Partnership, Agency, and Trust

Modes of Extinguishment of Agency, and Trusts (ART. 1919 to 1932, 1443 to 1457)

Chapter 2 Death of the principal or agent

General rule: agency is extinguished ipso jure upon the death of either principal or
OBLIGATIONS OF THE AGENT agent.
ART. 1919 Exceptions:
Presumption of continuance of agency 1. That the agency is coupled with an interest
An agency relation will be presumed to have continued, in the absence of 2. That the act of the agent was executed without knowledge of the death of the
anything to show its termination. principal and the third person who contracted with the agent acted in good
faith.
Modes of extinguishing an agency
1. By its revocation; Power to foreclose survives death of mortgagor
2. By the withdrawal of the agent; Under Act No. 3135. - The power of sale in a deed of mortgage is not revoked by the
3. By the death, civil interdiction, insanity or insolvency of the principal or of the death of the principal (mortgagor) as it is not an ordinary agency that contemplates
agent; exclusively the representation of the principal by the agent but is primarily an authority
4. By the dissolution of the fi rm or corporation which entrusted or accepted the conferred upon the mortgagee for the latter’s own protection.
agency;
5. By the accomplishment of the object or purpose of the agency; Under the Rules of Court - the right of the mortgagee to extrajudicially foreclose the
6. By the expiration of the period for which the agency was constituted. mortgage after the death of the mortgagor exists independently of said stipulation and
is clearly recognized in Section 7, Rule 86 of the Rules of Court which grants to a
Under the law, agency may be terminated: mortgagee three remedies that can be alternatively pursued in case the mortgagor dies,
(1) by agreement (Nos. 5, 6.); or to wit:
(2) by the subsequent acts of the parties which may be either: a) to waive the mortgage and claim the entire debt from the estate of the mortgagor
a. by the act of both parties or by mutual consent; or as an ordinary action;
b. by the unilateral act of one of them (Nos. 1, 2.); or b) to foreclose the mortgage judicially and prove any deficiency as an ordinary
(3) by operation of law. (Nos. 3, 4.) claim; and
c) to rely on the mortgage exclusively, foreclosing the same at any time before it
Presence, capacity, and solvency of parties essential for continuance of agency is barred by prescription without right to fi le a claim for any deficiency.
Agency requires the presence, capacity, and solvency of both the principal and
agent. Consequently, the death, civil interdiction, insanity, or insolvency1 of either Dissolution of firm or corporation
party terminates the agency and this is true notwithstanding that the agency period has It extinguishes its juridical existence as far as the right to go on doing ordinary
not yet expired. business is concerned, except for the purpose of winding up its affairs. After winding
up, the existence of the fi rm or corporation is terminated for all purposes.

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Modes of Extinguishment of Agency, and Trusts (ART. 1919 to 1932, 1443 to 1457)

Accomplishment of object or purpose 1) If it is possible to substitute other material for that which was destroyed without
a) Termination of agency ipso facto - At least as between the parties, principal and substantial detriment to either party or if the destroyed subject matter was not in
agent, the fulfillment of the purpose for which the agency is created ipso facto fact essential to the contract.
terminates the agency, even though expressed to be irrevocable. 2) A partial loss or destruction of the subject matter does not always result in a
b) Continued existence of authority illogical - When the object or purpose of the complete termination of the agency, it may continue in existence as to other
agency is accomplished and nothing else remains to be done, there would be no property not affected.
sense in continuing the relationship.
Liability of the principal:
Expiration of term 1) If the loss was brought about by the principal as in the case where the principal sells
1) Term specified - the expiration of such period or the arrival of that time, obviously the subject matter to another party notwithstanding that an agency had been
results in the termination of the relationship. constituted in reference to it, then he may be liable for damages for his wrongful
2) Term not specified - it terminates at the end of a reasonable period of time. terminating act.
3) Period implied - may be implied from the: 2) If the subject matter is lost without the fault of the principal, no liability is assumed
a) terms of the agreement by him.
b) circumstances of the agency
c) circumstances of the parties Change of conditions
General Rule: When there is a basic change in the circumstances surrounding the
Modes provided not exclusive transaction not contemplated by the parties which would reasonably lead the agent to
The list is not exclusive. believe that the principal would not desire him to act, authority of agent is terminated
1) General rule: an agency may be extinguished by the modes of extinguishments of
obligations in general whenever they are applicable, like loss of the thing and Exceptions:
novation. 1) If the original circumstances are restored within a reasonable period of time, the
2) War agent’s authority may be revived.
3) Legal Impossibility 2) Where the agent has reasonable doubts as to whether the principal would desire him
4) Termination of agent’s authority to act, his authority will not be terminated if he acts reasonably.
5) Occurrence of a special event 3) 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
Loss or destruction of subject matter is aware of the change and does not give him new instructions.
General Rule: In the absence of any agreement by the parties to the contrary, the loss
or destruction of the subject matter of the agency or the termination of the principal’s Confidential information acquired by former agent in the course of his agency
interest therein terminates the agent’s authority to deal with reference to it. It is difficult to determine whether information is confidential or not, because
while the relation of principal and agent is confidential, not all knowledge acquired by
Exceptions:
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Partnership, Agency, and Trust
Modes of Extinguishment of Agency, and Trusts (ART. 1919 to 1932, 1443 to 1457)
the agent is of a confidential nature. Some clearly is of so general a nature that equity
ought not attempt to restrict its subsequent use.
How the court determines:
1) Whether the knowledge or information is indeed confidential, and
2) Whether its subsequent use ought to be prevented.
ART. 1920
Revocation of agency by principal
Revocation: When an agency is terminated by the principal.
Withdrawal: When an agency is terminated by the agent.
Agency generally revocable at will by principal - the principal may revoke the agency
at will, at any time, with or without reason since agency relationship is voluntary.
Note: As the law makes no distinction, revocation at will is proper whether the agency
is gratuitous or with compensation.
Rationale:
1) Since the authority of the agent emanates from the principal, if the principal
wishes to terminate the agency the law must enable him to do so.
2) Confidence being the cardinal basis of the relation, it stands to reason that it
should cease when such confidence disappears.
3) The principal-agent relationship is consensual and personal in nature. No one
can, nor should be forced to retain another as his agent against his will.
Liability of principal for damage caused by revocation
The principal is liable for damages:
1) If the agency was constituted for a fixed period, the principal shall be liable in
damages occasioned by the wrongful discharge of the agent before the
expiration of the period fixed.
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2) If the agent can prove that the principal acted in bad faith by revoking the
agency in order to avoid payment of commission about to be earned, the
principal can be held liable for damages.
Return of document evidencing agency
If the authority of the agent is in writing, the principal can compel the agent to
return the document evidencing the agency.
Rationale: to prevent the agent from making use of the power of attorney and thus avoid
liability to third persons who may subsequently deal with the agent on the faith of the
instrument.
Notice of revocation
To agent - As between the principal and the agent, express notice to the agent that the
agency is revoked is not always necessary. If the party to be notified actually knows,
or has reason to know, facts indicating that his authority has been terminated or is
suspended, there is sufficient notice.
To third persons - actual notice must be brought home to former customers, while
notice by publication is sufficient as to other persons.
Renunciation of agency by agent
Agency terminable at will - the agent has the power to renounce the agency relationship,
subject only to the contractual obligations owing to the principal.
Form of renunciation
1) Express
2) Implied:
a) Where he has conducted himself in a manner incompatible with his duties as
agent; or
b) When he abandons the object of his agency and acts for himself in committing
a fraud upon his principal; or
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Partnership, Agency, and Trust
Modes of Extinguishment of Agency, and Trusts (ART. 1919 to 1932, 1443 to 1457)
c) When he files a complaint against the principal and adopts an antagonistic
attitude towards him.
Note: the mere fact that the agent violates his instructions does not amount to a
renunciation.
ART. 1921 to 1922
Effect of revocation in relation to third persons
1) If the agency is created for the purpose of contracting with specified persons
a) revocation will not prejudice such third persons until notice thereof is given
them. The reason for this is obvious. Since third persons have been made to
believe by the principal that the agent is authorized to deal with them, they have
a right to presume that the representation continues to exist in the absence of
notification by the principal. But of course, notice is not required if the third
persons already know of the revocation.
2) In case the agent has general powers
a) innocent third parties dealing with the agent will not be prejudiced by the
revocation before they had knowledge thereof. In this case, however, the fact
that the revocation was advertised in a newspaper of general circulation would
be sufficient to third persons for publication constitutes notice upon everybody
and this is true whether or not such third persons have read the newspaper
concerned.
ART. 1923
Revocation by appointment of new agent
1) Implied revocation of previous agency- There is implied revocation of the previous
agency when the principal appoints a new agent for the same business or transaction
provided there is incompatibility.
2) Substitution of counsel of record
a) Essential requisites of a valid substitution of counsel:
i) There must be a written request for substitution;
ii) It must be fi led with the written consent of the client;
iii) It must be with the written consent of the attorney to be substituted; and
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iv) 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.
ART. 1924
Revocation by direct management of business by principal himself
General rule: The agency is revoked if the principal directly manages the business
entrusted to the agent, dealing directly with third persons.
Exception: when the only desire of the principal in doing so is for him and the agent to
manage the business together.
ART. 1925
Revocation by two or more principals
As the appointment of an agent by two or more principals for a common transaction or
undertaking makes them solidarily liable to the agent for all the consequences of the
agency any one of the principals has the right to revoke the power of attorney without
the consent of the others.
ART. 1926
Partial revocation of general power by a special power
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.
Note: two agents are involved. One with general power, and the other with special
power.
ART. 1927
Agency coupled with an interest
General rule: Principal may revoke an agency at will since the essence of agency is the
agent’s duty of obedience to the principal.
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Partnership, Agency, and Trust
Modes of Extinguishment of Agency, and Trusts (ART. 1919 to 1932, 1443 to 1457)
Exceptions:
1) When a bilateral contract depends on the agency;
2) When the agency is the means of fulfilling an obligation already contracted;
3) When a partner is appointed as manager of a partnership in the contract of
partnership and his removal from the management is unjustifiable.
Termination of the agency
An agency coupled with an interest cannot be terminated by the sole will of the
principal although it is so revocable after the interest ceases.
Note: In order that an agency may be irrevocable because coupled with an interest, it is
essential that the interest of the agent shall be in the subject matter of the power
conferred.
Instances:
1) When the agent has parted with value or incurred liability at the principal’s request,
and he is looking to the exercise of the power as the means of reimbursement or
indemnity.
2) When the interest in the thing concerning which the power is to be exercised arises
from an assignment, pledge or lien created by the principal with the agent being
given the power to deal with the thing in order to make the assignment, pledge or
lien effectual.
Terminology used by parties not controlling
Whether an interest will make an agency irrevocable exists in a particular case
is to be determined from the entire agreement between the parties and from the facts
and circumstances. The terminology is not controlling. Even if an agency is made in
terms irrevocable, the fact will not prevent its revocation by the principal when the
agency is not in fact coupled with an interest.
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Revocability of agency coupled with an interest
Where there is no just cause - Both the right and the power to revoke the agency without
the agent’s consent is taken away, and a purported revocation can have no effect unless
by express provision the authority remains revocable.
Where there is a just cause - the authority certainly can be revoked for a just cause.
“Agency” coupled with an interest not a true agency.
If the principal cannot terminate the relation, he has surrendered that degree of
control which an agency requires. If the power holder holds an interest for the benefit
of a person other than the creator of the power, he is not the creator’s agent.
ART. 1928
Right of agent to withdraw
The agent may likewise renounce or withdraw from the agency at any time,
without the consent of the principal, even in violation of the latter’s contractual rights.
Without just cause - The law imposes upon the agent the duty to give due notice to the
principal and if the withdrawal is without just cause, to indemnify the principal should
the latter suffer damage by reason of such withdrawal.
With just cause - agent cannot be held liable.
ART. 1929
Obligation of agent to continue to act after withdrawal
Agent must continue to act until the principal has had reasonable opportunity to take
the necessary steps like the appointment of a new agent to remedy the situation caused
by the withdrawal.
Rationale: This is to prevent damage or prejudice to the principal.
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Partnership, Agency, and Trust
Modes of Extinguishment of Agency, and Trusts (ART. 1919 to 1932, 1443 to 1457)

ART. 1930 Continuation by agent’s heirs of agency

When death of principal does not terminate agency General Rule: agent’s duties cannot be performed by his personal representatives.
General rule: Agency terminates upon death of principal.
Exceptions:
Exceptions: a) Agency by operation of law, or a presumed or tacit agency;
a) if the agency has been constituted in the common interest of the principal and b) Agency is coupled with an interest in the subject matter of the agency.
the agent; and
b) if it has been constituted in the interest of a third person who has accepted the
stipulation in his favor.

ART. 1931
Nature of agent’s authority after death of principal
Normally, the death of the principal will terminate the agency. However, the agent is
required to “finish the business already begun on the death of the principal should delay
entail any danger.”

Validity of acts of agent after termination of agency

The death of the principal or any other like cause, extinguishes the agency. But
in the same way that revocation of the agency does not prejudice third persons who
have dealt with the agent in good faith without notice of revocation, such third persons
are also protected where it is not shown that the agent had knowledge of the termination
of the agency because of the death of the principal or any other like cause which
extinguishes the agency.

ART. 1932
Duty of agent’s heirs to protect interest of principal
Heirs must:
a) Notify the principal to enable the latter reasonable opportunity to take such
steps as may be necessary to meet the situation; and
b) Adopt such measures as the circumstances may demand in the interest of the
principal.

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Modes of Extinguishment of Agency, and Trusts (ART. 1919 to 1932, 1443 to 1457)

The beneficiary of a trust has a beneficial A creditor has merely a personal claim
Chapter 1 interest in the trust property. against the debtor.
There is a fiduciary relation between a There is no such relation between a
GENERAL PROVISIONS (TRUSTS) trustee and a beneficiary. debtor and creditor.
Trust refers to a duty to deal with a Debt implies merely an obligation to
Concept of Trust specific property for the benefit of pay a certain sum of money
Fiduciary relationship between one person having an equitable ownership in another.
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
Persons involved in the creation of an express trust
powers by the latter for the benefit of the former.
Generally, at least three (3) people are needed for an express trust.
a) Trustor - A person who establishes a trust
Trust is legal arrangement whereby a person transfers his legal title to property
b) Trustee - one in whom confidence is reposed as regards property for the benefit
to another to be administered by the latter for the benefit of a third party.
of another person
c) Beneficiary or cestui que trust - the person for whose benefit the trust has been
Trust distinguished from other relations
created
Trust Bailment
delivery of property necessarily involves the bailee has possession of, without Classifications of Trust
a transfer of legal title, or at least a legal title to, the property subject to the 1) Creation
separation of equitable interest and legal bailment. a) Express
title, with the legal title in the trustee. b) Implied
i) Resulting trust
Trust Donation ii) Constructive trust
existing legal relationship and involves transfer of property 2) Effectivity
the separation of legal and equitable title a) Testamentary trust
b) Trust inter vivos
Trust Contract 3) Revocability
always involves an ownership, a legal obligation based on an a) Revocable trust
embracing a set of rights and duties undertaking supported by a b) Irrevocable trust
fiduciary in character which may be consideration, which obligation may or
created by a declaration without a may not be fiduciary in character Elements of Trust
consideration. Three elements:
1) A competent trustor and trustee;
Trust Debt 2) An ascertainable trust res; and
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Modes of Extinguishment of Agency, and Trusts (ART. 1919 to 1932, 1443 to 1457)

3) Sufficiently certain beneficiaries b) Accumulation trust

c) Spendthrift trust
Termination of Express Trust d) Sprinkling trust
1) Expiration of period fixed
2) Accomplishment of purpose When trustee may sue or be sued alone.
3) Mutual agreement of beneficiaries In order that a trustee may sue or be sued alone, it is essential that his trust be
4) Exercise of power to terminate express, that is, a trust created by the direct and positive acts of the parties, by some
writing, deed, or will or by proceedings in court.
Chapter 2
Acceptance, declination, or renunciation by the trustee
EXPRESS TRUSTS No trust shall fail because the trustee appointed declines the designation, unless
the contrary should appear in the instrument constituting the trust; Acceptance
Evidence to prove express trust generally necessary but such is not necessary for the validity of the trust.
1) Burden of proof - on the party alleging its existence.
2) Trust concerns immovable therein - a writing is necessary to prove an express trust Rationale: The court may appoint a trustee in his place
concerning an immovable or any interest.
3) Failure to object to parol evidence - the defense that express trusts cannot be proved Acceptance of trust by the beneficiary
by parol evidence may be waived, either by: Acceptance of or assent to the trust by the beneficiary is essential to the creation and
i) failure to interpose timely objections against the presentation of oral validity of a trust.
evidence not admissible under the law; or
ii) by cross-examining the adverse party and his witnesses along the prohibited
lines.
Chapter 3
IMPLIED TRUSTS
Creation of an express trust
Created by direct and positive act of the trustor, by some writing, deed, will, or Concept of implied trust
oral declaration evincing an intention to create the trust. Implied trusts - those which, without being express, are deducible from the nature of
the transaction as matters of intent, or which are superinduced on the transaction by
Terminology used not controlling operation of law, as matters of equity, independently of the particular intention of the
Technical or particular forms of words or phrases are not essential to the parties.
manifestation of an intention to create a trust.
Kinds of implied trust
Kinds of express trust a) Resulting Trust - a trust raised by implication of law and presumed always to
a) Charitable trust have been contemplated by the parties, the intention of which is found in the
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Modes of Extinguishment of Agency, and Trusts (ART. 1919 to 1932, 1443 to 1457)

nature of the transaction, but not expressed in the deed or instrument of order that laches or there is no repudiation,
conveyance acquisitive prescription unless there is
b) Constructive Trust - one not created by words either expressly or impliedly, but may bar an action to concealment of the fact
by construction of equity in order to satisfy the demands of justice. enforce an express trust giving rise to the trust.

Trust fund doctrine: The assets of the corporation as represented by its capital stock Implied trust converted to express trust
are regarded as “trust funds’’ to be maintained unimpaired for the payment of 1) Trustee acknowledged in a public instrument sale of land by his parents to
corporate creditors in the sense that there can be no distribution of such assets beneficiary
among the stockholders without provision being first made for the payment of 2) Trustee directed his tenant to pay rentals to beneficiary and allowed latter to take
corporate debts. possession

When is there implied trust Acquisition of property through prescription

General rule: When property is sold, and the legal estate is granted to one party but the General Rule: The express trusts disable the trustee from acquiring for his own
price is paid by another for the purpose of having the beneficial interest of the property. benefit the property committed to his management or custody, at least while he does
The former is the trustee, while the latter is the beneficiary. not openly repudiate the trust and makes such repudiation known to the beneficiary.

Exception: If the person to whom the title is conveyed is a child, legitimate or An action for reconveyance will not prescribe as long as the property stands in the name
illegitimate, of the one paying the price of the sale, no trust is implied by law, it being of the trustee. To allow prescription would be to permit a trustee to acquire title against
disputably presumed that there is a gift in favor of the child. the principal and the true owner

Distinctions between express trust and implied trust
Express Trust
Creation Created by the intention of
the trustor or parties
Proof of Trust Express trust concerning
an immovable or any
interest therein cannot be
proved by parol evidence
Repudiation of trust An express repudiation
made known to the
beneficiary is required in
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Exception: The trustee may claim title by prescription founded on adverse possession
if he repudiates it.
Implied Trust Requisites:
1) open and unequivocal acts of repudiation amounting to an ouster of the
Created by operation of
cestui que trust or the other co-owners;
law
2) positive acts of repudiation have been made known to the cestui que
Implied trust concerning
trust or the other co-owners;
an immovable or any
3) the evidence thereon should be clear and conclusive or convincing;
interest therein may be
4) the period fixed by law has prescribed
proved by oral evidence
Laches constitutes a bar to
Prescription period:
actions to enforce an
1) 10 years if not in possession
implied trust even where
2) Imprescriptible if n possession
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Modes of Extinguishment of Agency, and Trusts (ART. 1919 to 1932, 1443 to 1457)
Note: Period begins to run from the moment the trust is created or from the moment of
registration.
Laches in action to enforce a trust
1) In case of express trusts - A cestui que trust is entitled to rely upon the fidelity of
the trustee. Laches applies from the time the trustee openly denies or repudiates the
trust and the beneficiary is notified thereof, or is otherwise plainly put on guard
against the trustee.
2) In case of implied trusts - It is well-established in American law of trusts that
implied trusts may be barred not only by prescription but also by laches.
Sale to a party but price paid by another
General rule: The presumption is that he who pays for a thing intends a beneficial
interest therein for himself.
Exceptions: no trust is implied if the person to whom the legal estate is conveyed is a
child, legitimate or illegitimate, of the payor, because it is presumed that a gift or
donation was intended in favor of the child. This presumption of a gift is rebuttable by
proof of a contrary intention, and on such rebuttal, a resulting trust arises.
Purchase by a person with his own funds for another
The rule rests on the presumption or implication of the intention of the
purchaser that he intends the purchase for his own benefit and the conveyance in the
name of another as a matter of convenience or arrangement for collateral purposes.
Donation to a person but beneficial interest vested in another.
An implied trust arises on a donation of property where it appears that although
the legal estate is transmitted to the donee, he is to have no beneficial interest or only a
part thereof.
Purchase with borrowed funds
1) Trust in favor of lender - The general rule is that the use of borrowed money in
making a purchase does not raise a resulting trust in favor of the lender.
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2) Trust in favor of borrower - When money is borrowed to purchase property, and
the conveyance is made, not to the borrower, but to the lender who takes title to the
property in his own name in order to secure the loan, a resulting trust in the property,
binding the lender or payor (trustee) in favor of the borrower (beneficiary), arises.
In this case, the real purchaser is the borrower. After payment of the amount loaned
or paid, he has the right to redeem the property and compel a conveyance thereof
to him.
Legal title to land inherited by heir placed in name of another
Where a person who has acquired land by inheritance causes the legal title to
be placed in the name of another, a resulting trust is presumed in law in favor of the
true owner, the heir.
Legal title to property purchased taken in one co-owner
A trust arises by implication of law in favor of the others in proportion to the
interest of each.
Conveyance under a promise to hold for, or transfer to another
Based on the promise or representation of the grantee to hold the property
conveyed for, or transfer it to another or the grantor. The grantee is estopped from
asserting ownership in himself by denying his representation as against the person for
whose benefit the implied trust is created.
Purchase of property with use of trust funds
It establishes a resulting trust for the benefit of the person to whom the funds belong.
An agent is bound to return to the principal the property acquired with the funds and at
the instance of the principal.
Acquisition of Property through mistake or fraud
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.
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Modes of Extinguishment of Agency, and Trusts (ART. 1919 to 1932, 1443 to 1457)

Proof of implied trust

An implied trust whether involving realty or personalty, may be proved by oral
evidence.

Note: Trustworthy oral evidence is required to prove an implied trust because oral
evidence can be easily fabricated. It cannot rest on loose, equivocal or indefinite
declarations.

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