Agency, Trust and Partnership

College of Law, ADZU|Alayka A. Anuddin

Obligations of the principal

Primary obligation of the principal – complying with the terms of their employment contract.

Specific obligations of principal:

1. To comply with all the obligations which the agent may have contracted within the scope of his
authority and in the name of the principal.
2. To advance the agent should the latter so request, the sums necessary for the execution of the agency.
3. To reimburse the agent for all advances made by him, provided the agent is free from fault.
4. To 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.
5. To pay the agent the compensation agreed upon, or if no compensation was specified, the reasonable
value of the agent’s services.

*liability to third person- ratifies an authorized act of his agent. If an entity intentionally or negligently
clothes its officers or agents with apparent power to perform acts for it, the entity will be estopped to
deny that such apparent authority is real as to innocent third persons dealing in good faith with such
officers or agents.

2. To advance the agent should the latter so request, the sums necessary for the execution of
the agency and reimburse agent for funds advanced by latter.
Demand is not necessary in order that delay on the part of the principal shall exist.
Obligation not affected even if undertaking not successful.

4. To 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.
Basis: equity
Limit: limited only to that the execution of the agency has caused the agent.
Agent acted upon his own account
Remedy of the agent: right to retain in pledge object of agency but not entitled to the excess in case the
things are sold to satisfy his claim. The funds or property against which it is asserted must be in actual
or constructive possession, and he must have acquired that possession lawfully and in his capacity as
agent. Not applicable to sub- agent.

Article 1915- nature of liability of two or more principals to their agents. E.R. by express agreement,
parties negate this solidary liability.

* Two or more agents appointed simultaneously, are liable jointly, not solidarily.

Requisites for solidary liability

1. There are two or more principals
2. The principals have all concurred in the appointment of the same agent
3. The agent is appointed for a common transaction or undertaking.

Principals are members of a non-profit association

1. Where he assented to particular act or transaction

2. Where he assented by his conduct
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College of Law, ADZU|Alayka A. Anuddin

Two persons contract separately with agent and principal- prior date shall be transferred.

If immovable- purchaser in good faith recorded it in the Registry of Property.

Liability to third person of agent or principal who contracts separately

-Whether or not the agent acted in bad faith or not.

Article 1918- Principal not liable for expenses incurred by agent:

1. If the agent acted in contravention of the principal’s instructions. E.R: implied ratification
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.

MODES OF EXTINGUISHMENT

Non-exclusive, apply

1.general modes of extinguishing a contract

2. in case of war- agency is inoperative

3. legal impossibility

4. termination of agent’s authority

5. occurrence of resolutory condition

E.R to the rule that death terminates agency:

1. that the agency is coupled with an interest.

2. that the act of the agent was executed without the knowledge of the death of the principal and the
third person who contracted with the agent acted in good faith.

3. power to foreclose survives death of mortgagor.

Alternative remedies in case of death of mortgagor:

(a) to waive the mortgage and claim the entire debt from the estate of the mortgagor as an ordinary
action;
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College of Law, ADZU|Alayka A. Anuddin

(b) to foreclose the mortgage judicially and prove any deficiency as an ordinary claim; and

(c) to rely on the mortgage exclusively, foreclosing the same at any time before it is barred by
prescription without right to file a claim for any deficiency.

In case of loss:

G.R. terminates agency

E.R. (a) If it is possible to substitute other material for that which was destroyed without substantial
detriment to either party or if the destroyed subject matter was not in fact essential to the contract,
the agency may continue.

(b) A partial loss or destruction of the subject matter does not always result in a complete termination
of the agency and under such circumstances, while the agency may be ended insofar as the destroyed
property is concerned, it may continue in existence as to other property not affected. Thus it has been
held that the contract of one engaged to act as agent to secure freight for the defendant’s three boats
cannot be cancelled merely because one boat was destroyed.

In case of change of condition

G.R. terminates agency
E.R. (a) If the original circumstances are restored within a reasonable period of time, the agent’s
authority may be revived.
(b) Where the agent has reasonable doubts as to whether the principal would desire him to act, his
authority will not be terminated if he acts reasonably. Of course, when in doubt, the agent can always
protect himself by contracting the principal for instructions if it is at all possible.
(c) Where the principal and agent are in close daily contact, the agent’s authority to act will not
terminate upon a change of circumstances if the agent knows the principal is aware of the change and
does not give him new instructions.
(Sell on Agency, pp. 192-193.)

REVOCATION OF AGENCY BY PRINCIPAL

The principal can revoke at anytime even if originally was instituted to be irrevocable. However, if it is
made in bad faith, like avoiding payment of commission, he must be liable for damages.

Return of document evidencing agency- to avoid using the general power of attorney.
Kinds of revocation-
Implied revocation- principal appoints a new agent.
Express revocation- through express words by principal revoking the agency, notice of revocation.

RENUNCIATION OF AGENCY BY AGENT

Form of renunciation
(a) When an agent abandons the object of his agency and acts for himself in committing a fraud upon
his principal, his capacity as agent ceases. (3 Am. Jur. 2d 446.)
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College of Law, ADZU|Alayka A. Anuddin

(b) When an 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.

No effect as to third persons who acted in good faith and without knowledge of the revocation/renunciation.

Revocation by appointment of new agent- appoints for the same business or transaction provided there is
incompatibility.

Substitution of counsel of record. — No substitution of

counsel of record is allowed unless the following essential

requisites of a valid substitution of counsel concur:

(a) There must be a written request for substitution;

(b) It must be fi led with the written consent of the client;

(c) It must be with the written consent of the attorney to

be substituted; and

(d) In case, the consent of the attorney to be substituted

cannot be obtained, there must be at least a proof of notice,

that the motion for substitution was served on him in the

manner prescribed by the Rules of Court.

Partial revocation of general power by a special power- The general power is impliedly revoked as to matters
covered by the special power. A special power naturally prevails over a general power.

Instances of irrevocability:

1. bilateral contract depends upon it,

2. if it is the means of fulfilling an obligation already contracted, or if a partner
3. is appointed manager of a partnership in the contract of partnership and his removal from the
management is unjustifiable.

Revocability coupled with interest-

No just cause- there should be no agent’s consent. Revocation no effect.
With just cause-

Continuation by agent’s heirs of agency.

G.R. the agent’s duties cannot be performed by his personal representatives.
E.R. 1. The heirs’ duty to continue the agency after the death of the agent arises from what may be
termed as an agency by operation of law or a presumed or tacit agency.
Where the agency is one coupled with an interest in
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College of Law, ADZU|Alayka A. Anuddin

3. the subject matter of the agency (like the power of sale in a mortgage), the death of the agent will
not instantly end the relationship, and consequently, his heirs or representatives may
subsequently exercise the power.

TRUST

- fiduciary relationship between one person having an equitable ownership in property and another
owning the legal title to such property, the equitable ownership of the former entitling him to the
performance of certain duties and the exercise of certain powers by the latter for the benefit of the
former.

Trust Bailment
Transfer of legal title Bailee has possession of property without legal title
Separation of the legal title and equitable ownership

Trust Donation
Separation of the legal title and equitable ownership Disposition of both legal and equitable ownership

Trust Contract
Fiduciary relationship Need not be fiduciary
Even without consideration With consideration

Trust Debt
The beneficiary of a trust has a beneficial interest creditor has merely a personal claim against the
in the trust property, debtor.
fiduciary relation No fiduciary relation`
duty to deal with a specific property for the benefit obligation to pay a certain sum of money,
of another. * when the purported trustee of
funds is entitled to use them as his or her own,
debtor-creditor relationship exist.

Parties to a trust

Trustor can be both a trustee and beneficiary provided there are other trustees and beneficiaries in a single
trust.

Trustee is not a mere agent but a legal owner because it lacks juristic personality.
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College of Law, ADZU|Alayka A. Anuddin

Equitable title of beneficiary may be reached by his creditors, and he can sell or otherwise dispose of them.

Necessity of existence of beneficiary

A trust is not void for indefiniteness if by its terms the whole property will go to the beneficiary or beneficiaries
who is/are undetermined but will be determined at the termination of the trust, at the latest.

The trustor can simply specify as the beneficiaries a class of persons (e.g., “my minor children,).

Classification of trust

A. CREATION
1. Express- by the execution of an intention to create it by the trustor or the parties.
2. Implied- by operation of law
A. Resulting- intentional in law
B. Constructive- one imposed irrespective of intentions

B. EFFECTIVITY

1. Testamentary- take effect upon the trustor’s death.

2. Trust inter-vivos- effective during the owner’s life.

C. REVOCABILITY

1. Revocable- can be revoked or cancelled by the trustor or another individual given the power,
DEFAULT

2. Irrevocable- which may not be terminated during the specified term of the trust

Express Trust
Elements of express trust.

(1) A competent trustor and trustee;

(2) An ascertainable trust res; and

(3) Sufficiently certain beneficiaries.

Termination of express trust

(1) Expiration of period fixed. — Ordinarily, a trust instrument states the termination of date of the trust or
the event (e.g., when the beneficiary reaches a certain age) on which the trustor wishes it to terminate.

(2) Accomplishment of purpose. — If the trust purpose (e.g., education of a child) is fulfi lled before the date,
the trust will terminate; otherwise, on the date specified even when the purpose has not yet been fulfilled. Of
course, whether or not a date is expressly stated, a trust will terminate when its purpose has been fulfi lled, or
has became unlawful or impossible.

(3) Mutual agreement of beneficiaries. — Under some circumstances, the trust may terminate by mutual
agreement of all the beneficiaries.

(4) Exercise of power to terminate. — Under the terms of the trust deed, the trustor, trustee, or someone else
may have the power to terminate the trust.
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College of Law, ADZU|Alayka A. Anuddin

Express trust for immovable cannot be proved by parol evidence. For personal property and implied trust for
immovable and personal, parol evidence is allowed.

Immovable property- To affect third persons, a trust concerning an immovable or any interest therein
must be embodied in a public instrument and registered in the Registry of Property. Not for validity
but for proof or evidence.

Classification of Express Trust

Tax implication-

Trust (revocable)- grantor/trustor

Irrevocable- trustee/ fiduciary

Article 1445- Acceptance of the trustee not necessary for existence and validity of trust. The court may appoint
a trustee

Renunciation- by resignation or retirement with court approval or with agreement of beneficiaries.

Acceptance of or assent to the trust by the benefi ciary is essential to the creation and validity of a trust.

IMPLIED TRUST
List not exclusive. To prevent injustice and unjust enrichment. Founded upon equity, it can never result from
acts violative of the law.

Distinctions Express Implied

Creation Intention of parties Operation of law
Proof Cannot be proved by oral for Proved by oral evidence.
immovable
Repudiation Express repudiation made Laches bar to actions to enforce
known to beneficiary implied trust.
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Implied trust converted into express- recognition of the implied trustee of the right of property of the owner.
Example: acknowledged in public instrument sale of land.

Acquisition of property through prescription-

1. By Trustee- trustee cannot acquire by prescription ownership over entrusted property until and
unless he repudiates the trust- applicable only to express trust and resulting implied trust. For
constructive trust, repudiation is not necessary to the running of the prescriptive period.

The trustee may claim title by prescription founded on adverse possession where it appears that:

(a) he has performed open and unequivocal acts of repudiation amounting to an ouster of the cestui
que trust or the other co-owners;

(b) such positive acts of repudiation have been made known to the cestui que trust or the other co-
owners;

(c) the evidence thereon should be clear and conclusive or convincing (Ramos vs. Ramos, 61 SCRA
284 [1974]; Valdez

(d) the period fi xed by law has prescribed.

2. By third person- statute of limitations does run between third person and trust.

Acts of repudiation (Pangan vs. CA)