A. LAW ON AGENCY
I. NATURE AND OBJECT OF AGENCY
1. Definition of Agency; Parties in an Agency Relationship (Art. 1868)
Under Article 1868, agency is a contract whereby a person binds himself to render some
service or to do something in representation or on behalf of another, with the consent or
authority of the latter.
Spanish term for principal is mandante; and among the terms used for agent are
mandatario, factor, broker, attorney-in-fact, proxy, delegate or representative.
1
Unless otherwise indicated, all references to articles pertain to the New Civil Code of the Philippines.
MCIAA v. Heirs of Gavina Jjordan, 778 SCRA 250 (2016).
2
3
Reiterated in Yu Eng Cho v. Pan American World Airways, 328 SCRA 717 (2000); Manila Memorial Park v. Linsangan, 443 SCRA 377
(2004); Eurotech Industrial Technologies v. Cuizon, 521 SCRA 584 (2007); Loadmasters Customs Services v. Glodel Brokerage Corp., 639
SCRA 69 (2011); Urban Bank v. Pena, 659 418 (2011); Westmont Investment Corp. v. Francis, Jr., 661 SCRA 787 (2011); Villoria v.
Continental Airlines, 663 SCRA 57 (2012); Jusayan v. Sombilla, 746 SCRA 437 (2015).
4Urban Bank v. Pea, 659 SCRA 418 (2011).
the control or direction of the principal; indeed, the very word agency has come to connote
control by the principal. xVictorias Milling Co. v. CA, 333 SCRA 663 (2000).5
No contract of agency exists where a common carrier leases the trucks of another carrier, for
there is no power of representation by one with respect to the other nor do the terms of
agreement provide for any authority to represent the other. xLoadmasters Customs Services v.
Glodel Brokerage Corp., 639 SCRA 69 (2011).
c. CONSIDERATION: Agency Presumed to Be for Compensation,
Unless There Is Proof to the Contrary(Art. 1875)
Old Civil Code: Service rendered by the agent was deemed to be gratuitous; if it were true
that agent and principal had an understanding that the agent was to receive compensation
aside from the use and occupation of the houses of the deceased, it cannot be explained how
the agent could have rendered services for eight years without receiving and claiming any
compensation from the deceased. xAgua v. Larena, 57 Phil 630 (1932).
Prescinding from the obligatory force of agency, the fact that other agents intervened in the
consummation of the sale and were paid their respective commissions could not vary the terms
of the agency with the plaintiff-agent who remains entitled to a 5% commission based on the
selling price. xDe Castro v. Court of Appeals, 384 SCRA 607 (2002).
5
Amon Trading Corp. v. CA, 477 SCRA 552 (2005).
6
A unilateral contract has been defined as A contract in which one party makes a promise or undertakes a performance. Thus, it was
observed that [M]any unilateral contacts are in reality gratuitous promises enforced for good reason with no element of bargain. [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)
7Litonjua, Jr. v. Eternit Corp., 490 SCRA 204 (2006); Villoria v. Continental Airlines, 663 SCRA 57 (2012).
8
Tan v. Engineering Services, 498 SCRA 93 (2006); Country Bankers Insurance v Keppel Cebu Shipyard, 673 SCRA 427 (2012).
9Schmid and Oberly, Inc. v. RJL Martinez, 166 SCRA 493 (1988).
Reiterated in Phil. Healthcare Providers (Maxicare) v. Estrada, 542 SCRA 616 (2008).
10
11Mamaril v. Boy Scouts of the Philippines, 688 SCRA 437 (2013).
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. xEquitable PCI-Bank v. Ku, 355 SCRA 309 (2001).
made by
Agency by estoppel, which is similar to doctrine of apparent authority, requires proof of reliance upon the representations
which needs proof that the representations predated the action taken by the relying third party. Country
purported principal,
2. KINDS OF AGENCY
a. Based on Business or Transactions Encompassed (Art. 1876): General or Universal
Agency versus Special or Particular Agency
Siasat v. IAC, 139 SCRA 238 (1985) describes them as follows:
Universal Agent is authorized to do all acts for his principal which can lawfully be
delegated to an agent; such an agent may be said to have universal authority.
General Agent is authorized to do all acts pertaining to a business of a certain kind or at
a particular place, or all acts pertaining to a business of a particular class or series. He
has usually authority expressly conferred in general terms or in effect made general by
the usages, customs or nature of the business which he is authorized to transact.
Special Agent is authorized to do some particular act or to act upon some particular
occasion; he acts usually in accordance with specific instructions or under limitations
necessarily implied from the nature of the act to be done.
12
Nevada v. Casuga, 668 SCRA 441 (2012); Jusayan v. Sombilla, 746 SCRA 437 (2015).
13
Woodschild Holdings, v. Roxas Electric and Construction Co., 436 SCRA 235 (2004); Manila Memorial Park v. Linsangan, 443 SCRA
377 (2004); Country Bankers Insurance v Keppel Cebu Shipyard, 673 SCRA 427 (2012); Umipig v. People, 677 SCRA 53 (2012); Recio v.
Heirs of Spouses Altamirano, 702 SCRA 137 (2013); Bautista-Spille v. NICORP Management and Dev. Corp., 773 SCRA 67 (2015).
14Domingo v. Robles, 453 SCRA 812 (2005).
17
San Juan Structural v. CA, 296 SCRA 631 (1998); AF Realty & Dev., Inc. v. Dieselman Freight Services Co., 373 SCRA 385 (2002);
Firme v. Bukal Enterprises and Dev. Corp., 414 SCRA 190 (2003); Bautista-Spille v. NICORP Management and Dev. Corp., 773 SCRA 67
(2015); MCIAA v. Unchuan, 791 SCRA 581 (2016).
18
Litonjua, Jr. v. Eternit Corp., 490 SCRA 204 (2006).
19
Estate of LinoOlaguer v. Ongjoco, 563 SCRA 373 (2008); Alcantara v. Nido, 618 SCRA 333 (2010); Camper Realty Corp. v. Pajo-Reyes,
632 SCRA 400 (2010); Recio v. Heirs of the Spouses Altamirano, 702 SCRA 137 (2013); Bautista v. Spouses Jalandoni, 710 SCRA 670
(2013); MCIAA v. Unchuan, 791 SCRA 581 (2016).
2. Obligation of Agent Who Declines Agency Who Has Custody of Goods: Agent Must
Observe Due Diligence in the Custody and Preservation of the Goods Until New
Agent Appointed(Art. 1885)
3. DUTY OF OBEDIENCE
4. DUTY OF DILIGENCE:
a. Agent Must Exercise Due Diligence in the Pursuit of the Principals Business
b. Agent Should Not Act If It Would Manifestly Result in Damage to Principal (Art. 1888)
c. Agent Also Liable Personally (with the Principal)for Fraud and Negligence Committed
in Pursuit of the Principals Affairs (Arts. 1884 and 1909)
22
Reiterated in Philippine Sugar Estates Dev. Corp. v. Poizat, 48 Phil. 536 (1925); PNB v. Agudelo, 58 Phil 655 (1933); Rural Bank of
Bombon v. CA, 212 SCRA 25 (1992); Gozun v. Mercado 511 SCRA 305 (2006).
5. DUTY OF LOYALTY:
a. Agent Shall Be Liable for Damages Sustained by the Principal Where in Case of
Conflict-of-Interests Situations, He Should Prefer His Own Interest (Art. 1889)
b. Agent Is Prohibited from Buying Property Entrusted to Him for Administration or Sale
Without Principals Consent (Art. 1491[2]).
Where agent by means of misrepresentation of the condition of the market induces principal
to sell to him the property consigned to his custody at a price less than that for which he has
already contracted to sell part of it, and who thereafter disposes of the whole at an advance, is
liable to principal for the difference. Such conduct constituted fraud, entitling principal to annul
the sale. Although commission earned by agent on the fraudulent sale may be disallowed,
nonetheless commission earned from other transactions which were not tainted with fraud
should be allowed. xCadwallader v. Smith Bell, 7 Phil. 461 (1907).
General manager, who also was the majority stockholder, and designated to be the main
negotiator for the company with the Government for the sale of its large tract of land, having
special knowledge of commercial information that would increase the value of the shares in
relation to the sale of the land to the Government, can be treated legally as being an agent of
the stockholders, with a fiduciary obligation to reveal to other stockholders such special
information before proceeding to purchase from the other stockholders their shares of stock. If
he purchases the shares of a stockholder without having disclosed important facts or to render
the appropriate report on the expected increase in value of the company, there was fraud
committed for which the director shall be liable for the earnings earned against the stockholder
on the sale of shares. xStrong v. Guiterrez Repide, 41 Phil. 947 (1909).
24Also Guzman v, CA, 99 Phil. 703, 706-707 (1956); Balerta v.People of the Philippines, 743 SCRA 166 (2014).
8. Liability When Two Or More Agents Appointed by the Same Principal: Responsibility
of Agents Not Solidary (Art. 1894)
EXCEPT :Where Two or More Agents Agree to Be Solidarily Bound (Art. 1895)
COMPARE: Two Principals with Common Agent Principals Solidarily Liable (Art. 1915)
When two letters of attorney are issued simultaneously to two different attorneys-in-fact, but
covering the same powers shows that it was not the principals intention that they should act
jointly in order to make their acts valid; the separate act of one of the attorney-in-fact, even
when not consented to by the other attorney in fact, is valid and binding on the principal,
especially the principal did not only repudiate the act done, but continued to retain the said
attorney-in-fact. Municipal Council of Iloilo v. Evangelista, 55 Phil. 290 (1930).
9. RULE ON LIABILITY RULES TO THIRD PARTIES: Agent Not Bound to Third Parties; It Is the
Principal Who Is Bound by the Contracts Entered Into By the Agent (Art. 1897)
A promissory note and mortgages executed by agent for and on behalf of his principal, in
accordance with a power of attorney, are valid, and as provided by Art. 1727, the principal must
fulfill the obligations contracted by the agent. xPNB v. Palma Gil, 55 Phil. 639 (1931).
The settlement or adjustment agent in the Philippines of a New York insurance company is
no different from any other agent from the point of view of his responsibility: whenever he
adjusts or settles a claim, he does it in behalf of his principal, and his action is binding upon his
principal, and the agent does not assume any personal liability, and he cannot be sued on his
own right; the recourse of the insured is to press his claim against the principal. xSalonga v.
Warner Barnes, 88 Phil 125 (1951).26
A resident agent, as a representative of the foreign insurance company, is tasked only to
receive legal processes on behalf of its principal and not to answer personally for the any
insurance claims. xSmith Bell v. Court of Appeals, 267 SCRA 530 (1997).
Where buyer effects payment of part of purchase price to one of sellers creditors pursuant to
the terms of the deed of sale, there is no subrogation that takes place, as the buyer then merely
acts as an agent of seller effecting payment that was due to the seller in favor of a third-party
creditor. xChemphil Export v. Court of Appeals, 251 SCRA 217 (1995).
Agents who have been authorized to sell parcels of land cannot claim personal damages in
the nature of unrealized commission where the buyer refuses to proceed with the sale. The
25
Also Lim v. CA, 271 SCRA 12 (1997).
26Also E Macias & Co. v. Warner, Barnes & Co., 43 Phil 155 (1922).
27
Ormoc Sugarcane Planters Assn. v. CA, 596 SCRA 630 (2009).
28
Chua v. Total Office Products and Services, 471 SCRA 500 (2005); Tan v. Engineering Services, 498 SCRA 93 (2006); Chong v. CA,
527 SCRA 144 (2007); Heirs of Eugenio Lopez, Sr. v. Querubin, 753 SCRA 371 (2015).
29
Country Bankers Insurance v Keppel Cebu Shipyard, 673 SCRA 427 (2012).
30Reiterated in Eurotech Industrial Technologies v. Cuizon, 521 SCRA 584 (2007).
32
Also Strong v. Repide, 6 Phil. 680 (1906); Deen v. Pacific Commercial Co., 42 Phil. 738 (1922); Veloso v. La Urbana, 58 Phil. 681 (1933);
Pineda v. CA, 226 SCRA 754 (1993); Bacaltos Coal Mines v. CA, 245 SCRA 460 (1995); Litonjua, Jr. v. Eternit Corp., 490 SCRA 204 (2006);
Escueta v. Lim, 512 SCRA 411 (2007); Soriamont Steamship Agencies v. Sprint Transport Services, 592 SCRA 622 (2009).
c. Principal Not Bound to Contracts Entered Into By Agent Outside of His Authority
(Arts. 1898 and 1910),
(i) When Principal Ratifies, Expressly or Impliedly (Art. 1901)
Where a sale of land is effected through an agent who made misrepresentations to the buyer
that the property can be delivered physically to the buyer when in fact it was in adverse
possession of third parties, the seller-principal is bound for such misrepresentations and cannot
insist that the contract is valid and enforceable; the seller-principal cannot accept the benefits
derived from such representations of the agent and at the same time deny the responsibility for
them. Gonzales v. Haberer, 47 Phil. 380 (1925).
In agency, ratification is the adoption/confirmation by principal of an act performed on his
behalf by another without authoritythe substance of the doctrine is confirmation after conduct,
amounting to a substitute for a prior authority. For ratification to take place, it is required that the
principal must have full knowledge at the time of ratification of all the material facts and
circumstances relating to the unauthorized act of the person who assumed to act as agent; and
that is such material facts were suppressed or unknown, there can be no valid ratification.
Nevertheless, if the principals ignorance of the material facts and circumstances was willful, or
that the principal chooses to act in ignorance of the facts, there would still be ratification. Only
the principal can ratify; the agent cannot ratify his own unauthorized acts. Moreover, the
principal must have knowledge of the acts he is to ratify. Manila Memorial Park Cemetery,
Inc. v. Linsangan, 443 SCRA 377, 394 (2004).
Since the basis of agency is representation, then the question of whether an agency has
been created is ordinarily a question which may be established in the same way as any other
fact, either by direct or circumstantial evidence. Though that fact or extent of authority of the
agents may not, as a general rule, be established from the declarations of the agents alone, if
one professes to act as agent for another, she may be estopped to deny her agency both as
against the asserted principal and the third persons interested in the transaction in which he or
he is engaged. xDoles v. Angeles, 492 SCRA 607 (2006).
Even when agent exceeds his authority, principal is still solidarily liable with the agent, if
principal allowed agent to act as though the agent had full powers. In other words, the acts of an
agent beyond the scope of his authority do not bind the principal, unless the principal ratifies
them, expressly or implied. Ratification in agency is the adoption or confirmation by one person
of an act performed on his behalf by another without authority. Innocent third persons should
not be prejudiced if the principal failed to adopt the needed measures to prevent
misrepresentation, much more so if the principal ratified his agents acts beyond the latters
authority. Filipinas Life Assurance Co. v. Pedroso, 543 SCRA 542 (2008).
Under Arts. 1898 and 1910, agents act done beyond the scope of authority may bind
principal if he ratifies them, whether expressly or tacitly. Only the principal, and not the agent,
can ratify the unauthorized acts, which the principal must have knowledge of. Thus, where the
special power of attorney that an agent for the insurance company provides clearly the limit of
the entities to whom he can issue a surety bond, as well as the limit of the amounts that it can
cover, an insured who does not fall within such authority cannot claim good faith as to make the
surety issued outside of the scope of authority binding on the insurance company. xCountry
Bankers Insurance v Keppel Cebu Shipyard, 673 SCRA 427 (2012).
(ii) Third Person Cannot Set-up Facts of Agents Exceeding Authority Where Principal
Ratified or Signified Willingness to Ratify Agents Acts (Art. 1901)
Principal Should Be the One to Question Agents Lack/Excess of Authority
Power of Attorney (Must) Be Required by Third Party (Art. 1902)
Private or Secret Orders of Principal Do Not Prejudice Third Persons Who Relied
Upon Agents Power of Attorney or Principals Instruction(Art. 1902)
In an expropriation proceeding, the State cannot raise the alleged lack of authority of the
counsel of the owner to bind his client in a compromise agreement because such lack of
authority may be questioned only by the principal or client. [Since it is within the right or
prerogative of the principal to ratify even the unauthorized acts of the agent]. xCommissioner of
Public Highways v. San Diego, 31 SCRA 617 (1970)
3. Two or More Principals Appoint Agent for Common Transactions (Art. 1915)
a. Obligation of the Principals Is Solidary Because of Their Common Interest
COMPARE: Two or More Agents with One Principal Agents Obligation NOT Solidary,
unless otherwise expressed. (Art. 1894)
b. Any of the Principal May Validly Revoke Agents Authority (Art. 1925)
When the law expressly provides for solidarity of the obligation, as in the liability of co-
principals in a contract of agency, each obligor may be compelled to pay the entire obligation.
The agent may recover the whole compensation from any one of the co-principals, as in this
case. xDe Castro v. Court of Appeals, 384 SCRA 607 (2002).
V. EXTINGUISHMENT OF AGENCY
1. Agency Extinguished By (Art. 1919):
a. Principals Express or Implied Revocation
b. Agents Withdrawal
c. Death, Civil Interdiction, Insanity or Insolvency of the Principal or the Agent
d. Dissolution of the Juridical Entity Which Entrusted or Accepted the Agency
e. Accomplishment of the Object or Purpose of the Agency
f. Expiration of the Period for Which Agency Was Constituted
3. IMPLIED REVOCATION
a. Appointment of New Agent for Same Business/Transaction (Art. 1923)
Impliedly Revoked as to Agent Only
As to Third Persons, Notice to Them Is Necessary (Art. 1922)
35
Barrameda v. Barbara, 90 Phil. 718 (1952); Caisip v. Hon. Cabangon, 109 Phil. 150 (1952).
36Superseded Pasno v. Ravina, 54 Phil. 382 (1930) and Del Rosario v. Abad, 104 Phil. 648 (1958).
B. BUSINESS TRUSTS
I. NATURE AND CLASSIFICATION OF TRUSTS
1. Definition and Essential Characteristic of Trust (Art. 1440)
A trust is a fiduciary relationship with respect to property which involves the existence of
equitable duties imposed upon the holder of the title to the property to deal with it for the benefit
of another.37Its characteristics are: (a) it is a relationship; (b) it is a relationship of fiduciary
character; (c) It is a relationship with respect to property, not one involving merely personal
duties; (d) it involves the existence of equitable duties imposed upon the holder of the title to the
property to deal with it for the benefit of another; and (e) it arises as a result of a manifestation
of intention to create the relationship. Morales v. Court of Appeals, 274 SCRA 282 (1997).
a. Trusts Are Based on Equity Principles (Common-law) (Art. 1442)
As trusts has been much more frequently applied in England and in the United States than in
Spain, we may draw freely upon American precedents in determining the effect of the
testamentary trust under consideration, especially so as the trusts known to American and
English equity jurisprudence are derived from the fidei-commissa of Roman law and are based
entirely upon Civil Law principles. xGovernment v. Abadilla, 46 Phil. 642 (1924).38
Article 1442 incorporates a large part of the American law on trusts, and thereby the
Philippine legal system will be amplified and will be rendered more suited to a just and equitable
solution of many questions. Report of the Code Commission, at p. 60.
b. Distinguished from Agency
(1) While both trust and agency relationships are fiduciary in nature; agency is essentially
revocable, while a trust contract is essentially obligatory in its terms and period, and can
only be rescinded based on breach of trust.
(2) Trustee takes legal or naked title to the subject matter of trust, and acts on his own
business discretion; agent possesses property under agency for and in the name of the
owner and must act upon instructions of the owner;
(3) Trustee enters into contracts pursuant to the trust in his own name as legal or naked title
holder, while agent enters into contract in the name of the principal; and
(4) Trustee is liable directly and may be sued, albeit in his trust capacity; while agent cannot
be sued since it is the principal that must be held liable on the suit.
An investment management account, where the written instrument provides that bank shall
purchase debt securities on behalf of client and will handle the accounts in accordance with
clients instructions, creates a principal-agent relationship, and not a trust relationship nor an
ordinary bank deposit account. Consequently, under Art. 1910, the client assumed all
obligations or inherent risks entailed by transactions emanating from the arrangement, and the
bank may be held liable as an agent, only when it exceeds its authority, or acts with fraud,
negligence or bad faith. Principals are solely obliged to observe the solemnity of the transaction
entered into by the agent on their behalf, absent any proof that the latter acted beyond its
authority, and concomitant to this obligation is that the principal also assumes the risks that may
arise from the transaction. Panlilio v. Citibank, 539 SCRA 69 (2007).
37
Huang v. CA, 236 SCRA 429 (1994); Rizal Surety & Insurance Co. v. CA, 261 SCRA 69 (1996); Tala Realty Services v. Banco Filipino
Savings Bank, 392 SCRA 506 (2002); DBP v. COA, 422 SCRA 459 (2004); Heirs of Tranquilino Labiste v. Heirs of Jose Labiste, 587 SCRA
417 (2009); Metropolitan Bank v. Board of Trustees of Riverside Mills Corp. Provident and Retirement Fund, 630 SCRA 360 (2010); PNB v.
Aznar, 649 SCRA 214 (2011); Torbela v. Rosario, 661 SCRA 633 (2011); Estate of Margarita D. Cabacungan v. Laigo, 655 SCRA 366
(2011); Advent Capital and Finance Corp. v. Alcantara, 664 SCRA 224 (2012); Goyanko v. UCPB, 690 SCRA 79 (2013).
38Miguel v. CA, 29 SCRA 760 (1969); Spouses Rosario v. CA, 310 SCRA 464 (1999).
39
Spouses Rosario v. CA, 310 SCRA 464 (1999);Caezo v. Rojas, 538 SCRA 242 (2007); Pealber v. Ramos, 577 SCRA 509 (2009);
DBP v. COA, 422 SCRA 459 (2004).
40
Salao v. Salao, 70 SCRA 65, 80 (1976); Tigno v. CA, 280 SCRA 271 (1997); Policarpio v. CA, 269 SCRA 344 (1997); Spouses Rosario v.
CA, 310 SCRA 464 (1999); Caezo v. Rojas, 538 SCRA 242 (2007); Pealber v. Ramos, 577 SCRA 509 (2009).
41
Reiterated in Salao v. Salao, 70 SCRA 65 (1976). Constructive trusts are created by the construction of equity in order to satisfy the
demands of justice and prevent unjust enrichment. They arise contrary to intention against one who, by fraud, duress or abuse of confidence,
obtains or hold the legal right to property which he ought not, in equity and good conscience, to hold. Spouses Rosario v. CA, 310 SCRA 464
(1999).
42
Guy v. CA, 539 SCRA 584 (2007).
43
Vda. De Esconde v. CA, 253 SCRA 66 (1996); Spouses Rosario v. CA, 310 SCRA 464 (1999); DBP v. COA, 422 SCRA 459 (2004);Guy
v. Court of Appeals, 539 SCRA 584 (2007);Metropolitan Bank v. Board of Trustees of Riverside Mills Corp. Provident and Retirement Fund,
630 SCRA 350 (2010).
44Ramos v. Ramos, 61 SCRA 284 (1974); Pealber v. Ramos, 577 SCRA 509 (2009).
Port Services v. Go, 518 SCRA 453 (2007); Caezo v. Rojas, 538 SCRA 242 (2007); Goyanko v. UCPB, 690 SCRA 79 (2013).
45Filipinas
46
DBP v. COA, 422 SCRA 459 (2004); Pealber v. Ramos, 577 SCRA 509 (2009).
47
DBP v. COA, 422 SCRA459 (2004); Pealber v. Ramos, 577 SCRA 509 (2009).
48DBP v. COA, 422 SCRA459 (2004); Pealber v. Ramos, 577 SCRA 509 (2009).
49
Lorenzo v. Posadas, 64 Phil. 353 (1937); Torbela v. Rosario, 661 SCRA 633 (2011); Goyanko v. UCPB, 690 SCRA 79 (2013).
50
De Leon v. Peckson, 62 O.G. 994; Ringor v. Ringor, 436 SCRA 484 (2004); Figuracion v. Figuracion-Gerilla, 690 SCRA 495 (2013);
Medina v. CA, 109 SCRA 437, 445 (1981); Advent Capital and Finance Corp. v. Alcantara,664 SCRA 224 (2012).
51
Caezo v. Rojas, 538 SCRA 242 (2007); Booc v. Five Star Marketing, 538 SCRA 42 (2008).
52Pascual v. Meneses, 20 SCRA 219 (1967); Ramos v. Ramos, 61 SCRA 284 (1974).
2. RESULTING TRUSTS
53
Roa, Jr. v. CA, 123 SCRA 3 (1983).
54
Heirs of Moreno v. Mactan-Cebu Int.l Airport Authority, 413 SCRA 5023 (2003).
55
Tigno v. CA, 280 SCRA 262 (1997); Morales v. CA, 274 SCRA 282 (1997).
56
Aznar Brothers Realty Co. v. Aying, 458 SCRA 496 (2005); Spouses Rosario v. CA, 310 SCRA 464 (1999); Estate of Margarita D.
Cabacungan, v. Laigo, 655 SCRA 366 (2011).
f. Donation of Property to a Donee Who Shall Have No Beneficial Title (Art. 1449)
Where father donates a piece of land in the name of the daughter but with verbal notice that
the other half would be held by her for the benefit of a younger brother, coupled with a deed of
waiver subsequently executed by the daughter that she held the land for the common benefit of
her brother, created an implied trust in favor of the brother under Art. 1449. Adaza v. Court of
Appeals, 171 SCRA 369 (1989). [Express trust?]
g. Land Passes By Succession But Heir Places Title in a Trustee (Art. 1451)
When the eldest sibling had registered land inherited from the parents in his name, he was
acting in a trust capacity and as representative of all his brothers and sisters. As a consequence
he is now holding the registered title thereto in a trust capacity, and it is proper for the court to
declare that the other siblings are entitled to their several pro rata shares. xSeverino v. Severino,
44 Phil. 343 (1923); xCastro v. Castro, 57 Phil. 675 (1932).
In a situation where a Chinese resident had caused land to be placed in the name of the
trustee who was bound to hold the same for the benefit of the trustor and his family in the event
of death, the application of the doctrine of implied trust under Art. 1451 by the heirs of the
trustor cannot be upheld because the prohibition against an alien from owning lands of the
public domain is absolute and not even an implied trust can be permitted to arise on equity
consideration. xTing Ho, Jr. v. Teng Gui, 558 SCRA 421 (2008).
58
Carantes v. CA, 76 SCRA 514 (1977); Marcado v. Espinocilla, 664 SCRA 724 (2012).
59
Roa, Jr. v. CA, 123 SCRA 3 (1983).
60Policarpio v. CA, 269 SCRA 344 (1997); Arlequi v. CA, 378 SCRA 322 (2002).
61
Roa, Jr. v. CA, 123 SCRA 3 (1983).
62
Tigno v. CA, 280 SCRA 262 (1997).
63Pacheco v. Arro, 85 Phil. 505.
64Ruiz v. CA, 79 SCRA 525 (1977); Heirs of Tanak Pangaaran Patiwayon v. Martinez, 142 SCRA 252 (1986); Municipality of Victorias v.
CA, 149 SCRA 32 (1987); Mendizabel v. Apao, 482 SCRA 587 (2006); Heirs of Tabia v. CA, 516 SCRA 431 (2007); Pedrano v. Heirs of
Benedicto Pedrano, 539 SCRA 401 (2007); Heirs of Valeriano S. Concha, Sr. v. Lumocso, 540 SCRA 1 (2007); Leoveras v. Valdez, 652
SCRA 61 (2011); PNB v. Jumamoy, 655 SCRA 54 (2011); Toledo v. CA, 765 SCRA 104 (2015).
65
Vda. De Esconde v. CA, 253 SCRA 66 (1996); Iglesia Filipina Independiente v. Heirs of Taeza, 715 SCRA 138 (2014).
66
A trustee cannot acquire by prescription the ownership of property entrusted to him (Palma v. Cristobal, 77 Phil. 712); an action to
compel a trustee to convey property registered in his name in trust for the benefit of the cestui qui trust does not prescribe (Manalang v.
Canlas, 94 Phil. 776; Cristobal v. Gomez, 50 Phil. 810); the defense of prescription cannot be set up in an action to recover property held by
a person in trust for the benefit of another (Sevilla v. Delos Angeles, 97 Phil. 875); property held in trust can be recovered by the beneficiary
regardless of the lapse of time (Marabilles v. Quito, 100 Phil. 64; Bancairen v. Diones, 98 Phil. 122, Juan v. Zuiga, 4 SCRA 1221; Vda de
Jacinto v. Vda. de Jacinto, 5 SCRA 370 (1962). Ramos v. Ramos, 61 SCRA 284, 299 (1974).
67
Laguna v. Levantino, 71 Phil. 566 (1941); Sumira v. Vistan, 74 Phil. 138 (1943); Golfeo v. CA, 12 SCRA 199 (1964); Caladiao v. Santos,
10 SCRA 691, (1964);Torbela v. Rosario, 661 SCRA 633 (2011).
68
Pilapil v. Heirs of Maximino R. Briones, 514 SCRA 197 (2007); Caezo v. Rojas, 538 SCRA 242 (2007); Heirs of Tranquilino Labiste v.
Heirs of Jose Labiste, 587 SCRA 417 (2009).
69Torbela v. Rosario, 661 SCRA 633 (2011)
70
Martinez v. Grao, 42 Phil. 35 (1921); Buencamino v. Matias, 16 SCRA 849 (1966)]. Ramos v. Ramos, 61 SCRA 284 (1974).
71
Castro v. Echarri, 20 Phil. 23; Bargayo v. Camumot, 40 Phil. 857 (1920); Ramos v. Ramos, 45 Phil. 362 (1923); Varsity Hills v. Navarro,
43 SCRA 503 (1972).
72
Caezo v. Rojas, 538 SCRA 242 (2007).
73
Vda. de Jacinto v. Vda. de Jacinto, 5 SCRA 370 (1962); Castrillo v. CA, 10 SCRA 549 (1964); Lopez v. Gonzaga, 10 SCRA 167 (1974);
Gerona v. De Guzman, 11 SCRA 153 (1964); Mariano v. Judge De Vega, 148 SCRA 342 (1987); Figuracion v. Figuracion-Gerilla, 690 SCRA
495 (2013).
74
Boaga v. Soler, 11 Phil. 651; Claridad v. Henares, 97 Phil. 973; Cuison v. Fernandez and Bengzon, 105 Phil. 135 (1959); Candelaria v.
Romero, 109 Phil. 500 (1960); De Pasion v. De Pasion, 112 Phil. 403;J.M. Tuazon & Co. v. Mandanagal, 4 SCRA 84 (1962); Alzona v.
Capunitan, 4 SCRA 450 (1962); Vda. De Jacinto v. Vda. De Jacinto, 5 SCRA 371 (1962); Gerona v. De Guzman, 11 SCRA 153 (1964);
Gonzales v. Jimenez, 13 SCRA 80 (1965); Fabian v. Fabian, 22 SCRA 231 (1968); Bueno v. Reyes, 27 SCRA 1179 (1969); Ramos v.
Ramos, 61 SCRA 284 (1974); Estate of Margarita D. Cabacungan, v. Laigo, 655 SCRA 366 (2011).
75
Boaga v. Soler, 2 SCRA 755 (1961); J. M. Tuason& Co., Inc. v. Magdangal, 4 SCRA 123 (1962); Alzona v. Capunitan, 4 SCRA 450
(1962); Gonzales v. Jimenez, 13 SCRA 80 (1965); Cuaycong v. Cuaycong, 21 SCRA 1192 (1967); Varsity Hills v. Navarro, 43 SCRA 503
(1972); Escay v. CA, 61 SCRA 369 (1974); Carantes v. CA, 76 SCRA 514 (1977); Gonzales v. IAC, 204 SCRA 106 (1991); Pedrano v. Heirs
of Benedicto Pedrano, 539 SCRA 401 (2007); Cavile v. Litania-Hong, 581 SCRA 408 (2009); Heirsof Domingo Valientes v. Ramas, 638
SCRA 444 (2010).
76Diaz v. Gorricho and Aguado, 103 Phil. 261 (1958); Caezo v. Rojas, 538 SCRA 242 (2007).
C. PARTNERSHIPS
I. HISTORICAL BACKGROUND
1. Old Branches of Partnership Law
Civil Partnerships Not pursued in mercantile manner, non-habitual or not pursued in the
regular course of business
Commercial Partnerships in pursuit of industry or commerce; characterized by habituality
or pursuit in the regular course of business
Distinguishing between civil and commercial partnerships was critical in the old set-up
because it determined the applicable rules for registration, personal liability of members, and
rights and manner of dissolution. Compaia Agricola de Ultramar v. Reyes, 4 Phil. 2 (1904).
A commercial partnership is distinguished from a civil one by the object to which it is devoted
and not by the manner with which it is organized. A commercial partnership has for its object the
pursuit of industry or commerce, and is then a merchant that must be governed by, and
comply with the registration requirements of, the Code of Commerce to lawfully come into
77
Estate of Margarita D. Cabacungan, v. Laigo, 655 SCRA 366 (2011).
78
Armamento v. Guererro, 96 SCRA 178 (1980); Gonzales v. IAC, 204 SCRA106 (1991); Heirsof Domingo Valientes v. Ramas, 638 SCRA
444 (2010); PNB v. Jumamoy, 655 SCRA 54 (2011); Tiongco Yared v. Tiongco, 659 SCRA 545 (2011), Zuiga-Santos v. Santos-Gran, 738
SCRA 33 (2014); Toledo v. CA, 765 SCRA 104 (2015).
79
Cuison v. Fernandez and Bengzon, 105 Phil. 135 (1959).
80Cavile v. Litania-Hong, 581 SCRA 408 (2009).
b. Registration Key for Commercial Partnerships Coming into Existence (Arts. 118-119,
Code of Commerce); While Mere Consent Perfected the Civil Partnership
A laundry business is a civil partnership governed by the Civil Code, and it exist validly even
when no formal partnership agreement was entered into and registered, and the obligations of
the partners for partnership debts would be pro rata. Dietrich v. Freeman, 18 Phil. 341 (1911).
4. KINDS OF PARTNERSHIPS
a. As to Object (Art. 1776, 1st par.)
i. Universal Partnership (Arts. 1777 to 1782)
- Deemed a Universal Partnership of Profits when articles do not specify
the partnerships nature. (Art. 1781)
- Persons who are prohibited from giving each other any donation or
advantage cannot enter into a universal partnership. (Art. 1782)
ii. Particular Partnership(Art. 1783)
Usefulness of Such Distinction? Lyons v. Rosenstock, 56 Phil. 632 (1932).
b. As to Duration (Art. 1785)
i. Partnership with Fixed Term
ii. Partnership for a Particular Undertaking
iii. Partnership at Will
c. As to the Nature of the Liabilities of Partners
i. General Partnership (Art. 1776, 2nd par.)
ii. Limited Partnership (Sociedad en Comandita) (Arts. 1843 to 1867)
IV. PARTNERSHIP AS A JURIDICAL PERSON (Arts. 44(3), 45, 1768 and 1784)
1. CONSEQUENCES OFPARTNERSHIPBEING A JURIDICAL PERSON:
a. Entity Has Legal Capacity to Enter into Contracts and Incur Obligations (Art. 46)
b. It May Acquire Properties in Its Own Name (Arts. 46 and 1774)
c. It May Sue and Be Sued in Its Firm Name (Art. 46)
In a bankruptcy proceeding against a partnership, since it is a separate juridical person one
partner is not entitled to be made a party as an individual separate from the firm; yet precisely
because it is a juridical person, there can be proper service to the firm of court notices upon
service to any partner found within the jurisdiction of the court. xHSBC v. Jurado & Co., 2 Phil.
671 (1903).
2. FORMALITIES REQUIRED:
a. GENERAL RULE: Being Consensual in Character, a Partnership May Be Constituted in
Any Form (Art. 1771)
Old Civil Code and Code of Commerce: Third parties without knowledge of the partnerships
existence, who deal with the property registered in the name of one partner have a right to
expect effectivity of such transaction on the property, in spite of the protest of other partners and
partnership creditors. xBorja v. Addison, 44 Phil. 895 (1922).
b. EXCEPT: When Capital Contribution Is P3,000 or More:
AoP Must Appear in a Public Instrument; and
Registered with SEC.
BUT: Failure to Comply with Requirements Shall Not Affect the Liability of the
Partnership and Its Members to Third Persons (Art. 1784)
When the articles of partnership provide that the venture is established to operate a
fishpond, it does not necessarily mean that immovable properties or real rights have been
contributed into the partnership which would trigger the operation of Article 1773. Agad v.
Mabato, 23 SCRA 1223 (1968).
b. When Articles Kept Secret Among Members and One Member May Contract in His Own
Name (Art. 1775):
Shall Have No Separate Juridical Personality
Shall Be Governed by the Provisions Relating to Co-Ownership
c. Rules on Partnership Name (Art. 1815):
Every Partnership Must Operate Under a Firm Name
Which May or May Not Include the Name of One or More of the Partners
A Person Who Allows His Name to Be in the Firm Name Shall Be Subject to the
Liability of a Partner
The Use by the Person or Partnership Continuing the Partnership Business of the
Partnership Name, or the Name of a Decease Partner (Art. 1840, last par.): Shall Not
of Itself Make the Individual Property of the Deceased Partner Liable for Any Debts
Contracted by Such Person or Partnership.
The requirement under the Code of Commerce that the partnership name contain the names
of all the partners, is meant to protect from fraud the public dealing with the partnership; it
cannot be invoked by the partners to allege partnerships non-existence. xJo Chung Cang v.
Pacific Comml Co., 45 Phil. 142 (1923); xPNB v. Lo, 50 Phil. 802 (1927).
d. RULE 3.02, Code of Professional Responsibility: The continued use of the name of a
deceased partner in a professional partnership is permissible, provided that the firm
indicates in all its communications that said partner is deceased.
The contention that Art. 1840 regulating the use of partnership name allows a partnership from
continuing its business under a firm name which includes the name of a deceased partner has
been denied when it comes to a law partnership on the following grounds: (a) it contravenes the
provision of Arts. 1815 and 1825, which impose liability on a person whose name is included in
the firm name, which cannot cover a deceased person who can no longer be subject to any
liability; (b) public relations value of the use of an old firm name can tend to create undue
advantages and disadvantages in the practice of the profession; (c) Art. 1840 covers dissolution
and winding up scenarios and cannot be taken to mean to cover firms that are intended as going
concerns, and cover more commercial partnerships; and (d) when it comes to other professions,
there is legislative authority for them to use in their firm names those of deceased partners. xIn
the Matter of the Petition for Authority to Continue Using Firm Names, 92 SCRA 1 (1979).
b. All Partners Solidarily Liable with Partnership (Art. 1824) for Everything Chargeable to
the Partnership When Caused By:
Wrongful Act or Omission of Any Partner Acting
In the Partnerships Ordinary Course of Business; or
With Authority from the Other Partners(Art. 1822)
Partners Act or Misapplication of Properties of Third Parties
Where Partner Receives Property Acting With Apparent Authority; or
Partnership Received Property in the Ordinary Course of Business (Art. 1823)
Partners are solidarily liable for employees workmens compensation claims. xLiwanag and
Reyes v. Workmens Compensation Commission, 105 Phil. 741 (1959).
c. Newly Admitted Partner into an Existing Partnership Is Liable Only Out of Partnership
Property Shares and Contributions, for All the Obligations of the Partnership Arising
Before His Admission(Art. 1826)
d. Partnership Creditors Have Preference Over the Personal Creditors of Each of the
Partners as Regards the Partnership Property (Art. 1827)
4. LIMITED PARTNERS
a. He May Contribute Money or Property, But Never Service (Art. 1845)
b. Shall Not Be Liable As Such to the Obligations of the Partnership (Art.
1843);EXCEPT:
When He Allows His Surname to Be Part of the Partnership Name (Art. 1846)
He Takes Part in the Control of the Partnership Business (Art. 1848)
c. He Shall Have the Same Right as a General Partner to (Art. 1851):
83Primelink Properties and Dev. Corp. v. Lazatin-Magat, 493 SCRA 444 (2006).
84http://www.neda.gov.ph/references/Guidelines/RevisedGuidelines.pdf
oOo