tiu v. Ruiz & Rementeria, 15 Phil. 367, 370 (1910).
When an agent acts in his own name, the principal has no right of action against the
persons with whom the agent has contracted, or such persons against the principal. In such
case, the agent is directly liable to the person with whom he has contracted, as if the
transactions were his own. Smith Bell v. Sotelo Matti, 44 Phil. 874 (1922).
Even when the agent has a special power of attorney to mortgage the property of the
principal, when such agent nevertheless executed the real estate mortgage in his own name,
then it is not valid and binding on the principal pursuant to the provisions of Article 1883 of
the Civil Code. Philippine Sugar Estates Dev. Corp. v. Poizat, 48 Phil. 536 (1925); Rural
Bank of Bombon v. Court of Appeals, 212 SCRA 25 (1992).
Under Article 1883 of the Civil Code, if an agent acts in his own name, the principal has no
right of action against the persons with whom the agent has contracted; neither have such
persons against the principal. In such case the agent is the one directly bound in favor of the
person with whom he has contracted, as if the transaction were his own, except when the
contract involves things belonging to the principal. Since the principals have caused their
agent to enter into a charter party in his own name and without disclosing that he acts for any
principal, then such principals have no standing to sue upon any issue or cause of action
arising from said charter party. Marimperio Compania Naviera, S.A. v. Court of Appeals, 156
SCRA 368 (1987).
(2) Agent Is Directly Bound to Third Person as If the Transaction Were His Own
When the agent executes a contract in his personal capacity, the fact that he is described
in the contract as the agent of the principal and the properties mortgaged pertain to the
principal, may not be taken to mean that he enters into the contract in the name of the
principal. A mortgage on real property of the principal not made and signed in the name of
the principal is not valid as to the principal. National Bank v. Palma Gil, 55 Phil. 639 (1931);
National Bank v. Agudelo, 58 Phil 655 (1933).
A party who signs a bill of exchange as an agent (as the President of the company), but
failed to disclose his principal becomes personally liable for the drafts he accepted, even
when he did so expressly as an agent. Section 20 of the Negotiable Instruments Law says
provides expressly that when an agent signs in an representative capacity, but does not
indicate or disclose his principal would incur personal liability on the bill of exchange. Phil.
Bank of Commerce v. Aruego, 102 SCRA 530 (1981).
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When a commission agent enters into a shipping contract in his own name to transport the
grains of NFA on a vessel owned by a shipping company, NFA cannot claim it is not liable to
the shipping company under Article 1883 when things belong to the principal are dealt with,
the agent is bound to the principal although he does not assume the character of such agent
and appears acting in his own name. In other words, the agent apparent representation
yields to the principals true representation and that, in reality and in effect, the contract must
be considered as entered into between the principal and the third person Corollarily, if the
principal can be obliged to perform his duties under the contract, then it can also demand the
enforcement of its rights arising from the contract. National Food Authority v. IAC, 184 SCRA
166 (1990).
(3) Provisions Are Without Prejudice to Actions Between Principal and Agent [See
discussions below on breach by agent of his duty of loyalty]
4. Specific Obligation Rules for Agents
a. No Obligation of Agent to Advance Funds (Art. 1886):
c. Obligation Not Carry Out Agency If Execution Would Manifestly Result in Loss or
Damage to Principal (Art. 1888)
While it is true that an agent who acts for a revealed principal in the making of a contract
does not become personally bound to the other party in the sense that an action can ordinarily be
maintained upon such contract directly against the agent, yet that rule does not control when the
agent cannot intercept and appropriate the thing which the principal is bound to deliver, and
thereby make the performance of the principal impossible. The agent in any event must be
precluded from doing any positive act that could prevent performance on the part of his principal,
otherwise the agent becomes liable also on the contract. National Bank v. Welsh Fairchild, 44
Phil 780 (1923).
The director and general manager of the stock corporation, who also was the majority
stockholder, and was 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 parcels of land to the
Government, can be treated legally as being an agent of the stockholders of the company, with a
fiduciary obligation to reveal to the other stockholders such special information before
proceeding to purchase from the other stockholders their shares of stock. If such director obtains
the purchase of 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. Strong 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. Sing Juco and Sing Bengco v.
Sunyantong and Llorente, 43 Phil 589 (1922).
Where an uncle who was acting as agent or administrator of property belonging to a niece
had procured a Torrens title in his own name to said property, he is deemed to be a trustee, and
he must surrender the property to the niece and transfer title to her. The relations of an agent to
his principal are fiduciary and in regard to the property forming the subject-matter of the agency,
he is estopped from acquiring or asserting a title adverse to that of the principal. Consequently,
an action in personam will lie against an agent to compel him to return or retransfer to his
principal, or the latters estate, the real property committed to his custody as such agent and also
to execute the necessary documents of conveyance to effect such retransfer. Severino v.
Severino, 44 Phil. 343 (1923).
Why include those not due the principal? Because legally, it is the principal
who receives them and therefore agent has to account for them
The possession of an agent of the money or property of his principal is termed juridical
possession which means a possession which gives the transferee a right over the thing
which the transferee may set up even against the owner. Chua-Burce v. Court of Appeals,
331 SCRA 1 (2000). Consequently:
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An insurance agent may be convicted of estafa for his failure to deliver sums of money
paid to him as an insurance agent for the account of his employer. Where nothing to
the contrary appears, the provisions of article 1720 of the Civil Code impose upon an
agent the obligation to deliver to his principal all funds collected on his account. U.S. v.
Kiene, 7 Phil 736 (1907)
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. Guzman v. Court of Appeals, 99 Phil. 703 (1956).
Whereas, a bank teller or cash custodian, being merely an employee of the bank,
cannot be held liable for estafa, but rather for theft. Chua-Burce v. Court of Appeals,
331 SCRA 1 (2000).
The relation of an agent to his principal is fiduciary and it is elementary that in regard to
property subject matter of the agency, an agent is estopped from acquiring or asserting a title
adverse to that of the principal. His position is analogous to that of a trustee and he cannot,
consistently with the principles of good faith, be allowed to create in himself an interest in
opposition to that of his principal or cestui que trust. Hernandez v. Hernandez, 645 SCRA
24 (2011).
h. DUTY OF DILIGENCE: Agent Liable for Fraud and Negligence (Arts. 1884 and 1909)
(1) What Shall Aggravate or Mitigate Liability Arising Out of Negligence Whether
Agency Was for a Compensation or Was Gratuitous
Where the agent by means of misrepresentation of the condition of the market induces his
principal to sell to him the property consigned to his custody at a price less than that for which he
has already contracted to sell part of it, and who thereafter disposes of the whole at an advance,
is liable to principal for the difference. Such conduct on the part of the agent constituted fraud,
entitling the principal to annul the contract of sale. Although commission earned by the agent on
the fraudulent sale may be disallowed, nonetheless commission earned from other transactions
which were not tainted with fraud should be allowed the agent. Cadwallader v. Smith Bell, 7 Phil.
461 (1907).
In consignment of goods for sale, as a form of agency, the consignee-agent is relieved from
his liability to return the goods received from the consignor-principal when it is shown by
preponderance of evidence in the civil case brought that the goods were taken from the custody
of the consignee by robbery, and no separate conviction of robbery is necessary to avail of the
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exempting provisions under Article 1174 for force majeure. Austria v. CAourt of Appeals, 39
SCRA 527 (1971).
The Court brushed aside the contention that since it was merely acting as collecting bank, it
was the drawee-bank that should be held liable for the loss of a depositor: In stressing that it
was acting only as a collecting agent for Golden Savings, 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,
Article 21909 of the Civil Code clearly provides that the agent is responsible not only for fraud,
but also for negligence. Metrobank v. Court of Appeals, 194 SCRA 169 (1991).
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 fairplay, and an agent will not be permitted to pervert his authority to his own personal
advantage. Cosmic Lumber v. Court of Appeals, 265 SCRA 168 (1996).
The well-settled rule is that an agent is also responsible for any negligence in the
performance of its function (Art. 1909) and is liable for the damages which the principal may
suffer by reason of its negligent act. (Art. 1884). British Airways v. Court of Appeals, 285
SCRA 450 (1998).
c. All Acts of Substitute Appointed Against Principals Prohibition Are Void (as
Against the Principal)
The law on agency in our jurisdiction 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 agent who receives jewelry for sale or return cannot be charged with
estafa for there was no misappropriation when she delivered the jewelry to a sub-agent under the
sale terms which the agent received it, but a client of the sub-agent absconded with them and
could no 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. Serona v.
Court of Appeals, 392 SCRA 35 (2002).10
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. Baltazar v. Ombudsman
510 SCRA 74 (2006).
In a situation where the special power of attorney to sell a piece of land contains a prohibition
to appoint a substitute, but nevertheless the agent appoints a substitute who executes the deed
10This reiterates the ruling in People v. Nepomuceno, CA 46 O.G. 6128 (1949); Lim v. Court of Appeals, 271 SCRA 12 (1997);
People v. Trinidad, CA 53 O.G. 732 (1956).
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of sale in name of the principal, while it may be true that the agent may have acted outside the
scope of his authority, that did not make the sale void, but merely unenforceable under the
second paragraph of Article 1317 of the Civil Code. And only the principal denied the sale, his
acceptance of the proceeds thereof are tantamount to ratification thereof. Escueta v. Lim, 512
SCRA 411 (2007).
6. Rule on Liability When Two or More Agents Appointed by the Same Principal
a. Responsibility of Two or More Agents Not Solidary (Art. 1894)
(1) Compare: Two principals with common agent - Each principal solidarily liable
(Art. 1915)
When two letters of attorney are issued simultaneously to two different attorneys-in-fact, but
covering the same powers shows that it was not the principals intention that they should act
jointly in order to make their acts valid; the separate act of one of the attorney-in-fact, even when
not consented to by the other attorney in fact, is valid and binding on the principal, especially the
principal did not only repudiate the act done, but continued to retain the said attorney-in-fact.
Municipal Council of Iloilo v. Evangelista, 55 Phil. 290 (1930).
that contract must, generally, either be parties to said contract. Uy v. Court of Appeals, 314
SCRA 69 (1999).11
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.
Angeles v. Philippine National Railways (PNR), 500 SCRA 444 (2006).12
Article 1897 reinforces the familiar doctrine that an agent, who acts as such, is not personally
liable to the party with whom he contracts. Eurotech Industrial Technologies, Inc. v. Cuizon, 521
SCRA 584 (2007).
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.
Villegas v. Lingan, 526 SCRA 63 (2007).
It is a basic rule in the law of agency that a principal is subject to liability for loss caused to
another by the latters reliance upon a deceitful representation by an agent in the course of his
employment (1) if the representation is authorized; (2) if it is within the implied authority of the
agent to make for the principal; or (3) if it is apparently authorized, regardless of whether the agent
was authorized by him or not to make the representation. Pahud v. Court of Appeals, 597 SCRA
13 (2009).
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To reiterate, the first part of Article 1897 declares that the principal is liable in cases when the
agent acted within the bounds of his authority. Under this, the agent is completely absolved of any
liability. The second part of the said provision presents the situations when the agent himself
becomes liable to a third party when he expressly binds himself or he exceeds the limits of his
authority without giving notice of his powers to the third person. However, it must be pointed out
that in case of excess of authority by the agent, like what petitioner claims exists here, the law
does not say that a third person can recover from both the principal and the agent. It is well to
state here that Article 1897 of the New Civil Code upon which petitioner anchors its claim does not
hold that in case of excess of authority, both the agent and the principal are liable to the other
contracting party. Eurotech Industrial Technologies, Inc. v. Cuizon, 521 SCRA 584 (2007).
c. Agent Is Criminally Liable for Crime Committed Even in the Pursuit of the Agency
The Law on Agency, as applied in civil cases, has no application in criminal cases, and no man
can escape punishment when he participates in the commission of a crime upon the ground that
he simply acted as an agent of any party. People v. Chowdury, 325 SCRA 572 (2000).
is controverted, the burden of proof is upon them to establish it. Harry Keeler v. Rodriguez, 4 Phil.
19). Hence, when the bank accepted a letter of guarantee signed by a mere credit administrator on
behalf of the finance company, the burden was on the bank to satisfactorily prove that the credit
administrator with whom they transacted acted within the authority given to him by his principal.
BA Finance v. Court of Appeals, 211 SCRA 112 (1992).
As far as third persons are concerned, an act is deemed to have been performed within the
scope of the agents authority, if such is within the terms of the power of attorney, as written, even
if the agent has in fact exceeded the limits of his authority according to an understanding between
the principal and his agent. Eugenio v. Court of Appeals, 239 SCRA 207 (1994).
When one knowingly deals with the sales representative of a car dealership company, one
must realize that one is dealing with a mere agent, and it is incumbent upon such person to act
with ordinary prudence and reasonable diligence to know the extent of the sales representatives
authority as an agent in respect of contracts to sell the vehicles. A person dealing with an agent is
put upon inquiry and must discover upon his peril the authority of the agent. [Normal business
practice does not warrant a sales representative to have power to enter into a valid and binding
contract of sale for the company.] Toyota Shaw, Inc. v. CAourt of Appeals, 244 SCRA 320
(1995).
Every person dealing with an agent is put upon inquiry and must discover upon his peril the
authority of the agent. If he does not make such inquiry, he is chargeable with knowledge of the
agents authority, and his ignorance of that authority will not be any excuse. Persons dealing with
an assumed agent, whether the assumed agency be a general or special one, are bound at their
peril, if they would hold the principal, to ascertain not only the fact of the agency but also the
nature and extent of the authority, and in case either is controverted, the burden of proof is upon
them to establish it. Bacaltos Coal Mines v. Court of Appeals, 245 SCRA 460 (1995).13
The fact that one is dealing with an agent, whether the agency be general or special, should
be a danger signal. The mere representation or declaration of one that he is authorized to act on
behalf of another cannot of itself serve as proof of his authority to act as agent or of the extent of
his authority as agent. Yu Eng Cho v. PANAM, 328 SCRA 717 (2000).
The settled rule is that persons dealing with an assumed agent are bound at their peril, and if
they would hold the principal liable, to ascertain not only the fact of agency but also the nature and
extent of authority, and in case either is controverted, the burden of proof is upon them to prove it.
In this case, respondent Fernandez specifically denied that she was authorized by the
respondents-owners to sell the properties, both in her answer to the complaint and when she
testified. Litonjua v. Fernandez, 427 SCRA 478 (2004).
The ignorance of a person dealing with an agent as to the scope of the latters authority is no
excuse to such person and the fault cannot be thrown upon the principal. A person dealing with an
agent assumes the risk of lack of authority of the agent. He cannot charge the principal by relying
upon the agents assumption of authority that proves to be unfounded. The principal, on the other
hand, may act on the presumption that third persons dealing with his agent will not be negligent in
failing to ascertain the extent of his authority as well as the existence of his agency. Manila
Memorial Park Cemetery, Inc. v. Linsangan, 443 SCRA 377 (2004).
A person dealing with a known agent is not authorized, under any circumstances, blindly to
trust the agents; statements as to the extent of his powers; such person must not act negligently
but must use reasonable diligence and prudence to ascertain whether the agent acts within the
scope of his authority. The settled rule is that, persons dealing with an assumed agent are bound
at their peril, and if they would hold the principal liable, to ascertain not only the fact of agency but
also the nature and extent of authority, and in case either is controverted, the burden of proof is
upon them to prove it. In this case, the petitioners failed to discharge their burden; hence,
petitioners are not entitled to damages from respondent EC. Litonjua, Jr. v. Eternit Corp., 490
SCRA 204 (2006).
When dealing with an assumed agent, a third party should ascertain not only the fact of
agency, but also the nature and extent of the agents authority. Escueta v. Lim, 512 SCRA 411
(2007).
The Bank of Commerce clearly failed to observe the required degree of caution in ascertaining
the genuineness and extent of the authority of Santos to mortgage the subject property. It should
not have simply relied on the face of the documents submitted by Santos, as its undertaking to
lend a considerable amount of money require of it a greater degree of diligence. That the person
applying for the loan is other than the registered owner of the real property being mortgaged
should have already raised a red flag and which should have induced Bank of commerce to make
inquiries into and confirm Santos authority to mortgage the Spouses San Pablos property. A
13Citing Pineda v. Court of Appeals, 226 SCRA 754 (1993); Veloso v. La Urbana, 58 Phil. 681 (1933); Harry E. Keller Electric Co. v.
Rodriguez, 44 Phil. 19 (1922); Deen v. Pacific Commercial Co., 42 Phil. 738 (1922); and Strong v. Repide, 6 Phil. 680 (1906).
Reiterated in Manila Memorial Park Cemetery, Inc. v. Linsangan, 443 SCRA 377 (2004).
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person who deliberately ignores a significant fact that could create suspicion in an otherwise
reasonable person is not an innocent purchaser for value. Bank of Commerce v. San Pablo, Jr.,
522 SCRA 713 (2007).
EThe Court has stressed time and again that every person dealing with an agent is put upon
inquiry, and must discover upon his peril the authority of the agent, and this is especially true
where the ac of the agent is of unusual nature. If a person makes no inquiry, he is chargeable with
knowledge of the agents authority, and his ignorance of that authority will not be any excuse.
Thus, the undue haste in granting the loan without inquiring into the ownership of the subject
properties being mortgage, as well as the authority of the supposed agent to constitute the
mortgages on behalf of the owners, bank accepting the mortgage cannot be deemed a mortgagee
in good faith. San Pedro v. Ong, 569 SCRA 767 (2008).
It is true that a person dealing with an agent is not authorized, under any circumstances, to
trust blindly the agents statements as to the extent of his powers. Such person must not act
negligently but must use reasonable diligence and prudence to ascertain whether the agent acts
within the scope of his authority. The settled rule is that persons dealing with an assumed agent
are bound at their peril, and if they would hold the principal liable, they must ascertain not only the
fact of agency, but also the nature and extent of authority, and in case either is controverted, the
burden of proof is upon them to prove it. Soriamont Steamship Agencies, Inc. v. Sprint Transport
Services, Inc., 592 SCRA 622 (2009).
The burden of proof to show that an agent acting in excess of authority to be able to invoke the
rule under Article 1897 of the Civil Code to make the agent personally liable is on the person who
alleges the same. Soriamont Steamship Agencies, Inc. v. Sprint Transport Services, Inc., 592
SCRA 622 (2009).
e. Third Person Cannot Set-up Facts of Agents Exceeding Authority Where Principal
Ratified or Signified Willingness to Ratify Agents Acts (Art. 1901)
(1) Principal Should Be the One to Question Agents Lack or Excess of Authority
(2) Presentation of Power of Attorney (Must) Be Required by Third Party (Art.
1902)
(3) Private or Secret Orders of Principal Do Not Prejudice Third Persons Who
Relied Upon Agents Power of Attorney or Principals Instruction (Art. 1902)
In an expropriation proceeding, the State cannot raise the alleged lack of authority of the
counsel of the owner to bind his client in a compromise agreement because such lack of
authority may be questioned only by the principal or client. [Since it is within the right or
prerogative of the principal to ratify even the unauthorized acts of the agent]. Commissioner of
Public Highways v. San Diego, 31 SCRA 617 (1970).
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b. When Done Outside of Agents Scope of Authority: Principal Not Bound (Art. 1910)
Where the memorial park company has authorized its agent to solicit and remit offers to
purchase internment spaces obtained on forms provided by the company, then the terms of the offer
to purchase, therefore, are contained in such forms and, when signed by the buyer and an
authorized officer of the company, becomes binding on both the company and said buyer. And the
fact that the buyer and the agent had an agreement different from that contained in the forms
accepted does not bind the company, since the same were made obviously outside the agents
authority. When the power of the agent to sell are governed by the written form, it is beyond the
authority of the agent as a fact that is deemed known and accepted by the third person, to offer
terms and conditions outside of those provided in writing. Manila Memorial Park Cemetery, Inc.
v. Linsangan, 443 SCRA 377 (2004).
c. EXCEPT:
(1) When Principal Ratifies, Expressly or Impliedly (Art. 1910)
Since the general rule is that the principal is bound by the acts of his agent in the scope of the
agency, therefore when the agent had full authority to make the tax returns and file them, together
with the check payments, with the Collector of Internal Revenue on behalf of the principal, then the
effects of dishonesty of the agent must be borne by the principal, not by an innocent third party who
has dealt with the dishonest agent in good faith. Lim Chai Seng v. Trinidad, 41 Phil. 544 (1921).
A person with whom an agent has contracted in the name of his principal, has a right of action
against the purported principal, even when the latter denies the commission or authority of the
agent, in which case the party suing has the burden of proving the existence of the agency
notwithstanding the purported principals denial thereof. If the agency relation is proved, then the
principal shall be held liable, and the agent who is made a party to the suit cannot be held
personally liable. On the other hand, if the agency relationship is not proven, it would be the agent
who would become liable personally on the contract entered into. Nantes v. Madriguera, 42 Phil.
389 (1921).
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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 control of the buyer when in fact it was in
adverse possession of third parties, the seller-principal is bound for such misrepresentations and
cannot insist that the contract is valid and enforceable; the seller-principal cannot accept the
benefits derived from such representations of the agent and at the same time deny the responsibility
for them. Gonzales v. Haberer, 47 Phil. 380 (1925).
When an agent has been empowered to sell hemp in a foreign country, that express power
carries with it the implied power to make and enter into the usual and customary contract for its
sale, which sale contract may provide for settlement of issues by arbitration. We are clearly of the
opinion that the contract in question is valid and binding upon the defendant [principal], and that
authority to make and enter into it for and on behalf of the defendant [principal], but as a matter of
fact the contract was legally ratified and approved by the subsequent acts and conducts of the
defendant [principal]. Robinson, Fleming and Co. v. Cruz, 49 Phil. 42 (1926).
The authority to sell any kind of realty that might belong to the principal was held to include
also such as the principal might afterwards have during the time it was in force. Katigbak v. Tai Hing
Co., 52 Phil. 622 (1928).
The registered owner who placed in the hands of another an executed document of transfer of
the registered land, was held to have effectively represented to a third party that the holder of such
document is authorized to deal with the property. Blondeau v. Nano,. 61 Phil. 625 (1935); Domingo
v. Robles, 453 SCRA 812 (2005).
When the principal has duly empowered his agent to enter into a contract of mortgage over his
property as well as a contract of surety, but the agent only entered into a contract of mortgage, no
inference from the power of attorney can be made to make the principal liable as a surety, because
under the law, a surety must be express and cannot be presumed. Wise and Co. v. Tanglao, 63 Phil.
372 (1936).
When bank officers, acting as agent, had not only gone against the instructions, rules and
regulations of the bank in releasing loans to numerous borrowers who were qualified, then such
bank officers are liable personally for the losses sustained by the bank. The fact that the 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. PNB v. Bagamaspad, 89 Phil. 365 (1951).
As a general rule, the mismanagement of the business of a party by his agents does not relieve
said party from the responsibility that he had contracted with third persons. Commercial Bank &
Trust Co. v. Republic Armored Car Services Corp., 8 SCRA 425 (1963).
Pursuant to the terms of the judgment, petitioners had issued a check in payment of the
judgment debt and made arrangements with the bank for the latter to allow the encashment thereof;
but the check was dishonored by the bank which increased the amount of the judgment debt. When
the petitioner sought not to be made liable for the alleged oversight of the bank, the Court denied
such defense on the ground that The principal is responsible for the acts of the agent, done within
the scope of his authority, and should bear the damages caused upon third parties. If the fault or
oversight lies on the agent bank, the petitioners are free to sue said bank for damages occasioned
thereby. Lopez v. Alvendia, 12 SCRA 634 (1964).
Where the principal issued the checks in full payment of the taxes due, but his agents had
misapplied the check proceeds, it was held that the principal would still be liable, because when a
contract of agency exists, the agents acts bind his principal, without prejudice to the latter seeking
recourse against the agent in an appropriate civil or criminal action. Dy Peh v. Collector of Internal
Revenue, 28 SCRA 216 (1969).
Under the principle that knowledge of the agent is considered knowledge by the principle, the
Court ruled that the spouses cannot defend by contending lack of knowledge of the rules upon
which they received their tickets from the airline company since the evidence bore out that their
travel agent, who handled their travel arrangements, was duly informed by proper representatives of
the airline company. Air France v. Court of Appeals, 126 SCRA 448 (1983)
When a third party admitted in her written correspondence that she had contracted with the
principal through an duly authorized agent, and then sues both the principal and the agent on an
alleged breach of that contract, and in fact later on dismisses the suit insofar as the principal is
concerned, there can be no cause of action against the agent. Since it is the principal who should
be answerable for the obligation arising from the agency, it is obvious that if a third person waives
his claims against the principal, he cannot assert them against the agent. Bedia v. White, 204 SCRA
273 (1991).
The fact that the agent defrauded the principal in not turning over the proceeds of the
transactions to the latter cannot in any way relieve or exonerate such principal from liability to the
third persons who relied on his agents authority. It is an equitable maxim that as between two
innocent parties, the one who made it possible for the wrong to be done should be the one to bear
the resulting loss. Cuison v. Court of Appeals, 227 SCRA 391 (1993).
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On the basis of the general principle that the principal is responsible for the acts of the agent,
done within the scope of his authority, and should bear the damage caused to third persons, the
principal cannot absolve itself from the damages sustained by its buyer on the premise that the fault
was primarily caused by its agent in pointing to the wrong lot, since the agent was acting within its
authority as the sole real estate representative [of the principal-seller] when it made the delivery to
the buyer, although [i]n acting within its scope of authority, [the agent] was, however, negligent,
since it is negligence that is the basis of principals liability since under Arts. 1909 and 1910, the
liability of the principal for acts done by the agent within the scope of his authority do not exclude
those done negligently. Pleasantville Dev. v. Court of Appeals, 253 SCRA 10 (1996).
When a bank, by its acts and failure to act, has clearly clothed its manager with apparent
authority to sell an acquired asset (piece of land) in the normal course of business, it is legally
obliged to confirm the transaction by issuing a board resolution to enable the buyers to register the
property in their names. Rural Bank of Milaor v. Ocfemia, 325 SCRA 99 (2000).
Ratification in agency is the adoption or confirmation by one person of an act performed on his
behalf by another without authority. The substance of the doctrine is confirmation after conduct,
amounting to a substitute for a prior authority. Ordinarily, the principal must have full knowledge at
the time of ratification of all the material facts and circumstances relating to the unauthorized act of
the person who assumed to act as agent. Thus, if material facts were suppressed or unknown, there
can be no valid ratification and this regardless of the purpose or lack thereof in concealing such
facts and regardless of the parties between whom the question of ratification may arise.
Nevertheless, this principle does not apply if the principals ignorance of the material facts and
circumstances was willful, or that the principal chooses to act in ignorance of the facts. However, in
the absence of circumstances putting a reasonably prudent ma on inquiry, ratification cannot be
implied as against the principal who is ignorant of the facts. Thus, the acts of an agent beyond the
scope of his authority do not bind the principal, unless he ratifies them, expressly or impliedly. Only
the principal can ratify; the agent cannot ratify his own unauthorized acts. Moreover, the principal
must have knowledge of the acts he is to ratify. Manila Memorial Park Cemetery, Inc. v.
Linsangan, 443 SCRA 377, 394 (2004).
Since the basis of agency is representation, then the question of whether an agency has been
created is ordinarily a question which may be established in the same way as any other fact, either
by direct or circumstantial evidence. Though that fact or extent of authority of the agents may not,
as a general rules, be established from the declarations of the agents alone, if one professes to act
as agent for another, she may be estopped to deny her agency both as against the asserted
principal and the third persons interested in the transaction in which he or he is engaged. Doles v.
Angeles, 492 SCRA 607 (2006).
The general rule is that the principal is responsible for the acts of its agent done within the
scope of its authority, and should bear the damage caused to third persons. When the agent
exceeds his authority, the agent becomes personally liable for the damage. But even when the
agent exceeds his authority, the principal is still solidarily liable together with the agent if the
principal allowed the agent to act as though the agent had full powers. In other words, the acts of an
agent beyond the scope of his authority do not bind the principal, unless the principal ratifies them,
expressly or implied. Ratification in agency is the adoption or confirmation by one person of an act
performed on his behalf by another without authority. Filipinas Life Assurance Co. v. Pedroso,
543 SCRA 542 (2008)
(2) Where Agent Acts in Excess of Authority, Where the Principal Allowed Agent to
Act as Though Agent Had Full Powers (Art. 1911)
(a) Exception to the Rule that Obligations Are Presumed to Be Joint
(b) Doctrine of Apparent Authority
The doctrine of apparent authority focuses on two factors, first the principals
manifestations of the existence of agency which need not be expressed, but may be
general and implied, and second is the reliance of third persons upon the conduct of the
principal or agent. Under the doctrine of apparent authority, the question in every case is
whether the principal has by his voluntary act placed the agent in such a situation that a
person of ordinary prudence, conversant with business usages and the nature of the
particular business, is justified in presuming that such agent has authority to perform the
particular act in question. Professional Services, Inc. v. Court of Appeals, 544 SCRA
170 (2008); 611 SCRA 282 (2010).
Easily discernible from the foregoing is that apparent authority is determined only by the
acts of the principal and not by the acts of the agent. The principal is, therefore, not
responsible where the agent's own conduct and statements have created the apparent
authority. Sargasso Construction & Dev.elopment Corp. v. PPAhilippine Ports
Authority, 623 SCRA 260 (2010).
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There can be no apparent authority of an agent without acts or conduct on the part of the
principal, which must have been known and relied upon in good faith as a result of the
exercise of reasonable prudence by a third party claimant, and which must have produced a
change of position to the third partys detriment. In the present case, the trial courts
decision was utterly silent on the manner by which the supposed principal, has clothed or
held out its branch manager as having the power to enter into an agreement, as claimed
by petitioners. No proof of the course of business, usages and practices of the bank about,
or knowledge that the board had or is presumed to have of, its responsible officers acts
regarding bank branch affairs, was ever adduced to establish the branch managers
apparent authority to verbally alter the terms of mortgage contracts. Banate v. Philippine
Countryside Rural Bank, 625 SCRA 21 (2010).
between the expiration of petitioners' authority to sell and the consummation of the sale, cannot
authorize compelling the principal to pay the stipulated brokers fee, since the agent was no longer
entitled thereto. The Court takes into strong consideration that utter lack of evidence of the agent
showing any further involvement in the negotiations between principal and buyer during that period
and in the subsequent processing of the documents pertinent to said sale. The broker was not the
efficient procuring cause in bringing about the sale in question, and are therefore not entitled to the
stipulated brokers commission. Inland Realty v. Court of Appeals, 273 SCRA 70 (1997).
d. Right of Agent to Retain Object of Agency in Pledge for Advances and Damages
(Art. 1914)
(1) Agent Bound to deliver to principal everything he received even if not due the
principal (Art. 1891).
(2) Thing Pledged May Be Sold Only After Demand of Amount Due Public
Auction to Take Place within One (1) Month After Demand. Debtor May Demand
Return of Not Sold within This Period (Art. 2122).
3. Obligation of Two or More Principals to Agent Appointed for Common Transactions
Solidary (Art. 1915)
a. Obligation of the Principals Is Solidary Because of Their Common Interest
When the law expressly provides for solidarity of the obligation, as in the liability of coprincipals in a contract of agency, each obligor may be compelled to pay the entire obligation.
The agent may recover the whole compensation from any one of the co-principals, as in this
case. De Castro v. Court of Appeals, 384 SCRA 607 (2002).
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b. Compare: Two or More Agents with One Principal Agents Obligation Is Solidary
(Art 1894).
c. Right of Each Principal to Revoke Authority of Common Agent (Art. 1925).
4. Rights of Persons Who Contracted for Same Thing, One With Principal and the Other
With Agent (Art. 1916)
a. That of Prior Date Is Preferred
b. If a Double Sale Situation Art. 1544 Governs
5. Liability of Principal and Agent to Third Persons Whose Contract Must Be Rejected
Pursuant to Art. 1916 (Art. 1917)
a. If Agent in Good Faith Principal Liable
b. If Agent in Bad Faith Agent alone Liable
6. Liability of Principal to Third Persons for Acts of the Agents Employees
The mere fact that the employee of the airline company's agent has committed a tort is not
sufficient to hold the airline company liable. There is no vinculum juris between the airline company
and its agent's employees and the contractual relationship between the airline company and its
agent does not operate to create a juridical tie between the airline company and its agent's
employees. Article 2180 of the Civil Code does not make the principal vicariously liable for the tort
committed by its agent's employees and the principal-agency relationship per se does not make the
principal a party to such tort; hence, the need to prove the principal's own fault or negligence.
Spouses Viloria v. Continental Airlines, Inc., G.R. No. 188288, 16 January 2012.
Compare:
Thus, with regard to the delivery of the petroleum, Villaruz was acting as the agent of petitioner
Petron. For a fee, he delivered the petroleum products on its behalf. Notably, petitioner even
imposed a penalty clause in instances when there was a violation of the hauling contract, wherein it
may impose a penalty ranging from a written warning to the termination of the contract. Therefore,
as far as the dealer was concerned with regard to the terms of the dealership contract, acts of
Villaruz and his employees are also acts of petitioner. Petron Corp. v. Spouses Cesar Jovero
& Erma F. Cudilla, G.R. No. 151038, 18 January 2012.
V. EXTINGUISHMENT OF AGENCY
1. How and When Agency Extinguished (Art. 1919)
a. By Principals Revocation of Agency (Express or Implied)
b. By Agents Withdrawal from Agency
c. By Death, Civil Interdiction, Insanity or Insolvency of the Principal or the Agent
d. By the Dissolution of the Juridical Entity Which Entrusted or Accepted the Agency
e. By the Accomplishment of the Object or Purpose of Agency
f. By the Expiration of the Period for Which Agency Was Constituted
2. Express Revocation: The Principal May Revoke an Agency at Will
a. In Which Case, Principal May Compel Agent to Return the Document Evidencing
the Agency. (Art. 1920)
Where no time for the continuance of the agency is fixed by the terms, the principal is at
liberty to terminate it at will subject only to the requirements of good faith. Daon v. Brimo, 42 Phil
133 (1921).
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3. Implied Revocation
a. Appointment of New Agent for Same Business/Transaction (Art. 1923)
(1) Impliedly Revoked as to Agent Only
(2) 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. Aznar 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, the Court held that without evidence showing that the son was informed of the
issuance of the power of attorney to the mother, the transaction effected by the son pursuant to his
power of attorney, was valid and binding. Garcia v. De Manzano, 39 Phil 577 (1919).
Code of Commerce expressly authorizes a merchant to discharge his employee or agent for fraud
or breach of trust, or engaging in any commercial transaction for their own account without the
express knowledge and permission of the principal. Manila Trading v. Manila Trading Laborers
Assn., 83 Phil 297 (1949).
When the terms of the agency contract allowed the agent to dispose of, sell, cede, transfer
and convey x x x until all the subject property as subdivided is fully disposed of, the agency is one
with a period and it is not extinguished until all the lots have been disposed of. Consequently, if the
contract is terminated by the principal before all the lots in the subdivision has been disposed of,
there is a breach of contract for which the principal would be liable for damages. Dialosa v. Court
of Appeals, 130 SCRA 350 (1984).
When the revocation of the agency was effected by the principal primarily because of the
refusal of the agent to share fifty percent of the commissions earned under the contract of agency,
such revocation was done in bad faith, and for which the principal can be held liable for damages
including the payment of full commissions earned by the agent at the time of the revocation of the
agency. Valenzuela v. Court of Appeals, 191 SCRA 1 (1990).
Courts are without authority to reinstate an agency arrangement that has been revoked or
terminated by the principal. In an agent-principal relationship, the personality of the principal is
extended through the facility of the agent. In so doing, the agent, by legal fiction, becomes the
principal, authorized to perform all acts which the latter would have him do. Such a relationship
can only be effected with the consent of the principal, which must not, in any way, be compelled by
law or by any court. The Agreement itself between the parties states that either party may
terminate the Agreement without cause by giving the other 30 days notice by letter, telegram or
cable. (emphasis supplied) We, therefore, set aside the portion of the ruling of the respondent
appellate court reinstating Orient Air as general sales agent of American Air. Orient Air Services
v. Court of Appeals, 197 SCRA 645, 656 (1991).
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evident that the agency ceases to be freely revocable by the sole will of the principal. Valenzuela
v. Court of Appeals, 191 SCRA 1 (1990).
NASUTRA, in order to finance its undertaking as the marketing agent of PHILSUCOM (which
was by law the sole buying and selling agent of sugar on the quedan permit level), applied for and
was grant a P408 Million Revolving Credit Line by PNB, by which every time NASUTRA availed of
the credit line, it executed a promissory note in favor of PNB. Eventually, in order to stabilize sugar
liquidation prices at a targeted minimum price per picul . . . Also, the relationship between
NASUTRA/SRA and PNB when the former constituted the latter as its attorney-in-fact is not a
simpIe agency. NASUTRA/SRA has assigned and practically surrendered its rights in favor of PNB
for a substantial consideration. To reiterate, NASUTRA/SRA executed promissory notes in favor of
PNB every time it availed of the credit line. The agency established between the parties is one
coupled with interest which cannot be revoked or cancelled at will by any of the parties. National
Sugar Trading v. Philippine National Bank, 396 SCRA 528 (2003).
Even an agency coupled with interest may indeed be revoked on the ground of fraud committed
by the agent, which is really an act of rescission, the same must be clearly be proven. Bacaling
v. Muya, 380 SCRA 714 (2002).
b. When Revocation of Agents General Powers Effective Against Third Persons (Art.
1922)
Revocation Will not Prejudice Third Persons Who Deal with the Agent in
Good Faith and Without Knowledge of Revocation
However Notice of Revocation in a Newspaper of General Circulation Is
Sufficient Warning
Where a principal has been engaged, through his agent, in a series of purchase and sell
transactions with a merchant, and purported suspended the agent without informing the
merchant, the suspension of the agent could not work to the detriment of the merchant, thus:
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There is no convincing proof in the record that the orders given by the plaintiff to its agent
(Gutierrez) had ever been communicated to the defendant. The defendant had a perfect right to
believe, until otherwise informed, that the agent of the plaintiff, in his purchase of abaca and other
effects, was still representing the plaintiff in said transactions. The Court also found anomalous
the position taken by the principal whereby he was willing to ratify the acts of the agent in selling
goods to the merchant, but unwilling to ratify the agents acts in purchasing goods from the same
merchant. Cia. Gen. De Tobacos v. Diaba, 20 Phil 321 (1911).
While Art. 1358 of Civil Code requires that the contracts involving real property must appear
in a proper document, a revocation of a special power of attorney to mortgage a parcel of land,
embodied in a private writing, is valid and binding between the parties, such requirement of
Article 1358 being only for the convenience of the parties and to make the contract effective as
against third persons. PNB v. IAC, 189 SCRA 680 (1990).
When the principal owner of land executes a special power of attorney giving her agent the
power to mortgage the same, even when there has been a revocation thereof, but the same has
not been made known to third parties, then those who receive a mortgage on the properties in
good faith will be protected in their contract, for under Art. 1921 of the Civil Code, if an agency
has been entrusted for the purpose of contracting with specified persons, its revocation shall not
prejudice the latter if they were not given notice thereof. Lustan v. CA, 266 SCRA 663 (1997).
d. Obligation of Agent to Continue to Act Even After Withdrawing From Agency (Art.
1929)
Even If Agent Withdraws from the Agency for a Valid Reason, He Must
Continue to Act;
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specified in article 300 of the Code of commerce, dismiss such agent even before the termination of
the period. Barretto v. Santa Marina, 26 Phil. 440 (1913).
By reason of the very nature of the relationship between principal and agent, agency is
extinguished by the death of the principal or the agent. This is the law in this jurisdiction. Rallos v.
Felix Go Chan & Sons Realty Corp., 81 SCRA 251 (1978).
The death of a client divests his lawyer of authority to represent him as counsel, since a dead
client has no personality and cannot be represented by an attorney. Lavina v. Court of Appeals, 171
SCRA 691 (1988).15
b. Effect of Acts Done by Agent Without Knowledge of Principals Death (Art. 1931)
(1) Acts Are Valid Provided:
(i) Agent Does Not Know of Death or Other Cause of Extinguishment of
Agency;
(ii) Third Person Dealing with Agent Must Also Be in Good Faith (Not Aware of
Death or Other Cause)
Under Article 1931 of the Civil Code, we must uphold the validity of the sale of the land
effected by the agent only after the death of the principal, when no evidence was adduced to
show that at the time of sale both the agent and the buyers were unaware of the death of the
principal. Buason v. Panuyas, 105 Phil 795 (1959);. Reiterated in Herrera v. Uy Kim Guan, 1
SCRA 406 (1961).
15Also Barrameda v. Barbara, 90 Phil. 718 (1952); Caisip v. Hon. Cabangon, 109 Phil. 150 (1952).
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B.
BUSINESS TRUSTS
2. Kinds of Trust: (a) Express Trusts; and (b) Implied Trusts (Art. 1441)
Trust is the legal relationship between one person having an equitable ownership in property and
another person owning the legal title to such property, the equitable ownership of the former entitling
him to the performance of certain duties and the exercise of certain powers by the latter. Trust relations
between parties may either be express or implied. Vda. De Esconde v. CAourt of Appeals , 253 SCRA
66 (1996).19
16Also Huang v. Court of Appeals, 236 SCRA 429 (1994); Tala Realty Services Corp. v. Banco Filipino Savings and Mortgage
Bank, 392 SCRA 506 (2002).
17Advent Capital and Finance Corporation v. Alcantara [G.R. No. 183050. January 25, 2012
18Reiterated in Miguel v. Court of Appeals, 29 SCRA 760 (1969); Spouses Rosario v. Court of Appeals, 310 SCRA 464 (1999).
19Reiterated in Spouses Rosario v. Court of Appeals, 310 SCRA 464 (1999); DBP v. COA, 422 SCRA 459 (2004).
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b. Based on Property Relationship, Where Legal Title Is Held by One, and the Equitable
or Beneficial Title Is Held by Another (65 CORPUS JURIS 212)
A trust is a legal relationship between one person having an equitable ownership of the property
and another person owning the legal title to such property, the equitable ownership of the former
entitling him to the performance of certain duties and the exercise of certain powers by the latter.
What distinguishes a trust from other relations is the separation of legal title and equitable
20Reiterated in Spouses Rosario v. Court of Appeals, 310 SCRA 464 (1999); Caezo v. Rojas, 538 SCRA 242 (2007); Pealber v.
Ramos, 577 SCRA 509 (2009); DBP v. COA, DBP v. COA, 422 SCRA 459 (2004).
21Medina v. Court of Appeals, 109 SCRA 437, 445 (1981); Advent Capital and Finance Corporation v. Alcantara, G.R. No. 183050, 25
January 2012.
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ownership of the property. In a trust relation, legal title is vested in the fiduciary while equitable
ownership is vested in a cestui que trust. The petitioner alleged in her complaint 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. The 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. Caezo v. Rojas, 538 SCRA 242, 255 (2007).
Trust, in its technical sense, is a right of property, real or personal, held by one party for the
benefit of another it is a fiduciary relationship with respect to property, subjecting the person
holding the same to the obligation of dealing with the property for the benefit of another person. Guy
v. Court of Appeals, 539 SCRA 584 (2007).
22Reiterated in Ramos v. Ramos, 61 SCRA 284 (1974); Pealber v. Ramos, 577 SCRA 509 (2009).
23Reiterated Caezo v. Rojas, 538 SCRA 242 (2007); Booc v. Five Star Marketing Co., Inc., 538 SCRA 42 (2008).
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An express trust over real property cannot be constituted when nothing in writing was presented
to prove it; but it may be proved as an implied trust. Ty v. Ty, 553 SCRA 306 (2008).
In accordance with Article 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 Article 1443 is in the
nature of a statute of frauds. The term statute of frauds is descriptive of statutes which require
certain classes of contracts in writing. The statute does not deprive the parties of the right to
contract with respect to the matters therein involved, but merely regulates the formalities of the
contract necessary to render it enforceable. The effect of non-compliance is simply that no action
can be proved unless the requirement is complied with. Oral evidence of the contract will be
excluded upon timely objection. But if the parties to the action, during the trial, make no objection to
the admissibility of the oral evidence to support the contract covered by the statute, and thereby
permit such contract to be proved orally, it will be just as binding upon the parties as if it had been
reduced to writing. Pealber v. Ramos, 577 SCRA 509 (2009).
b. Contractual/Intervivos Trust
c. Testamentary Trust
A testamentary trust was created by a provision in the will whereby the testator proposed to
create trust for the benefit of a secondary school to be established in the town of Tayabas, naming
as trustee the ayutamineto of the town or if there be no ayutamiento, then the civil governor of the
Province of Tayabas. Government of P.I. v. Abadilla, 46 Phil. 642 (1924).
Although the will executed by the testator did not use the words trust or trustee, but the
intention to create one is clear since he ordered in his will that certain of his properties be kept
together undisposed during a fixed period, for a stated purpose. No particular or technical words
are required to create a testamentary trust. (69 C.J., p. 711.) Hence, the probate court certainly
exercised sound judgment in appointing a trustee to carry into effect the provisions of the will.
Lorenzo v. Pasadas, 64 Phil. 353 (1937).
a. The Trustor
A person who establishes a trust is called the trustor. DBP v. COA, 422 SCRA459 (2004);
Pealber v. Ramos, 577 SCRA 509 (2009).
b. The Trustee
One in whom confidence is reposed is known as the trustee. DBP v. COA, 422 SCRA459
(2004); Pealber v. Ramos, 577 SCRA 509 (2009).
question. In other words, when the transaction at hand could have been entered into by a trustee
either as such or in its individual capacity, then it must be clearly indicated that the liabilities
arising therefrom shall be chargeable to the trust estate, otherwise they are due from the trustee
in his personal capacity. Tan Senguan and Co. v. Phil. Trust Co., 58 Phil. 700 (1933).
(5) Trustee Generally Entitled to Receive a Fair Compensation for His Services.
Lorenzo v. Pasadas, 64 Phil. 353 (1937), citing Barney v. Saunders, 16 How., 535;
14 Law. Ed., 1047.
c. Beneficiary (Arts. 1440 and 1446)
In order that a trust may become effective there must, of course be a trustee and a cestui
que trust. The existence of an equivalent designated position in the testamentary trust to act as
trustee (i.e., the Civil Governor of Tayabas) complies with the requirement of a trustee. In regard
to private trusts it is not always necessary the the cestui que trust should be named, or even be
in esse at the time the trust is created in his favor. Thus a devise a father in trust for accumulation
for his children lawfully begotten at the time of his death has been held to be good although the
father had no children at the time of the vesting of the funds in him as trustee. In charitable trusts
such as the one here under discussion, the rule is still further relaxed. Government v.
Abadilla, 46 Phil. 642, 647 (1924).
Acceptance by beneficiary of gratuitous trust is not subject to the rules for the formalities of
donations. Cristobal v. Gomez, 50 Phil. 810 (1927)
The person for whose benefit the trust has been created is referred to as the beneficiary.
DBP v. COA, 422 SCRA459 (2004); Pealber v. Ramos, 577 SCRA 509 (2009).
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aware that the trust has been repudiated. Torbela v. Spouses Rosario, G.R. No. 140528, 07
December 2011.]
When there exists an express trust, prescription and laches will run only from the time the
express trust is repudiated. The Court has held that for acquisitive prescription to bar the action of
the beneficiary against the trustee in an express trust for the recovery of the property held in trust it
must be shown that: (a) the trustee has performed unequivocal acts of repudiation amounting to an
ouster of the cestui que trust; (b) such positive acts of repudiation have been made known to the
cestui que trust; and (c) the evidence thereon is clear and conclusive. Heirs of Tranquilino
Labiste v. Heirs of Jose Labiste, 587 SCRA 417 (2009).25
A trustee who obtains a Torrens title over the property held in trust by him for another cannot
repudiate the trust by relying on the registration. The rule requires a clear repudiation of the trust
duly communicated to the beneficiary. The only act that can be construed as repudiation was when
respondents filed the petition for reconstitution seeking registration only in his name. Heirs of
Tranquilino Labiste v. Heirs of Jose Labiste, 587 SCRA 417 (2009).
OLD RULE: There is a rule that a trustee cannot acquire by prescription the ownership of property
entrusted to him (Palma vs. Cristobal, 77 Phil. 712), or that 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 vs. Canlas, 94 Phil. 776; Cristobal vs. Gomez, 50 Phil. 810), or that the defense of
prescription cannot be set up in an action to recover property held by a person in trust for the benefit
of another (Sevilla vs. De los Angeles, 97 Phil. 875), or that property held in trust can be recovered
by the beneficiary regardless of the lapse of time (Marabilles vs. Quito, 100 Phil. 64; Bancairen vs.
Diones, 98 Phil. 122, 126 Juan vs. Zuiga, 62 O.G. 1351; 4 SCRA 1221; Jacinto vs. Jacinto, L17957, May 21, 1962. See Tamayo vs. Calljo, 147 Phil. 31, 317). # The [foregoing] rule applies
squarely to express trusts. The basis of the rule is that the possession of a trustee is not adverse.
Not being adverse, he does not acquire by prescription the property held in trust. Thus, Ssec.tion 38
of Act 190 provides that the law of prescription does not apply in the case of a continuing and
subsisting trust (Diaz vs. Gorricho and Aguado, 103 Phil. 261, 266 (1958); Laguna v. Levantino,
71 Phil. 566; Sumira vs. Vistan, 74 Phil. 138; Golfeo vs. Court of Appeals, 63 O.G. 4895, 12 SCRA
199; Caladiao vs. Santos, 63 O.G. 1956, 10 SCRA 691). Ramos v. Ramos, 61 SCRA 284, 299
(1974).
a. Resulting Trusts
The rule of imprescriptibility of an action to recover property held in trust may possible apply to a
resulting trust as long as the trustee has not repudiated the trust. A resulting trust is broadly defined
as a trust which is raised or created by the act or construction of law, but in its more restricted sense
it is a trust raised by implication of law and presumed always to have been contemplated by the
parties, the intention as to which is to be found in the nature of their transaction, but not expressed
in the deed or instrument of conveyance (89 C.J.S. 725). Examples of resulting trusts are found in
article[s] 1448 to 1445 of the Civil Code. Ramos v. Ramos, 61 SCRA 284 (1974).27
Resulting trusts are based on the equitable doctrine that valuable consideration and not legal
title determines the equitable title or interest and are presumed always to have been contemplated
by the parties. They arise from the nature or circumstances of the consideration involved in a
transaction whereby one person thereby becomes invested with legal title but is obligated in equity
25Pilapil v. Heirs of Maximino R. Briones, 514 SCRA 197 (2007); Caezo v. Rojas, 538 SCRA 242 (2007).
26Reiterated in Salao v. Salao, 70 SCRA 65, 80 (1976); Tigno v. Court of Appeals, 280 SCRA 271 (1997); Policarpio v. Court of
Appeals, 269 SCRA 344 (1997); Spouses Rosario v. Court of Appeals, 310 SCRA 464 (1999); Caezo v. Rojas, 538 SCRA 242
(2007); Pealber v. Ramos, 577 SCRA 509 (2009).
27Reiterated 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. Court of Appeals, 310 SCRA 464 (1999).
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to hold his title for the benefit of another. Spouses Rosario v. CAourt of Appeals, 310 SCRA 464
(1999).
A resulting trust is a species of implied trust that is presumed always to have been
contemplated by the parties, the intention as to which can be found in the nature of their transaction
although not expressed in a deed or instrument of conveyance. A resulting trust is based on the
equitable doctrine that it is the more valuable consideration than the legal title that determines the
equitable interests in property. Caezo v. Rojas, 538 SCRA 242 (2007).
b. Constructive Trusts
On the other hand, a constructive trust is a trust raised by construction of law, or arising by
operation of law. In a more restricted sense and as contradistinguished from a resulting trust, a
constructive trust is a trust not created by any words, either expressly or implied evincing a direct
intention to create a trust, but by the construction of equity in order to satisfy the demands of
justice. It does not arise by agreement or intention but by operation of law. If a person obtains
legal title to property by fraud or concealment, courts of equity will impress upon the title a socalled constructive trust in favor of the defrauded party. A constructive trust is not a trust in the
technical sense. Ramos v. Ramos, 61 SCRA 284 (1974).28
In constructive trusts there is neither promise nor fiduciary relations; the so-called trustee does
not recognize any trust and has no intent to hold the property for the beneficiary. Diaz v.
Gorricho and Aguado, 103 Phil. 261 (1958).29
A constructive trust, otherwise known as a trust ex maleficio, a trust ex delicto, a trust de son
tort, an involuntary trust, or an implied trust, is a trust by operation of law which arises contrary to
intention and in invitum, against one who, by fruad, actual or constructive, by duress or abuse of
confidence, by commission of wrong, or by any form of unconcscionable conduct, artifice,
concealment, or questionable means, or who in any way against equity and good conscience,
either has obtained or holds the legal right to property which he ought not, in equity and good
conscience, hold and enjoy. It is raised by equity to satisfy the demands of justice. Sumaoang v.
Judge, RTC, Br. XXXI, Buimba, Nueva Ecija, 215 SCRA 136 (1992).30
A constructive trust is one created not by any word or phrase, either expressly or impliedly,
evincing a direct intention to create a trust, but one which arises in order to satisfy the demands of
justice. It does not come about by agreement or intention but in the main by operation of law,
construed as against one who, by fraud, duress or abuse of confidence, obtains or holds the legal
right to property which he ought not, in equity and good conscience, to hold. Caezo v. Rojas,
538 SCRA 242 (2007).
Under the principle of constructive trust, registration of property by one person in his name,
whether by mistake or fraud, the real owner being another person, impresses upon the title so
acquired the character of constructive trust for the real owner, which would justify an action for
reconveyance. Pasio v. Monterroyo, 560 SCRA 739 (2008).
Constructive trusts are fictions of equity that courts use as devices to remedy any situation in
which the holder of the legal title, MCIAA in this case, may not, in good conscience, retain the
beneficial interest. Vda. de Ouano v. Republic of the Philippines, 642 SCRA 384 (2011).
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trust, was considered sufficient proof to support the claim of the cestui que trust. Municipality
of Victorias v. Court of Appeals, 149 SCRA 32 (1987).
As a rule, the burden of proving the existence of a trust is on the party asserting its existence
and such proof must be clear and satisfactorily show the existence of the trust and its elements.
[An affidavit of the fact of resulting trust against contrary affidavits, as well as the transfer
certificates of title and tax declarations to the contrary, do not support clearly the existence of trust]
Booc v. Five Start Marketing Co., Inc., 538 SCRA 42 (2007).32
While implied trust may be proved by oral evidence, the evidence must be trustworthy and
received by the courts with extreme caution, and should not be made to rest on loose, equivocal
or indefinite declarations. Trustworthy evidence is required because oral evidence can easily be
fabricated. In order to establish an implied trust in real property by parol evidence, the proof
should be as fully convincing as if the acts giving rise to the trust obligation are proven by an
authentic document. An implied trust, in fine, cannot be established upon vague and inconclusive
proof. In the present case, there was no evidence of any transaction between the petitioner and
her father form which it can be inferred that a resulting trust was intended. (at p. 256) Caezo
v. Rojas, 538 SCRA 242 (2007).
2. Purchase of Property Where Beneficial Title in One Person, But Price Paid by Another
Person (Art. 1448)
Rationale: One who pays for something usually does so for his own benefit. Uy Aloc v. Cho Jan Jing,
19 Phil. 202 (1911).
Although it may have been proven that the father was the source of the funds in the purchase of a
parcel of land which was titled in the name of his son, no implied trust is deemed to have been
established since under Article 1448 of the Civil Code, if the person to whom the title is conveyed is the
child of the one paying the price of the sale, no trust is implied by law, and instead a donation is
disputably presumed in favor of the child. The successors of the deceased father had not shown that no
such donation was intended. Ty v. Ty, 553 SCRA 306 (2008).
3. Purchase of Property Where Title Is Placed in the Name of Person Who Loaned the
Purchase Price (Art. 1450) Equitable Mortgage
Implied trust under Article 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 trustee, the person who pays for it, until
he is reimbursed by the beneficiary, the person for whom the trustee bought the land. It is only after
the beneficiary reimburses the trustee of the purchase price that the former can compel conveyance
of the property from the latter. Paringit v. Bajit, 631 SCRA 584 (2010).
5. Two or More Persons Purchase Property Jointly, But Places Title In One of Them (Art.
1452)
6. Property Conveyed to Person Merely as Holder Thereof (Art. 1453)
Where real property is taken by a person under an agreement to hold it for, or convey it to another
or the grantor, a resulting or implied trust arises in favor of the person for whose benefit the property
was intended. Such implied trust is enforceable even when the agreement is not in writing, and is not an
express trust which requires that it be in writing to be enforceable. This rule, which has been
incorporated in the new Civil Code in Art. 1453 thereof, is founded upon equity. Martinez v. Grao, 42
Phil. 35 (1921).
32Also Tigno v. Court of Appeals, 280 SCRA 262 (1997); Morales v. Court of Appeals, 274 SCRA 282 (1997).
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Where the original purchaser of the immovable property had sold all his interest thereto to his
brother who reimbursed him all amounts previously, but continued to pay the balance of the installments
in the name of the original buyer with understanding that upon full payment the title would be transferred
to the buyer, am implied trust had been constituted. Heirs of Emilio Candelaria v. Romero, 109 Phil.
500 (1960).
The Court denied the application of the provisions of Article 1453 to establish an implied trust . . .
Said arguments are untenable, even considering the whole complaint. The intention of the trustor to
establish the alleged trust may be seen in paragraphs 5 and 6. Article 1453 would apply if the person
conveying the property did not expressly state that he was establishing the trust, unlike the case at bar
where he was alleged to have expressed such intent. Consequently, the lower court did not err in
dismissing the complaint, (at p. 1198) on the ground that since the complaint sought to recover an
express trust over immovables, then under Article 1443 of the Civil Code, the same may not be proved
by parol evidence. Cuaycong v. Cuaycong, 21 SCRA 1192 (1967).
Where a lot was taken by a person under an agreement to hold it for, or convey it to another or to
the grantor, a resulting or implied trust arises in favor of the person for whose benefit the property was
intended. Spouses Rosario v. Court of Appeals, 310 SCRA 464 (1999).
7. Donation of Property to a Donee Who Shall Have No Beneficial Title (Art. 1449)
Where the father donates a piece of land in the name of the daughter but with verbal notice that the
other half would be held by her for the benefit of a younger brother, coupled with a deed of waiver later
on executed by the daughter that she held the land for the common benefit of her brother, created an
implied trust in favor of the brother under Article 1449 of the Civil Code. Adaza v. CAourt of Appeals,
171 SCRA 369 (1989).
8. Land Passes By Succession But Heir Places Title in a Trustee (Art. 1451).
When the eldest sibling in the family had registered land inherited from the parents in his name, he
was acting in a trust capacity and as representative of all his brothers and sisters. As a consequence he
is now holding the registered title thereto in a trust capacity, and it is proper for the court to declare that
the plaintiffs are entitled to their several pro rata shares, notwithstanding the fact that the certificate of
registration is in the name of the defendant alone, in accordance with the doctrine held in Severino v.
Severino, 44 Phil. 343 (1923).33 Castro v. Castro, 57 Phil. 675 (1932).
In a situation where a Chinese resident had caused land to be placed in the name of the trustee
who was bound to hold the same for the benefit of the trustor and his family in the event of death, the
application of the doctrine of implied trust under Article 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. Ting Ho, Jr. v. Teng Gui, 558 SCRA 421 (2008).
9. When Trust Fund Used to Purchase Property Which Is Registered in Trustees Name
(Art. 1455)
A confidential employee who, knowing that his principal was negotiating with the owner of some
land for the purchase thereof, surreptitiously succeeds in buying it in the name of his wife, commits an
act of disloyalty and infidelity to his principal, and is liable for damage. The reparation of the damage
must consist in respecting the contract which was about to be concluded, and transferring the said
land for the same price and upon the same terms as those on which the purchase was made for the
land sold to the wife of said employee passed to them as what might be regarded as equitable trust, by
virtue of which the thing thus acquired by an employee is deemed to have been acquired not for his
own benefit or that of any other person but for his principal and held in trust for the latter. Sing Juco
and Sing Bengco v. Sunyantong and Llorente, 43 Phil. 589 (1922).
The rules are well-settled that when a person through fraud succeeds in registering the property
in his name, the law creates what is called a constructive or implied trust in favor of the defrauded
party and grants the latter the right to recover the property fraudulently registered within a period of ten
years. (See Ruiz v. Court of Appeals, 79 SCRA 525, 537). Heirs of Tanak Pangaaran Patiwayon v.
Martinez, 142 SCRA 252, 261 (1986).34
Where the land is decreed in the name of a person through fraud or mistake, such person is by
operation of law [Article 1456] considered a trustee of an implied trust for the benefit of the persons
from whom the property comes. The beneficiary shall have the right to enforce the trust,
notwithstanding the irrevocability of the Torrens title and the trustee and his successors-in-interest are
bound to execute the deed of reconveyance. (Pacheco vs. Arro, 85 Phil. 505; Escobar vs. Locsin, 74
Phil. 86). Municipality of Victorias v. Court of Appeals, 149 SCRA 32, 45 (1987).
When property is registered in one person, but who expressly acknowledged that the right of his
siblings thereto, it is a situation of an implied trust covered under Article 1456 of the Civil Code, which
states that if property is acquired through mistake or fraud, the person obtaining it is, by force of law,
considered a trustee of an implied trust for the benefit of the person from whom the property comes. It
is well settled that an action for reconveyance of real property to enforce an implied trust prescribes in
ten year, the period reckoned from the issuance of the adverse title to the property which operates as
a constructive notice. Gonzales v. Intermediate Appellate Court, 204 SCRA106 (1991).
If property is acquired through mistake or fraud, the person obtaining it is, by force of law,
considered a trustee of an implied trust for the benefit of the person from whom the property comes.
Pedrano v. Heirs of Benedicto Pedrano, 539 SCRA 401 (2007).
Where the shares of stock in an operating family company are placed by the parents-controlling
stockholders in the name of a holding company expressly for the benefit of their three daughters, an
express trust is duly constituted pursuant to the terms of Article 1440 of the Civil Code. Guy v. Court of
Appeals, 539 SCRA 584 (2007).
An action for reconveyance respects the decree of registration as incontrovertible but seeks the
transfer of property, which has been wrongfully or erroneously registered in other persons names, to
its rightful and legal owners, or to those who claim to have a better right. There is no special ground for
an action for reconveyance. It is enough that the aggrieved party has a legal claim on the property
superior to that of the registered owner and that the property has not yet passed to the hands of an
innocent purchaser for value. These cases may also be considered as actions to remove cloud on
ones title as they are intended to procure the cancellation of an instrument constituting a claim on
petitioners alleged title which was used to injure or vex them in the enjoyment of their alleged title.
Heirs of Valeriano S. Concha, Sr. v. Lumocso, 540 SCRA 1 (2007).
Under the principle of constructive trust, registration of property by one person in his name,
whether by mistake or fraud, the real owner being another person, impresses upon the title so
acquired the character of a constructive trust for the real owner, which would justify an action for
reconveyance. (Citing Heirs of Tabia v. Court of Appeals, 516 SCRA 431 [2007]) In the action for
reconveyance, the decree of registration is respected as incontrovertible but what is sought instead is
the transfer of the property wrongfully or erroneously registered in anothers name to its rightful owner
or to one with a better right. (Ibid) If the registration of the land is fraudulent, the person in whose name
the land is registered holds it as a mere trustee, and the real owner is entitled to file an action for
reconveyance of the property. (citing Mendizabel v. Apao, 482 SCRA 587 [2006]) (at p. 751) Pasio
v. Monterroyo, 560 SCRA 739 (2008).
When the respondents are able to establish that they have a better right to the parcel of land since
they had long been in possession of the property in the concept of owners, by themselves and through
their predecessors-in-interest, then despite the irrevocability of the Torrens titles issued in the names of
the petitioners and even if they are already the registered owners under the Torrens system, the
petitioners may still be compelled under the law to reconvey the property to respondents. Pasio v.
Monterroyo, 560 SCRA 739 (2008).
Where in her notarial will the testator expressed that she wished to constitute a trust fund for her
paraphernal properties, denominated as Fideicomiso de Juliana Lopez Manzano (Fideicomiso), to be
administered by her husband. . . Two-thirds (2/3) of the income from rentals over theses properties
were to answer for the education of deserving but needy honor students, while one-third (1/3) was to
shoulder the expenses and fees of the administrator, but that eventually in the probate of the will the
properties were adjudicated to the husband as sole heir, the Court ruled that On the premise that the
disputed properties are the paraphernal properties of Juliana which should have been included in the
Fideiocomiso, their registration in the name of Jose would be erroneous and Joses possession would
be that of a trustee in an implied trust . . . [which from] the factual milieu of this case is provided in
Article 1456 of the Civil Code. . . . The apparent mistake in the adjudication of the disputed properties
to Jose created mere implied trust of the constructive variety in favor of the beneficiaries of the
Fideicomiso. Lopez v. Court of Appeals, 574 SCRA 26 (2008).
34Ruiz v. Court of Appeals, 79 SCRA 525 (1977).
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IN CONTRAST: Where a mother and her minor daughter inherited a large tract of land, and had it
applied for cadastral survey, but title was issued only in the name of the mother, courts of equity will
impress upon the title, a condition which is generally in a broad sense termed constructive trust in
favor of the defrauded party, but the use of the word trust in this sense is not technically accurate and
is not the kind of trust. Gayondato v. Treasurer, 49 Phil. 244 (1926).
When a designated agent, taking advantage of the illiteracy of the principal, claims for himself the
property which he was designated to claim for the principal and manages to have it registered in his
own name and became part of his estate when the agent died, the estate is in equity bound to execute
the deed of conveyance of the lot to the cestui que trust. . # A trustsuch as that which was created
between the plaintiff and Domingo Sumangilis sacred and inviolable. The Courts have therefore
shielded fiduciary relations against every manner of chicanery or detestable designed cloaked by legal
technicalities. The Torrens system was never calculated to foment betrayal in the performance of a
trust. Escobar v. Locsin, 74 Phil. 86 (1943).35
Even in the absence of fraud in obtaining registration or even after the lease of one year after the
issuance of a decree of registration, a co-owner of land who applied for and secured its adjudication
and registration in his name knowing that it had not been allotted to him in the partition, may be
compelled to convey the same to whoever received it in the apportionment, so long as no innocent
third party had acquired rights therein, in the meantime for a valuable consideration. Indeed, any rule
to the contrary would sanction ones enrichment at the expense of another. Public policy demands that
a person guilty of fraud or, at least, of breach of trust, should not be allowed to use a Torrens title as a
shield against the consequences of his wrongdoing. (Cabanos vs. Register of Deeds, etc., 40 Phil.
620; Severino vs. Severino, 41 Phil. 343). Vda. de Jacinto v. Vda. de Jacinto, 5 SCRA 370, 376
(1962).36
Lastly, the claim of the heirs of Pedro Jacinto that the latter had acquired ownership of the property
in litigation by prescription, is likewise untenable. As we had recently held in Juan, et a. vs. Zuiga,
G.R. No. L-17044, April 28, 1962, an action to enforce a trust is imprescriptible. Consequently, a coheir
who, through fraud, succeeds in obtaining a certificate of title in his name to the prejudice of his
coheirs, is deemed to hold the land in trust for the latter, and the action by them to recover the property
does not prescribe. Vda. de Jacinto v. Vda. de Jacinto, 5 SCRA 370, 376-377 (1962).
Where the children of the decedent by his second marriage have taken over properties of the
estate, excluding therefrom grandchildren of the decedent by his first marriage, the situation is one that
is governed by the rules of co-ownership under Article 494 of the Civil Code which provides that no
prescription shall run in favor of a co-owner or co-heir against his co-owners or co-heirs so long as he
expressly or impliedly recognizes the co-ownership. In view of a clear repudiation of the co-ownership
duly communicated to the co-heirs, no prescription occurred and the filing of the action for partition and
delivery of possession covering their corresponding shares 28 years after the death of the decedent
was not filed out of time. Mariano v. Judge De Vega, 148 SCRA 342 (1987).
Pomposa Saludares, this Court explained that the Court in a series of cases, has permitted the filing
of an action for reconveyance despite the lapse of more than ten (10) years from the issuance of title
to the land and declared that said action, when based on fraud, is imprescriptible as long as the land
has not passed to an innocent buyer for value. But in all those cases, the common factual backdrop
was that the registered owners were never in possession of the disputed property. The exception was
based on the theory that registration proceedings could not be used as a shield for fraud or for
enriching a person at the expense of another. In Alfredo v. Borras, the Court ruled that prescription
does not run against the plaintiff in actual possession of the disputed land because such plaintiff has
a right to wait until his possession is disturbed or his title is questioned before initiating an action to
vindicate his right. His undisturbed possession gives him the continuing right to seek the aid of a
court of equity to determine the nature of the adverse claim of a third party and its effect on his title.
Estrella Tiongco Yared v. Jose Tiongco, G.R. No. 161360, 19 October 2011.
"If property is acquired through mistake or fraud, the person obtaining it is, by force of law,
considered a trustee of an implied trust for the benefit of the person from whom the property comes."
An action for reconveyance based on implied trust prescribes in 10 years as it is an obligation
created by law, to be counted from the date of issuance of the Torrens title over the property. This
rule, however, applies only when the plaintiff or the person enforcing the trust is not in possession of
the property. there is no prescription when in an action for reconveyance, the claimant is in actual
possession of the property because this in effect is an action for quieting of title. PNB hilippine
National Bank v. Jumamoy, G.R. No. 169901, 03 August 2011.]
Moreover, the prescriptive period applies only if there is an actual need to reconvey the property
as when the plaintiff is not in possession thereof. Otherwise, if the plaintiff is in possession of the
property, prescription does not commence to run against him. Thus, when an action for
reconveyance is nonetheless filed, it would be in the nature of a suit for quieting of title, an action that
is imprescriptible. Brito v. Dianala, 638 SCRA 529 (2010).
When the plaintiff in such action is not in possession of the subject property, the action
prescribes in ten years from the date of registration of the deed or the date of the issuance of the
certificate of title over the property. When the plaintiff is in possession of the subject property, the
action, being in effect that of quieting of title to the property, does not prescribe. In the case at bar,
petitioners (who are the plaintiffs in Civil Case No. 98-021) are not in possession of the subject
property. Civil Case No. 98-021, if it were to be considered as that of enforcing an implied trust,
should have therefore been filed within ten years from the issuance of TCT No. T-5,427 on December
22, 1969. Civil Case No. 98-021 was, however, filed on August 20, 1998, which was way beyond the
prescriptive period. Heirs of Domingo Valientes v. Ramas, 638 SCRA 444 (2010).
Prescription Cannot Apply When Title of Trustee Void Due to Forgery It is well settled that
an action for reconveyance of real property to enforce an implied trust prescribes in ten year, the
period reckoned from the issuance of the adverse title to the property which operates as a
constructive notice. Gonzales v. Intermediate Appellate Court, 204 SCRA 106 (1991).
As previously stated, the rule that a trustee cannot, by prescription, acquire ownership over
property entrusted to him until and unless he repudiates the trust, applies to express trust and
resulting implied trusts, However, in constructive trusts, prescription may supervene even if the
trustee does not repudiate the relationship. Necessarily, repudiation of the said trust is not a condition
precedent to the running of the prescriptive period. A constructive trust, unlike an express trust, does
not emanate from, or generate a fiduciary relation. While in an express trust, a beneficiary and a
trustee are linked by confidential or fiduciary relations, in a constructive trust, there is neither a
promise nor any fiduciary relation to speak of and the so-called trustee neither accepts any trust nor
intends holding the property for the beneficiary. The relation of trustee and cestui que trust does not
in fact exist, and the holding of a constructive trust is for the trustee himself, and therefore, at all
times adverse. Caezo v. Rojas, 538 SCRA 242 (2007).
An action for the reconveyance of a parcel of land based on implied or constructive trust
prescribes in 10 years, the point of reference being the date of registration of the deed or the date of
the issuance of the certificate of title of the property. Without an Original Certificate of Title (OCT), the
date from whence the prescriptive period could be reckoned is unknown and it could not be
determined if indeed the period had already lapsed or not. Pedrano v. Heirs of Benedicto Pedrano,
539 SCRA 401 (2007).
An aggrieved party may file an action for reconveyance based on implied or constructive trust,
which prescribes in ten years from the date of issuance of the certificate of title over the property
provided that the property has not been acquired by an innocent purchaser for value. Khemani v.
Heirs of Anastacio Trinidad, 540 SCRA 83 (2007).
Where the facts deemed admitted showed that the signature of the petitioners, being forced
heirs, in the extrajudicial settlement with sale has been forged, and although title to the land had been
registered in the name of the buyer, the contract is void, and the action to seek the declaration of
nullity is imprescriptible under Article 1410 of the Civil Code, and is not to be governed by the
principles of implied trust. Macababbad v. Masirag, 576 SCRA 70 (2009).
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Close Relationship and Continued Recognition of Trust Relationship On the other hand,
laches, being rooted in equity, is not always to be applied strictly in a way that would obliterate an
otherwise valid claim especially between blood relatives. The existence of a confidential relationship
based upon consanguinity is an important circumstance for consideration; hence, the doctrine is not
to be applied mechanically as between near relatives. Estate of Margarita D. Cabacungan, v.
Laigo G.R. No. 175073, 15 August 2011.
The doctrine of laches (here, 19 years from the time the Deed of Donation was executed by the father in the
name of the sister, but for the equal benefit of the brother) is not to be applied mechanically as between near
relatives, in this case between brother and sister, which would tend to excuse what otherwise may be
considered a long delay in taking action. Moreover, continued recognition of the existence of the trust, in this
case by letters written by the sister to the brother, recognizing the trust relationship, precludes the defense of
laches. Adaza v. CA, 171 SCRA 369 (1989).
HISTORICAL JURISPRUDENCE:
Though the Statute of Limitations does not run between the trustee and cestui que trust as long
as the trust relations subsist, it does run between the trust and third persons, and a third person who
holds actual, open, public, and continuous possession of land for over ten years, adversely to the
trust, acquires title to the land by prescription as against such trust. Government v. Abadilla, 46 Phil.
642 (1924).
Prescription Cannot Apply Against a Minor Beneficiary in Implied Trust In an implied trust,
when the act of repudiation of the trustee was effected at the time the cestui que trust was still a
minor, then such act does not prejudice the latter: We note, however, that this supposed repudiation
of the trust first took place before Manuel Castro had reached his majority, and we are unable to see
how a minor with whom another is in trust relation can be prejudiced by repudiation of the trustee
addressed to him by the person who is subject to the trust obligation. The defendant in our opinion is
not entitled to the benefit of prescription from his supposed repudiation of the trust. Castro v. Castro,
57 Phil. 675 (1932).
The express trusts disable the trustee from acquiring for his own benefit the property committed
to his management or custody, at least while he does not openly repudiate the trust, and makes such
repudiation known to the beneficiary or cestui que trust. For this reason, the old Code of Civil
Procedure (Act 190) declared that the rules on adverse possession do not apply to continuing and
subsisting (i.e., unrepudiated) trusts. But in constructive trusts, the rule is that laches constitutes a
bar to actions to enforce the trust, and repudiation is not required, unless there is concealment of the
facts giving rise to the trust. The reason for the difference in treatment is obvious. In express trusts,
the delay of the beneficiary is directly attributable to the trustee who undertakes to hold the
property for the former, or who is linked to the beneficiary by confidential or fiduciary
relations. The trustee's possession is, therefore, not adverse to the beneficiary, until and unless the
latter is made aware that the trust has been repudiated. But in constructive trusts (that are imposed
by law), there is neither promise nor fiduciary relation; the so-called trustee does not recognize any
trust and has no intent to hold for the beneficiary; therefore, the latter is not justified in delaying action
to recover his property. It is his fault if he delays; hence, he may be estopped by his own laches.
Of course, the equitable doctrine of estoppel by laches requires that the one invoking it must show,
not only the unjustified inaction, but that some unfair injury would result to him unless the action is
held barred. Diaz v. Gorricho and Aguado, 103 Phil. 261 (1958).
Conjugal partnership property could not be sold by the surviving spouse without the formalities
established for the sale of property of the deceased persons, and such sale by the surviving spouse
is void as to the share of the deceased spouse and the vendee becomes a trustee of the share of the
deceased spouse for the benefit of her heirs, the cestuis que trustent. Prescription cannot be set up
as a defense in an action that seeks to recover the property held in trust for the benefit of another and
neither could laches be set up as a defense, it being similar to prescription. Cuison v. Fernandez and
Bengzon, 105 Phil. 135 (1959).
When the trial court declared in a decision that had become final and executory that appellees
had the right to redeem the property in question and ordered appellants to make the resale of the
property in favor of appellees, there was created a constructive trust, in the sense that although
appellants had the naked title issued in their names, and which they retained, nevertheless, they
were to hold said property in trust for appellees to redeem, subject to the payment of the redemption
price. In the latter instance of constructive trust, prescription may apply only where the trustee
asserts a right adverse to that of the cestui que trust, such as, asserting acts of ownership over the
property being held in trust. But the facts showed that no exercise of adverse rights could be claimed
by the appellants, since after the decision aforementioned had become final and executory,
appellants began to recognize the right of the appellees to collect rentals from the tenant of the
property, and when the tenant left the house, appellees took possession of, and exercised acts of
ownership over, the house and appellants, all along, showed conformity thereto. Geronimo and Isidro
v. Nava and Aquino, 105 Phil. 145 (1959).
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Constructive or implied trusts may, of course, be barred by lapse of time. The rule in such trusts
is that laches constitutes a bar to actions to enforce the trust, and repudiation is not required, unless
there is concealment of the facts giving rise to the trust. (Diaz, et al. vs. Gorricho, 103 Phil. 261)
Continuous recognition of a resulting trust, however, precludes any defense of laches in a suit to
declare and enforce the trust. . . . The beneficiary of a resulting trust may, therefore, without prejudice
to his right to enforce the trust, prefer the trust to persist and demand no conveyance from the
trustee. Heirs of Emilio Candelaria v. Lucia Romero, 109 Phil. 500 (1960).
The case at bar involves an implied or constructive trust upon the defendant-appellees. The
Court of Appeals declared that Ildefonsa held in trust the legally belonging to the plaintiffs; of which
condition, the defendants had full knowledge. The sale made by Ildefonsa in favor of the defendants,
was not void or inexistent contract, action on which is imprescriptible (Art. 1450, N.C.C.). It is
voidable, at most, and as such in valid until revoked within the time prescribed by law for it
revocation, and that is undoubtedly the reason why the Court of Appeals pronounced that the
Appellees had the right to ask for a reconveyance of their share, unless the action is barred by
prescription. The prescriptibility of an action for reconveyance based on implied or constructive trust,
is now a settled question in this jurisdiction. It prescribes in ten (10) years (Boaga v. Soler, G.R. No.
L-15717, 30 June 1961; J. M. Tuason & Co., Inc. v. Magdangal, G.R. No. L-15539, 30 Jan. 1962).
Alzona v. Capunitan and Reyes, 4 SCRA 450 (1962).
Decided just months later: If a person obtains legal title to property by fraud or concealment, a
constructive trust is created in favor of the defrauded party and the latter has the right to vindicate the
property regardless of the lapse of time. The rule that registration of real property under the Torrens
system had the effect of a constructive notice to the whole world cannot be availed of when the
purpose of the action is to compel a trustee to convey the property registered in his name for the
benefit of the cestui que trust. In other words, the defense of prescription cannot be set up in an
action to enforce a trust. We need not reiterate those cases holding imprescriptible the action to
enforce a trust. [Castro vs. Castro, 57 Phil. 675; Cristobal vs. Gomez, 50 Phil. 81]. A different view
could encourage fraud and permit one person unjustly to enrich himself at the expense of another.
Juan v. Zuiga, 4 SCRA 1221 (1962).
Where the administrator of the estate of the decedent had been duly instituted as the sole heir in
the will of the decedent which was duly probated, even assuming that the administrator had acted as
trustee for the other heirs, the obtaining of the transfer certificates of titles in the administrators name
of all registered land of the estate would constitute an open and clear repudiation of any trust, and
the lapse of more than twenty years open and adverse possession as owner would certainly suffice
to vest title by prescription in said administrator. Lopez v. Gonzaga, 10 SCRA 167 (1974).
In constructive trusts among co-heirs or co-owners, the prescriptive period begins on the date
when the trustee registers the deed that seeks to exclude the cestuis que trustant from title to the
property and seeking to have new title issued only in trustees name. Castrillo v. Court of Appeals, 10
SCRA 549 (1964).
Where the owner of an unregistered land had sold the property to another under a sale with a
right of repurchase but was never able to exercise the right of repurchase, the registration by the
seller of the property in his name under the Torrens system was done in bad faith, and he is deemed
to have constituted himself as trustee for the buyer of the property to whom ownership was
consolidated and who had been in possession thereof for many years. The action of the buyer or his
successors-in-interest to have a reconveyance of the title even when filed more than twenty years
after the seller had obtained title thereto was imprescriptible. Under Act 190 (the old Code of Civil
Procedure), section 38, which is the governing statute, prescription does not apply to continuing and
subsisting trusts; so that actions against a trustee to recover trust property held by him are
imprescriptible. Actions for the reconveyance of property wrongfully registered are of this category.
Caladiao v. Vda de Blas, 10 SCRA 691 (1964).
The petitioners and private respondents were co-heirs, and the petitioners action for partition
and reconveyance was based upon a constructive trust resulting from fraud, the Court held that the
discovery of the fraud is deemed to have taken place, in the case at bar, on June 23, 1948, when
said instrument was filed with the Register of Deeds and new certificates of title were issued in the
name of respondents exclusively, for the registration of the deed of extra-judicial settlement
constituted constructive notice to the whole word. Gerona v. De Guzman, 11 SCRA 153 (1964).
Although as a general rule, an action for partition among co-heirs does not prescribe, this is true
only as long as the defendants do not hold the property in question under an adverse title (Cordova v.
Cordova, L-9936, 14 January 1948). The statute of limitations operates as in other cases, from the
moment such adverse title is asserted by the possessor of the property (Ramos v. Ramos, 45 Phil.
362; Bargayo v. Camumot, 40 Phil. 857 [1920]; Castro v. Echarri, 20 Phil. 23). # Although, there are
some decisions to the contrary (Jacinto v. Mendoza, L-12540, 28 February 1950; Cuison v.
Fernandez, L-11764, 31 January 1959; Maribiles v. Quinto, L-10408, 18 October 1956; and Sevilla v.
De los Angeles, L-7745, 18 November 1955), it is already settled in this jurisdiction that an action for
reconveyance of real property based upon a constructive or implied trust, resulting from fraud, may
be barred by the statute of limitations (Candelaria v. Romero, L-12149, 30 September 1960; Alzona v.
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Capunita, L-10220, 28 February 1962). # Inasmuch as petitioner seek to annul the aforementioned
deed of extra-judicial settlement upon the ground of fraud in the execution thereof, the action
therefor may be filed within four (4) years from the discovery of the fraud (Mauricio v. Villanueva, L11072, 24 September 1959). Such discovery is deemed to have taken place, when said instrument
was filed with the Register of Deeds and new certificates of title were issued in the name of
respondents exclusively, for the registration of the deed of extra-judicial settlement constitute
constructive notice to the whole world (Diaz v. Gorricho, L-11229, 29 March 1958; Avecilla v. Yatco, L11578, 14 May 1958; J.M. Tuazon & Co., Inc. v. Magdangal, L-15539, 30 January 1962; Lopez v.
Gonzaga, L-18788, 31 January 1964). Gerona v. Carmen de Guzman, 11 SCRA 153 (1964).
Besides, even assuming the alleged trust to be an implied one, the right alleged by plaintiffs
would have already prescribed since starting in 1936 when the trustor died, plaintiffs had already
been allegedly refused by the aforesaid defendants in their demands over the land, and the complaint
was filed only in 1961more than the 10-year period of prescription for the enforcement of such
rights under the trust. It is settled that the right to enforce an implied trust in ones favor prescribes in
ten (10) years. [Gonzales v. Jimenez, L-19073, 30 Jan. 1965.] Cuaycong v. Cuaycong, 21 SCRA
1192, 1198 (1967).
While there are some decisions which hold that an action upon a trust is imprescriptible, without
distinguishing between express and implied trust, the better rule, as laid down by the Supreme Court
in other decisions, is that prescription does supervene where the trust is merely an implied one.
Bueno v. Reyes, 27 SCRA 1179 (1969).
Actions on implied and constructive trusts (as distinguished from express ones) are extinguished
by laches or prescription of ten years. Varsity Hills v. Navarro, 43 SCRA 503 (1922).
The rule of imprescriptibility of the action to recover property held in trust may possibly apply to
resulting trusts as long as the trustee has not repudiated the trust (Heirs of Candelaria vs. Romero,
109 Phil. 500, 502-3; Maritnez vs. Grao, 42 Phil. 35; Buencamino vs. Matias, 63 O.G. 11033, 16
SCRA 849). Ramos v. Ramos, 61 SCRA 284 (1974).
The rule of imprescriptibility does not apply to constructive trusts, and was therefore misapplied
to constructive trusts in Geronimo and Isidoro vs. Nava and Aquino, 105 Phil. 145,153 [1959].
Compare with Cuison vs. Fernandez and Bengzon, 105 Phil. 135, 139 [1959]; De Pasion vs. De
Pasion, 112 Phil. 403, 407). Ramos v. Ramos, 61 SCRA 284, 299-300 (1974).
With respect to constructive trusts, the rule is different [as compared to express trust]. The
prescriptibility of an action for reconveyance based on constructive trust is now settled (Alzona v.
Capunitan, 4 SCRA 450 (1962); Gerona v. De Guzman, supra; Claridad v. Henares, 97 Phil. 973;
Gonzales v. Jimenez, 13 SCRA 80 (1965); Boaga v. Soler, 11 Phil. 651; J.M. Tuazon & Co. v.
Mandanagal, 4 SCRA 84 (1962). Prescription may supervene in an implied trust (Bueno vs. Reyes,
27 SCRA 1179 (1969); Fabian v. Fabian, L-200449, 29 January 1968; Jacinto v. Jacinto, 5 SCRA 371
(1962). And whether the trust is resulting or constructive, its enforcement may be barred by laches
(Diaz v. Gorricho and Aguado, supra. Compare with Mejia v. Gampona, 100 Phil. 277). Ramos v.
Ramos, 61 SCRA 284, 300 (1974).
The prescriptibility of an action for reconveyance based on implied or constructive trust, is now a
settled question in this jurisdiction. It prescribes in ten years. On the other hand express trusts
prescribe 10 years from the repudiation of the trust Escay v. Court of Appeals, 61 SCRA 369 (1974).
Constructive notice is applicable in cases of constructive trusts, as borne out by the decisions in
Lopez and Gerona, In any event, it is now settled that an action for reconveyance based on implied
or constructive trust is prescriptible; it prescribes in ten years. There is a clear repudiation of a trust
where on who is an apparent administrator of property causes the cancellation of the title thereto in
the name of the apparent beneficiaries and gets a new certificate of title in his own name. Carantes v.
Court of Appeals, 76 SCRA 514 (1977).
Where a possessor of registered land seeks a reconveyance of title to him from the registered
owner on the ground of implied trust under Article 1456 of the Civil Code, then the trial court
committed serious error in dismissing the case on the ground that the petitioner had no standing to
sue. Likewise to satisfy the demands of justice, the doctrine of implied trust may be made to operate
in plaintiffs favor, assuming that he can prove his allegation that defendant had acquired legal title by
fraud. (at p. 183). Plaintiffs action for reconveyance may not be said to have prescribed, for, basing
the present action on implied trust, the prescriptive period is ten years. Armamento v. Guererro, 96
SCRA 178, 184 (1980).
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C.
PARTNERSHIPS
I. HISTORICAL BACKGROUND
1. Old Branches of Partnership Law
Distinction between civil and commercial partnerships was critical under the old set-up because
it determined the applicable rules for registration, personal liability of members, and the rights and
manner of dissolution. Compaia Agricola de Ultramar v. Reyes, 4 Phil. 2, 11 (1904).
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) For coming into existence/becoming a juridical person, registration was the
key element for commercial partnerships (Arts. 118-119, Code of Commerce),
while it was mere perfection of the contract for civil partnerships:
When the partnership business is in laundry, it is essentially a civil partnership and
governed by the provisions of the Civil Code, and it existed validly even when no formal
partnership agreement was entered into and registered, and thereby the obligations of the
partners for partnership debts would be pro-rata. Dietrich v. Freeman, 18 Phil. 341 (1911).
(c) For partnership debts, commercial partners were solidarily liable, albeit
subsidiarily, while civil partners were primarily but only jointly liable:
In a civil partnership, each member is not bound to pay all the debts of the concern, but
simply his pro rata share, Co-Pitco v. Yulo, 8 Phil. 544 (1907).
37Ang Seng Quen v. Te Chico, 7 Phil. 541 (1907); Bourns v. Carman, 7 Phil. 117 (1906).
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In a commercial partnership, although the partners are only subsidiarily liable (i.e., they
enjoy the benefit of excussion) they are liable solidarily, Viuda de Chan Diaco v. Peng, 53
Phil. 906 (1928); both the partnership and the separate 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 common property of the firm has been exhausted. La Compaia Maritima v. Muoz,
9 Phil. 326 (1907); and their right of excussion is deemed already satisfied where at the time
the judgment is executed against the partnership they are unable to show that there are still
partnership assets, or when a writ of execution against the partnership has been returned not
fully satisfied, De los Reyes v. Lukban, 35 Phil. 757 (1916); PNB v. Lo, 50 Phil. 802 (1927).
Persons who are not partners to one another are not partners as to
third persons (Art. 1769[1]).
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sharing of profits on the subsequent sales thereof, there can be no deduction that an
unregistered partnership has been constituted to make it separately liable for corporate
income tax: the transactions were isolated, the parcels purchased were not managed or
even leased out. The sharing of returns does not in itself establish a partnership whether or
not the persons sharing therein have joint or common right of interest in the property. There
must be clear intent to form a partnership, the existence of a juridical personality different
from the individual partners, and the freedom of each party to transfer or assign the whole
property. Pascual v. Commissioner of Internal Revenue, 166 SCRA 560 (1988).
Mere co-ownership or co-possession of property does not necessarily constitute the coowners or co-possessors are partners in the absence of an agreement to enter into a
partnership. Navarro v. Court of Appeals, 222 SCRA 675 (1993).
As Wages of an Employee
A manager of the partnership business would naturally have some degree of control
over the operations and maintenance thereof. But the fact that he had received 50% of
the net profits does not conclusively establish that he was a partner of the private
respondent herein. Art. 1769(4) of the Civil Code is explicit that while the receipt by a
person of a share of the profits of a business is prima facie evidence that he is a partner
in the business, no such inference shall be drawn if such profits were received in
payment as wages of an employee. Furthermore, herein petitioner had no voice in the
management of the affairs of the partnership. Sardane v. Court of Appeals, 167 SCRA
524 (1988). Also Fortis v Gutierrez Hermanos, 6 Phil. 100 (1906).
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The submission of the payroll of the company indicating that the brother was listed
as an employee and receiving only wages from the company militates against his claim
of being a partner in the business. Heirs of Tang Eng Kee v. Court of Appeals, 341
SCRA 740 (2000).
The fact that in their articles of agreement, 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. Santos v. Reyes, 368 SCRA 261 (2001).
withdrawal of the industrial partner, there resulted a reversion back into the original partnership
under the terms of the registered articles of partnership. There is not constituted a new partnership
at will. Rojas v. Maglana, 192 SCRA 110 (1990).
c. Business Trust
d. Agency
An agent cannot escape the criminal liabilities of estafa for conversion of the funds given to him
by his principal by claiming that he had become a partner when the books of accounts kept for the
business showed that the amount was charged to him since the same was merely a method of
keeping an account of the business, so that the parties would know how much money had been
invested and what the condition thereof was at any particular time. United States v. Muhn, 6 Phil.
164 (1906).
Just because a duly appointed agent has made personal advances for the expenses of the
business venture that he had been designated to administer, does not make him a partner of his
principal. Binglangawa v. Constantino, 109 Phil. 168 (1960).
f. Corporations
g. Cooperatives
turned over should be included as a party in the suit, because no charitable institution is
necessary for the determination of the rights of the parties, who are partners in the unlawful
partnership: The action which may arise from said article, in the case of an unlawful partnership,
is that for the recovery of the amounts paid in by the members from those in charge of the
administration of said partnership, and it is not necessary for the said partners to based their
action on the existence of the partnership, but on the fact of having contributed some money to
the partnership capital. Arbes v. Polistico, 53 Phil. 489 (1929).
b. Consensual
An action to compel a party to execute the contract of partnership to enforce the terms by which
an enterprise had been constituted constitute an enforcement of an obligation to do, which is
contrary to public policy against involuntary servitude. Woodhouse v. Halili, 93 Phil. 526 (1953).
SEE: There was indeed a partnership formed among themselves, for which the registered
dealer can be compelled to execute the covering articles of partnership, for accounting and
distribution of the shares in profits of the other partners. Estanislao, Jr. v. Court of Appeals, 160
SCRA 830 (1988).
contributed into the partnership which would trigger the operation of Article 1773. Agad v.
Mabato, 23 SCRA 1223 (1968).
Failure to prepare an inventory of the immovable property is 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. Torres v. Court of Appeals, 320 SCRA 428 (1999).
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. Secuya v. Vda. de Selma, 326 SCRA 244 (2000).
An instrument purporting to be the contract of partnership/joint venture, which is unsigned
and undated, and does not meet the public instrumentation requirements exacted under
Article 1771 of the Civil Code, and 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).
deceased partners. In the Matter of the Petition for Authority to Continue Using Firm Names ,
etc., 92 SCRA 1 (1979).
RULE 3.02, Code of Professional Responsibility: The continued use of the name of a
deceased partner is permissible provided that the firm indicates in all its communications
that said partner is deceased.
d. Has Domicile: Place where their legal representation is established or where they
exercise their principal functions (Art. 51)
e. Taxable as a Corporate Taxpayer. Tan v. Del Rosario, 237 SCRA 234 (1994).
f. May Be Declared Insolvent Even If Its Partners Are Not
A limited partnership that commits acts of insolvency may be the subject of an involuntary
petition for insolvency, even when its general partners are very much still solvent. This is on the
basis that a limited partnership has a separate juridical personality from its partners. Campos
Rueda & Co. v. Pacific Commercial & Co., 44 Phil. 916 (1923).
Except when partnership assets have been exhausted to make partners personally liable for
partnership debts as provided in Article 1816, then in view of the separate juridical personality
possessed by the partnership, the partners cannot be sued personally under a contract entered
into in the name of the partnership, unless it is shown that the legal fiction is being used for a
fraudulent, unfair or illegal purpose. Aguila, Jr. v. Court of Appeals, 316 SCRA 246 (1999).
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business which requires promptness and dispatch on the basis of good faith and honesty
which are always presumed. Litton v. Hil & Ceron, 67 Phil. 509 (1935).
In spite of the provision of Article 129 of the Code of Commerce to the effect that "If the
management of the general partnership has not been limited by special agreement to any of
the members, all shall have the power to take part in the direction and management of the
common business, and the members present shall come to an agreement for all contracts or
obligations which may concern the association," such obligation is one imposed by law on the
partners among themselves, that does not necessarily affect the validity of the acts of a
partner, while acting within the scope of the ordinary course of business of the partnership, as
regards third persons without notice. The latter may rightfully assume that the contracting
partner was duly authorized to contract for and in behalf of the firm and that, furthermore, he
would not ordinarily act to the prejudice of his co-partners. The regular course of business
procedure does not require that each time a third person contracts with one of the managing
partners, he should inquire as to the latter's authority to do so, or that he should first ascertain
whether or not the other partners had given their consent thereto." Goquiolay v. Sycip,
108 Phil. 947 (1960).
In a transaction within the ordinary course of the partnership business effected by the
industrial partner without the consent of the capitalist partner, the provisions in the articles of
partnership that the industrial partner shall manage, operate and direct the affairs,
businesses and activities of the partnership, constitute sufficient authority to make such
transaction binding against the partnership, as against another provision of the articles by
which the industrial partner is authorized To make, sign, seal, execute and deliver contracts .
. upon terms and conditions acceptable to him duly approved in writing by the capitalist
partner, which must cover only the execution of formal contracts in writing and not
necessarily to routine transactions such as ordinary purchases and sale of merchandise.
Smith, Bell & Co. v. Aznar, 40 O.G. 1881 (1941).
Even when the articles of partnership expressly provide that in the case of death of a
partner during the 10-year term of the partnership the deceased partner shall be represented
by his heirs or assigns in said co-partnership, and that the sole managing partner was upon
his death substituted by his widow, the widow although now a partner cannot be deemed to
have assumed sole management of the partnership, since the article provision on succession
can only cover proprietary rights, but not managerial right which is based on personal trust
and confidence. Goquiolay v. Sycip, 108 Phil. 947 (1960).
A presumption exists that each partner is an authorized agent for the firm and that he has
authority to bind it in carrying on the partnership transaction. Muasque v. Court of Appeals,
139 SCRA 533 (1985).
None of the partners and the partnership itself cannot be held liable for estafa when they
fail or refuse to return the contributions or share in profits of the partner. U.S. v. Clarin, 17
Phil. 84 (1910). BUT: When partner receives funds from another partner for a particular
purpose and he misappropriate it, then the receiving partner is liable for estafa. Liwanag v.
Court of Appeals, 281 SCRA 225 (1997).
Supervening Illegality
Absence of any clear stipulation, the acceptance back of part of the contribution by the
partner does not necessarily mean his withdrawal from, or dissolution of, the partnership.
Fernandez v. Dela Rosa, 1 Phil. 671 (1902).
The death of one of the partners dissolves the partnership, but that 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. Wahl v. Donaldson Sim & Co., 5 Phil. 11 (1905); Guidote v.
Borja, 53 Phil. 900 (1928).
A particular partnership is dissolved by the death of one of its partners there being no
stipulation in the contract of partnership of its subsistence after the death of a partner, and it
thereby attains the status of a partnership in liquidation, and only the rights inherited by the heirs
of the deceased partner were those resulting from the said liquidation and nothing more. If there
would be a continuation of the partnership a clear agreement on meeting of the minds must be
made, otherwise, a new partnership arrangement cannot be presumed to have arisen among the
heirs and the remaining partners. Bearneza v. Dequilla, 43 Phil. 237 (1922).
In equity, surviving partners are treated as trustees of the representatives of the deceased
partner, in regard to the interest of the deceased partner in the firm. As a consequence of this
trusteeship, surviving partners are held in their dealings with the firm assets and the
representatives of the deceased to that nicety of dealing and that strictness of accountability
required of and incident to the position of one occupying a confidential relation. It is the duty of
surviving partners to render an account of the performance of their trust to the personal
representatives of the deceased partner, and to pay over to them the share of such deceased
member in the surplus of firm property, whether it consists of real or personal assets. Guidote v.
Borja, 53 Phil. 900 (1928).
only a future contingent right to a portion of the ultimate residue as the assignor may become
entitled to receive by virtue of his proportionate interest in the capital." Since a partner's interest in
the partnership includes his share in the profits, we find that the CA committed no reversible error
in ruling that the Spouses Jaso are entitled to Biondo's share in the profits, despite Juanita's lack
of consent to the assignment of said Frenchman's interest in the joint venture. Although Eden did
not, moreover, become a partner as a consequence of the assignment and/or acquire the right to
require an accounting of the partnership business, the CA correctly granted her prayer for
dissolution of the joint venture conformably with the right granted to the purchaser of a partner's
interest under Article 1831 of the Civil Code. Realubit v. Jaso, G.R. No. 178782, 21
September 2011.
It is wrong to presume that the total capital contribution in a partnership is equivalent to the
gross assets to be distributed to the partners at the time of dissolution of the partnership. We
cannot sustain the underlying idea that the capital contribution at the beginning of the partnership
remains intact, unimpaired and available for distribution or return to the partners. Such idea is
speculative, conjectural and totally without factual or legal support. Generally, in the pursuit of a
partnership business, its capital is either increased by profits earned or decreased by losses
sustained; it does not remain static and unaffected by the changing fortunes of the business.
When partners venture into business together, they should have prepared for the fact that their
investment would either grow or shrink. It is a long established doctrine that the law does not
relieve parties from the effects of unwise, foolish or disastrous contracts they have entered into
with all the required formalities and with full awareness of what they were doing. Courts have no
power to relieve them from obligations they have voluntarily assumed, simply because their
contracts turn out to be disastrous deals or unwise investments. Villareal v. Ramirez, 406
SCRA 145 (2003).
41Idos v. Court of Appeals, 296 SCRA 194 (1998).
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X. LIMITED PARTNERSHIPS
1. Origin, Concept and Purpose (Art. 1843)
See excerpts from Ames v. Downing, N.Y. Surr. Cit. reproduced in BAUTISTA, TREATISE ON
PHILIPPINE PARTNERSHIP LAW, 1995 ed., at pp. 336-227).
The provisions of the Civil Code on limited partnership were taken from the Uniform Limited
Partnership Act. See annotations in TOLENTINO, CIVIL CODE OF THE PHILIPPINES, Vol V. at pp. 382-395
(1992 ed.)
The name of the limited partner cannot appear in the partnership name (Art. 1846)
Name and residence of each general and limited partners being respectively
designated
D.
ENFORCED
VENTURERS
AS
CONTRACT BETWEEN
AND
AMONG CO-
When a Joint Venture Agreement has been executed among the co-venturers covering the terms for
the development of a subdivision project, the contributions of the co-venturers and the manner of
distribution of the profits, a partnership has been duly constituted under Art. 1767 of Civil Code, and
although no inventory was prepared covering the parcels of land contributed to the venture, much less
was a certificate of registrations filed with the SEC, the partnership was not void because (a) Art. 1773 is
intended for the protection of the partnership creditors and cannot be invoked when the issue is between
and among the partners; and (b) the alleged nullity of the partnership will not prevent courts from
considering the JVA as an ordinary contract form which the parties rights and obligations to each other
may be inferred and enforced. Torres v. Court of Appeals, 320 SCRA 428 (1999).
42Reiterated in Primelink Properties and Dev. Corp. v. Lazatin-Magat, 493 SCRA 444 (2006); Information Technology Foundation of
the Philippines v. COMELEC, 419 SCRA 141 (2004).
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4. NEDA 1998 GUIDELINES AND PROCEDURES FOR ENTERING INTO JOINT VENTURE (JV)
ARRANGEMENTS BETWEEN GOVERNMENT AND PRIVATE ENTITIES
a. Definition of Joint Venture A contractual arrangement whereby a private sector entity or a
group of private sector entities on one hand, and a Government Entity or a group of Government
Entities on the other hand, contribute money-capital, services, assets (including equipment, land or
intellectual property), or a combination of any or all of the foregoing. Parties to a JV share risks to
jointly undertake an investment activity in order to accomplish a specific, limited or special goal or
purpose with the end view of facilitating private sector initiative in a particular industry or sector, and
eventually transferring ownership of the investment activity to the private sector under competitive
market conditions. It involves a community or pooling of interest in the performance of the service,
function, business or activity, with each party having a right to direct and govern the policy in
connection therewith, and with a view of sharing both profits and losses, subject to agreement by the
parties. A JV may be a contractual JV, or a corporate JV.
b. Definition of Contractual JV A legal and binding agreement under which the JV partners
shall perform the primary functions and obligations under the JV Agreement without forming a JV
Company.
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