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I. Contract of Partnership
136448, November 3, 1999
A partnership may be deemed to exist among parties who agree to borrow
money to pursue a business and to divide the profits or losses that may
arise therefrom, even if it is shown that they have not contributed 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.
ROSARIO U. YULO vs. YANG CHIAO SENG, G.R. NO. L-12541, August 28,
The following are the requisites of partnership: (1) two or more persons who
bind themselves to contribute money, property, or industry to a common fund;
(2) intention on the part of the partners to divide the profits among themselves.
(Art. 1767, Civil Code.).
G.R. NO. 126881; October 3, 2000
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 which the returns are derived;
(4) The receipt by a person of a share of the profits of a business is a 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 installment 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.
II. Rights and Obligations of Partnership
DE ABROGAR, G.R. NO. 127347, November 25, 1999
Under Art. 1768 of the Civil Code, a partnership has a juridical personality
separate and distinct from that of each of the partners. The partners cannot
be held liable for the obligations of the partnership unless it is shown that the
legal fiction of a different juridical personality is being used for fraudulent,
unfair, or illegal purposes, hence it is the partnership, not its officers or agents,
which should be impleaded in any litigation involving property registered in its
name, violation of this rule will result in the dismissal of the complaint.
Villareal vs. Ramirez, G.R. NO. 144214. July 14, 2003
Since it is the partnership, as a separate and distinct entity, that must refund
the shares of the partners, the amount to be refunded is necessarily limited to
its total resources. In other words, it can only pay out what it has in its coffers,
which consists of all its assets. However, before the partners can be paid their
shares, the creditors of the partnership must first be compensated. After all the
creditors have been paid, whatever is left of the partnership assets becomes
available for the payment of the partners shares.
Angeles vs. Secretary of Justice, G.R. NO. 142612, July 29, 2005
The Angeles spouses position that there is no partnership because of the lack
of a public instrument indicating the same and a lack of registration with the
Securities and Exchange Commission (SEC) holds no water for the following
reasons: first, the Angeles spouses contributed money to the partnership and
not immovable property; and second, mere failure to register the contract of
partnership with the SEC does not invalidate a contract that has the essential
requisites of a partnership. The purpose of registration of the contract of
partnership is to give notice to third parties. Failure to register the contract of
partnership does not affect the liability of the partnership and of the partners
to third persons. Neither does such failure to register affect the partnerships
juridical personality. A partnership may exist even if the partners do not use
the words partner or partnership.
Ortega vs. CA, G.R. NO. 109248, July 3, 1995
The right to choose with whom a person wishes to associate himself is the very
foundation and essence of that 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. Verily, any one of the partners may, at his sole pleasure, dictate a
dissolution of the partnership at will. He must, however, act in good faith, not
that the attendance of bad faith can prevent the dissolution of the
partnership but that it can result in a liability for damages. Among
partners, mutual agency arises and the doctrine of delectus personae allows
them to have the power, although not necessarily the right, to dissolve the
partnership. An unjustified dissolution by the partner can subject him to a
possible action for damages.
III. Rights and Obligations of Partners Among Themselves
Liwanag vs. CA, G.R. NO. 114398, October 24, 1997
Petitioner was charged with the crime of estafa and advances the theory thatthe
intention of the parties was to enter into a contract of partnership, wherein
Rosales (private complainant for Estafa) would contribute the funds while she
would buy and sell the cigarettes, and later divide the profits between
them But even assuming that a contract of partnership was indeed entered
into by and between the parties, SC ruled that when money or property have
been received by a partner for a specific purpose (such as that obtaining in the
instant case) and he later misappropriated it, such partner is guilty of estafa.
Moran, Jr. vs. CA, G.R. NO. L-59956, October 31, 1984
The rule is, when a partner who has undertaken to contribute a sum of money
fails to do so, he becomes a debtor of the partnership for whatever he may have
promised to contribute (Art. 1786, Civil Code) and for interests and damages
from the time he should have complied with his obligation (Art. 1788, Civil
Code). Thus in Uy v. Puzon (79 SCRA 598), which interpreted Art. 2200 of the Civil
Code of the Philippines, we allowed a total of P200,000.00 compensatory
damages in favor of the appellee because the appellant therein was remiss in
his obligations as a partner and as prime contractor of the construction
projects in question.
Tai Tong Chuache & Co. vs. Insurance Commission, G.R. NO. L-55397
February 29, 1988
Petitioner being a partnership may sue and be sued in its name or by its duly
authorized representative. Thus, Chua as the managing partner of the
partnership may execute all acts of administration including the right to sue
debtors of the partnership in case of their failure to pay their obligations when
it became due and demandable.

Catalan vs. Gatchalian, G.R. NO. L-11648, April 22, 1959

Catalan and Gatchalian as partners mortgaged two lots together with the
improvements thereon to secure a credit. Catalan redeemed the property and
he contends that title should be cancelled and a new one must be issued in his
name. Under Article 1807 of the NCC every partner becomes a trustee for his copartner with regard to any benefits or profits derived from his act as a partner.
Consequently, when Catalan redeemed the properties in question, he became a
trustee and held the same in trust for his co partner Gatchalian, subject to his
right to demand from the latter his contribution to the amount ofredemption.
Evangelista & Co. vs. Abad Santos, G.R. NO. L-31684 June 28, 1973
Respondent industrial partner has the right to demand for a formal accounting
and to receive her share in the net profit that may result from such an
IV. Obligations of Partnership, Partners to Third Persons
COMPANY, G.R. NO. L-22493, July 31, 1975
Defendant company, a general partnership purchased from the plaintiff a
motor vehicle on an installment basis with the condition that failure to pay any
of said installments as they fall due would render the whole unpaid balance
immediately due and demandable. Having failed to receive the installment, the
plaintiff sued the defendant company for the unpaid balance with Benjamin C.
Daco, Daniel A. Guizona, Noel C. Sim, Romulo B. Lumauig, and Augusto
Palisoc were included as co-defendants in their capacity as general partners of
the defendant company. In this case, there were five (5) general partners when
the promissory note in question was executed for and in behalf of the
partnership. Since the liability of the partners is pro rata, the liability of the
appellant Benjamin C. Daco shall be limited to only one-fifth of the obligations
of the defendant company. The fact that the complaint against the defendant
Romulo B. Lumauig was dismissed, upon motion of the plaintiff, does not
unmake the said Lumauig as a general partner in the defendant company. In
so moving to dismiss the complaint, the plaintiff merely condoned Lumauig's
individual liability to the plaintiff.
11, 1985
There is a general presumption that each individual partner is an authorized
agent for the firm and that he has authority to bind the firm in carrying on the
partnership transactions. The presumption is sufficient to permit third persons

to hold the firm liable on transactions entered into by one of members of the
firm acting apparently in its behalf and within the scope of his authority.
NO. L-11840, December 10, 1963
Where the partnership business is to deal in merchandise and goods, i.e.,
movable property, the sale of its real property (immovables) is not within the
ordinary powers of a partner, because it is not in line with the normal business
of the firm. But where the express and avowed purpose of the partnership is to
buy and sell real estate (as in the present case), the immovables thus acquired
by the firm from part of its stock-in-trade, and the sale thereof is in pursuance
of partnership purposes, hence within the ordinary powers of the partner.
J. TIOSEJO INVESTMENT CORP. vs. Ang, G.R. NO. 174149, September 8,
Petitioner cannot avoid liability by claiming that it was not in any way privy to
the Contracts to Sell executed by PPGI and respondents. As correctly argued
by the respondent, a joint venture is considered in this jurisdiction as a form of
partnership and is, accordingly, governed by the law of partnerships and under
Article 1824 of the Civil Code of the Philippines, all partners are solidarily liable
with the partnership for everything chargeable to the partnership, including
loss or injury caused to a third person or penalties incurred due to any
wrongful act or omission of any partner acting in the ordinary course of the
business of the partnership or with the authority of his co-partners.
V. Dissolution
LAZATIN-MAGAT,, G.R. NO. 167379, June 27, 2006


On dissolution, the partnership is not terminated but continues until the

winding up of partnership affairs is completed. Winding up means the
administration of the assets of the partnership for the purpose of terminating
the business and discharging the obligations of the partnership.
MARJORIE TOCAO vs. COURT OF APPEALS, G.R. NO. 127405, October 4,
An unjustified dissolution by a partner can subject him to action for damages
because by the mutual agency that arises in a partnership, the
of delectus personae allows the partners to have the power, although not
necessarily the right to dissolve the partnership.
VI. Limited Partnership


L-25532, February 28, 1969
A limited partnership, named "William J. Suter 'Morcoin' Co., Ltd.," was formed
on 30 September 1947 by herein respondent William J. Suter as the general
partner, and Julia Spirig and Gustav Carlson, as the limited partners. The
thesis that the limited partnership, William J. Suter "Morcoin" Co., Ltd., has
been dissolved by operation of law because of the marriage of the only general
partner, William J. Suter to the originally limited partner, Julia Spirig one year
after the partnership was organized is not tenable. The subsequent marriage of
the partners does not operate to dissolve it, such marriage not being one of the
causes provided for that purpose either by the Spanish Civil Code or the Code
of Commerce. The appellant's view, that by the marriage of both partners the
company became a single proprietorship, is equally erroneous. The capital
contributions of partners William J. Suter and Julia Spirig were separately
owned and contributed by them before their marriage; and after they were
joined in wedlock, such contributions remained their respective separate
property under the Spanish Civil Code.

I.Definition of Agency
Country Bankers Insurance Corp.. vs. Keppel Cebu Shipyard, June 18,
2012, G.R. NO. 166044
In a contract of agency, a person, the agent, binds himself to represent
another, the principal, with the latters consent or authority. Thus, agency
is based on representation, where the agent acts for and in behalf of the
principal on matters within the scope of the authority conferred upon him.
Such acts have the same legal effect as if they were personally done by the
principal. By this legal fiction of representation, the actual or legal absence of
the principal is converted into his legal or juridical presence.
Lintoja vs. Eternit Corp., G.R. NO. 144805, June 8, 2006
It bears stressing that in an agent-principal relationship, the personality of the
principal is extended through the facility of the agent. In so doing, the agent,
by legal fiction, becomes the principal, authorized to perform all acts which
the latter would have him do. Such a relationship can only be effected
with the consent of the principal, which must not, in any way, be compelled
by law or by any court.
Eurotech Industrial Technologies, Inc. Cuizon, G.R. NO. 167552, April 23,

In a contract of agency, a person binds himself to render some service or to do
something in representation or on behalf of another with the latters
consent. The underlying principle of the contract of agency is to accomplish
results by using the services of others to do a great variety of things like
selling, buying, manufacturing, and transporting. Its purpose 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. It is said that the basis of
agency is representation, that is, the agent acts for and on behalf of the
principal on matters within the scope of his authority and said acts have the
same legal effect as if they were personally executed by the principal. By
this legal fiction, the actual or real absence of the principal is converted
into his legal or juridical presence qui facit per alium facit per se. The
elements of the contract of agency are: (1) consent, express or implied, of the
parties to establish the relationship; (2) the object is the execution of a
juridical act in relation to a third person; (3) the agent acts as a
representative and not for himself; (4) the agent acts within the scope of his
RABAJA AND ROSARIO GONZALES, G.R. No. 199990, February 04, 2015, J. Mendoza
Persons dealing with an agent must ascertain not only the fact of agency, but also the nature
and extent of the agents authority. 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. According to Article 1990 of the 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 act is within the terms of the power of attorney, as written. In
this case, Spouses Rabaja did not recklessly enter into a contract to sell with the agent. They
required her presentation of the power of attorney before they transacted with her principal.
And when the agent presented the SPA to Spouses Rabaja, the latter had no reason not to rely
on it.
187769, June 4, 2014. J. BRION
As a general rule, a contract of agency may be oral. However, it must be written when the law
requires a specific form, for example, in a sale of a piece of land or any interest therein
through an agent. Article 1878 paragraph 7 of the Civil Code expressly requires a special
power of authority before an agent can loan or borrow money in behalf of the principal, but it
does not state that the authority be in writing.
In this case, Alvin Patrimonios agent, Gutierrez, did not have any authority to borrow money
in Patrimonios behalf. Patrimonio did not execute any SPA in favor of Gutierrez, nor was
Gutierrez given any authority, whether verbally or in writing, to borrow money in his behalf,
nor was he aware of any such transaction. Patrimonios acts of pre-signing blank checks and

releasing them to Gutierrez does not establish that Patrimonio authorized Gutierrez to fill
them out and contract the loan in his behalf.
II. Powers
III. Express vs. Implies Agency
Lintoja vs. Eternit Corp., G.R. NO. 144805, June 8, 2006
An agency may be expressed or implied from the act 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. Acceptance by the
agent may be expressed, or implied from his acts which carry out the agency,
or from his silence or inaction according to the circumstances. Agency may be
oral unless the law requires a specific form. However, to create or convey real
rights over immovable property, a special power of attorney is necessary. Thus,
when a sale of a piece of land or any portion thereof is through an agent, the
authority of the latter shall be in writing, otherwise, the sale shall be void.
IV. Agency by Estoppel
Naguiat vs. Court of Appeals, G.R. NO. 118375, October 3, 2003
The Court of Appeals recognized the existence of an agency by estoppels citing
Article 1873 of the Civil Code. Apparently, it considered that at the very least,
as a consequence of the interaction between Naguiat and Ruebenfeldt, Queao
got the impression that Ruebenfeldt was the agent of Naguiat, but Naguiat did
nothing to correct Queaos impression. In that situation, the rule is
clear. One who clothes another with apparent authority as his agent, and
holds him out to the public as such, cannot be permitted to deny the authority
of such person to act as his agent, to the prejudice of innocent third parties
dealing with such person in good faith, and in the honest belief that he is what
he appears to be. The Court of Appeals is correct in invoking the said rule on
agency by estoppel.

V. General vs. Special Agency

Siasat vs. Intermediate Appellate Court, G.R. NO. L-67889, October 10,
A general agent is one authorized to do all acts pertaining to a business of a
certain kind or at a particular place, or all acts pertaining to a business of a
particular class or series. He has usually authority either expressly conferred

in general terms or in effect made general by the usages, customs or nature of

the business which he is authorized to transact. An agent, therefore, who is
empowered to transact all the business of his principal of a particular kind or
in a particular place, would, for this reason, be ordinarily deemed a general
agent. A special agent is one authorized to do some particular act or to act
upon some particular occasion, acts usually in accordance with specific
instructions or under limitations necessarily implied from the nature of the act
to be done
VI. Agency Couched in General Terms
Veloso vs. Court of Appeals, G.R. NO. 102737, August 21, 1996
There was no need to execute a separate and special power of attorney since
the general power of attorney had expressly authorized the agent or attorney in
fact the power to sell the subject property. The special power of attorney can
be included in the general power when it is specified therein the act or
transaction for which the special power is required. Whether the instrument be
denominated as general power of attorney or special power of attorney, what
matters is the extent of the power or powers contemplated upon the agent or
attorney in fact. If the power is couched in general terms, then such power
cannot go beyond acts of administration. However, where the power to sell is
specific, it not being merely implied, much less couched in general terms, there
cannot be any doubt that the attorney in fact may execute a valid sale. An
instrument may be captioned as special power of attorney but if the powers
granted are couched in general terms without mentioning any specific power to
sell or mortgage or to do other specific acts of strict dominion, then in that case
only acts of administration may be deemed conferred
VII. Agency Requiring Special Power of Attorney
Orbeta vs. Sendiong, G.R. NO. 155236, July 8, 2005
A special power of attorney simply refers to a clear mandate specifically
authorizing the performance of a specific power and of express acts subsumed
therein, and there is a specific authority given to Mae Sendiong to sign her
name in behalf of Paul Sendiong in contracts and agreements and to institute
suits in behalf of her father. Neither would the fact that the document is
captioned General Power of Attorney militate against its construction as
granting specific powers to the agent pertaining to the petition for annulment of
judgment she instituted in behalf of her father. As Justice Paras has noted, a
general power of attorney may include a special power if such special power is
mentioned or referred to in the general power.
Country Bankers Insurance Corp. vs. Keppel Cebu Shipyard, June 18,
2012, G.R. NO. 166044

Our law mandates an agent to act within the scope of his authority. The scope
of an agents authority is what appears in the written terms of the power of
attorney granted upon him. Under Article 1878(11) of the Civil Code, a special
power of attorney is necessary to obligate the principal as a guarantor or
Mercado vs. Allied Banking Corpporation, G.R. NO. 171460, July 24, 2007
Equally relevant is the rule that a power of attorney must be strictly construed
and pursued. The instrument will be held to grant only those powers which
are specified therein, and the agent may neither go beyond nor deviate from the
power of attorney. Where powers and duties are specified and defined in an
instrument, all such powers and duties are limited and are confined to those
which are specified and defined, and all other powers and duties are excluded.
This is but in accord with the disinclination of courts to enlarge the authority
G.R.anted beyond the powers expressly given and those which incidentally flow
or derive therefrom as being usual and reasonably necessary and proper for the
performance of such express powers.
Angeles vs. Philippines National Railways, G.R. NO. 150128, August 31,
A power of attorney is only but an instrument in writing by which a person, as
principal, appoints another as his agent and confers upon him the authority to
perform certain specified 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. Its primary purpose is not
to define the authority of the agent as between himself and his principal but to
evidence the authority of the agent to third parties with whom the agent deals.
Except as may be required by statute, a power of attorney is valid although no
notary public intervened in its execution.
ROQUE, G.R. NO. 148775, January 13, 2004
Article 1878 of the Civil Code expresses that a special power of attorney is
necessary to lease any real property to another person for more than one year.
The lease of real property for more than one year is considered not merely an
act of administration but an act of strict dominion or of ownership. A special
power of attorney is thus necessary for its execution through an agent.
RABAJA AND ROSARIO GONZALES, G.R. No. 199990, February 04, 2015, J. Mendoza

According to Article 1990 of the 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 act is
within the terms of the power of attorney, as written. In this case, 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.
MALARAYAT RURAL BANK INC. G.R. No. 200468 March 19, 2014, J. Villarama Jr.
In this case, Malarayat Rural Bank fell short of the required degree of diligence, prudence, and
care in approving the loan application of the spouses Guia. Respondent should have diligently
conducted an investigation of the land offered as collateral. Although the Report of Inspection
and Credit Investigation found at the dorsal portion of the Application for Agricultural Loan
proved that the respondent Malarayat Rural Bank inspected the land, the respondent turned
a blind eye to the finding therein that the "lot is planted [with] sugarcane with annual yield
(crops) in the amount of P15,000. They merely derived the authority to mortgage the lot from
the Special Power of Attorney allegedly executed by the late Fermina M. Guia. Hence, it was
incumbent upon the respondent Malarayat Rural Bank to be more cautious in dealing with
the spouses Guia, and inquire further regarding the identity and possible adverse claim of
those in actual possession of the property. Since the subject land was not mortgaged by the
owner thereof and since the respondent Malarayat Rural Bank is not a mortgagee in good
faith, said bank is not entitled to protection under the law. The unregistered sale in favor of
the spouses Arguelles must prevail over the mortgage lien of respondent Malarayat Rural
FLORESCASTILLO, G.R No. 196118, July 30, 2014. J. PERALTA
In this case, the validity of a mortgage was attacked on the ground that Leon (petitioner
Leonardos brother) was not authorized to contract it. Leon claims that the Community Tax
Certificate presented during the notarization of the SPA was obtained after the SPA had been
However, the defective notarization did not avoid the SPA. The defective notarization will
simply strip the document of its public character and reduce it to a private instrument, but
nonetheless, binding, provided its validity is established by preponderance of evidence.
Article 1358 of the Civil Code requires that the form of a contract that transmits or
extinguishes real rights over immovable property should be in a public document, yet the
failure to observe the proper form does not render the transaction invalid. The necessity of a
public document for said contracts is only for convenience; it is not essential for validity or
VIII. Agency by Operation of Law
IX. Rights and Obligations of Principal


VICTORIAS MILLING CO., INC. vs. COURT OF , G.R. NO. 117356, June 19,
One factor which most clearly distinguishes agency from other legal concepts is
control; one person - the agent - agrees to act under the control or direction of
another - the principal. Indeed, the very word "agency" has come to connote
control by the principal. The control factor, more than any other, has caused
the courts to put contracts between principal and agent in a separate category.
X. Irrevocable Agency
Republic vs. Evangelista, G.R. NO. 156015, August 11, 2005
A contract of 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
permission is withdrawn by the principal. Thus, generally, the agency may be
revoked by the principal at will. However, 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. Hence, the law provides that in such cases, the agency cannot be
revoked at the sole will of the principal.
Lim vs. Saban, G.R. NO. 163720, December 16, 2004
Under Article 1927 of the Civil Code, 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
unjustifiable. Stated differently, an agency is deemed as one coupled with an
interest where it is established for the mutual benefit of the principal and of the
agent, or for the interest of the principal and of third persons, and it cannot be
revoked by the principal so long as the interest of the agent or of a third person
subsists. In an agency coupled with an interest, the agents interest must be
in the subject matter of the power conferred and not merely an interest in the
exercise of the power because it entitles him to compensation. When an agents
interest is confined to earning his agreed compensation, the agency is not one
coupled with an interest, since an agents interest in obtaining his
compensation as such agent is an ordinary incident of the agency relationship.


XI. Modes of Extinguishment

RAMON RALLOS, Administrator of the Estate of CONCEPCION RALLOS
January 31, 1978
By reason of the very nature of the relationship between principal and
agent, agency is extinguished ipso jure upon the death of either principal or
agent. Although a revocation of a power of attorney to be effective
must be communicated to the parties concerned, yet a revocation by
operation of law, such as by death of the principal is, as a rule,
instantaneously effective inasmuch as "by legal fiction the agent's exercise of
authority is regarded as an execution of the principal's continuing will. With
death, the principal's will ceases or is the of authority is extinguished.

Air Transportation Office v. Gopuco, Jr., G.R. NO. 158563.

June 30,

A compromise agreement, when not contrary to law, public order, public

policy, morals, or good customs, is a valid contract which is the law between
the parties. It is a contract perfected by mere consent, whereby the parties,
making reciprocal concessions, avoid litigation or put an end to one already
commenced. It has the force of law and is conclusive between the parties,
and courts will not relieve parties from obligations voluntarily assumed,
simplybecause their contracts turned out to be unwise
ISLANDS, G.R. No. 201931, February 11, 2015, J. Villarama
Petitioner did not sign the compromise agreement. The Supreme Court held that it is basic
in law that a compromise agreement, as a contract, is binding only upon the parties to the
compromise, and not upon non-parties. This is the doctrine of relativity of contracts. The
rule is based on Article 1311 (1) of the Civil Code which provides that contracts take effect
only between the parties, their assigns and heirs. The sound reason for the exclusion of
non-parties to an agreement is the absence of a vinculum or juridical tie which is the
efficient cause for the establishment of an obligation. Consistent with this principle, a

judgment based entirely on a compromise agreement is binding only on the parties to the
compromise the court approved, and not upon the parties who did not take part in the
compromise agreement and in the proceedings leading to its submission and approval by
the court.
II.Void Compromise
Uy vs. Chua, G.R. NO. 183965, September 18, 2009
Like any other contract, a compromise agreement must comply with the
requisites in Article 1318 of the Civil Code, to wit: (a) consent of the
contracting parties; (b) object certain that is the subject matter of the
contract; and (c) cause of the obligation that is established. And, like any
other contract, the terms and conditions of a compromise agreement must
not be contrary to law, morals, good customs, public policy and public
order. Any compromise agreement that is contrary to law or public policy is
null and void, and vests no rights in and holds no obligation for any party.
It produces no legal effect at all.
Rivero vs. Court of Appeals, G.R. NO. 141273, May 17, 2005
Article 2035(1) of the New Civil Code provides that no compromise upon
the civil status of persons shall be valid. As such, paternity and filiation,
or the lack of the same, is a relationship that must be judicially
established, and it is for the court to determine its existence or absence. It
cannot be left to the will or agreement of the parties.
Philippine National Oil Company-Energy Development Corporation
(PNOC- EDC) v. Abella, G.R. NO. 153904, January 17, 2005
A compromise once approved by final orders of the court has the force of
res judicata between the parties and should not be disturbed except for
vices of consent or forgery. Hence, a decision on a compromise agreement is
final and executory. Such agreement has the force of law and is conclusive
on the parties. It transcends its identity as a mere contract binding only
upon the parties thereto, as it becomes a judgment that is subject to
execution in accordance with the Rules. Judges therefore have the
ministerial and mandatory duty to implement and enforce it. Hence,
compromise agreements duly approved by the courts are considered the
decisions in the particular cases they involve.