CLV Atp & JV With Codals 2018

ATENEO DE MANILA LAW SCHOOL
AGENCY &TRUSTS, PARTNERSHIPS DEAN CESAR L. VILLANUEVA

& JOINT VENTURES1 ATTY. JOSE U. COCHINGYAN III
FIRST SEMESTER, SY 2017-18 ATTY. TERESA V. TIANSAY
A. LAW ON AGENCY
I. NATURE AND OBJECT OF AGENCY
1. Definition of “Agency”; Parties in an Agency Relationship (Art. 1868)
Article 1868: 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. (1709a)
Under Article 1868, agency is a contract whereby “a person binds himself to render some
service or to do something in representation or on behalf of another, with the consent or authority
of the latter.”
Spanish term for “principal” is “mandante”; and among the terms used for “agent” are
“mandatario”, “factor”, “broker”, “attorney-in-fact”, “proxy”, “delegate” or “representative.”
2. Root and Objectives of Agency (Arts. 1317 and 1403[1])
Article 1317: No one may contract in the name of another without being authorized by the latter, or
unless he has by law a right to represent him.
A contract entered into in the name of another by one who has no authority or legal representation, or
who has acted beyond his powers, shall be unenforceable, unless it is ratified, expressly or impliedly, by
the person on whose behalf it has been executed, before it is revoked by the other contracting party.
(1259a)
Article 1403: The following contracts are unenforceable, unless they are ratified:
(1) Those entered into in the name of another person by one who has been given no authority
or legal representation, or who has acted beyond his powers;
xxx
General rule is that what a man may do in person he may do through another. Thus, a
stockholder’s right of inspection can be exercised either by himself or through an attorney-in-fact.
xPhilpotts v. Phil. Mfg. Co., 40 Phil 471 (1919).
Underlying principle of the contract of agency is to accomplish results by using the services of
others—to do a great variety of things. Its aim is to extend the personality of the principal or the
party for whom another acts and from whom he or she derives the authority to act. xWestmont
Investment Corp. v. Francis, Jr., 661 SCRA 787 (2011).
A contract entered into in the name of another by one who has no authority, or who has acted
beyond his powers, shall be unenforceable, unless it is ratified, expressly or impliedly, by the
person on whose behalf it has been executed, before it is revoked by the other contracting party,”
pursuant to Article 1317 and 1403 (1) of the Civil Code. One can sell only what one owns or is
authorized to sell, and the buyer can acquire no more right than what the seller can transfer
legally. Accordingly, Spouses Bitte acquired no better title than what Andrea had over the
property, which was nil. xBitte v. Jonas, 777 SCRA 489 (2015).2
3. Elements of the Contract of Agency

Rallos v. Felix Go Chan & Sons Realty Corp., 81 SCRA 251 (1978):
(a) Consent, express or implied, of the parties to establish the relationship;
(b) Object, which is the Execution of Juridical Acts in Relation to Third Parties;
(c) Agent acts as a representative and not for himself; and
1
Unless otherwise indicated, all references to articles pertain to the New Civil Code of the Philippines.
2MCIAA v. Heirs of Gavina Jjordan, 778 SCRA 250 (2016).
(d) Agent acts within the scope of his authority.3
a. CONSENT (Arts. 1317 and 1403[1])
(1259a)
(1) Those entered into in the name of another person by one who has been given no authority
or legal representation, or who has acted beyond his powers;
xxx
The basis for agency is representation; there must be an actual intention on principal’s part to
appoint, or an intention naturally inferable from his words or actions; on agent’s part, there must
also be an intention to accept the appointment and act on it; in the absence of such intent, there
is no agency. xDominion Insurance Corp. v. CA, 376 SCRA 239 (2002).4
In agency, principal’s personality is extended through the facility of the agent, who by legal
fiction becomes the principal, authorized to perform all acts which latter would have him do. Such
a relationship can only be effected with principal’s consent, which must not, in any way, be
compelled by law or by any court. xLitonjua, Jr. v. Eternit Corp., 490 SCRA 204 (2006).
b. SUBJECT MATTER: Service – Execution of Juridical Acts in Behalf of Principal

and Within the Scope of Authority
It is clear from Art. 1868 that the basis of agency is representation. One factor which most
clearly distinguishes agency from other legal concepts is control: the agent agrees to act under
the control or direction of the principal; indeed, the very word “agency” has come to connote
control by the principal. xVictorias Milling Co. v. CA, 333 SCRA 663 (2000).5
No contract of agency exists where a common carrier leases the trucks of another carrier, for
there is no power of representation by one with respect to the other nor do the terms of agreement
provide for any authority to represent the other. xLoadmasters Customs Services v. Glodel
Brokerage Corp., 639 SCRA 69 (2011).
c. CONSIDERATION: Agency Presumed to Be for Compensation,
Unless There Is Proof to the Contrary(Art. 1875)
Article 1875: Agency is presumed to be for a compensation, unless there is proof to the contrary. (n)
Old Civil Code: Service rendered by the agent was deemed to be gratuitous; if it were true that
agent and principal had an understanding that the agent was to receive compensation aside from
the use and occupation of the houses of the deceased, it cannot be explained how the agent
could have rendered services for eight years without receiving and claiming any compensation
from the deceased. xAguña v. Larena, 57 Phil 630 (1932).
Prescinding from the obligatory force of agency, the fact that “other agents” intervened in the
consummation of the sale and were paid their respective commissions could not vary the terms
of the agency with the plaintiff-agent who remains entitled to a 5% commission based on the
selling price. xDe Castro v. Court of Appeals, 384 SCRA 607 (2002).
4. ESSENTIAL CHARACTERISTICS OF AGENCY

a. Nominate and Principal
Acts done by one person in behalf of another who authorized such acts is the essential nature
one of agency—it will be an agency whether or not parties understood the exact nature of the
relation. Also, the fact that two agents enter into a contract of behalf of their principals, even if
principals do not actually and personally know each other, does not affect their juridical standing
3Reiterated in Yu Eng Cho v. Pan American World Airways, 328 SCRA 717 (2000); Manila Memorial Park v. Linsangan, 443 SCRA 377
(2004); Eurotech Industrial Technologies v. Cuizon, 521 SCRA 584 (2007); Loadmasters Customs Services v. Glodel Brokerage Corp., 639
SCRA 69 (2011); Urban Bank v. Pena, 659 418 (2011); Westmont Investment Corp. v. Francis, Jr., 661 SCRA 787 (2011); Villoria v. Continental
Airlines, 663 SCRA 57 (2012); Jusayan v. Sombilla, 746 SCRA 437 (2015).
4Urban Bank v. Peña, 659 SCRA 418 (2011).
5Amon Trading Corp. v. CA, 477 SCRA 552 (2005).
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as agents, since the very purpose of agency is to extend principal’s personality of through the
facility of the agent. xDoles v. Angeles, 492 SCRA 607 (2006).
Even when the Agreement provides that the manager shall be considered an independent
contractor and not an agent, nonetheless since the manager is expressly authorized to solicit and
remit offers to purchase interments spaces, it covers an agency arrangement. xManila Memorial
Park Cemetery, Inc. v. Linsangan, 443 SCRA 377 (2004).
b. Unilateral6and Primarily Onerous (Art. 1875)
Agency is presumed to be for compensation; when agent performs services for principal at
latter’s request, principal’s intent to compensate the agent will be inferred from the principal's
request for the agent’s service. xUrban Bank v. Peña, 659 SCRA 418 (2011).
c. Consensual (Arts. 1869 and 1870)
Article 1869: Agency may be express, or implied from the acts of the principal, from his silence or lack
of action, or his failure to repudiate the agency, knowing that another person is acting on his behalf
without authority.
Agency may be oral, unless the law requires a specific form. (1710a)
Article 1870: Acceptance by the agent may also be express, or implied from his acts which carry out the
agency, or from his silence or inaction according to the circumstances. (n)
In Agency, principal’s personality is extended through the facility of the agent—who, by legal
fiction, becomes the principal, authorized to perform all acts which the latter would have him do.
Such a relationship can only be effected with the consent of the principal, which must not, in any
way, be compelled by law or by any court. Orient Air Services v. Court of Appeals, 197 SCRA
645 (1991).7
An agency may be expressed or implied from the principal’s act, from his silence or lack of
action, or failure to repudiate the agency. Litonjua, Jr. v. Eternit Corp., 490 SCRA 204 (2006).
d. Personal, Representative and Derivative (Art. 1868)
Article 1868: 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. (1709a)
Agency is basically personal, representative, and derivative in nature. The authority of the
agent emanates from the powers granted to him by his principal; his act is the act of the principal
if done within the scope of the authority. Qui facit per alium facit per se. “He who acts through
another acts himself.” Consequently, agency is extinguished by the death of the principal or
agent.Rallos v. Felix Go Chan & Sons Realty Corp., 81 SCRA 251 (1978)
CONSEQUENTLY:
 A co-owner does not become an agent of other co-owners, and any exercise of an option
to buy a piece of land transacted with one co-owner does not bind other co-owners. The
most prudent thing for buyer should have done was to ascertain the extent of said co-
owner’s authority; being negligent, buyer cannot seek relief on the basis of a supposed
agency. xDizon v. Court of Appeals, 302 SCRA 288 (1999).
 Art. 1897 reinforces the doctrine that an agent is not personally liable to the party with whom
he contracts; it is the principal who is liable on the contracts of the agent. xEurotech
Industrial Technologies, Inc. v. Cuizon, 521 SCRA 584 (2007).8
 When an agent purchases the property in bad faith, the principal is deemed a purchaser in
bad faith. xCaram, Jr. v. Laureta, 103 SCRA 7 (1981).
 Under principle that knowledge of agent is knowledge by principal, spouses cannot contend
lack of knowledge of the rules upon which they received their tickets from the airline
company since their travel agent, who handled their travel arrangements, was duly informed
by the airline representatives. xAir France v. CA, 126 SCRA 448 (1983).
6A unilateral contract has been defined as “A contract in which one party makes a promise or undertakes a performance.” Thus, it was
observed that “[M]any unilateral contacts are in reality gratuitous promises enforced for good reason with no element of bargain.” [BLACK’S LAW
DICTIONARY 326 (1990)] It is perhaps in this sense that agency is unilateral because it is the agent who undertakes the performance of the
agency. However, one must not forget that agency is still a contract with a bilateral character. Manresa explains: “As regards whether the
agency has a unilateral or bilateral character, it is evident, in our considered opinion, from the point of view of the Code, that the totality of
cases involving agency will always be bilateral, not because, as one ordinarily supposes, there will be obligations exclusively for the agent and
rights exclusively for the principal. It is clear that at times it happens this way, but what is common in agency with other contracts is the
mutuality and the reciprocity that arises from the existence of an obligation against another obligation, a right against another right.”11 MANRESA.
COMENTARIOS AL CODIGO CIVIL ESPAÑOL 443 (1950)
7Litonjua, Jr. v. Eternit Corp., 490 SCRA 204 (2006); Villoria v. Continental Airlines, 663 SCRA 57 (2012).
8Tan v. Engineering Services, 498 SCRA 93 (2006); Country Bankers Insurance v Keppel Cebu Shipyard, 673 SCRA 427 (2012).

 There is a rationale in the contract of agency, which flows from the “doctrine of
representation,” that notice to the agent is notice to the principal. xBank of P.I. v. Laingo,
787 SCRA 541 (2016).
e. Fiduciary and Revocable
The relationship of the agent and the principal fiduciary and in regard to the property forming
the subject matter thereof, he is estopped from acquiring or asserting a title adverse to that of the
principal. xSeverino v. Severino, 44 Phil. 343 (1923).
Agency is generally revocable as it is a personal contract of representation based on trust and
confidence reposed by the principal on his agent. As the power of the agent to act depends on
the will and license of the principal he represents, the power of the agent ceases when the will or
permission is withdrawn by the principal. Thus, generally, the agency may be revoked by the
principal at will. xRepublic v. Evangelista, 466 SCRA 544 (2005).
f. Agency Is a “Preparatory Contract”
5. DISTINGUISHED FROM OTHER SIMILAR CONTRACTS:

a. FROM BROKERAGE
Difference in the Nature of the “Service” Covered: Real estate broker is one who negotiates
the sale of real properties. His business is only to find a purchaser who is willing to buy the land
upon terms fixed by the owner. He has no authority to bind the principal by signing a contract of
sale. Indeed, an authority to find a purchaser of real property does not include an authority to sell.
xLitonjua, Jr. v. Eternit Corp., 490 SCRA 204 (2006).9
On the Duties and Obligations Assumed: “The duties and liability of a broker to his employer
are essentially those which an agent owes to his principal. Consequently, the decisive legal
provisions on determining whether a broker is mandated to give to the employer the propina or
gift received from the buyer would be Articles 1891 and 1909 of the Civil Code.” (NOTE: Yet the
facts did indicate clearly that the real estate broker was appointed as an exclusive agent.)
xDomingo v. Domingo, 42 SCRA 131 (1971).
Since brokerage relationship is necessarily a contract for the employment of an agent,
principles of contract law also govern the broker-principal relationship [?]. xAbacus Securities
Corp. v. Ampil, 483 SCRA 315 (2006).
Entitlement to the Commission Agreed Upon: Agent receives a commission upon successful
conclusion of a sale; whereas, broker earns his pay merely by bringing the buyer and the seller
together, even if no sale is eventually made. [?] xHahn v. Court of Appeals, 266 SCRA 537 (1997);
Tan v. Gullas, 393 SCRA 334 (2002).
A real estate broker’s business is only to find a bona fide purchaser. The settled rule is that, in
the absence of an express stipulation on the matter, the broker becomes entitled to the usual
commissions only when he brings to his principal a party who is able and willing to take the
property and enter into a valid contract upon the terms then named by the principal, although the
particulars may be arranged and the matter negotiated and completed between the principal and
the purchaser directly. Macondray& Co. v. Sellner, 33 Phil. 370 (1916).
Thus, when the terms of the brokerage arrangement is to the effect that entitlement to the
commission was contingent on the purchase by a customer of a fire truck, the implicit condition
being that the broker would earn the commission if he was instrumental in bringing the sale about.
Since the agent had nothing to do with the sale of the fire truck, he is not entitled to any
commission at all. Guardex v. NLRC, 191 SCRA 487 (1990).
Doctrine of “Efficient Procuring Cause” –In agencies to sell where the entitlement of the
commission is subject to the successful consummation of the sale with the buyer located by agent,
said agent would still be entitled to the commission on sales consummated after the expiration of
his agency when the facts show that the agent was the “efficient procuring cause in bringing about
the sale”. Pratts v. Court of Appeals, 81 SCRA 360 (1978).
Although sale of object of agency was perfected three days after expiration of the agency,
agent would still be entitled to receive commission stipulated based on doctrine in Pratts v. Court
of Appeals, 81 SCRA 360 (1978), that when agent was the efficient procuring cause in bringing
about the sale he was entitled to compensation.Manotok Bros. Inc. v. Court of Appeals, 221
SCRA 224 (1993).
Although buyer was introduced by broker to seller, nonetheless broker was not entitled to
commission even with the consummation of the sale because the lapse of the period of more than
one (1) year and five (5) months between the expiration of broker’s authority to sell and the
consummation of the sale to the buyer, is significant index of the broker’s non-participation in the
9Schmid and Oberly, Inc. v. RJL Martinez, 166 SCRA 493 (1988).

really critical events leading to the consummation of said sale. Broker was not the efficient
procuring cause in bringing about the sale and therefore not entitled to the stipulated broker’s
commission. Inland Realty v. Court of Appeals, 273 SCRA 70 (1997).
“Procuring cause”, in describing a broker’s activity, refers to a cause originating a series of
events which, without break in their continuity, result in the accomplishment of the prime objective
of the employment of the broker—producing a purchaser ready, willing and able to buy on the
owner’s terms. 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. Medrano v. Court of Appeals, 452 SCRA 77 (2005).10
b. From Employment Contract
The relationship between corporation which owns and operates a theatre, and security guard
it hires to maintain the peace and order at the entrance of the theatre is not that of principal and
agent, because the principle of representation was in no way involved. xDela Cruz v. Northern
Theatrical Enterprises, 95 Phil 739 (1954).11
The concept of a single person having the dual role of agent and employee while doing the
same task is a novel one in our jurisprudence, which must be viewed with caution especially when
it is devoid of any jurisprudential support or precedent. Read without any clear understanding
of fine legal distinctions, appears to speak of control by insurance company over its agents. They
are, however, controls aimed only at specific results in undertaking an insurance agency, and are,
in fact, parameters set by law in defining an insurance agency and the attendant duties and
responsibilities an insurance agent must observe and undertake. They do not reach the level of
control into the means and manner of doing an assigned task that invariably characterizes an
employment relationship as defined by labor law. xTongko v. Manufacturers Life Insurance Co.
(Phils.), 640 SCRA 395 (2011).
c. From Contract for a Piece-of-Work

That operator owed his position to the company which could remove or terminate him at will;
that the service station belonged to the company and bore its trade name and operator sold only
the products of the company; that equipment used by operator belonged to the company and
were just loaned to operator and company took charge of their repair and maintenance; that an
employee of the company supervised operator and conducted periodic inspection of the
company’s gasoline and service station; that the price of the products sold by the operator was
fixed by the company and not by the operator; the finding of the Court of Appeals that the operator
was an agent of the company and not an independent contractor should not be disturbed. xShell
v. Firemen’s Ins. Co., 100 Phil 757 (1957).
d. Agency to Sell Differentiated from a Contract of Sale
When agency agreement compels agent to pay for the products received from principal within
the stipulated period, even when there has been no sale thereof to the public, the relationship is
not one of agency to sell, but one of actual sale. A true agent does not assume personal
responsibility for the payment of the price of the object of the agency; his obligation is merely to
turn-over to the principal the proceeds of the sale once he receives them from the buyer.
Consequently, since the underlying agreement is not an agency agreement, it cannot be revoked
at the will of the principal. xQuiroga v. Parsons, 38 Phil 502 (1918).
When under the agreement the agent becomes responsible for any changes in the acquisition
cost of the object he has been authorized to purchase from a supplier in the United States, the
underlying agreement is not an contract of agency to buy, since a true agent does not bear any
risk relating to the subject matter or the price. Being a contract of sale and not agency, any profits
realized by the purported agent from discounts received from the American supplier pertained to
it with no obligation to account for it, much less to turn it over, to the purported principal. xGonzalo
Puyat v. Arco, 72 Phil. 402 (1941).
Primordial difference between a sale and an agency to sell is the transfer of ownership or title
over the subject property. In an agency, the principal retains ownership and control over the
property and the agent merely acts on the principal's behalf and under his instructions in
furtherance of the objectives for which the agency was established. On the other hand, the
contract is clearly a sale if the parties intended that the delivery of the property will effect a
relinquishment of title, control and ownership in such a way that the recipient may do with the
property as he pleases. xSpouses Viloria v. Continental Airlines, 663 SCRA 57 (2012).
e. From Agricultural Tenancy
There is no agency relationship existing in a tenancy arrangement over agricultural
land, since the tenant farmer, who has possession of the land, acts for his sole benefit
10Reiterated in Phil. Healthcare Providers (Maxicare) v. Estrada, 542 SCRA 616 (2008).
11Mamaril v. Boy Scouts of the Philippines, 688 SCRA 437 (2013).

and has sole discretion in all matters of agricultural production. He is not under the
control of landowner, whose only right is to demand delivery of agreed number of
cavanes of palay, with no say on how cultivation could be improved to have better
yields. xJusayan v.Sombilla, 746 SCRA 437 (2015).
II. FORMS AND KINDS OF AGENCY

1. How Agency May Be Constituted (Art. 1869)
without authority.
There are legal provisions which require certain contractual formalities: First, when form is
required for the validity of the contract; second, when it is required to make the contract effective
as against third parties; third, when the form is required for the purpose of proving the contract’s
existence. A contract of agency to sell on commission basis does not belong to any of these three
categories, hence it is valid and enforceable in whatever form in may be entered into.
Consequently, when the agent signs her signature on any face of the receipt showing that she
receives the jewelry for her to sell on commission, she is bound to the obligations of an agent.
Lim v. Court of Appeals, 254 SCRA 170 (1996).
Where there is no showing that Brigida consented to or authorized Deganos’ acts, any attempt
to foist liability on her through the supposed agency relation with Deganos is groundless. It was
grossly negligent of petitioners to entrust to Deganos, not once or twice but on at least six
occasions as evidenced by receipts, several pieces of jewelry of substantial value without
requiring a written authorization from his alleged principal. Bordador v. Luz, 283 SCRA 374
(1997).
2. a. From Side of the Principal (Art. 1869)
without authority.
Where buyers failed for several years to clear their title to the property purchased, and allowed
seller-a-retro to remain in possession in spite of expiration of redemption period, execution of
memorandum of repurchase by buyers’ son-in-law, which stood for years unrepudiated,
constituted an implied agency under Art.1869, from their silence or lack of action,. xConde v.
Court of Appeals, 119 SCRA 245 (1982).
Where the principal has acquiesced in the act of his agent for a long period of time, and has
received and appropriated to his own use the benefits result in from the acts of his agent, courts
cannot declare the acts of the agent null and void. xLinan v. Puno, 31 Phil. 259 (1915).
Agency can be express or implied from the acts of the principal, from his silence or lack of
action, or his failure to repudiate the agency knowing that another person is acting on his behalf
without authority. The question of whether an agency has been created is ordinarily a question
which may be established in the same way as any other fact, either by direct or circumstantial
evidence. The question is ultimately one of intention and may be inferred from all the dealings
between the parties. In this case, the bank client had an ongoing arrangement with the bank
officer to use her savings account to render bridge financing to bank customers who were waiting
for the release of their funds from the bank. Clearly, an agency was formed because the bank
officer bound herself in consideration for a percentage of the profit as her commission, to render
some service in representation of the client, in the furtherance of their business pursuit. xOliver
v. Philippine Savings Bank, 788 SCRA 189 (2016).
b. From Side of the Agent (Arts. 1870, 1871 and 1872)
Article 1870: Acceptance by the agent may also be express, or implied from his acts which carry out the
agency, or from his silence or inaction according to the circumstances. (n)
Article 1871: Between persons who are present, the acceptance of the agency may also be implied if
the principal delivers his power of attorney to the agent and the latter receives it without any objection.
(n)

Article 1872: Between persons who are absent, the acceptance of the agency cannot be implied from
the silence of the agent, except:
(1) When the principal transmits his power of attorney to the agent, who receives it without any objection;
(2) When the principal entrusts to him by letter or telegram a power of attorney with respect to the
business in which he is habitually engaged as an agent, and he did not reply to the letter or telegram. (n)
Whether or not an agency has been created is determined by the fact that one is representing and
acting for another. The law makes no presumption of agency; proving its existence, nature and extent
is incumbent upon the person alleging it. xUrban Bank v. Peña, 659 SCRA 418 (2011).
Whether or not an agency has been created is determined by the fact that one is representing
and acting for another. xJusayan v. Sombilla, 746 SCRA 437 (2015).
c. From Side of Third Parties/Public (Arts. 1873 and 1408; 1921 and 1922)
Article 1873: If a person specially informs another or states by public advertisement that he has given a
power of attorney to a third person, the latter thereby becomes a duly authorized agent, in the former
case with respect to the person who received the special information, and in the latter case with regard
to any person.
The power shall continue to be in full force until the notice is rescinded in the same manner in which it
was given. (n)
Article 1408: Unenforceable contracts cannot be assailed by third persons.
Article 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. (1734)
Article 1922: If the agent had general powers, revocation of the agency does not prejudice third persons
who acted in good faith and without knowledge of the revocation. Notice of the revocation in a newspaper
of general circulation is a sufficient warning to third persons. (n)
(i) Agency Is Not Presumed to Exist – Since the basis for agency is representation, every
person dealing with an agent is put upon inquiry and must discover upon his peril the authority of
the agent. xSafic Alcan & Cie. v. Imperial Vegetable Oil Co., Inc., 355 SCRA 559
(2001).CONSEQUENTLY:
 The law does not make a presumption of agency and proving its existence, nature and
extent is incumbent upon the person alleging it. xYun Kwan Byung v. PAGCOR, 608
SCRA 107 (2009).12
 Persons dealing with an agent must ascertain not only the fact of agency, but also the
nature and extent of his authority—he must require the presentation of the power of
attorney, or the instructions as regards the agency. According to Art.1990 of New Civil
Code, insofar as third persons are concerned, an act is deemed to have been performed
within the scope of the agent’s authority, if such as is within the terms of the power of
attorney, as written. Salvador v. Rabaja, 749 SCRA 654 (2015).13
(ii) Agency by Estoppel With Respect to Third Parties – Registered owner who placed in the
hands of another an executed deed of transfer of the registered land, has effectively
represented to a third party that the holder of such document is authorized to deal with the
property. xBlondeau v. Nano, 61 Phil. 625 (1935).14CONSEQUENTLY:
 When owner of a hotel/café business allows a person to use the title “managing agent”
and allows such person to take charge of the business during his prolonged absence,
performing the duties usually entrusted to managing agent, then such owner is bound by
the act of such person. “One who clothes another apparent authority as his agent, and
holds him out to the public as such, can not be permitted to deny the authority of such
person to act as his agent, to the prejudice of innocent third parties dealing with such
person in good faith and in the following pre-assumptions or deductions, which the law
expressly directs to be made from particular facts, are deemed conclusive.” xMacke v.
Camps, 7 Phil 522 (1907).
 When the law firm has allowed for quite a period the messenger of another office to
receive mails and correspondence on their behalf, an implied agency had been duly
12
Nevada v. Casuga, 668 SCRA 441 (2012); Jusayan v. Sombilla, 746 SCRA 437 (2015).
13Woodschild Holdings, v. Roxas Electric and Construction Co., 436 SCRA 235 (2004); Manila Memorial Park v. Linsangan, 443 SCRA 377
(2004); Country Bankers Insurance v Keppel Cebu Shipyard, 673 SCRA 427 (2012); Umipig v. People, 677 SCRA 53 (2012); Recio v. Heirs
of Spouses Altamirano, 702 SCRA 137 (2013); Bautista-Spille v. NICORP Management and Dev. Corp., 773 SCRA 67 (2015).
14Domingo v. Robles, 453 SCRA 812 (2005).

constituted, specially when there is no showing that counsel had objected to such practice
or took step to put a stop to it. xEquitable PCI-Bank v. Ku, 355 SCRA 309 (2001).
 Agency by estoppel, which is similar to doctrine of apparent authority, requires proof of
reliance upon the representations made by purported principal, which needs proof that
the representations predated the action taken by the relying third party.Country
Bankers Insurance v Keppel Cebu Shipyard, 673 SCRA 427 (2012).
 Assuming that Hojilla exceeded his authority, the respondents are still solidary liable
because they allowed Hojilla to act as though he had full powers by impliedly ratifying his
actions – through action by omission. This is the import of the principle of agency by
estoppel or the doctrine of apparent authority, “[t]he principal is bound by the acts of his
agent with the apparent authority which he knowingly permits the agent to assume, or
which he holds the agent out to the public as possessing. The respondents’ acquiescence
of Hojilla’s acts was made when they failed to repudiate the latter’s acts. They knowingly
permitted Hojilla to represent them and petitioners were clearly misled into believing
Hojilla’s authority. Republic v. Bañez, 772 SCRA 297 (2015).
2. KINDS OF AGENCY
a. Based on Business or Transactions Encompassed (Art. 1876): General or Universal
Agency versus Special or Particular Agency
Article 1876: An agency is either general or special.

The former comprises all the business of the principal. The latter, one or more specific transactions.
(1712)
Siasat v. IAC, 139 SCRA 238 (1985) describes them as follows:
 Universal Agent is authorized to do all acts for his principal which can lawfully be delegated
to an agent; such an agent may be said to have universal authority.
 General Agent is authorized to do all acts pertaining to a business of a certain kind or at a
particular place, or all acts pertaining to a business of a particular class or series. He has
usually authority expressly conferred in general terms or in effect made general by the
usages, customs or nature of the business which he is authorized to transact.
 Special Agent is authorized to do some particular act or to act upon some particular
occasion; he acts usually in accordance with specific instructions or under limitations
necessarily implied from the nature of the act to be done.
b. Whether It Covers Legal Matters: Attorney-at-Law versus Attorney-in-Fact

The relation of attorney and client is in many respects one of agency, and the general rules of
agency apply to such relation; the acts of an agent are deemed the acts of the principal only if the
agent acts within the scope of his authority. Therefore, only the employee-client, not his counsel,
can impugn the consideration of the compromise as being unconscionable. On the other hand,
although a client has undoubtedly the right to compromise a suit without the intervention of his
lawyer, the same cannot be done to defraud the lawyer of the earned attorney’s fees. xJ-Phil
Marine v. NLRC, 561 SCRA 675 (2008).
An attorney cannot, without a client’s authorization, settle the action or subject matter of the
litigation, even when he believes that such a settlement will best serve his client’s interest. xPhil.
Aluminum Wheels, Inc. v. FASGI Enterprises, Inc., 342 SCRA 722 (2000).
A law firm acting as counsel for one of the parties in the intestate proceedings cannot file a
petition for certiorari before the Court of Appeals to protect its own interest. Under the law of
agency, an agent is not personally liable for the obligations of the principal unless he performs
acts outside the scope of his authority or he expressly binds himself to be personally liable.
Otherwise, the principal is solely liable. Here, there was no showing that SRMO bound itself
personally for Gerardo’s obligations. SRMO also acted with the bounds of the authority issued by
Gerardo, as the transferee pendent lite of the widow’s interest, to receive the payment. xSiquion
Reyna Monecillo and Ongsiako Law officers v. Chinlo-Sia, 783 SCRA 56 (2016).
c. Whether It Covers Acts of Administration or Acts of Dominion: General Power of

Attorney versus Special Power of Attorney
(1) Formal Requisite: Must Be in Writing and Signed by Principal –When no particular
formality is required by law, then the principal may appoint his agent in any form which might
suit his convenience or that of the agent, in this case a letter addressed to the agent
requesting him to file a protest in behalf of the principal with the Collector of Customs against
the appraisement of the merchandise imported into the country by the principal. xKuenzle
and Streiff v. Collector of Customs, 31 Phil 646 (1915).

A power of attorney to convey real property need not be in a public document, it need only
be in writing, since a private document is competent to create, transmit, modify, or extinguish a
right in real property. xJimenez v. Rabot, 38 Phil 378 (1918).
The dated letter relied upon by the petitioners was signed by Fernandez alone, without any
authority from the owners. There is no actuation of Fernandez in connection with her dealings
with the petitioners. As such, said letter is not binding on the respondents as owners of the
subject properties. xLitonjua v. Fernandez, 427 SCRA 478 (2004).
In a case involving authority to act in baranggay conciliation cases covering an ejectment for
failure to pay rentals: “A power of attorney is an instrument in writing by which one person, as
principal, appoints another as his agent and confers upon him the authority to perform certain
specified acts or kinds of acts on behalf of the principal. The written authorization itself is the
power of attorney, and this is clearly indicated by the fact that it has also been called a “letter of
attorney.” xWee v. De Castro, 562 SCRA 695 (2008).
(2) How Powers of Attorney Construed or Interpreted

General rule is that a power of attorney must be strictly construed; it will be held to grant only
those powers that are specified, and the agent may neither go beyond nor deviate from the
power of attorney. xOlaguer v. Purugganan, Jr., 515 SCRA 460 (2007).
Contracts of agency and general powers of attorney, must be interpreted in accordance with
the language used by the parties—the real intention of the parties is primarily to be determined
from the language used, and to be gathered from the whole instrument. In case of doubt, resort
must be had to the situation, surroundings, and relations of the parties. Whenever it is possible,
effect is to be given to every word or clause used by the parties, for it is to be presumed that the
parties said what they intended to say and that they used each word or clause with sole purpose,
and that purpose is, if possible, to be ascertained and enforced. If the contract be open to two
constructions, one of which would while the other would overthrow it, the former is to be chosen;
if by one construction the contract would be illegal, and by another equally permissible
construction would be lawful, the latter must be adopted. The acts of the parties will be presumed
to be done in conformity with and not contrary to the intent of the contract. The meaning of
general words must be construed with reference to the specific object to be accomplished and
limited by the recitals made in reference to such object. xLinan v. Puno, 31 Phil. 259 (1915).
(3) Notarized Power of Attorney

When a special power of attorney is duly notarized, the notarial acknowledgment is prima
facie evidence of the fact of its due execution—a buyer has every reason to rely on a person’s
authority to sell a particular property owned by a corporation on the basis of a notarized board
resolution—undeniably the buyer is an innocent purchaser for value in good faith. xSt. Mary’s
Farm, Inc. v. Prima Real Properties, Inc., 560 SCRA 704 (2008).15
3. GENERAL POWERS OF ATTORNEY (Art. 1877)
Article 1877: An agency couched in general terms comprises only acts of

administration, even if the principal should state that he withholds no power or that the
agent may execute such acts as he may consider appropriate, or even though the
agency should authorize a general and unlimited management. (n)
Agency couched in general terms comprises only acts of administration, even if principal
should state that he withholds no power or that the agent may execute such acts as he may
consider appropriate, or even though the agency should authorize a general and unlimited
management. xYoshizaki v. Joy Training Center of Aurora, Inc., 702 SCRA 631 (2013).
When the authority is couched in general terms, without mentioning any specific power to sell
or mortgage or to do other specific acts of strict dominion, then only acts of administration are
deemed conferred. Time and again, We have stressed that the power of administration does not
include acts of disposition, which are acts of strict ownership. Bautista-Spille v. NICORP
Management and Dev. Corp., 773 SCRA 67 (2015).
“Acts of Administration” means to perform acts which the principal himself may pursue in the
ordinary course of the business, thus:
 When agent has been given general control and management of the business, he is
deemed to have power to employ such agents and employees as are usual and necessary
in the conduct of the business, and needs no SPA for such purpose. xYu Chuck v. “Kong
Li Po,” 46 Phil. 608 (1924).
15Veloso v. CA, 260 SCRA 593 (1996).

 A co-owner who is made an attorney-in-fact, with the same power and authority to deal
with the property which the principal might or could have had if personally present, may
retain the services of legal counsel to preserve the ownership and possession of the
principal’s property. xGovernment of PI v. Wagner, 54 Phil. 132 (1929).
 Admissions obtained by agent from the adverse party prior to the formal amendment of
complaint that included principal as a party, can be availed of by the principal, since an
agent may do such acts as may be conducive to the accomplishment of the purpose of the
agency, admissions secured by the agent within the scope of the agency ought to favor the
principal. xBay View Hotel v. Ker & Co., 116 SCRA 327 (1982).
 Power of administration does not include dispositions or encumbrances which are acts of
strict ownership. Authority to dispose cannot proceed from authority to administer, and vice
versa, for the two powers may only be exercised by an agent by following the provisions
Arts. 1876 to 1878. xAggabao v. Parulan Jr., 629 SCRA 562 (2010).
4. SPECIAL POWERS OF ATTORNEY

Although document is entitled “Special Power of Attorney” its wordings show that it sought
only to establish an agency that comprises all the business of the principal within the designated
locality, but couched in general terms, and consequently was limited only to acts of administration.
A general power permits the agent to do all acts for which the law does not require a special
power, and only covers acts of administration. Dominion Insurance Corp. v. Court of
Appeals, 376 SCRA 239 (2002).
Even when instrument’s title is “General Power of Attorney,” but its operative clause contains
an authority to sell, it constituted the requisite special power of attorney to sell a piece of land.
Thus, there was no need to execute a separate and special power of attorney since the general
power of attorney had expressly authorized the agent or attorney in fact the power to sell the
subject property. xVeloso v. Court of Appeals, 260 SCRA 593 (1996).
a. CASES WHERE SPECIAL POWERS OF ATTORNEY ARE NECESSARY (ART. 1878)
Art. 1878. Special powers of attorney are necessary in the following cases:
(1) To make such payments as are not usually considered as acts of administration;
(2) To effect novations which put an end to obligations already in existence at the time the agency was
constituted;
(3) To compromise, to submit questions to arbitration, to renounce the right to appeal from a judgment,
to waive objections to the venue of an action or to abandon a prescription already acquired;
(4) To waive any obligation gratuitously;
(5) To enter into any contract by which the ownership of an immovable is transmitted or acquired either
gratuitously or for a valuable consideration;
(6) To make gifts, except customary ones for charity or those made to employees in the business
managed by the agent;
(7) To loan or borrow money, unless the latter act be urgent and indispensable for the preservation of
the things which are under administration;
(8) To lease any real property to another person for more than one year;
(9) To bind the principal to render some service without compensation;
(10) To bind the principal in a contract of partnership;
(11) To obligate the principal as a guarantor or surety;
(12) To create or convey real rights over immovable property;
(13) To accept or repudiate an inheritance;
(14) To ratify or recognize obligations contracted before the agency;
(15) Any other act of strict dominion. (n)
Article 1878 does not state that a special power of attorney must be in writing. As long as the
mandate is express, such authority may be either oral or written. We unequivocably declare that
the requirement under Art. 1878 refers to the nature of the authorization and not to its form. Be
that as it may, the authority must be duly established by competent and convincing evidence other
than the self serving assertion of the party claiming that such authority was verbally given.
Patrimonio v. Gutierrez, 724 SCRA 636 (2014).
(1) WITH RESPECT TO MATTERS INVOLVED IN LITIGATION INVOLVING THE PRINCIPAL:

(a) To Compromise
(b) To Submit Questions to Arbitration
(c) To Renounce the Right to Appeal from a Judgment
(d) To Waive Objections to the Venue of an Action
(e) To Abandon a Prescription Already Acquired
 Power to Compromise Excludes Power to Submit to Arbitration; Vice
Versa (Art. 1880)
Article 1880. A special power to compromise does not authorize submission to arbitration.
Power to Bring Suits in Behalf of the Principal to collect amounts accruing in the ordinary
course of business properly belonging to the class of acts described in Art. 1713 of the old Civil
Code as “acts of strict ownership”. Nonetheless, the provision in the power of attorney to “exact
the payment of sums of money by legal means” must be construed to be an express power to
sue. xGermann v. Donaldson, 1 Phil 63 (1901).
Although counsel asserted verbal authority to compromise, however, Sec. 23, Rule
138require a “special authority” for attorneys to compromise the litigation of their clients. While
the same does not state that the special authority be in writing, courts has every reason to
expect, that, if not in writing, the same be duly established by evidence other than the self-
serving assertion of counsel himself – for, authority to compromise cannot lightly be presumed.
xHome Insurance Co. v. United Shipping Lines, 21 SCRA 863 (1967).
(2) WITH RESPECT TO MONEY OR FUNDS OF THE PRINCIPAL:

(2-A) To Make Payments “Are Not Usually Considered as Acts of Administration”
The payment of claims by the area manager of an insurance company is not an act of
administration, and that since the settlement of claims was not included among the acts
enumerated in the SPA issued by the insurance company, nor is of a character similar to the acts
enumerated therein, then a special power of attorney was required before such area manager
could settle the insurance claims of the insured. Consequently, the amounts paid by the area
manager to settle such claims cannot be reimbursed from the principal insurance company.
Dominion Insurance Corp. v. Court of Appeals, 376 SCRA 239 (2002).
(2-B) To Collect or Receive Payments on Behalf of the Principal
The right of an agent to indorse check will not be lightly inferred. A salesman with authority to
collect money for 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 agents
does so at his peril, and must abide by the consequence if the agent who indorses the same is
without authority. xInsular Drug v. PNB, 58 Phil. 684 (1933).
(2-C) To Loan or Borrow Money
EXCEPT: Agent May Borrow Money When It Is Urgent and Indispensable for the
Preservation of the Things Which Are Under Administration
An SPA is necessary for an agent to borrow money, unless it be urgent and indispensable for
the preservation of the things which are under administration. Yasuma v. HeirsofCecilio S. De
Villa, 499 SCRA 466 (2006).16
Wife may not be held liable for the mortgage loan contracted by the husband personally, where
the power of attorney given to the husband was limited to a grant of authority to mortgage land
titled in the wife’s name. De Villa v. Fabricante, 105 Phil. 672 (1959).
Entrusting by the principal of blank pre-signed checks to the agent, does not give the agent
the implied authority to enter into loan in the name of the principal. The contract of agency and
the special fiduciary relationship inherent in this contract must exist as a matter of fact. The person
alleging it has the burden of proof to show, not only the fact of agency, but also its nature and
extent.Patrimonio v. Gutierrez, 724 SCRA 636 (2014)
(3) WITH RESPECT TO OBLIGATIONS DUE TO/FROM THE PRINCIPAL:

(3-A) To Effect Novations Which Put an End to Obligations Already in Existence at the
Time the Agency Was Constituted
(3-B) To Waive Any Obligation Gratuitously
(3-C) To Ratify or Recognize Obligations Contracted Before the Agency
Where a wife gave her husband a power of attorney “to loan and borrow money” and to
mortgage her property, that fact does not carry with it or imply that he has a legal right to sign her
16Gozun v. Mercado 511 SCRA 305 (2006).

name to a promissory note which would make her liable for the payment of a pre-existing debt of
the husband or that of his firm, for which she was not previously liable, or to mortgage her property
to secure the pre-existing debt. xB.P.I. v. De Coster, 47 Phil 594 (1925).
Where the power granted to attorney-in-fact was to the end that the principal-seller may be
able to collect the balance of the selling price of the printing establishment sold, such agent had
no power to enter into new sales arrangements with the buyer, or to novate the terms of the
original sale. xVilla v. Garcia Bosque, 49 Phil 126 (1926).
(4) WITH RESPECT TO IMMOVABLE PROPERTIES:

(4-A) To Enter Into Any Contract by Which Ownership of an Immovable Is Trans-
mitted or Acquired, Gratuitously or For a Valuable Consideration
(4-B) Sale of a Piece of Land or Interest Therein (Art. 1874)
Article 1874: 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. (n)
Old Civil Code: Under Sec. 335 of the Code of Civil Procedure, an agreement for the leasing
for a longer period than one year, or for the sale of real property, or of an interest therein, is invalid
if made by the agent unless the authority of the agent be in writing and subscribed by the party
sought to be charged. Rio y Olabbarrieta v.Yutec, 49 Phil 276 (1926).
Where nephew in his own name sold a house and lot to the company, when in fact it was the
uncle’s property, but in the estafa case filed by the company against the nephew, the uncle swore
that he had authorized his nephew to sell the property, the uncle can be compelled in the civil
action to execute the deed of sale covering the property. “It having been proven at the trial that
he gave his consent to the said sale, it follows that the defendant conferred verbal, or at least
implied, power of agency upon his nephew Duran, who accepted it in the same way by selling the
said property. The principal must therefore fulfill all the obligations contracted by the agent, who
acted within the scope of his authority. (Arts. 1709, 1710 and 1727) Gutierrez Hermanos v.
Orense, 28 Phil. 572 (1914).
Authority found in a power of attorney “to sell any kind of realty that might belong” to the
principal is deem to include also such as the principal might afterwards have or acquire during
the time it was in force. xKatigbak v. Tai Hing Co., 52 Phil. 622 (1928).
Express mandate required by Art. 1874 is for power of attorney to expressly empower the
agent “to sell land” belonging to the principal. It need not contain a specific description of the land
to be sold, such that giving the agent the power to sell “any or all tracts, lots, or parcels” of land
belonging to the principal is adequate. xDomingo v. Domingo, 42 SCRA 131 (1971).
Where SPA primarily empowered the agent of the corporation to bring an ejectment case
against the occupant and also “to compromise . . . so far as it shall protect the rights and interest
of the corporation in the aforementioned lots,” and that the agent did execute a compromise in
the legal proceedings filed which sold the lots to the occupant, the compromise agreement is void
for the power to sell by way of compromise could not be implied to protect the interests of the
principal to secure possession of the properties. Cosmic Lumber v. Court of Appeals, 265
SCRA 168 (1996).
The rule under Art. 1874 that “when the 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,” applies
when the sale of corporate piece of land is pursued through an officer without written authority.
City-Lite Realty Corp. v. Court of Appeals, 325 SCRA 385 (2000).17
Art. 1878 provides that an SPA 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, or
to create or convey real rights over immovable property, or for any other act of strict dominion.
Any sale of real property by one purporting to be the agent of the registered owner without any
authority therefore in writing from the said owner is null and void; declarations of the agent alone
are generally insufficient to establish the fact or extent of her authority.” xLitonjua v. Fernandez,
427 SCRA 478 (2004).18
Under Art. 1878, an SPA is necessary for agent to enter into a contract by which the ownership
of an immovable property is transmitted or acquired, either gratuitously or for a valuable
consideration. Absence of a written authority makes sale of a piece of land is ipso jure void,
precisely to protect the interest of an unsuspecting owner from being prejudiced by the
unwarranted act of another. However, we apply estoppel principle to enforce of the sale with
respect to the principal.Pahud v. Court of Appeals, 597 SCRA 13 (2009).
17San Juan Structural v. CA, 296 SCRA 631 (1998); AF Realty & Dev., Inc. v. Dieselman Freight Services Co., 373 SCRA 385 (2002); Firme
v. Bukal Enterprises and Dev. Corp., 414 SCRA 190 (2003); Bautista-Spille v. NICORP Management and Dev. Corp., 773 SCRA 67 (2015);
MCIAA v. Unchuan, 791 SCRA 581 (2016).
18Litonjua, Jr. v. Eternit Corp., 490 SCRA 204 (2006).

As a general rule, an agency may be oral; however, Art. 1874 provides that the contract of
agency must be written for the validity of the sale of a piece of land or any interest therein;
otherwise, the sale shall be void. A related provision, Art. 1878 states that special powers of
attorney are necessary to convey real rights over immovable properties. Yoshizaki v. Joy
Training Center of Aurora, 702 SCRA 631 (2013).19
(4-C) Agents Cannot Buy Property of Principal Unless Authorized (Art. 1491[2])
Article 1491: The following persons cannot acquire by purchase, even at a public or judicial auction,
either in person or through the mediation of another:
(2) Agents, the property whose administration or sale may have been intrusted to them, unless the
consent of the principal has been given;
Prohibition against agents purchasing property held for sale or management is not absolute;
when so authorized by principal, agent is not disqualified from purchasing property held under an
agency to sell. xOlaguer v. Purugganan, Jr., 515 SCRA 460 (2007).
(4-D) Power to Sell Excludes Power to Mortgage, Vice Versa (Art. 1879)
Article 1879: A special power to sell excludes the power to mortgage; and a special power to mortgage
does not include the power to sell. (n)
Where the power of attorney authorized agent “By means of a mortgage of my real property,
to borrow and lend sums in cash, at such interest and for such periods and conditions as he may
deem property and to collect or to pay the principal and interest thereon when due,” while it did
not authorize the agent to execute deeds of sale with right of repurchase over the property of the
principal, nonetheless would validate the main contract of loan entered into with the deed of sale
with right of repurchase constituting merely an equitable mortgage. xRodriguez v. Pamintuan and
De Jesus, 37 Phil 876 (1918).
Where power of attorney vested agent with authority “for me and in my name to sign, seal and
execute, and as my act and deed, deliver any lease, any other deed for conveying any real or
personal property” or “any other deed for the conveying of any real or personal property,” it does
not carry with it or imply that agent has power to execute a promissory note or a mortgage to
secure its payment. xPNB v. Tan Ong Sze, 53 Phil. 451 (1929).
An SPA to mortgage real estate is limited to such authority to mortgage and does not bind the
grantor personally to other obligations contracted by the grantee (in this case the personal loan
obtained by the agent in his own name from the PNB). In other words, the power to mortgage
does not include the power to obtain loans, especially when the grantors allege that they had no
benefit at all from the proceeds of the loan taken by the agent in his own name from the bank.
xPNB v. Sta. Maria, 29 SCRA 303 (1969).
In Agency, in order to bind the principal by a mortgage on real property executed by an agent,
it must upon its face purport to be made, signed and sealed in the name of the principal, otherwise,
it will bind the agent only. xGozun v. Mercado 511 SCRA 305 (2006).
(4-E) To Lease Real Property for More Than One Year

Art. 1878 expresses that a special power of attorney is necessary to lease any real property
to another person for more than one year, for such is considered not merely an act of
administration but an act of strict dominion or of ownership. xShopper’s Paradise Realty v. Roque,
419 SCRA 93 (2004).
Where lease contract involves the lease of real property for a period of more than one year
was entered into by an agent on behalf of the principle, Art. 1878 requires that the agent be armed
with an SPA to lease the premises; otherwise, the provisions of the contract of lease, including
the grant therein of an option to purchase to the lessee, would be unenforceable. Vda. De Chua
v. IAC, 229 SCRA 99 (1994).
(5)WITH RESPECT TO SPECIFIC CONTRACTS “DEEMED PERSONAL” TO THE PRINCIPAL:
(5-A) To Accept or Repudiate an Inheritance
(5-B) To Make Gifts
(5-C) To Bind the Principal to Render Some Service Without Compensation
(5-D) To Bind the Principal in a Contract of Partnership
(5-E) To Obligate the Principal as a Guarantor or Surety
19Estate of LinoOlaguer v. Ongjoco, 563 SCRA 373 (2008); Alcantara v. Nido, 618 SCRA 333 (2010); Camper Realty Corp. v. Pajo-Reyes,
632 SCRA 400 (2010); Recio v. Heirs of the Spouses Altamirano, 702 SCRA 137 (2013); Bautista v. Spouses Jalandoni, 710 SCRA 670
(2013); MCIAA v. Unchuan, 791 SCRA 581 (2016).

When principal empowered his agent to mortgage his property, as well as a contract of surety,
but the agent only entered into a contract of mortgage, no inference can be made to make the
principal liable as a surety. xWise and Co. v. Tanglao, 63 Phil. 372 (1936).
Where a power of attorney is executed primarily to enable manager of a mercantile business,
to conduct its affairs for and on behalf of the principal-owner, i.e., “act and deed delivery, any
lease, or any other deed for the conveying any real or personal property” and “act and deed
delivery, any lease, release, bargain, sale, assignment, conveyance or assurance, or any other
deed for the conveying any real or personal property,” such cannot be interpreted as giving the
manager power to bind the principal to a contract of guaranty or surety unconnected with the
business. xDirector v. Sing Juco, 53 Phil 205 (1929).
SPA to approve loans does not carry power to bind the principal to a guaranty even to the
extent of the amount for which a loan could have been granted by agent. “Guaranty is not
presumed, it must be expressed and cannot be extended beyond its specified limits (Director v.
Sing Juco, 53 Phil. 205). Where a wife gave her husband power to loan money, such fact did not
authorized him to make her liable as a surety for the payment of the debt of a third person. BA
Finance v. Court of Appeals, 211 SCRA 112 (1992).
A power of attorney authorizing agent to bind principal to a surety bond to a particular entity,
cannot be relied upon as sufficient authority to a surety bond issued to other persons or entity.
xCountry Bankers Insurance v Keppel Cebu Shipyard, 673 SCRA 427 (2012).
(6) ANY OTHER ACT OF STRICT DOMINION
5. Doctrine of Implied Powers Emanating from Express Powers – Specific grants of “Powers
of Dominion” necessarily includes those implied powers or those necessary to fulfill those powers
of ownership granted, thus:
 Empowering the agent to sell hemp in a foreign country, carries with it implied power to
make and enter into the usual and customary contract for its sale, which may provide for
settlement of issues by arbitration. xRobinson Fleming v. Cruz, 49 Phil 42 (1926).
 An SPA to make an assignment of credits, hire lawyers to take charge of actions necessary
or expedient for principal’s interests, and defend suits brought against principal, necessarily
implies authority to pay for professional services thus engaged, which includes assignment
of the judgment secured for the principal in settlement of outstanding fees. Municipal
Council of Iloilo v. Evangelista, 55 Phil. 290 (1930).
 SPA to sell “for such price or amount” is broad enough to cover exchange in the Deed of
Assignment between the properties and the corresponding corporate shares in a
corporation, with the latter replacing the cash equivalent of the option money initially agreed
to be paid by the corporation under the MOA. xHernandez-Nievera v. Hernandez, 642
SCRA 646 (2011).
6. Express Power of Attorney Excludes Powers of Administration
(e.g., General Power of Attorney)
Instrument which grants agent power “To follow-up, ask, demand, collect and receipt for my
benefit indemnities or sum due me relative to the sinking of M.V. NEMOS in the vicinity of El
Jadida, Casablanca, Morocco on the evening of February 17, 1986,” are SPAs, and exclude any
intent to grant a GPA or to constitute a universal agency. Being SPAs, they must be strictly
construed, and cannot be read to give power to the attorney-in-fact “to obtain, receive, receipt
from” the insurance company the proceeds arising from the death of the seaman-insured,
especially when the commercial practice for group insurance of this nature is that it is the
employer-policyholder who took out the policy who is empowered to collect the proceeds on
behalf of the covered insured or their beneficiaries. Pineda v. CA, 226 SCRA 754 (1993).
III. POWER, DUTIES AND OBLIGATIONS OF THE AGENT

1. General Obligation of Agent Who Accepts the Agency: Agent Bound to Carry
Agency to Its Completion for the Benefit of Principal(Art. 1884)
Article 1884. The agent is bound by his acceptance to carry out the agency and is liable for the damages,
which, through his non-performance, the principal may suffer.
OTHERWISE: Agent Will Be Liable for Damages Which the Principal May Suffer Through His
Non-Performance.
COMPARE: Agent Who Withdraws From the Agency (Art. 1929): He Must Continue to Act
Until Principal Takes Necessary Steps to Meet Situation

Art. 1929. The agent, even if he should withdraw from the agency for a valid reason, must continue to
act until the principal has had reasonable opportunity to take the necessary steps to meet the situation.
In Event of Death of Principal (Art. 1919[3]): Agent Must Finish Business
Already Begun Should Delay Entail Any Danger – Even If Principal’s Death
Extinguishes Agency.
Article 1919: Agency is extinguished:
(3) By the death, civil interdiction, insanity or insolvency of the principal or of the agent;
The provision is clear that an agent is bound to carry out the agency. The relationship between
principal and agent is a fiduciary one, demanding trust and confidence. It is the duty of the agent
to act in good faith for the advancement of the interests of the principal. In this case, BPI had the
obligation to carry out the agency by informing the beneficiary, who appeared before BPI to
withdraw funds of the insured who was BPI's depositor, not only of the existence of the insurance
contract but also the accompanying terms and conditions of the insurance policy in order for the
beneficiary to be able to properly and timely claim the benefit. BPI is expected not only to provide
utmost customer satisfaction in terms of its own products and services but also to give assurance
that its business concerns with its partner entities are implemented accordingly.Bank of P.I. v.
Laingo, 787 SCRA 541 (2016).
2. Obligation of Agent Who Declines Agency Who Has Custody of Goods: Agent Must
Observe Due Diligence in the Custody and Preservation of the Goods Until New
Agent Appointed(Art. 1885)
Article 1885: In case a person declines an agency, he is bound to observe the diligence of a good father
of a family in the custody and preservation of the goods forwarded to him by the owner until the latter
should appoint an agent or take charge of the goods. (n)
3. DUTY OF OBEDIENCE
a. Agent Must Act “In the Name of the Principal, Within the Scope of His Authority” (Art.
1881)
Article 1881: The agent must act within the scope of his authority. He may do such acts as may be
conducive to the accomplishment of the purpose of the agency. (1714a)
(i) Act Deemed to Have Been Performed within the Scope of Agent’s Authority,
If Such Act Is Within the Terms of the Written Power of Attorney, Even If in
Fact the Agent Exceeded the Limits of the Authority According the Private
Understanding With the Principal(Art. 1900)
Article 1900: So far as third persons are concerned, an act is deemed to have been performed within
the scope of the agent's authority, if such act is within the terms of the power of attorney, as written, even
if the agent has in fact exceeded the limits of his authority according to an understanding between the
principal and the agent. (n)
(ii) Authority of Agent Shall Not Be Deemed Exceeded If Performed in a Manner
More Advantageous to Principal.(Art. 1882)20
Article 1882: The limits of the agent's authority shall not be considered exceeded should it have been
performed in a manner more advantageous to the principal than that specified by him. (1715)
b. Primary Obligation of Agent Is to Carry Out Agency in Accordance with Principal’s

Instructions (Art. 1887)
Article 1877: An agency couched in general terms comprises only acts of administration, even if the
principal should state that he withholds no power or that the agent may execute such acts as he may
consider appropriate, or even though the agency should authorize a general and unlimited management.
(n)
 If Agent Followed Instructions, Principal Cannot Set-up Agent’s Ignorance or

Circumstance which Principal Was/Ought to Have Been Aware Of (Art. 1899)
20See application in Olaqguer v. Purugganan, Jr., 515 SCRA 460 (2007).

Article 1877: If a duly authorized agent acts in accordance with the orders of the principal, the latter
cannot set up the ignorance of the agent as to circumstances whereof he himself was, or ought to have
been, aware.
Pursuant principals’ instructions, agent purchased a piece of land in their names using the
sums given by principals, and thereafter principals had ratified the transaction and even received
profits arising from the investment in the land. Since there is nothing which would indicate that
agent failed to exercise reasonable care and diligence in the performance of his duty, or that he
undertook to guarantee the vendor’s title to the land purchased, the eventual loss sustained by
said principals from a defect in the title in the land cannot be a basis to hold the agent personally
liable for damages. xNepomuceno v. Heredia, 7 Phil 563 (1907).
When an agent in executing the orders and commissions of his principal carries out the
instructions he has received from his principal, and does not appear to have exceeded his
authority or to have acted with negligence, deceit or fraud, he cannot be held responsible for the
failure of his principal to accomplish the object of the agency. Agents, although they act in
representation of the principal, are not guarantors for the success of the business enterprise they
are asked to manage. xGuiterrez Hermanos v. Oria Hermanos, 30 Phil. 491 (1915).
When bank officers, acting as agent, had not only gone against the instructions, rules and
regulations of the bank in releasing loans to numerous borrowers who were not qualified, then
such bank officers are liable personally for the losses sustained by the bank. That bank had also
filed suits against the borrowers to recover the amounts given does not amount to ratification of
the acts done by the bank officers. xPNB v. Bagamaspad, 89 Phil. 365 (1951).
c. Effects of Acts Done Within the Scope of Agent’s Authority: Valid, and Principal Is the
One Liable; Agent Is Not Personally Liable(Art. 1881)
Article 1881: The agent must act within the scope of his authority. He may do such acts as may be
conducive to the accomplishment of the purpose of the agency. (1714a)
Under Art. 1881,when agent acts within the scope of authority, principal is bound by acts
effected in his behalf, whether or not third person dealing with the agent believes that the agent
has actual authority. xSargasso Const.& Dev. Corp. v. PPA, 623 SCRA 260 (2010).
The legal impact of Art.1881 which provides that “the agent must act within the scope of his
authority,” is that the gent is granted the right “to affect the legal relations of his principal by the
performance of acts effectuated in accordance with the principal's manifestation of consent.”
Pacific Rehouse Corp. v. EIB Securities, Inc., 633 SCRA 214 (2010).
d. Effects When Agent’s Act Beyond the Scope of His Authority: Unenforceable, Not
Void; UNLESS PRINCIPAL RATIFIES, WHICH MAKE IT VALID (Arts. 1317, 1403 and 1898)
(1259a)
(1) Those entered into in the name of another person by one who has been given no authority or legal
representation, or who has acted beyond his powers;
xxx
Article 1898: 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. In this case, however, the agent is liable if
he undertook to secure the principal's ratification. (n)
When money received as a deposit by an agent is given to principal, with notice that it is the
money of the depositor, principal is bound to return to depositor, even if his agent was not
authorized to receive such deposit. [There has, in effect, ratification of the unauthorized act of the
agent, thereby binding the principal]. xCason v. Rickards, 5 Phil 639 (1906).
When the administrator enters into a contract that is outside of the scope of authority, the
contract would nevertheless not be an absolute nullity, but simply voidable [unenforceable!] at the
instance of the parties who had been improperly represented, and only such parties can assert
the nullity of said contracts as to them. xZayco v. Serra, 49 Phil 985 (1925).
Under Art. 1898, acts of an agent beyond the scope of his authority do not bind the principal,
unless the latter ratifies the same expressly or impliedly. When third person knows that the agent

was acting beyond his power or authority, the principal cannot be held liable for the acts of the
agent. If the said third person is aware of the limits of the authority, he is to blame, and is not
entitled to recover damages from the agent, unless the latter undertook to secure the principal’s
ratification. Cervantes v. Court of Appeals, 304 SCRA 25 (1999).21
Even when attorney-at-law in forging a compromise agreement, had exceeded his authority in
inserting a penalty clause, same is not void but merely voidable [unenforceable!], i.e., capable of
being ratified. Client’s failure to question the inclusion of the penalty clause despite several
opportunities to do so and with the representation of new counsel, was tantamount to ratification.
xBorja, Sr. v. Sulyap, Inc., 399 SCRA 601 (2003).
Contracts entered in the name of another person by one who has been given no authority or
legal representation or who has acted beyond his powers are unauthorized contracts and are
unenforceable (!), unless they are ratified. xGozun v. Mercado 511 SCRA 305 (2006).
e. Effects When Agent Acts in His Own Name (Art. 1883):
Article 1883: If an agent acts in his own name, the principal has no right of action against the persons
with whom the agent has contracted; neither have such persons against the principal.
 Principal Has No Right Against Third Person Contracting with Agent

 Agent Is Directly Bound to Third Person as If the Transaction Were His Own
EXCEPT: When Contract Involves Things Belonging to Principal
It being established that the agent acted in his own name in selling the merchandise to the
defendants who fully believed that they were dealing with the said agent on his own, without any
knowledge that he was the agent of the plaintiffs, and having paid him in full for the merchandise
purchased, they are not liable to the plaintiffs, for said merchandise. xLim Tiu v. Ruiz &
Rementeria, 15 Phil. 367(1910).
Even when the agent has written authority to convey real property, nevertheless when the
deed of sale was executed by the agent in her own name without showing the capacity in which
she acted, although the act was doubtless irregular, the deed operated to bind the principal who
had authorized the sale. xJimenez v. Rabot, 38 Phil. 378 (1918).
Under Art. 1883, if agent acts in his own name, principal has no right of action against the
persons with whom he has contracted; neither have such persons against the principal. In such
case, agent is directly bound in favor of the person with whom he has contracted, as if the
transaction were his own, except when the contract involves things belonging to the principal.
xSmith Bell v. Sotelo Matti, 44 Phil. 874 (1922); xMarimperio Cia. Naviera, S.A. v. CA, 156 SCRA
368 (1987).
When agent executes a contract in his personal capacity, the fact that he is described in the
contract as agent of the principal and the properties mortgaged pertain to the principal, may not
be taken to mean that he enters into the contract in the name of the principal. A mortgage on real
property of the principal not made and signed in the name of the principal is not valid as to the
principal. xPhil. National Bank v. Palma Gil, 55 Phil. 639 (1931).22
Where a co-owner transfers the entirety of the mining claim to the buyer, who knew that it
included the one-half share pro-indiviso of the other co-owner, the transaction may be considered
as one where the disposing co-owner acted as agent of the other co-owner. Consequently, under
Art. 1883, such other co-owner may sue the person with whom the agent dealt with in his (agent’s)
own name, when the transaction involves things belong to the principal. xGoldstar v. Lim, 25
SCRA 597 (1968).
When a commission agent enters into a shipping contract in his own name to transport NFA
grains on a vessel owned by a shipping company, NFA cannot claim it is not liable to the shipping
company under Art. 1883 when things belong to the principal are dealt with, agent is bound to the
principal although he does not assume the character of such agent and appears acting in his own
name. If the principal can be obliged to perform his duties under the contract, then it can also
demand the enforcement of its rights arising from the contract. xNFA v. IAC, 184 SCRA 166
(1990).
(1) Provisions Are Without Prejudice to Actions Between Principal and Agent
Where plaintiffs appointed defendant to purchase a vessel and giving him money for that
purpose, but the agent purchased the boat and placed it in his own name, he has breached his
fiduciary obligation and is obliged to transfer the same to the plaintiffs, or the plaintiffs have a right
to be subrogated. According to the exception under Art. 1717 (old Civil Code) when things
belonging to the principal are dealt with, the agent is bound to the principal although he does not
21Reiteratedin Safic Alcan v. Imperial Vegetable, 355 SCRA 559 (2001).

22Reiterated
in Philippine Sugar Estates Dev. Corp. v. Poizat, 48 Phil. 536 (1925); PNB v. Agudelo, 58 Phil 655 (1933); Rural Bank of Bombon v. CA, 212
SCRA 25 (1992); Gozun v. Mercado 511 SCRA 305 (2006).

assume the character of such agent and appears acting in his own name. xSy-Juco v. Sy-Juco,
40 Phil. 634 (1920).
4. DUTY OF DILIGENCE:
a. Agent Must Exercise Due Diligence in the Pursuit of the Principal’s Business
b. Agent Should Not Act If It Would Manifestly Result in Damage to Principal (Art. 1888)
Article 1888. An agent shall not carry out an agency if its execution would manifestly result in loss or
damage to the principal.
c. Agent Also Liable Personally (with the Principal)for Fraud and Negligence Committed
in Pursuit of the Principal’s Affairs (Arts. 1884 and 1909)
Article 1884: The agent is bound by his acceptance to carry out the agency, and is liable for the damage
He must also finish the business already begun on the death of the principal, should delay entail any
danger. (1718)
Article 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.
(1726)
The provision is clear that an agent is bound to carry out the agency. The relationship existing
between principal and agent is a fiduciary one, demanding conditions of trust and confidence. It
is the duty of the agent to act in good faith for the advancement of the interests of the principal.
In this case, BPI had the obligation to carry out the agency by informing the beneficiary, who
appeared before BPI to withdraw funds of the insured who was BPI's depositor, not only of the
existence of the insurance contract but also the accompanying terms and conditions of the
insurance policy in order for the beneficiary to be able to properly and timely claim the benefit.
xBank of P.I. v. Laingo, 787 SCRA 541 (2016).
 What Shall Aggravate or Mitigate Liability Arising Out of Negligence – Whether
Agency Was for a Compensation or Was Gratuitous
He who seeks to make agent liable has the burden to show that the losses and damage were
occasioned by his fault or negligence; mere allegation without substantiation is not enough to
make the agent personally liable. xHeredia v. Salina, 10 Phil 157 (1908).
While an agent who acts for a revealed principal does not become personally bound to the
other party, yet that rule does apply when the agent intercepted and appropriated for himself the
thing which the principal is bound to deliver, and thereby made the performance of the principal
impossible. The agent in any event must be precluded from doing any positive act that could
prevent performance on the part of his principal, otherwise the agent becomes liable also on the
contract. xPhil. National Bank v. Welsh Fairchild, 44 Phil 780 (1923).
Where holder of an exclusive and irrevocable power of attorney to make collections, failed to
collect the sums due to principal and thereby allowed the allotted funds to be exhausted by other
creditors, such agent has failed to act with the care of a good father of a family required under
Art. 1887 and became personally liable for the damages which the principal may suffer through
his non-performance. Phil. National Bank v. Manila Surety, 14 SCRA 776 (1965).
In stressing that it was acting only as a collecting agent, Metrobank seems to be suggesting
that as a mere agent it cannot be liable to the principal; this is not exactly true. On the contrary,
Art. 1909 clearly provides that” the agent is responsible not only for fraud, but also for negligence.
xMetrobank v. Court of Appeals, 194 SCRA 169 (1991).
Provision in mortgage contract that in case of accident or loss, finance company shall make a
proper claim against insurance company, was in effect an agency, and under Art. 1884, finance
company was bound by its acceptance to carry out the agency. In spite of borrower’s instructions
to make such claims, it insisted on having the vehicle repaired but eventually resulting in loss of
the insurance coverage, the finance company had breached its duty of diligence, and must
assume the damages suffered by borrower, and can no longer collect on the balance of the
mortgage loan.BA Finance v. CA, 201 SCRA 157 (1991).
It is well-settled that agent is also responsible for any negligence in performance of its function
(Art. 1909) and is liable for damages which principal may suffer by reason of its negligent act.
(Art. 1884).British Airways v. Court of Appeals, 285 SCRA 450 (1998).23
5. DUTY OF LOYALTY:
23Metrobank v. CA, 194 SCRA 169 (1991).

a. Agent Shall Be Liable for Damages Sustained by the Principal Where in Case of Conflict-
of-Interests Situations, He Should Prefer His Own Interest (Art. 1889)
Article 1889. The agent shall be liable for damages if, there being a conflict between his interests and
those of the principal, he should prefer his own.
b. Agent Is Prohibited from Buying Property Entrusted to Him for Administration or Sale
Without Principal’s Consent (Art. 1491[2])
Article 1491: The following persons cannot acquire by purchase, even at a public or judicial auction,
either in person or through the mediation of another:
(2) Agents, the property whose administration or sale may have been intrusted to them, unless the
consent of the principal has been given;
Where agent by means of misrepresentation of the condition of the market induces principal
to sell to him the property consigned to his custody at a price less than that for which he has
already contracted to sell part of it, and who thereafter disposes of the whole at an advance, is
liable to principal for the difference. Such conduct constituted fraud, entitling principal to annul the
sale. Although commission earned by agent on the fraudulent sale may be disallowed,
nonetheless commission earned from other transactions which were not tainted with fraud should
be allowed. xCadwallader v. Smith Bell, 7 Phil. 461 (1907).
General manager, who also was the majority stockholder, and designated to be the main
negotiator for the company with the Government for the sale of its large tract of land, having
special knowledge of commercial information that would increase the value of the shares in
relation to the sale of the land to the Government, can be treated legally as being an agent of the
stockholders, with a fiduciary obligation to reveal to other stockholders such special information
before proceeding to purchase from the other stockholders their shares of stock. If he purchases
the shares of a stockholder without having disclosed important facts or to render the appropriate
report on the expected increase in value of the company, there was fraud committed for which
the director shall be liable for the earnings earned against the stockholder on the sale of shares.
xStrong v. Guiterrez Repide, 41 Phil. 947 (1909).
A confidential employee who, knowing that his principal was negotiating with the owner of
some land for the purchase thereof, surreptitiously succeeds in buying it in the name of his wife,
commits an act of disloyalty and infidelity to his principal, whereby he becomes liable, among
other things, for the damages caused, which meant to transfer the property back to the principal
under the terms and conditions offered to the original owner. xSing Juco and Sing Bengco v.
Sunyantong and Llorente, 43 Phil 589 (1922).
Uncle who was acting as agent/administrator of property belonging to a niece had procured
Torrens title in his own name is deemed to be a trustee, and must surrender the property and
transfer title to the niece. The relations of an agent to his principal are fiduciary and agent is
estopped from acquiring or asserting a title adverse to that of the principal. Consequently, an
action in personam will lie against an agent to compel him to return or retransfer to his principal,
or the latter’s estate, the real property committed to his custody as such agent and also to execute
the necessary documents of conveyance to effect such retransfer. xSeverino v. Severino, 44 Phil.
343 (1923).
Agent cannot represent both himself and his principal in a transaction involving the shifting to
another person of the agent’s liability for a debt to the principal. xAboitiz v. De Silva, 45 Phil 883
(1924).
Under Art. 267 of Code of Commerce which declared that no agent shall purchase for himself
or for another that which he has been ordered to sell, then a sale by a broker to himself without
the consent of the principal would be void and ineffectual whether the broker has been guilty of
fraudulent conduct or not. Consequently, such broker is not entitled to receive any commission
under the contract, much less any reimbursement of expenses incurred in pursuing and closing
such sales. The same prohibition is now contained in Art.1491(2) of Civil Code.xBarton v. Leyte
Asphalt, 46 Phil 938 (1924).
When an agent is involved in the perpetration of fraud upon his principal for his extrinsic
benefit, he is not really acting for the principal but is really acting for himself, entirely outside the
scope of his agency – the basic tenets of agency rest on the highest consideration of justice,
equity and fair play, and an agent will not be permitted to pervert his authority to his own personal
advantage. Cosmic Lumber v. Court of Appeals, 265 SCRA 168 (1996).
Relation of agent to his principal is fiduciary and, an agent is estopped from acquiring or
asserting a title adverse to that of the principal—a position analogous to that of a trustee—he
cannot, consistently with the principles of good faith, be allowed to create in himself an interest in

opposition to that of his principal or cestui que trust. Hernandez v. Hernandez, 645 SCRA 24
(2011).
c. Agent Obliged to Render an Accounting to the Principal of All Matters Relating Agency
(Art. 1891):
Article 1891: Every agent is bound to render an account of his transactions and to deliver to the principal
whatever he may have received by virtue of the agency, even though it may not be owing to the principal.
Every stipulation exempting the agent from the obligation to render an account shall be void. (1720a)
 Stipulation Exempting Agent from Obligation to Render an Accounting Is Void
 Agent Must Deliver to Principal Whatever Is Received by Virtue of Agency
 Obligation Arises and Becomes Demandable at the Time Agency Ends
An administrator of an estate is liable under Art. 1720 (now Art. 1891) for failure to render an
account of his administration to the heirs, unless the heirs consented thereto or are estopped by
having accepted the correctness of his account previously rendered. xOjinaga v. Estate of Perez,
9 Phil 185 (1907).
When principal approves agent’s report, he has no right to ask afterwards for a revision of the
same or for a detailed account of the business, unless he can show that there was fraud, deceit,
error or mistake in the approval of the accounts. xPastor v. Nicasio, 6 Phil. 152 (1906); xGuiterrez
Hermanos v. Oria Hermanos, 30 Phil. 491, 505 (1915).
There is an essential distinction between the possession by a receiving teller of funds received
from third persons paid to the bank, and an agent who receives the proceeds of sales of
merchandise delivered to him in agency by his principal. In the former case, payment by third
persons to the teller is payment to the bank itself; the teller is a mere custodian or keeper of the
funds received, and has no independent right or title to retain or possess the same as against the
bank. An agent, on the other hand, can even assert, as against his own principal, an independent,
autonomous, right to retain money or goods received in consequence of the agency; as when the
principal fails to reimburse him for advances he has made, and indemnify him for damages
suffered without his fault. xChua-Burce v. Court of Appeals, 331 SCRA 1 (2000).24Consequently:
 An insurance agent is guilty of estafa for failing to deliver sums of money paid to him as
agent for the account of his employer. Where nothing to the contrary appears, the
provisions of Art. 1720 of Civil Code impose upon an agent the obligation to deliver to his
principal all funds collected on his account. xU.S. v. Kiene, 7 Phil 736 (1907)
 A travelling sales agent who misappropriated or failed to return to his principal the proceeds
of the things or goods he was commissioned or authorized to sell, is liable for estafa.
xGuzman v. Court of Appeals, 99 Phil. 703 (1956).
 Whereas, bank teller or cash custodian, being merely an employee of the bank, cannot be
held liable for estafa, but rather for theft. xChua-Burce v. Court of Appeals, infra.
As a necessary consequence of such breach of trust, an agent must then forfeit his right to the
commission and must return the part of the commission he received from his principal.
Domingo v. Domingo, 42 SCRA 131 (1971).
Submission by administrator of four letter reports during the entire 18 years that he was
administering the property can hardly be considered as sufficient to keep the principal informed
and updated of the condition and status of the latter’s properties. xSazon v. Vasquez-Menancio,
666 SCRA 707 (2012).
d. Rule If Agent Is Empowered to Borrow/Lend Money (Art. 1890)
Article 1890: If the agent has been empowered to borrow money, he may himself be the lender at the
current rate of interest. If he has been authorized to lend money at interest, he cannot borrow it without
the consent of the principal. (n)
(1) If empowered to borrow money, he may be the lender at current interest;
(2) If empowered to lend money at interest, he cannot borrow without principal’s consent.
 If Empowered to Borrow Money, He May Be the Lender at Current Interest Rates;

 If Empowered to Lend Money, He Cannot Borrow Without Principal’s Consent.
When power granted to agent was only to borrow money and mortgage principal’s property to
secure the loan, it cannot be interpreted to include the authority to mortgage the properties to
support the agent’s personal loans and use the proceeds thereof for his own benefit. The lender
who lends money to the agent knowing that is was for personal purpose and not for the principal’s
24Also Guzman v, CA, 99 Phil. 703, 706-707 (1956); Balerta v.People of the Philippines, 743 SCRA 166 (2014).

account, is a mortgagee in bad faith and cannot foreclose on the mortgage thus constituted.
xHodges v. Salas and Salas, 63 Phil. 567 (1936).
f. Agent Is Liable to the Principal for Interests (Art. 1896):
Article 1896: The agent owes interest on the sums he has applied to his own use from the day on which
he did so, and on those which he still owes after the extinguishment of the agency. (1724a)
 On Sums He Applied to His Own Use (from the Time He Used Them)
 On Sums Owing the Principal (from the Time Agency Is Extinguished)
As to the interest imposed in the judgment on amounts received by agent which were not
turned over to the principal, Art. 1724 provides that an agent shall be liable for interest upon any
sums he may have applied to his own use, from the day on which he did so, and upon those
which he still owes, after the expiration of the agency, from the time of his default.” xMendezonna
v. Vda. De Goitia, 54 Phil 557 (1930).
The successor-in-interest of the principal is not entitled to collect interest from the agent of the
father for sums loaned to and collected by the agent from various persons for the deceased
principal. In all the aforementioned transactions, the defendant acted in his capacity as attorney-
in-fact of the deceased father, and there being no evidence showing that he converted the money
entrusted to him to his own use, he is not liable for interest thereon, in accordance with Art.1724
of the Civil Code. xDeBorja v. De Borja, 58 Phil 811 (1933).
6. Agent Has No Obligation to Advance Funds (Art. 1886):
Article 1886: Should there be a stipulation that the agent shall advance the necessary funds, he shall
be bound to do so except when the principal is insolvent. (n)
 It Is Principal’s Obligation to Advance the Funds, But Principal to Pay Interest on

Advances Made by Agent from Day Advances Made. (Art. 1912)
Article 1912: The principal must advance to the agent, should the latter so request, the sums necessary
for the execution of the agency.
Should the agent have advanced them, the principal must reimburse him therefor, even if the business
or undertaking was not successful, provided the agent is free from all fault.
The reimbursement shall include interest on the sums advanced, from the day on which the advance
was made. (1728)
EXCEPT: (1) If Stipulated in the Agency Agreement;

(2) Principal Is Insolvent; Insolvency Extinguishes the Agency (Art. 1919[3])

7. POWER OF AGENT TO APPOINT A SUB-AGENT (Art. 1892)

Article 1892: The agent may appoint a substitute if the principal has not prohibited him from doing so;
but he shall be responsible for the acts of the substitute:
(1) When he was not given the power to appoint one;
(2) When he was given such power, but without designating the person, and the person appointed was
notoriously incompetent or insolvent.
All acts of the substitute appointed against the prohibition of the principal shall be void. (1721)
a. General Rule: Agent Must Act Himself, But May Appoint a Not-Prohibited Substitute.
Agent Is Responsible for Acts of Substitute When:
 Agent Was Not Expressly Given the Power to Appoint a Substitute
 Agent Was Given the Power, But Without Designating the Person and the Substitute
Was Notoriously Incompetent or Was Insolvent.
A sub-agent cannot be held at greater liability that the main agent, and when the subagent
has not received any special instructions from the agent to insure the object of the agency, the
subagent cannot be held liable for the loss of the thing from fire, which is merely force majeure.
xInt’l Films (China) v. Lyric Film, 63 Phil. 778 (1936).
Agency allows the appointment by agent of a sub-agent in the absence of an express
agreement to the contrary between agent and principal. Agent who receives jewelry for sale or
return cannot be charged with estafa for there was no misappropriation when she delivered the

jewelry to a sub-agent under the sale terms which the agent received it, but a client of the sub-
agent absconded with them and could no longer be recovered; but the agent remains civilly
liable for the value of the jewelry to the principal. xSerona v. Court of Appeals, 392 SCRA 35
(2002).25
The legal maxim potestas delegate non delegare potest, a power once delegated cannot be
re-delegated, while applied primarily in political law to the exercise of legislative power, is a
principle of agency — for another, a re-delegation of the agency would be detrimental to the
principal as the second agent has no privity of contract with the former. (?)xBaltazar v.
Ombudsman 510 SCRA 74 (2006).
Under Art. 1892, when a special power of attorney to sell a piece of land does not contain a
clear prohibition against the agent in appointing a substitute, the appointment by the agent of a
substitute to execute the contract is within the limits of the authority given by the principle,
although the agent then would have to be responsible for the acts of the sub-agent. Escueta
v. Lim, 512 SCRA 411 (2007).
c. All Acts of Substitute Appointed Against Principal’s Prohibition Are
Void as to the Principal.
Where the SPA to sell a piece of land contains a prohibition to appoint a substitute, but agent
appoints a substitute who executes the deed of sale in name of the principal, while the agent may
have acted outside the scope of his authority, that did not make the sale void, but merely
unenforceable under the second paragraph of Art.1317 of the Civil Code. And only the principal
denied the sale, his acceptance of the proceeds thereof are tantamount to ratification thereof.
Escueta v. Lim, 512 SCRA 411 (2007).
d. Rights of Principal Against Substitute (Art. 1893)
Article 1893: In the cases mentioned in Nos. 1 and 2 of the preceding article, the principal may
furthermore bring an action against the substitute with respect to the obligations which the latter has
contracted under the substitution. (1722a)
Principal is liable upon a sub-agency contract entered into by its selling agent in the name of
the principal, where it appears that the general agent was clothed with such broad powers as to
justify the interference that he was authorized to execute contracts of this kind, and it not
appearing from the record what limitations, if any, were placed upon his powers to act for his
principal, and more so when the principal had previously acknowledged the transactions of the
subagent. xDel Rosario v. La Badenia, 33 Phil. 316 (1916).
8. Liability When Two Or More Agents Appointed by the Same Principal: Responsibility
of Agents Not Solidary (Art. 1894)
Article 1894: The responsibility of two or more agents, even though they have been appointed
simultaneously, is not solidary, if solidarity has not been expressly stipulated. (1723)
EXCEPT :Where Two or More Agents Agree to Be Solidarily Bound (Art. 1895)
Article 1895: If solidarity has been agreed upon, each of the agents is responsible for the non-fulfillment
of agency, and for the fault or negligence of his fellows agents, except in the latter case when the fellow
agents acted beyond the scope of their authority. (n)
COMPARE: Two Principals with Common Agent – Principals Solidarily Liable (Art. 1915)
Article 1915: If two or more persons have appointed an agent for a common transaction or undertaking,
they shall be solidarily liable to the agent for all the consequences of the agency. (1731)
When two letters of attorney are issued simultaneously to two different attorneys-in-fact, but covering
the same powers shows that it was not the principal’s intention that they should act jointly in
order to make their acts valid; the separate act of one of the attorney-in-fact, even when not
consented to by the other attorney in fact, is valid and binding on the principal, especially the
principal did not only repudiate the act done, but continued to retain the said attorney-in-fact.
Municipal Council of Iloilo v. Evangelista, 55 Phil. 290 (1930).
9. RULE ON LIABILITY RULES TO THIRD PARTIES: Agent Not Bound to Third Parties; It Is the
Principal Who Is Bound by the Contracts Entered Into By the Agent (Art. 1897)
25Also Lim v. CA, 271 SCRA 12 (1997).

Article 1897: 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. (1725)
A promissory note and mortgages executed by agent for and on behalf of his principal, in
accordance with a power of attorney, are valid, and as provided by Art. 1727, the principal must
fulfill the obligations contracted by the agent. xPNB v. Palma Gil, 55 Phil. 639 (1931).
The settlement or adjustment agent in the Philippines of a New York insurance company is no
different from any other agent from the point of view of his responsibility: whenever he adjusts or
settles a claim, he does it in behalf of his principal, and his action is binding upon his principal,
and the agent does not assume any personal liability, and he cannot be sued on his own right;
the recourse of the insured is to press his claim against the principal. xSalonga v. Warner Barnes,
88 Phil 125 (1951).26
A resident agent, as a representative of the foreign insurance company, is tasked only to
receive legal processes on behalf of its principal and not to answer personally for the any
insurance claims. xSmith Bell v. Court of Appeals, 267 SCRA 530 (1997).
Where buyer effects payment of part of purchase price to one of seller’s creditors pursuant to
the terms of the deed of sale, there is no subrogation that takes place, as the buyer then merely
acts as an agent of seller effecting payment that was due to the seller in favor of a third-party
creditor. xChemphil Export v. Court of Appeals, 251 SCRA 217 (1995).
Agents who have been authorized to sell parcels of land cannot claim personal damages in
the nature of unrealized commission where the buyer refuses to proceed with the sale. The
rendering of such service did not make them parties to the contracts of sale executed in behalf of
the latter. Since a contract may be violated only by the parties thereto as against each other, the
real parties-in-interest, either as plaintiff or defendant, in an action upon that contract must,
generally, either be parties to said contract. xUy v. Court of Appeals, 314 SCRA 69 (1999).27
A person acting as a mere representative of another acquires no rights whatsoever, nor does
he incur any liabilities arising from the said contract between his principal and another party.
xAngeles v. PNR, 500 SCRA 444 (2006).28
Art. 1897 reinforces the familiar doctrine that an agent, who acts as such, is not personally
liable to the party with whom he contracts; it is the principal who is liable on the contracts of the
agent. Eurotech Industrial Technologies, Inc. v. Cuizon, 521 SCRA 584 (2007).29
Since, as a rule, the agency, as a contract, is binding only between the contradicting parties,
then only the parties, as well as the third person who transacts with the parties themselves, may
question the validity of the agency or the violation of the terms and conditions found therein.
xVillegas v. Lingan, 526 SCRA 63 (2007).
a. EXCEPT: When Agent Expressly Binds Himself (Art. 1897):
When the attorney-in-fact of the owner of a parcel of land acted within the scope of his authority
by mortgaging the property of the principal, the principal is bound by the mortgage, and cannot
use the fact that the agent has also bound himself personally to the debt. There is nothing in the
law which prohibits an agent from binding himself personally for the debt incurred in behalf of the
principal. In fact the law recognizes such undertaking as valid and binding on the agent. xTuason
v. Orozco, 5 Phil 596 (1906).
Under Art. 1897, an agent who expressly binds himself to the contract entered into on behalf
of the principal becomes personally bound thereto . But the doctrine is not applicable vice–versa,
since everything agreed upon by the principal to be binding on himself is not legally binding
personally on the agent. Thus, when the previous agent of the union bound itself personally liable
on the contracts of the union, the new agent is not bound by the assumption undertaken by original
agent. xBenguet v. BCI Employees, 23 SCRA 465 (1968).
b. EXCEPT: When Agent Exceeds Authority Without Giving Notice of Limited Powers
(Art. 1897) – Only the Agent Is Liable, Principal Is Not Liable Unless He Ratifies.
26
Also E Macias & Co. v. Warner, Barnes & Co., 43 Phil 155 (1922).
27Ormoc Sugarcane Planters’ Assn. v. CA, 596 SCRA 630 (2009).
28Chua v. Total Office Products and Services, 471 SCRA 500 (2005); Tan v. Engineering Services, 498 SCRA 93 (2006); Chong v. CA, 527
SCRA 144 (2007); Heirs of Eugenio Lopez, Sr. v. Querubin, 753 SCRA 371 (2015).
29Country Bankers Insurance v Keppel Cebu Shipyard, 673 SCRA 427 (2012).

Under Art. 1897 when an agent acts in behalf of the principal, he cannot be held liable
personally, except when he acts outside the scope of his authority. Thus, a third party cannot
generally sue on the contract seeking both principal and agent to be liable thereon, for by suing
the principal, the agent is deemed not to be personally liable. On the other hand, if the agent is
being sued on the basis that he acted outside the scope of his authority, then it does not make
sense to be also suing the principal who cannot be held liable for the acts of the agent outside
the scope of his authority. At any rate, Art. 1897 does not hold that in cases of excess of authority,
both the agent and the principal are liable to the other contracting party. xPhil. Products Co. v.
Primateria Society Anonyme, 15 SCRA 301 (1965).30
Where an agent defies the instructions of its principal in New York not to proceed with the sale
due to non-availability of carriage, it has acted without authority or against its principal’s
instructions and holds itself personally liable for the contract it entered into with the local company.
National Power Corp. v. NAMARCO, 117 SCRA 789 (1982).
c. EXCEPT: When Agent Acts with Fraud or Negligence: Solidarily Bound with Principal
The rule relied upon by the agent to avoid the imposition of the liquidated damages provided
for in the contract of sale that every person dealing with an agent is put upon inquiry and must
discover upon his peril the authority of the agent would apply if the principal is sought to be held
liable on the contract entered into by the agent. That is not so in this case for it is the agent that
it sought to be held liable on a contract which was expressly repudiated by the principal because
the agent took chances, it exceeded its authority, and, in effect, it acted in its own name.
xNAPOCOR v. NAMARCO, 117 SCRA 789, 800 (1982).
The practice in group insurance business, which is consistent with the jurisprudence thereon
in the State of California from whose laws our Insurance Code has been mainly patterned, is that
the employer-policyholder who takes out the insurance for its officers and employees, is the agent
of the insurer who has authority to collect the proceeds from the insurer. In this case, the insurer,
through the negligence of its agent, allowed a purported attorney-in-fact whose instrument does
not clearly show such power to collect the proceeds, it was liable therefor under the doctrine that
the principal is bound by the misconduct of its agent. xPineda v. Court of Appeals, 226 SCRA 754
(1993).
Where lending bank required borrower to obtain a mortgage-redemption-insurance and
deducted the premiums thereto from the loan proceeds, it was wearing two hats, as a lender and
as insurance agent. When it turned out that the bank knew or ought to have known that borrower
was not qualified at his age for MRI coverage which prevented his insurance coverage at the time
of the borrower’s death, the bank was deemed to have been an agent who acted beyond the
scope of its authority. Under Art. 1897, if third person dealing with an agent is unaware of the
limits of the authority conferred by the principal and third person has been deceived by the non-
disclosure thereof by the agent, then the latter is liable for damages to him. The rule is founded
upon the supposition that there has been some wrong or omission on his part either in
misrepresenting, or in affirming, or concealing the authority under which he assumes to act.
DBP v. Court of Appeals, 231 SCRA 370 (1994).
Every principal is subject to liability for loss caused to another by the latter’s reliance upon a
deceitful representation by an agent in the course of his employment (1) if the representation is
authorized; (2) if it is within the implied authority of the agent to make for the principal; or (3) if it
is apparently authorized, regardless of whether the agent was authorized by him or not to make
the representation. Pahud v. CA, 597 SCRA 13 (2009).
d. Agent Is Criminally Liable for Crime Committed in the Pursuit of the Agency
The Law on Agency has no application in criminal cases, and no man can escape punishment
when he participates in the commission of a crime upon the ground that he simply acted as an
agent of any party. xPeople v. Chowdury, 325 SCRA 572 (2000).
10. Obligation Rules for Commission Agents: Sales on Consignment Arrangements

a. Commission Agent Responsible for Goods Received According to Terms and
Conditions and as Described in Consignment (Art. 1903)
Article 1903: The commission agent shall be responsible for the goods received by him in the terms and
conditions and as described in the consignment, unless upon receiving them he should make a written
statement of the damage and deterioration suffered by the same. (n)
30Reiterated in Eurotech Industrial Technologies v. Cuizon, 521 SCRA 584 (2007).

EXCEPT: When Has Made Written Statement of Damage/Deterioration(Art. 1903)
Article 1903: The commission agent shall be responsible for the goods received by him in the terms and
conditions and as described in the consignment, unless upon receiving them he should make a written
statement of the damage and deterioration suffered by the same. (n)
In sale on consignment, as a form of agency, consignee-agent is relieved from his liability to
return the goods received from the consignor-principal when it is shown by preponderance of
evidence in the civil case brought that the goods were taken from the custody of the consignee
by robbery, and no separate conviction of robbery is necessary to avail of the exempting
provisions under Art.1174 for force majeure. xAustria v. Court of Appeals, 39 SCRA 527 (1971).
c. Agent Handling Various Goods for Different Owners (Art. 1904):He Must Distinguish
Them by Countermarks If Goods of Same Kind and Mark
Article 1904: The commission agent who handles goods of the same kind and mark, which belong to
different owners, shall distinguish them by countermarks, and designate the merchandise respectively
belonging to each principal. (n)
PURPOSE: To Prevent Conflict of Interest Among Owners

COMPARE: Contracts of Deposit under Art. 1976:Depositary May Commingle Grain or
Other Articles of Similar Nature and Quality – Ownership pro-rata
Article 1976. Unless there is a stipulation to the contrary, the depositary may commingle grain or other
articles of the same kind and quality, in which case the various depositors shall own or have a
proportionate interest in the mass.
d. Commission Agent Cannot Sell on Credit Without Principal’s Consent (Art. 1905)
Article 1905: The commission agent cannot, without the express or implied consent of the principal, sell
on credit. Should he do so, the principal may demand from him payment in cash, but the commission
agent shall be entitled to any interest or benefit, which may result from such sale. (n)
OTHERWISE: Considered as Cash Sales

Whether as an agency to sell or a contract of sale, liability of Green Valley is indubitable.
Adopting Green Valley’s theory that the contract is an agency to sell, it is liable because it sold
on credit without authority from its principal. Under Art. 1905, without the express or implied
consent of principal, commission agent cannot sell on credit; should it do so principal may demand
from him payment in cash. Green Valley v. IAC, 133 SCRA 697 (1984).
e. When With Principal’s Authority to Sell on Credit: (Art. 1906)
Article 1906: Should the commission agent, with authority of the principal, sell on credit, he shall so
inform the principal, with a statement of the names of the buyers. Should he fail to do so, the sale shall
be deemed to have been made for cash insofar as the principal is concerned. (n)
 Inform the Principal with Statement of Buyer’s Names;

 Effect of Non-Compliance – Considered Cash Sale
f. Effect When Agent Receives Guaranty or Del Credere Commissions (Art. 1907):
Article 1907: Should the commission agent receive on a sale, in addition to the ordinary commission,
another called a guarantee commission, he shall bear the risk of collection and shall pay the principal
the proceeds of the sale on the same terms agreed upon with the purchaser. (n)
 He Shall Bear the Risk of Collection

 He Shall Pay Principal the Proceeds on Same Terms Agreed with Purchaser
g. Liability for Failure to Collect Principal’s Credit When Due (Art. 1908)
Article 1908: The commission agent who does not collect the credits of his principal at the time when
they become due and demandable shall be liable for damages, unless he proves that he exercised due
diligence for that purpose. (n)
 Liability for Damages

 Unless Due Diligence Proven
IV. OBLIGATIONS OF THE PRINCIPAL

1. OBLIGATIONS OF PRINCIPAL WITH THIRD PARTIES WITH WHOM THE AGENT CONTRACTS
a. The Principal Is Bound By the Contracts Entered Into by the Agent:
 Entered Into in the Name of the Principal (Art. 1883)
Article 1883: If an agent acts in his own name, the principal has no right of action against the persons
with whom the agent has contracted; neither have such persons against the principal.
 Done Within Agent’s Scope of Authority (Art. 1897)
 And Even When the Agent Acts with Negligence or Fraud (Art. 1909)
Article 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.
(1726)
Where authorized agent failed to indicate in the mortgage that she was acting for and on behalf
of her principal; and the Real Estate Mortgage explicitly shows on its face that it was signed by
agent in her own name and in her own personal capacity. Thus, consistent with the law on agency,
the principal cannot be bound by the acts of the agent. The third-party bank has no one to blame
but itself: Not only did it act with undue haste when it granted and released the loan in less than
three days, it also acted negligently in preparing the Real Estate Mortgage as it failed to indicate
that agent was signing it for and on behalf of principal. xBucton v. Rural Bank of El Salvador,
Inc.,717 SCRA 278 (2014).
Since the general rule is that the principal is bound by the acts of his agent in the scope of the
agency, therefore when the agent had full authority to make the tax returns and file them, together
with the check payments, with the Collector of Internal Revenue on behalf of the principal, then
the effects of dishonesty of the agent must be borne by the principal, not by an innocent third
party who has dealt in good faith with the dishonest agent. xLim Chai Seng v. Trinidad, 41 Phil.
544 (1921).
A person with whom an agent has contracted in the name of his principal, has a right of action
against the purported principal, even when the latter denies the authority of the agent, in which
case the party suing has the burden of proving the existence of the agency. If the agency relation
is proved, then the principal shall be held liable, and the agent who is made a party to the suit
cannot be held personally liable. On the other hand, if the agency relationship is not proven, it
would be the agent who would become liable personally on the contract. xNantes v. Madriguera,
42 Phil. 389 (1921).
As a general rule, the mismanagement of the business by his agents does not relieve said
party-principal from the responsibility that he had contracted with third persons. xCommercial
Bank & Trust Co. v. Republic Armored Car Services Corp., 8 SCRA 425 (1963).
Where petitioners had issued a check in payment of the judgment debt and made
arrangements with the bank to allow the encashment thereof, but check was dishonored by the
bank which increased the amount of the judgment debt, then the defense of petitioner that he
cannot be held liable for the oversight of the bank is untenable: Principal is responsible for the
acts of the agent, done within the scope of his authority, and should bear the damages caused
upon third parties; petitioner’s remedy is recover from the bank. xLopez v. Alvendia, 12 SCRA
634 (1964).
Where principal issued the checks in full payment of the taxes due, but his agents had
misapplied the check proceeds, the principal would still be liable, because when a contract of
agency exists, the agent’s acts bind his principal, without prejudice to the latter seeking recourse
against the agent in an appropriate civil or criminal action. xDyPeh v. Collector of Internal
Revenue, 28 SCRA 216 (1969).
When a third party admitted that she had contracted with the principal through a duly
authorized agent, and then sues both the principal and the agent on an alleged breach of that
contract, and in fact later on dismisses the suit insofar as the principal is concerned, there can be
no cause of action against the agent. Since it is the principal who should be answerable for the
obligation arising from the agency, it is obvious that if a third person waives his claims against the
principal, he cannot assert them against the agent. xBedia v. White, 204 SCRA 273 (1991).
The fact that the agent defrauded the principal in not turning over the proceeds of the
transactions to the latter cannot in any way relieve or exonerate such principal from liability to the
third persons who relied on his agent’s authority. It is an equitable maxim that as between two

innocent parties, the one who made it possible for the wrong to be done should be the one to bear
the resulting loss. xCuison v. Court of Appeals, 227 SCRA 391 (1993).
Principal is not absolve from damages sustained by its buyer based on the fault primarily
caused by its agent in pointing to the wrong lot, since under Arts. 1909 and 1910, the liability of
the principal for acts done by the agent within the scope of his authority do not exclude those
done negligently. Pleasantville Dev. v. Court of Appeals, 253 SCRA 10 (1996).
b. Agent’s Written Power of Attorney, Insofar as Concerns Third Persons, Governs on
Questions Whether Agent Acted Within Scope of Authority Even if it Exceeds Authority
According to Understanding Between Principal and Agent (Art. 1900)
Article 1900: So far as third persons are concerned, an act is deemed to have been performed within
the scope of the agent's authority, if such act is within the terms of the power of attorney, as written, even
if the agent has in fact exceeded the limits of his authority according to an understanding between the
principal and the agent. (n)
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 an understanding between
the principal and his agent. xEugenio v. Court of Appeals, 239 SCRA 207 (1994). CONSEQUENTLY:
 Spouses Rabaja did not recklessly enter into a contract to sell with Gonzales. They required
her presentation of the power of attorney before they transacted with her principal. And when
Gonzales presented the SPA to Spouses Rabaja, the latter had no reason not to rely on
it.Salvador v. Rabaja, 749 SCRA 654 (2015).
 Where wife gave husband a power of attorney “to loan and borrow money,” and for such
purpose to mortgage her property, the resulting transactions are binding upon the wife
regardless of what the husband may have done with the loan proceeds. Bank of P.I. v. De
Coster, 47 Phil 594 (1925).
 Where memorial park company authorized its agent to solicit and remit offers to purchase
internment spaces obtained on forms provided therefore, then the terms of the offer to
purchase, therefore, are contained in such forms and, when signed by the buyer and an
authorized officer of the company, becomes binding on both the company and said buyer.
Any arrangement, term or condition outside of those provided in the form do not bind the
principal, since the same were made obviously outside the agent’s authority. When the power
of the agent to sell are governed by the written form, it is beyond the authority of the agent
as a fact that is deemed known and accepted by the third person, to offer terms and
conditions outside of those provided in writing. Manila Memorial Park Cemetery v.
Linsangan, 443 SCRA 377 (2004).
It is a settled rule that third persons dealing with an assumed agent, whether the assumed
agency be a general or special one, are bound at their peril if they would hold the principal liable,
to act with ordinary prudence and reasonable diligence to ascertain (i) not only the fact of agency,
(ii) but also the nature and extent of authority, and in case either is controverted, the burden of
proof is upon them to establish it. Harry Keeler v. Rodriguez, 4 Phil. 19
(1922).31CONSEQUENTLY:
 Where a bank accepted a letter of guarantee signed by a mere credit administrator on behalf
of the finance company, the burden was on the bank to satisfactorily prove that the credit
administrator with whom they transacted acted within the authority given to him by his
principal. xBA Finance v. Court of Appeals, 211 SCRA 112 (1992).
 When one knowingly deals with the sales representative of a car dealer company, it is
incumbent upon such person to know the extent of the sales representative’s authority as an
agent in respect of contracts to sell the vehicles. Such person ought to know that he is dealing
with an agent, normal business practice does not warrant a sales representative to have
power to enter into a valid and binding contract of sale for the company. xToyota Shaw, Inc.
v. CA, 244 SCRA 320 (1995).
 Mere representation or declaration of one that he is authorized to act on behalf of another
cannot of itself serve as proof of his authority to act as agent or of the extent of his authority
as agent. xYuEng Cho v. PANAM, 328 SCRA 717 (2000).
 Burden of proof of the authority of the agent is not overcome when the agent himself
specifically denied that she was authorized by the respondents-owners to sell the properties,
both in her answer to the complaint and when she testified. xLitonjua v. Fernandez, 427
SCRA 478 (2004).
31Also Strong v. Repide, 6 Phil. 680 (1906); Deen v. Pacific Commercial Co., 42 Phil. 738 (1922); Veloso v. La Urbana, 58 Phil. 681 (1933);
Pineda v. CA, 226 SCRA 754 (1993); Bacaltos Coal Mines v. CA, 245 SCRA 460 (1995); Litonjua, Jr. v. Eternit Corp., 490 SCRA 204 (2006);
Escueta v. Lim, 512 SCRA 411 (2007); Soriamont Steamship Agencies v. Sprint Transport Services, 592 SCRA 622 (2009).

 That the person applying for the loan is other than the registered owner of the real property
being mortgaged should have already raised a red flag with the Bank and which should have
induced it to make inquiries into and confirm Santos’ authority to mortgage. A person who
deliberately ignores a significant fact that could create suspicion in an otherwise reasonable
person is not an innocent purchaser for value. Bank of Commerce v. San Pablo, Jr., 522
SCRA 713 (2007).
 Undue haste in granting the loan without inquiring into the ownership of the subject properties
being mortgage, as well as the authority of the supposed agent to constitute the mortgages
on behalf of the owners, bank accepting the mortgage cannot be deemed a mortgagee in
good faith. xSan Pedro v. Ong, 569 SCRA 767 (2008).
Ignorance of a person of the scope of the agent’s authority he is dealing with is no excuse
and the fault cannot be thrown upon the principal. A person dealing with an agent assumes the
risk of lack of authority of the agent. He cannot charge the principal by relying upon the agent’s
assumption of authority that proves to be unfounded. The principal, on the other hand, may act
on the presumption that third persons dealing with his agent will not be negligent in failing to
ascertain the extent of his authority as well as the existence of his agency. Manila Memorial
Park Cemetery, Inc. v. Linsangan, 443 SCRA 377 (2004).
c. Principal Not Bound to Contracts Entered Into By Agent Outside of His Authority (Arts.
1898 and 1910),
Article 1898: 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. In this case, however, the agent is liable if
he undertook to secure the principal's ratification. (n)
Article 1910: The principal must comply with all the obligations which the agent may have contracted
within the scope of his authority.
As for any obligation wherein the agent has exceeded his power, the principal is not bound except when
he ratifies it expressly or tacitly. (1727)
(i) When Principal Ratifies, Expressly or Impliedly (Art. 1901)
Article 1901: A third person cannot set up the fact that the agent has exceeded his powers, if the principal
has ratified, or has signified his willingness to ratify the agent's acts. (n)
Where a sale of land is effected through an agent who made misrepresentations to the buyer
that the property can be delivered physically to the buyer when in fact it was in adverse possession
of third parties, the seller-principal is bound for such misrepresentations and cannot insist that the
contract is valid and enforceable; the seller-principal cannot accept the benefits derived from such
representations of the agent and at the same time deny the responsibility for them. Gonzales v.
Haberer, 47 Phil. 380 (1925).
In agency, ratification is the adoption/confirmation by principal of an act performed on his
behalf by another without authority—the substance of the doctrine is confirmation after conduct,
amounting to a substitute for a prior authority. For ratification to take place, it is required that the
principal must have full knowledge at the time of ratification of all the material facts and
circumstances relating to the unauthorized act of the person who assumed to act as agent; and
that is such material facts were suppressed or unknown, there can be no valid ratification.
Nevertheless, if the principal’s ignorance of the material facts and circumstances was willful, or
that the principal chooses to act in ignorance of the facts, there would still be ratification. Only the
principal can ratify; the agent cannot ratify his own unauthorized acts. Moreover, the principal
must have knowledge of the acts he is to ratify.Manila Memorial Park Cemetery, Inc. v.
Linsangan, 443 SCRA 377, 394 (2004).
Since the basis of agency is representation, then the question of whether an agency has been
created is ordinarily a question which may be established in the same way as any other fact,
either by direct or circumstantial evidence. Though that fact or extent of authority of the agents
may not, as a general rule, be established from the declarations of the agents alone, if one
professes to act as agent for another, she may be estopped to deny her agency both as against
the asserted principal and the third persons interested in the transaction in which he or he is
engaged. xDoles v. Angeles, 492 SCRA 607 (2006).
Even when agent exceeds his authority, principal is still solidarily liable with the agent, if
principal allowed agent to act as though the agent had full powers. In other words, the acts of an
agent beyond the scope of his authority do not bind the principal, unless the principal ratifies them,
expressly or implied. Ratification in agency is the adoption or confirmation by one person of an
act performed on his behalf by another without authority.” Innocent third persons should not be

prejudiced if the principal failed to adopt the needed measures to prevent misrepresentation,
much more so if the principal ratified his agent’s acts beyond the latter’s authority. Filipinas
Life Assurance Co. v. Pedroso, 543 SCRA 542 (2008).
Under Arts. 1898 and 1910, agent’s act done beyond the scope of authority may bind principal
if he ratifies them, whether expressly or tacitly. Only the principal, and not the agent, can ratify
the unauthorized acts, which the principal must have knowledge of. Thus, where the special
power of attorney that an agent for the insurance company provides clearly the limit of the entities
to whom he can issue a surety bond, as well as the limit of the amounts that it can cover, an
insured who does not fall within such authority cannot claim good faith as to make the surety
issued outside of the scope of authority binding on the insurance company. xCountry Bankers
Insurance v Keppel Cebu Shipyard, 673 SCRA 427 (2012).
(ii) Third Person Cannot Set-up Facts of Agent’s Exceeding Authority Where Principal
Ratified or Signified Willingness to Ratify Agent’s Acts (Art. 1901)
Article 1901: A third person cannot set up the fact that the agent has exceeded his powers, if the principal
has ratified, or has signified his willingness to ratify the agent's acts. (n)
 Principal Should Be the One to Question Agent’s Lack/Excess of Authority

 Power of Attorney (Must) Be Required by Third Party (Art. 1902)
Article 1902: A third person with whom the agent wishes to contract on behalf of the principal may
require the presentation of the power of attorney, or the instructions as regards the agency. Private or
secret orders and instructions of the principal do not prejudice third persons who have relied upon the
power of attorney or instructions shown them. (n)
 Private or Secret Orders of Principal Do Not Prejudice Third Persons Who Relied
Upon Agent’s Power of Attorney or Principal’s Instruction(Art. 1902)
Article 1902: A third person with whom the agent wishes to contract on behalf of the principal may
require the presentation of the power of attorney, or the instructions as regards the agency. Private or
secret orders and instructions of the principal do not prejudice third persons who have relied upon the
power of attorney or instructions shown them. (n)
In an expropriation proceeding, the State cannot raise the alleged lack of authority of the
counsel of the owner to bind his client in a compromise agreement because such lack of authority
may be questioned only by the principal or client. [Since it is within the right or prerogative of the
principal to ratify even the unauthorized acts of the agent]. xCommissioner of Public Highways v.
San Diego, 31 SCRA 617 (1970)
(iii) Where Agent Acts in Excess of Authority, But the Principal Allowed Agent to Act as
Though Agent Had Full Powers (Art. 1911)
Article 1911: 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. (n)
 Doctrine of Apparent Authority

Where bank, by its acts and failure to act, has clearly clothed its manager with apparent
authority to sell a piece of land in the normal course of business, it is legally obliged to confirm
the transaction by issuing a board resolution to enable the buyers to register the property in their
names. xRural Bank of Milaor v. Ocfemia, 325 SCRA 99 (2000).
The doctrine of apparent authority focuses on two factors: first the principal’s manifestations
of the existence of agency which need not be expressed, but may be general and implied; and
second, is the reliance of third persons upon the conduct of the principal or agent. Under the
doctrine, the question in every case is whether the principal has by his voluntary act placed the
agent in such a situation that a person of ordinary prudence, conversant with business usages
and the nature of the particular business, is justified in presuming that such agent has authority
to perform the particular act in question. xProfessional Services, Inc. v. CA, 544 SCRA 170
(2008); 611 SCRA 282 (2010).
Easily discernible from the foregoing is that apparent authority is determined only by the acts
of the principal and not by the acts of the agent. The principal is, therefore, not responsible
where the agent’s own conduct and statements have created the apparent authority. xSargasso
Construction & Dev. Corp. v. PPA, 623 SCRA 260 (2010).
There can be no apparent authority of an agent without acts or conduct on the part of the
principal, which must have been known and relied upon in good faith as a result of the exercise
of reasonable prudence by a third party claimant, and which must have produced a change of
position to the third party’s detriment. There is no basis to apply the doctrine where there is no
evidence showing manner by which the supposed principal, has “clothed” or “held out” its branch

manager as having the power to enter into an agreement, as claimed by petitioners. xBanate v.
Philippine Countryside Rural Bank, 625 SCRA 21 (2010).
Basic is the rule that the revocation of an agency becomes operative, as to the agent, from
the time it is made known to him. Third parties dealing bona fide with one who has been
accredited to them as a n agent, however, are not affected by the revocation of the agency,
unless notified of such renovation. This refers to the doctrine of apparent authority. Under the
said doctrine, acts and contracts of the agent within the apparent scope of the authority
conferred to him, although no actual authority to do such acts or has been before hand
withdrawn, revoked or terminated, bind the principal. Hence, apparent authority may survive the
termination of actual authority or of an agency relationship. Bitte v. Jonas, 777 SCRA 489
(2015).
 Agency by Estoppel
By opening of branch office with the appointment of its branch manager and honoring several
surety bonds issued in its behalf, insurance company induced the public to believe that its
branch manager had authority to issue such bonds. Insurance company was estopped from
pleading against a regular customer thereof, that the branch manager had no authority. xCentral
Surety & Insurance Co. v. C.N. Hodges, 38 SCRA 159 (1971).
Even when agent of real estate company acts unlawfully and outside the scope of authority,
the principal can be held liable when by its own act it accepts without protest the proceeds of
the sale of the agents which came from double sales of the same lots, as when learning of the
misdeed, it failed to take necessary steps to protect the buyers and failed to prevent further
wrong from being committed when it did not advertise the revocation of the authority of the culprit
agent. In such case the liabilities of both the principal and the agent is solidary. xManila
Remnants v. Court of Appeals, 191 SCRA 622 (1990).
For an agency by estoppel to exist, following must be proved: (1) principal manifested a
representation of the agent’s authority or knowingly allowed the agent to assume such authority;
(2) third person, in good faith, relied upon such representation; (3) relying upon such
representation, such third person has changed his position to his detriment. An agency by
estoppel, which is similar to doctrine of apparent authority, requires proof of reliance upon
representations, which needs proof that the representations predated the action taken in
reliance. Litonjua, Jr. v. Eternit Corp., 490 SCRA 204 (2006).32
For one to successfully claim the benefit of estoppel on the ground that he has been misled
by the representations of another, he must show that he was not misled through his own want
of reasonable care and circumspection. xCountry Bankers Insurance v. Keppel Cebu Shipyard,
673 SCRA 427 (2012).
2. Rights of Persons Who Contracted for Same Thing, One With Principal and the Other
With Agent (Art. 1916):
Article 1916: When two persons contract with regard to the same thing, one of them with the agent and
the other with the principal, and the two contracts are incompatible with each other, that of prior date
shall be preferred, without prejudice to the provisions of article 1544. (n)
 That of Prior Date Is Preferred

 If a Double Sale Situation – Art. 1544 Governs
Article 1544: If the same thing should have been sold to different vendees, the ownership shall be
transferred to the person who may have first taken possession thereof in good faith, if it should be
movable property.
Should it be immovable property, the ownership shall belong to the person acquiring it who in good faith
first recorded it in the Registry of Property.
Should there be no inscription, the ownership shall pertain to the person who in good faith was first in
the possession; and, in the absence thereof, to the person who presents the oldest title, provided there
is good faith. (1473)
IN WHICH CASE: the Liability to Third Person Whose Contract Must Be Rejected Shall
Be as Follows: (Art. 1917):
Article 1917: In the case referred to in the preceding article, if the agent has acted in good faith, the
principal shall be liable in damages to the third person whose contract must be rejected. If the agent
acted in bad faith, he alone shall be responsible. (n)
32Yun Kwan Byung v. PAGCOR, 608 SCRA 107 (2009).

 If Agent in Good Faith – Principal Liable
 If Agent in Bad Faith – Agent Alone Liable
3. Liability of Principal to Third Persons for Acts of the Agent’s Employees

That the employee of the airline company’s agent has committed a tort is not sufficient to hold
the airline company liable—there is no vinculum juris between the airline company and its agent's
employees and the contractual relationship between the airline company and its agent does not
operate to create a juridical tie between the airline company and its agent’s employees. Article
2180 of the Civil Code does not make the principal vicariously liable for the tort committed by its
agent’s employees and the principal-agency relationship per se does not make the principal a party
to such tort; hence, the need to prove the principal’s own fault or negligence. xSpouses Viloria v.
Continental Airlines, Inc., 663 SCRA 57 (2012).
COMPARE: With regard to the delivery of the petroleum, Villaruz was acting as the agent of petitioner
Petron: for a fee, he delivered the petroleum products on its behalf; and notably, Petron even
imposed a penalty clause in instances when there was a violation of the hauling contract, wherein
it may impose a penalty ranging from a written warning to the termination of the contract. Therefore,
as far as the dealer was concerned with regard to the terms of the dealership contract, acts of
Villaruz and his employees are also acts of Petron. xPetronCorp. v. Spouses Cesar Jovero& Erma
F. Cudilla, 663 SCRA 172 (2012).
4. OBLIGATIONS OF THE PRINCIPAL WITHIN THE AGENCY ARRANGEMENT

a. Obligation to Pay Agent’s Compensation (Art. 1875)
b. Obligation to Advance Sums Requested for Execution of Agency (Art. 1912)

Article 1912: The principal must advance to the agent, should the latter so request, the sums necessary
for the execution of the agency.
Should the agent have advanced them, the principal must reimburse him therefor, even if the business
or undertaking was not successful, provided the agent is free from all fault.
The reimbursement shall include interest on the sums advanced, from the day on which the advance
was made. (1728)
(1)Agent Has Right to Reimbursement for Expenses Advanced Including Interest from
the Day It Was Advanced
COMPARE: Where Agent Consents and Is Bound to Advance the Sums as Stipulated
(Art. 1886)
Article 1886: Should there be a stipulation that the agent shall advance the necessary funds, he shall
be bound to do so except when the principal is insolvent. (n)
(2)Where Principle Not Liable to Agent for Expenses Incurred (Art. 1918)
Article 1918: The principal is not liable for the expenses incurred by the agent in the following cases:
(1) If the agent acted in contravention of the principal's instructions, unless the latter should wish to avail
himself of the benefits derived from the contract;
(2) When the expenses were due to the fault of the agent;
(3) When the agent incurred them with knowledge that an unfavorable result would ensue, if the principal
was not aware thereof;
(4) When it was stipulated that the expenses would be borne by the agent, or that the latter would be
allowed only a certain sum. (n)
Where 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.Hahn v. Court of Appeals, 266 SCRA 537 (1997).
While Agency Law prohibits the area manager from obtaining reimbursement, his right to
recover may still be justified under the Law on Contracts, particularly Article 1236 of Civil Code

on payment by a third party of the obligation of the debtor, allows recovery “only insofar as the
payment has been beneficial to the debtor.” Thus, to the extent that the obligation of the
insurance company has been extinguished, the area manager may demand for reimbursement
from his principal; otherwise, it would result in unjust enrichment of petitioner. Dominion
Insurance Corp. v. CA, 376 SCRA 239 (2002).
c. Obligation to Indemnify Agent for Damages Sustained in Pursuing Agency (Art. 1913)
Article 1913: The principal must also indemnify the agent for all the damages which the execution of the
agency may have caused the latter, without fault or negligence on his part. (1729)
COMPARE: Liability for Damages for Non-Performance of Agency (Art. 1884)
Article 1884: The agent is bound by his acceptance to carry out the agency, and is liable for the damage
He must also finish the business already begun on the death of the principal, should delay entail any
danger. (1718)
When copra purchased by a company from another company is by way of sale rather than
an agency to purchase, the former is not liable to reimburse the latter for expenses incurred
by the latter in maintaining it purchasing organization intact over a period during which the
actual buying of copra was suspended. xAlbaladejo y Cia. v. PRC, 45 Phil 556 (1923).
d. Agent’s Right to Retain Object as Pledge for Advances and Damages (Art. 1914)
Article 1914: The agent may retain in pledge the things which are the object of the agency until the
principal effects the reimbursement and pays the indemnity set forth in the two preceding articles. (1730)
(1) Agent Bound to Deliver to Principal Everything Received, Even If Not Due the
Principal (Art. 1891).
Article 1891: Every agent is bound to render an account of his transactions and to deliver to the principal
whatever he may have received by virtue of the agency, even though it may not be owing to the principal.
Every stipulation exempting the agent from the obligation to render an account shall be void. (1720a)
(2) Thing Pledged May Be Sold Only After Demand of Amount Due (Art. 2122):
Article 2122: A thing under a pledge by operation of law may be sold only after demand of the amount
for which the thing is retained. The public auction shall take place within one month after such demand.
If, without just grounds, the creditor does not cause the public sale to be held within such period, the
debtor may require the return of the thing. (n)
 Public auction to take place within one (1) month after demand
 Debtor may demand return of not sold within this period
3. Two or More Principals Appoint Agent for Common Transactions (Art. 1915)
a. Obligation of the Principals Is Solidary Because of Their Common Interest

COMPARE: Two or More Agents with One Principal – Agents’ Obligation NOT Solidary,
unless otherwise expressed. (Art. 1894)
Article 1894: The responsibility of two or more agents, even though they have been appointed
simultaneously, is not solidary, if solidarity has not been expressly stipulated. (1723)
b. Any of the Principal May Validly Revoke Agent’s Authority (Art. 1925)
Article 1925: When two or more principals have granted a power of attorney for a common transaction,
any one of them may revoke the same without the consent of the others. (n)
When the law expressly provides for solidarity of the obligation, as in the liability of co-
principals in a contract of agency, each obligor may be compelled to pay the entire obligation.
The agent may recover the whole compensation from any one of the co-principals, as in this case.
xDe Castro v. Court of Appeals, 384 SCRA 607 (2002).
V. EXTINGUISHMENT OF AGENCY
1. Agency Extinguished By (Art. 1919):

Art. 1919. Agency is extinguished:
(1) By its revocation;
(2) By the withdrawal of the agent;
(4) By the dissolution of the firm or corporation which entrusted or accepted the agency;
(5) By the accomplishment of the object or purpose of the agency;
(6) By the expiration of the period for which the agency was constituted. (1732a)
a. Principal’s Express or Implied Revocation

b. Agent’s Withdrawal
c. Death, Civil Interdiction, Insanity or Insolvency of the Principal or the Agent
d. Dissolution of the Juridical Entity Which Entrusted or Accepted the Agency
e. Accomplishment of the Object or Purpose of the Agency
f. Expiration of the Period for Which Agency Was Constituted
2. EXPRESS REVOCATION: Principal May Revoke an “Agency at Will”

a. In Which Case, Principal May Compel Agent to Return the Document Evidencing the
Agency (Art. 1920)
Article 1920: 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. (1733a)
b. In Case of Multiple Principals, Any of the Principals Can Revoke the Authority of Their
Common Agent, Without the Consent of the Others (Art. 1925)
Article 1925: When two or more principals have granted a power of attorney for a common transaction,
any one of them may revoke the same without the consent of the others. (n)
 Obligation of Several Principals to a Common Agent Is Solidary (Art. 1915)
c. Rulings on Power of Principal to Revoke the Agency

Revocation Based on Breach of Trust: Art. 300 of the Code of Commerce expressly authorizes
a merchant to discharge his employee or agent for fraud or breach of trust, or engaging in any
commercial transaction for their own account without the express knowledge and permission of
the principal. xBarretto v. Santa Marina, 26 Phil 440 (1913); xManila Trading v. Manila Trading
Laborers Assn., 83 Phil 297 (1949).
Where no time for continuance of the agency is fixed by the terms, principal is at liberty to
terminate it at will, subject only to the requirements of good faith. xDañon v. Brimo, 42 Phil 133
(1921); xBarretto v. Santa Marina, 26 Phil 440 (1913).
Revocation of a special power of attorney, although embodied in a private writing is valid and
binding between the parties. Phil. National Bank v. IAC, 189 SCRA 680 (1990).
When the terms of the agency contract allowed the agent “to dispose of, sell, cede, transfer
and convey until all the subject property as subdivided is fully disposed of,” the agency is one with
a period and it is not extinguished until all the lots have been disposed of. Consequently, if the
contract is terminated by the principal before all the subdivision lots has been disposed of, there
is a breach for which the principal would be liable for damages. xDialosa v. Court of Appeals,
130 SCRA 350 (1984).
We set aside the portion of the decision reinstating Orient Air as general sales agent of
American Air, even when the revocation was done without proper cause, for courts are without
authority to reinstate an agency arrangement that has been revoked or terminated by the
principal. xOrient Air Services v. Court of Appeals, 197 SCRA 645, 656 (1991).
3. IMPLIED REVOCATION
a. Appointment of New Agent for Same Business/Transaction (Art. 1923)

Article 1923: The appointment of a new agent for the same business or transaction revokes the previous
agency from the day on which notice thereof was given to the former agent, without prejudice to the
provisions of the two preceding articles. (1735a)
 Impliedly Revoked as to Agent Only

 As to Third Persons, Notice to Them Is Necessary (Art. 1922)
In litigation, the fact that a second attorney enters an appearance on behalf of a litigant does
not authorize a presumption that the authority of the first attorney has been withdrawn. xAznar v.
Morris, 3 Phil. 636 (1904).
Where the father first gave a power of attorney over the business to his son, and subsequently
to the mother, without evidence showing that the son was informed of the power of attorney to
the mother, the transaction effected by the son pursuant to his power of attorney, was valid and
binding. xGarcia v. De Manzano, 39 Phil 577 (1919).
b. Principal Directly Manages Business Entrusted to Agent (Art. 1924)
Article 1924: The agency is revoked if the principal directly manages the business entrusted to the
agent, dealing directly with third persons. (n)
If the purpose of the principal in dealing directly with the purchaser and himself effecting the
sale of the principal’s property is to avoid payment of his agent’s commission, the implied
revocation is deemed made in bad faith and cannot be sanctioned without according to the agent
the commission which is due him. xInfante v. Cunanan, 93 Phil 693 (1953).
Where purported agent was given only authority to “follow up” the purchase of fire truck with
municipal government, there was no authority to sell nor was he empowered to make a sale for
and in behalf of the seller. But even if purported agent is considered to have been constituted as
an agent to sell the fire truck, such agency would have been deemed revoked upon resumption
of direct negotiations between seller-principal and the municipality, the purported agent having in
the meantime abandoned all efforts to secure the deal in the seller’s behalf. xGuardex v. NLRC,
191 SCRA 487 (1990).
The act of contractor, who, after executing an SPA to collect whatever amounts may be due
to him from the Government, and thereafter demanded and collected from the government the
money the collection, constituted revocation of the agency in favor of the attorney-in-fact. New
Manila Lumber Co., Inc. v. Republic of the Philippines, 107 Phil. 824 (1960).Damages are
generally not awarded to the agent for the revocation of the agency, and the case at bar is not
one falling under the exception mentioned, which is to evade the payment of the agent’s
commission. CMS Logging v. Court of Appeals, 211 SCRA 374 (1992).
Under Article 1924 of the New Civil Code, “an agency is revoked if the principal directly
manages the business entrusted to the agent, dealing directly with third persons.” Logic dictates
that when a principal disregards or bypasses the agent and directly deals with such person in an
incompatible or exclusionary manner, said third person is deemed to have knowledge of the
revocation of the agency. They are expected to know circumstances that should have put them
on guard as to the continuing authority of that agent. The mere fact of the principal dealing directly
with the third person, after the latter had dealt with an agent, should be enough to excited the
third person’s inquiring mind on the continuation of his authority. Bitte v. Jonas, 777 SCRA
489 (2015).
c. General Power of Attorney Is Revoked by a Special One Granted to Another Agent, As
Regards the Special Matter Involved in the Latter (Art. 1926)
A special power of attorney giving the son the authority to sell the principals properties is
deemed revoked by a subsequent general power of attorney that does not give such power to the
son, and any sale effected thereafter by the son in the name of the father would be void.
DyBuncio and Co. v. Ong Guan Ca, 60 Phil 696 (1934).
4. CASES OF IRREVOCABLE AGENCIES (Art. 1927): “Agency Coupled with Interest”

Article 1927: An agency cannot be revoked if a bilateral contract depends upon it, or if it is the means
of fulfilling an obligation already contracted, or if a partner is appointed manager of a partnership in the
contract of partnership and his removal from the management is unjustifiable. (n)
a. When a Bilateral Contract Depends Upon the Continued Existence of the Agency

An exception to the revocability of a contract of agency is when it is coupled with interest, i.e.,
if a bilateral contract depends upon the agency. The reason for its irrevocability is because the
agency becomes part of another obligation or agreement. It is not solely the rights of the principal
but also that of the agent and third persons which are affected.Republic v. Evangelista, 466
SCRA 544 (2005).
b. When It Is the Means of Fulfilling an Obligation Already Contracted
Unlike simple SPAs, an agency coupled with interests cannot be revoked at will, since it had
been created for the mutual interest of the agent and the principal. It appears that Lina Sevilla is
a bona fide travel agent herself, and had acquired an interest in the business entrusted to her:
she had assumed a personal obligation for the operation thereof, holding herself solidarily liable
for the payment of rentals; she used her own name in pursuing the business, after Tourist World
had stopped further operations. Her interest, obviously, is not limited 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 cannot be revoked at the
pleasure of the principal. Sevilla v. Court of Appeals,160 SCRA 171 (1988).
“In the insurance business, the most difficult and frustrating period is the solicitation and
persuasion of the prospective clients to buy insurance policies. Normally, agents would encounter
much embarrassment, difficulties, and oftentimes frustrations in the solicitation and procurement
of the insurance policies. To sell policies, an agent exerts great effort, patience, perseverance,
ingenuity, tact, imagination, time and money. Therefore, the respondents cannot state that the
agency relationship between Valenzuela and Philamgen is not coupled with interest. “There may
be cases in which an agent has been induced to assume a responsibility or incur a liability, in
reliance upon the continuance of the authority under such circumstances that, if the authority be
withdrawn, the agent will be exposed to personal loss or liability. Furthermore, there is an
exception to the principle that an agency is revocable at will and that is when the agency has
been given not only for the interest of the principal but for the interest of third persons or for the
mutual interest of the principal and the agent. In these cases, it is evident that the agency ceases
to be freely revocable by the sole will of the principal.”Valenzuela v. Court of Appeals, 191
SCRA 1 (1990).
Relationship between NASUTRA/SRA and PNB when the former constituted the latter as its
attorney-in-fact is not a simpIe agency, because NASUTRA/SRA has assigned and practically
surrendered its rights in favor of PNB for a substantial consideration. To reiterate, NASUTRA/SRA
executed promissory notes in favor of PNB every time it availed of the credit line. The agency
established is one coupled with interest which cannot be revoked at will by any of the parties.”
National Sugar Trading v. PNB, 396 SCRA 528 (2003).
There is no question that the SPA executed is a contract of agency coupled with interest. But
in this case, although the revocation was done in bad faith, respondents did not act in a wanton,
fraudulent, reckless, oppressive or malevolent manner. They revoked the SPA because they were
not satisfied with the amount of the loan approved. Thus, petitioners are not entitled to exemplary
damages. Ching v. Bantolo, 687 SCRA 134 (2012). Indeed, even an agency coupled with interest
may indeed be revoked on the ground of fraud committed by the agent, which is really an act of
rescission, the same must be clearly be proven. xBacaling v. Muya, 380 SCRA 714 (2002).
c. Unjustified Removal of a Managing Partner – Revocation Needs the Vote of Controlling
Partners (Art. 1800)
A power of attorney coupled with interest in a partnership can be revoked for a just cause,
such as when the attorney-in-fact betrays the interest of the principal. 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 to authorizing the agent to commit
frauds against the principal. xColeongco v. Claparols, 10 SCRA 577 (1964).
5. Effects of Revocation on Third Parties

a. Agency Created With Reference to Specified Third Parties, Revocation Affects Such
Third Parties Only When So Notified (Art. 1921)
Article 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. (1734)
Where principal had revoked agent’s power to handle the business, but such revocation was
not conveyed to a long-standing client to whom the agent had been specifically endorsed in the
past by the principal, the revocation was not deemed effective as to such client and the contracts
entered into by agent for the principal after the revocation would still be valid and binding against
the principal. Rallos v. Yangco, 20 Phil 269 (1911).33
33Cia. Gen. De Tobacos v. Diaba, 20 Phil 321 (1911).

Where the land’s principal owner executes an SPA giving agent the power to mortgage the
same, even when there has been a revocation thereof, but the same has not been made known
to third parties, then those who receive a mortgage on the properties in good faith will be protected
pursuant to principle embodied in Art. 1921 that if an agency has been entrusted for the purpose
of contracting with specified persons, its revocation shall not prejudice the latter if they were not
given notice. xLustan v. Court of Appeals, 266 SCRA 663 (1997).
b. Revocation of Agent’s General Powers Effective Against Third Persons (Art. 1922)
 Refers to Agency Created to Deal with the General Public

 Revocation Will Not Prejudice Third Persons Who Deal with the Agent in Good
Faith and Without Knowledge of Revocation
 However Notice of Revocation in a Newspaper of General Circulation Is Sufficient
Warning
While Art. 1358 requires that the contracts involving real property must appear in a proper
document, a revocation of a special power of attorney to mortgage a parcel of land, embodied in
a private writing, is valid and binding between the parties, such requirement of Article 1358 being
only for the convenience of the parties and to make the contract effective as against third persons.
xPNB v. Intermediate Appellate Court, 189 SCRA 680 (1990).
In a case covering a power of attorney to deal with the general public, the fact that the
revocation was advertised in a newspaper of general circulation would be sufficient warning to
third persons. xRammani v. Court of Appeals, 196 SCRA 731 (1991).
6. Right of Agent to Withdraw from Agency (Art. 1928)

Article 1928: The agent may withdraw from the agency by giving due notice to the principal. If the latter
should suffer any damage by reason of the withdrawal, the agent must indemnify him therefor, unless
the agent should base his withdrawal upon the impossibility of continuing the performance of the agency
without grave detriment to himself. (1736a)
 By Giving Due Notice to Principal

 Agent to Indemnify Principal Should He Suffer Any Damage
UNLESS: Withdrawal Is Due to Impossibility of Continuing Agency Without Grave
Detriment to Agent
 Even If Agent Withdraws from the Agency for a Valid Reason, He Must Continue to Act
Until the Principal Has Had Reasonable Opportunity to Take Necessary Steps to Meet
the Situation (Art. 1929)
Article 1929: The agent, even if he should withdraw from the agency for a valid reason, must continue
to act until the principal has had reasonable opportunity to take the necessary steps to meet the situation.
(1737a)
When agent informs principal by letter that for reasons of health and medical treatment he will
depart from the place where the said property is situated, turns property over to a third party,
renders accounts of its revenues up to the date on which he ceases to hold his position and
transmits to his principal a general statement which summarizes and embraces all the balances
of his accounts since he began the administration to the date of the termination of his trust, and
asked his principal to execute a power of attorney in due form in favor of and transmit the same
to another person who took charge of the administration of the said property, said agent had
expressly and definitely renounced his agency and that such agency was duly terminated. xDela
Pena v. Hidalgo, 16 Phil 450 (1910).
Where agent institutes an action against his principal for the recovery of the balance in his
favor resulting from the liquidation of the accounts between them arising from the agency, and
renders a final account, is equivalent to an express renunciation of the agency, and terminates
the juridical relation between them. The subsequent purchase by the former agent of the
principal’s usufruct rights in a public auction therefore was valid, since no fiduciary relationship
existed between them at that point. xValera v. Velasco, 51 Phil 695 (1928).
7. Death of the Principal Extinguishes the Agency (Arts. 1919[3], 1931)


Article 1931: Anything done by the agent, without knowledge of the death of the principal or of any other
cause which extinguishes the agency, is valid and shall be fully effective with respect to third persons
who may have contracted with him in good faith. (1738)
By reason of the very nature of the relationship between principal and agent, agency is
extinguished by the death of the principal or the agent. xRallos v. Felix Go Chan & Sons Realty
Corp., 81 SCRA 251 (1978).
Death of a client divests his lawyer of authority to represent him as counsel. xLavina v. Court
of Appeals, 171 SCRA 691 (1988).34
a. When the Agency Continues Despite Death of Principal (Art. 1930):
Article 1930: The agency shall remain in full force and effect even after the death of the principal, if it
has been constituted in the common interest of the latter and of the agent, or in the interest of a third
person who has accepted the stipulation in his favor. (n)
 If It Was Constituted for Common Interest of Principal and Agent; or

 In Favor of Third Person Who Accepted Stipulation in His Favor.
It is an agency coupled with interest when a power of attorney is constituted in real estate
mortgage pursuant to the requirement of Act No. 3135, which would empower the mortgagee
upon the default of the mortgagor to payment the principal obligation, to effect the sale of the
mortgage property through extrajudicial foreclosure. The death of the principal-debtor did not
extinguished the power of the Bank to sell the property at a public sale; the power to foreclose is
not an ordinary agency that contemplates exclusively the representation of the principal by the
agent but is primarily an authority conferred upon the mortgagee for the latter’s own protection.
Perez v. PNB, 17 SCRA 833 (1966).35
Agency is extinguished by principal’s death; exception is when it has been constituted in the
common interest of the latter and of the agent, or in the interest of a third person who has accepted
the stipulation in his favor. xSasaba v. Vda. De Te, 594 SCRA 410 (2009).
b. Acts Done by Agent Without Knowledge of Principal’s Death (Art. 1931):Acts Are Valid
Provided:
Article 1931: Anything done by the agent, without knowledge of the death of the principal or of any other
cause which extinguishes the agency, is valid and shall be fully effective with respect to third persons
who may have contracted with him in good faith. (1738)
 Agent Does Not Know of Death or Other Cause of Extinguishment of Agency;

 Third Persons Must Also Be in Good Faith (Not Aware of Death or Other Cause).
Under Art. 1931, we must uphold the validity of the sale of the land effected by the agent only
after the death of the principal, when no evidence was adduced to show that at the time of sale
both the agent and the buyers were unaware of the death of the principal. xBauson v. Panuyas,
105 Phil 795 (1959); xHerrera v. Uy Kim Guan, 1 SCRA 406 (1961).
8. Death of the Agent Extinguishes the Agency (Art. 1932): Obligation of Agent’s Heirs in
Case of Agent’s Death:
Article 1932. If the agent dies, his heirs must notify the principal thereof, and in the meantime adopt
such measures as the circumstances may demand in the interest of the latter. (1739)
 Notify Principal
 Adopt Measures as Circumstances Demand in Principal’s Interest
A contract of management entered into by the Municipality with a private individual which
authorizes the latter to sell forest products is one of agency, and it extinguished by the death of
the agent, and his rights and obligations arising from the contract of agency are not transmittable
to his heirs. xTerrado v. Court of Appeals, 131 SCRA 373 (1984).
B. BUSINESS TRUSTS
34Barrameda v. Barbara, 90 Phil. 718 (1952); Caisip v. Hon. Cabangon, 109 Phil. 150 (1952).
35Superseded Pasno v. Ravina, 54 Phil. 382 (1930) and Del Rosario v. Abad, 104 Phil. 648 (1958).

I. NATURE AND CLASSIFICATION OF TRUSTS
1. Definition and Essential Characteristic of Trust (Art. 1440)
Article 1440: A person who establishes a trust is called the trustor; one in whom confidence is reposed
as regards property for the benefit of another person is known as the trustee; and the person for whose
benefit the trust has been created is referred to as the beneficiary.
A trust is a “fiduciary relationship with respect to property which involves the existence of
equitable duties imposed upon the holder of the title to the property to deal with it for the benefit
of another.”36Its characteristics are: (a) it is a relationship; (b) it is a relationship of fiduciary
character; (c) It is a relationship with respect to property, not one involving merely personal duties;
(d) it involves the existence of equitable duties imposed upon the holder of the title to the property
to deal with it for the benefit of another; and (e) it arises as a result of a manifestation of intention
to create the relationship. Morales v. Court of Appeals, 274 SCRA 282 (1997).
a. Trusts Are Based on Equity Principles (Common-law) (Art. 1442)
Article 1442: The principles of the general law of trusts, insofar as they are not in conflict with this Code,
the Code of Commerce, the Rules of Court and special laws are hereby adopted.
As trusts has been much more frequently applied in England and in the United States than in
Spain, we may draw freely upon American precedents in determining the effect of the
testamentary trust under consideration, especially so as the trusts known to American and English
equity jurisprudence are derived from the fidei-commissa of Roman law and are based entirely
upon Civil Law principles. xGovernment v. Abadilla, 46 Phil. 642 (1924).37
Article 1442 incorporates a large part of the American law on trusts, and thereby the Philippine
legal system will be amplified and will be rendered more suited to a just and equitable solution of
many questions. Report of the Code Commission, at p. 60.
b. Distinguished from Agency
(1) While both trust and agency relationships are fiduciary in nature; agency is essentially
revocable, while a trust contract is essentially obligatory in its terms and period, and can
only be rescinded based on breach of trust.
(2) Trustee takes legal or naked title to the subject matter of trust, and acts on his own
business discretion; agent possesses property under agency for and in the name of the
owner and must act upon instructions of the owner;
(3) Trustee enters into contracts pursuant to the trust in his own name as legal or naked title
holder, while agent enters into contract in the name of the principal; and
(4) Trustee is liable directly and may be sued, albeit in his trust capacity; while agent cannot
be sued since it is the principal that must be held liable on the suit.
An investment management account, where the written instrument provides that bank shall
purchase debt securities on behalf of client and will handle the accounts in accordance with
client’s instructions, creates a principal-agent relationship, and not a trust relationship nor an
ordinary bank deposit account. Consequently, under Art. 1910, the client assumed all obligations
or inherent risks entailed by transactions emanating from the arrangement, and the bank may be
held liable as an agent, only when it exceeds its authority, or acts with fraud, negligence or bad
faith. Principals are solely obliged to observe the solemnity of the transaction entered into by the
agent on their behalf, absent any proof that the latter acted beyond its authority, and concomitant
to this obligation is that the principal also assumes the risks that may arise from the transaction.
Panlilio v. Citibank, 539 SCRA 69 (2007).
2. Kinds of Trusts: (a) Express Trusts, and (b) Implied Trusts (Art. 1441)
Article 1441: Trusts are either express or implied. Express trusts are created by the intention of the
trustor or of the parties. Implied trusts come into being by operation of law.
36Huang v. CA, 236 SCRA 429 (1994); Rizal Surety & Insurance Co. v. CA, 261 SCRA 69 (1996); Tala Realty Services v. Banco Filipino
Savings Bank, 392 SCRA 506 (2002); DBP v. COA, 422 SCRA 459 (2004); Heirs of Tranquilino Labiste v. Heirs of Jose Labiste, 587 SCRA
417 (2009); Metropolitan Bank v. Board of Trustees of Riverside Mills Corp. Provident and Retirement Fund, 630 SCRA 360 (2010); PNB v.
Aznar, 649 SCRA 214 (2011); Torbela v. Rosario, 661 SCRA 633 (2011); Estate of Margarita D. Cabacungan v. Laigo, 655 SCRA 366 (2011);
Advent Capital and Finance Corp. v. Alcantara, 664 SCRA 224 (2012); Goyanko v. UCPB, 690 SCRA 79 (2013).
37Miguel v. CA, 29 SCRA 760 (1969); Spouses Rosario v. CA, 310 SCRA 464 (1999).

Ramos v. Ramos, 61 SCRA 284, 298 (1974):Express trusts are those which are created by
the direct and positive acts of the parties, by some writing or deed, or will, or by words either
expressly or impliedly evincing an intention to create a trust.38
Implied trusts are those which, without being expressed, are deducible from the nature of the
transactions as matters of intent, or which are superinduced on the transaction by operation of
law as matters of equity, independently of the particular intention of the parties. They are ordinarily
subdivided into resulting and constructive trusts (89 C.J.S. 722).39
A resulting trust is raised or created by the act or construction of law, but in its more restricted
sense it is a trust raised by implication of law and presumed always to have been contemplated
by the parties, the intention as to which is to be found in the nature of their transaction, but not
expressed in the deed or instrument of conveyance” (89 C.J.S. 725). Arts. 1448 to 1455 are
examples of resulting trusts.40
In a restricted sense, a constructive trust is “a trust not created by any words, either expressly
or implied evincing a direct intention to create a trust, but by the construction of equity in order to
satisfy the demands of justice. It does not arise by agreement or intention but by operation of
law.” “If a person obtains legal title to property by fraud or concealment, courts of equity will
impress upon the title a so-called constructive trust in favor of the defrauded party.” Constructive
trust is not a trust in the technical sense.41
Trust is the right to beneficial enjoyment of property, legal title to which is vested in another—
fiduciary relation that obliges trustee to deal with the property for the benefit of the beneficiary.
Express trust is created by intention of the trustor or of the parties, while implied trust comes into
being by operation of law. xTorbela v. Rosario, 661 SCRA 633 (2011).42
A trust by operation of law is the right to the beneficial enjoyment of a property whose legal
title is vested in another. A property between two parties, one having the rightful ownership and
property owned by one party is separate and distinct from that which has been registered in
another’s name. Chu, Jr. v. Caparas, 696 SCRA 325 (2013).
II. EXPRESS TRUSTS

1. Essence and Definition of Express Trusts (Art. 1440)
Where the shares of stock in an operating family company are placed by the parents-
controlling stockholders in the name of a holding company expressly for the benefit of their three
daughters, an express trust is duly constituted pursuant to the terms of Art. 1440. xGuy v. Court
of Appeals, 539 SCRA 584 (2007).
2. Essential Characteristics of Express Trusts
a. Real
b. Primarily Onerous (But Can Be Gratuitous)
c. Unilateral
d. Fiduciary But Not Revocable
The juridical concept of a trust, which in a broad sense involves, arises from, or is the result
of, a fiduciary relation between the trustee and the cestui que trust as regards certain property—
real, personal, funds or money, or choses in action—must not be confused with an action for
specific performance. Thus, when claimants to several parcels of land withdraw their claims in
court relying on the assurance and promise of Yulo made in open court that he would convey the
lots claimed after the proceedings had terminated, then “a trust or a fiduciary relation between
them arose, or resulted therefrom, or was created thereby.” A trustee cannot invoke the statute
of limitations to bar the action and defeat the rights of the cestuis que trustent. Pacheco v.
Arro, 85 Phil. 505 (1950).43
38Spouses Rosario v. CA, 310 SCRA 464 (1999);Cañezo v. Rojas, 538 SCRA 242 (2007); Peñalber v. Ramos, 577 SCRA 509 (2009); DBP
v. COA, 422 SCRA 459 (2004).

39Salao v. Salao, 70 SCRA 65, 80 (1976); Tigno v. CA, 280 SCRA 271 (1997); Policarpio v. CA, 269 SCRA 344 (1997); Spouses Rosario v.
CA, 310 SCRA 464 (1999); Cañezo v. Rojas, 538 SCRA 242 (2007); Peñalber v. Ramos, 577 SCRA 509 (2009).
40Reiterated in Salao v. Salao, 70 SCRA 65 (1976). Constructive trusts are created by the construction of equity in order to satisfy the demands of justice
and prevent unjust enrichment. They arise contrary to intention against one who, by fraud, duress or abuse of confidence, obtains or hold the legal right to
property which he ought not, in equity and good conscience, to hold. Spouses Rosario v. CA, 310 SCRA 464 (1999).
41
Guy v. CA, 539 SCRA 584 (2007).
42Vda. De Esconde v. CA, 253 SCRA 66 (1996); Spouses Rosario v. CA, 310 SCRA 464 (1999); DBP v. COA, 422 SCRA 459 (2004);Guy
v. Court of Appeals, 539 SCRA 584 (2007);Metropolitan Bank v. Board of Trustees of Riverside Mills Corp. Provident and Retirement Fund,
630 SCRA 350 (2010).
43Ramos v. Ramos, 61 SCRA 284 (1974); Peñalber v. Ramos, 577 SCRA 509 (2009).

3. Parties and Elements of an Express Trust
Elements for an express trust are: (1) a trustor or settlor who executes the instrument creating
the trust; (2) a trustee, who is the person expressly designated to carry out the trust; (3) the trust
res, consisting of duly identified and definite real properties; and (4) the cestui que trust, or
beneficiaries whose identity must be clear. Furthermore, there must be a present and complete
disposition of the trust property, notwithstanding that the enjoyment in the beneficiary will take
place in the future. It is essential, too, that the purpose be an active one to prevent trust from
being executed into a legal estate or interest, and one that is not in contravention of some
prohibition of statute or rule of public policy. Rizal Surety & Insurance v. Court of Appeals,
261 SCRA 69 (1996).44
a. The Trustor – A person who establishes a trust is called the “trustor”.45
b. The Trustee – One in whom confidence is reposed is known as the “trustee”.46
 Trustee Must Have Legal Capacity to Accept the Trust.
 Failure of Trustee to Assume the Position(Art. 1445).
Article 1445: No trust shall fail because the trustee appointed declines the designation, unless the
contrary should appear in the instrument constituting the trust.
 Obligations of the Trustee(Rule 98, Rules of Court).
Rule 98: Trustees
Section 1. Where trustee appointed. — A trustee necessary to carry into effect the provisions of a will
on written instrument shall be appointed by the Court of First Instance in which the will was allowed, if it
be a will allowed in the Philippines, otherwise by the Court of First Instance of the province in which the
property, or some portion thereof, affected by the trust is situated.
Section 2. Appointment and powers of trustees under will. Executor of former trustee need not
administer trust. — If a testator has omitted in his will to appoint a trustee in the Philippines, and if such
appointment is necessary to carry into effect the provisions of the will, the proper Court of First
Instance may, after notice to all persons interested, appoint a trustee who shall have the same rights,
powers, and duties, and in whom the estate shall vest, as if he had been appointed by the testator. No
person succeeding to a trust as executor or administrator of a former trustee shall be required to
accept such trust.
Section 3. Appointment and powers of new trustee under written instrument. — When a trustee under
a written instrument declines, resigns, dies or removed before the objects of the trust are
accomplished, and no adequate provision is made in such instrument for supplying the vacancy, the
proper Court of First Instance may, after due notice to all persons interested, appoint a new trustee to
act alone or jointly with the others, as the case may be. Such new trustee shall have and exercise the
same powers, right, and duties as if he had been originally appointed, and the trust estate shall vest in
him in like manner as it had vested or would have vested, in the trustee in whose place he is
substituted and the court may order such conveyance to be made by the former trustee or his
representatives, or by the other remaining trustees, as may be necessary or proper to vest the trust
estate in the new trustee, either or jointly with the others.
Section 4. Proceedings where trustee appointed abroad. — When land in the Philippines is held in
trust for persons resident here by a trustee who derives his authority from without the Philippines, such
trustee shall, on petition filed in the Court of First Instance of the province where the land is situated,
and after due notice to all persons interested, be ordered to apply to the court for appointment as
trustee; and upon his neglect or refusal to comply with such order, the court shall declare such trust
vacant, and shall appoint a new trustee in whom the trust estate shall vest in like manner as if he had
been originally appointed by such court.
Section 5. Trustee must file bond. — Before entering on the duties of his trust, a trustee shall file with
the clerk of the court having jurisdiction of the trust a bond in the amount fixed by the judge of said
court, payable to the Government of the Philippines and sufficient and available for the protection of
any party in interest, and a trustee who neglects to file such bond shall be considered to have declined
or resigned the trust; but the court may until further order exempt a trustee under a will from giving a
bond when the testator has directed or requested such exemption and may so exempt any trustee
when all persons beneficially interested in the trust, being of full age, request the exemption. Such
exemption may be cancelled by the court at any time and the trustee required to forthwith file a bond.
44Filipinas Port Services v. Go, 518 SCRA 453 (2007); Cañezo v. Rojas, 538 SCRA 242 (2007); Goyanko v. UCPB, 690 SCRA 79 (2013).
45DBP v. COA, 422 SCRA 459 (2004); Peñalber v. Ramos, 577 SCRA 509 (2009).
46DBP v. COA, 422 SCRA459 (2004); Peñalber v. Ramos, 577 SCRA 509 (2009).

Section 6. Conditions included in bond. — The following conditions shall be deemed to be part of the
bond whether written therein or not;
(a) That the trustee will make and return to the court, at such time as it may order, a
true inventory of all the real and personal estate belonging to him as trustee, which at
the time of the making of such inventory shall have come to his possession or
knowledge;
(b) That he will manage and dispose of all such estate, and faithfully discharge his trust
in relation thereto, according to law and the will of the testator or the provisions of the
instrument or order under which he is appointed;
(c) That he will render upon oath at least once a year until his trust is fulfilled, unless
he is excused therefrom in any year by the court, a true account of the property in his
hands and the management and disposition thereof, and will render such other
accounts as the court may order;
(d) That at the expiration of his trust he will settle his account in court and pay over and
deliver all the estate remaining in his hands, or due from him on such settlement, to the
person or persons entitled to thereto.
But when the trustee is appointed as a successor to a prior trustee, the court may dispense with the
making and return of an inventory, if one has already been filed, and in such case the condition of the
bond shall be deemed to be altered accordingly.
Section 7. Appraisal. Compensation of trustee. — When an inventory is required to be returned by a

trustee, the estate and effects belonging to the trust shall be appraised and the court may order one or
more inheritance tax appraisers to assist in the appraisement. The compensation of the trustee shall be
fixed by the court, if it be not determined in the instrument creating the trust.
Section 8. Removal or resignation of trustee. — The proper Court of First Instance may, upon petition
of the parties beneficially interested and after due notice to the trustee and hearing, remove a trustee if
such removal appears essential in the interest of the petitioner. The court may also, after due notice to
all persons interested, remove a trustee who is insane or otherwise incapable of discharging his trust or
evidently unsuitable therefor. A trustee, whether appointed by the court or under a written instrument,
may resign his trust if it appears to the court proper to allow such resignation.
Section 9. Proceedings for sale or encumbrance of trust estate. — When the sale or encumbrance of
any real or personal estate held in trust is necessary or expedient, the court having jurisdiction of the
trust may, on petition and after due notice and hearing, order such sale or encumbrance to be made,
and the re-investment and application of the proceeds thereof in such manner as will best effect the
objects of the trust. The petition, notice, hearing, order of sale or encumbrance, and record of
proceedings, shall conform as nearly as may be to the provisions concerning the sale or imcumbrance
by guardians of the property of minors or other wards.

 Generally, Trustee Does Not Assume Personal Liability on the Trust as to Properties
Outside of the Trust Estate – When a trustee enters into a contract that gives rise to
liability, there must be clear indication that he enters into the contract as trustee, so that he
would be liable individually only to the extent of the trust properties: “In other words, when
the transaction at hand could have been entered into by a trustee either as such or in its
individual capacity, then it must be clearly indicated that the liabilities arising therefrom shall
be chargeable to the trust estate, otherwise they are due from the trustee in his personal
capacity. xTan Senguan and Co. v. Phil. Trust Co., 58 Phil. 700 (1933).
 Trustee Generally Entitled to Receive Compensation for His Services. xLorenzo v.
Pasadas, 64 Phil. 353 (1937).
c. Beneficiary (Arts. 1440 and 1446) –Person for whose benefit the trust is created.47
Article 1446: Acceptance by the beneficiary is necessary. Nevertheless, if the trust imposes no onerous
condition upon the beneficiary, his acceptance shall be presumed, if there is no proof to the contrary.
47DBP v. COA, 422 SCRA459 (2004); Peñalber v. Ramos, 577 SCRA 509 (2009).

In order that a trust may become effective there must, of course be a trustee and a cestui que
trust. The existence of an equivalent designated position in the testamentary trust to act as trustee
“In regard to private trusts it is not always necessary the cestui que trust should be named, or
even be in esse at the time the trust is created in his favor. Thus a devise a father in trust for
accumulation for his children lawfully begotten at the time of his death has been held to be good
although the father had no children at the time of the vesting of the funds in him as trustee. In
charitable trusts such as the one here under discussion, the rule is still further
relaxed.Government v. Abadilla, 46 Phil. 642 (1924).
Acceptance by beneficiary of gratuitous trust is not subject to the rules for the formalities of
donations. Cristobal v. Gomez, 50 Phil. 810 (1927).
A person is considered as a beneficiary of a trust if there is a manifest intention to give such a
person the beneficial interest over the trust properties. Here, the trust agreement plainly confer
the status of beneficiary to the planholders, not to Legacy. The categorical declaration in the
agreement that Legacy bound itself to provide for the sound, prudent and efficient management
and administration of such portion of the collection “for the benefit and account of the planholders,”
through LBP (as the trustee) indicates that the intention of the trustor is to make the planholders
the beneficiaries of the trust properties, and not Legacy, which is left without any iota of interest
in the trust fund. This is consistent with the nature of a trust arrangement, whereby there is a
separation of interests in the subject matter of the trust, the beneficiary having an equitable
interest, and the trustee having an interest which is normally legal interest.SEC v. Laigo, 768
SCRA 633 (2015).
d. The Corpus, Res, or Trust Estate
Where DBP establishes a pension trust for its officers and employees and appoints trustees
for the fund whereby the trust agreement transferred legal title over the income and properties of
the fund, the principal and income of the fund constitute the res or subject matter of the trust.
Since the trust agreement established the fund precisely so that it would eventually be sufficient
to pay for the retirement benefits of DBP officers and employees, then the income and profits
thereof cannot be booked by DBP as its own, and DBP cannot be directed by COA to treat such
income as it own. DBP v. COA, 422 SCRA 459 (2004).
4. How to Prove Express Trusts(Art. 1444)
Article 1444: No particular words are required for the creation of an express trust, it being sufficient that
a trust is clearly intended.
Technical or particular forms of words or phrases are not essential to create or establish a
trust; nor would the use of some such words as “trust” or “trustee” essential to the constitution of
a trust; and conversely, the fact that such terms were employed would not necessarily prove an
intention to create a trust. What is important is whether trustor manifested an intention to create
the kind of relationship which in law is known as a trust. It is important that the trustor should know
that the relationship “which intents to create is called a trust, and whether or not he knows the
precise characteristics of the relationship which is called a trust. Here, that trust is effective as
against defendants and in favor of the beneficiary thereof, plaintiff Victoria Julio, who accepted it
in the document itself.” Julio v. Dalandan, 21 SCRA 543 (1967);48 Go v. Estate of Felisa
Tamio de Buenaventura, 763 SCRA 632 (2015).
Under Art. 1444 “No particular words are required for the creation of an express trust, it being
sufficient that a trust is clearly intended.” The Affidavit of Epifanio is in the nature of a trust
agreement. Epifanio affirmed the lot brought in his name was co-owned by him, as one of the
heirs of Jose, and his uncle Tranquilino. And by agreement, each of them has been in possession
of half of the property. Their arrangement was corroborated by the subdivision plan prepared by
Engr. Bunagan and approved by Jose P. Dans, Acting Director of Lands. Heirs of Tranquilino
Labiste v. Heirs of Jose Labiste, 587 SCRA 417 (2009).
Creation of an express trust must be manifested with reasonable certainty and cannot be
inferred from loose and vague declarations or from ambiguous circumstances susceptible of other
interpretations. No such reasonable certitude in the creation of an express trust obtains in the
case at bar. In fact, a careful scrutiny of the plain and ordinary meaning of the terms used in the
Minutes does not offer any indication that the parties thereto intended that Aznar, et al., become
beneficiaries under an express trust and that RISCO serve as trustor. PNB v. Aznar, 649 SCRA
214 (2011).49
Tamayo v. Callejo, 46 SCRA 27 (1972), recognized that a trust may have a constructive or
implied nature in the beginning, but the registered owner’s subsequent express acknowledgement
in a public document of a previous sale of the property to another party, had the effect of imparting
48Lorenzov. Posadas, 64 Phil. 353 (1937); Torbela v. Rosario, 661 SCRA 633 (2011); Goyanko v. UCPB, 690 SCRA 79 (2013).
49DeLeon v. Peckson, 62 O.G. 994; Ringor v. Ringor, 436 SCRA 484 (2004); Figuracion v. Figuracion-Gerilla, 690 SCRA 495 (2013); Medina v. CA,
109 SCRA 437, 445 (1981); Advent Capital and Finance Corp. v. Alcantara,664 SCRA 224 (2012).

to the aforementioned trust the nature of an express trust. Torbela v. Spouses Rosario, 661
SCRA 633 (2011).
a. Express Trust Over Immovables Cannot Be Proven by Parol Evidence (Art. 1443)
As a rule, however, the burden of proving the existence of a trust is on the party asserting its
existence, and such proof must be clear and satisfactorily show the existence of the trust and its
elements. xMorales v. Court of Appeals, 274 SCRA 282 (1997).50
We find it clear that the plaintiffs alleged an express trust over an immovable, especially since
it is alleged that the trustor expressly told the defendants of his intention to establish the trust.
Such a situation definitely falls under Art. 1443, and cannot be proven by parol evidence.
xCuaycong v. Cuaycong, 21 SCRA 1192 (1967).51
b. Ultimately Existence of Express Trust Requires That Legal Title Is Held By One, and the
Equitable or Beneficial Title Is Held by Another (65 CORPUS JURIS 212)
What distinguishes a trust from other relations is the separation of legal title and equitable
ownership of the property—legal title is vested in the fiduciary while equitable ownership is vested
in a cestui que trust. The petitioner alleged that the tax declaration of the land was transferred to
the name of Crispulo without her consent. Had it been her intention to create a trust and make
Crispulo her trustee, she would not have made an issue out of this because in a trust agreement,
legal title is vested in the trustee. Trustee would necessarily have the right to transfer the tax
declaration in his name and to pay the taxes on the property—these acts would be treated as
beneficial to the cestui qui trust and would not amount to an adverse possession. Express trust
must be proven by some writing or deed. In this case, the only evidence to support the claim that
an express trust existed between the petitioner and her father was the self-serving testimony of
the petitioner. Bare allegations do not constitute evidence adequate to support a conclusion.
Cañezo v. Rojas, 538 SCRA 242, 255 (2007).
5. Kinds of Express Trust

a. Express Trust Involving Immovable(Art. 1443)
Article 1443: No express trusts concerning an immovable or any interest therein may be proved by parol
evidence.
A person who has held legal title to land, coupled with possession and beneficial use of the
property for more than ten years, will not be declared to have been holding such title as trustee
for himself and his brothers and sisters upon doubtful oral proof tending to show a recognition by
such owner of the alleged rights of his brother and sisters to share in the produce of the land.
[Ergo: The requirement that express trust over immovable must be in writing should be added as
being governed by the Statute of Frauds.]Gamboa v. Gamboa, 52 Phil. 503 (1928).
Express trust over real property cannot be constituted when not in writing; but it may be proved
as an implied trust.Ty v. Ty, 553 SCRA 306 (2008).
In accordance with Art. 1443, when an express trust concerns an immovable property or any
interest therein, the same may not be proved by parol or oral evidence. However, when the
oppositors failed to timely object when the petitioner tried to prove by parol evidence the existence
of an express trust over immovable, there is deemed to be a waiver since Art. 1443 “is in the
nature of a statute of frauds.”Peñalber v. Ramos, 577 SCRA 509 (2009).
b. Contractual versus Intervivos Trusts
c. Charitable Trusts
d. Testamentary Trust
A testamentary trust is created by a provision in the will whereby the testator directs the
creation of a trust for the benefit of a secondary school to be established in the town of Tayabas,
naming as trustee the ayutamiento or if there be no ayutamiento, then the civil governor of the
Province of Tayabas. xGovernment of P.I. v. Abadilla, 46 Phil. 642 (1924).
Although the will did not use the words “trust” or “trustee”, the intention to create one is clear
since testator ordered therein that certain properties be kept together undisposed during a fixed
period, for a stated purpose. No particular or technical words are required to create a testamentary
trust; hence, probate court exercised sound judgment in appointing a trustee to carry the
proivisions into effect. xLorenzo v. Pasadas, 64 Phil. 353 (1937).
e. Pension or Retirement Trusts
A foundation existing for the purpose of holding title to, and administering, the tax-exempt
Employees’ Trust Fund established for the benefit of the employees, has the personality to claim
50Cañezo v. Rojas, 538 SCRA 242 (2007); Booc v. Five Star Marketing, 538 SCRA 42 (2008).
51Pascual v. Meneses, 20 SCRA 219 (1967); Ramos v. Ramos, 61 SCRA 284 (1974).

tax refunds due the Employers” Trust Fund. xMiguel J. Ossorio Pension Foundation, Inc. v. Court
of Appeals, 621 SCRA 606 (2010).
Employees’ trust or benefit plans are intended to provide economic assistance to employees
upon the occurrence of certain contingencies, particularly, old age retirement, death, sickness, or
disability. They give security against certain hazards to which members of the Plan may be
exposed. They are independent and additional sources of protection for the working group and
established for their exclusive benefit and for no other purpose. The provident and retirement fund
of the employees cannot be used by the trustee-bank to pay for the obligations of the employer
corporation. xMetropolitan Bank v. Board of Trustees of Riverside Mills Corp. Provident and
Retirement Fund, 630 SCRA 350 (2010); xCIR v. Court of Appeals, 207 SCRA 487 (1992).
6. Termination of Express Trusts

a. Where the Trust Fails
Under an ordinary devise of land in trust, the trustee holds the legal title and the cestui que
trust the beneficial title and the natural heirs of the testator who are neither trustees nor casuist
que trustent have no remaining interest in the land devised except the right to the reversion in the
event the devise should fail, or the trust for other reasons terminate. xGovernment v. Abadilla, 46
Phil. 642 (1924).
b. Upon the Death of Trustee
Assuming a trust relation existed, it terminated upon Crispulo’s death in 1978. A trust
terminates upon the death of the trustee where the trust is personal to the trustee in the sense
that the trustor intended no other person to administer it. If Crispulo was indeed appointed as
trustee of the property, it cannot be said that such appointment was intended to be conveyed to
the respondent or any of Crispulo’s other heirs. Hence, after Crispulo’s death, the respondent had
no right to retain possession of the property. At such point, a constructive trust would be created
over the property by operation of law. Where one mistakenly retains property which rightfully
belongs to another, a constructive trust is the proper remedial devise to correct the situation.
Cañezo v. Rojas, 538 SCRA 242 (2007).
III. IMPLIED TRUSTS

1. Implied Trusts—In General
a. Listing of Implied Trusts Not Exclusive: FOUNDED ON EQUITY (Art. 1447)
Art. 1447. The enumeration of the following cases of implied trust does not exclude others established
by the general law of trust, but the limitation laid down in Article 1442 shall be applicable.
The concept of implied trusts is that from the facts and circumstances of a given case (i.e., the
structure of the transactions that vest title to property)the existence of a trust relationship is
inferred in order to effect the presumed (in this case it is even expressed) intention of the parties
(i.e., resulting trust) or to satisfy the demands of justice or to protect against fraud (i.e.,
constructive trusts). Padilla v. Court of Appeals, 53 SCRA 168 (1973).
Although an implied trust arising from mortgage contracts is not among those enumerated, Art.
1147 of Civil Code provides that such listing “does not exclude others established by general law
on trust.” Under the general principles on trust, equity converts the holder of a property right as
trustee for the benefit of another if the circumstances of its acquisition makes the holder ineligible
“in good conscience to hold and enjoy it.”52 As implied trusts are remedies against unjust
enrichment, the “only problem of great importance in constructive trusts is whether in the
numerous and varying factual situations presented there is a wrongful holding of property and
hence, a threatened unjust enrichment of the defendant.Juan v. Yap, Sr., 646 SCRA 753
(2011).53
b. How to Prove Implied Trusts(Art. 1457)

Burden of proving the existence of a trust is on the party asserting its existence, and such
proof must be clear and satisfactorily show the existence of the trust and its elements. While
implied trusts may be proven by oral evidence, the evidence must be trustworthy and received
by the courts with extreme caution, and should not be made to rest on loose, equivocal or
indefinite declarations. Trustworthy evidence is required because oral evidence can easily be
fabricated. Heirs of Narvasa, Sr. v. Imbornal, 732 SCRA 171 (2014).
An implied trust in order to be recognized must measure up to the yardstick that a trust must
be proven by clear, satisfactory and convincing evidence, and cannot rest on vague and uncertain
52Roa, Jr. v. CA, 123 SCRA 3 (1983).

53Heirs of Moreno v. Mactan-Cebu Int.’l Airport Authority, 413 SCRA 5023 (2003).

evidence or on loose, equivocal or indefinite declarations.Salao v. Salao, 70 SCRA 65
(1976).Consequently:
 Existence of public records other than the Torrens title indicating a proper description of
the land, and not the technical description thereof, and clearly indicating the intention to
create a trust, is considered sufficient proof to support the claim of the cestui que
trust. xMunicipality of Victorias v. CA, 149 SCRA 32 (1987).
 An affidavit of the fact of resulting trust against contrary affidavits, as well as the transfer
certificates of title and tax declarations to the contrary, do not support clearly the existence
of trust. xBooc v. Five Start Marketing Co., Inc., 538 SCRA 42 (2007).54
 In order to establish an implied trust in real property by parol evidence, the proof should be
as fully convincing as if the acts giving rise to the trust obligation are proven by an authentic
document. In the present case, there was no evidence of any transaction between the
petitioner and her father from which it can be inferred that a resulting trust was intended.”
Cañezo v. Rojas, 538 SCRA 242 (2007).
c. Implied Trusts Distinguished from Quasi-Contracts – The Civil Code incorporated
“constructive trusts, on top of quasi-contracts, both of which embody the principle of equity
above strict legalism.” PNB v. Court of Appeals, 217 SCRA 347 (1993).
d. Distinctions Between Resulting Trusts and Constructive Trusts – Resulting trusts are
based on the equitable doctrine that valuable consideration and not legal title determines the
equitable title or interest and are presumed always to have been contemplated by the parties.
They arise from the nature of circumstances of the consideration involved in a transaction
whereby one person thereby becomes invested with legal title but is obliged in equity to hold
his legal title for the benefit of another. Whereas, constructive trusts are created by the
construction of equity in order to satisfy the demands of justice and prevent unjust enrichment.
They arise contrary to intention against one who, by fraud, duress or abuse of confidence,
obtains or holds the legal right to property which he ought not, in equity and good conscience,
to hold. Lopez v. Court of Appeals, 574 SCRA 26 (2008).55
2. RESULTING TRUSTS
Resulting trusts are species of implied trusts that are presumed always to have been
contemplated by the parties’ intention, which can be found in the nature of their transaction
although not expressed in a deed or instrument of conveyance; they are based on the equitable
doctrine that valuable consideration and not legal title determines the equitable title or interest.
xOssorio Pension Foundation v. Court of Appeals, 621 SCRA 606 (2010).56
Resulting trusts arise from the nature or circumstances of consideration involved in a
transaction whereby one person thereby becomes invested with full legal title but is obligated in
equity to hold his title for the benefit of another. xRosario v. CA, 310 SCRA 464 (1999).
In a resulting trust, the beneficiary’s cause of action arises when the trustee repudiates the
trust, not when the trust was created. xParingit v. Bajit, 631 SCRA 584 (2010).
a. Purchase of Property Where Beneficial Title in One Person,

But Price Paid by Another Person (Art. 1448)
Art. 1448. There is an implied trust when property is sold, and the legal estate is granted to one party
but the price is paid by another for the purpose of having the beneficial interest of the property. The
former is the trustee, while the latter is the beneficiary. However, if the person to whom the title is
conveyed is a child, legitimate or illegitimate, of the one paying the price of the sale, no trust is implied
by law, it being disputably presumed that there is a gift in favor of the child.
RATIONALE: One who pays for something usually does so for his own benefit. Uy Aloc v. Cho
Jan Jing, 19 Phil. 202 (1911).
Article 1448 of the Civil Code provides in part that there is an implied trust when
property is sold, and the legal estate is granted to one party but the price is paid by
another for the purpose of having the beneficial interest of the property. The former
is the trustee, while the latter is the beneficiary. The trust created here, which is also
referred to as a purchase money resulting trust, occurs when there is (1) an actual
payment of money, property or services, or an equivalent, constituting valuable
54Tigno v. CA, 280 SCRA 262 (1997); Morales v. CA, 274 SCRA 282 (1997).
55Aznar Brothers Realty Co. v. Aying, 458 SCRA 496 (2005); Spouses Rosario v. CA, 310 SCRA 464 (1999); Estate of Margarita D. Cabacungan, v.
Laigo, 655 SCRA 366 (2011).
56Cañezo v. Rojas, 538 SCRA 242 (2007).

consideration; (2) and such consideration must be furnished by the alleged
beneficiary of a resulting trust. These two elements are present here.
The heirs of Melecia, who are in possession of the real estate in controversy, were
able to establish that Melecia's money was used in buying the property, but its title
was placed in Godofredo's name; that Melecia entrusted the money to Godofredo
because he was in Cagayan de Oro, and per Melecia's instruction, the deed of sale
covering the property was placed in his name. It was allegedly her practice to buy
properties and place them in her children's name, but it was understood that she and
her children co-own the properties.  Gabutan v. Nacalaban, G.R. Nos. 185857-
58, 29 June 2016.
EXCEPTION: Although the father was the source of the funds in the purchase of a parcel of land
which was titled in the name of his son, no implied trust is deemed to have been established since
under Art. 1448, if the person to whom the title is conveyed is the child of the one paying the price
of the sale, no trust is implied by law, and instead a donation is disputably presumed in favor of
the child. The successors of the deceased father had not shown that no such donation was
intended.Ty v. Ty, 553 SCRA 306 (2008).
While the share was bought by Sime Darby and placed under the name of Mendoza, his title
is only limited to the usufruct, or the use and enjoyment of the club’s facilities and privileges while
employed with the company. In Thomson v. Court of Appeals, 298 SCRA 280 (1998), we held
that a trust arises in favor of one who pays the purchase price of a property in the name of another,
because of the presumption that he who pays for a thing intends a beneficial interest for himself.
While Sime Darby paid for the purchase of the club share, Mendoza was given the legal title.
Thus, a resulting trust is presumed as a matter of law. The burden shifts to the transferee to show
otherwise. Sime Darby Pilipinas, Inc. v. Mendoza, 699 SCRA 290 (2013).
b. Purchase of Property Where Title Is Placed in the Name of Person Who

Loaned the Purchase Price (Art. 1450) – Equitable Mortgage
Article 1450: If the price of a sale of property is loaned or paid by one person for the benefit of another
and the conveyance is made to the lender or payor to secure the payment of the debt, a trust arises by
operation of law in favor of the person to whom the money is loaned or for whom its is paid. The latter
may redeem the property and compel a conveyance thereof to him.
Resulting trust under Art. 1450 presupposes a situation where a person, using his own funds,
buys property on behalf of another, who in the meantime may not have the funds to purchase it—
title to the property is for the time being placed in the name of the payor-trustee, until he is
reimbursed by the beneficiary—person for whom the land is bought. It is only after the beneficiary
reimburses the trustee of the purchase price that the former can compel conveyance of the
property from the latter. Paringit v. Bajit, 631 SCRA 584 (2010).
c. When Absolute Conveyance of Property Effected Only as a Means to Secure

Performance of Obligation of the Grantor (Art. 1454) – Equitable Mortgage
Article 1454: If an absolute conveyance of property is made in order to secure the performance of an
obligation of the grantor toward the grantee, a trust by virtue of law is established. If the fulfillment of the
obligation is offered by the grantor when it becomes due, he may demand the reconveyance of the
property to him.
When a deed of sale a retro was really intended to cover a loan made by the purported seller
from the purported buyer, then the doctrines upheld in Uy Aloc v. Cho Jan Ling, 19 Phil.
202,Camacho v. Municipality of Baliaug, 28 Phil. 46, and Severino v. Severino, 44 Phil., 343,
are applicable in the instant case in the sense that the defendants only hold the certificate of
transfer in trust for the plaintiffs as to the portion of the lot containing 1,300 coconut trees,
and therefore, said defendants are bound to execute a deed in favor of the plaintiffs
transferring said portion to them. De Ocampo v. Zaporteza, 53 Phil. 442 (1929).
d. Several Persons Jointly Purchase Property, But Place

Title In One of Them (Art. 1452)
Article 1452: If two or more persons agree to purchase property and by common consent the legal title
is taken in the name of one of them for the benefit of all, a trust is created by force of law in favor of the
others in proportion to the interest of each.
Article 1452 expressly allows a co-owner (first co-owner) of a parcel of land to register his
proportionate share in the name of his co-owner (second co-owner) in whose name the entire
land is registered. The second co-owner serves as a legal trustee of the first co-owner insofar as

the proportionate share of the first co-owner is concerned. The first co-owner remains the owner
of his proportionate share and not the second co-owner in whose name the entire land is
registered. For Article 1452 to apply , all that a co-owner needs to show is that there is “common
consent” among the purchasing co-owners to put the legal title to the purchased property in the
name of one co-owner for the benefit of all. One this “common consent” is show, “a trust is created
by force of law.” Miguel J. Ossorio Pension Foundation, v. Court of Appeals, 621 SCRA
606 (2010).
COMPARE: Decedent had married legitimately three successive times without liquidation of
conjugal partnerships formed during the first and second marriages. The only male issue
managed to convince his co-heirs that he should act as administrator of the estate, but instead
obtained a certificate of title in his own name to the valuable piece of property of the estate. Held:
Where the son, through fraud was able to secure a title in his own name to the exclusion of his
co-heirs who equally have the right to a share of the land covered by the title, an implied trust was
created in favor of said co-heirs, and that said son was deemed to merely hold the property for
their and his benefit.Heirs of Tanak Pangaaran Patiwayon v. Martinez, 142 SCRA 252
(1986).
e. Property Conveyed to a Person Merely as Holder Thereof(Art. 1453)
Article 1453: When property is conveyed to a person in reliance upon his declared intention to hold it
for, or transfer it to another or the grantor, there is an implied trust in favor of the person whose benefit
is contemplated.
Where real property is taken by a person under an agreement to hold it for, or convey it to
another, a resulting trust arises in favor of the intended beneficiary, which is enforceable even
when the agreement is not in writing; is not an express trust which requires that it be in writing to
be enforceable. xMartinez v. Graño, 42 Phil. 35 (1921).
Where original purchaser of the immovable property had sold all his interest thereto to his
brother who reimbursed him all amounts previously, but continued to pay the balance of the
installments in the name of the original buyer with understanding that upon full payment the title
would be transferred to the buyer, am implied trust had been constituted. Heirs of Emilio
Candelaria v. Romero, 109 Phil. 500 (1960).
Art. 1453 would apply if the person conveying the property did not expressly state that he was
establishing the trust, unlike the case at bar where he was alleged to have expressed such intent.
Consequently, lower court did not err in dismissing the complaint,” on the ground that since
complaint sought to recover an express trust over immovables, under Art. 1443 the same may
not be proved by parol evidence. xCuaycong v. Cuaycong, 21 SCRA 1192 (1967).
Where a lot was taken by a person under an agreement to hold it for, or convey it to another
or to the grantor, a resulting or implied trust arises in favor of the person for whose benefit the
property was intended. xRosario v. Court of Appeals, 310 SCRA 464 (1999).
f. Donation of Property to a Donee Who Shall Have No Beneficial Title (Art. 1449)
Article 1449: There is also an implied trust when a donation is made to a person but it appears that
although the legal estate is transmitted to the donee, he nevertheless is either to have no beneficial
interest or only a part thereof.
Where father donates a piece of land in the name of the daughter but with verbal notice that
the other half would be held by her for the benefit of a younger brother, coupled with a deed of
waiver subsequently executed by the daughter that she held the land for the common benefit of
her brother, created an implied trust in favor of the brother under Art. 1449. Adaza v. Court of
Appeals, 171 SCRA 369 (1989). [Express trust?]
g. Land Passes By Succession But Heir Places Title in a Trustee (Art. 1451)
Article 1451: When land passes by succession to any person and he causes the legal title to be put in
the name of another, a trust is established by implication of law for the benefit of the true owner.
When the eldest sibling had registered land inherited from the parents in his name, he was
acting in a trust capacity and as representative of all his brothers and sisters. As a consequence
he is now holding the registered title thereto in a trust capacity, and it is proper for the court to
declare that the other siblings are entitled to their several pro rata shares. xSeverino v. Severino,
44 Phil. 343 (1923); xCastro v. Castro, 57 Phil. 675 (1932).
In a situation where a Chinese resident had caused land to be placed in the name of the trustee
who was bound to hold the same for the benefit of the trustor and his family in the event of death,
the application of the doctrine of implied trust under Art. 1451 by the heirs of the trustor cannot
be upheld “because the prohibition against an alien from owning lands of the public domain is

absolute and not even an implied trust can be permitted to arise on equity consideration.” xTing
Ho, Jr. v. Teng Gui, 558 SCRA 421 (2008).
3. CONSTRUCTIVE TRUSTS
a. General Doctrines for Constructive Trusts
Constructive trust is a rule of equity, independent of the particular intentions of the parties.
Paringit v. Bajit, 631 SCRA 584 (2010). Therefore, in constructive trusts there is neither promise
nor fiduciary relations; the “ trustee” does not recognize any trust, with no intent to hold property
for the beneficiary. Diaz v. Gorricho and Aguado, 103 Phil. 261 (1958).57
A constructive trust (trust ex maleficio, trust ex delicto, trust de son tort, an involuntary trust) is
a trust by operation of law which arises contrary to intention and in invitum, against one who, by
fraud, actual or constructive, by duress or abuse of confidence, by commission of wrong, or by
any form of unconscionable conduct, artifice, concealment, or questionable means, or who in any
way against equity and good conscience, has obtained or holds the legal right to property which
he ought not, in equity and good conscience, hold and enjoy. xSumaoang v. Judge, RTC Br.
XXXI, Buimba, Nueva Ecija, 215 SCRA 136 (1992).58
Constructive trusts are fictions of equity that courts use as devices to remedy any situation in
which the holder of the legal title, the purported trustee, should not, in good conscience, retain
title over a property. xVda. de Ouano v. Republic, 642 SCRA 384 (2011).
This Court recognized unconventional implied trusts in contracts involving the purchase of
housing units by officers of tenants’ associations in breach of their obligations,59 the partitioning
of realty contrary to the terms of a compromise agreement,60 and the execution of a sales contract
indicating a buyer distinct from the provider of the purchase money.61 In all these cases, the formal
holders of title were deemed trustees obliged to transfer title to the beneficiaries in whose favor
the trusts were deemed created. We see no reason to bar the recognition of the same obligation
in a mortgage contract meeting the standards for the creation of an implied trust. xJuan v. Yap,
Sr., 646 SCRA 753 (2011).
b. When a Fiduciary Uses Funds or Property Held in Trust to Purchase Property

Which Is Registered in Fiduciary’s Name or a Third Party (Art. 1455)
Article 1455: When any trustee, guardian or other person holding a fiduciary relationship uses trust
funds for the purchase of property and causes the conveyance to be made to him or to a third person, a
trust is established by operation of law in favor of the person to whom the funds belong.
A confidential employee who, knowing that his principal was negotiating with the owner of
some land for the purchase thereof, surreptitiously succeeds in buying it in the name of his wife,
commits an act of disloyalty to his principal and is liable for damage. The reparation of the damage
must consist in respecting the contract which was about to be concluded, and transferring the
said land for the same price and upon the same terms as those on which the purchase was made
for the land sold to the wife of said employee passed to them as what might be regarded as
equitable trust, by virtue of which the thing thus acquired by an employee is deemed to have been
acquired not for his own benefit or that of any other person but for his principal and held in trust
for the latter. Sing Juco and Sing Bengco v. Sunyantong and Llorente, 43 Phil. 589 (1922).
A verbal assertion of a partner that partnership funds were used to purchase real properties
registered solely in the name of the other partners-spouses, without further evidence, does not
overcome the Torrens title issued showing exclusive ownership in the name of the partners-
spouses, and cannot also be used to establish an implied trust over said properties in favor of
alleging partner. xJarantilla, Jr. v. Jarantilla, 636 SCRA 299 (2010).
c. When Property Acquired Through Mistake or Fraud (Art. 1456)

Article 1456: If property is acquired through mistake or fraud, the person obtaining it is, by force of law,
considered a trustee of an implied trust for the benefit of the person from whom the property comes.
Old Civil Code: Where a mother and her minor daughter inherited a large tract of land, and
had it applied for cadastral survey, but title was issued only in the name of the mother, courts of
equity will impress upon the title, a condition which is generally in a broad sense termed
“constructive trust” in favor of the defrauded party (daughter), but use of “trust” in this sense is not
technically accurate.Gayondato v. Treasurer, 49 Phil. 244 (1926).
57
Carantes v. CA, 76 SCRA 514 (1977); Marcado v. Espinocilla, 664 SCRA 724 (2012).
58Roa, Jr. v. CA, 123 SCRA 3 (1983).
59Policarpio v. CA, 269 SCRA 344 (1997); Arlequi v. CA, 378 SCRA 322 (2002).
60Roa, Jr. v. CA, 123 SCRA 3 (1983).
61Tigno v. CA, 280 SCRA 262 (1997).

When an agent, taking advantage of the illiteracy of the principal, claims for himself the
property which he was designated to claim for the principal and manages to have it registered in
his own name and became part of his estate when the agent died, the estate is in equity bound
to execute the deed of conveyance of the lot to the cestui que trust. The courts have therefore
shielded fiduciary relations against every manner of chicanery or detestable designed cloaked by
legal technicalities. Torrens system was never calculated to foment betrayal in the performance
of a trust.Escobar v. Locsin, 74 Phil. 86 (1943).62
New Civil Code: Where father sold unregistered land to Buyer, and thereafter fraudulently
caused the issuance of free patent and eventually title to the land in the name of his son, a
constructive trust is constituted under Art. 1456 in behalf of the Buyer who has 10 years from the
registration of title in the name of the son to bring an action for recovery. xGonzales v. Jimenez,
Sr., 13 SCRA 80 (1964).
Under Art. 1456 on constructive trust, registration of property by one person in his name,
whether by mistake or fraud, the real owner being another person, impresses upon the title so
acquired the character of a constructive trust for the real owner, which would justify an action for
reconveyance within a period of 10 years from registration. In the action for reconveyance, the
decree of registration is respected as incontrovertible, and what is sought instead is the transfer
of the property wrongfully or erroneously registered in another’s name to its rightful owner or to
one with a better right. Pasiño v. Monterroyo, 560 SCRA 739 (2008).63
Where testator expressed in her notarial will that she wished to constitute a trust fund for her
paraphernal properties, to be administered by her husband, and that two-thirds (2/3) of the income
from rentals over the properties were to answer for the education of deserving but needy honor
students, while one-third (1/3) was to shoulder the expenses and fees of the administrator; but
that eventually in the probate of the will the properties were adjudicated to the husband as sole
heir, then a constructive trust has been constituted under Art. 1456 in favor of beneficiaries of the
Fideicomiso.” xLopez v. CA, 574 SCRA 26 (2008).64
The rule that a fraudulently acquired free patent may only be assailed by the government in
an action for reversion pursuant to the Public Land Act is not without exception: where plaintiff-
claimant seeks direct reconveyance from defendant of public land unlawfully and in breach of
trust titled by him, on the principle of enforcement of a constructive trust. xHortizuela v. Tagufa,
751 SCRA 371 (2015).
Conveyance made by seller of a property acquired through pactum commisoriumis void, and
thus not vest title to the buyer. Such a situation falls squarely under Art. 1456, where the buyer is
deemed to have acquired the property by mistake or through ineffectual transfer.[Title
void?]Home Guaranty Corp. v. La Savoje Dev. Corp., 748 SCRA 312 (2015).
IV. RULES OF PRESCRIPTION ON TRUSTS

1. Summary of Rulings for Express Trusts:
GENERAL RULE: Express trusts are generally imprescriptible: The express undertaking to hold title
for the benefit of the beneficiary disables the trustee from acquiring for himself the property
committed to his management or custody.65
The beneficiary’s alleged delay in seeking recovery of the property is directly attributable to the
trustee who undertakes to hold the property for the former; trustee’s possession is, therefore, not
adverse to the beneficiary, until and unless the latter is made aware that the trust has been
repudiated. xDiaz v. Gorricho and Aguado, 103 Phil. 261 (1958).66
EXCEPTION: For acquisitive prescription to bar the action of the beneficiary against the trustee, it
must be shown that:67
(1) Trustee has performed unequivocal acts of repudiation amounting to an ouster of cestui que
trust;
62Pacheco v. Arro, 85 Phil. 505.

63Ruiz v. CA, 79 SCRA 525 (1977); Heirs of Tanak Pangaaran Patiwayon v. Martinez, 142 SCRA 252 (1986); Municipality of Victorias v. CA,
149 SCRA 32 (1987); Mendizabel v. Apao, 482 SCRA 587 (2006); Heirs of Tabia v. CA, 516 SCRA 431 (2007); Pedrano v. Heirs of Benedicto
Pedrano, 539 SCRA 401 (2007); Heirs of Valeriano S. Concha, Sr. v. Lumocso, 540 SCRA 1 (2007); Leoveras v. Valdez, 652 SCRA 61 (2011);
PNB v. Jumamoy, 655 SCRA 54 (2011); Toledo v. CA, 765 SCRA 104 (2015).
64Vda. De Esconde v. CA, 253 SCRA 66 (1996); Iglesia Filipina Independiente v. Heirs of Taeza, 715 SCRA 138 (2014).
65A trustee cannot acquire by prescription the ownership of property entrusted to him (Palma v. Cristobal, 77 Phil. 712); an action to compel
a trustee to convey property registered in his name in trust for the benefit of the cestui qui trust does not prescribe (Manalang v. Canlas, 94
Phil. 776; Cristobal v. Gomez, 50 Phil. 810); the defense of prescription cannot be set up in an action to recover property held by a person in
trust for the benefit of another (Sevilla v. Delos Angeles, 97 Phil. 875); property held in trust can be recovered by the beneficiary regardless of
the lapse of time (Marabilles v. Quito, 100 Phil. 64; Bancairen v. Diones, 98 Phil. 122, Juan v. Zuñiga, 4 SCRA 1221; Vda de Jacinto v. Vda.
de Jacinto, 5 SCRA 370 (1962). Ramos v. Ramos, 61 SCRA 284, 299 (1974).
66Laguna v. Levantino, 71 Phil. 566 (1941); Sumira v. Vistan, 74 Phil. 138 (1943); Golfeo v. CA, 12 SCRA 199 (1964); Caladiao v. Santos,
10 SCRA 691, (1964);Torbela v. Rosario, 661 SCRA 633 (2011).

67Pilapil v. Heirs of Maximino R. Briones, 514 SCRA 197 (2007); Cañezo v. Rojas, 538 SCRA 242 (2007); Heirs of Tranquilino Labiste v.
Heirs of Jose Labiste, 587 SCRA 417 (2009).

(2) Such positive acts of repudiation have been made known to the cestui que trust;
(3) Evidence is clear and conclusive: a clear repudiation of the trust duly communicated to the
beneficiary –A trustee who obtains a Torrens title over the property held in trust by him for
another cannot repudiate the trust by relying on the registration. The rule requires a clear
repudiation of the trust duly communicated to the beneficiary. The only act that can be
construed as repudiation was when respondents filed the petition for reconstitution seeking
registration only in his name, xHeirs of Tranquilino Labiste v. Heirs of Jose Labiste, 587
SCRA 417 (2009);68and
(4) 10 years have lapsed since the point of repudiation, xEscay v. Court of Appeals, 61 SCRA
369 (1974).
HOWEVER: Though prescription does not run between the trustee and cestui que trust as long as
the trust relations subsist, it runs between against the trustee and in favor of a third person who
holds actual, open, public, and continuous possession adverse to the trust, of land for over 10
years. xGovernment v. Abadilla, 46 Phil. 642 (1924).
2. Summary of Rulings for Resulting Trusts:

GENERAL RULE: As a rule, implied resulting trusts do not prescribe except when the trustee
repudiates the trust. Further, the action to reconvey does not prescribe so long as the property
stands in the name of the trustee. To allow prescription would be tantamount to allowing a trustee
to acquire title against his principal and true owner.Tong v. Go Tiat Kun, 722 SCRA 623 (2014).
The rule of imprescriptibility of the action to recover property held in trust may apply to resulting
trusts as long as the trustee has not repudiated the trust. The continuous recognition of a resulting
trust, therefore, precludes any defense of laches in a suit to declare and enforce the trust. After
all, the beneficiary in a resulting trust may, without prejudice to his right to enforce the trust, prefer
the trust to persist and demand no conveyance from the trustee. xHeirs of Candelaria v. Romero,
109 Phil. 500 (1960).69
A co-ownership is a form of trust, with each owner being a trustee for each other. Mere actual
possession by one will not give rise to the inference that the possession was adverse because a
co-owner is, after all, entitled to possession of the property. Thus, as a rule, prescription does not
run in favor of a co-heir or co-owner as long as he expressly or impliedly recognizes the co-
ownership; and he cannot acquire by prescription the share of the other co-owners, absent a clear
repudiation of the co-ownership. An action to demand partition among co-owners is
imprescriptible, and each co-owner may demand at any time the partition of the common property.
Heirs of Yambao v. Heirs of Yambao, 789 SCRA 361 (2016).
EXCEPTION:In resulting trusts, acquisitive prescription run in favor of the trustee only when he
repudiates expressly the trusts and makes known such repudiation to the beneficiary, and there
is a lapse of 10 years from:
(1) Notice of repudiation served upon the beneficiary;70
(2) Registration of title in name of trustee, when such registration is equivalent to a clear act of
repudiation:71
 Such as registration by one of the co-owners of title in his sole name in fraud of the other
co-owners (which makes it a class of constructive trust).72
3. Summary of Rulings for Constructive Trusts:

GENERAL RULE: In constructive trusts, laches constitutes a bar to actions to enforce the trust,
without need of prior repudiation,73 and that acquisitive prescription runs in favor of the trustee
after 10 years from the registration of title in trustee’s name.74
68Torbela v. Rosario, 661 SCRA 633 (2011)

69Martinez v. Graño, 42 Phil. 35 (1921); Buencamino v. Matias, 16 SCRA 849 (1966)]. Ramos v. Ramos, 61 SCRA 284 (1974).
70Castro v. Echarri, 20 Phil. 23; Bargayo v. Camumot, 40 Phil. 857 (1920); Ramos v. Ramos, 45 Phil. 362 (1923); Varsity Hills v. Navarro,
43 SCRA 503 (1972).

71Cañezo v. Rojas, 538 SCRA 242 (2007).
72
Vda. de Jacinto v. Vda. de Jacinto, 5 SCRA 370 (1962); Castrillo v. CA, 10 SCRA 549 (1964); Lopez v. Gonzaga, 10 SCRA 167 (1974);
Gerona v. De Guzman, 11 SCRA 153 (1964); Mariano v. Judge De Vega, 148 SCRA 342 (1987); Figuracion v. Figuracion-Gerilla, 690 SCRA
495 (2013).
73Boñaga v. Soler, 11 Phil. 651; Claridad v. Henares, 97 Phil. 973; Cuison v. Fernandez and Bengzon, 105 Phil. 135 (1959); Candelaria v.
Romero, 109 Phil. 500 (1960); De Pasion v. De Pasion, 112 Phil. 403;J.M. Tuazon & Co. v. Mandanagal, 4 SCRA 84 (1962); Alzona v.
Capunitan, 4 SCRA 450 (1962); Vda. De Jacinto v. Vda. De Jacinto, 5 SCRA 371 (1962); Gerona v. De Guzman, 11 SCRA 153 (1964);
Gonzales v. Jimenez, 13 SCRA 80 (1965); Fabian v. Fabian, 22 SCRA 231 (1968); Bueno v. Reyes, 27 SCRA 1179 (1969); Ramos v. Ramos,
61 SCRA 284 (1974); Estate of Margarita D. Cabacungan, v. Laigo, 655 SCRA 366 (2011).
74
Boñaga v. Soler, 2 SCRA 755 (1961); J. M. Tuason& Co., Inc. v. Magdangal, 4 SCRA 123 (1962); Alzona v. Capunitan, 4 SCRA 450
(1962); Gonzales v. Jimenez, 13 SCRA 80 (1965); Cuaycong v. Cuaycong, 21 SCRA 1192 (1967); Varsity Hills v. Navarro, 43 SCRA 503
(1972); Escay v. CA, 61 SCRA 369 (1974); Carantes v. CA, 76 SCRA 514 (1977); Gonzales v. IAC, 204 SCRA 106 (1991); Pedrano v. Heirs
of Benedicto Pedrano, 539 SCRA 401 (2007); Cavile v. Litania-Hong, 581 SCRA 408 (2009); Heirsof Domingo Valientes v. Ramas, 638 SCRA
444 (2010).

In constructive trusts, there is neither promise nor fiduciary relation; the so-called trustee does
not recognize any trust and has no intent to hold for the beneficiary; therefore, the beneficiary is
not justified in delaying action to recover his property; it is his fault if he delays; hence, he may be
estopped by his own laches.75
EXCEPTIONS: The acquisitive prescription of 10 years upon registration of title does not apply to
favor the supposed “trustee” in the following cases:
(1) Where Trustee Recognizes the Rights of Cestui Que Trust– Prescription may not apply by
mere registration of the title in the name of the trustee, where the trustee formally recognized
the beneficial right of the cestui que trust. xGeronimo and Isidro v. Nava and Aquino, 105
Phil. 145 (1959); xAdaza v. Court of Appeals, 171 SCRA 369 (1989).
(2) When the Cestui Que Trust Is a Minor – When the act of repudiation of the trustee was
effected at the time the cestui que trust was still a minor, then such act does not prejudice
the latter: “We … are unable to see how a minor with whom another is in trust relation can
be prejudiced by repudiation of the trustee addressed to him by the person who is subject to
the trust obligation.” xCastro v. Castro, 57 Phil. 675 (1932).
(3) When Cestui Que Trust Is a Close Relation of Trustee–The existence of a confidential
relationship based upon consanguinity is an important circumstance for consideration;
hence, laches being rooted in equity, is not to be applied mechanically as between near
relatives. xAdaza v. Court of Appeals, 171 SCRA 369 (1989).76
(4) Where Cestui Que Trust Is in Possession of Trust Property – Prescriptive period applies only
if there is an actual need to reconvey the property, as when plaintiff is not in possession; if
plaintiff is in possession, prescription does not commence to run. When an action for
reconveyance is nonetheless filed, it would be in the nature of a suit for quieting of title, which
is imprescriptible. xBrito v. Dianala, 638 SCRA 529 (2010).77
However, an action for reconveyance based on implied or constructive trust is
imprescriptible if the plaintiff or the person enforcing the trust is in possession of
the property. In effect, the action for reconveyance is an action to quiet the
property title, which does not prescribe. The reason is that the one who is in actual
possession of the land claiming to be its owner may wait until his possession is
disturbed or his title is attacked before taking steps to vindicate his right. His
undisturbed possession gives him a continuing right to seek the aid of a court of
equity to ascertain and determine the nature of the adverse claim of a third party
and its effect on his own title, which right can be claimed only by one who is in
possession.  Gabutan v. Nacalaban, G.R. Nos. 185857-58, June 29, 2016.(5) Where
Trustee’s Title Is Void– Where signatures of the petitioners, being forced heirs, in the
extrajudicial settlement with sale have been forged, although title to the land had been
registered in the name of the buyer, contract is void, and action to seek the declaration of
nullity is imprescriptible. xMacababbad v. Masirag, 576 SCRA 70 (2009).78
(6) Where Property Is in the Hands of an Innocent Purchaser– Aggrieved party may no longer
file an action for reconveyance based on a constructive trust, when the property has been
acquired by an innocent purchaser for value. xKhoemani v. Heirs of Anastacio Trinidad, 540
SCRA 83 (2007).79
—ooO—MID-TERM EXAMINATION COVERAGE—Ooo—
C. PARTNERSHIPS
I. HISTORICAL BACKGROUND
1. Old Branches of Partnership Law
 Civil Partnerships– Not pursued in mercantile manner, non-habitual or “not pursued in the
regular course of business”
75Diaz v. Gorricho and Aguado, 103 Phil. 261 (1958); Cañezo v. Rojas, 538 SCRA 242 (2007).
76Estate of Margarita D. Cabacungan, v. Laigo, 655 SCRA 366 (2011).
77
Armamento v. Guererro, 96 SCRA 178 (1980); Gonzales v. IAC, 204 SCRA106 (1991); Heirsof Domingo Valientes v. Ramas, 638 SCRA
444 (2010); PNB v. Jumamoy, 655 SCRA 54 (2011); Tiongco Yared v. Tiongco, 659 SCRA 545 (2011), Zuñiga-Santos v. Santos-Gran, 738
SCRA 33 (2014); Toledo v. CA, 765 SCRA 104 (2015).
78Cuison v. Fernandez and Bengzon, 105 Phil. 135 (1959).
79Cavile v. Litania-Hong, 581 SCRA 408 (2009).

 Commercial Partnerships– in pursuit of industry or commerce; characterized by habituality
or “pursuit in the regular course of business”
Distinguishing between civil and commercial partnerships was critical in the old set-up because
it determined the applicable rules for registration, personal liability of members, and rights and
manner of dissolution. Compañia Agricola de Ultramar v. Reyes, 4 Phil. 2 (1904).
a. Commercial Partnerships Were Deemed to Be, and Subject

to Code of Commerce Provisions for, Merchants
A commercial partnership is distinguished from a civil one by the object to which it is devoted
and not by the manner with which it is organized. A commercial partnership has for its object the
pursuit of industry or commerce, and is then a “merchant” that must be governed by, and comply
with the registration requirements of, the Code of Commerce to lawfully come into existence; it
cannot choose to be organized under the Civil Code to make it a civil partnership. Prautch v.
Hernandez, 1 Phil. 705 (1903).
CONTRA: “We are inclined to the belief that the respective codes, Civil and Commercial, have
adopted a complete system for the organization, control, continuance, liabilities, dissolutions, and
juristic personalities of associations organized under each. . . . that associations organized under
the different codes are governed by the provisions of the respective codes.” Compañia Agricola
de Ultramar v. Reyes, 4 Phil. 2 (1904).
A commercial partnership that fails to register in the mercantile registry under Art. 119 of Code
of Commerce, does not become a juridical person with a personality distinct from those of the
individuals who composed it. Hung-Man-Yoc v.Kieng-Chiong-Seng, 6 Phil. 498 (1906); Bourns v.
Carman, 7 Phil. 117 (1906); Ang Seng Quen v. Te Chico, 7 Phil. 541 (1907).
CONSEQUENTLY:
 It cannot maintain an action in its name, Prautch v. Hernandez, 1 Phil. 705 (1903); neither in the name
of one or more of the members on behalf of the associates; nevertheless the individual members may
sue jointly as individuals, and persons dealing with them in their joint capacity will not be permitted to
deny their right to do so. Prautch v. Jones, 8 Phil. 1 (1907); Ang Seng Quen v. Te Chico, 12 Phil. 547
(1909).
 Without a separate juridical personality, what was applicable was Art. 120 which made “persons in
charge of the management of the association” liable for the debts incurred by such “partnership de
facto”. Kwong-Wo-Sing v. Kieng-Chiong-Seng, 6 Phil. 498 (1906).
b. Registration Key for Commercial Partnerships Coming into Existence (Arts. 118-119,
Code of Commerce); While Mere Consent Perfected the Civil Partnership
A laundry business is a civil partnership governed by the Civil Code, and it exist validly even
when no formal partnership agreement was entered into and registered, and the obligations of
the partners for partnership debts would be pro rata. Dietrich v. Freeman, 18 Phil. 341 (1911).
c. On Partnership Debts: Commercial Partners Were Solidarily Liable, Albeit Subsidiarily;

While Civil Partners Were Primarily But Only Jointly Liable
In a civil partnership, each member is bound to pay his pro rata share of the partnership debts.
Co-Pitco v. Yulo, 8 Phil. 544 (1907).
In a commercial partnership, although partners are only subsidiarily liable (i.e., benefit of
excussion) they are liable solidarily. Viuda de Chan Diaco v. Peng, 53 Phil. 906 (1928).
Both partnership and the partners may be joined in one action, but the private property of the
partners cannot be taken in payment of the partnership debts until the partnership property has
been exhausted. La Compañia Maritima v. Muñoz, 9 Phil. 326 (1907).
Partners’ right of excussion is deemed satisfied where the judgment debts remain unsatisfied
after exhaustion of partnership assets, De los Reyes v. Lukban, 35 Phil. 757 (1916); PNB v. Lo, 50
Phil. 802 (1927).
II. NATURE AND ATTRIBUTES OF THE PARTNERSHIP

1. Definition of Partnership (Art. 1767)
Article 1767: 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.
Two or more persons may also form a partnership for the exercise of a profession. (1665a)
Since a partnership requires the meeting of minds to contribute to a common fund with the
intention of dividing the profits from the common fund formed, necessarily an “Acknowledgment
of Participating Capital” issued by managing partners in favor of silent partners can only cover
business enterprises specifically enumerated in said document and cannot be construed to

include all other businesses and properties registered in the separate names of the managing
partners. xJarantilla, Jr. v. Jarantilla, 636 SCRA 299 (2010).
2. TRI-LEVEL EXISTENCE/LEGAL RELATIONSHIPS IN A PARTNERSHIP SETTING

a. PRIMARILY A CONTRACTUAL RELATIONSHIP (Arts. 1767, 1771 and 1784)
Article 1771: A partnership may be constituted in any form, except where immovable property or real
rights are contributed thereto, in which case a public instrument shall be necessary. (1667a)
Article 1784: A partnership begins from the moment of the execution of the contract, unless it is
otherwise stipulated. (1679)
b. SEPARATE JURIDICAL PERSONALITY (Art. 1768)
Article 1768: The partnership has a juridical personality separate and distinct from that of each of the
partners, even in case of failure to comply with the requirements of article 1772, first paragraph. (n)
c. UNDERLYING BUSINESS ENTERPRISE AS THE PRIMARY OBJECTIVE

When original partners sell their equity interests, the original juridical person was extinguished
and the new set of partners constituted a new partnership arrangement with a new juridical
personality. Yet the underlying business enterprise remained the same between the two sets of
investors and the succession of liability rule pertaining to the underlying business enterprise must
be respected. Yu v. NLRC, 224 SCRA 75 (1993).
3. ESSENTIAL ATTRIBUTES OF THE PARTNERSHIP

a. IT IS FIRST AND FOREMOST A CONTRACTUAL RELATIONSHIP (Arts. 1767, 1771, 1784)
b. ALBEIT GRANTED A SEPARATE JURIDICAL PERSONALITY (Arts. 44[3], 1768, 1774)
Article 44: The following are juridical persons:

(3) Corporations, partnerships and associations for private interest or purpose to which the law grants a
juridical personality, separate and distinct from that of each shareholder, partner or member. (35a)
partners, even in case of failure to comply with the requirements of article 1772, first paragraph. (n)
Article 1774: Any immovable property or an interest therein may be acquired in the partnership name.
Title so acquired can be conveyed only in the partnership name.
c. BOUNDED BY ATTRIBUTE OF “DELECTUS PERSONAE”

 Assignment of Share Does NOT Make Assignee Partner(Arts. 1804, 1813)
Article 1804: Every partner may associate another person with him in his share, but the associate shall
not be admitted into the partnership without the consent of all the other partners, even if the partner
having an associate should be a manager. (1696)
Article 1813: A conveyance by a partner of his whole interest in the partnership does not of itself dissolve
the partnership, or, as against the other partners in the absence of agreement, entitle the assignee,
during the continuance of the partnership, to interfere in the management or administration of the
partnership business or affairs, or to require any information or account of partnership transactions, or to

inspect the partnership books; but it merely entitles the assignee to receive in accordance with his
contract the profits to which the assigning partner would otherwise be entitled. However, in case of fraud
in the management of the partnership, the assignee may avail himself of the usual remedies.
In case of a dissolution of the partnership, the assignee is entitled to receive his assignor's interest and
may require an account from the date only of the last account agreed to by all the partners. (n)

The right to choose with whom to associate himself is the very foundation and essence of the
partnership. Its continued existence is, in turn, dependent on the constancy of that mutual resolve,
along with each partner’s capability to give it, and the absence of a cause for dissolution provided
by the law itself. Ortega v. Court of Appeals, 245 SCRA 529 (1995).
d. BOUNDED BY ATTRIBUTE OF “MUTUAL AGENCY” (Arts. 1803[1], 1818, 1819, 1821 to 1823)
Article 1803: When the manner of management has not been agreed upon, the following rules shall be
observed:
(1) All the partners shall be considered agents and whatever any one of them may do alone shall bind
the partnership, without prejudice to the provisions of article 1801. x x x
Article 1818: 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.
An act of a partner which is not apparently for the carrying on of business of the partnership in the usual
way does not bind the partnership unless authorized by the other partners.
Except when authorized by the other partners or unless they have abandoned the business, one or more
but less than all the partners have no authority to:
(1) Assign the partnership property in trust for creditors or on the assignee's promise to pay the debts of
the partnership;
(2) Dispose of the good-will of the business;
(3) Do any other act which would make it impossible to carry on the ordinary business of a partnership;
(4) Confess a judgment;
(5) Enter into a compromise concerning a partnership claim or liability;
(6) Submit a partnership claim or liability to arbitration;
(7) Renounce a claim of the partnership.
No act of a partner in contravention of a restriction on authority shall bind the partnership to persons
having knowledge of the restriction. (n)
Article 1819: 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 the first paragraph of
article 1818, or 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.
Where title to real property is in the name of the partnership, a conveyance executed by a partner, in his
own name, passes the equitable interest of the partnership, provided the act is one within the authority
of the partner under the provisions of the first paragraph of article 1818.
Where title to real property is in the name of one or more but not all the partners, and the record does
not disclose the right of the partnership, the partners in whose name the title stands may convey title to
such property, but the partnership may recover such property if the partners' act does not bind the
partnership under the provisions of the first paragraph of article 1818, unless the purchaser or his
assignee, is a holder for value, without knowledge.
Where the title to real property is in the name of one or more or all the partners, or in a third person in
trust for the partnership, a conveyance executed by a partner in the partnership name, or in his own
name, passes the equitable interest of the partnership, provided the act is one within the authority of the
partner under the provisions of the first paragraph of article 1818.
Where the title to real property is in the name of all the partners a conveyance executed by all the partners
passes all their rights in such property. (n)
Article 1821: Notice to any partner of any matter relating to partnership affairs, and the knowledge of
the partner acting in the particular matter, acquired while a partner or then present to his mind, and the
knowledge of any other partner who reasonably could and should have communicated it to the acting

partner, operate as notice to or knowledge of the partnership, except in the case of fraud on the
partnership, committed by or with the consent of that partner. (n)
Article 1822: 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 caused 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. (n)
Article 1823: The partnership is bound to make good the loss:
(1) Where one partner acting within the scope of his apparent authority receives money or property of a
third person and misapplies it; and
(2) 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. (n)
e. PARTNERS ARE “UNLIMITEDLY LIABLE” (Arts. 1816, 1817, 1824, 1839[4] and [7])
Article 1816: All partners, including industrial ones, shall be liable pro rata with all their property and
after all the partnership assets have been exhausted, for the contracts which may be entered into in the
name and for the account of the partnership, under its signature and by a person authorized to act for
the partnership. However, any partner may enter into a separate obligation to perform a partnership
contract. (n)
Article 1817: Any stipulation against the liability laid down in the preceding article shall be void, except
as among the partners. (n)
Article 1824: All partners are liable solidarily with the partnership for everything chargeable to the
partnership under articles 1822 and 1823. (n)
Article 1839: In settling accounts between the partners after dissolution, the following rules shall be
observed, subject to any agreement to the contrary:
xxx
(4) The partners shall contribute, as provided by article 1797, the amount necessary to satisfy the
liabilities; x x x
(7) The individual property of a deceased partner shall be liable for the contributions specified in No. 4.
xxx
4. KINDS OF PARTNERSHIPS
a. As to Object (Art. 1776, 1st par.)
i. Universal Partnership (Arts. 1777 to 1782)
Article 1777: A universal partnership may refer to all the present property or to all the profits. (1672)
Article 1778: A partnership of all present property is that in which the partners contribute all the property
which actually belongs to them to a common fund, with the intention of dividing the same among
themselves, as well as all the profits which they may acquire therewith. (1673)
Article 1779: In a universal partnership of all present property, the property which belonged to each of
the partners at the time of the constitution of the partnership, becomes the common property of all the
partners, as well as all the profits which they may acquire therewith.
A stipulation for the common enjoyment of any other profits may also be made; but the property which
the partners may acquire subsequently by inheritance, legacy, or donation cannot be included in such
stipulation, except the fruits thereof. (1674a)
Article 1780: A universal partnership of profits comprises all that the partners may acquire by their
industry or work during the existence of the partnership.
Movable or immovable property which each of the partners may possess at the time of the celebration
of the contract shall continue to pertain exclusively to each, only the usufruct passing to the partnership.
(1675)
Article 1781: Articles of universal partnership, entered into without specification of its nature, only
constitute a universal partnership of profits. (1676)
Article 1782: Persons who are prohibited from giving each other any donation or advantage cannot enter
into universal partnership. (1677)
- Deemed a “Universal Partnership of Profits” when articles do not specify the

partnership’s nature. (Art. 1781)

Article 1781: Articles of universal partnership, entered into without specification of its nature, only
constitute a universal partnership of profits. (1676)
- Persons who are prohibited from giving each other any donation or
advantage cannot enter into a universal partnership. (Art. 1782)
Article 1782: Persons who are prohibited from giving each other any donation or advantage cannot enter
into universal partnership. (1677)
ii. Particular Partnership(Art. 1783)

Article 1783: A particular partnership has for its object determinate things, their use or fruits, or a specific
undertaking, or the exercise of a profession or vocation. (1678)
 Usefulness of Such Distinction? Lyons v. Rosenstock, 56 Phil. 632 (1932).

b. As to Duration (Art. 1785)
Article 1785: When a partnership for a fixed term or particular undertaking is continued after the
termination of such term or particular undertaking without any express agreement, the rights and duties
of the partners remain the same as they were at such termination, so far as is consistent with a
partnership at will.
A continuation of the business by the partners or such of them as habitually acted therein during the
term, without any settlement or liquidation of the partnership affairs, is prima facie evidence of a
continuation of the partnership. (n)
i. Partnership with Fixed Term
ii. Partnership for a Particular Undertaking
iii. Partnership at Will
c. As to the Nature of the Liabilities of Partners
i. General Partnership (Art. 1776, 2nd par.)
Article 1776: x x x
As regards the liability of the partners, a partnership may be general or limited. (1671a)
ii. Limited Partnership (Sociedad en Comandita) (Arts. 1843 to 1867)
Article 1843: A limited partnership is one formed by two or more persons under the provisions of the
following article, having as members one or more general partners and one or more limited partners. The
limited partners as such shall not be bound by the obligations of the partnership.
Article 1844: Two or more persons desiring to form a limited partnership shall:
(1) Sign and swear to a certificate, which shall state -
(a) The name of the partnership, adding thereto the word "Limited";
(b) The character of the business;
(c) The location of the principal place of business;
(d) The name and place of residence of each member, general and limited partners being respectively
designated;
(e) The term for which the partnership is to exist;
(f) The amount of cash and a description of and the agreed value of the other property contributed by
each limited partner;
(g) The additional contributions, if any, to be made by each limited partner and the times at which or
events on the happening of which they shall be made;
(h) The time, if agreed upon, when the contribution of each limited partner is to be returned;
(i) The share of the profits or the other compensation by way of income which each limited partner shall
receive by reason of his contribution;
(j) The right, if given, of a limited partner to substitute an assignee as contributor in his place, and the
terms and conditions of the substitution;
(k) The right, if given, of the partners to admit additional limited partners;
(l) The right, if given, of one or more of the limited partners to priority over other limited partners, as to
contributions or as to compensation by way of income, and the nature of such priority;

(m) The right, if given, of the remaining general partner or partners to continue the business on the death,
retirement, civil interdiction, insanity or insolvency of a general partner; and
(n) The right, if given, of a limited partner to demand and receive property other than cash in return for
his contribution.
(2) File for record the certificate in the Office of the Securities and Exchange Commission.
A limited partnership is formed if there has been substantial compliance in good faith with the foregoing
requirements.
Article 1845: The contributions of a limited partner may be cash or property, but not services.
Article 1846: The surname of a limited partner shall not appear in the partnership name unless:
(1) It is also the surname of a general partner, or
(2) Prior to the time when the limited partner became such, the business has been carried on under a
name in which his surname appeared.
A limited partner whose surname appears in a partnership name contrary to the provisions of the first
paragraph is liable as a general partner to partnership creditors who extend credit to the partnership
without actual knowledge that he is not a general partner.
Article 1847: If the certificate contains a false statement, one who suffers loss by reliance on such
statement may hold liable any party to the certificate who knew the statement to be false:
(1) At the time he signed the certificate, or
(2) Subsequently, but within a sufficient time before the statement was relied upon to enable him to
cancel or amend the certificate, or to file a petition for its cancellation or amendment as provided in article
1865.
Article 1848: A limited partner shall not become liable as a general partner unless, in addition to the
exercise of his rights and powers as a limited partner, he takes part in the control of the business.
Article 1849: After the formation of a lifted partnership, additional limited partners may be admitted upon
filing an amendment to the original certificate in accordance with the requirements of article 1865.
Article 1850: A general partner shall have all the rights and powers and be subject to all the restrictions
and liabilities of a partner in a partnership without limited partners. However, without the written consent
or ratification of the specific act by all the limited partners, a general partner or all of the general partners
have no authority to:
(1) Do any act in contravention of the certificate;
(2) Do any act which would make it impossible to carry on the ordinary business of the partnership;
(3) Confess a judgment against the partnership;
(4) Possess partnership property, or assign their rights in specific partnership property, for other than a
partnership purpose;
(5) Admit a person as a general partner;
(6) Admit a person as a limited partner, unless the right so to do is given in the certificate;
(7) Continue the business with partnership property on the death, retirement, insanity, civil interdiction or
insolvency of a general partner, unless the right so to do is given in the certificate.
Article 1851: A limited partner shall have the same rights as a general partner to:
(1) Have the partnership books kept at the principal place of business of the partnership, and at a
reasonable hour to inspect and copy any of them;
(2) Have on demand true and full information of all things affecting the partnership, and a formal account
of partnership affairs whenever circumstances render it just and reasonable; and
(3) Have dissolution and winding up by decree of court.
A limited partner shall have the right to receive a share of the profits or other compensation by way of
income, and to the return of his contribution as provided in articles 1856 and 1857.
Article 1852: Without prejudice to the provisions of article 1848, a person who has contributed to the
capital of a business conducted by a person or partnership erroneously believing that he has become a
limited partner in a limited partnership, is not, by reason of his exercise of the rights of a limited partner,
a general partner with the person or in the partnership carrying on the business, or bound by the
obligations of such person or partnership, provided that on ascertaining the mistake he promptly
renounces his interest in the profits of the business, or other compensation by way of income.
Article 1853: A person may be a general partner and a limited partner in the same partnership at the
same time, provided that this fact shall be stated in the certificate provided for in article 1844.

A person who is a general, and also at the same time a limited partner, shall have all the rights and
powers and be subject to all the restrictions of a general partner; except that, in respect to his contribution,
he shall have the rights against the other members which he would have had if he were not also a general
partner.
Article 1854: A limited partner also may loan money to and transact other business with the partnership,
and, unless he is also a general partner, receive on account of resulting claims against the partnership,
with general creditors, a pro rata share of the assets. No limited partner shall in respect to any such
claim:
(1) Receive or hold as collateral security any partnership property, or
(2) Receive from a general partner or the partnership any payment, conveyance, or release from liability
if at the time the assets of the partnership are not sufficient to discharge partnership liabilities to persons
not claiming as general or limited partners.
The receiving of collateral security, or payment, conveyance, or release in violation of the foregoing
provisions is a fraud on the creditors of the partnership.
Article 1855: Where there are several limited partners the members may agree that one or more of the
limited partners shall have a priority over other limited partners as to the return of their contributions, as
to their compensation by way of income, or as to any other matter. If such an agreement is made it shall
be stated in the certificate, and in the absence of such a statement all the limited partners shall stand
upon equal footing.
Article 1856: A limited partner may receive from the partnership the share of the profits or the
compensation by way of income stipulated for in the certificate; provided, that after such payment is
made, whether from property of the partnership or that of a general partner, the partnership assets are
in excess of all liabilities of the partnership except liabilities to limited partners on account of their
contributions and to general partners.
Article 1857: A limited partner shall not receive from a general partner or out of partnership property any
part of his contributions until:
(1) All liabilities of the partnership, except liabilities to general partners and to limited partners on account
of their contributions, have been paid or there remains property of the partnership sufficient to pay them;
(2) The consent of all members is had, unless the return of the contribution may be rightfully demanded
under the provisions of the second paragraph; and
(3) The certificate is cancelled or so amended as to set forth the withdrawal or reduction.
Subject to the provisions of the first paragraph, a limited partner may rightfully demand the return of his
contribution:
(1) On the dissolution of a partnership; or
(2) When the date specified in the certificate for its return has arrived, or
(3) After he has six months' notice in writing to all other members, if no time is specified in the certificate,
either for the return of the contribution or for the dissolution of the partnership.
In the absence of any statement in the certificate to the contrary or the consent of all members, a limited
partner, irrespective of the nature of his contribution, has only the right to demand and receive cash in
return for his contribution.
A limited partner may have the partnership dissolved and its affairs wound up when:
(1) He rightfully but unsuccessfully demands the return of his contribution, or
(2) The other liabilities of the partnership have not been paid, or the partnership property is insufficient
for their payment as required by the first paragraph, No. 1, and the limited partner would otherwise be
entitled to the return of his contribution.
Article 1858: A limited partner is liable to the partnership:
(1) For the difference between his contribution as actually made and that stated in the certificate as
having been made, and
(2) For any unpaid contribution which he agreed in the certificate to make in the future at the time and
on the conditions stated in the certificate.
A limited partner holds as trustee for the partnership:
(1) Specific property stated in the certificate as contributed by him, but which was not contributed or
which has been wrongfully returned, and
(2) Money or other property wrongfully paid or conveyed to him on account of his contribution.
The liabilities of a limited partner as set forth in this article can be waived or compromised only by the
consent of all members; but a waiver or compromise shall not affect the right of a creditor of a partnership

who extended credit or whose claim arose after the filing and before a cancellation or amendment of the
certificate, to enforce such liabilities.
When a contributor has rightfully received the return in whole or in part of the capital of his contribution,
he is nevertheless liable to the partnership for any sum, not in excess of such return with interest,
necessary to discharge its liabilities to all creditors who extended credit or whose claims arose before
such return.
Article 1859: A limited partner's interest is assignable.
A substituted limited partner is a person admitted to all the rights of a limited partner who has died or has
assigned his interest in a partnership.
An assignee, who does not become a substituted limited partner, has no right to require any information
or account of the partnership transactions or to inspect the partnership books; he is only entitled to
receive the share of the profits or other compensation by way of income, or the return of his contribution,
to which his assignor would otherwise be entitled.
An assignee shall have the right to become a substituted limited partner if all the members consent
thereto or if the assignor, being thereunto empowered by the certificate, gives the assignee that right.
An assignee becomes a substituted limited partner when the certificate is appropriately amended in
accordance with article 1865.
The substituted limited partner has all the rights and powers, and is subject to all the restrictions and
liabilities of his assignor, except those liabilities of which he was ignorant at the time he became a limited
partner and which could not be ascertained from the certificate.
The substitution of the assignee as a limited partner does not release the assignor from liability to the
partnership under articles 1847 and 1858.
Article 1860: The retirement, death, insolvency, insanity or civil interdiction of a general partner dissolves
the partnership, unless the business is continued by the remaining general partners:
(1) Under a right so to do stated in the certificate, or
(2) With the consent of all members.
Article 1861: On the death of a limited partner his executor or administrator shall have all the rights of a
limited partner for the purpose of setting his estate, and such power as the deceased had to constitute
his assignee a substituted limited partner.
The estate of a deceased limited partner shall be liable for all his liabilities as a limited partner.
Article 1862: On due application to a court of competent jurisdiction by any creditor of a limited partner,
the court may charge the interest of the indebted limited partner with payment of the unsatisfied amount
of such claim, and may appoint a receiver, and make all other orders, directions and inquiries which the
circumstances of the case may require.
The interest may be redeemed with the separate property of any general partner, but may not be
redeemed with partnership property.
The remedies conferred by the first paragraph shall not be deemed exclusive of others which may exist.
Nothing in this Chapter shall be held to deprive a limited partner of his statutory exemption.
Article 1863: In settling accounts after dissolution the liabilities of the partnership shall be entitled to
payment in the following order:
(1) Those to creditors, in the order of priority as provided by law, except those to limited partners on
account of their contributions, and to general partners;
(2) Those to limited partners in respect to their share of the profits and other compensation by way of
income on their contributions;
(3) Those to limited partners in respect to the capital of their contributions;
(4) Those to general partners other than for capital and profits;
(5) Those to general partners in respect to profits;
(6) Those to general partners in respect to capital.
Subject to any statement in the certificate or to subsequent agreement, limited partners share in the
partnership assets in respect to their claims for capital, and in respect to their claims for profits or for
compensation by way of income on their contribution respectively, in proportion to the respective
amounts of such claims.
Article 1864: The certificate shall be cancelled when the partnership is dissolved or all limited partners
cease to be such.
A certificate shall be amended when:

(1) There is a change in the name of the partnership or in the amount or character of the contribution of
any limited partner;
(2) A person is substituted as a limited partner;
(3) An additional limited partner is admitted;
(4) A person is admitted as a general partner;
(5) A general partner retires, dies, becomes insolvent or insane, or is sentenced to civil interdiction and
the business is continued under article 1860;
(6) There is a change in the character of the business of the partnership;
(7) There is a false or erroneous statement in the certificate;
(8) There is a change in the time as stated in the certificate for the dissolution of the partnership or for
the return of a contribution;
(9) A time is fixed for the dissolution of the partnership, or the return of a contribution, no time having
been specified in the certificate, or
(10) The members desire to make a change in any other statement in the certificate in order that it shall
accurately represent the agreement among them.
Article 1865: The writing to amend a certificate shall:
(1) Conform to the requirements of article 1844 as far as necessary to set forth clearly the change in the
certificate which it is desired to make; and
(2) Be signed and sworn to by all members, and an amendment substituting a limited partner or adding
a limited or general partner shall be signed also by the member to be substituted or added, and when a
limited partner is to be substituted, the amendment shall also be signed by the assigning limited partner.
The writing to cancel a certificate shall be signed by all members.
A person desiring the cancellation or amendment of a certificate, if any person designated in the first and
second paragraphs as a person who must execute the writing refuses to do so, may petition the court to
order a cancellation or amendment thereof.
If the court finds that the petitioner has a right to have the writing executed by a person who refuses to
do so, it shall order the Office of the Securities and Exchange Commission where the certificate is
recorded, to record the cancellation or amendment of the certificate; and when the certificate is to be
amended, the court shall also cause to be filed for record in said office a certified copy of its decree
setting forth the amendment.
A certificate is amended or cancelled when there is filed for record in the Office of the Securities and
Exchange Commission, where the certificate is recorded:
(1) A writing in accordance with the provisions of the first or second paragraph, or
(2) A certified copy of the order of the court in accordance with the provisions of the fourth paragraph;
(3) After the certificate is duly amended in accordance with this article, the amended certified shall
thereafter be for all purposes the certificate provided for in this Chapter.
Article 1866: A contributor, unless he is a general partner, is not a proper party to proceedings by or
against a partnership, except where the object is to enforce a limited partner's right against or liability to
the partnership.
Article 1867: A limited partnership formed under the law prior to the effectivity of this Code, may become
a limited partnership under this Chapter by complying with the provisions of article 1844, provided the
certificate sets forth:
(1) The amount of the original contribution of each limited partner, and the time when the contribution
was made; and
(2) That the property of the partnership exceeds the amount sufficient to discharge its liabilities to persons
not claiming as general or limited partners by an amount greater than the sum of the contributions of its
limited partners.
A limited partnership formed under the law prior to the effectivity of this Code, until or unless it becomes
a limited partnership under this Chapter, shall continue to be governed by the provisions of the old law.
5. COMPARED WITH OTHER MEDIA OF DOING BUSINESS
a. Co-Ownership (Arts. 484 to 486)
Article 484: There is co-ownership whenever the ownership of an undivided thing or right belongs to
different persons.

In default of contracts, or of special provisions, co-ownership shall be governed by the provisions of this
Title. (392)
Article 485: The share of the co-owners, in the benefits as well as in the charges, shall be proportional
to their respective interests.
Any stipulation in a contract to the contrary shall be void.
The portions belonging to the co-owners in the co-ownership shall be presumed equal, unless the
contrary is proved. (393a)
Article 486: Each co-owner may use the thing owned in common, provided he does so in accordance
with the purpose for which it is intended and in such a way as not to injure the interest of the co-ownership
or prevent the other co-owners from using it according to their rights. The purpose of the co-ownership
may be changed by agreement, express or implied. (394a)
Article 1769 of Civil Code, which lays down the rule for determining when a transaction should
be deemed a partnership or a co-ownership, means that aside from the circumstance of profit,
the presence of other elements constituting partnership is necessary, such as the clear intent to
form a partnership, the existence of a juridical personality different from that of the individual
partners, and the freedom to transfer or assign any interest in the property by one with the consent
of the others. xJarantilla, Jr. v. Jarantilla, 636 SCRA 299 (2010).
b. Sole Proprietorship
A sole proprietorship does not possess a juridical personality separate and distinct from the
personality of the owner of the enterprise. Only natural or juridical persons or entities authorized
by law may be parties to a civil action and every action must be prosecuted and defended in the
name of the real parties-in-interest. xEjercito v. M.R. Vargas Construction, 551 SCRA 97 (2008).
c. Agency
Agent cannot escape an estafa charge for conversion of principal’s funds by claiming that he
had become a partner when the books of accounts for the business showed that the amount was
charged to him since the same was “merely a method of keeping an account of the business, so
that the parties would know how much money had been invested and what the condition thereof
was at any particular time.” xU.S. v. Muhn, 6 Phil. 164 (1906).
Just because an agent has made personal advances for the expenses of the business venture
under his administration does not make him a partner of his principal. xBinglangawa v.
Constantino, 109 Phil. 168 (1960).
d. Business Trust
e. Corporations
f. Cooperatives
III. PARTNERSHIP AS PRIMARILY A CONTRACTUAL RELATIONSHIP

1. ESSENTIAL ELEMENTS AND PURPOSE OF THE PARTNERSHIP
a. CONSENT:“Partnership Must Necessarily Arise from a Contractual Relationship.”
 Persons Who Are Not Partners to One Another Are Not Partners as to
Third Persons (Art. 1769[1])
Article 1769: In determining whether a partnership exists, these rules shall apply:
(1) Except as provided by article 1825, persons who are not partners as to each other are not partners
as to third persons;

EXCEPT: Partnership by Estoppel (Art. 1825)
Article 1825: When a person, by words spoken or written or by conduct, represents himself, or consents
to another representing him to anyone, as a partner in an existing partnership or with one or more persons
not actual partners, he is liable to any such persons to whom such representation has been made, who
has, on the faith of such representation, given credit to the actual or apparent partnership, and if he has
made such representation or consented to its being made in a public manner he is liable to such person,
whether the representation has or has not been made or communicated to such person so giving credit
by or with the knowledge of the apparent partner making the representation or consenting to its being
made:
(1) When a partnership liability results, he is liable as though he were an actual member of the
partnership;

(2) When no partnership liability results, he is liable pro rata with the other persons, if any, so consenting
to the contract or representation as to incur liability, otherwise separately.
When a person has been thus represented to be a partner in an existing partnership, or with one or more
persons not actual partners, he is an agent of the persons consenting to such representation to bind
them to the same extent and in the same manner as though he were a partner in fact, with respect to
persons who rely upon the representation. When all the members of the existing partnership consent to
the representation, a partnership act or obligation results; but in all other cases it is the joint act or
obligation of the person acting and the persons consenting to the representation. (n)
b. SUBJECT MATTER: “Partners Undertake to Jointly Pursue a Business Enterprise”(Art.

1767), through their Agreements/Intentions to:(i) Contribute to a Common Fund;
and(ii)Divide the Profits and Losses.
EXCEPT: A Professional Partnership
 Partnership Must Be Established for Common Benefit of the Parties(Art. 1770)
Article 1770: A partnership must have a lawful object or purpose, and must be established for the
common benefit or interest of the partners.
When an unlawful partnership is dissolved by a judicial decree, the profits shall be confiscated in favor
of the State, without prejudice to the provisions of the Penal Code governing the confiscation of the
instruments and effects of a crime. (1666a)
“The obtaining of profit or gain from the business to be carried on” is the very reason for
the existence of a partnership; it is the element that distinguishes the partnership from
voluntary religious or social organizations. xFernandez v. De la Rosa, 1 Phil. 671 (1903).
An agreement to operate a cockpit, where one contributes his services and the other to
provide the capital, the profits to be divided between them, constitutes a partnership. The
performance of services in connection with the business and that defendant not only rendered
an accounting of the business and paid him his share of the profits, were competent proof to
establish the partnership. xDuterte v. Rallos, 2 Phil. 509 (1903).
Where the society is not constituted for the purpose of gain, it does not fall within this article
of the Civil Code [on partnerships]. Such an organization is fully covered by the Law of
Associations of 1887, but that law was never extended to the Philippine Islands. xCouncil of
Red Men v. Veterans Army, 7 Phil. 685 (1907).
c. CONSIDERATION: Undertakings to Contribute Money, Property or Industry to a Common

Fund(Art. 1767)
d. Rules on Determining Perfected Partnership (Art. 1769)
Article 1769: In determining whether a partnership exists, these rules shall apply:
(1) Except as provided by article 1825, persons who are not partners as to each other are not
partners as to third persons;
(2) Co-ownership or co-possession does not of itself establish a partnership, whether such-co-
owners or co-possessors do or do not share any profits made by the use of the property;
(3) 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;
(4) The receipt by a person of a share of the profits of a business is prima facie evidence that he
is a partner in the business, but no such inference shall be drawn if such profits were received
in payment:
(a) As a debt by installments or otherwise;
(b) As wages of an employee or rent to a landlord;
(c) As an annuity to a widow or representative of a deceased partner;
(d) As interest on a loan, though the amount of payment vary with the profits of the
business;

(e) As the consideration for the sale of a goodwill of a business or other property by
installments or otherwise. (n)
The issue as to whether there is a partnership between the parties is a factual matter.
xAlicbusan v. Court of Appeals, 269 SCRA 336 (1997).
Although a partnership cannot be established by general reputation, rumor, or hearsay,
nonetheless, a verbal partnership is valid and may be proven by competent evidence, and
intention of the parties to form a partnership may be gathered from the facts and ascertained from
their language and conduct. xKiel v. Estate of P.S. Sabert, 46 Phil. 193 (1924).
When facts proven show that purported partner never furnished the P20,000 capital, nor
rendered any help or intervention in the management of the purported partnership business, much
less demanded an accounting of its affairs and its earnings, there was never intended a real
partnership despite the articles of partnership executed. All that the purported partner did was to
receive her share of P3,000 a month, and was in accordance with the original letter of defendant
(Exh. “A”), which shows that both parties considered themselves as lessor-lessee under a
contract of lease.Yulo v. Yang Chiao Seng, 106 Phil. 111 (1959).
When family members lease out to SHELL a family lot for the establishment of a gasoline
station, and invested the advanced rentals and deposits to allow one of their members to use the
amounts as the registered dealer of SHELL under its of “one station, one dealer” policy, and that
the registered dealer had accounted for the operations to the other members of the family, there
was a partnership formed, for which the registered dealer can be compelled to execute the
covering articles of partnership, for accounting and distribution of the shares in profits of the other
partners.Estanislao, Jr. v. Court of Appeals, 160 SCRA 830 (1988).
(i)Co-Ownership or Co-Possession Does Not Itself Establish a

Partnership, Even When Profits Are Shared
Mere co-ownership or co-possession of property does not necessarily constitute the co-owners
or co-possessors are partners in the absence of express or implied meeting of minds to enter into
a partnership. xNavarro v. Court of Appeals, 222 SCRA 675 (1993).
When land is purchased with funds contributed by the parties and thereafter divided equally
among them, there was no partnership—it was a mere joint acquisition of land, and there was no
agreement to pursue a business undertaking. xGallemet v. Tabilaran, 20 Phil. 241 (1911).
When fifteen people contributed money to buy a sweepstakes ticket with the intention to divide
the prize, and in fact the ticket won third prize, a partnership was constituted. xGatchalian v.
Collector of Internal Revenue, 67 Phil. 666 (1939).
First element of “an agreement to contribute money, property or industry to a common fund,”
is undoubtedly present for petitioners have agreed to, and did, contribute money and property to
a common fund. Second element of “intent to divide the profits among themselves,” was present
when the facts showed that their purpose was to engage in real estate transactions for monetary
gain and then divide the same among themselves, displaying the character of habituality peculiar
to business transactions engaged in for purposes of gain.” Evangelista v. Collector of Internal
Revenue, 102 Phil. 140 (1957).
Where father and son purchased lot and building and had it administered with the original
purpose of dividing the net income from the property, a partnership was constituted. xReyes v.
CIR, 24 SCRA 198 (1968).
When after partition of the estate, heirs agreed to retain the properties and income into
common enterprise and divide profits in proportion to their shares in the inheritance, co-ownership
was converted into a partnership. Oña v. CIR, 45 SCRA 74 (1972).
When four brothers and sisters acquired lots with the original purpose to divide the lots for
residential purposes, and later they found it not feasible to build their residences on the lots
because of the high cost of construction, then they had no choice but to resell the same to dissolve
the co-ownership. The division of the profit was merely incidental to the dissolution of the co-
ownership which was in the nature of things a temporary state. It had to be terminated sooner or
later. xObillos, Jr. v. CIR, 139 SCRA 436 (1985).
In contrast with Evangelista, when the only facts proven was the existence of co-ownership
between the parties covering two isolated purchase of parcels of land and the sharing of profits
on the subsequent sales thereof, there can be no deduction that an unregistered partnership has
been constituted to make it separately liable for corporate income tax: the transactions were
isolated, the parcels purchased were not managed or even leased out. Pascual v. CIR, 166
SCRA 560 (1988).
(ii)Sharing in the Gross Return of a Business Does Not Create Partnership
An exclusive agent mandated to develop a parcel of land and entitled to receive a 20%
commission on the gross sales, cannot claim to be a partner to the venture simply on the basis

that he had made personal “advances” for the expenses incurred in the development and
administration of the property, since the amounts were never considered contributions into the
business. xBiglangawa and Espiritu v. Constantino, 109 Phil. 168 (1960).
(iii)Receipt by a Person of a Share of the Profits of a Business
Despite agreement that Bastida was to receive 35% of the profit from the business of mixing
and distributing fertilizer registered in the name of Menzi & Co., there was never any contract of
partnership constituted on the following key elements: (a) there was never any common fund
created between the parties, since the entire business as well as the expenses and
disbursements for operating it were entirely for the account of Menzi& Co.; (b) there was no
provision in the agreement for reimbursing Menzi& Co. in case there should be no profits at the
end of the year; and (c) the fertilizer business was just one of the many lines of business of Menzi&
Co., and there were no separate books and no separate bank accounts kept for that particular
line of business. The arrangement was one of employment.Bastida v. Menzi and Co., 58 Phil.
188 (1933).
Where there is no written partnership agreement, nor proof that the claimant received a share
in the profits, nor that he had any participation with the running of the business, then no
partnership claim can be sustained. xSy v. Court of Appeals, 398 SCRA 301 (2003); Heirs of Jose
Lim v. Lim, 614 SCRA 141 (2010).
Although the Olivas were mere creditors, not partners, the Antons agreed to compensate them
for the risks they had taken. The Olivas gave the loans with no security and they were to be paid
such loans only if the stores made profits. Had the business suffered loses and could not pay
what it owed, the Olivas would have ultimately assumed those loses just by themselves. Still there
was nothing illegal or immoral about this compensation scheme. Anton v. Oliva, 647 SCRA
506 (2011).
(iv)When Entitlement to Net Profits Does Not Create Presumption of Partnership:
 As Installment Payments of Debt or Interest Thereof
There is no partnership where a loan was obtained to purchase a venture under the
condition that the lender would receive part of the profits of the business in lieu of interest.
xPastor v. Gaspar, 2 Phil. 592 (1903).
A creditor of a business cannot recover his claim against a person who gave personal
guarantees to some other obligations of the business enterprise and who is without any right
to participate in the profits and cannot be deemed a partner in the business enterprise, since
the essence of partnership is that the partners share in the profits and losses. xTocao v.
Court of Appeals, 365 SCRA 463 (2001).
 As Wages of an Employee
Manager of the partnership would naturally have some degree of control over the business
operations and maintenance, but the fact that he had received 50% of the net profits does
not conclusively establish that he was a partner—Art. 1769(4) is explicit that no inference of
being a partner shall be drawn if such profits were received in payment as wages of an
employee. xSardane v. CA, 167 SCRA 524 (1988); xFortis v Gutierrez Hermanos, 6 Phil.
100 (1906).
The payroll of the company indicating that the brother was listed as an employee receiving
only wages from the company militates against his claim of being a partner. xHeirs of Tang
EngKee v. CA, 341 SCRA 740 (2000).
The fact that in their articles the parties agreed to divide the profits of a lending business
in a stipulated proportion shows a partnership exists, even when the other parties to the
agreement were given separate compensations as bookkeeper and credit investigator.
xSantos v. Reyes, 368 SCRA 261 (2001).
 As Rent Payments to a Landlord
 As Annuity to a Widow or Representative of Deceased Partner
 Consideration of Sale of Goodwill or Other Property
2. ESSENTIAL CHARACTERISTICS OF THE CONTRACT OF PARTNERSHIP(Art. 1767)
a. Nominate and Principal

b. Consensual
Action to compel a party to execute the contract of partnership to enforce the terms by which
an enterprise had been constituted is an enforcement of an obligation to do, which is contrary to
policy against involuntary servitude.Woodhouse v. Halili, 93 Phil. 526 (1953).
BUT SEE: There was indeed a partnership formed among themselves, for which the registered
dealer can be compelled to execute the covering articles of partnership, for accounting and
distribution of the shares in profits of the other partners. Estanislao, Jr. v. Court of Appeals,
160 SCRA 830 (1988).
c. Onerous and Commutative
A partnership is deemed constituted among parties who agree to borrow money to pursue a
business and to divide the profits that may arise therefrom, even if it is shown that they have not
contributed to any capital of their own to a “common fund.” Their contribution may be in the form
of credit or industry, not necessarily cash or fixed assets. Being partners, they are liable for debts
incurred by or on behalf of the partnership. Lim Tong Lim v. Phil. Fishing Gear Industries,
317 SCRA 728 (1999).
d. Bilateral and Reciprocal
e. Preparatory and Progressive
If the contract contains the elements of “common fund” and “joint interest in the profits,” the
partnership relation results, and the law fixes the incidents of this relation if the parties fail to do
so. It is of no importance that the parties have failed to reach an agreement with respect to the
minor details of contract—these details pertain to the accidental and not to the essential part of
the contract of partnership. Fernandez v. Dela Rosa, 1 Phil. 671 (1902).
IV. PARTNERSHIP AS A JURIDICAL PERSON (Arts. 44(3), 45, 1768 and 1784)
Article 44(3). The following are juridical persons:

(3) Corporations, partnerships and associations for private interest or purpose to which the law grants a
juridical personality, separate and distinct from that of each shareholder, partner, or member.
Article 45: Juridical persons mentioned in Nos. 1 and 2 of the preceding article are governed by the laws
creating or recognizing them.
Private corporations are regulated by laws of general application on the subject.
Partnerships and associations for private interest or purpose are governed by the provisions of this Code
concerning partnerships. (36 and 37a)
partners, even in case of failure to comply with the requirements of article 1772, first paragraph.
1. CONSEQUENCES OFPARTNERSHIPBEING A JURIDICAL PERSON:

a. Entity Has Legal Capacity to Enter into Contracts and Incur Obligations (Art. 46)
Article 46: Juridical persons may acquire and possess property of all kinds, as well as incur obligations
and bring civil or criminal actions, in conformity with the laws and regulations of their organization.
b. It May Acquire Properties in Its Own Name (Arts. 46 and 1774)
Article 1774: Any immovable property or an interest therein may be acquired in the partnership name.
Title so acquired can be conveyed only in the partnership name.
c. It May Sue and Be Sued in Its Firm Name (Art. 46)
In a bankruptcy proceeding against a partnership, since it is a separate juridical person one
partner is not entitled to be made a party as an individual separate from the firm; yet precisely
because it is a juridical person, there can be proper service to the firm of court notices upon
service to any partner found within the jurisdiction of the court. xHSBC v. Jurado & Co., 2 Phil.
671 (1903).

Death of a partner does not constitute a ground for dismissal of the suit against the partnership,
since the partnership has a separate juridical personality. xNgoTianTek v. Phil. Education Co., 78
Phil. 275 (1947); xWahl v. Donaldson Sim & Co., 5 Phil. 11 (1905).
The universal practice in the Philippine Islands since American occupation, to treat
partnerships as juridical entities and to permit them to sue and be sued in the name of the
company, the summons being served solely on the managing agent or other official of the
company. xVargas& Co. v. Chan, 29 Phil. 446 (1915).
A partnership may sue and be sued in its name, and when it has a designated managing
partner, he may execute all acts of administration including the right to sue debtors of the
partnership. xTai Tong Chuache & Co. v. Insurance Commission, 158 SCRA 366 (1988).
d. It Would Have Domicile: Place Where Legal Representation Is Established or Where It
Exercises Its Principal Functions (Art. 51)
Article 51: When the law creating or recognizing them, or any other provision does not fix the domicile
of juridical persons, the same shall be understood to be the place where their legal representation is
established or where they exercise their principal functions. (41a)
e. It Is Taxed as a Corporate Taxpayer. xTan v. Del Rosario, 237 SCRA 234 (1994).
f. It May Be Declared Insolvent Even If the Partners Are Not. xCampos Rueda & Co. v. Pacific
Commercial & Co., 44 Phil. 916 (1923).
In view of the separate juridical personality of the partnership, the partners cannot be sued
personally under a contract entered into in the name of the partnership, unless it is shown that
the legal fiction is being used for a fraudulent, unfair or illegal purpose, or when partnership assets
have been exhausted to make partners personally liable for partnership debts as provided in Art.
1816. xAguila, Jr. v. Court of Appeals, 316 SCRA 246 (1999).
g. Partnership Is a Person Entitled to Constitutional Rights – A partnership being a person
before the law is entitled to the constitutional right:
 To due process and equal protection. cfxSmith, Bell & Co. v. Natividad, 40 Phil. 136
(1919);xBache & Co. (Phil.), Inc. v. Ruiz, 37 SCRA 823 (1971).
 Against unreasonable searches and seizures.cfxStonehill v. Diokno,20 SCRA 383
(1967).
Partnership obtains its personality from the State and therefore not entitled to the constitutional
right against self-incrimination.[?]cfxBataan Shipyard & Engineering Co. v. PCGG, 150 SCRA
181 (1987).
2. Provisions Contravening the Attribute of Separate Juridical Personality:

a. Partners Are Co-owners of Partnership Properties(Arts. 1811)
Article 1811: A partner is co-owner with his partners of specific partnership property.
The incidents of this co-ownership are such that:
(1) A partner, subject to the provisions of this Title and to any agreement between the partners, has an
equal right with his partners to possess specific partnership property for partnership purposes; but he
has no right to possess such property for any other purpose without the consent of his partners;
(2) A partner's right in specific partnership property is not assignable except in connection with the
assignment of rights of all the partners in the same property;
(3) A partner's right in specific partnership property is not subject to attachment or execution, except on
a claim against the partnership. When partnership property is attached for a partnership debt the
partners, or any of them, or the representatives of a deceased partner, cannot claim any right under the
homestead or exemption laws;
(4) A partner's right in specific partnership property is not subject to legal support under article 291. (n)
b. Partners May Individually Dispose of Real Property of the Partnership Even When in
Partnership Name(Art. 1819)

c. Partners Are Personally Liable for Partnership Debts After Exhaustion of Partner-ship
Assets (Arts. 1816, 1817, 1824, 1839[4] and [7])
contract. (n)
Article 1839. In settling accounts between the partners after distribution, the following rules shall be
(4) The parties shall contribute, as provided by Article 1797, the amount necessary to satisfy the liabilities.
V. FORMALITIES REQUIRED FOR THE CONTRACT OF PARTNERSHIP

1. A Partnership Begins from the Moment of Meeting of the Minds to Pursue a Business
Jointly; UNLESS: It Is Otherwise Stipulated (Art. 1784)
2. FORMALITIES REQUIRED:
a. GENERAL RULE: Being Consensual in Character, a Partnership May Be Constituted in
Any Form (Art. 1771)
Old Civil Code and Code of Commerce: Third parties without knowledge of the partnership’s
existence, who deal with the property registered in the name of one partner have a right to expect
effectivity of such transaction on the property, in spite of the protest of other partners and
partnership creditors. xBorja v. Addison, 44 Phil. 895 (1922).
b. EXCEPT: When Capital Contribution Is P3,000 or More:
 AoP Must Appear in a Public Instrument; and
 Registered with SEC.
BUT: Failure to Comply with Requirements Shall Not Affect the Liability of the
Partnership and Its Members to Third Persons (Art. 1784)

When the articles of partnership provide that the venture is established “to operate a fishpond,”
it does not necessarily mean that immovable properties or real rights have been contributed into
the partnership which would trigger the operation of Article 1773. Agad v. Mabato, 23 SCRA 1223
(1968).
While the sale of land appearing in a private deed is binding between the parties, it cannot be
considered binding on third persons if it is not embodied in a public instrument and recorded in
the Registry of Deeds. When it comes to contributions of real estate to a partnership, especially
when it covers registered land, then the peremptory provisions of the Property Registration
Decree (P.D. 1459) will prevail as to who has a better claim, right or lien on the property, since
“registration in good faith and for value,” is the operative rule under the Torrens system. xSecuya
v. Vda. de Selma, 326 SCRA 244 (2000).
c. EXCEPT: Where Immovable Property or Real Rights Are Contributed

 AoP Must Be In a Public Instrument (Art. 1771)
 Would Be Void If Inventory of the Property Is Not Made, Signed by the
Partiers and Attached to the Public Instrument (Art. 1773)
Article 1773: A contract of partnership is void, whenever immovable property is contributed thereto, if
an inventory of said property is not made, signed by the parties, and attached to the public instrument.
(1668a)
d. Legal Value of the Formal Requirements for Partnerships

An oral partnership is valid and binding between the parties, even if the amount of capital
contributed is in excess of the sum of 1,500 pesetas. The provisions of law requiring a contract to
be is a particular form should be understood to grant to the parties the remedy to compel that the
form mandated by law be complied with, but does not prevent them from claiming under an oral
contract which is otherwise valid without first seeking compliance with such form. xThungaChui
v. Que Bentec, 2 Phil. 561 (1903); xMagalona v. Pesayco, 59 Phil. 453 (1934).
When there has been duly registered articles of partnership, and subsequently the original
partners accept an industrial partner but do not register a new partnership, and thereafter the
industrial partner retires from the business, and the original partners continue under the same
set-up as the original partnership, then although the second partnership was dissolved with the
withdrawal of the industrial partner, there resulted a reversion back into the original partnership
under the terms of the registered articles of partnership. There is not constituted a new partnership
at will.Rojas v. Maglana, 192 SCRA 110 (1990).
Failure to prepare an inventory of immovable property contributed, would not render the
partnership void when: (a) No third-party is involved since Art. 1773 was intended for the
protection of third-parties; and (b) partners have made a claim on the partnership agreement
which is deemed binding between them as any other contract. Torres v. Court of Appeals,
320 SCRA 428 (1999).
Failure to register the partnership with the SEC does not invalidate a contract that has the
essential requisites of partnership – agreement to contribute to a common fund and the division
of profits and losses would bring about the existence of a partnership. A partnership may exist
even if the partners do not use the words “partner” or “partnership”. Angeles v. Secretary of
Justice, 465 SCRA 106 (2005).
Registration of the partnership is the best evidence to prove the existence of the partnership
among the partners. xHeirs of Tan EngKee v. Court of Appeals, 341 SCRA 740 (2000); Heirs
of Jose Lim v. Lim, 614 SCRA 141 (2010).An instrument purporting to be the contract of
partnership which is unsigned and undated, does not meet the public instrumentation
requirements exacted under Article 1771, not even registrable with the SEC as called for under
Article 1772, and which also does not meet the inventory requirement under Article 1773 since
the claims involve contributions of immovable properties, does not warrant a finding that a contract
of partnership or joint venture exist. Litonjua, Jr. v. Litonjua, Sr., 477 SCRA 576 (2005).
3.xWhen Corporate Venture Fails to Formally Incorporate, Do the Incorporators

Become Partners?
Cases: Pioneer Insurance v. Court of Appeals, 175 SCRA 668 (1989).
Lim Tong Lim v. Philippine Fishing Gear Industries, 317 SCRA 728 (1999).
4. OTHER RULES ON THE CONSTITUTION OF A PARTNERSHIP

a. A Partnership Must Have a Lawful Object or Purpose (Art. 1770)
The action which may arise under Art. 1666 of old Civil Code in the case of an unlawful
partnership, is that for the recovery of the amounts paid in by the members from those in charge
of the administration of said partnership, and it is not necessary for the said partners to base their
action on the existence of the partnership, but on the fact of having contributed some money to
the partnership capital. xArbes v. Polistico, 53 Phil. 489 (1929).
The contract of partnership to divide the fishpond between the parties after the administrative
agency shall have approved the arrangement became illegal under the Fisheries Act. “It is an
elementary rule in law that a partnership cannot be formed for an illegal purpose or one contrary
to public policy and that where the object of a partnership is the prosecution of an illegal business
or one which is contrary to public policy, the partnership is void.” xDeluao v. Casteel, 29 SCRA
350 (1969).
b. When Articles Kept Secret Among Members and One Member May Contract in His Own
Name (Art. 1775):
Article 1775: Associations and societies, whose articles are kept secret among the members, and
wherein any one of the members may contract in his own name with third persons, shall have no juridical
personality, and shall be governed by the provisions relating to co-ownership. (1669)
 Shall Have No Separate Juridical Personality
 Shall Be Governed by the Provisions Relating to Co-Ownership
c. Rules on Partnership Name (Art. 1815):
Article 1815: Every partnership shall operate under a firm name, which may or may not include the name
of one or more of the partners.
Those who, not being members of the partnership, include their names in the firm name, shall be subject
to the liability of a partner. (n)
 Every Partnership Must Operate Under a Firm Name
 Which May or May Not Include the Name of One or More of the Partners
 A Person Who Allows His Name to Be in the Firm Name Shall Be Subject to the
Liability of a Partner
 The Use by the Person or Partnership Continuing the Partnership Business of the
Partnership Name, or the Name of a Decease Partner (Art. 1840, last par.): Shall Not
of Itself Make the Individual Property of the Deceased Partner Liable for Any Debts
Contracted by Such Person or Partnership.
The requirement under the Code of Commerce that the partnership name contain the names
of all the partners, is meant to protect from fraud the public dealing with the partnership; it cannot
be invoked by the partners to allege partnership’s non-existence. xJo Chung Cang v. Pacific
Comm’l Co., 45 Phil. 142 (1923); xPNB v. Lo, 50 Phil. 802 (1927).
d. RULE 3.02, Code of Professional Responsibility: “The continued use of the name of a
deceased partner in a professional partnership is permissible, provided that the firm
indicates in all its communications that said partner is deceased.”
The contention that Art. 1840 regulating the use of partnership name allows a partnership from
continuing its business under a firm name which includes the name of a deceased partner has
been denied when it comes to a law partnership on the following grounds: (a) it contravenes the
provision of Arts. 1815 and 1825, which impose liability on a person whose name is included in the
firm name, which cannot cover a deceased person who can no longer be subject to any liability; (b)
public relations value of the use of an old firm name can tend to create undue advantages and
disadvantages in the practice of the profession; (c) Art. 1840 covers dissolution and winding up
scenarios and cannot be taken to mean to cover firms that are intended as going concerns, and
cover more commercial partnerships; and (d) when it comes to other professions, there is legislative
authority for them to use in their firm names those of deceased partners. xIn the Matter of the
Petition for Authority to Continue Using Firm Names, 92 SCRA 1 (1979).

VI. RIGHTS, DUTIES AND OBLIGATIONS OF THE PARTNERS
1. Kinds of Partners
(a) Industrial and Capitalist Partners
(b) Ostensible, Nominal and Dormant Partners
(c) Original and Incoming Partners
(d) Managing and Liquidating Partners
(e) General and Limited Partners
(f) Retiring, Surviving and Continuing Partners
2. PROPERTY RIGHTS OF PARTNERS

a. CO-OWNERSHIP RIGHTS to Specific Partnership Properties (Arts. 1810 and 1811)
Article 1810: The property rights of a partner are:

(1) His rights in specific partnership property;
(2) His interest in the partnership; and
(3) His right to participate in the management (n)
The incidents of this co-ownership are such that:
(1) A partner, subject to the provisions of this Title and to any agreement between the partners, has an
equal right with his partners to possess specific partnership property for partnership purposes; but he
has no right to possess such property for any other purpose without the consent of his partners;
assignment of rights of all the partners in the same property;
homestead or exemption laws;
(4) A partner's right in specific partnership property is not subject to legal support under article 291. (n)
 Equal Right to Possess, But for Partnership Purpose Only. xCelino v. Court of Appeals,
163 SCRA 97 (1988).
 Non-Assignable(Art. 1811[2])
The incidents of this co-ownership are such that: x x x
assignment of rights; x x x
 Not Subject to Attachment/Execution by Partners’ Separate Creditors nor For a
Partner’s Legal Support Obligations (Art. 1811[3])
The incidents of this co-ownership are such that: x x x
homestead or exemption laws; x x x
b. MUTUAL AGENCY: Right to Participate in Management of the Partnership

(i) General Rule on Agency
 All Partners Shall Be Considered Agents and Whatever Any One of Them May Do
Alone Shall Bind the Partnership(Arts. 1803[1])
observed:
(1) All the partners shall be considered agents and whatever any one of them may do alone shall bind
the partnership, without prejudice to the provisions of article 1801. x x x

 Every Partner Is an Agent of the Partnership for Apparently Carrying On in the
Usual Way the Business of the Partnership (Art. 1818)
the partnership;
 Partnership Shall Answer to Each Partner for the Obligation a Partner May Have
Contracted in Good Faith in the Interest of the Partnership Business, and the
Risks in Consequence of Its Management(Art. 1796)
Article 1796: The partnership shall be responsible to every partner for the amounts he may have
disbursed on behalf of the partnership and for the corresponding interest, from the time the expense are
made; it shall also answer to each partner for the obligations he may have contracted in good faith in the
interest of the partnership business, and for risks in consequence of its management. (1688a)
(ii)Other Powers or Rights Relating to Mutual Agency:

 Can Dispose of Partnership Property Even When in Partnership Name (Art. 1819)
 Admission or Representation Made by Any Partner Concerning Partnership
Affairs Is Evidence Against the Partnership (Art. 1820)
Article 1820: An admission or representation made by any partner concerning partnership affairs within
the scope of his authority in accordance with this Title is evidence against the partnership. (n)

 Notice to Any Partner Relating to Partnership Affairs Is Notice to the
Partnership(Art. 1821)
Article 1821: Notice to any partner of any matter relating to partnership affairs, and the knowledge of
the partner acting in the particular matter, acquired while a partner or then present to his mind, and the
knowledge of any other partner who reasonably could and should have communicated it to the acting
partner, operate as notice to or knowledge of the partnership, except in the case of fraud on the
partnership, committed by or with the consent of that partner. (n)
 Wrongful Act or omission of Any Partner Acting for Partnership Affairs Makes the
partnership liable(Art. 1822)
 Partnership Bound to Make Good Losses for Acts or Misapplications of
Partners(Art. 1823)

partnership. (n)
(iii)Acts Requiring Unanimous Consent (Art. 1818)

the partnership;
(iv)Consent Required in Making Alterations on Immovable Property (Art. 1803[2])

observed:
(2) None of the partners may, without the consent of the others, make any important alteration in the
immovable property of the partnership, even if it may be useful to the partnership. But if the refusal of
consent by the other partners is manifestly prejudicial to the interest of the partnership, the court's
intervention may be sought. (1695a)
(v)When There Is Designation of Manager (Arts. 1800 to 1802)

Article 1800: The partner who has been appointed manager in the articles of partnership may execute
all acts of administration despite the opposition of his partners, unless he should act in bad faith; and his
power is irrevocable without just or lawful cause.
The vote of the partners representing the controlling interest shall be necessary for such revocation of
power.
A power granted after the partnership has been constituted may be revoked at any time. (1692a)
Article 1801: If two or more partners have been intrusted with the management of the partnership without
specification of their respective duties, or without a stipulation that one of them shall not act without the
consent of all the others, each one may separately execute all acts of administration, but if any of them
should oppose the acts of the others, the decision of the majority shall prevail. In case of a tie, the matter
shall be decided by the partners owning the controlling interest. (1693a)
Article 1802: In case it should have been stipulated that none of the managing partners shall act without
the consent of the others, the concurrence of all shall be necessary for the validity of the acts, and the
absence or disability of any one of them cannot be alleged, unless there is imminent danger of grave or
irreparable injury to the partnership. (1694)
In the ordinary course of business, a partner has authority to purchase goods, xSmith, Bell
& Co. v. Aznar, 40 O.G. 1882 (1941); to hire employees for the partnership, xGarcia Ron v. La
Compania de Minas de Batau, 12 Phil. 130 (1908); as well as dismissthem,xMartinez v.
Cordoba& Conde, 5 Phil. 545 (1906).
The stipulation in the articles of partnership that the two managing partners may contract
and sign in the name of the partnership with the consent of the other creates an obligation
between the two partners, which consists in asking the other’s consent before contracting for
the partnership. This obligation of course is not imposed upon a third person who contracts
with the partnership. A third person has a right to presume that the partner with whom he
contracts has, in the ordinary and natural course of business, the consent of his copartner
Third person would naturally not presume that the partner with whom he enters into the
transaction is violating the articles of partnership, but on the contrary, is acting in accordance
therewith. Litton v. Hill & Ceron, 67 Phil. 509 (1935).
In a transaction within the ordinary course of the partnership business effected by the
industrial partner without the consent of the capitalist partner, the provisions in the articles of
partnership that the industrial partner “shall manage, operate and direct the affairs, businesses
and activities of the partnership,” constitute sufficient authority to make such transaction
binding against the partnership, as against another provision of the articles by which the
industrial partner is authorized “To make, sign, seal, execute and deliver contracts . . upon
terms and conditions acceptable to him duly approved in writing by the capitalist partner.
xSmith, Bell & Co. v. Aznar, 40 O.G. 1881 (1941).
When partnership real property had been mortgaged and foreclosed, the redemption by
any of the partners, even when using his separate funds, does not allow such redemption to
be in his sole favor, under the general principle of law under Art. 1818 that a partner is an
agent of the partnership. Under Art. 1807, every partner becomes a trustee for his copartner
with regard to any benefits or profits derived from his act as a partner. xCatalan v. Gatchalian,
105 Phil. 1270 (1959).
In spite of Art. 129 of Code of Commerce that “If the management of the general partnership
has not been limited by special agreement to any of the members, all shall have the power to
take part in the direction and management of the common business, and the members present
shall come to an agreement for all contracts or obligations which may concern the association,”
such obligation is imposed by law among the partners, that does not necessarily affect the
validity of the acts of a partner, while acting in the ordinary course of business of the
partnership, as regards third persons without notice. The latter may rightfully assume that the
contracting partner was duly authorized to contract for and in behalf of the firm and that,
furthermore, he would not ordinarily act to the prejudice of his co-partners. Goquiolay v.
Sycip, 108 Phil. 947 (1960).
A partner is presumed to be an authorized agent for the firm to bind it in carrying on the
partnership transaction. xMuñasque v. Court of Appeals, 139 SCRA 533 (1985).
c. EQUITY RIGHTS: Right to Shares in Profits and Losses(Arts. 1810 and 1812)
Article 1810: The property rights of a partner are:
(1) His rights in specific partnership property;
(2) His interest in the partnership; and
(3) His right to participate in the management (n)

Article 1812: A partner's interest in the partnership is his share of the profits and surplus.
 VOID: Stipulation Excluding Partner from Sharing in Profits or Losses (Art. 1799)
Article 1799: A stipulation which excludes one or more partners from any share in the profits or losses
is void. (1691).
(i) Participation in Profits and Losses (Art. 1797):

Article 1797: The losses and profits shall be distributed in conformity with the agreement. If only the
share of each partner in the profits has been agreed upon, the share of each in the losses shall be in the
same proportion.
In the absence of stipulation, the share of each partner in the profits and losses shall be in proportion to
what he may have contributed, but the industrial partner shall not be liable for the losses. As for the
profits, the industrial partner shall receive such share as may be just and equitable under the
circumstances. If besides his services he has contributed capital, he shall also receive a share in the
profits in proportion to his capital. (1689a)
 Distributed in Accordance with Stipulation
 If Share In Profits Only Stipulated, Share in the Losses Shall Be the Same
 If No Stipulation on Sharing, Partners Share Profits and Losses in Proportion to
their Capital Contributions
 In the Absence of Stipulation, an Industrial Partner Shall Receive Such Share in
the Profits As May Be Just and Equitable under the Circumstances.
(ii)Third-Party May Be Designated to Determine Profit-Loss Sharing (Art. 1798)
Article 1798: If the partners have agreed to intrust to a third person the designation of the share of each
one in the profits and losses, such designation may be impugned only when it is manifestly inequitable.
In no case may a partner who has begun to execute the decision of the third person, or who has not
impugned the same within a period of three months from the time he had knowledge thereof, complain
of such decision.
The designation of losses and profits cannot be intrusted to one of the partners. (1690)
 Determination by Designated Third-Party May Be Impugned Only When

Manifestly Inequitable
 But Such Right to Impugn Is Lost:
 When Partnership Has Began to Execute the Third Party Decision; or
 3 Months Have Lapsed from Knowledge of Such Decision.
In a partnership arrangement, when the agreement to pay a high commission to one of the
partners was in anticipation of large profits being made from the venture, but that eventually
the venture sustained losses, then there is no legal basis to demand for the payment of the
commissions since the essence of the partnership is the sharing of profits and losses. Moran,
Jr. v. Court of Appeals, 133 SCRA 88 (1984).
Art. 1797 covers the distribution of losses among the partners in the settlement of
partnership affairs and does not cover the obligations of partners to third persons which is
covered by Art. 1816. Ramnani v. Court of Appeals, 196 SCRA 731 (1991).
d. Conveyance By Partner of His Whole Partnership Interest DOES NOT(Art. 1813):
Article 1813: A conveyance by a partner of his whole interest in the partnership does not of itself dissolve
the partnership, or, as against the other partners in the absence of agreement, entitle the assignee,
during the continuance of the partnership, to interfere in the management or administration of the
partnership business or affairs, or to require any information or account of partnership transactions, or to
inspect the partnership books; but it merely entitles the assignee to receive in accordance with his
contract the profits to which the assigning partner would otherwise be entitled. However, in case of fraud
in the management of the partnership, the assignee may avail himself of the usual remedies.
In case of a dissolution of the partnership, the assignee is entitled to receive his assignor's interest and
may require an account from the date only of the last account agreed to by all the partners. (n)
 Dissolve the Partnership
 Entitle the Assignee During the Term of the Partnership to Interfere with Management
or Administration of Partnership Business
 Entitle the Assignee to Require Information or an Accounting of Partnership Matters,
Much Less to Inspect Partnership Books

 Merely Entitles Assignee to Receive Profits to Which Assignor Is Entitled To
Any partner may transfer his interest and his assignee may demand an accounting from the
remaining partners and a third person into whose hands the partnership property has passed in
satisfaction of the firm’s debt. xJackson v. Blum, 1 Phil. 4 (1901).
e. Other Proprietary Rights of Partners
(i) Right to Inspect Partnership Books and Records (Art. 1805)
Article 1805: The partnership books shall be kept, subject to any agreement between the partners, at
the principal place of business of the partnership, and every partner shall at any reasonable hour have
access to and may inspect and copy any of them.
(ii) Right to Full Information (Art. 1806)
Article 1806: Partners shall render on demand true and full information of all things affecting the
partnership to any partner or the legal representative of any deceased partner or of any partner under
legal disability. (n)
(iii) Right to Formal Accounting (Art. 1809) – Partner’s right to accounting for partnership
properties in the custody of the other partners shall apply only when there is proof that
such properties, registered in the individual names of the other partners, have been
acquired from the use of partnership funds, thus: “Accordingly, the defendants have no
obligation to account to anyone for such acquisitions in the absence of clear proof that
they had violated the trust of [one of the partners] during the existence of the partnership.”
xLimTanhu v. Ramolete, 66 SCRA 425 (1975).
Article 1809: Any partner shall have the right to a formal account as to partnership affairs:
(1) If he is wrongfully excluded from the partnership business or possession of its property by his co-
partners;
(2) If the right exists under the terms of any agreement;
(3) As provided by article 1807;
(4) Whenever other circumstances render it just and reasonable. (n)
(iv)Right to Reimbursement for Advances (Art. 1796) –The rule is inapplicable where no
money other than what was contributed as capital is involved. xMartinez v. Ong Pong Co.,
14 Phil. 726 (1910).
Article 1796: The partnership shall be responsible to every partner for the amounts he may have
disbursed on behalf of the partnership and for the corresponding interest, from the time the expense are
made; it shall also answer to each partner for the obligations he may have contracted in good faith in the
interest of the partnership business, and for risks in consequence of its management. (1688a)
(v) DELECTUS PERSONAE: Right to Dissolve the Partnership (Art. 1830[2]) – Even in a
partnership not at will, a partner can unilaterally dissolve the partnership by a notice of
dissolution, which in effect is a notice of withdrawal. Under Art.1830(2), even if there is a
specified term, one partner can cause its dissolution by expressly withdrawing even before
the expiration of the period, with or without justifiable cause. Of course, if the cause is not
justified or no cause was given, the withdrawing partner is liable for damages but in no
case can he be compelled to remain in the firm. With his withdrawal, the number of
members is decreased, hence, the dissolution. Rojas v. Maglana, 192 SCRA 110
(1990).
Article 1830: Dissolution is caused: x x x

(2) In contravention of the agreement between the partners, where the circumstances do not permit a
dissolution under any other provision of this article, by the express will of any partner at any time; x x x
3. OBLIGATIONS OF PARTNERS TO THE PARTNERSHIP

a. OBLIGATION TO CONTRIBUTE TO THE COMMON FUND:
 Every Partner Is a Debtor of the Partnership for Whatever He Has Promised to
Contribute(Art. 1786)
Article 1786: Every partner is a debtor of the partnership for whatever he may have promised to
contribute thereto.

He shall also be bound for warranty in case of eviction with regard to specific and determinate things
which he may have contributed to the partnership, in the same cases and in the same manner as the
vendor is bound with respect to the vendee. He shall also be liable for the fruits thereof from the time
they should have been delivered, without the need of any demand. (1681a)
 Unless There Is a Stipulation to the Contrary, the Partners Shall Contribute Equal
Shares to the Partnership Capital (Art. 1790)
Article 1790: Unless there is a stipulation to the contrary, the partners shall contribute equal shares to
the capital of the partnership.

When a partner fails to pay his promised contribution, he becomes indebted to it for the
remainder of what is due, with interest and any damages occasioned thereby, but it does not
authorize the other partners to seek rescission of the partnership contract under Article 1191,
since the remedies are provided for in particular under now Arts. 1786 to 1788.xSancho v.
Lizarraga, 55 Phil. 601 (1931).
A partner who promises to contribute to a partnership becomes a promissory debtor of the
partnership, including liability for interests and damages caused for failure to pay, and which
amounts may be deducted upon dissolution of the partnership from his share in the profits and
net assets. Rojas v. Maglana, 192 SCRA 110 (1990).80
b. When Bound to Contribute Money: Liable to the Partnership for Interest and Damages
from the Time Contribution Became Due (Art. 1788)
Article 1788: A partner who has undertaken to contribute a sum of money and fails to do so becomes a
debtor for the interest and damages from the time he should have complied with his obligation.
The same rule applies to any amount he may have taken from the partnership coffers, and his liability
shall begin from the time he converted the amount to his own use. (1682)
c. When Bound to Contribute Property:

(i) When Property Contributed Is Specific/Determinate (Art. 1786):
Article 1786: Every partner is a debtor of the partnership for whatever he may have promised to
contribute thereto.
He shall also be bound for warranty in case of eviction with regard to specific and determinate things
which he may have contributed to the partnership, in the same cases and in the same manner as the
vendor is bound with respect to the vendee. He shall also be liable for the fruits thereof from the time
they should have been delivered, without the need of any demand. (1681a)
 Bound to the Warranty Against Eviction
 Liable for the Fruits Thereof from the Time They Should Have Been Delivered,
Without Need of Demand
(ii) When Property Contributed Are Fungible/Cannot Be Kept Without Deterioration:
 Risk of Loss Shall Be Borne by the Partnership
(iii) When Contribution in Goods:
 Must Be Appraised to Establish Value; Subsequent Change of Value for the
Partnership’s Account (Arts. 1787 and 1795)
Article 1787: When the capital or a part thereof which a partner is bound to contribute consists of goods,
their appraisal must be made in the manner prescribed in the contract of partnership, and in the absence
of stipulation, it shall be made by experts chosen by the partners, and according to current prices, the
subsequent changes thereof being for account of the partnership. (n)
Article 1795: The risk of specific and determinate things, which are not fungible, contributed to the
partnership so that only their use and fruits may be for the common benefit, shall be borne by the partner
who owns them.
If the things contribute are fungible, or cannot be kept without deteriorating, or if they were contributed
to be sold, the risk shall be borne by the partnership. In the absence of stipulation, the risk of the things
brought and appraised in the inventory, shall also be borne by the partnership, and in such case the
claim shall be limited to the value at which they were appraised. (1687)
(iv) When Real Property Contributed:
80Moran, Jr. v. CA, 133 SCRA 88 (1984).

 Inventory of Immovable Property Must Be Made and Attached to Articles of
Partnership Registered with SEC (Arts. 1772 and 1773)
Article 1772: Every contract of partnership having a capital of three thousand pesos or more, in money
or property, shall appear in a public instrument, which must be recorded in the Office of the Securities
and Exchange Commission.
Failure to comply with the requirements of the preceding paragraph shall not affect the liability of the
partnership and the members thereof to third persons. (n)
Article 1773: A contract of partnership is void, whenever immovable property is contributed thereto, if
an inventory of said property is not made, signed by the parties, and attached to the public instrument.
(1668a)
“Credit”, such as a promissory note or other evidence of obligation, or even goodwill, may be
validly contributed into the partnership. xCity of Manila v. Cumbe, 13 Phil. 677 (1909).
d. Additional Contribution in Case of Imminent Loss (Art. 1791): Unless Otherwise Agreed,
Partner Who Refuses to Contribute Additional Capital, Except an Industrial Partner, to
Save the Venture, Shall Be Obliged to Sell His Interest to Other Partners
Article 1791: If there is no agreement to the contrary, in case of an imminent loss of the business of the
partnership, any partner who refuses to contribute an additional share to the capital, except an industrial
partner, to save the venture, shall he obliged to sell his interest to the other partners. (n)
4. FIDUCIARY DUTIES OF PARTNERS

a. DUTY OF DILIGENCE: Each Partner Is Responsible to the Partnership for Damages
Suffered By It Through His Fault (Art. 1794)
Article 1794: Every partner is responsible to the partnership for damages suffered by it through his fault,
and he cannot compensate them with the profits and benefits which he may have earned for the
partnership by his industry. However, the courts may equitably lessen this responsibility if through the
partner's extraordinary efforts in other activities of the partnership, unusual profits have been realized.
(1686a)
 Partner at Fault Cannot Compensate Such Damages with the Profits and Benefits
Which He May Have Earned for the Partnership from His Industry
 However, the Courts May Equitably Lessen If Partner’s Extraordinary Efforts in Other
Activities of the Partnership, Unusual Profits Have Been Realized
b. DUTY TO ACCOUNT: Every Partner Must Account for Any Benefit, and Hold as Trustee Any
Profits Derived by Him Without the Consent of Other Partners from Any Transaction
Connected with the Formation, Conduct, or Liquidation of the Partnership or From Any
Use by Him of Its Property (Arts. 1807 and 1809)
c. DUTY OF LOYALTY:
(i) On Recovery of Demandable Sum (Art. 1792):
Article 1792: If a partner authorized to manage collects a demandable sum which was owed to him in
his own name, from a person who owed the partnership another sum also demandable, the sum thus
collected shall be applied to the two credits in proportion to their amounts, even though he may have
given a receipt for his own credit only; but should he have given it for the account of the partnership
credit, the amount shall be fully applied to the latter.
The provisions of this article are understood to be without prejudice to the right granted to the other
debtor by article 1252, but only if the personal credit of the partner should be more onerous to him. (1684)
 Received for Partner’s Account: Share Proportionately With Partnership

 Received for Partnership Account: All for to the Partnership’s Account
(ii) On Receiving Partnership Credits (Art. 1793):
Article 1793: A partner who has received, in whole or in part, his share of a partnership credit, when the
other partners have not collected theirs, shall be obliged, if the debtor should thereafter become
insolvent, to bring to the partnership capital what he received even though he may have given receipt for
his share only.
 Partner Receiving Capital When Others Have Not, Obliged to Bring Sum to the
Partnership Capital in the Event Partnership Becomes Insolvent
(iii) Partners in General Cannot Engage in Competitive Business:

 Capitalist Partners Cannot Engage for Their Own Account in Similar
Partnership Business(Art. 1808)
Article 1808: The capitalist partners cannot engage for their own account in any operation which is of
the kind of business in which the partnership is engaged, unless there is a stipulation to the contrary.
Any capitalist partner violating this prohibition shall bring to the common funds any profits accruing to
him from his transactions, and shall personally bear all the losses.
 Industrial Partner Cannot Engage in Any Form of Business (Art. 1789)
Article 1789: An industrial partner cannot engage in business for himself, unless the partnership
expressly permits him to do so; and if he should do so, the capitalist partners may either exclude him
from the firm or avail themselves of the benefits which he may have obtained in violation of this provision,
with a right to damages in either case. (n)
When the partnership has been terminated, the former partners are no longer prohibited in
pursuing the same business as that for which the partnership was constituted. xHalon v.
Haussermann, 40 Phil. 796 (1920).
When mortgaged partnership real property had been foreclosed, redemption by any of the
partners, even when using his separate funds, does not allow such redemption to be in his sole
favor, since under Art. 1818 that a partner is an agent of the partnership, and under Art. 1807,
every partner becomes a trustee for his copartner with regard to any benefits or profits derived
from his act as a partner. xCatalan v. Gatchalian, 105 Phil. 1270 (1959).81
An industrial partner is not deemed to have violated his fiduciary duties to the other partners
by having delivered on the particular service required of her and devoting her time serving in the
judiciary which is not considered to be engaged in an activity for profit.Evangelista & Co. v.
Abad Santos, 51 SCRA 416 (1973).
Former partners have no obligation to account on how they acquired properties in their names,
when such acquisition were effected long after the partnership had been dissolved, especially in
the absence of clear proof that they had violated the trust of managing partner during the
existence of the partnership. xLimTanhu v. Remolete, 66 SCRA 425 (1975).
When a partner engages in a separate business enterprise that is competitive with that of the
partnership, the other partner’s withdrawal becomes thereby justified and for which the latter
cannot be held liable for damages. Rojas v. Maglana, 192 SCRA 110 (1990).
5. PARTNERS SUBJECT TO UNLIMITED LIABILITY FOR PARTNERSHIP DEBTS

a. Partners Liable Pro-Rata with Their Separate Properties After Partnership Assets Have
Been Exhausted, for All Partnership Debts (Art. 1816)
contract. (n)
 Any Stipulation Against Personal Liability of Partners, Even Industrial Partners, for
Partnership Debts Is Void, Except as Among Themselves(Art. 1817)
The meaning of “pro rata” to determine the unlimited liability of partners in a general
partnership means that they shall equally divide among themselves the partnership debts
remaining after exhaustion of partnership assets. xCo-Pitco v. Yulo, 8 Phil 544 (1907); xIsland
Sales v. United Pioneers General Construction Co., 65 SCRA 554 (1975).
Art. 1816 provides: First, partners’ obligation to partnership liabilities is subsidiary in nature—
they shall only be liable with their property after all partnership assets have been exhausted.
Resort to properties of a partner may be made only after efforts in exhausting partnership assets
have failed or that such partnership assets are insufficient to cover the entire obligation. Second,
that partners’ obligation to third persons with respect to partnership liability is pro rata or joint, i.e.,
liable only for the payment of only a proportionate part of the debt. Joint liability of partners is a
defense that can be raised by a partner impleaded in a complaint against partnership.Guy v.
Gacott,780 SCRA 579 (2016).
81Director of Lands v. Lope Alba, 105 Phil. 2171 (1959).

b. All Partners Solidarily Liable with Partnership (Art. 1824) for Everything Chargeable to
the Partnership When Caused By:
 Wrongful Act or Omission of Any Partner Acting—

 In the Partnership’s Ordinary Course of Business; or
 With Authority from the Other Partners(Art. 1822)
 Partner’s Act or Misapplication of Properties of Third Parties—

 Where Partner Receives Property Acting With Apparent Authority; or
 Partnership Received Property in the Ordinary Course of Business (Art. 1823)

partnership. (n)

Partners’ are solidarily liable for employees’ workmen’s compensation claims. xLiwanag and
Reyes v. Workmen’s Compensation Commission, 105 Phil. 741 (1959).
c. Newly Admitted Partner into an Existing Partnership Is Liable Only Out of Partnership
Property Shares and Contributions, for All the Obligations of the Partnership Arising
Before His Admission(Art. 1826)
Article 1826: A person admitted as a partner into an existing partnership is liable for all the obligations
of the partnership arising before his admission as though he had been a partner when such obligations
were incurred, except that this liability shall be satisfied only out of partnership property, unless there is
a stipulation to the contrary. (n)
d. Partnership Creditors Have Preference Over the Personal Creditors of Each of the
Partners as Regards the Partnership Property (Art. 1827)
Article 1827: The creditors of the partnership shall be preferred to those of each partner as regards the
partnership property.
Without prejudice to this right, the private creditors of each partner may ask the attachment and public
sale of the share of the latter in the partnership assets. (n)
 Remedy of Partner’s Separate Creditors (Art. 1814):May Apply with the Courts That
Entered the Judgment Debt—
Article 1814: Without prejudice to the preferred rights of partnership creditors under article 1827, on due
application to a competent court by any judgment creditor of a partner, the court which entered the
judgment, or any other court, may charge the interest of the debtor partner with payment of the
unsatisfied amount of such judgment debt with interest thereon; and may then or later appoint a receiver
of his share of the profits, and of any other money due or to fall due to him in respect of the partnership,
and make all other orders, directions, accounts and inquiries which the debtor partner might have made,
or which the circumstances of the case may require.
The interest charged may be redeemed at any time before foreclosure, or in case of a sale being directed
by the court, may be purchased without thereby causing a dissolution:
(1) With separate property, by any one or more of the partners; or
(2) With partnership property, by any one or more of the partners with the consent of all the partners
whose interests are not so charged or sold.
Nothing in this Title shall be held to deprive a partner of his right, if any, under the exemption laws, as
regards his interest in the partnership. (n)

 To Charge the Debtor’s Equity Interests for the Payment from His Share in the
Profits or Any Other Money Due from the Partnership
 Which Interest Charged May Be Redeemed at Any Time Before Foreclosure by the
Other Partners or the Partnership Itself
6. Liability Rules When Non-Partner Represents Himself to Third Parties as a Partner in an
Existing Partnership(Art. 1825):
Article 1825: When a person, by words spoken or written or by conduct, represents himself, or consents
to another representing him to anyone, as a partner in an existing partnership or with one or more persons
not actual partners, he is liable to any such persons to whom such representation has been made, who
has, on the faith of such representation, given credit to the actual or apparent partnership, and if he has
made such representation or consented to its being made in a public manner he is liable to such person,
whether the representation has or has not been made or communicated to such person so giving credit
by or with the knowledge of the apparent partner making the representation or consenting to its being
made:
(1) When a partnership liability results, he is liable as though he were an actual member of the
partnership;
(2) When no partnership liability results, he is liable pro rata with the other persons, if any, so consenting
to the contract or representation as to incur liability, otherwise separately.
When a person has been thus represented to be a partner in an existing partnership, or with one or more
persons not actual partners, he is an agent of the persons consenting to such representation to bind
them to the same extent and in the same manner as though he were a partner in fact, with respect to
persons who rely upon the representation. When all the members of the existing partnership consent to
the representation, a partnership act or obligation results; but in all other cases it is the joint act or
obligation of the person acting and the persons consenting to the representation. (n)
a. Liable to Third Parties Who Act in Good Faith—
 When Partnership Liability Results, He Is Liable as Though He Were an Actual
Member of the Partnership
 When No Partnership Liability Results, Liable Pro Rata with the Other Persons, If
Any, So Consenting to the Contract or Representation as to Incur Liability, Otherwise
Separately
b. When It Is the Firm That Has Made Such Representation, He Is an Agent and May Bind
the Representers to the Same Extent as Though He Were in Fact a Partner
VII. DISSOLUTION, WINDING-UP, AND TERMINATION OF PARTNERSHIP

1. TYPES AND CAUSES OF DISSOLUTION
a. NON-JUDICIAL DISSOLUTION (i.e., Ipso Jure Dissolution) (Arts. 1830, 1833, and 1840[1])
Article 1830: Dissolution is caused:

(1) Without violation of the agreement between the partners:
(a) By the termination of the definite term or particular undertaking specified in the agreement;
(b) By the express will of any partner, who must act in good faith, when no definite term or particular is
specified;
(c) By the express will of all the partners who have not assigned their interests or suffered them to be
charged for their separate debts, either before or after the termination of any specified term or particular
undertaking;
(d) By the expulsion of any partner from the business bona fide in accordance with such a power
conferred by the agreement between the partners;
dissolution under any other provision of this article, by the express will of any partner at any time;
(3) By any event which makes it unlawful for the business of the partnership to be carried on or for the
members to carry it on in partnership;
(4) When a specific thing which a partner had promised to contribute to the partnership, perishes before
the delivery; in any case by the loss of the thing, when the partner who contributed it having reserved the
ownership thereof, has only transferred to the partnership the use or enjoyment of the same; but the
partnership shall not be dissolved by the loss of the thing when it occurs after the partnership has
acquired the ownership thereof;
(5) By the death of any partner;

(6) By the insolvency of any partner or of the partnership;
(7) By the civil interdiction of any partner;
(8) By decree of court under the following article. (1700a and 1701a)
Article 1833: Where the dissolution is caused by the act, death or insolvency of a partner, each partner
is liable to his co-partners for his share of any liability created by any partner acting for the partnership
as if the partnership had not been dissolved unless:
(1) The dissolution being by act of any partner, the partner acting for the partnership had knowledge of
the dissolution; or
(2) The dissolution being by the death or insolvency of a partner, the partner acting for the partnership
had knowledge or notice of the death or insolvency.
Article 1840: In the following cases creditors of the dissolved partnership are also creditors of the person
or partnership continuing the business:
(1) When any new partner is admitted into an existing partnership, or when any partner retires and
assigns (or the representative of the deceased partner assigns) his rights in partnership property to two
or more of the partners, or to one or more of the partners and one or more third persons, if the business
is continued without liquidation of the partnership affairs;
(i) Without Violation of the Partnership Agreement (Without Breach):

 Expiration of the Partnership Term or Achievement of Undertaking
 By the Express Will of a Partner Acting in Good Faith in a Partnership at Will
 Mutual Assent of the Partners to Dissolve or Accept a New Partner
 Expulsion of a Partner Pursuant to an Agreement Granting Such Right
The legal effect of the changes in the membership of the partnership would be the
dissolution of the old partnership. Yu v. NLRC, 224 SCRA 75 (1993).
(ii) In Contravention of Agreement(Art. 1830[2]): Where the Circumstances Do Not

Permit a Dissolution Under Any Other Provision, By the Express Will of Any Partner
at Any Time
Article 1830: Dissolution is caused: x x x
dissolution under any other provision of this article, by the express will of any partner at any time; x x x
A mere falling out or misunderstanding among the partners does not convert the partnership
into a sham organization, since the partnership exists and is dissolved under the law.
Muñasque v. Court of Appeals, 139 SCRA 533, 540 (1985).
Partner who effect a dissolution by his withdrawal in contravention of an agreement renders
himself liable for damages which may be deducted from his partnership account, and he loses
his right to wind-up. Rojas v. Maglana, 192 SCRA 110 (1990).
“An unjustified dissolution by a partner can subject him to action for damages because by
the mutual agency that arises in a partnership, the doctrine of delectus personae allows the
partners to have the power, although not necessarily the right, to dissolve the partnership.”
Tocao v. Court of Appeals, 342 SCRA 20 (2000)
(iii) By Operation of Law (Art. 1830)
Article 1830: Dissolution is caused:

(1) Without violation of the agreement between the partners:
(a) By the termination of the definite term or particular undertaking specified in the agreement;
(b) By the express will of any partner, who must act in good faith, when no definite term or particular is
specified;
(c) By the express will of all the partners who have not assigned their interests or suffered them to be
charged for their separate debts, either before or after the termination of any specified term or particular
undertaking;
(d) By the expulsion of any partner from the business bona fide in accordance with such a power
conferred by the agreement between the partners;
dissolution under any other provision of this article, by the express will of any partner at any time;

(3) By any event which makes it unlawful for the business of the partnership to be carried on or for the
members to carry it on in partnership;
(4) When a specific thing which a partner had promised to contribute to the partnership, perishes before
the delivery; in any case by the loss of the thing, when the partner who contributed it having reserved the
ownership thereof, has only transferred to the partnership the use or enjoyment of the same; but the
partnership shall not be dissolved by the loss of the thing when it occurs after the partnership has
acquired the ownership thereof;
(5) By the death of any partner;
(6) By the insolvency of any partner or of the partnership;
(7) By the civil interdiction of any partner;
(8) By decree of court under the following article. (1700a and 1701a)
the dissolution; or
 Supervening Illegality of the Partnership Business

 Loss of Specific Thing Contributed
 Death, Insolvency or Civil Interdiction of a Partner
Absence of any clear stipulation, the acceptance back of part of the contribution by the
partner does not necessarily mean his withdrawal from, or dissolution of, the
partnership.Fernandez v. Dela Rosa, 1 Phil. 671 (1902).
The death of a partner dissolves the partnership, but the liquidation of its affairs is by law
entrusted not to the executors of the deceased partner, but to the surviving partners or to the
liquidators appointed by them. xWahl v. Donaldson Sim & Co., 5 Phil. 11 (1905).
A partnership is dissolved by a partner’s death there being no stipulation in the partnership
contract of its subsistence to the contrary, and it thereby attains the status of a partnership in
liquidation, and only the rights inherited by the heirs of the deceased partner were those
resulting from the said liquidation and nothing more. If there would be a continuation of the
partnership a clear agreement on meeting of the minds must be made, otherwise, a new
partnership arrangement cannot be presumed to have arisen among the heirs and the
remaining partners. xBearneza v. Dequilla, 43 Phil. 237 (1922).
In equity, surviving partners are treated as trustees in regard to the interest of the deceased
partner in the firm, and it is their duty to render an account of the performance of their trust to
the personal representatives of the deceased partner, and to pay over to them the share of
such deceased member in the surplus of firm property, whether it consists of real or personal
assets. xGuidote v. Borja, 53 Phil. 900 (1928).
b. BY JUDICIAL DECREE OF DISSOLUTION:

(i) A Partnership With an Unlawful Object or Purpose May Be Dissolved by Judicial
Decree, and the Profit Confiscated in Favor of the State(Art. 1770)
(ii) By the Decree of a Court on Application By or For a Partner (Art. 1831):
Article 1831: On application by or for a partner the court shall decree a dissolution whenever:
(1) A partner has been declared insane in any judicial proceeding or is shown to be of unsound mind;
(2) A partner becomes in any other way incapable of performing his part of the partnership contract;
(3) A partner has been guilty of such conduct as tends to affect prejudicially the carrying on of the
business;

(4) A partner wilfully or persistently commits a breach of the partnership agreement, or otherwise so
conducts himself in matters relating to the partnership business that it is not reasonably practicable to
carry on the business in partnership with him;
(5) The business of the partnership can only be carried on at a loss;
(6) Other circumstances render a dissolution equitable.
On the application of the purchaser of a partner's interest under article 1813 or 1814:
(1) After the termination of the specified term or particular undertaking;
(2) At any time if the partnership was a partnership at will when the interest was assigned or when the
charging order was issued. (n)
 Partner Declared Insane in Any Judicial Proceeding or Shown to Be of Unsound
Mind
 Partner Becomes in Any Other Way Incapable of Performing His Contract
 A Partner Has Been Guilty of Such Conduct as Tends to Affect Prejudicially the
Carrying on of the Partnership Business
 A Partner Willfully or Persistently Commits a Breach of the Agreement That It Is
Not Reasonably Practicable to Carry-on the Partnership Business with Him
 When Partnership Business Can Only Be Carried-on at a Loss
 Other Circumstances That Render a Dissolution Equitable
 Assignee of Partner’s Interest May Seek Court Order:
 Upon Termination of the Specified Term or the Particular Undertaking of the
Partnership; or
 At Any Time in a Partnership at Will
Sustaining of losses is valid basis to dissolve the partnership. xMoran, Jr. v. Court of Appeals,
133 SCRA 88 (1984).
Courts can dissolve a partnership without formal application when “the continuation of the
partnership has become inequitable.” xFue Leung v. IAC, 169 SCRA 746 (1989).
2. OPTIONS ARISING BY REASON OF DISSOLUTION:

a. When Dissolution Is Without Contravention of Partnership Agreement: Each Partner
May Demand for the Winding-Up of the Partnership (Art. 1837):
(n)
 Partnership Properties Applied to Discharge Liabilities, and Surplus Applied to Pay
in Cash the Net Amount Owing to the Respective Partners
b. When Dissolution Caused by Bona Fide Expulsion of a Partner Who Is Discharged from
Partnership Liabilities (Art. 1837):
Article 1837: When dissolution is caused in any way, except in contravention of the partnership
agreement, each partner, as against his co-partners and all persons claiming through them in respect of
their interests in the partnership, unless otherwise agreed, may have the partnership property applied to
discharge its liabilities, and the surplus applied to pay in cash the net amount owing to the respective
partners. But if dissolution is caused by expulsion of a partner, bona fide under the partnership agreement
and if the expelled partner is discharged from all partnership liabilities, either by payment or agreement
under the second paragraph of article 1835, he shall receive in cash only the net amount due him from
the partnership.
When dissolution is caused in contravention of the partnership agreement the rights of the partners shall
be as follows:
(1) Each partner who has not caused dissolution wrongfully shall have:
(a) All the rights specified in the first paragraph of this article, and
(b) The right, as against each partner who has caused the dissolution wrongfully, to damages breach of
the agreement.
(2) The partners who have not caused the dissolution wrongfully, if they all desire to continue the
business in the same name either by themselves or jointly with others, may do so, during the agreed
term for the partnership and for that purpose may possess the partnership property, provided they secure
the payment by bond approved by the court, or pay any partner who has caused the dissolution

wrongfully, the value of his interest in the partnership at the dissolution, less any damages recoverable
under the second paragraph, No. 1 (b) of this article, and in like manner indemnify him against all present
or future partnership liabilities.
(3) A partner who has caused the dissolution wrongfully shall have:
(a) If the business is not continued under the provisions of the second paragraph, No. 2, all the rights of
a partner under the first paragraph, subject to liability for damages in the second paragraph, No. 1 (b),
of this article.
(b) If the business is continued under the second paragraph, No. 2, of this article, the right as against his
co-partners and all claiming through them in respect of their interests in the partnership, to have the value
of his interest in the partnership, less any damage caused to his co-partners by the dissolution,
ascertained and paid to him in cash, or the payment secured by a bond approved by the court, and to be
released from all existing liabilities of the partnership; but in ascertaining the value of the partner's interest
the value of the good-will of the business shall not be considered. (n)
 Expelled Partner Shall Receive in Cash Only the Net Amount Due Him, i.e., Less
Damages
 Partnership Business Continues with the Remaining Partners
c. When Dissolution Is in Contravention of Partnership Agreement:
 Each Non-Breaching Partner Shall Have the Right To (Art. 1837):
 Liquidate the Partnership (i.e., Have Partnership Properties Applied to Discharge
Liabilities and Receive His Share of the Surplus
 Recover Damages Against Each Breaching Partner
All Breaching Partners Are Limited (Art. 1837):
the partnership.
be as follows:
the agreement.
of this article.
 If Partnership Business Not Continued: To Receive Their Net Share in the Surplus
After Payment of All Liabilities
 If Partnership Business Continued: To Have Net Value of Their Interests
Ascertained (Excluding Goodwill) and Paid to Them in Cash or Payment Is
Secured by a Bond, and to Be Released from All Existing Partnership Liabilities

 All Non-Breaching Partners, If They All Desire, May Continue the Business:
Provided They Secure the Payment by Bond or Pay to Any Breaching Partner the Value of
His Interest, Net the Damages, and Indemnity Him Against All Present or Future
Partnership Liabilities (Art. 1837)
the partnership.
be as follows:
the agreement.
of this article.
 A New Partnership Is Thereby Constituted Among the Continuing Partners
d. When Dissolution is By Operation of Law:
 When a Partner Retires or Dies and Business Is Continued Without Settlement of
Accounts, Such Partner or His Representative Shall Against Such Person or
Partnership (Art. 1841):
Article 1841: When any partner retires or dies, and the business is continued under any of the conditions
set forth in the preceding article, or in article 1837, second paragraph, No. 2, without any settlement of
accounts as between him or his estate and the person or partnership continuing the business, unless
otherwise agreed, he or his legal representative as against such person or partnership may have the
value of his interest at the date of dissolution ascertained, and shall receive as an ordinary creditor an
amount equal to the value of his interest in the dissolved partnership with interest, or, at his option or at
the option of his legal representative, in lieu of interest, the profits attributable to the use of his right in
the property of the dissolved partnership; provided that the creditors of the dissolved partnership as
against the separate creditors, or the representative of the retired or deceased partner, shall have priority
on any claim arising under this article, as provided article 1840, third paragraph. (n)
 Have the Value of His Interest the Dissolution Ascertained
 Receive as an Ordinary Creditor an Amount Equal to the Value of His Interest
 Option to Receive Interest on Such Value or the Profits Attributable to the Use of
His Right in the Property of the Dissolved Partnership
BUT: Partnership Creditors Have Priority Over Partner’s Separate Creditors
A partnership guilty of an act of insolvency may be proceeded against and declared bankrupt
in insolvency proceedings despite the solvency of each of the partners composing it. xCampos
Rueda & Co. v. Pacific Commercial Co., 44 Phil. 916 (1922).

e. When There is Fraud or Misrepresentation (Art. 1838):
Article 1838: Where a partnership contract is rescinded on the ground of the fraud or misrepresentation
of one of the parties thereto, the party entitled to rescind is, without prejudice to any other right, entitled:
(1) To a lien on, or right of retention of, the surplus of the partnership property after satisfying the
partnership liabilities to third persons for any sum of money paid by him for the purchase of an interest
in the partnership and for any capital or advances contributed by him;
(2) To stand, after all liabilities to third persons have been satisfied, in the place of the creditors of the
partnership for any payments made by him in respect of the partnership liabilities; and
(3) To be indemnified by the person guilty of the fraud or making the representation against all debts and
liabilities of the partnership. (n)
 Where the Partnership Contract Is Rescinded on the Ground of Fraud or
Misrepresentation of One of the Parties, Party Rescinding Is Entitled, After Payment
of All Partnership Liabilities to Third Persons, To:
 Lien or Right of Retention of Surplus of the Remaining Partnership Property for
Any Sum Paid by Him for Purchase of an Interest in the Partnership and for Any
Capital or Advances Contributed by Him
 Stand in Place of the Creditors of the Partnership for Any Payments Made by Him
in Respect of Partnership Liabilities
 Be Indemnified by Person Guilty of Fraud or Making the Representation Against
All Debts and Liabilities of the Partnership
Failure of a partner to have published her withdrawal, and her agreeing to have remaining
partners proceed with running the partnership business instead of insisting on the liquidation of
the partnership, will not relieve such withdrawing partner from her liability to the partnership
creditors. Even if withdrawing partner acted in good faith, this cannot overcome the position of
partnership creditors who also acted in good faith, without knowledge of her withdrawal from the
partnership. Thus, when the partnership executes a chattel mortgage over its properties in favor
of a withdrawing partner, and the withdrawal was not published to bind the partnership creditors,
and in fact the partnership itself was not dissolved but allowed to be operated as a going concern
by the remaining partners, the partnership creditors have standing to seek the annulment of the
chattel mortgage for having been entered into adverse to their interests. Singson v. Isabela
Sawmill, 88 SCRA 623 (1979).
When new partners continue the partnership business which has been dissolved by the
withdrawal of its original partners, the new partnership is liable for the existing liabilities of the
business enterprise even when they were incurred under the old partnership arrangement, as
clearly governed under the provisions of Article 1840 of the Civil Code. However, new partnership
is not compelled to retain the services of managers and employees of the old partnership and
may choose their personnel. xYu v. NLRC, 224 SCRA 75 (1993).
The action that lies with partner who furnished the capital for the recovery of his money is not
a criminal action for estafa, but a civil one arising from the partnership contract for a liquidation of
the partnership and a levy on its assets if there should be any. xU.S. v. Clarin, 17 Phil. 84 (1910).
BUT: When an individual has been deceived by fraud to invest in a venture for which there was
never intention on the part of the receiving party to invest it for the particular purpose for which it
was invested the receiving partner is liable for estafa. Celino v. Court of Appeals,163 SCRA 97
(1988); xLiwanag v. Court of Appeals, 281 SCRA 225 (1997).
3. NATURE AND EFFECTS OF DISSOLUTION:

a. As Between and Among the Partners:
 Dissolution Is the Change in the Relationship of the Partners Caused by Any Partner
Ceasing to Be Associated in Carrying On the Partnership(Arts. 1828)
Article 1828: The dissolution of a partnership is the change in the relation of the partners caused by any
partner ceasing to be associated in the carrying on as distinguished from the winding up of the business.
 It Terminates All Authority of Any Partner to Act for the Partnership, Except as May
Be Necessary to Wind–up Partnership Affairs(Art. 1832)
Article 1832: Except so far as may be necessary to wind up partnership affairs or to complete
transactions begun but not then finished, dissolution terminates all authority of any partner to act for the
partnership:
(1) With respect to the partners,

(a) When the dissolution is not by the act, insolvency or death of a partner; or
(b) When the dissolution is by such act, insolvency or death of a partner, in cases where article 1833 so
requires;
(2) With respect to persons not partners, as declared in article 1834. (n)
 In the Absence of Any Agreement to the Contrary, the Right to an Accounting of His
Interest Shall Accrue to Any Partner (or His Representative) as Against the Winding-
up Partners, or the Surviving Partners, or the Person or Partnership Continuing the
Business (Art. 1842)
Article 1842: The right to an account of his interest shall accrue to any partner, or his legal representative
as against the winding up partners or the surviving partners or the person or partnership continuing the
business, at the date of dissolution, in the absence of any agreement to the contrary. (n
Right to accounting does not prescribe during the life of the partnership, and that prescription
begins to run only upon the dissolution of the partnership and final accounting is done. xFue
Leung v. IAC, 169 SCRA 746 (1989).
b. On the Partnership Itself:
 Partnership Continues Only For Purposes of Winding-up (Art. 1829)
Article 1829: On dissolution the partnership is not terminated, but continues until the winding up of
partnership affairs is completed. (n)
 EXCEPT: When the Non-Breaching Partners Choose to Continue the Partnership
Business Under a New Partnership
An action to dissolve the partnership and for the appointment of a receiver must include the
partnership since it is entitled to be heard “in matters affecting its existence as well as the
appointment of a receiver.” xClaudio v. Zandueta, 64 Phil. 812 (1937).
Although the dissolution of a partnership is caused by any partner withdrawing from the
partnership, the partnership is not terminated but continuous until the winding up of the business.
xSingson v. Isabela Sawmill, 88 SCRA 623 (1979).
The legal personality of an expiring partnership persists for the limited purpose of winding-up
and closing its affairs. xYu v. NLRC, 224 SCRA 75 (1993).
c. On the Authority of the Partners:
 Terminates All Partners’ Authority to Bind the Partnership, Except for Winding-up of
Partnership Affairs (Art. 1832)
Article 1832: Except so far as may be necessary to wind up partnership affairs or to complete
transactions begun but not then finished, dissolution terminates all authority of any partner to act for the
partnership:
(1) With respect to the partners,
(a) When the dissolution is not by the act, insolvency or death of a partner; or
(b) When the dissolution is by such act, insolvency or death of a partner, in cases where
article 1833 so requires;
(2) With respect to persons not partners, as declared in article 1834. (n)
 A Partner Can Still Bind the Partnership (Art. 1834):
Article 1834: After dissolution, a partner can bind the partnership, except as provided in the third
paragraph of this article:
(1) By any act appropriate for winding up partnership affairs or completing transactions unfinished at
dissolution;
(2) By any transaction which would bind the partnership if dissolution had not taken place, provided the
other party to the transaction:
(a) Had extended credit to the partnership prior to dissolution and had no knowledge or notice of the
dissolution; or
(b) Though he had not so extended credit, had nevertheless known of the partnership prior to dissolution,
and, having no knowledge or notice of dissolution, the fact of dissolution had not been advertised in a
newspaper of general circulation in the place (or in each place if more than one) at which the partnership
business was regularly carried on.

The liability of a partner under the first paragraph, No. 2, shall be satisfied out of partnership assets alone
when such partner had been prior to dissolution:
(1) Unknown as a partner to the person with whom the contract is made; and
(2) So far unknown and inactive in partnership affairs that the business reputation of the partnership
could not be said to have been in any degree due to his connection with it.
The partnership is in no case bound by any act of a partner after dissolution:
(1) Where the partnership is dissolved because it is unlawful to carry on the business, unless the act is
appropriate for winding up partnership affairs; or
(2) Where the partner has become insolvent; or
(3) Where the partner has no authority to wind up partnership affairs; except by a transaction with one
who -
(a) Had extended credit to the partnership prior to dissolution and had no knowledge or notice of his want
of authority; or
(b) Had not extended credit to the partnership prior to dissolution, and, having no knowledge or notice of
his want of authority, the fact of his want of authority has not been advertised in the manner provided for
advertising the fact of dissolution in the first paragraph, No. 2 (b).
Nothing in this article shall affect the liability under article 1825 of any person who after dissolution
represents himself or consents to another representing him as a partner in a partnership engaged in
carrying on business. (n)
 By Any Act or Contract Appropriate for Winding-up Partnership Affairs
 By Non-Winding-up Contracts When Third Party Had Extended Credit to the
Partnership in Good Faith (Not Having Knowledge or Notice of Dissolution)
 But Unknown Partners Not Liable to Such Creditors with their Separate
Properties.
 Where Dissolution Is Caused by Act, Death or Insolvency of Partner (Art. 1833): Each
Partner Is Liable to Co-Partners for His Share of Any Liability Created by Any Partner
Acting for Partnership as If Partnership Had Not Been Dissolved
the dissolution; or
 UNLESS: Partner Acting Had Knowledge of the Dissolution or Notice of the Death or
Insolvency of Another Partners
d. On the Existing Liabilities of the Partners (Art. 1834):
(n)
 Dissolution Itself Does Not Discharge Existing Liability of Any Partner
 EXCEPT: When Partner Is Discharged By Reason of an Express Agreement Between
the Continuing Partners and the Creditors
4. WINDING-UP AND TERMINATION OF THE PARTNERSHIP BUSINESS ENTERPRISE

“Winding-up” is process of settling business affairs after dissolution, which includes the paying
of previous obligations; collecting of assets previously demandable; even new business if needed
to wind up, as contracting with a company for demolition of the garage used in a ‘used car’
partnership.“Termination” is the “point in time after all the partnership affairs have been wound
up.” Idos v. Court of Appeals, 296 SCRA 194 (1998).
a. Partners’ Authority Would Only Be for Purposes of Winding-Up (Art. 1834)
Article 1834: After dissolution, a partner can bind the partnership, except as provided in the third
paragraph of this article:

(1) By any act appropriate for winding up partnership affairs or completing transactions unfinished at
dissolution;
(2) By any transaction which would bind the partnership if dissolution had not taken place, provided the
other party to the transaction:
(a) Had extended credit to the partnership prior to dissolution and had no knowledge or notice of the
dissolution; or
(b) Though he had not so extended credit, had nevertheless known of the partnership prior to dissolution,
and, having no knowledge or notice of dissolution, the fact of dissolution had not been advertised in a
newspaper of general circulation in the place (or in each place if more than one) at which the partnership
business was regularly carried on.
The liability of a partner under the first paragraph, No. 2, shall be satisfied out of partnership assets alone
when such partner had been prior to dissolution:
(1) Unknown as a partner to the person with whom the contract is made; and
(2) So far unknown and inactive in partnership affairs that the business reputation of the partnership
could not be said to have been in any degree due to his connection with it.
The partnership is in no case bound by any act of a partner after dissolution:
(1) Where the partnership is dissolved because it is unlawful to carry on the business, unless the act is
appropriate for winding up partnership affairs; or
(2) Where the partner has become insolvent; or
(3) Where the partner has no authority to wind up partnership affairs; except by a transaction with one
who -
(a) Had extended credit to the partnership prior to dissolution and had no knowledge or notice of his want
of authority; or
(b) Had not extended credit to the partnership prior to dissolution, and, having no knowledge or notice of
his want of authority, the fact of his want of authority has not been advertised in the manner provided for
advertising the fact of dissolution in the first paragraph, No. 2 (b).
Nothing in this article shall affect the liability under article 1825 of any person who after dissolution
represents himself or consents to another representing him as a partner in a partnership engaged in
carrying on business. (n)
b. Authority to Wind-Up (Art. 1836): Only the Partners Who Have Not Wrongfully Dissolved
the Partnership or the Legal Representative of the Last Surviving Partner
c. Upon Dissolution (Art. 1839[4] and [7]): Partners Shall Contribute Amounts Necessary
to Satisfy Partnership Debts Not Covered by Partnership Assets
liabilities.
 HOWEVER: Separate Creditors of Deceased Partner Shall Have Priority Over His
Separate Properties (Art. 1835)
Article 1835: The dissolution of the partnership does not of itself discharge the existing liability of any
partner.
A partner is discharged from any existing liability upon dissolution of the partnership by an agreement to
that effect between himself, the partnership creditor and the person or partnership continuing the
business; and such agreement may be inferred from the course of dealing between the creditor having
knowledge of the dissolution and the person or partnership continuing the business.
The individual property of a deceased partner shall be liable for all obligations of the partnership incurred
while he was a partner, but subject to the prior payment of his separate debts. (n)

d. SETTLEMENT OF LIABILITIES AND PARTNERSHIP CLAIMS (Art. 1839):
(1) The assets of the partnership are:

(a) The partnership property,
(b) The contributions of the partners necessary for the payment of all the liabilities specified in No. 2.
(2) The liabilities of the partnership shall rank in order of payment, as follows:
(a) Those owing to creditors other than partners,
(b) Those owing to partners other than for capital and profits,
(c) Those owing to partners in respect of capital,
(d) Those owing to partners in respect of profits.
(3) The assets shall be applied in the order of their declaration in No. 1 of this article to the satisfaction
of the liabilities.
liabilities.
(5) An assignee for the benefit of creditors or any person appointed by the court shall have the right to
enforce the contributions specified in the preceding number.
(6) Any partner or his legal representative shall have the right to enforce the contributions specified in
No. 4, to the extent of the amount which he has paid in excess of his share of the liability.
(8) When partnership property and the individual properties of the partners are in possession of a court
for distribution, partnership creditors shall have priority on partnership property and separate creditors
on individual property, saving the rights of lien or secured creditors.
(9) Where a partner has become insolvent or his estate is insolvent, the claims against his separate
property shall rank in the following order:
(a) Those owing to separate creditors;
(b) Those owing to partnership creditors;
(c) Those owing to partners by way of contribution. (n)
 Partnership Assets Covers Partnership Properties and Partners’ Required
Contributions under the “Unlimited Liability Rule”
 Partnership Liabilities Shall Be Paid in the Following Order of Payment:
 Those Owing to Creditors Other Than the Partners
 Those Owing to Partners Other Than for Capital and Profits
 Those Owing to Partners in Respect of Capital
 Those Owing to Partners in Respect of Profits
When a partner withdraws from the partnership, he is entitled to the payment of what may be
due him after liquidation. But no liquidation is necessary where there was already a settlement or
an agreement as to what the retiring partner shall receive, and the latter was in fact reimbursed
pursuant to the agreement. xBonnevie v. Hernandez, 95 Phil. 175 (1954).
Managing partner is not personally liable for payment of partners’ shares. It is the partnership
that must refund the shares of retiring partners, which cannot be returned without first dissolving
and liquidating the partnership, for the return is dependent on the discharge of the creditors,
whose claims enjoy preference over those of the partners. All partners are interested in his assets
and business, and are entitled to be heard in the matter of the firm’s liquidation and the distribution
of its property. xMagdusa v. Albaran, 5 SCRA 511 (1962).
Since partnership has a separate juridical personality, upon its dissolution, the withdrawing
partners have no cause of action to demand the return of their equity from the other partners; it is
the partnership that must refund the equity of the retiring partners. However, before partners can
be paid their shares,partnership creditors must first be compensated; whatever is left thereafter
becomes available for the payment of the partners’ shares. It is wrong to presume that capital
contributions at the beginning of the partnership remains intact, unimpaired and available for
distribution or return to the partners, or that the total capital contribution in a partnership is
equivalent to the gross assets to be distributed to the partners at the time of dissolution of the
partnership. In the pursuit of a partnership business, its capital is either increased by profits
earned or decreased by losses sustained; it does not remain static and unaffected by the
changing fortunes of the business. When partners venture into business together, they should
have prepared for the fact that their investment would either grow or shrink. Villareal v.
Ramirez, 406 SCRA 145 (2003).

VIII. LIMITED PARTNERSHIPS
1. BACKGROUND AND DEFINITION
a. Origin, Concept and Purpose
See excerpts from Ames v. Downing, N.Y. Surr. Cit. reproduced in BAUTISTA, TREATISE ON
PHILIPPINE PARTNERSHIP LAW, 1995 ed., at pp. 336-227.
Civil Code provisions on Limited Partnership were taken from Uniform Limited Partnership Act.
See TOLENTINO, CIVIL CODE OF THE PHILIPPINES, Vol V., 1992 ed., at pp. 382-395.
Prohibition against formation of a universal partnership between spouses does not apply when
the partners entered into a limited partnership, the man being the general partner and the woman
being the limited partner, and a year later the two get married.CIR v. Suter, 27 SCRA 152
(1969).
b. DEFINITION(Art. 1843): A Limited Partnership Is One That Is:
 Formed By At Least One General Partner and At Least One Limited Partner
 Who Shall Sign and Swear to the Articles of Limited Partnership (“Certificate”)
 Which Certificate Must Be Registered with the SEC
A limited partnership that does not comply with the registration requirements shall be treated
as a general partnership in which all the members are liable for partnership debts. Jo Chung
Cang v. Pacific Commercial Co., 45 Phil. 142 (1923).
2. FORMATION AND STATUTORY REQUIREMENTS(Art. 1844)

(n)
a. Contents of the Articles of Limited Partnership(the “Certificate”)

 Partnership Name, Add the Word “Limited”
 Name of the Limited Partner Cannot Appear in Partnership Name (Art. 1846)
 Character and Location of Business
 Term of Existence of the Partnership
 On the Partners:
 Name and Residence of Each General and Limited Partners, and Their
Designation as Such Being Specifically Delineated
 Amount/Description of Contributions, Details of Future Contributions, If Any, to
Be Made by Limited Partners.
 Right of Limited Partners to Demand/Receive Partnership Property Other Than
Cash in Return for His Contribution
 Shares of Profits, and Compensation by Way of Income of Limited Partners
 Priority Rights Among the Limited Partners
 Right of Substitution or Assignment by Limited Partners
 Admission of Additional Limited Partners
 Right to Continue the Business by the Remaining General Partners Upon Death,
Retirement, Civil Interdiction, Insanity or Insolvency of General Partner
b. Substantial Compliance (Art. 1844): Limited Partnership Is Formed If There Has Been
Substantial Compliance in Good Faith With Requirements Mandated by Law
Article 1844: Two or more persons desiring to form a limited partnership shall:
(1) Sign and swear to a certificate, which shall state -
(a) The name of the partnership, adding thereto the word "Limited";
(b) The character of the business;

(c) The location of the principal place of business;
(d) The name and place of residence of each member, general and limited partners being respectively
designated;
(e) The term for which the partnership is to exist;
(f) The amount of cash and a description of and the agreed value of the other property contributed by
each limited partner;
(g) The additional contributions, if any, to be made by each limited partner and the times at which or
events on the happening of which they shall be made;
(h) The time, if agreed upon, when the contribution of each limited partner is to be returned;
(i) The share of the profits or the other compensation by way of income which each limited partner shall
receive by reason of his contribution;
(j) The right, if given, of a limited partner to substitute an assignee as contributor in his place, and the
terms and conditions of the substitution;
(k) The right, if given, of the partners to admit additional limited partners;
(l) The right, if given, of one or more of the limited partners to priority over other limited partners, as to
contributions or as to compensation by way of income, and the nature of such priority;
(m) The right, if given, of the remaining general partner or partners to continue the business on the death,
retirement, civil interdiction, insanity or insolvency of a general partner; and
(n) The right, if given, of a limited partner to demand and receive property other than cash in return for
his contribution.
(2) File for record the certificate in the Office of the Securities and Exchange Commission.
A limited partnership is formed if there has been substantial compliance in good faith with the foregoing
requirements.
Substantial, rather than strict, compliance in good faith with the legal requirements is all that is
necessary for the formation of a limited partnership; otherwise, when there is not even substantial
compliance, the partnership becomes a general partnership as far as third persons are
concerned. Jo Chung Cang v. Pacific Commercial Co., 45 Phil. 142 (1923).
c. Effects of False Statement in Certificate (Art. 1847): One Who Suffers Loss By Reliance
on Such Statement May Hold Liable Any Party to the Certificate Who Knew the
Statement to Be False.
1865.
d. Cancellation or Amendment of Certificate (Arts. 1864 and 1865):
cease to be such.

Article 1865: The writing to amend a certificate shall:
(1) Conform to the requirements of article 1844 as far as necessary to set forth clearly the change in the
certificate which it is desired to make; and
(2) Be signed and sworn to by all members, and an amendment substituting a limited partner or adding
a limited or general partner shall be signed also by the member to be substituted or added, and when a
limited partner is to be substituted, the amendment shall also be signed by the assigning limited partner.
The writing to cancel a certificate shall be signed by all members.
A person desiring the cancellation or amendment of a certificate, if any person designated in the first and
second paragraphs as a person who must execute the writing refuses to do so, may petition the court to
order a cancellation or amendment thereof.
If the court finds that the petitioner has a right to have the writing executed by a person who refuses to
do so, it shall order the Office of the Securities and Exchange Commission where the certificate is
recorded, to record the cancellation or amendment of the certificate; and when the certificate is to be
amended, the court shall also cause to be filed for record in said office a certified copy of its decree
setting forth the amendment.
A certificate is amended or cancelled when there is filed for record in the Office of the Securities and
Exchange Commission, where the certificate is recorded:
(1) A writing in accordance with the provisions of the first or second paragraph, or
(2) A certified copy of the order of the court in accordance with the provisions of the fourth paragraph;
(3) After the certificate is duly amended in accordance with this article, the amended certified shall
thereafter be for all purposes the certificate provided for in this Chapter.
 The Certificate Must Be Cancelled When:
 Partnership Is Dissolved
 There Cease to Be Limited Partners
 Certificate Must Be Amended When (Art. 1849):
Article 1849: After the formation of a lifted partnership, additional limited partners may be admitted upon
filing an amendment to the original certificate in accordance with the requirements of article 1865.

 Change in: Firm Name, in Character of the Partnership Business, in the Period, or
a Time Is Fixed for Its Dissolution; Amount or Character of Contributions of
Limited Partners, in Time for Return of a Contribution
 An Additional Limited Partner and/or General Partners Is Admitted, or a Person Is
Substituted as a Limited Partners
 A General Partner Retires, Dies, Becomes Insolvent or Insane, or Is Under Civil
Interdiction and the Business Is Continued
 A False or Erroneous Statement in Certificate or to Make a Change in Any Other
Statement in Order It Shall Accurately Represent Their Agreement.
3. GENERAL PARTNERS(Art. 1850)

Article 1850: A general partner shall have all the rights and powers and be subject to all the restrictions
and liabilities of a partner in a partnership without limited partners. However, without the written consent
or ratification of the specific act by all the limited partners, a general partner or all of the general partners
have no authority to:
(1) Do any act in contravention of the certificate;
(2) Do any act which would make it impossible to carry on the ordinary business of the partnership;
(3) Confess a judgment against the partnership;
(4) Possess partnership property, or assign their rights in specific partnership property, for other than a
partnership purpose;
(5) Admit a person as a general partner;
(6) Admit a person as a limited partner, unless the right so to do is given in the certificate;

(7) Continue the business with partnership property on the death, retirement, insanity, civil interdiction or
insolvency of a general partner, unless the right so to do is given in the certificate.
a. General Partners Have the Rights and Powers and Be Subject to All the Restrictions and
Liabilities of a Partnership Without Limited Partners.
b. HOWEVER: a General Partner Shall Have Authority to Do the Following Only With the
Written Consent or Ratification of the Limited Partners:
 Do Any Act in Contravention of the Certificate
 Do Any Act Making It Impossible to Carry on Partnership Business
 Confess a Judgment Against the Partnership
 Possess Partnership Property or Assign Rights Other Than Partnership Purpose
 Admit a New General Partner
 Admit a New Limited Partner, Unless Right to Do So Is Given in the Certificate
COMPARE: Art. 1818
c. General Partner May Also Be a Limited Partner (Art. 1853):
Article 1853: A person may be a general partner and a limited partner in the same partnership at the
same time, provided that this fact shall be stated in the certificate provided for in article 1844.
A person who is a general, and also at the same time a limited partner, shall have all the rights and
powers and be subject to all the restrictions of a general partner; except that, in respect to his contribution,
he shall have the rights against the other members which he would have had if he were not also a general
partner.
 Provided Such Fact Shall Be Stated in the Certificate
 Shall Have All the Rights/Powers, Subject to All Restrictions of General Partner
 EXCEPT: In Respect to His Contribution, He Shall Have the Rights Against the Other
Members Which He Would Have Had If He Were Not Also a General Partner
4. LIMITED PARTNERS
a. He May Contribute Money or Property, But Never Service (Art. 1845)
Article 1845: The contributions of a limited partner may be cash or property, but not services.
b. Shall Not Be Liable As Such to the Obligations of the Partnership (Art. 1843);EXCEPT:
 When He Allows His Surname to Be Part of the Partnership Name (Art. 1846)
Article 1846: The surname of a limited partner shall not appear in the partnership name unless:
(1) It is also the surname of a general partner, or
(2) Prior to the time when the limited partner became such, the business has been carried on under a
name in which his surname appeared.
A limited partner whose surname appears in a partnership name contrary to the provisions of the first
paragraph is liable as a general partner to partnership creditors who extend credit to the partnership
without actual knowledge that he is not a general partner.
 He Takes Part in the Control of the Partnership Business (Art. 1848)
Article 1848: A limited partner shall not become liable as a general partner unless, in addition to the
exercise of his rights and powers as a limited partner, he takes part in the control of the business.
c. He Shall Have the Same Right as a General Partner to (Art. 1851):
Article 1851: A limited partner shall have the same rights as a general partner to:
(1) Have the partnership books kept at the principal place of business of the partnership, and at a
reasonable hour to inspect and copy any of them;

(2) Have on demand true and full information of all things affecting the partnership, and a formal account
of partnership affairs whenever circumstances render it just and reasonable; and
(3) Have dissolution and winding up by decree of court.
A limited partner shall have the right to receive a share of the profits or other compensation by way of
income, and to the return of his contribution as provided in articles 1856 and 1857.
 Have Partnership Books Kept at Principal Place of Business, to Inspect and/or Copy
Them at Reasonable Hours
 Have on Demand True and Full Information of Things Affecting the Partnership
 A Formal Account of Partnership Affairs
 Have the Dissolution and Winding-up by Judicial Decree
d. He May Loan Money to, and Transact Business with, the Partnership and Receive on
Account of the Resulting Claims Against the Partnership, with General Creditors
 But He Cannot in Respect to Such Claims Receive or Hold a Collateral Security on
Partnership Assets;
 Nor a Payment, Conveyance or Release When Assets of the Partnership Not
Sufficient to Cover All Liabilities to Third Parties. (Art. 1854)
Article 1854: A limited partner also may loan money to and transact other business with the partnership,
and, unless he is also a general partner, receive on account of resulting claims against the partnership,
with general creditors, a pro rata share of the assets. No limited partner shall in respect to any such
claim:
(1) Receive or hold as collateral security any partnership property, or
(2) Receive from a general partner or the partnership any payment, conveyance, or release from liability
if at the time the assets of the partnership are not sufficient to discharge partnership liabilities to persons
not claiming as general or limited partners.
The receiving of collateral security, or payment, conveyance, or release in violation of the foregoing
provisions is a fraud on the creditors of the partnership.
e. He Shall Have Priority of Settlement of Their Claims as Agreed Upon Them or as

Provided in the Certificate.
 In the Absence of Agreement or Provision in the Certificate, Limited Partners Shall
Stand Upon Equal Footing (Art. 1855)
Article 1855: Where there are several limited partners the members may agree that one or more of the
limited partners shall have a priority over other limited partners as to the return of their contributions, as
to their compensation by way of income, or as to any other matter. If such an agreement is made it shall
be stated in the certificate, and in the absence of such a statement all the limited partners shall stand
upon equal footing.
f. He May Receive the Stipulated Share in the Profits and/or Compensation By Way of
Income, Provided That After Such Payment the Partnership Assets Are Sufficient to
Cover Liabilities to Third Parties (Art. 1856)
Article 1856: A limited partner may receive from the partnership the share of the profits or the
compensation by way of income stipulated for in the certificate; provided, that after such payment is
made, whether from property of the partnership or that of a general partner, the partnership assets are
in excess of all liabilities of the partnership except liabilities to limited partners on account of their
contributions and to general partners.
g. He Has the Right to Demand Return of His Contribution (Art. 1857):
contribution:

 When the Date Specified in the Certificate for Its Return Has Arrived
 On Dissolution of the Partnership
 If No Time Is Specified in Certificate for Return of Contribution or for Dissolution of
Partnership: After He Has Given 6Months’ Written Notice to All Members
h. He Shall Not Receive Any Part of His Contribution Until (Art. 1857):
contribution:
 All Liabilities to Third Parties Have Been Paid or There Remains Property of the
Partnership Sufficient to Pay;
 Such Return Is With Consent of All Members, or Return Is Rightfully Demanded;
 Certificate Is Cancelled or Amended.
i. He Is Not Liable for the Partnership Debts Beyond His Contribution (Art. 1858);

such return.
EXCEPT:
 For Difference Between His Contribution as Actually Made and That Stated in
Certificate as Having Been Made
 For Any Unpaid Contribution Which He Agreed in the Certificate in the Future
 A Limited Partner Holds as Trustee for Partnership
 Specific Property Stated in the Certificate as Contributed by Him, But Which Was
Not Contributed or Wrongfully Returned
 Money or Other Property Wrongfully Paid or Conveyed to Him on Account of His
Contribution
j. Limited Partners’ Right to “Assign” Their Rights or Substitute Another (Art. 1859):
Article 1859: A limited partner's interest is assignable.
A substituted limited partner is a person admitted to all the rights of a limited partner who has died or has
assigned his interest in a partnership.
An assignee, who does not become a substituted limited partner, has no right to require any information
or account of the partnership transactions or to inspect the partnership books; he is only entitled to
receive the share of the profits or other compensation by way of income, or the return of his contribution,
to which his assignor would otherwise be entitled.
An assignee shall have the right to become a substituted limited partner if all the members consent
thereto or if the assignor, being thereunto empowered by the certificate, gives the assignee that right.
An assignee becomes a substituted limited partner when the certificate is appropriately amended in
accordance with article 1865.
The substituted limited partner has all the rights and powers, and is subject to all the restrictions and
liabilities of his assignor, except those liabilities of which he was ignorant at the time he became a limited
partner and which could not be ascertained from the certificate.
The substitution of the assignee as a limited partner does not release the assignor from liability to the
partnership under articles 1847 and 1858.
 A Limited Partner’s Interest Is Assignable
 A “Substituted Limited Partner” Is a Person Admitted to All the Rights of a Limited
Partner Who Dies or Has Assigned His Interest
 Assignee Shall Have the Right to Become a Substituted Limited Partner Only If:
 All the Members Consent; OR
 Assignor Gives Assignee Such Right under the Terms of the Certificate
 AND the Certificate Is Appropriately Amended
 Substituted Limited Partner Has All the Rights and Powers, and Is Subject to All the
Restrictions and Liabilities of Assignor, Except Those Liabilities of Which He Was
Ignorant and Which Could Not Be Ascertained from the Certificate
 Substitution Does Not Release Assignor From Partnership Liabilities For:
 False Statements in the Certificate (Art. 1847)
1865.

 The Difference or What Is Due From Him for His Contributions (Art. 1858)

such return.
 An Assignee Who Is Not Substituted Limited Partner Has Only One Right: To Receive
the Share of the Profits or the Return of the Contribution Which the Assignor Was
Entitled To
k. Application of a Creditor of Limited Partner (Art. 1862): A Limited Partner’s Creditors
May Apply With the Courts To:
Article 1862: On due application to a court of competent jurisdiction by any creditor of a limited partner,
the court may charge the interest of the indebted limited partner with payment of the unsatisfied amount
of such claim, and may appoint a receiver, and make all other orders, directions and inquiries which the
circumstances of the case may require.
The interest may be redeemed with the separate property of any general partner, but may not be
redeemed with partnership property.
The remedies conferred by the first paragraph shall not be deemed exclusive of others which may exist.
Nothing in this Chapter shall be held to deprive a limited partner of his statutory exemption.
 Charge His Partnership Interests with Payment of Unsatisfied Amount of Such
Claims, Appoint a Receiver, Make All Other Orders Which May Be Appropriate
 Interest May Be Redeemed With Separate Property of Any General Partner, But Not
Partnership Property
l. Limited Partner Is Not a Proper Party to Proceedings By or Against the Partnership
 EXCEPT: Where Object Is to Enforce a His Right Against or Liability to the
Partnership(Art. 1866)
Article 1866: A contributor, unless he is a general partner, is not a proper party to proceedings by or
against a partnership, except where the object is to enforce a limited partner's right against or liability to
the partnership.
m. A Person Who Has Contributed to Capital of a Business Conduced as a Partner-ship,

Believing that He Has Become a Limited Partner:
 Is Not a General Partner By Reason of Exercise of Such Rights,; PROVIDED: On
Ascertaining Mistake, He Promptly Renounces His Interest in the Profits of the
Business or Other Compensation by Way of Income
 EXCEPT: When He Allows His Surname to Be Part of the Firm Name(Art. 1852)
4. DISSOLUTION AND WINDING UP

a. Causes Affecting the General Partners (Art. 1860):
Article 1860: The retirement, death, insolvency, insanity or civil interdiction of a general partner dissolves
the partnership, unless the business is continued by the remaining general partners:
(1) Under a right so to do stated in the certificate, or
(2) With the consent of all members.

 Death, Insolvency, Civil Interdiction, Insanity or Retirement, of a General Partner
Dissolves the Partnership
 UNLESS: Business Is Continued by Remaining General Partners–
 Under a Right To Do So in the Certificate; OR
 With the Consent of All Members
b. Causes Pertaining to the Limited Partner:
 Death of a Limited Partner Does Not Dissolved the Partnership
 BUT: Executor/Administrator Shall Step-in for Purposes of Settling His Estate,
Including the Power to Constitute an Assignee(Arts. 1861 and 1864)
Article 1861: On the death of a limited partner his executor or administrator shall have all the rights of a
limited partner for the purpose of setting his estate, and such power as the deceased had to constitute
his assignee a substituted limited partner.
cease to be such.

 When There Cease to Be Limited Partners, the Partnership Is Dissolved and the
Certificate Must Be Cancelled(Art. 1864)
cease to be such.

 A Limited Partner May Demand Dissolution and Winding-up When(Art. 1857):
contribution:
 He Rightfully But Unsuccessfully Demands Return of His Contribution; OR
 Liabilities to Third Parties Have Not Be Paid, Partnership Property Insufficient for
Their Payment, But Limited Partner Would Otherwise Be Entitled to the Return of
His Contribution
c. Order of Settlement of Accounts (Art. 1863):
Article 1863: In settling accounts after dissolution the liabilities of the partnership shall be entitled to
payment in the following order:
(1) Those to creditors, in the order of priority as provided by law, except those to limited partners on
account of their contributions, and to general partners;
(2) Those to limited partners in respect to their share of the profits and other compensation by way of
income on their contributions;
(3) Those to limited partners in respect to the capital of their contributions;
(4) Those to general partners other than for capital and profits;
(5) Those to general partners in respect to profits;
(6) Those to general partners in respect to capital.
Subject to any statement in the certificate or to subsequent agreement, limited partners share in the
partnership assets in respect to their claims for capital, and in respect to their claims for profits or for
compensation by way of income on their contribution respectively, in proportion to the respective
amounts of such claims.
 Those to Creditors, Including Limited Partners’ Claims Other Than for Contributions
and Share in the Profits
 Those to Limited Partners as Shares in Profits/Compensation by Way of Income
 Those to Limited Partners in Respect to Their Contributions
 Those to General Partners Other Than for Capital and Profits
 Those to General Partners In Respect to Profits
 Those to General Partners in Respect to Capital
IX. SEC JURISDICTION ON PARTNERSHIP MATTERS

1. Secs. 5 and 6, Pres. Decree No. 902-A

Sec. 5. In addition to the regulatory and adjudicative functions of the Securities and Exchange
Commission over corporations, partnerships and other forms of associations registered with it as
expressly granted under existing laws and decrees, it shall have original and exclusive jurisdiction to
hear and decide cases involving.
(a) Devices or schemes employed by or any acts, of the board of directors, business associates, its
officers or partnership, amounting to fraud and misrepresentation which may be detrimental to the
interest of the public and/or of the stockholder, partners, members of associations or organizations
registered with the Commission;
(b) Controversies arising out of intra-corporate or partnership relations, between and among
stockholders, members, or associates; between any or all of them and the corporation, partnership or
association of which they are stockholders, members or associates, respectively; and between such
corporation, partnership or association and the state insofar as it concerns their individual franchise or
right to exist as such entity; and
(c) Controversies in the election or appointments of directors, trustees, officers or managers of such
corporations, partnerships or associations.
Sec. 6. In order to effectively exercise such jurisdiction, the Commission shall possess the following
powers:
(a) To issue preliminary or permanent injunctions, whether prohibitory or mandatory, in all cases in which
it has jurisdiction, and in which cases the pertinent provisions of the Rules of Court shall apply;
(b) To punish for contempt of the Commission, both direct and indirect, in accordance with the pertinent
provisions of, and penalties prescribed by, the Rules of Court;
(c) To compel the officers of any corporation or association registered by it to call meetings of
stockholders or members thereof under its supervision;
(d) To pass upon the validity of the issuance and use of proxies and voting trust agreements for absent
stockholders or members;
(e) To issue subpoena duces tecum and summon witnesses to appear in any proceedings of the
Commission and in appropriate cases order search and seizure or cause the search and seizure of all
documents, papers, files and records as well as books of accounts of any entity or person under
investigation as may be necessary for the proper disposition of the cases before it;
(f) To impose fines and/or penalties for violation of this Decree or any other laws being implemented by
the Commission, the pertinent rules and regulations, its orders, decisions and/or rulings;
(g) To authorize the establishment and operation of stock exchanges, commodity exchanges and such
other similar organization and to supervise and regulate the same; including the authority to determine
their number, size and location, in the light of national or regional requirements for such activities with
the view to promote, conserve or rationalize investment;
(h) To pass upon, refuse or deny, after consultation with the Board of Investments, Department of
Industry, National Economic and Development Authority or any other appropriate government agency,
the application for registration of any corporation, partnership or association or any form of organization
falling within its jurisdiction, if their establishment, organization or operation will not be consistent with
the declared national economic policies.
(i) To suspend, or revoke, after proper notice and hearing, the franchise or certificate of registration of
corporations, partnerships or associations, upon any of the grounds provided by law, including the
following:
[1] Fraud in procuring its certificate of registration;
[2] Serious misrepresentation as to what the corporation can do or is doing to the great prejudice of or
damage to the general public;
[3] Refusal to comply or defiance of any lawful order of the Commission restraining commission of acts
which would amount to a grave violation of its franchise;
[4] Continuous inoperation for a period of at least five (5) years;
[5] Failure to file by-laws within the required period;
[6] Failure to file required reports in appropriate forms as determined by the Commission within the
prescribed period;
(j) To exercise such other powers as implied, necessary or incidental to the carrying out the express
powers granted to the Commission or to achieve the objectives and purposes of this Decree.
In the exercise of the foregoing authority and jurisdiction of the Commission, hearings shall be conducted
by the Commission or by a Commissioner or by such other bodies, boards, committees and/or any officer
as may be created or designated by the Commission for the purpose. The decision, ruling or order of
any such Commissioner, bodies, boards, committees and/or officer may be appealed to the Commission

sitting en banc within thirty (30) days after receipt by the appellant of notice of such decision, ruling or
order. The Commission shall promulgate rules of procedures to govern the proceedings, hearings and
appeals of cases falling within its jurisdiction.
The aggrieved party may appeal the order, decision or ruling of the Commission sitting en banc to the
Supreme Court by petition for petition for review in accordance with the pertinent provisions of the Rules
of Court.
2. Section 5.1 of the Securities Regulation Code (R.A. No. 8799)
Section 5. Powers and Functions of the Commission.– 5.1. The commission shall act with transparency
and shall have the powers and functions provided by this code, Presidential Decree No. 902-A, the
Corporation Code, the Investment Houses law, the Financing Company Act and other existing laws.
Pursuant thereto the Commission shall have, among others, the following powers and functions:
(a) Have jurisdiction and supervision over all corporations, partnership or associations who are the
grantees of primary franchises and/or a license or a permit issued by the Government;
(b) Formulate policies and recommendations on issues concerning the securities market, advise
Congress and other government agencies on all aspect of the securities market and propose legislation
and amendments thereto;
(c) Approve, reject, suspend, revoke or require amendments to registration statements, and registration
and licensing applications;
(d) Regulate, investigate or supervise the activities of persons to ensure compliance;
(e) Supervise, monitor, suspend or take over the activities of exchanges, clearing agencies and other
SROs;
(f) Impose sanctions for the violation of laws and rules, regulations and orders, and issued pursuant
thereto;
(g) Prepare, approve, amend or repeal rules, regulations and orders, and issue opinions and provide
guidance on and supervise compliance with such rules, regulation and orders;
(h) Enlist the aid and support of and/or deputized any and all enforcement agencies of the Government,
civil or military as well as any private institution, corporation, firm, association or person in the
implementation of its powers and function under its Code;
(i) Issue cease and desist orders to prevent fraud or injury to the investing public;
(j) Punish for the contempt of the Commission, both direct and indirect, in accordance with the pertinent
provisions of and penalties prescribed by the Rules of Court;
(k) Compel the officers of any registered corporation or association to call meetings of stockholders or
members thereof under its supervision;
(l) Issue subpoena duces tecum and summon witnesses to appear in any proceedings of the
Commission and in appropriate cases, order the examination, search and seizure of all documents,
papers, files and records, tax returns and books of accounts of any entity or person under investigation
as may be necessary for the proper disposition of the cases before it, subject to the provisions of existing
laws;
(m) Suspend, or revoke, after proper notice and hearing the franchise or certificate of registration of
corporations, partnership or associations, upon any of the grounds provided by law; and
(n) Exercise such other powers as may be provided by law as well as those which may be implied from,
or which are necessary or incidental to the carrying out of, the express powers granted the Commission
to achieve the objectives and purposes of these laws.
3. Interim Rules of Procedure for Intra-Corporate Disputes
D. JOINT VENTURES
I. JOINT VENTURES ARE SPECIES OF PARTNERSHIP

The prevailing school of thought in the Philippines is that joint ventures are species of partnership,
and issues arising are to be resolved under the Law on Partnerships. xHeirs of Tan EngKee v. Court
of Appeals, 341 SCRA 740 (2000).82
Generally understood to mean an organization formed for some temporary purpose, a joint
venture is likened to a particular partnership, Joint ventures are governed by the law on partnerships
which are, in turn, based on mutual agency or delectus personae. Applying therefore Art. 1813 of the
Civil Code, it is evident that “(t)he transfer by a partner of his partnership interest does not make the
assignee of such interest a partner of the firm, nor entitle the assignee to interfere in the management
of the partnership business or to receive anything except the assignee's profits.”Realubit v. Jaso,
658 SCRA 146 (2011).
A verbal JVA to incorporate a company that would hold parties’ shares and serve a business
vehicle for their food enterprise, is valid and binding. JVA created between them reciprocal obligations
that must be performed in order to fully consummate the contract and achieve the purpose for which
it was entered into. JVA is deemed extinguished through rescission under Article 1192 in relation
with Article 1191 of the Civil Code. Dueñas must therefore return the P5 Million that Fong initially
contributed since rescission requires mutual restitution. After rescission, the parties must go back
to their original status before they entered into the agreement.Fong v. Dueñas, 757 SCRA 412
(2015)
II. TYPES OF JOINT VENTURE ARRANGEMENTS

1. INFORMAL OR CONTRACTUAL JV ARRANGEMENT WITHOUT A “SEPARATE FIRM”
(SEC Opinion, 22 Dec. 1966; SEC Opinion, 29 Feb.1980; SEC Opinion, 03 Sept.
1984)
CA did not errin decreeing the close characteristics of “partnerships” and “joint venture
agreements.” There is also no merit in the assertion that before this particular partnership can be
formed, it should have been formally reduced into writing since the capital involved is more
PhP3,000, so that there is no evidence of written agreement to form a partnership between
petitioners and MBMI, no partnership was created. A partnership is defined as two or more
persons who bind themselves to contribute money, property, or industry to a common fund with
the intention of dividing the profits among themselves. On the other hand, joint ventures have
been deemed to be “akin” to partnerships since it is difficult to distinguish between joint ventures
and partnerships. Narra Nickel Mining and Dev. Corp. v. Redmont Consolidated Mines
Corp., 722 SCRA 382 (2014).
Contract of Lease violates PCSO’s charter which prohibits it “to hold and conduct charity
sweepstakes races, lotteries and other similar activities,” “in collaboration, association or joint
venture” with any other party, because it mandates lessee to contribute resources into the venture
and to manage and operate directly the facilities, and makes lessee participate not only in the
revenues generated from the venture, and in fact absorb most of the risks involved therein. AJVA
has really been constituted between purported lessor and lessee, since under the Law on
Partnership, whenever there is an agreement to contribute money, property or industry to a
common fund, with an agreement to share the profits and losses, then a partnership arises.
Kilosbayan, Inc. v. Guingona, Jr., 232 SCRA 110 (1994).
When the purported primary co-venturer in a consortium (which is an association of
corporation bound in a joint venture arrangement) declares unilaterally that the other four
members are part of a consortium, but there is no affirmation from any of the other members, nor
is there a showing through a formal joint venture agreement of a community of interest, a sharing
of risks, profits and losses in the project bidded for, then there is really no joint venture constituted
among them, lacking the essential elements of what makes a partnership. Information
Technology Foundation v. COMELEC, 419 SCRA 141 (2004).
a. JVAs Must Be Construed and Enforced as Contracts Among Co-Venturers
When a “Joint Venture Agreement” covers the terms for the development of a subdivision
project, the contributions of co-venturers and manner of distribution of the profits, a partnership
has been duly constituted under Art. 1767 of Civil Code, and although no inventory was prepared
covering the parcels of land contributed to the venture, much less was a certificate of registrations
filed with the SEC, the partnership was not void because: (a) Art. 1773 is intended for the
protection of the partnership creditors and cannot be invoked when the issue is between and
among the partners; and (b) the alleged nullity of the partnership will not prevent courts from
considering the JVA as an ordinary contract form which the parties rights and obligations to each
other should be inferred and enforced. Torres v. Court of Appeals, 320 SCRA 428 (1999).
82Primelink Properties and Dev. Corp. v. Lazatin-Magat, 493 SCRA 444 (2006).

Although parties executed a “Power of Attorney” and referred to themselves as “Principal” and
“Manager”, it reveals that a joint venture was indeed intended by the parties. Perusal of the
agreement indicates that the parties had intended to create a partnership and establish a common
fund for the purpose. They also had a joint interest in the profits of the business as shown by a
50-50 sharing in the income of the mine. While a corporation, like petitioner, cannot generally
enter into a contract of partnership unless authorized by law or its charter, it has been held that it
may enter into a joint venture which is akin to a particular partnership relationship. Philex
Mining Corp. v. CIR, 551 SCRA 428 (2008).
When principal and agent have entered into a Power of Attorney covering a construction
project, with the principal contributing thereto his contractor’s license and expertise, while the
agent would provide and secure the needed funds for labor, materials and services, deal with the
suppliers and sub-contractors; and in general and together with the principal, oversee the effective
implementation of the project, for which the principal would receive as his share 3% of the project
cost while the rest of the profits shall go to the agent, the parties have in effect entered into a
partnership, and the revocation of the powers of management of the agent is deemed a breach
of the contract. Mendoza v. Paule, 579 SCRA 349 (2009).
In an informal joint venture arrangement, because no separate firm or business enterprise has
been constituted as to the dealing public, then the effects of the attributes of “mutual agency” and
“unlimited liability” are not made to apply with respect to creditors.Traveño v. Bobongon
Banana Growers Multi-Purpose Cooperative, 598 SCRA 27 (2009). [See contrary ruling in
Bastida v. Menzi and Co., 58 Phil. 188 [1933])
b. Co-Venturer Liable Only for Liabilities Pursued in the Name of

and Pursuant to the Purpose of the JV Arrangement
While Jebson, as developer, and Sps. Salonga, as land owner, entered into a joint venture,
which — based on case law — may be considered as a form of partnership, the fact remains that
their joint venture was never privy to any obligation with Buenviaje; hence, liability cannot be
imputed against the joint venture based on the same principle of relativity as above-mentioned.
Besides, it should be pointed out that the JVA between Jebson and Sps. Salonga was limited to
the construction of the residential units under the Brentwoods Project and that Jebson had the
sole hand in marketing the units allocated to it to third persons, such as Buenviaje. In fact, under
the express terms of the JVA, Jebson, as the developer, had even stipulated to hold Sps. Salonga
free from any liability to third parties for non-compliance with HLURB rules and regulations. As
things stand, only Jebson should be held liable for its obligations to Buenviaje under the subject
CTS.  Buenviaje v. Spouses Salonga, G.R. No. 216023, 05 October 2016.
2. FORMAL JV ARRANGEMENT: A FORM OF PARTNERSHIP WITH A FIRM ESTABLISHED

The fact that the instrument does not clearly provide for an option, and not an obligation, on
the part of one of the co-venturers to make contributions into the business enterprise, will not
detract from the legal fact that they constituted a partnership between themselves: “The wording
of the parties’ agreement as to petitioner’s contribution to the common fund does not detract from
the fact that petitioner transferred its funds and property to the project as specified in paragraph
5, thus rendering effective the other stipulations of the contract, particularly paragraph 5(c) which
prohibits petitioner from withdrawing the advances until termination of the parties’ business
relations. As can be seen, petitioner became bound by its contributions once the transfers were
made. The contributions acquired an obligatory nature as soon as petitioner had chosen to
exercise the option.” Philex Mining Corp. v. CIR, 551 SCRA 428 (2008).
JV is governed by Law on Partnerships. Here, the JVA parties agreed on a 50-50 ratio on the
proceeds of the project, although they did not provide for the splitting of losses, which therefore
puts into application Art. 1797: the same ratio applies in splitting the obligation-loss of the joint
venture. There being a JVA, there is no need for Gotesco to reimburse Marsman Drysdale for
“50% of the aggregate sum due” to PGI since not allowing Marsman Drysdale to recover from
Gotesco what it paid to PGI would not only be contrary to the law on partnership on division of
losses but would partake of a clear case of unjust enrichment at Gotesco's expense. Marsman
Drysdale Land, Inc. v. Philippine Geoanalytics, Inc., 622 SCRA 281 (2010).
A joint venture is a partnership and governed by the Law of Partnerships. Art. 1824 provides
all partners solidarily liable with the partnership due to any wrongful act or omission of any partner
acting in the ordinary course of the business of the partnership or with the authority of his co-
partners. Whether innocent or guilty, all the partners are solidarily liable with the partnership itself.
J. Tiosejo Investment Corp. v. Ang, 630 SCRA 334 (2010).
3. THROUGH A JOINT VENTURE CORPORATION

The manner of nomination of the members of the Board of Directors provided in the Joint
Venture Agreement must be made effective and reconciled with the statutory provision on

cumulative voting made applicable by the Corporation Code to stock corporations. Aurbach v.
Sanitary Wares Manufacturing Corp., 180 SCRA 130 (1989).
Where a corporation is organized under the terms of a JVA, the right of first refusal provided
therein constitutes a legal means by which the corporate venture would include the delectus
personae characteristic within the JV arrangement, allowing stockholders the ability to prevent
equity interests from being transferred to third parties. The JVA’s right of first refusal must be
made to apply and be binding to the Government and the bidder at a public bidding held on the
shares of the JV corporation. JG Summit Holdings, Inc. v. CA, 412 SCRA 10 (2003).
JV is an association of companies jointly undertaking a commercial endeavor, with all
contributing assets and sharing risks, profits, and losses. It is hardly distinguishable from a
partnership considering that their elements are similar and, thus, generally governed by the law
on partnership. In the JVA PNCC contributes its franchise, while the partner contributes the
financing — both necessary for the construction, maintenance, and operation of the toll facilities.
PNCC did not thereby lease, transfer, grant the usufruct of, sell, or assign its franchise or other
rights or privileges. This is true even though the partnership acquires a separate personality or
leads to a JV Company.Hontiveros-Baraquel v. TRB, 751 SCRA 271 (2015).
III. SPECIAL JOINT VENTURE DEFINITIONS AND CONCEPTS

1. Revised Guidelines for Entering into Joint Venture (JV) Agreement Between Government
and Private Entities Per Section 8 of E.O. 42383 (Approved on 03 May 2013)
(i) 5.7 Joint Venture (JV). An arrangement whereby a private sector entity or a group of
private sector entities on one hand, and a Government Entity or a group of
Government Entities on the other hand, contribute money/capital, services, assets
(including equipment, land, intellectual property or anything of value), or a
combination of any or all of the foregoing to undertake an investment activity. The
investment activity shall be for the purpose of accomplishing a specific goal with the
end view of facilitating private sector initiative in a particular industry or sector, and
eventually transfer the activity to either the private sector under competitive market
conditions or to the government. The JV involves a community or pooling of interests
in the performance of the investment activity, and each party shall have the right to
direct and govern the policies in connection therewith with the intention to share both
profits and, risks and losses subject to agreement by the parties. A JV may be a
Contractual JV or a Corporate JV (JV Company).
(ii) 5.3 Contractual JV. A legal and binding agreement under which the JV Partners shall
perform the primary functions and obligations under the JVA without forming a JV
Company.
(iii) 5.8 JV Company. A stock corporation incorporated and registered in accordance with
the provisions of the Corporation Code of the Philippines, and based on the
prevailing rules and regulations of the SEC of which fifty percent (50%) or less of the
outstanding capital stock is owned by the government. The JV Company shall be
registered by the JV partners that shall perform the primary functions and obligations
of the JV as stipulated under the JV Agreement. The JV Company shall possess the
characteristics stipulated under these Guidelines.
2. Regulating Combinations in Restraint of Trade and Unfair Competition: Rules and
Regulations to Implement Rep. Act No. 10667 (Philippine Competition Act)
Rule 2(i): “Joint venture” refers to a business arrangement whereby an entity or group of
entities contribute capital, services, assets, or a combination of any or all of the foregoing,
to undertake an investment activity or a specific project, where each entity shall have the
right to direct and govern the policies in connection therewith, with the intention to share
both profits and risks and losses subject to agreement by the entities.
IV. TAX RECOGNITION AND TREATMENT OF JOINT VENTURES

1. Generally, a Joint Venture, Like a Partnership Is Treated as Corporate Taxpayer.
2. A JV Consortium Undertaking Construction Projects or Engaging in Petroleum, Coal,
Geothermal and Other Energy Operations Pursuant to an Operating or Consortium Agreement
83http://www.neda.gov.ph/references/Guidelines/RevisedGuidelines.pdf

under a Service Contract with the Government, Shall Not Be Taxed Separately as a Corporate
Taxpayer. (Sec. 22(B), NIRC of 1997)
—oOo—

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CLV Atp & JV With Codals 2018

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ATENEO DE MANILA LAW SCHOOL

AGENCY &TRUSTS, PARTNERSHIPS DEAN CESAR L. VILLANUEVA

2. Root and Objectives of Agency (Arts. 1317 and 1403[1])

3. Elements of the Contract of Agency

a. CONSENT (Arts. 1317 and 1403[1])

b. SUBJECT MATTER: Service – Execution of Juridical Acts in Behalf of Principal

4. ESSENTIAL CHARACTERISTICS OF AGENCY

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f. Agency Is a “Preparatory Contract”

5. DISTINGUISHED FROM OTHER SIMILAR CONTRACTS:

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c. From Contract for a Piece-of-Work

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II. FORMS AND KINDS OF AGENCY

2. a. From Side of the Principal (Art. 1869)

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Article 1876: An agency is either general or special.

b. Whether It Covers Legal Matters: Attorney-at-Law versus Attorney-in-Fact

c. Whether It Covers Acts of Administration or Acts of Dominion: General Power of

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(2) How Powers of Attorney Construed or Interpreted

(3) Notarized Power of Attorney

3. GENERAL POWERS OF ATTORNEY (Art. 1877)

Article 1877: An agency couched in general terms comprises only acts of

15Veloso v. CA, 260 SCRA 593 (1996).

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4. SPECIAL POWERS OF ATTORNEY

a. CASES WHERE SPECIAL POWERS OF ATTORNEY ARE NECESSARY (ART. 1878)

(1) WITH RESPECT TO MATTERS INVOLVED IN LITIGATION INVOLVING THE PRINCIPAL:

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(2) WITH RESPECT TO MONEY OR FUNDS OF THE PRINCIPAL:

(3) WITH RESPECT TO OBLIGATIONS DUE TO/FROM THE PRINCIPAL:

16Gozun v. Mercado 511 SCRA 305 (2006).

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(4) WITH RESPECT TO IMMOVABLE PROPERTIES:

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(4-E) To Lease Real Property for More Than One Year

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III. POWER, DUTIES AND OBLIGATIONS OF THE AGENT

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b. Primary Obligation of Agent Is to Carry Out Agency in Accordance with Principal’s

 If Agent Followed Instructions, Principal Cannot Set-up Agent’s Ignorance or

20See application in Olaqguer v. Purugganan, Jr., 515 SCRA 460 (2007).

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 Principal Has No Right Against Third Person Contracting with Agent

21Reiteratedin Safic Alcan v. Imperial Vegetable, 355 SCRA 559 (2001).

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23Metrobank v. CA, 194 SCRA 169 (1991).

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 If Empowered to Borrow Money, He May Be the Lender at Current Interest Rates;

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 It Is Principal’s Obligation to Advance the Funds, But Principal to Pay Interest on

EXCEPT: (1) If Stipulated in the Agency Agreement;

Article 1919: Agency is extinguished: