AGENCY

I. THE CONCEPT OF AGENCY

● Elements of Agency
Ø Bordador v. Luz, G.R. No. 130148, December 15, 1997[1]

FACTS: Petitioners Bordador spouses were engaged in the business of purchase and sale of
jewelry, while respondent Brigida Luz was their regular customer. Respondent Narciso Deganos,
Luz's brother, received several pieces of jewelry from the Bordadors amounting to P382,816.00,
which items were indicated in 17 receipts covering the same--11 of the receipts stated that they
were received by Deganos for a certain Evelyn Aquino, while the remaining 6 indicated that they
were received by Deganos for Luz.
Deganos was supposed to sell the items at a profit and remit the proceeds and return the unsold
items to the Bordadors. Deganos remitted only P53,207.00. He neither paid the balance of the
sales proceeds, nor did he return any unsold item to the Bordadors, which led them to file an
action for recovery of a sum of money and damages against Deganos and Luz with the RTC. The
Bordadors claimed that Deganos acted as the agent of Luz when he received the items of
jewelry, and because he failed to pay for the same, Luz, as principal, became solidarily liable
with him.
Deganos asserted that it was he alone who was involved in the transaction with the Bordadors;
that he neither acted as agent for nor was he authorized to act as an agent by Luz,
notwithstanding the fact that 6 of the receipts indicated that the items were received by him for
Luz. He added that he never delivered any of the items to Luz. Luz corroborated the claims of
Deganos.
The RTC found that only Deganos was liable to the Bordados. It further found that it was
petitioner Lydia Bordador who indicated in the receipts that the items were received by Deganos
for Evelyn Aquino and for Luz. It said that it was "persuaded that Brigida D. Luz was behind
Deganos,"but because there was no memorandum to this effect, the agreement between the
parties was unenforceable under the Statute of Frauds. Absent the required memorandum or any
written document connecting Luz with the subject receipts or authorizing Deganos to act on her
behalf, the alleged agreement between the Bordadors and Luz was unenforceable.
The Bordadors elevated the case to the CA which affirmed said judgment, hence the instant
petition.

ISSUE: Whether Luz is liable to the Bordadors for the latter's claim for money and damages
despite the fact that Luz did not sign any of the subject receipts or authorized Deganos to
receive the items of jewelry on her behalf.

HELD: No, Luz is not liable to the Bordadors. THE BASIS FOR AGENCY IS
REPRESENTATION. The basis for agency is representation. Here, there is no showing that Luz
consented to the acts of Deganos or authorized him to act on her behalf, much less with respect
to the particular transactions involved. The Bordadors' attempt to foist liability on Luz through
the supposed agency relation with Deganos is groundless and ill-advised. A PERSON
DEALING WITH AN AGENT IS PUT UPON INQUIRY AND MUST DISCOVER UPON HIS
PERIL THE AUTHORITY OF THE AGENT. Besides, it was grossly and inexcusably negligent
of the Bordadors to entrust to Deganos, not once or twice but on at least 6 occasions as
evidenced by 6 receipts, several pieces of jewelry of substantial value without requiring a written
authorization from his alleged principal. A person dealing with an agent is put upon inquiry and
must discover upon his peril the authority of the agent.

Ø Victorias Milling v. CA, G.R. No. 117356, June 19 2000

FACTS: St. Therese Merchandising (hereafter STM) regularly bought sugar from petitioner
Victorias Milling Co., Inc. In the course of their dealings, petitioner issued several Shipping
List/Delivery Receipts to STM as proof of purchases. Among these was SLDR No. 1214M,
which gave rise to the instant case. SLDR No. 1214M covers 25,000 bags of sugar. The
transaction it covered was a "direct sale."
Thereafter, STM sold to private respondent Consolidated Sugar Corporation (CSC) its rights in
SLDR No. 1214M. That same day, CSC wrote petitioner that it had been authorized by STM to
withdraw the sugar covered by the SLDR. However, after 2,000 bags had been released,
petitioner refused to allow further withdrawals of sugar. CSC thus inquired when it would be
allowed to withdraw the remaining 23,000 bags. In its reply, petitioner said that it could not
allow any further withdrawals of sugar because STM had already withdrawn all the sugar
covered by the cleared checks. Petitioner also noted that CSC had represented itself to be STM's
agent as it had withdrawn the 2,000 bags "for and in behalf" of STM.
As a result, CSC filed a complaint for specific performance. Petitioner's primary defense a quo
was that it was an unpaid seller for the 23,000 bags. Since STM had already drawn in full all the
sugar corresponding to the amount of its cleared checks, it could no longer authorize further
delivery of sugar to CSC. Petitioner also contended that it had no privity of contract with CSC.
Furthermore, the SLDRs prescribed delivery of the sugar to the party specified therein and did
not authorize the transfer of said party's rights and interests.
The Trial Court rendered its judgment favoring the private respondent CSC. The appellate court
affirmed said decision but modified the costs against petitioner.

ISSUE: Whether or not the Court of Appeals erred in not ruling that CSC was an agent of STM
and hence, estopped to sue upon SLDR No. 1214M as an assignee.

HELD: No. It is clear from Article 1868 that the basis of agency is representation. 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.
That the authorization given to CSC contained the phrase "for and in our (STM's) behalf" did not
establish an agency. Ultimately, what is decisive is the intention of the parties. That no agency
was meant to be established by the CSC and STM is clearly shown by CSC's communication to
petitioner that SLDR No. 1214M had been "sold and endorsed" to it. The use of the words "sold
and endorsed" means that STM and CSC intended a contract of sale, and not an agency. Hence,
on this score, no error was committed by the respondent appellate court when it held that CSC
was not STM's agent and could independently sue petitioner.

Ø Sps. Viloria v. Continental Airlines, G.R. No. 188288, January 16, 2012
FACTS: In 1997, while the spouses Viloria were in the United States, they approached Holiday
Travel, a travel agency working for Continental Airlines, to purchase tickets from Newark to San
Diego. The travel agent, Margaret Mager, advised the couple that they cannot travel by train
because it was already fully booked; that they must purchase plane tickets for Continental
Airlines; that if they won’t purchase plane tickets; they’ll never reach their destination in time.
The couple believed Mager’s representations and so they purchased two plane tickets worth
$800.00.
Later however, the spouses found out that the train trip wasn’t really fully booked and so they
purchased train tickets and went to their destination by train instead. Then they called up Mager
to request for a refund for the plane tickets. Mager referred the couple to Continental Airlines. As
the couple were now in the Philippines, they filed their request with Continental Airlines office
in Ayala. The spouses Viloria alleged that Mager misled them into believing that the only way to
travel was by plane and so they were fooled into buying expensive plane tickets.
Continental Airlines refused to refund the amount of the tickets and so the spouses sued the
airline company. In its defense, Continental Airlines claimed that the tickets sold to them by
Mager were non-refundable; that, if any, they were not bound by the misrepresentations of
Mager because there’s no contract of agency existing between Continental Airlines and Mager.
The trial court ruled in favor of spouses Viloria but the Court of Appeals reversed the ruling of
the RTC.

ISSUE: Whether or not a contract of agency exists between Continental Airlines and Mager.

HELD: Yes. All the elements of agency are present, to wit:

1. there is consent, express or implied of the parties to establish the relationship;
2. the object is the execution of a juridical act in relation to a third person;
3. the agent acts as a representative and not for himself, and
4. the agent acts within the scope of his authority.
The first and second elements are present as Continental Airlines does not deny that it concluded
an agreement with Holiday Travel to which Mager is part of, whereby Holiday Travel would
enter into contracts of carriage with third persons on the airlines’ behalf. The third element is
also present as it is undisputed that Holiday Travel merely acted in a representative capacity and
it is Continental Airlines and not Holiday Travel who is bound by the contracts of carriage
entered into by Holiday Travel on its behalf. The fourth element is also present considering that
Continental Airlines has not made any allegation that Holiday Travel exceeded the authority that
was granted to it.
Continental Airlines also never questioned the validity of the transaction between Mager and the
spouses. Continental Airlines is therefore in estoppel. Continental Airlines cannot be allowed to
take an altogether different position and deny that Holiday Travel is its agent without condoning
or giving imprimatur to whatever damage or prejudice that may result from such denial or
retraction to Spouses Viloria, who relied on good faith on Continental Airlines’ acts in
recognition of Holiday Travel’s authority. Estoppel is primarily based on the doctrine of good
faith and the avoidance of harm that will befall an innocent party due to its injurious reliance, the
failure to apply it in this case would result in gross travesty of justice.
 ● Effect of Agency: Integration and Extension

Ø Uy and Roxas v. CA, G.R. No. 120465, September 9, 1999

FACTS: Petitioners Uy and Roxas are agents authorized to sell eight parcels of land by the
owners thereof. By virtue of such authority, petitioners offered to sell the lands located in
Benguet to respondent NHA to be utilized and developed as a housing project. On February 14,
1989, the NHA Board approved the acquisition of said lands, at the cost of P23.87M, pursuant to
which the parties executed a series of Deeds of Absolute Sale covering the subject lands. Of the
eight parcels, however, only five were paid for by the NHA because of the report it received
from the Land Geosciences Bureau of the DENR that the remaining area is located at an active
landslide area and therefore, not suitable for development into a housing project.
In 1991, the NHA cancelled the sale of the 3 parcels of land and subsequently offered the amount
of P1.225 million to the landowners as daños perjuicios. On 9 March 1992, petitioners filed
before the QC RTC a Complaint for Damages.
The RTC rendered a decision declaring the cancellation of the contract to be justified. The trial
court nevertheless awarded damages to plaintiffs in the same amount offered by NHA to
petitioners as damages. Upon appeal by petitioners, the CA held that since there was "sufficient
justifiable basis" in cancelling the sale, "it saw no reason" for the award of damages. Hence, this
petition.

ISSUE/S: 1. Whether or not Uy and Roxas are real parties in interest.

HELD: No. They are not parties in interest because they are merely agents of their principal. An
action shall be prosecuted in the name of the party, who by substantive law has the right sought
to be enforced. Uy and Roxas are not parties to the contract of sale between their principals and
NHA. They are mere agents of the owners of the land subject of the sale. As agents, they only
render some service or do something in representation or on behalf of their principals. The
rendering of such service did not make them parties to the contracts of sale executed in behalf of
the latter. Since a contract may be violated only by the parties thereto as against each other, the
real parties-in-interest, either as plaintiff or defendant, in an action upon that contract must,
generally, either be parties to said contract.

Neither has there been any allegation, much less proof, that petitioners are the heirs of their
principals. Nor they have shown that they are assignees of their principals to the subject
contracts. While they alleged that they made advances and that they suffered loss of
commissions, they have not established any agreement granting them the right to receive
payment and out of the proceeds to reimburse [themselves] for advances and commissions before
turning the balance over to the principal[s].
Finally, it does not appear that petitioners are beneficiaries of a stipulation pour autrui under
the second paragraph of Article 1311 of the Civil Code. Indeed, there is no stipulation in any of
the Deeds of Absolute Sale clearly and deliberately conferring a favor to any third person.

As petitioners are not parties, heirs, assignees, or beneficiaries of a stipulation pour autrui under
the contracts of sale, they do not, under substantive law, possess the right they seek to
enforce.Therefore, they are not the real parties-in-interest in this case. Petitioners not being the
real parties-in-interest, any decision rendered herein would be pointless since the same would not
bind the real parties-in-interest.

Ø Angeles v. PNR, G.R. No. 150128, August 31, 2006

FACTS: On May 5, 1980, respondent Philippine National Railways (PNR) informed Gaudencio
Romualdez that it has accepted his offer to buy PNR’s scrap/unserviceable rails in Del Carmen,
Lubao, Pampanga. After paying the purchase price, Romuladez addressed a letter to PNR
authorizing Lizette R. Wijanco-Angeles to be his lawful representative in the withdrawal of scrap
rails in Pampanga but it was not ready for hauling. The PNR instead granted Lizette to withdraw
scrap rails from Tarlac instead. However, they suspended such withdrawal in view of internal
issues regarding the Tarlac properties. The spouses Angeles demanded a refund but PNR refused
to pay. On August 10, 1988, the spouses angeles filed a suit against the PNR against specific
performance and damages before the RTC in Quezon City. Later, Lizette W. Angeles passed
away and was substituted by her heirs. The RTC dismissed the case since the spouses Angeles
were not real parties-in-interest. The Ca affirmed such decision.

ISSUE:WON the Spouses Angeles are real paties-in-interest in the case.

HELD: No. Lizette was not an assignee but merely an agent whose authority was limited to the
withdrawal of the scrap rails, hence without personality to sue. Where agency exists, the third
party’s (PNR) liability on the contract is to the principal (Romualdez) and not to the agent
(Lizette) and the relationship of the third party to the principal is the same as that in a contract in
which there is no agent. The words of Romualdez’s letter to PNR was very clear. I have
authorized the bearer, Lizette r. Wicangco-Angeles XXX to be my lawful representative in the
withdrawal of the scrap/unserviceable rails awarded to me. It cannot be over emphasized that
Romualdez’s use of the active verb “authorized” instead of “assigned”, indicated an intent on his
part to keep and retain his interest in the subject matter. The petition is denied

Ø Ong v. CA, G.R. No. 119858, August 31, 2006

Facts: Assistant City Prosecutor Dina P. Teves of the City of Manila charged petitioner and
Benito Ong with two counts of estafa under separate Informations dated 11 October 1991.

In Criminal Case No. 92-101989, the Information indicts petitioner and Benito Ong of the crime
of estafa committed as follows:

That on or about July 23, 1990, in the City of Manila, Philippines, the said accused, representing
ARMAGRI International Corporation, conspiring and confederating together did then and there
willfully, unlawfully and feloniously defraud the SOLIDBANK Corporation represented by its
Accountant, DEMETRIO LAZARO, a corporation duly organized and existing under the laws of
the Philippines located at Juan Luna Street, Binondo, this City, in the following manner, to wit:
the said accused received in trust from said SOLIDBANK Corporation the following, to wit:
10,000 bags of urea valued at P2,050,000.00 specified in a Trust Receipt Agreement and covered
by a Letter of Credit No. DOM GD 90-009 in favor of the Fertiphil Corporation.

In Criminal Case No. 92-101990, the Information likewise charges petitioner of the crime of
estafa committed as follows:

That on or about July 6, 1990, in the City of Manila, Philippines, the said accused, representing
ARMAGRI International Corporation, defraud the SOLIDBANK Corporation represented by its
Accountant, DEMETRIO LAZARO. The said accused received in trust from said SOLIDBANK
Corporation the following goods, to wit: 125 pcs. Rear diff. assy RNZO 49” 50 pcs. Front &
Rear diff assy. Isuzu Elof, 85 units 1-Beam assy. Isuzu Spz all valued at P2,532,500.00 specified
in a Trust Receipt Agreement and covered by a Domestic Letter of Credit No. DOM GD 90-006
in favor of the Metropole Industrial Sales with address at P.O. Box AC 219, Quezon City.

Issue: WON PETITIONER WAS NECESSARILY THE ONE RESPONSIBLE FOR THE
OFFENSE, BY THE MERE CIRCUMSTANCE THAT PETITIONER ACTED AS AGENT
AND SIGNED FOR THE ENTRUSTEE CORPORATION.

Held: Section 13 of the Trust Receipts Law which provides: x x x. If the violation is committed
by a corporation, partnership, association or other juridical entities, the penalty provided for in
this Decree shall be imposed upon the directors, officers, employees or other officials or persons
therein responsible for the offense, without prejudice to the civil liabilities arising from the
offense. We hold that petitioner is a person responsible for violation of the Trust Receipts Law.

The Trust Receipts Law is violated whenever the entrustee fails to: (1) turn over the proceeds of
the sale of the goods, or (2) return the goods covered by the trust receipts if the goods are not
sold. The mere failure to account or return gives rise to the crime which is malum prohibitum.
There is no requirement to prove intent to defraud.

The Trust Receipts Law recognizes the impossibility of imposing the penalty of imprisonment on
a corporation. Hence, if the entrustee is a corporation, the law makes the officers or employees or
other persons responsible for the offense liable to suffer the penalty of imprisonment. The reason
is obvious: corporations, partnerships, associations and other juridical entities cannot be put to
jail. Hence, the criminal liability falls on the human agent responsible for the violation of the
Trust Receipts Law.

Ø PNB v. Ritratto, G.R. No. 142616. July 31, 2001

Facts: PNB-IFL, a subsidiary company of PNB extended credit to Ritratto and secured by the
real estate mortgages on four parcels of land. Since there was default, PNB-IFL thru PNB,
foreclosed the property and were subject to public auction. Ritratto Group filed a complaint for
injunction. PNB filed a motion to dismiss on the grounds of failure to state a cause of action and
the absence of any privity between respondents and petitioner.

Issue: Is PNB privy to the loan contracts entered into by respondent & PNB-IFL being that PNB-
IFL is owned by PNB?

Held: No. The contract questioned is one entered into between Ritratto and PNB-IFL. PNB was
admittedly an agent of the latter who acted as an agent with limited authority and specific duties
under a special power of attorney incorporated in the real estate mortgage.

The mere fact that a corporation owns all of the stocks of another corporation, taken alone is not
sufficient to justify their being treated as one entity. If used to perform legitimate functions, a
subsidiary’s separate existence may be respected, and the liability of the parent corporation as
well as the subsidiary will be confined to those arising in their respective business. The courts
may, in the exercise of judicial discretion, step in to prevent the abuses of separate entity
privilege and pierce the veil of corporate entity.

Ø Caram v. Laureta, G.R. No. L-28740, February 24, 1981

FACTS: On June 10, 1945, Marcos Mata conveyed a large tract of agricultural land covered by
OCT No. 3019 in favor of Claro Laureta, plaintiff, the respondent herein. The deed of absolute
sale in favor of the plaintiff was not registered because it was not acknowledged before a notary
public or any other authorized officer. Since June 10, 1945, the plaintiff Laureta had been and is
in continuous, adverse and notorious occupation of said land, without being molested, disturbed
or stopped by any of the defendants or their representatives. In fact, Laureta had been paying
realty taxes due thereon and had introduced improvements worth not less than P20,000.00 at the
time of the filing of the complaint. On May 5, 1947, the same land covered by OCT No. 3019
was sold by Marcos Mata to defendant Fermin Z. Caram, Jr., petitioner herein. The deed of sale
in favor of Caram was acknowledged before Atty. Abelardo Aportadera. On December 9, 1947,
the second sale between Marcos Mata and Fermin Caram, Jr. was registered with the Register of
Deeds. On the same date, Transfer Certificate of Title No. 140 was issued in favor of Fermin
Caram Jr.The defendant Fermin Caram Jr. claimed that he has no knowledge or information
about the previous encumbrances, transactions, and alienations in favor of plaintiff until the
filing of the complaints.

ISSUE: Whether or not the knowledge petitioner of a prior unregistered sale of a titled property
attributable to petitioner and equivalent in law of registration of sale.

HELD: Yes. There is no doubt then that Irespe and Aportadera, acting as agents of Caram,
purchased the property of Mata in bad faith. Applying the principle of agency, Caram as
principal, should also be deemed to have acted in bad faith. Since Caram was a registrant in bad
faith, the situation is as if there was no registration at all. A possessor in good faith is one who is
not aware that there exists in his title or mode of acquisition any flaw which invalidates it.
Laureta was first in possession of the property. He is also a possessor in good faith. It is true that
Mata had alleged that the deed of sale in favor of Laureta was procured by force. Such defect,
however, was cured when, after the lapse of four years from the time the intimidation ceased,
Marcos Mata lost both his rights to file an action for annulment or to set up nullity of the contract
as a defense in an action to enforce the same.

● Nature of Agency: General and Special

Ø Dominion Insurance v. CA G.R. No. 129919, February 6, 2002

FACTS: Rodolfo Guevarra instituted a civil case for the recovery of a sum of money against
Dominion Insurance. He sought to recover P156,473.90, which he claimed to have advanced in
his capacity as manager of Dominion to satisfy claims filed by Dominion’s clients. Dominion
denied any liability to Guevarra and asserted a counterclaim for premiums allegedly unremitted
by the latter. The pre-trial conference never pushed through despite being scheduled and
postponed nine times over the course of six months. Finally, the case was called again for pre-
trial and Dominion and counsel failed to show up. The trial court declared Dominion in default
and denied any reconsideration.

On the merits of the case, the RTC ruled that Dominion was to pay Guevarra the P156,473.90
claimed as the total amount advanced by the latter in the payment of the claims of Dominion’s
clients. The CA affirmed.

ISSUE: WON respondent Guevarra acted within his authority as agent for petitioner Dominion?

HELD: No. A perusal of the“Special Power of Attorney”would show that Dominion and
Guevarra intended to enter into a principal-agent relationship. Despite the word “special,” the
contents of the document reveal that what was constituted was a general agency. The agency
comprises all the business of the principal, but, couched in general terms, is 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.
Art. 1878 enumerates the instances when a special power of attorney is required, including (1) to
make such payments as are not usually considered as acts of administration; (15) any other act of
strict dominion.

The payment of claims is not an act of administration. The settlement of claims is not included
among the acts enumerated in the Special Power of Attorney, neither is it of a character similar
to the acts enumerated therein. A special power of attorney would have been required before
Guevarra could settle the insurance claims of the insured.

NOTE: Guevarra’s authority to settle claims is embodied in the Memorandum of Management

Agreement which enumerated the scope of Guevarra’s duties and responsibilities. However, the
Memorandum showed the instruction of Dominion that payment of claims shall come from a
revolving fund. Having deviated from the instructions of the principal, the expenses that
Guevarra incurred in the settlement of the claims of the insured may not be reimbursed from
Dominion.

However, while the law on agency prohibits respondent Guevarra from obtaining
reimbursement, his right to recover may still be justified under the general law on obligations
and contracts, particularly Art. 1236. In this case, when the risk insured against occurred,
Dominion’s liability as insurer arose. This obligation was extinguished when Guevarra paid such
claims, Thus, to the extent that the obligation of Dominion had been extinguished, Guevarra may
demand reimbursement from his principal. To rule otherwise would result in unjust enrichment
of Dominion.

Ø Veloso v. CA G.R. No. 102737. August 21, 1996

FACTS: Petitioner owns a parcel of land in Tondo, Manila covered by a TCT. He

acquired the subject property before he got married from Philippine Building
Corporation, hence, the property did not belong to the conjugal partnership.

The said title was subsequently canceled and a new one was issued in the name of
Aglaloma B. Escario.

Subsequently, petitioner filed an action for annulment of documents, reconveyance of

property with damages and preliminary injunction alleging that he was the absolute
owner of the subject property and he never authorized anybody to sell it. He alleged
that when his wife left for abroad, he found out that his copy was missing.

The transfer of property was supported by a General Power of Attorney and Deed of
Absolute Sale, executed by Irma Veloso, wife of the petitioner.
Petitioner denied executing the power of attorney and alleged that his signature was
falsified. He also denied having known the supposed witnesses in the execution of the
power of attorney. Thus, he contended that the sale of the property, and the subsequent
transfer were null and void.

Defendant Aglaloma Escario alleged that she was a buyer in good faith and denied any
knowledge of the alleged irregularity. She allegedly relied on the general power of
attorney which was sufficient in form and substance and was duly notarized.

RTC ruled in favor of Escaro as the lawful owner of the property as she was deemed an
innocent purchaser for value. The trial court ruled that there was no need for a special
power of attorney when the special power was already mentioned in the general one.
CA affirmed in toto the findings of the trial court.

ISSUE: WON the general power of attorney is valid and sufficient

HELD: Yes. The assailed power of attorney was valid and regular on its face. It was
notarized and as such, it carries the evidentiary weight conferred upon it with respect to
its due execution. While it is true that it was denominated as a general power of
attorney, a perusal thereof revealed that it stated an authority to sell. "2. To buy or sell,
hire or lease, mortgage or otherwise hypothecate lands, tenements and hereditaments
…." 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 general power of attorney was accepted by the
Register of Deeds when the title to the subject property was canceled and transferred in
the name of private Respondent.

Ø Duñgo v. Lopena G.R. No. L-18377, December 29, 1962

FACTS: Petitioner Dungo and one Rodrigo Gonzales purchased 3 parcels of land from
respondents. Out of the total price, down payment was made with the agreement that the balance
would be paid in 6 monthly installments. To secure the payment of the balance, Dungo and
Gonzales executed over the same 3 parcels of land Deed of Real Estate Mortgage in favor of
Lopena and Ramos.

Vendees defaulted on the first installment which prompted respondents to file a complaint for the
foreclosure of the mortgage. Before trial, a compromise agreement was submitted to the lower
court for approval. Compromise agreement states should the defendants fail to pay the mortgage
indebtedness on the specified date, judgments of foreclosure shall be entered. Period of
redemption is waived.
Subsequently, a Tri-Party Agreement was drawn. Signatories were Dungo and Gonzales as
debtors, Lopena and Ramos as creditors and one Emma Santos as payor.

When Dungo and Gonzales failed to pay the balance of their indebtedness, Lopena and Ramos
filed a Motion for the Sale of Mortgaged Property. Lower court granted the motion and ordered
the sale.

The 3 parcels of land were sold at a public auction. The sheriff’s sale was later confirmed by the
lower court. Petitioner did not file any opposition.

Dungo filed a motion to set aside all the proceedings on the ground that the compromise
agreement was void since he did not sign it. TC denied.

ISSUE: WON the compromise agreement and all the proceedings subsequent thereto are void
insofar as Dungo is concerned.

HELD: A compromise in itself is a contract. Under Art 1878, a third person cannot bind another
to a compromise agreement unless the third person has obtained a special power of attorney for
that purpose from the party intended to be bound.

However, although the Civil Code expressly requires a special power of attorney so that one may
compromise an interest of another, it is incorrect to conclude that its absence renders the
compromise agreement void. It is merely unenforceable. Resulting from its nature as a contract.

Dungo had already ratified the compromise agreement as established by the Tri-Party Agreement
where it was stipulated that the PAYOR submits and binds himself to the force and effect of the
order of CFI. When it appears that the client, on becoming aware of the compromise and
judgment thereon, fails to repudiate promptly the action of his attorney, he will not be heard to
contest its validity.

Although Dungo was not a signatory, the compromise agreement benefited him in that the
agreement extended the date of maturity.

Ø Vicente v. Geraldez G.R. No. L-32473, July 31, 1973

FACTS: HI Cement Corporation was granted authority to operate mining facilities in

Bulacan. However, the areas allowed for it to explore cover areas which were also
being explored by petitioners. And so a dispute arose between the three and HI Cement
as neither side wanted to give up their mining claims over the disputed areas.
Eventually, HI Cement filed a civil case against the three. During pre-trial, the possibility
of an amicable settlement was explored where HI Cement offered to purchase the areas
of claims of Vicente et al at the rate of P0.90 per square meter. Vicente et al however
wanted P10.00 per square meter.

In 1969, the lawyers of HI Cement agreed to enter into a compromise agreement with
the three whereby commissioners shall be assigned by the court for the purpose of
assessing the value of the disputed areas of claim. An assessment was subsequently
made pursuant to the compromise agreement and the commissioners recommended a
price rate of P15.00 per square meter.
One of the lawyers of HI Cement, Atty. Francisco Ventura, then notified the Board of
Directors of HI Cement for the approval of the compromise agreement. But the Board
disapproved the compromise agreement hence Atty. Ventura filed a motion with the
court to disregard the compromise agreement. Vicente et al naturally assailed the
motion. Vicente et al insisted that the compromise agreement is binding because prior
to entering into the compromise agreement, the three lawyers of HI Cement declared in
open court that they are authorized to enter into a compromise agreement for HI
Cement; that one of the lawyers of HI Cement, Atty. Florentino Cardenas, is an
executive official of HI Cement; that Cardenas even nominated one of the
commissioners; that such act ratified the compromise agreement even if it was not
approved by the Board. HI Cement, in its defense, averred that the lawyers were not
authorized and that in fact there was no special power of attorney executed in their
favor for the purpose of entering into a compromise agreement. Judge Ambrosio
Geraldez ruled in favor of HI Cement.
ISSUE: WON a compromise agreement entered into by the company’s lawyer is valid.

HELD: No. Special powers of attorney are necessary in the ff: to compromise, and to
renounce the right to appeal from a judgment. Attorneys have authority to bind their
clients in any case by any agreement in relation thereto made in writing, and in taking
appeals, and in all matters of ordinary judicial procedure, but they cannot, without
special authority/compromise their clients’ litigation, or receive anything in discharge of
their clients’ claims but the full amount in cash.

The Compromise Agreement was signed only by the lawyers for petitioners and by the
lawyers for private respondent corporation.

The Court held that the Rules require for attorneys to compromise the litigation of their
clients, a special authority. And while the same does not state that the special authority
be in writing, the same be duly established by evidence other than the self-serving
assertion of counsel himself that such authority was verbally given him.
Law specifically required that juridical persons may compromise only in the form and
with the requisites which may be necessary to alienate their property. Under the
corporation law the power to compromise or settle claims in favor of or against the
corporation is ordinarily and primarily committed to the Board of Directors.

As a general rule, an officer or agent of the corporation has no power to compromise or

settle a claim by or against the corporation, except to the extent that such power is
given to him either expressly or by reasonable implication from the circumstances.

In the case at bar no provision of the charter and by-laws of the corporation or any
resolution or any other act of the board of directors of HI Cement Corporation has been
cited, from which We could reasonably infer that the administrative manager had been
granted expressly or impliedly the power to bind the corporation or the authority to
compromise the case. Absent such authority to enter into the compromise, the signature
of Atty. Cardenas on the agreement would be legally ineffectual.

Ø Cosmic Lumber v. CA G.R. No. 114311, November 29, 1996

FACTS: Cosmic Lumber Corporation executed a Special Power of Attorney appointing

Paz G. Villamil-Estrada as attorney-in-fact to initiate, institute and file any court action
for the ejectment of third persons and/or squatters so that the corporation may take
material possession of the entire lot.

Paz G. Villamil-Estrada, by virtue of her power of attorney, instituted an action for the
ejectment of private respondent Isidro Perez and recover the possession of a portion of
the lot.

Then, Villamil-Estrada entered into a Compromise Agreement with respondent Perez

wherein respondent will purchase the said lot.

The Compromise Agreement was was approved by the trial court and judgment was
rendered. Although the decision became final and executory it was not executed within
the 5-year period from date of its finality allegedly due to the failure of petitioner to
produce the owners duplicate copy of title. Respondent filed a complaint to revive the
judgment.

Petitioner asserts that it had no knowledge of the compromise agreement. Petitioner

sought annulment of the decision of the trial court on the ground that the attorney-in-fact
did not have authority to sell the subject property.
Issue: Whether or not the judgment may be annulled based on lack of authority of the
attorney-in-fact to sell the parcel of land.

HELD: Yes. The authority granted Villamil-Estrada under the special power of attorney
was explicit and exclusionary: for her to institute any action in court to eject all persons
found on the lots so that petitioner could take material possession thereof, and for this
purpose, to appear at the pre-trial and enter into any stipulation of facts and/or
compromise agreement but only insofar as this was protective of the rights and interests
of petitioner in the property. Nowhere in this authorization was Villamil-Estrada
granted expressly or impliedly any power to sell the subject property nor a
portion thereof. Neither can a conferment of the power to sell be validly inferred
from the specific authority to enter into a compromise agreement because of the
explicit limitation fixed by the grantor that the compromise entered into shall only
be so far as it shall protect the rights and interest of the corporation in the
aforementioned lots. In the context of the specific investiture of powers to Villamil-
Estrada, alienation by sale of an immovable certainly cannot be deemed protective of
the right of petitioner to physically possess the same, more so when the land was being
sold for a price of P80.00 per square meter, very much less than its assessed value of
P250.00 per square meter, and considering further that petitioner never received the
proceeds of the sale.

When the sale of a piece of land or any interest thereon is through an agent, the
authority of the latter shall be in writing; otherwise, the sale shall be void. Thus
the authority of an agent to execute a contract for the sale of real estate must be
conferred in writing and must give him specific authority, either to conduct the general
business of the principal or to execute a binding contract containing terms and
conditions which are in the contract he did execute. A special power of attorney is
necessary to enter into any contract by which the ownership of an immovable is
transmitted or acquired either gratuitously or for a valuable consideration. The
express mandate required by law to enable an appointee of an agency (couched) in
general terms to sell must be one that expressly mentions a sale or that includes a sale
as a necessary ingredient of the act mentioned. For the principal to confer the right
upon an agent to sell real estate, a power of attorney must so express the powers of the
agent in clear and unmistakable language. When there is any reasonable doubt that the
language so used conveys such power, no such construction shall be given the
document.

It is therefore clear that by selling to respondent Perez a portion of petitioners land

through a compromise agreement, Villamil-Estrada acted without or in obvious
authority. The sale ipso jure is consequently void. So is the compromise
agreement. This being the case, the judgment based thereon is necessarily void.
Antipodal to the opinion expressed by respondent court in resolving petitioners motion
for reconsideration, the nullity of the settlement between Villamil-Estrada and Perez
impaired the jurisdiction of the trial court to render its decision based on the compromise
agreement.

A judgment based on a compromise entered into by an attorney without specific

authority from the client is void. Such judgment may be impugned and its
execution restrained in any proceeding by the party against whom it is sought to
be enforced.

It may be argued that petitioner knew of the compromise agreement since the principal
is chargeable with and bound by the knowledge of or notice to his agent received while
the agent was acting as such. But the general rule is intended to protect those who
exercise good faith and not as a shield for unfair dealing. Hence there is a well-
established exception to the general rule as where the conduct and dealings of the
agent are such as to raise a clear presumption that he will not communicate to the
principal the facts in controversy.

Ø Mercado v. Allied Banking Corporation G.R. No. 171460, July 27, 2007

FACTS: Perla executed a Special Power of Attorney (SPA) in favor of her husband,
Julian D. Mercado (Julian) over several pieces of real property registered under her
name, authorizing the latter to perform the following acts: 1. To act in my behalf, to sell,
alienate, mortgage, lease and deal otherwise over the different parcels of land
described hereinafter x x x 2. To sign for and in my behalf any act of strict dominion or
ownership any sale, disposition, mortgage, lease or any other transactions including
quit-claims, waiver and relinquishment of rights x x x 3. To exercise any or all acts of
strict dominion or ownership over the above-mentioned properties, rights and interest
therein.

On the strength of the aforesaid SPA, Julian obtained a loan from the respondent. Still
using the subject property as security, Julian obtained an additional loan from the
respondent.
It appears, however, that there was no property identified in the SPA and registered with
the Registry of Deeds. What was identified in the SPA instead was the property different
from the one used as security for loan.

Julian defaulted on the payment of his loan obligations. Thus, respondent initiated extra-
judicial foreclosure proceedings over the subject property which was subsequently sold
at public auction wherein the respondent was declared as the highest bidder. Petitioners
initiated an action for the annulment of REM constituted over the subject property on the
ground that the same was not covered by the SPA and that the said SPA, at the time
the loan obligations were contracted, no longer had force and effect since it was
previously revoked by Perla. In the absence of authority to do so, the REM constituted
by Julian over the subject property was null and void; thus, petitioners likewise prayed
that the subsequent extra-judicial foreclosure proceedings and the auction sale of the
subject property be also nullified.

ISSUES:
(1) Whether or not there was a valid mortgage constituted over subject property.
(2) Whether or not there was a valid revovation of SPA.
(3) Construction of powers of attorney.

HELD: (1) In the case at bar, it was Julian who obtained the loan obligations from
respondent which he secured with the mortgage of the subject property. The property
mortgaged was owned by his wife, Perla, considered a third party to the loan obligations
between Julian and respondent. It was, thus, a situation recognized by the last
paragraph of Article 2085 of the Civil Code that third persons who are not parties to the
principal obligation may secure the latter by pledging or mortgaging their own property.
There is no question therefore that Julian was vested with the power to mortgage the
pieces of property identified in the SPA, however, the subject property was not among
those enumerated therein. Julian was not conferred by Perla with the authority to
mortgage the subject property under the terms of the SPA, the real estate mortgages
Julian executed over the said property are therefore unenforceable.

(2) The said SPA was revoked by virtue of a public instrument executed by Perla. To
address respondent’s assertion that the said revocation was unenforceable against it as
a third party to the SPA and as one who relied on the same in good faith, the rule is that
an agency is extinguished, among others, by its revocation (Article 1999, New Civil
Code of the Philippines). The principal may revoke the agency at will, and compel the
agent to return the document evidencing the agency. Such revocation may be express
or implied (Article 1920, supra).

(3) Rule of strict construction- where the terms of the contract are clear as to leave no
room for interpretation, resort to circumstantial evidence to ascertain the true intent of
the parties, is not countenanced. The law is that if the terms of a contract are clear and
leave no doubt upon the intention of the contracting parties, the literal meaning of its
stipulation shall control. The clear terms of the contract should never be the subject
matter of interpretation. Equally relevant is the rule that a power of attorney must be
strictly construed and pursued. The instrument will be held to grant only those powers
which are specified therein, and the agent may neither go beyond nor deviate from the
power of attorney. Where powers and duties are specified and defined in an instrument,
all such powers and duties are limited and are confined to those which are specified and
defined, and all other powers and duties are excluded.

Qualification of the rule- this is but in accord with the disinclination of courts to enlarge
the authority granted beyond the powers expressly given and those which incidentally
flow or derive therefrom as being usual and reasonably necessary and proper for the
performance of such express powers.

Ø BPI v. De Coster G.R. No. 23181, March 16, 1925

FACTS: Defendant Gabriela Andrea de Coster y Roxas executed a Special Power of

Attorney in favor of her husband. This authority gave Jean M. Poizat (agenthusband)
the power to loan and borrow money in her behalf. The agent was able to obtain a loan
from BPI, secured by a chattel mortgage on the steamers of his company, Poizat
Vegetable Oil Mills and a real mortgage over a property, which is also subject to another
mortgage in favor of La Orden de Dominicos.

Defendants defaulted on their obligations to BPI and La Orden de Dominicos. Thus,

both creditors prayed for the forclosure of the mortgaged properties.

RTC declared the defendants in default for their failure to appear and ruled in favor of
the plaintiffs. De Coster alleges that she never had any knowledge of the actual facts
until she read about her default in the newspapers, since she was not in the Philippines
when the summons were served; that her husband fled the country; that the mortgages
executed by her agent husband was without marital consent; and that he did not have
any authority to make her liable as surety on the debt of a third person—it being a
personal debt of her husband and his company.

ISSUE: W/N the principal-wife, Gabriela De Coster y Roxas, is liable for the mortgage
executed by her agent husband, Jean Poizat

HELD: NO. The note and mortgage show upon their face that at the time they were
executed, the agent-husband was attorney-in-fact for the defendant wife, and the bank
knew or should have known the nature and extent of his authority and the limitations
upon his power. Par. 5 of the Power of Attorney authorizes the agent husband for and in
the name of his wife to “loan or borrow any sums of money or fungible things, etc.” This
is taken to mean that he only had the power to loan his wife’s money and to borrow
 money for or on account of his wife as her agent and attorney-in-fact. It does not carry
with it or imply that he had the legal right to make his wife liable as a surety for the
preexisting debt of a third person.

It is fundamental rule of construction that where in an instrument powers and duties are
specified and defined, that all of such powers and duties are limited and confined to
those which are specified and defined, and that all other powers and duties are
excluded.

The fact that the agent-husband failed and neglected to perform his duties and to
represent the interests of his principal is NOT a bar to the principal obtaining legal relief
for the negligence of her agent.

It is apparent from the face of the instrument that the whole purpose and intent of the
power of attorney was to empower and authorize the agent-husband to look after and
protect the interests of the wife and for her and in her name to transact any and all of
her business. But nowhere does it provide or authorize him to make her liable as a
surety for the payment of the preexisting debt of a third person.

Thus, the agent-husband does not have the authority to sign the note and to execute
the mortgage for and on behalf of the wife as her act and deed, and that as to her the
note is void for want of power of her husband to execute it.

Ø Insular Drug v. PNB G.R. No. 38816, November 3, 1933

FACTS: Foerster, formerly a salesman and collector of Insular Drug Co., Inc (Insular) for
the Islands of Panay and Negros was instructed to take the checks which came to his
hands and deposit the amounts to the credit of the Insular. Instead of doing so, he
placed the checks in his personal account. Some of these checks were drawn against
the Bank of Philippine National Bank. After the indorsement on the checks were also
written the guaranty of PNB. As a consequence of the indorsements, Foerster and his
wife were able to withdraw the amount of the checks.

Eventually the Manila office of the drug company investigated the transactions of
Foerster. Upon the discovery of anomalies, Foerster committed suicide.

Insular claims that the bank improperly and illegally cashed the checks drawn in its
favor.
PNB claims that Foerster had implied authority to indorse all checks made out in the
name of the Insular Drug Co., Inc.

ISSUE: Whether or not PNB is liable

HELD: YES. PNB is liable.

Not only did the bank permit Foerster to indorse checks and then place them to his
personal account, but it went farther and permitted Foerster's wife and clerk to indorse
the checks. The right of an agent to indorse commercial paper is a very responsible
power and will not be lightly inferred. A salesman with authority to collect money
belonging to his principal does not have the implied authority to indorse checks
received in payment. Any person taking checks made payable to a corporation, which
can act only by agent does so at his peril, and must same by the consequences if the
agent who indorses the same is without authority.

The bank could tell by the checks themselves that the money belonged to the Insular
Drug Co., Inc., and not to Foerster or his wife or his clerk. When the bank credited those
checks to the personal account of Foerster and permitted Foerster and his wife to make
withdrawals without there being made authority from the drug company to do so, the
bank made itself responsible to the drug company for the amounts represented by the
checks.

Ø Hodges v. Salas G.R. No. L-42958, October 21 1936

FACTS:
In 1932, defendants executed a POA in favor of their brother in law, Yulo, to enable him to
obtain a loan and secure it with a mortgage on real property. Acting on the POA, Yulo obtained a
loan from Hodges, binding his principal solidarily to pay it within 10 years with 12% interest per
annum. Defendants failed to pay the loan upon maturity. Hodges now seeks to have it foreclosed.

ISSUE:
Whether Yulo was authorized to borrow money and invest it as he wished without being obliged
to apply it for the benefit of his principal.

HELD
No. The terms of the POA are limited. The agent is only allowed to borrow money which he
deemed necessary. There is nothing to indicate that the defendants have authorized him to
convert the money obtained for personal use.
Ø Bravo-Guerrero v. Bravo G.R. 152658, July 29, 2005

FACTS
Sps. Mauricio Bravo and Simona Bravo owned 2 parcels of land. In 1966, Simona executed a
GPA appointing Mauricio as her attorney-in-fact.
In the GPA, Simona authorized Mauricio to “mortgage or otherwise hypothecate, sell, assign and
dispose of any and all of my property, real, personal or mixed, of any kind whatsoever and
wheresoever situated, or any interest therein xxx.”
Mauricio subsequently mortgaged the properties to PNB and DBP, then in 1970, sold the
properties for P1,000 to his children, Roland, Ofelia and Elizabeth. Part of the agreement was for
the buyers to assume the mortgage on the property. The Deed of Sale was not annotated on the
TCTs nor presented to PNB and/or DBP. The mortgage loans continued to be in Mauricio’s
name even after his death in 1973. Simona died in 1977.
In 1997, Edward filed an action for judicial partition of the properties asserting his right as co-
owner of the same. However, petitioners refused to share with him possession and rental income
of the properties. Edward later amended his complaint to include a prayer to annul the Deed of
Sale. He argued that it was VOID due to the ff:
1.Mauricio executed the Deed of Sale without Simona’s consent
2.Sale was merely simulated, as shown by the grossly inadequate consideration to prejudice the
heirs

ISSUE
Whether the sale of the parcels of land armed with a GPA valid?

HELD
Yes.
Art. 1878 requires a special power of attorney for an agent to execute a contract that transfers the
ownership of an immovable. However, the Court has clarified that Art. 1878 refers to the nature
of the authorization, not to its form.
Even if a document is titled as a general power of attorney, the requirement of a special power of
attorney is met if there is a clear mandate from the principal specifically authorizing the
performance of the act.

Ø Siasat v. IAC G.R. No. L-67889, October 10, 1985

FACTS:
Sometime in 1974, respondent Teresita Nacianceno succeeded in convincingofficials of the then
Department of Education and Culture, to purchase without public bidding,one million pesos
worth of national flags for the use of public schools throughout the country.And for her service,
she was entitled to a commission of thirty (30%) percent.On October 16, 1974, the first delivery
of 7,933 flags was made by the United Flag Industry.The next day, on October 17, 1974, the
respondent's authority to represent the United FlagIndustry was revoked by petitioner Primitivo
Siasat.According to the findings of the courts below, Siasat, after receiving the payment of
P469,980.00 on October 23, 1974 for the first delivery, tendered the amount of P23,900.00 or
five percent (5%) of the amount received, to the respondent as payment of her commission.The
latter allegedly protested. She refused to accept the said amount insisting on the 30%commission
agreed upon. The respondent was prevailed upon to accept the same because of the assurance of
the petitioners that they would pay the commission in full after they deliveredthe other half of the
order. The respondent states that she later on learned that petitioner Siasat had already received
payment for the second delivery of 7,833 flags. When sheconfronted the petitioners, they
vehemently denied receipt of the payment, at the same timeclaiming that the respondent had no
participation whatsoever with regard to the seconddelivery of flags and that the agency had
already been revoked. She then filed a case incourt.The trial court decided in favor of the
respondent.In assailing the appellate court's decision, the petition tenders the following
arguments: first,the authorization making the respondent the petitioner's representative merely
states that shecould deal with any entity in connection with the marketing of their products for a
commissionof 30%. There was no specific authorization for the sale of 15,666 Philippine flags to
theDepartment; second, there were two transactions involved evidenced by the separatepurchase
orders and separate delivery receipts, The revocation of agency effected by theparties with
mutual consent on October 17, 1974, therefore, forecloses the respondent's claimof 30%
commission on the second transaction; and last,regarding damages and attorneysfees.

ISSUE:Whether or not respondent is an agent of petitioners.

HELD:YES, Respondent is indeed their agent. There are several kinds of agents. First,
auniversal agent – one who is authorized to do all acts for his principal which can lawfully
bedelegated to an agent. Second, a general agent – one authorized to do all acts pertaining to
abusiness of a certain kind or at a particular place, or all acts pertaining to a business of
aparticular class or series. And third, a special agent – one authorized to do some particular actor
act upon some particular occasion. He acts usually in accordance with specific instructionsthe
respondent is upon close scrutiny be classified as a general agent.Indeed, it can easily be seen by
the way general words were employed in the the agreement thatno restrictions were intended as
to the manner the agency was to be carried out or in theplace where it was to be executed. The
power granted to the respondent was so broad that itpractically covers the negotiations leading
to, and the execution of, a contract of sale of petitioners' merchandise with any entity or
organization.A cardinal rule of evidence embodied in Section 7 Rule 130 of our Revised Rules of
Courtstates that "when the terms of an agreement have been reduced to writing, it is to
beconsidered as containing all such terms, and, therefore, there can be between the parties
andtheir successors-in-interest
II. ESTABLISHING AGENCY
 ● Oral or Written
Ø Air France v. CA, G.R. No. L-57339, December 29, 1983

FACTS
February, 1970, the late Jose G. Gana and his family, (the GANAS), purchased from
AIRFRANCE through Imperial Travels, Incorporated, a duly authorized travel agent, nine
"open-dated" air passage tickets for the Manila/Osaka/Tokyo/Manila route.On April 24, 1970,
AIR FRANCE exchanged or substituted the aforementioned tickets with other tickets for the
same route. At this time, the GANAS were booked for the Manila/Osaka segmenton AIR
FRANCE Flight 184 for May 8, 1970, and for the Tokyo/Manila return trip on AIRFRANCE
Flight 187 on May 22, 1970. The aforesaid tickets were valid until May 8, 1971.TheGANAS did
not depart on 8 May 1970.Jose Gana sought the assistance of Teresita Manucdoc, a Secretary of
the Sta. Clara Lumber Company where Jose Gana was the Director and Treasurer, for the
extension of the validity of their tickets, which were due to expire on May 8, 1971. Teresita
enlisted the help of Lee EllaManager of the Philippine Travel Bureau, who used to handle travel
arrangements for thepersonnel of the Sta. Clara Lumber Company. Ella sent the tickets to Cesar
Rillo, OfficeManager of AIR FRANCE.
The tickets were returned to Ella who was informed that extension was not possible. Ella
thenreturned the tickets to Teresita and informed her of the impossibility of extension.In the
meantime, the GANAS had scheduled their departure on May 7, 1971 or one day beforethe
expiry date. In the morning of the very day of their scheduled departure on the first leg of their
trip, Teresita requested travel agent Ella to arrange the revalidation of the tickets. Ella gavethe
same negative answer and warned her that although the tickets could be used by theGANAS if
they left onMay 7, 1971, the tickets would no longer be valid for the rest of their tripbecause the
tickets would then have expired on May 8,1971. Teresita replied that it will be up tothe GANAS
to make the arrangements. Notwithstanding the warnings, the GANAS departedfrom Manila in
the afternoon of May 7, 1971 on board AIR FRANCE Flight 184 for Osaka.

However, for the Osaka/Tokyo flight on May 17, 1971, Japan Airlines refused to honor
thetickets because of their expiration, and the GANAS had to purchase new tickets.
Theyencountered the same difficulty with respect to their return trip to Manila as AIR FRANCE
alsorefused to honor their tickets. They were able to return only after pre-payment in Manila,
throughtheir relatives, of the readjusted rates.

ISSUE
Whether or not Teresita was the agent of the GANAS and notice to of the rejection of therequest
of the validity of the tickets was notice to the GANAS, her principals.
Held:
The GANAS cannot defend by contending lack of knowledge of those rules since the evidence
bears out that Teresita, who handled travel arrangements for the GANAS, was duly informed by
travel agent Ella of the advice of Reno, the Office Manager of Air France, that the tickets in
question could not be extended beyond the period of their validity without paying the fare
differentials and additional travel taxes brought about by the increased fare rate and
traveltaxes.To all legal intents and purposes, Teresita was the agent of the GANAS and notice to
her of the rejection of the request for extension of the validity of the tickets was notice to the
GANAS, her principal

Ø Cosmic Lumber V. CA, G.R. No. 114311, November 29, 1996

FACTS: Cosmic Corporation, through its General Manager executed a Special Power of
Attorney appointing Paz G. Villamil-Estrada as attorney-in-fact to initiate, institute and file any
court action for the ejectment of third persons and/or squatters of the entire lot and for the said
squatters to remove their houses and vacate the premises in order that the corporation may take
material possession of the entire lot. Villamil-Estrada then instituted an action for the ejectment
of private respondent Isidro Perez and recover the possession of a portion of lot before the RTC.
Subsequently, Estrada entered into a Compromise Agreement with Perez, the terms and
conditions such as “in order for Perez to buy the said lot he is presently occupying, he has to pay
to plaintiff through Estrada the sum of P26,640 computed at 80 per square meter and that Cosmic
lumber recognizes ownership and possession of Perez by virtue of this compromise agreement
over said portion and whatever expenses of subdivision, registration and other incidental
expenses shall be shouldered by Perez. Although the agreement was approved by the trial court
and the decision became final and executory it was not executed within the 9 year period from
date of its finality allegedly due to the failure of Cosmic lumber to produce the owner’s duplicate
copy of title needed to segregate from the lot which is the portion sold by Villamil-Estrada, to
private respondent under the compromise agreement. Upon learning of the fraudulent
transaction, petitioner sought annulment of the decision of the trial court /before respondent
Court of Appeals on the ground that the compromise agreement was void.

ISSUE: Whether the acts of Paz and Estrada are binding to Cosmic Lumber

RULING:
NO. The authority granted to Villamil-Estrada under the special power of attorney was explicit
and exclusionary: for her to institute any action in court to eject all persons found on lots so that
Cosmic lumber could take material possession thereof and for this purpose, to appear at the
pretrial and enter into any stipulation of facts and/or compromise agreement but only insofar as
this was protective of the rights and interests of Cosmic lumber in the property. Nowhere in this
authorization was Villamil-Estrada granted expressly or impliedly any power to sell the subject
property nor a portion thereof. Neither can a conferment of the power to sell be validly inferred
from the specific authority to enter into a compromise agreement because of the explicit
limitation fixed by the grantor that the compromise entered into shall only be in so far as it shall
protect the rights and interest of the corporation in the aforementioned lots.

Ø Oesmer v. Paraiso Development, G.R. No. 157493, February 5, 2007

FACTS: Petitioners together with Adolfo Oesmer and Jesus Oesmer, are brothers and sisters, and
the co-owners of undivided shares of two parcels of agricultural and tenanted land which were
acquired by right of succession.Respondent Paraiso Development Corporation is known to be
engaged in the real estate business.This case originated when Ernesto Oesmer, one of the co-
owners of the subject land, met with the President of respondent corporation for the purpose of
brokering the sale of petitioners’ properties to respondent corporation. Pursuant to the said
meeting, a Contract to Sell was drafted whereby petitioners Ernesto and Enriqueta subsequently
signed the aforesaid Contract to Sell. A check in the amount of P100,000.00, payable to Ernesto,
was given as option money. Sometime thereafter, Rizalino,Leonora, Bibiano, Jr., and Librado
also signed the said Contract to Sell. However, two of the brothers,Adolfo and Jesus, did not sign
the document.Later on, petitioners informed the respondent, through a letter, of their intention to
rescind the Contract to Sell and to return the amount of P100,000.00 given by respondent as
option money.Respondent did not respond to the aforesaid letter. Afterwards, herein petitioners,
together with Adolfo and Jesus, filed a Complaint for Declaration of Nullity or for Annulment of
Option Agreement or Contract to Sell with Damages before the RTC.The trial court held that the
assailed Contract to Sell is valid and binding only to the undivided proportionate share of
Ernesto who signed the document and received the check. Ernesto was ordered to execute the
Contract of Absolute Sale concerning his 1/8 share over the subject two parcels of land in favor
of respondent.On appeal, the Court of Appeals modified the decision of RTC whereby it declared
that the Contract to Sell is valid and binding with respect to the undivided proportionate share of
the six signatories of the document.

ISSUE: Whether or not the contract to sell binds the co-owners of Ernesto.

HELD: Yes. The contract to sell was valid and binding. In contrast to the contention of the five
co-owners who affixed their signatures in the contract to sell that their signatures do not confer
authority to Ernesto as an agent to sell their shares, the Court held that they were selling the same
directly and in their own right. Hence, written authority is no longer necessary since they were
selling their shares in their own capacity as owners.In addition, the petitioners, being owners of
their respective undivided shares in the subject properties, can dispose of their shares even
without the consent of all the co-heirs. Article 493 of the Civil Code provides that, “Each co-
owner shall have the full ownership of his part and of the fruits and benefits pertaining thereto,
and he may therefore alienate, assign or mortgage it, and even substitute another person in its
enjoyment, except when personal rights are involved. But the effect of the alienation or the
mortgage, with respect to the co-owners, shall be limited to the portion which may be allotted to
him in the division upon the termination of the co-ownership.”
Consequently, even without the consent of the two co-heirs, Adolfo and Jesus, the Contract to
Sell was valid and binding with respect to the 6/8 proportionate shares of the petitioners

● Effect
Ø AF Realty v. Dieselman, G.R. No. 111448, January 16, 2002
FACTS: Dieselman Freight Service Co. is an owner of commercial lot consisting of 2,094 square
meters, located at Pasig City. On May 10, 1988, Manuel C. Cruz, Jr.,a member of the board of
directors of Dieselman, issued a letter authorizing Cristeta N. Polintan "to look for a buyer and
negotiate the sale" of the lot atP3,000.00 per square meter. Cruz, Jr. has no written authority
from Dieselman to sell the lot. In turn, Polintan authorized Felicisima Noble to sell the same
lot.Noble offered the property to AF Realty & Development, Inc. at P2,500.00 per square meter.
Zenaida Ranullo, board member and vice-president of AF Realty,accepted the offer and issued a
check in the amount of P300,000.00. Ranullo asked Polintan for the board resolution of
Dieselman authorizing the sale.However, Polintan could only give Ranullo the original copy of
TCT No. 39849, the tax declaration and tax receipt for the lot, and a photocopy of the Articles of
Incorporation of Dieselman. Cruz, Sr., president of Dieselman, acknowledged receipt of the said
P300,000.00 as "earnest money" but required AF Realty to finalize the sale at P4,000.00 per
square meter. AF Realty replied that it is willing to pay the balance. However, Cruz, Sr.
terminated the offer and demanded fromAF Realty the return of the title of the lot. Claiming that
there was a perfected contract of sale, AF Realty filed a complaint for specific performance
against Dieselman and Cruz, Jr.. The complaint prays that Dieselman be ordered to execute and
deliver a final deed of sale in favor of AF Realty. In its answer,Dieselman alleged that it did not
authorize any person to enter into such transaction on its behalf. Meanwhile, on July 30, 1988,
Dieselman and Midas Development Corporation (Midas) executed a Deed of Absolute Sale of
the same property. The Court of Appeals held that Cruz, Jr. was not authorized in writing by
Dieselman to sell the property to AF Realty, the sale was not perfected; and that the Deed of
Absolute Sale between Dieselman and Midas is valid, there being no bad faith on the part of the
latter.

Issue:
Who between petitioner AF Realty and respondent Midas has a right over the subject lot?

Held:
AF Realty maintains that the sale of land by an unauthorized agent may be ratified where, in this
case the receipt by Cruz, Jr. from AF Realty of the P300,000.00 as partial payment of the lot
effectively binds Dieselman. We are not persuaded. Involved in this case is a sale of land through
an agent. The law on agency under Art 1874 of the Civil Code provides “When a sale of piece of
land or any interest therein is through an agent, the authority of the latter shall be in writing;
otherwise, the sale shall be void.” Considering that Cruz, Jr.,Polintan and Noble were not
authorized by Dieselman to sell its lot, the supposedcontract is void. Being a void contract, it is
not susceptible of ratification.On the other hand, the validity of the sale to Midas is
unquestionable. As noted,the sale was authorized by a board resolution of respondent Dieselman
dated May 27, 1988

Ø Pahud v. CA, G.R. No. 150346, August 25, 2006

FACTS: Spouses Pedro San Agustin and Agatona Genil were able to acquire a 246-square meter
parcel of land situated in Barangay Anos, Los Baños, Laguna and covered by Original Certificate
of Title . Agatona Genil and Pedro San Agustin died ,( both died intestate) survived by their
eight (8) children: respondents, Eufemia, Raul, Ferdinand, Zenaida, Milagros, Minerva, Isabelita
and Virgilio.

Eufemia, Ferdinand and Raul executed a Deed of Absolute Sale of Undivided Shares conveying
in favor of petitioners (the Pahuds, for brevity) their respective shares . Eufemia also signed the
deed on behalf of her four (4) other co-heirs, namely: Isabelita on the basis of a special power of
attorney , and also for Milagros, Minerva, and Zenaida but without their apparent written
authority. The deed of sale was also not notarized.

The Pahuds paid the accounts into the Los Baños Rural Bank where the subject property was
mortgaged. The bank issued a release of mortgage and turned over the owner's copy of the OCT
to the Pahuds, the Pahuds made more payments to Eufemia and her siblings. When Eufemia and
her co-heirs drafted an extra-judicial settlement of estate to facilitate the transfer of the title to the
Pahuds, Virgilio refused to sign it.

Virgilio's co-heirs filed a complaint for judicial partition of the subject property before the RTC
of Calamba, Laguna.In the course of the proceedings for judicial partition, a Compromise
Agreement was signed with seven (7) of the co-heirs agreeing to sell their undivided shares to
Virgilio .. The compromise agreement was, however, not approved by the trial court because
Atty. Dimetrio Hilbero, lawyer for Eufemia and her six (6) co-heirs, refused to sign the
agreement because he knew of the previous sale made to the Pahuds.

Eufemia acknowledged having received the payments from Virgilio. Virgilio then sold the entire
property to spouses Isagani Belarmino and Leticia Ocampo (Belarminos) . The Belarminos
immediately constructed a building on the subject property.

Alarmed and bewildered by the ongoing construction on the lot they purchased, the Pahuds
immediately confronted Eufemia who confirmed to them that Virgilio had sold the property to
the Belarminos.Then the Pahuds filed a complaint in intervention in the pending case for judicial
partition.
Issue:

1. Whether or not the sale of the subject property by Eufemia and her co-heirs to the Pahuds
is valid and enforceable.
2. Whether or not the sale by co-heirs to Virgilio is void.
3. Whether or not the sale of Virgilio to Belarminos is valid.

Ruling:

1. The transaction needs for qualification:

First: the sale made by Eufemia, Isabelita and her two brothers to the Pahuds should be
valid only with respect to the 4/8 portion of the subject property. Second; the sale with respect to
the 3/8 portion, representing the shares of Zenaida, Milagros, and Minerva, is void because
Eufemia could not dispose of the interest of her co-heirs in the said lot absent any written
authority from the latter, as explicitly required by law. It is true also there is no special power,
they can file an annulment of the sale, but the true facts of which the seven admitted that they
sold their shares to pahuds, they cannot assail the validity of the transaction. Instead, they just
remain silent , because by allowing them to do so would be tantamount to giving premium to
their three (3) sisters” dishonest and fraudulent deed. Thus their silence of the issue bars from a
making for a contrary claim and they are stopped from impugning the validity of the sale.
While the sale with respect to the 3/8 portion is void by express provision of law and not
susceptible to ratification. The validity of the said transaction cannot be corrected on the basis of
common law principle of estoppel.
The law provides:
When a sale of a piece of land or any interest therein is through an agent, the authority of the
latter shall be in writing; otherwise, the sale shall be void.
a special power of attorney is necessary for an agent to enter into a contract by which the
ownership of an immovable property is transmitted or acquired, either gratuitously or for a
valuable consideration.
The authority of an agent to execute a contract of sale of real estate must be conferred in writing
and must give him specific authority, either to conduct the general business of the principal or to
execute a binding contract containing terms and conditions which are in the contract he did
execute. A special power of attorney is necessary to enter into any contract by which the
ownership of an immovable is transmitted or acquired either gratuitously or for a valuable
consideration. The express mandate required by law to enable an appointee of an agency in
general terms to sell must be one that expressly mentions a sale or that includes a sale as a
necessary ingredient of the act mentioned. For the principal to confer the right upon an agent to
sell real estate, a power of attorney must so express the powers of the agent in clear and
unmistakable language. When there is any reasonable doubt that the language so used conveys
such power, no such construction shall be given the document.
In the 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.

2. the subsequent sale made by the seven co-heirs to Virgilio was void because they no
longer had any interest over the subject property which they could alienate at the time of the
second transaction. Nemo dat quod non habet. Virgilio, however, could still alienate his 1/8
undivided share to the Belarminos.

3. The sale to Bilarminos is not valid, they did not purchased the property from Virgilio in
good faith. the Belarminos were fully aware that the property was registered not in the name of
the immediate transferor, Virgilio, but remained in the name of the mother title. This fact alone
is sufficient impetus to make further inquiry and, thus, negate their claim that they are purchasers
for value in good faith.

They knew that the property was still subject of partition proceedings before the trial court, and
that the compromise agreement signed by the heirs was not approved by the RTC following the
opposition of the counsel for Eufemia and her six other co-heirs.

As a general rule, a purchaser of a real property is not required to make any further inquiry
beyond what the certificate of title indicates on its face. But the rule excludes those who
purchase with knowledge of the defect in the title of the vendor or of facts sufficient to induce a
reasonable and prudent person to inquire into the status of the property. Such purchaser cannot
close his eyes to facts which should put a reasonable man on guard, and later claim that he acted
in good faith on the belief that there was no defect in the title of the vendor. His mere refusal to
believe that such defect exists, or his obvious neglect by closing his eyes to the possibility of the
existence of a defect in the vendor's title, will not make him an innocent purchaser for value, if
afterwards it turns out that the title was, in fact, defective. In such a case, he is deemed to have
bought the property at his own risk, and any injury or prejudice occasioned by such transaction
must be borne by him.

The Belarminos, being transferees pendente lite, are deemed buyers in mala fide, and they stand
exactly in the shoes of the transferor and are bound by any judgment or decree which may be
rendered for or against the transferor. Furthermore, had they verified the status of the property by
asking the neighboring residents, they would have been able to talk to the Pahuds who occupy an
adjoining business establishment and would have known that a portion of the property had
already been sold.
 The supreme court reversed and set aside the ruling of the CA and reinstated of the RTC
with modification.

Ø AF Realty v. Dieselman, G.R. No. 111448, January 16, 2002

FACTS:
In 1988, Manuel Cruz, Jr., a board member of Dieselman Freight Services, Co. (DFS)
authorized Cristeta Polintan to sell a 2,094 sq. m. parcel of land owned by DFS. Polintan in turn
authorized Felicisima Noble to sell the same lot. Noble then offered AF Realty & Development,
Co., represented by Zenaida Ranullo, the land at the rate of P2,500.00 per sq. m. AF Realty
accepted the offer and issued a P300,000 check as downpayment.
However, it appeared that DFS did not authorize Cruz, Jr. to sell the said land. Nevertheless,
Manuel Cruz, Sr. (father) and president of DFS, accepted the check but modified the offer. He
increased the selling price to P4,000.00 per sq. m. AF Realty, in its response, did not exactly
agree nor disagree with the counter-offer but only said it is willing to pay the balance (but was
not clear at what rate). Eventually, DFS sold the property to someone else.
Now AF Realty is suing DFS for specific performance. It claims that DFS ratified the contract
when it accepted the check and made a counter-offer.
ISSUE:
Whether or not the sale made through an agent was ratified.
HELD:
No. There was no valid agency created. The Board of Directors of DFS never authorized
Cruz, Jr. to sell the land. Hence, the agreement between Cruz, Jr. and Polintan, as well as the
subsequent agreement between Polintan and Noble, never bound the corporation. Therefore the
sale transacted by Noble purportedly on behalf of Polintan and ultimately purportedly on behalf
of DFS is void.
Being a void sale, it cannot be ratified even if Cruz, Sr. accepted the check and made a counter-
offer. (Cruz, Sr. returned the check anyway). Under Article 1409 of the Civil Code, void
transactions can never be ratified because they were void from the very beginning.

Ø Litonjua v. Eternity, G.R. No. 144805, June 8, 2006

FACTS:
Aurelio and Eduardo are brothers. In 1973, Aurelio alleged that Eduardo entered into a contract
of partnership with him. Aurelio showed as evidence a letter sent to him by Eduardo that the
latter is allowing Aurelio to manage their family business (if Eduardo’s away) and in exchange
thereof he will be giving Aurelio P1 million or 10% equity, whichever is higher. A memorandum
was subsequently made for the said partnership agreement. The memorandum this time stated
that in exchange of Aurelio, who just got married, retaining his share in the family business
(movie theatres, shipping and land development) and some other immovable properties, he will
be given P1 Million or 10% equity in all these businesses and those to be subsequently acquired
by them whichever is greater.
In 1992 however, the relationship between the brothers went sour. And so Aurelio demanded an
accounting and the liquidation of his share in the partnership. Eduardo did not heed and so
Aurelio sued Eduardo.
ISSUE:
Whether or not there exists a partnership.
HELD:
No. The partnership is void and legally nonexistent. The documentary evidence presented
by Aurelio, i.e. the letter from Eduardo and the Memorandum, did not prove partnership.
The 1973 letter from Eduardo on its face, contains typewritten entries, personal in tone, but is
unsigned and undated. As an unsigned document, there can be no quibbling that said letter does
not meet the public instrumentation requirements exacted under Article 1771 (how partnership is
constituted) of the Civil Code. Moreover, being unsigned and doubtless referring to a partnership
involving more than P3,000.00 in money or property, said letter cannot be presented for
notarization, let alone registered with the Securities and Exchange Commission (SEC), as called
for under the Article 1772 (capitalization of a partnership) of the Code. And inasmuch as the
inventory requirement under the succeeding Article 1773 goes into the matter of validity when
immovable property is contributed to the partnership, the next logical point of inquiry turns on
the nature of Aurelio’s contribution, if any, to the supposed partnership.
The Memorandum is also not a proof of the partnership for the same is not a public instrument
and again, no inventory was made of the immovable property and no inventory was attached to
the Memorandum. Article 1773 of the Civil Code requires that if immovable property is
contributed to the partnership an inventory shall be had and attached to the contract.

● Express/Implied Agency and Agency by Estoppel

Ø Nogales v. Capitol Medical, G.R. No. 142625, December 19, 2006
FACTS:
Pregnant with her fourth child, Corazon Nogales, who was then 37 y/o was under the
exclusive prenatal care of Dr. Oscar Estrada beginning on her fourth month of pregnancy or as
early as December 1975. While Corazon was on her last trimester of pregnancy, Dr. Estrada
noted an increase in her blood pressure and development of leg edemas indicating preeclampsia
which is a dangerous complication of pregnancy. Around midnight of May 26, 1976, Corazon
started to experience mild labor pains prompting Corazon and Rogelio Nogales to see Dr.
Estrada at his home. After examining Corazon, Dr. Estrada advised her immediate admission to
Capitol Medical Center (CMC). Upon her admission, an internal examination was conducted
upon her by a resident-physician. Based on the doctor’s sheet, around 3am, Dr. Estrada advised
for 10mg valium to be administered immediately by intramuscular injection, he later ordered the
start of intravenous administration of syntociron admixed with dextrose, 5% in lactated ringer’s
solution, at the rate of 8-10 micro-drops per minute. When asked if he needed the services of
anesthesiologist, he refused. Corazon’s bag of water ruptured spontaneously and her cervix was
fully dilated and she experienced convulsions. Dr. Estrada ordered the injection of 10g of
magnesium sulfate but his assisting Doctor, Dr. Villaflor, only administered 2.5g. She also
applied low forceps to extract Corazon’s baby. In the process, a 10 x 2.5cm piece of cervical
tissue was allegedly torn. The baby came out in an apric, cyanatic weak and injured condition.
Consequently the baby had to be intubated and resuscitated. Corazon had professed vaginal
bleeding where a blood typing was ordered and she was supposed to undergo hysterectomy,
however, upon the arrival of the doctor, she was already pronounced dead due to hemorrhage.
Issue:
Whether or not in the conduct of child delivery, the doctors and the respondent hospital is liable
for negligence.

Held:
Yes. In general, a hospital is not liable for the negligence of an independent contractor-
physician. There is, however an exception to this principle. The hospital may be liable if the
physician is the ostensible agent of the hospital. This exception is also known as the doctrine of
apparent authority. Under the doctrine of apparent authority a hospital can be held vicariously
liable for the negligent acts of a physician providing care at the hospital, regardless of whether
the physician is an independent contractor, unless the patient knows, or should have known, that
the physician is an independent contractor. For a hospital to be liable under the doctrine of
apparent authority, a plaintiff must show that 1.) the hospital, or its agent, acted in a manner that
would lead a reasonable person to conclude that the individual who was alleged to be negligent
was an employee or agent of the hospital; 2.) Where the acts of the agent create the appearance
of authority, the plaintiff must also prove that the hospital had knowledge of and acquired in
them; and 3.) the plaintiff acted in reliance upon the conduct of the hospital or its agent,
consistent with ordinary care and prudence.
Borrowed servant doctrine provides that once a surgeon enters the operating room and takes
charge of the acts or omissions of operating room personnel and any negligence associated with
each acts or omissions are imputable to the surgeon, while the assisting physicians and nurses
may be employed by the hospital, or engaged by the patient, they normally become the
temporary servants or agents of the surgeon in charge while the operation is in progress, and
liability may be imposed upon the surgeon for their negligent acts under the doctrine of
respondeat superior.

Ø Philippine Realty v. Ley Construction, G.R. No. 165548, June 13, 2011
FACTS:
 Ley Construction and Development Corporation(LCDC) was the project contractor for
the construction of several buildings for Philippine Realty & Holdings Corporation (PRHC), the
project owner. Engineer Dennis Abcede (Abcede) was the project construction manager of
PRHC, while Joselito Santos (Santos) was its general manager and vice-president for operations.
Sometime between April 1988 and October 1989, the two corporations entered into four major
construction projects, as evidenced by four duly notarized "construction agreements." LCDC
committed itself to the construction of the buildings needed by PRHC, which in turn committed
itself to pay the contract price agreed upon.

The agreement covering the construction of the Tektite Building was signed by a Mr. Campos
under the words "Phil. Realty & Holdings Corp." and by Santos as a witness.Manuel Ley, the
president of LCDC, signed under the words "Ley Const. & Dev. Corp." The terms embodied in
the afore-listed construction agreements were almost identical. Each agreement provided for a
fixed price to be paid by PRHC for every project.

In the course of the construction of the Tektite Building, it became evident to both parties that
LCDC would not be able to finish the project within the agreed period.Thus, through its
president, LCDC met with Abcede to discuss the cause of the delay. LCDC explained that the
unanticipated delay in construction was due mainly to the sudden, unexpected hike in the prices
of cement and other construction materials. It claimed that, without a corresponding increase in
the fixed prices found in the agreements, it would be impossible for it to finish the construction
of the Tektite Building. In their analysis of the project plans for the building and of all the
external factors affecting the completion of the project, the parties discovered that even if LCDC
were able to collect the entire balance from the contract, the collected amount would still be
insufficient to purchase all the materials needed to complete the construction of the building.
Seeking to recover all the above-mentioned amounts, LCDC filed a Complaint with Application
for the Issuance of a Writ of Preliminary Attachment on 2 February 1996 before the RTC in
Makati City docketed as Civil Case No. 96-160

ISSUE:
Whether LCDC is liable for liquidated damages for delay in the construction of the
buildings for PRHC.

HELD:
NO. There is no question that LCDC was not able to fully construct the Tektite Building
and Projects 1, 2, and 3 on time. It reasons that it should not be made liable for liquidated
damages, because its rightful and reasonable requests for time extension were denied by PRHC.

It is important to note that PRHC does not question the veracity of the factual
representations of LCDC to justify the latters requests for extension of time. It insists, however,
that in any event LCDC agreed to the limits of the time extensions it granted. The practice of the
parties is that each time LCDC requests for more time, an extension agreement is executed and
signed by both parties to indicate their joint approval of the number of days of extension agreed
upon. As previously mentioned, LCDC sent a 9 December 1992 letter to PRHC claiming that, in
a period of over two years, only 256 out of the 618 days of extension requested were considered.
We disregard these numbers presented by LCDC because of its failure to present evidence to
prove its allegation. The tally that we will acceptas reflected by the evidence submitted to the
lower courtis as follows: out of the 564 days requested, only 237 were considered. Essentially
the same aforementioned reasons or causes are presented by LCDC as defense against liability
for both Projects 1 and 2.

Inasmuch as LCDCs claimed exemption from liability are beyond the approved time extensions,
LCDC, according to the majority of the CA, is liable therefor. JusticeJuan Q. Enriquez, in his
Dissenting Opinion, held that the reasons submitted by LCDC fell under the definition offorce
majeure. This specific point was not refuted by the majority.
We agree with Justice Enriquez on this point and thereby disagree with the majority
ruling of the CA. Article 1174 of the Civil Code provides: "Except in cases expressly specified
by the law, or when it is otherwise declared by stipulation or when the nature of the obligation
requires the assumption of risk, no person shall be responsible for those events which could not
be foreseen, or which though foreseen, were inevitable." A perusal of the construction
agreements shows that the parties never agreed to make LCDC liable even in cases offorce
majeure. Neither was the assumption of risk required. Thus, in the occurrence of events that
could not be foreseen, or though foreseen were inevitable, neither party should be held
responsible. Under Article 1174 of the Civil Code, to exempt the obligor from liability for a
breach of an obligation due to an "act of God" orforce majeure, the following must concur:

(a) the cause of the breach of the obligation must be independent of the will of the debtor; (b) the
event must be either unforseeable or unavoidable; (c) the event must be such as to render it
impossible for the debtor to fulfill his obligation in a normal manner; and (d) the debtor must be
free from any participation in, or aggravation of the injury to the creditor.

The shortage in supplies and cement may be characterized asforce majeure. In the present case,
hardware stores did not have enough cement available in their supplies or stocks at the time of
the construction in the 1990s. Likewise, typhoons, power failures and interruptions of water
supply all clearly fall underforce majeure. Since LCDC could not possibly continue constructing
the building under the circumstances prevailing, it cannot be held liable for any delay that
resulted from the causes aforementioned. Further, PRHC is barred by the doctrine of promissory
estoppel from denying that it agreed, and even promised, to hold LCDC free and clear of any
liquidated damages. Abcede and Santos also promised that the latter corporation would not be
held liable for liquidated damages even for a single day of delay despite the non-approval of the
requests for extension.

III. THE AGENT

● The Rights of Agents

Ø Danon v. Brimo & Co, G.R. No. 15823, September 12, 1921
FACTS:
The plaintiff alleges that the defendant company, through its manager Brimo, employed
him to look for a purchaser of its factory (Holland American Oil Co.) for the sum of P1.2
million; that defendant promised to pay to the plaintiff, as compensation for his services, a
commission of 5% on said sum of the sale was consummated, or if the plaintiff should find a
purchaser willing to buy; that subsequently, the plaintiff found such a purchaser, but the
defendant refused to sell the said factory without any justifiable motive/reason therefor and
without having previously notified the plaintiff of its desistance or variation in the price and
terms of the sale.

Another broker, Sellner, was also negotiating the sale. This fact was made known to the
plaintiff. There was also no fixed period within which the plaintiff might effect the sale.

Danon was able to contact Mr. Prieto (President of Sta. Ana Oil Mill Corp.) who asked
for an appointment with Brimo. Sellner found a purchaser who paid P1.3 million. For that
reason, Mr. Prieto never came to see Mr. Brimo to perfect the proposed negotiation.

Plaintiff instituted an action for recovery of reasonable value for his services.

ISSUE:
Whether or not plaintiff was entitled to his commission?

HELD:
No. Plaintiff had not performed all that was required of him under the contract to entitle
him to recover the commission agreed upon. He had found a person who might have bought
defendant’s factory if the defendant had not sold it to someone else. The evidence does not show
that the Sta. Ana Oil Mill had definitely decided to buy the property at P1.2 million. The board
of directors of said corporation had not resolved to purchase said property.

Plaintiff’s services do not entitle him to recover P50,000 since his services did not in any
way contribute towards bringing about the sale of the factory in question. He was not the
“efficient agent or the procuring cause of the sale.”
 A broker is never entitled to commissions for unsuccessful efforts. The broker may
devote his time and labor, and expend his money with ever so much of devotion to the interest of
his employer, and yet if the consummation of sale fails, if without effecting an agreement or
accomplishing a bargain, he abandons the efforts, or his authority is fairly and in good faith
terminated, he gains no right to commissions.

Ø Tan v. Gullas, G.R. No. 143978, December 3, 2002

FACTS:
Private respondents executed a special power of attorney authorizing petitioner, a
licensed real broker and his associates, to negotiate for the sale of their land at a commission of
3% of the gross price. The power of attorney was non-exclusive and effective for one month.

On the same date, petitioner contracted Engr. Ledesma, construction manager of the
Sisters of Mary of Banneaux, Inc., a religious organization interested in acquiring a property in
the Minglanilla area. However, the representatives of the Sisters of Maty asked for the reduction
of the selling price. Private respondent referred the prospective buyers to his wife. Later, private
respondent agreed to sell the property to the Sisters of Mary, and subsequently executed a special
power of attorney in favor of Eufemia Caete, giving her the special authority to sell, transfer, and
convey the land at a fixed price of P200/sqm.

Caete then executed a deed of sale in favor of the Sisters of Mary. The transfer certificate
of title was issued in the name of the latter.

Petitioner went to see Gullas to claim their commission, but the latter told them that they
will not pay the brokers fee because another group of agents was responsible for the sale of land
to the Sisters of Mary.

ISSUE:
Whether or not petitioners are entitled to the brokerage commission?

HELD:
Yes. A broker is one whose occupation is to bring the parties together, in matters of trade,
commerce, or navigation.

Private respondent’s contention that Pacana (the other broker) was the one responsible for
the sale is unsubstantiated. There was nothing on record which established the existence of a
previous negotiation among Pacana, Gullas, and the Sisters of Mary. There is only an undated
and unnotarized Special Power of Attorney in favor of Pacana. It is inconsistent with sound
business practice that the authority to sell is contained in an undated and unnotarized SPA.
Petitioners, on the other hand, were given the written authority to sell by private respondents.
 Petitioners set the sale in motion. They were not able to participate in its consummation
only because they were prevented from doing so by the acts of private respondents.

An agent receives a commission upon the successful conclusion of a sale, but a broker
earns his pay merely by bringing the buyer and the seller together, even if no sale is eventually
made. Therefore, petitioners as brokers should be entitled to the commission.

Ø Philippine Health-Care Providers v. Estrada, G.R. No. 171052, January 28, 2008
FACTS:
Maxicare allegedly engaged the services of Carmela Estrada who was doing business
under the name of Cara Health to promote and sell the program called Maxicare Plan with the
position of Independent Account Executive. Maxicare formally appointed Estrada as its General
Agent, evidenced by a letter agreement. Said letter provided for Estrada’s compensation in the
form of commission.

Maxicare alleged that it followed a franchising system in dealing with its agents whereby
an agent had to first secure permission from Maxicare to list a prospective company as client.
Estrada alleged that it did apply with Maxicare for the Meralco account and other accounts.
Estrada submitted proposals and made representations with Meralco regarding the Maxicare
Plan, but when Meralco decided to subscribe to said plan, Maxicare directly negotiated with
Meralco regarding the terms and conditions of the agreement, and left Estrada out of the
discussions on the terms and conditions. Meralco eventually subscribed to the Plan.

Estrada, through counsel, demanded from Maxicare that it be paid commissions for the
Meralco account and nine other accounts. Maxicare denied the claims because Maxicare directly
negotiated with Meralco and the other accounts, and that no agent was given the go signal to
intervene in the negotiations for the terms and conditions and the signing of the service
agreement with Meralco and the other accounts.

ISSUE:
Whether or not Estrada is entitled to commissions for the execution of the service
agreements between Meralco and Maxicare?

HELD:
Yes. Both the trial and appellate courts were one in the conclusion that Maxicare landed
the Meralco account for the sale of healthcare plans by virtue of Estrada’s involvement and
participation in the negotiations. The only reason Estrada was not able to participate in the
collection and remittance of premium dues to Maxicare was because she was prevented from
doing so by the acts of Maxicare, its officers, and employees.
 To be regarded as the procuring cause of a sale as to be entitled to a commission, a
broker’s efforts must have been the foundation on which the negotiations resulting in a sale
began. Verily, Estrada was instrumental in the sale of the Maxicare health plans to Meralco.
Without her intervention, no sale could have been consummated.

Ø Sanchez v. Medicard, G.R. No. 141525, September 2, 2005

FACTS:
Respondent appointed petitioner as its special corporate agent. As such agent, Medicard
gave him a commission based on the cash bought in.

Through petitioner’s efforts, Medicard and Unilab executed a Health Care Program
contract. Unilab and Medicard’s contract was renewed for another year through petitioner’s
initiative. Petitioner was paid his commission. Prior to the expiration of the renewed contract,
Medicard proposed to Unilab, through petitioner, an increase of the premium for the next year.
Unilab rejected the proposal and later on did not renew the health program. In order not to
prejudice its personnel by the termination of their health insurance, Unilab, though respondent
Ejercito, negotiated with Medicard’s President and other officers of Medicard, to discuss ways in
order to continue the insurance coverage of those personnel. A new scheme was made, but
petitioner did not receive any commission under the new scheme.

ISSUE:
Whether or not the contract of agency has been revoked by Medicard, hence, petitioner is
not entitled to a commission?

HELD:
Yes. It is clear that since petitioner refused to reduce his commission, Medicard directly
negotiated with Unilab, thus revoking its agency contract with petitioner. The Supreme Court
held that such revocation is authorized by Article 1924 of the Civil Code, which provides: “The
agency is revoked if the principal directly manages the business entrusted to the agent, dealing
directly with third persons.”

Moreover, there’s no indication from the records that he exerted any effort in order that
Unilab and Medicard, after the expiration of the Health Care Program Contract, can renew it for
the third time. In fact, his refusal to reduce his commission constrained Medicard to negotiate
directly with Unilab. Obviously, he was not the agent or the procuring cause of the third Health
Care Program between Medicard and Unilab.

Ø Infante v. Cunanan, G.R. No. L-5180, August 31, 1953

Ø Lim v. Saban, G.R. No. 163720, December 15, 2004
Ø Prats v. CA, G.R. No. L-39822, January 31, 1978
Ø Manotok Brothers v. CA, G.R. No. 94753, April 7, 1993
Ø Uniland Resources v. DBP, G.R. No. 95909, August 16, 1991
Facts:
Marinduque Mining Corporation obtained a loan from DBP and mortgaged a warehouse lot and
and office building lot previously mortgaged by MMC to Caltex. The account of MMC with
DBP was later transferred to the Assets Privatization Trust. Caltex foreclosed the mortgage due
to the non-payment of MMC. APT offered for sale to the public through DBP its right of
redemption on the two lots by public bidding. DBP subsequently retrieved the account from APT
and redeemed the lots from Caltex. A public bidding for the sale of the two lots was held. The
warehouse lot was sold to Charges Realty Corp. and the office building lot was latter sold by
DBP to a different buyer. After the aforesaid sale, Uniland Resources sent two letters to DBP
asking for the payment of its broker’s fee in instrumenting the sale of its warehouse lot to
Charges Realty. Uniland filed a case to recover from DBP the broker’s fee. The trial court
ordered DBP to pay. On appeal, the Court of Appeals reversed the judgment of the lower court.

Issue:
Whether or not there is a contract of agency between DBP and Uniland.
Whether or not Uniland may collect the broker’s fee.

Held:
There is no contract of agency, express or implied. The petitioner was never able to secure the
required accreditation from respondent DBP to transact business on behalf of the latter. It was
always made clear to petitioner that only accredited brokers may look for buyers on behalf of
DBP. the contract of agency is one founded on mutual consent: the principal agrees to be bound
by the acts of the agent and the latter in turn consents to render services on behalf or in
representation of the principal. Uniland may, however, collect the broker’s fee. A broker can
claim commission if the sale was consummated. Considering that DBP gained profit by
Uniland’s act despite the absence of authorization, it is only fair and just to give the petitioner its
commission.

Ø Domingo v. Domingo, G.R. No. L-30573, October 29, 1971

Facts:
Vicente Domingo granted to Gregorio Domingo, a real estate broker, the agency to sell his lot in
a document. According to the document, the said lot must be sold for P2 per sq. m. Gregorio is
entitled to a 5% commission on the total price if the property is sold by Vicente or by anyone
else during the 30-day duration of the agency or by Vicente within 3 months from the
termination of the agency to a purchaser to whom it was submitted by Gregorio during the
effectivity of the agency with notice to Vicente. Gregorio authorized Purisima to look for a buyer
without notifying Vicente. Gregorio promised half of the 5% commission. Purisima introduced
Oscar De Leon to Gregorio as a prospective buyer. De Leon submitted a written offer much
lower than P2 per sq. m. De Leon raised his offer to P1.20 per sq. m. Vicente agreed to said
offer. Upon Vicente’s demand, De Leon issued a P1,000 check to him as earnest money. Vicente
advanced P300 to Gregorio. De Leon gave Gregorio P1,000 as a gift for succeeding in
persuading Vicente to sell his lot at P1.20 per sq. m. Subsequently, Vicente asked for an
additional P1,000. The deed of sale was not executed since De Leon gave up on the negotiation.
Gregorio discovered that Vicente sold his lot to Amparo and demanded the payment of
commission.

Issue:
Whether or not Gregorio’s act of accepting the gift constitutes a fraud which would cause the
forfeiture of the 5% commission.

Held:
Yes. An agent who takes a secret profit in the nature of a bonus without revealing to his principal
is guilty of a breach of his loyalty to the principal and forfeits his right to collect commission
even if the principal did not suffer injury. The fact that the principal was benefited by the
valuable services of the agent does not exculpate the agent. As a necessary consequence of such
breach, Gregorio must forfeit the right to the commission and must return the part of the
commission which he received from his principal.

Ø Baltazar v. Ombudsman, G.R. No. 136433, December 6, 2006

Facts:
Regala owns a 7-hectare fishpond located at Sasmuan, Pampanga. Her Attorney-in-Fact Mercado
leased the fishpond for P250,000 to Lapid for a 3-year period. Lapid subleased the fishpond to
Lopez for P50,000 during the last 7 months of the original lease. Salenga was hired by Lapid as
fishpond watchman. In the sublease, Lopez rehired Salenga. Salenga, through Lagman, sent his
demand letter to Lopez and Lapid for unpaid salaries and non-payment of the 10% share in the
harvest. Lopez wrote a letter to Salenga informing the latter that for the last 2 months of the
sublease, he had given the rights over the fishpond to Palad and Perez. Salenga filed a complaint
before the Provincial Agrarian Reform Adjudication Board. Pending the resolution of the
agrarian case, Baltazar, an alleged nephew of Mercado, instituted the instant case through a
Complaint-Affidavit before the Office of the Ombudsman. Petitioner charged private
respondents of conspiracy through the issuance of the TRO in allowing Salenga to retain
possession of the fishpond, operate it, harvest the produce, and keep the sales. Petitioner asserts
that he is duly authorized by Mercado to institute the suit and presented a Special Power of
Attorney.

Issue:
Whether or not Mercado can delegate his agency to his nephew Baltazar.
Held:
No. Mercado is an agent himself and as such, he cannot further delegate his agency to another.
An agent cannot delegate to another the same agency. A re-delegation of the agency would be
detrimental to the principal as the second agent has no privity of contract with the former. In this
case, Baltazar has no privity of contract with Regala, owner of the fishpond and principal of
Mercado.

Ø Serona v. People, G.R. No. 130423, November 18, 2002

Facts:
Serona received in trust from Quilatan various pieces of jewelry to be sold on commission basis
under the express duty and obligation of remitting the proceeds thereof to Quilatan if sold or
returning the same to the latter if unsold. Unknown to Quilatan, Serona entrusted the jewelry to
Labrador for the latter to sell on commission basis. Serona was not able to collect payment from
Labrador, which caused her to fail to pay her obligation to Quilatan.

Issue:
Whether or not there was an abuse of confidence on the part of petitioner in entrusting the
jewelries to her sub-agent.

Held:
It cannot be said that petitioner acted with abuse of confidence because such an act was not
proscribed and is, in fact, legally sanctioned. 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. In this case, the appointment of Labrador as
sub-agent was not expressly prohibited. Serona is acquitted for the crime of Estafa but is held
civilly liable.

● The Obligations of Agents

Ø Woodchild v. Roxas, G.R. No. 140667, August 12, 2004
FACTS:

The respondent Roxas Electric and Construction Company, Inc. (RECCI), formerly the Roxas
Electric and Construction Company, was the owner of two parcels of land. A portion of one Lot
which abutted the other Lot was a dirt road accessing to the Sumulong Highway, Antipolo, Rizal.

At a special meeting on May 17, 1991, the respondent's Board of Directors approved a resolution
authorizing the corporation, through its president, Roberto B. Roxas, to sell the Lots, at a price
and under such terms and conditions which he deemed most reasonable and advantageous to the
corporation; and to execute, sign and deliver the pertinent sales documents and receive the
proceeds of the sale for and on behalf of the company.

Petitioner Woodchild Holdings, Inc. (WHI) wanted to buy the Lot on which it planned to
construct its warehouse building, and a portion of the adjoining lot, so that its 45-foot container
van would be able to readily enter or leave the property.

On September 5, 1991, a Deed of Absolute Sale in favor of WHI was issued, under which the
Lot was sold for P5,000,000, receipt of which was acknowledged by Roxas under the following
terms and conditions:

The Vendor agree (sic), as it hereby agrees and binds itself to give Vendee the beneficial use of
and a right of way from Sumulong Highway to the property herein conveyed consists of 25
square meters wide to be used as the latter's egress from and ingress to and an additional 25
square meters in the corner of Lot No. 491-A-3-B-1, as turning and/or maneuvering area for
Vendee's vehicles.
The Vendor agrees that in the event that the right of way is insufficient for the Vendee's use (ex
entry of a 45-foot container) the Vendor agrees to sell additional square meters from its current
adjacent property to allow the Vendee full access and full use of the property.

The respondent posits that Roxas was not so authorized under the May 17, 1991 Resolution of its
Board of Directors to impose a burden or to grant a right of way in favor of the petitioner on Lot
No. 491-A-3-B-1, much less convey a portion thereof to the petitioner. Hence, the respondent
was not bound by such provisions contained in the deed of absolute sale.

ISSUE:

Whether or not the respondent is bound by the provisions in the deed of absolute sale granting to
the petitioner beneficial use and a right of way over a portion of Lot accessing to the Sumulong
Highway and granting the option to the petitioner to buy a portion thereof, and, if so, whether
such agreement is enforceable against the respondent?

HELD:

No. Generally, the acts of the corporate officers within the scope of their authority are binding on
the corporation. However, under Article 1910 of the New Civil Code, acts done by such officers
beyond the scope of their authority cannot bind the corporation unless it has ratified such acts
expressly or tacitly, or is estopped from denying them.
Thus, contracts entered into by corporate officers beyond the scope of authority are
unenforceable against the corporation unless ratified by the corporation.

Evidently, Roxas was not specifically authorized under the said resolution to grant a right of way
in favor of the petitioner on a portion of Lot No. 491-A-3-B-1 or to agree to sell to the petitioner
a portion thereof. The authority of Roxas, under the resolution, to sell Lot No. 491-A-3-B-2
covered by TCT No. 78086 did not include the authority to sell a portion of the adjacent lot, Lot
No. 491-A-3-B-1, or to create or convey real rights thereon. Neither may such authority be
implied from the authority granted to Roxas to sell Lot No. 491-A-3-B-2 to the petitioner "on
such terms and conditions which he deems most reasonable and advantageous."

The general rule is that the power of attorney must be pursued within legal strictures, and the
agent can neither go beyond it; nor beside it. The act done must be legally identical with that
authorized to be done.30 In sum, then, the consent of the respondent to the assailed provisions in
the deed of absolute sale was not obtained; hence, the assailed provisions are not binding on it.

There can be no apparent authority of an agent without acts or conduct on the part of the
principal and such acts or conduct of the principal must have been known and relied upon in
good faith and as a result of the exercise of reasonable prudence by a third person as claimant
and such must have produced a change of position to its detriment.

The apparent power of an agent is to be determined by the acts of the principal and not by the
acts of the agent.

Ø Board of Liquidators v. Heirs of Maximo Kalaw, G.R. No. L-18805, August 14, 1967
FACTS:
The National Coconut Corporation (NACOCO, for short) was chartered as a non-profit
governmental organization on avowedly for the protection, preservation and development of the
coconut industry in the Philippines. On August 1, 1946, NACOCO's charter was amended
[Republic Act 5] to grant that corporation the express power to buy and sell copra. The charter
amendment was enacted to stabilize copra prices, to serve coconut producers by securing
advantageous prices for them, to cut down to a minimum, if not altogether eliminate, the margin
of middlemen, mostly aliens. General manager and board chairman was Maximo M. Kalaw;
defendants Juan Bocar and Casimiro Garcia were members of the Board; defendant Leonor Moll
became director only on December 22, 1947. NACOCO, after the passage of Republic Act 5,
embarked on copra trading activities.
An unhappy chain of events conspired to deter NACOCO from fulfilling the contracts it entered
into. Nature supervened. Four devastating typhoons visited the Philippines in 1947. When it
became clear that the contracts would be unprofitable, Kalaw submitted them to the board for
approval. It was not until December 22, 1947 when the membership was completed. Defendant
Moll took her oath on that date. A meeting was then held. Kalaw made a full disclosure of the
situation, apprised the board of the impending heavy losses. No action was first taken on the
contracts but not long thereafter, that is, on January 30, 1948, the board met again with Kalaw,
Bocar, Garcia and Moll in attendance. They unanimously approved the contracts hereinbefore
enumerated.
As was to be expected, NACOCO but partially performed the contracts. The buyers threatened
damage suits, some of which were settled. But one buyer, Louis Dreyfus & Go. (Overseas) Ltd.,
did in fact sue before the Court of First Instance of Manila. The cases culminated in an out-of-
court amicable settlement when the Kalaw management was already out.
In this suit started in February, 1949, NACOCO seeks to recover the above sum of
P1,343,274.52 from general manager and board chairman Maximo M. Kalaw, and directors Juan
Bocar, Casimiro Garcia and Leonor Moll. It charges Kalaw with negligence under Article 1902
of the old Civil Code (now Article 2176, new Civil Code); and defendant board members,
including Kalaw, with bad faith and/or breach of trust for having approved the contracts. By
Executive Order 372, dated November 24, 1950, NACOCO, together with other government-
owned corporations, was abolished, and the Board of Liquidators was entrusted with the function
of settling and closing its affairs.
CFI-Manila: dismissed the complaint. Plaintiff was ordered to pay the heirs of Maximo Kalaw
the sum of P2,601.94 for unpaid salaries and cash deposit due the deceased Kalaw from
NACOCO.

Whether the case at bar is to be taken out of the general concept of the powers of a general
manager, given the cited provision of the NACOCO by-laws requiring prior directorate approval
of NACOCO contracts.

HELD:
The movement of the market requires that sales agreements be entered into, even though the
goods are not yet in the hands of the seller. Known in business parlance as forward sales, it is
concededly the practice of the trade. Above all, NACOCO's limited funds necessitated a quick
turnover. Copra contracts then had to be executed on short notice — at times within twenty-four
hours. To be appreciated then is the difficulty of calling a formal meeting of the board
So pleased was NACOCO's board of directors that, on December 5, 1946, in Kalaw's absence, it
voted to grant him a special bonus "in recognition of the signal achievement rendered by him in
putting the Corporation's business on a self-sufficient basis within a few months after assuming
office, despite numerous handicaps and difficulties."
These previous contract it should be stressed, were signed by Kalaw without prior authority from
the board. Existence of such authority is established, by proof of the course of business, the
usage and practices of the company and by the knowledge which the board of directors has, or
must be presumed to have, of acts and doings of its subordinates in and about the affairs of the
corporation.
If the by-laws were to be literally followed, the board should give its stamp of prior approval on
all corporate contracts. But that board itself, by its acts and through acquiescence, practically laid
aside the by-law requirement of prior approval.
Under the given circumstances, the Kalaw contracts are valid corporate acts. Bad faith does not
simply connote bad judgment or negligence; it imports a dishonest purpose or some moral
obliquity and conscious doing of wrong; it means breach of a known duty thru some motive or
interest or ill will; it partakes of the nature of fraud. Applying this precept to the given facts
herein, we find that there was no "dishonest purpose," or "some moral obliquity," or "conscious
doing of wrong," or "breach of a known duty," or "Some motive or interest or ill will" that
"partakes of the nature of fraud."

Ø San Juan v. Court of Appeals, G.R. No. 129549, September 19, 1998
FACTS: In 1989, San Juan Structural and Steel Fabricators, Inc. (San Juan) alleged that it
entered into a contract of sale with Motorich Sales Corporation (Motorich) through the latter’s
treasurer, Nenita Gruenberg. The subject of the sale was a parcel of land owned by Motorich.
San Juan advanced P100k to Nenita as earnest money.
On the day agreed upon on which Nenita was supposed to deliver the title of the land to
Motorich, Nenita did not show up. Nenita and Motorich did not heed the subsequent demand of
San Juan to comply with the contract hence San Juan sued Motorich. Motorich, in its defense,
argued that it is not bound by the acts of its treasurer, Nenita, since her act in contracting with
San Juan was not authorized by the corporate board.
San Juan raised the issue that Nenita was actually the wife of the President of Motorich; that
Nenita and her husband owns 98% of the corporation’s capital stocks; that as such, it is a close
corporation and that makes Nenita and the President as principal stockholders who do not need
any authorization from the corporate board; that in this case, the corporate veil may be properly
pierced.
ISSUE: Whether or not Motorich is bound by the acts of Nenita?
HELD: No. Motorich is right in invoking that it is not bound by the acts of Nenita because her
act in entering into a contract with San Juan was not authorized by the board of directors of
Motorich. Nenita is however ordered to return the P100k.
There is no merit in the contention that the corporate veil should be pierced even though it is true
that Nenita and her husband own 98% of the capital stocks of Motorich. The corporate veil can
only be pierced if the corporate fiction is merely used by the incorporators to shield themselves
against liability for fraud, illegality or inequity committed on third persons. It is incumbent upon
San Juan to prove that Nenita or her husband is merely using Motorich to defraud San Juan. In
this case however, San Juan utterly failed to establish that Motorich was formed, or that it is
operated, for the purpose of shielding any alleged fraudulent or illegal activities of its officers or
stockholders; or that the said veil was used to conceal fraud, illegality or inequity at the expense
of third persons like San Juan.

Ø Francisco v. GSIS, G.R. No. L-18287, March 30, 1963

FACTS: In 1956, Trinidad Francisco obtained a P400k loan from the Government Service
Insurance System (GSIS). She secured the loan with a parcel of land. In 1959 however, due to
some difficulties, Trinidad incurred huge arrears. This prompted GSIS to foreclose the property.
But then, Trinidad’s father, Atty. Vicente Francisco, wrote a letter to GSIS offering that he pay
P30k off the loan and then allow GSIS to administer the mortgaged property instead of
foreclosing it; that thereafter, GSIS shall receive rents from the tenants of the land until the
arrears are paid and the account is made current or up to date (because the total of the monthly
rents is bigger than the monthly loan payments supposed to be paid by Trinidad to GSIS).
GSIS, through its general manager Rodolfo Andal, responded with a letter which states that the
GSIS Board had accepted Vicente’s offer. But GSIS for some reason did not take over the
property. Nevertheless, the Franciscos collected rents and turned them over to GSIS.
Then in 1960, GSIS demanded Francisco to pay off the loan. Vicente then reminded GSIS that
the agreement in 1959 which is actually a compromise is binding upon GSIS. GSIS then averred
that the letter sent to Vicente in response to his offer was not sent in error because Andal’s
secretary sent the poorly worded response without Andal’s knowledge.
ISSUE: Whether or not a corporation like GSIS is bound by the acts of its officers acting in their
apparent authority.
HELD: Yes. A third party transacting with a corporation cannot be expected to know what
occurs within a corporation, its meetings, without any external manifestations from the
corporation. In the case at bar, the response by GSIS to Vicente by way of a telegram, is within
the apparent authority of Andal. If there are any irregularities in the telegraph i.e., the sending of
the secretary without the authority of Andal, Vicente is not expected to know it because the
telegram on its face is clear as to the acceptance. Vicente cannot therefore be faulted for relying
on the telegram; that GSIS accepted his offer. Hence, GSIS cannot now ask Francisco to
suddenly pay off the debt. If a corporation knowingly permits one of its officers, or any other
agent, to do acts within the scope of an apparent authority, and thus holds him out to the public
as possessing power to do those acts, the corporation will, as against anyone who has in good
faith dealt with the corporation through such agent, be estopped from denying his authority; and
where it is said “if the corporation permits” this means the same as “if the thing is permitted by
the directing power of the corporation.
GSIS cannot also deny that it has knowledge of the acceptance. A corporation cannot see, or
know, anything except through its officers. Knowledge of facts acquired or possessed by an
officer or agent of a corporation in the course of his employment, and in relation to matters
within the scope of his authority, is notice to the corporation, whether he communicates such
knowledge or not. Andal is presumed to have knowledge of the acceptance because it was his
office which sent it to Vicente. Knowledge of Andal, an officer of GSIS, is deemed knowledge
of GSIS.
At any rate, even if the compromise agreement is void because of the “unauthorized” telegram,
GSIS’s silence and acceptance of the subsequent remittances of the Franciscos ratified the
compromise agreement.

Ø British Airways v. Court of Appeals, G.R. No. 121824, January 29, 1998

FACTS:
On April 16, 1989, Mahtani decided to visit his relatives in Bombay, India. He asked Mr.
Gumar to prepare his travel plans. Mr. Gumar purchased a ticket from British Airways (BA).
Since BA had no direct flights from Manila to Bombay, Mahtani had to take a flight to
Hongkong via PAL, and upon arrival in Hongkong he had to take a connecting flight to Bombay
on board BA. Before departure, Mahtani checked in at PAL counter his two pieces of luggage
containing his clothings and personal effects, confident that upon reaching Hongkong, the same
would be transferred to the BA flight bound for Bombay.
When Mahtani arrived in Bombay he discovered that his luggage was missing and that
upon inquiry from the BA representatives, he was told that the same might have been diverted to
London. After waiting one week, BA finally advised him to file a claim by accomplishing the
"Property Irregularity Report.
In the Philippines, on June 11, 1990, Mahtani filed his complaint for damages and
attorney's fees against BA and Mr. Gumar before the RTC, alleging that the reason for the non-
transfer of the luggage was due to the latter's late arrival in Hongkong, thus leaving hardly any
time for the proper transfer of Mahtani's luggage to the BA aircraft bound for Bombay. The RTC
rendered its decision in favor of Mahtani. BA is ordered to pay Mahtani P7,000 for the value of
the 2 suitcases, $400 for the value of the contents of the luggage, P50,000 for moral and
exemplary damages and 20% for attorney’s fees and cost of the action. This decision was
affirmed by CA.

ISSUE:

Whether or not the award of the third party complaint should be dismissed.

HELD:
Undeniably, for the loss of his luggage, Mahtani is entitled to damages from BA, in view of their
contract of carriage. Yet, BA adamantly disclaimed its liability and instead imputed it to PAL
which the latter naturally denies. In other words, BA and PAL are blaming each other for the
incident.
It is undisputed that PAL, in transporting Mahtani from Manila to Hongkong acted as the agent
of BA.
Parenthetically, the Court of Appeals should have been cognizant of the well-settled rule that an
agent is also responsible for any negligence in the performance of its function and is liable for
damages which the principal may suffer by reason of its negligent act. Hence, the Court of
Appeals erred when it opined that BA, being the principal, had no cause of action against PAL,
its agent or sub-contractor.
Also, it is worth mentioning that both BA and PAL are members of the International Air
Transport Association (IATA), wherein member airlines are regarded as agents of each other in
the issuance of the tickets and other matters pertaining to their relationship. Therefore, in the
instant case, the contractual relationship between BA and PAL is one of agency, the former
being the principal, since it was the one which issued the confirmed ticket, and the latter the
agent.

Ø Severino v. Severino, G.R. No. 18058, January 16, 1923

FACTS:
Defendant Guillermo Severino, after the death of his brother (Melecio Severino), was the
latter’s administrator and as such, continued to occupy the land owned by Melecio. Eventually,
cadastral proceedings were instituted for the registration of the land titles. Guillermo claimed
such land and since no opposition was presented, the court decreed the title in his favor.
Melecio’s daughter and sole heir, plaintiff Fabiola Severino, compelled Guillermo to
convey to her the land. It bears noting that Fabiola was a minor during the time of the cadastral
proceedings.

ISSUE:
Whether or not Guillermo can be compelled to convey the land to Fabiola, even if there is
already a title in Guillermo’s name.

HELD:
Yes. The relations of an agent to his principal are fiduciary. Guillermo’s position as agent
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.
Whatever a trustee does for the advantage of the trust estate inures to the benefit of the cestui que
trust.
There have been a number of cases before this court in which a title to real property was
acquired by a person in his own name, while acting under a fiduciary capacity, and who
afterwards sought to take advantage of the confidence reposed in him by claiming the ownership
of the property for himself. This court has invariably held such evidence competent as between
the fiduciary and the cestui que trust. What judgment ought to be entered in this case? The court
simply absolved the defendant from the complaint. The proper procedure in such a case, so long
as the rights of innocent third persons have not intervened, is to compel a conveyance to the
rightful owner.

Ø Murao v. People, G.R. No. 141485, June 30, 2005.

FACTS:
On 01 September 1994, petitioner Murao and private complainant Chito Federico entered into a
Dealership Agreement for the marketing, distribution, and refilling of fire extinguishers within
Puerto Princesa City. The amount of private complainant Federicos commission as sales agent
for LMICE was under contention. Private complainant Federico claimed that he was entitled to a
commission equivalent to 50% of the gross sales he had made on behalf of LMICE, while
petitioners maintained that he should receive only 30% of the net sales.
Federico, on behalf of LMICE, subsequently facilitated a transaction with the City Government
of Puerto Princesa for the refill of 202 fire extinguishers. On 17 June 1994, private complainant
Federico went to see petitioner Huertazuela at the LMICE branch office in Puerto Princesa City
to demand for the amount of P154,500.00 as his commission from the payment of Purchase
Order No. GSO-856 by the City Government of Puerto Princesa. Petitioner Huertazuela,
however, refused to pay private complainant Federico his commission since the two of them
could not agree on the proper amount thereof.[16]
Also on 17 June 1994, private complainant Federico went to the police station to file an
Affidavit-Complaint for estafa against petitioners. The City Prosecution Office of Puerto
Princesa City issued a Resolution, dated 15 August 1994, finding that a prima facie case for
estafa existed against the petitioners and recommending the filing of an information for estafa
against both of them.

ISSUE:
Whether or not non-payment of agent’s commission is tantamount to estafa.

HELD:
No. Absent herein are two essential elements of the crime of estafa by misappropriation or
conversion under Article 315(1)(b) of the Revised Penal Code.
Moreso, Federico’s right to a commission does not make private complainant Federico a joint
owner of the money paid to LMICE by the City Government of Puerto Princesa, but merely
establishes the relation of agent and principal. It is unequivocal that an agency existed between
LMICE and private complainant Federico.
Although private complainant Federico never had the opportunity to operate as a dealer for
LMICE under the terms of the Dealership Agreement, he was allowed to act as a sales agent for
LMICE. He can negotiate for and on behalf of LMICE for the refill and delivery of fire
extinguishers, which he, in fact, did on two occasions with Landbank and with the City
Government of Puerto Princesa. Unlike the Dealership Agreement, however, the agreement that
private complainant Federico may act as sales agent of LMICE was based on an oral agreement.
While petitioners may have no criminal liability, petitioners themselves admit their civil liability
to the private complainant Federico for the latter’s commission from the sale, whether it be 30%
of the net sales or 50% of the gross sales. However, this Court is precluded from making a
determination and an award of the civil liability for the reason that the said civil liability of
petitioners to pay private complainant Federico his commission arises from a violation of the
agency contract and not from a criminal act.
It would be improper and unwarranted for this Court to impose in a criminal action the civil
liability arising from a civil contract, which should have been the subject of a separate and
independent civil action.

Ø Metrobank v. CA, G.R. No. 88866, February 18, 1991

Facts:
Eduardo Gomez opened an account with Golden Savings and Loan Association and
deposited over a period of two months 38 treasury warrants with a total value of P1,755,228.37.
All these warrants were subsequently indorsed by Gloria Castillo as Cashier of Golden Savings
and deposited to its savings account in the Metrobank branch in Calapan, Mindoro. They were
then sent for clearing by the branch office to the principal office of Metrobank, which forwarded
them to the Bureau of Treasury for special clearing.
Before they were cleared, petitioner decided to allow Golden Savings to withdraw from
the proceeds of the warrants. Golden Savings in turn subsequently allowed Gomez to make
withdrawals from his own account. Subsequently, Metrobank informed Golden Savings that 32
of the warrants had been dishonored by the Bureau of Treasury and demanded the refund by
Golden Savings of the amount it had previously withdrawn, to make up the deficit in its account.
Metrobank contends that by indorsing the warrants in general, Golden Savings assumed that they
were "genuine and in all respects what they purport to be," in accordance with Section 66 of the
Negotiable Instruments Law.

Issue:
Whether or not Metrobank is liable as collecting agent.

Held:
Yes. The negligence of Metrobank has been sufficiently established. To repeat for
emphasis, it was the clearance given by it that assured Golden Savings it was already safe to
allow Gomez to withdraw the proceeds of the treasury warrants he had deposited Metrobank
misled Golden Savings. There may have been no express clearance, as Metrobank insists
(although this is refuted by Golden Savings) but in any case that clearance could be implied from
its allowing Golden Savings to withdraw from its account not only once or even twice but three
times. The total withdrawal was in excess of its original balance before the treasury warrants
were deposited, which only added to its belief that the treasury warrants had indeed been cleared.

Art. 1909. — The agent is responsible not only for fraud, but also for negligence, which shall be
judged 'with more or less rigor by the courts, according to whether the agency was or was not for
a compensation.

● The Liability of Agents

Ø DBP v. CA, G.R. No. 109937, March 21, 1994

FACTS: In May 1987, Juan B. Dans, together with his wife Candida, his son and daughter-
in-law, applied for a loan of P500,000.00 with the Development Bank of the Philippines (DBP),
Basilan Branch. As the principal mortgagor, Dans, then 76 years of age, was advised by DBP to
obtain a mortgage redemption insurance (MRI) with the DBP Mortgage Redemption Insurance
Pool (DBP MRI Pool).
A loan, was approved by DBP on August 4, 1987 and released on August 11, 1987. From
the proceeds of the loan, DBP deducted the amount of P1,476.00 as payment for the MRI
premium. On August 15, 1987, Dans accomplished and submitted the "MRI Application for
Insurance" and the "Health Statement for DBP MRI Pool."On August 20, 1987, the MRI
premium of Dans, less the DBP service fee of 10 percent, was credited by DBP to the savings
account of the DBP MRI Pool. Accordingly, the DBP MRI Pool was advised of the credit.
On September 3, 1987, Dans died of cardiac arrest. The DBP, upon notice, relayed this
information to the DBP MRI Pool. On September 23, 1987, the DBP MRI Pool notified DBP
that Dans was not eligible for MRI coverage, being over the acceptance age limit of 60 years at
the time of application.

ISSUE: Whether DBP as an agent be held liable.

HELD: Yes. As an insurance agent, DBP made Dans go through the motion of applying
for said insurance, thereby leading him and his family to believe that they had already fulfilled
all the requirements for the MRI and that the issuance of their policy was forthcoming.
Apparently, DBP had full knowledge that Dan's application was never going to be approved. The
maximum age for MRI acceptance is 60 years.Under Article 1987 of the Civil Code,(NOW
ARTICLE 1897 OF NCC) "The agent who acts as such is not personally liable to the party with
whom he contracts, unless he expressly binds himself or exceeds the limits of his authority
without giving such party sufficient notice of his powers."The DBP is not authorized to accept
applications for MRI when its clients are more than 60 years of age. Knowing all the while that
Dans was ineligible for MRI coverage because of his advanced age, DBP exceeded the scope of
its authority when it accepted Dan's application for MRI by collecting the insurance premium,
and deducting its agent's commission and service fee.
 The liability of an agent who exceeds the scope of his authority depends upon whether
the third person is aware of the limits of the agent's powers. There is no showing that Dans knew
of the limitation on DBP's authority to solicit applications for MRI.
If the third person dealing with an agent is unaware of the limits of the authority
conferred by the principal on the agent and he (third person) has been deceived by the non-
disclosure thereof by the agent, then the latter is liable for damages to him.
The DBP's liability, however, cannot be for the entire value of the insurance policy. To
assume that were it not for DBP's concealment of the limits of its authority, Dans would have
secured an MRI from another insurance company, and therefore would have been fully insured
by the time he died, is highly speculative. Considering his advanced age, there is no absolute
certainty that Dans could obtain an insurance coverage from another company. It must also be
noted that Dans died almost immediately, i.e., on the nineteenth day after applying for the MRI,
and on the twenty-third day from the date of release of his loan.

Ø Beaumont v. Prieto, G.R. No. 8988, March 30, 1916

FACTS: Benito Legarda was the owner in fee simple of the Nagtajan Hacienda, and that
Benito Valdes was his attorney in fact and had acted as such on the occasion, referred to in the
complaint by virtue of a power of attorney duly executed under notarial seal and presented in the
office of the register of deeds. On or about December 4, 1911, the defendant Benito Valdes gave
to the plaintiff the document written and signed by him, Valdes, quoted at the beginning of this
decision, to wit, the letter afore-mentioned, which document is inserted in the amendment to the
complaint; that on January 19, 1912, while the offer or option mentioned in said document still
stood, the plaintiff in writing accepted the terms of said offer and requested of Valdes to be
allowed to inspect the property titles and other documents pertaining to the property, and offered
to pay to the defendant, immediately and in cash as soon as a reasonable examination could be
made of said property titles and other documents.
In spite of the frequent demands made by the plaintiff, the defendants had persistently
refused to deliver to him the property titles and other documents relative to said property and to
execute any instrument of conveyance thereof in his favor; that the plaintiff, on account of said
refusal on the part of the defendant Valdes, based on instructions from the defendant Legarda,
had suffered damages in the amount of P760,000, and, by the tardiness, failure and refusal of the
defendant to comply with his obligation, the plaintiff had incurred great expense and suffered
great losses, whereby he was prejudiced in the amount of 80,000; that the plaintiff was, and had
been, on all occasions, willing to comply with the obligation imposed upon him to pay to the
defendants the full stipulated price.

ISSUE: Whether the plaintiff has right of action not only against the principal but also against
the agent.
HELD: Yes. Although, according to article 1717 of the Civil Code (NOW ARTICLE 1883 OF
NCC) when the agent acts in his own name he is not personally liable to the person with whom
he enters into a contract when things belonging to the principal are the object thereof, yet such
third person has a right of action not only against the principal but also against the agent, when
the rights and obligations which are the subject-matter of the litigation cannot be legally and
juridically determined without hearing both of them. In such case, the agent being a necessary
party to the full and complete determination of the case which originated from his act he should
be included in the case as defendant.

IV. THE PRINCIPAL

● Obligations of the Principal

Ø Prieto v. CA, G.R. No. 158597, June 18, 2012

FACTS: On October 27, 1997, the Spouses Marcos V. Prieto (Marcos) and Susan M.
Prieto filed in the Regional Trial Court (RTC) in Bauang, La Union a complaint against Far East
Bank and Trust Company (FEBTC) and the Spouses Antonio Prieto (Antonio) and Monette
Prieto to declare the nullity of several real estate mortgage contracts. The plaintiffs narrated that
in January 1996, they had executed a special power of attorney (SPA) to authorize Antonio to
borrow money from FEBTC, using as collateral their real property consisting of a parcel of land
located in Calumbaya, Bauang, La Union (the property) and covered by Transfer Certificate of
Title (TCT) No. T-40223 of the Registry of Deeds of La Union; that defendant spouses, using the
property as collateral, had thereafter obtained from FEBTC a series of loans totaling
P5,000,000.00, evidenced by promissory notes, and secured by separate real estate mortgage
contracts; that defendant spouses had failed to pay the loans, leading FEBTC to initiate the extra-
judicial foreclosure of the mortgages; that the foreclosure sale had been scheduled on October
31, 1997; and that the promissory notes and the real estate mortgage contracts were in the name
of defendant spouses for themselves alone, who had incurred the obligations, rendering the
promissory notes and the mortgage contracts null and void ab initio. Antonio claimed that there
was ratification in his authority made by Prieto through a letter of acknowledgment.

ISSUE: Whether the mortgage contracts were valid and enforceable against the petitioner.

HELD: Yes. Marcos alleged therein that his property had thereby become "unlawfully
burdened by unauthorized real estate mortgage contracts," because the loans and the mortgage
contracts had been incurred by Antonio and his wife only for themselves, to the exclusion of
petitioner. Yet, Marcos could not deny that under the express terms of the SPA, he had precisely
granted to Antonio as his agent the authority to borrow money, and to transfer and convey the
property by way of mortgage to FEBTC; to sign, execute and deliver promissory notes; and to
receive the proceeds of the loans on the former's behalf. In other words, the mortgage contracts
were valid and enforceable against petitioner, who was consequently fully bound by their terms.
Moreover, even if it was assumed that Antonio's obtaining the loans in his own name, and
executing the mortgage contracts also in his own name had exceeded his express authority under
the SPA, Marcos was still liable to FEBTC by virtue of his express ratification of Antonio's act.
Under Article 1898 of the Civil Code, the acts of an agent done beyond the scope of his authority
do not bind the principal unless the latter expressly or impliedly ratifies the same.
In agency, ratification is the adoption or confirmation by one person of an act performed
on his behalf by another without authority. The substance of ratification is the confirmation after
the act, amounting to a substitute for a prior authority.

Ø Filipinas Life v. Pedroso, G.R. 159489, February 4, 2008

FACTS: Respondent Teresita O. Pedroso is a policyholder of a 20-year endowment life

insurance issued by petitioner Filipinas Life Assurance Company (Filipinas Life). Pedroso
claims Renato Valle was her insurance agent and Valle collected her monthly premiums. In the
first week of January 1977, Valle told her that the Filipinas Life Escolta Office was holding a
promotional investment program for policyholders. It was offering 8% prepaid interest a month
for certain amounts deposited on a monthly basis. Enticed, she initially invested and issued a
post-dated check dated January 7, 1977 for P10,000. n return, Valle issued Pedroso his
personal check for P800 for the 8% prepaid interest and a Filipinas Life "Agent's Receipt" No.
807838.

Subsequently, she called the Escolta office and talked to Francisco Alcantara, the
administrative assistant, who referred her to the branch manager, Angel Apetrior. Pedroso
inquired about the promotional investment and Apetrior confirmed that there was such a
promotion. She was even told she could "push through with the check" she issued. From the
records, the check, with the endorsement of Alcantara at the back, was deposited in the account
of Filipinas Life with the Commercial Bank and Trust Company (CBTC), Escolta Branch.

Pedroso told respondent Jennifer N. Palacio, also a Filipinas Life insurance

policyholder, about the investment plan. Palacio made a total investment of P49,550 but at only
5% prepaid interest. However, when Pedroso tried to withdraw her investment, Valle did not
want to return some P17,000 worth of it. Palacio also tried to withdraw hers, but Filipinas Life,
despite demands, refused to return her money. With the assistance of their lawyer, they went to
Filipinas Life Escolta Office to collect their respective investments, and to inquire why they
had not seen Valle for quite some time. But their attempts were futile. Hence, respondents filed
an action for the recovery of a sum of money.

ISSUE: Whether Filipinas Life, as the principal, is liable for obligations contracted by its
agent.
 HELD: Filipinas Life, as the principal, is liable for obligations contracted by its agent
Valle. By the contract of agency, 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.
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 impliedly. 16 Ratification in agency is the adoption or confirmation
by one person of an act performed on his behalf by another without authority.

Filipinas Life cannot profess ignorance of Valle's acts. Even if Valle's representations
were beyond his authority as a debit/insurance agent, Filipinas Life thru Alcantara and Apetrior
expressly and knowingly ratified Valle's acts. It cannot even be denied that Filipinas Life
benefited from the investments deposited by Valle in the account of Filipinas Life. In our
considered view, Filipinas Life had clothed Valle with apparent authority; hence, it is now
estopped to deny said authority. Innocent third persons should not be prejudiced if the principal
failed to adopt the needed measures to prevent misrepresentation, much more so if the principal
ratified his agent's acts beyond the latter's authority. The act of the agent is considered that of
the principal itself. Qui per alium facit per seipsum facere videtur. "He who does a thing by an
agent is considered as doing it himself."

Ø Manila Memorial v. Linsangan, G.R. No. 151319, November 22, 2004

FACTS:
Florencia Baluyot is authorized by the Manila Memorial Park Inc. (MMPI) to sell burial lots to
those interested in purchasing. Herein respondent Atty. Linsangan was approached by Florencia
with an offer to sell to the former a lot that she alleges to have already been previously sold but
the owner thereof has cancelled and thus, Atty. Linsangan shall only continue the payment
thereof amounting to P95,000, Atty. Linsangan agreed and payed an initial P35, 000. Thereafter,
Florencia advised Atty. Linsangan that there were changes in the contract and that she needed
him to sign a new contract stipulating the total price of P132, 000 but Florencia assured Atty.
Linsangan that he would only pay the agreed P95, 000. In the new contract, Atty. Linsangan
acceded that he has read and understood all the stipulations therein. The payment was made in
installments for two years which Atty. Linsangan completed, however, after two years, Florencia
informed Linsangan that their contract was cancelled and offered a different lot, Atty. Linsangan
refused the offer and filed a suit for breach of contract against MMPI and Florencia. MMPI avers
that Florencia acted beyond the scope of her authority as MMPI’s agent since the latter did not
allow her to renegotiate existing contracts but only to sell new contracts. Atty. Lnsangan on the
other hand argues that MMPI should be liable for the acts of its agents.

ISSUE:
Whether or not MMPI is liable for the acts of Florencia.

RULING:
NO. The SC ruled that Florencia acted outside the scope of her authority as agent of MMPI and
Atty. Linsangan failed to ascertain the authority given to Florencia especially that their
agreement on the second contract had a different stipulation than what he and Florencia agreed
upon. Moreover, Atty. Linsangan’s signature over the new contract signifies his agreement
thereto and serves as a form of ratification for the acts of Florencia which were outside the
authority given her. As such, the SC ruled that the principal cannot be held liable for actions of
agents outside the scope of their authority except when such acts are ratified by the principal
himself. On the part of MMPI, they did not ratify Florencia’s acts, nor did they know of such
actions.

Ø Woodchild v. Roxas, G.R. No. 140667, August 12, 2004

FACTS:
The respondent Roxas Electric and Construction Company, Inc. (RECCI), formerly the Roxas
Electric and Construction Company, was the owner of two parcels of land. A portion of one Lot
which abutted the other Lot was a dirt road accessing to the Sumulong Highway, Antipolo, Rizal.

At a special meeting on May 17, 1991, the respondent's Board of Directors approved a resolution
authorizing the corporation, through its president, Roberto B. Roxas, to sell the Lots, at a price
and under such terms and conditions which he deemed most reasonable and advantageous to the
corporation; and to execute, sign and deliver the pertinent sales documents and receive the
proceeds of the sale for and on behalf of the company.

Petitioner Woodchild Holdings, Inc. (WHI) wanted to buy the Lot on which it planned to
construct its warehouse building, and a portion of the adjoining lot, so that its 45-foot container
van would be able to readily enter or leave the property.

On September 5, 1991, a Deed of Absolute Sale in favor of WHI was issued, under which the
Lot was sold for P5,000,000, receipt of which was acknowledged by Roxas under the following
terms and conditions:

The Vendor agree (sic), as it hereby agrees and binds itself to give Vendee the beneficial use of
and a right of way from Sumulong Highway to the property herein conveyed consists of 25
square meters wide to be used as the latter's egress from and ingress to and an additional 25
square meters in the corner of Lot No. 491-A-3-B-1, as turning and/or maneuvering area for
Vendee's vehicles.
The Vendor agrees that in the event that the right of way is insufficient for the Vendee's use (ex
entry of a 45-foot container) the Vendor agrees to sell additional square meters from its current
adjacent property to allow the Vendee full access and full use of the property.

The respondent posits that Roxas was not so authorized under the May 17, 1991 Resolution of its
Board of Directors to impose a burden or to grant a right of way in favor of the petitioner on Lot
No. 491-A-3-B-1, much less convey a portion thereof to the petitioner. Hence, the respondent
was not bound by such provisions contained in the deed of absolute sale.

ISSUE: Whether or not the respondent is bound by the provisions in the deed of absolute sale
granting to the petitioner beneficial use and a right of way over a portion of Lot accessing to the
Sumulong Highway and granting the option to the petitioner to buy a portion thereof, and, if so,
whether such agreement is enforceable against the respondent?

HELD: No. Generally, the acts of the corporate officers within the scope of their authority are
binding on the corporation. However, under Article 1910 of the New Civil Code, acts done by
such officers beyond the scope of their authority cannot bind the corporation unless it has ratified
such acts expressly or tacitly, or is estopped from denying them.

Thus, contracts entered into by corporate officers beyond the scope of authority are
unenforceable against the corporation unless ratified by the corporation.

Evidently, Roxas was not specifically authorized under the said resolution to grant a right of way
in favor of the petitioner on a portion of Lot No. 491-A-3-B-1 or to agree to sell to the petitioner
a portion thereof. The authority of Roxas, under the resolution, to sell Lot No. 491-A-3-B-2
covered by TCT No. 78086 did not include the authority to sell a portion of the adjacent lot, Lot
No. 491-A-3-B-1, or to create or convey real rights thereon. Neither may such authority be
implied from the authority granted to Roxas to sell Lot No. 491-A-3-B-2 to the petitioner "on
such terms and conditions which he deems most reasonable and advantageous."

The general rule is that the power of attorney must be pursued within legal strictures, and the
agent can neither go beyond it; nor beside it. The act done must be legally identical with that
authorized to be done. In sum, then, the consent of the respondent to the assailed provisions in
the deed of absolute sale was not obtained; hence, the assailed provisions are not binding on it.

There can be no apparent authority of an agent without acts or conduct on the part of the
principal and such acts or conduct of the principal must have been known and relied upon in
good faith and as a result of the exercise of reasonable prudence by a third person as claimant
and such must have produced a change of position to its detriment.

The apparent power of an agent is to be determined by the acts of the principal and not by the
acts of the agent.

Ø Rural Bank of Milaor v. Ocfemia, G.R. No. 137686, February 8, 2000

FACTS: Several parcels of land were mortgaged by the respondents during the lifetime of the
respondent’s grandparents to the Rural bank of Milaor as shown by the Deed of Real Estate
Mortgage and the Promissory Note. Spouses Felicisimo Ocfemia and Juanita Ocfemia, one of the
respondents, were not able to redeem the mortgaged properties consisting of seven parcels of
land and so the mortgage was foreclosed and thereafter ownership was transferred to the
petitioner bank. Out of the seven parcels of land that were foreclosed, five of them are in the
possession of the respondents because these five parcels of land were sold by the petitioner bank
to the respondents as evidenced by a Deed of Sale. However, the five parcels of land cannot be
transferred in the name of the parents of Merife Nino, one of the respondents, because there is a
need to have the document of sale registered. The Register of deeds, however, said that the
document of sale cannot be registered without the board resolution of the petitioner bank
confirming both the Deed of sale and the authority of the bank manager, Fe Tena, to enter such
transaction.

The petitioner bank refused her request for a board resolution and made many alibis.
Respondents initiated the present proceedings so that they could transfer to their names the
subject five parcel of land and subsequently mortgage said lots and to use the loan proceeds for
the medical expenses of their ailing mother.

ISSUE: May the Board of Directors of a rural banking corporation be compelled to confirm a
deed of absolute sale of real property owned by the corporation which deed of sale was executed
by the bank manager without prior authority of the board of directors of the rural banking
corporation?

HELD: YES. The bank acknowledges, by its own acts or failure to act, the authority of Fe Tena
to enter into binding contracts. After the execution of the Deed of Sale, respondents occupied the
properties in dispute and paid the real estate taxes. If the bank management believed that it had
title to the property, it should have taken measures to prevent the infringement and invasion of
title thereto and possession thereof. Likewise, Tena had previously transacted business on behalf
of the bank, and the latter had acknowledged her authority. A bank is liable to innocent third
persons where representation is made in the course of its normal business by an agent like
Manager Tena even though such agent is abusing her authority. Clearly, persons dealing with her
could not be blamed for believing that she was authorized to transact business for and on behalf
of the bank.
The bank is estopped from questioning the authority of the bank to enter into contract of sale. If a
corporation knowingly permits one of its officers or any other agent to act within the scope of an
apparent authority, it holds the agent out to the public as possessing the power to do those acts;
thus, the corporation will, as against anyone who has in good faith dealt with it through such
agent, be estopped from denying the agent’s authority.

Ø Cuison v. CA, G.R. No. 88539, October 26, 1993

FACTS: Kue Cuison is a sole proprietorship engaged in the purchase and sale of newsprint,
bond paper and scrap.

Valiant Investment Associates delivered various kinds of paper products to a certain Tan. The
deliveries were made by Valiant pursuant to orders allegedly placed by Tiac who was then
employed in the Binondo office of petitioner. Upon delivery, Tan paid for the merchandise by
issuing several checks payable to cash at the specific request of Tiac. In turn, Tiac issued nine (9)
postdated checks to Valiant as payment for the paper products. Unfortunately, sad checks were
later dishonored by the drawee bank.

Thereafter, Valiant made several demands upon petitioner to pay for the merchandise in
question, claiming that Tiac was duly authorized by petitioner as the manager of his Binondo
office, to enter into the questioned transactions with Valiant and Tan. Petitioner denied any
involvement in the transaction entered into by Tiac and refused to pay Valiant.

Left with no recourse, private respondent filed an action against petitioner for the collection of
sum of money representing the price of the merchandise. After due hearing, the trial court
dismissed the complaint against petitioner for lack of merit. On appeal, however, the decision of
the trial court was modified, but was in effect reversed by the CA. CA ordered petitioner to pay
Valiant with the sum plus interest, AF and costs.

ISSUE: WON Tiac possessed the required authority from petitioner sufficient to hold the latter
liable for the disputed transaction

HELD:
YES. As to the merits of the case, it is a well-established rule that one who clothes another with
apparent authority as his agent and holds him out to the public as such cannot 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 honest belief that he is what he appears to be

It matters not whether the representations are intentional or merely negligent so long as innocent,
third persons relied upon such representations in good faith and for value. Article 1911 of the
Civil Code provides:

“Even when the agent has exceeded his authority, the principal is solidarily liable with the agent
if the former allowed the latter to act as though he had full powers.”

The above-quoted article is new. It is intended to protect the rights of innocent persons. In such a
situation, both the principal and the agent may be considered as joint tortfeasors whose liability
is joint and solidary.

It is evident from the records that by his own acts and admission, petitioner held out Tiac to the
public as the manager of his store in Binondo. More particularly, petitioner explicitly introduced
to Villanueva, Valiant’s manager, as his (petitioner’s) branch manager as testified to by
Villanueva. Secondly, Tan, who has been doing business with petitioner for quite a while, also
testified that she knew Tiac to be the manager of the Binondo branch. Even petitioner admitted
his close relationship with Tiu Huy Tiac when he said that they are “like brothers” There was
thus no reason for anybody especially those transacting business with petitioner to even doubt
the authority of Tiac as his manager in the Binondo branch.

Tiac, therefore, by petitioner’s own representations and manifestations, became an agent of

petitioner by estoppel, an admission or representation is rendered conclusive upon the person
making it, and cannot be denied or disproved as against the person relying thereon (Article 1431,
Civil Code of the Philippines). A party cannot be allowed to go back on his own acts and
representations to the prejudice of the other party who, in good faith, relied upon them. Taken in
this light,. petitioner is liable for the transaction entered into by Tiac on his behalf. Thus, even
when the agent has exceeded his authority, the principal is solidarily liable with the agent if the
former allowed the latter to fact as though he had full powers (Article 1911 Civil Code), as in the
case at bar.

Finally, although it may appear that Tiac defrauded his principal (petitioner) in not turning over
the proceeds of the transaction to the latter, such fact cannot in any way relieve nor exonerate
petitioner of his liability to private respondent. For 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.

Ø Country Bankers v. Keppel, G.R. No. 166044, June 18, 2012

FACTS: Melencio Basilio was a watchman of the Manila Auto Supply and secured a life
insurance policy from the Philippine American Life Insurance Company in the amount of P2,000
to which was attached a supplementary contract covering death by accident. Basilio died of a
gunshot wound on the occasion of a robbery committed in the house of Atty. Ojeda. His widow,
was paid the face value of the policy but when she demanded the payment of the additional sum
representing the value of the supplemental policy, the company refused alleging, that the
deceased died because he was murdered and while making an arrest which contingencies were
expressly excluded in the contract and have the effect of exempting the company from liability.
The Municipal Court of Manila ruled in favor or Calanoc but the Court of Appeals commented
that the death of Basilio cannot be considered accidental, as when he checked what the trouble
was in Ojeda’s residence, he should have realized the danger to which he was exposing himself.

ISSUE: WON the death of Basilio comes within the purview of the exception clause of the
supplementary policy and, hence, exempts thecompany from liability.

RULING: NO. The risk coming to Basilio when he chose to go with Atty. Ojeda to check the
latter’s house always existed it being inherent in the position he was holding. It should not be
taken as a capricious desire on his part to expose his life to danger considering the fact that the
place he was in duty-bound to guard was only a block away. These circumstances do not warrant
the finding that the death of the unfortunate victim comes within the purview of the exception
clause, hence, do not exempt the company from liability. The terms and phraseology of the
exception clause be clearly expressed so as to be within the easy grasp and understanding of the
insured. If the terms are doubtful or obscure the same must of necessity be interpreted or
resolved aganst the one who has caused the obscurity. In case of ambiguity, the contract is to be
construed strictly against the insurer, and liberally in favor of the insured so as to effect
indemnity to the insure

● Liability of the Principal

Ø De Castro v. CA, G.R. No. 115838, July 18, 2002
Ø Gold Star Mining v. Lim-Jimena, G.R. No. L-25301
Ø PNB v. Agudelo, G.R. No. 39037, October 30, 1933

V. THE THIRD PARTY DEALING WITH THE AGENT

● Rights of Third Parties

Ø Keeler Electric v. Rodriguez, G.R. No. 19001, November 11, 1922

Ø BA Finance v. CA, G.R. No. 94566, July 3, 1992

FACTS: Spouses Manuel and Lilia Cuady bought from Supercars, Inc. a Ford Escort in
installments. To secure the faithful and prompt compliance of the obligation under the said
promissory note, the spouses constituted a chattel mortgage on the aforementioned motor
vehicle. Supercars, Inc. assigned the promissory note, together with the chattel mortgage, to B.A.
Finance Corporation. In addition thereto, the spouses owe B.A. Finance .B.A. Finance
Corporation, as the assignee of the mortgage lien obtained the renewal of the insurance coverage
over the aforementioned motor vehicle for the with Zenith Insurance Corporation, when the
spouses failed to renew said insurance coverage themselves. Under the terms and conditions of
the said insurance coverage, any loss under the policy shall be payable to the B.A. Finance
Corporation.

The motor vehicle figured in an accident and was badly damaged. The spouses asked the B.A.
Finance Corporation to consider the same as a total loss, and to claim from the insurer the face
value of the car insurance policy and apply the same to the payment of their remaining account
and give them the surplus thereof, if any. But instead of heeding the request of the spouses, B.A.
Finance Corporation prevailed upon the former to just have the car repaired. Not long thereafter,
however, the car bogged down. The spouses wrote B.A. Finance Corporation requesting the
latter to pursue their prior instruction of enforcing the total loss provision in the insurance
coverage. When B.A. Finance Corporation did not respond favorably to their request, the
spouses stopped paying their monthly installments on the promissory note. In view of the failure
of the spouses to pay the remaining installments on the note, B.A. Finance Corporation sued
them.

ISSUE: Whether or not BA Finance is liable as agent of the spouses for damages suffered
through its non-performance of the instructions regarding the insurance claim.

HELD: YES. In granting B.A. Finance Corporation the aforementioned powers and
prerogatives, the spouses created in the former’s favor an agency. Thus, under Article 1884 of
the Civil Code of the Philippines, B.A. Finance Corporation is bound by its acceptance to carry
out the agency, and is liable for damages which, through its non-performance, the spouses
Cuady, the principal in the case at bar, may suffer; in such case, the assignee of the mortgage
agreement is bound by the same stipulation and if the assignee failed to file and prosecute the
insurance claim when the car was damaged totally, the mortgagor is relieved from his obligation
to pay as he suffered a loss because of the failure of the mortgagee to file the claim.
Under the deed of chattel mortgage, B.A. Finance Corporation was constituted attorney-in-fact
with full power and authority to file, follow-up, prosecute, compromise or settle insurance
claims; to sign execute and deliver the corresponding papers, receipts and documents to the
Insurance Company as may be necessary to prove the claim, and to collect from the latter the
proceeds of insurance to the extent of its interests, in the event that the mortgaged car suffers any
loss or damage.

Ø NPC v. National Merchandising, G.R. Nos. L-33819 & L- 33897, October 23, 1982
FACTS: Plaintiff-appellant National Power Corporation (NPC) and defendant- appellant
National Merchandising Corporation (NAMERCO), the Philippine representative of New York-
based International Commodities Corporation, executed a contract of sale of sulfur with a
stipulation for liquidated damages in case of breach.
Defendant-appellant Domestic Insurance Company executed a performance bond in favor of
NPC to guarantee the seller's obligation. In entering into the contract, Namerco, however, did not
disclose to NPC that Namercoxs principal, in a cabled instruction, stated that the sale was subject
to availability of a steamer, and contrary to its principal’s instruction, Namerco agreed that non-
availability of a steamer was not a justification for non-payment of liquidated damages.

The New York supplier was not able to deliver the sulfur due to its inability to secure shipping
space. Consequently, the Government Corporate Counsel rescinded the contract of sale due to
the supplier’s non-performance of its obligations, and demanded payment of liquidated damages
from both Namerco and the surety. Thereafter, NPC sued for recovery of the stipulated
liquidated damages. After trial, the Court of First Instance rendered judgment ordering
defendants-appellants to pay solidarity to the NPC reduced liquidated damages with interest.

ISSUE: Whether NaMerCo exceeded their authority by failing to disclose the instruction of its
principal.

HELD: Yes, NaMerCo exceeded their authority.

The Supreme Court held that before the contract of sale was signed Namerco was already aware
that its principal was having difficulties in booking shipping space. It is being enforced against
the agent because article 1897 implies that the agent who acts in excess of his authority is
personally liable to the party with whom he contracted. Moreover, the rule is complemented by
article 1898 of the Civil Code which provides that if the agent contracts in the name of the
principal, exceeding the scope of his authority, and the principal does not ratify the contract, it
shall be void if the party with whom the agent contracted is aware of the limits of the powers
granted by the principal. Namerco never disclosed to the Napocor the cabled or written
instructions of its principal. For that reason and because Namerco exceeded the limits of its
authority, it virtually acted in its own name and not as agent and it is, therefore, bound by the
contract of sale which, however, is not enforceable against its principal.

Ø Bacaltos Coal Mines v. CA, G.R. No. 114091, June 29, 1995
FACTS: In an Authorization, German Bacaltos, proprietor of said coal mines, authorized
Savellon to use the coal operating contract of BACALTOS COAL MINES, for any legitimate
purpose that it may serve. Namely, but not by way of limitation, as follows: (1) To acquire
purchase orders for and in behalf of BACALTOS; (2) To engage in trading under the style of
BACALTOS; (3) To collect all receivables due or in arrears from people or companies having
dealings under BACALTOS; (4) To extend to any person or company by substitution the same
extent of authority that is granted to Rene Savellon; (5) In connection with the preceeding
paragraphs to execute and sign documents, contracts, and other pertinent papers. Thereafter, a
Trip Charter Party was entered into by San Miguel Corporation and Bacaltos Coal Mines
represented by Savellon. In said contract, there was a stipulation for liability for damages in case
of breach by Bacaltos to complete said three round trips. The vessel was able to make only one
trip. Its demands to comply with the contract having been unheeded, SMC filed against the
petitioners and Rene Savellon the complaint for specific performance and damages. In their
Answer, the petitioners alleged that Savellon was not their Chief Operating Officer and that the
powers granted to him are only those clearly expressed in the Authorization which do not include
the power to enter into any contract with SMC.

ISSUE: Whether or not the Trip Charter Party entered into by Savellon binds Bacaltos Coal
Mines.

HELD: NO. In the instant case, since the agency of Savellon is based on a written document, the
Authorization, the extent and scope of his powers must be determined on the basis thereof. The
language of the Authorization is clear. here is only one express power granted to Savellon, viz.,
to use the coal operating contract for any legitimate purpose it may serve. The enumerated five
prerogatives — to employ the term used by the Court of Appeals — are nothing but the specific
prerogatives subsumed under or classified as part of or as examples of the power to use the coal
operating contract. It fails to note that the broadest scope of Savellon’s authority is limited to the
use of the coal operating contract and the clause cannot contemplate any other power not
included in the enumeration or which are unrelated either to the power to use the coal operating
contract or to those already enumerated. In short, while the clause allows some room for
flexibility, it can comprehend only additional prerogatives falling within the primary power and
within the same class as those enumerated. The trial court failed to consider was that there is no
evidence at all that Bacaltos Coal Mines as a coal mining company owns and operates vessels,
and even if it owned any such vessels, that it was allowed to charter or lease them. The trial court
also failed to note that the Authorization is not a general power of attorney. It is a special power
of attorney for it refers to a clear mandate specifically authorizing the performance of a specific
power and of express acts subsumed therein.

VI. EXTINGUISHING THE AGENCY

● Revocation
Ø Lustan v. CA, G.R. No. 111924, January 27, 1997
FACTS: Petitioner is the owner of a land leased to Parangan for a period of ten years. During
the period of lease, Parangan was regularly extending loans in small amounts to petitioner to
defray her daily expenses and to finance her daughter’s education. In 1970, petitioner executed a
SPA in favor of Parangan to secure an agricultural loan from PNB with the aforesaid lot as
collateral. In 1972, a second SPA was executed by Lustan by virtue of which, Parangan was able
to secure 4 additional loans. The last three loans were without the knowledge of herein petitioner
and all the proceeds therefrom were used by Parangan for his own benefit. These encumbrances
were duly annotated on the certificate of title. On April 16, 1973, petitioner signed a Deed of
Pacto de Retro Sale in favor of Parangan which was superseded by the Deed of Definite Sale
dated May 4, 1979 which petitioner signed upon Parangan's representation that the same merely
evidences the loans extended by him unto the former.

For fear that her property might be prejudiced by the continued borrowing of Parangan,
petitioner demanded the return of her certificate of title. Instead of complying with the request,
Parangan asserted his rights over the property which allegedly had become his by virtue of the
aforementioned Deed of Definite Sale.

ISSUE: Whether or not petitioner’s property is liable to PNB for the loans contracted by
Parangan by virtue of the SPA.

HELD: YES. Third persons who are not parties to a loan may secure the latter by pledging or
mortgaging their own property. So long as valid consent was given, the fact that the loans were
solely for the benefit of Parangan would not invalidate the mortgage with respect to petitioner's
property. In consenting thereto, even granting that petitioner may not be assuming personal
liability for the debt, her property shall nevertheless secure and respond for the performance of
the principal obligation. It is admitted that petitioner is the owner of the parcel of land mortgaged
to PNB on five (5) occasions by virtue of the Special Powers of Attorney executed by petitioner
in favor of Parangan. Petitioner argues that the last three mortgages were void for lack of
authority. She totally failed to consider that said Special Powers of Attorney are a continuing one
and absent a valid revocation duly furnished to the mortgagee, the same continues to have force
and effect as against third persons who had no knowledge of such lack of authority. Article 1921
of the Civil Code provides: "Art. 1921. If the 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." The Special Power of Attorney executed by petitioner in favor of Parangan
duly authorized the latter to represent and act on behalf of the former. Having done so, petitioner
clothed Parangan with authority to deal with PNB on her behalf and in the absence of any proof
that the bank had knowledge that the last three loans were without the express authority of
petitioner, it cannot be prejudiced thereby. As far as third persons are concerned, an act is
deemed to have been performed within the scope of the agent's authority if such is within the
terms of the power of attorney as written even if the agent has in fact exceeded the limits of his
authority according to the understanding between the principal and the agent. The Special Power
of Attorney particularly provides that the same is good not only for the principal loan but also for
subsequent commercial, industrial, agricultural loan or credit accommodation that the attorney-
in-fact may obtain and until the power of attorney is revoked in a public instrument and a copy of
which is furnished to PNB. Even when the agent has exceeded his authority, the principal is
solidarily liable with the agent if the former allowed the latter to act as though he had full powers
(Article 1911, Civil Code).

Ø CMS Logging v. CA, G.R. No. 41420, July 10, 1992

Ø Del Rosario v. Abad, G.R. No. L-10881, September 30, 1958
Ø Valenzuela v. CA, G.R. No. 83122, October 19, 1990
Ø Republic v. Evangelista, G.R. No. 156015, August 11, 2005
Ø Coleongco v. Claparols, G.R. No. L-18616, March 31, 1964

Facts: A contract was perfected between petitioner and respondent whereby Coleongco
undertook to finance and put up the funds required for the importation of the nail wire, which
Claparols bound himself to convert into nails at his plant. It was agreed that Coleongco would
have the exclusive distribution of the product. Claparols executed in favor of Coleongco, at the
latter's behest a special power of attorney to open and negotiate letters of credit, to sign contracts,
bills of lading, invoices, and papers covering transactions; to represent appellee and the nail
factory; and to accept payments and cash advances from dealers and distributors. Around mid-
November of 1956, appellee Claparols was disagreeably surprised by service of an alias writ of
execution to enforce a judgment obtained against him by the Philippine National Bank, despite
the fact that on the preceding September he had submitted an amortization plan to settle the
account. He learned to his dismay that the execution had been procured because of derogatory
information against appellee that had reached the bank from his associate, appellant Coleongco.
The upshot was that appellee revoked the power of attorney and informed Coleongco demanding
a full accounting at the same time.
Issue: WoN the respondent may revoke the SPA as the petitioner allegedly had an interest in the
agency?
Held: Yes. The financing agreement itself already contained clauses for the protection of
appellant's interest, and did not call for the execution of any power of attorney in favor of
Coleongco. But granting appellant's view, it must not be forgotten that a power of attorney can
be made irrevocable by contract only in the sense that the principal may not recall it at his
pleasure; but coupled with interest or not, the authority certainly can be revoked for a just cause,
such as when the attorney-in-fact betrays the interest of the principal, as happened in this case. It
is not open to serious doubt that the irrevocability of the power of attorney may not be used to
shield the perpetration of acts in bad faith, breach of confidence, or betrayal of trust, by the agent
for that would amount to holding that a power coupled with an interest authorizes the agent to
commit frauds against the principal.

● Withdrawal
Ø Valera v. Velasco, G.R. No. 28050, March 13, 1928
Facts: The defendant was appointed attorney-in-fact of the said plaintiff with authority to
manage his property in the Philippines. The defendant accepted both powers of attorney,
managed plaintiff's property, reported his operations, and rendered accounts of his
administration. The liquidation of accounts revealed that the plaintiff owed the defendant
P1,100, and as misunderstanding arose between them, the defendant brought suit against the
plaintiff. Judgment was rendered in his favor, and after the writ of execution was issued, the
sheriff levied upon the plaintiff's right of usufruct, sold it at public auction and adjudicated it to
the defendant in payment of all of his claim. After the plaintiff had recovered his right of
redemption, one Salvador Vallejo, who had an execution upon a judgment against the plaintiff
rendered in a civil case against the latter, levied upon said right of redemption, which was sold
by the sheriff at public auction to Salvador Vallejo for P250 and was definitely adjudicated to
him. Later, he transferred said right of redemption to the defendant Velasco. This is how the title
to the right of usufruct to the aforementioned property later came to vest the said defendant.
Issue: Is the institution of a civil action and the execution of the judgment obtained by the agent
against his principal is but renunciation of the powers conferred on the agent?
Held: Yes. The misunderstanding between the plaintiff and the defendant over the payment of
the balance of P1,000 due the latter, as a result of the liquidation of the accounts between them
arising from the collections by virtue of the former's usufructuary right, who was the principal,
made by the latter as his agent, and the fact that the said defendant brought suit against the said
principal on March 28, 1928 for the payment of said balance, more than prove the breach of the
juridical relation between them; for, although the agent has not expressly told his principal that
he renounced the agency, yet neither dignity nor decorum permits the latter to continue
representing a person who has adopted such an antagonistic attitude towards him. When the
agent filed a complaint against his principal for recovery of a sum of money arising from the
liquidation of the accounts between them in connection with the agency, Federico Valera could
not have understood otherwise than that Miguel Velasco renounced the agency; because his act
was more expressive than words and could not have caused any doubt.

● Death/Civil Interdiction/Insanity/Insolvency of the Principal

VII. DISTINGUISHING AGENCY FROM OTHER CONTRACTS

● In General
Ø Doles v. Angeles, G.R. No. 149353, June 26, 2006

Facts: Petitioner averred that from June to September 1995, she referred her friends to
respondent whom she knew to be engaged in the business of lending money in exchange for
personal checks through her capitalist Arsenio Pua. She alleged that her friends borrowed money
from respondent and issued personal checks in payment of the loan; that the checks bounced for
insufficiency of funds; that despite her efforts to assist respondent to collect from the borrowers,
she could no longer locate them; that, because of this, respondent became furious and threatened
petitioner that if the accounts were not settled, a criminal case will be filed against her; that she
was forced to issue eight checks amounting to P350,000 to answer for the bounced checks of the
borrowers she referred; that she was forced by respondent to execute an Absolute Deed of Sale
over her property in Bacoor, Cavite, to avoid criminal prosecution; that the said deed had no
valid consideration;
Issue: What is the nature of the relationship of the parties?
Held: It is one of agency. under Article 1868 of the Civil Code, the basis of agency is
representation. The question of whether an agency has been created is ordinarily a question
which may be established in the same way as any other fact, either by direct or circumstantial
evidence. The question is ultimately one of intention. Agency may even be implied from the
words and conduct of the parties and the circumstances of the particular case. Though the 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 she is engaged.
In this case, petitioner knew that the financier of respondent is Pua; and respondent knew that the
borrowers are friends of petitioner.
For an agency to arise, it is not necessary that the principal personally encounter the third person
with whom the agent interacts. The law in fact contemplates, and to a great degree, impersonal
dealings where the principal need not personally know or meet the third person with whom her
agent transacts: precisely, the purpose of agency is to extend the personality of the principal
through the facility of the agent.

In the case at bar, both petitioner and respondent have undeniably disclosed to each other that
they are representing someone else, and so both of them are estopped to deny the same. It is
evident from the record that petitioner merely refers actual borrowers and then collects and
disburses the amounts of the loan upon which she received a commission; and that respondent
transacts on behalf of her principal financier, a certain Arsenio Pua. If their respective 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 extend the personality of the
principal through the facility of the agent.

With respect to the admission of petitioner that she is re-lending the money loaned from
respondent to other individuals for profit, it must be stressed that the manner in which the parties
designate the relationship is not controlling. If an act done by one person in behalf of another is
in its essential nature one of agency, the former is the agent of the latter notwithstanding he or
she is not so called. The question is to be determined by the fact that one represents and is acting
for another, and if relations exist which will constitute an agency, it will be an agency whether
the parties understood the exact nature of the relation or not.

That both parties acted as mere agents is shown by the undisputed fact that the friends of
petitioner issued checks in payment of the loan in the name of Pua. If it is true that petitioner was
re-lending, then the checks should have been drawn in her name and not directly paid to Pua.

Distinguished from Partnership

Ø Sevilla v. CA, G.R. Nos. L-41182-3, April 15, 1988

Facts: Mrs. Segundina Noguera and the Tourist World Service, Inc. leased the premises
belonging to the party of the first part at Mabini St., Manila for the former-s use as a branch
office. In the said contract the party of the third party (petitioner) held herself solidarily liable
with the party of the part for the prompt payment of the monthly rental agreed on. When the
branch office was opened, the same was run by the herein appellant Una 0. Sevilla payable to
Tourist World Service Inc. by any airline for any fare brought in on the efforts of Mrs. Lina
Sevilla, 4% was to go to Lina Sevilla and 3% was to be withheld by the Tourist World Service,
Inc.
On or about November 24, 1961 the Tourist World Service, Inc. appears to have been informed
that Lina Sevilla was connected with a rival firm, the Philippine Travel Bureau, and, since the
branch office was anyhow losing, the Tourist World Service considered closing down its office.
Issue: Whether or not respondent may revoke the authority granted to petitioner given that it is
allegedly engaged in a partnership with respondents?
Held: It is only an agency. A joint venture, including a partnership, presupposes generally a of
standing between the joint co-venturers or partners, in which each party has an equal proprietary
interest in the capital or property contributed and where each party exercises equal rights in the
conduct of the business. furthermore, the parties did not hold themselves out as partners, and the
building itself was embellished with the electric sign "Tourist World Service, Inc. in lieu of a
distinct partnership name. It is the Court's considered opinion, that when the petitioner, Lina
Sevilla, agreed to (wo)man the private respondent, Tourist World Service, Inc.'s Ermita office,
she must have done so pursuant to a contract of agency. It is the essence of this contract that the
agent renders services "in representation or on behalf of another. In the case at bar, Sevilla
solicited airline fares, but she did so for and on behalf of her principal, Tourist World Service,
Inc. As compensation, she received 4% of the proceeds in the concept of commissions. And as
we said, Sevilla herself based on her letter of November 28, 1961, pre-assumed her principal's
authority as owner of the business undertaking. We are convinced, considering the circumstances
and from the respondent Court's recital of facts, that the ties had contemplated a principal agent
relationship, rather than a joint management or a partnership..
But unlike simple grants of a power of attorney, the agency that we hereby declare to be
compatible with the intent of the parties, cannot be revoked at will. The reason is that it is one
coupled with an interest, the agency having been created for mutual interest, of the agent and the
principal. It appears that Lina Sevilla is a bona fide travel agent herself, and as such, she had
acquired an interest in the business entrusted to her. Moreover, she had assumed a personal
obligation for the operation thereof, holding herself solidarily liable for the payment of rentals.
She continued the business, using her own name, after Tourist World had stopped further
operations. Her interest, obviously, is not to the commissions she earned as a result of her
business transactions, but one that extends to the very subject matter of the power of
management delegated to her. It is an agency that, as we said, cannot be revoked at the pleasure
of the principal. Accordingly, the revocation complained of should entitle the petitioner, Lina
Sevilla, to damages.

● Distinguished from Service Providers

G.R. No. L-21601 December 17, 1966
NIELSON & COMPANY, INC., plaintiff-appellant,
vs.
LEPANTO CONSOLIDATED MINING COMPANY,
ZALDIVAR, J

Facts: [GR L-21601, 17 December 1966; Zaldivar (J): 6 concur, 2 took no part] An operating
agreement was executed before World War II (on 30 January 1937) between Nielson & Co. Inc.
and the Lepanto Consolidated Mining Co. whereby the former operated and managed the mining
properties owned by the latter for a management fee of P2,500.00 a month and a 10%
participation in the net profits resulting from the operation of the mining properties, for a period
of 5 years. In 1940, a dispute arose regarding the computation of the 10% share of Nielson in the
profits. The Board of Directors of Lepanto, realizing that the mechanics of the contract was
unfair to Nielson, authorized its President to enter into an agreement with Nielson modifying the
pertinent provision of the contract effective 1 January 1940 in such a way that Nielson shall
receive (1) 10% of the dividends declared and paid, when and as paid, during the period of the
contract and at the end of each year, (2) 10% of any depletion reserve that may be set up, and (3)
10% of any amount expended during the year out of surplus earnings for capital account. In the
latter part of 1941, the parties agreed to renew the contract for another period of 5 years, but in
the meantime, the Pacific War broke out in December 1941. In January 1942 operation of the
mining properties was disrupted on account of the war. In February 1942, the mill, power plant,
supplies on hand, equipment, concentrates on hand and mines, were destroyed upon orders of the
United States Army, to prevent their utilization by the invading Japanese Army.
The Japanese forces thereafter occupied the mining properties, operated the mines during the
continuance of the war, and who were ousted from the mining properties only in August 1945.
After the mining properties were liberated from the Japanese forces, LEPANTO took possession
thereof and embarked in rebuilding and reconstructing the mines and mill; setting up new
organization; clearing the mill site; repairing the mines; erecting staff quarters and bodegas and
repairing existing structures; installing new machinery and equipment; repairing roads and
maintaining the same; salvaging equipment and storing the same within the bodegas; doing
police work necessary to take care of the materials and equipment recovered; repairing and
renewing the water system; and retimbering. The rehabilitation and reconstruction of the mine
and mill was not completed until 1948. On 26 June 1948 the mines resumed operation under the
exclusive management of LEPANTO. Shortly after the mines were liberated from the Japanese
invaders in 1945, a disagreement arose between NIELSON and LEPANTO over the status of the
operating contract which as renewed expired in 1947. Under the terms thereof, the management
contract shall remain in suspense in case fortuitous event or force majeure, such as war or civil
commotion, adversely affects the work of mining and milling. On 6 February 1958, NIELSON
brought an action against LEPANTO before the Court of First Instance of Manila to recover
certain sums of money representing damages allegedly suffered by the former in view of the
refusal of the latter to comply with the terms of a management contract entered into between
them on 30 January 1937, including attorney's fees and costs. LEPANTO in its answer denied
the material allegations of the complaint and set up certain special defenses, among them,
prescription and laches, as bars against the institution of the action.

After trial, the court a quo rendered a decision dismissing the complaint with costs. The court
stated that it did not find sufficient evidence to establish LEPANTO's counterclaim and so it
likewise dismissed the same. NIELSON appealed. The Supreme Court reversed the decision of
the trial court and enter in lieu thereof another, ordering Lepanto to pay Nielson (1) 10% share of
cash dividends of December, 1941 in the amount of P17,500.00, with legal interest thereon from
the date of the filing of the complaint; (2) management fee for January, 1942 in the amount of
P2,500.00, with legal interest thereon from the date of the filing of the complaint; (3)
management fees for the sixty-month period of extension of the management contract,
amounting to P150,000.00, with legal interest from the date of the filing of the complaint; (4)
10% share in the cash dividends during the period of extension of the management contract,
amounting to P1,400,000.00, with legal interest thereon from the date of the filing of the
complaint; (5) 10% of the depletion reserve set up during the period of extension, amounting to
P53,928.88, with legal interest thereon from the date of the filing of the complaint; (6) 10% of
the expenses for capital account during the period of extension, amounting to P694,364.76, with
legal interest thereon from the date of the filing of the complaint; (7) to issue and deliver to
Nielson and Co. Inc. shares of stock of Lepanto Consolidated Mining Co. at par value equivalent
to the total of Nielson's 10% share in the stock dividends declared on November 28, 1949 and
August 22, 1950, together with all cash and stock dividends, if any, as may have been declared
and issued subsequent to November 28, 1949 and August 22, 1950, as fruits that accrued to said
shares; provided that if sufficient shares of stock of Lepanto's are not available to satisfy this
judgment, Lepanto shall pay Nielson an amount in cash equivalent to the market value of said
shares at the time of default, that is, all shares of stock that should have been delivered to Nielson
before the filing of the complaint must be paid at their market value as of the date of the filing of
the complaint; and all shares, if any, that should have been delivered after the filing of the
complaint at the market value of the shares at the time Lepanto disposed of all its available
shares, for it is only then that Lepanto placed itself in condition of not being able to perform its
obligation; (8) the sum of P50,000.00 as attorney's fees; and (9) the costs.

Lepanto seeks the reconsideration of the decision rendered on 17 December 1966.

Issue: Whether the management contract is a contract of agency or a contract of lease of

services.

Held: Article 1709 of the Old Civil Code, defining contract of agency, provides that "By the
contract of agency, one person binds himself to render some service or do something for the
account or at the request of another." Article 1544, defining contract of lease of service, provides
that "In a lease of work or services, one of the parties binds himself to make or construct
something or to render a service to the other for a price certain." In both agency and lease of
services one of the parties binds himself to render some service to the other party. Agency,
however, is distinguished from lease of work or services in that the basis of agency is
representation, while in the lease of work or services the basis is employment. The lessor of
services does not represent his employer, while the agent represents his principal. Further,
agency is a preparatory contract, as agency "does not stop with the agency because the purpose is
to enter into other contracts." The most characteristic feature of an agency relationship is the
agent's power to bring about business relations between his principal and third persons. "The
agent is destined to execute juridical acts (creation, modification or extinction of relations with
third parties). Lease of services contemplate only material (non-juridical) acts." Herein, the
principal and paramount undertaking of Nielson under the management contract was the
operation and development of the mine and the operation of the mill. All the other undertakings
mentioned in the contract are necessary or incidental to the principal undertaking — these other
undertakings being dependent upon the work on the development of the mine and the operation
of the mill. In the performance of this principal undertaking Nielson was not in any way
executing juridical acts for Lepanto, destined to create, modify or extinguish business relations
between Lepanto and third persons. In other words, in performing its principal undertaking
Nielson was not acting as an agent of Lepanto, in the sense that the term agent is interpreted
under the law of agency, but as one who was performing material acts for an employer, for a
compensation. It is true that the management contract provides that Nielson would also act as
purchasing agent of supplies and enter into contracts regarding the sale of mineral, but the
contract also provides that Nielson could not make any purchase, or sell the minerals, without the
prior approval of Lepanto. It is clear, therefore, that even in these cases Nielson could not
execute juridical acts which would bind Lepanto without first securing the approval of Lepanto.
Nielson, then, was to act only as an intermediary, not as an agent. Further, from the statements in
the annual report for 1936, and from the provision of paragraph XI of the Management contract,
that the employment by Lepanto of Nielson to operate and manage its mines was principally in
consideration of the know-how and technical services that Nielson offered Lepanto. The contract
thus entered into pursuant to the offer made by Nielson and accepted by Lepanto was a "detailed
operating contract". It was not a contract of agency. Nowhere in the record is it shown that
Lepanto considered Nielson as its agent and that Lepanto terminated the management contract
because it had lost its trust and confidence in Nielson.

Ø G.R. No. L-10918 March 4, 1916

WILLIAM FRESSEL, ET AL., plaintiffs-appellants,
vs.
MARIANO UY CHACO SONS & COMPANY, defendant-appellee.
TRENT, J
•Defendant entered into a contract with E. Merritt, whereby the said Merritt undertook andagreed
with the defendant to build for the defendant a costly edifice in the city of Manila. Itwas agreed
that the defendant at any time, upon certain contingencies, before thecompletion of said edifice
could take possession of said edifice in the course of constructionand of all the materials in and
about said premises acquired by Merritt for the construction.
•August, the plaintiffs delivered to Merritt at the said edifice materials of the value of P1381
which price Merritt had agreed to pay on the last day of September, 1914
•The defendant under and by virtue of its contract with Merritt took possession of the incomplete
edifice in course of construction together with all the materials on said premises including the
materials delivered by plaintiffs
•Neither Merritt nor the defendant has paid for the materials
•Plaintiffs demanded of the defendant the return or permission to enter upon said premises and
retake said materials at the time still unused which was refused by defendant.
•Fressel et al insist that Merritt acted as the agent of the defendant in purchasing the materials in
question and that the defendant, by taking over and using such materials ,accepted and ratified
the purchase, thereby obligating itself to pay for the same.

ISSU E& Whether or not Merritt acted as agent of Mar'anoUy Chaco Sons & Co.

RATIO
•The facts alleged do not even intimate that the relation existing between Merritt and the
defendant was that of principal and agent, but, on the contrary, they demonstrate that Merritt was
an independent contractor and that the materials were purchased by him as such contract or
without the intervention of the defendant.
•The fact that the defendant entered into a contract with one E. Merritt, where by the said Merritt
undertook and agreed with the defendant to build for the defendant a costly edificeshows that
Merritt was authorized to do the work according to his own method and withoutbeing subject to
the defendant/s control, except as to the result of the work

Ø G.R. No. L-8169 January 29, 1957

THE SHELL COMPANY OF THE PHILIPPINES, LTD., petitioner,
vs.
FIREMEN'S INSURANCE COMPANY OF NEWARK, NEW JERSEY COMMERCIAL
CASUALTY INSURANCE CO., SALVADOR SISON, PORFIRIO DE LA FUENTE and
THE COURT OF APPEALS (First Division),respondents.
PADILLA, J
Facts: This is an action for recovery of sum of money, based on alleged negligence of the
defendants A car was brought to a Shell gasoline station owned by delaFuente for washing and
greasing. The car was placed on a hydraulic lifter for greasing. As some parts of the car couldn’t
be reached by the greaseman, the lifter was lowered. Unfortunately, for unknown reasons
(probably due to mechanical failure or human error), while the lifter was being lowered, the car
swung and fell from the platform. Said car was insured against loss or damage by Firemen's
Insurance Company of Newark, New Jersey, and Commercial Casualty Insurance Company
jointly for the sum of P10,000. The insurance companies after paying the sum of P1,651.38 for
the damage and charging the balance of P100.00 to Salvador Sison in accordance with the terms
of the insurance contract, have filed this action together with said Salvador Sison for the
recovery of the total amount of the damage from the defendants on the ground of negligence
Issue: Whether or Not delaFuente is merely an agent of Shell Co.
Held: Yes De la Fuente was the operator of the station "by grace" of the Defendant Company
which could and did remove him as it pleased; that all the equipments needed to operate the
station was owned by the Defendant Company which took charge of their proper care and
maintenance, despite the fact that they were loaned to him; that the Defendant company did not
leave the fixing of price for gasoline to De la Fuente; That the service station belonged to the
company and bore its tradename and the operator sold only the products of the company; that the
equipment used by the operator belonged to the company and were just loaned to the operator
and the company took charge of their repair and maintenance

As the act of the agent or his employees acting within the scope of his authority is the act of the
principal, the breach of the undertaking by the agent is one for which the principal is answerable
The latter was negligent and the company must answer for the negligent act of its mechanic
which was the cause of the fall of the car from the hydraulic lifter.
 ● Distinguished from Sale
Ø G.R. No. L-11491 August 23, 1918
ANDRES QUIROGA, plaintiff-appellant,
vs.
PARSONS HARDWARE CO., defendant-appellee.
PONENTE: AVANCEÑA, J
Facts: A contract was entered into by herein plaintiff Quiroga and defendant J. Parsons wherein
the former granted the latter with the exclusive right to sale Quiroga beds in the Visayan Islands
subject to conditions. A complaint was filed by plaintiff averring that defendant violated the ff.
obligations: not to sell the beds at higher prices than those of the invoices; to have an open
establishment in Iloilo; itself to conduct the agency; to keep the beds on public exhibition, and to
pay for the advertisement expenses for the same; and to order the beds by the dozen and in no
other manner. With the exception of the obligation on the part of the defendant to order the beds
by the dozen and in no other manner, none of the obligations imputed to the defendant in the are
expressly set forth in the contract. Plaintiff alleged that the defendant was his agent for the sale
of his beds in Iloilo, and that said obligations are implied in a contract of commercial agency.
Issue: WON the defendant, by reason of the contract, was a purchaser or an agent of the plaintiff
for the sale of his beds.
Held: The contract contains the essential features of a contract of purchase and sale. There was
the obligation on the part of the plaintiff to supply the beds, and, on the part of the defendant, to
pay their price. These features exclude the legal conception of an agency or order to sell whereby
the mandatory or agent received the thing to sell it, and does not pay its price, but delivers to the
principal the price he obtains from the sale of the thing to a third person, and if he does not
succeed in selling it, he returns it. I By virtue of the contract between the plaintiff and the
defendant, the latter, on receiving the beds, was necessarily obliged to pay their price within the
term fixed, without any other consideration and regardless as to whether he had or had not sold
the beds.
Not a single one of these clauses necessarily conveys the idea of an agency. The words
commission on sales used in clause (A) of article 1 mean nothing else, as stated in the contract
itself, than a mere discount on the invoice price. The word agency, also used in articles 2 and 3,
only expresses that the defendant was the only one that could sell the plaintiff’s beds in the
Visayan Islands. It must be understood that a contract is what the law defines it to be, and not
what it is called by the contracting parties.
Only the acts of the contracting parties, subsequent to, and in connection with, the execution of
the contract, must be considered for the purpose of interpreting the contract, when such
interpretation is necessary, but not when, as in the instant case, its essential agreements are
clearly set forth and plainly show that the contract belongs to a certain kind and not to another.

In order to classify a contract, due regard must be given to its essential clauses. In the contract in
question, what was essential, as constituting its cause and subject matter, is that the plaintiff was
to furnish the defendant with the beds which the latter might order, at the price stipulated, and
that the defendant was to pay the price in the manner stipulated. There was the obligation on the
part of the plaintiff to supply the beds, and, on the part of the defendant, to pay their price. These
features exclude the legal conception of an agency or order to sell whereby the mandatory or
agent received the thing to sell it, and does not pay its price, but delivers to the principal the price
he obtains from the sale of the thing to a third person, and if he does not succeed in selling it, he
returns it.

Ø American Rubber v. CIR, G.R. No. L-25965, June 30, 1975

Facts: Petitioner, a domestic corp, is engaged in the business of producing logs and lumber for
sale. It acquired it logs from its concession in Basilan City, forest operated by Santa Clara
Lumber Co (SCLO) in agreement with UP land grant and southwestern portion of SCLO’s
concession in Basilan City. From May 1949 to 1952, UP charged SCLO for timber cut and later
reimbursed by ARCO(petitioner). The lumber pieces were then sawn in petitioners sawmills and
then delivevered to its docks in Isabela. SCLO then executed contracts with different buyers
from Manila. SCLO incurred the expenses for the delivery of logs to Manila but was reimbursed
by ARCO later. ARCO also paid SCLO 5% commission for the sales it made. On February 11,
1955, petitioner was assessed for deficiency sales tax amounting to 66,022.77. ARCO argues that
it cannot be liable for sales tax as the agreement between it and SCLO is one of purchase and
sale;hence, it cannot be liable for sales made by SCLO.

Issue: W/N the relationship between Petitioner and SCLO is one of Puchase and Sale

Held: No, it is one of agency. IT is clear and evident from the agreement between the parties that
it is one of agency although it was written that there is a contract of sale. The general rule is that
the essence of the contract prevails. In this case, petitioner reimbursed SCLO for payment of
transportation fee of logs to Manila. SCLO also remitted the purchase price to Petitioner..
Further Petitioner also paid SCLO commision for sales made by SCLO. These circumstances are
characteristics of contract of agency. Hence, the agreement between the parties is one of agency.

Ø Ker and Co. Ltd v. Lingad,Acting Commissioner of Internal Revenue G.R. No. L-20871,
April 30, 1971
Facts: Petitioner entered into a contract with United States Rubber International whereas the
former is referred to as the Distributor and the latter as the Company. Petitioner would distributes
products by the Company in several provinces such as Bohol, Leyte,Samar, Negros Oriental and
whole of Mindanao except Davao. Petitioner is precluded from disposing the products elsewhere
without the consent of the Company. Petitioner is also required to exert every effort for the sale
of the products. The company on the other hand has the control over the price, discount,terms of
delivery and condition of sale. The crucial stipulation provides that the company shall have the
ownership of the goods but the sale shall be made in the name of the petitioner. Petitioner was
then assessed by CIR and hold it liable for commercial broker’s percentage tax amounting to
20,272.33 including surcharge and compromise penalty. Petitioner requested for its cancellation
but it was denied. It appealed to CTA but was denied. Hence, this case. Petitioner argued that the
contract it entered into with the Company is one of sale.

Issue: W/N the petitioner acted as the agent of the Company for it to be subjected of Commercial
broker’s tax.

Held: Yes,petitioner is an agent of the Company. The national internal revenue code provides a
commercial broker "includes all persons, other than importers, manufacturers, producers, or bona
fide employees, who, for compensation or profit, sell or bring about sales or purchases of
merchandise for other persons or bring proposed buyers and sellers together, or negotiate freights
or other business for owners of vessels or other means of transportation, or for the shippers, or
consignors or consignees of freight carried by vessels or other means of transportation. The term
includes commission merchants. Further, in the CIR vs Constantino, the court applied the test
that where one party retained the ownership of goods by another,and the price in within the
control of the former, the agreement is one of agency.

In this case, the facts meets all fours of the test.Hence, the relationship of petitioner with the
company is one of agency. Therefore, it is liable for commercial broker’s tax.

Ø Gonzalo Puyat v. Arco Amusement, G.R. No. 47538, June 20, 1941
Facts: Arco is a corporation engaged in the business of operating cinematograph. In 1929,
respondent entered into an agreement with petitioner wherein petitioner will order sound
reproducing equipment from its principal Starr Piano Company on behalf of petitioner.
Respondent then pays the petitioner 10% commission, plus expenses such as freight, insurances,
banking charges etc. Petitioner informed the plaintiff that the price of the equipment is 1,700$ .
Repondent paid the price, 10% commission and the expenses. Sometime, after a year, the parties
entered into another contract which cost respondent 1600$. Three years later, respondent found
out that petitioner charged it with list price and not the net price. It avers that petitioner
overcharged it; hence, it filed a petition to reclaim reimbursement arguing that petitioner as an
agent should have been true to the price. Petitioner argues that the contract entered into by it with
repondent is one of sale.

Issue: W/N the agreement is one of sale

Held: Yes, the agreement between Puyat and Arco is one of sale. First, as the trial judge pointed
out that "whatever unforeseen events might have taken place unfavorable to the defendant
(petitioner), such as change in prices, mistake in their quotation, loss of the goods not covered by
insurance or failure of the Starr Piano Company to properly fill the orders as per specifications,
the plaintiff (respondent) might still legally hold the defendant (petitioner) to the prices fixed of
$1,700 and $1,600." This is incompatible with the pretended relation of agency between the
petitioner and the respondent, because in agency, the agent is exempted from all liability in the
discharge of his commission provided he acts in accordance with the instructions received from
his principal (section 254, Code of Commerce), and the principal must indemnify the agent for
all damages which the latter may incur in carrying out the agency without fault or imprudence on
his part.

In the second place, to hold the petitioner an agent of the respondent in the purchase of
equipment and machinery from the Starr Piano Company of Richmond, Indiana, is incompatible
with the admitted fact that the petitioner is the exclusive agent of the same company in the
Philippines. It is out of the ordinary for one to be the agent of both the vendor and the purchaser.

As such, respondent cannot claim the overcharge as the contract is one of sale and not of agency.

Ø Chua Ngo v. Universal Trading, G.R. No. L-2870, September 19, 1950
Facts: Chua Ngo delivered, in Manila, to the Universal Trading Company, Inc., a local
corporation, the price 300 boxes of Sunkist oranges to be gotten from the United States. The
latter ordered the said boxes from Gabuardi Company of San Francisco, and in due course, the
goods were shipped from that port to Manila "F. O. B. San Francisco." One hundred eighty
boxes were lost in transit, and were never delivered to Chua Ngo.

This suit by Chua Ngo is to recover the corresponding price he had paid in advance.

Universal Trading Company refused to pay, alleging it merely acted as agent of Chua Ngo in
purchasing the oranges. Chua Ngo maintains he bought the oranges from Universal Trading
Company, and, therefore, is entitled to the return of the price corresponding to the undelivered
fruit.

Issue:W/N the agreement between UTC and ngo is one of sale.

Held: Yes, the contract is one of sale. First , no commission was paid to UTC. Second, the
agreement provides that "if balance is not paid within 48 hours of notification, merchandise may
be resold by the Universal Trading Company and the deposit forfeited." "Resold" implies the
goods had been sold to Chua Ngo. And forfeiture of the deposit is incompatible with a contract
of agency. Third, immediately after executing the agreemnet wherein oranges were quoted at
$6.30 per box, Universal Trading placed an order for purchase of the same with Gabuardi
Company at $6 per box. If Universal Trading Gabuardi Company was agent of Chua Ngo, it
could not properly do that. Inasmuch as good faith is to be presumed, we must hold that
Universal Trading acted thus because it was not acting as agent of Chua Ngo, but as independent
purchaser from Gabuardi Company. Fourth, the defendant charged the plaintiff the sum of
P218.87 for 3 ½ percent sales tax, thereby implying that their transaction was a sale. Fifth, if the
purchase of the oranges had been made on behalf of Chua Ngo, all claims for losses thereof
against the insurance company and against the shipping company should have been assigned to
Chua Ngo. Instead, the defendant has been pressing such claims for itself.

Hence, UTC is liable for the loss goods as it is the owner of the goods.

● Distinguished from Brokerage

Ø Hahn v. CA, G.R. No. 114074, January 22, 1997

Facts:
Petitioner Alfred Hahn is a Filipino citizen doing business under the name and style "Hahn-
Manila." On the other hand, private respondent Bayerische Motoren Werke Aktiengesellschaft
(BMW) is a nonresident foreign corporation existing under the laws of the former Federal
Republic of Germany, with principal office at Munich, Germany.

Through an SPA, Hahn was appointed as the exclusive dealer of BMWs in the Philippines
evidenced by an SPA. However, BMW later moved to revoke the exclusive dealership. BMW
advised Plaintiff that it was willing to maintain with Plaintiff a relationship but only "on the basis
of a standard BMW importer contract as adjusted to reflect the particular situation in the
Philippines.” Hahn refused and filed an action for TRO in the RTC. BMW contends that RTC
cannot have jurisdiction over the case through DTI summons given that it is a foreign
corporation doing business in the Philippines.

RA 7042, Section 3(d) defines doing business in the Philippines as:

“…soliciting orders, service contracts, opening offices, whether called "liaison" offices or
branches, appointing representatives or distributors domiciled in the Philippines.” Hence, if Hahn
was an agent of BMW, the latter is deemed to be doing business in the Philippines.

Issue:
WON Hahn was agent of BMW.

Held:
Yes. As soon as BMW invoices the vehicle ordered, Hahn is credited with a commission of
fourteen percent (14%) of the full purchase price thereof, and as soon as he confirms in writing,
that the vehicles have been registered in the Philippines and have been serviced by him, he will
receive an additional three percent (3%) of the full purchase prices as commission.
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.

As to the service centers and showrooms which he said he had put up at his own expense, Hahn
said that he had to follow BMW specifications as exclusive dealer of BMW in the Philippines.
According to Hahn, BMW periodically inspected the service centers to see to it that BMW
standards were maintained. Indeed, it would seem from BMW's letter to Hahn that it was for
Hahn's alleged failure to maintain BMW standards that BMW was terminating Hahn's
dealership.

The fact that Hahn invested his own money to put up these service centers and showrooms does
not necessarily prove that he is not an agent of BMW. For as already noted, there are facts in the
record which suggest that BMW exercised control over Hahn's activities as a dealer and made
regular inspections of Hahn's premises to enforce compliance with BMW standards and
specifications.

Ø Tan v. Gullas, G.R. No. 143978, December 3, 2002

Facts:
Respondents, were the registered owners of a parcel of land, they executed a special power of
attorney authorizing petitioners Tan, a licensed real estate broker, and his associates Tecson and
Saldaña, to negotiate for the sale of the land, at a commission of 3% of the gross price. Tan
contacted the Sisters of Mary of Banneaux, Inc. (hereafter, Sisters of Mary), a religious
organization interested in acquiring a property. The Sisters, who had already seen and inspected
the land, found the same suitable for their purpose and expressed their desire to buy it.

However, they requested that the selling price be reduced. Respondents agreed to sell the
property to the Sisters of Mary. Petitioners went to see respondents who refused to pay the
broker’s fee and alleged that another group of agents was responsible for the sale of land to the
Sisters of Mary. Petitioners filed a complaint
against the defendants for recovery of their broker’s fee. They alleged that they were the efficient
procuring cause in bringing about the sale of the, but that their efforts in consummating the sale
were frustrated by the respondents who, in evident bad faith, malice and in order to evade
payment of broker’s fee, dealt directly with the buyer whom petitioners introduced to them.

Issue:
WON Tan entitled to commission

Held:
Yes. In Schmid and Oberly v. RJL Martinez Fishing Corporation, we defined a broker as 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 other parties, never acting in his
own name but in the name of those who employed him. x x x a broker is one whose occupation
is to bring the parties together, in matters of trade, commerce or navigation.

In the case of Alfred Hahn v. Court of Appeals and Bayerische Motoren Werke
Aktiengesellschaft (BMW) we ruled that, 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. Clearly, therefore, petitioners, as brokers,
should be entitled to the commission whether or not the sale of the property subject matter of the
contract was concluded through their efforts.

PARTNERSHIP

I. THE CONCEPT OF PARTNERSHIP

● The Nature of Partnership

Ø Lim Tong Lim v. Philippine Fishing Gear, G.R. No. 136448, November 3, 1999

Facts:
It was established that Lim Tong Lim requested Peter Yao to engage in commercial fishing with
him and one Antonio Chua. The three agreed to purchase two fishing boats but since they do not
have the money they borrowed from one Jesus Lim (brother of Lim Tong Lim). They again
borrowed money and they agreed to purchase fishing nets and other fishing equipments. Now,
Yao and Chua represented themselves as acting in behalf of “Ocean Quest Fishing Corporation”
(OQFC) they contracted with Philippine Fishing Gear Industries (PFGI) for the purchase of
fishing nets amounting to more than P500k.

They were however unable to pay PFGI and so they were sued in their own names because
apparently OQFC is a non-existent corporation. Chua admitted liability and asked for some time
to pay. Yao waived his rights. Lim Tong Lim however argued that he’s not liable because he was
not aware that Chua and Yao represented themselves as a corporation; that the two acted without
his knowledge and consent.

ISSUE: Whether or not Lim Tong Lim is liable.

HELD: Yes. From the factual findings of both lower courts, it is clear that Chua, Yao and Lim
had decided to engage in a fishing business, which they started by buying boats worth P3.35
million, financed by a loan secured from Jesus Lim. In their Compromise Agreement, they
subsequently revealed their intention to pay the loan with the proceeds of the sale of the boats,
and to divide equally among them the excess or loss. These boats, the purchase and the repair of
which were financed with borrowed money, fell under the term “common fund” under Article
1767. The contribution to such fund need not be cash or fixed assets; it could be an intangible
like credit or industry. That the parties agreed that any loss or profit from the sale and operation
of the boats would be divided equally among them also shows that they had indeed formed a
partnership.

Lim Tong Lim cannot argue that the principle of corporation by estoppels can only be imputed to
Yao and Chua. Unquestionably, Lim Tong Lim benefited from the use of the nets found in his
boats, the boat which has earlier been proven to be an asset of the partnership. Lim, Chua and
Yao decided to form a corporation. Although it was never legally formed for unknown reasons,
this fact alone does not preclude the liabilities of the three as contracting parties in representation
of it. Clearly, under the law on estoppel, those acting on behalf of a corporation and those
benefited by it, knowing it to be without valid existence, are held liable as general partners.

Ø Philex Mining v. CIR G.R. No. 148187, April 16, 2008, 551 SCRA 428

Facts:
On April 16, 1971, petitioner Philex Mining Corporation (Philex Mining), entered into an
agreement with Baguio Gold Mining Company ("Baguio Gold") for the former to manage and
operate the latter’s mining claim. The parties’ agreement was denominated as "Power of
Attorney.”

In the course of managing and operating the project, Philex Mining made advances of cash and
property in accordance with paragraph 5 of the agreement. However, the mine suffered
continuing losses over the years which resulted to petitioner’s withdrawal as manager of the
mine.

Subsequently, petitioner wrote off in its 1982 books of account the remaining outstanding
indebtedness of Baguio Gold by charging P112,136,000.00 to allowances and reserves that were
set up in 1981 and P2,860,768.00 to the 1982 operations.

In its 1982 annual income tax return, petitioner deducted from its gross income the amount of
P112,136,000.00 as "loss on settlement of receivables from Baguio Gold against reserves and
allowances." However, the Bureau of Internal Revenue (BIR) disallowed the amount as
deduction for bad debt and assessed petitioner a deficiency income tax of P62,811,161.39.

The Court of Tax Appeals rejected petitioner’s assertion that the advances it made for the Sto.
Nino mine were in the nature of a loan. It instead characterized the advances as petitioner’s
investment in a partnership with Baguio Gold for the development and exploitation of the Sto.
Nino mine. The CTA held that the "Power of Attorney" executed by petitioner and Baguio Gold
was actually a partnership agreement. Since the advanced amount partook of the nature of an
investment, it could not be deducted as a bad debt from petitioner’s gross income. Petitioner
insists that in determining the nature of its business relationship with Baguio Gold, we should not
only rely on the "Power of Attorney", among other documents. These documents, allegedly
evidenced the parties’ intent to treat the advances and payments as a loan and establish a
creditor-debtor relationship between them.

Issue: WON there was a contract of partnership

Held: Yes. The petition lacks merit. The lower courts correctly held that the "Power of Attorney"
is the instrument that is material in determining the true nature of the business relationship
between petitioner and Baguio Gold.
An examination of the "Power of Attorney" reveals that a partnership or joint venture was indeed
intended by the parties. Under a contract of partnership, two or more persons bind themselves to
contribute money, property, or industry to a common fund, with the intention of dividing the
profits among themselves. While a corporation, like petitioner, cannot generally enter into a
contract of partnership unless authorized by law or its charter, it has been held that it may enter
into a joint venture which is akin to a particular partnership:

The legal concept of a joint venture is of common law origin. It has no precise legal definition,
but it has been generally understood to mean an organization formed for some temporary
purpose. x x x It is in fact hardly distinguishable from the partnership, since their elements are
similar – community of interest in the business, sharing of profits and losses, and a mutual right
of control. x x x The main distinction cited by most opinions in common law jurisdictions is that
the partnership contemplates a general business with some degree of continuity, while the joint
venture is formed for the execution of a single transaction, and is thus of a temporary nature. x x
x This observation is not entirely accurate in this jurisdiction, since under the Civil Code, a
partnership may be particular or universal, and a particular partnership may have for its object a
specific undertaking. x x x It would seem therefore that under Philippine law, a joint venture is a
form of partnership and should be governed by the law of partnerships. The Supreme Court has
however recognized a distinction between these two business forms, and has held that although a
corporation cannot enter into a partnership contract, it may however engage in a joint venture
with others. x x x

Perusal of the agreement denominated as the "Power of Attorney" indicates that the parties had
intended to create a partnership and establish a common fund for the purpose. They also had a
joint interest in the profits of the business as shown by a 50-50 sharing in the income of the mine.
Ø AFISCO v. CA, G.R. No. 112675, January 25, 1999
FACTS:
AFISCO and 40 other non-life insurance companies entered into a Quota Share Reinsurance
Treaties with Munich, a non-resident foreign insurance corporation, to cover for All Risk
Insurance Policies over machinery erection, breakdown and boiler explosion. The treaties
required petitioners to form a pool, to which AFISCO and the others complied. On April 14,
1976, the pool of machinery insurers submitted a financial statement and filed an “Information
Return of Organization Exempt from Income Tax” for the year ending 1975, on the basis of
which, it was assessed by the commissioner of Internal Revenue deficiency corporate taxes. A
protest was filed but denied by the CIR.

Petitioners contend that they cannot be taxed as a corporation, because (a) the reinsurance
policies were written by them individually and separately, (b) their liability was limited to the
extent of their allocated share in the original risks insured and not solidary, (c) there was no
common fund, (d) the executive board of the pool did not exercise control and management of its
funds, unlike the board of a corporation, (e) the pool or clearing house was not and could not
possibly have engaged in the business of reinsurance from which it could have derived income
for itself. They further contend that remittances to Munich are not dividends and to subject it to
tax would be tantamount to an illegal double taxation, as it would result to taxing the same
premium income twice in the hands of the same taxpayer. Finally, petitioners argue that the
government’s right to assess and collect the subject Information Return was filed by the pool on
April 14, 1976. On the basis of this return, the BIR telephoned petitioners on November 11, 1981
to give them notice of its letter of assessment dated March 27, 1981. Thus, the petitioners
contend that the five-year prescriptive period then provided in the NIRC had already lapsed, and
that the internal revenue commissioner was already barred by prescription from making an
assessment.

ISSUE:Whether or not pool is a taxable partnership.

RULING: YES. A pool is considered a corporation for taxation purposes. Citing the case of
Evangelista v. CIR, the court held that Sec. 24 of the NIRC covered these unregistered
partnerships and even associations or joint accounts, which had no legal personalities apart from
individual members. Further, the pool is a partnership as evidence by a common fund, the
existence of executive board and the fact that while the pool is not in itself, a reinsurer and does
not issue any insurance policy, its work is indispensable, beneficial and economically useful to
the business of the ceding companies and Munich, because without it they would not have
received their premiums.

As to the claim of double taxation, the pool is a taxable entity distinct from the individual
corporate entities of the ceding companies. The tax on its income is obviously different from the
tax on the dividends received by the said companies. Clearly, there is no double taxation.

As to the argument on prescription, the prescriptive period was totaled under the Section 333 of
the NIRC, because the taxpayer cannot be located at the address given in the information return
filed and for which reason there was delay in sending the assessment. Further, the law clearly
states that the prescriptive period will be suspended only if the taxpayer informs the CIR of any
change in the address.

Ø Gatchalian v. CIR, G.R. No. 45425, April 29, 1939

FACTS:
The plaintiffs, are a group of 15 persons who consolidated their money to purchase one ticket
from the National Charity Sweeepstakes Office at 2 pesos. The ticket was personally purchased
by Gatchalian and registered it in the name of Jose Gatchalian and Company. Such ticket won
the 3rd prize in the amount of P50,000. A check was drawn in favor of Jose Gatchalian and
Company against the PNB and cashed by Jose Gatchalian and Company.
Thereafter, income tax examiner Alfredo David required Gatchalian to file the income tax return
covering the prize won. David made an assessment requesting payment for the sum of
P1,499.94.
The plaintiffs requested for tax exemption, but was denied. To prevent a levy from being made
against them, they paid the tax due under protest.

ISSUE: WON the plaintiffs formed a partnership or a community property

RULING: The plaintiffs formed a partnership. Partnership is defined as a situation where two or
more persons bound themselves to contribute money, property or industry to a common fund
with the intention of dividing the profits among themselves. In this case, 15 people, including
Gatchalian, pooled their money to a common fund to buy a sweepstakes ticket, with the intention
of dividing the prize in case the ticket wins a prize. Therefore, there was a partnership formed
and, they are liable to pay income tax for the profit the partnership earned.

Ø Evangelista v. CIR, G.R. No. L-9996, October 15, 1957

Facts:
Petitioners borrowed sum of money from their father and together with their own personal funds
they used said money to buy several real properties. They then appointed their brother (Simeon)
as manager of thesaid real properties with powers and authority to sell, lease or rent out said
properties to third persons. They realized rental income from the said properties for the period
1945-1949.On September 24, 1954 respondent Collector of Internal Revenue demanded the
payment of income tax on corporations, real estate dealer's fixed tax and corporation residence
tax for the years 1945-1949. The letter of demand and corresponding assessments were delivered
to petitioners on December 3, 1954, whereupon they instituted the present case in the Court of
Tax Appeals, with a prayer that "the decision of the respondent contained in his letter of demand
dated September 24, 1954" be reversed, and that they be absolved from the payment of the taxes
in question. CTA denied their petition and subsequent MR and New Trials were denied.Hence
this petition.

Issue:
Whether or not petitioners have formed a partnership and consequently, are subject to the tax on
corporations provided for in section 24 of Commonwealth Act. No. 466, otherwise known as the
National Internal Revenue Code, as well as to the residence tax for corporations and the real
estate dealers fixed tax.

Held: YES.
The essential elements of a partnership are two, namely: (a) an agreement to contribute
money,property or industry to a common fund; and (b) intent to divide the profits among the
contracting parties. The first element is undoubtedly present in the case at bar, for, admittedly,
petitioners have agreed to,and did, contribute money and property to a common fund. Upon
consideration of all the facts and circumstances surrounding the case, we are fully satisfied that
their purpose was to engage in real estate transactions for monetary gain and then divide the
same among themselves, because of the following observations, among others: (1) Said common
fund was not something they found already in existence; (2)They invested the same, not merely
in one transaction, but in a series of transactions; (3) The aforesaid lotswere not devoted to
residential purposes, or to other personal uses, of petitioners herein

Ø Vargas & Company v. Chan, G.R. No. 8576, February 11, 1915

Facts:
On the 19th day of August, 1911, an action was begun by Chan Hang Chiu against the plaintiff
in this case as a mercantile association duly organized under the laws of the Philippine Islands, to
recover a sum of money. The summons and complaint were placed in the hands of the sheriff,
delivering to and leaving with one Jose Macapinlac personally true copies thereof, he being the
managing agent of said Vargas & Co. at the time of such service. On July 2, 1912, the justice's
court rendered judgment against Vargas & Co. for the sum of 372.28.It is plaintiff’s contention
that Vargas & Co. being a partnership, it is necessary, in bringing an action against it, to serve
the summons on all of the partners, delivering to each one of them personally a copy thereof; and
that the summons in this case having been served on the managing agent of the company only,
the service was of no effect as against the company and the members thereof and the judgment
entered by virtue of such a service was void.
Issue:
Whether or not it is indispensable in bringing an action to a partnership to serve summons to all
parties thereof.

Held:
No, it is dispensable.
Reasons:
1. It has been the universal practice in the Philippine Islands since American occupation,and was
the practice prior to that time, to treat companies of the class to which the plaintiff belongs as
legal or juridical entities and to permit them to sue and be sued in the name of the company, the
summons being served solely on the managing agent or other official of the company specified
by the section of the Code of Civil Procedure referred to. The plaintiff brings this action in the
company name and not in the name of the members of the firm. Actions against companies of the
class to which plaintiff belongs are brought, according to the uninterrupted practice, against such
companies in their company names and not against the individual partners constituting the firm.
In case the individual members of the firm must be separately served with process, the rule also
prevails that they must be parties to the action,either plaintiffs or defendant, and that the action
cannot be brought in the name of or against the company itself.

2. If it is necessary to serve the partners individually, they are entitled to be heard individually in
the action and they must, therefore, be made parties thereto so that they can be heard. It would be
idle to serve process on individual members of a partnership if the litigation were to be
conducted in the name of the partnership itself and by the duly constituted officials of the
partnership exclusively.

In this case, is apparent that the plaintiff is acting contrary to its own contention by bringing the
action in the name of the company. If not served with process, then the action should be brought
in the individual names of the partners and not in the name of the company itself.

Ø Aguila v. CA, G.R. No. 127347, November 25, 1999

FACTS: In April 1991, the spouses Ruben and Felicidad Abrogar entered into a loan agreement
with a lending firm called A.C. Aguila & Sons, Co., a partnership. The loan was for P200k. To
secure the loan, the spouses mortgaged their house and lot located in a subdivision. The terms of
the loan further stipulates that in case of non-payment, the property shall be automatically
appropriated to the partnership and a deed of sale be readily executed in favor of the partnership.
She does have a 90 day redemption period.

Ruben died, and Felicidad failed to make payment. She refused to turn over the property and so
the firm filed an ejectment case against her (wherein she lost). She also failed to redeem the
property within the period stipulated. She then filed a civil case against Alfredo Aguila, manager
of the firm, seeking for the declaration of nullity of the deed of sale. The RTC retained the
validity of the deed of sale. The Court of Appeals reversed the RTC. The CA ruled that the sale
is void for it is a pactum commissorium sale which is prohibited under Art. 2088 of the Civil
Code (note the disparity of the purchase price, which is the loan amount, with the actual value of
the property which is after all located in a subdivision).

ISSUE: Whether or not the case filed by Felicidad shall prosper.

HELD: No. Unfortunately, the civil case was filed not against the real party in interest. As
pointed out by Aguila, he is not the real party in interest but rather it was the partnership A.C.
Aguila & Sons, Co. The Rules of Court provide that “every action must be prosecuted and
defended in the name of the real party in interest.” A real party in interest is one who would be
benefited or injured by the judgment, or who is entitled to the avails of the suit. Any decision
rendered against a person who is not a real party in interest in the case cannot be executed.
Hence, a complaint filed against such a person should be dismissed for failure to state a cause of
action, as in the case at bar.

Under Art. 1768 of the Civil Code, a partnership “has a juridical personality separate and distinct
from that of each of the partners.” The partners cannot be held liable for the obligations of the
partnership unless it is shown that the legal fiction of a different juridical personality is being
used for fraudulent, unfair, or illegal purposes. In this case, Felicidad has not shown that A.C.
Aguila & Sons, Co., as a separate juridical entity, is being used for fraudulent, unfair, or illegal
purposes. Moreover, the title to the subject property is in the name of A.C. Aguila & Sons, Co. It
is the partnership, not its officers or agents, which should be impleaded in any litigation
involving property registered in its name. A violation of this rule will result in the dismissal of
the complaint.

Ø Campos Rueda v. Pacific Commercial, G.R. No. 18703, August 28, 1922

Facts:
Campos, Rueda & Co., a limited partnership, is indebted to the appellants: Pacific Commercial
Co. , Asiatic Petroleum Co, and International Banking Corporation amounting to not less than
P1,000.00 (which were not paid more than 30 days prior to the date of the filing by petitioners of
the application for voluntary insolvency).
The trial court denied their petition on the ground that it was not proven, nor alleged, that the
members of the firm were insolvent at the time the application was filed. It also held that the
partners are personally and solidarily liable for the consequences of the transactions of the
partnership.

Issue:
Whether or not a limited partnership may be held to have committed an act of insolvency.

Held:
Yes. A limited partnership’s juridical personality is different from the personality of its
members. On general principle, the limited partnership must answer for and suffer the
consequence of its acts. Under our Insolvency Law, one of the acts of bankruptcy upon w/c an
adjudication of involuntary insolvency can be predicated is the failure to pay obligations.
The failure of Campos, Rueda & Co., to pay its obligations constitutes an act w/c is specifically
provided for in the Insolvency Law for declaration of involuntary insolvency. The petitioners
have a right to a judicial decree declaring the involuntary insolvency of said partnership.

● Rules to Determine Existence

Ø Evangelista v. CIR, G.R. No. L-9996, October 15, 1957

Facts:
Petitioners borrowed sum of money from their father and together with their own personal funds
theyused said money to buy several real properties. They then appointed their brother (Simeon)
as manager of thesaid real properties with powers and authority to sell, lease or rent out said
properties to third persons. Theyrealized rental income from the said properties for the period
1945-1949.On September 24, 1954 respondent Collector of Internal Revenue demanded the
payment of income tax oncorporations, real estate dealer's fixed tax and corporation residence
tax for the years 1945-1949. The letter of demand and corresponding assessments were delivered
to petitioners on December 3, 1954, whereupon they instituted the present case in the Court of
Tax Appeals, with a prayer that "the decision of the respondent contained in his letter of demand
dated September 24, 1954" be reversed, and that they be absolved from the payment of the taxes
in question. CTA denied their petition and subsequent MR and New Trials were denied.Hence
this petition.

Issue:
Whether or not petitioners have formed a partnership and consequently, are subject to the tax on
corporations provided for in section 24 of Commonwealth Act. No. 466, otherwise known as the
National Internal Revenue Code, as well as to the residence tax for corporations and the real
estate dealers fixed tax.

Held: YES.
The essential elements of a partnership are two, namely: (a) an agreement to contribute
money,property or industry to a common fund
; and (b) intent to divide the profits among the contracting parties. The first element is
undoubtedly present in the case at bar, for, admittedly, petitioners have agreed to,and did,
contribute money and property to a common fund. Upon consideration of all the facts and
circumstances surrounding the case, we are fully satisfied that their purpose was to engage in real
estate transactions for monetary gain and then divide the same among themselves, because of the
following observations, among others: (1) Said common fund was not something they found
already in existence; (2)They invested the same, not merely in one transaction, but in a series of
transactions; (3) The aforesaid lots were not devoted to residential purposes, or to other personal
uses, of petitioners herein.Although, taken singly, they might not suffice to establish the intent
necessary to constitute a partnership, the collective effect of these circumstances is such as to
leave no room for doubt on the existence of said intent in petitioners herein.For purposes of the
tax on corporations, our National Internal Revenue Code, includes these partnerships — with the
exception only of duly registered general copartnerships within the purview of the
term"corporation." It is, therefore, clear to our mind that petitioners herein constitute a
partnership, insofar as said Code is concerned and are subject to the income tax for corporations.

Ø Oña v. CIR, G.R. No. L-19342, May 25, 1972

Facts: Julia Buñales died leaving as heirs her surviving spouse, Lorenzo Oña and her five
children. A civil case was instituted for the settlement of her state, in which Oña was appointed
administrator and later on the guardian of the three heirs who were still minors when the project
for partition was approved. This shows that the heirs have undivided ½ interest in 10 parcels of
land, 6 houses and money from the War Damage Commission.

Although the project of partition was approved by the Court, no attempt was made to divide the
properties and they remained under the management of Oña who used said properties in business
by leasing or selling them and investing the income derived therefrom and the proceeds from the
sales thereof in real properties and securities. As a result, petitioners’ properties and investments
gradually increased. Petitioners returned for income tax purposes their shares in the net income
but they did not actually receive their shares because this left with Oña who invested them.

Based on these facts, CIR decided that petitioners formed an unregistered partnership and
therefore, subject to the corporate income tax, particularly for years 1955 and 1956. Petitioners
asked for reconsideration, which was denied hence this petition for review from CTA’s decision.

Issue: W/N there was a co-ownership or an unregistered partnership

Held: Unregistered partnership. The Tax Court found that instead of actually distributing the
estate of the deceased among themselves pursuant to the project of partition, the heirs allowed
their properties to remain under the management of Oña and let him use their shares as part of
the common fund for their ventures, even as they paid corresponding income taxes on their
respective shares. For tax purposes, the co-ownership of inherited properties is automatically
converted into an unregistered partnership the moment the said common properties and/or the
incomes derived therefrom are used as a common fund with intent to produce profits for the heirs
in proportion to their respective shares in the inheritance as determined in a project partition
either duly executed in an extrajudicial settlement or approved by the court in the corresponding
testate or intestate proceeding. The reason is simple. From the moment of such partition, the
heirs are entitled already to their respective definite shares of the estate and the incomes thereof,
for each of them to manage and dispose of as exclusively his own without the intervention of the
other heirs, and, accordingly, he becomes liable individually for all taxes in connection
therewith. If after such partition, he allows his share to be held in common with his co-heirs
under a single management to be used with the intent of making profit thereby in proportion to
his share, there can be no doubt that, even if no document or instrument were executed, for the
purpose, for tax purposes, at least, an unregistered partnership is formed.

Ø Obillos v. CIR, G.R. No. L-68118, October 29, 1985

FACTS:
In 1973, Jose Obillos completed payment on two lots located in Greenhills, San Juan. The next
day, he transferred his rights to his four children for them to build their own residences. The
Torrens title would show that they were co-owners of the two lots. However, the petitioners
resold them to Walled City Securities Corporation and Olga Cruz Canda for P313k or P33k for
each of them. They treated the profit as capital gain and paid an income tax thereof. The CIR
required petitioners to pay corporate income tax on their shares, .20% tax fraud surcharge and
42% accumulated interest. Deficiency tax was assessed on the theory that they had formed an
unregistered partnership or joint venture.

ISSUE:
Whether or not partnership was formed by the siblings thus be assessed of the corporate tax.

RULING:
Petitioners were co-owners and to consider them partners would obliterate the distinction
between co-ownership and partnership. The petitioners were not engaged in any joint venture by
reason of that isolated transaction.

Art 1769… the sharing of gross returns does not of itself establish a partnership, whether or not
the persons sharing them have a joint or common right or interest in any property from which the
returns are derived. There must be an unmistakable intention to form partnership or joint venture.

Ø Pascual v. CIR, G.R. No. 78133, October 18, 1988

FACTS:
Petitioners bought two (2) parcels of land and a year after, they bought another three (3) parcels
of land. Petitioners subsequently sold the said lots in 1968 and 1970, and realized net profits. The
corresponding capital gains taxes were paid by petitioners in 1973 and 1974 by availing of the
tax amnesties granted in the said years. However, the Acting BIR Commissioner assessed and
required Petitioners to pay a total amount of P107,101.70 as alleged deficiency corporate income
taxes for the years 1968 and 1970. Petitioners protested the said assessment asserting that they
had availed of tax amnesties way back in 1974. In a reply, respondent Commissioner informed
petitioners that in the years 1968 and 1970, petitioners as co-owners in the real estate
transactions formed an unregistered partnership or joint venture taxable as a corporation under
Section 20(b) and its income was subject to the taxes prescribed under Section 24, both of the
National Internal Revenue Code that the unregistered partnership was subject to corporate
income tax as distinguished from profits derived from the partnership by them which is subject
to individual income tax; and that the availment of tax amnesty under P.D. No. 23, as amended,
by petitioners relieved petitioners of their individual income tax liabilities but did not relieve
them from the tax liability of the unregistered partnership. Hence, the petitioners were required
to pay the deficiency income tax assessed.

ISSUE:

Whether the Petitioners should be treated as an unregistered partnership or a co-ownership for

the purposes of income tax.

RULING:

The Petitioners are simply under the regime of co-ownership and not under unregistered
partnership.

By the contract of partnership two or more persons bind themselves to contribute money,
property, or industry to a common fund, with the intention of dividing the profits among
themselves (Art. 1767, Civil Code of the Philippines). In the present case, there is no evidence
that petitioners entered into an agreement to contribute money, property or industry to a common
fund, and that they intended to divide the profits among themselves. The sharing of returns does
not in itself establish a partnership whether or not the persons sharing therein have a joint or
common right or interest in the property. There must be a 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. Hence, there is no adequate basis to support
the proposition that they thereby formed an unregistered partnership. The two isolated
transactions whereby they purchased properties and sold the same a few years thereafter did not
thereby make them partners. They shared in the gross profits as co- owners and paid their capital
gains taxes on their net profits and availed of the tax amnesty thereby. Under the circumstances,
they cannot be considered to have formed an unregistered partnership which is thereby liable for
corporate income tax, as the respondent commissioner proposes.

Ø Stern v. Dept. of Revenue 217 NW 2d 326 (1974)

FACTS: Bernard and Marie Stern started the Rhinelander Decorating Company, contributing $
3500 each for a business in draperies, carpeting, and interior decorating. Bernard engaged
himself in manual labor of carpeting and drapery services while Marie dealt with the
administrative and managerial aspects of the business. The title to the real estate was in joint
tenancy in their names and the bank account was in the company name, with the Sterns
authorized to sign the checks. The statutory selling permit was issued in the company name,
showing Bernard and Marie was owners, while the employer registration certificate issued
showed the Sterns’ names as employers. They both signed notes for business loans. However,
there was neither a written nor oral partnership agreement as to compensation for services or
division of profits. The books of the company were not kept upon a partnership basis. Social
security payments were made on behalf of Bernard only. The Department of Revenue assessed
Bernard additional income taxes for having a sole proprietorship over Rhinelander. Bernard
applied for tax abatement of the additional tax on the ground that he and his wife formed a
partnership. The Department of Revenue denied his application on the basis that no partnership
existed, a decision affirmed by the Wisconsin Tax Appeals Commission.
ISSUE: Whether the Wisconsin Tax Appeals Commission erred in affirming the Department of
Revenue's denial of the taxpayer's application for abatement of the additional income tax
assessment by concluding that, as a matter of law, no bona fide partnership existed
HELD: No. A partnership is an `association of 2 or more persons to carry on as co-owners a
business for profit.' More specifically, it is recognized that four elements need be met so as to
qualify as a partnership. Initially, the contracting parties must intend to form a bona fide
partnership and accept the legal requirements and duties emanating therefrom. Secondly, there
must exist a community of interest in the capital employed. Thirdly, there must be an equal voice
in the management of the partnership. Finally, there must be a sharing and distribution of profits
and losses. Applying these elements to the case at bar, we hold that a bona fide partnership was
not created. While the taxpayers may have desired to create a marital financial relationship
similar to a partnership, it is clear they did not intend to create a bona fide partnership." The
record shows that respondent and his wife had a very close relationship and that they carried over
this relationship, into the business operation. This relationship however, stems from their
marriage and their desire to hold all property jointly and not from any business motive. This is
not sufficient to satisfy the law, as this court held in Skaar.In Anderson v. Anderson (1972), 54
Wis. 2d 666, 669, 196 N.W.2d 727, this court stated: "The burden of proving the existence of a
partnership rests with respondent. Morris v. Resnick (1955), 268 Wis. 410, 415, 67 N.W.2d 848.
Sec. 178.03 (1), Stats., defines the term partnership as `an association of 2 or more persons to
carry on as co-owners a business for profit.' The receipt of a share of those profits is deemed
prima facie evidence that a person is a partner in the business. Sec. 178.04 (4). However, under
sec. 178.04 (2), a partnership will not be implied merely because of common ownership of
property, whether or not profits are shared by the co-owners. Schleicker v. Krier (1935), 218
Wis. 376, 379, 261 N.W. 413. As stated in 68 C. J. S., Partnership, p. 435, sec. 20 c (2):
"`A mere community of interest in property, such as exists between tenants in common or joint
tenants of real or personal property, does not make such owners partners or raise a presumption
that a partnership exists, and this is so even though they cooperate in making improvements on
their property and in realizing and sharing the profits or the losses and expenses arising
therefrom.

Ø Heirs of Jose Lim and Juliet Lim, G.R. No. 172690, March 3, 2010
FACTS:
Petitioners are the heirs of the late Jose Lim. They filed a Complaint for Partition, Accounting
and Damages against respondent Juliet Villa Lim, widow of the late Efledo Lim, who was the
eldest son of Jose. Petitioners alleged that Jose was the liaison officer of Interwood Sawmill. In
1980, Jose, together with his friends Jimmy and Norberto, formed a partnership to engage in the
trucking business. Initially, with a contribution of P50,000.00 each, they purchased a truck to be
used in the hauling and transport of lumber of the sawmill. Jose managed the operations of this
trucking business until his death. Thereafter, Jose's heirs, including Elfledo, and partners agreed
to continue the business under the management of Elfledo. The shares in the partnership profits
and income that formed part of the estate of Jose were held in trust by Efledo, with petitioners'
authority for Elfledo to use, purchase or acquire properties using said funds.Petitioners also
alleged Efledo was never a partner or an investor. By the time the partnership ceased, it had nine
trucks, which were all registered in Elfledo's name. Petitioners asseverated that it was also
through Elfledos management of the partnership that he was able to purchase numerous
properties. Elfledo died, leaving respondent as his sole surviving heir. Petitioners claimed that
respondent took over the administration of the aforementioned properties, which belonged to the
estate of Jose, without their consent and approval. Claiming that they are co-owners of the
properties, petitioners required respondent to submit an accounting of all income, profits and
rentals received from the estate of Elfledo, and to surrender the administration thereof.
Respondent refused; thus, the filing of this case. Respondent maintained that all the properties
involved in this case were purchased and acquired through her and her husbands joint efforts and
hard work, and without any participation or contribution from petitioners or from Jose.
Respondent submitted that these are conjugal partnership properties; and thus, she had the right
to refuse to render an accounting for the income or profits of their own business. RTC rendered
its decision in favor of petitioners. CA reversed and set aside the RTC's decision.

ISSUE: Whether or not Efledo was a partner.

HELD: YES. Undoubtedly, the best evidence would have been the contract of partnership or the
articles of partnership. Unfortunately, there is none in this case, because the alleged partnership
was never formally organized. Nonetheless, we are asked to determine who between Jose and
Efledo was the partner in the trucking business. Applying the legal provision[ARTICLE 1769] to
the facts of this case, the following circumstances tend to prove that Efledo was himself the
partner of Jimmy and Norberto:
1. Cresencia, wife of the late Jose Lim, testified that Jose gave Efledo P50,000.00, as share
in the partnership, on a date that coincided with the payment of the initial capital in the
partnership;
2. Efledo ran the affairs of the partnership, wielding absolute control, power and authority,
without any intervention or opposition whatsoever from any of petitioners herein;
3. all of the properties, particularly the nine trucks of the partnership, were registered in the
name of Efledo;
4. Jimmy testified that Efledo did not receive wages or salaries from the partnership,
indicating that what he actually received were shares of the profits of the business; and
5. none of the petitioners, as heirs of Jose, the alleged partner, demanded periodic
accounting from Elfledo during his lifetime. As repeatedly stressed in Heirs of Tan EngKee,
a demand for periodic accounting is evidence of a partnership.

Furthermore, petitioners failed to adduce any evidence to show that the real and personal
properties acquired and registered in the names of Elfledo and respondent formed part of the
estate of Jose, having been derived from Jose's alleged partnership with Jimmy and Norberto.
They failed to refute respondent's claim that Elfledo and respondent engaged in other businesses.
Edison even admitted that Elfledo also sold Interwood lumber as a sideline. Petitioners could not
offer any credible evidence other than their bare assertions. Thus, we apply the basic rule of
evidence that between documentary and oral evidence, the former carries more weight.

II. FORMING THE PARTNERSHIP

● Corporations as Partners
ØJ.M. Tuason & Co., Inc. v. Quirino Bolaños, G.R. No. L-4935, May 28, 1954

Tuason v Bolanos
G.R. No. L-4935. May 28, 1954
Reyes, J.

Facts:

J. M. Tuason Co., represented by its Managing Partner, Gregorio Araneta, Inc.,

filed an action to recover the possession of registered land situated in barrio Tatalon, Quezon
City. Plaintiff’s complaint was amended three times with respect to the extent and description of
the land sought to be recovered. Defendant, in his answer, sets up prescription and title in
himself thru “open, continuous, exclusive and public and notorious possession of land in dispute
under claim of ownership, adverse to the entire world by defendant and his predecessor in
interest” from “time immemorial.”
After trial, the lower court rendered judgment for plaintiff, declaring defendant to
be without any right to the land in question.

Issue:
Whether or not a corporation can act as managing partner
Held:
Yes. It is true that the complaint also states that the plaintiff is "represented
herein by its Managing Partner Gregorio Araneta, Inc.", another corporation, but there is
nothing against one corporation being represented by another person, natural or
juridical, in a suit in court. The contention that Gregorio Araneta, Inc. cannot act as
managing partner for plaintiff on the theory that it is illegal for two corporations to enter
into a partnership is without merit, for the true rule is that "though a corporation has no
power to enter into a partnership, it may nevertheless enter into a joint venture with
another where the nature of that venture is in line with the business authorized by its
charter”. There is nothing in the record to indicate that the venture in which plaintiff is
represented by Gregorio Araneta, Inc. as "its managing partner" is not in line with the
corporate business of either of them.

III. KINDS OF PARTNERSHIPS

● Particular Partnership
Ø CIR v. Suter G.R. No. L-25532, February 28, 1969

CIR v Suter
G. R. No. L-25532. February 28, 1969
Reyes, J.B.L., J.
Facts:
A limited partnership named William J. Suter 'Morcoin' Co., Ltd was formed 30
September 1947 by William J. Suter as the general partner, and Julia Spirig and Gustav Carlson.
They contributed, respectively, P20,000.00, P18,000.00 and P2,000.00. it was also duly
registered with the SEC.
On 1948, Suter and Spirig got married and in effect Carlson sold his share to the couple, the
same was also registered with the SEC. The limited partnership had been filing its income tax
returns as a corporation, without objection by the herein petitioner, Commissioner of Internal
Revenue, until in 1959 when the latter, in an assessment, consolidated the income of the firm and
the individual incomes of the partners-spouses Suter and Spirig resulting in a determination of a
deficiency income tax against respondent Suter in the amount of P2,678.06 for 1954 and
P4,567.00 for 1955

Issue:
Whether or not the limited partnership has been dissolved after the marriage of Suter and Spirig
and the buying of the interest of limited partner, Carlson.

Held:
No. A husband and a wife may not enter into a contract of general copartnership,
because under the Civil Code, which applies in the absence of express provision in the
Code of Commerce, persons prohibited from making donations to each other are
prohibited from entering into universal partnerships. It follows that the marriage of
partners necessarily brings about the dissolution of a pre-existing partnership.
The petitioner-appellant has evidently failed to observe the fact that William J. Suter
"Morcoin" Co., Ltd. was not a universal partnership, but a particular one.

● Partnership by Estoppel
Ø Anfenson v. Banks, L.R.A 1918D, 482, 163 NW 608
Anfenson v. Banks
L.R.A. 1918D, 482, 163 NW 608
Weaver, J.

Facts:
One Penfield operated an unincorporated bank, under the name of “The Bank of
Kelley.” He caused a booklet relative to the financial affairs of the bank to be issued and
circulated in the village and contiguous territory. In effect, he represented in this circular that one
Banks, his father-in-law, was a partner in said banking business. This representation was wholly
without the authority of Banks.
Banks protested several times the unauthorized use of his name. Penfield told
Banks that he thought the use of his name would make the bank look better. Penfield apologized,
and promised that the use of Bank’s name should cease. This promise was kept.
Three and a half years later after the circular or booklet was first issued, the bank
failed, and Penfield absconded.
The depositors sought to hold Banks as a quasi-partner or a partner in estoppel.

Issue:
Whether or not Banks is a partner in estoppel

Held:
No. The conduct which will work an estoppel in pais, in those cases where there
is no affirmative evidence of wrongful design or fraudulent purpose, must be so grossly
negligent or of a character so manifestly misleading to others that it would be tantamount to a
fraud to permit the actor to escape liability to those who, in the exercise of reasonable diligence,
have been misled to their injury.
None of the depositors ever asked Banks whether he was a partner in the bank,
though they had ample opportunity to do so. Banks had no knowledge that anyone was dealing
with the bank on the belief that he was a partner therein.
Banks was under no obligation to speak, further than he did speak, with reference to Penfield’s
unauthorized act, and therefore his subsequent silence did not work an equitable estoppel.

Ø Brown v. Gernstein, 460 NE 2d 1043

Brown v. Gerstein
460 NE 2d 1043
Greaney, J.

Facts:
The plaintiffs consulted Gerstein regarding a dispute involving a parcel of
commercial property they own. They eventually retained Gerstein to bring an action before the
court on their behalf. Gerstein repeatedly assured plaintiffs not to worry and that he will take
care of everything.
When the plaintiffs discovered that the property had been sold, they confronted
Gerstein, who then told them that he had a deal with the bank’s attorney and that his lawyer had
“double-crossed him”. Gerstein then directed the plaintiffs to another lawyer in his office,
Weiner.
This lawyer prepared another complaint against the bank. However, he declined to represent the
plaintiffs after receiving information from the bank’s counsel which made it doubtful that the
plaintiffs could prevail at trial. As a result, the complaint was never filed and the lawyer
terminated his relationship with the plaintiffs after telling them that he had returned their file to
Gerstein.
Gerstein never advised the plaintiffs of options to prevent foreclosure. The plaintiffs also did not
know that Gerstein had not filed the complaint.
Plaintiffs argue that Wiener, as a partner in estoppel should be liable to the same extent as
Gerstein.

Issue:
Whether or not Weiner is a partner in estoppel

Held:
No. To prevail under this doctrine a plaintiff must prove: 1) that the would-be
partner has held himself out as a partner; 2) that such holding out was done by the defendant
directly or with his consent; 3) that the plaintiff had knowledge of such holding out; and 4) that
the plaintiff relied on the ostensible partnership to his prejudice.
Evidence was insufficient to satisfy the second requirement, viz.,that any holding
out was done directly by Weiner or with his consent. There was no evidence that the plaintiffs
ever met Weiner or that Weiner rendered any legal services on their behalf.

Ø Hunter v. Croysdill, 337 P2d 174

Facts:
The plaintiffs are partners of Quinco Products who manufacture and sell out of Detroit, Michigan
a line of cutting tools. Defendant Croysdill was one employed in Coast Tool Company, a tool
component supply business in Los Angeles, California who sold plaintiff’s line of tools in the
LA area.

As Croysdill wanted to be the west coast distributor of Quinco Tool Products, he informed
plaintiff Hunter of his intent and that defendant Crawford would be his financial backer and
partner. On 1 June 1955, Crawford sent the plaintiffs a letter to the effect that he and Croysdill
had agreed on a partnership whereby Croysdill would be in charge of promotion and sales while
he would contribute ‘business and financial guidance” Later on, Croysdill met with plaintiffs in
Detroit for business and repeatedly represented to the plaintiffs that Crawford had financed the
representation to Detroit. On 30 June 1955, plaintiffs were informed that they should delivered
the tools to Associated Tools Supply, a business which was registered however as a sole
proprietorship under Croysdill.
In a case that followed, the trial court found that Crawford, having represented to the plaintiffs
that he and Croysdill were partners, to which they relied on when they extended credit to
Associated Tools Supply in the amount of $14,701.20. Crawford assails this judgement arguing
that the apparent partnership was not supported by evidence and that when the Croysdil
registered Associated Tools Supply as a sole proprietorship, the plaintiffs had been put on notice
that they are not dealing with a partnership.

Issue/s:
Did the trial court err in holding that there was an apparent partnership?

Ruling:
No. The trial court did not err in holding that there was an apparent partnership.

Section 15016, subdivision (1) of the [California] Corporation Code, provides in part as follows:
"When a person, by words spoken or written or by conduct, represents himself ... as a partner in
an existing partnership or with one or more persons not actual partners, he is liable to any such
person to whom such representation has been made, who has, on the faith of such representation,
given credit to the ... apparent partnership. ..."

The trial court had found that Crawford’s conduct had indeed placed him within the operations
of Section 15016, subd. (1). It is well-settled that when appellant attacks a finding of fact, the
authority of the appellate court is limited to determining whether the finding of fact is grounded
on substantial evidence. Such is the case here.

Crawford’s representations in the letter of 1 June 1955 shows that he and Croysdil are in
partnership. A partnership is merely "... an association of two or more persons to carry on as co-
owners a business for profit." The letter referred to "the association of Keith Croysdill and M. C.
Crawford." Also, the respective parts to be played by Croysdill and defendant in the business
were outlined for the purpose of distributing, for profit, Quinco Tool Products on the West Coast.
The fact that the word “partnership” was not used is immaterial because the association exists
regardless of the appellation given by the partners to their association.

Crawford argues that since the representations made were for a future association which had not
yet matured, therefore, estoppel cannot lie. The crucial point however is not whether a
partnership exists in fact, but whether Crawford had conveyed the idea the idea that the
partnership already existed. By the time Croysdill went to Detroit, he and Crawford had already
selected a name for the business and had instructed the plaintiffs where to ship the first shipment
of tools. The circumstances strongly suggested to the plaintiffs that partnership had already
matured and was not merely a representation to associated in the future.
Crawford also takes the position that as plaintiffs did not make exhaustive inquiries into his
financial status, they could not have relied thereon. There is no requirement however that credit
be given in reliance upon the financial status of the apparent partner, but only that the party
claiming the benefit of section 15016, subdivision (1), relied on the existence of the partnership.

Finally, Crawford points out that the plaintiffs should have been put on notice when Croysdill
had registered Associated Tool Supply as a sole proprietorship. Such registration however should
not and did not negate the effect of Crawford’s manifestations that made them rely on the belief
that an ostensible partnership exists. Registration is made to protect third persons and not to
protect a partner-by-estoppel.

Ø Wisconsin Telephone v. Lehman, 80 NW 2d 267

Facts:
The plaintiff sought to hold respondent liable as a partner by estoppel for the telephone service it
provided to an ostensible partnership named W.R. Lehmann and Sons. The case was decided in
plaintiff’s favor in the lower courts. However, on appeal, defendant argues that estoppel does not
lie when there is no evidence that plaintiff changed its position to its detriment in reliance on that
belief.

Issue/s:
Is plaintiff prevented from asserting the theory of ostensible partnership?

Ruling:
Yes. Plaintiff is prevented from asserting the theory of ostensible partnership.

It is expressly provided in the statutes that when a person has been thus represented to be a
partner in an existing partnership, he is liable as a partner to any person who rely upon the
representation. It is not disputed that the jury have found reasonable grounds to believe that the
defendant was responsible for misleading appearances and party to an ostensible partnership.

However, since the liability of the defendant is based on estoppel, it is essential to the cause of
action that the party asserting liability must have been induced by the misleading appearance to
change his position to his detriment. The plaintiff must show that he extended credit, or
otherwise changed his position in a manner prejudicial to himself, on account of his reliance in
good faith on the representation of the defendant.

In this case, there is no evidence that plaintiff did anything it would not have done or refrained
from doing anything that it otherwise would have done, had it known the true facts relative to the
relationship between defendant and W.R. Lehmann & Sons. It is clear that it would have
continued to offer the telephone service for as long as the bills were paid. It follows that the case
should have been dismissed for lack of cause.

● Joint venture
Ø Litonjua v. Litonjua, G.R. Nos. 166299-300, December 13, 2005

Facts:
Petitioner Aurelio claims that he and his brother, herein respondent Eduardo, were in partnership
for the continuation of the family business and the management of common family funds. To
support his claim, Aurelio presented a letter written by Eduardo which he claims is an
undertaking by Eduardo to establish a partnership with him whereby Aurelio was to invited to
manage the family business with Eduardo for compensation amounting to P1 million.

He claims that for about 20 years, Eduardo managed the business but when their relations went
sour in 1992, Aurelio requested an accounting and liquidation of his share which was refused by
Eduardo. He further claims that Eduardo and the other partners proceeded to dispose of the
partnership’s properties in fraud of him. The trial court found in favor of Aurelio but the CA
reversed holding that no partnership was proven. Hence this petition.

Issue/s:
Did the CA err in holding that the existence of a partnership was not proven by the evidence?

Ruling
No. The CA did not err in holding that the existence of a partnership was not proven by the
evidence

Crucial to the failure of this petition is the fact that the actionable document presented by Aurelio
is an unsigned and undated typewritten letter, albeit personal in tone.

Since Aurelio is attempting to enforce a partnership which involves at least P3,000 in money and
property, and real property in particular, it follows that the letter fails to meet the requirements of
Articles 1771 and 1772 which both require a public instrument to constitute an actionable
instrument evidencing partnership. Needless to say, the private instrument was not registered
with the SEC. Nor was there a contract-validating inventory made pursuant to Article 1773
considering that there is no contest that both petitioner and respondent allegedly contributed real
properties to the businesses.
The letter therefore cannot support the existence of a partnership because a public instrument is
indispensable in these cases for the validity of the partnership. Having no probative value, the
petitioner has no cause of action. There is no valid partnership that legally exists.

Ø Primelink v. Lazatin-Magat, G.R. No. 167379, June 27, 2006

Facts:
On 10 Mar 1994, the petitioner Primelink and the respondents (Lazatins) entered into a joint
venture agreement to develop a project called “Tagaytay Garden Villas” where by the Lazatins
promised to contribute two parcels of land while Primelink undertook to contribute money,
labor, personnel, equipment and other resources needed to develop the property and construct
therein the units for sale to the public. They agreed to share profits in a 60-40 arrangement in
favor of Primelink.

The project was underway by Oct 1995. In a letter dated 10 Apr 1997 however, the Lazatins
demanded that Primelink comply with its obligations and despite Primelink meeting with the
Lazatins, the latter informed Primelink that they had decided to rescind the JVA. The Lazatins
also filed with the RTC a complaint for rescission with accounting and damages. The Lazatins
allege several breaches of contract particularly inexcusable delays from the development
schedule and that the houses which have already been built are subject of numerous complaints
for poor workmanship.

The RTC and the CA found in favor of the Lazatins. Primelink however assails the order of the
lower courts to return not only the lands owned by the Lazatins but also the improvements made
thereon. Primelink argues what governs a JVA is the ordinary law on contracts and not the law
on partnerships.

Issue/s:
Did the lower courts err in applying the law on partnerships in the rescission of the contract
between the parties?

Ruling:
No. The lower courts did not err in applying the law on partnerships in the rescission of the
contract between the parties.

It has been settled by the Court in Aurbach v. Sanitary Wares that while as a general rule, the
relation of the parties in joint ventures is governed by their agreement, when the agreement is
silent on any particular issue, the general principles of partnership may be resorted to.

It is only proper that the Lazatins obtain possession of the properties. Under Article 1838, where
the partnership is rescinded on the ground of fraud, the party entitled to rescission is entitled to a
lien on, or a right of retention of, the surplus of partnership property for any amounts which may
be due him, after satisfying partnership liabilities to third persons. The Lazatins were able to
establish fraud on the part of Primelink. Also, when the partnership was rescinded, the party who
did not wrongfully cause the dissolution of the partnership is the one with the right to wind up
partnership affairs.

Therefore, the lower courts’ award of the possession of partnership properties to the Lazatins
was only for the purpose of winding up partnership affairs as a necessary consequence of
rescission.

Ø Aurbach v. Sanitary Wares, G.R. No. 75875, December 15, 1989

Facts:
Saniwares is a domestic corporation incorporated for the primary purpose of manufacturing and
marketing sanitary wares. It was incorporated by some Filipino investors and American Standard
Inc. (ASI), a foreign corporation. ASI initially owned 40% of Saniwares.

In the Articles of Incorporation, the parties agreed that for as long as ASI owned at least 30% of
the company stock, it would be entitled to nominate 3 of the 9 directors of the Board. ASI was
also granted veto powers over certain corporate acts to protect its interest as the minority.

At first, the joint enterprise prospered. Unfortunately, with the business successes, there came a
deterioration of the initially harmonious relations between the stockholders. Several factions
clashed for control over Saniware in a heated annual stockholder’s meeting which resulted in a
legal dispute.

Among other issues, the parties disagreed as to whether the Corporation Code or the Law on
Partnerships shall apply to the parties. It was contended that Section 24 of the Corporation Code
should apply on cumulative voting such that the faction represented by ASI and some Filipino
investors, who collectively own 53% of the share should be able to nominate at least 4 directors
instead of 3. A main contention is that ASI being a corporation cannot enter into partnerships
thus precluding Saniwares from being considered a partnership.

Issues:
Whether or not the nature of the business established by the parties is a joint venture

Ratio:
Yes. It is a joint venture agreement governed by the law on Partnerships.

An examination of important provisions of the Agreement as well as the testimonial evidence

presented by the Lagdameo and Young Group shows that the parties agreed to establish a joint
venture and not a corporation.
Section 24 of the Corporation Code is not applicable to joint ventures. The legal concept of a
joint venture is of common law origin. It has no precise legal definition but it has been generally
understood to mean an organization formed for some temporary purpose. It is in fact hardly
distinguishable from the partnership, since their elements are similar community of interest in
the business, sharing of profits and losses, and a mutual right of control. Under the Civil Code, a
partnership may be particular or universal, and a particular partnership may have for its object a
specific undertaking. It would seem therefore that under Philippine law, a joint venture is a form
of partnership and should thus be governed by the law of partnerships.

The Supreme Court however recognized a distinction between partnerships and joint ventures,
and has held that although a corporation cannot enter into a partnership contract, it may however
engage in a joint venture with others.

Ø Mendiola v. CA, G.R. No. 159333, July 31, 2006

ARSENIO T. MENDIOLA vs. COURT OF APPEALS

G.R. No. 159333 July 31, 2006
PUNO, J.

FACTS: Petitioner Mendiola (ATM) entered into a Side Agreement with Pacfor (USA) who will
set up a representative office in the Philippines. They named said office as Pacfor Phils in which
petitioner is president. In the agreement, petitioner’s base salary and the company’s overhead
expenditures shall be borne by the representative office and shall be funded by Pacfor/ATM
being equally owned on 50-50 equity by ATM and Pacfor-USA.

The Side Agreement was later amended through a Revised Operating and Profit Sharing
Agreement where petitioner’s salary was increased. However, both agreements show that the
operational expenses will be borne by the representative office and funded by all parties “as
equal partners,” while the profits and commissions will be shared among them.

Years later, petitioner wrote Pacfor’s VP for Asia seeking confirmation of his 50% equity of
Pacfor Phils to which Pacfor’s President replied that petitioner is not a part-owner, his office
being just a representative office, a “theoretical company with the purpose of dividing the
income 50-50.” He even stressed that the petitioner knew of this arrangement from beginning,
having been the one to propose to them the setting up of a representative office, instead of a
branch office, to save on taxes.

ISSUE: Whether or not a partnership or co-ownership exists between the parties.

HELD: Petitioner is an employee of Pacfor and no partnership or co-ownership exists between

the parties.
In a partnership, the members become co-owners of what is contributed to the firm capital and of
all property that may be acquired thereby and through the efforts of the members. The property
or stock of the partnership forms a community of goods, a common fund, in which each party
has a proprietary interest. In fact, the New Civil Code regards a partner as a co-owner of specific
partnership property. Each partner possesses a joint interest in the whole of partnership property.
If the relation does not have this feature, it is not one of partnership.

This essential element, the community of interest, or co-ownership of, or joint interest in
partnership property is absent in the relations between petitioner and private respondent Pacfor.
Petitioner is not a part-owner of Pacfor Phils. Pacfor's President established this fact when he
said that Pacfor Phils. is simply a "theoretical company" for the purpose of dividing the income
50-50. He stressed that petitioner knew of this arrangement from the very start, having been the
one to propose to private respondent Pacfor the setting up of a representative office, and "not a
branch office" in the Philippines to save on taxes. Thus, the parties in this case, merely shared
profits. This alone does not make a partnership.

Besides, a corporation cannot become a member of a partnership in the absence of express

authorization by statute or charter. This doctrine is based on the following considerations: (1)
that the mutual agency between the partners, whereby the corporation would be bound by the
acts of persons who are not its duly appointed and authorized agents and officers, would be
inconsistent with the policy of the law that the corporation shall manage its own affairs
separately and exclusively; and, (2) that such an arrangement would improperly allow corporate
property to become subject to risks not contemplated by the stockholders when they originally
invested in the corporation. No such authorization has been proved in the case at bar.

Ø Heirs of Tan Eng Kee v. CA, G.R. No. 126881, October 3, 2000

Heirs of Tan Eng Kee vs. Court of Appeals

G.R. No. 126881. October 3, 2000
DE LEON, JR., J

FACTS: Before and during the war, Tan Eng Kee was not a part of the Benguet Lumber. But
because the Japanese confiscated or burned the stocks of Benguet Lumber, there was no more
capital to pursue the lumber and hardware business. Thus, brothers, Tan Eng Kee and Tan Eng
Lay pooled their industries and resources together to establish the Benguet Lumber. Both of
them conducted the affairs of the business, including supervising and giving orders to the
employees, determining the prices of the stocks to be sold to the public and preparing orders
from the suppliers. Also, their families stayed together at the Benguet Lumber compound and
their children were employed in the business in different capacities.
In 1981, Tan Eng Lay and his children converted the Benguet Lumber into a corporation and
called it “Benguet Lumber Company”. When Tan Eng Kee died on September 1984, his
common-law spouse and children (heirs of Tan Eng Kee) collectively filed a complaint. They
claimed that their father was a partner of Benguet Lumber and that they were deprived of their
rightful participation in the profits of the business. They prayed for the accounting of the division
off the partnership assets and the dissolution, winding up and liquidation and equal division of
the net assets of the Benguet Lumber.

Tan Eng Lay however claimed that his brother Tan Eng Kee was not a partner but an employee
of Benguet Lumber. His claim was supported with documents that stated that the establishment
was a proprietorship and that he was the only registered owner of it.

RTC ruled that the brothers formed a joint venture and that they were joint adventurers and/or
partners in a business venture or particular partnership and as such, they should share in profits
and losses. CA however reversed the ruling stating that there was no partnership between the
brothers. It ruled that Benguet Lumber is a sole proprietorship owned by Tan Eng Lay and that
Tan Eng Kee is just an employee. Also, it ruled that there was no partnership between the late
Tan Eng Kee and Tan Eng Lay because the present capital or assets of Benguet Lumber is
definitely more than p3,000.00 and as such the execution of a public instrument creating a
partnership should have been made and no such public instrument was established.

ISSUES: 1. Whether or not Benguet Lumber is a partnership

2. Whether or not Tan Eng Kee was a partner
HELD:
1. There was no partnership.
Partnership presupposes the following elements: 1) a contract, either oral or written. However, if
it involves real property or where the capital is P3,000.00 or more, the execution of a contract is
necessary; 2) the capacity of the parties to execute the contract; 3) money property or industry
contribution; 4) community of funds and interest, mentioning equality of the partners or one
having a proportionate share in the benefits; and 5) intention to divide the profits, being the true
test of the partnership.

It is obvious that there was no partnership whatsoever. Except for a firm name, there was no firm
account, no firm letterheads submitted as evidence, no certificate of partnership, no agreement as
to profits and losses, and no time fixed for the duration of the partnership. There was even no
attempt to submit an accounting corresponding to the period after the war until Kee's death in
1984/. It had no business book, no written account nor any memorandum for that matter and no
license mentioning the existence of a partnership.
Undoubtedly, the best evidence would have been the contract of partnership itself, or the articles
of partnership but there is none. The alleged partnership, though, was never formally organized.
The evidence presented by petitioners falls short of the quantum of proof required to establish a
partnership. A demand for periodic accounting is evidence of a partnership. During his lifetime,
Tan Eng Kee appeared never to have made any such demand for accounting from his brother,
Tang Eng Lay.

2. Tan Eng Kee was only an employee, not a partner.

Petitioners did not present and offer evidence that would show that Tan Eng Kee received
amounts of money allegedly representing his share in the profits of the enterprise. Hence, they
failed to prove that Tan Eng Kee and Tan Eng Lay intended to divide the profits of the business
between themselves, which is one of the essential features of a partnership.
As a member of the family, Tan Eng Kee occupied a niche above the rank-and-file employees.
He would have enjoyed liberties otherwise unavailable were he not kin, such as his residence in
the Benguet Lumber Company compound. He would have moral, if not actual, superiority over
his fellow employees, thereby entitling him to exercise powers of supervision. It may even be
that among his duties is to place orders with suppliers. Again, the circumstances proffered by
petitioners do not provide a logical nexus to the conclusion desired; these are not inconsistent
with the powers and duties of a manager, even in a business organized and run as informally as
Benguet Lumber Company.

Ø J. Tiosejo Investment v. Spouses Ang, G.R. No. 174149, September 8, 2010

J. Tiosejo Investment Corp. v. Spouses Benjamin and Eleanor Ang

G.R. No. 174149 September 8, 2010
PEREZ, J

DOCTRINE:
● A joint venture is considered in this jurisdiction as a form of partnership and is
accordingly, governed by the law on partnerships.
● Under Article 1824 of the Civil Code of the Philippines, all partners are solidarily liable
with the partnership for everything chargeable to the partnership, including loss or injury
caused to a third person or penalties incurred due to any wrongful act or omission of any
partner acting in the ordinary course of the business of the partnership or with the
authority of his co-partners. Whether innocent or guilty, all the partners are solidarily
liable with the partnership itself.

FACTS: J. Tiosejo entered into a Joint Venture Agreeemtn with PPGI for the development of a
residential condominium project known as Meditel in Mandaluyong City. Petitioner contributed
the lot while PPGI undertook to develop the condominium. The parties further agreed to a 17%-
83% sharing as to developed units. PPGI further undertook to use all proceeds from the pre-
selling of its saleable units for the completion of the Condominium Project.

Sometime in 1996, PPGI executed a Contract to Sell with Spouses Ang on a certain
condominium unit and parking slot for P2,077,334.25 and P313,500.00, respectively.

On July 1999, respondent Spouses filed before the Housing and Land Use Regulatory Board
(HLURB) a complaint for the rescission of the Contract to Sell, against J. Tiosejo and PPGI.
They claim that they were promised that the condo unit would be available for turn-over and
occupancy by December 1998, however the project was not completed as of the said date.
Spouses Ang instructed petitioner and PPGI to stop depositing the post-dated checks they issued
and to cancel said Contracts to Sell. Despite several demands, petitioner and PPGI have failed
and refused to refund the P611,519.52 they already paid under the circumstances.

As defense, PPGI claim that the delay was attributable to the economic crisis and to force
majeure (unexpected and unforeseen inflation and increase rates and cost of building materials).
They also state that it offered several alternatives to Spouses Ang to transfer their investment to
its other feasible projects and for the amounts they already paid to be considered as partial
payment for the replacement unit/s.

On a separate answer, petitioner claims that its prestation under the JVA consisted of
contributing the property on which the condominium was to be contributed. Not being privy to
the Contracts to Sell executed by PPGI and respondents, it did not receive any portion of the
payments made by the latter; and, that without any contributory fault and negligence on its part,
PPGI (and not the petitioner) breached its undertakings under the JVA by failing to complete the
condominium project.

ISSUE: W/N the CA erred in affirming the HLURB’s decision insofar as it found J. Teosejo’s
with PPGI to pay Spouses Ang.

HELD: NO, the HLURB Arbiter and Board correctly held petitioner liable alongside PPGI
for respondents’ claims and the administrative fine.

By express terms of the JVA, it appears that petitioner not only retained ownership of the
property pending completion of the condominium project but had also bound itself to
answer liabilities proceeding from contracts entered into by PPGI with third parties.
Article VIII, Section 1 of the JVA distinctly provides as follows:

Section 1: Rescission and damages: In any case, the Owner shall respect and strictly comply
with any covenant entered into by the Developer and third parties with respect to any of its
units in the Condominium Project. To enable the owner to comply with this contingent
liability, the Developer shall furnish the Owner with a copy of its contracts with the said
buyers on a month-to-month basis.

Viewed in the light of the foregoing provision of the JVA, petitioner cannot avoid liability by
claiming that it was not in any way privy to the Contracts to Sell executed by PPGI and
respondents.

Moreover, a joint venture is considered in this jurisdiction as a form of partnership and is,
accordingly, governed by the law of partnerships. Under Article 1824 of the Civil Code of the
Philippines, all partners are solidarily liable with the partnership for everything chargeable
to the partnership, including loss or injury caused to a third person or penalties incurred due
to any wrongful act or omission of any partner acting in the ordinary course of the business
of the partnership or with the authority of his co- partners. Whether innocent or guilty, all the
partners are solidarily liable with the partnership itself.

IV. RIGHTS AND OBLIGATIONS OF THE PARTNER

● Rights of Partners
Ø Stratemeyer v. West 466 NE 2d 306

EUGENE STRATEMEYER, Plaintiff-Appellee, v. LARRY WEST, Defendant-Appellant.

466 N.E.2d 306 June 14, 1984.
JUSTICE KARNS

FACTS: A & L Farms, dissolved in December 1980, was a partnership that dealt in the purchase
and resale of farms in southern Illinois. West testified that he and Falconer entered into their
business in 1978 or 1979. The farms were purchased together, owned jointly as partnership
property, "cleaned up," farmed for a time, then resold for an even-split profit between the
partners. West described himself as "landowner" and Falconer as the tenant farmer and "general
manager" of the various farms purchased. West testified that Falconer managed the day-to-day
activity of the farms but had no authority to incur "major expenses." West described the
operation as "[p]retty much how a farm is run, you plant the seed and harvest it and sell it * * *."

In August 1980, plaintiff and Falconer consummated the contract whereby plaintiff would supply
materials and labor for grain bins on the Kayser Farms and the Prater Farm, both of which were
owned by the partnership at that time. The contract was signed by Alan Falconer. Stratemeyer
testified that he dealt exclusively with Falconer in this instance and did not talk to West about
these grain bins until after they were erected. Stratemeyer testified that it was his assumption at
the time that Falconer was contracting for A & L Farms: "I had sold these people a bin before, I
had no reason to believe that it was any other way. * * * Falconer had made the deal before and I
got my money." Further, Stratemeyer testified that he had no knowledge in August of Falconer's
alleged want of authority nor any knowledge of the eventual partnership dissolution.

West testified that he had no reason to obtain the bins since in August he was in the process of
dissolving the partnership. He denied ever talking to Falconer about building the bins. He
testified that the first time he saw or heard about the bins was after they were erected. He stated
that he considered the partnership dissolved in April 1980, but it was not formally dissolved until
December 1980. West further testified that the partnership previously owned the farms in
question but that he had acquired ownership following Falconer's bankruptcy, which occurred
after the bins had been built.

ISSUE: Whether or not the evidence is insufficient to sustain recovery on the theory of a
contract between plaintiff and the partnership. Defendant cites section 9 of the Uniform
Partnership Act for the proposition that absent proof of express authority, contracts made by a
partner are not binding on the firm unless the contract is made in the ordinary course of
partnership business.

HELD: NO. We do not accept this reasoning. Section 9 provides:

(1) Every partner is an agent of the partnership for the purpose of its business, and the act of
every partner, including the execution in the partnership name of any instrument, for apparently
carrying on in the usual way the business of the partnership of which he is a member binds the
partnership, unless the partner so acting has in fact no authority to act for the partnership in the
particular matter, and the person with whom he is dealing has knowledge of the fact that he has
no such authority.

Thus, an act of a partner in apparently carrying on in the usual way the business of the
partnership binds the partnership unless he has no authority and the third party has knowledge
that he has no authority. The existence of the partnership having been admitted, proof of express
authority was unnecessary. Rather, it was defendant's burden to establish no authority and
plaintiff's knowledge. Plaintiff, of course, must have established that Falconer's act was
apparently done in carrying on the business of the partnership in the usual way.

Here the record establishes conflicting accounts of the extent of Falconer's partnership authority.
West testified that Falconer did not have authority to contract for "major expenses" and that he
told Falconer this long ago. Yet, Falconer did have authority to generally manage the farms
purchased, and no other evidence of restricted authority was offered. Falconer testified that West
knew about the attempts to procure bins and had discussed and participated in the matter several
times himself. Stratemeyer testified that based on past experience he assumed Falconer had
authority and was unaware of his lack of authority. Where the evidence is conflicting, we must
defer to the trier of fact, who had a superior opportunity to observe the witnesses and assess their
testimony and credibility. We will not upset the trial court's implicit finding that Falconer was
authorized to transact the instant business for and on behalf of the partnership, as it does not
appear contrary to the evidence and indeed has support in the record. West need not have been
aware of the contract to be held liable on it.

Ø Cook v. Brundidge 533 SW2d 751

Cook vs. Brundidge, Fountain, Elliot &Churchill

533 S.W.2d 751 February 11, 1976.
Steakly, Justice

FACTS:

Warren Lyon was a partner of the law firm, Brundidge, Fountain, Elliot &Churchill, when he
represented Betty Cook in a divorce proceeding. He was also an officer and stockholder in Texas
Yummers. During a conference with Lyon concerning her divorce, Cook informed him that she,
together with her family members, were receiving approximately $60,000 from the sale of some
property. Lyon suggested several investments options and then told her about Yummers, a
fast-food franchise operation based in California, in which he had invested at allegedly
substantial profit.

Cook decided to invest in Yummers, and sent a check made payable to "Warren Lyon as
Attorney for Isabelle M. Griffin, Winifred Baker and Betty Cook." The check was received by
Lyon at the office of the law firm but there is no showing that the funds were deposited in or
handled by or through any account of the law firm.

Cook also loaned to Texas Yummers Corporation a minimum of $50,000 to be used in the
construction of a Yummers store in Dallas. Lyon represented that, as their attorney, he could
assure them that their interests were well-protected.

Because the loan was not paid when due, Lyon persuaded Cook, et. al to exchange their rights
under the loan for stock in Texas Yummers. Betty L. Cook, et al, agreed to the conversion.
However, Texas Yummers was thereafter adjudged bankrupt.

A suit was filed by Cook, seeking recovery of damages against the partnership law firm upon the
theory of vicarious liability for the acts of Lyon, a partner.
ISSUE:

May the client of a law firm, who suffered damages due to the non-legal action of a partner
during the existence of attorney-client relationship, hold the partnership vicariously liable?

HELD:

The fiduciary obligations of a law partnership set it apart from commercial partnerships.
Governing the issue at hand, i. e., the conditions to liability of a partnership for the acts of a
partner, Sections 9, 13 and 14 provide:

Sec. 9. (1) Every partner is an agent of the partnership for the purpose of its business, and the act
of every partner, including the execution in the partnership name of any instrument, for
apparently carrying on in the usual way the business of the partnership of which he is a member
binds the partnership, unless the partner so acting has in fact no authority to act for the
partnership in the particular matter, and the person with whom he is dealing has knowledge of
the fact that he has no such authority.

(2) An act of a partner which is not apparently for the carrying on of the business of the
partnership in the usual way does not bind the partnership unless authorized by the other
partners.

Sec. 13. Where, by any wrongful act or omission of any partner acting in the ordinary course of
the business of the partnership or with the authority of his co-partners, loss or injury is cause[d]
to any person, not being a partner in the partnership, or any penalty is incurred, the partnership is
liable therefor to the same extent as the partner so acting or omitting to act.

Sec. 14. The partnership is bound to make good the loss: (a) Where one partner acting within the
scope of his apparent authority receives money or property of a third person and misapplies it;
and
(b) Where the partnership in the course of its business receives money or property of a third
person and the money or property so received is misapplied by any partner while it is in the
custody of the partnership.

The extent of a partner’s authority is determined in essentially the same principles as that of an
agent: When a partner’s action appears to carry on “in the usual way the business of the
partnership”, then it follows that he was “acting within the scope of his apparent authority” and
the firm is bound to make good the loss occasioned by his conduct.
Between partners themselves, and between the firm and persons dealing with the firm, it must be
presumed that each partner is the agent of the firm, empowered to carry out its objects, and to
transact the business for which the partnership was formed, in the usual and customary way
pursued by other firms engaged in a like business; and, in the absence of restrictions on this
power, rights must be adjusted in view of its existence. Third persons dealing with a member of a
firm in reference to partnership matters, in the absence of power expressly conferred, must
recognize the fact that the partner's power to bind his firm is restricted to the doing of such things
as are within the scope of the particular business.

Between the partners themselves, and between the firm and persons dealing with it through a
partner, there is no doubt that the usages of firms engaged in the same character of business in
the same country, as well as the general usage of the firm in the conduct of its business, may be
looked to ascertain the implied powers possessed by a partner. If the power exercised in a given
case be one usually exercised by partners in a like business, all the members of the firm must be
supposed to have intended to confer a like power on each other. If the power be habitually
exercised by a partner, and acquiesced in by the other members of the firm, it is but fair to
conclude that the members of the firm intended it to be exercised.

Here, there was no evidence that the firm expressly authorized Lyon’s actions; nor was there
evidence that his actions were outside of his authority as member of the partnership. Hence,
Lyon’s actions must be considered in the light of whether they were impliedly authorized by the
firm, or appeared to carry on the usual business. The records do not definitely establish that the
firm is not accountable to Cook for Lyon’ acts.

Case remanded for trial.

Ø First National Bank v. District Court, 652 P2d 613

First Nat. Bank of Denver v. District Court

652 P.2d 613 (1982) October 18, 1982.
LEE, Justice.
FACTS:

The First National Bank brought a suit on a demand promissory note executed by Robert
Sanders, Paul Sanders, Lawrence Sanders, J.W. Skinner and Michael Bellamy. The court
rendered a decision against the defendants, and charged their partnership interests with
Quadrangle, Ltd., Saddleback, Ltd. and Grassroots Co. for the payment of the unsatisfied portion
of the judgment debt, costs, and interest.
The charging orders directed the partnerships to pay the bank all present and future shares of all
distributions, credits, drawings, or payments which would have been paid to the respective
named defendants for their interests in the partnerships, and shall continue until judgment was
satisfied in full. The order provided that: "Upon due application, any party may apply to this
Court for a further modification of this Order, and the Court retains jurisdiction."
Since no payment was made by the partnerships, the bank orally moved the court for execution
and sale of the partnership interests charged. The Court ordered the execution of the Judgment
Debtors' right, title and interest in the partnerships, which shall be sold at a public auction.

The defendants filed a motion for stay of execution on the ground that the sale will affect persons
who are not parties to the action. They claimed that the sale was void due to lack of notice and
hearing to those who would be affected. The court ordered the stay of execution.

ISSUE:

Is the court required to conduct another hearing, with due notice to the parties affected, in case
the partnership property charged with a partner’s debt will be the subject of an execution sale?

HELD:

Yes.
Section 7-60-128 provides that, “Interest subject to charging order. (1) On due application to a
court of competent jurisdiction by any judgment creditor of a partner, the court which entered the
judgment, order, or decree, or any other court, may charge the interest of the debtor partner with
payment of the unsatisfied amount of the judgment with interest thereon…”

The phrase “Upon due application” in the charging order means an application made to the court
upon adequate notice to the persons whose rights might be adversely affected by the grant of the
relief sought.

Here, the ex parte order for execution and sheriff's sale was improperly entered because it was
issued without due application to modify the court's earlier order charging the partnership
interests. Because of the nature of partnership property and the possible adverse impact that this
sale could have upon the non-defendant partners, if any, the court should have conducted another
hearing under with proper notice to the affected parties, to determine the propriety of allowing an
execution sale of the partnership interests in lieu of payments of the debtor partners' share of
partnership profits to the judgment creditor.

The rule that all property of the debtor is subject to execution and sale pursuant to a writ in order
to satisfy the judgment debt means that the district court was without power to limit the
substantive right granted by the legislature to a judgment creditor. However, such right may be
statutorily limited, as in this case.
The partnership property may only be charged with payment of the judgment debt after "due
application" with notice and hearing pursuant to section 7-60-128. In this setting the charging
order required payment of the partnership profits to the judgment creditor. Further modification
of the order as applied to the partnership interests was only available upon due application to the
trial court, which retained jurisdiction for that purpose. Due application required notice and
hearing pursuant to the directives of section 7-60-128. Thus, the order of court entered on the ex
parte motion for execution and sale of the partnership property was improper.

Ø Hodge v. Garett, 614 P2d 420

HODGE v. GARRETT
614 P2d 420 July 24,1980
Bistline, J.

FACTS:

Rex E. Voeller, the managing partner of the Pay-Ont Drive-In Theatre, entered to a contract with
Hodge for the sale of a small parcel of land belonging to the partnership. Voeller acted in the
name of the partnership and initiated written changes to the footage and price. The subject land
was not used in theatre operations, except that 20 ft area was used as the theatre’s driveway.

Voeller testified that he had told Hodge prior to signing that Hodge would have to present him
with a plat plan which would have to be approved by the partners before the property could be
sold. Hodge denied that a plat plan had ever been mentioned to him, and he claimed that Voeller
did not tell him that the approval of the other partners was needed until after the contract was
signed. Hodge also averred that he offered to pay Voeller the full purchase price when he signed
the contract, but Voeller told him that that was not necessary.

The trial court found that Voeller had actual and apparent authority to execute the contract on
behalf of the partnership, and that the contract should be specifically enforced.

The partners appealed, arguing that he did not have authority to sell the property and thatHodge
knew that he did not have such.

ISSUES

1. Does Voeller have express authority to enter to a contract for the sale of the land?
2. Does Voeller have an apparent authority to enter in such contract, i.e. he was conducting the
partnership business in the usual way?

HELD:

1. No.

At common law one partner could not, "without the concurrence of his co-partners, convey away
the real estate of the partnership, bind his partners by a deed, or transfer the title and interest of
his copartners in the firm real estate."

This rule was changed by the adoption of the Uniform Partnership Act. The relevant provisions
are:

I.C. s 53-310(1):"Where title to real property is in the partnership name, any partner may convey
title to such property by a conveyance executed in the partnership name; but the partnership may
recover such property unless the partner's act binds the partnership under the provisions of par. 1
of section 53-309, unless such property has been conveyed by the grantee or a person claiming
through such grantee to a holder for value without knowledge that the partner, in making the
conveyance, has exceeded his authority."

I.C. s 53-309(1): "Every partner is an agent of the partnership for the purpose of its business, and
the act of every partner, including the execution in the partnership name of any instrument, for
apparently carrying on in the usual way the business of the partnership of which he is a member
binds the partnership, unless the partner so acting has in fact no authority to act for the
partnership in the particular matter, and the person with whom he is dealing has knowledge of
the fact that he has no such authority."

If record title is in the partnership and a partner conveys in the partnership name, legal title
passes. But the partnership may recover the property (except from a bona fide purchaser from the
grantee) if it can show that:
a. the conveying partner was not apparently carrying on business in the usual way, or
b. he had in fact no authority and the grantee had knowledge of that fact.

The burden of proof with respect to authority is thus on the partnership. Thus, the contract is
enforceable if Voeller had the actual authority to sell the property, or, even if Voeller did not
have such authority, the contract is still enforceable if the sale was in the usual way of carrying
on the business and Hodge did not know that Voeller did not have this authority.
As to the question of actual authority, such must affirmatively appear. The authority of one
partner to make and acknowledge a deed for the firm will not be presumed. Nothing in this case
indicates that Voeller express authority to sell real property belonging to the partnership. There is
no evidence that Voeller had sold property belonging to the partnership in the past, and the
partnership was not engaged in the business of buying and selling real estate.

2. No.

The Trial Court found that Voeller was the exclusive, managing partner of the partnership and
had the full authority to make all decisions pertaining to the partnership affairs, including paying
the bills, preparing profit and loss statements, income tax returns, and the ordering of any goods
or services necessary to the operation of the business. HOWEVER, the court made no finding
that it was customary for him to sell real property, or even personal property belonging to the
partnership.

For a theater "carrying on in the usual way the business of the partnership" means running the
operations of the theater. It does not mean selling a parcel of property adjacent to the theater.

Here, the contract of sale stated that the land belonged to the partnership, and, even if Hodge
believed that Voeller as the exclusive manager had authority to transact all business for the firm,
Voeller still could not bind the partnership through a unilateral act which was not in the usual
business of the partnership.

Ø Backowski v. Solecki, 316 NW 2d 434

BACKOWSKI v. SOLECKI
316 N.W.2d 434 Decided January 19, 1982.
CYNAR, J.

FACTS:

H.S. & L. Investment Co., has for its partners, Henry Solecki, 60% and Stephen Backowski,
40%. H.S. & L. was engaged in the business of ownership and leasing of warehouse space.
Backowski filed a complaint against Solecki, alleging that the latter had deprived him of
partnership revenue and had refused to render an accounting.

During the pendency of the case, most of the tenants had vacated the warehouse, and the
partnership had defaulted on their land contract and tax payments. This prompted, Solecki to
execute a quitclaim deed and an assignment of the land contract purportedly on behalf of H.S. &
L. conveying the partnership’s interest in the property to Billmax Properties. By the terms of the
purchase agreement, Billmax paid the delinquent land contract payments and the back taxes. In
addition, Solecki received a check in the name of H.S. & L. for $10,000.

Backowski filed a motion to add Billmax as defendant on the case, alleging that the assignment
of the land contract and the quitclaim deed were executed without his consent.

ISSUE:
May a partner representing controlling interest, enter into a contract for the assignment of
partnership property in favor of third persons, without the consent of other partners?

HELD:

It is undisputed that the title to the property involved herein was in the partnership name and that
Solecki, a partner, conveyed title to such property by a conveyance executed in the partnership
name. Section 10 provides that: where title to real property is in the partnership name, any
partner may convey a title to such property by a conveyance executed in the partnership name,
however, the partnership may, at its option, recover the property unless (a) the partner's act binds
the partnership, i.e. usual way of partnership business or (b) the property has been conveyed to a
bona fide purchaser.

Every partner is an agent of the partnership for the purpose of its business, and the act of every
partner, including the execution in the partnership name of any instrument, for apparently
carrying on in the usual way the business of the partnership of which he is a member binds the
partnership, unless the partner so acting has in fact no authority to act for the partnership in the
particular matter, and the person with whom he is dealing has knowledge of the fact that he has
no such authority.

Solecki's act of conveying title to the warehouse property binds the partnership if this act was for
"apparently carrying on in the usual way the business of the partnership". If the conveyance was
made in the usual course of business it must then be determined whether, (a) Solecki had "in fact
no authority to act for the partnership in the particular matter", and (b) Billmax had "knowledge
of the fact that [Solecki] ha[d] no such authority". On the other hand, if it is found that the
conveyance was not for "apparently carrying on in the usual way the business of the
partnership", then under § 10 the partnership may recover the property as prayed for.

Even if this factual determination is made there is an additional question of fact necessary to the
resolution of this dispute. Section 9(2) provides: An act of a partner which is not apparently for
the carrying on of the business of the partnership in the usual way does not bind the partnership
unless authorized by the other partners; …”

The evidence presented in the case failed to support the conclusion that the property should
remain in Billmax when it had apparently found that the sale of the property by Solecki to
Billmax was "without legal efficacy". The case was remanded to the trial court for specific
findings of fact on the issues raised.

● Obligations of Partners
Ø Muñasque v. CA, G.R. No. L-39780, November 11, 1985

V. OBLIGATIONS OF THE PARTNERSHIP

VI. ENDING THE PARTNERSHIP

● Dissolution
Ø Rojas v. Maglana, G.R. No. 30616, December 10, 1990.
Ø LeMay Bank v. Lawrence, 710 SW2d 318
Ø Lange v. Bartlett 360 NW2d 702
Ø Yu v. NLRC, G.R. No. 97212, June 30, 1993
FACTS:
Petitioner Benjamin Yu was formerly the Assistant General Manager of the marble
quarrying and export business operated by Jade Mountain Products Company Limited.

Sometime in 1988, without the knowledge of Yu, the general partners and one limited
partner, sold and transferred their interests in the partnership to private respondent Willy
Co and to one Emmanuel Zapanta. The partnership now constituted solely by Co and
Zapanta continued to use the old firm name of Jade Mountain, though they moved the
firm's main office from Makati to Mandaluyong. The actual operations of the business
enterprise continued as before. All the employees of the partnership continued working
in the business, all, save petitioner Yu as it turned out.

Having learned of the transfer of the firm's main office, petitioner Benjamin Yu reported
to the Mandaluyong office for work and there met Co for the first time. Petitioner was
informed by Co that the latter had bought the business from the original partners and
that it was for him to decide whether or not he was responsible for the obligations of the
old partnership, including petitioner's unpaid salaries.
Yu filed a complaint for illegal dismissal and recovery of unpaid salaries. In due time,
Labor Arbiter rendered a decision holding that petitioner had been illegally dismissed.
On appeal, the National Labor Relations Commission ("NLRC") reversed the decision of
the Labor Arbiter and dismissed petitioner's complaint. Hence, this petition.

ISSUE:
W/N the partnership is dissolved.

RULING:
YES. The acquisition of 82% of the partnership interest by new partners, coupled with
the retirement or withdrawal of the partners who had originally owned such 82%
interest, was enough to constitute a new partnership. The occurrence of events which
precipitate the legal consequence of dissolution of a partnership do not, however,
automatically result in the termination of the legal personality of the old partnership.
Article 1829 of the Civil Code states that on dissolution the partnership is not
terminated, but continues until the winding up of partnership affairs is completed. In the
ordinary course of events, the legal personality of the expiring partnership persists for
the limited purpose of winding up and closing of the affairs of the partnership. In the
case at bar, it is important to underscore the fact that the business of the old partnership
was simply continued by the new partners, without the old partnership undergoing the
procedures relating to dissolution and winding up of its business affairs. Thus, not only
the retiring partners but also the new partnership itself which continued the business of
the old, dissolved, one, are liable for the debts of the preceding partnership.

NOTE:
The liability of the new partnership, upon the other hand, in the set of circumstances
obtaining in the case at bar, is established in Article 1840(1) of the Civil Code which
provides that creditors of the dissolved partnership are also creditors of the person or
partnership continuing the business when any partner retires and assigns his rights in
partnership property one or more third persons if the business is continued without
liquidation of the partnership affairs.

It is at the same time also evident to the Court that the new partnership was entitled to
appoint and hire a new general or assistant general manager to run the affairs of the
business enterprise take over.

● Winding-Up and Liquidation

Ø Villareal v. Ramirez, G.R. No. 144214, July 14, 2003
FACTS:
Petitioners formed a partnership for the operation of a restaurant and catering business
under the name "Aquarius Food House and Catering Services." Respondent Donaldo
Ramirez joined as a partner, his capital contribution of P250,000 was paid by his
parents, Respondents Cesar and Carmelita Ramirez.

After Jesus Jose withdrew from the partnership in January 1987, his capital contribution
of P250,000 was refunded to him in cash by agreement of the partners. In the same
month, without prior knowledge of respondents, petitioners closed down the restaurant,
allegedly because of increased rental. The restaurant furniture and equipment were
deposited in the respondents' house for storage.

Respondent spouses wrote petitioners, saying that they were no longer interested in
continuing their partnership or in reopening the restaurant, and that they were accepting
the latter's offer to return their capital contribution. They wrote another letter informing
petitioners of the deterioration of the restaurant furniture and equipment stored in their
house. She also reiterated the request for the return of their one-third share in the equity
of the partnership. The repeated oral and written requests were, however, left
unheeded.

Respondents subsequently filed a Complaint for the collection of a sum of money from
petitioners.

ISSUE:
W/N petitioners are liable to respondents for the latter's share in the partnership.

RULING:
NO. Respondents have no right to demand from petitioners the return of their equity
share. Except as managers of the partnership, petitioners did not personally hold its
equity or assets. The partnership has a juridical personality separate and distinct from
that of each of the partners. Since the capital was contributed to the partnership, not to
petitioners, it is the partnership that must refund the equity of the retiring partners.

Since it is the partnership, as a separate and distinct entity, which must refund the
shares of the partners, the amount to be refunded is necessarily limited to its total
resources. 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. In other words, it can only pay
out what it has in its coffers, which consists of all its assets. However, before the
partners can be paid their shares, the creditors of the partnership must first be
compensated. After all the creditors have been paid, whatever is left of the partnership
assets becomes available for the payment of the partners' shares.

Ø Mahan v. Mahan 489 P2d 1197

FACTS:
Plaintiff is the widow of Terrell B. Mahan, who died. When plaintiff married Terrell
Mahan in 1948, a construction and agriculture partnership existed between Terrell and
his brothers, Gordon and Merwin. However, Merwin withdrew from the partnership in
1962.The partnership was an equal one in the sense that the profits were divided on an
equal basis, first three ways, and then two.

In 1964, Terrell and his wife received a house worth $23,000, more or less, in exchange
for reducing their capital account to $23,000 less than Gordon's.

The partnership became inactive, and it remained inactive through Terrell's death in
1966. Gordon, the surviving partner, did nothing toward settling the affairs of the
partnership and accounting to the executrix until Terrell's widow brought this suit.
Plaintiff brought this action individually and as executrix of the estate of her deceased
husband. She sought an accounting and division of properties of a partnership in which
her husband had been a partner.

The Superior Court of Coconino County ruled that since Terrell's capital account was
reduced by $23,000 to $4,005.45 and was one-eighth of the value of the total capital
account ($31,308.06), Terrell's widow should receive, in distribution, one-eighth of
$33,274.31 or $4,159.29. Hence, this appeal.

ISSUE:
W/N liquidation should be had.

RULING:
YES. The surviving partner of a decedent may continue in possession of the partnership
property and settle its affairs, but the interest of decedent in the partnership shall be
included in the inventory and appraised as other property. The surviving partner shall
settle the affairs of the partnership without delay, account to the executor or
administrator and pay over such balances as may from time to time be payable to him
as the personal representative of decedent.

Upon application of the executor or administrator, the court may order the surviving
partner to render an account and if he neglects or refuses may compel such accounting
by attachment for contempt. The executor or administrator may maintain against the
surviving partner any action which decedent could have maintained.

The partnership assets must be liquidated, and that the general creditors be paid first. If
the assets are insufficient for this purpose, the estate and Gordon should be charged
equally for the losses. If the assets are more than sufficient then the surviving partner
should be paid first up to the amount of $23,297.16 to set off the withdrawal from the
capital account by Terrell. Any amount left over should be equally divided between
Terrell's estate and the surviving partner, Gordon Mahan.

VII. LIMITED PARTNERSHIP

● The Limited Partner

Ø Delaney v. Fidelity Lease, 526 SW 2d 543
FACTS:
Fidelity Lease Limited is a limited partnership to lease restaurant locations. It is
composed of 22 individual partners, and a corporate general partner, Interlease
Corporation. Interlease's officers, directors and shareholders were also limited partners
of Fidelity. In February of 1969, plaintiffs entered into an agreement with the limited
partnership, Fidelity, acting by and through its corporate general partner, Interlease, to
lease a fast-food restaurant to the partnership. In accordance therewith, plaintiffs built
the restaurant, but Fidelity failed to take possession or pay rent.

Plaintiffs brought suit for damages for breach of the lease agreement, naming as
defendants the limited partnership of Fidelity, Interlease, and all of its limited partners.
On plaintiffs' motion the cause against the limited partners individually, insofar as it
relates to their personal capacities and liabilities, was severed from the cause against
Fidelity and Interlease. In this severed cause, the trial court granted a take nothing
summary judgment for the limited partners.

Plaintiffs appealed only as to limited partners alleging that the three limited partners
controlled the business of the limited partnership, albeit through the corporate entity.
The defendant limited partners argue that they acted only through the corporation and
that the corporation actually controlled the business of the limited partnership.

ISSUE:
W/N the limited partners should be held liable as general partners.

RULING:
YES. The personal liability, which attaches to a limited partner when "he takes part in
the control and management of the business," cannot be evaded merely by acting
through a corporation.

It is difficult to separate their acts for they were at all times in the dual capacity of limited
partners and officers of the corporation. Apparently the corporation had no function
except to operate the limited partnership and Appellees were obligated to their other
partners to so operate the corporation as to benefit the partnership. Each act was done
then, not for the corporation, but for the partnership. Indirectly, if not directly, they were
exercising control over the partnership. Truly `the corporation fiction' was in this
instance a fiction.

Section 8 of Article 6132a simply provides that a limited partner who takes part in the
control of the business subjects himself to personal liability as a general partner. The
statute makes no mention of any requirement of reliance on the part of the party
attempting to hold the limited partner personally liable.

Ø Silvola v. Rowlett, 272 P. 2d 287

Facts:
McRea and Rowlett signed a certificate of limited partnership. Rowlett contributed personal
property valued at $9,000 and paid into the limited partnership the sum of $1,200, for which he
was to receive nine/twenty-fourths of the profits of the partnership. McRea was a general partner
therein, and Rowlett the sole limited partner.
Plaintiff had previously been in McRea's employment, and at the time of the formation of the
limited partnership was employed by McRea to keep the accounts and records thereof. Having at
that time knowledge of the certificate of limited partnership, he opened the books and records of
the partnership in accordance with the terms and conditions accompanying the formation thereof.
For a time Rowlett, being experienced in the auto repair business, acted as foreman in the
partnership repair shop. In all matters, he acted under the direction and control of McRea, who
approved all extensions of credit excepting to those persons personally known to Rowlett and to
whom he extended credit.
Silvola filed an action against Rowlett to recover an amount for accountancy services rendered to
McRea Motor Co., alleging that the latter was a general partner of the business. It is contended
that defendant is a general partner because he contributed services to the partnership and he took
part in the control of the business.
Issue: WON defendant is a general partner
Held: No, he is a limited partner.
The court ruled that the services rendered by defendant after the formation of the limited
partnership were not included in the "contributions" as that term is used in section 47, supra; we
further hold that defendant's services rendered as foreman in the repair shop of the partnership
did not deprive him of protection as a limited partner; and, further, that section 50, supra, does
not impose silence on a limited partner who has a material interest in the success of the
partnership business, especially so when his opinion and suggestions are sought by the general
partner.

Ø Gast v. Petsinger, 323A 2d. 371

Facts:
Gast worked in LNG Services as a project engineer with a salary of $15 000 a year. From
October 1969 to March 1971, when he severed his employment, he continued working without
pay. Upon tendering notice of termination, he submitted a claim for backpay and expenses. This
amount was never paid so he filed a complaint alleging that LNG Services is formally a limited
partnership, the only general partner named therein being Robert Petsinger. However, the other
named individual defendants, while ostensibly limited partners were by virtue of their
participation in the enterprise, acting as general partners and should thus be liable for his claim.

Issue: Whether or not said defendants were general partners

Held: No, they were not general partners

LNG Services is in conformity with the Uniform Limited Partnership Act. None of the powers
mentioned in the Limited Partnership Agreement exceed the degree of control which converts
the status of a limited partner to that of a general partner. Each of the limited partners in this case
contributed capital and enjoyed powers and rights which have been consistent with the concept
of limited partnership.

Ø Najim v. De Mesa, SEC Case No. 2526, September 21, 1987

Facts:
De Mesa, Najim, and Greenberg are partners of International Skill Development CO. Ltd. De
Mesa is a general partner while Najim and Greenberg are limited partners. Najim wrote De Mesa
a letter of formal notice of his withdrawal from their partnership. De Mesa then filed a petition
with SEC for the continuation of the partnership. He also sent a letter to SEC informing ot of the
withdrawal of Najim as a partner.

Issue: Whether an amendment of the articles of partnership for continuation of the business
operations of the said limited partnership be allowed to be registered

Held: Yes.
The intention of the remaining partners, De Mesa and Greenberg, to continue with the limited
partnership must be allowed by amending the Articles of Partnership. The amendment certificate
to be filed with the SEC may ether be for the continuation of the said partnership by the
remaining partners or the addition of another limited partner or general partner, with the consent
of the original partners in accordance with Articles 1849 and 1850.

Furthermore, the withdrawal of Najim who is a limited partner did not dissolve the partnership.
There is no provision in the Civil Code which provides that a withdrawal or retirement of a
limited partner/s shall dissolve a limited partnership.

[1] Cases indicated in the syllabus are required to be read in the original.