BUSINESS ORGANIZATION I
(By: 3-Manresa, S.Y. 2017-2018)
From the Lectures of: Atty. Raymund Christian S. Ong-Abrantes, CPA
FIRST EXAM COVERAGE
JUNE 16, 2017
(Transcriber: Kristine Confesor)
PARTNERSHIP
Partnership is in your Business Organization.
Business Organization 1. If you ask me, the business organization for the 3,
is partnership lang. because trusts and agency, di sila business organization
since they don’t have juridical personality. But, you will realize later on that
trusts and agency have similarities to partnership. The concepts of agency can
apply to partnership; the concepts of agency is also applied in trusts. In a way,
partnership also applies in trust.
Q: What are three basic forms of business organization
1. Sole Proprietorship – from the word sole, siya lang isa. Naa kay
mga businesses, mga companies, pero soleprop lang, meaning isa
lang ang tag-iya; governed by your law on Sales, Civil Code
Obligations and Contracts
2. Partnership – daghan ug tag-iya, essentially; governed by a Title
IX Art. 1767-1867
3. Corporation – governed by the Corporation Code
You will realize later on that a partnership, it has a separate juridical
personality. But some authors say that that is a weak juridical personality vs
that of a corporation.
Partnership Corporation
Owners are partners owners are stockholders
Members have the right to Centralized management thru board of
participate in the partnership directors
For TRUSTS, the essence of trust is property relation whereby a trustor places
a property in trust to the trustee for the benefit of a beneficiary. In essence, si
trustor, ang magbebenefit ng nilagay niyang property kay trustee, is the
beneficiary. In effect si trustor, dapat may trust kay trustee.
For AGENCY, you have the principal, agent, and third person. To simplify, si
principal mag-coconstitute siya ng contract of agency sa isang agent for that
agent to execute __ in behalf of the principal. In effect, parang si principal ang
nagcocontract with third person. Pero, in actuality, si agent ang nagcocontract
with 3rd person.
Given that differentiation, ang common sa tatlo: Partnership, Trusts, and
Agency – there has to be an element of fiduciary relationship – trusts and
confidence.
that’s the general concept of Partnership, Trusts, and Agency.
HISTORY OF PARTNERSHIP
It dates back to Hammurabi Code, Mesopotamia, etc. but there’s no concrete
–version on how did the partnership law came to be There’s a written paper
published in Queen’s University in Belfast in Ireland. Sabi niya 5th Century
daw. It starts with the Islamic code of Hammurabi. Tapos, napunta siya sa
Justinian Code. Then 11th century, dun na siya sa Rome, Byzantine. Basically,
due to the increase in trade, dati 1 owner= 1 business. So imagine, how limited
your resources would be.
 EX: Person 1 has a banana plantation and Person 2 is engaged in sugar
industry. IF there is an increase of trade and demand for banana cue,
what will happen? To exploit the investment opportunities, person 1 and
2 will enter into a partnership.
In history, the contract of commenda, this one is commendator, and
dandator? Meron akong capital say 100, siya yung nagatravel sa mga
merchants, naghahanap ng investment opportunity. So ang nangayayari.
They enter into a partnership. One supplies the capital, then the other gets the
investment opportunities. Whatever is the profit, they divide. In effect, one
partner’s risk is in his own capital. The other one, industry. Later on you will
realize, that in partnership, it’s not just the money or property that is
contributed, but also the industry.
In a contract of partnership, both parties will share the profits and losses.
Eventually, hindi lang isa ang nagsusupply ng capital, dumami. Sa Rome,
mostly family-owned ang mga businesses. Like yung mga banks before.
Nagkakaroon na ng privilege to manage ang commendator so meron na rin
silang voice in how to manage the business.
During the industrial revolution, yan yung inapply ng England. They codified it,
hence the English Partnership Law. The concept of this English Partnership
Law is similar to this Commenda na limited ang liability nung capital. Now the
Americans, also codified it but they have both general and limited liability –
Universal Limited Partnership Act.
The Philppine laws on partnership are mostly taken with or without
modifications from the 2 American Statutes: Uniform Partnership Act and the
Uniform Limited Partnership Act.
Art. 45 last paragraph xxx
 Partnerships and associations for private interest or purpose are
governed by the provisions of this Code concerning partnerships.
(36 and 37a)
So before, meron tayong civil partnerships sa civil code, tapos meron tayong
commercial, but because of Art. 45 last paragraph, it expressly repealed the
previous law.
 Point: Partnership Law came into being to govern business
transactions.
JUNE 20, 2017
(Transcriber: Kristine Confesor)
Last meeting, we already discussed the overview of partnership, trusts, and
agency and we learned that these types of contracts, may common ground
sila, it is always based on trust and confidence. We also learned the history
of partnership. Partnership is anchored towards business transactions. So
siguro as you’ve read, in most cases, pera ang pinag-uusapan. Again, this
subject is not as interesting as succession, kasi technical siya, but it happens
because it’s really relevant.
TITLE IX
PARTNERSHIP
CHAPTER 1
General Provisions
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.
Art. 1767 gives us the definition of the contract of partnership. If there is one
provision that you should memorize in the law of partnership is that it would
be Art. 1767. This is the definition used in the cases. By the contract of
partnership
 two or more persons, hindi pwede magkaroon ng partnership kung isa
lang.
 bind themselves so there is an intention to form a partnership
 to contribute money, property, or industry. Now, as I observed, in this
particular provision, bakit nakaseparate si money, industry, at property?
Is money not a property? It is understandable to separate industry
because it means services. Pero, money or property? It’s because it’s
liquid. Now, as I’ve told you last meeting, the provisions of the law of
partnership is taken from the US law of Partnership which is the Uniform
Partnerships Act. When you try to look at the definition of partnership
under the UPA, ang partnership is hindi ganito yung pagkadefine. Kung
tingnan mo yung definition niya, sineparate siya sa liquidation. When a
partnership is already dissolved, iliquidate na for the purpose of
determining ano yung liquid na asset na pwedeng pambayad sa
partners. When we say liquid, it is something that can be easily
exchanged. Money is liquid, since madali lang man siya iexchange.
Whereas other properties, like lands buildings, hindi mo naman siya
maexchange basta-basta diba, so you have to convert that into money.
 to a common fund, with the intention of dividing the profits among
themselves
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 BUSINESS ORGANIZATION I
(By: 3-Manresa, S.Y. 2017-2018)
From the Lectures of: Atty. Raymund Christian S. Ong-Abrantes, CPA
so two or more persons may also form a partnership to practice a
profession.
Characteristics of Partnership.
why do we need to know the characteristics of a contract? Because by
knowing the characteristic of a contract, you would already know the nature of
the contract – if it’s consensual, nominate, or principal. You would be able to
distinguish it from other contracts. In this case, a contract of partnership is a
(1) Consensual, because it is perfected by mere consent, that is, upon
the express or implied agreement of two or more persons;
(2) Nominate, because it has a special name or designation in our
law;1
(3) Bilateral, because it is entered into by two or more persons and
the rights and obligations arising therefrom are always reciprocal;
(4) Onerous, because each of the parties aspires to procure for
himself a benefit through the giving of something;
(5) Commutative, because the undertaking of each of the partners is
considered as the equivalent of that of the others;
(6) Principal, because it does not depend for its existence or validity
upon some other contracts; and
(7) Preparatory, because it is entered into as a means to an end, i.e.,
to engage in business or specific venture for the realization of
profits with the view of dividing them among the contracting parties.
Again, an example of an end to a contact of partnership is when you execute
a contract of sale. The end goal of partnership is the realization of profits. Go
back to the provision. Ano ba ang end ng 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. So
they enter into an agreement, ang purpose no’n is to divide profits. That is
the nature of the contract of partnership.
JARANTILLA vs JARANTILLA
(Case Digest: Ana Lapu)
FACTS: The present case stems from the complaint filed by Antonieta
Jarantilla against Buenaventura Remotigue, Cynthia Remotigue, Federico
Jarantilla, Jr., Doroteo Jarantilla and Tomas Jarantilla, for the accounting
of the assets and income of the co-ownership, for its partition and the
delivery of her share corresponding to eight percent (8%), and for
damages. Antonieta claimed that in 1946, she had entered into an
agreement with the defendants to engage in business through the
execution of a document denominated as "Acknowledgement of
Participating Capital”. Antonieta also alleged that she had helped in the
management of the business they co-owned without receiving any salary.
Antonieta further claimed co-ownership of certain properties (the subject
real properties) in the name of the defendants since the only way the
defendants could have purchased these properties were through the
partnership as they had no other source of income. The respondents did
not deny the existence and validity of the "Acknowledgement of
Participating Capital" and in fact used this as evidence to support their
claim that Antonieta’s 8% share was limited to the businesses enumerated
therein. The respondents denied using the partnership’s income to
purchase the subject real properties.
During the course of the trial at the RTC, petitioner Federico Jarantilla, Jr.,
who was one of the original defendants, entered into a compromise
agreement17 with AntonietaJarantilla wherein he supported Antonieta’s
claims and asserted that he too was entitled to six percent (6%) of the
supposed partnership in the same manner as Antonieta was.
ISSUE: Whether or not the partnership subject of the Acknowledgement of
Participating Capital funded the subject real properties.
1It is important to know that it is a nominate contract because meron siyang specific provisions
provided under the law. Again, pag nominate ang contract, di ka na dun sa General Principles
HELD: Under Article 1767 of the Civil Code, there are two essential
elements in a contract of partnership: (a) an agreement to contribute
money, property or industry to a common fund; and (b) intent to divide the
profits among the contracting parties. The first element is undoubtedly
present in the case at bar, for, admittedly, all the parties in this case have
agreed to, and did, contribute money and property to a common
fund. Hence, the issue narrows down to their intent in acting as they did. It
is not denied that all the parties in this case have agreed to contribute
capital to a common fund to be able to later on share its profits. They have
admitted this fact, agreed to its veracity, and even submitted one common
documentary evidence to prove such partnership - the Acknowledgement
of Participating Capital. The petitioner himself claims his share to be 6%,
as stated in the Acknowledgement of Participating Capital. However,
petitioner fails to realize that this document specifically enumerated the
businesses covered by the partnership: Manila Athletic Supply, Remotigue
Trading in Iloilo City and Remotigue Trading in Cotabato City. Since there
was a clear agreement that the capital the partners contributed went to the
three businesses, then there is no reason to deviate from such agreement
and go beyond the stipulations in the document. There is no evidence that
the subject real properties were assets of the partnership referred to in the
Acknowledgement of Participating Capital. Petition denied.
Q: What are the two elements in determining a contract of partnership?
1. There must be a contribution of money, property, and industry
2. There must be an intention by the parties to divide the profits amongst
themselves
Q: With the agreement of participating capital, did the SC say the there
was a contract of partnership? Yes.
Q: What did the parties contribute? The parties here contributed money for
the 3 businesses. But profits were gained from real properties, and Antonieta
and Federico wanted profits from real properties.
Q: So in the acquisition of real properties, was there a partnership? No,
because the court said that the Acknowledgment of Participating Capital
specifically provided for 3 businesses that were part of the partnership. So
they did not show any proof that the real properties subject of this case were
bought in furtherance of the business.
Q: Now let’s try to check the elements. In the acknowledgment of
participating capital, no doubt there is a partnership. As to the
acquisition of real properties, what are the elements lacking? There was
no intention sir.
Q: What are the evidences considered by the SC in finding that there was
no intention? Kasi wala naman talagang documentary evidence na yung
pinambili talaga non [real properties] were assets coming from the partnership.
That’s why the contract of partnership did not extend to the acquisition of real
properties.
Q: Now, there’s a good discussion in this particular case regarding the
difference between co-ownership and partnership. Can you please
discuss the difference?
Here, Federico and Antonieta were pushing that there was actually a co-
ownership. But the SC said that the existence of co-ownership does not
necessarily mean that there exists a partnership because it has laid down the
2 elements of partnership.
There is a co-ownership when an undivided thing or right belongs to different
persons.— It is a partnership when 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.
Q: How about if may partnership, necessarily ba may co-ownership?
With partnership, it is necessary that there is co-ownership because in
partnership, everyone has a say in the manamanget, and
pupunta (ObliCon), dun ka na sa specific provisions. Whereas, kung innominate yung contract, dun
ka sa general principles.
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 BUSINESS ORGANIZATION I
(By: 3-Manresa, S.Y. 2017-2018)
From the Lectures of: Atty. Raymund Christian S. Ong-Abrantes, CPA
Again, ang nangyari ditto sa case is nagform sila ng partnership. Yung
kabilang party, bumili ng property. Yung isang partner naman nagsabi na “uy
may share ako dun sa property, kasi ang pinanggamit dun na pera is out of
the partnership assets”. The problem here is, hindi naman siya nakaproduce
ng evidence. In fact, dun sa written document na prinesent nila sa court,
nakaspecify na yung businesses subject of the partnership. So sabi ng SC,
wala naming intention based dun sa mga evidences na prinesent.
A good question is regarding co-ownership. So a co-ownership does not
necessarily create a partnership because of the 2 elements. Pero, kung
partnership ka, necessarily, in effect meron talagang co-ownership with
regards to the partnership assets. Diba, you contribute money and property
to the common fund. Now, once nasa common fund na yun siya, sino ba
nagmamay-ari? Yung partnership. Sino ba nagmamay-ari ng partnership?
Yung partners.
In effect, may equity interest lang sila dun sa property.
SY VS CA
(Case Digest: Ana Lapu)
FACTS: Sometime in 1958, private respondent Jaime Sahot started
working as a truck helper for petitioners’ family-owned trucking business
named Vicente Sy Trucking. In 1965, he became a truck driver of the same
family business, renamed T. Paulino Trucking Service, later 6B’s Trucking
Corporation in 1985, and thereafter known as SBT Trucking Corporation
since 1994. Throughout all these changes in names and for 36 years,
private respondent continuously served the trucking business of
petitioners. When Sahot was 59 years old, he incurred several absences
due to various ailments. Particularly causing him pain was his left thigh,
which greatly affected the performance of his task as a driver. He inquired
about his medical and retirement benefits with the Social Security System
(SSS) on April 25, 1994, but discovered that his premium payments had
not been remitted by his employer.Sahot filed a week-long leave to get
medical attention. He was treated for EOR, presleyopia, hypertensive
retinopathy G II and heart enlargement. Because of such, Belen Paulino of
the SBT Trucking Service management told him to file a formal request for
extension of his leave. When Sahot applied for an extended leave, he was
threatened of termination of employment should he refuse to go back to
work. Eventually, Sahot was dismissed from employment which prompted
the latter to file an illegal dismissal case with the NLRC. For their part,
petitioners admitted they had a trucking business in the 1950s but denied
employing helpers and drivers. They contend that private respondent was
not illegally dismissed as a driver because he was in fact petitioner’s
industrial partner. They add that it was not until the year 1994, when SBT
Trucking Corporation was established, and only then did respondent Sahot
become an employee of the company, with a monthly salary that reached
P4,160.00 at the time of his separation. The NLRC and the CA ruled that
Sahot was an employee of the petitioner.
ISSUE: Whether Sahot is an industrial partner
HELD: No. Article 1767 of the Civil Code states that in a contract of
partnership two or more persons bind themselves to contribute money,
property or industry to a common fund, with the intention of dividing the
profits among themselves. Not one of these circumstances is present in
this case. No written agreement exists to prove the partnership between
the parties. Private respondent did not contribute money, property or
industry for the purpose of engaging in the supposed business. There is
no proof that he was receiving a share in the profits as a matter of course,
during the period when the trucking business was under operation. Neither
is there any proof that he had actively participated in the management,
administration and adoption of policies of the business. Thus, the NLRC
and the CA did not err in reversing the finding of the Labor Arbiter that
private respondent was an industrial partner from 1958 to 1994. On this
point, the Court affirmed the findings of the appellate court and the NLRC.
Private respondent Jaime Sahot was not an industrial partner but an
employee of petitioners from 1958 to 1994. The existence of an employer-
employee relationship is ultimately a question of fact and the findings
thereon by the NLRC, as affirmed by the Court of Appeals, deserve not
only respect but finality when supported by substantial evidence.
Substantial evidence is such amount of relevant evidence which a
reasonable mind might accept as adequate to justify a conclusion.
Q: Why is it important to allege that Sahot is an industrial partner and
not an employee? It is important in order for the owner of the trucking services
not to be liable for the illegal dismissal case.
Q: What element is missing here?
There was no intention.
Q: What is the most important thing mentioned by the SC?
Sabi ng SC . There is no proof that he was receiving a share in the profits as
a matter of course, during the period when the trucking business was under
operation. Neither is there any proof that he had actively participated in the
management, administration and adoption of policies of the business.
Q: What is the difference between receiving a salary as to receiving a
profit?
Receiving a salary whether the business is operating at a loss, you will get a
salary. Whereas, a partner in such a case, would not receive any profit from
the operations of the business.
So this is a labor case. You will see the difference. Some of the contentions
kasi ng lawyers is, hindi naming siya empleyado, partner naming yan. Bakit
importante yan? Remember, a partner is an owner of the business. So pag
ma-allege yan at maprove yang tao nay an, walang illegal dismissal, kasi
walang empleyado.
SALARY VS PROFITS
Now, as you can see in labor cases where it is alleged na partner yung
employee, there is a difference between receiving a salary vs receiving a profit.
The difference mainly lies on the fact that when you receive a profit, you have
an equity interest, you have a residual interest in the business.
 Illustration: Let’s say asset mo is 100, revenue 100, expenses mo
50. 50 yung residual, yan yung profit mo. When you say salary and
wages, san yun papasok? Nasa expenses mo yun. So regardless
if w/n your business is profiting or operating at a loss,
makakareceive ka [if you’re an employee]. Whereas, pag owner ka,
pag loss, eh di wala, absorb mo yun, lugi ka because being the
owner, you take the risks, na wala kang ma-earn.
TORRES VS CA
(Case Digest: Ana Lapu)
FACTS: Sisters Antonia Torres and Emeteria Baring, herein petitioners,
entered into a "joint venture agreement" with Respondent Manuel Torres
for the development of a parcel of land into a subdivision. Pursuant to the
contract, they executed a Deed of Sale covering the said parcel of land in
favor of respondent, who then had it registered in his name. By mortgaging
the property, respondent obtained from Equitable Bank a loan of P40,000
which, under the Joint Venture Agreement, was to be used for the
development of the subdivision. All three of them also agreed to share the
proceeds from the sale of the subdivided lots.
The project did not push through, and the land was subsequently
foreclosed by the bank.
According to petitioners, the project failed because of “respondent’s lack
of funds or means and skills.” They add that respondent used the loan not
for the development of the subdivision, but in furtherance of his own
company, Universal Umbrella Company.
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 BUSINESS ORGANIZATION I
(By: 3-Manresa, S.Y. 2017-2018)
From the Lectures of: Atty. Raymund Christian S. Ong-Abrantes, CPA
On the other hand, respondent alleged that he used the loan to implement
the Agreement. Respondent claimed that the subdivision project failed,
however, because petitioners and their relatives had separately caused the
annotations of adverse claims on the title to the land, which eventually
scared away prospective buyers. Despite his requests, petitioners refused
to cause the clearing of the claims, thereby forcing him to give up on the
project.
Subsequently, petitioners filed a criminal case for estafa against
respondent and his wife, who were however acquitted. Thereafter, they
filed the present civil case which, upon respondent's motion, was later
dismissed by the trial court. On appeal, however, the appellate court
remanded the case for further proceedings. Thereafter, the RTC issued
its assailed Decision, which, as earlier stated, was affirmed by the CA.
Ruling of the Court of Appeals:
In affirming the trial court, the Court of Appeals held that petitioners and
respondent had formed a partnership for the development of the
subdivision. Thus, they must bear the loss suffered by the partnership in
the same proportion as their share in the profits stipulated in the contract.
Disagreeing with the trial court’s pronouncement that losses as well as
profits in a joint venture should be distributed equally, [7] the CA invoked
Article 1797 of the Civil Code which provides:
“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.”
The CA elucidated further:
“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.”
ISSUES:
1. WON the contract entered into by petitioners and respondent is a
contract of partnership. YES
2. WON the Joint Venture Agreement/Partnership and the earlier Deed
of Sale were void for not having complied with the requirements
prescribed in Art. 1773 and for not having a valid consideration. NO
HELD:
1. Main Issue: Existence of a Partnership
A reading of the terms embodied in the Agreement indubitably shows the
existence of a partnership pursuant to Article 1767 of the Civil Code, which
provides:
“ART. 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.”
Under the Agreement between petitioners and respondent, petitioners
would contribute property to the partnership in the form of land which was
to be developed into a subdivision; while respondent would give, in addition
to his industry, the amount needed for general expenses and other costs.
Furthermore, the income from the said project would be divided according
to the stipulated percentage. Clearly, the contract manifested the intention
of the parties to form a partnership.
It should be stressed that the parties implemented the contract. Thus,
petitioners transferred the title to the land to facilitate its use in the name
of the respondent. On the other hand, respondent caused the subject land
to be mortgaged, the proceeds of which were used for the survey and the
subdivision of the land. As noted earlier, he (Respondent) developed the
roads, the curbs and the gutters of the subdivision and entered into a
contract to construct low-cost housing units on the property.
Respondent’s actions clearly belie petitioners’ contention that he made no
contribution to the partnership. Under Article 1767 of the Civil Code, a
partner may contribute not only money or property, but also industry.
2. Alleged Nullity of the Partnership Agreement:
Petitioners argue that the Joint Venture Agreement is void under Article
1773 of the Civil Code, which provides:
“ART. 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.”
They contend that since the parties did not make, sign or attach to the
public instrument an inventory of the real property contributed, the
partnership is void.
We clarify. First, Article 1773 was intended primarily to protect third
persons. Thus, the eminent Arturo M. Tolentino states that under the
aforecited provision which is a complement of Article 1771, “the execution
of a public instrument would be useless if there is no inventory of the
property contributed, because without its designation and description, they
cannot be subject to inscription in the Registry of Property, and their
contribution cannot prejudice third persons. This will result in fraud to those
who contract with the partnership in the belief [in] the efficacy of the
guaranty in which the immovables may consist. Thus, the contract is
declared void by the law when no such inventory is made.” The case at
bar does not involve third parties who may be prejudiced.
Second, petitioners themselves invoke the allegedly void contract as basis
for their claim that respondent should pay them 60 percent of the value of
the property. [13] They cannot in one breath deny the contract and in
another recognize it, depending on what momentarily suits their purpose.
Parties cannot adopt inconsistent positions in regard to a contract and
courts will not tolerate, much less approve, such practice.
In short, the alleged nullity of the partnership will not prevent courts from
considering the Joint Venture Agreement an ordinary contract from which
the parties’ rights and obligations to each other may be inferred and
enforced.
Partnership Agreement Not the Result of an Earlier Illegal Contract:
Petitioners also contend that the Joint Venture Agreement is void under
Article 1422 [14] of the Civil Code, because it is the direct result of an earlier
illegal contract, which was for the sale of the land without valid
consideration.
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 BUSINESS ORGANIZATION I
(By: 3-Manresa, S.Y. 2017-2018)
From the Lectures of: Atty. Raymund Christian S. Ong-Abrantes, CPA
This argument is puerile. The Joint Venture Agreement clearly states that
the consideration for the sale was the expectation of profits from the
subdivision project. Its first stipulation states that petitioners did not
actually receive payment for the parcel of land sold to respondent.
Consideration, more properly denominated as cause, can take different
forms, such as the prestation or promise of a thing or service by another.
In this case, the cause of the contract of sale consisted not in the stated
peso value of the land, but in the expectation of profits from the subdivision
project, for which the land was intended to be used. As explained by the
trial court, “the land was in effect given to the partnership as [petitioner’s]
participation therein. x x x There was therefore a consideration for the sale,
the [petitioners] acting in the expectation that, should the venture come
into fruition, they [would] get sixty percent of the net profits.”
Add’l. Info.
Court’s ruling as to the liability of the parties:
Claiming that respondent was solely responsible for the failure of the
subdivision project, petitioners maintain that he should be made to pay
damages equivalent to 60 percent of the value of the property, which was
their share in the profits under the Joint Venture Agreement.
We are not persuaded. True, the Court of Appeals held that petitioners’
acts were not the cause of the failure of the project. [16] But it also ruled
that neither was respondent responsible therefor. [17] In imputing the
blame solely to him, petitioners failed to give any reason why we should
disregard the factual findings of the appellate court relieving him of fault.
Verily, factual issues cannot be resolved in a petition for review under Rule
45, as in this case. Petitioners have not alleged, not to say shown, that
their Petition constitutes one of the exceptions to this doctrine. [18]
Accordingly, we find no reversible error in the CA's ruling that petitioners
are not entitled to damages.
LIM vs. PHILIPPINE FISHING GEAR INDUSTRIES
FACTS: Antonio Chua ang Peter Yao, on behalf of “Ocean Quest Fishing
Corporation” entered into a contract with Philippine Fishing Gear
Industries(PFGI) for the purchase of fishing nets. They claimed that they
were engaged in a business venture with Lim Tong Lim (petitioner), who
was not a signatory to the agreement. The total price of the nets was P532,
045. Floats worth P68, 000 were also sold.
The buyers of the fishing nets and floats were unable to pay. Philippine
Fishing Gear Industries filed a collection suit against Chua, Yao and Lim
as well as a prayer for writ of preliminary attachment. The writ was issued
and enforced by attaching the fishing nets on the F/B Lourdes.
Chua admitted liability and requested a reasonable time within which to
pay.
Yao filed an answer but failed to appear in subsequent hearings.
Lim Tong Lim filed an answer with Counterclaim and Crossclaim and
moved for the lifting of the writ(denied) and the nets were sold at public
auction. He claimed that no partnership existed.
Trial Court – Philippine Fishing Gear Industries is entitled to the Writ of
Attachment and that Chua, Yao and Lim, as general partners, were jointly
liable to pay PFGI.
CA - affirmed RTC
ISSUE: W/N a partnership exists between Chua, Yao and Lim Tong Lim
HELD: Yes. Art. 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.
Chua, Yao and Lim had decided to engage in a fishing business, which
they started by buying boats worth P3.35 million, financed by a loan
secured from Jesus Lim who was Lim Tong Lim’s brother.
In their Compromise Agreement, they subsequently revealed their
intention to pay the loan with the proceeds of the sale of the boats, and to
divide equally among them the excess or loss. These boats, the purchase
and the repair of which were financed with borrowed money, fell under the
term "common fund" under Article 1767. The contribution to such fund
need not be cash or fixed assets; it could be an intangible like credit or
industry. That the parties agreed that any loss or profit from the sale and
operation of the boats would be divided equally among them also shows
that they had indeed formed a partnership.
The partnership extended not only to the purchase of the boat, but also to
that of the nets and the floats. The fishing nets and the floats, both essential
to fishing, were obviously acquired in furtherance of their business.
Lim Tong Lim's argument that he was merely the lessor of the boats to
Chua and Yao, not a partner in the fishing venture is erroneous. His
consent to the sale proved that there was a preexisting partnership among
all three.
Lim Tong Lim entered into a business agreement with Chua and Yao, in
which debts were undertaken in order to finance the acquisition and the
upgrading of the vessels which would be used in their fishing business.
The sale of the boats, as well as the division among the three of the
balance remaining after the payment of their loans, proves that F/B
Lourdes, though registered in his name, was not his own property but an
asset of the partnership. It is not uncommon to register the properties
acquired from a loan in the name of the person the lender trusts, who in
this case is the petitioner himself. After all, he is the brother of the creditor,
Jesus Lim.
It is unreasonable for petitioner to sell his property to pay a debt he did not
incur, if the relationship among the three of them was merely that of lessor-
lessee, instead of partners.
It is true that petitioner did not directly act on behalf of the corporation.
However, having reaped the benefits of the contract entered into by
persons with whom he previously had an existing relationship, he is
5
 BUSINESS ORGANIZATION I
(By: 3-Manresa, S.Y. 2017-2018)
From the Lectures of: Atty. Raymund Christian S. Ong-Abrantes, CPA

deemed to be part of said association and is covered by the scope of the and P89,438.68 on dividends paid to Munich and to the petitioners,
doctrine of corporation by estoppel. respectively.

Q: What did the parties contribute? They contributed credits.

So this case is a very particular case wherein the SC – even if you read the
prefatory statement of J. Panganiban , a partnership may be deemed to exist
among partners who agree to borrow money to pursue a business and to
divide profits that may be received therefrom. Even if it may be shown they did
not contribute 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.
So what they contributed is their credit line.
The Court of Tax Appeal sustained the petitioner's liability. The Court of
Appeals dismissed their appeal.
The CA ruled in that the pool of machinery insurers was a partnership
taxable as a corporation, and that the latter’s collection of premiums on
behalf of its members, the ceding companies, was taxable income.

Would you think if iba yung partner na sinama nila, would you think ilend sila
ng money na ganoon ka laki? Because it is precisely the nature and the
ISSUE/S:
persons constituting the partnership that Jesus here offered to lend them
money. So what they contributed to their partnership is their credit line. Take 1. Whether or not the pool is taxable as a corporation.
note this case is 1999 pa, SC said there is a partnership. 2. Whether or not there is double taxation.
How do you determine intention to form a partnership? By the parties’
contemporaneous and subsequent acts. Because in this particular case, HELD:
merong 9 circumstances wherein the SC laid down the reasons why there is
a contract of partnership.

AFISCO INSURANCE CORP vs CA 1) Yes: Pool taxable as a corporation

(Case Digest: April Pareno)

DOCTRINE: Argument of Petitioner: The reinsurance policies were written by them

Unregistered Partnerships and associations are considered as
corporations for tax purposes – Under the old internal revenue code, “A tax
is hereby imposed upon the taxable net income received during each
taxable year from all sources by every corporation organized in, or
existing under the laws of the Philippines, no matter how created or
organized, xxx.” Ineludibly, the Philippine legislature included in the
concept of corporations those entities that resembled them such as
unregistered partnerships and associations.
“individually and separately,” and that their liability was limited to the extent
of their allocated share in the original risks thus reinsured. Hence, the pool
did not act or earn income as a reinsurer. Its role was limited to its principal
function of “allocating and distributing the risk(s) arising from the original
insurance among the signatories to the treaty or the members of the pool
based on their ability to absorb the risk(s) ceded[;] as well as the
performance of incidental functions, such as records, maintenance,
collection and custody of funds, etc.”

Argument of SC: According to Section 24 of the NIRC of 1975:

Insurance pool in the case at bar is deemed a partnership or association
taxable as a corporation –In the case at bar, petitioners-insurance
companies formed a Pool Agreement, or an association that would handle
“SEC. 24. Rate of tax on corporations. -- (a) Tax on domestic
all the insurance businesses covered under their quota-share reinsurance
corporations. -- A tax is hereby imposed upon the taxable net income
treaty and surplus reinsurance treaty with Munich is considered a
received during each taxable year from all sources by every corporation
partnership or association which may be taxed as a corporation.
organized in, or existing under the laws of the Philippines, no matter how
created or organized, but not including duly registered general co-
partnership (compañias colectivas), general professional partnerships,
Double Taxation is not Present in the Case at Bar – Double taxation means private educational institutions, and building and loan associations xxx.”
“taxing the same person twice by the same jurisdiction for the same thing.”
In the instant case, the insurance pool is a taxable entity distince from the
individual corporate entities of the ceding companies. The tax on its income
Ineludibly, the Philippine legislature included in the concept of
is obviously different from the tax on the dividends received by the
corporations those entities that resembled them such as unregistered
companies. There is no double taxation.
partnerships and associations. Interestingly, the NIRC’s inclusion of such
entities in the tax on corporations was made even clearer by the Tax
Reform Act of 1997 Sec. 27 read together with Sec. 22 reads:
FACTS:The petitioners are 41 non-life domestic insurance corporations.
They issued risk insurance policies for machines. The petitioners in 1965
entered into a Quota Share Reinsurance Treaty and a Surplus
“SEC. 27. Rates of Income Tax on Domestic Corporations. --
Reinsurance Treaty with the Munchener Ruckversicherungs-
Gesselschaft (hereafter called Munich), a non-resident foreign insurance (A) In General. -- Except as otherwise provided in this Code, an income
corporation. The reinsurance treaties required petitioners to form a pool, tax of thirty-five percent (35%) is hereby imposed upon the taxable income
which they complied with. derived during each taxable year from all sources within and without the
Philippines by every corporation, as defined in Section 22 (B) of this Code,
and taxable under this Title as a corporation xxx.”
In 1976, the pool of machinery insurers submitted a financial statement and
“SEC. 22. -- Definition. -- When used in this Title:
filed an “Information Return of Organization Exempt from Income Tax” for
1975. On the basis of this, the CIR assessed a deficiency xxx xxx xxx
of P1,843,273.60, and withholding taxes in the amount of P1,768,799.39

6
 BUSINESS ORGANIZATION I
(By: 3-Manresa, S.Y. 2017-2018)
From the Lectures of: Atty. Raymund Christian S. Ong-Abrantes, CPA
(B) The term ‘corporation’ shall include partnerships, no matter how
created or organized, joint-stock companies, joint accounts (cuentas en
participacion), associations, or insurance companies, but does not include
general professional partnerships [or] a joint venture or consortium formed
for the purpose of undertaking construction projects or engaging in
petroleum, coal, geothermal and other energy operations pursuant to an
operating or consortium agreement under a service contract without the
Government. ‘General professional partnerships’ are partnerships
formed by persons for the sole purpose of exercising their common
profession, no part of the income of which is derived from engaging in any
trade or business.
Thus, the Court in Evangelista v. Collector of Internal Revenue held that
Section 24 covered these unregistered partnerships and even associations
or joint accounts, which had no legal personalities apart from their
individual members.
Furthermore, Pool Agreement or an association that would handle all the
insurance businesses covered under their quota-share reinsurance treaty
and surplus reinsurance treaty with Munich may be considered a
partnership because it contains the following elements: (1) The pool has a
common fund, consisting of money and other valuables that are deposited
in the name and credit of the pool. This common fund pays for the
administration and operation expenses of the pool. (2) The pool functions
through an executive board, which resembles the board of directors of a
corporation, composed of one representative for each of the ceding
companies. (3) While, the pool itself is not a reinsurer and does not issue
any policies; its work is indispensable, beneficial and economically useful
to the business of the ceding companies and Munich, because without it
they would not have received their premiums pursuant to the agreement
with Munich. Profit motive or business is, therefore, the primordial reason
for the pool’s formation.
2) No: There is no double taxation.
Argument of Petitioner: Remittances of the pool to the ceding companies
and Munich are not dividends subject to tax. Imposing a tax “would be
tantamount to an illegal double taxation, as it would result in taxing the
same premium income twice in the hands of the same taxpayer.”
Furthermore, even if such remittances were treated as dividends, they
would have been exempt under tSections 24 (b) (I) and 263 of the 1977
NIRC , as well as Article 7 of paragraph 1and Article 5 of paragraph 5 of
the RP-West German Tax Treaty.
Argument of Supreme Court: Double taxation means “taxing the same
person twice by the same jurisdiction for the same thing.” In the instant
case, the insurance pool is a taxable entity distince from the individual
corporate entities of the ceding companies. The tax on its income is
obviously different from the tax on the dividends received by the
companies. There is no double taxation.
Tax exemption cannot be claimed by non-resident foreign insurance
corporattion; tax exemption construed strictly against the taxpayer -
Section 24 (b) (1) pertains to tax on foreign corporations; hence, it cannot
be claimed by the ceding companies which are domestic corporations. Nor
can Munich, a foreign corporation, be granted exemption based solely on
this provision of the Tax Code because the same subsection specifically
taxes dividends, the type of remittances forwarded to it by the pool. The
foregoing interpretation of Section 24 (b) (1) is in line with the doctrine that
a tax exemption must be construedstrictissimi juris, and the statutory
exemption claimed must be expressed in a language too plain to be
mistaken.
Q: Do you agree with the SC here that there is a partnership? Check the
elements. Yes sir, as to the 2nd element sir, the division of profits, is lacking.
But the SC said the pool is considered engaged in a transaction for business
with an end to obtain a profit. SC is impliedly saying that there is a division of
profits.
This particular case is very different. There is no express agreement that
they’re going to share profits. But the SC said ang purpose naman ng
insurance is business diba. Essentially, yung individual insurers,
magkakaprofit yun through policy payments. So particularly, when you look at
this case, you would say akala ko ba there has to be an intention. Bakit ngayon
ganito may partnership, wala naming express agreement. In fact, the pooling
of the insurers was because of a treaty na kailangan nilang gawin.
The concept of reinsurance, diba may mga insurance company A, B, C.
Sympre may mga policy. So distribution of risks yan diba. Let’s say may
mamatay, ito yung policy niya. So bigyan ng proceeds 2million, question,
kapag let’s say accident, sabay2 nagpatayan, anong mangyayari ditto? Diba
mauubos yung pera nila. That’s why, minsan kumukuha sila ng reinsurer. So
itong mga insurance company is in fact being insured by reinsurers as required
by the Insurance Code. Itong mga reinsurance companies, mga multinational
companies yan, Europe. Like sa plane crash, di naman mga local insurers
magbabayad yan sa kanila. So usually, insured sila by reinsurers.
So here, ang nangyari, pursuant to a treaty, kailangan nila magpool, so wala
silang choice. Ngayon, syempre may mga premium payments. Sabi ng SC
partnership yan, why?. Because under tax code, partnerships are taxed are
corporations. So whatever profits daw nito may tax. Arguably, you can say that
there is no partnership because of the lack of intention to form a partnership.
But then again, ang ginamit na provisions sa case are from the tax code, kung
pansin niyo.
So this is an exceptional case where the SC stretched the definition of
partnership.
Most of the cases involve the CIR, because kasi nga under the Tax Code,
partnerships are taxable as a corporation.
PHILEX MINING CORPORATION, VS COMMISSIONER OF INTERNAL
REVENUE
(Case Digest: April Pareno)
FACTS: Petitioner Philex entered into an agreement with Baguio Gold
Mining Corporation for the former to manage the latter’s mining claim know
as the Sto. Mine. The parties’ agreement was denominated as “Power of
Attorney”. The mine suffered continuing losses over the years, which
resulted in petitioners’ withdrawal as manager of the mine. The parties
executed a “Compromise Dation in Payment”, wherein the debt of Baguio
amounted to Php. 112,136,000.00. Petitioner deducted said amount from
its gross income in its annual tax income return as “loss on the settlement
of receivables from Baguio Gold against reserves and allowances”. BIR
disallowed the amount as deduction for bad debt. Petitioner claims that it
entered a contract of agency evidenced by the “power of attorney”
executed by them and the advances made by petitioners is in the nature
of a loan and thus can be deducted from its gross income. Court of Tax
Appeals (CTA) rejected the claim and held that it is a partnership rather
than an agency. CA affirmed CTA
ISSUE: Whether or not it is an agency.
HELD: No. The lower courts correctly held that the “Power of Attorney”
(PA) is the instrument material that is material in determining the true
nature of the business relationship between petitioner and Baguio. An
examination of the said PA reveals that a partnership or joint venture was
7
 BUSINESS ORGANIZATION I
(By: 3-Manresa, S.Y. 2017-2018)
From the Lectures of: Atty. Raymund Christian S. Ong-Abrantes, CPA
indeed intended by the parties. While a corporation like the petitioner
cannot generally enter into a contract of partnership unless authorized by
law or its charter, it has been held that it may enter into a joint venture,
which is akin to a particular partnership. The PA indicates that the parties
had intended to create a PAT and establish a common fund for the
purpose. They also had a joint interest in the profits of the business as
shown by the 50-50 sharing of income of the mine.
Moreover, in an agency coupled with interest, it is the agency that cannot
be revoked or withdrawn by the principal due to an interest of a third party
that depends upon it or the mutual interest of both principal and agent. In
this case the non-revocation or non-withdrawal under the PA applies to the
advances made by the petitioner who is the agent and not the principal
under the contract. Thus, it cannot be inferred from the stipulation that it is
an agency.
Q: Was there a contract of partnership? Check the elements. What did
the parties contribute?
There was a contribution of services/industry on the part of PHILEX to manage
the mine. And another element is the intention to divide the profits. The SC
said there that there was actually an intention because in the agreement, it
provided for the 50/50 sharing of the profits of the Sto Nino mines and that
provision indicates that they intended a partnership.
The good discussion of this particular case is the definition of a joint venture.
From FT of the case: An examination of the Power of Attorney reveals
that a partnership or joint venture was indeed intended by the parties.
Under a contract of partnership, two or more persons bind themselves to
contribute money, property, or industry to a common fund, with the intention
of dividing the profits among themselves. While a corporation, like petitioner,
cannot generally enter into a contract of partnership unless authorized by law
or its charter, it has been held that it may enter into a joint venture which is
akin to a particular partnership:
The legal concept of a joint venture is of common law origin. It has no precise
legal definition, but it has been generally understood to mean an organization
formed for some temporary purpose. It is in fact hardly distinguishable from
the partnership, since their elements are similar community of interest in the
business, sharing of profits and losses, and a mutual right of control. The main
distinction cited by most opinions in common law jurisdictions is that
the partnership contemplates a general business with some degree of
continuity, while the joint venture is formed for the execution of a single
transaction, and is thus of a temporary nature. This observation is not
entirely accurate in this jurisdiction, since under the Civil Code, a partnership
may be particular or universal, and a particular partnership may have for its
object a specific undertaking. It would seem therefore that under Philippine
law, a joint venture is a form of partnership and should be governed by
the law of partnerships. The Supreme Court has however recognized a
distinction between these two business forms, and has held that although a
corporation cannot enter into a partnership contract, it may however engage
in a joint venture with others.
So this is very common na isa yung may-ari ng property tapos yung isa yung
magma-manage. In effect sabi ng SC Joint Venture is a specie of partnership.
In common law jurisdiction, iba yung joint venture and partnership. Pero mixed
na tayo eh, and when you try to look at the provision, there is what we call a
partnership which we’ll discuss thoroughly next meeting.
JUNE 27, 2017
(Transcriber: Zarah Domingo)
SUMMARY: Definition of a contract of partnership,
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.
The crux of partnership is intention. If there is an
intention to form a partnership, there is partnership. If there is no intention,
there is no partnership.
How do you determine intention?
What do you look at? The contemporaneous and subsequent acts of the
parties (as discussed in Lim Tong Lim Case).
The contribution need not be money or property. It could be:
1.) industry (Article 1757); or
2.) credit (as discussed in Lim Tong Lim Case).
The last paragraph of Article 1767: Pinaka-common example is a lawfirm. A
lawfirm is a partnership.
Definition of partnership for the practice of law.
It is a mere association for non-business purpose. The right to practice law is
not a constitutional right but a privilege of franchise that is why you have to
take the Bar. It cannot be likened to partnerships formed by other professionals
for business. It does not form for the purpose of carrying on trade or business
or upholding property. As distinguished from business, it is intimately and
peculiarly related to the administration of justice. It is fiduciary in nature.
Characteristics of Partnership for the Practice of Law:
1.) Duty of public service;
2.) In relation as an officer of the court: administration of justice;
3.) In relation to clients: highly fiduciary;
4.) In relation to colleagues at the Bar: characterized by candor and
fairness.
Legal Capacity of Parties to Enter into a Contract: As you learned in
ObliCon, there are also persons who are not capable of entering into contract.
General Rule: Any person who is capable of entering into contractual relations
may be a partner.
Exception:
1.) Minors;
2.) Insane or demented persons;
3.) Deaf-mutes who do not know how to write;
4.) Persons who are suffering from civil interdiction;
5.) Incompetents who are under guardianship;
6.) Persons who are prohibited from giving to each other any donation cannot
enter into a universal partnership (i.e. spouses and common-law spouse).
If you do not know how to read ba, is it presumed that you don’t know how to
write? Can you get an inference from that? Kasi specific ang provision ng law:
‘deaf mutes who do not know how to right’. I leave that to your imagination.
If you are suffering from civil interdiction, you are civilly dead. Under the law,
you are dead.
Can a partnership enter into a contract of partnership with another
partnership?
As a general rule, yes. Partnerships can enter into a contract of partnership
with a partnership.
Can a corporation enter into a contract of partnership? As a general rule,
no. There are exceptions which will be explained later.
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.
As a business vehicle, of course, partnerships, should have separate
juridical personality. What do we mean when we say that a partnership has
a ‘juridical personality separate and distinct from that of each partner’? Your
basis of that is Article 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.
8
 BUSINESS ORGANIZATION I
(By: 3-Manresa, S.Y. 2017-2018)
From the Lectures of: Atty. Raymund Christian S. Ong-Abrantes, CPA
Since it is a person of law, does it have the same rights as a natural person?
Can it invoke due process? Can it ask for moral damages for anguish,
besmirched reputation? Does it have the same rights as a natural person?
You will learn in your Corporation Law that although it is a separate
person under the law, it has a different right from that of a natural person.
There is a flip-flopping decision: Sinabing wala kasi wala namang nervous
system si corporation. Afterwards, sinabing pwede, kasi may reputation
naman ang corporation.
To my mind, may reputation naman talaga ang corporation which, once
tarnished, you can have the right to sue for damages. Pero siguro sa mental
anguish, wala naman. The crux of moral damages is not only sleepless nights
but also besmirched reputation.
As an independent juridical person, a partnership may:
 enter into contracts;
 acquire and possess properties of all kinds in its firm
name;
 incur obligations;
 bring civil and criminal actions;
 be declared insolvent even if partners are not;
 enter into contracts and may sue and be sued in its firm
name or its duly authorized representative.
In the case of AGUILA VS CA: Namali ang inimplead-yung partner. Ang sabi
ng SC, ano ang mangyari kung hindi mo inimplead ang real party in interest?
Madi-dismiss because of the failure to state the cause of action, wala kang
aggrieved party. So that is very important when it comes to juridical persons.
In this case, namali ang kanyang inimplead, umabot pa sa Supreme Court,
nadismiss din pala.
AGUILA VS CA
(Case Digest: April Pareno)
FACTS: In April 1991, the spouses Ruben and Felicidad Abrogar entered
into a loan agreement with a lending firm called A.C. Aguila & Sons, Co.,
a partnership. The loan was for P200k. To secure the loan, the spouses
mortgaged their house and lot located in a subdivision. The terms of the
loan further stipulates that in case of non-payment, the property shall be
automatically appropriated to the partnership and a deed of sale be readily
executed in favor of the partnership. She does have a 90 day redemption
period.
Ruben died, and Felicidad failed to make payment. She refused to turn
over the property and so the firm filed an ejectment case against her
(wherein she lost). She also failed to redeem the property within the period
stipulated. She then filed a civil case against Alfredo Aguila, manager of
the firm, seeking for the declaration of nullity of the deed of sale. The RTC
retained the validity of the deed of sale. The Court of Appeals reversed the
RTC. The CA ruled that the sale is void for it is a pactum
commissorium sale which is prohibited under Art. 2088 of the Civil Code
(note the disparity of the purchase price, which is the loan amount, with the
actual value of the property which is after all located in a subdivision).
ISSUE: Whether or not the case filed by Felicidad shall prosper.
HELD: No. Unfortunately, the civil case was filed not against the real party
in interest. As pointed out by Aguila, he is not the real party in interest but
rather it was the partnership A.C. Aguila & Sons, Co. The Rules of Court
provide that “every action must be prosecuted and defended in the name
of the real party in interest.” A real party in interest is one who would be
benefited or injured by the judgment, or who is entitled to the avails of the
suit. Any decision rendered against a person who is not a real party in
interest in the case cannot be executed. Hence, a complaint filed against
such a person should be dismissed for failure to state a cause of action, as
in the case at bar.
Under Art. 1768 of the Civil Code, a partnership “has a juridical personality
separate and distinct from that of each of the partners.” The partners
cannot be held liable for the obligations of the partnership unless it is
shown that the legal fiction of a different juridical personality is being used
for fraudulent, unfair, or illegal purposes. In this case, Felicidad has not
shown that A.C. Aguila & Sons, Co., as a separate juridical entity, is being
used for fraudulent, unfair, or illegal purposes. Moreover, the title to the
subject property is in the name of A.C. Aguila & Sons, Co. It is the
partnership, not its officers or agents, which should be impleaded in any
litigation involving property registered in its name. A violation of this rule
will result in the dismissal of the complaint.
Applicability of the ‘Doctrine of Piercing the Corporate Veil.’
In Corporation Law, since may separate personality yung corporation, it is
separate from the owner. So kung magiging insolvent si corporation, hindi
mahahabol si stockholder/owner, kasi nga separate. Pero we have this
‘Doctrine of Piercing the Corporate Veil’ that you can disregard the fiction of
corporate entity para ma-sue mo yung stockholder/owner/corporate officer.
Since the corporation, may separate juridical personality, and since
sinabi natin na si partnership meron din separate juridical personality,
does the doctrine of piercing the corporate veil equally apply to
partnerships?
Si partnership, pag may utang si creditor, separate personality ito, so ubusin
muna ang assets. But the peculiarity of partnerships, unlike that of a
corporation, is that the creditors can go after the partners. Unlike in corporation
na hindi sila makapunta sa stockholder, ang partnership, pag-ubos na ang
assets at yung mga partners individually may mga assets pa, si creditor pwede
pa pumunta to exhaust. Given that scenario, can the Doctrine of Piercing the
Corporate Entity apply sa partnership?
There’s no recent case regarding that one but, there’s an old case,
COMMISSIONER OF INTERNAL REVENUE VS SUTER (1969). This
involves a partnership, nagcreate yung mag-asawa, tapos nagka-in-love-an,
nagpakasal. In this case, hindi naman talaga directly sinabi ng Supreme Court
that it is applicable. However, if you try to look at the facts of the case, it is a
limited partnership. Tapos ang ginawa, gi-compare siya into a corporation
tapos in-apply yung Doctrine of Corporate Personality. So in effect, sinabi na,
by analogy, applicable siya.
To my mind, it is applicable kasi nga although si creditor can go after the
partners, please note that the liability of the partners pertaining to this one, is
only subsidiary. So meron siyang Benefit of Excussion, meaning si partner,
babayaran niya muna ang kanyang mga personal creditors bago yung
creditors of the partnership.
Pag-fraud kasi, ang liability mo is solidary. So in effect, parang applicable pa
rin yung concept. I am still waiting for a case na aakyat sa Supreme Court na
ganun yun, whether or not iaapply ba talaga ng Supreme Court ang Doctrine
of Piercing the Corporate Veil.
Partnership as a Business Enterprise. Again, a going concern, element of
habituality. As you’ve learned in PHILEX MINING VS CIR, sinabing particular
ang purpose ng joint venture. However, in partnership law, we have what we
call particular partnership, kung saan, particular yung purpose. In effect, the
law that governs joint venture is the law on partnership kasi meron tayong
provision on particular partnership. Pero generally, a partnership has an
element of habituality. Hindi pwede mag-create ng partnership for one purpose
lang, for one transaction lang. Mag-create ka ng partnership kasi may going
concern siya.
Look at the case of VILLAREAL VS MARTINEZ, ang nangyari nito, nagkaroon
ng partnership. Umalis yung isang tao tapos nagkaroon ng distribution. The
problem with their dissolution and liquidation is that, ang ginawa nilang basis
for capital, for illustration purposes, let’s say nagcontribute sila P100, 4 sila,
initial contribution P400, nagoperate siya for 1 year. Ang nangyari, ang capital
at the end, same pa rin as is, P400, tapos ni-less nila ang utang, let’s say
P200. Ito yung dinivide nila, so tag-P50. Tama o mali? Mali. Bakit mali? Kasi
diba, a partner has an equity interest. Ang nangyari nito, parang, it is as if,
9
 BUSINESS ORGANIZATION I
(By: 3-Manresa, S.Y. 2017-2018)
From the Lectures of: Atty. Raymund Christian S. Ong-Abrantes, CPA
yung assets, hindi gumalaw. Di ba, in operating the business, you share in the
profits and losses. Kaya sinabi ng Supreme Court na mali yung computation
niyo. Dapat, kung ano yung assets mo at the time na na-dissolve, yun ang i-
deduct mo sa liabilities. Kasi dito, parang binalik lang ang capital contribution,
which is hindi naman necessary.
VILLAREAL VS RAMIREZ
(Case Digest: April Pareno)
FACTS: In 1984, Villareal, Carmelito Jose and Jesus Jose formed a
partnership with a capital of P750,000for the operation of a restaurant and
catering business. Respondent Ramirez joined as a partner in the business
with the capital contribution of P250,000. In 1987, Jesus Jose withdrew
from the partnership and within the same time, Villareal and Carmelito
Jose, petitioners closed the business without prior knowledge of
respondents In March 1987, respondents wrote a letter to petitioners
stating that they were no longer interested in continuing the partnership
and that they were accepting the latter’s offer to return their capital
contribution. This was left unheeded by the petitioners, and by reason of
which respondents filed a complaint in the RTC.RTC ruled that the parties
had voluntarily entered into a partnership, which could be dissolved at any
time, and this dissolution was showed by the fact that petitioners stopped
operating the restaurant. On appeal, CA upheld RTC’s decision that the
partnership was dissolved and it added that respondents had no right to
demand the return of their capital contribution. However since petitioners
did not give the proper accounting for the liquidation of the partnership, the
CA took it upon itself to compute their liabilities and the amount that is
proper to the respondent. The computation of which was:(capital of the
partnership – outstanding obligation) / remaining partners =amount due to
private respondent
ISSUE: W/N petitioners are liable to respondents for the latter’s share in
the partnership?
HELD: No. Respondents have no right to demand from petitioner the return
of their equity share. As found by the court petitioners did not personally
hold its equity or assets. “The partnership has a juridical personality
separate and distinct from that of each of the partners.” Since the capital
was contributed to the partnership, not to petitioners, it is the partnership
that must refund the equity of the retiring partners. However, before the
partners can be paid their shares, the creditors of the partnership must first
be compensated. Therefore, the exact amount of refund equivalent to
respondents’ one-third share in the partnership cannot be determined until
all the partnership assets will have been liquidated and all partnership
creditors have been paid. CA’s computation of the amount to be refunded
to respondents as their share was thus erroneous.
Equity interest (means) as a partner, you absorb all the losses and you
gain also all the profits. For me, that is a very good case showing that
partners are equity holders.
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 do 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 very
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.
Malamang, kung hindi kayo partners, hindi kayo partners as to third persons.
Co-ownership does not necessarily mean a partnership. However, a
partnership necessarily involves co-ownership with regard to specific
partnership property.
Even the share of profits is not itself a conclusive evidence na partners kayo.
If yung sharing niyo naman is a payment for debt, payment for wages, payment
for annuity, payment as an interest, or consideration for the sale of the goodwill
of a business. Look at the five, ano ang common doon? Ibig sabihin, pag-
ganito ang situation, it is not the intention of the partners na maging partners
sila. May ibang intention for the sharing of the profits—i.e. payment of debt.
Again, the crux of partnership is always the intention, not the sharing of profits.
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.
This provision reiterates 2 essential elements:
1.) Legality of the object;
2.) Benefit or interest
If nag-form kayo ng partnership for the purpose of, let’s say, operating a drug
den or magbenta ng shabu, of course it is unlawful. Ano ang mangyayari, the
contract is void ab initio and the partnership never existed in the eyes of the
law.
So the profits under Article 1770, shall be confiscated in favor of the
government. The instruments, tools or proceeds of the crime, shall also be
forfeited in favor of the government.
How about the capital contribution? Yung capital, ibalik pa rin sa partners
unless it would fall under the instruments, tool or proceeds of the crime.
Attributes of Partnership:
1.) Consensual
2.) Mutual Agency
3.) Delectus Personae
4.) Partners have unlimited liability
1.) Consensual.
Article 1771 states that 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.
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.
Why is partnership, which has a separate juridical personality, medyo informal
yung pagcreate sa kanya? Unlike in corporation na may mga formal
requirements? Bakit sa partnership, medyo considerate ang batas, it can be
constituted in any form. What do you think is the reason?
Partnership is less expensive compared to corporations. The law states
that it is easier to form a partnership, kasi nga yung mga nagcreate ng
partnership are not as heavily financed as a corporation. So the law gives a
little leeway kasi partnership, in its essence, parang mga small sole
proprietorship na nag-enter into partnership. So hindi siya pareha sa
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 BUSINESS ORGANIZATION I
(By: 3-Manresa, S.Y. 2017-2018)
From the Lectures of: Atty. Raymund Christian S. Ong-Abrantes, CPA
corporation which is heavily financed. If you are going to put a lot of formal
requirements in a partnership, then they might as well form a corporation. So
merely, for purposes lang siya of convenience.
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 if the partnership and the members thereof to third
persons.
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.
General Rule: A partnership is consensual, meaning it is perfected by mere
consent.
Exception:
1.) A capital of P3,000 or more shall appear in a public instrument.
(Note: The amount is outdated);
2.) Where immovable property or real rights are contributed into the
partnership;
3.) Limited Partnership
Why (does) Article 1772 require it to be in a public instrument, kung hindi
naman pala makaka-affect sa liability ng partnership and members
thereof to third persons? Is this a superfluous requirement? If the contract
is not in a public instrument, is it void? What do you think is the reason? Bakit,
hindi naman siya maka-affect nun, bakit kailangan pa rin siya i-public
instrument? Tapos bakit sa Article 1773, pag immovable property ang
pinag-uusaan, pag hindi mo siya kinomply, void talaga yung contract?
Why is there a difference in the requirement?
According to Villanueva, in Article 1773, real property is considered as
constituting a cornerstone of our economic life and that dealings therewith
must be formal and public, which would afford to the public a reliable
means to determine the status of ownership and the existing liens on the
property. Relate this with your concept in Landtitles--the Mirror Principle (on
dealings in real property)-kung ano yung nakalagay sa title, yun lang yun.
Kung nagcontribute ka ng real property tapos hindi ka naka-public instrument,
there will be a case wherein the property, di siya naka-annotate dun tapos
partnership property na pala. So imagine the evil sought to be prevented.
For Article 1772, the reason why it still has to be registered with the office of
the Securities and Exchange Commission, is for purposes of government
monitoring. Kung hindi ireregister, paano malalaman ng gobyerno na nag-
ooperate yung partnership na yan.
Imagine the incidents of operating ng business, i.e. taxes. Hindi malalaman ng
BIR sino yung operating na business. So, it is for convenience.
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.
This is an incidence of a partnership having a separate juridical personality.
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.
So why does the law not grant juridical personality to associations and
societies na yung articles are kept secret?
According to Villanueva, the obligation of these individuals is not meant to
undertake a business or commercial venture that is supposed to deal with the
public at large so there is no purpose to grant a separate juridical personality.
2.) Mutual agency.
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.
(2) None of the partners may, without the consent of the others,
make any important alteration in the immovable property of 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.
3.) Delectus Personae (meaning, selection of persons).
Bautista refers to Delectus Personae as follows: For in accordance with the
principle of delectus personae, one selects partners on the basis of their
personal qualifications and qualities which are solvency, ability, honesty and
trustworthiness, among others. It is for this reason that there is mutual
representation among partners so that the act of one is considered the act and
responsibility of the others as well.
Again, the concept of delectus personae (meaning, selection of persons), you
cannot enter into a partnership kung hindi mo gusto ang partners. By the mere
fact na gusto mo na i-dissolve ang partnership, it can be dissolved. Kasi nga,
partnership is grounded on that principle of delectus personae. It is created by
mere consent, and it can be dissolved by mere consent.
4.) Partners subject to unlimited liability. To distinguish from a corporation
wherein a stockholder has a limited liability sa investments niya, sa
partnership, the creditor can actually go to the personal properties of the
partner, albeit, subsidiarily. So, in essence, unlimited yung kanyang liability.
Partnership, distinguished from OTHER business media. Again, joint
venture is limited to single transaction. It is not intended to pursue a continuous
business. Whereas, a partnership, though it may exist for a single transaction,
usually contemplates the undertaking of the general and continuous business
of a particular kind, which is necessarily involves a series of transactions.
Joint Venture Partnership
limited to single though it may exist for a single transaction,
transaction and is not usually contemplates the undertaking of the
intended to pursue a general and continuous business of a particular
continuous business kind, which is necessarily involves a series of
transactions
Pansin niyo yung mga ‘the joint venture of Ayala Land and ganito’ for a single
condominium. Hindi naman necessarily magiging partner pa rin sila in a
separate project. Sa joint venture, specific lang ang transaction, per project
basis.
But then again, under our law, we have what we call particular partnership (it
is a partnership for a specific project also.) So necessarily, when you read your
cases, ang ina-apply pa rin, the concepts and stipulations, is under the law on
partnership. Pero in different jurisdictions, meron talaga silang joint venture
provisions.
Bakit yung mga ganyang project, yung mga condominium, bakit hindi na
lang sila magform ng partnership or corporation? i.e. Sta. Lucia with yung
may-ari ng lupa.
You will learn in practice that maintaining a corporation or partnership is very
burdensome. That is why we exist. The problem with that is that we carry their
burden. That is why they say a corporation is very expensive. A partnership is
less expensive than a corporation but more expensive than a sole
proprietorship. So parang spectrum lang yan.
Partnership distinguished from Co-ownership. A Co-ownership constitutes
merely a property relation whereby two or more person own pro-indiviso a
property but the relationship does not seek the business or mercantile purpose
of the property relationship. In other words, a co-ownership situation comes
about other than a contractual intent to pursue a business venture in common.
11
 BUSINESS ORGANIZATION I
(By: 3-Manresa, S.Y. 2017-2018)
From the Lectures of: Atty. Raymund Christian S. Ong-Abrantes, CPA
Consequently, no separate juridical personality arises from a purely co-
ownership relationship.
Partnership distinguished from an Agency. In a pure agency agreement,
si agent is merely a legal extension of the personality of the principal, and
thereby under the complete control of the principal. Whereas, in a partnership,
there is a mutual agency. Meaning, yung agent, principal din siya nung
kanyang ka-partner.
Partnership distinguished from a Business Trust. A business trust is
constituted by deed of trust which is easier and less expensive to constitute
for it is not bounded by any legal requirements. The creation of business trust
does not give rise to a separate juridical personality and is mainly governed
by contractual doctrines and common-law principles on trust.
Partnership distinguished from Corporation. Again, yung stockholder, ang
exposure niya sa corporation is limited lang sa kanyang investment. So kung
insolvent man si corporation, hindi na aabot sa kanya. Alam niyo yung hotel,
ang corporation niyan minsan 2 or 3. Iba yung management, ibang corporation
yung mga employees, iba rin yung property.
Let’ say Marco Polo (hypothetical situation only), ang mga employee niyan
under a separate corporation, yung owner ng properties under a separate
corporation. Bakit ganun? Kasi kung magkaroon ng gulo sa labor, ang ma-
exhaust lang ay yung property ng kung kanino nakapangalan ang mga tao.
Kasi hindi naman pwede i-force, unless may fraud. So yun ang ginagawa
nilang restructuring, based on the concept na the corporation is a separate
juridical personality. The liability of the stockholder is limited only doon sa
investment. In a partnership, will it apply? Not necessarily kasi nga sinabi natin
na ang partner has an unlimited liability although subsidiarily.
Does a defective incorporation process result into a partnership?
Again, look at the crux of partnership, it is the intention. Iba-iba ang
requirements ng corporation at ng partnership in such a way na pag-hindi na
push as a corporation, it does not necessarily mean na magiging partnership
na siya.
JUNE 30, 2017
(Transcriber: Jennifer Mortejo)
Review of the last discussion
Partnerships in general are allowed to enter into a contract of
partnership with other partnerships. As to corporations, as a general rule,
they are not allowed. We will discuss this later why this is the rule and what
are the exceptions.
We proceeded with Article 1768 of the Civil Code which states that a
partnership has a juridical personality separate and distinct from that of the
partners. This means that a partnership is considered a person under the law
which means it has the right to possess property of all kinds, as well as incur
obligations and bring civil or criminal actions in conformity with the rules and
regulations of the organization.
We briefly discussed the case of:
Aguila vs CA - wherein nagkamali lang ng pag-implead. The real party-in-
interest was not impleaded. Consequently, what will happen is that there is a
failure to state a cause of action. If you will file a case against the partnership,
you should implead the partnership itself not the partners. Because again, by
the concept of separate juridical personality, a partnership is a person under
the law.
Q: If the partnership has separate juridical personality, does it have all
the rights in the same way as that of natural persons? Example, can it
ask for moral damages?
A: You know in your Torts that there are damages that it can demand like
besmirched reputation.
We also discussed the applicability of the doctrine of piercing the corporate
veil. The question is, is it applicable given that the partnership has a separate
juridical personality? There is only 1 case pertaining to this question:
CIR vs Suter - wherein apparently the SC applied the doctrine of piercing the
corporate veil in partnership setting.
We also discussed:
Villareal vs Ramirez – concept of the partner having equity interest in a
partnership.
Article 1769 provides for the rules to be applied in determining whether there
is a partnership or not.
Start of today’s discussion – Recitation
OBILLOS VS CIR
(Case Digest: Cyndall Jardinel)
DOCTRINE: The sharing of gross returns does not of itself establish
apartnership, whether or not the persons sharing them have a joint or
common right or interest in any property from which the returns are derived.
There must be an unmistakable intention to form a partnership or joint
venture.
NATURE: Petition to review the decision of the Court of Tax Appeals
FACTS: In 1973, Jose Obillos completed payment on two lots located in
Greenhills, San Juan. The next day, he transferred his rights to his four
children for them to build their own residences. The Torrens title would
show that they were co-owners of the two lots. However, the petitioners
resold them to Walled City Securities Corporation and Olga Cruz Canda
for P313k or P33k for each of them. They treated the profit as capital
gains and paid an income tax of P16,792.00
The CIR requested the petitioners to pay the corporate income tax of their
shares, as this entire assessment is based on the alleged partnership
under Article 1767 of the Civil Code; simply because they contributed each
to buy the lots, resold them and divided the profits among them.
But as testified by Obillos, they have no intention to form the partnership
and that it was merely incidental since they sold the said lots due to high
demand of construction. Naturally, when they sell them as co-partners, it
will result to the share of profits. Further, their intention was to divide the
lots for residential purposes.
HELD :We hold that it is error to consider the petitionersas having formed
a partnership under article 1767 of the Civil Code simply because they
allegedly contributed P178,708.12 to buy the two lots, resold the same and
divided the profit among themselves.
To regard the petitioners as having formed a taxable unregistered
partnership would result in oppressive taxation and confirm the dictum that
the power to tax involves the power to destroy. That eventuality should be
obviated.
As testified by Jose Obillos, Jr., they had no such intention. They were co-
-‐ owners pure and simple. To consider them as partners would obliterate
the distinction between a co--‐ownership and a partnership. The petitioners
were not engaged in any joint venture by reason of that isolated
transaction.
Article 1769(3) of the Civil Code provides that "the sharing of gross returns
does not of itself establish a partnership, whether or not the persons
sharing them have a joint or common right or interest in any property from
which the returns are derived". There must be an unmistakable intention to
form a partnership or joint venture.
12
 BUSINESS ORGANIZATION I
(By: 3-Manresa, S.Y. 2017-2018)
From the Lectures of: Atty. Raymund Christian S. Ong-Abrantes, CPA
In this case, the Commissioner should have investigated if the father
paid donor's tax to establish the fact that there was really no
partnership.
DISPOSITION:WHEREFORE, the judgment of the Tax Court is reversed
and set aside.The assessments are cancelled. No costs
Q: Can you make a distinction between the case of Gatchalian vs CIR
and this particular case? A: In the case of Gatchalian,
there were 15 persons who contributed in the purchase of a two-peso
sweepstakes ticket. The SC said in this case that there was a partnership since
these 15 persons already agreed that if ever they win, they would divide the
prize among themselves. The SC held them liable for income tax as an
unregistered partnership. The elements of partnership were complied with.
Q: What are the elements of a partnership? A: 1. There must
be 2 or more persons who bind themselves to contribute money, property or
industry to a common fund;
2. There must be an intention that the parties would divide the profits among
themselves.
Just to make a point, when you read cases that involve the CIR, pansin niyo
na ang sinasabi nilang partnership is “unregistered”. Please note,
“unregistered partnership” is a context under tax. You cannot find it in the Civil
Code. There is only “informal partnership” in the Civil Code, which means that
the requirements of the law were not complied with (e.g. public instrument and
recording requirement). Now, if you will be asked if there is a contract of
partnership, do not say that there is a contract of “unregistered partnership”
because the basis of the question is Civil Code. You can only say that when
the question is under your tax subject. Please distinguish partnership and
“unregistered partnership”.
N.B - Co-ownership is different from partnership. Time and again, the proof of
partnership is the intention. If there is no intention to create a partnership,
then there is no partnership.
REYES VS CIR
(Case Digest: Cyndall Jardinel)
FACTS: Petitioners Florencio and Angel Reyes, father and son,
purchased a lot and building for P 835,000.00. 2. The amount of P
375,000.00 was paid. 3. The balance of P 460,000.00 was left, which
represents the mortgage obligation of the vendors with the China Banking
Corporation, which mortgage obligations were assumed by the vendees.
4. The initial payment of P 375,000.00 was shared equally by the
petitioners. 5. At the time of the purchase, the building was leased to
various tenants, whose rights under the lease contracts with the original
owners, the purchaser, petitioners herein, agreed to respect. 6. Petitioners
divided equally the income of operation and maintenance. 7. The gross
income from rentals of the building amounted to about P 90,000.00
annually. 8. An assessment was made against petitioners by the CIR. 9.
The assessment sought to be reconsidered was futile. 10. On appeal to
the Court of Tax Appeals, the CTA ruled that petitioners are liable for the
income tax due from the partnership formed by petitioners.
ISSUE: Are petitioners subject to the tax on corporations provided for in
the National Internal Revenue Code?
HELD: After referring to another section of the NIRC, which explicitly
provides that the term corporations includes partnerships and then to
Article 1767 of the Civil Code of the Philippines, defining what a contract
of partnership is, the opinion goes on to state that the essential elements
of a partnership are two, namely: a) an agreement to contribute money,
property or industry to a common fund; and b) intent to divide the profits
among the contracting parties. The first element is undoubtedly present in
the case, for, admittedly, petitioners have agreed to, and did, contribute
money and property to a common fund. Hence, the issue narrows down to
their intent in acting as they did. Upon consideration of all the facts and
circumstances surrounding the case, it was determined that their purpose
was to engage in real estate transaction for monetary gain and then divide
the same among themselves, hence taxable.
Q: Is there a partnership under the Civil Code in this case? Are the
elements of partnership present in this case? What are the
circumstances present in this case which led to the conclusion of the SC
that there was a partnership?
A: So again, it is not a conclusive evidence to say that there is a partnership
once there is habituality. If there is a contribution to a common fund and then
there is a transaction, pag paulit-ulit na ganun yung set-up, not merely one
transaction but several transactions, there is a presumption that the intention
of the parties is to establish a business.
N.B – Habituality is one of the determining factors of partnership.
BASTIDA VS MENZI
(Case Digest: Cyndall Jardinel)
FACTS: Bastida offered to assign to Menzi & Co. his contract with Phil
Sugar Centrals Agency and to supervise the mixing of the fertilizer and to
obtain other orders for 50 % of the net profit that Menzi & Co., Inc., might
derive therefrom. J. M. Menzi (gen. manager of Menzi & Co.) accepted the
offer. The agreement between the parties was verbal and was confirmed
by the letter of Menzi to the plaintiff on January 10, 1922.
Pursuant to the verbal agreement, the defendant corporation on April 27,
1922 entered into a written contract with the plaintiff, marked Exhibit A,
which is the basis of the present action. Still, the fertilizer business as
carried on in the same manner as it was prior to the written contract, but
the net profit that the plaintiff herein shall get would only be 35%. The
intervention of the plaintiff was limited to supervising the mixing of the
fertilizers in the bodegas of Menzi.
Prior to the expiration of the contract (April 27, 1927), the manager of Menzi
notified the plaintiff that the contract for his services would not be renewed.
Subsequently, when the contract expired, Menzi proceeded to liquidate the
fertilizer business in question. The plaintiff refused to agree to this. It
argued, among others, that the written contract entered into by the parties
is a contract of general regular commercial partnership, wherein Menzi was
the capitalist and the plaintiff the industrial partner.
ISSUE: Is the relationship between the petitioner and Menzi that of
partners?
HELD: The relationship established between the parties was not that of
partners, but that of employer and employee, whereby the plaintiff was to
receive 35% of the net profits of the fertilizer business of Menzi in
compensation for his services for supervising the mixing of the fertilizers.
Neither the provisions of the contract nor the conduct of the parties prior or
subsequent to its execution justified the finding that it was a contract of co-
partnership. The written contract was, in fact, a continuation of the verbal
agreement between the parties, whereby the plaintiff worked for the
defendant corporation for one-half of the net profits derived by the
corporation form certain fertilizer contracts.
According to Art. 116 of the Code of Commerce, articles of association by
13
 BUSINESS ORGANIZATION I
(By: 3-Manresa, S.Y. 2017-2018)
From the Lectures of: Atty. Raymund Christian S. Ong-Abrantes, CPA
which two or more persons obligate themselves to place in a common fund
any property, industry, or any of these things, in order to obtain profit, shall
be commercial, no matter what it class may be, provided it has been
established in accordance with the provisions of the Code. However in this
case, there was no common fund. The business belonged to Menzi & Co.
The plaintiff was working for Menzi, and instead of receiving a fixed salary,
he was to receive 35% of the net profits as compensation for his services.
The phrase in the written contract “en sociedad con”, which is used as a
basis of the plaintiff to prove partnership in this case, merely means “en
reunion con” or in association with.
It is also important to note that although Menzi agreed to furnish the
necessary financial aid for the fertilizer business, it did not obligate itself to
contribute any fixed sum as capital or to defray at its own expense the cost
of securing the necessary credit.
If there is no contract, does it necessarily follow that there was no
intention to enter into partnership? How about the fact that Bastida is
receiving 35% of the net profits, would that lead to a conclusion that
there was a partnership? NO to both questions.
HEIRS OF TANG ENG KEE VS CA
(Case Digest: Cyndall Jardinel)
FACTS: Benguet Lumber has been around even before World War II but
during the war, its stocks were confiscated by the Japanese. After the war,
the brothers Tan Eng Lay and Tan Eng Kee pooled their resources in order
to revive the business. In 1981, Tan Eng Lay caused the conversion of
Benguet Lumber into a corporation called Benguet Lumber and Hardware
Company, with him and his family as the incorporators. In 1983, Tan Eng
Kee died. Thereafter, the heirs of Tan Eng Kee demanded for an
accounting and the liquidation of the partnership.
Tan Eng Lay denied that there was a partnership between him and his
brother. He said that Tan Eng Kee was merely an employee of Benguet
Lumber. He showed evidence consisting of Tan Eng Kee’s payroll; his SSS
as an employee and Benguet Lumber being the employee. As a result of
the presentation of said evidence, the heirs of Tan Eng Kee filed a criminal
case against Tan Eng Lay for allegedly fabricating those evidence. Said
criminal case was however dismissed for lack of evidence.
RTC granted the petitioner for accounting and determined that Tan Eng
Kee and Tan Eng Lay had entered into a joint venture, but the CA reversed
such decision, hence the present petition.
ISSUE: Whether or not Tan Eng Kee is a partner. NO
HELD: No. There was no certificate of partnership between the brothers.
The heirs were not able to show what was the agreement between the
brothers as to the sharing of profits. All they presented were circumstantial
evidence which in no way proved partnership.
It is obvious that there was no partnership whatsoever. Except for a firm
name, there was no firm account, no firm letterheads submitted as
evidence, no certificate of partnership, no agreement as to profits and
losses, and no time fixed for the duration of the partnership. There was
even no attempt to submit an accounting corresponding to the period after
the war until Kee’s death in 1984. It had no business book, no written
account nor any memorandum for that matter and no license mentioning
the existence of a partnership.
In fact, Tan Eng Lay was able to show evidence that Benguet Lumber is a
sole proprietorship. He registered the same as such in 1954; that Kee was
just an employee based on the latter’s payroll and SSS coverage, and
other records indicating Tan Eng Lay as the proprietor.
Also, the business definitely amounted to more P3,000.00 hence if there
was a partnership, it should have been made in a public instrument.
But the business was started after the war (1945) prior to the publication
of the New Civil Code in 1950?
Even so, nothing prevented the parties from complying with this
requirement.
Also, the Supreme Court emphasized that for 40 years, Tan Eng Kee never
asked for an accounting. The essence of a partnership is that the partners
share in the profits and losses. Each has the right to demand an accounting
as long as the partnership exists. Even if it can be speculated that a
scenario wherein “if excellent relations exist among the partners at the start
of the business and all the partners are more interested in seeing the firm
grow rather than get immediate returns, a deferment of sharing in the
profits is perfectly plausible.” But in the situation in the case at bar, the
deferment, if any, had gone on too long to be plausible. A person is
presumed to take ordinary care of his concerns. A demand for periodic
accounting is evidence of a partnership which Kee never did.
The Supreme Court also noted:
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.
14
 BUSINESS ORGANIZATION I
(By: 3-Manresa, S.Y. 2017-2018)
From the Lectures of: Atty. Raymund Christian S. Ong-Abrantes, CPA
DISPOSITIVE: There being no partnership, it follows that there is no
dissolution,winding up or liquidation to speak of. Hence, the petition must
fail.
Q: Why is there no partnership in this case but only an employer-
employee relationship? How about the fact that Tan Eng Kee lived in the
compound and this privilege is not given to the other employees, what
did the SC say about it?
A: The contention of the Heirs of Tan Eng Kee is that there was a partnership
since Tan Eng Kee were allowed to order stocks and he was enjoying a
privilege not granted to other ordinary employees. He also had a right to
supervise. The SC said that those circumstances alone are not sufficient to
prove that there is a contract of partnership. The SC considered the
relationship of Tan Eng Kee to the owner who was his brother. It all goes back
to the intention.
N.B. - Intention is a product of mind. And how do you determine intention? By
looking at the contemporaneous and subsequent acts.
TOCAO VS CA
(Case Digest: Lilybeth Petallo)
FACTS:
Petitioners Marjorie Tocao and William Belo filed a Motion for
Reconsideration, alleging that there was no partnership between Petitioner
Belo & Respondent NenitaAnay, the latter being a mere employee of
Petitioner Tocao.
According to the testimony of respondent’s own witness, Elizabeth
Bantilan, Petitioner Belo acted merely as guarantor of Geminesse
Enterprise, Belo being a good friend of Tocao.
ISSUE: WON partnership exists between Belo &Anay. (NO)
HELD: No partnership exists between Belo and Anay.
It should be recalled that the business relationship created between
petitioner Tocao and respondent Anay was an informal partnership,
which was not even recorded with the Securities and Exchange
Commission. As such, it was understandable that Belo, who was after
all petitioner Tocao's good friend and confidante, would occasionally
participate in the affairs of the business, although never in a formal
or official capacity. It was also confirmed in Bantilan’s testimony that
Belo’s presence in Geminesse Enterprise’s meetings was merely as
guarantor of the company and to help petitioner Tocao.
No evidence showed that Belo participated in the profits of the business
enterprise. Respondent Anay herself professed lack of knowledge that
Petitioner Belo received any share in the net income of the partnership.
Also, Petitioner Tocao declared that petitioners Belo was not entitled to any
share in the profits of Geminesse Enterprises. With no participation in
the profits, petitioner Belo cannot be deemed a partner since the
essence of a partnership is that the partners share in the profits and
losses.
Q: Did it matter that the agreement to enter into a partnership was not
reduced into writing?
A: No, since partnership is a consensual contract. It does not require any form.
Q: Would it make a difference had the agreement was made in writing?
Do you think this problem would arise if the agreement was written?
A: Of course, it would have made a difference. If the agreement was written,
do you think the SC would consider the circumstantial facts to determine if
there was a partnership? Siyempre, hindi na. Yes, partnership is consensual.
However, based on your law on evidence, evidence that is in writing
constitutes the agreement between the parties. It would have made tons of
difference kung in writing siya.
Q: Is the sharing of profits sufficient to establish a partnership? What
are the things/circumstantial facts considered by the SC to say that Anay
was a partner and not an employee of Tocao?
A: The fact that she has a voice in the management of the business. She can
select a person to be a manager. The sharing of profits is merely a prima facie
evidence of the existence of a partnership. Correlate that with one case where
the SC said that the sharing of profits in payment of compensation is not
conclusive of a partnership since you are merely an employee of the owner.
Here, there is sharing of profits plus Anay had a voice in the partnership affairs.
So look at circumstances in determining intention.
The parties in this case were Tocao, Belo and Anay. Tocao and Belo were
made liable. There was an MR where Belo alleged that he was only a
guarantor. The SC said that Belo was indeed a mere guarantor.
N.B. - Compare this case with Heirs of Tan Eng Kee. The relationship of the
parties is significant.
(According to Sir, a friendship grounded on business is better than a business
grounded on friendship.)
YULO vs YANG CHIAO SENG
(Case Digest: Lilybeth Petallo)
FACTS:
1. 1945, Respondent Yang Chiao Seng proposed the formation of a
partnership with Petitioner Rosario Yulofor the operation of a theater
on the premises occupied by Cine Oro, wherein Yang guarantees
Mrs. Yulo a monthly participation of P3,000, payable quarterly in
advance, etc.
2. Parties executed a partnership agreement establishing Yang & Co.,
Ltd.:
a. That the capital is fixed at P100K: P80K was furnished by
Yang while P20K by Yulo;
b. That all gains and profits are to be distributed among the
partners in the same proportion as their capital
contribution;
c. That the liability of Yulo, in case of loss, shall be limited to
her capital contribution.
3. However, since the land on which the theatre was constructed was
owned by the Carrion Sta. Marias., and was merely leased to
Petitioner Yulo; the owners later exercised their right to cancel the
contract of lease.
4. So, the owners filed an action for ejectment against Yulo and Yang.
CFI granted the same. CA affirmed.
5. Consequently, Yulo demanded from YANG her share in the profits of
the business.
6. Yang refused; hence, the action.
PETITIONER YULO’S CONTENTION:
That partnership exists between them, and Yang is obliged to
give her share in the profits.
RESPONDENT YANG’S DEFENSE:
That it was only a “sublease”; that the partnership was only
adopted as a subterfuge to circumvent the prohibition against
sublease in the lease contract between Yulo and the landowners.
RTC ruled in favor of Respondent Yang; that the agreement was a
sublease, not a partnership.
15
 BUSINESS ORGANIZATION I
(By: 3-Manresa, S.Y. 2017-2018)
From the Lectures of: Atty. Raymund Christian S. Ong-Abrantes, CPA
ISSUE: WON partnership exists, thereby requiring Yang to give Yulo’s
share in the profits. (NO)
HELD: No partnership exists. It was a sublease contract.
The ff. facts belie her allegation of partnership:
a. Yulo did not furnish the supposed P20K capital;
b. She did not help or intervene in the management of the theatre;
c. She never demanded any accounting of the expenses and
earnings of the business (Were she really a partner, her first
concern should have been to find out how the business
was progressing, whether the expenses were legitimate,
whether the earnings were correct, etc.)
She only received her of P3K a month, which cannot be interpreted in
any manner than a payment for the use of the premises which she had
leased from the owners.
Q: Was there a partnership? What kind of contract was entered into by
the parties in this case?
A: No. It was a contract of sub-lease.
Q: Why did the SC say that it was a sub-lease?
A: The first element of a contract of partnership was not present in this case
since Yulo failed to furnish the supposed P20,000 capital. Also, she did not
furnish any help or intervention in the management of the theatre. It does not
appear that she has ever demanded from Yang any accounting of the
expenses and earnings of the business. Were she really a partner, her first
concern should have been to find out how the business was progressing,
whether the expenses were legitimate, whether the earnings were correct, etc.
She was absolutely silent with respect to any of the acts that a partner should
have done; all that she did was to receive her share of P3,000 a month, which
cannot be interpreted in any manner than a payment for the use of the
premises which she had leased from the owners.
N.B. – The sharing of profits does not always mean there is a partnership. It
could be a payment of lease rentals.
ONA VS CIR
(Case Digest: Jennifer Lim)
FACTS:
Julia Buñales died leaving as heirs her surviving spouse, Lorenzo Oña and
her five children. A civil case was instituted for the settlement of her state,
in which Oña was appointed administrator and later on the guardian of the
three heirs who were still minors when the project for partition was
approved. This shows that the heirs have undivided ½ interest in 10 parcels
of land, 6 houses and money from the War Damage Commission.
Although the project of partition was approved by the Court, no attempt
was made to divide the properties and they remained under the
management of Oña who used said properties in business by leasing or
selling them and investing the income derived therefrom and the proceeds
from the sales thereof in real properties and securities. As a result,
petitioners’ properties and investments gradually increased. Petitioners
returned for income tax purposes their shares in the net income but they
did not actually receive their shares because this left with Oña who
invested them.
Based on these facts, CIR decided that petitioners formed an unregistered
partnership and therefore, subject to the corporate income tax, particularly
for years 1955 and 1956. Petitioners asked for reconsideration, which was
denied hence this petition for review from CTA’s decision.
ISSUE:
W/N there was a co-ownership or an unregistered partnership
HELD:
Unregistered partnership. Instead of distributing the estate among the
heirs after the approval of the project of partition, the properties remained
under the mgt of Lorenzo who used the same in business. As a result of
which, their investments and properties steadily increased. From the
moment the petitioners allowed Lorenzo to use their inherited properties
and the incomes from their respective shares as a common fund in
undertaking several business ventures, with the intention of deriving profit
from it and dividing the profit proportionally among themselves, such act
was tantamount to actually contributing such incomes to a common fund
and, in effect, they thereby formed an unregistered partnership within the
purview of the provisions of the Tax Code.
The Tax Court found that instead of actually distributing the estate of the
deceased among themselves pursuant to the project of partition, the heirs
allowed their properties to remain under the management of Oña and let
him use their shares as part of the common fund for their ventures, even
as they paid corresponding income taxes on their respective shares.
From the moment of such partition, the heirs are entitled already to their
respective definite shares of the estate and the incomes thereof, for each
of them to manage and dispose of as exclusively his own without the
intervention of the other heirs, and, accordingly, he becomes liable
individually for all taxes in connection therewith. If after such partition, he
allows his share to be held in common with his co-heirs under a single
management to be used with the intent of making profit thereby in
proportion to his share, there can be no doubt that, even if no document or
instrument were executed, for the purpose, for tax purposes, at least, an
unregistered partnership is formed.
Compare this case to the case of Obillos vs CIR. In that case, the siblings
inherited the land which was later found to be not good for residential so they
sold it and they divided the profits among themselves Here, the land was
inherited, then they sold it and then they invested the proceeds again. See the
difference? Here, there was really an intention to enter into a partnership since
the business is habitual. In the Obillos case, nagkataon lang.
We also discussed last meeting that a partnership must have a lawful object
or purpose otherwise the partnership shall be void and the profits shall be
confiscated in favor of the Government.
Art. 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)
We also discussed the formalities of a contract of partnership.
General rule: Contract of Partnership is consensual in nature, perfected by
mere consent.
Exceptions:
Art. 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)
Art. 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)
16
 BUSINESS ORGANIZATION I
(By: 3-Manresa, S.Y. 2017-2018)
From the Lectures of: Atty. Raymund Christian S. Ong-Abrantes, CPA
Art. 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)
SEC is the government-governing body which oversees corporations and
partnerships.
AGAD VS MABATO
(Case Digest: Earvin Alparaque)
FACTS:
Mauricio Agad claim that he and SeverinoMabato are partners in a
fishpond business to which they contributed P1,000 each. Mabato
rendered the accounts of the partnership. However, for the years 1957-
1963, Mabato failed to render the accounts despite repeated demands by
Agad. Petitioner filed a complaint against Mabato for his share in the
partnership profits. He attached a copy of the public instrument evidencing
their partnership in his complaint.
Mabato denied the existence of the partnership alleging that Agad failed to
pay his P1,000 contribution. He then filed a motion to dismiss on the
ground of lack of cause of action. The lower court dismissed the complaint
finding a failure to state a cause of action predicated upon the theory that
the contract of partnership is null and void because an inventory of the
fishpond referred in said instrument was not attached.
ISSUE: Whether or not immovable property or real rights have been
contributed to the partnership
RULING:
Art. 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.
Art. 1773. A contract of partnership is void, whenever immovable property
is contributed thereto, if inventory of said property is not made, signed by
the parties; and attached to the public instrument.
Mabato alleged and the lower court held that the answer should be in the
affirmative, because it is really inconceivable how a partnership engaged
in the fishpond business could exist without said fishpond property being
contributed to the partnership. It should be noted, however, that, as stated
in Annex "A" the partnership was established "to operate a fishpond", not
to "engage in a fishpond business. Moreover, none of the partners
contributed either a fishpond or a real right to any fishpond.
The operation of the fishpond mentioned in Annex "A" was the purpose of
the partnership. Neither said fishpond nor a real right thereto was
contributed to the partnership or became part of the capital thereof, even if
a fishpond or a real right thereto could become part of its assets.
We find that said Article 1773 of the Civil Code is not in point and that, the
order appealed from should be, as it is hereby set aside and the case
remanded to the lower court for further proceedings.
Q: So in this case, the SC said that the purpose of partnership is “to
operate a fishpond”, not “to engage in the fishpond business”. May
difference ba?
A: Yes. Neither said fishpond nor a real right thereto was contributed to the
partnership or became part of the capital thereof, even if a fishpond or a real
right thereto could become part of its assets. Meaning, at the time of the
constitution of the partnership, pag walang real property or real right that was
contributed, there is no need to follow Article 1773 even if along the way, you
will acquire real right or immovable. There is a difference between capital and
assets. Capital, yan yung initial na contribution ng partners. Assets may
include the capital contribution but not necessarily the entirety. Because along
the way in the operation of your business, you will acquire assets which is not
already part of your initial capital. So know the distinction. Even if a real right
or an immovable is acquired as asset, it does not necessarily mean that it is
part of the initial capital contribution.
JULY 4, 2017
(Transcriber: Jennifer Mortejo)
Review of the last discussion
General rule: Partnership is consensual
Exceptions (instances when there are formal requirements):
1. When the capital is 3000 or more, it should appear in a public
instrument which must be recorded in the office of the SEC. (Art
1772)
2. When immovable property or real right thereto is contributed to the
partnership, it must be in a public instrument and an inventory
should be made, signed by the parties and attached to the public
instrument, otherwise the contract is void. (Art 1773)
3. In cases of limited partnership.
If Article 1772 is not followed, what will happen?
Article 1772, par.2 - “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.”
However, if Article 1773 is not followed, that’s void. Why? For the reason that
real property is considered as constituting a cornerstone of our economic life
and that dealings therewith must be formal and public which would afford to
the public the reliable means to determine the status of ownership and the
existing liens of the property.
So in Agad vs Mabato, the SC ruled that there was no immovable property or
real right that was contributed. What was the purpose of the partnership? To
operate a fishpond and not to engage into a fishpond business. Please take
note of this paragraph in this case: “Neither said fishpond nor a real right
thereto was contributed to the partnership or became part of the capital
thereof, even if a fishpond or a real right thereto could become part of its
assets.”
Start of today’s discussion
TORRES VS CA
(Case Digest: Earvin Alparaque)
FACTS:
Courts may not extricate parties from the necessary
consequences of their acts. That the terms of a contract turn out to be
financially disadvantageous to them will not relieve them of their obligations
therein. The lack of an inventory of real property will not ipso facto release
the contracting partners from their respective obligations to each other
arising from acts executed in accordance with their agreement.
Petitioners Antonia Torres and Emeteria Baring entered into a
joint venture agreement with Respondent Manuel Torres for the
development of a parcel of land into a subdivision. Pursuant to the contract,
they executed a Deed of Sale covering the said parcel of land in favor of
respondent, who then had it registered in his name. By mortgaging the
property, respondent obtained from Equitable Bank a loan of P40,000
which, under the Joint Venture Agreement, was to be used for the
development of the subdivision. All three of them also agreed to share the
proceeds from the sale of the subdivided lots. The project did not push
through, and the land was subsequently foreclosed by the bank.
According to petitioners, the project failed because of
respondent's lack of funds or means and skills. They add that respondent
used the loan not for the development of the subdivision, but in furtherance
of his own company, Universal Umbrella Company. On the other hand,
respondent alleged that he used the loan to implement the Agreement.
Respondent claimed that the subdivision project failed,
however, because petitioners and their relatives had separately caused the
annotations of adverse claims on the title to the land, which eventually
scared away prospective buyers. Subsequently, petitioners filed a criminal
case for estafa against respondent and his wife, who were however
acquitted. Thereafter, they filed the present civil case.
ISSUE:
17
 BUSINESS ORGANIZATION I
(By: 3-Manresa, S.Y. 2017-2018)
From the Lectures of: Atty. Raymund Christian S. Ong-Abrantes, CPA
1. Whether or not a partnership was formed between the parties
– YES
2. If a partnership does exist, is it null and void? - NO
RULING:
Petitioners deny having formed a partnership with respondent.
They contend that the Joint Venture Agreement and the earlier Deed of
Sale, both of which were the bases of the appellate court's finding of a
partnership, were void. In the same breath, however, they assert that under
those very same contracts, respondent is liable for his failure to implement
the project.
A reading of the terms embodied in the Agreement indubitably
shows the existence of a partnership pursuant to Article 1767 of the Civil
Code, which provides:
Art. 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.
Under the Agreement, petitioners would contribute property to
the partnership in the form of land which was to be developed into a
subdivision; while respondent would give, in addition to his industry, the
amount needed for general expenses and other costs. Furthermore, the
income from the said project would be divided according to the stipulated
percentage. Clearly, the contract manifested the intention of the parties to
form a partnership.
It should be stressed that the parties implemented the contract.
Thus, petitioners transferred the title to the land to facilitate its use in the
name of the respondent. On the other hand, respondent caused the subject
land to be mortgaged, the proceeds of which were used for the survey and
the subdivision of the land.Respondent's actions clearly belie petitioners'
contention that he made no contribution to the partnership. Under Article
1767 of the Civil Code, a partner may contribute not only money or
property, but also industry.
Petitioners argue that the Joint Venture Agreement is void
under Article 1773 of the Civil Code, which provides:
Art. 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.
They contend that since the parties did not make, sign or attach
to the public instrument an inventory of the real property contributed, the
partnership is void.
First, Article 1773 was intended primarily to protect third
persons. The execution of a public instrument would be useless if there is
no inventory of the property contributed, because without its designation
and description, they cannot be subject to inscription in the Registry of
Property, and their contribution cannot prejudice third persons. This will
result in fraud to those who contract with the partnership in the belief in the
efficacy of the guaranty in which the immovables may consist. Thus, the
contract is declared void by the law when no such inventory is made. The
case at bar does not involve third parties who may be prejudiced.
Second, petitioners themselves invoke the allegedly void
contract as basis for their claim that respondent should pay them 60
percent of the value of the property. They cannot in one breath deny the
contract and in another recognize it, depending on what momentarily suits
their purpose. Parties cannot adopt inconsistent positions in regard to a
contract and courts will not tolerate, much less approve, such practice.
In short, the alleged nullity of the partnership will not prevent
courts from considering the Joint Venture Agreement an ordinary contract
from which the parties' rights and obligations to each other may be inferred
and enforced.
This is a very peculiar case because it appears that it runs contrary to the
provision of Article 1773. The SC said that there was no contract of partnership
because there was a real property contributed but no inventory was made.
Article 1773 was enacted primarily to protect third persons. Article 1773
provides:
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.
The SC said:
We clarify. First, Article 1773 was intended primarily to protect third persons.
Thus, the eminent Arturo M. Tolentino states that under the aforecited
provision which is a complement of Article 1771,[12] the execution of a public
instrument would be useless if there is no inventory of the property contributed,
because without its designation and description, they cannot be subject to
inscription in the Registry of Property, and their contribution cannot prejudice
third persons. This will result in fraud to those who contract with the partnership
in the belief [in] the efficacy of the guaranty in which the immovables may
consist. Thus, the contract is declared void by the law when no such inventory
is made. The case at bar does not involve third parties who may be prejudiced.
So it appears that Article 1773 is only applicable when it prejudices the right
of 3rd persons. But is it expressly written in the provision itself? Had it been the
intention of the Congress to make the contract of partnership void only when
it prejudices the right of 3rd persons, they should have made it clear in the
provision. My point is, why did they make it clear in Article 1772 and not in
Article 1773?
But I think the SC ruled otherwise because of the 2nd reason which provides
that:
Second, petitioners themselves invoke the allegedly void contract as basis for
their claim that respondent should pay them 60 percent of the value of the
property.[13] They cannot in one breath deny the contract and in another
recognize it, depending on what momentarily suits their purpose. Parties
cannot adopt inconsistent positions in regard to a contract and courts will not
tolerate, much less approve, such practice.
For me, the 2nd reason is the more valid reason. The SC further said:
In short, the alleged nullity of the partnership will not prevent courts from
considering the Joint Venture Agreement an ordinary contract from which the
parties’ rights and obligations to each other may be inferred and enforced.
What does this imply? This implies that even if the contract of partnership is
void because it does not comply with a particular formal requirement, it does
not prevent the court from interpreting it as an ordinary contract. Because at
the end of the day, there was still an agreement made by the parties.
LITONJUA VS LITONJUA
(Case Digest: Earvin Alparaque)
FACTS:
Aurelio and Eduardo are brothers. In 1973, Aurelio and
Eduardo entered into a contract of partnership/joint venture. Aurelio
showed as evidence a letter sent to him by Eduardo that the latter is
allowing Aurelio to manage their family business (if Eduardo’s away) and
in exchange thereof he will be giving Aurelio P1 million or 10% equity,
whichever is higher. A memorandum was subsequently made for the said
partnership agreement. The memorandum this time stated that in
exchange of Aurelio, who just got married, retaining his share in the family
business (movie theatres, shipping and land development) and some other
immovable properties, he will be given P1 Million or 10% equity in all these
businesses and those to be subsequently acquired by them whichever is
greater.
In 1992 however, the relationship between the brothers went
sour. And so Aurelio demanded an accounting and the liquidation of his
share in the partnership. Eduardo did not heed and so Aurelio sued
Eduardo.
ISSUE: Whether or not a partnership exists between the two parties - NO
RULING:
Art. 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.
Art. 1772. Every contract of partnership having a capital of three thousand
pesos or more, in money or property, shall appear in a public instrument,
18
 BUSINESS ORGANIZATION I
(By: 3-Manresa, S.Y. 2017-2018)
From the Lectures of: Atty. Raymund Christian S. Ong-Abrantes, CPA
which must be recorded in the Office of the Securities and Exchange
Commission.
Failure to comply with the requirement of the preceding paragraph shall
not affect the liability of the partnership and the members thereof to third
persons.
Art. 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.
The memorandum on its face, contains typewritten entries,
personal in tone, but is unsigned and undated. As an unsigned document,
there can be no quibbling that it does not meet the public instrumentation
requirements exacted under Article 1771 of the Civil Code. Moreover,
being unsigned and doubtless referring to a partnership involving more
than P3,000.00 in money or property, the memorandum cannot be
presented for notarization, let alone registered with the Securities and
Exchange Commission (SEC), as called for under the Article 1772 of the
Code. And inasmuch as the inventory requirement under the succeeding
Article 1773 goes into the matter of validity when immovable property is
contributed to the partnership, the next logical point of inquiry turns on the
nature of petitioner’s contribution, if any, to the supposed partnership.
Petitioner, in an obvious bid to evade the application of Article
1773, argues that the immovables in question were not contributed, but
were acquired after the formation of the supposed partnership. Needless
to stress, the Court cannot accord cogency to this specious argument. For,
as earlier stated, petitioner himself admitted contributing his share in the
supposed shipping, movie theatres and realty development family
businesses which already owned immovables even before the
memorandum was allegedly executed.
Considering thus the value and nature of petitioner’s alleged
contribution to the purported partnership, the Court, even if so disposed,
cannot plausibly extend to the memorandum the legal effects that petitioner
so desires and pleads to be given. The memorandum in fine, cannot
support the existence of the partnership sued upon and sought to be
enforced. The legal and factual milieu of the case calls for this disposition.
A partnership may be constituted in any form, save when immovable
property or real rights are contributed thereto or when the partnership has
a capital of at least ₱3,000.00, in which case a public instrument shall be
necessary. And if only to stress what has repeatedly been articulated, an
inventory to be signed by the parties and attached to the public instrument
is also indispensable to the validity of the partnership whenever immovable
property is contributed to it.
This is not a case for damages but a case for accounting and specific
performance based on the alleged partnership contract. The SC said that
Article 1773 was not complied but it applied the said article as it is in resolving
the case.
The SC further said that “considering that the allegations in the complaint
showed that petitioner contributed immovable properties to the alleged
partnership, the Memorandum which purports to establish the said
partnership/joint venture is NOT a public instrument and there was NO
inventory of the immovable property duly signed by the parties. As such, the
said Memorandum is null and void for purposes of establishing the existence
of a valid contract of partnership.”
Since here, the partnership was void; the action will not prosper because there
was no actionable document. In this case, the SC did not anymore determine
whether there are 3rd persons or none and it applied Article 1773 as it is. This
ruling is more in keeping with the law compared to the ruling in the previous
case.Again, what is the reason why the contract of partnership is void when
there is no inventory and public instrument?
- Under Land Titles and Deeds, if a real property contributed to the
partnership is not annotated/registered with the Registry of
Property, it is equivalent to defrauding the persons who would
transact with that particular property.
Partner subject to unlimited liability
When you compare corporations to partnerships:
In Corporations, the owners are stockholders. Generally the stockholders have
limited liability in the sense that they can only be liable for the corporation’s
debts to the extent of their capital contribution in the form of stocks.
In partnerships, partners have unlimited liability like the sole proprietorship.
Sole proprietorship
e.g. I own a carwash and carinderia, magkatabi lang sila. If I am the sole
proprietor, let us say na-bankrupt si carinderia pero booming si carwash, so
nagka-utang2 ako sa carinderia. Ang dami kong creditors. The creditors can
actually go to my property doon sa carwash. In return, I have unlimited liability
with respect to the creditors of the carinderia.
Why is that the case? Look at this, me as the sole owner, I can reap all the
profits of the businesses. I manage the businesses and I owned them.
Essentially, kung malugi siya dapat ako pud ang managot kay ako raman nag-
decide.
Corporation
Generally, the owners are the stockholders. Kinsa man ang naga-buot? Are
the stockholders the one “buot-ing” ? No. Ang nagpapa-lakad ng buong
corporation are the Board of Directors (BOD). Now, would it be fair if the
stockholders will have unlimited liability when in fact they are not the one
making decisions?
Partnership
Essentially in a partnership setting, it’s just like an aggrupation of sole
proprietorship. Partners are the ones contributing money, property or industry,
at the same time they are the ones realizing the profits. Essentially, sila pud
dapat ang malugi kay sila man ang naga-manage. That’s primarily the reason
why partners have unlimited liability compared to corporation’s stockholders.
Different classifications of partnership
Art. 1776. As to its object, a partnership is either universal or
particular. As regards the liability of the partners, a partnership may
be general or limited. (1671a)
(Sir reads the book of De Leon)
(1) As to the extent of its subject matter. — A partnership may be:
(a) Universal partnership or one which refers to all the present property or to
all profits.
There are thus two kinds of universal partnership, to wit:
(1) Universal partnership of all present property.
(2) Universal partnership of profits. Or
(b) Particular partnership. — This is defined in Article 1783.
(2) As to liability of the partners. — It may be:
(a) General partnership or one consisting of general partners who are liable
pro rata and subsidiarily and sometimes solidarily with their separate property
for partnership debts; or
(b) Limited partnership or one formed by two or more persons having as
members one or more general partners and one or more limited partners, the
latter not being personally liable for the obligations of the partnership.
*Sir - Just take note that in limited partnership, there should be at least one
limited partner. If there is no limited partner, it is not a limited partnership.
(3) As to its duration. — It is either:
(a) Partnership at will or one in which no time is specified and is not formed for
a particular undertaking or venture and which may be terminated at anytime
by mutual agreement of the partners, or by the will of any one partner alone;
or one for a fixed term or particular undertaking which is continued by the
partners after the termination of such term or particular undertaking without
express agreement or
(b) Partnership with a fixed term or one in which the term for which the
partnership is to exist is fixed or agreed upon or one formed for a particular
undertaking, and upon the expiration of the term or completion of the particular
enterprise, the partnership is dissolved, unless continued by the partners.
(4) As to the legality of its existence. — It may be:
(a) De jure partnership or one which has complied with all the legal
requirements for its establishment; or
(b) De facto partnership or one which has failed to comply with all the legal
requirements for its establishment.
19
 BUSINESS ORGANIZATION I
(By: 3-Manresa, S.Y. 2017-2018)
From the Lectures of: Atty. Raymund Christian S. Ong-Abrantes, CPA
*Sir – I have an issue with this. Generally, a partnership is consensual in
nature. So it’s a gray area to say that there’s de jure or de facto partnership. If
it failed to comply with the formal requirements, then it is void. Why do you say
de facto?
(5) As to representation to others. — It may be:
(a) Ordinary or real partnership or one which actually exists among the
partners and also as to third persons;
(b) Ostensible partnership or partnership by estoppel or one which in reality is
not a partnership, but is considered a partnership only in relation to those who,
by their conduct or admission, are precluded to deny or disprove its existence.
(6) As to publicity. — It may be:
(a) Secret partnership or one wherein the existence of certain persons as
partners is not avowed or made known to the public by any of the partners; or
(b) Open or notorious partnership or one whose existence is avowed or made
known to the public by the members of the firm.
(7) As to purpose. — It may be:
(a) Commercial or trading partnership or one formed for the transaction of
business; or
(b) Professional or non-trading partnership or one formed for the exercise of a
profession.
Kinds of partners
Partners are classified according to their interests in the partnership business,
or their obligations to the partnership, or their liabilities to third persons.
(1) Under the Civil Code. — Partners are classified into:
(a) Capitalist partner or one who contributes money or property to the common
fund;
(b) Industrial partner or one who contributes only his industry or personal
service;
(c) General partner or one whose liability to third persons extends to his
separate property; he may be either a capitalist or industrial partner. He is also
known as real partner;
(d) Limited partner or one whose liability to third persons is limited to his capital
contribution. He is also known as special partner. The terms “general partner”
and “limited partner” have relevance only in a limited partnership;
(e) Managing partner or one who manages the affairs or business of the
partnership; he may be appointed either in the articles of partnership or after
the constitution of the partnership. He is also known as general or real partner;
(f) Liquidating partner or one who takes charge of the winding up of partnership
affairs upon dissolution;
(g) Partner by estoppel or one who is not really a partner, not being a party to
a partnership agreement, but is liable as a partner for the protection of innocent
third persons. He is one who is represented as being in fact a partner, but who
is not so as between the partners themselves. He is also known as partner by
implication or nominal partner.
The term “quasi-partner” is sometimes used;
(h) Continuing partner or one who continues the business of a partnership after
it has been dissolved by reason of the admission of a new partner, or the
retirement, death, or expulsion of one or more partners;
(i) Surviving partner or one who remains after a partnership has been
dissolved by the death of any partner; and
(j) Subpartner or one who, not being a member of the partnership, contracts
with a partner with reference to the latter’s share in the partnership.
(2) Other classifications. — They have also been classified into:
(a) Ostensible partner or one who takes active part and known to the public as
a partner in the business, whether or not he has an actual interest in the firm.
Thus, he may be an actual partner or a nominal partner. If he is not actually a
partner, he is subject to liability by the doctrine of estoppel;
(b) Secret partner or one who takes active part in the business but is not known
to be a partner by outside parties nor held out as a partner by the other
partners, although he participates in the profits and losses of the partnership.
He is an actual partner. He is also an active partner in the sense that he
participates in the management of the partnership affairs;
(c) Silent partner or one who does not take any active part in the business
although he may be known to be a partner. Thus, he need not be a secret
partner. If he withdraws from the partnership, he must give notice to those
persons who do business with the firm to escape liability in the future;
(d) Dormant partner or one who does not take active part in the business and
is not known or held out as partner. He would be both a silent and a secret
partner. He would be both a secret and a silent partner. He may retire from the
partnership without giving notice and cannot be held liable for obligations of
the firm subsequent to his withdrawal. His only interest in joining the
partnership would be the sharing of the profits earned.
The term is used as synonymous with “sleeping partner”;
(e) Original partner or one who is a member of the partnership from the time
of its organization;
(f) Incoming partner or a person lately, or about to be, taken into an existing
partnership as a member; and
(g) Retiring partner or one withdrawn from the partnership; a withdrawing
partner.
All partners in any of these six classes are subject to liability for all partnership
obligations.
Sir reads the following provisions:
Art. 1777. A universal partnership may refer to all the present property
or to all the profits. (1672)
Art. 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)
Art. 1779. In a universal partnership of all present property, the
property which belongs 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)
Art. 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)
Art. 1781. Articles of universal partnership, entered into without
specification of its nature, only constitute a universal partnership of
profits. (1676)
Again, in a universal partnership of all present property, what is the common
property?
1. Property which belongs to each of them at the time of the
constitution of the partnership.
2. The profits which they may acquire from the contributed property.
20
 BUSINESS ORGANIZATION I
(By: 3-Manresa, S.Y. 2017-2018)
From the Lectures of: Atty. Raymund Christian S. Ong-Abrantes, CPA
How about future property?
Generally, it cannot be contributed. Future pa nga eh. That’s why inheritance
cannot be included.
In a universal partnership of profits, it is composed of all the property that the
partners may acquire by their industry or work during the existence of the
partnership.
Art. 1782. Persons who are prohibited from giving each other any
donation or advantage cannot enter into universal partnership. (1677)
Art. 1783. A particular partnership has for its object determinate
things, their use or fruits, or specific undertaking, or the exercise of
a profession or vocation. (1678)
Who are the persons prohibited from giving any donation or advantage to each
other?
The spouses. What do you think is the reason behind this rule?
“Donations between spouses during marriage are void except moderate gifts
on occasion of family rejoicing. This also applies to persons living together as
husband and wife without the benefit of marriage.”
Why? Because there is a tendency that the one who is superior would exert
undue influence and force to compel the other one to donate.
Art. 739 (Civil Code). The following donations shall be void:
(1) Those made between persons who were guilty of adultery or
concubinage at the time of the donation;
*Sir - no need for conviction. Only preponderance of evidence is required.
(2) Those made between persons found guilty of the same criminal
offense, in consideration thereof;
(3) Those made to a public officer or his wife, descendants and
ascendants, by reason of his office.
In the case referred to in No. 1, the action for declaration of nullity
may be brought by the spouse of the donor or donee; and the guilt of
the donor and donee may be proved by preponderance of evidence
in the same action. (n)
Can spouses just between themselves or with other 3rd parties validly enter
into a contract of partnership provided that the resulting partnership is not a
universal partnership?
CIR VS SUTER
(Case Digest: Eliza Devilleres)
FACTS:
1.) A limited partnership, named "William J. Suter 'Morcoin' Co., Ltd.," was
formed on by William J. Suter as the general partner, and Julia Spirig and
Gustav Carlson, as the limited partners.
2.) The partners contributed, respectively, P20,000.00, P18,000.00 and
P2,000.00 to the partnership and was thereafter registered with the SEC.
3.) The firm engaged,among other activities, in the importation, marketing,
distribution and operation of automatic phonographs, radios,television sets
and amusement machines, their parts and accessories. It had an office and
held itself out as alimited partnership.
4.) However, general partner Suter and limited partner Spirig got married
and, thereafter,limited partner Carlson sold his share in the partnership to
Suter and his wife. The sale was duly recordedwith the Securities and
Exchange Commission.
5.) The limited partnership had been filing its income tax returns as a
corporation, without objection by the hereinpetitioner, Commissioner of
Internal Revenue, until in 1959 when the latter, in an assessment,
determined a deficiency income tax against respondent Suter in the
amount of P2,678.06 for 1954 andP4,567.00 for 1955.
6.) Suter protested but this was denied.
7.) CONTENTION OF CIR: The marriage of Suter and Spirig and
theirsubsequent acquisition of the interests of remaining partner Carlson in
the partnership dissolved the limitedpartnership, and if they did not, the
fiction of juridical personality of the partnership should be disregarded
forincome tax purposes because the spouses have exclusive ownership
and control of the business, consequentlythe income tax return of
respondent Suter for the years in question should have included his and
his wife'sindividual incomes and that of the limited partnership
8.) CONTENTION OF SUTER: t his marriagewith limited partner Spirig and
their acquisition of Carlson's interests in the partnership in 1948 is not a
ground fordissolution of the partnership, either in the Code of Commerce
or in the New Civil Code, and that since its juridicalpersonality had not been
affected and since, as a limited partnership, as contra distinguished from
a dulyregistered general partnership, it is taxable on its income similarly
with corporations, Suter was not bound toinclude in his individual return the
income of the limited partnership.
ISSUE: W/N the partnership was dissolved after the marriage of the
partners, respondent William J. Suterand Julia SpirigSuter and the
subsequent sale to them by the remaining partner, Gustav Carlson, of
hisparticipation.
HELD: No, it was not dissolved.
WHAT IS PROHIBITED IS FOR SPOUSES TO ENTER INTO A
GENERAL PARTNERSHIP.
A husband and a wife may not enter into a contract of GENERAL
COPARTNERSHIP, because under the CivilCode, which applies in the
absence of express provision in the Code of Commerce, persons
prohibitedfrom making donations to each other are prohibited from entering
into UNIVERSAL PARTNERSHIPS. It follows that the marriage of partners
necessarily brings about the dissolution of a pre-existingpartnership.
WILLIAM SUTER MORCOIN LTD. WAS NOT A GENERAL
PARTNERSHIP BUT A PARTICULAR PARTNERSHIP. HENCE, IT IS
NOT A PROHIBITED PARTNERSHIP ENTERED INTO BY THE
SPOUSES
CIR evidently failed to observe the fact that William J. Suter "Morcoin" Co.,
Ltd. was not auniversal partnership, but a particular one. As appears
from Articles 1674 and 1675 of the Spanish Civil Code, of1889 (which was
the law in force when the subject firm was organized in 1947), a universal
partnership requireseither that the object of the association be all the
present property of the partners, as contributed by them to thecommon
fund, or else "all that the partners may acquire by their industry or work
during the existence of thepartnership". William J. Suter "Morcoin" Co., Ltd.
was not such a universal partnership, since the contributions ofthe partners
were fixed sums of money, P20,000.00 by William Suter and P18,000.00
by Julia Spirig and neitherone of them was an industrial partner. It follows
that William J. Suter "Morcoin" Co., Ltd. was not a partnershipthat spouses
were forbidden to enter by Article 1677 of the Civil Code of 1889.
CONTRIBUTIONS BY THE SPOUSES REMAINED AS THEIR
SEPARATE PROPERTIES EVEN AFTER MARRIAGE
21
 BUSINESS ORGANIZATION I
(By: 3-Manresa, S.Y. 2017-2018)
From the Lectures of: Atty. Raymund Christian S. Ong-Abrantes, CPA
Nor could the subsequent marriage of the partners operate to dissolve it,
such marriage not being one of thecauses 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, isequally erroneous. The capital
contributions of partners William J. Suter and Julia Spirig were separately
ownedand contributed by them before their marriage, and after they were
joined in wedlock, such contributionsremained their respective separate
property under the Spanish Civil Code (Article 1396):
The following shall be the exclusive property of each spouse:
(a) That which is brought to the marriage as his or her own ....
Thus, the individual interest of each consort in William J. Suter "Morcoin"
Co., Ltd. did not become commonproperty of both after their marriage
in 1948.
It being a basic tenet of the Spanish and Philippine law that the
partnership has a juridical personality of its own,distinct and separate
from that of its partners (unlike American and English law that does not
recognize such separate juridical personality), the bypassing of the
existence of the limited partnership as a taxpayer can only bedone by
ignoring or disregarding clear statutory mandates and basic principles of
our law. The limited
partnership's separate individuality makes it impossible to equate its
income with that of the component members.
True, section 24 of the Internal Revenue Code merges registered general
copartnerships (compañiascolectivas)with the personality of the individual
partners for income tax purposes. But this rule is exceptional in its
disregardof a cardinal tenet of our partnership laws, and can not be
extended by mere implication to limited partnerships.
The spouses can enter into a particular partnership because the prohibition
only provides that spouses are prohibited to donate to one another or from
entering into a universal partnership. The issue here is that, is this still
applicable given the enactment of Family Code?
According to Villanueva, spouses are not qualified to enter into other forms of
partnership for gain except professional partnership. The reasons are:
1. Every firm effectively makes partners donors to one another of their
contribution to the partnership.
- Why? Even if it’s particular, the wife will contribute the land and the husband
will contribute building. Ano ang mangyayari sa contributed capital? It will
become a co-ownership. So necessarily, it would appear that the prohibition
against donation was violated indirectly.
- For instance, there would be a contention that the partnership in not
gratuitous in nature, thus should not be considered a donation. It would still be
violative of Article 1490 of the Civil Code which provides:
“Art. 1490. The husband and the wife cannot sell property to each other,
except:
(1) When a separation of property was agreed upon in the marriage
settlements; or
(2) When there has been a judicial separation or property under Article 191.
(1458a)”
2. The property regime should be under the Family Code and not the
partnership law in the Civil Code.
- Can spouses governed by the absolute community property regime vary the
effects between them of certain community property by contributing them into
a particular partnership for gains? NO. Article 89 of the Family Code provides:
“No waiver of rights, shares and effects of the absolute community of property
during the marriage can be made except in case of judicial separation of
property.”
So nag-asawa kayo tapos eventually nag-create kayo ng partnership, pag
nagcontribute ka nagkakaroon ng co-ownership. So essentially, you’re varying
the effects of the absolute community property which is not allowed under
Article 89.
- How about in conjugal partnership of gains? You have Article 87 of the Family
Code. It would be amending the property regime which should violate Article
108 of the Family Code.
- How about complete separation of property, may the spouses validly enter
into a contract of particular partnership? No, it would amount to donation
contrary to Article 87.
3. A contract of partnership may offend Articles 76 and 77 of the Family Code
and there will arise the issue on control and binding effects of the acts of
partners. It’s the co-administrators versus agents of partners. Article 76 and
77 states:
“Art. 76. In order that any modification in the marriage settlements may be
valid, it must be made before the celebration of the marriage, subject to the
provisions of Articles 66, 67, 128, 135 and 136.
Art. 77. The marriage settlements and any modification thereof shall be in
writing, signed by the parties and executed before the celebration of the
marriage. They shall not prejudice third persons unless they are registered in
the local civil registry where the marriage contract is recorded as well as in the
proper registries of properties.”
Again, under absolute community property and conjugal partnership of gains,
the spouses are co-administrators. They are mutual agents with respect to the
property they contributed to the partnership. There is a difference between a
co-administrators and co-agents of a certain property.
How about partnership charges?
Remember in the Family Code, there is a rule of preference regarding charges
of the property of the spouses.
Villanueva said that spouses can only enter into professional partnerships
because this is allowed by Article 73 of the Family Code which provides:
“Either spouse may exercise any legitimate profession, occupation, business
or activity without the consent of the other.”
What if this will come out in the Bar exams? How will you answer it? Can the
spouses validly enter into a particular partnership?
You can answer that based on CIR vs Suter. It is not yet overturned. But for
your answer to pop out of the 5000 notebooks, you will discuss the Family
Code.
I put on hold before the reason why a corporation cannot be a partner, we will
discuss it now.
Generally, a corporation is not allowed to become a partner in a partnership.
Let us say, C1 and C2 are corporations. Remember, a principle in corporation
law is that the management is centralized, nasa BOD (BOD1 and BOD2). Their
authority came from the stockholders. So partners kunwari si C1 and C2. Diba
pag partner ka, may mutual agency? So in effect, everything that BOD1 will
do, damay si BOD2 because of mutual agency. Will it not violate the principle
in corporation law that the authority of BOD is given only by the corporation’s
stockholders? Decision ni BOD1, damay si BOD2 when in fact the
stockholders of C2 only authorized BOD2 to manage its affairs.
So this is the evil sought to be prevented by prohibiting the corporation from
becoming a partner in a partnership. This is actually a concept in Anglo-
American. The Philippines adopted the jurisprudence of American courts in
prohibiting the corporations. Now because of the *proliferation* of this na sabi
ng SEC parang unfair naman kung ipagbabawal, to prevent this scenario, let’s
put conditions to allow a corporation to enter into a partnership.
So what are those conditions? We have SEC OGC Opinion No. 22-2016 dated
October 4, 2016 which provides:
“The Commission has consistently opined that as a general rule, a corporation
cannot enter into a contract of partnership with an individual or another
corporation; however, it may be allowed to do so provided it complies with
certain conditions, to wit:
1. The authority to enter into a partnership relation is expressly
conferred by the charter (Sir: meaning expressly authorized by the
owners. In effect, the owners are waiving their right to question the
effects of mutual agency) or the articles of incorporation of the
corporation, and the nature of the business venture to be
undertaken by the partnership is in line with the business
22
 BUSINESS ORGANIZATION I
(By: 3-Manresa, S.Y. 2017-2018)
From the Lectures of: Atty. Raymund Christian S. Ong-Abrantes, CPA
authorized by the charter or articles of incorporation of the
corporation involved.
2. If it is a foreign corporation, it must obtain a license to transact
business in the country in accordance with the Corporation Code
of the Philippines.
However, while a corporation has no power to enter into a partnership,
nevertheless, it may validly enter into a joint venture agreement, where the
nature of that venture is in line with the business authorized by its charter.”
JULY 7, 2017
(Transcriber: Zarah Domingo)
Obligations of the Partners
Relations created by the contract of partnership:
1.) Relations among the partners themselves;
2.) Relation of the partners with the partnership;
3.) Relation of the partnership with third persons;
4.) Relation of partners with third persons.
Partnership relationship is essentially one of mutual trust and
confidence.
Each partner is a trustee and cestui que trust at the same time. He is entrusted
to the extent that the juris bind him as far as the juris present in his co-partners.
The many particular rights and duties are but aspects of the broad fiduciary
relation.
Article 1784: A partnership begins from the moment of the execution of
the contract, unless it is otherwise stipulated.
As a consensual contract, a partnership exists from the moment of the
celebration of the contract.
The birth and life of a partnership is predicated on a mutual desire and consent
of the parties.
Unlike a corporation, no time limit is prescribed by the law for the life of
partnership.
Partners can fix it for one whole term. When you look at the Corporation Code,
the corporation has a limited life of 50 years but it is renewable. Within 50
years of the expiration, you can renew for another 50 years. In the case of
partnership, walang expiration.
You will learn later on that one of the reasons or causes of dissolution is
death.
So kung ang 23ay un partner, ang lifetime niya lang ay 30, hantud 30 lang
pud, ma-dissolve siya. Limited siya of the lifetime of the partner. But as a rule,
there is no limit for partnership.
Can you have a contract of future partnership?
Look at the article “unless it is otherwise stipulated.” So pwede ba mag-agree
kayo ngayon tapos sabihin ninyo in 3 months, doon tayo magstart. Pwede?
Pwede. That is what you call “future partnership.”
The partners may stipulate some other time for the commencement of
the partnership.
There can be a future partnership which at the moment has no juridical
existence yet. But please take note of your statute of frauds, if within 1 year, it
must be in some form, note or memorandum to be enforceable.
Article 1785: When a partnership for a fix 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.
We enumerated the classification of partnership:
1.) partnership at will; and
2.) partnership for a fixed term.
If and when mag-expire ang partnership for a fix term or a particular
undertaking, then they continued, there is an implied agreement na wala
naman silang dissolution—it can be considered as a partnership at will.
A continuation of the business by the partners or such of them as habitually
acted thereon during the term without any settlement or liquidation of the
partnership affairs, is prima facie evidence of the continuation of the
partnership.
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.
What are the obligations of a partner with respect to the contribution of
property:
(1) To contribute at the beginning of the partnership or at the stipulated
time the money, property, or industry which he may have
promised to contribute;
(2) To answer for eviction in case the partnership is deprived of the
determinate property contributed; and
Note: Remember the requisites for eviction on your law on sales. It
equally applies.
(3) To answer to the partnership for the fruits of the property the
contribution of which he delayed, from the date they should have
been contributed up to the time of actual delivery; Note: This is an
exception to the rule that there has to be a demand for delay to
incur.
(4) To preserve said property with the diligence of a good father
of a family pending delivery to the partnership; and
(5) To indemnify the partnership for any damage caused to it by
the retention of the same or by the delay in its contribution.
Example: Kailangan na bumili ng equipment, hindi pa nadeliver
yung money na supposedly contribution. So since need na talaga
ang money, nagborrow. So ano ang damage nun? Yung interest.
So you can demand the:
a.) interest of the loan of the money borrowed; and
b.) interest doon sa money na dapat i-contribute.
So iba yung damage, iba yung interest, even if both naman sila
interest.
Failure to contribute makes the partner ipso jure a debtor of the
partnership even in the absence of any demand.
So what is your remedy in case hindi pa magco-contribute yung isang partner?
SANCHO vs LIZARAGA
(Case Digest: Eliza Devilleres)
FACTS:
1.) Sancho brought an action for the rescission of a partnership contract
between himself and the defendant, the reimbursement by the latter of
his 50,000 peso investment therein, with interest at 12 per cent per
annum from October 15, 1920, with costs, and any other just and
equitable remedy against said defendant.
2.) Lizarraga specifically denied the allegations of Sancho and asks for
the dissolution of the partnership, and the payment to him as its manager
and administrator of P500 monthly from October 15, 1920, until the final
dissolution, with interest, one-half of said amount to be charged to
Sancho.
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 BUSINESS ORGANIZATION I
(By: 3-Manresa, S.Y. 2017-2018)
From the Lectures of: Atty. Raymund Christian S. Ong-Abrantes, CPA
3.) CFI declared the partnership dissolved and ordered for a liquidation.
4.) CONTENTION OF LIZARRAGA: This appeal is premature and
therefore will not lie. The point is based on the contention that inasmuch
as the liquidation ordered by the trial court, and the consequent accounts,
have not been made and submitted, the case cannot be deemed
terminated in said court and its ruling is not yet appealable. In support of
this contention counsel cites section 123 of the Code of Civil Procedure,
and the decision of this court in the case of Natividad vs. Villarica (31
Phil., 172).
ISSUE:
1799.) W/N the dissolution of the partnership was proper.
— No
2.) W/N 1681 & 1682 of the Civil Code was properly applied. – Yes
HELD:
1.) APPEAL IN THE INSTANT CASE DEEMED PREMATURE
Until the accounts have been rendered as ordered by the trial court, and
until they have been either approved or disapproved, the litigation
involved in this action cannot be considered as completely decided and,
as it was held in said case of Natividad vs Villarica, also with reference
to an appeal
taken from a decision ordering the rendition of accounts following the
dissolution of partnership, the appeal in the instant case must be deemed
premature.
2.) LIZARRAGA’S FAILURE TO PAY THE PARTNERSHIP, HE
BECAME INDEBTED TO IT. BUT SANCHO CANNOT DEMAND
RESCISSION.
The affirmation of the judgment appealed from is inevitable. In view of the
lower court’s findings referred to above, which we cannot revise because
the parol evidence has not been forwarded to this court, articles 1681
and 1682 of the Civil Code have been properly applied.
Owing to the defendant’s failure to pay to the partnership the whole
amount which he bound himself to pay, he became indebted to it for
the remainder, with interest and any damages occasioned thereby,
but the plaintiff did not thereby acquire the right to demand
rescission of the partnership contract according to article 1124 of the
Code. This article cannot be applied to the case in question,
because it refers to the resolution of obligations in general, whereas
article 1681 and 1682 specifically refer to the contract of partnership
in particular. And it is a well-known principle that special provisions
prevail over general provisions.
Like the Old Civil Code, meron ding specific provision sa New Civil Code, kaya
applicable pa rin siya. Based on the premise that a debtor is a partner who
failed to contribute, (the remedy is) specific performance.
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 the
account of the partnership.
This provision gives you the rules on how appraisal should be made.
1.) First, in the manner provided in the contract of partnership.
2.) Second, kung walang stipulation sa contract, yung expert chosen
by the partners.
As you can see, hindi pwede yung partner ang magbuot-buot sa goods. Kini
P50,000.
(What about) if that is specifically stipulated sa contract of partnership, will that
be valid? Di ba nakasabi ‘in the manner prescribed by the contract of
partnership.’ What if nakalagay sa contract of partnership that ‘the prices
should be determined by Partner A.’ Will that still be valid?
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 of 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.
Obligation with respect to contribution of money and converted to
personal use:
1.) To contribute;
2.) To reimburse any amount he may have taken from the
partnership coffers and converted to personal use;
3.) To pay the agreed or legal interest;
4.) To indemnify the partnership for damages.
He is liable for interest and damages not from the time of judicial or extra-
judicial demand.
So this is an exception to the general rule in obligations and contracts. In the
partner’s case, it is from the time he should have complied his obligation or
from the time he converted the amount to his own use.
Unless otherwise stipulated, obligation to contribute arises from the
commencement of the partnership.
In LIWANAG VS CA, let’s say Person 1, may money siya. Sabi niya sa Person
2, bigay ko sayo pambili ng cigarettes. Ang nangyari, hindi bumili ng cigarettes,
it was converted to his personal use. The contention of Person 2, may contract
of partnership kami so in effect, yung gi-contribute, owner din siya, so mawala
na ang element of deceit (since this is a case against Person 2 for estafa).
24ay un24 Supreme Court, kahit na contract of partnership, you look at this
provision—even assuming that a contract of partnership has been
entered into by and between the parties, we have a rule that when money
and property have been received by a partner for a specific purpose and
he later misappropriated it, such partner is guilty of estafa.
Why? Because the relationship of partners is based on mutual trust and
confidence. Meron pa din yung element ng trust, so may deceit pa din, if you
used it in a different way.
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.
So as you can see, an industrial partner, this is on the premise na dapat, since
industry ang icontribute mo, dapat focus ka sa business.
The limitation is absolute: ‘Cannot engage in business for himself’,
whether or not that business is related to the partnership.
This is based on the premise 24ay un na nga lang ang icontribute mo. How
will you contribute your industry kung hati-hati imuhang time?
Unless the contrary is stipulated, he becomes a debtor of the partnership
for his work or services from the moment the partnership relation begins.
In effect the partnership acquires an exclusive right to avail himself of his
industry.
Can you demand specific performance pag-industrial partner? No. It will
be tantamount to involuntary servitude. So, walang pilitan. Bayad ka na lang
ng damages.
24
 BUSINESS ORGANIZATION I
(By: 3-Manresa, S.Y. 2017-2018)
From the Lectures of: Atty. Raymund Christian S. Ong-Abrantes, CPA
What are your remedies should the industrial partner engage into
business? You have the right to either:
1.) Exclude him from the firm; or
2.) Avail themselves of the benefits which he may have obtained.
Kunwari may isa siyang business, tapos profitable yun. Pwedeng sabihin ng
capitalist partner na kung ano man ang profit mo doon, amin yun. I-avail niya
yung benefits 25ay u-receive ni industrial partner, with right to damages, for
both instances. So either right or remedy, may right to damages.
Article 1790: Unless there is a stipulation to the contrary, the partners shall
contribute equal shares to the capital of the partnership.
Kapag ba maliit lang yung gi-contribute mo, do you have a lesser voice in the
management of the partnership. Let’s say 10% lang ang gicontribute, minority
lang, meaning ba nun, dili ka kabuot?
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 be obliged to sell his interest to the other partners.
General Rule: Capitalist partner is not bound to contribute more than what he
agreed to.
Exception: In case of imminent loss of the business, and walang agreement
na in case of imminent loss, hindi ka pa rin magcontribute, you are obliged to
contribute additional share, to save the venture.
This is based on the concept that as an owner, your interest should be
to the partnership.
Bakit excluded si industrial partner? Kasi diba yun naman talaga ang
icontribute niya, service. Hindi na niya mabawi ang efforts na kanyang inexert.
Requisites for the application of the rule:
1.) There is an imminent loss of the business of the partnership;
2.) The majority of the capitalist partners are of the opinion that
an additional contribution to the common fund would save the
business;
3.) The capitalist partner refuses deliberately (not because of his
financial inability to do so), to contribute an additional share to
the capital; and
4.) There is no agreement that even in case of an imminent loss of
the business the partners are not obliged to contribute.
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 debtor by Article 1252, but only if the personal credit
of the partner should be more onerous to him.
Kapag you are authorized to manage the partnership tapos naka-collect ka,
even if yung resibo nasa pangalan mo lang, you have to apportion. This is
because your interest should be, nasa partnership.
But take note of the application. Article 1252 is the provision on applications
for payment. The debtor has the right to apply the credit kung asa ang mas
onerous, asa niya iapply ang credit. He is given this right. Take note of that.
But this application for payment will apply only if the personal credit is more
onerous. This was discussed thoroughly in your credit transactions.
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.
Requisites for application of this rule:
1.) A partner has received, in whole or in part, his share of the
partnership credit;
2.) The other partners have not collected their shares; and
3.) The partnership debtor has become insolvent.
Does this apply during the partnership or after dissolution?
There are some commentators na nagsasabi na during the partnership. Meron
25ay un nagsasabi na both during and after. It is weird because you collect a
partnership credit while the partnership is ongoing. How will that be for
accounting purposes na nauna siya collect tapos sa iyahang self gibutang?
But then again, he has to account.
Just take note of the opinion of Manresa and Ricci na hindi daw siya
applicable pag after dissolution kasi it will not be just that:
1.) he who diligently collected should suffer the consequence of the
negligence of his associates; and
2.) upon the dissolution, the tie that unites the partnership ceases
thus the reason for the obligation disappears.
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.
So hindi pwede, kunwari, nakasala ka, nagsuffer ang partnership, na instead
nimu bayaran ang damages, i-charge na lang sa akuang profits sa share. That
is not allowed.
What if (there was an) extraordinary effort and unusual profits have been
realized?
Kunwari, in the normal course of business, naa lang siya sa office. Nakasala
siya. Kabalu siya sa Article 1794, dili nako pwede icharge sa akuang profits,
so dapat ko mag-extraordinary effort. So, nigawas siya sa iyahang office,
nagdistribute siya ug flyers para mabenta ilahang nabebenta. Because of that,
marami na ang customer, nagkaroon ng maraming profits.
Would the damages be offset by the profits? Would that lessen the
damages that he brought to the partnership?
Extraordinary effort 25ay un ha, dili usual na muadto siya sa malls para lang
makakuha customer.
It is the court that will lessen equitably lessen.
So hindi pwede na by that effort alone, ma-lessen na ang kanyang obligation,
ang kanyang damages. Kasi kahit pa extraordinary efforts, he has to ask the
authority of the court to lessen his responsibility.
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 contributed 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 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.
So this is based on the rule on your obligations and contract. Ano yun? (No
answer.)
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 expenses are made; it shall
also answer to each partner for the obligations he may have contracted
25
 BUSINESS ORGANIZATION I
(By: 3-Manresa, S.Y. 2017-2018)
From the Lectures of: Atty. Raymund Christian S. Ong-Abrantes, CPA
in good faith in the interest of the partnership business, and for risks in
consequence of its management.
Hindi lang ang partner ang may responsibility sa partnership. Ang partnership
din may responsibility sa partner. So kung nag-advance ka, dapat
ipapareimburse mo rin sa partnership.
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.
Take note of this provision kasi usually tinatanong ito.
(How is the) sharing of profits and losses (made)?
So again, kung may agreement as to profits, yun. Pag-walang agreement sa
profits, the share of each capitalist partner shall be in proportion to its capital
contribution.
What about the industrial partner, (considering that he did not
contribute) capital?
He shall receive a just and equitable share under the circumstance.
Sa accounting, inuuna ang industrial, ina-apportion. Ito yung profit. Pag-
walang agreement, unahin ang industrial. Usually yung pinaka-mababa sa
capitalist, ineequivalent siya sa industrial. So una talaga yung industrial, just
and equitable. Usually pag-partnership, yung market value, magkano yung
market value ng services niya, i.e. market value ng manager sa ganitong
industry.
The losses shall be according to agreement. This is very weird, there is an
agreement of sharing of losses. Who would agree to distribute the loss?
Kung walang agreement pero may profits, it should be in accordance with the
profit-sharing stipulation. If walang profit-sharing stipulated, the losses in
proportion to capital contribution.
But again the industrial partner is not liable for losses. The principle that the
industrial partner is not liable for losses is luging-lugi na siya kung malugi ang
company kasi nag-effort na siya. Maayo man ang capitalist kay hayahay ra
man siya.
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.
The reason for this is to avoid any conflict, kasi pera-pera na. Take a look at
the provision? Bakit 3 months? Kasi kung pahabain mo pa yan, wala na,
maparalyze na ang operation kasi nagalalis na mu kung unsaun pagdivide sa
profits and losses.
Article 1799 is a very important provision.
Article 1799: A stipulation which excludes one or more partners from any
share in the profits or losses is void.
Is the partnership void (if there is a stipulation that) Partner A (should
not share in the losses)? No, the partnership is not void, only the stipulation.
(How are they now going to) distribute the profits and losses? It is as if
there is no stipulation. So kung profits—as to capital contribution. Kung
losses—capital contribution.
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.
Kapag naglagay kayo sa articles of partnership kung sino yung manager,
yung power niya, ang hirap tanggalin. Look at the provision, he can execute
all acts of administration despite the opposition of his partners. The only
exception is pag may bad faith. So sa day to day decision, pwede siya
magbuot-buot. So that is the disadvantage kung naglagay kayo ng pangalan
doon.
Pagnasabutan ninyu ang manager after the constitution, what will
happen? It may be revoked at any time. No need for bad faith. Good faith
or bad faith, pwede nimu siya i-invoke. Pag-constitution siya, naa siya sa
articles of partnership, there has to be bad faith.
TAI TONG CHUACHE & CO vs INSURANCE COMMISSION
(Case Digest: Eliza Devilleres)
FACTS:
1.) Azucena Palomo obtained a loan from Tai Tong Chuache Inc. in the
amount ofP100,000.00. To secure the payment of the loan, a mortgage
was executed over the land and the building in favor of Tai Tong
Chuache& Co. On April 25, 1975, Arsenio Chua, representative of Tai
Tong Chuache & Co. insured the latter’s interest with Travellers Multi-
Indemnity Corporation for P100,000.00.
2.) Pedro Palomo secured a Fire Insurance Policy covering the building
for P50,000.00 with respondent Zenith Insurance Corporation. Another
Fire Insurance was procured from respondent Philippine British
Assurance Company, covering the same building for P50,000.00 and the
contents thereof for P70,000.00.
3.) The building and the contents were totally razed by fire.
4.) Based on the computation of the loss, including the Travellers Multi-
Indemnity, respondents, Zenith Insurance, Phil. British Assurance and
S.S.S. Accredited Group of Insurers, paid their corresponding shares of
the loss.
5.) Demand was made from respondent Travellers Multi-Indemnity for its
share in the loss but the same was refused. Hence, complainants
demanded from the other three (3) respondents the balance of each
share in the loss but the same was refused, hence, this action.
26
 BUSINESS ORGANIZATION I
(By: 3-Manresa, S.Y. 2017-2018)
From the Lectures of: Atty. Raymund Christian S. Ong-Abrantes, CPA
6.) Tai Tong Chuache & Co. filed a complaint in intervention claiming the
proceeds of the fire
Insurance Policy issued by respondent Travellers Multi-Indemnity.
7.) Travellers Insurance, in answer to the complaint in intervention,
alleged that the Intervenor is not entitled to indemnity under its Fire
Insurance Policy for lack of insurable interest before the loss of the
insured premises and that the complainants, spouses Pedro and
Azucena Palomo, had already paid in full their mortgage
indebtedness to the intervenor.
8.) RULING OF THE INSURANCE COMMISSION: Absolved respondent
insurance company from liability on the basis of the certification issued
by the then Court of First Instance of Davao, Branch II, that in a certain
civil action against the Palomos, Arsenio Lopez Chua stands as the
complainant and not Tai Tong Chuache. From said evidence respondent
commission inferred that the credit extended by herein petitioner to the
Palomos secured by the insured property must have been paid.
9.) TRAVELLERS’ CONTENTION: If the civil case really stemmed from
the loan granted to Azucena Palomo by petitioner the same should have
been brought by Tai Tong Chuache or by its representative in its own
behalf. From the above premise respondent concluded that the obligation
secured by the insured property must have been paid.
ISSUE: W/N Chua can act in behalf of Tai Tong.
HELD: Yes.
A PARTNERSHIP MAY SUE AND BE SUED IN ITS NAME OR BY ITS
DULY AUTHORIZED REPRESENTATIVE
The premise is correct but the conclusion is wrong. Citing Rule 3, Sec. 2
respondent pointed out that the action must be brought in the name of
the real party in interest. We agree. However, it should be borne in
mind that petitioner being a partnership may sue and be sued in its
name or by its duly authorized representative. The fact that Arsenio
Lopez Chua is the representative of petitioner is not questioned.
Petitioner’s declaration that Arsenio Lopez Chua acts as the managing
partner of the partnership was corroborated by respondent insurance
company. 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. Or at the very least, Chua being a partner of
petitioner Tai Tong Chuache & Company is an agent of the partnership.
Being an agent, it is understood that he acted for and in behalf of the firm.
Public respondent’s allegation that the civil case filed by Arsenio Chua
was in his capacity as personal creditor of spouses Palomo has no basis.
The respondent insurance company having issued a policy in favor of
herein petitioner which policy was of legal force and effect at the time of
the fire, it is bound by its terms and conditions. Upon its failure to prove
the allegation of lack of insurable interest on the part of the petitioner,
respondent insurance company is and must be held liable.
‘All acts of administration’ includes the ‘right to sue debtors of the
partnership’ in case of their failure to pay the obligation when it became
due and demandable. So all acts of administration, it includes the right to
sue. So you can actually sue in behalf of the partnership if you are the
managing partner, of course.
Article 1801: If two or more partners have been intrusted with the
management of the partnership without specification of their respective
duties, or without 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. Incase of a tie, the matter shall
be decided by the partners owning the controlling interest.
So let’s say may 5 managing partners. Walang stipulation na dapat lahat sila
mag-decide. So each of them can decide all acts of administration.
What if may opposition? Sino magdedecide? Kung 5, tatlo. Let’s say 2 yung
pro, 3 yung against, pero yung 2 ay tag-30% (equal to 60%), the rest total of
40%. Do they have the right to question? Wala. Kasi hindi man tie.
So in case of a tie, saka magfollow ang rule on controlling interest.
Kaya usually, in corporations, yung boards of directors, bungkig jud na siya,
like minimum of not more than 15. They try to avoid paralyzation of business,
maghulat pa ug another way bago maconduct ang day-to-day operation.
And it is also very crucial, in practice, dali ra jud maghimu ug corporation.
Muadto lang ka ug lawyer, bayad lang ka P20,000, papel-papel, parehistro sa
SEC. Sometimes man gud, ang ginabuhat lang nila, maghimu lang ta ug tao,
dummy-dummy tapos magkaproblema na later on, asa na tung mga tao na
papirmahun, wala na, so magtanggung ang operation. So sa mga tao na dili
kayo well-versed sa corporation law, magkaproblema later on.
Requisites for application of the rule:
1.) Two or more partners have been appointed as managers;
2.) There is no specification of their respective duties; and
3.) There is no stipulation that one of them shall not act
without the consent of all the others.
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.
Kapag may stipulation na kailangan mag-act ang lahat, dapat mag-act ang
lahat. Even disability cannot be alleged.
What is the problem pag ganito ang setup? Madelay ang operations ng
business. What if magbakasyon yung isa or dalawa, kailangan tawagan mo
pa? ‘Kailangan ba bilhin ito?’
That is why there is a caveat that ’unless there is imminent danger of grave or
irreparable injury to the partnership’. So even if (the) managers (are not
complete), they can still act provided that the circumstance imposes an
imminent danger of irreparable injury to the partnership.
JULY 15, 2017
(Transcriber: Isaihlene Abad)
Art. 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.
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
27
 BUSINESS ORGANIZATION I
(By: 3-Manresa, S.Y. 2017-2018)
From the Lectures of: Atty. Raymund Christian S. Ong-Abrantes, CPA
the interest of the partnership, the court’s intervention may be
sought.
This talks about an act of strict dominion. You don’t need the consent of all
partners unless it is manifestly prejudicial. You seek the court’s intervention.
Again you cannot just decide on your own.
Art. 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.
Contract of Subpartnership. An original partner can partner with someone else
but that person cannot be admitted to the original partnership because that
partnership is based on mutual trust and confidence. This is based on the
principle of delectus personae. Ikaw ng.contract ka ug partnership sa ibang
tao does not mean the original partners agree with your decision of selecting
a particular subpartner.
Art. 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.
So consistent with the right to manage. The partner has also the right to
inspect the books kasi owner siya diba but please take note of the provision –
you can only check the books at any reasonable hour and have access or
inspect them at the principal place of business. You cannot demand to inspect
the book at 6pm or beyond the business hours.
Art. 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.
Consistent with your right as owner of the partnership, you have the right to
demand true and full information. Kasi diba pwede naman the management of
the partnership is given to one or more person, so yung iba can demand true
and full information of the partnership.
Art. 1807. Every partner must account to the partnership for any
benefit, and hold as trustee for it any profits derived by him without
the consent of the other partners from any transaction connected
with the formation, conduct, or liquidation of the partnership or from
any use by him of its property.
Since partnership is based on mutual trust and confidence, the partner has the
duty to act for the common benefit. In this particular provision, any transaction
connected with the formation, conduct or liquidation of the partnership. In
liquidation, lets say ng.liquidate ka ng partnership, nagbenta kayo ng assets,
the money charged for liquidation has been able to gain profits, that person
must account for the profit and hold it as trustee for the partnership.
Duty begins during formation of partnership
Principle of good faith applies not only during partnership but during the
negotiations leading to the formation of the partnership.
Art. 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.
Compare and contrast this with the prohibition on industrial partners.
Remember capitalist partner only prohibited to engage in similar kind of
business because of your duty as an owner(duty of interest). Compare this
with the industrial partners prohibition which is absolute. What are the
remedies of other partners? You can demand any profits accruing to the
capitalist partner but the losses shall be borne by him.
Art. 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.
General Rule: During the existence of partnership, a partner is not
entitled to a formal account of partnership affairs. Reason – rights of partner
amply protected in Arts. 1805 and 1806. Also, it would cause inconvenience
and unnecessary waste of time.
Exception: in cases under Art. 1809
FUE LEUNG VS IAC
(Case Digest: Jennifer Lim)
FACTS: Leung Yiu filed with the CFI of Manila, to recover the sum
equivalent to twenty-two percent (22%) of the annual profits derived from
the operation of Sun WahPanciteria from petitioner Dan Fue Leung.
The Sun WahPanciteria was established sometime in October, 1955. It
was registered as a single proprietorship and its licenses and permits were
issued to and in favor of Fue Leung as the sole proprietor.
Leung Yiu adduced evidence during the trial of the case to show that Sun
WahPanciteria was actually a partnership and that he was one of the
partners having contributed P4, 000.00 to its initial establishment.
The private respondent’s evidence is summarized as follows:
 About the time the Sun WahPanciteria started to become
operational, the private respondent gave P4,000.00 as his
contribution to the partnership. This is evidenced by a receipt
wherein the petitioner acknowledged his acceptance of the
P4,000.00 by affixing his signature thereto.
 Witnesses So Sia and Antonio Ah Heng corroborated the
private respondent’s testimony to the effect that they were both
present when the receipt was signed by the petitioner.
 Furthermore, the private respondent received from the
petitioner the amount of P12,000.00 from the profits of the
operation of the restaurant for the year 1974.
The petitioner denied having received from the private respondent the
amount of P4,000.00. He contested and impugned the genuineness of the
receipt. His evidence is summarized as follows:
 The petitioner did not receive any contribution at the time he
started the Sun WahPanciteria. He used his savings from his
salaries as an employee and waiter amounting to a little more
than P2,000.00 as capital in establishing Sun WahPanciteria.
 To bolster his contention that he was the sole owner of the
restaurant, the petitioner presented various government
licenses and permits showing the Sun WahPanciteria was and
still is a single proprietorship solely owned and operated by
himself alone.
Dan Fue also argues: IAC erred in not resolving the issue of prescription
in his favor. The alleged receipt is dated October 1, 1955 and the complaint
was filed only on July 13, 1978 or after 22 years. From October 1, 1955 to
July 13, 1978, no written demands were ever made by Leung Yiu.
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 BUSINESS ORGANIZATION I
(By: 3-Manresa, S.Y. 2017-2018)
From the Lectures of: Atty. Raymund Christian S. Ong-Abrantes, CPA
The CFI and IAC ruled in favor of the private respondent. Both TC and
IAC found that the Leung Yiu is a partner of the petitioner in the setting up
and operations of the panciteria and the Leung Yiu invested in the business
as a partner
ISSUE: Whether or not the private respondent is a partner of the petitioner
in the establishment of Sun WahPanciteria.
HELD: YES. Leung Yiu alleged that when the Panciteria was established,
he gave P4, 000 with the understanding that he would be entitled to 22%
of the annual profit. This makes them partners in the establishment of Sun
WahPanciteria because NCC 1767 provides that "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".
Given its ordinary meaning, “financial assistance” is the giving out of
money to another without the expectation of any returns. It connotes an
ex gratia dole out in favor of someone driven into a state of destitution. But
this circumstance under which the P4, 000 was given to the Dan Fue does
not apply because Leung Yiu is entitled to 22% of the annual profit.
Anent the issue on prescription, his argument is based on NCC 1144
(which provides for actions must be brought within 10 yrs: upon written
contract, obligation created by law, upon judgment) in relation to NCC 1155
(prescription is interrupted when they are filed before the court, written
extra judicial demand by creditor, & written acknowledgment of debt by
debtor)
They are partners in Sun WahPanciteria as they fit the requisites of a
partnership. If excellent relations exist among the partners and all the
partners are more interested in seeing the firm grow rather than get
immediate returns, a deferment of sharing in the profits is perfectly
plausible. It would be incorrect to state that if a partner does not assert his
rights anytime within 10 years from the start of operations, such rights are
irretrievably lost. NCC 1806, 1807, and 1809 show that the right to demand
an accounting exists as long as the partnership exists.
Prescription begins to run only upon the dissolution of the partnership when
the final accounting is done. The resolution of the IAC ordering the
payment of Dan Fue’s obligation shows that it continues until fully paid.
The question now arises as to whether or not the payment of a share of
profits shall continue into the future with no fixed ending date. Considering
the facts of this case, the Court may decree a dissolution of the partnership
under Article 1831 of the Civil Code which, in part, provides: On application
by or for a partner the court shall decree a dissolution whenever:
xxx (3) A partner has been guilty of such conduct as tends to
affect prejudicially the carrying on of the business;
(4) A partner willfully 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;
xxx(6) Other circumstances render a dissolution equitable.
Thus, there shall be liquidation and winding up of partnership affairs, return
of capital, and other incidents of dissolution because the continuation of
the partnership has become inequitable.
Q: How about the fact that it was registered as a sole proprietorship?
Diba this was a business registered by the other party as a sole proprietorship?
A: Even if its registered as a sole proprietorship, you have to look at
the intention of the parties. The evidence presented by the parties here is
actually more in keeping with partnership than sole proprietorship.
Q: What provision was used by petitioner in saying that the complaint
has already prescribed?
A: Art.1144 of the CC. the following action must be brought within the
following year… Remember petitioner’s cause of action was not based on
contract but his right as a partner. The provisions on partnership should apply
as compared to Art. 1144 kasi yung cause does not arise from the receipt, but
his right as a partner. In this particular case, the prescription will begin upon
dissolution of the partnership because it is only then you can demand an
accounting. In accounting, to determine if there is remaining debts, whether it
has net loss or net profit.
EMNACE vs CA
(Case Digest: Jennifer Lim)
FACTS: Emilio Emnace, Jacinto Divinagracia and Vicente Tabanao
formed a partnership engaged in the fishing industry (Ma. Nelma Fishing
Industry). In 1986, Jacinto decided to leave the partnership hence they
agreed to dissolve the partnership. At that time, the partnership has an
estimated asset amounting to P30,000,000.00.
Until the death of Vicente Tabanao in 1994, Emnace never rendered an
accounting either to Vicente or his heirs. Emnace reneged on his promise
to turn over Tabanao’s share which is 1/3 of the P30M.
The heirs of Tabanao then sued Emnace. Emnace argued, among others,
that the heirs are barred by prescription hence they can no longer demand
an accounting. He contends that the partnership was dissolved in 1986 and
that was the time when Tabanao’s (and his heirs’) right to inquire into the
business affairs accrued; that said right has expired in 1990 or 4 years
after.
The trial court and appellate ruled that prescription begins to run only upon
the dissolution of the partnership when the final accounting is done. Hence,
prescription has not set in the absence of a final accounting. Moreover, an
action based on a written contract prescribes in ten years from the time the
right of action accrues.
ISSUE: Whether or not the right has prescribed.
HELD: No. Prescription has not run in this case, it has never begun.
The three final stages of partnership are: a) dissolution,b) winding up, and
c) termination.
In this case, Emnace and his partners dissolved their partnership but such
did not perfect the dissolution because no accounting took place. The
partnership, although dissolved, continues to exist and its legal personality
is retained, at which time it completes the winding up of its affairs, including
the partitioning and distribution of the net partnership assets to the
partners.
For as long as the partnership exists, any of the partners (or legal
representative – in this case the heirs of Tabanao) may demand an
accounting of the partnership’s business. Prescription of the said right
starts to run only upon the dissolution of the partnership when the final
accounting is done.
When a final accounting is made, it is only then that prescription begins to
run. In the case at bar, no final accounting has been made, and that is
precisely what the heirs are seeking in their action before the trial court,
since Emnace has failed or refused to render an accounting of the
partnership’s business and assets. Hence, the said action is not barred by
prescription.
Q: For example, a partnership was in year 1982- established and later
in 1986 – dissolved. But nkalagay sa agreement nila na mg.accouting sila in
1983. Now, would the prescription begin at the time of dissolution or that of
the stipulated agreement?
A: The time of Dissolution. Art. 1809 (4) Whenever other
circumstances render it just and reasonable. Although there is a stipulation to
account in 1983 but the partnership continued on and was dissolved in 1986.
From 1982 to 1983, the stipulation to account pertains only to that. At the time
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 BUSINESS ORGANIZATION I
(By: 3-Manresa, S.Y. 2017-2018)
From the Lectures of: Atty. Raymund Christian S. Ong-Abrantes, CPA
of dissolution, you still have to demand a formal accounting precisely for the
periods when no accounting has not been done(time of covered by the
stipulation to account up to time of actual liquidation). Your cause of action for
the stipulation to account is different from your cause of action to demand
formal accounting at the time of liquidation.
Art. 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.
Extent of property rights of a partner
Principal rights-
1. Rights in specific partnership property
2. Interest in partnership
3. Right to participate in management
Related rights –
1. Right to reimbursement for amounts advanced to partnership and
to indemnification for risks in consequence of management (Art.
1796).
2. Right of access and inspection of partnership books (Art. 1805).
3. Right to true and full information of all things affecting partnership
(Art. 1806).
4. Right to formal account of partnership affairs under certain
circumstances (Art. 1809).
5. Right to have partnership dissolved under certain conditions (Art.
1830-1831).
Ownership of certain property
Property used by the partnership- Where there is no express
agreement that property used by a partnership constitutes partnership
property, such use does not make it partnership property, and whether it is so
depends on the intention of the parties, which may be shown by proving an
express agreement or acts of particular conduct.
Art. 1811. A partner is co-owner with his partners of specific
partnership property.
The incidents of this co-ownership are such that:
Differentiate this with other incidents of co-ownership of partnership property.
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;
His right is limited to partnership purpose. Lets say yung partnership mo
ng.renta ng apartment. You cannot use it for a different purpose other than
for partnership.
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;
Contrary to your usual co-ownership, you have a particular aliquot part of the
property and that part can be specifically assigned. However, in partnership,
you cannot assign that particular specific partnership property unless every
partner consents.
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 art. 291.
Lets say yung partnership property kay carabao(property exempted from
execution). A partnership creditor can attach such property because you
cannot invoke such exemption. Remember partnership creditors are preferred
over the partners with regard to debts even if the partner specifically owns that
partnership property.
Art. 1812. A partner’s interest in the partnership is his share of the
profits and surplus.
Distinguish profits from surplus. Profits are income from a particular period.
Surplus are excess of assets over liabilities. It does not mean if you are
operating at a loss, you don’t have a surplus.
Art. 1813. A conveyance by a partner of his whole interest in the
partnership does not of itself dissolve the partnership, or, 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 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.
As a partner I can assign my whole interest, but my assignee does not become
a partner based on the principle of delectus personae since the other partners
did not select that assignee to become a partner of the original partnership.
Necessarily, that assignee has limited rights.
Rights withheld from assignee-
1. To interfere in the management;
2. To require any information or account;
3. To inspect any of the partnership books;
Rights of Assignee of partner’s interest
1. To receive in accordance with his contract the profits accruing to
the assigning parter;
2. To avail himself of the usual rememdies provided by law in the
event of fraud in the management;
3. To receive the assignor’s interest in case of dissolution;
4. To require an account of partnership affairs, but only in case the
partnership is dissolved, and such account shall cover the period
from the date only of the last account agreed to by all partners.
Art. 1814. Without prejudice to the preferred rights of
partnership creditors under art. 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
circumstances of the case may require.
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 BUSINESS ORGANIZATION I
(By: 3-Manresa, S.Y. 2017-2018)
From the Lectures of: Atty. Raymund Christian S. Ong-Abrantes, CPA
The interest charged may be redeemed at any time before
foreclosure, or in any 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 interest
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.
Please differentiate this with rights of a partner to a specific partnership
property. Remember we said we cannot invoke the exemption laws. But in this
particular provision you can actually invoke exemption laws. Because in
actuality, yung interest mo is actually your property.
Remedies of separate judgement creditor of a partner.
Application for a “charging order” after securing judgement on his credit.
So si judgement creditor(personal judgement creditor ni partner) lets say may
unsatisfied judgement. Remember this is only applicable if there is an
unsatisfied judgment. It is property pa personally of debtor-partner. Di pwde
iinvoke ni debtor. Dapat ngsatisfy ng judgment bago siya mg.apply ng
charging order, tapos iicharge ang interest niya. Tinawag ito na charging order
dahil i.charge lang siya. Hindi pa determinate na masatisfy yung unsatisfied
judgment dahil depende pah sa interest na matitira ni debtor-partner.
Right of the existing partners to redeem
Lets say may charging order and ayaw nila may papasok mg.dedemand ng
interest. Sabi ng isang partner since parating na man ung share ko bayaran
ko nalang ang unsatisfied creditor. Anyone of the partner or even the
partnership itself can pay the unsatisfied creditor. The effect nabayaran nila
they do not not step into the shoes of the creditor. There is no novation(?)
pagbayaran ng utang ng isa, I step into the shoes of the creditor. You hold it
in trust of the original partner-debtor. So papaano ka babayaran? Lets say
pagdating ng formal accounting mas malaki ang kanyang interest so pwede
ka bayaran or pwede niyo din pag.usapan na bayaran muna ako tapos
m.comply ko na yung debt isauli ko yung interest sayo. So only holds it in trust
of the debtor-partner. It is very peculiar as compared to your usual contracts
and obligations.
Art. 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.
Please read SEC Memo Circular 5 series of 2008 which gives us the
guidelines and procedure for choosing a partnership or corporate name. So
we cannot unilaterally or by your own will choose a corporate or partnership
name kasi ofcourse registered yan. It is the SEC that’s the regularity body who
oversees partnership and corporations. Usually they require 5 names. First,
preferred pero kung mahit siya, yung second na naman, then third. In your
application you will have to execute an affidavit that “In the event the applied
name has already been used, the applicant must change said name.”
What are the guidelines?
3. a) the name shall not be identical, misleading or confusingly
similar to a corporate or partnership name registered with the Commission,
or with the Department of Trade and Industry, in the case of sole
proprietorships;
b) if the name applied for is similar to that of a registered
corporation or partnership, the applicant shall add one or more distinctive
words to the proposed name to remove the similarity or differentiate it from
the registered name;
However, the addition of one or more distinctive words shall not
be allowed if the registered name is coined or unique unless the board of
directors or majority of the partners of the subject corporation or
partnership gives its consent to the applied name;
c) Punctuation marks, spaces, signs, symbols and other similar
characters, regardless of their form or arrangement, shall not be
acceptable as distinguishing words for purposes of differentiating a
proposed name from a registered name.
d) A name that consists soley of special symbols, punctuation
marks or specially designed characters shall not be registered.
Take note also:
The corporate name shall contain the word “Corporation” or
“incorporated,” or the abbreviations “Corp.” or “Inc.,” respectively;
The partnership name shall bear the word “Company” or “Co.” and if it is
a limited partnership, the word “limited” or “Ltd.” A professional
partnership name may bear the word “Company,” “Associates,” or
“Partners,” or other similar descriptions;
The corporate name of a foundation shall use the word “Foundation.”
So hindi pwede partnership ka at yung surname or lastname is “Inc.”,
”Corp.” or “Corporation”. Lets say Dulay Corporation or Dulay Inc. or Dulay
Corp. – hindi siya pwede partnership. But Dulay Co or Dulay Company –
pwede siya partnership.
4. Only one business or trade name may be registered for each
corporate or partnership name.
5. A tradename or trademark registered with the Intellectual
Property Office may be used as part of the corporate or partnership name
of a party other than its owner if the latter gives its consent to such use.
This is applicable to franchise agreement, hindi nila tatangapin unless hindi
ka naclear ng IPO.
A) the full name or surname of a person may be used in a corporate or
partnership name if he or she is a stockholder, member or partner of the
said entity and has consented to such use; if the person is already
deceased, the consent shall be given by his or her estate;
There are 2 cases assigned to this. Just refer to it. Dati kasi bawal mg.use
ng name ng decease but right now pwede as long as any of your
correspondents you would indicate na patay na siya. Usually may nilalagay
or mark na cross.
The name of an internationally known foreign corporation, or something
similar to it, cannot be used by a domestic corporation unless it is its
subsidiary and the parent corporation has consented to such use;
Remember in your Intellectual property, theres this convention, Paris
convention(?), that even if wala nareserve na name sa Philippines, pwede
niya mainvoke ang kanyang right for as long as the Philippines and the
country to which it was registered are signatories to the convention. So you
cannot use it. Even if you raise the argument na hindi naman siya n.reserve
sa Philippines eh. You cannot raise that due to the Paris Convention.
12. Unless otherwise authorized by the Commission, the words and
phrases enumerated can be used only by the entities mentioned: (c)
“National,” “Bureau,” “Commission,” “State,” and other words, acronyms,
abbreviations that have gained wide acceptance in the Philippines - by
entities that perform governmental functions;
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 BUSINESS ORGANIZATION I
(By: 3-Manresa, S.Y. 2017-2018)
From the Lectures of: Atty. Raymund Christian S. Ong-Abrantes, CPA
So you cannot have the partnership name as Bureau of Dulay because that
name is exclusively for government.
The name of a local geographical unit, site or location cannot be used as a
corporate or partnership name unless its is accompanied by a descriptive word
or phrase, e.g., Pasay Food Store, Inc.
Walang store na Davao Company or Davao Corporation. Dapat talagang may
in between. E.g. Davao Lumber Corporation. Because you cannot use a
location without a descriptive word or phrase otherwise it would be misleading.
Also do not use the words “United Nations” or “UN” because it is strictly limited
to the UN. Also, “Finance Company,” “Financing Company,” Finance and
Leasing Company” and “Leasing Company,” “Investment Company,”
“Investment House” - are exclusive to entities engaged in the financing or
investment house business. Also, “Lending Company” and “Lending Investor”
– by lending companies or “pawnshop” – by entities authorized to operate
pawnshops. “Bank,” “Banking,” “Banker,” “Savings and Loan Assocation,”
“Trust Corporation,” “Trust Company”- exclusive to entities engaged in the
banking or trust business. “SPV-AMC” – exclusive to corporations authorized
to act as special purpose vehicle(SPV).
Another rule, do use “Investment(s)” or “capital” – exclusive to entities
organized as investment house, investment company or holding company;
“Asset/Investment/Fund/Financial Management,” or
“Asset/Investment/Fund/Financial Management Adviser,” or any similar words
or phrases – exclusive to entities organized as investment company adviser
or holders of investment management activities license from the Bangko
Sentral ng Pilipinas; “Association” and “Organization” or similar words which
pertain to non-stock corporations – exclusive to entities primarily engaged in
non-profit acitivities; “Stock Exhange/Futures Exhange/Derivatives Exchange”
and “Stock Exhange/Futures Exhange/Derivatives Exchange broker” – by
entities engaged organizes as an exchange, broker dealer, commodity futures
broker, clearing agency, or pre-need company under the Securities Regulation
Code.
Again, you cannot just use any name. Those mentioned are highly regulated
entities.
JO CHUNG CANG vs. PACIFIC COMMERCIAL CO
(Case Digest: Jennifer Lim)
FACTS:*Facts were in Spanish.
In the insolvency proceedings of petitioner-establishment,
“SociedadMercantil, Teck Seing&Co., Ltd.”, creditors Pacific Commercial
and others filed a motion with the Court to declare the individual partners
parties to the proceeding, for each to file an inventory, and for each to be
adjudicated as insolvent debtors.
ISSUE: What is the nature of the mercantile establishment
TeckSeing& Co., Ltd.?
HELD: The contract of partnership established a general partnership. By
process of elimination, TeckSeing& Co., Ltd. Is neither a corporation nor an
accidental partnership (joint account association).
To establish a limited partnership, there must be, at least, one general
partner and the name of at least one of the general partners must appear
in the firm name. This requirement has not been fulfilled. Those who seek
to avail themselves of the protection of laws permitting the creation
of limited partnerships must the show a substantially full compliance with
such laws.
It must be noted that all the requirements of the Code have been met w/
the sole exception of that relating to the composition of the firm name. The
legal intention deducible from the acts of the parties controls in determining
the existence of a partnership. If they intend to do a thing w/c in law
constitutes a partnership, they are partners although their very purpose
was to avoid the creation of such relation. Here the intention of the
persons making up, TeckSeing& Co., Ltd. was to establish partnership w/c
they erroneously denominated as a limited partnership.
Q: if this case happened today(the applicable law in the case was
different)?
A: YES. Art.1815. would still be considered a general partnership
Again, it is only optional if you include your name. pwede ka mg.include ng
ibang name as long as it is compliant with the SEC circular.
Art. 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. However, any partner
may enter into a separate obligation to perform a partnership
contract.
Partnership Liability – Partners are principals to the other partners and
agents for them and the partnership. They are liable to 3rd persons who have
dealt with one of them in the same way that a principal is liable to 3rd persons
who have dealt with an agent. The general rules is that a partner has the right
to make all partners liable for contracts he makes for the partnership in the
name and for the account of the partnership.
Please take note of the liability of the partners- its pro-rata meaning equally
or jointly not proportionately. Pro rata is based on the number of partners and
not on the amount of their contributions to the common fund. So even of one
partner contributed only 10% of the capital, it doesn’t mean ang matatangap
niya ay 10% lang din. Because that would not be proportionate. So if there are
5 partners, mag-1/5th sila isa-isa. Even if one of the partners contributed only
10%. Hindi pwedeng i.pro-rate mo siya based on capital contributions but
based on the number of individual or partners there are.
It is only subsidiary or secondary because the partners become personally
liable only when the partnership assets have been exhausted. So you can
liken your obligation to that of a guaranty than a surety. The guarantor has the
right of excusion. So dapat i.exhaust sa tanan. Whereas in surety has no right.
So the creditor can demand payment directly to the surety. While on guaranty
you have to prove that you have exhausted the properties of the debtor.
Please take not in this provision, that even an industrial partner is liable. Under
the previous provisions, the industrial partner is not liable for losses. Why is it
now that the industrial partner is liable?
COMPANIA MARITIMA vs MUNOZ
(Case Digest: Jennifer Lim)
FACTS: In 1905, the defendants Francisco Muñoz, Emilio Muñoz, and
Rafael Naval formed on ordinary general mercantile partnership under the
name of Francisco Muñoz & Sons for the purpose of carrying on the
mercantile business in the Province of Albay which had formerly been
carried on by Francisco Muñoz.
Francisco was the capitalist partner while the other two were industrial
partners. In the articles of partnership, it is expressly stated that they have
agreed to form, and do form, an ordinary, general mercantile partnership.
The object of the partnership, as stated in the fourth paragraph of the
articles, is a purely mercantile one and all the requirements of the Code of
Commerce in reference to such partnership were complied with. The
articles of partnership were recorded in the mercantile registry in the
Province of Albay.
32
 BUSINESS ORGANIZATION I
(By: 3-Manresa, S.Y. 2017-2018)
From the Lectures of: Atty. Raymund Christian S. Ong-Abrantes, CPA
Later, the partnership was sued by La CompañiaMartitama for collection
of sum of money amounting to P26,828.30. The partnership lost the case
and was ordered to make said payment; that in case the partnership can’t
pay the debt, all the partners should be liable for it in accordance with
Article 127 of the Code of Commerce. Francisco now argues that the
industrial partners should not be liable pursuant to Article 141 of the Code
of Commerce.
ISSUE: Whether or not the industrial partners are liable to third parties like
La CompañiaMartitama.
HELD: Yes. The controlling law is Article 127. There is no injustice in
imposing this liability upon the industrial partners. They have a voice in the
management of the business, if no manager has been named in the
articles; they share in the profits and as to third persons it is no more than
right that they should share in the obligations. It is admitted that if in this
case there had been a capitalist partner who had contributed only P100 he
would be liable for this entire debt of P26,000.
The Court’s construction of the article is that it relates exclusively to the
settlement of the partnership affairs among the partners themselves and
has nothing to do with the liability of the partners to third persons; that each
one of the industrial partners is liable to third persons for the debts of the
firm; that if he has paid such debts out of his private property during the life
of the partnership, when its affairs are settled he is entitled to credit for the
amount so paid, and if it results that there is not enough property in the
partnership to pay him, then the capitalist partners must pay him.
Article 141 relates exclusively to the settlement of the partnership affairs
among the partners themselves and has nothing to do with the liability of
the partners to third persons; that each one of the industrial partners is
liable to third persons for the debts of the firm; that if he has paid such
debts out of his private property during the life of the partnership, when its
affairs are settled he is entitled to credit for the amount so paid, and if it
results that there is not enough property in the partnership to pay him, then
the capitalist partners must pay him.
In relation to this, the Supreme Court noted that partnerships under the
Civil Code provides for a scenario where all partners are industrial partners
(like when it is a partnership for the exercise of a profession). In such case,
if it is permitted that industrial partners are not liable to third persons then
such third persons would get practically nothing from such partnerships if
the latter is indebted.
Q: What is the recourse of the industrial partner given that he becomes
liable? Kung nibayad siya unsa iya recourse? Diba hindi siya liable for losses,
but liable siya for liability. Lets say nagbayad siya to his pro-rata share with
regard to the liability to the third person.
A: Exhaust all the partnership properties before he can be held liable.
I think this particular case is under the premise that there has been exhaustion
of the partnership properties dahil nag.hahabol na siya sa industrial partner
niya dahil wala ng mabayad.
Q: Lets say nagbayad na sila, industrial partner liable din siya. Lets
say nagbayad siya ng kanyang share. Ano ang kanyang recourse? We talked
about the previous article, hindi na man siya liable for losses. So saan siya
maliable?
A: Liabilities. In this particular provision, you have to distinguish losses
from liabilities. Industrial partner shall not share with the losses but liable siya
to third persons. If nagbayad ang industrial partner sa share niya sa third
person ang recourse niya is on the other partners. In effect he does not share
in the losses of the partnership.
Losses from liability. Lets say na.exhaust na ang partnership assets so hinabol
na si partners. Even if you are an industrial partner, the creditors can actually
demand for you to pay your share. However, your recourse is on the capitalist
partner. Dahil hindi ako liable sa losses eh. Nagseserbisyo na nga ako.lugi
pah dahil pababayarin mo pah ako. The third person wala namang paki.alam
eh. Hindi alam ni third person na industrial ka lang. Wag mong pahirapan si
third person.
So it is not in conflict with the previous provision that the industrial partner is
not liable for losses.
DELOS REYES vs LUKBAN
(Case Digest: Lilybeth Petallo)
FACTS:
1. Petitioner Teodoro de los Reyes lent P1,086.65 in favor of the firm
“Lukban&Borja” for merchandise bought on credit from petitioner’s
ship supply store, La Industria.
2. When “Lukban&Borja” defaulted payment, Petitioner delos Reyes
filed an action for recovery of debt first against the firmLukban&Borja.
The court ordered the firm to pay the debt with interest; but only one
partner, i.e. Respondent EspiridionBorja, paid P522.69; thus leaving
a balance of P853. Thereafter, the partnership was dissolved.
3. In the attempt to recover the balance, Petitioner delos Reyes, filed
another action to recover the balance of the debt now against both
Respondents-Partners Vicente Lukban and EspiridionBorja; thus,
making them individually liable.
4. In his answer, Respondent Lukban’s alleged:
a. That he was merely an industrial partner in the firm;
b. That respondent Borja was the one who furnished the
capital; and
c. That the assets of the firm “Lukban&Borja” have not been
exhausted yet.
5. The lower court sentenced both respondents-partners Lukban and
Borjasolidarily liable for the balance.
ISSUE:WON Creditor delos Reyes may collect individually from the
partners, Lukban and Borja, the balance of the debt that the partnership
firm owed at the time of its dissolution. (YES)
HELD: Creditor delos Reyes may collect individually from the partners.
It should be noted that the dissolved partnership of “Lukban&Borja” had
absolutely no property whatever of its own, based on the contents of the
writ, the return of the execution of the final judgment, and the fact that
respondent Lukban did not pointed this out to avoid liability in solidum.
As to Creditor delos Reyes’ right to collect individually from the partners
Lukban and Borja the amount owed by the partnership firm, it is
unquestionable that such a right has given rise to the corresponding right
of action to demand the payment of the debt from the partners individually,
or from each of them, by the insolvency of the partnership, inasmuch as
they are personally and severally liable with all their property for the results
of the operations of the partnership which they conducted.
ART. 127, CODE OF COMMERCE provides:
“All the members of the general co-partnership, be they or be
they nor managing partners of the same, are personally and
severally liable with all their property for the results of the
transactions made in the name and for the account of the
partnership, under the signature of the latter, and by a person
authorized to make use thereof.”
FOR THE FOREGOING REASONS, the judgment appealed from is
AFFIRMED with costs of this instance against the appellant. So ordered.
So again same principle, industrial partner should not share in the losses pero
liable siya to third persons. Again, his recourse is to the other partners.
33
 BUSINESS ORGANIZATION I
(By: 3-Manresa, S.Y. 2017-2018)
From the Lectures of: Atty. Raymund Christian S. Ong-Abrantes, CPA
Art. 1817. Any stipulation against the liability laid down in the
preceding article shall be void, except as among partners.
So you cannot stipulate na hindi liable si industrial partner sa third person.
That stipulation is applicable only between the parties but not with regards to
third persons. The premise is walang paki.alam si third person. Bakit niya
naman pahirapan si third person na siya na nga ang ng.pautang. siya pah
yung nahirapan. The creditor has all the right to collect to all the partners.
Art. 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.
So you are an agent for apparently carrying on in the usual way of business.
Exception hindi na kapag the partner has in fact no authority to act for the
particular matter and the person with whom he is dealing has knowledge of
the fact that he had no such authority.
An act of a partner which is not apparently for carrying on of the
business of the partnership in the usual way does not bind the
partnership unless authorized by the other partners.
Lets say you are engage in the selling of beauty products then biglang may
isang partner bumili ng lupa. It not apparently the usual course of business of
the partnership therefore as a third person you should check whether or not
there is authority. Pero kung the usual way of business na naman, you are in
no obligation to check the authority of the partner to whom you are dealing
with.
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 goodwill 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.
Please take note all these acts are acts of strict dominion. So you need to have
consent of all the partners unless ofcourse ng.abandon na ang lahat ng
partners.
Dispose of the goodwill of the business. What is goodwill? Define goodwill.
Look for its definition. What happened to 2GO? They have restated their
income. Ang restatement pah pala is 90% of the income. SM(Henry Sy) and
Dennis Uy(Owner of phoenix) diversify their assets and bought shares of 2GO.
They required an audit of due diligence as a pre-condition of the sale. One
purpose of which is to know if the assets of the company are subject to
attachment, garnished, or mortgaged. Chika…stock market. Credit rating.
KMPG and SGV. Auditing practice. Publicly traded securities.
Power of partner as agent of partnership
In the absence of an agreement to the contrary, all partners have equal rights
in the management and conduct of the partnership business.
As among themselves- when a partner performs an act within the scope of
his actual, implied, or apparent authority, he is not only a principal as to
himself, but is also for all purposes, an agent as to his co-partners or the
partnership, considered as a group. Principle of mutual agency.
As to third persons- limitations upon the authority of any one of the partners
are not binding upon innocent 3rd persons dealing with the partnership who
have the right to assume that every general partner has power to bind the
partnership especially those partners acting with ostensible authority, by
whatever is proper for the transaction in the ordinary and usual manner of the
business of the partnership.
MUNASQUE vs CA
(Case Digest: Lilybeth Petallo)
FACTS:
1. Petitioner Elmo Muñasque, in behalf of the partnership of “Galan and
Muñasque”, entered into a contract with Respondent Tropical
Commercial Company for remodeling of a building. Respondent
Celestino Galan was casually named as partner in the contract, for
no consideration except for the percentage/commission on account
of Galan’s introduction of the employing company (Tropical) to
petitioner.
2. As between Petitioner Muñasque and Tropical, the latter agreed to
pay in installments. Thus, Tropical gave the 1st check issued in the
name of Muñasque. However, Muñasque indorsed the check to
Respondent Galan for purposes of depositing it; but Galan instead
encashed the check for personal use.
3. Because of this, when the 2nd check came and Galan asked that the
same be indorsed to him, Muñasque refused out of mistrust. As a
result, the check was withheld from Muñasque.
4. Meanwhile, Galan told Tropical of their misunderstanding; so,
Tropical changed the name of the payee of the 2nd check from
Muñasque to “Galan & Associates”, which is the name of the
partnership under which the construction business was registered.
This enabled Galan to encash the 2nd check, again for his personal
use.
5. Because Galan failed to pay for the labor and materials, Petitioner
Muñasque was forced to continue the construction through his sole
efforts.
6. With this, Muñasque filed a Complaint for Sum of Money and
Damages against Respondents Galan & Tropical.
7. Meanwhile, Cebu Southern Hardware and Blue Diamond Gold
Palace, who supplied materials on credit to the partnership,
intervened.
8. Trial Court found Petitioner Muñasque and Respondent Galan
solidarily liable as partners to the intervenors-creditors. CA affirmed,
but modified it to joint liability.
9. Hence, the petition.
PETITIONER’S CONTENTION:
a. That the courts erred in affirming the existence of the
partnership;
b. That he should be excluded from the liabilities of the
partnership.
ISSUE:
A. WON partnership exists. (YES)
B. WON Petitioner is liable to creditors for the liabilities of the
partnership. (YES)
C. WON Petitioner is solidarily liable with co-partner Galan. (YES)
34
 BUSINESS ORGANIZATION I
(By: 3-Manresa, S.Y. 2017-2018)
From the Lectures of: Atty. Raymund Christian S. Ong-Abrantes, CPA
HELD:
A. Partnership exists.
The records showed that petitioner entered into a contract with
Tropical for the renovation of the latter’s building on behalf of the
partnership of “Galan and Muñasque”. There was no indication that
the partnership was not a genuine one; and the fact that there was
misunderstanding between the partners does not convert the
partnership into a sham organization.
When petitioner received the first check of Tropical issued under his
name, he indorsed it in favor of Galan. With this, Tropical had the
right to assume that petitioner and Galan were true partners. If they
were not, it was petitioner’s fault for making the relationship appear
otherwise, not only to Tropical but to the other creditors as well.
B. Petitioner is liable to the creditors for liabilities incurred by the
partnership.
Since the 2 were partners when the debts were incurred, they
are also both liable to third persons who extended credit to their
partnership.
“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.” (Mills
vsRiggle)
“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.”(Le Roy vs Johnson)
C. Petitioner is solidarily-liable with co-partner Galan as against
the creditors.
While under ART. 1816, the liability of partners under the law to third
persons for contracts executed in connection with the partnership
business is only pro rata (i.e. joint liability), this should be
construed together with ART. 1824, which renders all partners
solidarily liable for everything chargeable to the partnership under
ART. 1822 and 1823.
RATIONALE FOR SOLIDARY LIABILITY: The obligation is
solidary because the law protects him, who in good faith relied
upon the authority of a partner, whether such authority is real or
apparent. That is why under ART. 1824, all partners, whether
innocent or guilty, as well as the legal entity which is the
partnership, are solidarily liable.
In the case at bar, Tropical had all the reason to believe that a
partnership existed between petitioner and Galan. As such, Tropical
should not be faulted for making payments to “Galan and Associates”
and for delivering it to Galan because, as far as Tropical is
concerned, Galan was a true partner with real authority to transact
on behalf of the partnership with which it was dealing. Same is true
with the other creditors who supplied materials to the partnership.
Thus, it is but fair that the consequences of the wrongful act of any
of the partners (Galan, in this case) should be answered solidarily
by all the partners and the partnership as a whole.
WHEREFORE, the decision appealed from is hereby AFFIRMED with the
MODIFICATION that the liability of petitioner and respondent Galan to
intervenors Blue Diamond Glass and Cebu Southern Hardware is declared
to be joint and solidary. Petitioner may recover from respondent Galan any
amount that he pays, in his capacity as a partner, to the above intervenors.
SO ORDERED.
Q: Payment was for what purpose here?
A: The payment made by tropical was for construction services for the
remodeling of the Cebu branch building.
So in this particular case, it was a construction business, the payment was for
construction services. It would have been different if the payment was for buy
and sell of lots. Because in here, the SC said there is a general presumption,
the agent is authorized. The third person transacting with the partner or the
agent of the partnership is not under obligation to check the authority of the
partner. Just imagine for every transaction mag.ask for authority. Diba its so
inconvenient. Most especially when the transaction is apparently carrying on
in the usual way of the business. Payment of construction services and the
firm of the partnership was engaged in the construction services. So kung lets
say iba yung bayad at iba ang kanilang nature. Dun dapat mag.require si third
person ng authority of the person transacting that he was authorized to do so.
Pero since dito, they asked the nature of the business and what the payment
was for what services. Pero sa seven circumstances you should call out the
consent of the other partners even if it is apparently carrying on in the usual
way of the business of the partnership.
GOQUIOLAR vs SYCIP
(Case Digest: Lilybeth Petallo)
This involves Petitioner Antonio Goquiolay assailing the validity of the sale
of the lands owned by the partnership “Tan Sin An &Goquiolay” made by
the widow of the managing partner, Tan Sin An, in favor of buyers
Washington Sycip and Betty Lee (Respondents).
FACTS:
1. Tan Sin An and Goquiolay entered into a general commercial
partnership known as “Tan Sin An &Goquiolay” for the purpose of
real estate business. Under the agreement, Tan Sin An shall be the
sole managing partner of the partnership, while Goquiolay shall have
no voice or participation in its management.
2. Consequently, the partnership purchased 49 lots, which were later
mortgaged to “BancoHipotecario”.
3. Later, Tan Sin An died and was survived by his wife, Kong Chai Pin,
who apparently expressed her desire to act as managing partner in
lieu of her deceased husband. This is premised on the articles of co-
partnership, which provided for the heirs’ continuation of the
partnership even after the death of the partners.
4. In the meantime, BancoHipotecariodemanded payment of the
mortgage debt from the partnership. But Sing Yee Cuan Hardware
Co. assumed payment, and this was further assumed by
Respondents Washington Sycip and Betty Lee.
5. To relieve the partnership from said obligations, Kong Chai Pin, with
approval of the probate court, sold the 49 lots to Respondents Sycip
and Lee.
6. Upon knowing this, surviving partner Goquiolay sought for the
annulment of the sale to respondents, alleging:
35
 BUSINESS ORGANIZATION I
(By: 3-Manresa, S.Y. 2017-2018)
From the Lectures of: Atty. Raymund Christian S. Ong-Abrantes, CPA
a. That Kong Chai Pin is not a partner; hence, the sale made
by her is void for lack of consent of the other partners; or
b. Granting that Kong may be partner, she is nothing more
than a limited partner, and as such was disqualified to
manage the business.
7. Lower Court upheld the validity of the sale and ruled that Kong Chai
Pin lawfully acted as the managing partner thereof.
ISSUE: WON Kong Chai Pin is authorized to sell properties of the
partnership to third persons, as sole managing partner in lieu of her
deceased husband, even without the consent of the other partners. (YES)
HELD: Kong Chai Pin, as sole managing partner in lieu of her deceased
husband, is authorized to sell properties of the partnership to third persons.
A. Kong Chai Pin lawfully acted as the sole managing partner in
lieu of her husband.
Although, the power of Tan Sin An as sole managing partner, which is
premised upon trust and confidence, was a mere personal right that should
have been terminated upon Tan’s demise; such right was not extinguished
in this case based on the ff. circumstances:
a. The articles of co-partnership specifically provided for the
continuation of the firm notwithstanding the death of one
of the partners.
b. Since the heir of the deceased (i.e. Kong Chai Pin) never
repudiated or refused to be bound by such agreement,
Kong Chai Pin became an individual partner with
surviving partner Goquiolay upon Tan’s death.
Goquiolay argued that granting Kong became a partner, she was nothing
more than a limited partner who is disqualified from managing the
business. (LACKS MERIT)
Although ordinarily, such limitation exists, this does not apply with Kong
Chai Pin as she manifested her intent to be bound by the partnership
agreement not only as a limited partner, but as general partner:
a. She managed and retained possession of the partnership
properties;
b. She derived income therefrom until the properties were
sold to respondents;
c. She sold the properties in the name of the partnership.
By allowing her to retain control of the firm’s property from 1942 to 1949,
Goquiolay is estopped from denying Kong Chai Pin’s legal representation
of the partnership. Hence, Kong Chai Pin is a managing partner with the
power to bind the partnership by proper contracts.
B. Kong Chai Pin, as managing partner, can sell properties of the
partnership to respondents Sycip& Lee, even without consent
of the co-partner.
As a rule, “strangers dealing with a partnership have the right to
assume, in the absence of restrictive clauses in the co-partnership
agreement, that every general partner has power to bind the
partnership, especially those partners acting with ostensible authority.”
“The public need not make inquiries as to the agreements
between the partners. Its knowledge is enough that it is
contracting with the partnership which is represented by one of
the managing partners.”
“There is a general presumption that each individual
partner is an 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
the members of the firm acting apparently in its behalf and
within the scope of his authority.”
“The regular course of business procedure does not required
that each time a third person contracts with one of the managing
partners, he should inquire as to the latter’s authority to do so,
or that he should first ascertain whether or not the other
partners had given their consent thereto.”
ART. 180, CODE OF COMMERCE provides that
even if a new obligation was contracted against the
express will of one of the managing partners, it shall
not be annulled for such reason, and it shall produce
its effects without prejudice to the responsibility of
the member/s who contracted it, for the damages
they may have caused to the common fund.
Although the partnership under consideration is a commercial
partnership and, therefore, to be governed by the Code of
Commerce, the provisions of the old Civil Code may apply:
ART. 165, OCC
“(1) All the partners shall be considered agents, and
whatever any one of them may do individually shall
bind the partnership; but each one may oppose any
act of the others before it has become legally
binding.”
In this case, as previously established, Kong Chai Pin acted as a managing
partner (or general partner). As such, she became an agent of the firm,
with the authority to bind the firm in any contracts involving partnership
affairs (e.g. sale of partnership realty).
The co-partner, Goquiolay, could have made an opposition to said sale,
but he did not timely do so. He only interposed his objections after the deed
of conveyance was executed and approved by the probate court. Hence,
his opposition was barred by laches. And the sale of the partnership lots
executed by Kong Chai Pin in favor of respondents is valid.
WHEREFORE, finding no reversible error in the appealed judgment, we
AFFFIRM the same, with costs against appellant Antonio Goquiolay.
36
 BUSINESS ORGANIZATION I
(By: 3-Manresa, S.Y. 2017-2018)
From the Lectures of: Atty. Raymund Christian S. Ong-Abrantes, CPA
The acts of a partner mentioned in Art. 1818 may be grouped into three:
Acts for apparently carrying on in the usual way the business of the
partnership (Par.1) – every partner is an agent and may execute such acts
with binding effect on the partnership even if he has in fact no authority unless
the 3rd person has knowledge of such lack of authority.
There are two requisites in order that the partnership will not be liable:
a.) The partner so acting has in fact no authority; and
rd
b.) The 3 person knows that the acting partner has no authority.
Remember with regard to the two requisites it is “AND” not “OR.”
Acts of strict dominion (pars. 2 and 3) – For acts which are not apparently
for carrying on in the usual way of business of the partnership, the partnership
is not bound, unless authorized by all the other partners or unless they have
abandoned the business. The general rule is that powers not specifically
delegated in a partnership agreement are presumed to be withheld. Paragraph
3 gives instances of acts generally outside the implied power of a partner and
constitute limitations to the authority to bind partnership.
Acts in contravention of a restriction on authority (par. 4) – The
partnership is not liable to third persons having actual or presumptive
knowledge of the restrictions, whether or not the acts are for apparently
carrying on in the usual way the business of the partnership. On the other
hand, persons not having such notice have a right to assume that the authority
of a partner is co-extensive with the business transacted by the firm.
So what is the liability of partner acting without authority? As a It will be noticed that under paragraphs 1, 3 and 5, what is conveyed is title or
general rule, the particular partner who undertakes to bind his co-partners by
a contract without authority is himself personally liable on such contract. Such
partner binds himself no matter in what name he contracts. The fact that he
attempts to bind his co-partners and does not succeed does not avoid his own
act. He cannot be admitted to say that he was not authorized to make a
contract, as he is estopped to deny its effect or validity.
Art. 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 the 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
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 names of all the partners a
conveyance executed by all the partners passes all their rights in
such property.
Effects of conveyance of real property belonging to the partnership
The ownership of real estate is prima facie that indicated by the muniment of
title. Ordinarily, title to real property or interest therein belonging to the
partnership is registered in the partnership name. However, for one reason or
another, the title to the property is not held by the partnership, although as
between the partners there is no question that it is a partnership property. The
presumption is that, property purchased with partnership funds belongs to the
partnership unless a contrary intent is shown.
Article 1819 gives the legal effects of the conveyance of real property
belonging to the partnership depending in whose name it is registered and in
whose name it is conveyed. Under the article, the real property may be
registered or owned in the name of:
1.) The partnership (pars. 1,2);
2.) One or more but not all the partners (par. 3);
rd
3.) One or more or all the partners, or in a 3 person in trust for the
partnership (par. 4);
4.) All the partners (par. 5).
ownership, while under paragraphs 2 and 4, what is conveyed is merely
equitable interest. “Conveyance” interpreted to include a mortgage. Thus,
the right to mortgage is included in the right to convey (unlike in agency)
SANTIAGO INC vs CASTRO
(Case Digest: Lilybeth Petallo)
FACTS:
1. 1964, November, the Lims (Private Respondents) borrowed from
Petitioner Santiago Syjuco Inc. an aggregate loan of P2,460,000,
secured by mortgage on properties registered in the names of said
LIMs as owners in common.
2. The Lims defaulted payment despite demands, which prompted
Syjuco to have the mortgage extrajudicially foreclosed.
3. Problem is, the attempt to foreclose triggered off a legal battle that
has dragged on for more than 20 years now, fought through 5 cases
in the trial courts, 2 in the CA, and 3 more in the SC.
4. Among these cases was “The Secret Action: Civil Case No. Q-36845”
wherein the complaint was presented, not in the individual names of
the Lims, but in the name of a partnership, “Heirs of Hugo Lim”. They
alleged that the mortgage no longer belonged to the Lims at that time,
having been earlier deed over by them to the partnership, “Heirs of
Hugo Lim” as early as March 30, 1959. Hence, the mortgage was
void because it executed by them without authority from the
partnership.
ISSUE: WON the mortgage executed by the Lims is attributable to the
partnership, “Heirs of Hugo Lim”. (YES)
HELD: The mortgage is attributable to the partnership.
1. BY PRINCIPLE OF ESTOPPEL
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 BUSINESS ORGANIZATION I
(By: 3-Manresa, S.Y. 2017-2018)
From the Lectures of: Atty. Raymund Christian S. Ong-Abrantes, CPA
The records showed that the respondent partnership is compose
exclusively of the individual Lims; their contribution to the partnership
consisted chiefly, if not solely, of the property subject of the Syjuco
mortgage.
It is also a fact that despite its having been contributed to the partnership
allegedly on March 30, 1959, the property was never registered with the
ROD in the name of the partnership, but to this date remains registered in
the names of the Lims as owners in ommon.
The original mortgage deed of November 14, 1964 was executed by the
Lims as such owners. There can be no dispute that in those circumstances,
the respondent partnership was chargeable with knowledge of the
mortgage from the moment of its execution.
“The legal fiction of a separate juridical personality and
existence will not shield it from the conclusion of having
such knowledge which naturally and irresistibly flows from
the undenied facts. It would violate all precepts of reason,
ordinary experience, and common sense to propose that a
partnership, as such, cannot be held accountable with
knowledge of matters commonly known to all the partners
or of acts in which all of the latter, without exception, have
taken part, where such matters or acts affect property
claimed as its own by said partnership.”
Therefore, with the respondent partnership being inescapably chargeable
with knowledge of the mortgage executed by all the partners thereof,
its silence and failure to impugn said mortgage within a reasonable
time, let alone a space of more than 17 years, brought into play the
doctrine of estoppel to preclude any attempt to avoid the mortgage as
allegedly unauthorized.
2. UNDER ART. 1819, CC, LAST PARAGRAPH:
“ARTICLE 1819. XXX Where the title to real property is in the
names of all the partners, a conveyance executed by all the
partners passes all their rights in such property.”
The term “conveyance” includes a mortgage.
In this case, the mortgaged property is still registered in the names of
partners; hence, the conveyance (i.e. the mortgage) executed by all the
partners passes all their rights in such property.
3. BY DOCTRINE OF RES JUDICATA
The cause of action of Civil Case No. Q036485 is barred by prior judgment.
The right subsumed in that cause is the negation of the mortgage,
postulated on the claim that the parcels of land mortgaged by the Lims to
Syjuco did not in truth belong them, but to the partnership.
Assuming that the properties truly belonged to the partnership, the prior
actions filed in the individual names of the Lims could very well have been
put forth by the partnership itself. Since the actions involved property
supposedly belonging to the partnership and were being prosecuted by the
entire membership of the partnership, the partnership was in actuality, the
real party in interest. Thus, there is no reason to distinguish between
the Lims, as individuals, and the partnership itself, since the former
constituted the entire membership of the latter.
In other words, despite the concealment of the existence of the partnership,
for all intents and purposes and consistently with the Lims’ own theory, it
was the real party in interest in all the actions; it was actually represented
in said actions by all the individual members thereof, and consequently,
those members’ acts, declaration and omissions cannot be deemed to be
simply the individual acts of said members, but in fact and in law, those of
the partnership.
What was done by the Lims – or by the partnership of which they were the
only members – was to split their cause of action in violation of the well-
known rule that only suit may be instituted for a single cause of action. The
right sought to be enforced by them in all their actions was to strike down
the mortgage constituted in favor of Syjuco. They instituted 4 actions for
the same purpose on one ground or the other, making each ground the
subject of a separate action. Upon these premises, application of the
sanction indicated by law is called for, i.e. the judgment on the merits in
any one is available as a bar in the others. Hence, barred by prior
judgment. Res judicata.
In its dispositive portion, the SC ordered for the sale in public auction of the
subject property and held the private respondents (the Lims and the
Partnership of the Heirs of Hugo Lim) jointly and severally liable to
petitioner.
Q: How about the argument of the concept of separate juridical
personality. Diba iba naman yung personality ni mortgagor from its owners.
A: The court said that the defense of separate juridical personality is
not applicable as it would be prejudicial to the petitioner. The partnership is
estopped from denying the existence of the mortgage since the partners are
also the defendants in the case.
Q: What did the SC say as to the term “conveyance” in Art. 1819? It
had a discussion with the meaning of the word “conveyance” compared to the
law on agency.
A: The term “conveyance” was taken from the American … the right
to mortgage is included in the right.. this is…
So in this particular case, the SC said that the word “conveyance” in Art.1819
includes the right to mortgage. This is different from the general rule that the
right to convey is different from the right to mortgage. Ang nangyari kasi nito
ay may judgement na. Execution na. Talo na sila. Nimortgage nila yung
property eh. They contributed the real property to the partnership kaso the real
property was still in their names. Ngayon naforeclose. Nkalagay na foreclose.
E.execute na sana. But sabi nila nabili na naming yan eh. Hindi naman yan
personal property namin. Property na ng partnership eventhough nkapangalan
sa amin. They made this argument for purposes of delaying the execution.
The SC said although different yung juridical personality niyo, the fact that
kayo pah rin ang may-ari at kayo din ang owner ng partnership. You already
have notice that there was a foreclosure. It is already too late to say ngayon
lang kayo maginvoke ng separate juridical personality. So in this particular
case, the SC ruled based on equity. Otherwise, the case would be prolonged.
Art. 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.
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 BUSINESS ORGANIZATION I
(By: 3-Manresa, S.Y. 2017-2018)
From the Lectures of: Atty. Raymund Christian S. Ong-Abrantes, CPA
Art. 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 case of a fraud on the
partnership, committed by or with the consent of that partner.
Notice to, or knowledge of, a partner of matter affecting partnership
affairs
Notice to, or knowledge of, any partner of any matter relating to partnership
affairs operates as a notice to or knowledge of the partnership except in case
of fraud.
rd
A 3 person desiring to give notice to a partnership of some matter pertaining
to the partnership business need not communicate with all the partners. If
notice is delivered to a partner, that is an effective communication to the
partnership notwithstanding the failure of the partner to communicate such
notice or knowledge to his co-partners.
So this particular provision tells us that kahit sabihan mo ang isang partner, it
would operate as notice to the partnership itself. So you do not need to tell all
the other partners.
Is notice to the partner, notice to the partnership? Is the reverse true? Is notice
to the partnership, notice to the partner? (no answer given by sir)
Art. 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 therefore to the same extent as the
partner so acting or omitting to act.
Art. 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
misapplied 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.
Art. 1824. All partners are liable solidarily with the partnership for
everything chargeable to the partnership under Articles 1822 and
1823.
So in these provisions, the law gives solidary liability to the partners. Diba as
a general rule they are jointly and severally liable but dito solidary liability.
Please take note that this is different from the contractual obligation. Here it is
solidary. In Art.1816, joint and subsidiary. Furthermore, while the liability in
Article 1816 refers to partnership obligations, this article covers the liability of
the partnership arising from the wrongful acts or omissions of any partner.
INFORMATION TECHNOLOGY FOUNDATION V. COMELEC
(Case Digest: Jordan Berguia)
FACTS: Petitioners were participating bidders questioning the identity and
eligibility of the awarded contractor Mega Pacific Consortium (MPC) where
the competing bidder is Mega Pacific eSolutions, Inc. (MPEI) as signed by
Mr. Willy Yu of the latter. Private respondent claims that MPEI is the lead
partner tied up with other companies like SK C&C, WeSolv, Election.com
and ePLDT. Respondent COMELEC obtained copies of Memorandum of
Agreements and Teaming Agreements.
ISSUE: Whether or not there was an existence of a consortium.
RULING: NO. There was no documentary or other basis for Comelec to
conclude that a consortium had actually been formed amongst MPEI, SK
C&C and WeSolv, along with Election.com and ePLDT. The president of
MPEI signing for allegedly in behalf of MPC without any further proof, did
not by itself prove the existence of the consortium. It did not show that
MPEI or its president have been duly pre-authorized by the other members
of the putative consortium to represent them, to bid on their collective
behalf and, more important, to commit them jointly and severally to the bid
undertakings. The letter is purely self-serving and uncorroborated.
So in this particular case, sabi ng SC wala namang partnership eh. Wala
namang joint venture kung meron man limited ang rights. Sabi ng COMELEC
meron and since you misrepresented dapat solidary ang liability. The SC said
may written reference kung saan limited ang liability yung iba sumali sa
bidding. So theres actually a consortium/ joint venture. Remember joint
venture is a specie of partnership. So pwede mag.apply ang provision on
partnership sabi ng OSG.
JULY 18, 2017
(Transcriber: Shats Tagtagan)
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.
Party by estoppel - Being of estoppel is a bar which precludes a
person from denying or asserting anything contrary to that which has been
established as the truth that is only the representation either express or
implied. So estoppel and admission or representation is conclusive upon the
person making it and cannot be denied as against the person later on.
When a person a partner by estoppel – A person not a partner
may become a partner by estoppel, thus he may be liable to a third person as
if he were a partner, when by words or conduct he:
a) Directly represents himself to anyone as a partner in an existing partnership
or in a non-existing partnership (with one or more persons not actual partners);
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 BUSINESS ORGANIZATION I
(By: 3-Manresa, S.Y. 2017-2018)
From the Lectures of: Atty. Raymund Christian S. Ong-Abrantes, CPA
b) Indirectly represents himself by consenting to another representing him as
a partner in an existing partnership or in a non existing partnership.
- To hold the party to be liable, the third person must prove that
there is representation or a bona fide reliance by him causing injury.
When a partnership liability results – If all the actual partners
consented to the representation, then the liability of the person who
represented himself to be a partner or who consented to such representation
and the actual partners is considered a partnership liability. This is a case of
partnership by estoppel. The person becomes an agent of the partnership,
kasi diba nya yung kanilang partnership, so as regards the third person, there
is a partnership liability.
When liability is pro rata – When there is no existing partnership
and all those represented as partners consented to the representation, or not
all of the partners of an existing partnership consented to the representation,
then, the liability of the person who represented himself to be a partner or who
consented to his being represented as partner, and all those who made and
consented to such representation is joint or pro rata.
Pero kapag walang existing partnership, and only some of those represented
as partners consented to the representation, the liability will be separate. Ang
gawin nyo dito is himay-himayin nyo lang sya. The importance of this provision
is you should know that ___ of the liability, when does the partnership liability
occur. Kapag ang actual partner in an existing partnership consented to
another person representing him as partner, magkakaroon ng partnership
liability. It shall be pro rata when walang partnership na existing and all those
represented as partners consented to the representation. Magiging separate
sya if not all consented sa pagrerepresent as partners.
Please note that the important thing in this provision is that this only pertains
to liability to third persons who rely on the representation. It is not created to
establish a partnership. Let’s say there’s a partner by estoppel/partnership by
estoppel, it does not mean that a partner by estoppel is a partner by a contract
of partnership. Meaning, wala sya yung rights na diniscuss natin before. This
is only for the purpose of enforcing liability as to third persons. As between
them (the partners), walang contract of partnership.
There’s a discussion in the book of De Leon that “The law makes
liable as general partners ‘all persons who assume to act as a
corporation’ and may include persons who attempt, but fail to form a
corporation and who carry on business under the corporate name.” Sabi
natin before na, kapag nag-apply ka as corporation, let’s say hindi mo na-
comply ang partner requisites, it does not automatically result into a
partnership, because partnership is by intention. But sabi dito, they can be
held liable as a general partner. Those who acted as a corporation failed to
form a corporation, they can be held liable as general partners. How do we
make sense of this statement? Remember that this is only in reference to third
persons, kung nagkaroon ng liability yung persons who failed to form a
corporation. So in effect, wala pa ring partnership na nabuo because of the
failed corporation. It’s just that, it created a liability in favor of the third person;
they can be liable as general partners. So there’s a distinction as between
themselves and as between third persons. This provision protects the rights of
third persons.
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.
This is the liability of an incoming partner. Kung incoming partner ka, you’re
still liable to third person-creditors, but only to the extent of your share in the
partnership property for EXISTING, pero pag FUTURE, kasali na yung
separate property mo.
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.
In terms of preference, kapag partnership property, preferred si partnership
creditor. Kapag separate property, preferred si separate creditor. But again,
because of the concept of unlimited liability, the partnership creditor can still
go after the separate property of the partners.
DISSOLUTION AND WINDING UP
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.
You have to be familiar of three terms: DISSOLUTION, WINDING
UP, TERMINATION.
Dissolution – there is only a change of relation. Diba, the concept
of partnership hinges to the principle of delectus personae. Kung madestroy
yun, yung vinculum juris which ties the contract of partnership, may
dissolution. But it does not mean that the partnership is already terminated. It
has to go under the process of winding up.
[De Leon’s book: Dissolution is the change in the relation of the partners
caused by any partner ceasing to be associated in the carrying on of the
business. It is that point in time when the partners cease to carry on the
business together. It represents the demise of a partnership. Thus, any time a
partner leaves the business, the partnership is dissolved. This does not
necessarily mean the business must cease to exist for the partners may be
allowed to continue the business.]
Winding up – settling of all accounts. After settled na lahat, comes
termination. [De Leon’s book: Winding up is the actual process of settling the
business or partnership affairs after dissolution, involving the collection and
distribution of partnership assets, payment of debts, and determination of the
value of each partner’s interest in the partnership. It is the final step after the
dissolution in the termination of the partnership. The priority for distributing the
proceeds of the process is set out in Article 1839.]
Kapag nag wawinding up ka, in theory, you should not engage into
transactions in the ordinary __ of business. Dapat kapag winding up na, yan
na sya yung payment of liabilities, settling of accounts, settle ka with the
partners.
Termination – [De Leon’s book: Termination is that point in time
that all partnership affairs are completely wound up and finally settled. It
signifies the end of the partnership life. It takes place after both dissolution and
winding up have occurred.]
Article 1829: On dissolution the partnership is not terminated but
continues until the winding up of partnership affairs is completed.
Effects of dissolution:
1) Partnership not terminated;
2) Partnership continues for a limited purpose;
3) Transaction of new business prohibited.
How do we cause the dissolution of a partnership?
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 undertaking 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;
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 BUSINESS ORGANIZATION I
(By: 3-Manresa, S.Y. 2017-2018)
From the Lectures of: Atty. Raymund Christian S. Ong-Abrantes, CPA
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;
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;
3.) By any event which makes it unlawful for the business of the partnership
to be carried out on or for the members to carry it on in partnership;
4.) When a specific thing, 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.
Please note that the enumeration is EXCLUSIVE.
(a) By the termination of the definite term or particular undertaking
specified in the agreement;
We have partnership for a specific term. Kapag natapos na yung term, it can
be dissolved.
(b) By the express will of any partner who must act in good faith when no
definite term or particular undertaking is specified;
There is no such thing as indissoluble partnership. Any partner has the power
dissolve a partnership, but not necessarily the right. It means that if you
dissolve the partnership in bad faith, you can be held liable for damages.
Ground is Article 19 of the Civil Code.
( 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;
Please note that not all of the partners can actually dissolve. Hindi pwede mag
dissolve yung partners who have assigned their interests or suffered them to
be charged for their separate debts.
(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;
3) By any event which makes it unlawful for the business of the partnership
to be carried out on or for the members to carry it on in partnership;
For example, you started with a lawful business, then there came a
supervening event, it becomes unlawful. So wala na.
4) When a specific thing 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;
We already discussed that you become a debtor to the partnership for the
thing you have promised to contribute. Kapag mawala yun, anong
mangyayari? It can be a ground for dissolution. My issue here is, kapag
dissolution, ibig sabihin may contract of partnership na. What if promise pa
lang? Is there a contract of partnership? Meron, kasi diba consensual naman
sya. It does not have to be __ [Hindi talaga clear ang word, pero it sounds like
‘delivered’, so maybe Sir means the property does not have to be delivered.]
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 willfully 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.
Bakit kelangan ng judicial decree? As denominated, this requires evidentiary
proof.
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 BUSINESS ORGANIZATION I
(By: 3-Manresa, S.Y. 2017-2018)
From the Lectures of: Atty. Raymund Christian S. Ong-Abrantes, CPA
1) A partner has been declared insane in any judicial proceeding or is
shown to be of unsound mind;
How do you know that the person is of unsound mind? You have to prove that
the unsoundness of his mind is such as to the extent that he is incapable of
performing his duties as a partner.
4) A partner willfully 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;
If a partner commits a breach of the partnership agreement, that alone is not
a ground. It has to be willful or persistent.
5) The business of the partnership can only be carried on at a loss;
Anong remedy mo kapag luging-lugi ka na talaga? Gusto mong magdissolve
tapos niyaya mo yung iba na magdissolve. But the problem with that is
pwedeng i-allege ng kabilang party na bad faith, so maka damages ka. Kung
may ground ka naman for judicial declaration for dissolution, magpa declare
ka na lang to avoid bad faith.
On the application of the purchaser of a partner’s interest under Article 1813
or 1814: We discussed before the assignment of partner’s interest. Ito yung
mga remedies ng purchaser ng assignment.
1) After the termination of the specified term or particular undertaking;
The assignee can ask for judicial decree of dissolution after the termination of
the specified term or particular undertaking if with a specific term ang
partnership.
2) At any time if the partnership was a partnership at will when the interest
was assigned or when the charging order was issued.
Ito naman kapag walang term.
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 or a partner in
cases where Article 1833 so requires;
2.) With respect to persons not partners as declared in Article 1834.
The general rule is that the partnership ceases to be a going concern and the
partner’s power of representation is confined only to his acts incident to the
winding up or completing transactions begun but not then finished. So again,
ano yung mga winding up affairs? Bentahan ng assets, liquidate the assets.
To pay for the partnership debts. Generally, those are the only transactions to
be undertaken during the winding up. The event of dissolution terminates the
actual authority of a partner to undertake new business for the partnership.
Article 1833: Where the dissolution is caused by the act death or
insolvency of 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 the 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.
It means that just because na dissolve na yung corporation (maybe Sir means
partnership?), a partner cannot make his co-partner liable. Please note that if
the cause of the dissolution is the act of any partner, the person acting for the
partnership must act with knowledge. Kapag by death or insolvency, pwede
notice lang.
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; or
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
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 BUSINESS ORGANIZATION I
(By: 3-Manresa, S.Y. 2017-2018)
From the Lectures of: Atty. Raymund Christian S. Ong-Abrantes, CPA
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.
Nothing in this article shall effect 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 in
business.
AKA the winding up period.
Essentially, kung yung third person, hindi nya alam na nadissolve, tapos he
extended credit before, pwede nya ma-bind ang partnership. Pero kapag alam
nya na, hindi na pwede.
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.
This pertains to a situation wherein, nag dissolve, may umalis na partner tapos
kinontinue nung naremain. The partner na umalis na sa partnership, can he
be discharged of the liability? Sabi dito, pwede lang kung may agreement.
Because this is an essence of what kind of contract, in your oblicon? Change
of debtor.
Article 1836: Unless otherwise agreed the partners who have not
wrongfully dissolved the partnership or the legal representative of the last
surviving partner not insolvent has the right to wind up the partnership
affairs provided however that any partner his legal representative or his
assignee
upon cause shown may obtain winding up by the court.
Kung may nakalagay na “This person should wind up the partnership affairs”,
pwede. Pero kung wala, those persons who have not wrongfully dissolved the
partnership, or kung patay na lahat, yung legal representative ng last surviving
partner.
Even if the person who has wrongfully dissolved the partnership, general rule,
hindi sya pwede, he can still actually ask the court na sya ang mag wind up,
provided that the court agrees, upon caused shown.
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 for 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 to any partner
who has caused the dissolution wrongfully, the value of his interest in the
partnership at the dissolution, loss 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 copartners 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 goodwill of the business shall not be considered.
Ito winding up na. Ang gawin, yung assets, of course ibebenta sya pambayad
ng liabilities, and whatever remains, pwede sya i-convert into cash. In
accounting, liquidate then bayad ng liabilities. Ano yung maremain, ibebenta
para may cash. Yun yung dinidistribute owing to the respective partners.
(b) The right as against each partner who has caused the dissolution
wrongfully to damages for breach of the agreement.
Kapag in contravention or in bad faith ka, the other partners can ask damages
from you.
(2) xx the second paragraph No. 1 (b) of this article and in like manner
indemnify him against all present or future partnership liabilities.
For example may apat na partners, yung isa, in contravention of the
agreement. Let’s say si industrial partner engaged in another business. So
inexclude sya. Kahit papano may right pa rin sya sa partnership. Anong
mangyayari kung icocontinue nung tatlo? So icacalculate kung ano na lang
yung share ni industrial partner at the time na naexpel sya. They can secure
the payment by bond. Mag-aapply sila for bond, i-bond nila yung payment sa
industrial partner. Ang mangyayari, iaaccount. Assets – liabilities = surplus.
Idivide to how many partners, yun yung share ni industrial partner. Pero diba,
in contravention with the agreement, so magdeduct pa ng damages. Hindi kasi
nila pwede ibenta yung assets kasi icontinue nga nila yung partnership. The
only way to secure the payment of the interest of that person expelled is to
secure a bond.
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 BUSINESS ORGANIZATION I
(By: 3-Manresa, S.Y. 2017-2018)
From the Lectures of: Atty. Raymund Christian S. Ong-Abrantes, CPA

Ano naman yung rights ng person who caused the dissolution? c.) Those owing to partners in respect of capital,

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 d.) Those owing to partners in respect of profits.
article.

3.) The assets shall be applied in the order of their declaration in No. 1 of
b.) If the business is continued under the second paragraph, No. 2, of this this article to the satisfaction of the liabilities.
article, the right as against his copartners 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 4.) The partners shall contribute, as provided by Article 1797, the amount
dissolution, ascertained and paid to him in cash, or the payment secured necessary to satisfy the liabilities.
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 goodwill of the business shall not be considered.
5.) An assignee for the benefit of creditors or any person appointed by the
Please remember na kapag wrongfully caused the dissolution, may court shall have the right to enforce the contributions specified in the
corresponding damages. preceding number.

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: 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
1.) To a lien on, or right of retention of, the surplus of the partnership has paid in excess of his share of the liability.
rd
property after satisfying the partnership liabilities to 3 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; 7.) The individual property of a deceased partner shall be liable for the
contributions specified in No. 4.

rd
2.) To stand, after all liabilities to 3 persons have been satisfied, in the
place of the creditors of the partnership for any payments made by him in 8.) When partnership property and the individual properties of the partners
respect of the partnership liabilities; and 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.
3.) To be indemnified by the person guilty of fraud or making the
representation against all debts and liabilities of the partnership.
9.) Where a partner has become insolvent or his estate is insolvent, the
claims against his separate property shall rank in the following order:
Pwede mag advance ang partner on behalf of the partnership, a.) Those owing to separate creditors;
because of the concept of trust and agency. If in effect, marerescind yung
contract, may lien sya sa property, meaning may corresponding right sya dun.

In cases when a non partner purchases an interest in the b.) Those owing to partnership creditors;
partnership. Remember the case of charging orders, tapos binibili lang ng
isang partner, diba meron syang interest dun. c.) Those owing to partners by way of contribution.

Article 1839: In settling accounts between the partners after dissolution,

the following rules shall be observed, subject to any agreement to the
contrary: This is important because this is how the accounts are settled.
Remember in your cases, usually the action is for accounting, liquidation.
1.) The assets of the partnership are: Paano nililiquidate yan? In actual practice, nag-aaply sila ng receivership. Si
judge mag-aappoint ng receiver (usually an accounting firm) kasi hindi naman
a.) The partnership property, lahat ng judge may accounting background.

(2) The liabilities of the partnership shall rank in order of payment, as

follows:
b.) The contributions of the partners necessary for the payment of all the
liabilities specified in No. 2. a.) Those owing to creditors other than partners,

b.) Those owing to partners other than for capital and profits,

2.) The liabilities of the partnership shall rank in order of payment, as c.) Those owing to partners in respect of capital,
follows:
d.) Those owing to partners in respect of profits.
a.) Those owing to creditors other than partners,

b.) Those owing to partners other than for capital and profits,
Please take note of this because the order of payment in limited partnership is
quite different, in case you would be asked the comparison of how accounts
are settled in general partnership and a limited partnership. How are liabilities
settled? This is the order of payment. Remember kung nag advance si partner,
it’s as if si partner naging creditor pero hindi pa rin sya preferred. Ang preferred
pa rin is the third party creditor. After the third party creditor, we have the
44
 BUSINESS ORGANIZATION I
(By: 3-Manresa, S.Y. 2017-2018)
From the Lectures of: Atty. Raymund Christian S. Ong-Abrantes, CPA
partner creditor. Then the partner as to their capital, meaning yung capital
muna nila bago yung profits.
(7) The individual property of a deceased partner shall be liable for the
contributions specified in No. 4.
Kapag mas marami yung liabilities kaysa sa assets, by the concept of
unlimited liability, the partners’ separate assets can be used to pay partnership
creditor. So kung merong partner na nag exceed ng kanyang share of liability,
he can go after the existing partners.
(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.
Kapag partnership property, preferred si partnership creditor. Kapag separate
property, preferred si separate creditor. This is actually one of the contentions
ni Villanueva, sabi nya spouses cannot regulate (?) partnership of any kind,
except professional. Sabi nya, iba yung priority payment dun sa property
because of the Family Code, kung property is under Absolute Community of
Property or Conjugal Partnership of Gains. If i-allow sila to enter into a
partnership, you will distort the provisions in the Family Code on settling the
priorities of the Absolute or Conjugal. But then sabi sa CIR vs. Suter, they can
enter into a particular partnership.
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.
If nagcontribute si partner more than he has to contribute, he has a right of
recourse sa other partners. What if insolvent yung other partners? Wala syang
macollect.
Article 1840: In the following cases creditors of the dissolved partnership
are also creditors of the person of 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;
2.) When all but one partner retire and assign (or the representative of a
deceased partner assigns) their rights in partnership property to the
remaining partner, who continues the business without liquidation of
partnership affairs, either alone or with others;
3.) When any partner retires or dies and the business of the dissolved
partnership is continued as set forth in Nos. 1 and 2 of this article, with the
consent of the retired partners or the representative of the deceased
partner, but without any assignment of his right in partnership property;
4.) When all the partners or their representatives assign their rights in
partnership property to one or more third persons who promise to pay the
debts and who continue the business of the dissolved partnership;
5.) When any partner wrongfully causes a dissolution and the remaining
partners continue the business under the provisions of Article 1837,
second paragraph, No. 2, either alone or with others, and without
liquidation of partnership affairs;
6.) When a partner is expelled and the remaining partners continue the
business either alone or with others without liquidation of the partnership
affairs.
The liability of a third person becoming a partner in the partnership
continuing the business, under this article, to the creditors of the dissolved
partnership shall be satisfied out of the partnership property only, unless
there is a stipulation to the contrary.
When the business of a partnership after dissolution is continued under
any conditions set forth in this article the creditors of the dissolved
partnership, as against the separate creditors of the retiring or deceased
partner, have a prior right to any claim of the retired partner or the
representative of the deceased partner against the person or partnership
continuing the business, on account of the retired or deceased partner’s
interest in the dissolved partnership or on account of any consideration
promised for such interest of for his right in partnership property.
Nothing in this article shall be held to modify any right of creditors to set
aside any assignment on the ground of fraud.
The use by the person or partnership continuing the business of the
partnership name, or the name of a deceased partner as part thereof, shall
not of itself make the individual property of the deceased partner liable for
any debts contracted by such person or partnership.
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 by Article 1840 third paragraph.
We talked about expulsion and determination of interest. Ito naman, if the
partner retired or died, and kinontinue ng existing partners yung business.
Take note that the creditors of the dissolved partnership as against the
separate creditors still have priority.
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.
Even if may agreement naman sila, let’s say let’s have a wrap-up today, but
they continued the business, the reckoning of your prescriptive period should
45
 BUSINESS ORGANIZATION I
(By: 3-Manresa, S.Y. 2017-2018)
From the Lectures of: Atty. Raymund Christian S. Ong-Abrantes, CPA
account the time na nag wrap-up, yung final dissolution nila. _____ [Despite
earnest effort, hindi ko na talaga ma-clear yung last sentence ni Sir. Sorry ]
[OFF-TOPIC: Common Law Jurisdiction vs. Civil Law jurisdiction. In common
law, they bring more emphasis on case laws, jurisprudence. That’s why mas
revered yung judgment. The jurisprudence becomes part of the law of the land.
Kapag civil law naman, codified. Ibig sabihin the legislators have the ability to
impose laws. Atin kasi medyo both diba. In common law jurisdiction (e.g.
Singapore, India, Malaysia), walang codifications of laws. Kung may particular
transaction, si judge magdecide. Anong implication non? Like in contracts in
general, diba tayo may obligation and contracts provisions. Kapag common
law ka, walang codification, so the parties can actually freely stipulate
anything, even if medyo weird na as long as hindi contrary to law. Kung civil
law kasi, may mga limited liability na hindi mo pwedeng sabihin na unlimited,
kasi under the law, limited lang sya. This is a classic example of how civil law
provisions are worded in such a way na mahirap sya intindihin, because this
is borrowed from the Spanish Code. Trivia lang. ]
JULY 21, 2017
(Transcriber: Shats Tagtagan)
Q: Is dissolution limited only to the withdrawal [of the partners]? What’s the
principle behind the contract of partnership?
A: Delectus Personae
Q: Anong nangyayari pag nagdidissolve ang partners? What happens to that
principle?
A: There’s a change in the relations of the partners.
Q: How about winding up? What is termination?Can there be winding up
without dissolution?
A: No, kasi magsesettle ka ng affairs, it could be that you are doing
transactions which are not in the ordinary course of the business of the
partnership. Syempre mamaligya kag assets, so dapat mag ask ka ng
dissolution.
Q: Can there be dissolution without winding up?
A: Yes. Pwede naman kasing tanggalin yun isang partner then mag admit sila
ng bago, or tanggal ng isang partner then icontinue nila [ang partnership].
There cannot be a termination without winding up.
Dissolution is the change in the relations of the partners. Compare that with
winding up, which means settling of the affairs up to the point where all the
assets are liquidated, then terminated na sya. It is only at the point of
termination when the partnership ceases to exist. During winding up,
generally, the the business of the partnership is limited only for the purpose of
settling the affairs. You have to distinguish the three definitions.
Under Article 1830 and 1831, you have the enumeration of all the causes. Be
familiar, in fact you can even memorize it. I suggest you memorize. [!!!]
Summary of dissolution:
1) Dissolution without court decree
 Without violation of partnership agreement.
 Termination of the definite term or particular
undertaking specified in the agreement.
Paano kung mag preterminate sya, hindi nya tinapos yung original
undertaking? That will be in contravention of the partnership agreement.
 Express will of any partner, who must act in good faith,
when no definite term or particular undertaking is
specified.
Remember, this is only for partnership at will. How about if it is exercised in
bad faith? Even if it is a partnership at will pero inexercise mo sya in bad faith,
that can be construed as in contravention of the partnership agreement.
 Expulsion of any partner from the business bona fide
in accordance with such a power conferred by the
agreement between the partners.
It is only when there is a power granted in the agreement that the expulsion
can be considered not in contravention of the partnership agreement.
 Mutual withdrawal of all partners.
[Not mentioned by Sir, pero nasa codal: 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.]
 In contravention of the partnership agreement.
 One caused by force majeure or outside the will of
the partners.
 Loss of the specific thing promised to be contributed.
In Fernandez vs. Dela Rosa, it was discussed that ang nakalagay sa law is
‘loss the specific thing promised to be contributed’. In effect, hindi sya
nacontribute. What if yung kinontribute mo originally during the term of the
partnership, binalik? Would that cause dissolution? Dito (loss of the specific
thing promised to be contributed), hindi nakuha ng partnership ang thing, hindi
nagamit ng partnership, so it’s a cause of dissolution. What if binigay ko
ngayon, tapos may partnership na, after a week, kinuha ko. Would that cause
dissolution? So in this case, the SC said NO, kasi in effect, binigay mo naman
yung promise mo. After the fact na naestablish ang partnership, wala ng
pakialam dun ang law. The law is specific; it is only with regard to the thing
promised to be contributed.
 Partnership business becomes unlawful.
Say, there’s a joint venture. Two companies to log in the Surigao area. Lopez
becomes the DENR Secretary, tapos nag issue sya ng regulation na bawal
na. So it becomes unlawful. Effectively, your partnership is dissolved.
 Death, insolvency or civil interdiction of any partner.
 Insolvency of the partnership.
Insolvency of the partner is different from the insolvency of the partnership.
2) Dissolution with court decree
In these particular cases, you have to secure a court decree. You cannot
unilaterally cause the dissolution. Pero diba partnership is based on Delectus
Personae? Paano kung ayoko na talaga? Pwede ka naman umexit sa
partnership or hindi kumuha ng court decree, but it may be construed as you
acting in bad faith. You have the liability for damages.
 A partner has been declared insane in any judicial
proceeding or is shown to be of unsound mind.
What if there is another case, let’s say in an annulment case. Ang wife dun is
ang partner. Doon, dineclare sya as insane. Can you use that to ask the court
to declare the partnership dissolved? YES, kasi nakalagay ‘in ANY judicial
proceeding’. As long as there is a judicial declaration na insane ang partner.
But that does not automatically mean na dissolve na ang partnership. We have
to undergo a court decree.
 A partner becomes in any other way incapable of
performing his part of the partnership contract.
 A partner has been guilty of such conduct as tends to
affect prejudicially the carrying on of the business.
 A partner willfully 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;
46
 BUSINESS ORGANIZATION I
(By: 3-Manresa, S.Y. 2017-2018)
From the Lectures of: Atty. Raymund Christian S. Ong-Abrantes, CPA

What if the manager is the one indicated in the partnership, diba it’s hard to
have that power revoked kapag nakalagay sya. If the decision of that manager
is detrimental to the partnership, ipadissolve nyo na lang. Ito yung ground nyo. The parties agreed that Belo's name should not appear in any documents
relating to their transactions with West Bend Company. Anay having
 A partner willfully or persistently commits a breach of secured the distributorship of cookware products from the West Bend
the partnership agreement, or otherwise so conducts Company and organized the administrative staff and the sales force, the
himself in matters relating to the partnership business cookware business took off successfully. They operated under the name
that it is not reasonably practicable to carry on the
of Geminesse Enterprise, a sole proprietorship registered in Marjorie
business in partnership with him.
Tocao's name.
 The business of the partnership can only be carried on
at a loss.
 Other circumstances render a dissolution equitable.

ORTEGA V. CA The parties agreed further that Anay would be entitled to:

(Case Digest: Jordan Berguia) (1) ten percent (10%) of the annual net profits of the business;

FACTS: On December 19, 1980, respondent Misa associated himself (2) overriding commission of six percent (6%) of the overall weekly
together, as senior partner with petitioners Ortega, del Castillo, Jr., and production;
Bacorro, as junior partners. On Feb. 17, 1988, respondent Misa wrote a
letter stating that he is withdrawing and retiring from the firm and asking for (3) thirty percent (30%) of the sales she would make; and
a meeting with the petitioners to discuss the mechanics of the liquidation.
(4) two percent (2%) for her demonstration services. The agreement was
On June 30, 1988, petitioner filed a petition to the Commision's Securities
not reduced to writing on the strength of Belo's assurances that he was
Investigation and Clearing Department for the formal dissolution and sincere, dependable and honest when it came to financial commitments.
liquidation of the partnership. On March 31, 1989, the hearing officer
rendered a decision ruling that the withdrawal of the petitioner has not
dissolved the partnership. On appeal, the SEC en banc reversed the
decision and was affirmed by the Court of Appeals. Hence, this petition. On October 9, 1987, Anay learned that Marjorie Tocao had signed a letter
addressed to the Cubao sales office to the effect that she was no longer
ISSUE: Whether or not the Court of Appeals has erred in holding that the the vice-president of Geminesse Enterprise.
partnership is a partnership at will and whether or not the Court of Appeals
has erred in holding that the withdrawal of private respondent dissolved the
partnership regardless of his good or bad faith
Anay attempted to contact Belo. She wrote him twice to demand her
HELD: NO. The SC upheld the ruling of the CA regarding the nature of the overriding commission for the period of January 8, 1988 to February 5,
partnership. The SC further stated that a partnership that does not fix its 1988 and the audit of the company to determine her share in the net profits.
term is a partnership at will. The birth and life of a partnership at will is
predicated on the mutual desire and consent of the partners. The right to
choose with whom a person wishes to associate himself is the very Anay still received her five percent (5%) overriding commission up to
foundation and essence of that partnership. Its continued existence is, in December 1987. The following year, 1988, she did not receive the same
turn, dependent on the constancy of that mutual resolve, along with each commission although the company netted a gross sales of P
partner's capability to give it, and the absence of a cause for dissolution 13,300,360.00.
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. On April 5, 1988, Nenita A. Anay filed Civil Case No. 88-509, a complaint
for sum of money with damages against Marjorie D. Tocao and William
Was the dissolution effective?Was he in bad faith? How did the SC defined Belo before the Regional Trial Court of Makati, Branch 140
bad faith in this case?

In this case, SC said hindi naman sya in bad faith eh, kasi nawalan na sya ng
choice. There was an inter-personal conflict between the partners. There was The trial court held that there was indeed an "oral partnership agreement
animosity. FOR BAR EXAM AND YOUR EXAM PURPOSES, please between the plaintiff and the defendants. The Court of Appeals affirmed
memorize the meaning of bad faith. the lower court’s decision.

Compare that with case of Tocao vs. CA

TOCAO VS CA ISSUE:
(Case Digest: Jordan Berguia)

FACTS: Whether the parties formed a partnership

Private respondent Nenita A. Anay met petitioner William T. Belo, then the
vice-president for operations of Ultra Clean Water Purifier, through her
former employer in Bangkok. Belo introduced Anay to petitioner Marjorie HELD:
Tocao, who conveyed her desire to enter into a joint venture with her for
the importation and local distribution of kitchen cookwares
YES, the parties involved in this case formed a partnership

Under the joint venture, Belo acted as capitalist, Tocao as president and
general manager, and Anay as head of the marketing department and The Supreme Court held that to be considered a juridical personality, a
later, vice-president for sales partnership must fulfill these requisites:

47
 BUSINESS ORGANIZATION I
(By: 3-Manresa, S.Y. 2017-2018)
From the Lectures of: Atty. Raymund Christian S. Ong-Abrantes, CPA
(1) two or more persons bind themselves to contribute money, property or
industry to a common fund; and
(2) intention on the part of the partners to divide the profits among
themselves. It may be constituted in any form; a public instrument is
necessary only where immovable property or real rights are contributed
thereto.
This implies that since a contract of partnership is consensual, an oral
contract of partnership is as good as a written one.
In the case at hand, Belo acted as capitalist while Tocao as president and
general manager, and Anay as head of the marketing department and
later, vice-president for sales. Furthermore, Anay was entitled to a
percentage of the net profits of the business.
Therefore, the parties formed a partnership.
What was the cause of dissolution? In the list where was it? Was he in bad
faith?
We have here a comparison of what constitutes bad faith. Sinulatan nya yung
Cubao office na hindi na papasukin si Anay. SC said, dito clearly may bad
faith. Sa previous case wala. The one who caused bad faith is liable for
damages.
Not only can the partners cause the dissolution, but also the __ of a partner’s
interest. Remember that we can have the interest assigned. Kung ikaw ang
purchaser ng interest na yun, ito yung cause mo. You have to wait for the
termination of the specified or particular undertaking, or any time if there is a
partnership at will.
EFFECT OF DISSOLUTION AS TO PARTNER’S AUTHORITY (ART 1832)
A partner acts as an agent of the partnership and of the partners as well.
GENERAL RULE: Dissolution terminates all authority of any partner to act for
the partnership.
EXCEPTION:
(1) So far as necessary to wind up the partnership affairs are completed;
(2) To complete transactions begun but not then finished.
EFFECTS OF TRANSACTIONS ENTERED INTO BY A PARTNER AFTER
DISSOLUTION
[Disclaimer: Medyo makalito ito na part. Wala sya sa book ni De Leon. I think
combination ito ng mga provisions. Sir keeps mentioning about columns but I
don’t remember na sinulat nya sa board.]
(1) If the reason of the dissolution is the act of a partner, each partner is liable
to his co-partners for his share on the liability created by the partner who acts
for the partnership, EXCEPT (meaning no sharing of liability),
1.1 If the partner acting had knowledge of the cause of the dissolution.
1.2 If it is insolvency or death of a partner and the partner acting has
knowledge or notice.
Mere notice [is enough]. Yung first, it shows bad faith. Ikaw yung nag act eh
alam mo naman na magdissolve na kayo. May knowledge ka, so it shows bad
faith. You cannot go after the other partners.
This is in reference to the partners.
(2) If it is not the act, insolvency or death of a partner
No sharing of liability.These are transactions entered into by the partner with
respect to the partnership. Yung kanina, with respect to the partners, so
sharing of liability. Can you bind the partnership of the transaction?
2.1 Nature of transaction and contracting party.
If for winding up or completing transaction unfinished at dissolution, by a
person authorized, any one na kacontract mo not a partner to the partnership,
bound ang partnership dito. Kasi liquidating and winding up ka na. For as long
as the person acting is authorized.
2.2 What if the person acting is not authorized? Magiging bound lang ang
partnership if the contracting party had extended credit before dissolution, and
no knowledge or notice of the want of authority.
What do you mean “had extended”? May transaction na sya before with that
partnership. Wala syang knowledge na yung pumunta sa kanya na partner,
wala palang authority to wind up.
Example of “had extended credit”: May receivable. May icocollect ang
partnership sa third person. So sabi nya [the partner]: ‘Nadissolve na kami.
I’m authorized to liquidate. You should pay.’ Is the partnership bound? Kung
magbayad yung third person, matanggal ba yung collectible ng partnership sa
kanya? Kung wala syang knowledge to the want of authority of that partner,
BOUND ang partnership.
2.3 By the person also not authorized, but this time, the counter-party had NOT
extended credit, pero alam nya na existing ang partnership as such, and there
was NO PUBLICATION. PUBLICATION is very important.
Kung magdidissolve ka and wala namang authority yung tao, ipublish mo na
lang na “This person is the one authorized to liquidate.”
What if I’m a partner tapos I have no authority to liquidate, then I went to the
person na may utang sa partnership. Sabi ko “I’m the person authorized to
liquidate.” Wala syang kwarta that time, so nag hangyo sya. Utang is P100,
hangyo sya P60. Sabi ko, sige ok lang P60. So nalugi ang partnership ng P40.
But because it was not published, partnership is BOUND. If it is published, and
the partner has no authority, the one really authorized to liquidate, pwede pa
rin nya icollect sa counter-party the P100.
2.4 Any transaction which would bind the partnership, meaning ordinary
course of business. Not necessarily yung magcollect ng receivable para
magliquidate. Ordinary, like purchase order, etc. Dissolved na ito ha pero
conduct pa rin ng ordinary course of business. The counter-party has
extended credit before dissolution and wala syang knowledge or notice of
dissolution.
2.5 Any transaction which will bind the partnership (so ordinary course of
business) has not extended credit but has knowledge of the partnership
[maybe Sir means dissolution?] before, and no publication at the place of
business.
We talked about the person who has authority to wind up. WHO ARE THOSE
AUTHORIZED TO WIND UP? Under ART 1836:
1. By agreement, so you can agree as to person who can liquidate
the partnership.
2. Kung walang agreement, those who had not wrongfully
dissolved the partnership.
3. The legal representative of the last surviving partner not
insolvent.
This presupposes na nangamatay na ang mga partners. Isa na lang nabilin.
4. Any partner or his legal representative, upon caused shown may
obtain winding up from the court.
Let’s say ang sa agreement, kaduda duda ang nakalagay. Si person A, wala
kay salig sa iyahang skills. You can ask the court to assign someone else.
RIGHTS OF A PARTNER IN DISSOLUTION
If dissolution is caused in any way:
(a) The right to have the partnership property apply to discharge liabilities
48
 BUSINESS ORGANIZATION I
(By: 3-Manresa, S.Y. 2017-2018)
From the Lectures of: Atty. Raymund Christian S. Ong-Abrantes, CPA

(b) The right to have the surplus (assets – liabilities), the net na nabilin sa
partnership, apply to pay in cash the net amount owing to the respective
partners.
Please note that the law provides you to be PAID IN CASH. It does not state
that you should be paid in property.
For the partner’s separate assets, priority ang kanyang separate creditors.
Again, the concept of unlimited liability. The partnership creditors can go after
the separate properties of the partners.
Paano magkakaroon ng “by way of contribution”?

If dissolution is caused in contravention with the partnership agreement:
(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 (meaning ART 1837).
(b) If the business is continued under the second
paragraph, No. 2, of this article, the right as against his copartners
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 goodwill of the business shall not
be considered.
Remember, as to third person, liability is pro rata in the sense na depende
kung ilan kayo, not really your contribution. Kung lima kayo, kahit 10% lang
kinontribute ng isa, as to third person, pare pareho kayo ng liability. Kapag si
10% binayaran nya ang 20%. So 110 / 5. So 20 dapat [22 pag icompute].Si
third person, 20-20 ang icollect hanggang sa ma 100. Dapat ang contribution
nya lang is 10. So nagbayad sya ng additional 10. He can actually go after the
other partners. Ito yung “those owing to partners by way of contribution”.
Because he contributed more than he should have.
Example: Assumption: Profits and losses. Dalawang partners, Holmes and
Case. 70-30 ang ano [sharing siguro ginamean ni Sir?]. Let’s say, at the time
of dissolution, ito yung assets nila. You have cash, liabilities, equity, loan. Pag
paano sya dinistribute, sa third person, unahin muna si 40. Partnership
creditor. Next mo yung partners but not in the form of their capital or profit.
May loan sya kay Holmes, so you have 10. The distribution will be like this:

In addition we have:  The creditors – 40

(c) The right as against the partner who caused the
dissolution wrongfully for damages.
(d) The right to continue the business in the same name,
either by __ or jointly with others, provided they secure the payment
by BOND approved by the court, or pay the partner who has
caused the dissolution wrongfully the value of his interest in the
partnership pending the dissolution, less any damage.
Let’s say five partners. One partner wrongfully caused the dissolution. Sabi
nila “ Sayang naman kung madissolve. We’re earning. Icontinue na lang
natin”. The four of them continued. Unfair naman kung wala sya. Hindi naman
sinabi ng law na wala talaga sya matanggap. Ang sabi lang is, he has to pay
for damages. The four partners have the option to pay BOND approved by the
court. Ipapaaccount mo yung interest nya at the time of dissolution, less
damages na liable sya sa apat [na partners]. Whatever remains, pwede nyo
syang bayaran in cash. Para you can continue, wala ka ng utang.
The person who has wrongfully caused the dissolution: Apply to discharge the
liabilities, have the surplus applied to pay in cash, then subject to liability for
damages. The partnership here was continued, vinalue ang kanyang interest.
Please take note that if the business has GOODWILL, hindi sya icoconsider
sa pag value ng interest. Let’s say Jollibee, real cost of your burger is P10.
They can bill you with P25, because of the goodwill. Having the value of the
interest of the person who wrongfully caused the dissolution, pwedeng i-
disregard ang goodwill. In effect, bababa ang kanyang interest.
RIGHTS OF INJURED PARTNER WHERE THE PARTNERSHIP
CONTRACT IS RESCINDED:
 To Holmes, not in the form of contribution or profit – 10
 To Holmes, for the capital – 89
If the assets they have are more than 87, yun yung distribution of profits. Pero
ito kasi hindi sya umabot.
[Just refer to the slides (kung may ibigay si Sir). Magulo ito na part kasi nagdali
na si Sir kay time na + I think nagka technical malfunction sa gadget}
Ganito ang itsura ng pag liquidate:
First, meron syang non-cash asset – 100. Binenta, sa gilid makita nyo Sale of
Inventory. Usually kasi pag nag liliquidate, whatever is the value of the
property, ang mabebenta mo dyan, lower. Hindi kayo magcompute sa exam
nyo [!!]
When the business is continued, the creditors of the dissolved partnership are
also creditors of the person or partnership continuing the business. Ito yung
mga instances *. Take note that what is common to them is, there’s no
liquidation. Ibig sabihin, si creditor, hindi pa satisfied ang kanyang __. Kung
bigyan kayo ng problema na nagliquidate pero kinontinue, hindi na sya kasali
dito.
*Sir did not mention the instances.
[Sir said he will give copy of the slides.]
*END OF FIRST EXAM COVERAGE*

1) Right of a lien on, or right of retention of, the surplus of

partnership property after satisfying partnership liabilities for any sum of
money paid or contributed by him;

2) Right to subrogation in place of partnership creditors after

payment of partnership liabilities;

3) Right of indemnification by the guilty partner against all debts

and liabilities of the partnership.

Paano ba mag wind up? As to partnership assets, ito yung priority:

(1) Creditors other than the partners; (2) Those

owing to partners other than for capital and profits;
(3) Those owing to partners in respect of capital; (4) Those owing
to partners in respect of profits.

Where a partner 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.
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 BUSINESS ORGANIZATION I
(By: 3-Manresa, S.Y. 2017-2018)
From the Lectures of: Atty. Raymund Christian S. Ong-Abrantes, CPA
SECOND EXAM COVERAGE
August 11, 2017
(Transcriber: Miles Buhay)
So, last time we discussed about dissolution. We’re already finished with
general partnership.
Now, we have this species of partnership called Limited Partnership (LP). You
already know the different organizations: sole proprietorship, partnership, and
corporation. LP is somewhere in between. It’s nearer to the general
partnership, BUT it’s not a general partnership. So in other words, it has certain
characteristics of a corporation but it is still considered as a partnership. That
is why specific ang provisions.
In the old Civil Code, it is governed by the Spanish Code of Commerce. We
have several provisions for LP: Articles 1843 to 1867.
History of Limited Partnership
• The Qirad and Mudaraba institutions in Islamic law and economic
jurisprudence were similar to the modern limited partnership.
• In medieval Italy, a business organization known as
the commenda appeared in the 10th century that was generally
used for financing maritime trade. In a commenda, the traveling
trader of the ship had limited liability, and was not held responsible
if money was lost as long as the trader had not violated the rules of
the contract.
So basically this is equivalent to what we have as we have discussed in the
history of partnership wherein yung mga merchants; they have the capital and
then punta sila doon sa isang place to buy goods and to return it to the place
of origin. In this particular contract, what happens is yung travelling merchants
always unlimited yung liability. So as it evolves through time, nagkakaroon sila
ng partnership with the locals; taga-doon talaga sa place. Yung local doon has
a limited liability. So essentially this partnership is akin to a LP wherein one
has limited liability and the other has unlimited liability.
• In contrast, his investment partners on land had unlimited liability
and were exposed to risk. As an institution, the commenda is very
similar to the qirad but whether the qirad transformed into the
commenda, or the two institutions evolved independently cannot
be stated with certainty (Hillman, Robert H.; Limited Liability in
Historical Perspective, "Washington and Lee Law Review," Spring
1997)
Commenda is : a form of trust in use in the middle ages in which goods are
delivered to another for a particular enterprise (as for marketing abroad).
Merriam Webster
But then again, there was no record or anything that says that trading[?] came
first or Commenda was influenced by the ___ system. But then again,
remember that trading came from the Byzantine period; the Mesopotamian
period. Then it came to Italy. Then it came to the English. And then the English
occupied the New World (just the US) and then they copied this important __.
And we, being very original, copied our law on partnership of the US.
That is why even when you try to read cases, there are references made to
American Jurisprudence. That is because we just copied our rules on
partnership from the US.
Concept of Limited Partnership
It is a form of business association that is composed of one or more general
partners and one or more special partners (also called as limited partners), the
latter not being liable for the partnership debts. The liability of limited partners
is limited to a fixed amount (that is their capital contribution or the amount they
have invested in the partnership.
So in an LP, there must be at least one (1) general partner, and at least one
(1) limited partner. So 1:1. Hindi pwede na puro limited partner kasi in effect if
all are limited partners, wala ng person who has unlimited liability. So it’s not
a partnership per se. Kung puro rin namang general partners, edi wala ring
partners na may limited liability. So at least 1:1. Just remember: 1 general
partner, 1 limited partner.
CHARACTERISTICS of Limited Partnership
1. It is formed by compliance with statutory requirements (Art.
1844.);
We already know what are the other two (2) (which have formal
requirements): one is if the capital is Php3K or more, and the other
is kung may real property. And eto, they have to comply with
statutory requirements. We say that for the Php3K or more, even if
hindi sila makacomply, there is a limited partnership. For the real
property, there are 2 cases. Case 1: if walang third person, okay
lang [not to comply]; Case 2: must comply with statutory
requirements. This (Limited Partnership) is the third one [which
complies with statutory requirements]. In an LP, there must be
compliance with statutory requirements.
2. One or more general partners control the business and are
personally liable to the creditors (Article 1848, 1850.);
3. One or more limited partners contribute to the capital and
share in the profits but do not participate in the management
of the business and are not personally liable for partnership
obligations beyond the amount of their capital contributions.
(Arts. 1845, 1848, 1856.);
Q: So bakit hindi sila liable beyond their capital contribution?
Because essentially, they are not allowed to manage the
business. They are not allowed to actively participate in the
business.
Remember the discussion on why a general partner has unlimited
liability. Kung sole prop ka, unlimited yung liability mo kasi you
have control over everything. Kung partnership ka, it’s just an
aggrupation of sole proprietorship; you have active participation in
the management of the business. So essentially, dapat, ang
liability mo rin unlimited kasi ikaw man ang magbuot sa everything.
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 BUSINESS ORGANIZATION I
(By: 3-Manresa, S.Y. 2017-2018)
From the Lectures of: Atty. Raymund Christian S. Ong-Abrantes, CPA

Dito sa LP, si limited partner has no unlimited liability because

wala siyang control on how to manage the business. So it’s unfair
to impose unlimited liability to someone who doesn’t even have a Kasi if nagcontribute na siya ng
say in the conduct of the business. services, ano ang mangyayari? In
effect it’s an active participation and
4. The limited partners may ask for the return of their capital he becomes a general partner.
contributions under the conditions prescribed by law (Arts.
Proper party to proceedings by or Not a proper party unless he is also
1844 [h], 1857.); and against the partnership. a general partner or where the
object of the proceeding is to
So this is very particular to a LP. They [limited partner] can actually
enforce a limited partner’s right
ask for the reimbursement of their investment. So pwede silang
against, or liability to, the
mag-pullout. Essentially, they are just passive investors.
partnership (Art. 1866.)
Kelangan mo ng money? Eto si limited partner mag-invest siya ng
money. Kapag i-pullout niya na yung money, pwede niya nang i-
pullout. Pero of course there are certain requirements which we will
discuss later. So as you can see si limited partner
talagang passive investor lang siya.
5. The partnership debts are paid out of common fund and the Wala akong sinasabing mutual
individual properties of the general partners. agency [di gaya ng?] general
partnership.
Limited and liability sa partnership with limited partner.
His name may appear in the firm GR: his name must not appear in
Business reason and purpose of statutes authorizing limited name (Art. 1815.) the firm name.
partnerships.

1. Secure capital from others for one’s business and still retain
control. Once nakalagay na siya dun,
pwede na siyang i-consider as
So kung ikaw si general partner, kulang ka lang ug capital tapos general partner by a 3rd person.
dili ka gusto naay laing maki-usyoso sa imong business, so mag-
Prohibited from engaging in a No prohibition. Considered as a
ask ka ug investor. So sila ang magprovide sa capital contribution.
business which is of the kind of mere contributor to the partnership
2. Share in profits of a business without risk of personal liability. business which the partnership is (Art. 1866)
engaged, if he is a capitalist partner
Eto naman and liability of the limited partner. (Art.1808.) or in any business for
himself if he is an industrial partner
3. Associate as partners with those who have business skills. (Art. 1789.)

So, ako gusto ko magnegosyo pero wala akong alam sa

pagnenegosyo. Meron lang akong pera. So, I am going to call a
general partner. Siya ang magmanage. His retirement, death, insanity, or His retirement, death, insanity, or
insolvency dissolves the insolvency does not dissolve the
The primary purpose of the statute authorizing the formation of partnership (Arts. 1860, 1830, partnership, as a general rule.
limited partnerships is to encourage those having capital to become 1831.)
partners with those having skill by limiting the liability of the former
to the incidental amount actually contributed by them. De Leon. What if isa lang yung limited partner
General partner/partnership vs Limited partner/partnership and namatay siya. Diba sabi natin
at least 1 general partner and 1
General Partner Limited Partner limited partner? So if namatay yung
limited partner, then in effect, wala
A general partner is personally Limited partner’s liability extends ng limited partnership. So it is
liable for partnership obligations only to his capital contribution (Arts. dissolved.
(Article 1816.) 1845, 1848, 1856)
His interest in the partnership may His interest is freely assignable,
not be assigned as to make the with the assignee acquiring all the
assignee a new partner without the rights of the limited partner subject
consent of the other partners to certain qualifications (Art. 1859.)
When the manner of management Limited partner has no share in the (Art.1813.) although he may
has not been agreed upon, all of management of a LP; associate a third person with him in
the general partners have an equal his share (Art. 1804.)
right in the management of the
business (Arts.1803, 1810 [3].), w/n
Rights are limited to those
the general partner has made any Formal Requirements under Article 1844
enumerated in Article 1851, such
capital contribution.
that he renders himself liable to
Art. 1844. Two or more persons desiring to form a limited partnership
creditors as a general partner if he
shall:
takes part in the control of the
business (Article 1848.) (1) Sign and swear to a certificate, which shall state -
May contribute money, property, or Can only contribute cash or (a) The name of the partnership, adding thereto the
industry. property but not services. word "Limited";

51
 BUSINESS ORGANIZATION I
(By: 3-Manresa, S.Y. 2017-2018)
From the Lectures of: Atty. Raymund Christian S. Ong-Abrantes, CPA
(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.
We say that it is a form of a contract so there are formal requirements
1. The persons must sign the certificate or articles of the limited
partnership which states the name of the partnership,
character of the business, principal place of business, etc.
Sa corporation, meron din ito eh. Essentially the same yung mga
requirements: principal place of business, name of the corporation,
residence, nationality, etc. Kaya sinabi ko na limited partnership, in
the spectrum of partnership and corporation, nandito siya banda [I
recall sir making a gesture indicating that LP is nearer a
corporation]. It has some of the features of a corporation pero
partnership pa rin siya. So like a corporation, you are required a
certificate containing these information.
2. File the certificate for record with the Office of Securities and
Exchange Commission.
However, one particular thing about LP, compared to a corporation,
is that yung substantial compliance rule. A limited partnership is
formed if there has been substantial compliance in good faith with
the requirements set forth in Article 1844 (last paragraph);
otherwise, the liability of the limited partners becomes the same as
that of general partners.
In a corporation, there should be complete compliance. Eto (LP),
substantial. The problem here is: when do we say there is
substantial compliance? It’s very vague if you look at the
provisions.
Substantial compliance in good faith sufficient
Q: If we say 6 out of 10 requirements was complied with, is
there already substantial compliance? How do you know if it’s
substantial? How do you know when it’s not? In Jo Chung
Cang vs Pacific, 45 Phil 142 (however, this was decided under
the Spanish Code of Commerce. Wala pang case decided under
the current Civil Code) the SC said that:
There is substantial compliance if the certificate already
contains who is the limited partner and who is the
general partner or who are the general partners. So for
as long as nasabi mo na doon sa certificate mo na ito si
limited partner, ito ang kinontribute niya, at ito si general
partner ito and kinontribute niya, that will constitute as
substantial compliance.
Again, it is still very vague. But the fact is the SEC will not accept
your document if it lacks the information required. So in practice,
you cannot go to SEC and claim, “Substantial compliance na man
na ma’am, o” or “I’m in good faith.” Kasi sila, ministerial lang yung
duty nila. May checklist. They will not accept if incomplete. So,
substantial compliance and good faith will only be proper
kapag naay nakalusot na dili kumpleto tapos nagkaroon ug
kaso.
Q: What if there is no substantial compliance? The firm
becomes a general partnership only as to its relation with third
persons; that the firm, in form is still a limited partnership; subject
to all the rules applicable to such partnership. Thus, a limited
partner treated as a general partner as far as third persons are
concerned is entitled to reimbursement from the general partner or
partners for whatever obligations he might have paid to partnership
creditors beyond his capital contribution.
As within the partners, whatever is their contractual relation is
based on their agreement. So if their agreement lang talaga is
limited partner yung isa, kahit walang substantial compliance and
good faith, then as to them, limited partner pa rin siya. But as to 3rd
persons, they are considered as general partners.
Rule where partnership creditor is guilty of estoppel
If the attaching creditors recognize and deal with a firm as a limited
partnership, they will be estopped from insisting that there is no such
partnership, or that the terms of the partnership were not sufficiently stated in
the notice of its formation.
Art. 1845. The contributions of a limited partner may be cash or
property, but not services.
A limited partner is not allowed to contribute services. He can only contribute
money or property; otherwise, he shall be considered an industrial partner and
general partner, in which case, he shall not be exempted from personal
liability.
Art. 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.
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 BUSINESS ORGANIZATION I
(By: 3-Manresa, S.Y. 2017-2018)
From the Lectures of: Atty. Raymund Christian S. Ong-Abrantes, CPA
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.
It appears from this provision the registration with SEC does not serve as a
constructive notice.
Pero diba when it was registered it already contained sino yun limited partner,
sino yung general partner/s. So even if nakalagay na yun dun, if ako si creditor
and I have no actual knowledge na limited partner lang siya, I can still hold him
(limited partner) liable. So that in effect is an exemption to the rule that
whatever is embodied in a public instrument is a constructive notice to the
whole world. Remember that you need to make a jurat sa baba ng certificate,
so it becomes notarized; a public instrument. And a public instrument operates
as a notice to the whole world.
So this is particularly different from the general rule. Kasi here it appears na
kelangan merong actual knowledge na hindi siya general partner. So just take
note of that.
What if there are false statements in the certificate?
Liability for false statement in certificate
Art. 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.
Under this provision, any partner to the certificate containing a false statement
is liable provided the following requisites are present:
• He knew the statement to be false at the time he signed the
certificate, or subsequently, but having sufficient time to cancel or
amend it or file a petition for its cancellation or amendment, he
failed to do so;
• The person seeking to enforce liability has relied upon the false
statement in transacting business with the partnership; and
• The person suffered loss as a result of reliance upon such false
statement.
In other words, kapag meron itong requisites, liable ang any partner for
damages.
Art. 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.
If he takes part in the control over the business, he becomes liable as a general
partner.
So what constitutes “he takes part in the control of the business”?
Such control contemplates active participation in the management of the
partnership business and does not comprehend the mere giving of advice to
general partners.
So let’s say, ikaw si general partner. Alam mo na lawyer si limited partner. Eh,
meron kang legal issue so humingi ka ng advice. Sasabihin agad ni limited
partner, “Oh, I cannot participate. I cannot, because I will be liable as a general
partner.” Sabihin mo, “No. The mere giving of advice does not constitute
control over the business.” So pwedeng mag-advice si limited partner.
However, the limited partner takes part in the management of the business
and is liable generally for the firm’s obligations where:
1.) The business of the partnership is in fact carried on by a people
chosen by the limited partners;
2.) By the terms of the contract between the parties, an appointee of
the limited partner becomes the directing manager of the firm;
3.) The limited partner purchases the entire property of the
partnership, taking title in himself and then carries on the business in his own
name and for his own exclusive benefit; or
The interference contemplated is with respect to an existing LP. A limited
partner is not subject to general liability for taking part in the management of
the firm because he settles its affairs after dissolution.
So the key word [phrase] here is the active participation in the
management. If you actively participate in the management, directly or
indirectly, then you are in control of the business. But the mere giving of advice
does not constitute taking part in the business.
Admission of additional limited partners
Art. 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.
Even after the formation of an LP, you can actually admit other partners. But
you must amend the certificate filed during the formation [of the partnership].
Rights, powers, and liabilities of a general partner
Art. 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.
These are actually acts of strict dominion. Dapat merong consent ng lahat ng
partners.
(6) Admit a person as a limited partner, unless the right so to do is given
in the certificate;
GR: All partners must consent.
Ex: Even if hindi lahat magconsent, for as long as nakalagay sa certificate na
you have a right to admit a partner without the consent of the others.
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 BUSINESS ORGANIZATION I
(By: 3-Manresa, S.Y. 2017-2018)
From the Lectures of: Atty. Raymund Christian S. Ong-Abrantes, CPA
However, as we will learn later on, diba kapag nag-admit ka ng partner, you
will have to amend the certificate. And when you amend the certificate, you
need the consent of the other partners. So, ano ba talaga?
• Kapag nakalagay sa certificate yung right, you can admit a person
as a limited partner without the consent of the other partners
• Pero kapag nag-amend ka nung certificate, eh kelangan mo naman
ng consent ng mga partners.
What this is saying is that the power to choose who the limited partners are to
be admitted, akin yun, but to them [other partners] it becomes ministerial for
them to give their consent. So kung may pipiliin akong to admit as a limited
partner, they cannot oppose because that right is admitted in the certificate.
Rights of a limited partner (eto lang yun)
Art. 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.
Please take note that you can only have dissolution and winding up by decree
of court. Hindi siya gaya ng general partnership.
The compensation by way of income is not the compensation because of the
services rendered kasi nga, a limited partner is not allowed to contribute
services. So eto, it’s just by way of income.
Status of partner when there is failure to create an LP
A limited partnership is formed when there is substantial compliance in good
faith with the requirements of the law. If not complied with, the limited partner
will have the liability of a general partner as to 3rd persons. Article 1852
provides for an exemption.
Art. 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.
So this is an exception to the general rule that if you do not comply with
substantial compliance and good faith the limited partner will have the liability
of a general partner as to 3rd persons.
Ex. So what if nagfile ng certificate. Eh akala ni limited partner nagcomply na
siya with substantial compliance and good faith. So akala niya limited partner
na siya pero yun pala wala. So anong mangyayari? GR: magiging liable siya
as general partner. What is the exception na hindi siya magiging liable as
general partner? Eto yun: 1852
Conditions for exemption from liability as general partner:
1.) On ascertaining the mistake, he promptly renounces his interest in the
profits of the business or other compensation by way of income;
2.) His surname does not appear in the partnership name; and
So even if he renounces the profits or other compensation by way of income,
if nakalagay yung pangalan niya liable pa rin siya as a general partner.
3.) He does not participate in the management of the business.
So even if he promptly renounces and his surname does not appear in the
partnership name but he actively participated in the management of the
business he is still liable as a general partner.
One person can be both a general partner and a limited partner
Art. 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.
Kung general partner ka and at the same time a limited partner, nagiging blurry
yung nature of your remedy. You’re a general partner – so you have unlimited
liability. At the same time, you’re a limited partner – so you have limited liability.
According to De Leon since general partner ka: so kung yung creditors are
after your personal properties, they can do that. Pero kung nabayaran na sila
with your personal property pwede mo na i-demand sa mga general partners
mo for reimbursement.
But according to Villanueva: the only right mo as a limited partner is the right
to demand for the return of your contribution.
So medyo hindi sila pareho ng opinion. But I would go with the opinion of De
Leon na ang general partner niya is with respect to 3rd persons. And since
limited partner din siya, with respect to his contribution, pwede rin siyang
magdemand doon sa general partner provided na meron pa talagang
bayaran si general partner. Kasi remember, he [limited partner] is also liable
up to the point of his original contribution. So kung ma-exhaust niya yun, wala
na. Pero kung ma-negative gani, meaning nagshell out na siya ng personal
property niya, pwede na siyang magdemand doon kay general partner.
Loan and other business transactions with limited partnership vis-a-viz
limited partner
Art. 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 and 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.
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 BUSINESS ORGANIZATION I
(By: 3-Manresa, S.Y. 2017-2018)
From the Lectures of: Atty. Raymund Christian S. Ong-Abrantes, CPA
The limited partner may actually grant loans to the partnership. He can also
transact other business with it.
Allowable transactions:
1.) Granting loans to the partnership;
2.) Transacting other business with it;
3.) Receiving a pro rata share of the partnership 
assets with general
creditors if he is not also a 
general partner.
Prohibited transactions:
1.) Receiving or holding as collateral security any partnership property; or
2.) Receiving any payment, conveyance, or release from liability if it will
prejudice the right of 3rd persons.
Any violation of the prohibition will give rise to the presumption that it has been
made to defraud partnership creditors.
Preferred limited partners
Art. 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.
As to the limited partners themselves, they can also decide kung sino ang
preferred.
By an agreement of all the members (general and limited) stated in the
certificate, priority may be given to some limited partners over other
limited partners as to the:
1.) Return of their contributions;

2.) Their compensation by way of income; or
3.) Any other matter.
In the absence of such statement in the certificate, even if there is an
agreement, all the limited partners shall stand on equal footing in respect to
these matters.
(Like in a corporation, merong mga preferred stocks, meron pa talagang mas
preferred)
Compensation of limited partner
Art. 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.
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 the property of the partnership
or that of a general partner, the partnership assets are in excess of all liabilities
to limited partners on account of their contributions and to general partners.
Art. 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.
One of the peculiarities of a limited partner is that they can actually demand
the return of their contributions. So kung ayaw na niyang mag-invest, pwede
na siyang mag-pullout. So here are the
Requisites for return of contribution of limited partner
1.) All liabilities of the partnership have been paid or if they have not
yet been paid, the assets of the partnership are sufficient to pay such liabilities;
2.) The consent of all members (general and limited) has been
obtained except when the return may be rightfully demanded; and
3.) The certificate is cancelled or so amended as to set forth the
withdrawal or reduction of the contribution.
When return a matter of right (don’t need the consent of all members)
• On the dissolution of the partnership; or
• Upon arrival of the date specified in the certificate for the return; or
(even if hindi naman nakalagay doon sa certificate)
• After the expiration of the 6 months’ notice in writing given by him
to the other partners if no time is fixed in the certificate for the return
of the contribution or for the dissolution of the partnership.
Right of limited partner to cash in return for contribution
General rule: Under the 3rd paragraph, even if a limited partner has
contributed property, he has only the right to demand and receive cash for his
contribution.
Exceptions:
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 BUSINESS ORGANIZATION I
(By: 3-Manresa, S.Y. 2017-2018)
From the Lectures of: Atty. Raymund Christian S. Ong-Abrantes, CPA
1.) When there is stipulation to the contrary in the certificate; or
2.) Where all the partners (general and limited) consent to the return
other than in the form of cash.
Bakit generally dapat cash lang siya? Bakit hindi pwede property? Kasi it is
more convenient.
Remember ongoing pa ang business tapos gusto ni limited partner na mag-
alis na sa business. What if yung property is where the business stands? So
anong mangyayari? For convenience purposes, cash na lang.
When limited partner may have the partnership dissolved
1.) When his demand for the return of his contribution is denied
although he has a right to such return; or
Please refer to enumeration above for when right to such return is present.
2.) When his contribution is not paid although he is entitled to its return
because the other liabilities of the partnership have not been paid or the
partnership property insufficient for their payment.
The limited partner must first ask the other partners to have the partnership
dissolved; if they refuse, then he can seek the dissolution of the partnership
by judicial decree.
So please, please take note that the limited partner has no right to dissolve
the partnership in any other method but by judicial decree. He is not a
general partner who can dissolve the partnership at will.
Art. 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.
Liabilities of a limited partner
To the partnership – Liability of limited partners is to partnership, not the
creditors of the partnership.
To partnership creditors and other partners – A limited partner is liable for
partnership obligations when:
1.) Contributes services;
2.) Allows his surname to appear in name of firm;
3.) Fails to have false statement in certificate 
corrected when he
knew it to be false;
4.) Takes part in control of business;
5.) Receives partnership property as collateral 
security, payment,
conveyance, or release in 
fraud of partnership creditors;
6.) Failure to substantially comply with legal 
requirements of
formation of limited partnership.
To separate creditors – Creditor of limited partner may also apply for a
“charging order” subjecting the interest in the partnership of the debtor partner
for the payment of his obligation.
Liability for unpaid contribution
• Limited partner liable not only for the difference between the
amount of his actual contributions and that stated in the certificate
as having been made but also for any unpaid contribution he
agreed to make at a future time.
Liability as trustee
• Limited partner considered as trustee for the partnership for:
1.) Specific property stated in the certificate as contributed by him but
which he had not contributed;
2.) Specific property of the partnership which had been wrongfully
returned to him;
3.) Money wrongfully paid or conveyed to him on account of his
contribution; and
4.) Other property wrongfully paid or conveyed to him on account of
his contribution.
Requisites for waiver or compromise of liabilities
1.) Waiver or compromise is made with the consent of all the partners;
and
2.) The waiver or compromise does not prejudice partnership creditors
who extended credit or whose claims arose before the cancellation or
amendment of the certificate.
Liability for return of contribution lawfully received
The limited partner is liable to the partnership for the return of contribution
lawfully received by him to pay creditors who extended credit or whose claim
arose before such return. His liability, of course, cannot exceed the sum
received by him with interest.
Art. 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.
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 BUSINESS ORGANIZATION I
(By: 3-Manresa, S.Y. 2017-2018)
From the Lectures of: Atty. Raymund Christian S. Ong-Abrantes, CPA
The substitution of the assignee as a limited partner does not release
the assignor from liability to the partnership under Articles 1847 and
1848.
Assignment of limited partner’s interest
Effect of change in the relation of limited partners
Does not necessarily dissolve the partnership. No limited partner, however,
can withdraw his contribution until all liabilities to creditors are paid.
Rights of assignee of limited partner
Assignee is only entitled to receive the share of the profits or other
compensation by way of income or the return of the contribution to which the
assignor would otherwise be entitled. He has no right to require any
information or account of the partnership transactions or to inspect partnership
books.
The assignee acquires all the rights of the limited partner only when he
becomes a substituted limited partner.
So pag-inassign ni limited partner ang kanyang interest, the assignee acquires
all the rights of the limited partner when he becomes a substituted limited
partner. Pero kung assignee ka lang, the only thing that you have is the right
to receive the profits and compensation by way of income.
Kelangan i-amend ang certificate so that the assignee becomes a substituted
limited partner, otherwise, mere assignee lang siya.
When assignee may become substituted limited partner
Requisites:
1.) All the members must consent to the assignee becoming a
substituted limited partner or the limited partner, being empowered by the
certificate, must give the assignee the right to become a limited partner;
2.) The certificate must be amended;
3.) The certificate as amended must be registered in 
the SEC.
Liability of substituted partner and assignor
Substituted limited partner is liable for all the liabilities of his assignor except
only those of which he was ignorant at the time he became a limited partner
and which could not be ascertained from the certificate.
Art. 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.
Effect of retirement, death, insolvency, insanity or civil interdiction of a
general partner in a LIMITED PARTNERSHIP
• Effect - Dissolution of partnership unless business is continued
by the remaining general partners.
• If limited partner [ang namatay, naging insane, etc.] does not
dissolve partnership unless he is the only limited partner.
Remember 1:1.
• If the business is continued by the remaining partners under the
rights given in the certificate or with the consent of all members, no
dissolution but certificate must be amended for limited
partners to still avail of limited liability.
Art. 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.
Right of executor on death of a limited partner
On the death of a limited partner his executor or administrator shall have all
the rights of a limited partner for the purpose of settling 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 liable for all his liabilities as a
limited partner.
Art. 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.
Rights of creditors of limited partner
• 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 that may exist.
• Nothing in this Chapter shall be held to deprive a limited partner of
his statutory exemption
Art. 1863. In setting 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;
57
 BUSINESS ORGANIZATION I
(By: 3-Manresa, S.Y. 2017-2018)
From the Lectures of: Atty. Raymund Christian S. Ong-Abrantes, CPA
(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.
Dissolution of a limited partnership
The partnership liabilities shall be settled in the following order:
1.) Those due to creditors, including limited partners, except those on
account of their contributions, in the order of priority as provided by law;
2.) Those due to limited partners in respect to their share of the profits
and other compensation by way of income on their contributions;
3.) Those due to limited partners for the return of the capital
contributed;
4.) Those due to general partners other than that for capital and profits;
5.) Those due to general partners in respect to profits; and
6.) Those due to general partners for the return of the capital
contributed.
Partnership creditors are entitled to first distribution, followed by limited
partners who take priority over general partners.
Note that in a general partnership, the claims of the general partners in respect
of capital enjoy preference over those in respect of profits.
Shares of limited partners
In the absence of any statement in the certificate as to the share of the profits
which each partner shall receive by reason of his contribution and subject to
any subsequent agreement, limited partners share in the partnership assets
in respect to their claims for capital and profits in proportion to the respective
amounts of such claims.
When certificate shall be cancelled or amended
Art. 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.
Requirements for amendment and cancellation of certificate
Art. 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.
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 BUSINESS ORGANIZATION I
(By: 3-Manresa, S.Y. 2017-2018)
From the Lectures of: Atty. Raymund Christian S. Ong-Abrantes, CPA
Art. 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.
Limited partner, a mere contributor
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.
When limited partner a proper party
• Where the object is to enforce limited partner’s individual rights
against the partnership, and to recover damages for violation of
such right.
• When it’s a proceeding to enforce his liability to the partnership;
• Creditors may go against him if he had withdrawn sums from the
capital of the firm with outstanding debts on a voluntary dissolution.
Art. 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.
Note: For August 22, Our Professor discussed the answers for the 1st Exam.
On that day, there was no discussion on any topic for the 2nd Exam.
August 22, 2017
Joint Venture in the Philippine Setting
Again, joint ventures, according to our laws, is a species of partnership
because our partnership law provides that one of the classifications of a
partnership is it is a specific undertaking, so that is under specific partnership.
Joint venture, as distinguished from a partnership is only for a particular
undertaking. However, the reason why I would want to discuss to you this,
although this is not a part of your syllabus for Bar Exam purposes, but if you
want to practice business law, this will come out handy.
Why? Since this is business organization, add on to sole proprietorship,
partnership which are two – general and limited, and you have corporation.
Along those spectrum (sole proprietorship, partnership and corporation), may
mga nuances. Of course, business evolve. Of course, business people are
investing and trying to modify their rights. Along the lines, nagkakaroon ng
nuances. One of the nuances in this spectrum is the establishment of joint
ventures.
In other jurisdictions, there are particular laws which govern joint venture but
basically joint venture is governed by contractual stipulation. It is just that in
our jurisdiction, we copy it from the American Law which in effect considers
joint venture as a species of partnership.
So there are several laws. Ang joint venture kasi wala siyang specific na
provision, ang tendency is mararami siyang naco-cover na law along the way.
We are going to discuss that.
For purposes of your exam, I will only limit the questions to these slides. So I
will not ask anything outside of these slides.
NATURE OF JOINT VENTURES IN PHILIPPINE SETTING
 There is no statutory provision directly governs joint ventures
 The Prevailing school of thought : A specie of partnership
 Distinction: Partnership vs Joint Venture (you have that in
Aurbach vs Sanitary Wares Manufacturing Corporation).
Aurbach vs Sanitary Wares Manufacturing Corporation
“The main distinction cited by most opinions in common law jurisdiction is
that the partnership contemplates a general business with some degree of
continuity, while the joint venture is formed for the execution of a single
transaction, and is thus of a temporary nature. . . This observation is not
entirely accurate in this jurisdiction, since under the Civil Code, a
partnership may be particular or universal, and a particular partnership may
have for its object a specific undertaking. It would seem therefore that
under Philippine law, a joint venture is a form of partnership and should
thus be governed by the laws of partnership…”
However, ang maganda lang sa ating partnership law is pansin niyo, hindi
masyadong restrictive ang provisions. It can be executed in any form. Hindi
siya restrictive. Even jurisprudence, nagkakaiba ng opinion. So hindi siya that
restrictive.
JOINT VENTURE CHARACTERISTICS
1.) It would have a juridical personality separate and distinct from
that of each of the joint-venturers;
This is viewed under Philippine law, ha. Under Philippine Law ha,
since this is considered partnership, ito yung consequences.
2.) Each of the co-venturers would be liable with their private
property to the creditors of the joint venture beyond their
contributions to the joint venture
This is consistent with the doctrine of unlimited liability for the
partners in a partnership.
3.) Even if a co-venturer transfers his interest to another, the
transferee does not become a co-venturer to the others in the
joint venture unless all the other co-venturers consent
This is consistent with the principle of our partnership that an
assignee does not become a partner but has a set of rights.
4.) Generally, the co-venturers acting on behalf of the joint
venture are agents thereof as to bind the joint venture; and
This is consistent with the doctrine of delectus personae—mutual
agents.
5.) Death, retirement, insolvency, civil interdiction or dissolution
of a co-venturer dissolves the joint venture.
So these are the effects or consequences of joint venture in the Philippine
setting. It is almost similar to partnership.
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 BUSINESS ORGANIZATION I
(By: 3-Manresa, S.Y. 2017-2018)
From the Lectures of: Atty. Raymund Christian S. Ong-Abrantes, CPA
However, what makes a joint venture a class of its own is (explained in)
Tuason v. Bolaños
Tuason v. Bolaños
“…a corporation has no power to enter into a partnership…” (a doctrine in
Anglo-American jurisprudence recognized in Philippine jurisdiction)
Nevertheless, Tuason recognized that a corporation may validly enter into a
joint venture agreement, "where the nature of that venture is in line with the
business authorized by its charter."
So, joint venture as a mode for corporations to enter into a partnership
becomes a distinguishing business organization. So it becomes separate from
partnership. Nagkakaroon siya ng sarili niyang buhay. Kasi nga, in joint
ventures, corporations can enter into partnerships.
LEGAL FORMS IN JV STRUCTURE
How could you structure your JV? So you have 4 general structure of joint
venture. Bakit magkakaiba? Sabi ko nga sa inyo, walang specific provision si
joint venture, kaya ang tendency is pwede mo siyang i-twitch depende kung
saan ang gusto ng mga joint venturers.
I. Joint Venture Corporation
The SEC has ruled that generally, a joint venture agreement of two
corporations need not be registered with the SEC, provided it will not result in
the formation of a new partnership or corporation. However, should there be
an intention to acquire a separate Tax Identification Number (TIN) from the
Bureau of Internal Revenue for the business venture, the same requires
registration with the SEC in order to have a separate legal personality to obtain
a separate TIN Equity Joint Venture.
Meaning, joint venture tayo pero gawin natin siyang through a
corporation. So we will establish a corporation, we have all the
requirements of a corporation, but joint venture siya. So ano ang
mangyayari? Tendency niyan, since a corporation is a contract
between the state and that entity giving it juridical personality, in
effect, in a joint venture corporation, they result into 2 agreements:
1.) Article of Incorporation –charter of the corporation; its contract with
the government
2.) Joint Venture – the contract of the venturers
So ito, it is a joint venture, established in a corporation. There is a corporation,
the vehicle that gives it juridical personality, but the agreement is in the form
of joint venture. Meaning, may specific undertaking yung corporation na yun.
Meaning, yung corporation na yun is not the general corporation na may
business continuity. Yung corporation nay un is specific lang talaga for a
particular undertaking. Nakuha niyo?
II. Equity Joint Venture
Equity joint ventures are also available in Philippine setting which may cover
the formation of a new joint venture company, with each co-venturer being
allocated proportionate shareholdings in the outstanding capital stock of the
joint venture corporation. Equity joint venture may also be pursued where a
co-venturer is allocated the agreed shares of stock in an existing corporation,
either from new issuances of the capital stock of the existing corporation, or
sold shares from those already issued in the names of the other co-venturers.
In equity joint ventures, the rights and obligations of the parties among
themselves is covered not only in a separate joint venture agreement, but also
implemented by certain provisions of the articles of incorporation and by-laws
of the joint venture corporation.
So ito, pwede may existing corporation tapos may gusto makipagjoint venture
sa kanya, ibenta mo na lang ang shares mo sa kanya. There is no
establishment of a new partnership kundi benta lang ng shares. Benta lang ng
ownership.
Medyo abstract? Okay lang. Again, I will not ask you complicated questions
with regards to this. Basic lang talaga ang tanong ko. It is just the application.
III. Partnership Arrangement
A third type of joint venture arrangement is to formally operate the joint venture
set-up as a partnership, with a separate and distinct juridical personality
Ito yung the usual. Again, similar to a joint venture corporation, may separate
personality, kasi nga partnership. Pero eto, made under the partnership law,
yung isa is under corporation law.
IV. Contractual Joint Venture
The SEC has ruled that two or more corporations may enter into a joint venture
through a contract or agreement (contractual joint venture) if the nature of the
venture is authorized by their charters, which contract need not be registered
with the SEC; provided, however that the joint venture will not result in the
formation of a new partnership or corporation.
Ito ang pinaka-common. They enter into a joint venture through a contract. So
makakita kayo sometimes ng “JV”, “JV of Ayala Land and Sta. Lucia and SM.”
Contractual Joint Venture lang yan pagwalang separate juridical personality.
What if gagawa ka ng joint venture corporation, ibig sabihin, there will be
effectively 2 agreements (Article of Incorporation at yung Joint Venture). So
ano ang mangyayari kung may conflict?
 In case of conflicts between the provisions of the joint venture
agreement and the charter (meaning the Articles of
Incorporation) of the joint venture corporation, the provisions
of the latter shall prevail (ibig sabihin yung provisions ng Articles
of Incorporation ang magprevail kasi yun ang nagbibigay ng
personality);
However since joint venture is also a contract, yung mga binding doon na
contracts sa kanila, it is binding as to the parties, but as to the government,
ang mag-govern is the Articles of Incorporation.
It is an abstract concept but I took the liberty to discuss this with you kasi hindi
ito madidiscuss sa inyo ever. I don’t think madidiscuss pa ito when you come
to court…
WORDS OF WISDOM FROM SIR: Sometimes, failure teaches you how bad
you want something. If you really want that something, it won’t hinder you from
getting it. It will just propels you to do better.
 In case there are provisions or clauses in the joint venture
agreement not found in the charter of the joint venture
corporation, such provisions and clauses remain binding
contracts among the joint venture parties signatory to the
agreement, but do not bind the joint venture corporation or
other parties not signatories thereto.
FACTORS
What determines individuals to create a structure? Kasi governed pa rin tayo
ng our own Philippine laws. How could venturers say: Let’s do a joint venture
corporation or let’s do equity venture etc. How do they decide? These are the
factors:
 Limited Liability
Kung ayaw mo ng unlimited liability na mahahabol yung personal property mo,
papasok ka ba sa joint venture na partnership form? Kung gusto mo ay limited,
papasok ka ba sa joint venture na partnership ang form? Anong joint venture
in a partnership, anong factor ng partnership with regard to liability? Diba
unlimited? So kung ayaw mo ng liability na unlimited, so bakit ako papasok sa
partnership na joint venture? I would either go to joint venture na corporation
kaysa joint venture na contractual. So let’s see, check an example of how
venturers decide and to what vehicle they want to go into when entering into
a joint venture.
 Tax Consequences
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 BUSINESS ORGANIZATION I
(By: 3-Manresa, S.Y. 2017-2018)
From the Lectures of: Atty. Raymund Christian S. Ong-Abrantes, CPA
Under your Tax: Di ba partnership or joint venture are considered corporation?
So yun. Kung gagawa ba ako ng either joint venture na partnership or joint
venture na corporation, ano ang magiging tax ko? You will be taxed as
corporation. So para ma-avoid ko yan, I would rather do a contractual joint
venture, di ba, na walang personality separate of its own.
You see the point, these subjects will intertwine whether you like it or not. Sabi
nga ni Father Gus, Tax Law, Business Law, Corporation Law, you have to
keep in one eyeglasses. You have it in the perspective of business for you to
understand. This is different from your Civil Law concept and Constitutional
Law concept.
 Limitation of Foreign Equity
GOVERNING LAW AND LANGUAGE
So again, we have no specific provision on partnership. We only have
provisions on partnership and specific partnership or particular partnership.
So what governs partnership? Freedom of contracts. Contracts in general
govern joint ventures.
 Freedom to Contract, In General
The Philippine Constitution prohibits any law impairing the obligation of
contracts. The established rule is that contracting parties may establish such
stipulations, clauses, terms and conditions as they may deem convenient,
provided they are not contrary to law, morals, good customs, public order, or
public policy Sec. 10, Art. III.
You have the right to contract for as long as it is not contrary to law, morals,
good customs, public order or public policy.
 Formal or Extrinsic Validity of Agreements
Philippine laws recognize the principle that the formal or extrinsic validity of
contracts, including a joint venture arrangement, shall be governed by the laws
of the country in which they are executed. Therefore, joint venture
arrangements, which are essentially partnership agreements, are valid in
whatever form executed. Art. 17, Civil Code.
Yung extrinsic? What will govern it? Of course, where you executed the
contract.
Example: Kunwari ako si joint venture, gusto ko ng subdivision development
from a co-venturer from Singapore, ako Filipino. Gawa kami ng contractual
joint venture and i-eexecute namin ito sa Singapore. As to form, what will
govern? The law that will govern the form will be the law wherein that contract
is executed. So in this case, sa Singapore. So ano ang law ni Singapore with
regards to contracts extrinsic, sa labas like form, notarization etc.? It will be
governed by the Singapore law. Ito yung sinasabi nito.
 Capacity of Contract Parties
The capacity of the parties to enter into a joint venture agreement is generally
governed by their national law. However, in case of joint venture agreements
covering the alienation or encumbrance of properties, both real and personal,
located in the Philippines, the capacity of the parties is governed under
Philippine laws Art. 15, Civil Code.
Of course, they will be governed by the national law. So kung ako, 17 years
old, I enter into a joint venture agreement with the Singaporean na 20 years
old, sa Singapore kami nag-execute ng contract, now do I have the capacity
to contract? My capacity to contract will be governed by my national law. My
national law is the Philippine law. Under the Philippine law, do I have the
capacity to enter into the contract? No. So in that case, I do not have the
capacity to enter into the contract.
 Intrinsic Validity
The intrinsic validity of a joint venture agreement, as in all contracts in general
executed in the Philippines, including consideration or cause thereof, the
interpretation or constructions of its provisions, and the nature and amount of
damages for breach thereof, are governed by the law voluntarily agreed upon
by the parties. The parties to a joint venture arrangement can therefore validly
stipulate which laws shall govern their arrangement.
However, any stipulation in the joint venture agreement cannot operate to oust
Philippine courts of their jurisdiction under the law, although the local courts
would still apply the laws chosen by the parties to the agreement
It is governed by that voluntarily agreed upon by the parties. So freedom to
contract, whether or not kung ano ang agreement nila.
 Language of Joint Venture Agreements
There are likewise no restrictions on the language in which a document or
contract may be executed, since the language does not go into the validity or
enforceability of the agreement. Nevertheless, it would be prudent for the
parties to draw the documents in an official language, since any future suit on
a document must always be accompanied by an official transaction in the
official language.
Under Section 33, Rule 132 of the Philippine Rules of Court, documents
written in an unofficial language shall not be admitted as evidence, unless
accompanies with a translation into English or Filipino. Under the 1987
Constitution of the Philippines, the official languages are Filipino and, until
otherwise provided by law, English.
It will again depend on the agreement of the parties based on the freedom to
contract.
August 25, 2017 (Part 1)
(Transcriber: Isaihlene Abad)
We already started discussing Joint Venture (JV).
Again, JV has no particular provisions of law in the Philippines. What governs
it essentially, is the Partnership provisions. However, one significant difference
between JV and Partnership is that, JV is used actually for a lot of purpose,
basically for corporations to enter into a partnership for a particular
undertaking, that is why you see, yang mga condominium usually JV lang yan,
particular undertaking lang. They do not intend to be in partnership with one
another doing several condominium projects. Usually, isang condo lang.
Why do they enter into JV? Bakit hindi isang tao nalang ang gumawa, isang
corporation? Please take note that JVs are entered into when it comes to really
big big big projects. When they have to pool their resources, kasi kung isa
lang, too much liability, too much investment, too much risks.
Meron din namang iba, they enter into JV kasi they don’t have expertise on
that particular field, they just want to invest. Hindi sila nagpapartnership, kasi
yan may essence of business continuity, that after a project, the partnership
still goes on.
In some jurisdiction, there are some particular JV Law, but under the
Philippines, it is subsumed under our provisions on Partnership.
No statutory provision directly governs joint ventures. And the Prevailing
school of thought is it is A specie of Partnership
Distinction: Partnership vs Joint Venture
In Aurbach vs Sanitary Wares Manufacturing Corporation 180 SCRA 130
(1989), it was said that a partnership contemplates a general business with
some degree of continuity, while the joint venture is formed for the execution
of a single transaction, and is thus of a temporary nature.
So, we discuss the cases first:
J. Tiosejo Investment Corp. vs. Ang
630 SCRA 334 (Case Digest: Ana Lapu)
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 BUSINESS ORGANIZATION I
(By: 3-Manresa, S.Y. 2017-2018)
From the Lectures of: Atty. Raymund Christian S. Ong-Abrantes, CPA
Doctrines: A joint venture is considered in this jurisdiction as a form of
partnership and is accordingly, governed by the law on partnerships.
Under Article 1824 of the Civil Code of the Philippines, all partners are
solidarily liable with the partnership for everything chargeable to the
partnership, including loss or injury caused to a third person or penalties
incurred due to any wrongful act or omission of any partner acting in the
ordinary course of the business of the partnership or with the authority of
his co-partners. Whether innocent or guilty, all the partners are solidarily
liable with the partnership itself.
FACTS: This is a petition for review seeking the reversal of the CA’s
Resolution declaring J Tiosejo (petitioner) solidary liable with Primetown
Property Group, Inc. (PPGI) to pay Spouses Ang.
J. Tiosejo entered into a JVA with PPGI for the development of a residential
condominium project known as Meditel in Mandaluyong City. Petitioner
contributed the lot while PPGI undertook to develop the condominium. The
parties further agreed to a 17%-83% sharing as to developed units. PPGI
further undertook to use all proceeds from the pre-selling of its saleable
units for the completion of the Condominium Project.
Sometime in 1996, PPGI executed a Contract to Sell with Spouses Ang on
a certain condominium unit and parking slot for P2,077,334.25 and
P313,500.00, respectively. On July 1999, respondent Spouses filed before
the Housing and Land Use Regulatory Board(HLURB) a complaint for the
rescission of the Contract to Sell, against J. Tiosejo and PPGI. They claim
that they were promised that the condo unit would be available for turn-
over and occupancy by December 1998, however the project was not
completed as of the said date. Spouses Ang instructed petitioner and PPGI
to stop depositing the post-dated checks they issued and to cancel said
Contracts to Sell.
Despite several demands, petitioner and PPGI have failed and refused to
refund the P611,519.52 they already paid under the circumstances. As
defense, PPGI claim that the delay was attributable to the economic crisis
and to force majeure (unexpected and unforeseen inflation and increase
rates and cost of building materials). They also state that it offered several
alternatives to Spouses Ang to transfer their investment to its other feasible
projects and for the amounts they already paid to be considered as partial
payment for the replacement unit/s.
On a separate answer, petitioner claims that its prestation under the JVA
consisted of contributing the property on which the condominium was to be
contributed. Not being privy to the Contracts to Sell executed by PPGI and
respondents, it did not receive any portion of the payments made by the
latter; and, that without any contributory fault and negligence on its part,
PPGI (and not the petitioner) breached its undertakings under the JVA by
failing to complete the condominium project. The Housing and Land Use
(HLU) ruled in favor of respondents, rescinding the contract and ordering
petitioner and PPGI to pay refund, interest, damages, attorney’s fees and
administrative fines.
The HLURB Board of Commissioners affirmed the HLU’s order. Motion for
Reconsideration(MR) was denied. The case was subsequently raised to
the Office of the President (OP) which rendered a decision dismissing
petitioner’s appeal on the ground that the latter’s appeal memorandum was
filed out of time and that the HLURB Board committed no grave abuse of
discretion in rendering the appealed decision. MR was also denied.
Petitioner filed before the CA a motion for extension within which to file its
petition for review, claiming heavy workload of its counsel. This was denied
by the CA. MR was denied for lack of merit.
ISSUE: Whether or not the CA erred in affirming the HLURB’s decision
insofar as it found J.
Teosejo’s with PPGI to pay Spouses Ang.
HELD: NO, the HLURB Arbiter and Board correctly held petitioner liable
alongside PPGI for
respondents’ claims and the administrative fine.
By express terms of the JVA, it appears that petitioner not only retained
ownership of the property pending completion of the condominium project
but had also bound itself to answer liabilities proceeding from contracts
entered into by PPGI with third parties.
Article VIII, Section 1 of the JVA distinctly provides as follows:
Section 1: Rescission and damages:
xxx
In any case, the Owner shall respect and strictly comply with any
covenant entered into by the Developer and third parties with respect
to any of its units in the Condominium Project. To enable the owner to
comply with this contingent liability, the Developer shall furnish the Owner
with a copy of its contracts with the said buyers on a month-to-month basis.
xxx
Viewed in the light of the foregoing provision of the JVA, petitioner cannot
avoid liability by claiming that it was not in any way privy to the Contracts
to Sell executed by PPGI and respondents.
Moreover, a joint venture is considered in this jurisdiction as a form of
partnership and is, accordingly, governed by the law of partnerships. Under
Article 1824 of the Civil Code of the Philippines, all partners are solidarily
liable with the partnership for everything chargeable to the partnership,
including loss or injury caused to a third person or penalties incurred due
to any wrongful act or omission of any partner acting in the ordinary course
of the business of the partnership or with the authority of his co- partners.
Whether innocent or guilty, all the partners are solidarily liable with the
partnership itself.
Ang sabi, bakit mo ako idadamay eh ikaw ang nagbenta, I did not receive any
benefit from it, I am not privy to that contract. Kasi ang nasa JV agreement nila
is kanya kanya sila ng benta. Ngayon, ang client na ito came from the client of
PPGI. Sabi ngayon ni J. Tiosejo, why am I going to be liable eh I am not privy
to the contract. So anong sabi ng SC?
What was the other basis used by the Supreme Court apart from their JV
Contract?
In here, you have a case of a JV between a land owner and a developer.
Again, nakalagay sa contract nila, in any case, in the meantime, ako yung may
ari ng property, I will respect any contract which the other joint venturer has
with third persons, yun yung nasa JV. Eh ngayon, they failed to deliver on time
on the stipulated turn over date or month. But in most cases, di naman kasi
yan nafofollow. Pero ano yung dapat gawin nila as sellers, dapat before
palang, inonotify na nila, dapat may iooffer sila in case di madeliver on time. If
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 BUSINESS ORGANIZATION I
(By: 3-Manresa, S.Y. 2017-2018)
From the Lectures of: Atty. Raymund Christian S. Ong-Abrantes, CPA
tanggapin yung offer, no problem, there is no liability. Pero pag hindi tanggapin
ang offer nila, jan magkakaroon ng dispute resolutions.
Ang nangyari dito is hindi nag agree si buyer, that is why they sued for the
rescission of the contract for failing to follow their obligations in the contract to
sell. Na rescind, and of course may damages. Sabi nila, they should be
solidarily liable as there is a Joint venture, sabi naman ni J. Tiosejo, I am just
contributing the land, and in fact ang nakalagay sa JVA namin, kanya kanya
kami ng selling, why should I be made liable to a contract eh hindi naman ako
privy.
Now, the SC said, that there is a JV contract, so it is akin to a contract of
partnership. Before that, ang main contention ng SC mismo eh yung
nakalagay sa kanilang JVA mismo na they should “respect and strictly comply
with any covenant entered into by the Developer and third parties with respect
to any of its units in the Condominium Project.” So yun yung ruling ng SC.
Tapos, moreover, since this is akin to a partnership, you apply the partnership
law.
Here, what happens, inuna yung contract bago inapply yung provisions ng
partnership law. So this is one of the nuances of JV, even if partnership siya
in the Philippine settings, they can actually agree between the partners
regarding doon sa mga particularities. Pero when you look at the cases, the
SC is gearing toward talaga in treating it as a partnership. That is why many
venturers, yung ginagawa nila, nilalagay nila sa kanilang JVAs, may modes of
dispute resolution. Kasi, para hindi siya magiging bias doon sa school of
thought na it is a partnership. Na in case of disputes, the law that will apply will
be this one, or it will be under the jurisdiction of this one.
So let us in a way compare that to the case of Marsman Drysdale Land Inc.
vs. Philippine Geoanalytics Inc. 622 SCRA 281.
Marsman Drysdale Land Inc. vs. Philippine Geoanalytics Inc. 622
SCRA 281
(Case Digest: Ana Lapu)
FACTS: Marsman Drysdale, Inc. (Marsman) and Gotesco Properties, Inc.
(Gotesco) entered into a joint venture agreement for the construction and
development of an office building on a land owned by Marsman. They
agreed on a 50-50 ratio on the proceeds of the project, but did not agree
on how losses would be divided.
The joint venture engaged the services of Philippine Geoanalytics, Inc.
(PGI) to provide subsurface soil exploration, seismic study and
geotechnical engineering. PGI completed its seismic study but failed to
complete its subsurface soil exploration because the area where drilling
was to be made had not been cleared. The building project was
subsequently shelved due to unfavorable economic conditions.
PGI billed the joint venture for work done, but was not paid despite its
repeated demands. PGI, thus, filed a collection case against Marsman and
Gotesco. Marsman passed the obligation to Gotesco because under the
joint venture agreement, Gotesco was solely liable for the monetary
expenses of the project, and Marsman’s participation was limited to the
land. Gotesco, on the other hand, asserted that PGI had no cause of action
against it as PGI had yet to complete the services in its contract, and it was
Marsman’s failure to clear the property of debris which prevented PGI from
completing its work.
ISSUE: Whether or not Marsman and Gotesco are both liable to pay PGI
its unpaid claims.
RULING: Yes. Marsman and Gotesco are jointly liable to PGI.
PGI was never a party to the joint venture agreement. While the joint
venture agreement clearly spelled out the capital contributions of Marsman
(land) and Gotesco (cash) and the funding mechanism, it cannot be used
to defeat the lawful claim of PGI against the two joint venturers- partners.
PGI’s contract clearly listed the joint venturers Marsman and Gotesco as
the beneficial owner of the project, and all billing invoices indicated the
consortium as the client.
When there are two or more debtors, the obligation is presumed to be joint
unless the law or the obligation expressly states that the liability is solidary,
or unless the nature of the obligation requires solidary liability (Articles
1207 and 1208, Civil Code). In this case, since solidary liability was not
required by law, or the contract, or by the nature of the obligation, the
obligation to PGI was presumed to be joint between Marsman and
Gotesco.
A joint venture being a form of partnership, it is to be governed by the laws
on partnership. Under the laws on partnership, particularly Article 1797 of
the Civil Code, the losses and profits shall be distributed in accordance
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 joint venture agreement, Marsman and Gotesco agreed on a 50-50
ratio on the proceeds of the project, but did not provide for the splitting of
losses. Applying Article 1797, the same ratio applies in splitting the
obligation-loss of the joint venture to PGI.
Q: Bakit daw shinelve yung project? What do you think is the unfavorable
economix crisis?
- Asian Economic Crisis.
Ano yung ginamit ng SC dito? Did the SC also consider the JV agreement
between the parties?
In here, nangyari nagJV sila. Si Marsman nagcontribute ng lupa worth 420M,
tapos nag magconstruct naman si Gotesco. Pero part ng stipulation ng
contract is i-clear muna, ilelevel ang lupa ni Marsman. Tapos they engaged
the services of the Geoanalytics firm, however they were not able perform fully
kasi nga hindi na clear. Now Geoanalytics sued for the payment for their
services, so this is based on contract. Sabi ni Gotesco, di ko naman kasalanan
yan eh, the immediate cause of that is Marsman failed to level the property.
Sabi naman ni Marsman, with regard to the expenses of development si
Gotesco dapat ang magshoshoulder. So the issue there, contractual, sino ba
magiging liable, will they be both liable or si Marsman lang o Gotesco lang.
Now this is weird because ang inapply na provision ng SC is the provision on
losses. Pansin ninyo? They did not apply the provision on how partnership is
with regard to third persons, but it applied the provision on losses.
Villanueva in this particular case, disagreed. Bakit losses, kasi dapat daw sa
losses, that is between the parties, that doesn’t concern the 3rd person. Pero,
this is a Case, again, JV in the Philippine setting is geared towards treating it
as a partnership. That is why sabi ko, pag JV, meron talaga yang laws applied
for jurisdiction, kasi they are trying to prevent conflicting provisions. You will
learn more of it in your Conflict of Laws subject, what laws will govern on that
particular transaction.
So this is a case wherein the JV is treated as a partnership, ang difference
lang niya is ang inapply lang na provisions is losses, they disregarded the
provisions on defraying of expenses, developing, remember this is contractual,
the demand is based on the contract, dapat, I would have to say, they
appreciated more the JVA. Pero again, this is an example of (?), sa Philippine
jurisdiction, they are going to treat JV as a partnership.
Clarification:
S: Both the 2 cases involve the liability of the partners with regard to third
persons. For Marsman case, it is joint liability, while for J. Tiosejo, it is solidary.
Atty: Sa J. Tiosejo, it was based on act or omission.
S: Yes sir, pero it was based on a contract somehow, so if I will answer a
question similar to these scenarios,
how will I know if I will focus on the fact that a contract has been made between
a third person and the partners, in contrast with the acts and omissions
committed by the partners.
Atty: Good question. You answer it based on Philippine law, dun kayo sa
provisions ng Partnership. Unless this question would arise under
63
 BUSINESS ORGANIZATION I
(By: 3-Manresa, S.Y. 2017-2018)
From the Lectures of: Atty. Raymund Christian S. Ong-Abrantes, CPA
Constitutional Law with regards jurisdiction, you can argue on Joint Venture’s
dispute resolution. Pero if you answer it based on Civil Law, you answer it
under Partnership.
Yung case ni Marsman was based on a contractual demand for Specific
Performance or Collection. Tapos yung kay J. Tiosejo was for Rescission.
Doon nagkakaroon ng difference. Your question is when will you know if it is
joint or solidary?
S: Yes, joint or solidary Sir. But, the fact that an act or omission is the basis
for the application of Article 1824 does not negate the existence of a contract.
In other words, for both situations contemplated under Article 1816 and Article
1824, a contract and an act or omission is involved, at the same. A contract in
the ordinary course of business becomes a source of liability basically when
there is an act or omission that causes its nonperformance. So when the facts
of the case involve a contract, how then should we determine if the act or
omission qualifies for Article 1816 or Article 1824, considering that in J Tiosejo,
there was no bad faith, there simply was a failure to comply with the obligation
in the contract and yet the court said it was an act or omission which will call
for the application of Article 1824. (reworded by S)
Atty: In Marsman, it was joint liability. The SC, in so ruling, used the provision
on losses. So they treated it as losses. Since there is no provision on loss
under their JVA, so ginaya nila sa profit. Remember, sabi ko nga, ang ginamit
ng SC is the provision on losses, it treated the breach as a loss.
Whereas, in J. Tiosejo, they treated it as an act or omission.
So you see the difference? Hindi inappreciate ng SC ang contract in the case
of Marsman even if nakalagay doon is ang magshoshoulder ng development
cost is Gotesco. Ang ginamit ng SC, they treated it as a loss, they treated
payment, the specific performance as if nagoperate ang JV, which is hindi
naman talaga kasi hindi naman nagconvey.
In Marsman, sabi ko nga, Villanueva has a separate opinion, kasi the SC used
the profit and loss sharing. So, this is an exception. If the case pertains to an
act or omission in breach of a contract, punta ka doon sa Article 1824, which
is solidary liable, which is more in keeping with the partnership law.
Ang nangyari kasi sa Marsman, they treated it as if it is a loss, which is dapat
internal and not concerning a third person. So, there is a difference of opinion,
but again, this is a Case. So you can either cite, which is more tugma sa facts.
But for purposes of discussion, I would have to agree with Villanueva, kasi the
profit and loss sharing is based on the assumption na nagoperate talaga kayo,
there was a business. Pero ito, wala pa diba, so it should have been Article
1824 that would apply. Kasi again, the profits and loss is internal and not
concerning a third person. Pero, ang nangyari dito, they disregarded the JVA.
When it comes naman to J. Tiosejo, it is more in keeping with the partnership
law, kasi if it is an act or omission of any partner, authorized by the partner,
solidarily liable. Although it would have been different if sila yung magsettle
with 3rd parties. Did I answer you question?
S: Yes sir. Last qualification sir. When we talk of 1816 (joint) sir, we talk of a
contract under the ordinary course of business. And when we talk of 1824,
with respect to 1822 and 1823, which talks about an act or omission, sir, isn’t
it that a contract can be violated by an act or omission? So when do we know
that in a contract an act or omission has been committed, 1824 applies, and
when the liability arises from a contract, and yet pro-rata liability applies. Both
can have contracts involved, and both can be violated by an act or omission.
But when is an act or omission a ground for 1824 or under 1816?
Atty: In 1824, ordinary course of business yung basis ng contract. But in the
performance of it, there is an act or omission that makes it qualified as solidary.
Meaning, kapag ordinary contract lang, joint ang liability as a general rule. If
magsisingil ako but wala pang property si partnership, I can go directly to the
partner, but joint yung liability nila. Pero if there is an element of negligence or
anything na bad faith, or ito si partner hindi pala siya authorized, or apparently
ginawa siyang authorized, that becomes solidary.
So general rule, it is joint if it is a contract done under the ordinary course of
business, walang element of unauthorized, negligence or fault. When it comes
to a faulty transaction, that is the time you apply 1824 which is solidary, but
then again, yung solidary na yan it only becomes solidary when it comes to
third persons, but as to them partners, kung sino yung liable talaga, siya yung
magshoshoulder. Did you get the difference?
Remember the exam question number 1, the question was is it solidary or is it
joint? Sabi ni SC exceptional cases lang si solidary, general rule is 1816 which
is joint, usually contractual. Tama ka, it may arise from a contract na solidary
liability but there is an act in between which makes it solidarily liable.
Remember, what we are trying to protect is their liability for the third person.
S: Article 1824 refers to 1822 and 1823. But under 1823, may nakalagay kasi
doon na ordinary course of business, when the partner acting or making such
act or omission is acting within the authority, so it is really hard to depict the
bad faith in it when a contract is involved because the requisites under the
1824 somehow applies under 1816.
Atty: That is the reason why ang umaakyat na cases sa SC is between those
articles. But generally, kung wala namang fault, ordinary lang siya na contract,
and it is just that, hindi lang makasingil si third person sa partnership kasi
walang property, magjojoint liability ka. Pero if merong something kaya kasi
hindi siya makasingil, not because ubos na yung property, but because may
ginawa si partner kaya they ran out of business, dun nagiging solidary siya.
There has to be an ----- action by the partner which is not regular, which is not
in good faith. Remember, ang pinoprotect dito is ang 3rd person.
One case was for specific performance or collection of sum of money. Yung
isa rescission with damages, there was a fault in the obligation. The problem
with these cases is that the ruling was very short, it wasn’t explained. There
was even no comparison between joint and solidary, especially in the
Marsman case which is very short lang. So I understand the confusion.
August 25, 2017 (Part 2)
(Transcriber: Miles Buhay)
For purposes of the bar exams, 1824, 1823, and 1822, that is the exception.
So kapag the problem lies by the fact na hindi na talaga makabayad si
partnership tapos wala na siyang property tapos punta siya diretso sa
partners, so dapat joint siya. Remember yung nangyari doon kay Guy? Doon
sa case [Guy v Ca]? Hindi niya inubos yung property kaya sabi ng SC, dapat
joint lang kasi yun yung general rule.
Clarifications time with regards to losses
Then again, sabi nga ni Villanueva, how would you apply the provisions for
losses? It’s as if you’re operating tapos nagkaroon ng loss. So yun yung
concern ni Villanueva eh. So yun yung concern niya: bakit inapply eto
[Art.1797], yun agad. Because it is strict to the parties. Kasi diba pwede
namang joint, as to 3rd persons, pero between the two of you 70-30.
Remember liquidation and settlement? So pwede naming ganun. So bakit
agad yun ang inapply mo. Kung 10-90 lang pala: 10 si Gotesco 90 si Marsman,
would the SC’s ruling be different?
So diba dapat kung ang basis ng ruling ng SC sa Marsman is the profit and
loss sharing, so kung 10 pala and 90, let’s say 10 ang kay Marsman, 90 kay
Gotesco, so ibig sabihin pala ganun din as to 3rd persons? Diba, kawawa
naman. So iba yung opinion ni Villanueva.
Joint Venture Characteristics
 It would have a juridical personality separate and distinct from that
of each of the joint-venturers;
 Each of the co-venturers would be liable with their private property
to the creditors of the joint venture beyond their contributions to the
joint venture
 Even if a co-venturer transfers his interest to another, the
transferee does not become a co-venturer to the others in the joint
venture unless all the other co-venturers consent
 Generally, the co-venturers acting on behalf of the joint venture are
agents thereof as to bind the joint venture; and
 Death, retirement, insolvency, civil interdiction or dissolution of a
co-venturer dissolves the joint venture
Special treatment of Joint Ventures
64
 BUSINESS ORGANIZATION I
(By: 3-Manresa, S.Y. 2017-2018)
From the Lectures of: Atty. Raymund Christian S. Ong-Abrantes, CPA
Tuason v. Bolaños, recognized in Philippine jurisdiction the doctrine in Anglo-
American jurisprudence that "a corporation has no power to enter into a
partnership." Nevertheless, Tuason recognized that a corporation may validly
enter into a joint venture agreement, "where the nature of that venture is in line
with the business authorized by its charter."
What is special about joint venture is that In relation to corporations, sabi ng
SEC, although they cannot enter into partnerships, they can enter into a joint
venture provided that they comply with the requisites.
Legal Forms in JV Structure
 Joint Venture Corporation
 Equity Joint Venture
 Partnership Arrangement
 Contractual Joint Venture
Joint Venture Corporation
 The SEC has ruled that generally, a joint venture agreement of two
corporations need not be registered with the SEC, provided it will
not result in the formation of a new partnership or corporation.
However, should there be an intention to acquire a separate Tax
Identification Number (TIN) from the Bureau of Internal Revenue
for the business venture, the same requires registration with the
SEC in order to have a separate legal personality to obtain a
separate TIN .
There is an agreement but it is in the form of a corporation. Now bakit gagawa
ng corporation? Diba it is for specific undertaking lang naman? Kasi
sometimes, even if it’s a specific undertaking, it would last for years. Kaya ang
ginagawa nila is corporation. Take note that in a joint venture, kahit may
corporation; tapos let’s say:
this is Marsman and eto si Gotesco . I want to enter into a
joint venture with you. Pero ayaw ko na gumawa tayo ng joint venture-
corporation. __ It becomes an equity.
Equity Joint Venture
 Equity joint ventures are also available in Philippine setting which
may cover the formation of a new joint venture company, with each
co-venturer being allocated proportionate shareholdings in the
outstanding capital stock of the joint venture corporation. Equity
joint venture may also be pursued where a co-venturer is allocated
the agreed shares of stock in an existing corporation, either from
new issuances of the capital stock of the existing corporation, or
sold shares from those already issued in the names of the other co-
venturers.
 In equity joint ventures, the rights and obligations of the parties
among themselves is covered not only in a separate joint venture
agreement, but also implemented by certain provisions of the
articles of incorporation and by-laws of the joint venture
corporation.
Partnership Arrangement
 A third type of joint venture arrangement is to formally operate the
joint venture set-up as a partnership, with a separate and distinct
juridical personality
Contractual Joint Venture
 The SEC has ruled that two or more corporations may enter into a
joint venture through a contract or agreement (contractual joint
venture) if the nature of the venture is authorized by their charters,
which contract need not be registered with the SEC; provided,
however that the joint venture will not result in the formation of a
new partnership or corporation.
In the Philippine setting this becomes one ___ agreement because our courts
treat it as a partnership. In other jurisdictions, it becomes a contractual joint
venture meaning whatever is the contract lang talaga, yun ang mag-govern.
Of course except those contrary to public policy, good customs, etc.
Resolutions of Conflict Provisions
Eto, this will happen if what if the JVA between the parties na nagform ng
corporation will be inconsistent with the corporation. Ang mangyayari of course
is corporation [charter] will apply but as to them, the JVA will still apply.
 In situations where joint venture agreements contain provisions not
covered by the charter of the joint venture corporation or vice-
versa, the resolutions of issues arising therefrom shall be as
follows:
(a) In case of conflicts between the provisions of the joint venture
agreement and the charter of the joint venture corporation, the provisions
of the latter shall prevail;
(b) In case there are provisions or clauses in the joint venture
agreement not found in the charter of the joint venture corporation, such
provisions and clauses remain binding contracts among the joint venture
parties signatory to the agreement, but do not bind the joint venture
corporation or other parties not signatories thereto.
Factors
Which structure would you want? Would you want a corporation or a
partnership agreement? These are the factors that you are going to consider
in coming up with your decision:
 Limited Liability – this is applicable to what? Corporation.
Remember the Stock holders. You cannot run after the property of
the stockholders. Whereas kung partnership siya, you can go after
the properties.
 Tax Consequences – you’ve learned in your Tax [subject] that
partnerships and corporations are taxed at 30% except for
partnerships that are general professional partnerships.
So kung gagawa pala ako ng partnership or ng corporation pareho
lang pala sila na taxed. So ano ang difference sa kanilang dalawa?
Well, for corporations – very tedious. You have other administrative
filings. Ang dami po pang gagawin to maintain a corporation. So
partnerships are less tedious.
 Limitation of Foreign Equity – kung corporation, dapat may shares.
It should be in line with what is limited under loss.
Governing Law and Language
 Freedom to Contract, In General
 Formal or Extrinsic Validity of Agreements
 Capacity of Contract Parties
 Intrinsic Validity
 Language of Joint Venture Agreements
Freedom to Contract, In General
 The Philippine Constitution prohibits any law impairing the
obligation of contracts. The established rule is that contracting
parties may establish such stipulations, clauses, terms and
conditions as they may deem convenient, provided they are not
65
 BUSINESS ORGANIZATION I
(By: 3-Manresa, S.Y. 2017-2018)
From the Lectures of: Atty. Raymund Christian S. Ong-Abrantes, CPA
contrary to law, morals, good customs, public order, or public policy
Sec. 10, Art. III.
Formal or Extrinsic Validity of Agreements
 Philippine laws recognize the principle that the formal or extrinsic
validity of contracts, including a joint venture arrangement, shall be
governed by the laws of the country in which they are executed.
Therefore, joint venture arrangements, which are essentially
partnership agreements, are valid in whatever form executed. Art.
17, Civil Code.
Capacity of Contract Parties
 The capacity of the parties to enter into a joint venture agreement
is generally governed by their national law. However, in case of
joint venture agreements covering the alienation or encumbrance
of properties, both real and personal, located in the Philippines, the
capacity of the parties is governed under Philippine laws Art. 15,
Civil Code.
Intrinsic Validity
 The intrinsic validity of a joint venture agreement, as in all contracts
in general executed in the Philippines, including consideration or
cause thereof, the interpretation or constructions of its provisions,
and the nature and amount of damages for breach thereof, are
governed by the law voluntarily agreed upon by the parties. The
parties to a joint venture arrangement can therefore validly stipulate
which laws shall govern their arrangement.
 However, any stipulation in the joint venture agreement cannot
operate to oust Philippine courts of their jurisdiction under the law,
although the local courts would still apply the laws chosen by the
parties to the agreement
Language of Joint Venture Agreements
 There are likewise no restrictions on the language in which a
document or contract may be executed, since the language does
not go into the validity or enforceability of the agreement.
Nevertheless, it would be prudent for the parties to draw the
documents in an official language, since any future suit on a
document must always be accompanied by an official transaction
in the official language.
 Under Section 33, Rule 132 of the Philippine Rules of Court,
documents written in an unofficial language shall not be admitted
as evidence, unless accompanies with a translation into English or
Filipino. Under the 1987 Constitution of the Philippines, the official
languages are Filipino and, until otherwise provided by law,
English.
Defining JV’s Scope of Business Activity
Now, under our jurisdiction, remember that corporations may enter into joint
ventures instead of partnership. But the operations of a JV must be in line with
what is limited by law.
 Foreign Investment Act of 1991
Kapag merong corporations na foreign, let’s say a Singaporean
Corporation would enter into a joint venture with a Philippine entity,
they must comply with the foreign administration[?] That is why not
all business activities may be held towards a joint venture. May
mga limitations ang law na dapat Filipino Corporation lang. This is
in line with the Constitutional Policy of “Filipino First” which is sabi
ni Father [Gus] is a non-progressive policy.
[Chika on the need for foreign investors.]
 It is the basic law that provides the conditions, activities,
and procedures where foreign enterprises may invest
and do business in the Philippines. It applies to joint
venture arrangements in the Philippines.
Foreign Investment Act of 1991
This would be very helpful, I think, in your Corporation law.
 The salient points of FIA '91 are the following:
(a) Under the concept of a negative list, more areas are open to foreign
investments, and investment policy is made transparent and stable;
(b) The law redefined "export enterprise" to mean at least 60% export
(from the former 70% export level).
(c) It opened the domestic economy to 100% foreign investments except
for those in the negative lists.
(d) One layer of bureaucracy is reduced because there is no need for
Board of Investments (BOI) approval if the investor is not seeking
incentives.
List A covers area of investment in which foreign ownership is limited
by the Constitution and nationalization laws, as follows:
No Foreign Equity Allowed:
(a) Mass media ownership and management;
So how do you go around this? What foreign corporations do is that they
create a dummy corporation. Tapos yung dummy ang magho-hold. So
it’s as if it is Filipino-owned pa rin siya. Let’s say ang corporation ni
dummy is 60%. Kasi in our Corporation Code, it has to be 60% Filipino,
40% [foreign] and that entire corporation will be considered as Filipino.
So ito yung ginagawa for previous years. Eh nalaman ng government
kaya gumawa sila ng Anti-Dummy Law. According to this law, if the
management is composed of foreigners even they own the minimum[?]
of percentage, that is a violation of the Anti-Dummy Law. The 60% does
not only pertain to the equity shareholders but also to the management;
to the top executive.
COMMONWEALTH ACT No. 108
AN ACT TO PUNISH ACTS OF EVASION OF THE LAWS ON THE
NATIONALIZATION OF CERTAIN RIGHTS, FRANCHISES OR
PRIVILEGES
Be it enacted by the National Assembly of the Philippines
Section 1. Penalty — In all cases in which any constitutional or legal
provisions requires Philippine or any other specific citizenship as a
requisite for the exercise or enjoyment of a right, franchise or privilege, any
citizen of the Philippines or of any other specific country who allows his
name or citizenship to be used for the purpose of evading such provision,
and any alien or foreigner profiting thereby, shall be punished by
imprisonment for not less than five nor more than fifteen years, and by a
fine of not less than the value of the right franchise or privilege, which is
enjoyed or acquired in violation of the provisions hereof but in no case less
than five thousand pesos.
The fact that the citizen of the Philippines or of any specific country charged
with a violation of this Act had, at the time of the acquisition of his holdings
in the corporations or associations referred to in section two of this Act, no
real or personal property, credit or other assets the value of which shall at
least be equivalent to said holdings, shall be evidence of a violation of this
Act.1
Section 2. Simulation of minimum capital stock — In all cases in which a
constitutional or legal provision requires that, in order that a corporation or
association may exercise or enjoy a right, franchise or privilege, not less
than a certain per centum of its capital must be owned by citizens of the
Philippines or of any other specific country, it shall be unlawful to falsely
66
 BUSINESS ORGANIZATION I
(By: 3-Manresa, S.Y. 2017-2018)
From the Lectures of: Atty. Raymund Christian S. Ong-Abrantes, CPA
simulate the existence of such minimum stock or capital as owned by such
citizens, for the purpose of evading said provision. The president or
managers and directors or trustees of corporations or associations
convicted of a violation of this section shall be punished by imprisonment
of not less than five nor more than fifteen years, and by a fine not less than
the value of the right, franchise or privilege, enjoyed or acquired in violation
of the provisions hereof but in no case less than five thousand pesos.2
(b) Licensed professions, like lawyers, accountants, and engineers;
So if you establish a firm which is composed of lawyers, accountants and
engineers, di pwede magkaroon ng foreigner.
In the construction agency there is a problem. There is a different opinion when
it comes to the construction industry. Wala naman kasi siya sa negative list
eh. So ang construction firm, walang limitations. So pwede less than 60% ang
Filipino-owned. So pumayag si SEC. Pero when you ask for a license sabi ng
PCAB (Philippine Contractors Accreditation Board) hindi pwede kasi ang
Construction firm is a profession of engineers so dapat 100% Filipino. So SEC
has a different opinion from PCAB. I am waiting for it to reach the Supreme
Court for the final resolution on that. Kasi pansin mo ang ginagawa, a lot of
investors [mga Korean construction firm], they really want to enter into the
market because they wanna construct roads, buildings for the Filipino…daw.
Pero they cannot enter kasi nga may prohibition. So this is one of the examples
which show that the Filipino First Policy is contradictory to economic
progression.
(c) Retail trade;
(d) Fisheries; and
(e) Rice and corn farming.
 25% Foreign Equity Allowed:
(a) Recruitment agencies; and
(b) Locally funded public works project.
 30% Foreign Equity Allowed:
(a) Advertising
 40% Foreign Equity Allowed:
(a) Exploitation of natural resources and utilization of land ownership;
(b) Public utilities;
(c) Educational institutions;
(d) Financing companies;
(e) Construction.
(f) Cooperatives;
(g) Private security agencies; and
(h) Small-scale mining.
Retail Trade Liberalization Act of 2000
Foreigners are excluded only in retail enterprises with paid-up capital of
less than US$2,500,000.00 (Category A) which is resecured exclusively
for Filipino citizens and corporations wholly-owned by Filipino citizens.
That is why yung mga retailer jan – DCLA, yung mga may-ari mga intsik –
alam mo, pagtiningnan mo yung papers nila, hindi sila yung may-ari. Mga
Filipinos; mga dummy. Mga katabang nila.
List B
 List B covers defense-related materials which by law are licensed
and regulated by the Department of National Defense, unless
specifically authorized, with substantial export, by the Secretary of
National Defense
 List B also includes activities regulated by law because of risks they
may pose to public health and morals. For example, dangerous
drugs, gambling, nightclubs, bars, and message clinics are not
open for foreign investments;
 A third area under the negative List B refers to domestic market
enterprises with less than US$200,000 paid in equity capital,
unless determined by the Department of Science and Technology
as involving advanced technology.
 Finally, the negative List B also includes export enterprises using
raw materials from depleting natural resources and with less than
US$200,000 paid in equity capital.
Incentives Available to Foreign Joint Venture Partners
Under our current law, this is what the government is trying to do to encourage
foreign investment. May mga different areas of investment like BPO (Business
Process Outsourcing); kaya nagsusulputan yung mga call centers. Kasi bakit?
Ano ang incentive nila? They are exempt from tax. They are really exempt
from tax. Yung income.
Especially when your business is something innovative. (Re-packing of
headless shrimp stories. lol)
 Preferred Areas of Investments (BOI Registered and with
Incentives)
 Non-Preferred Area Investor (Investment Without Incentives);
 Incentives of Export Processing Zone Enterprise.
So may mga PEZA (Philippine Economic Zone Authority). Kapag nasa zone
ka, i.e. part of Lanang, Matina, Felcris, kapag nandyan ang establishment mo,
may mga incentive ka. Let’s say exempt from VAT, exempt ka from taxes.
Even employees; hindi na sa 10-32%, 10-15% na lang. There are incentives
to encourage foreign investors. But this is based on limited activities lang.
Financing Joint Ventures
One of the reasons the government enters into joint ventures is when there is
a need for really, really big investment na hindi na kaya ng government, they
would enter into a joint venture with a private entity. Pero what the government
does to make it more advantageous to it is they created this scheme for joint
ventures wherein the private entity will build for some time but after the
completion is ibigay na nila sa government.
 Joint ventures projects in Philippine jurisdiction are financed
through a combination of equity infusion and commercial or special
loans.
 What has become a very popular scheme of financing joint
ventures covering infrastructure projects is the Build-Operate-
Transfer (B-O-T) schemes under Rep. Act No. 6957.
 Subsequently, Rep. Act 7718 extended the coverage and
applicability of the B-O-T Law not merely to "government
infrastructure projects" but also to government "development
projects."
So you have any government entity on one side and a private entity on the
other side.
Let’s say magconstruct ng power plant. Hindi kaya ni government yan.
Kailangan niya ng pera from a private source.
Schemes Recognized under the Act
 Build-Operate-and-Transfer (BOT)
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 BUSINESS ORGANIZATION I
(By: 3-Manresa, S.Y. 2017-2018)
From the Lectures of: Atty. Raymund Christian S. Ong-Abrantes, CPA
 Build-and-Transfer Scheme (BT)
 Build-Own-Operate (BOO)
 Build-Lease-Transfer (BLT)
 Build-Transfer-and-Operate (BTO)
 Contract-Add-and-Operate (CAO)
 Develop-Operate-and-Transfer (DOT)
 Rehabilitate-Operate-and-Transfer (ROT)
 Rehabilitate-Own-and-Operate (ROO)
BOT A contractual arrangement whereby the contractor
undertakes the construction, including financing, of a given
infrastructure facility, and the operation and maintenance
thereof.
Ako yung magbui-build. Ako yung mag-ooperate for some
time let’s say for 20 years. At the end of the 20 years,
ibibigay ko sa government.
BT The contractor undertakes the construction, including
financing, of a given infrastructure facility, and its turnover
after completion to the government agency or local
government unit concerned which shall pay the contractor
its total investment expended on the project, plus a
reasonable rate of return thereon.
After mo magbuild, [sa] government na agad. Sabihin mo,
“sir, kawawa naman yung nagbuild.” Hindi naman yan siya
transfer na donation. Ano ito, charity? Meron din yang
consideration.
BOO A project proponent is authorized to finance, construct,
own, operate and maintain an infrastructure or
development facility from which the proponent as allowed
to recover its total investment, operating and maintenance
costs plus a reasonable return thereon by collecting tolls,
fees, rentals and other charges from facility users. Under
this scheme, the proponent which owns the assets of the
facility may assign its operation and maintenance to a
facility operator.
Here, you can actually own. You can build the plant or the
infrastructure and then own it. Ex. SLEX, NLEX. Private
persons ang nagco-collect ng toll fees. Kasi sila naman
yung nagspend for the establishment. Pansin mo yung
ginawa nila na road mas maganda pa doon sa gawa ng
government.
BLT A project proponent is authorized to finance and construct
an infrastructure or development facility and upon its
completion turns it over to the government agency or local
government unit concerned on a lease arrangement for a
fixed period after which ownership of the facility is
automatically transferred to the government agency or local
government unit concerned.
BTO The public sector contracts out the building of an
infrastructure facility to a private entity such that the
contractor builds the facility on a turn-key basis, assuming
cost overrun, delay, and specified performance risks. Once
the facility is commissioned satisfactorily, title is transferred
to the implementing agency. The private entity however,
operates the facility on behalf of the implement agency
under an agreement.
CAO The project proponent adds to an existing infrastructure
facility which it is renting from the government. It operates
the expanded project over an agreed franchise period.
There may, or may not be, a transfer arrangement in regard
to the facility.
DOT The favorable conditions external to a new infrastructure
project which is to be built by a private project proponent
are integrated into the arrangement by giving that entity the
right to develop adjoining property, and thus, enjoy some
of the benefits the investment creates such as higher
property or rent values.
ROT An existing facility is turned over to a private sector to
refurbish, operate and maintain for a franchise period, at
the expiry of which the legal title to the facility is turned over
to the government. The term is also used to described the
purchase of an existing facility from abroad, importing,
refurbishing, erecting and consuming it within the host
country.
ROO An existing facility is turned over to the private sector to
refurbish and operate with no time limitation imposed on
ownership. As long as the operator is not in violation of its
franchise, it can continue to operate the facility in
perpetuity.
Bakit rehabilitate? Nagdrugs? lol sir.
Rehabilitate – meaning may existing facility na napabayaan
na. Ex. There’s a plant in Cotabato City somewhere and
napabayaan siya for a while. Now pwedeng may
magrehabilitate niyan na private entity. “I-rehabiitate ko.
Bigyan mo ako ng authority government to rehabilitate and
operate it. Bigyan kita ng share.”
Equity Limitations for Operators of Public Franchises
 The ownership structure of the contractor of an infrastructure
facility whose operation requires a public utility franchise must be
in accordance with the Constitution, which requires at least 60%
Filipino ownership.
 Originally under the B-O-T Law, in the case of corporate investors
in the BOT corporation, the citizenship of each stockholder in the
corporate investors shall be the basis for the computation of Filipino
equity in the said corporation. Rep. Act 7718 has done away with
the citizenship test applied to corporate investors in BOT
corporations and its variations involving operation of public facilities
(e.g., BOO, BTO, CAO, DOT and ROO).
 Citizenship Test
Kapag limited yung partnership nyo to 60-40, let’s say 60% Filipino, sabi ko
nga ang ginagawa diba is nagse-setup ng company; ng dummy, so nalaman
ng Congress, they established the Citizenship test. Paano mo ba malalaman
na 60% Filipino siya or less than that?
But that is a discussion on Corpo so I will let Father discuss on that.
Grandfather’s Rule. You really, really have to master that. That is a basic
principle.
Preference to Filipino Contractors
68
 BUSINESS ORGANIZATION I
(By: 3-Manresa, S.Y. 2017-2018)
From the Lectures of: Atty. Raymund Christian S. Ong-Abrantes, CPA
The only time na pwedeng ang foreigner is if the foreigner can establish the
fact that hindi kaya ng mga Filipino. So that is another statutory requirement
for the foreigner to enter into the market.
 Republic Act 7718 raises the standards that must be met by Filipino
contractors in order for them to be accorded preference over
foreign contractors bidding for B/T and BLT contracts.
 In order to be accorded preference, a Filipino contractor is required
to submit an equally advantageous bid with the same price and
technical specifications as that of the foreign contractor. A
Filipino contractor will not be accorded preference unless his bid is
at par, on both price and technical aspects, with that of the foreign
contractor.
So may bid ang Filipino contractor and may bid ang foreign contractor. Now if
magkalevel yan; pareho sa price and technical specifications, Filipino rights
yun because of the Filipino First Policy.
Repayment Schemes
 For the financing, construction, operation and maintenance of any
infrastructure project undertaken pursuant to the B-O-T Law, the
contractor shall be entitled to a reasonable return of its investment
and operating and maintenance costs in accordance with its bid
proposal as accepted by the concerned contracting infrastructure
agency or local government unit and incorporated in the contract's
terms and conditions.
Land Reclamation or Industrial Estates
 In the case of land reclamation or the building of industrial estates,
the repayment scheme may consist of the grant of a portion or
percentage of the reclaimed land or industrial estate built, subject
to the constitutional requirements with respect to the ownership of
lands only by Filipino citizens.
Registration with BOI
 Republic Act 7718 provides that projects costing in excess of P1
Billion shall be registered with the Board of Investments and
entitled to the incentives provided under the Omnibus Investments
Code.
Anti-Trust and Competition Law
 The Philippine Constitution provides for the policy: "The State shall
regulate or prohibit monopolies when the public interest so
requires. No combinations in restraint of trade or unfair competition
shall be allowed." There are however very few detailed legislations
governing antitrust and unfair competition, nor to implement the
constitutional policy against restraint of trade or unfair competition.
(Section 19, Article XII)
In relation to joint venture, kapag mag-enter ka into joint venture, you have to
follow the Anti-Trust and Competition Law.
What do you understand by Anti-Trust? Walay trust? Haha. When you say
Anti-Trust, this is against Monopolies. Imagine Ayala will enter into a joint
venture with SM. Paano na lang yung mga small retailers? Paano na lang si
NCCC? What the law is trying to prevent is that a certain industry will
monopolize a certain people in the community.
15 years ago sobrang mahal ng plane tickets. PAL lang ang meron. Feeling
mayaman ka na if sumakay ka ng airplane. The Filipino First Policy prevents
anti-competition. Look at the prices now. Maka-piso fare ka pa nga eh. For a
certain time, nalugi si PAL kaya tinanggal nila yung snacks, etc. chikaminute.
The Revised Penal Code of the Philippines penalizes:
(a) Any person who shall enter into any contract or agreement or shall
take part in any conspiracy or combination in the form of a trust or
otherwise, in restraint of trade or commerce or to prevent by artificial
means free competition in the market;
(b) Any person who shall monopolize any merchandise or object of
trade or commerce, or shall combine with any other person or persons
to monopolize said merchandise or object in order to alter the price
thereof by spreading false rumors or making use of any other artifice to
restrain free competition in the market;
(c) Any person who, being a manufacturer, producers, or processor of
any merchandise or object of commerce or an importer of any
merchandise or object of commerce from any foreign country, either as
principal or agent, wholesale or retailer, shall combine, conspire or agree
in any manner with any person likewise engaged in the manufacture,
production, processing, assembling or importation or such merchandise
or object of commerce, or with any person not so similarly engaged, for
the purpose of making transactions prejudicial to lawful commerce, or of
increasing the market price in any part of the Philippines.
So ano ang ginagawa ngayon ng government to prevent monopoly? So before
mag-enter into joint venture and dalawang mega-players in an industry, they
are required to notify the PCC na, “hey, magme-merge kami ha.”
Republic Act 10677
 Republic Act 10677 also known as the Philippine Competition Act
(PCA) was put into law to recognize the efficiency of market
competition as a mechanism for allocating goods and services is a
generally accepted precept. The State recognizes that past
measures undertaken to liberalize key sectors in the economy
need to be reinforced by measures that safeguard competitive
conditions. The State also recognizes that the provision of equal
opportunities to all promotes entrepreneurial spirit, encourages
private investments, facilitates technology development and
transfer and enhances resource productivity. Unencumbered
market competition also serves the interest of consumers by
allowing them to exercise their right of choice over goods and
services offered in the market. By virtue of this law, the Philippine
Competition Commission (PCC) was created to implement the
national competition policy and attain the objectives and purposes
of RA 10677.
Notification requirement
 Each party to a merger or acquisition required to give notification
to the Commission shall submit the Notification Form, certifications
and affidavits and pay such applicable fees as may be determined
by the Commission. The PCC may require submission of relevant
documents for its review
What if you will not notify?
Penalties in case of non-compliance
 A transaction that meets the thresholds and does not comply with
the notification requirements and waiting periods will be considered
void and will subject the parties to an administrative fine of one
percent (1%) to five percent (5%) of the value of the transaction
But if the amount of the transaction is 1 Billion, then 1%-5% is one heck of a
sum.
Dispute Resolution
Let’s say there is a joint venture between a government agency and a private
entity. So what if magkakaroon ng disagreement in the middle; in the long run?
Part ng agreement is ang mode of dispute resolution. Most JVAs right now
really have a provision which will provide the law. This is in relation to the law
in Civil Procedure specific to venue. Kapag nakalagay doon ang venue pero
wala ang word na “exclusive” meaning addition siya sa venue requirement?
Familiar? Diba case nyan yung Shipping Lines?
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 BUSINESS ORGANIZATION I
(By: 3-Manresa, S.Y. 2017-2018)
From the Lectures of: Atty. Raymund Christian S. Ong-Abrantes, CPA
 Outside of judicial remedies, parties to a joint venture arrangement
are authorized to submit their controversies to arbitration, or they
can provide as part of their joint venture arrangements that all
issues and controversies shall be resolved by arbitration through a
procedure drawn out in the joint venture contract. The stipulation
on arbitration can validly provide that the resolution or decision of
the board of arbitrators is valid and final Art. 2042, Civil Code.
Facilities for Commercial Arbitrations
 The Philippine Chamber of Commerce and Industry, as a service
to its members and in response to request for assistance to provide
arbitration facilities and services to parties to a commercial dispute,
has adopted its own Rules on Conciliation and Arbitration.
 In the construction industry, The Philippine Domestic
Construction Board was created under Pres. Decree No. 1476
"to adjudicate and settle claims and disputes in the implementation
of public construction contracts" and to "formulate and recommend
rules and procedures for the adjudication and settlements of claims
and disputes in the implementation of contracts in private
construction." Subsequently, the Philippine Construction
Industry Arbitration Commission (CIAC) was constituted under
Executive order No. 1008, giving it original and exclusive
jurisdiction over claims and disputes arising from or connected with
public and private constructions contracts in the Philippines.
New York Convention
 In 1965, the Philippines adhered, to the 1958 United Nations
Convention on the Recognition and Enforcement of Foreign
Arbitral Awards, otherwise known as the New York
Convention. The Convention seeks to make arbitral awards
rendered in a foreign state enforceable in any state which is
a party to the Convention.
Remember the news about the Manila Water? Diba ang arbitration nila nasa
Singapore? How will you enforce the award from a foreign body here in the
country? So you have the New York Convention to which we are a signatory.
But the dispute resolution must be made in Singapore.
Impact of Changes in the Law Subsequent to Formation
Let’s say bagong president will say: “No Tax! Foreign investor ka? No Tax!
Free tanan! No LTFRB!” So, invest ka nang invest. Nagpartner ka with the
government to create a power plant. Let’s say good for 50 years. What if next
administration ni-repeal ang law? Nagpagawas n aka ug kwart;, nagkautang
na ka and all. Tapos ni-repeal ang law. You have to pack your things and go
home to the country where you are from. As an investor, what are your rights?
 The general rule under Philippine laws is that subsequent changes
in the law, such as the introduction of new incentives or abolition of
existing incentives, is within the power of Legislature to so provide
even as it affects existing enterprises, including joint ventures.
 This rule emanates from constitutional doctrines that provide that
even with a guarantee of non-impairment of contract obligations, it
does not prevent changes of rights of parties to a contract only as
between them, and not with reference to third-parties, including the
State. More importantly, Section 11, Article XII of the Philippine
Constitution provides for a reservation clause in favor of the
Government to revoke or amend existing grants and privileges,
including incentives granted to investors: "Neither shall any such
franchise or right be granted except under the condition that it shall
be subject to amendment, alteration, or repeal by the Congress
when the common good so requires."
Double Taxation Agreements and
Impact on the Joint Venture
When you read the provisions on income tax, diba merong tax treaty?
Ex. Let’s say Philippines and Singapore. Kapag may income sa Philippines
and Singapore, kapag non-resident corporation, ilang percent ang tax? 30%.
Pero kung may tax treaty with Singapore na pwede siya maging 10%, pwede
siya.
 Tax treaty Agreement
Protection of Foreign Investors
 The following are basic guarantees under the Philippine
Constitution as protection to foreign investors:
(a) Freedom from expropriation without just compensation;
(b) Right to remit profits, capital gains and dividends within the
guideline of the Central Bank of the Philippines;
(c) Right to obtain foreign exchange to meet principal and interest
payments on foreign obligations.
ICSID Convention
 The 1965 Convention on the Settlement of Investment
Disputes between States and Nationals of Other States (also
referred to as the Washington Convention). The purpose of the
ICSID Convention is to encourage cross-border investment in
developing states by providing an effective means of enforcing
contractual rights.
What if ang kapartner mo [ng foreigner] is the government? Can you sue the
government in Philippine courts? I will file a collection of sum of money.
Foreigner vs. Republic of the Philippines. Collection of sum of money. Breach
of contract. Can you do that? You cannot because the State is immune from
suit, except for certain circumstances. But generally the State is immune from
suit. So if you are a foreign investor, what will happen to your investment? That
is why meron itong ICSID Convention.
Activities and Jurisdiction
 The settlement of
→investment disputes is not carried out by ICSID itself but by
conciliation commissions or arbitral tribunals which are constituted
on an ad hoc basis for each individual dispute. The method most
often chosen is arbitration by a tribunal of three independent
arbitrators. →Conciliation is also foreseen in the ICSID Convention
but rarely used. Conciliation is a flexible and informal method that
is designed to assist the parties in reaching an agreed settlement.
Therefore, this method depends on the willingness of both parties
to cooperate. →Arbitration is a more formal and adversarial
process leading to a binding award which is subject to
enforcement.
So you can actually have a case. Let’s say Gotesco Properties vs. Republic of
the Philippines. So anong mangyayari? Where will I file it? What happens is
that there will be an ad hoc commission. Pero kelangan may consent pa rin.
Paano kung ayaw magconsent ni Republic of the Philippines? Then the World
Bank will impose penalties. Can there be a country that could operate without
the World Bank? I doubt.
This is what is good about ICSID kasi nagkakaroon ng World Bank factor.
So this is one of the remedies which a foreign investor may go through in cases
where there are subsequent changes of law.
Pero one of the criteria – kasi dapat ang breach ng country is in bad faith pero
bad faith is defined in a very broad manner. Hindi siya gaya ng bad faith sa
civil code. Ano ang definition ng bad faith? Basta mga ganyan i-memorize niyo
kasi bala niyo yan sa Bar exams. Gaya ng waiver. Waiver is an intentional
relinquishment of a known right.
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 BUSINESS ORGANIZATION I
(By: 3-Manresa, S.Y. 2017-2018)
From the Lectures of: Atty. Raymund Christian S. Ong-Abrantes, CPA
In the case of Ford Philippines, Inc. v. CA, G.R. No. 99039, February 3,
1997, the Supreme Court held:
1. That “bad faith does not simply connote bad judgment or
negligence”;
2. That bad faith “imports a dishonest purpose or some moral
obliquity and conscious doing of wrong”;
3. That “it means a breach of a known duty through some motive or
interest or ill will that partakes of the nature of fraud”;
4. That “it must be reiterated that bad faith should be established by
clear and convincing evidence”; and
5. That “settled rule is that the law always presumes good faith such
that any person who seeks to be awarded damages due to acts of another
has the burden of proving that the latter acted in bad faith or with ill motive”.
So kung hindi talaga pwede, magpayag man yang investor. Ang gusto lang
niyan nila is to get their investment back.
September 2, 2017
(Transcriber: Isaihlene Abad)
TRUST
Why does the topic on Trust included in Business Organization 1, eh hindi
naman siya partnership o corporation? This is because, merong element of
Fiduciary relationship. Consistent also with Agency na may element of
fiduciary relationship, kaya inisa siya.
But the law on trust in our jurisdiction, written in the Civil Code, is based on
Equity. It is not like the uniform Trust Law in the US, wherein structured talaga
siya.
In fact, trust does not create separate juridical personality.
In your tax, there is a provision that a Business trust is considered as a
separate taxable entity. So, we have a situation wherein for tax purposes, we
follow the US treatment on Trust.
But in Civil Law, we follow the usual equity consideration purpose. It is not
really popular for us. A lawyer once asked me bakit daw hindi maxado
ginagamit ang trust for tax avoidance, hindi evasion. Yun nga, only few lawyers
know the structure of trust.
 Trust is a fiduciary relationship between 1 person having an equitable
ownership in a 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.
 It is a legal arrangement whereby a person transfers his legal title to the
property to another to be administered by the latter for the benefit of a
third party. It is a right of property held by one party for the benefit of
another.
PARTIES to the Trust Relationship
Tatlo. There is one Trustor which entrusts to a Trustee a certain property for
the benefit of the Beneficiaries. So may tatlong parties. Trustor, trustee and
beneficiary.
EQUITY ESSENCE OF TRUST
So nasisplit yung title nung property – the legal title and the beneficial title.
The legal title is given to the trustee, while the beneficial title or interest is given
to the beneficiary.
Q: Now bakit kailangan i-split?
- Again, ang premise ng Philippine provisions on Trust is that it is
based on equity. May mga transactions kasi na kung susundin
natin si legal title, it would be inequitable.
- Example 1:
Co-ownership sa succession na kung minsan co-owners kayo sa
property pero sa titulo, nakapangalan lang sa isa. So, the beneficial
interest dapat nasa dalawa, but the legal title is only named under
one person. Pero the real factual circumstance is it is co-owned by
2 individuals.
So if we follow strictly the legal title, kawawa naman yung isang co-
owner na hindi nakapangalan sa kanya. So based on equity
consideration, ibig sabihin, kung kanino nakapangalan yung title,
that person holds it in trust for both of them.
- Example 2:
Pag maraming co-owners, let us say 100 co-owners, ilalagay mo
iyon sa title? Diba, so ilang pages na yun?
So may mga ganung considerations na for purposes of equity, that
person holds it in trust for other people.
CLASSIFICATION OF TRUST
Now, the classification of Trust under our Law:
1. Express Trust - meron talagang intention between the parties
to create the trust.
2. Implied Trust - purely based on equity considerations ang by
operation of law
For Implied trust, you have other 2 classifications:
1. Resulting trust
2. Constructive trust.
In express trust, by the word itself, it was expressly constituted by the parties
to create the trust. So what governs the express trust is the usual law on
contracts: freedom to contract, you should have the capacity to contract. The
implied trust is given by operation of law, again, for purposes of Equity.
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.
This is what we call the Order of Preference Provision in International Law.
If you have come across international contracts, may mga stipulation talaga
na order of preference. Kasi, yung sa volume ng transactions, iba-iba yung
mga nagaaply na law, na jurisdiction, so naglalagay talaga sila. Under Article
1442, the principle on the general law on trusts prevails for as long as it is not
in conflict with other laws. Again, wala na kayong makikitang provisions on
trust sa Code of Commerce.
The Nature of Trust
Trust do not create a separate juridical personality. Unlike a partnership,
walang separate juridical personality si trust. So by that, can the trust sue?
Hindi. But in your tax, it is considered a separate taxable entity.
Article 1440. A person who establishes a trust is called the Trustor,
one in whom confidence is reposed as regards property for the
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 BUSINESS ORGANIZATION I
(By: 3-Manresa, S.Y. 2017-2018)
From the Lectures of: Atty. Raymund Christian S. Ong-Abrantes, CPA
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.
“As regards Property”
Please take note that the trust is constituted as regards a certain property . So
meron talagang property na kasama. Pag the arrangement is that there is a
trustor pero walang property – that is not the trust contemplated by law.
It is always with as regards property, meaning kung ako si trustor, ientrust ko
sa iyo trustee ang property, may certain obligations ka, you have to administer
it, take good care of it pero the benefit of it is to the beneficiary.
Q: So ano naman ngayon ang consideration for the trustee?
- Usually sa mga express trust meron yang mga stipulation for
compensation for the trustee, but the benefit will eventually accrue
to the beneficiary or in French term it is called the Cestui Que
Trust.
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 in to being by operation of law.
Please take note, ang sabi ng provision, Express trust daw ay created by the
intention of the parties but when you go to the rest of the provisions, when you
read your references, pagdating ninyo sa Resulting Implied trust na topic, it
is also based on the implied intention of the parties. So, Jurisprudence has
been flip-flopping on the differentiation between express trust and resulting
implied trust. We will discuss this as we go along.
In Constructive trust kasi, wala talagang intention ang parties magform ng
trust. It is just that by operation of law, may constructive trust, such as may
fraud or mistake na element.
Example: Nag-usap tayo.
A: Pre, naay baligya nga property, wala man gud ko ugma kay naa koy flight
sa America, ang seller muabot ugma. So pwede ba na ikaw lang sa ang
mupirma, close man ta, beshies man ta, I trust you, so ikaw lang sa akong
ipaprocess sa deed of sale, pero ako gyud ang buyer.
Nilakaw ka. Nagtransact na, ang buyer na gibutang didto si beshie. Nibalik ka,
tingala ka, asa naman ang property?
B: Ay besh, gibaligya baya nako sa lain kay ako man gud ang nakapangalan
as buyer.
So there was fraud, there was mistake. The law states that, there is a
constructive trust. Meaning, you hold that property in trust for your beshie who
went to America. Therefore, katong nagpalit, kung buyer siya in bad faith, he
can rescind the contract, kasi hindi siya yung real party in interest yung buyer
na nagbenta. Did you get it? Wala talagang intention to create the trust pero
based on the factual circumstances, sabi ng law, naay constructive trust
because of the element of fraud or mistake na ginawa nung other party. Did
you get that? That is constructive trust.
Now, Resulting Trust, there was an intention to create but it was not clearly
intended. Dito nagkakaroon ng confusion. Sa Express trust, there was
intention, sa resulting trust, there was an intention pero implied. Okay lng sana
yun na sa express trust kailangan documented, may document of trust. Tapos
sa resulting trust, pwede implied. Clear masyado ang distinction. However,
you will learn that there is no particular word or instrument that will create an
express trust. So in effect, pwede palang magkaroon ng express trust na
verbal lang.
So how do I delineate resulting trust from express trust – that is the problem
as we go along. Pero based on Jurisprudence, hindi nagdedecide si Supreme
Court based on that fact alone. Basically, ang main motive pa rin ng SC is
which decision is more equitable for the parties. So sa equity consideration
parin nagdedecide ang SC.
The Characteristics of Trust
1. It is a relationship;
2. It is a relationship of fiduciary character;
3. It is a relationship with respect to property, not one involving merely personal
duties;
4. 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
5. It arises as a result of a manifestation of intention to create the relationship.
It is a relationship of fiduciary character with respect to property not one
involving merely personal duties.
It involves the existence of equitable duties imposed upon the holder of title
to the property to deal with it for the benefit of another.
It arises from ---- intention of the parties to create the relationship. This is
applicable only to express trust and resulting implied trust. Again, sa
constructive, kahit na ayaw nila magform ng trust, because of equitable
consideration, it is the law that imposed the constructive trust.
Things to ponder.
Q: Can a minor child be a trustor?
Can a minor be a trustee?
Can a minor be a beneficiary?
Ponder ninyo lang. � (see Villanueva)
Q: Is it necessary for the cestui que trust or the beneficiary to be named at the
time the trust is created?
- No, it is not necessary. In the case of DBP vs. COA, it is enough
that the beneficiary is ----- or identifiable.
Q: Meaning, pwede bang magconstitute na beneficiary si unborn child?
Pwede ba?
Q: How do you distinguish a trust relationship from a stipulation pour atrui?
Remember sa stipulation pour atrui, there is a contract, it is a stipulation for
the benefit of a third person which is not actually a party to that contract. But
because of that stipulation, he is a person to benefit from the provisions of the
contract. So, here are the distinctions:
 Trust – it can arise either by virtue of a contract or by operation of
law.
Stipulation pour atrui – can only arise by virtue of a contract.
Remember the requisites for a stipulation pour atrui? It has to be
stipulated, knowledge etc.
 Trust – object of trust is always a specific and identifiable property
whether real or personal. Stipulation pour atrui – can neither be
specific property or object things, generic property. (?)
 Trust – the stipulation for trust may be express. Stipulation pour
atrui must always be express and must be accepted by the third
person before the grant.
That is the basic introduction of trust. Let us discuss the cases. What
happened in the case of Guy vs. CA?
GILBERT G. GUY vs THE COURT OF APPEALS
(December 10, 2007)
G.R. No.165849, 170185, 170186, 171066,176650
(Case Digest: April Pareno)
NATURE: The petition composed five (5) consolidated cases which
stemmed from Civil Case No. 04-109444 filed with the Regional Trial Court.
But the focus of the case with respect to trust is GR 176650. The petition
filed by Gilbert Guy (Gilbert) and Lincoln Continental Development
Corporation, Inc. (Lincoln Continental) questioning the decision of the
Court of Appeals (CA) in affirming the Regional Trial Court (RTC) in
dismissing their complaint against the respondents.
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 BUSINESS ORGANIZATION I
(By: 3-Manresa, S.Y. 2017-2018)
From the Lectures of: Atty. Raymund Christian S. Ong-Abrantes, CPA
FACTS: Gilbert, petitioner, is the son of Francisco and Simny Guy.
Respondents, Geraldine, Gladys and Grace are his sisters. The family feud
involves the ownership and control of 20,160 shares of stock of Northern
Islands Co., Inc. (Northern Islands). Northern Islands is a family-owned
corporation. In November 1986, they incorporated Lincoln Continental as
a holding company of the 50% shares of stock of Northern Islands in trust
for their daughters, respondents. In December 1986, upon instruction of
spouses Guy, Atty. Andres Gatmaitan, president of Lincoln Continental,
indorsed in blank Stock Certificate No. 132 (covering 8,400 shares) and
Stock Certificate No. 133 (covering 11,760 shares) and delivered them to
Simny.
In 1984, spouses Guy found that their son Gilbert has been disposing of
the assets of their corporations without authority. In order to protect the
assets of Northern Islands, the 20,160 shares covered by the two Stock
Certificates were then registered in the names of respondent sisters, thus
enabling them to assume an active role in the management of Northern
Islands. Thereafter, Simny was elected President; Grace as Vice-President
for Finance; Geraldine as Corporate Treasurer; and Gladys as Corporate
Secretary. Gilbert retained his position as Executive Vice President. This
development started the warfare between Gilbert and his sisters. Lincoln
Continental filed a Complaint for Annulment of the Transfer of Shares of
Stock against respondents. The complaint basically alleges that Lincoln
Continental owns20,160 shares of stock of Northern Islands; and that
respondents, in order to oust Gilbert from the management of Northern
Islands, falsely transferred the said shares of stock in respondent sisters’
names.
The trial court held that the complaint was baseless and an unwarranted
suit among family members. That based on the evidence, Gilbert was only
entrusted to hold the disputed shares of stock in his name for the benefit
of the other family members; and that it was only when Gilbert started to
dispose of the assets of the family’s corporations without their knowledge
that respondent sisters caused the registration of the shares in their
respective names. On appeal, the Court of Appeals affirmed the Trial
Court. Hence this petition.
ISSUE: Whether or not Gilbert was merely trust for the Guy sisters.
RULING: There was no doubt that Lincoln Continental held the disputed
shares of stock of Northern Islands merely in trust for the Guy sisters as
found by the trial court and affirmed by the CA. In fact, the evidence
proffered by Lincoln Continental itself supports this conclusion. Article
1440 of the Civil Code provides that: 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.
In the early case of Gayondato v. Treasurer of the Philippine Island, this
Court defines trust, in its technical sense, as “a right of property, real or
personal, held by one party for the benefit of another.” Differently stated, a
trust is “a fiduciary relationship with respect to property, subjecting the
person holding the same to the obligation of dealing with the property for
the benefit of another person.”
Both Lincoln Continental and Gilbert claim that the latter holds legal title to
the shares in question. However, there was no evidence to support their
claim. Rather, the evidence on record clearly indicates that the stock
certificates representing the contested shares are in respondents’
possession. Significantly, there is no proof to support his allegation that the
transfer of the shares of stock to respondent sisters is fraudulent. As aptly
held by the Court of Appeals, fraud is never presumed but must be
established by clear and convincing evidence. Gilbert failed to discharge
this burden. We, agree with the Court of Appeals that respondent sisters
own the shares of stocks, Gilbert being their mere trustee.
Trustor: Parents – Spouses Guy
Trustee: GilbertGuy
Beneficiary: Sisters
Q: What was the property involved here? Diba sabi natin sa trust, dapat may
property involved.
A: Corporate shares
Article 1443. No express trusts concerning an immovable or any
interest therein may be proved by parol evidence.
So, there must be a written agreement. But please take note that this provision
is only for the purpose of its Enforceability. Meaning, kahit walang written
agreement, the contract of express trust is still valid. It’s just that it cannot be
enforced. Reference it with your provisions on Statute of Frauds – it must be
reduced into writing or evidenced by a memorandum for you to make it
enforceable. It is valid but not enforceable.
Are there exceptions na even if not in writing, it is enforceable? If it is partially
executed.
So Article 1443 is an extension on the provisions of the Statute of Frauds.
Cross reference with Rule 130, section 9 of Rules of court.
Q: What if it is an implied trust and the property is immovable?
- In that case it can be proven by parol evidence even in the absence
of a written agreement. Precisely because implied trust na siya,
how would you have a written agreement in an implied trust.
Q: So if the property involved is a personal property and it is an express trust,
can it be proven by parol evidence?
- Yes.
What happened in the case of Dela Cruz vs. CA?
DELACRUZ vs CA
February 26, 1990
(Case Digest: April Pareno)
FACTS: Petitioners are the heirs (children) of the late Maria de la Cruz y
Gutierrez, married to Mateo del Rosario Lansang, while herein private
respondents are the heirs of Maria de la Cruz y Guevarra, married to
Calixto Dimalanta, and Fermin de la Cruz. The controversy involves a
1,980 square meters portion of Lot 1488.
From 1921 until her death in 1951, Maria de la Cruz y Gutierrez resided in
the questioned lot in the concept of an owner. She declared the lot for tax
purposes in her name. Later, she entrusted the administration of the said
lot to her niece Maria de la Cruz y Guevarra. Later, the lot was
adjudicated to Maria de la Cruz, 26 years old, married to Calixto Dimalanta
and Fermin de la Cruz, Single. Finally, Original Certificate of Title was
issued in their names.
Petitioners, claiming to have learned of the same only on July 1, 1974, on
October 1, 1974 (allegedly barely three months after discovery of the
registration, and two years after the death of Maria de la Cruz y Guevarra
who, before she died in 1974, revealed to petitioners Daniel Lansang and
Isidro Lansang that the lot of their mother Maria de la Cruz y Gutierrez had
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been included in her title), filed a complaint for reconveyance.
Private respondents claimed that the land in question is their exclusive
property, having inherited the same from their parents and the OCT was
issued in their names. Moreover, they asserted that petitioners have lost
their cause of action by prescription.
Petitioners' predecessor-in-interest, Maria de la Cruz y Gutierrez, was an
unlettered woman, a fact borne out by her affixing her thumbmark in her
answer in Cadastral Case No. 18. Because of her mental weakness, in a
prepared document for her, Exhibit "B-3", she consented and authorized
her niece Maria de la Cruz y Guevarra to administer the lot in question.
Such fact is corroborated by the testimony of Daniel Lansay, the son of
Maria de la Cruz y Gutierrez that Maria de la Cruz y Guevarra was the one
entrusted with the paying of land taxes.
Private respondents argue that said Exhibit "B-3" is a portion of the tax
declaration (Exhibit "B") which was prepared by the Office of the Municipal
Assessor/Treasurer where the lot in question is located, and clearly not the
written instrument constituting an express trust required under Article 1443
of the Civil Code.
ISSUE: WON Exhibit B-3 constitutes an express trust required under
Article 1443 of the Civil Code.
HELD: Yes.
As maintained by petitioners, their action is one based on express trust
and not on implied or constructive trust and thus, has not yet prescribed.
The argument of private respondents, is untenable. It has been held that
under the law on Trusts, it is not necessary that the document expressly
state and provide for the express trust, for it may even be created orally,
no particular words are required for its creation (Article 1444, Civil Code).
An express trust is created by the direct and positive acts of the parties, by
some writing or deed or will or by words evidencing an intention to create
a trust. No particular words are required for the creation of an express trust,
it being sufficient that a trust is clearly intended.
Hence, petitioner's action, being one based on express trust, has not yet
prescribed. Be it noted that Article 1443 of the Civil Code which states
"No express trusts concerning an immovable or any interest therein may
be proved by parol evidence," refers merely to enforceability, not validity of
a contract between the parties. Otherwise stated, for purposes of validity
between the parties, an express trust concerning an immovable does not
have to be in writing.
Thus, Article 1443 may be said to be an extension of the Statute of Frauds.
The action to compel the trustee to convey the property registered in his
name for the benefit of the cestui for trust does not prescribe. If at all, it is
only when the trustee repudiates the trust that the period of prescription
may run.
Trustor: Maria Guttierez
Trustee: niece – Maria Guevarra
Beneficiary: heirs of Maria Guttierez
Q: Was there an express agreement or deed of trust presented?
- None. The SC inferred it from the positive acts of the parties.
Again, Article 1444 provides:
Article 1444. No particular words are required for the creation of an
express trust, it being sufficient that a trust is clearly intended.
This is where there becomes a grey line between express trust and resulting
implied trust. Kasi tingnan mo, hindi kailangan magstipulate expressly na may
express trust. By the facts and the circumstances, it is sufficient na it is clearly
intended. It is hard to distinguish between the 2.
The only thing that we can distinguish it is because, the resulting implied trust
scenarios are enumerated in the provisions, but same provisions state that it
is not an exclusive list.
So what if a transaction happens na hindi siya part doon sa list, but it was
impliedly intended by the parties to have a trust? Would we be saying that it is
an express trust or would we be saying na it is a resulting implied trust? Yun
yung nagkakaroon ng debate yung mga authors.
What I would suggest is that, for purposes of the bar, you memorize those
enumerated by the provisions on what constitute a resulting implied trust. Pag
ang transaction papasok doon, resulting. Other than that, if based on the
factual circumstances clearly intended, pwede mo sabihing express trust.
PRESCRIPTION
And the prescription, diba ang sabi express trust does not generally prescribe.
Except if may repuadiation. By common sense, express trust nga eh, there
was an intention, so if I am the trustee, what are the requisites for you to have
acquisitive prescription based on your Property? Your possession of the
Property must be what? What should be the nature of my possession para
eventually yung property magiging akin? It must be Open, Continuous,
Exclusive and Adverse. Meaning, it must be in conflict with the real owner.
Now kung express trust ka, you acknowledge that you hold that property in
trust for somebody else. Now your holding of that property is never adverse.
That is why it cannot be acquired through acquisitive prescription. Doon lang
yung principle na it doesn’t prescribe. Nakuha ninyo? Pero the exception here
is if the Trustee repudiates the trust, kasi from the time na nirepudiate niya, it
becomes an adverse possession.
GR: Express Trust is Imprescriptible.
Expn: Repudiation by the Trustee.
Pagnarepudiate na ito, wala ng express trust. So you relate this with your
property law. Ganyan lang yan siya eh, connect connect lang yan lahat.
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.
Please take note that it is presumed kapag walang onerous condition, if there
is no proof to the contrary. Kapag may onerous condition, the acceptance by
the beneficiary is never presumed. You know naman the meaning of onerous.
So that is for Express trust. Let us discuss other cases.
ARANETA vs CA
G.R. No. 154096 August 22, 2008
(Case Digest: Cyndall Jardinel)
FACTS:
1. Sometime in 1968 and 1972, Ambassador Roberto S. Benedicto, now
deceased, and his business associates (Benedicto Group) organized Far
East Managers and Investors, Inc. (FEMII) and Universal Equity
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Corporation (UEC), respectively.
2. As petitioner Irene Marcos-Araneta would later allege, both corporations
were organized pursuant to a contract or arrangement whereby Benedicto,
as trustor, placed in his name and in the name of his associates, as
trustees, the shares of stocks of FEMII and UEC with the obligation to hold
those shares and their fruits in trust and for the benefit of Irene to the extent
of 65% of such shares.
3. Several years after, Irene, through her trustee-husband, Gregorio Ma.
Araneta III, demanded the reconveyance of said 65% stockholdings, but
the Benedicto Group refused to oblige.
4. In March 2000, Irene thereupon instituted before the RTC two similar
complaints for conveyance of shares of stock, accounting and
receivership against the Benedicto Group with prayer for the issuance of a
temporary restraining order (TRO). The first, docketed as Civil Case No.
3341-17, covered the UEC shares and named Benedicto, his daughter,
and at least 20 other individuals as defendants. The second, docketed as
Civil Case No. 3342-17, sought the recovery to the extent of 65% of FEMII
shares held by Benedicto and the other defendants named therein.
5. Respondent Francisca Benedicto-Paulino,3 Benedicto's daughter, filed
a Motion to Dismiss Civil Case No. 3341-17, followed later by an Amended
Motion to Dismiss. Benedicto, on the other hand, moved to dismiss4 Civil
Case No. 3342-17, adopting in toto the five (5) grounds raised by Francisca
in her amended motion to dismiss. Among these were: (1) the cases
involved an intra-corporate dispute over which the Securities and
Exchange Commission, not the RTC, has jurisdiction; (2) venue was
improperly laid; and (3) the complaint failed to state a cause of action, as
there was no allegation therein that plaintiff, as beneficiary of the purported
trust, has accepted the trust created in her favor.
ISSUE:
WON the TRUST was established?
WON the issue on the alleged TRUST can be resolved in a petition for
certiorari under Rule 65 of the Rules of Court?
HELD:
Clearly then, the CA overstepped its boundaries when, in disposing of
private respondents' petition for certiorari, it did not confine itself to
determining whether or not lack of jurisdiction or grave abuse of discretion
tainted the issuance of the assailed RTC orders, but proceeded to pass on
the factual issue of the existence and enforceability of the asserted trust.
In the process, the CA virtually resolved petitioner Irene's case for
reconveyance on its substantive merits even before evidence on the matter
could be adduced. Civil Case Nos. 3341-17 and 3342-17 in fact have not
even reached the pre-trial stage. To stress, the nature of the trust allegedly
constituted in Irene's favor and its enforceability, being evidentiary in
nature, are best determined by the trial court. The original complaints and
the amended complaint certainly do not even clearly indicate whether the
asserted trust is implied or express. To be sure, an express trust differs
from the implied variety in terms of the manner of proving its
existence.31 Surely, the onus of factually determining whether the trust
allegedly established in favor of Irene, if one was indeed established, was
implied or express properly pertains, at the first instance, to the trial court
and not to the appellate court in a special civil action for certiorari, as here.
In the absence of evidence to prove or disprove the constitution and
necessarily the existence of the trust agreement between Irene, on one
hand, and the Benedicto Group, on the other, the appellate court cannot
intelligently pass upon the issue of trust. A pronouncement on said issue
of trust rooted on speculation and conjecture, if properly challenged, must
be struck down. So it must be here.
Q: What was the nature of the action of Irene Marcos?
In essence, she wants Benedicto to recognize that there was a trust
agreement and siya yung beneficiary and sila yung trustee.
Q: What was the issue as regards venue of a particular action and its
relevance in this case? In your Civil Procedure, in what action will the
residence of the parties be material?
- Personal action.
In essence, Irene here is seeking for Benedicto to recognize the alleged trust
agreement. So issue is “In an action to recognize a trust agreement, is it a
personal or real action?”
- In this particular case, an action to recognize a trust agreement
is an Action in Personam, whether or not there is a real property
involved.
Here, allegedly sabi ni Irene Marcos, yung company na yan 65% akin as a
beneficiary. Eh ngayon, siguro kumita yung company, sabi ng trustee, No!
There is no trust agreement. Sabi ni Irene, No, I will file a case against you.
We all know that the Marcos are influential in Ilocos, of course, dun nila finile,
kasi alam nila na they could get a favourable judgement. Siguro, close sila sa
judge.
Tapos, nung nalaman na ang residence pala ni Irene is sa Forbes Park Makati,
sabi ng SC, eh bakit mo finile sa Ilocos? Nataranta yung lawyer, inamend yung
complaint, nag implead ng plaintiff from Ilocos. Nastress siguro siya. Sabi ng
SC, such was not the real party in interest. Eventually, it was denied.
Doctrine: An action to recognize a trust agreement is an action in personam.
Meaning, the venue, the jurisdiction must conform to the Civil Procedure Rules
on an action in personam.
HEIRS OF LABANON vs HEIRS OF LABANON
G.R. No. 160711
(Case Digest: Cyndall Jardinel)
FACTS:
1. During the lifetime of Constancio Labanon, prior to the outbreak of WWII,
he settled upon a piece of alienable and disposable public agricultural land
situated at Brgy. Lanao, Kidapawan, Cotabato x x x. Constancio cultivated
the said lot and introduced permanent improvements that still exist up to
the present.
2. Being of very limited educational attainment, he found it difficult to file
his public land application over said lot. Constancio then asked his brother,
Maximo Labanon who was better educated to file the corresponding public
land application under the express agreement that they will divide the said
lot as soon as it would be feasible for them to do so.
3. The offer was accepted by Maximo. During the time of the application it
was Constancio who continued to cultivate the said lot in order to comply
with the cultivation requirement set forth under Commonwealth Act 141, as
amended, on Homestead applications.
4. After which, on June 6, 1941, due to industry of Constancio, Homestead
Application No. 244742 (E-128802) of his brother Maximo was approved
with Homestead Patent No. 67512. Eventually, Original Certificate of Title
No. P-14320 was issued by the Register of Deeds of Cotabato over said
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lot in favor of Maximo Labanon.
5. On February 11, 1955, Maximo Labanon executed a document
denominated as "Assignment of Rights and Ownership" and was executed
to safeguard the ownership and interest of his brother Constancio
Labanon.
6. On April 25, 1962, Maximo Labanon executed a sworn statement
reiterating his desire that his elder brother Constancio, his heirs and
assigns shall own the eastern portion of the Lot
7. After the death of Constancio Labanon, his heirs executed an [e]xtra-
judicial settlement of estate with simultaneous sale over the aforesaid
eastern portion of the lot in favor of Alberto Makilang, the husband of
Visitacion Labanon, one of the children of Constancio.
8. However, in March 1991, the defendants heirs of Maximo Labanon
namely, Alicia L. Caniedo, Leopoldo Labanon, Roberto Nieto and Pancho
Labanon, caused to be cancelled from the records of the defendant
Provincial Assessor of Cotabato the aforesaid TD No. 11593
9. Further, after discovering that the defendant-heirs of Maximo Labanon
were taking steps to deprive the heirs of Constancio Labanon of their
ownership over the eastern portion of said lot, the latter, thru Alberto
Makilang, demanded the owner’s copy of the certificate of title covering the
aforesaid Lot to be surrendered to the Register of Deeds of Cotabato so
that the ownership of the heirs of Constancio may be fully effected but the
defendants refused and still continue to refuse to honor the trust
agreement entered into by the deceased brothers.
10. Thus, on November 12, 1991, petitioners filed a complaint5 for Specific
Performance, Recovery of Ownership, Attorney’s Fees and Damages with
Writ of Preliminary Injunction and Prayer for Temporary Restraining Order
against respondents.
ISSUE: WON there exists a TRUST?
HELD: YES.
The trust agreement between Maximo Labanon and Constancio Labanon
may still be enforced
Former Vice-President and Senator Arturo Tolentino, a noted civilist,
explained the nature and import of a trust:
Trust is the legal relationship between one person having an equitable
ownership in property and another person 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.10
This legal relationship can be distinguished from other relationships of a
fiduciary character, such as deposit, guardianship, and agency, in that the
trustee has legal title to the property.11 In the case at bench, this is exactly
the relationship established between the parties.
Trusts are classified under the Civil Code as either express or implied.
Such classification determines the prescriptive period for enforcing such
trust.
Article 1444 of the New Civil Code on express trust provides that "[n]o
particular words are required for the creation of an express trust, it being
sufficient that a trust is clearly intended."
Civil law expert Tolentino further elucidated on the express trust, thus:
No particular form of words or conduct is necessary for the
manifestation of intention to create a trust. It is possible to create a
trust without using the word "trust" or "trustee". Conversely, the mere
fact that these words are used does not necessarily indicate an intention
to create a trust. The question in each case is whether the trustor
manifested an intention to create the kind of relationship which to lawyers
is known as trust. It is immaterial whether or not he knows that the
relationship which he intends to create is called a trust, and whether or not
he knows the precise characteristics of the relationship which is called a
trust.12
Correlatively, we ruled in Estate of Edward Miller Grimm v. Estate of
Charles Parsons and Patrick C. Parsons, that:
An express trust is created by the direct and positive acts of the parties, by
some writing or deed or by words evidencing an intention to create a trust;
the use of the word trust is not required or essential to its constitution, it
being sufficient that a trust is clearly intended.131avvphi1
In the instant case, such intention to institute an express trust
between Maximo Labanon as trustee and Constancio Labanon as
trustor was contained in not just one but two written documents, the
Assignment of Rights and Ownership as well as Maximo Labanon’s
April 25, 1962 Sworn Statement. In both documents, Maximo Labanon
recognized Constancio Labanon’s ownership and possession over
the eastern portion of the property covered by OCT No. P-14320, even
as he recognized himself as the applicant for the Homestead Patent
over the land. Thus, Maximo Labanon maintained the title over the
property while acknowledging the true ownership of Constancio Labanon
over the eastern portion of the land. The existence of an express trust
cannot be doubted nor disputed.
On the issue of prescription, we had the opportunity to rule in Bueno v.
Reyes that unrepudiated written express trusts are imprescriptible:
While there are some decisions which hold that an action upon a trust is
imprescriptible, without distinguishing between express and implied trusts,
the better rule, as laid down by this Court in other decisions, is that
prescription does supervene where the trust is merely an implied one. The
reason has been expressed by Justice J.B.L. Reyes in J.M. Tuason and
Co., Inc. vs. Magdangal, 4 SCRA 84, 88, as follows:
Under Section 40 of the old Code of Civil Procedure, all actions for
recovery of real property prescribed in 10 years, excepting only actions
based on continuing or subsisting trusts that were considered by section
38 as imprescriptible. As held in the case of Diaz v. Gorricho, L-11229,
March 29, 1958, however, the continuing or subsisting trusts contemplated
in section 38 of the Code of Civil Procedure referred only to express
unrepudiated trusts, and did not include constructive trusts (that are
imposed by law) where no fiduciary relation exists and the trustee does not
recognize the trust at all.14
This principle was amplified in Escay v. Court of Appeals this way:
"Express trusts prescribe 10 years from the repudiation of the trust (Manuel
Diaz, et al. vs. Carmen Gorricho et al., 54 0.G. p. 8429, Sec. 40, Code of
Civil Procedure)."15
In the more recent case of Secuya v. De Selma, we again ruled that the
prescriptive period for the enforcement of an express trust of ten (10) years
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starts upon the repudiation of the trust by the trustee.16
In the case at bar, Maximo Labanon never repudiated the express trust
instituted between him and Constancio Labanon. And after Maximo
Labanon’s death, the trust could no longer be renounced; thus,
respondents’ right to enforce the trust agreement can no longer be
restricted nor prejudiced by prescription.
Trustor: Constancio
Trustee: Maximo
Beneficiary: Heirs of Constancio
Q: Was there a Trust Agreement?
- Yes.
Q: Did they execute a Trust agreement or a deed of trust? Is there a document
of trust agreement?
- There was a document wherein part of it stated that the property is
merely entrusted to Maximo and it was actually owned by
Constancio.
This is one of the instances wherein the provisions on trust becomes
in(?)convenient and practical. Kasi in this case Constancio was “not schooled”
or walang pinag-aralan but he has a property. Since wala siyang alam sa mga
pasikot-sikot sa property, ang brother niya ang pinaasikaso niya for the titling
of the property. To secure the right, they executed an assignment of rights
wherein it was clearly stipulated that Maximo holds the eastern portion in trust
for Constancio. Ito yung mga instances wherein yung provisions ng trust
becomes in(?)convenient and practical. This is not for the purpose of avoiding
law ha.
Please, the splitting of the legal title and the beneficial title is not to evade the
law.
Example: Foreigner, bawal makaown ng property, pinangalan sa Pinoy, hindi
pwede sabihin na may trust because the purpose was specifically to evade
the law.
Dapat the arrangement must be made for the purpose of equitable
considerations.
Q: How about the issue on prescription?
- Since it was an express trust, it cannot prescribe anymore. The
heirs can no longer repudiate as Maximo, their predecessor
already died.
Please take note of this ha. Si trustee, hindi niya nirepudiate ang trust in his
lifetime. There was no repudiation of express trust, so hindi magrurun yung
prescription kasi namatay na siya. Ang sabi ng SC, since hindi niya nirepudiate
during his lifetime, hindi na marerepudiate ng kanyang heirs yung property,
prescription could never run. But we will discuss a case later on (Secuya vs.
Vda. De Selma) na kung saan sabi ng SC, pwede magrun kasinirepudiate
nung heir. Just take note of this.
ESTATE of GRIMM VS ESTATE OF PARSONS
G.R. No. 159810
(Case Digest: Cyndall Jardinel)
FACTS:
1. Parsons and Edward Miller Grimm (Grimm), together with Conrado Y.
Simon (Simon), formed in 1952 a partnership for the stated purpose of
engaging in the import/export and real estate business. Per SEC Certificate
#3305,2 the partnership was registered under the name G - P and
Company.
2. After Grimm's demise on November 27, 1977, Parsons and Simon
continued with the partnership under the same name, G – P and Company,
as reflected in Articles of Partnership dated December 14, 1977.5 The
articles of the partnership would later undergo another amendment to
admit Parsons' son, Patrick, in the partnership.6 After Parsons died on May
12, 1988, Amended Articles of Partnership of G-P and Company was
executed on September 23, 1988 by and among Parsons' heirs, namely,
Patrick, Michael, Peter and Jose, all surnamed Parsons
3. The herein legal dispute started when brothers Patrick and Jose, both
surnamed Parsons, responding to a letter8from the Estate of Grimm,
rejected the existence of a trust arrangement between their father and
Grimm involving MC No. 1088. Thus spurned, the Estate of Grimm filed on
August 31, 1992 before the RTC of Makati City, a suit for recovery of MC
No. 1088 with damages against the Estate of Parsons, Patrick Parsons
and MGCC.
4. Patrick Parsons averred that his father was, with respect to MC No.
1088, a mere trustee of the true owner thereof, G-P & Co.,
ISSUE:
1. WON the transfer of MC No. 590 effected on September 7, 1964 by
Grimm in favor of Parsons resulted, as the petitioner would have it, in the
formation of a trust relation between the two?
2. WON the transfer to Parsons of MC No. 590, as replaced by MC No.
1088, partook of the nature of a trust transaction.
HELD: YES.
HELD: Trust is the legal relationship between one having an equitable
ownership in property and another person 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.26 Trust relations between parties may be express, as when the trust
is created by the intention of the trustor.27 An express trust is created by
the direct and positive acts of the parties, by some writing or deed or by
words evidencing an intention to create a trust; the use of the word trust is
not required or essential to its constitution, it being sufficient that a trust is
clearly intended.28 Implied trust comes into existence by operation of law,
either through implication of an intention to create a trust as a matter of law
or through the imposition of the trust irrespective of, and even contrary to
any such intention.29
Judging from their documented acts immediately before and subsequent
to the actual transfer on September 7, 1964 of MC No. 590, Parsons, as
transferee, and Grimm, as transferor, indubitably contemplated a
trust arrangement.
At bottom then, documented events immediately before and after the
February 28, 1968 share certificate conveyance in question veritably
confirm the trust arrangement Parsons had or intended to have with
Grimm and vice versa, vis-à-vis MC No. 1088. If, as herein respondent
G-P & Co. posits at every turn, Parsons was its trustee, then the latter's act
of endorsing MC No. 1088 in blank and then delivering the same to the
Club for safekeeping instead of directly to the G-P & Co. was without
sense.
Since the transfer of Grimm's share to Parsons was temporary, a trust
was created with Parsons as the trustee, and Grimm, the beneficial
owner of the share. The duties of trustees have been said, in general
terms, to be: "to protect and preserve the trust property, and to see to it
that it is employed solely for the benefit of the cestui que trust." xxx Parsons
as a mere trustee, it is not within his rights to transfer the share to G-P and
Company (sic).
And lest it be overlooked, Parsons had previously acknowledged Grimm to
be the owner of MC No. 1088, after his earlier repeated declarations that
the transfer of the replaced MC No. 580 was temporary. Parsons was thus
in contextually in estoppel to deny, thru the Letter of Trust aforementioned,
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(By: 3-Manresa, S.Y. 2017-2018)
From the Lectures of: Atty. Raymund Christian S. Ong-Abrantes, CPA
hypothetically assuming its authenticity, Grimm's ownership of the
replacement certificate.
Summing up, the Court finds the evidence adduced and admitted by
the trial court more than adequately supporting a conclusion that MC
No. 1088 was issued to and held by Parsons as the trustee thereof of
Grimm or his estate. The fact that respondent G-P & Co. may have paid,
starting 1992, as evidence discloses, the membership fees due on MC No.
1088 does not make Grimm less of a beneficial owner. Such payment,
needless to stress, is not a mode of acquiring ownership.
Q: What was the purpose of the trust?
- To temporarily accommodate a Japanese citizen of the playing
rights of the club.
Q: How was the trust proven?
- Letters.
Q: Did the allege trust agreement violate an existing law? Did they circumvent
any particular law? Diba sabi natin bawal magconstitute ng trust if it is to
circumvent a law. Dito nangyari, inassign muna sa kanya para maaccomodate
si Yoshida –san. How do you reconcile?
- They did not violate any law. In fact, hindi naman law yun, it was
just a policy. It was even suggested to them by the management
itself.
BENIGNA SECUYA ET. AL vs GERARDA M. VDA. DE SELMA
G.R. No. 136021
(Case Digest: Earvin Alparaque)
BACKGROUND OF THE CASE:
This involves an action for quieting of title filed by Benigna Secuya et. al.
against Gerarda M. Vda. de Selma. The petitioners anchor their claim of
ownership over the lot on the Agreement of Partition (main issue of the
case) and a Deed of Confirmation of Sale executed in favor of Dalmacio
Secuya.
FACTS:
Before the grant of her application for private sale of Lot 5679, a friar
land (12,750 sqm.), Maxima Caballero executed a document entitled
"Agreement of Partition," wherein she stipulated to transfer one-third
(1/3) of the lot to and accepted by Paciencia Sabellano, her aunt. When
the application was approved, Maxima failed to transfer the agreed
portion to Paciencia who took possession thereof.
Paciencia thereafter sold a portion of the lot (3000 sqm.) to
Dalmacio Secuya. When Paciencia died, her only heir, Ramon
Sabellano, executed a private document, "Deed of Confirmation of Sale,"
confirming the sale between Paciencia and Dalmacio. The document
was, however, lost. Meanwhile, Maxima sold the entire lot to Silverio Aro,
husband of Cesaria Caballero. Upon Silverio's death, the lot was
transferred to Cesaria from whom respondent bought the lot.
Respondent was assured that petitioners who were occupying a portion
of the land were tenants. A clean title to the whole lot was transferred to
respondent.
Petitioners, heirs of Dalmacio Secuya, filed an action for quieting of title
on the ground that respondent's title is a cloud on their title as owners
and possessors of the property subject of litigation. They claimed that
they had been occupying the property for forty-seven years though they
did not pay the land taxes. The trial court rendered judgment against
respondent. It was affirmed, on appeal, by the Court of Appeals.
ISSUE:
Nature of the Agreement between the parties - An Express Trust, Not
a Partition
RULING:
The duly notarized Agreement of Partition dated January 5, 1938 is
worded as follows:
AGREEMENT OF PARTITION
I, MAXIMA CABALLERO, Filipina, of legal age, married to
Rafael Cariño, now residing and with postal address in the
Municipality of Dumaguete, Oriental Negros, depose the
following and say:
1. That I am the applicant of vacant lot No. 5679 of the
Talisay-Minglanilla Estate and the said application has
already been indorsed by the District Land Officer, Talisay,
Cebu, for private sale in my favor;
2. That the said Lot 5679 was formerly registered in the name
of Felix Abad y Caballero and the sale certificate of which has
already been cancelled by the Hon. Secretary of Agriculture
and Commerce;
3. That for and in representation of my brother, Luis
Caballero, who is now the actual occupant of said lot I deem
it wise to have the said lot paid by me, as Luis Caballero has
no means o[r] any way to pay the government;
4. That as soon as the application is approved by the
Director of Lands, Manila, in my favor, I hereby bind
myself to transfer the one-third (l/3) portion of the above
mentioned lot in favor of my aunt, Paciencia Sabellana y
Caballero, of legal age, single, residing and with postal
address in Tungkop, Minglanilla, Cebu. Said portion of one-
third (1/3) will be subdivided after the approval of said
application and the same will be paid by her to the
government [for] the corresponding portion.
5. That the said portion of one-third (1/3) will be located
adjoining the municipal road;
6. I, Paciencia Sabellana y Caballero, hereby accept and take
the portion herein adjudicated to me by Mrs. Maxima
Caballero of Lot No. 5679 Talisay-Minglanilla Estate and will
pay the corresponding portion to the government after the
subdivision of the same;
IN WITNESS WHEREOF, we have hereunto set our hands
this 5th day of January, 1988, at Talisay, Cebu."
Notwithstanding its purported nomenclature, this Agreement is not one
of partition, because there was no property to partition and the
parties were not co-owners. Rather, it is in the nature of a trust
agreement.
Trust is the right to the beneficial enjoyment of property, the legal title to
which is vested in another. It is a fiduciary relationship that obliges the
trustee to deal with the property for the benefit of the beneficiary. Trust
relations between parties may either be express or implied. An express
trust is created by the intention of the trustor or of the parties. An implied
trust comes into being by operation of law.
The present Agreement of Partition involves an express trust. Under
Article 1444 of the Civil Code, "[n]o particular words are required for
the creation of an express trust, it being sufficient that a trust is clearly
intended." That Maxima Caballero bound herself to give one third of Lot
No. 5629 to Paciencia Sabellona upon the approval of the former's
application is clear from the terms of the Agreement. Likewise, it is
evident that Paciencia acquiesced to the covenant and is thus bound to
fulfill her obligation therein.
As a result of the Agreement, Maxima Caballero held the portion
specified therein as belonging to Paciencia Sabellona when the
application was eventually approved and a sale certificate was issued in
her name. Thus, she should have transferred the same to the latter,
but she never did so during her lifetime. Instead, her heirs sold the
entire Lot No. 5679 to Silvestre Aro in 1955.
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From the Lectures of: Atty. Raymund Christian S. Ong-Abrantes, CPA
From 1954 when the sale certificate was issued until 1985 when
petitioners filed their Complaint, Paciencia and her successors-in-
interest did not do anything to enforce their proprietary rights over the
disputed property or to consolidate their ownership over the same. In
fact, they did not even register the said Agreement with the Registry of
Property or pay the requisite land taxes. While petitioners had been
doing nothing, the disputed property, as part of Lot No. 5679, had been
the subject of several sales transactions and covered by several transfer
certificates of title.
The Repudiation of the Express Trust
While no time limit is imposed for the enforcement of rights under
express trusts, prescription may, however, bar a beneficiary's action
for recovery, if a repudiation of the trust is proven by clear and
convincing evidence and made known to the beneficiary.
There was a repudiation of the express trust when the heirs of
Maxima Caballero failed to deliver or transfer the property to
Paciencia Sabellona, and instead sold the same to a third person
not privy to the Agreement. In the memorandum of encumbrances of
TCT No. 3087 issued in the name of Maxima, there was no notation of
the Agreement between her and Paciencia. Equally important, the
Agreement was not registered; thus, it could not bind third persons.
Neither was there any allegation that Silvestre Aro, who purchased the
property from Maxima's heirs, knew of it. Consequently, the subsequent
sales transactions involving the land in dispute and the titles covering it
must be upheld, in the absence of proof that the said transactions were
fraudulent and irregular.
Trustor: Maxima
Trustee:
Beneficiary: Pacencia
Q: was there repudiation of the express trust?
- Yes
Q: Who repudiated the trust?
- Heirs of the Trustee.
So this is what I am trying to tell you that you have to compare. In the Heirs
of Maximo Labanon vs. Heirs of Constancio Labanon case, hindi niya
nirepudiate diba during his lifetime, sabi ng SC – No. You cannot repudiate it
anymore.
Dito naman, ang nagrepudiate dito were the heirs. So you see, even if the
trustee is dead, the heirs can still repudiate the express trust agreement. But
please take note that in this particular case, there were other circumstances
which would preponderate into the repudiation of trust.
Dun sa Heirs of Maximo Labanon vs. Heirs of Constancio Labanon case,
wala ng ibang circumstances. Dito, napasa na, may subsequent sale pa, so in
my opinion, even if hindi narepudiate ni trustee, it would be against equity na
hindi iupheld yung subsequent sale. Kasi marami na na kaso ito eh.
So what does this imply? If you are given a problem wherein the only issue is
repudiation, walang other circumstances you use the Heirs of Maximo
Labanon vs. Heirs of Constancio Labanon ruling. But if there are other
circumstances, like ito, there was a question on the exercise of the ownership
of the party, pag may mga ganito, you look at all the attending circumstances
and preponderate the evidence, kung sino yung mas heavy. But please
compare this with the previous case ni Maximo for reference.
Again, ito yung sinasabi ko na ang ruling ng SC is based on equity. They don’t
rule based on the pure provisions of law. Ganun naman talaga ang SC diba.
“We are not final because we are infallible, but we are infallible only because
we are final." US SC justice yun diba? (Robert H. Jackson)
We will just continue with implied Trust next time. Madali nalang to.
September 8, 2017
(Transcriber: Janice Espinosa-Molina)
Article 1445. No trust shall fail because the trustee appointed declines the
designation, unless the contrary should appear in the instrument constituting
the trust.
In the case of express trust, acceptance of trust is necessary to
charge him with the office of the trustee and the administration of the trust and
to vest the legal title in him. However, his acceptance of trust is not necessary
to its existence and validity, since if he declines the trust the courts will appoint
a trustee to fill the office the he declines.
It is the intention of the trustor to create the trust thus that must be
respected.
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.
Here there is a presumption of acceptance on the part of the
beneficiary except if there is onerous condition.
What are the grounds for the total extinguishment of an express trust?
1. Total loss of object of the trust
2. Expiration of the term
3. Agreement of the parties
4. happening of the resolutory condition
5. Total destruction of object
6. Decision of the trust by the court
7. Merger of right of the trustee and beneficiary
8. Prescription of the rights where there is express obligation
Is an Express trust Imprescriptible?
General Rule you cannot because by the concept of trust the trustee concedes
to the fact that he holds the property in trust for the beneficiary so there's no
actual adverse possession except if there is repudiation.
What are the requisites for repudiation?
1. The trustee has performed open and unequivocal acts of repudiation
amounting to an ouster of the cestui que trust
2. Positive acts of repudiation have been made known to the cestui que trust
3. Evidence thereon must be clear and conclusive or convincing that the period
fixed has prescribe - ordinarily its 10 years
Implied Trust
Article 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 law provides for an instances for there can be an implied trust
but that instances are not exclusive, so in any other cases for purposes of
equity the Supreme Court made constitute the existence of the trust, not
necessarily pag wala sya sa articles hindi na sya trust. Again the basis for this
is Equitable Consideration.
Why would I choose establishing a trust rather than putting it in a last will and
testament?
Remember if there is a will, there’s probate which would take time whereas in
trust once that condition ends kc namatay ka, the beneficiary can ask for a
reconveyance because by the establishment of an irrevocable trust that
property is no longer property of the trustor, it becomes separate, so if
mamatay man sya, it will no longer part of his estate.
Article 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 if 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.
This trust is based on the premised that it’s the substantial interest
of the beneficiary which actually governs rather than the legal title.
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(By: 3-Manresa, S.Y. 2017-2018)
From the Lectures of: Atty. Raymund Christian S. Ong-Abrantes, CPA
ALEJANDRO B. TY vs SYLVIA S. TY
G.R. No. 165696
(Case Digest: Earvin Alparaque)
BACKGROUND OF THE CASE:
The present controversy involves an action for the settlement of the estate of
Alexander Ty. The case involves three real properties to which Alejandro Ty
claims absolute ownership. The latter alleged that the properties were merely
registered in trust for Alexander’s siblings.
FACTS:
Alexander Ty, son of Alejandro Ty and husband of Sylvia Ty, dies of cancer at
the age of 34. Sylvia files petition for the settlement of Alexander’s intestate
estate. In line with this, she also asks the court to sell or mortgage properties
in order to pay the estate tax amounting to P4,714,560.02 assessed by the
BIR. The properties which were subjected to sale were a parcel of land (1,728
sqm.) in EDSA Greenhills, a residential land (1,584 sqm.) in Notre Dame,
Wack Wack, Mandaluyong and a Meridien condo unit (167.5 sqm.) in
Annapolis, Greenhills.
Alejandro Ty opposed the move and filed for recovery of the property with
prayer for preliminary injunction and/or temporary restraining order. Plaintiff
Alejandro claims that he owns the lands in EDSA, Wack Wack and the
Meridien condo unit because he paid for them. The property was supposedly
registered in trust for Alexander’s brothers and sisters in case plaintiff dies.
Plaintiff also claimed that Alex had no financial capacity to purchase the
disputed property, as the latter was only dependent on the former.
Sylvia countered that Alexander had purchased the property with his money.
Alexander was financially capable of purchasing it because he had been
managing the family corporations since he was 18 years old and was also
engage in other profitable businesses.
The RTC granted the application for preliminary injunction and decides in favor
of plaintiff regarding the recovery of the property. CA reversed the RTC stating
that the implication created by law under Art. 1448 does not apply if the
property was in the name of the purchaser’s child. It was agreed that
Alejandro partly paid for the EDSA property. Plaintiff appealed.
Findings of the CA:
Going by the records, we hold that plaintiff-appellee in this case was not able
to show by clear preponderance of evidence that his son and the defendant-
appellant were not financially capable of purchasing said property. Neither was
plaintiff-appellee able to prove by clear preponderance of evidence that the
money used to purchase the said properties really came from him. And even
if we assume that it came from him, it would still not establish an implied trust,
as it would again be considered a donation, or a gift.
If anything, what is clear from the evidence at bench is that Alexander and the
defendant-appellant were not exactly bereft of the means, the financial
capability or resources, in their own right, to purchase, or acquire, the Meridien
Condominium and the Wack-Wack property.
The evidence on record shows that Alexander Ty was 31 years old when he
purchased the Meridien Condominium and was 33 years old when he
purchased the Wack-Wack property. In short, when he purchased these
properties, he had already been working for at least nine years. He had a car
care business and a beer garden business. He was actively engaged in the
business dealings of several family corporations, from which he received
emoluments and other benefits. As a matter of fact, Alexander and plaintiff-
appellee had common interest in various family corporations of which they
were stockholders, and officers and directors.
Furthermore, at the time of his death, the son Alexander was Vice-President
of Union Ajinomoto Executive Vice-President of Royal Porcelain Corporation;
Treasurer of Polymart Paper Industries; General Manager of Hornblower
Sales Enterprises and Intercontinental Paper Industries, Inc.; President of
High Professional Drilling and Manufacturing, Inc.; President of Crown
Consumer Products, Inc.; Executive Vice-President of MVR-TV Picture Tube,
Inc.; and Director of ABT Enterprise, Inc. He even had a controlling interest in
ABT Enterprises, which has a majority interest in Union Ajinomoto, Inc.
What is more, the tax declaration receipts for the Wack-Wack property
covering the years 2000-2004, and the tax declaration receipts for the
Meridien Condominium covering the years 2000-2001, showed that to his date
it is still the estate of Alexander that is paying for the real estate taxes thereon.
ISSUE:
Whether or not there was an implied trust under Art. 1448 of the Civil Code -
NONE
RULING:
The EDSA Property
Petitioner contends that the EDSA property, while registered in the name of
his son Alexander Ty, is covered by an implied trust in his favor under Article
1448 of the Civil Code. This, petitioner argues, is because he paid the price
when the property was purchased and did so for the purpose of having the
beneficial interest of the property.
Article 1448 of the Civil Code provides:
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 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.
The CA conceded that at least part of the purchase price of the EDSA
property came from petitioner. However, it ruled out the existence of an
implied trust because of the last sentence of Article 1448- 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.
Petitioner now claims that in so ruling, the CA departed from jurisprudence in
that such was not the theory of the parties. Petitioner, however, forgets that
it was he who invoked Article 1448 of the Civil Code to claim the
existence of an implied trust. But Article 1448 itself, in providing for the so-
called purchase money resulting trust, also provides the parameters of such
trust and adds, in the same breath, the proviso: "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."
Stated otherwise, the outcome is the necessary consequence of petitioner’s
theory and argument and is inextricably linked to it by the law itself.
The CA, therefore, did not err in simply applying the law. Article 1448 of the
Civil Code is clear. If the person to whom the title is conveyed is the child
of the one paying the price of the sale, and in this case this is undisputed,
NO TRUST IS IMPLIED BY LAW. The law, instead, disputably presumes
a donation in favor of the child.
On the question of whether or not petitioner intended a donation, the CA
found that petitioner failed to prove the contrary. This is a factual finding
which this Court sees no reason the record to reverse.
The net effect of all the foregoing is that respondent is obliged to collate into
the mass of the estate of petitioner, in the event of his death, the EDSA
property as an advance of Alexander’s share in the estate of his father, to the
extent that petitioner provided a part of its purchase price.
The Meridien Condominium and the Wack-Wack property.
Petitioner would have this Court overturn the finding of the CA that as regards
the Meridien Condominium and the Wack-Wack property, petitioner failed to
show that the money used to purchase the same came from him.
Again, this is clearly a factual finding and petitioner has advanced no
convincing argument for this Court to alter the findings reached by the
CA.
The appellate court reached its findings by a thorough and painstaking review
of the records and has supported its conclusions point by point, providing
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From the Lectures of: Atty. Raymund Christian S. Ong-Abrantes, CPA
citations from the records. This Court is not inclined to reverse the same.
Among the facts cited by the CA are the sources of income of Alexander Ty
who had been working for nine years when he purchased these two properties,
who had a car care business, and was actively engaged in the business
dealings of several family corporations, from which he received emoluments
and other benefits.
The CA, therefore, ruled that with respect to the Meridien Condominium
and the Wack-Wack property, no implied trust was created because there
was no showing that part of the purchase price was paid by petitioner
and, on the contrary, the evidence showed that Alexander Ty had the means
to pay for the same.
What do you call that kind of trust under the first sentence in Article 1448?
Purchase Money Resulting Trust - precisely because somebody else paid the
property and somebody took it for title
Quantum of proof required to prove an implied trust?
(1.) Clear and Satisfactory (2.) trustworthy and sufficiently strong
Exception of Article 1448 is that if it is given to a child no trust is implied by law
it being disputably presumed that there is a gift in favor of the child.
But please take note that this can be overturned by evidence saying that the
child is capable of buying that for himself so there can be no trust in that case.
TIGNO vs CA
G.R. No. 110115
(Case Digest: Earvin Alparaque)
BACKGROUND OF THE CASE:
The present case stems from the right of ownership over three parcels of land.
Eduardo Tigno bought the said properties but his brother Rodolfo was named
vendee in the Deed of Sale in order for the latter to develop said properties
and derive income from them. Eduardo is forced to file an action for
reconveyance because his brother sold a portion of the properties without his
consent.
FACTS:
Sometime in January, 1980, Bienvenido Sison, Remedios Sison and the heirs
of Isaac Sison, namely: Manuel Sison, Gerardo Sison and Adelaida Sison
appointed Dominador Cruz as agent to sell three parcels of land (two parcels
of fishpond with an area of 3006.67 sqm. and 3006.66 sqm. respectively and
a parcel of unirrigated riceland with an area of 3006.66 sqm.), adjoining each
other located at Padilla St., Lingayen, Pangasinan.
Sometime in April 1980, Rodolfo Tigno learned that the subject properties
were for sale. Accordingly, he approached Cruz and told the latter to offer
these parcels of land to his brother, Eduardo Tigno who subsequently bought
the properties.
Thereafter, a Deed of Sale was executed and Rodolfo was named as vendee
in order to enable him to mortgage these properties at PNB for the funds
needed for the development of these parcels of land. On April 29, 1989,
Rodolfo Tigno, without the knowledge and consent of his brother, sold to
Spouses Edualino Casipit and Avelina Casipit, 508.56 square meters of the
land previously owned by Bienvenido Sison. At the time of sale, the Casipits
were aware that the portion of the land they bought was owned by Eduardo.
There being a violation of trust and confidence by defendant Rodolfo,
plaintiff demanded from said defendants the reconveyance of said lands, the
surrender of the possession thereof to him and the cancellation of the Deed of
Sale of said portion of 508.56 square meters, but all the demands were
unjustifiably refused.
On May 24, 1989, the plaintiff filed a complaint for Reconveyance, Annulment
of Document, Recovery of Possession and Damages against Rodolfo and
defendant spouses. The complaint alleged, among others, that plaintiff
purchased the three parcels of land in question so that his brother Rodolfo
Tigno, who was then jobless, could have a source of income as a caretaker of
the fishponds; that plaintiff and Rodolfo agreed that the latter would secure a
loan from the Philippine National Bank at Lingayen using said lands as
collateral; that considering the busy schedule of plaintiff, then as executive
vice-president of an American firm based in Makati, Metro Manila, it was made
to appear in the deeds of sale that Rodolfo M. Tigno was the vendee so that
the latter could, as he actually did, secure a loan from the PNB without need
of plaintiff's signature and personal presence, the loan proceeds to be used as
seed capital for the fishponds; that there being trust and confidence as
brothers between plaintiff and defendant, the former instructed the Notary
Public, who prepared the Deeds of Sale, to put in said Deeds the name of
Rodolfo as vendee.
Defendants denied the material allegations of the complaint and alleged, by
way of special and affirmative defense, that Rodolf became the absolute and
exclusive owner of the parcels of land having purchased the same after
complying with all legal requirements for a valid transfer and that in selling a
portion thereof to his co-defendants, he was merely exercising his right to
dispose as owner; and that defendant spouses Casipit acquired the portion of
508.56 square meters in good faith and for value, relying upon the validity of
the vendor's ownership.
ISSUE:
Whether or not there exists an implied trust between Rodolfo and Eduardo-
YES, Resulting trust
RULING:
Discussion about express and implied trusts
Implied trusts are those which are deducible by operation of law from the
nature of the transaction as matters of equity, independently of the particular
intention of the parties. An implied trust arises where a person purchases
land with his own money and takes conveyance thereof in the name of
another. In such a case, the property is held on resulting trust in favor of the
one furnishing the consideration for the transfer, unless a different intention or
understanding appears. The trust which results under such circumstances
does not arise from a contract or an agreement of the parties, but from the
facts and circumstances; that is to say, the trust results because of equity
and it arises by implication or operation of law. The species of implied trust
raised by private respondent was extensively discussed by the Court
in Morales, et al. vs. Court of Appeals, et al.:
A trust is the legal relationship between one person having an equitable
ownership in property and another person 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. The characteristics of a trust are:
1. It is a relationship;
2. It is a relationship of fiduciary character;
3. It is a relationship with respect to property, not one involving merely personal
duties;
4. 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
5. It arises as a result of a manifestation of intention to create the relationship.
Trusts are either express or implied. Express trusts are created by the
intention of the trustor or of the parties, while implied trusts come into being by
operation of law. In turn, implied trusts are either resulting or 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 or circumstances of the consideration involved in a transaction
whereby one person thereby becomes invested with legal title but is obligated
in equity to hold his legal title for the benefit of another. On the other hand,
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.
A resulting trust is exemplified by Article 1448 of the Civil Code, which
reads:
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
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From the Lectures of: Atty. Raymund Christian S. Ong-Abrantes, CPA
is implied by law, it being disputably presumed that there is a gift in favor of
the child.
The trust created under the first sentence of Article 1448 is sometimes referred
to as a purchase money resulting trust. The trust is created in order to
effectuate what the law presumes to have been the intention of the parties in
the circumstances that the person to whom the land was conveyed holds it as
trustee for the person who supplied the purchase money.
To give rise to a purchase money resulting trust, it is essential that there
be:
1. An actual payment of money, property or services, or an equivalent,
constituting valuable consideration;
2. The consideration must be furnished by the alleged beneficiary of a resulting
trust.
There are recognized exceptions to the establishment of an implied
resulting trust. The first is stated in the last part of Article 1448 itself.
Thus, where A pays the purchase money and title is conveyed by absolute
deed to A's child or to a person to whom A stands in loco parentis and who
makes no express promise, a trust does not result, the presumption being
that a gift was intended. Another exception is, of course, that in which
an actual contrary intention is proved. Also where the purchase is made
in violation of an existing statute and in evasion of its express provision,
no trust can result in favor of the party who is guilty of the fraud.
As a rule, 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. While implied trusts may be proved
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.
Ruling of the Court regarding the existence of an implied trust
Petitioners deny that an implied trust was constituted between the brothers
Rodolfo and Eduardo. They contend that, contrary to the findings of
Respondent Court, the documents showing the receipt of the balance of the
purchase price of the parcels of land were fully authenticated by Dominador
Cruz, an instrumental witness. But these documents are proof merely of
the receipt of money by the seller; they do not show that Rodolfo paid
the balance of the purchase price. On the other hand, Dominador Cruz
was unshakable in testifying that Private Respondent Eduardo, though
not named in the receipts or in the deeds of sale, was definitely the real
buyer.
Aside from the "trust and confidence" reposed in him by his brother, Petitioner
Rodolfo was named as vendee in the deeds of sale to facilitate the loan and
mortgage the brothers were applying for to rehabilitate the fishponds. Be it
remembered that private respondent was a Makati-based business executive
who had no time to follow up the loan application at the PNB branch in
Lingayen, Pangasinan and, at the same time, to tend the fish farm on a daily
basis. Atty. Modesto Manuel, who prepared and notarized the deeds of sale,
unhesitatingly affirmed the unwritten agreement between the two brothers.
From the foregoing, it is clear that the name of Rodolfo Tigno appeared
in the deeds of sale not for the purpose of transferring ownership to him
but only to enable him to hold the property in trust for his brother, herein
private respondent.
The trial court's conclusion that defendant-appellee is the true buyer and
owner of the lands in question, mainly relying on the Deeds of Sale where
defendant Rodolfo's name appears as vendee, and on the Tax Declarations
and Tax payment receipts in his name, must inevitably yield to the clear and
positive evidence of plaintiff. Firstly, as has thus been fully established, the
only reason why defendant Rodolfo was made to appear as the buyer in
the Deeds of Sale was to facilitate their mortgage with the PNB Branch
at Lingayen to generate seed capital for the fishponds, out of which
Rodolfo could derive income. With Rodolfo's name as vendee, there
would be no need anymore for the personal presence of plaintiff-
appellant who was very busy with his work in Manila. Moreover, aside
from the fact that plaintiff was to travel abroad for thirty (30) days sometime in
June, 1980, he could not have executed a Special Power of Attorney in favor
of Rodolfo, as the Deeds of Sale were not yet prepared on May 2, 1980. Thus,
to enable Rodolfo to mortgage the lands, his name was put as vendee in view
of the mutual trust and confidence existing between said parties who are
brothers. Secondly, it is well-settled that the tax declarations or the
payments of real estate taxes on the land are not conclusive evidence of
ownership of the declarant or payor. Since defendant Rodolfo is named as
vendee in the Deeds of Sale, it is only natural that Tax Declarations and the
corresponding tax payment receipts be in his name so as to effect payment
thereof.
Petitioners contend that there was no fiduciary relationship created between
the brothers Tigno. Petitioners argue that Rodolfo Tigno had exercised all the
acts of dominion and ownership over the fishponds in question, as nobody
shared in the produce of the fishponds for the past nine years. Therefore,
Rodolfo, being the real purchaser of the parcels of land, could validly transfer
the ownership of a portion to Spouses Casipit.
We firmly reject these contentions and need only to cite Respondent Court's
incisive findings:
After a careful examination of the evidence on record, we hold that an implied
trust was created in favor of Eduardo within the meaning of Article 1448 of the
Civil Code.
It is also the rule that an implied trust arises where a person purchases
land with his own money and takes a conveyance thereof in the name of
another. In such a case, the property is held on a resulting trust in favor
of the one furnishing the consideration for the transfer, unless a different
intention or understanding appears. The trust which results under such
circumstances does not arise from contract or agreement on the parties, but
from the facts and circumstances, that is to say, it results because of equity
and arises by implication or operation of law.
On the other hand, the record is replete with clear and convincing evidence to
show that (1) plaintiff Eduardo Tigno is the real buyer and true owner of the
lands in question and (2) defendant Rodolfo M. Tigno is merely a trustee
constituted over said lands on behalf of plaintiff.
It was established thru plaintiff's testimony that plaintiff paid P5,000.00 each,
as first installment, to the three vendors for a total of P15,000.00 which was
witnessed by Dominador Cruz and Atty. Manuel. Later, he gave a check to
Dominador Cruz, the agent, in the amount of P26,000.00, representing the
following:
a) P15,000.00 as the balance for the three (3) parcels of land;
b) P6,000.00 representing Cruz's commission as agent;
c) P5,000.00 for capital gains tax, registration and other incidental expenses.
On the other hand, Petitioner Rodolfo, although in possession of the deeds of
sale in his name, failed to present a single witness to corroborate his claim
that he bought the property partly with his own money and partly with the
money he allegedly borrowed from a certain Jose Manaoat.
From the foregoing, it is ineludible that Article 1448 of the Civil Code
finds application in this case. Although the deeds of sale were in the
name of Petitioner Rodolfo, the purchase price was paid by private
respondent who was the real owner of the property. Petitioner Rodolfo
is the trustee, and private respondent is the beneficiary.
Exceptions to the establishment of an implied resulting trust
1. Donation to the Child
2. Actual contrary intention is proved
3. When it is against an existing statute and in evasion of its express provision
HUANG VS CA
G.R. No. 108525
(Case Digest: Eliza Devilleres)
FACTS:
 Dolores Sandoval bought two (2) lots in Dasmariñas Village, Lot 20 and
21. Lot 21 was registered in her name; however, Lot 20 was registered
in her brother’s name, Petitioner Ricardo Huang. This was because the
spouses Milagros and Ricardo Huang advised Dolores that the
subdivision owner forbade the acquisition of two (2) lots by a single
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individual.
 Dolores constructed a residential house in Lot 21 and Ricardo asked
Dolores’ permission to construct a small residential house in Lot 20.
 She agreed and she also allowed Ricardo to mortgage Lot 20 to the
Social Security System (SSS) to secure payment for his loan for putting
up the said house.
 Despite the loan, Dolores actually financed the construction of the
house, the swimming pool and the fence in Lot 20 knowing that the
Huang Spouses merely holds title in trust for her beneficial interest.
 Dolores requested the Huangs to execute a Deed of Absolute Sale with
Assumption of Mortgage of Lot 20 with all its improvements in favor of
her to protect her rights, and they obliged.
 The Huangs then leased the house, years after the execution of Deed
of Sale, to Deltron-Sprague Electronics Corporation without Dolores’
permission.
 She tolerated it but challenges to her ownership arise when Deltron
started prohibiting Dolores’ family from using the swimming pool.
 HUANG’S CONTENTION: The implied trust among them was not
supported by evidence and that they were the rightful owner of Lot 20
and all of its improvements.
ISSUE: W/N an implied trust existed between Dolores and the Huangs, and
was supported by any evidence.
HELD: YES.
TRUSTS; IMPLIED TRUST ESTABLISHED IN CASE AT BAR
The pertinent law is Art. 1448 of the New Civil Code which provides 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. A resulting trust arises because of the presumption
that he who pays for a thing intends a beneficial interest therein for himself. In
the present case, Dolores provided the money for the purchase of Lot 20 but
the corresponding deed of sale and transfer certificate of title were placed in
the name of Ricardo Huang because she was advised that the subdivision
owner prohibited the acquisition of two (2) lots by a single individual. Guided
by the foregoing definitions, we are in conformity with the common
finding of the trial court and respondent court that a resulting trust was created.
Ricardo became the trustee of Lot 20 and its improvements for the
benefit of Dolores as owner.
ACTION TO COMPEL TRUSTEE TO CONVEY PROPERTY TO
THE CESTUI QUE TRUST DOES NOT PRESCRIBE; EXCEPTION.
Petitioners raise the issue of prescription. But the action to compel the trustee
to convey the property registered in his name for the benefit of the cestui que
trust does not prescribe. If at all, it is only when the trustee repudiates the trust
that the period of prescription commences to run.
TEN (10) YEAR PRESCRIPTIVE PERIOD STARTS FROM
REPUDIATION OF THE TRUST
The prescriptive period is ten (10) years from the repudiation of the trust. It is
ten (10) years because just as a resulting trust is an offspring of the law, so is
the corresponding obligation to convey the property and the title thereto to the
true owner. In this context, and vis-a-vis prescription, Art. 1144 of the New
Civil Code, which is the law applicable, provides: "The following actions must
be brought within ten years from the time the right of action accrues: (a) Upon
a written contract; (b) Upon an obligation created by law; (c) Upon a judgment."
Thus, the reckoning point is repudiation of the trust by the trustee because
from that moment his possession becomes adverse, which in the present case
gave rise to a cause of action by Dolores against the Huang spouses.
NECESSITY OF UNEQUIVOCAL ACTS OF OUSTER OF THE CESTUI QUE
TRUST
Before the periodof prescription may start, it must be shown that: (a) the
trustee has performed unequivocal acts of repudiation amounting to an
ouster of the cestui que trust; (b) such positive acts of repudiation have been
made known to the cestui que trust; and, (c) the evidence thereon is clear and
conclusive. In Laguna v. Levantino and Valdez v. Olorga, we held that acts
which may be adverse to strangers may not be sufficiently adverse to
the cestui que trust. A mere silent possession of the trustee unaccompanied
by acts amounting to an ouster of the cestui que trustcannot be construed as
an adverse possession. Mere perception of rents and profits by the trustee,
and erecting fences and buildings adapted for the cultivation of the land held
in trust, are not equivalent to unequivocal acts of ouster of the cestui que trust.
IN THE CASE AT BAR
We agree with the trial court that the action filed by Dolores has not prescribed.
Firstly, Ricardo has not performed any unequivocal act of repudiation
amounting to an ouster of Dolores. The only acts which may be considered as
indicative of his intention not to respect the trust anymore were his leasing the
house without the prior knowledge of Dolores; his refusal to carry out the
demand of Dolores that he must ask the lessees to vacate the house; and, his
refusal to give the necessary papers to Dolores to enable her to get the title
from the SSS. Secondly, the foregoing acts are not positive acts of repudiation;
and, thirdly, the evidence on such acts is unclear and inconclusive. But even
if the foregoing acts were manifest acts of repudiation made known to Dolores,
the fact remains that they were done at the earliest only on 15 March 1980
when Ricardo leased Lot 20 and its improvements to Deltron. Dolores'
complaint before the trial court was filed on 19 February 1981, or within the
10-year prescriptive period.
PRESCRIPTION; TEN (10) YEAR PRESCRIPTIVE PERIOD FROM
ISSUANCE OF TITLE NOT APPLICABLE TO CASE AT BAR
Petitioners are of the mistaken notion that the 10-year prescriptive period is
counted from the date of issuance of the Torrens certificate of title. This rule
applies only to the remedy of reconveyance which has its basis on Sec. 53,
par. 3, P.D. No. 1529, otherwise known as the Property Registration Decree,
and Art. 1456 of the Civil Code. Reconveyance is available in
caseof registration of property procured by fraud thereby creating
a constructive trust between the parties, a situation which does not obtain in
this case.
||| (Spouses Huang v. Court of Appeals, G.R. No. 108525, [September 13,
1994])
Quantum of Proof Required for Repudiation: Clear and Conclusive
RAMOS VS CA
G.R. No. 108121
(Case Digest: Eliza Devilleres)
FACTS:
 On or about November 26, 1974, Herminio, together with Herminia,
executed in Lydia's favor an irrevocable special power of attorney, in
sum empowering Lydia to sell, mortgage, or lease the subject property
and to dispose of the proceeds thereof in any manner she wants. Said
special power of attorney was executed upon the advice of a realty
expert, one Isidro Gonzales, as a practical means of giving
assurance to Lydia that Herminio, together with his spouse
Herminia, was in good faith and recognized the existing implied
trust relationship between them over the subject land, particularly
in view of the restriction annotated on the title certificate in sum to
the effect that within one year from said certificate's issuance no
transfer or alienation of the property shall be made without the
PHHC's written consent.
 RTC issued an order cancelling and declaring null and void "the owner's
duplicate copy of Transfer Certificate of Title No. 204173 that was lost"
and ordering the ROD to issue another owner's duplicate copy. Said
Order was issued upon Herminia's petition, in sum claiming that the
original owner's duplicate copy was lost and missing.
 After learning of the order of the RTC, Lydia filed the herein petition
praying that the order of the RTC be declared null and void and without
legal effect and that the new owner's duplicate copy issued and
delivered to Herminia be cancelled, on the ground that Herminia
secured such new owner's duplicate copy thru fraud and
misrepresentation because she well knew that the supposedly "lost"
owner's duplicate copy was in Lydia's possession and custody.
 Sometimes later, after having verified that Herminio had passed away
in the early part of 1985 and that Herminia and his successors-in-
interest were disputing the ownership of the subject property and
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From the Lectures of: Atty. Raymund Christian S. Ong-Abrantes, CPA
building thereon, Lydia together with her spouse Hilario Celestino filed
the complaint herein.
HERMINIA AND HERMINIO RAMOS’ CONTENTIONS: No trust was
established in this case because －
(1) there is a restriction expressly imposed by the PHHC in the sale of the land
to Herminio Ramos, to wit:
Within a period of one year from the issuance of TCT by virtue of this deed no
transfer or alienation whatsoever of the property subject thereof whether in
whole or in part shall be made or registered w/out the written consent of the
vendor and such transfer or alienation may be made only in favor of person
qualified to acquire land under the laws of the Philippines. 20
and (2) even assuming arguendo that Herminio Ramos sold his rights over the
lot, the sale was null and void for being contrary to the public policy of awarding
PHHC lots to Central Bank employees who are not residential landowners.
Private respondent Lydia Celestino, Herminio's vendee, was disqualified to
acquire any PHHC lot because she already owned a residential lot in Quezon
City.
ISSUE: W/N an implied trust exists in this case.
HELD: No.
TRUST; RULE IF PROVISIONS IN THE TERMS THEREOF BE AGAINST
PUBLIC POLICY
The inevitable conclusion then is that Lydia Celestino, knowing of her
disqualification to acquire a lot from the PHHC at the subdivision reserved for
qualified Central Bank employees, tried to get one through the backdoor.
Otherwise stated, she wanted to get indirectly that which she could not do so
directly. Having acted with evident bad faith, she did not come to court with
clean hands when she asked for the reconveyance of the property on the basis
of a resulting trust under Article 1448 of the Civil Code.
A resulting trust is an "intent-enforcing" trust, based on a finding by the court
that in view of the relationship of the parties their acts express an intent to
have a trust, even though they did not use language to that effect. The trust is
said to result in law from the acts of the parties. However, if the purpose of the
payor of the consideration in having title placed in the name of another was to
evade some rule of the common or statute law, the courts will not assist the
payor in achieving his improper purpose by enforcing a resulting trust for him
in accordance with the "clean hands" doctrine. The court generally refuses to
give aid to claims from rights arising out of an illegal transaction, such as where
the payor could not lawfully take title to land in his own name and he used the
grantee as a mere dummy to hold for him and enable him to evade the
land laws, 28 e.g., an alien who is ineligible to hold title to land, who pays for
it and has the title put in the name of a citizen.
Otherwise stated, as an exception to the law on trusts, "[a] trust or a provision
in the terms of a trust is invalid if the enforcement of the trust or provision would
be against public policy, even though its performance does not involve the
commission of a criminal or tortious act by the trustee." 29 The parties must
necessarily be subject to the same limitations on allowable stipulations in
ordinary contracts, i.e., their stipulations must not be contrary to law, morals,
good customs, public order, or public policy. 30 What the parties then cannot
expressly provide in their contracts for being contrary to law and public policy,
they cannot impliedly or implicitly do so in the guise of a resulting trust.
(Ramos v. Court of Appeals, G.R. No. 108121, [May 10, 1994])
SC said that resulting trust is an "intent-enforcing" trust meaning there is intent
by the acts of the parties although not expressly agreed. The trust is said to
result in law from the acts of the parties. But again the consideration is equity
it cannot be made to circumvent the law.
Again as I told you last meeting, here we have a gray area between express
trust and resulting trust because in Express trust, dba no words are required
to establish an express trust, so any other scenario or document or even verbal
can establish an express trust. Now, we have a resulting trust which says that
it is "intent-enforcing". So it becomes gray. Based on jurisprudence the SC
would always tilt in favor of equity. So which decision would make it more
equitable under the circumstances, Yun ang efollow nila.
DE LOS SANTOS VS REYES
G.R. No 45027
(Case Digest: Eliza Devilleres)
FACTS:
 Delos Santos wants to dispute the finding of the CA in this case which
held:
There is no question of trust involved under the proven facts of the case, as
appellant raises in his third assignment of error. The court a quo made no
finding as to the existence or non-existence of one. As cited by appellant
himself, Article 1448, New Civil Code, provides:
There is an implied trust when property is sold, and the legal estate is granted
to one party but the practice 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. (Emphasis supplied).
The disputable presumption of a gift as created in the aforequoted provision
has been amply overcome by the evidence of appellee Reyes, as already
demonstrated. If it was a gift, the land should have been taken possession of
by appellant at least after he married his wife as the supposed beneficiary.
They then should have enjoyed also the fruits, and also paid for the tax. No
evidence, however, of such payment was presented. To all appearances,
appellant knew as a fact that his wife never was the owner of the land, not
even as a gift under the legal provision he cited. Otherwise, it should not have
taken him almost seven long years to assert ownership with the filing of the
present action. That this action is a mere afterthought, stirred by a legal mind
with a gambling instinct is not just a mild surmise, considering how long it took
the appellant to file it in court and its contingent nature. It may be well to
remember, however, that lawsuits are not won by chance, as by the turn of the
dice, or how the cards fall on the gambling table — not while the courts sit,
anyway.
 CONTENTION OF DELOS SANTOS: An express trust over an
immovable was created when it was made to appear that the land in
question was sold to and registered in the name of Faustino Reyes'
daughter, Virginia — wife of petitioner — to conform with the limitation
imposed by the vendor that no vendee could purchase from the former
more than two lots. Consequently, pursuant to Article 1444 of the Civil
Code, such a trust cannot be proved by parol evidence.
ISSUE: W/N there was an express trust in this case.
HELD: NO.
IMPLIED TRUST DEFINITION; SCOPE
If his assumption is correct, Article 1444 is applicable and both the trial court
and the respondent Court then erred in admitting the oral testimony of Faustino
Reyes concerning the facts surrounding the "sale" of the lot in favor of Virginia.
Unfortunately, the assumption is wrong. There is neither an express nor
implied trust in this case. The applicable provision of the Civil Code, as
correctly pointed out by respondent Court, is Article 1448 which provides as
follows:
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. (Emphasis supplied).
Accordingly, testimonial evidence, such as that offered by Faustino Reyes,
that the land was not given as a gift to Virginia, was properly allowed to rebut
the disputable presumption established in the foregoing article.
Ang sabi ng Supreme Court the testimonial evidence rebutted the disputable
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From the Lectures of: Atty. Raymund Christian S. Ong-Abrantes, CPA
presumption na kapag binigay sa child it is a donation. Remember the
exceptions on the establishment of an implied trust, if it is the donation to the
child, against public policy and contrary intention to that effect. So this is a
contrary intention to that effect. So sabi ng Supreme Court, there can neither
be express nor implied trust.
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 a donee,
he nevertheless is either to have no beneficial interest or only apart thereof.
This is an implied resulting trust. 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.
NAZARENO VS CA
G.R. No. 138842
(Case Digest: Jennifer Lim)
FACTS:
Maximino Nazareno, Sr. and Aurea Poblete were husband and wife. Aurea
died on April 15, 1970, while Maximino, Sr. died on December 18, 1980. They
had five children, namely, Natividad, Romeo, Jose, Pacifico, and Maximino,
Jr. Natividad and Maximino, Jr. are petitioners in this case, while the estate of
Maximino, Sr., Romeo, and his wife Eliza Nazareno are the respondents.
After the death of Maximino, Sr., Romeo filed an intestate case and was
appointed administrator of his father's estate. In the course of the intestate
proceedings, Romeo discovered that his parents had executed several deeds
of sale conveying a number of real properties in favor of his sister, Natividad.
One of the deeds involved six lots in Quezon City which were allegedly sold
by Maximino, Sr., with the consent of Aurea, to Natividad on January 29, 1970.
By virtue of these deeds, TCTs were issued to Natividad for lots 3-B, 3, 10,
11, 13 & 14.
Unknown to Romeo, Natividad sold Lot 3-B, w/c had been occupied by
Romeo, his wife, & Maximino, Jr.,to Maximino, Jr. Romeo filed the present
case for annulment of salew/ damages against Natividad & Maximino Jr. on
the ground that both sales were void for lack of consideration-Romeo
presented the Deed of Partition &Distribution executed by Maximino Sr. &
Aurea in1962 & duly signed by all of their children, except Jose, who was then
abroad. However, this deed was not carried out.
In 1969, their parents instead offered to sell to them the lots. He testified that,
although the deeds of sale executed by his parents in their favor stated that
the sale was for a consideration, they never really paid any amount for the
supposed sale. The transfer was made in this manner in order to avoid the
payment of inheritance taxes. Allegedly, it was only Natividad who bought the
lot sin question because she was the only one financially able to do so.
The trial court rendered a decision declaring the nullity of the Deed of Sale
dated January 29, 1970,except as to Lots 3, 3-B, 13 and 14 which had passed
on to third persons. On appeal to the Court of Appeals, the decision of the trial
court was modified in the sense that titles to Lot 3 (in the name of Romeo
Nazareno) and Lot 3-B(in the name of Maximino Nazareno, Jr.), as well as to
Lots 10 and 11 were cancelled and ordered restored to the estate of Maximino
Nazareno, Sr.
ISSUE: Whether or not it was the intention of Maximino Nazareno, Sr. to give
the subject lots to Natividad.
HELD:
Yes. It cannot be denied that Maximino, Sr. intended to give the six Quezon
City lots to Natividad. As Romeo testified, their parents executed the Deed of
Sale in favor of Natividad because the latter was the only female and the only
unmarried member of the family. She was thus entrusted with the real
properties in behalf of her siblings. As she herself admitted, she intended to
convey Lots 10 and 11 to Jose in the event the latter returned from
abroad. There was thus an implied trust constituted in her favor. Art. 1449 of
the Civil Code states:
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.
There being an implied trust, the lots in question are therefore subject to
collation in accordance with Art. 1061 which states:
Every compulsory heir, who succeeds with other compulsory heirs, must bring
into the mass of the estate any property or right which he may have received
from the decedent, during the lifetime of the latter, by way of donation, or any
other gratuitous title, in order that it may be computed in the determination of
the legitime of each heir, and in the account of the partition.
As held by the trial court, the sale of Lots 13 and 14 to Ros-Alva Marketing,
Corp. on April 20, 1979 will have to be upheld for Ros-Alva Marketing is an
innocent purchaser for value which relied on the title of Natividad. The rule is
settled that every person dealing with registered land may safely rely on the
correctness of the certificate of title issued therefor and the law will in no way
oblige him to go behind the certificate to determine the condition of the
property.
Here, Natividad admitted that she held it in trust so why would it still be an
implied trust. I mean,express nayon e. Dapat express trust na’to, remember
no words is required to establish an express trust pero dito sabi ng SC it's
going to be an implied trust kc nga it falls under Article 1449
ADAZA VS CA
G.R. No. 47354
(Case Digest: Jennifer Lim)
FACTS:
In the lawful wedlock of Victor Adaza and Rosario Gonzales were born six (6)
children: petitioner Horacio, Homero, Demosthenes, respondent Violeta,
Teresita and Victor, Jr. The head of the family,Victor Adaza, Sr., died in 1956,
while the wife died in 1971.
During his lifetime, Victor Adaza, Sr.executed a Deed of Donation dated 10
June 1953, covering the parcel of land subject matter of this case located at
Sinonok, Dapitan City, Zamboanga del Norte, in favor of respondent Violeta,
then still single. The donation was accepted in the same instrument, which
both donor and donee acknowledged before Notary Public ex officio Milagros
C. Galeposo.
The land donated was then partof the public domain, being disposable public
land, and had been held and cultivated by Victor Adaza, Sr. for many years.
Violeta, with the aid of her brother Horacio, filed a homestead application
covering the land involved. Four (4) years later, petitioner Horacio invited
respondent Violeta and theother brothers and sister for a family gathering in
his house. There, Horacio asked Violeta to sign a Deed of Waiver which had
been prepared in respect of the property in Sinonok donated by theirfather
Victor Adaza, Sr.
This Deed stated that the Sinonok property was owned in common byVioleta
and her brother Horacio G. Adaza, even though the certificate of title had been
issued in her name only. The Deed also provided for the waiver, transfer and
conveyance by Violeta in favor of Horacio of one-half (1/2) of the Sinonok
property, together with all improvements existing in that one-half (1/2) portion.
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Violeta signed this Deed of Waiver: the Deed was also signed by petitioner
Horacio and Homero Adaza as witnesses
ISSUE: Whether or not there was an implied trust in favor of Horacio.
HELD:
Yes. Violeta had admitted in the Deed of Waiver, that is, that the "property
[here involved] is owned in common by [her] and [her] brother, Horacio G.
Adaza, although the certificate of title was issued only in [her] name." SC
believes and so hold that this statement is an admission that she held half of
the land in trust for petitioner Horacio. The execution of the Deed of Donation
of 10 June 1953 by respondent Violeta's father created an implied trust in favor
of Violeta's brother, petitioner Horacio Adaza, in respect of half of the property
donated. Article 1449 of the Civil Code is directly in point:
Art. 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.
Respondent Violeta and her husband also contended that the long delay and
inaction on the part of Horacio in taking any steps for reconveyance of the one-
half (1/2) share claimed by him, indicates lack of any color of right over the
said one-half (1/2) share. It was also argued by the two (2) that considering
that twelve (12) years had passed since OCT No. P-11111 was issued and
more than nineteen (19) years since the Deed of Donation was executed, the
counterclaim for partition and reconveyance of Horacio's alleged one-half
share was barred by laches, if not by prescription.
In determining whether delay in seeking to enforce a right constitutes laches,
the existence of a confidential relationship based upon, for instance,
consanguinity, is an important circumstance for consideration. Delay in a
situation where such circumstance exists, should not be as strictly construed
as where the parties are complete strangers vis-a-vis each other. The doctrine
of laches is not to be applied mechanically as between near relatives; the fact
that the parties in the instant case are brother and sister tends to explain and
excuse what would otherwise appears as long delay.
Moreover, continued recognition of the existence of the trust precludes the
defense of laches. The two (2) letters noted above sent by respondent Violeta
to petitioner Horacio, one in 1969 and the other in 1971, show that Violeta as
late as 1971 had recognized the trust imposed on her by law. Conversely,
Horacio's reliance upon his blood relationship with his sister and the trust and
confidence normally connoted in our culture by that relationship, should not be
taken against him. Petitioners' counter-claim in the trial court for partition and
reconveyance cannot be regarded as barred whether by laches or by
prescription.
Take note, dito may papel, may Deed of Waiver, expressly admitting that she
holds this in trust for Horacio. So bakit hindi parin xa Express Trust?
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 pay or
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 it is paid. The latter may
redeem the property and compel a conveyance thereof to him
In the case of PNB vs. CA, it held that this is a resulting trust. However, in the
case of Lopez vs.CA, it said that this is a constructive trust. But Legal ___
would appreciate this provision as a resulting trust based again on who has
the beneficial title.
NAKPIL VS IAC G.R. No. 74449 (Case Digest: Jennifer Lim)
FACTS:
Carlos Valdes acquired title over a Baguio summer residence named Pulong
Maulap but this was actually in behalf of Jose Nakpil who arranged that while
he does not have the money to pay Valdes the title remains under Valdes’
name, thereby creating a trust.
The property cost P150k, P75k of which was paid by Valdes. Valdes borrowed
P75k from First United Bank to pay off the remainder of the balance and
another P65k for the residence’s maintenance. After Nakpil died, Valdes
denied the existence of a trust relationship and he claims that the property is
his. Imelda Nakpil, widow of Jose, assailed this. Valdes however agreed that
Imelda and her co-heirs can stay in the property under a usufruct, free from
any encumbrance, for 5 years. And in a letter sent to Imelda, should they fail
to reimburse Valdes for his advances, the property is considered sold to him.
Valdes denied that there is a pactum commissorium existing because he said
there is no creditor-debtor relationship between him and Imelda; and that there
is no trust relationship between him and the deceased Nakpil.
ISSUE/S:
Whether Art. 1450 of the Civil Code applies
Whether petitioner can still compel reconveyance of Pulong Maulap from
respondent Valdes.
HELD:
-Yes. Implied trusts, which may either be resulting or constructive, are those
which, without being express, are deducible from the nature of the transaction
as matters of intent, or which are super induced on the transaction by
operation of law as matter of equity, independently of the particular intention
of the parties. Article 1450, which petitioner invokes in the case at bar, is an
illustration of an implied trust which is constructive.
Article 1450 presupposes a situation where a person, using his own funds,
purchases a certain piece of land in behalf of another who, in the meantime,
may not have sufficient funds to purchase the land. The property is then
transferred in the name of the trustee, the person who paid for the land, until
he is reimbursed by the beneficiary, the person for whom the land is
purchased. It is only after the beneficiary reimburses the trustee of the
purchase price that the former can compel conveyance of the purchased
property from the latter.
From the evidence adduced, it may be concluded that respondent Valdes,
using his own funds, purchased Pulong Maulap in behalf of the late Nakpil.
This is based on the letters to petitioner of Valdes where he categorically
admitted that "[b]oth of these loans, while in my (respondent Valdes) name,
were obtained by Pinggoy (the late Nakpil) for his person, and that the
"P75,000.00 initially advanced for the Moran property still remains unpaid. 11
It is evident from these letters that while the balance of P75,000.00 on the
mortgage of the vendors with PNB was liquidated from the proceeds of a loan
respondent obtained from FUB, such loan was actually secured by the late
Nakpil by merely using Valdes' name. Such is also the case with respect to
another FUB loan amounting to P65,000.00, the proceeds of which were used
to finance the repair and renovation of Pulong Maulap. And, while the
downpayment of P50,000.00 and the partial payment of P25,000.00 to PNB
came from the personal funds of Valdes, he considered them as advances to
the late Nakpil. Otherwise, Valdes would never have deemed the amount as
"unpaid" in his letter to petitioner of 17 September 1974.
The letter of Valdes to the City Treasurer of Baguio made while remitting
payment of real estate taxes is also enlightening. It provided therein that the
payment being tendered was "[o]n behalf" of the Nakpil's, which is an express
recognition of the implied trust.
However, petitioner cannot as yet redeem and compel conveyance of the
property. For, Valdes must still be reimbursed for the advances he made on
the disputed property, such reimbursement being a conditio sine qua non for
compelling conveyance under Art. 1450.
The period within which to compel conveyance of Pulong Maulap is not
imprescriptible. The rule is well-settled that an action for reconveyance based
on an implied or constructive trust prescribes in ten (10) years. But, in the
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case before the Court, petitioner could still compel conveyance of the disputed
property from respondent provided the former reimburses the latter for all his
expenses.
After all, Valdes never repudiated the constructive trust during the lifetime of
the late Jose Nakpil. On the contrary, he expressly recognized it. The
prescriptive period therefore did not begin to run until after he repudiated the
trust. And such repudiation came when Valdes excluded Pulong Maulap from
the list of properties of the late Jose Nakpil submitted to the intestate court in
1973. Even then, the present action for conveyance was filed in 1979 or well
within the ten-year period.
Now what happens if hindi nakabayad si beneficiary?
You will file a collection suit or foreclose the property. It is improper to
appropriate immediately because it is pactum commissorium.
What happens in Foreclosure, magkakaroon ng execution sale, there will be
a public bidding in effect that is not pactum commissorium because there is
no automatic appropriation. That is the distinction between pactum
commissorium and obtaining the property in a foreclosure proceeding.
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.
This is a resulting trust. Please take note that the law speaks of the inherited
land, so this would only apply kapag land xa.
ANCOG VS CA
G.R. No. 112260
(Case Digest: Lilybeth Petallo)
FACTS:
A parcel of land used to be the conjugal property of Gregorio Yap and Rosario
Diez. The former died leaving as heirs his wife and children. Thereafter,
Rosario (respondent) applied for a loan to be secured by the subject land as
mortgage. To facilitate the loan, she executed an extrajudicial settlement of
the property, signed by the heirs except Gregorio Jr. (petitioner), then a
minor. The title was cancelled and a new one was issued in Rosario’s name.
Since then, Rosario exercised the rights of ownership over the property. Later,
she planned to sell the land.
In learning this, Jovita (her daughter) informed her younger brother Gregorio
Jr. of their mother’s plan to sell the land. So, petitioner-siblings filed an action
for partition against Rosario, alleging that in signing the extrajudicial
instrument, they did not really intend to convey their interests in the
property to their mother, but only to enable her to obtain a loan on the
security of the land to cover expenses for their sister Caridad’s school
fees and for household repairs.
TC dismissed the case, and upheld the validity of the EJS. CA affirmed. Both
ruled that Gregorio Jr. was barred by laches. Hence, the petition.
ISSUE: (R/T trust issue)
A. WON an implied trust was created in Gregorio Jr.’s favor when the land
was registered in the name of Rosario Diez. (YES)
B. If so, WON Gregorio Jr. was barred by laches, considering that he was
still a minor at the time the EJS was executed. (NO)
HELD: An implied trust was created. And Gregorio Jr. was not barred by
laches.
**EJS WAS UPHELD TO BE VALID. ONLY ERROR WAS ON THE ISSUE ON LACHES**
AN IMPLIED TRUST WAS CREATED.
At the time the extrajudicial settlement was executed, Gregorio Jr., was a
minor. For this reason, he was not included or informed of the partition. As he
did not take part in the partition, he is not bound by the settlement. Instead,
the registration of the land in Rosario Diez’s name created an implied
trust in his favor by analogy to Art. 1451 of the Civil Code, which provides:
ART. 1451, NCC. 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.
Art. 1451 was held as creating a resulting trust, which is founded on the
presumed intention of the parties, as determined from the facts and circumstances existing at
the time of the transaction out of which it is sought to be established.
In this case, the records disclose that the intention of the parties to the
extrajudicial settlement was to establish a trust in favor of petitioner Yap,
Jr. to the extent of his share. Rosario testified that she did not claim the
entire property, while Atty. de la Serna added that the partition only involved
the shares of the three participants.
HE IS NOT BARRED BY LACHES.
A cestui que trust may make a claim under a resulting trust within 10
years from the time the trust is repudiated.
Although the registration of the land in private respondent Diez’s name
operated as a constructive notice of her claim of ownership, it cannot be
taken as an act of repudiation adverse to petitioner Gregorio Yap, Jr.’s
claim, whose share in the property was precisely not included by the
parties in the partition. Indeed, it has not been shown whether he had been informed of her exclusive
claim over the entire property before 1985 when he was notified by petitioner Jovita Yap Ancog of their mother’s plan
to sell the property.
For prescription to run in favor of the trustee, the trust must be
repudiated by unequivocal acts made known to the cestui que trust and
proved by clear and conclusive evidence. Furthermore, the rule that the
prescriptive period should be counted from the date of the issuance of the
Torrens certificate of title applies only to the remedy of reconveyance of
property under the Property Registration Decree. Since the action brought by
petitioner Yap to claim his share was brought shortly after he was informed by
Jovita Ancog of their mother’s effort to sell the property, Gregorio Yap, Jr.’s
claim cannot be considered barred either by prescription or by laches.
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.
This is an implied resulting trust. There must be 2 or more persons who jointly
purchase the property.
In heirs of ___ franco vs. CA, Article1452 presupposes an inference of 2
requisites before a trust can be credited:
1. 2 or more persons agree to purchase the property
2. They consent that one should take the title in his name for everyone's
benefit.
Please connect this with your law on co-ownership, so even if the title is given
to one, there is still co-ownership.
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.
Please take note that this is one of the examples that the law enforces the
intention of the parties. It is 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.
So again, this is founded upon equity, particularly on the faith of the agreement
or understanding, the grantee is enabled to gain an advantage in the purchase
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of the property or where the consideration or part thereof has been furnished
by or for another.
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.
Please take note, that it's an Absolute Conveyance so the property is given to
you in order to secure the performance of the grantor.
This is a akin to a sale with a right to repurchase except that the right is stated
in the document, pag sale with a right to repurchase ka, necessarily nakalagay
yan sa agreement pero ito wala.
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.
Soano ba’yongmay fiduciary relationship? dba in relation to our discussion, a
partner, what if a partner holding the funds of the partnership uses the
partnership fund for the purchase of the property and causes the conveyance
to be made to himself or to a third person. Will there be a trust? Correlate it in
favor of the person to whom the funds belong, in that case, will there be a trust
in favor of the partnership? It’s an implied trust. In PNB vs. CA, It's a resulting
trust. According to Lopez, it's a constructive trust.
Remember the premise of constructive trust is to avoid fraud or mistake, so if
ginawa yan ng the one who holds fiduciary relationship to defraud the
person with whom he has fiduciary relationship with that becomes a
constructive trust. Pero kon hinold nya yan, with the acknowledgment
na he holds it in favor of the beneficiary, there’s no fraud. So it could be
a resulting trust.
So either way, resulting or constructive, depends upon the
circumstances. In resulting, there is an intention of the parties; it is just
the law which enforces an intention.
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.
This is strictly speaking the only one which is constructive; we have the
fraud or mistakes. Kc ito there's really no intention to create a trust.
Can there be an implied trust in the absence of fraud or mistake? Yes.
BRITO VS DIANALA
G.R. 171717
(Case Digest: Lilybeth Petallo)
FACTS:
This involves a parcel of land originally owned by spouses Esteban and
Eufemia, who died leaving their children as heirs. The heirs filed a
Complaint for Recovery of said land against a certain Golez, in which a
compromise agreement was made. TCT No. T-12561 was thereafter
issued on September 28, 1990 in the name of said heirs Margarita,
Bienvenido, and Francisco. Margarita is petitioner’s wife.
Meanwhile, respondents opposed, claiming better rights over the
property. On August 19, 1999, they filed a complaint for reconveyance
and damages against the heirs (petitioner, included, as he was the
husband of one of the heirs). They claimed that said heirs acquired the
subject property by means of fraud.
PETITIONER’S CONTENTION:
Granting that fraudulent acquisition of property exists, respondents are
barred by prescription for having filed their complaint for reconveyance
only after more than 8 years from the discovery of fraud allegedly
committed by the heirs, arguing that under the law, the action prescribes
in 4years, reckoned from the discovery of fraud.
ISSUE:
A.WON an implied trust was created. (YES)
B.If so, WON the action for reconveyance has prescribed. (NOT
PRESCRIBED)
HELD: An implied trust was created when a person acquires a property
through fraud. The law thereby creates the obligation of the trustee to
reconvey the property and title to the true owner. As such, an action for
reconveyance based on implied trust may be filed within 10 years. Here,
it was filed on time, and the action has not prescribed.
A.IMPLIED TRUST WAS CREATED.
Respondents alleged in their complaint for reconveyance and damages
that petitioner and his co-heirs acquired the subject property by means
of fraud. Article 1456 of the Civil Code provides that a person acquiring
property through fraud becomes, by operation of law, a trustee of an
implied trust for the benefit of the real owner of the property. Hence, an
implied trust was created. Consequently, the law thereby creates the
obligation of the trustee to reconvey the property and the title thereto in
favor of the true owner.
B.ACTION FOR RECONVEYANCE HAS NOT PRESCRIBED.
An action for reconveyance based on an implied trust prescribes in ten
years, the reckoning point of which is the date of registration of the deed
or the date of issuance of the certificate of title over the property. (P/T
ART. 1144 (2))
In the instant case, TCT No. T-12561 was obtained by petitioner and his
co-heirs on September 28, 1990, while respondents filed their complaint
for reconveyance on August 18, 1999. Hence, it is clear that the ten-year
prescriptive period has not yet expired.
Petitioner invokes laches and estoppel on the part of respondent. The
Court found this unmeritorious. As a rule:
a. The prescriptive period applies only if there is an actual need to
reconvey the property as when the plaintiff is not in possession
thereof.
b. Otherwise, if the plaintiff is in possession of the property,
prescription does not commence to run against him. Thus, when an
action for reconveyance is nonetheless filed, it would be in the
nature of a suit for quieting of title, an action that is imprescriptible.
The reason for this is that one who is in actual possession of a piece of land claiming to be the owner
thereof may wait until his possession is disturbed or his title is attacked before taking steps to
vindicate his right, the rationale for the rule being, that his undisturbed possession provides 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 the
one who is in possession.
In the present case, respondents are in possession of the subject
property as evidenced by the fact that petitioner and his co-heirs filed a
separate action against respondents for recovery of possession thereof.
Thus, their complaint for reconveyance is, in fact, imprescriptible. As
such, respondents should not be held guilty of laches as the said
doctrine, which is one in equity, cannot be set up to resist the
enforcement of an imprescriptible legal right.
WHEREFORE, the instant petition is DENIED.
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Please take note that in express trust it’s imprescriptible unless there are
positive acts of repudiation. Pag Implied trust, ganun din
The time period to acquire the property is 10 years, as a general rule, it is
counted from the time the title is issued in the name of the one asserting an
acquisitive prescription. Kc nga registration is the operative act which affects
the properties so once registered na maging constructive notice na sya to the
whole world that you are repudiating the trust, that you are asserting adverse
ownership from it.
However, there are some cases wherein the SC said that it is from the
discovery of fraud, na even if na register sya that time, the discovery of fraud
is only this time, sometimes the SC will reckon the period from the discovery
para lang d sya mag prescribe. Now one thing in common for this decision is
that based on equitable consideration.
In the words of the SC, sabihin nila, we are not prepared to apply the the
general rule of counting from the time of registration, in other words sometimes
the SC will apply the exception other than the general rule when the
overwhelming evidence will tend to tilt it in favor of the one who has equitable
ownership.
If you are going to be asked in your bar exam or in your exam, the reckoning
period will be at the time of registration.
Now some cases previously, it would say that it is 4 years but that has been
misapplied and reiterated couple of times by jurisprudence that it is not 4 years
but rather 10 years. Reference is PD 1529, The Property Registration Act.
Now, express trust, imprescriptible unless repudiated. Implied trust, there's
repudiation which is in the form of issuance of the title in the name of the one
repudiating, so 10 years. Exception to that, it becomes imprescriptible if the
person asking for reconveyance is in possession of the property.
Why is it imprescriptible? Because remember kon nasa possession ka tapos
e reconvey nimo ang property na nakapangalan sa uban. Remember it will be
in the form of quieting of title. The requisite is that d kailangan may legal title,
e kon may title sya and he is in possession but the property ay hindi pa
nakapangalan sa kanya so that fact becomes a cloud so he wants to quiet it,
he wants to clear that cloud so kaya sya magfile ng action for reconveyance
but it is still in the nature of quieting of title which in law is imprescriptible. so
even if lapse nang 10 years if you are in possession, you can still ask for an
action for reconveyance pero technically the supreme court will going to treat
it as an action to quiet title, why, if they are going to treat it as an action for
reconveyance, it is going to be prescriptible but if they are going to treat it as
an action to quiet title it’s going to be imprescriptible.
The cases deal with prescription. The first thing you have to know is that is
there a trust, express or implied. Remember how do you proved that:
In express trust, it cannot be proven by parol evidence but that is only for
enforceability. Remember kapag enforced and executed na sya, it can be
proven.
Is there an implied trust? What kind of implied trust? So if there is an implied
trust, can the one repudiating acquired the property by acquisitive
prescription? Then you look at the time kon saan xa mag re-reckon. Again,
general rule is from the time of the issuance of the certificate of title meaning
at the time ni record, kon ako yung trustee, sa akin nakapangalan ang
document so in the reconveyance of property dun mag ka.count kc it becomes
a constructive notice. Exception is if the one asking for reconveyance is in
possession of the property because that would be in the nature of an action to
quiet title which is imprescriptible.
Again there are few cases wherein pag may fraud or mistake pag ma reconvey
sya or na titled sya or na registred sya way back tapos if they are going to use
that rule, it becomes prescriptible, so ang ginagawa ng supreme court pag
there are other facts and circumstances leading towards fraud talaga on the
part of the one repudiating, they can put a leeway and they will count it from
discovery of the fraud. So just please take note of that but for the purposes of
bar you use the general rule, do not use the exception.
Important Concepts from the FINAL CLASS DISCUSSION on TRUST:
(Excerpts from the recorder)
I. On Reconciling the rule on proscription against collateral
attack and the rule on propriety of an action for
reconveyance based on implied trust
Q: Isn’t it that an action for reconveyance is in effect an indirect attack on the
certificate of title? Di ba bawal ang indirect or collateral attack? If you want to
question a certificate of title, it has to be in a direct proceeding and it has to be
instituted within one year from the decree of judgment. Bakit pagmag-action
for reconveyance, bakit hindi siya mag-constitute as a collateral attack on the
certificate of title?
Di ba sa landtitles, merong 1 year to question. After lapse of one year, it
becomes indefeasible, so you can no longer attack. Now if an action of
reconveyance is based on the presumption that the title to the property ay mali,
isn’t that action an indirect attack on the certificate title?
A: Hindi siya indirect attack or collateral attack. The fact that you are asking
for reconveyance, means that you acknowledge that it is named to a different
person, it is just that you want to reconvey, you want to transfer that title to the
real owner. Remember that a certificate of title does not vest ownership. You
have to follow your rules on property to have ownership over the thing.
Registration is just a title. It means that kung may action for reconveyance ka,
that does not mean that you are questioning the proceedings. It does not
constitute as a review of the proceedings of the issuing of the title. It is just that
you are admitting that it is registered in the name of another person and you
want to reconvey. Kaya nga “reconvey” ang tawag sa kanya, hindi siya
annulment of title but a reconveyance. Meaning, you are respecting the title,
it is just that the person in whose name it is registered and the real owner
are not one, so you have to reconvey. So if you are going to be asked on
how to reconcile that, that is your answer.
For purposes of the exam, please read the explanation of the Supreme Court
in this case of Hortizuela vs Tagufa dun sa sinabi ko nga na it is not an
indirect title.
Hortizuela vs Tagufa
“In this case, in filing the complaint for reconveyance and recovery of
possession, Hortizuela was not seeking a reconsideration of the granting
of the patent or the decree issued in the registration proceedings. What
she was seeking was the reconveyance of the subject property on account
of the fraud committed by respondent Gregoria. An action for
reconveyance is a legal and equitable remedy granted to the rightful
landowner, whose land was wrongfully or erroneously registered in the
name of another, to compel the registered owner to transfer or reconvey
the land to him.”
II. On counting from the date of discovery of fraud instead
of the date of registration, for equitable consideration
In this particular case of Samonte vs CA, nalaman lang ng party noong
nagkaroon na ng litigation. Before that, hindi nila alam. So sabi ng Supreme
Court, if we will apply the general rule, it will be inequitable on the part of the
real owner. So this is a particular example wherein hindi na-fo-follow ang
general rule. Based on jurisprudence, ano ba talaga ang rule? When you see
a case like this, it is going to be the registration or discovery of fraud,
whichever is later. If the problem is very straightforward, you go back to
the general rule pero kapag may particular aspect of fraud, if it is going
to be inequitable to judge based on the general rule, you count it from
the date of discovery of fraud.
Ang thrust ng trust is, it is based on equitable consideration. Hindi nga sila
prepared to apply the general rule, paano na lang tayo.
III. On courts changing the original action to an action for
reconveyance where there is implied trust based on
Article 1456
In these cases, iba-iba ang original action, you have specific performance, you
have an action for annulment. If it is in the nature of reconveyance based on
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From the Lectures of: Atty. Raymund Christian S. Ong-Abrantes, CPA

a recognition of trust, then the courts will change it to an action for

reconveyance based on trust. Remember trust is always based on equitable
consideration. So in this particular case of Espiritu vs Landrito, the court
has leeway to change the original action.

Sa civil procedure, kung mali ang action or remedy mo, i-dismiss. But in these
particular cases, again, based on equitable consideration, may leeway ang
courts to recognize your action as an action for reconveyance based on an
implied trust.

IV. On when an action for reconveyance is in effect, an

action to quiet title

In this particular case of PNB vs Jumamoy, sabi natin, it will prescribe after
the lapse of 10 years, except if the one seeking reconveyance is actually in
possession because it is, in effect, an action to quiet title, which is
imprescriptible.

V. On when to reckon the period of prescription when the

situation involves an unregistered land

We have the rule that for implied trust, the reckoning point is the date of
registration sa Deed of Sale or whatever transfer document. In this case of
Cabacungan vs Laigo, the land is unregistered, walang date of registration
kasi nga unregistered siya. So saan tayo magcount? Sabi ng Supreme Court:

Cabacungan vs Laigo

“In the present case, however, the lands involved are concededly
unregistered lands; hence, there is no way by which Margarita, during her
lifetime, could be notified of the furtive and fraudulent sales made in 1992
by Roberto in favor of respondents, except by actual notice from Pedro
himself in August 1995. Hence, it is from that date that prescription began
to toll. The filing of the complaint in February 1996 is well within the
prescriptive period.”

*End of Second Exam Coverage*

90
 BUSINESS ORGANIZATION I
(By: 3-Manresa, S.Y. 2017-2018)
From the Lectures of: Atty. Raymund Christian S. Ong-Abrantes, CPA

Acts that may be/not be delegated

FINAL EXAM COVERAGE to agents.
The general rule is that what a man may do in person, he may do thru
September 22, 2017 another. Some acts, however, cannot be done through an agent.
Transcriber: KC Confesor 1. Personal acts - If personal performance is required by law or
public policy or the agreement of the parties, the doing of the act
TITLE X by a person on behalf of another does not constitute performance
AGENCY by the latter. Ex: The right to vote during election cannot be done
by an agent

CHAPTER 1 2. Criminal acts or acts not allowed by law. — An attempt to

Nature, Form and Kinds of Agency delegate to another authority to do an act which, if done by the
principal would be illegal, is void. There can be no agency in the
Article 1868. By the contract of agency a person binds himself to perpetration of a crime or an unlawful act.
render some service or to do something in representation or on
behalf of another, with the consent or authority of the latter.
Nature of relations between principal
.. Agency is a fiduciary relationship which implies a power in an agent to and agent
contract with a third person on behalf of a principal. So, because of 1. Relations is fiduciary in character - based on trust and
limitations of space, there’s a contract of agency… it’s as if the agent is the confidence. We have discussed since the start of the semester
extension of the principal. Having said that, agency is a preparatory contract. that this particular subject mainly dwells on fiduciary relationship.
Meaning, it’s a a contract entered into as a means to an end. We have fiduciary relationship in Partnership, Trust, and in
Agency.
Characteristics of a contract of Agency 2. Agent estopped from asserting interest adverse to the principal
(1) consensual, because it is based on the agreement of the parties 3. Agent must not act as an adverse party
which is perfected by mere consent; 4. Agent must not act for the adverse party
(2) principal, because it can stand by itself without need of another 5. Agent must not use or disclose secret information
contract; 6. Agent must give notice of material facts3
(3) nominate, because it has its own name;
(4) unilateral, if it is gratuitous because it creates obligations for only
one of the parties, i.e., the agent; or bilateral, if it is for Agency Lease Service
compensation because it gives rise to reciprocal rights and
obligations; and Based on Representation Based on Employment
(5) preparatory, because it is entered into as a means to an end, i.e.,
the creation of other transactions or contracts.2 Agent exercises discretionary The lessor (like a servant)
powers ordinarily performs only ministerial
Please take note that the basis of agency is always representation. The act functions
of the agent in behalf of the principal within the scope of its authority 3 persons are involved: principal, 2 persons are involved: the lessor
produces the same legal and binding effect as if the principal personally agent, and the third person with (master or employer) and the
made them. whom the agent has contracted lessee (servant or employee); and
Distinguishing Features Relates to commercial or business (like in case of master and
1. representative character transactions servant) relates more to matters
2. preparatory of mere manual or mechanical
execution, in which the servant
Parties to a contract of Agency acts under the direction and
(1) Principal. — one whom the agent represents and from whom he control of the master
derives his authority (2 C.J.S. 1024.); he is the person represented.
Agency imports the contemporaneous existence of a principal, and
there is no agency unless one is acting for and in behalf of another
(2-A Words and Phrases 436.); and Agency Guardianship

(2) Agent. — one who acts for and represents another; he is the person agent derives his authority from although he acts for and on behalf
acting in a representative capacity. The agent has derivative his principal of his ward, does not derive his
authority in carrying out the principal’s business. He may employ authority so to act from the ward
his own agent in which case he becomes a principal with respect
to the latter. (see Art. 1892.) If an act done by one person in behalf relation of principal and agent is may be created irrespective of the
of another is, in its essential nature, one of “agency,” the former is founded upon consent of the consent or capacity of the ward
“agent” of the latter notwithstanding that he is not so called. (2-A parties thereto
Words and Phrases 436.)
Agents are subject to the control Guardians are not subject to the
of their principals direction of their wards
Elements of Agency
(1) There is consent, express or implied, of the parties to establish Agent is the appointee of the A legal guardian is substituted by
the relationship; principal and his power may at law
(2) The object is the execution of a juridical act in relation to third anytime be abrogated or modified
persons; by the principal
(3) The agent acts as a representative and not for himself; and
Agent represents one who has Guardian represents one who has
(4) The agent acts within the scope of his authority. (Rallos vs. Felix
capacity to contract for himself no such capacity
Go Chan & Sons Realty Corp. and Court of Appeals, 81 SCRA
251 [1978]; Tuazon vs. Heirs of B. Ramos, 463 SCRA 408
[2005].)

2 3
De Leon’s Book on Agency Others not enumerated by the professor is supplied from
book of de Leon
91
 BUSINESS ORGANIZATION I
(By: 3-Manresa, S.Y. 2017-2018)
From the Lectures of: Atty. Raymund Christian S. Ong-Abrantes, CPA

This garnishment, however, was not annotated in Chemphil's stock

Agency to Sell
Agent receives the goods as the
goods of the principal
Agent delivers the proceeds of the
sale
Agent can return the object in case
he is unable to sell the same to 3rd
person
The agent, in dealing with the thing
received, is bound to act according
to the instructions of the principal
Agent
Contract of Sale
Buyer receives the goods as
owner
Buyer pays the price
The buyer, as general rule, cannot
return the object sold
The buyer can deal with the thing
as he pleases, being the owner
Independent Contractor (IC)
and transfer book. The Court holds that the CONSORTIUM has admitted
that the writ of attachment/garnishment issued on the shares of stock
belonging to plaintiff Antonio M. Garcia was not annotated and registered
in the stock and transfer books of CHEMPHIL. On the other hand, the
prior attachment issued in favor of SBTC against the same
CHEMPHIL shares of Antonio M. Garcia, was duly registered and
annotated in the stock and transfer books of CHEMPHILCEIC
vigorously argues that the consortium's writ of attachment over the
disputed shares of Chemphil is null and void, insisting as it does, that
the notice of garnishment was not validly served on the designated
officers on 19 July 1985.
To support its contention, CEIC presented the sheriff's notice of
garnishment dated 19 July 1985 which showed on its face that said notice
was received by one Thelly Ruiz who was neither the president nor
managing agent of Chemphil. It makes no difference, CEIC further avers,
thatThelly Ruiz was the secretary of the President of Chemphil, for under
the above-quoted provision she is not among the officers so authorized or
designated to be served with the notice of garnishment.

Agent appointed by the principal Employed by the Employer (ER) ISSUE:

Who has a better right to the shares of stocks?

the agent is subject to the control
and direction of the principal whom
he represents with respect to the
matters entrusted to him
Principal is liable for the torts
committed by the agent within the
scope of his authority
In a contract for a piece of work, the
IC, without being subject to the
control of the ER except only as to
the result of the work, exercises his
employment independently, and not
in representation of the ER
ER is not liable for the torts or injury
inflicted by the IC upon 3rd persons
or by the EEs of such contractor.
HELD: The Consortium.
The Court of Appeals agreed with the consortium's position that the
attachment of shares of stock in a corporation need not be recorded
in the corporation's stock and transfer book in order to bind third
persons. Section 7(d), Rule 57 of the Rules of Court was complied with by
the consortium (through the Sheriff of the trial court) when the notice of
garnishment over the Chemphil shares of Garcia was served on the
president of Chemphil. Indeed, to bind third persons, no law requires that
an attachment of shares of stock be recorded in the stock and transfer book
of a corporation.

We have a few cases. What happened in the case of ChemPhil Export vs
CA?
Chemphil Export & Import Corp vs. Court of Appeals
(Digest by: Ana Lapu)
NOTE: The case is very long with so many issues. Highlight and
underscore supplied.
FACTS:
Before us is a legal tug-of-war between the Chemphil Export and Import
Corporation (hereinafter referred to as CEIC), on one side, and the PISO
and Jaime Gonzales as assignee of the Bank of the Philippine Islands
(BPI), Rizal Commercial Banking Corporation (RCBC), Land Bank of
the Philippines (LBP) and Philippine Commercial International Bank
(PCIB), on the other (hereinafter referred to as the consortium), over
1,717,678 shares of stock (hereinafter referred to as the "disputed shares")
in the Chemical Industries of the Philippines (Chemphil/CIP).
Therefore, ruled the Court of Appeals, the attachment made over the
Chemphil shares in the name of Garcia was made in accordance with law
and the lien created thereby remained valid and subsisting at the time
Garcia sold those shares to FCI (predecessor-in-interest of appellee CEIC)
in 1988. A secretary's major function is to assist his or her superior.
He/she is in effect an extension of the latter. Obviously, as such, one
of her duties is to receive letters and notices for and in behalf of her
superior, as in the case at bench. The notice of garnishment was
addressed to and was actually received by Chemphil's president
through his secretary who formally received it for him.Thus, in one
case, we ruled that the secretary of the president may be considered
an "agent" of the corporation and held that service of summons on
him is binding on the corporation. Moreover, the service and receipt of
the notice of garnishment was duly acknowledged and confirmed by the
corporate secretary of Chemphil, Rolando Navarro and his successor
Avelino Cruz through their respective certifications. We rule, therefore, that
there was substantial compliance with Sec. 7 (d), Rule 57 of the Rules of
Court.

Dynetics, Inc. and Antonio M. Garcia filed a complaint for declaratory relief
and/or injunction against the PISO, BPI, LBP, PCIB and RCBC or the
consortium with the Regional Trial Court seeking judicial declaration,
construction and interpretation of the validity of the surety agreement that
Dynetics and Garcia had entered into with the consortium and to
perpetually enjoin the latter from claiming, collecting and enforcing any
purported obligations which Dynetics and Garcia might have undertaken in
said agreement. The consortium filed their respective answers with
counterclaims alleging that the surety agreement in question was valid and
binding and that Dynetics and Garcia were liable under the terms of the
said agreement. A notice of garnishment covering Garcia's shares in
CIP/Chemphil (including the disputed shares) was served on
Chemphil through its then President.The notice of garnishment was
duly annotated in the stock and transfer books of Chemphil on the same
date. The trial court denied the application of Dynetics and Garcia for
preliminary injunction and instead granted the consortium's prayer for a
consolidated writ of preliminary attachment. Hence, after the consortium
had filed the required bond, a writ of attachment was issued and
various real and personal properties of Dynetics and Garcia were
garnished, including the disputed shares.
Discussion: What was the issue on subrogation? So the question here is,
kasi sinettle to diba, there was a compromise agreement, sinettle, binayaran
yung utang, tapos ngayon, ang nagbayad, may binenta na property pero part
ng stipulation was the purchase price should be.. instead of bayaran siya,
ibayad nalang dun [huh? Sir?], ngayon ang question, sabi nung sa part ng
Bank, I was subrogated kasi ako yung nagbayad, pero sabi ng SC, No. that
was the money of Garcia, there was an agency. In this case, the provisions on
subrogation cannot apply since wala naming 3rd party, in effect yung
nagbayad, si 3rd party, is acting for his principal who is Mr. Garcia.
From FT of the case: When FCI issued the BA check to SBTC in the amount
of P35,462,869.62 to pay Garcia's indebtedness to the said bank, it was in
effect paying with Garcia's money, no longer with its own, because said
amount was part of the purchase price which FCI owed Garcia in payment for
the sale of the disputed shares by the latter to the former. The money "paid"
by FCI to SBTC, thus properly belonged to Garcia. It is as if Garcia himself
paid his own debt to SBTC but through a third party — FCI. Since the money
used to discharge Garcia's debt rightfully belonged to him, FCI cannot be
considered a third party payor under Art. 1302 (2). It was but a conduit, or as
aptly categorized by respondents, merely an agent as defined in Art. 1868 of
92
 BUSINESS ORGANIZATION I
(By: 3-Manresa, S.Y. 2017-2018)
From the Lectures of: Atty. Raymund Christian S. Ong-Abrantes, CPA
the Civil Code. In sum, CEIC, for its failure to fulfill the requirements of Art.
1302 (2), was not subrogated to the rights of SBTC against Antonio Garcia
and did not acquire SBTC's attachment lien over the disputed shares which,
in turn, had already been lifted or discharged upon satisfaction by Garcia,
through FCI, of his debt to the said bank.
Filipinas Life vsPedroso G.R. No. 159489; February 4, 2008 (Digest
by: Ana Lapu)
FACTS:
Respondent Teresita O. Pedroso is a policyholder of a 20-year endowment
life insurance issued by petitioner Filipinas Life Assurance Company
(Filipinas Life). Pedroso claims Renato Valle was her insurance agent
since 1972 and Valle collected her monthly premiums. In the first week of
January 1977, Valle told her that the Filipinas Life Escolta Office was
holding a promotional investment program for policyholders. It was offering
8% prepaid interest a month for certain amounts deposited on a monthly
basis. Enticed, she initially invested and issued a post-dated check dated
January 7, 1977 for P10,000. In return, Valle issued Pedroso his personal
check for P800 for the 8% prepaid interest and an agents receipt.
Subsequently, she called the Escolta office and talked to the branch
manager, Angel Apetrior. Pedroso inquired about the promotional
investment and Apetrior confirmed that there was such a promotion. She
was even told she could "push through with the check" she issued. From
the records, the check, with the endorsement of Alcantara at the back, was
deposited in the account of Filipinas Life with the Commercial Bank and
Trust Company (CBTC), Escolta Branch.
Pedroso waited for the maturity of her initial investment. A month after, her
investment of P10,000 was returned to her after she made a written
request for its refund. The formal written request, dated February 3, 1977,
was written on an inter-office memorandum form of Filipinas Life prepared
by Alcantara. To collect the amount, Pedroso personally went to the
Escolta branch where Alcantara gave her the P10,000 in cash. After a
second investment, she made 7 to 8 more investments in varying amounts,
totaling P37,000 but at a lower rate of 5% prepaid interest a month. Upon
maturity of Pedroso's subsequent investments, Valle would take back from
Pedroso the corresponding yellow-colored agent's receipt he issued to the
latter.
Pedroso told respondent Jennifer N. Palacio, also a Filipinas Life insurance
policyholder, about the investment plan. Palacio made a total investment
of P49,550 but at only 5% prepaid interest. However, when Pedroso tried
to withdraw her investment, Valle did not want to return some P17,000
worth of it. Palacio also tried to withdraw hers, but Filipinas Life, despite
demands, refused to return her money. With the assistance of their lawyer,
they went to Filipinas Life Escolta Office to collect their respective
investments, and to inquire why they had not seen Valle for quite some
time. But their attempts were futile. Hence, respondents filed an action for
the recovery of a sum of money. Filipinas Life contends that that the
investment scheme offered to respondents by Valle, Apetrior and
Alcantara was outside the scope of their authority as agents of Filipinas
Life.
ISSUE:
Whether the agents of Filipinas Life exceeded the scope of their authority
HELD: No,
the agents of Filipinas Life did not exceed the scope of their authority. The
Supreme Court ruled that the general rule is that the principal is
responsible for the acts of its agent done within the scope of its authority,
and should bear the damage caused to third persons. When the agent
exceeds his authority, the agent becomes personally liable for the damage.
But even when the agent exceeds his authority, the principal is still
solidarily liable together with the agent if the principal allowed the agent to
act as though the agent had full powers. In other words, the acts of an
agent beyond the scope of his authority do not bind the principal, unless
the principal ratifies them, expressly or impliedly. Ratification in agency is
the adoption or confirmation by one person of an act performed on his
behalf by another without authority.
Filipinas Life cannot profess ignorance of Valle's acts. Even if Valle's
representations were beyond his authority as a debit/insurance agent,
Filipinas Life thru Alcantara and Apetrior expressly and knowingly ratified
Valle's acts. It cannot even be denied that Filipinas Life benefited from the
investments deposited by Valle in the account of Filipinas Life. In our
considered view, Filipinas Life had clothed Valle with apparent authority;
hence, it is now estopped to deny said authority. Innocent third persons
should not be prejudiced if the principal failed to adopt the needed
measures to prevent misrepresentation, much more so if the principal
ratified his agent's acts beyond the latter's authority.
Discussion: Ano lang ba ang ino-offer ni Filipinas? Sabi ni Filipinas, it is only
offering life insurance, yung binenta ni Agent Valle is investment. Sabi niya
that’s outside of the scope, di naming yan business. What Filipinas is saying
that while we acknowledge that Agent Valle is our agent, still the act was made
outside the scope of his authority. Ano ang sabi ng SC? In a contract of
agency, it is the principal that is bound if the agent acted within the scope of
his authority. So kung mag-exceed si agent sa kanyang authority, he will be
personally bound. However, if it was ratified by the principal, then pareho
silang solidarily liable.
Eurotech Industrial Technologies Inc. vs Cuizon
G.R. No. 167552; April 23, 2007
(Digest by: Ana Lapu)
FACTS: From January to April 1995, petitioner sold to Impact Systems
various products allegedly amounting to P91,338.00 pesos. Subsequently,
respondents sought to buy from petitioner one unit of sludge pump valued
at P250,000.00 with respondents making a down payment of P50,000.00.
When the sludge pump arrived from the United Kingdom, petitioner refused
to deliver the same to respondents without their having fully settled their
indebtedness to petitioner. Thus, on 28 June 1995, respondent EDWIN
and Alberto de Jesus, general manager of petitioner, executed a Deed of
Assignment of receivables in favor of petitioner. Impact systems is owed
by ERWIN Cuizon.
Despite the existence of the Deed of Assignment, respondents proceeded
to collect from Toledo Power Company the amount of P365,135.29.
Alarmed by this development, petitioner made several demands upon
respondents to pay their obligations. As a result, respondents were able to
make partial payments to petitioner. On 7 October 1996, petitioner's
counsel sent respondents a final demand letter wherein it was stated that
as of 11 June 1996, respondents' total obligations stood at P295,000.00
excluding interests and attorney's fees. Because of respondents' failure to
abide by said final demand letter, petitioner instituted a complaint for sum
of money, damages, with application for preliminary attachment against
herein respondents
By way of special and affirmative defenses, respondent EDWIN alleged
that he is not a real party in interest in this case. According to him, he was
acting as mere agent of his principal, which was the Impact Systems, in his
transaction with petitioner and the latter was very much aware of this fact.
ISSUE:
Whether the act of Edwin in signing the Deed of Assignment binds his
principal Impact Systems
HELD:
Yes, the act of Edwin in signing the Deed of Assignment binds Impact
Systems
The Supreme Court held that 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 latter's consent. 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.
In this case at hand, the parties do not dispute the existence of the agency
relationship between respondents ERWIN as principal and EDWIN as
agent.
Discussion: so the issue here, is di sila makabayad so nag execute ng deed
of assignment ang manager, so ngayon yung owner, sabi ng owner, dapat
93
 BUSINESS ORGANIZATION I
(By: 3-Manresa, S.Y. 2017-2018)
From the Lectures of: Atty. Raymund Christian S. Ong-Abrantes, CPA
hindi ako liable kay it was not within the scope of the authority ng manager.
Ano sabi ng SC? In this particular case, the SC said that The powers of an
agent are particularly broad in the case of one acting as a general agent or
manager; such a position presupposes a degree of confidence reposed and
investiture with liberal powers for the exercise of judgment and discretion in
transactions and concerns which are incidental or appurtenant to the business
entrusted to his care and management. In the absence of an agreement to the
contrary, a managing agent may enter into any contracts that he deems
reasonably necessary or requisite for the protection of the interests of his
principal entrusted to his management.
So what the SC is trying to say: may business ka, may principal, tapos meron
din kayong manager. Hindi naman sa lahat kailangan meron siyang SPA,
pwede naman general power lang, if it involves acts reasonably necessary or
requisite for the protection of the interests of his principal entrusted to his
management. In this particular case, hindi sila makabayad. Wala silang
choice, but to execute a deed of assignment. So in this particular case, sabi
ng SC, that is included in the power of the manager.
VioletaBanateet. al. vs. Philippine Countryside Rural Bank
GR 16382513 July 2010
(Digest by: April Pareno)
FACTS: Sometime in November 1997 the spouses Maglasang and the
spouses Cortel asked PCRB’s permission to sell the properties which they
mortgaged with the bank. They likewise requested that the said properties
be released from the mortgage since the two other loans were adequately
secured by the other mortgages. The spouses Maglasang and the spouses
Cortel claimed that the PCRB, acting through its Branch Manager,
PancrasioMondigo, verbally agreed to their request but required first the
full payment ofthe subject loan. They thereafter sold to petitioner
VioletaBanate the subject properties for P1,750,000.00 and used the
amount to pay the subject loan with PCRB.
After settling the subject loan, PCRB gave the owner’s duplicate certificate
of title of Lot 12868-H-3-C to Banate, who was able to secure a new title in
her name. It, however, carried the mortgage lien in favor of PCRB,
prompting the petitioners to request from PCRB a Deed of Release of
Mortgage. As PCRB refused to comply with the petitioners’ request, the
petitioners instituted an action for specific performance before the RTC to
compel PCRB to execute the release deed.
Accordingly, PCRB claimed that full payment of the three loans, obtained
by the spouses Maglasang, was necessary before any of the mortgages
could be released; the settlement of the subject loan merely constituted
partial payment of the total obligation. Thus, the payment does not
authorize the release of the subject properties from the mortgage lien.
ISSUE: Whether or not Mondigo, as branch manager of PCRB, has the
authority to modify the original mortgage contract on behalf of the
company.
RULING: NO. He is not authorized to modify the mortgage contract that
would in eff ect cause novation.
Under the doctrine of apparent authority, acts and contracts of the agent,
as are within the apparent scope of the authority conferred on him,
although no actual authority to do such acts or to make such contracts has
been conferred, bind the principal. The principal’s liability, however, is
limited only to third persons who have been led reasonably to believe by
the conduct of the principal that such actual authority exists, although none
was given. In other words, apparent authority is determined only by the
acts of the principal and not by the acts of the agent. There can be no
apparent authority of an agent without tacts or conduct on the part of the
principal; such acts or conduct must have been known and relied upon in
good faith as a result of the exercise of reasonable prudence by a third
party as claimant, and such acts or conduct must have produced a change
of position to the third party’s detriment.
In the present case, the decision of the trial court was utterly silent on the
manner by which PCRB, as supposed principal, has “clothed” or “held out”
its branch manager as having the power to enter into an agreement, as
claimed by petitioners. No proof of the course of business, usages and
practices of the bank about, or knowledge that the board had or is
presumed to have of, its responsible officers’ acts regarding bank branch
aff airs, was ever adduced to establish the branch manager’s apparent
authority to verbally alter the terms of mortgage contracts. Neither was
there any allegation, much less proof, that PCRB ratified Mondigo’s act or
is estopped to make a contrary claim.
Discussion: in effect, what did the manager do? Nakamortgage pa diba?
Tapos nirelease niya from mortgage. Let’s compare this to the previous case,
kasi diba sabi don it is included within the scope of the agent’s authority if it’s
reasonably necessary. Now, is this reasonably necessary dun sa kanyang job
as the manager of the bank? In the words of the SC, Although a branch
manager, within his field and as to third persons, is the general agent and is
in general charge of the corporation, with apparent authority commensurate
with the ordinary business entrusted him and the usual course and conduct
thereof, yet the power to modify or nullify corporate contracts remains
generally in the board of directors. So in this particular case, by saying
verbally, by allowing the title to be released as lien, the manager is actually
modifying the contract. So it’s not part of the manager’s obligation.
October 3, 2017
Transcriber: Zarah Domingo
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.
As you can see in the provision, it is the act of the principal.
Classification of Agency as to Manner of Execution:
(1) Express
(2) Implied
If Express, there is actually an authority orally or in writing. It can be Implied,
from the acts of the principal, or his silence, or lack of action or failure to
repudiate the agency, knowing that another person is acting on his behalf
without authority.
An agency can be gratuitous or onerous.
The extent of business covered:
(1) General – covers all the business of the principal;
(2) Special – it covers only one or more specific transactions
The authority may be couched in general terms which is deemed to comprise
only acts of administration or it can be couched in specific terms which
authorize only the performance of specific acts.
Nature and Effects: You have representative –the agent acts in the name of
the principal.
Can an agency be presumed?
As a general rule, no, because the relationship between the principal and
agent, must exist as a fact. The only exceptions to this rule are:
(1) When the agency arises by operation or law; or
(2) The agency is presumed to prevent unjust enrichment.
Are there formal requirements for an agency?
As a general rule, none, except in particular provisions which we will discuss
later.
Yun Kwan Byung vs. Philippine Amusement and Gaming
Corporation
G.R. No. 163553 December 11, 2009
(Digest by: April Pareno)
FACTS: PAGCOR launched its Foreign Highroller Marketing
Program. The Program aims to invite patrons from foreign
countries to play at the dollar pit of designated PAGCOR-operated
94
 BUSINESS ORGANIZATION I
(By: 3-Manresa, S.Y. 2017-2018)
From the Lectures of: Atty. Raymund Christian S. Ong-Abrantes, CPA
casinos under specified terms and conditions and in accordance
with industry practice.
Petitioner, a Korean national, alleges that he came to the
Philippines four times to play for high stakes at the Casino Filipino;
that in the course of the games, he was able to accumulate
gambling chips worth US$2.1 million. Petitioner contends that
when he presented the gambling chips for encashment with
PAGCORs employees or agents, PAGCOR refused to redeem
them.
PAGCOR claims that petitioner, who was brought into the
Philippines by ABS Corporation, is a junket player who played in
the dollar pit exclusively leased by ABS Corporation for its junket
players. PAGCOR alleges that it provided ABS Corporation with
distinct junket chips. ABS Corporation distributed these chips to its
junket players. At the end of each playing period, the junket players
would surrender the chips to ABS Corporation. Only ABS
Corporation would make an accounting of these chips to
PAGCORs casino treasury.
ISSUE: Whether the CA erred in holding that PAGCOR is not liable
to petitioner, disregarding the doctrine of implied agency, or agency
by estoppel
RULING: Acts and conduct of PAGCOR negates the existence of
an implied agency or an agency by estoppels. Petitioner alleges
that there is an implied agency. Petitioners argument is clearly
misplaced. The basis for 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.
On the part of the principal, there must be an actual intention to
appoint or an intention naturally inferable from his words or actions,
while on the part of the agent, there must be an intention to accept
the appointment and act on it. Absent such mutual intent, there is
generally no agency.
There is no implied agency in this case because PAGCOR did not
hold out to the public as the principal of ABS Corporation.
PAGCORs actions did not mislead the public into believing that an
agency can be implied from the arrangement with the junket
operators, nor did it hold out ABS Corporation with any apparent
authority to represent it in any capacity. The Junket Agreement was
merely a contract of lease of facilities and services.
The SC held that the Court of Appeals correctly used the intent of
the contracting parties in determining whether an agency by
estoppel existed in this case. An agency by estoppel which is
similar to the doctrine of apparent authority requires proof of
reliance upon the representations and that in turn needs proof that
the representations predated the action taken in reliance.
Is an implied agency and an estoppel by agency the same? How do you
distinguish an implied agency from an agency by estoppel?
So in implied agency, there is actually an agency, implied nga lang, hindi
express. In agency by estoppel, there is no actual agency but because of the
actions of an agent or the principal, there is an apparent or ostensible agency,
for purposes of equity and to protect third persons.
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.
Acceptance may be express or implied. Of course it is express when it oral or
written, and it is implied which can be inferred from the acts of the agent which
carried out the agency or from his silence or inaction according to the
circumstances. Relate this to Article 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.
He must also finish the business already begun on the death of the
principal, should delay entail any danger.
So the rule is acceptance of an agent is necessary for it to be bound. It is
necessary but not compulsory. Thus if the agent wants to decline appointment,
he must react immediately so that his supposed principal will take notice.
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.
Is this presumption conclusive? No, it is only disputable. You can actually rebut
it with contrary proof.
So a power of attorney is an instrument in writing by which one person is
principal points another as his agent and confers upon him the authority to
confirm certain specified acts or kinds of acts on behalf of the principal. Its
primary purpose is to evidence the authority of agents to third parties with
whom the agent deals. Notarization is not necessary unless required by law.
So the construction of a power of attorney must be strictly construed and
strictly pursued. Kaya nga bawal yan na magpa-SPA ka tapos magpa-notarize
ka sa city hall. Nakakatakot yan. Pag-SPA, dapat proper talaga siya. Paano
what if ang ibebenta lupa, kawawa. It must be strictly construed. Kung ano
yung powers granted in an SPA, yun lang ang granted to the agent as regards
the principal.
The instrument will be held to grant only those powers which are specified.
The agent may neither go beyond nor __ from the ___. The only exception is
when strict construction will destroy the very purpose of the power.
If you try to look at an SPA, meron din siya on the later paragraph, meron yan
general powers, necessarily implied. Yun siya, yung actions na yun must be
related doon sa main purpose of the power of attorney, otherwise, the power
is not deemed to be granted.
The meaning of “present” in Article 1871, this is not limited to face-to-face
encounters. Pwede by phone, it can also be considered as present ka.
How about for persons who are absent?
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.
So kung absent ang mga tao, instead of face-to-face, there is no implied
acceptance, except:
(1) When the principal transmits his power of attorney to the agent,
who receives it without any objection; or
(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.
So for that business, if that agent is habitually engaged, tapos binigyan ng
letter or telegram tapos walang reply, that is deemed an implied acceptance.
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,
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From the Lectures of: Atty. Raymund Christian S. Ong-Abrantes, CPA
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.
So kung sinabi ko sayo na binigyan ko ng power of attorney si PERSON A,
kung specifically sinabi ko sayo, then he becomes my agent as to you. Pero
paginadvertise ko na siya yung agent, he becomes an agent as to anyone na
nakabasa ng advertisement.
In the 2nd Paragraph, if it given specially, it shall be revoked specially. If it is
given by public advertisement, it shall be revoked by public advertisement.
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.
So, this is one of the instances wherein the authority shall be in writing.
Estate of Lino Olaguer v. Ongjoco
G.R. No. 173312 August 26, 2008
(Digest by: April Pareno)
FACTS: Lino Olaguer died on October 3, 1957 so Special probate
of will was filed in the then Court of First Instance of Albay.
Defendant Olivia P. Olaguer was appointed as administrator
pursuant to the will. Later, defendant Eduardo Olaguer was
appointed as co-administrator. In the order of the probate court
dated April 4, 1961, some properties of the estate were authorized
to be sold to pay obligations of the estate.
Relying upon the order, but without prior notice or permission from
the Probate Court, defendants Olivia P. Olaguer and Eduardo
Olaguer on November 1, 1965 sold to Estanislao Olaguer 10
parcels of land. The sale to was approved by the Probate Court.
On July 7, 1966, defendant Olivia P. Olaguer executed a Special
Power of Attorney in favor of defendant Jose A. Olaguer,
authorizing the latter to "sell, mortgage, assign, transfer, endorse
and deliver" of 6 properties. Estanislao Olaguer executed a Special
Power of Attorney in favor of Jose A. Olaguer authorizing the latter
to "sell, mortgage, assign, transfer, endorse and deliver" the 9
properties.
By virtue of this Special Power of Attorney, on March 1, 1967, Jose
A. Olaguer as Attorney-in-Fact of Estanislao Olaguer mortgaged
Lots 7589, 7593 and 7396 to defendant PNB as security for a loan
of 10,000 Pesos. The mortgage was later foreclosed by the PNB
and the properties mortgage were sold at public auction to PNB.
Then, PNB transferred the properties to the Republic of the
Philippines for agrarian reform purposes.
On October 29, 1966, Estanislao Olaguer executed a General
Power of Attorney in favor of Jose A. Olaguer, authorizing the latter
to exercise general control and supervision over all of his business
and properties, and among others, to sell or mortgage any of his
properties.
On December 29, 1966, Estanislao Olaguer sold to Jose A.
Olaguer for 15,000 the 10 parcels of land he bought from Olivia P.
Olaguer and Eduardo Olaguer.On March 16, 1968, Estanislao
Olaguer sold to Jose A. Olaguer for 1 Peso and other valuable
consideration 2 parcels of land which have a total area of 2.5
hectares.
On June 5, 1968, Estanislao Olaguer sold another 2 lots to Jose A.
Olaguer for 1 Peso and other valuable consideration.
On May 13, 1971, Jose A. Olaguer in his capacity as Attorney in-
Fact of Estanislao Olaguer sold to his son Virgilio Olaguer for 1
Peso and other valuable consideration. On July 15, 1974, Jose A.
Olaguer sold to his son Virgilio Olaguer Lot No. 4521 and Lot No.
4522 for 1,000 Pesos.
On September 16, 1978 Virgilio Olaguer executed a General
Power of Attorney in favor of Jose A. Olaguer authorizing the latter
to exercise general control and supervision over all of his business
and properties and among others, to sell or mortgage the same.
Olivia P. Olaguer and Eduardo Olaguer were removed as
administrators of the estate and on February 12, 1980, plaintiff Ma.
Linda Olaguer Montayre was appointed administrator by the
Probate Court.
The decedent Lino Olaguer have had three marriages. He was first
married to Margarita Ofemaria who died April 6, 1925. His second
wife was Gloria Buenaventura who died on July 2, 1937. The third
wife was the defendant Olivia P. Olaguer.Jose Olaguer acting upon
the general power of attorney sold 8 parcels of land to Emilio
Ongjoco.
On 28 January 1980, the Estate of Lino Olaguer filed an action for
the Annulment of Sales of Real Property and/or Cancellation of
Titles in the then Court of First Instance of Albay. The plaintiffs
therein alleged that the sales of the following properties belonging
to the Estate of Lino Olaguer to Estanislao Olaguer were absolutely
simulated or fictitious, the plaintiffs likewise prayed that the
resulting Transfer Certificates of Title issued to Jose Olaguer,
Virgilio Olaguer, Cipriano Duran and the PNB be annulled.
Respondent Ongjoco, on the other hand, invokes that he was an
innocent purchaser for value. His adamant stance is that, when he
acquired the subject properties, the same were already owned by
Virgilio Olaguer. Respondent insists that Jose A. Olaguer was duly
authorized by a written power of attorney when the properties were
sold to him (Ongjoco). He posits that this fact alone validated the
sales of the properties and foreclosed the need for any inquiry
beyond the title to the principal. All the law requires, respondent
concludes, is that the agents authority be in writing in order for the
agents transactions to be considered valid.
ISSUE: Whether or not, under the facts and circumstances of this
case, respondent Ongjoco can be considered an innocent
purchaser for value.
HELD: As regards some of the lots, YES. He merely relied on the
general power of attorney which was presented to him.
In sum, we hold that respondent Emiliano M. Ongjoco was in bad
faith when he bought Lots Nos. 1 and 2 from Jose A. Olaguer, as
the latter was not proven to be duly authorized to sell the said
properties.
However, respondent Ongjoco was an innocent purchaser for
value with regard to Lots Nos. 76-D, 76-E, 76-F and 76-G since it
was entirely proper for him to rely on the duly notarized written
power of attorney executed in favor of Jose A. Olaguer.
According to the provisions of Article 1874 of the Civil Code on
Agency, when the sale of a piece of land or any interest therein is
made through an agent, the authority of the latter shall be in writing.
Absent this requirement, the sale shall be void. Also, under Article
1878, a special power of attorney is necessary in order for an agent
to enter into a contract by which the ownership of an immovable
property is transmitted or acquired, either gratuitously or for a
valuable consideration.
When Lots Nos. 1 and 2 were sold to respondent Ongjoco through
Jose A. Olaguer, the Transfer Certificates of Title of said
propertieswere in Virgilio’s name.Unfortunately for respondent, the
power of attorney that was purportedly issued by Virgilio in favor of
Jose Olaguer with respect to the sale of Lots Nos. 1 and 2 was
never presented to the trial court. Neither was respondent able to
explain the omission. Other than the self-serving statement of
respondent, no evidence was offered at all to prove the alleged
written power of attorney.This of course was fatal to his case. As it
stands, there is no written power of attorney to speak of.
The trial court was thus correct in disregarding the claim of
itsexistence. Accordingly, respondent Ongjoco’s claim of good faith
in the sale of Lots Nos. 1 and 2 has no leg to stand on. As regards
Lots Nos. 76-D, 76-E, 76-F and 76-G, Ongjoco was able to present
a general power of attorney that was executed by Virgilio Olaguer.
While the law requires a special power of attorney , the general
power of attorney was sufficient in this case, as Jose A. Olaguer
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From the Lectures of: Atty. Raymund Christian S. Ong-Abrantes, CPA
was expressly empowered to sell any of Virgilio’s properties; and
to sign, execute, acknowledge and deliver any agreement therefor.
Even if a document is designated as a general power of attorney,
the requirement of a special power of attorney is met if there is a
clear mandate from the principal specifically authorizing the
performance of the act. The special power of attorney can be
included in the general power when the act or transaction for which
the special power is required is specified therein.
On its face, the written power of attorney contained the signature
of Virgilio Olaguer and was duly notarized. As such, the same is
considered a public document and it has in its favor the
presumption of authenticity and due execution, which can only be
contradicted by clear and convincing evidence. No evidence was
presented to overcome the presumption in favor of the duly
notarized power of attorney. Neither was there a showing of any
circumstance involving the said document that would arouse the
suspicion of respondent and spur him to inquire beyond its four
corners, in the exercise of that reasonable degree of prudence
required of a man in a similar situation. We therefore rule that
respondent Ongjoco had every right to rely on the power of attorney
in entering into the contracts of sale of Lots Nos. 76-D to 76-G with
Jose A. Olaguer.
Kahit nakalagay siya sa ‘general power’, if that act is particularly specified in
the general power, it is sufficient.
Mactan-Cebu International Airport Authority vs Richard E.
Unchuan
(Digest by: Cyndall Jardinel)
FACTS: On March 5, 2004, respondent Richard Unchuan
(Unchuan) filed a complaint for Partial Declaration of Nullity of the
Deed of Absolute Sale with Plea for Partition, Damages and
Attorney's Fees before the RTC against MCIAA. Unchuan later filed
an Amended Complaint for Declaration of Nullity of Deed of
Absolute Sale, Quieting of Title and/or Payment of Just
Compensation, Rental and Damages and Attorney's Fees.
In his complaint, Unchuan alleged, among others, that he was the
legal and rightful owner of Lot No. 4810-A, with an area of 177,176
square meters, and Lot No. 4810-B, with an area of 2,740 square
meters, both located in Barrio Buaya, Lapu-Lapu City, and covered
by Original Certificate of Title (OCT) No. R0-1173;
o that the title was registered under the names
of the heirs of Eugenio Godinez, specifically,
Teodora Tampus, Fernanda Godinez (the
wife of Iscolastico Epe), Tomasa Godinez
(the wife of Mateo Ibañez), Sotera Godinez
(the wife of Guillermo Pino), Atanasio
Godinez (married to Florencia Pino), Juana
Godinez (the wife of Catalino Cuison), and
Ambrosio Godinez (married to Mamerta
Inot); and that he bought the two lots from
the surviving heirs of the registered owners
through several deeds of absolute sale, all
dated December 7, 1998.
Unchuan further alleged that he came to know that Atanacio
Godinez (Atanacio), the supposed attorney-in-fact of all the
registered owners and their heirs, already sold both lots to Civil
Aeronautics Administration (CAA), the predecessor of MCIAA; that
the sale covered by the Deed of Absolute Sale, dated April 3, 1958,
was null and void because the registered owners and their heirs
did not authorize Atanacio to sell their undivided shares in the
subject lots in favor of CAA;
o that no actual consideration was paid to the
said registered owners or their heirs, despite
promises that they would be paid;
o that the deed of absolute sale did not bear
the signature of the CAA representative; that
there was no proof that the Secretary of the
Department of Public Works and Highways
approved the sale; and that his
predecessors-in-interest merely tolerated
the possession by CAA and, later, by
MCIAA.
In its Answer, MCIAA averred that on April 3, 1958, Atanacio,
acting as the representative of the heirs of Eugenio Godinez,
who were the registered owners, sold Lot No. 4810-A and Lot
No. 4810-B to the Republic of the Philippines, represented by
CAA. Thereafter, CAA took possession of the said property
upon payment of the purchase price.
o To corroborate the said transaction, on
September 17, 1969, Atanacio, along with
other former registered co-owners, signed a
deed of partition attesting to the fact of sale
of the two lots in favor of the government and
admitted its absolute right over the same.
Since then, the said lots had been in the possession of the Republic
in the concept of an owner. The said real properties were declared
by the Republic for taxation purposes under Tax Declaration No.
00078 and Tax Declaration No. 00092. In fact, by virtue of Republic
Act (R.A.) No. 6958, otherwise known as "The Charter of Mactan-
Cebu International Airport Authority," the Republic officially turned
over the management of the said lots to MCIAA.
On March 3, 2006, the RTC rendered judgment in favor of
Unchuan.
The RTC held that Atanacio was not legally authorized to act
as the attorney-in-fact of his brothers and sisters and to
transact on their behalf because he was not clothed with a
special power of attorney granting him authority to sell the
disputed lots. CA affirmed the RTC decision.
ISSUE: WON the sale by Anstacio bound all the heirs entitling the
MCIAA to the whole portion of lot.
HELD: The Court finds that the sale transaction executed between
Atanacio, acting as an agent of his fellow registered owners, and
the CAA was indeed void insofar as the other registered owners
were concerned. They were represented without a written authority
from them clearly in violation of the requirement under Articles 1874
and 1878 of the Civil Code, which provide:
Art. 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.
Art. 1878. Special powers of attorney are necessary in the following
cases:
(5) To enter into any contract by which the ownership of
an immovable is transmitted or acquired either
gratuitously or for a valuable consideration;
The significance of requiring the authority of an agent to be put into
writing was amplified in Dizon v. Court of Appeals:
When the sale of a piece of land or any interest thereon is through
an agent, the authority of the latter shall be in writing; otherwise,
the sale shall be void. Thus the authority of an agent to execute a
contract for the sale of real estate must be conferred in writing and
must give him specific authority, either to conduct the general
business of the principal or to execute a binding contract containing
terms and conditions which are in the contract he did execute. A
special power of attorney is necessary to enter into any contract by
which the ownership of an immovable is transmitted or acquired
either gratuitously or for a valuable consideration. The express
mandate required by law to enable an appointee of an agency
(couched) in general terms to sell must be one that expressly
mentions a sale or that includes a sale as a necessary ingredient
of the act mentioned. For the principal to confer the right upon an
agent to sell real estate, a power of attorney must so express the
powers of the agent in clear and unmistakable language. When
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From the Lectures of: Atty. Raymund Christian S. Ong-Abrantes, CPA

there is any reasonable doubt that the language so used conveys

such power, no such construction shall be given the document.
Without a special power of attorney specifying his authority to
dispose of an immovable, Atanacio could not be legally considered
as the representative of the other registered co-owners of the
properties in question. Atanacio's act of conveying Lot No. 4810-A
and Lot No. 4810-B cannot be a valid source of obligation to bind
all the other registered co-owners and their heirs because he was
not clothed with any authority to enter into a contract with CAA. The
other heirs could not have given their consent as required under
Article 1475 of the New Civil Code because there was no meeting
of the minds among the other registered co-owners who gave no
written authority to Atanacio to transact on their behalf. Therefore,
no contract was perfected insofar as the portions or shares of the
other registered co-owners or their heirs were concerned.
The rule is that a void contract produces no effect either against
or in favor of anyone and cannot be ratified. Similarly, laches will
not set in against a void transaction, as in this case, where the
agent did not have a special power of attorney to dispose of the
lots co-owned by the other registered owners.
In fact, Article 1410 of the Civil Code specifically provides that an
action to declare the inexistence of a void contract does not
prescribe.
How about a broker? Is a broker an agent? This is actually a usual question in
agency: Distinguish a broker from an agent.
Broker – only a middleman; one who, in behalf of others and for compensation
or fee, negotiate contracts relative to a property; he is a negotiator between
the parties never acting in his own name but in the name of those who
employed him; he is strictly a middleman and for some purposes the agent of
both
Doctrine of Efficient Procuring Cause
The broker is only entitled to compensation only when he is an effective
procuring cause. His efforts are the foundation on which the negotiation that
resulted on the sale begun. A broker is entitled to commission whenever he
brings to his principal, a party who is able and willing to take the property and
enter into a valid contract, although the particulars may be arranged and the
matter negotiated and completed between the principal and the purchaser
directly. (Medrano and Ibaan Rural Bank vs CA, February 18, 2005, G.R. No.
150678)
Minsan, ang ginagawa lang ng broker is to meet the buyer and the seller para
mag-negotiate, parang middleman ka lang. If it becomes successful, through
your efforts, you are the efficient procuring cause wherein the buyer and the
seller met, that they negotiated and successful in the sale, that is the only time
you are entitled to a commission.

Can the buyer file an action for collection of sum of money based on the
The transaction entered into by Atanacio and CAA, however, premise that he is entitled to compensation? So you have to look if he is the
was not entirely void because the lack of consent by the efficient procuring cause where the seller met the buyer then started the
other co-owners in the sale was with respect to their shares negotiation and then the sale is perfected, then you can actually demand
only pursuant to Article 493 of the New Civil Code. compensation. If not, you cannot demand. That is the Doctrine of Efficient
Procuring Cause.
The quoted provision recognizes the absolute right of a co-owner
to freely dispose of his pro indiviso share as well as the fruits and How do you distinguish a broker and an agent?
other benefits arising from that share, independently of the other Broker Agent
co-owners. The sale of the subject lots affects only the seller's
share pro indiviso, and the transferee gets only what corresponds A negotiator between parties; Represents only one party who
to his grantor's share in the partition of the property owned in he does not act in his own is the principal
common. Since a co-owner is entitled to sell his undivided share, a name; he is mainly a
sale of the entire property by one co-owner without the consent of middleman or agent of both
the other co-owners is not null and void; only the rights of the co- parties.
owner/seller are transferred, thereby making the buyer a co-owner
of the property.
Article 1876: An agency is either general or special.

In the case at bench, although the sale transaction insofar as
the other heirs of the registered owners was void, the sale
insofar as the extent of Atanacio's interest is concerned,
remains valid. Atanacio was one of the registered co-owners
of the subject lots, but he was not clothed with authority to
transact for the other co-owners. By signing the deed of sale with
the CAA, Atanacio effectively sold his undivided share in the lots in
question. Thus, CAA became a co-owner of the undivided subject
lots. Accordingly, Atanacio's heirs could no longer alienate
anything in favor of Unchuan because he already conveyed his pro
indiviso share to CAA.
The former comprises all the business of the principal. The latter,
one or more specific transactions.
What is the difference between attorney-in-fact and attorney-at-law? Attorney-
in-fact is the person who is given authority by his principal to do a particular
act. You and I can be an attorney-in-fact. But an attorney-at –law is one whose
business is to represent clients in legal proceedings. If what you are going to
do is not in legal proceeding, you cannot be an attorney-at-law, attorney-in-
fact ka lang.
General Agent Special Agent

Consequently, the Court deems it just and fair to modify the Scope of All acts Only one or more specific
disposition of the subject lots to Unchuan. Unchuan is not Authority connected with acts in pursuance of
entitled to the whole 179,916 square meters of the property, as the business for particular instructions or with
originally awarded by the RTC and affirmed by the CA. which he is instructions necessarily
engaged implied from the act to be
Atanacio's share should be excluded from the computation as his carried out.
heirs were already precluded from further conveying what he,
their predecessor-in-interest, had previously sold to CAA. Thus, Nature of Series of Single transaction only
Unchuan is only legally entitled to an unidentified 149,930 Service transaction
square meters of the property after excluding Atanacio's Authorized involving
unidentified share of 29,986 square meters. continuity of
service

Article 1875: Agency is presumed to be for a compensation,

unless there is proof to the contrary.
Article 1877: An agency couched in general terms comprises only
acts of administration, even if the principal should state that he
General Rule: In the absent of a special agreement, he is only entitled to withholds no power or that the agent may execute such acts as he
compensation only after he has completely or substantially completed his
obligation as agent. His compensation is based on quantum meruit.

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From the Lectures of: Atty. Raymund Christian S. Ong-Abrantes, CPA
may consider appropriate, or even though the agency should
authorize a general and unlimited management.
Please take note that if the SPA is couched in general terms, it does not
involve acts of strict dominion.
This (provision) gives you the idea that the power of attorney or the authority
of an agent, is strictly construed. So even if nilagay diyan na the principal
withholds no power, still the power that is deemed to be authorized pertains
only to acts of administration not to acts of strict dominion.
Example of acts of mere administration:
1.) To sue for collection of debts;
2.) To employ workers and employees needed for the conduct of
business;
3.) To engage legal counsel to preserve the ownership and
possession of the principal property; and
4.) To lease real property to another person for one year or less,
provided that the lease is not registered;
5.) To make customary gifts for charity or employees in the business
managed by the agent;
6.) To borrow money if be urgent and indispensable for the
preservation of the things which are under administration
In Goquiolay vs Sycip, with regard to the power of compromise to sell,
mortgage and other acts of strict dominion, an express power of attorney
is required.
Article 1878 gives you the acts for which special power of attorney is
required. Please memorize this provision. If there is one article you have
to memorize in Agency, ito yun.
Article 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; xxx
There is transmission of ownership. Let’s say may negosyo pero
payment sa pagbayad mo ng inventory or pagbayad mo ng electricity or
pagbayad mo ng rent. General power lang yan kasi day-to-day business
pero if it is not usually considered as acts of administration, you require
such a power of attorney.
xxx
(2) To effect novations which put an end to obligations
already in existence at the time the agency was
constituted; xxx
If you try to look at the list, basically the premise now is because these
are onerous to the principal that is why it has to be expressly authorized
through a special power of attorney.
Woodchild Holding, Inc. vs Roxas Electric and Construction
Company, Inc.
(Digest by: Cyndall Jardinel)
FACTS: Roxas Electric and Construction Company, Inc. (RECCI)
authorized its President Roberto B. Roxas through a resolution to
sell a parcel of land owned by the corporation, and to execute, sign
and deliver for and on behalf of the company.
Petitioner Woodchild Holdings, Inc. (WHI) through its President
Jonathan Y. Dy, offered to buy the land from RECCI.The offer to
purchase stated that it is made on the representation and warranty
of the OWNER/SELLER, that he holds a good and registrable title
to the property, which shall be conveyed CLEAR and FREE of all
liens and encumbrances, and that in the event tha tthe right of way
is insufficient for the buyer’s purpose, the seller agrees to sell
additional square meter from his current adjacent property to allow
the buyer full access and full use of the property.
Roxas accepted the offer and indicated his acceptance on Page 2
of the Deed. The sale was consummated.WHI subsequently
entered into a construction agreement with Wimbeco Builder’s
Inc.(WBI) for the construction of a warehouse, and a lease
agreement with Poderosa Leather Goods Company, Inc. with a
condition that the warehouse be ready by April 1, 1992. The
building was finished and Poderosa became the lessee. - WHI
complained to Roberto Roxas that the vehicles of RECCI were
parked on a portion of the property over which WHI had been
granted a right of way. Roxas promised to look into the matter.
Dy and Roxas discussed the need of the WHI to buy a 500-square-
meter portion the adjacent lot as provided for in the deed of
absolute sale. However, Roxas died soon thereafter. WHI wrote the
RECCI, reiterating its verbal requests to purchase a portion of the
said lot as provided for in the deed of absolute sale, and
complained about the latter’s failure to eject the squatters within the
three-month period agreed upon in the said deed.
RECCI rejected the demand of WHI, so WHI filed a case for
Specific Performance and Damages in the RTC of Makati.
RTC ruled in favor of WHI. CA reversed the RTC decision and
dismissed the complaint. The CA ruled that, under the resolution of
the Board of Directors of the RECCI, Roxas was merely authorized
to sell the first lot, but not to grant right of way in favor of the WHI
over a portion of the second lot, or to grant an option to the
petitioner to buy a portion thereof.
ISSUE: WON Roxas has authority to sell the subject lot.
RULING: Roxas was not authorized.
SC ruled in favor of the respondent. Judgment of CA affirmed with
modification.
A corporation is a juridical person separate and distinct from its
stockholders or members. Indubitably, a corporation may act only
through its board of directors or, when authorized either by its by-
laws or by its board resolution, through its officers or agents in the
normal course of business. The general principles of agency
govern the relation between the corporation and its officers or
agents, subject to the articles of incorporation, by-laws, or relevant
provisions of law.
In this case, the respondent denied authorizing its then president
Roberto B. Roxas to sell a portion of Lot No. 491-A-3-B-1 covered
by TCT No. 78085, and to create a lien or burden thereon. The
petitioner was thus burdened to prove that the respondent so
authorized Roxas to sell the same and to create a lien thereon.
Evidently, Roxas was not specifically authorized under the said
resolution to grant a right of way in favor of the petitioner on a
portion of the second lot or to agree to sell to the petitioner a portion
thereof. The authority of Roxas, under the resolution, to sell Lot No.
491-A-3-B-2 covered by TCT No. 78086 did not include the
authority to sell a portion of the adjacent lot, Lot No. 491-A-3-B-1,
or to create or convey real rights thereon. Neither may such
authority be implied from the authority granted to Roxas to sell Lot
No. 491-A-3-B-2 to the petitioner on such terms and conditions
which he deems most reasonable and advantageous. Under
paragraph 12, Article 1878 of the New Civil Code, a special power
of attorney is required to convey real rights over immovable
property.
Powers of attorney are generally construed strictly and courts will
not infer or presume broad powers from deeds which do not
sufficiently include property or subject under which the agent is to
deal. The general rule is 
that the power of attorney must be
pursued within legal strictures, and the agent can neither go
beyond it; nor beside it. The act done must be legally identical with
that authorized to be done. In sum, then, the consent of the
respondent to the assailed provisions in the deed of absolute sale
was not obtained; hence, the assailed provisions are not binding
on it.
We reject the petitioners submission that, in allowing Roxas to
execute the contract to sell and the deed of absolute sale and
failing to reject or disapprove the same, the respondent thereby
gave him apparent authority to grant a right of way over Lot No.
491-A-3-B-1 and to grant an option for the respondent to sell a
portion thereof to the petitioner. Absent estoppel or ratification,
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apparent authority cannot remedy the lack of the written power
required under the statement of frauds. In addition, the petitioners
fallacy is its wrong assumption of the unproved premise that the
respondent had full knowledge of all the terms and conditions
contained in the deed of absolute sale when Roxas executed it.
For the principle of apparent authority to apply, the petitioner was
burdened to prove the following:
(a) the acts of the respondent justifying belief in the agency by the
petitioner;
(b) knowledge thereof by the respondent which is sought to be held;
and,
(c) reliance thereon by the petitioner consistent with ordinary care
and prudence.
In this case, there is no evidence on record of specific acts made
by the respondent showing or indicating that it had full knowledge
of any representations made by Roxas to the petitioner that the
respondent had authorized him to grant to the respondent an option
to buy a portion of Lot No. 491-A-3-B-1 covered by TCT No. 78085,
or to create a burden or lien thereon, or that the respondent allowed
him to do so.
October 6, 2017
Transcriber: Shats Tagtagan and Jeniffer Mortejo
Shopper’s Paradise Realty & Development Corp. vs Roque
G.R. No. 148775. January 13, 2004
(Digest by: Cyndall Jardinel)
FACTS: Petitioner Shopper’s Paradise Realty & Development
Corporation, represented by its president, Veredigno Atienza,
entered into a twenty-five year lease with Dr. Felipe C. Roque, now
deceased, over a parcel of land in the name of Roque. Petitioner
issued to Dr. Roque a check for P250,000.00 by way of “reservation
payment.”
Simultaneously, petitioner and Dr. Roque likewise entered into a
memorandum of agreement for the construction, development and
operation of a commercial building complex on the property.
Conformably with the agreement, petitioner issued a check for
another P250,000.00 “downpayment” to Dr. Roque. The contract
of lease and the memorandum of agreement, both notarized, were
never annotated on the Certificate of title because of the untimely
demise of Roque.
Roque’s death constrained petitioner to deal with respondent Efren
P. Roque, one of the surviving children of the late Dr. Roque, but
the negotiations broke down due to some disagreements. In a
letter, respondent advised petitioner “to desist from any attempt to
enforce the aforementioned contract of lease and memorandum of
agreement”.
On 15 February 1995, respondent filed a case for annulment of the
contract of lease and the memorandum of agreement, with a prayer
for the issuance of a preliminary injunction before the RTC alleging
that he had long been the absolute owner of the subject property
by virtue of a deed of donation inter vivos executed in his favor by
his parents, Dr. Felipe Roque and Elisa Roque, and that the late
Dr. Felipe Roque had no authority to enter into the assailed
agreements with petitioner.
The donation was made in a public instrument duly acknowledged
by the donor-spouses before a notary public and duly accepted on
the same day by respondent before the notary public in the same
instrument of donation. The title to the property, however,
remained in the name of Dr. Felipe C. Roque, and it was only
transferred to and in the name of respondent sixteen years later.
Respondent, while he resided in the United States of America,
delegated to his father the mere administration of the property.
Respondent came to know of the assailed contracts with petitioner
only after retiring to the Philippines upon the death of his father.
The trial court dismissed the complaint of respondent. On appeal,
the CA reversed the decision of the trial court and held to be invalid
the Contract of Lease and Memorandum of Agreement.
ISSUE: W/N Dr. Felipe Roque was an authorized agent of the
respondent.
HELD: NO. In a contract of agency, the agent acts in
representation or in behalf of another with the consent of the latter.
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
isthus necessary for its execution through an agent.
The Court cannot accept petitioner's argument that respondent is
guilty of laches. Laches, in its real sense, is the failure or neglect,
for an unreasonable and unexplained length of time, to do that
which, by exercising due diligence, could or should have been done
earlier; it is negligence or omission to assert a right within a
reasonable time, warranting a presumption that the party entitled
to assert it either has abandoned or declined to assert it.
Respondent learned of the contracts only in February 1994 after
the death of his father, and in the same year, during November, he
assailed the validity of the agreements. Hardly, could respondent
then be said to have neglected to assert his case for an
unreasonable length of time. Neither is respondent estopped from
repudiating the contracts.
Dominion Insurance Corporation vs. CA (2002)
(Digest by: Jennifer Lim)
FACTS:
In 1991, Rodolfo Guevarra (Guevarra) filed a civil case for sum of
money against Dominion Insurance Corp. (Dominion) for the
amount advanced( P156,473.90) by Guevarra in his capacity as
manager of defendant to satisfy certain claims filed by defendant’s
client.
Dominion, however, stated that they are not liable to pay
respondent because he had not acted within his authority as an
agent for Dominion. They have instructed the respondent that the
payment for the claims of the insured should be taken from the
revolving fund, not from respondents’ personal money
The pre-trial was always postponed. During one of the pre-trial
conferences, Dominion failed to arrive and the court declared them
to be in default. Dominion filed a Motion to Lift Order of Default but
was denied by the court. The RTC rendered its decision making
Dominion liable to repay Guevarra for the sum advanced, other
damages and attorney’s fees. Dominion appealed but CA affirmed
the decision of RTC and denied the appeal of Dominion.
ISSUE/S:
(a) Whether or not Guevarra acted within his authority as agent of
petitioner.
(b) Whether or not Guevarra must be reimbursed for the amount
advanced.
HELD:
(a) NO. By the contract of agency, a person binds himself to
render some service or to do something in representation or
on behalf of another, with the consent or authority of the latter.
The basis for agency is representation. On the part of the
principal, there must be an actual intention to appoint or an
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intention naturally inferrable from his words or actions, and on
the part of the agent, there must be an intention to accept the
appointment and act on it,and in the absence of such intent,
there is generally no agency.
Even though the contact entered into by Guevarra and Dominion
was with the word “special” the contents of the document was
actually a general agency. A general power permits the agent to do
all acts for which the law does not require a special power and the
contents in the document did not require a special power of
attorney. Art 1878 provides for instances when a special power of
attorney is required:
1) To make such payment as are not usually
considered as acts of administration.
XXXXXX
15) any other act of dominion
The payment of claims is not an act of administration which
requires a special power of attorney before Guevarra could settle
the insurance claims of the insured.
(b) YES. Guevarra was instructed that the payment for the insured
must come from the revolving fund or collection in his possession,
Gueverra should not have paid the insured through his own
capacity. An agent who acted in contravention of the principal’s
instruction the principal will not be liable for the expenses incurred
by the agent. This conclusion is in accord with Article 1918, Civil
Code, which states that:
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 principals
instructions, unless the latter should wish to avail
himself of the benefits derived from the contract;
xxx xxx xxx
However, While the law on agency prohibits
respondent Guevarra from obtaining reimbursement, his right to
recover may still be justified under the general law on obligations
and contracts.
Article 1236, second paragraph, Civil Code,
provides:
Whoever pays for another may demand from the debtor
what he has paid, except that if he paid without the
knowledge or against the will of the debtor, he can
recover only insofar as the payment has been beneficial
to the debtor.
In this case, when the risk insured against occurred, petitioners
liability as insurer arose. This obligation was extinguished when
respondent Guevarra paid the claims and obtained Release of
Claim Loss and Subrogation Receipts from the insured who were
paid. Thus, to the extent that the obligation of the petitioner has
been extinguished, respondent Guevarra may demand for
reimbursement from his principal. To rule otherwise would result in
unjust enrichment of petitioner.
Q: The money should be taken from the revolving fund. But what he did was
he used his personal money. Did he exceed his authority?
A: Yes. In this case, meron silang Special Power of Attorney. However, the
specific acts indicated in the SPA are of general nature. SC said you cannot
construe it as SPA. SPAs are strictly construed.
Adriano vs. Pangilinan (2002)
(Digest by: Jennifer Lim)
FACTS:
The petitioner Adriano is the registered owner of a parcel of land
covered by Transfer Certificate of Title No. 337942. Sometime on
1990, petitioner entrusted the original owner's copy of the TCT to
Salvador, a distant relative, for the purpose of securing a mortgage
loan.
Thereafter without the knowledge and consent of petitioner,
Salvador mortgaged the property to Respondent Pangilinan.
Subsequently when petitioner verified the status of his title with the
RD of Marikina, he was surprised to discover that there was already
annotation for REM in the title, purportedly executed by one
Adriano, in favor of the Respondent, in consideration of
P60,000.00, petitioner then denied that he executed deed.
After repeated demand by the petitioner that respondent return or
reconvey to him his title to the said property and when these
demands were ignored or disregarded, he instituted the present
suit.
Respondent claimed that petitioner voluntarily entrusted his title
Salvador for the purpose of securing a loan, thereby creating a
principal-agent relationship between the plaintiff and Salvador for
the aforesaid purpose. Thus, according to respondent, the
execution of the REM was within the scope of the authority granted
to Salvador; that in any event that since the said TCT has remained
with petitioner, the latter has no cause of action for reconveyance
against him." The trial court ruled in favor of the petitioner, and the
CA reversed the said decision.
ISSUE: Whether or not Salvador was acted as an agent of
petitioner (to excuse the purchaser from concurrent neglience).
HELD: No. Since he knew that the property was being leased,
respondent should have made inquiries about the rights of the
actual possessors. He could have easily verified from the lessees
whether the claimed owner was, indeed, their lessor.
Petitioners act of entrusting and delivering his TCT and Residence
Certificate to Salvador was only for the purpose of helping him find
a money lender. Not having executed a power of attorney in her
favor, he clearly did not authorize her to be his agent in procuring
the mortgage. He only asked her to look for possible money
lenders. Article 1878 of the Civil Code provides:
Art. 1878. Special powers of attorney are necessary in
the following cases:
xxxxxxxxx
(7) To loan or borrow money, unless the latter act be
urgent and indispensable for the preservation of the
things which are under administration;
xxxxxxxxx
(12) To create or convey real rights over immovable
property;
x x x x x x x x x.
As between petitioner and respondent, the court ruled that the
failure of the latter to verify essential facts was the immediate cause
of his predicament. Thus, assuming that both parties were
negligent, the Court opines that respondent should bear the
loss. His superior knowledge of the matter should have made him
more cautious before releasing the loan and accepting the identity
of the mortgagor.
Given the particular circumstances of this case, the SC believed
that the negligence of petitioner is not enough to offset the fault of
respondent himself in granting the loan. The former should not be
made to suffer for respondent’s failure to verify the identity of the
mortgagor and the actual status of the subject property before
agreeing to the real estate mortgage. While we commiserate with
respondent -- who in the end appears to have been the victim of
scoundrels -- his own negligence was the primary, immediate and
overriding reason that put him in his present predicament.
To summarize, SC ruled that both law and equity favor
petitioner. First, the relevant legal provision, Article 2085 of the Civil
Code, requires that the mortgagor be the absolute owner of the
thing x x x mortgaged. Here, the mortgagor was an impostor who
executed the contract without the knowledge and consent of the
owner. Second, equity dictates that a loss brought about by the
concurrent negligence of two persons shall be borne by one who
was in the immediate, primary and overriding position to prevent
it. Herein respondent who, we repeat, is engaged in the business
of lending money secured by real estate mortgages could have
easily avoided the loss by simply exercising due diligence in
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ascertaining the identity of the impostor who claimed to be the
owner of the property being mortgaged. Finally, equity merely
supplements, not supplants, the law. The former cannot
contravene or take the place of the latter.
People vs. Carpo (2001) (more on Evidence and Crim Pro na
case)
(Digest by: Jennifer Lim)
Facts:
The accused Jaime Carpo impute error to the trial court for relying
on the testimony of a single witness in convicting them of multiple
murder complexed with attempted murder for the death of
Florentino Dulay, Norwela Dulay and Nissan Dulay, and the
wounding of Noemi Dulay.
Since the three (3) murders and attempted murder were produced
by a single act, namely, the explosion caused by the hurling of a
grenade into the bedroom of the Dulays, the case comes under Art.
48 of The Revised Penal Code on complex crimes.
The court a quo's award of damages was in the "negotiated amount
of P600,00.00." It appears that under the auspices of the trial court
counsel for the defense entered into an oral compromise with the
public prosecutor, which was subsequently ratified by the private
complainant, limiting the amount of civil liability to P600,000.00.
“From TSN of the case (just in case, it would be
asked in the recits)
PROS. CORPUZ: x x x x (W)e would like to enter
into stipulation the civil aspect of the case.
COURT: Are the accused confident that they
could be acquitted in this case? Atty
Sanglay?
ATTY. SANGLAY: I think so, your Honor.
COURT: What about Atty. Rafael?
ATTY. RAFAEL: We are confident, your Honor.
COURT: All right. So you can easily
stipulate. First of all, how much do you
want Fiscal?
PROS. CORPUZ: P1,282,740.00, your Honor x x
xx
COURT: x x x x Agree gentlemen of the defense?
ATTY. SANGLAY: P600,000.00, your Honor.
COURT: Do you agree Fiscal?
PROS. CORPUZ: Yes, your Honor.
COURT: All right so P600,000.00 is the agreed
liquidated amount in case of conviction
without necessarily having to interpret this
stipulation as admission of guilt on the part
of any of the accused. All right so we will
dispense with the testimony on the civil
aspect x x x x
COURT: x x x x Are you the private complainant
in this case?
TERESITA DULAY: Yes, sir.
COURT: If the accused get convicted and I will
hold them severally liable for you of
damages in the liquidated sum of
P600,000.00 as agreed upon by the
counsel, will you be satisfied? x x x x
TERESITA: Yes, sir.
COURT: So let that be of record. Will you sign
the note so that there will be evidence.”
ISSUE: whether or not the exercise of attys power to compromise
bound the accused Jaime
HELD: No. Article 1878 of the Civil Code and Sec. 23 of Rule 138
of the Rules of Court set forth the attorney's power to
compromise. Under Art. 1878 of the Civil Code, a special power of
attorney is necessary "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." On the other hand, Sec. 23, Rule
138 of the Rules of Court provides, "(a)ttorneys have authority to
bind their clients in any case by any agreement in relation thereto
made in writing, and in taking appeal, and in all matters of ordinary
judicial procedure, but they cannot, without special authority,
compromise their clients' litigation or receive anything in discharge
of their clients' claims but the full amount in cash."
The requirements under both provisions are met when there is a
clear mandate expressly given, by the principal to his lawyer
specifically authorizing the performance of an act. It has not
escaped our attention that in the present case counsel for both
parties had no special power of attorney from their clients to enter
into a compromise. However, insofar as Teresita was concerned,
she was apprised of the agreement and in fact had signed her
name as instructed by the court, thereby tacitly ratifying the same.
As for accused-appellants, the aforecited dialogue between the
court and counsel does not show that they were ever consulted
regarding the proposed settlement. In the absence of a special
power of attorney given by accused-appellants to their counsel, the
latter can neither bind nor compromise his clients' civil liability.
Consequently, since Atty. Sanglay and Atty. Rafael had no specific
power to compromise the civil liability of all accused-appellants, its
approval by the trial court which did not take the precautionary
measures to ensure the protection of the right of accused-
appellants not to be deprived of their property without due process
of law, could not legalize it. For being violative of existing law and
jurisprudence, the settlement should not be given force and effect.
Gloria Anacleto vs Alexander Van Twest
August 29, 2000
(Digest by: Lilybeth Petallo)
FACTS:
This arose from a complaint for reconveyance of title filed by
Atty. Ernesto Perez, in the name of Alexander Van Twest and
Euroceanic (respondents), as against Gloria Anacleto (petitioner)
and Isaias Bongar, on Feb 6 1995.
According to Atty. Perez, Van Twest, has been reported
missing since June 16, 1992, but is duly represented by said
Atty. Perez as his agent/or general counsel.
Eventually, a compromise agreement was entered into by
petitioner and Atty. Perez, in representation of Van Twest. It was
stipulated therein that petitioner shall pay the debts directly to
Atty. Perez. The TC rendered judgment based on the said
compromise agreement.
However, petitioner, represented by new counsel, filed an urgent
omnibus motion asking the Court to order Atty. Perez to
submit a SPA, and in the meantime to defer petitioner’s
compliance with her obligation under the compromise agreement.
ATTY. PEREZ’ CONTENTION:
Although Atty. Perez admitted that he had no SPA from Van
Twest to enter into a compromise agreement, he claims that
petitioner is estopped from denying his authority since
petitioner’s former counsel (law firm of Salonga, Hernandez, and
Allado) was informed of this fact. The TC & CA sustained this
argument.
ISSUE:
a. WON a lawyer, in representation of his client, may enter
into a compromise agreement in the absence of a SPA.
(NO. SPA IS REQUIRED.)
b. WON petitioner is estopped from denying the absence
of the SPA for having been informed of such fact during
the negotiations. (NOT ESTOPPED)
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HELD: A lawyer, in representation of his client (respondents),
cannot enter into a compromise agreement without a SPA. Even if
the petitioner was aware of the absence of the SPA from the start,
the petitioner cannot be held to be in estoppel, since the SPA is a
mandatory requirement.
A. ATTY. PEREZ IS WITHOUT SPA TO COMPROMISE
1. With respect to respondent Van Twest:
Atty. Perez admitted that his only authority to represent is the
retainer agreement he had with Van Twest. However, this did
not include a special authority to enter into a compromise
agreement.
Rule 138, Sec. 23 provides that attorneys cannot, without
special authority, compromise their client’s litigation.
Further, Article 1878(3), NCC provides that SPAs are
necessary in cases of a compromise.
Indeed, a SPA constituting Atty. Perez as attorney-in-fact is
necessary.
2. With respect to respondent Euroceanic:
It should be noted that the action for reconveyance filed by Atty.
Perez was brought not only in behalf of Van Twest but also of
Euroceanic, a juridical person.
As a rule, the power to compromise or settle claims in favor
of or against the corporation is vested in the board of
directors.
Hence, in the absence of any authorization from the board of
directors of Euroceanic, Atty. Perez could not file any suit in
its behalf, regardless of the fact that Van Twest was the former
chairman of its board.
B. ESTOPPEL DOES NOT APPLY.
The CA held that petitioner is estopped to deny Atty. Perez’
authority to represent respondents because petitioner knew from
the start of the negotiations for the compromise agreement that
Atty. Perez had no SPA. (LACKS MERIT)
Estoppel does not apply. Although petitioner’s former counsel
knew that Atty. Perez had no SPA, said counsel nonetheless
negotiated with him because of his representation that he was
the representative of Van Twest and that he could secure an
SPA from the heirs of Van Twest. Petitioner was thus well
within her right in relying upon such representation of Atty. Perez.
Of importance is paragraph 5 of the compromise agreement
which provides that “[t]he signatories to this Agreement hereby
represent and warrant that they are duly authorized to execute
this Agreement.”
By virtue of this provision, petitioner had the right to require Atty.
Perez to secure the necessary authority from Van Twest or the
latter’s heirs as well as from Euroceanic. Indeed, petitioner
cannot be faulted for treating this warranty as a condition
precedent to her compliance with the compromise agreement
since the requirement of special authority is mandatory and a
lawyer’s authority to compromise cannot simply be
presumed.
C. What injury will result if we sustain the CA’s
decision in affirming the compromise agreement
despite the absence of the SPA?
The risk of sustaining the decision of the Court of Appeals is
that:
a. In requiring petitioner to pay a debt to a stranger, we
cannot just rely on the guaranty of Atty. Perez that
he would hold any money he receives in the cases he
has filed in trust for Van Twest and/or Euroceanic.
b. There is no stopping Van Twest and/or Euroceanic
from suing petitioner again for the same cause of
action if they are unable to recover the money from Atty.
Perez.
c. In fact, the law does not even require them to
recognize the trust unilaterally created by Atty.
Perez or first seek to recover from him.
Hence, the absence of the SPA in favor of Atty. Perez is fatal. The
fact that the compromise agreement was approved by the lower
court does not make it final and executory. Since a compromise
agreement is also a contract, it is considered void for lack of the
consent or special authority from Van Twest and/or Euroceanic.
Hence, the compromise agreement is not enforceable in the
absence of the lawyer’s SPA.
WHEREFORE, the decision of the Court of Appeals dismissing petitioner’s action for certiorari is
hereby REVERSED and, consequently, the decision of the Regional Trial Court, Branch 7, Manila,
based on the compromise agreement of the parties, is ANNULLED and SET ASIDE and the
compromise agreement itself is declared without force and effect.
Q: Was the regular (?) agreement sufficient?
A: No. There must be SPA providing for such authority.
Loyola Security and Detective Agency vs National Labor
Relations Commission
May 9, 1995
(Digest by: Lilybeth Petallo)
FACTS:
This involves a complaint for illegal dismissal, etc. filed by Victor
Prado Sr. and Matilde Tuscano (respondents) against Loyola
Security and Detective Agency and/or GM Ruperto Acle Jr.
(petitioners).
Labor Arbiter ruled in favor of respondents. NLRC affirmed.
So, respondents subsequently filed a Motion for Issuance of a
Writ of Execution. But thereafter, they filed a Joint Manifestation
acknowledging complete satisfaction of the award.
However, respondents again filed a Motion for the Issuance of an
Alias Writ of Execution for the Recovery of the Balance of the
Award, claiming that they received less than the award of LA. This
motion was granted
Petitioner moved for reconsideration, but was denied. Hence, this
petition.
PETITIONERS’ CONTENTION:
That respondent Prado’s acts of entering into a compromise
agreement and in accepting an advance of P5,000 from
petitioner Acle constituted a novation of the award adjudged by
the LA.
ISSUE: WON the compromise agreement is valid and
enforceable. (NOT VALID)
HELD: The compromise agreement is not valid:
a. There is no compliance with the NLRC rules which
requires the assistance of counsel and approval of the
LA in approving the compromise agreement; and
b. There is no compliance with Article 1878, NCC which
requires that a SPA is necessary to effect novations, to
compromise, to waive any obligation gratuitously, any in
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From the Lectures of: Atty. Raymund Christian S. Ong-Abrantes, CPA

any other act of strict dominion. In this case, there was Hence, the petition.
no showing that respondent Prado was duly
authorized by co-respondent Tuscano to waive a ISSUE:
part of the award given to her – considering that
respondent Prado executed the compromise a. WON Perla’s SPA covers the subject property in REM. (NOT
agreement not only on his own behalf but also on behalf COVERED)
of co-respondent Tuscano. b. WON Perla’s subsequent revocation of the SPA effectively
removed Julian’s authority to mortgage the property. (YES,
SPA REVOKED.)
Hence, being violative of existing law and jurisprudence, such c. WON respondent bank is a mortgagee in good faith. (NO)
settlement cannot be given force and effect. d. WON the REM is null and void. (NOT NULL AND VOID BUT
UNENFORCEABLE, WITHOUT PERLA’S RATIFICATION)
WHEREFORE, the petition is DISMISSED and petitioner company is ORDERED to PAY private
respondents the amount of P48,317.93, in addition to the partial payment of P43,000.00, to satisfy
the monetary award which has long become final and executory. HELD: Perla’s SPA does not cover the subject property in REM.
Julian’s authority was subsequently revoked at the time the loan
obligation took place, and respondent bank as mortgagee should
have exercised extraordinary diligence to know of such fact.
Lilian Mercado vs Allied Banking Corp Nonetheless, the REM is not null and void but is unenforceable in
July 27, 2007 the absence of Perla’s ratification of the same.
(Digest by: Lilybeth Petallo)
A. PERLA’S SPA DOES NOT COVER THE PROPERTY
FACTS: IN REM.

This involves the mortgage entered into by Julian Mercado (the

husband), based on the alleged SPA executed in his favor by 1. Julian was granted a special power of authority by
Perla Mercado (the wife) on May 28 1992, under the ff. Perla…
circumstances:

a. On Dec 12 1996, Julian mortgaged with Allied Banking
Corp. (respondent bank) the subject property covered
by TCT No. RT-18206 (106338) registered with the
ROD-Quezon City to secure a loan of P3M, and the
additional loan of P5M. (However, no such property is
identified in the SPA)
b. Rather, the SPA covers, among others, a property
covered by TCT No. RT-106338 registered with the
ROD- Pasig.
Because Julian defaulted payment, respondent bank foreclosed
the REM.
Under Article 1878 of the Civil Code, a special power of
attorney is necessary in cases where real rights over
immovable property are created or conveyed. In the SPA
executed by Perla in favor of Julian on 28 May 1992, the latter
was conferred with the authority to "sell, alienate, mortgage, lease
and deal otherwise" the different pieces of real and personal
property registered in Perla's name. The SPA likewise authorized
Julian "[t]o exercise any or all acts of strict dominion or
ownership" over the identified properties, and rights and interest
therein.
There is no question therefore that Julian was vested with the
power to mortgage the pieces of property identified in the SPA.

2. …however, the SPA does not cover the subject

This prompted heirs of deceased Perla (petitioner-heirs) to file an property…
action for the annulment of REM constituted over the subject
property on the ground that: The SPA contained an exclusive enumeration of the pieces of
a. the subject property was not covered by the SPA, and property over which Julian had authority. Nowhere is it stated in
b. the said SPA, at the time the loan obligations were the SPA that Julian's authority extends to the subject
contracted, no longer had force and effect since it was property covered by TCT No. RT – 18206 (106338) registered
previously revoked by Perla on Mar 10 1993, as with the Registry of Deeds of Quezon City.
evidenced by her Letter dated Jan 23 1996, notifying
ROD-Quezon City that any attempt to mortgage or sell 3. … and the two properties are not one and the same.
the subject property must be with her full consent.
Respondent bank claims that TCT No. RT-182206 (property in
RESPONDENT BANK’S CONTENTION: SPA) is merely a reconstitution of TCT No. 106338 (property in
REM), and the property is actually situated in QC, not Pasig. The
That the TCT No. RT-106388 registered with ROD-Pasig [the failure of the instrument to reflect the recent TCT Number or the
property in SPA] was reconstituted as TCT RT-18206(106338) exact designation of the ROD should not defeat Perla’s clear
registered with ROD-QC [the property in REM]. Hence, the two intention. (LACKS MERIT)
are one and the same.
After an examination of the literal terms of the SPA, we find that
the subject property was not among those enumerated therein.
There was also nothing in the language of the SPA from which we
RTC nullified the REM, in favor of petitioner-heirs, for Julian’s could deduce the intention of Perla to include the subject property
lack of authority by the terms of the SPA. therein. In cases where the terms of the contract are clear as to
leave no room for interpretation, resort to circumstantial evidence
to ascertain the true intent of the parties, is not countenanced.
CA REVERSED, finding that Perla intended the subject property
to be included in the SPA she executed in favor of Julian, and that
her subsequent revocation of the said SPA, not being Also, a power of attorney must be strictly construed and
contained in a public instrument, cannot bind third persons. pursued. The instrument will be held to grant only those
powers which are specified therein, and the agent may
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From the Lectures of: Atty. Raymund Christian S. Ong-Abrantes, CPA
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. Thus, there must be
“strict and limited construction of the terms of a SPA”.
Thus, SC is not convinced that the two properties are the same.
There was no supporting proofs to verify respondent bank’s claim:
a. It failed to present any certification from the ROD,
b. Respondent bank did not take the effort of submitting
and making part of the records of this case copies of the
two TCTs and closely comparing them.
Hence, Julian was not conferred by Perla with the authority to
mortgage the subject property.
B. SPA WAS REVOKED.
Assuming arguendo that the subject property was indeed included
in the SPA executed by Perla in favor of Julian, the said SPA was
revoked by virtue of a public instrument executed by Perla
on 10 March 1993. The revocation of the agency or SPA is
expressed and by a public document.
The Register of Deeds of Quezon City was even notified that
any attempt to mortgage or sell the property covered by TCT
No. [RT-18206] 106338 located at No. 21 Hillside Drive, Blue
Ridge, Quezon City must have the full consent documented in
the form of a special power of attorney duly authenticated at
the Philippine Consulate General, New York City, N.Y., U.S.A.
The non-annotation of the revocation of the Special Power of
Attorney on TCT No. RT-18206 is of no consequence as far as
the revocation's existence and legal effect is concerned since
actual notice is always superior to constructive notice.
Besides, it developed that at the time the first loan transaction
with defendant Bank was effected on December 12, 1996, there
was on record at the Office of the Register of Deeds of
Quezon City that the special power of attorney granted
Julian, Sr. by Perla had been revoked. That notice, works as
constructive notice to third parties of its being filed, effectively
rendering Julian, Sr. without authority to act for and in behalf
of Perla as of the date the revocation letter was received by the
Register of Deeds of Quezon City on February 7, 1996.
Given that Perla revoked the SPA as early as 10 March 1993, and
that she informed the Registry of Deeds of Quezon City of such
revocation in a letter dated 23 January 1996 and received by the
latter on 7 February 1996, then third parties to the SPA are
constructively notified that the same had been revoked and Julian
no longer had any authority to mortgage the subject property.
C. RESPONDENT BANK IS NOT A MORTGAGEE IN
GOOD FAITH
Respondent bank cannot now claim to be an innocent mortgagee.
By principle, while it is true, x x x that a person dealing with
registered lands need not go beyond the certificate of title, it
is likewise a well-settled rule that a purchaser or mortgagee
cannot close his eyes to facts which should put a reasonable
man on his guard, and then claim that he acted in good faith
under the belief that there was no defect in the title of the
vendor or mortgagor.
This principle is applied more strenuously when the
mortgagee is a bank or a banking institution.
Considering that the property mortgaged by Julian was not his,
and there are additional doubts or suspicions as to the real
identity of the same, based on the:
a. Palpable difference between the TCT numbers referred
to in the REM and Julian’s SPA, and
b. The registration in the ROD which is of different cities,
these should have put respondent bank on guard. It should have
proceeded with its transactions with Julian only with utmost
caution. Thus, it failed to discharge the degree of diligence
required of it as a banking corporation.
As a banking institution, jurisprudence stringently requires that
respondent should take more precautions than an ordinary
prudent man should, to ascertain the status and condition of the
properties offered as collateral and to verify the scope of the
authority of the agents dealing with these.
Had respondent acted with the required degree of diligence, it
could have acquired knowledge of the letter dated 23 January
1996 sent by Perla to the Registry of Deeds of Quezon City which
recorded the same.
D. REM IS NOT NULL & VOID BUT UNENFORCEABLE.
Finally, the REM constituted over the subject property are
unenforceable and not null and void. Unenforceable contracts
are those which cannot be enforced by a proper action in court,
unless they are ratified, because either they are entered into
without or in excess of authority or they do not comply with the
statute of frauds or both of the contracting parties do not possess
the required legal capacity. Thus, without Perla's ratification of
the same, the real estate mortgages constituted by Julian over the
subject property cannot be enforced by any action in court
against Perla and/or her successors in interest. Hence,
unenforceable.
WHEREFORE, IN VIEW OF THE FOREGOING, the instant petition is GRANTED. The Decision
dated 12 October 2005 and its Resolution dated 15 February 2006 rendered by the Court of
Appeals in CA-G.R. CV No. 82636, are hereby REVERSED. The Decision dated 23 September
2003 of the Regional Trial Court of Quezon City, Branch 220, in Civil Case No. Q-99-37145, is
hereby REINSTATED and AFFIRMED with modification that the real estate mortgages constituted
over TCT No. RT – 18206 (106338) are not null and void but UNENFORCEABLE. No costs.
Art 1879. A special power to sell excludes the power to mortgage; and a
special power to mortgage does not include the power to sell.
What powers are included in power to sell? Hindi naman pwedeng “You have
to power to sell”, yun lang.
POWER TO SELL INCLUDES:
1) To find a purchaser or to sell directly;
2) To deliver the property;
3) To make the usual representation and warranty;
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From the Lectures of: Atty. Raymund Christian S. Ong-Abrantes, CPA

- Extra representation of warranty means it’s onerous to the belonging to the principal. The agent has no right against the things of the
principal, so you need another SPA for that. principal.

4) To execute the necessary transfer documents; OBLIGATIONS OF THE AGENT

5) To fix the terms of the sale, unless there be set conditions stipulated by Art. 1884. The agent is bound by his acceptance to carry out the agency
the principal and is liable for the damages which through his non-performance the
principal may suffer.
6) To sell only for cash;

- If you want to sell for credit, that is not included in the power to He must also finish the business already begun on the death of the
sell. You have to have special instruction or order from the principal. principal should delay entail any danger.

7) To receive the prices, unless he was authorized only to solicit orders.

GENERAL OBLIGATIONS OF THE AGENT

1) He must act in utmost good faith and loyalty in the advancement and
THE FOLLOWING ARE NOT INCLUDED IN A POWER TO MORTGAGE furtherance of the interest of the principal;
The power to:
1.) Sell; 2) He must obey the principal’s instructions;
nd
2.) Execute a 2 mortgage; 3) He must exercise reasonable care.
rd
3.) Mortgage for the agent’s personal benefit or for the benefit of any 3
person, unless the contrary has been clearly indicated.

SPECIFIC OBLIGATIONS OF THE AGENT

Does a principal have to power to revoke the contract given the agent’s
exclusive authority to sell? Of course, they have the right to use such power
and exercise it within a certain period. Kasi that will constitute bad faith.
Bigyan mo si agent ng authority to sell for 10 days, tapos ika 5th day palang,
nirevoke mo na yun.
Art. 1880. A special power to compromise does not authorize submission
to arbitration.
Rationale: The principal authorizes his agent to compromise because of
absolute confidence in the latter’s judgment and discretion to protect the
principal’s right and to obtain for him his bargain in the transaction. If the
transaction is left in the hands of an arbitrator, then necessarily baka ang
principal hindi sya confident sa arbitrator. Pls. take note that in power to
comprise, the agent sets the terms. Mag negotiate sya. To submit it to
arbitration is to put the negotiation to ___ results. So magkaiba sila.when it
comes to relief (?) of the principal, you need SPA for that.
1) To carry out the agency as accepted;
2) To answer for damages which, through his nonperformance, the principal
may suffer;
3) To finish the business already begun on the death of the principal, should
delay entail any danger;
4) 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;
5) To advance the necessary funds if there’s obligation to do so;
6) To act in accordance with the instruction of the principal. In default thereof,
he shall do all that a good father of a family would do;
7) To not carry out the agency if its execution would manifestly result in loss
or damage to the principal;

Art. 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.
Art. 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.
8) To answer for damages when there is conflict between his interests and
those of the principal, should he prefer his own;
9) To not borrow money if he has been authorized to lend money and
interest;
Why? Kasi conflict of interest. The interest of the agent may not
be necessarily the same with the interest of the principal.

10) To render an account of his transactions and to deliver to the principal

The measure if the authority of the agent generally if it becomes __ to the whatever he may have received by virtue of the agency;
principal, he needs SPA for that. If it is advantageous to the principal, then ok 11) To be responsible for the acts of the substitutes appointed by him;
lang. remember, you are representing the principal. You are as if the
principal. 12) To pay interests on funds he has applied to his own use.

Art. 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.

In such case, the agent is the one directly bound in favor of the person
with whom he contracted, as if the transaction were his own, except when
the contract involves things belonging to the principal.
The provisions of this article shall be understood to be without prejudice
to the actions between the principal and the agent.

If agent contracted in his own name, sya yung liable, kasi si third person
malamang hindi nya alam na agent lang yun, unless it involves things

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From the Lectures of: Atty. Raymund Christian S. Ong-Abrantes, CPA
Art. 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. The owner shall as soon as practicable either appoint an agent
or take charge of the goods.
Art. 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.
Art. 1887. In the execution of the agency, the agent shall act in
accordance with the instructions of the principal.
In default thereof, he shall do all that a good father of a family would do,
as required by the nature of the business.
Art. 1888. An agent shall not carry out an agency if its execution would
manifestly result in loss or damage to the principal.
Art. 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.
Art. 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.
Art. 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.
Art. 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.
BA Finance Corporation vs. Court of AppealsG.R. No. 82040
August 27, 1991
(Digest by: Earvin Alparaque)
Facts:
On July 15, 1977, respondents Manuel and Lilia Cuady obtained
from Supercars, Inc. a credit of P39,574.80 which covered the cost
of one unit of Ford Escort 1300, a four-door sedan. It was
evidenced by a promissory note. The respondents was obligated
to pay the amount in installments of P1,098. There was also a
stipulated penalty of P10 for every month of late installment
payment. As a security, the spouses constituted a chattel mortgage
on the subject vehicle.
On July 25, 1977, Supercars, Inc. assigned the promissory note,
together with the chattel mortgage, to BA Finance Corporation. The
spouses paid a total of P36,730.15, leaving an unpaid balance of
P2,344.65 and an additional P460 representing penalties and
surcharges.
BA Finance Corporation thereafter, as the assignee of the
mortgage lien, obtained the renewal of the insurance coverage
over the subject vehicle with Zenith Insurance Corporation. Under
its terms, any loss under the policy shall be payable to BA Finance
Corp.
On April 18, 1980, the vehicle figured in an accident and was badly
damaged. The spouses asked BA Finance Corp. to consider the
same as total loss and to claim from the insurer the face value of
the car insurance policy and apply the same as payment to the
remaining balance of P2,344.65. Plaintiff corporation did not heed
such request and prevailed upon the spouses to just have the car
repaired. Not long thereafter, the car bogged down. The spouses
once again requested plaintiff to enforce the total loss provision in
the insurance coverage. BA Finance Corp. did not respond
favorably such request and thus, the spouses stopped paying their
monthly installments which prompted the former the sue them for
the recovery of the unpaid balance.
Issue: Whether or not BA Finance Corp. has waived its right to
collect the unpaid balance for failure to enforce the total loss
provision in the insurance coverage- YES
Ruling:
B.A. Finance Corporation was deemed subrogated to the rights
and obligations of Supercars, Inc. when the latter assigned the
promissory note, together with the chattel mortgage constituted on
the motor vehicle in question in favor of the former. Consequently,
B.A. Finance Corporation is bound by the terms and conditions of
the chattel mortgage executed between the Cuadys and
Supercars, Inc. Under the deed of chattel mortgage, B.A. Finance
Corporation was constituted attorney-in-fact with full power and
authority to file, follow-up, prosecute, compromise or settle
insurance claims; to sign execute and deliver the corresponding
papers, receipts and documents to the Insurance Company as may
be necessary to prove the claim, and to collect from the latter the
proceeds of insurance to the extent of its interests, in the event that
the mortgaged car suffers any loss or damage. In granting B.A.
Finance Corporation the aforementioned powers and prerogatives,
the Cuady spouses created in the former's favor an agency.
Thus, under Article 1884 of the Civil Code of the Philippines,
B.A. Finance Corporation is bound by its acceptance to carry
out the agency, and is liable for damages which, through its
non-performance, the Cuadys, the principal in the case at bar,
may suffer.
Unquestionably, the Cuadys suffered pecuniary loss in the form of
salvage value of the motor vehicle in question, not to mention the
amount equivalent to the unpaid balance on the promissory note,
when B.A. Finance Corporation steadfastly refused and refrained
from proceeding against the insurer for the payment of a clearly
valid insurance claim, and continued to ignore the yearning of the
Cuadys to enforce the total loss provision in the insurance policy,
despite the undeniable fact that Rea Auto Center, the auto repair
shop chosen by the insurer itself to repair the aforementioned
motor vehicle, misrepaired and rendered it completely useless and
unserviceable
Accordingly, there is no reason to depart from the ruling set down
by the respondent appellate court. In this connection, the Court of
Appeals said:
... Under the established facts and circumstances, it is unjust, unfair
and inequitable to require the chattel mortgagors, appellees herein,
to still pay the unpaid balance of their mortgage debt on the said
car, the non-payment of which account was due to the stubborn
refusal and failure of appellant mortgagee to avail of the insurance
money which became due and demandable after the insured motor
vehicle was badly damaged in a vehicular accident covered by the
insurance risk. ... (Ibid.)
This is an example of Art. 1884.
What if the agent declines the agency? *Sir reads Art. 1885*
What is the difference between authority and instruction? In a power to sell,
what would be the instruction? Should an instruction be included in a Special
Power of Attorney? Is it necessary for the third person to know the
instruction?
*Sir reads Art. 1889.*
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From the Lectures of: Atty. Raymund Christian S. Ong-Abrantes, CPA

The rule of strict fidelity requires that the agent should choose the
professional interest of his principal rather than his own, otherwise he will be
liable for damages.
*Sir reads Art. 1890.*
Rationale: The agent can lend money to the principal using the agent’s own
funds at the current rate of interest and NOT at a higher interest rate
because the agent is supposed to act for the principal’s benefit. If the agent
rd
is authorized to lend the principal’s money, with interest, to 3 persons, the
agent can’t be the borrower without the consent of the principal because the
agent may not be a good borrower or he may be insolvent or he may not be
a good risk. There is a danger here that the interest of the principal would be
jeopardized.
There are two instances when agent can be liable:
This would also seem to be the case if the agent is authorized to lend money
w/o interest because of the same reason.
*Sir reads Art. 1891.*
Art. 1895. If solidarity has been agreed upon, each of the agents is
responsible for the non-fulfillment of the agency, and for the fault or
negligence of his fellow agents, except in the latter case when the fellow
agents acted beyond the scope of their authority.
Art. 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.
Art. 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.
1.) When the agent binds himself; or
2.) When he exceeds the limits of his authority without giving the third
party sufficient notice of his powers.

This Article requires full transparency because the agent owes fiduciary __ to
the principal. Kahit may stipulation na hindi magrerender ng accounting, that
is void.
*Sir reads Art. 1892.*
Rustan Pulp & Paper Mills Inc., Bienvenido Tantoco Sr., and
Romeo S. Vergara vs. Intermediate Appellate Court and Iligan
Diversified Products Inc., Rome Lluch and Roberto Borromeo
G.R. No. 70789 October 19,1992
(Digest by: Earvin Alparaque)

This is what we call SUB-AGENT. We have four instances where sub-agents Facts:
are appointed and their effects: On April 1968, a contract of sale was entered into by Romeo Lluch
and Rustan Pulp and Paper Mill Inc., whereby the former agreed to
INSTANCE EFFECTS sell pulp wood materials to the latter at a price of P30 per cubic
meter. The contract contained the following stipulations which
No prohibition Agent responsible for all the acts of became an issue in the present controversy:
sub-agent.
3. That BUYER shall have the option to buy from other
SELLERS who are equally qualified and holders of appropriate
government authority or license to sell or dispose, that BUYER
Prohibition Sub-agent’s acts are VOID as to shall not buy from any other seller whose pulp woods being sold
the principal. shall have been established to have emanated from the SELLER'S
lumber and/or firewood concession. . . .

And that SELLER has the priority to supply the pulp wood materials
Authority to appoint but not Agent liable for acts of sub-agent if requirement of the BUYER;
designated by principal the sub-agent is notoriously
incompetent or insolvent. xxx xxx xxx

7. That the BUYER shall have the right to stop delivery of

Authority to appoint and
designated by principal
the said raw materials by the seller covered by this contract when
Agent is released from any liability
supply of the same shall become sufficient until such time when
from the acts of the sub-agent.
need for said raw materials shall have become necessarily
provided, however, that the SELLER is given sufficient notice.

Art. 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.
Art. 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.
In the installation of the plant facilities, the technical staff of Rustan
Pulp and Paper Mills, Inc. recommended the acceptance of
deliveries from other suppliers of the pulp wood materials for which
the corresponding deliveries were made. But during the test run of
the pulp mill, the machinery line thereat had major defects while
deliveries of the raw materials piled up, which prompted the
Japanese supplier of the machinery to recommend the stoppage of
the deliveries. The suppliers were informed to stop deliveries and
the letter of similar advice sent by petitioners to private respondents
reads:

This is in accordance with your ObliCon. So generally, pag dalawa sila, joint, September 30, 1968
unless stipulated na solidary.
Iligan Diversified Projects, Inc.
Iligan City

Attention: Mr. Romeo A. Lluch

Dear Mr. Lluch:

This is to inform you that the supply of raw materials to us has

become sufficient and we will not be needing further delivery from
you. As per the terms of our contract, please stop delivery thirty
(30) days from today.

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(By: 3-Manresa, S.Y. 2017-2018)
From the Lectures of: Atty. Raymund Christian S. Ong-Abrantes, CPA
On January 23, 1969, a complaint for contractual breach was filed.
The court of origin dismissed the complaint but at the same time
enjoined petitioners to respect the contract of sale and to continue
accepting and paying for the deliveries of pulp wood products. The
IAC affirmed the lower court's decision with a modification by
ordering the petitioners to pay the respondents P30,000 as moral
damages and P15,000 as attorney's fees.
Issue: Whether or not Tantoco and Vergara should be held liable
for the payment of moral damages and attorney's fees- NO
Ruling:
Petitioners argue that Tantoco and Vergara should not have been
adjudged to pay moral damages and attorney's fees because
Tantoco merely represented the interest of Rustan Pulp and Paper
Mills, Inc. while Romeo S. Vergara was not privy to the contract of
sale. On this score, We have to agree with petitioners' citation of
authority to the effect that the President and Manager of a
corporation who entered into and signed a contract in his official
capacity, cannot be made liable thereunder in his individual
capacity in the absence of stipulation to that effect due to the
personality of the corporation being separate and distinct from the
person composing it (Bangued Generale Belge vs. Walter Bull and
Co., Inc., 84 Phil. 164). And because of this precept, Vergara's
supposed non-participation in the contract of sale although he
signed the letter dated September 30, 1968 is completely
immaterial. The two exceptions contemplated by Article 1897
of the New Civil Code where agents are directly responsible
are absent and wanting.
WHEREFORE, the decision appealed from is hereby MODIFIED in
the sense that only petitioner Rustan Pulp and Paper Mills is
ordered to pay moral damages and attorney's fees as awarded
by respondent Court.
SCHMID & OBERLY, INC v. RJL MARTINEZ FISHING CORP.
(Digest by: Eliza Devilleres)
SUMMARY OF THE RULING:
AGENT MAY UNDERTAKE THE OBLIGATIONS OF HIS PRINCIPAL;
CASE AT BAR. — However, even as SCHMID was merely an indentor,
there was nothing to prevent it from voluntarily warranting that twelve (12)
generators subject of the second transaction are free from any hidden
defects. In other words, SCHMID may be held answerable for some other
contractual obligation, if indeed it had so bound itself. As stated above, an
indentor is to some extent an agent of both the vendor and the vendee. As
such agent, therefore, he may expressly obligate himself to undertake the
obligations of his principal [See Art. 1897, Civil Code.]
FACTS:
1.) RJL MARTINEZ is engaged in the business of deep-sea fishing.
2.) As RJL MARTINEZ needed electric generators for some of its boats
and SCHMID sold electric generators of different brands, negotiations
between them for the acquisition thereof took place.
3.) The parties had two separate transactions over "Nagata"-brand
generators. The first transaction was the sale of three (3) generators. In
this transaction, it is not disputed that SCHMID was the vendor of the
generators.
4.) The company supplied the generators from its stockroom; it was also
SCHMID which invoiced the sale.
5.) The second transaction, which gave rise to the present controversy,
involves twelve (12) "Nagata"-brand generators. These are the facts
surrounding this particular transaction:
a) As RJL MARTINEZ was canvassing for generators, SCHMID
gave RJL MARTINEZ its Quotation dated August 19, 1975
[Exhibit "A"] for twelve (12) "Nagatan-brand generators
b) NAGATA CO. a commission of $1,752.00 for the sale of the
twelve generators to RJL MARTINEZ.
c) All fifteen (15) generators subject of the two transactions
burned out after continuous use. RJL MARTINEZ informed
SCHMID about this development. In turn, SCHMID brought
the matter to the attention of NAGATA CO. In July 1976,
NAGATA CO. sent two technical representatives who made
an ocular inspection and conducted tests on some of the
burned-out generators, which by then had been delivered to
the premises of SCHMID.
d) The tests revealed that the generators were overrated.
6.) Initially, SCHMID replaced the three (3) generators subject of the first
sale with generators of a different brand.
7.) CONTENTION OF RJL MARTINEZ: Refund It asks for a refund of the
cost of the generators and also the payment of damages as not all of the
generators were replaced or repaired.
8.) CONTENTION OF SCHMID: It maintained that it was not the seller of
the twelve (12) generators and thus refused to refund the purchase price
therefor.
9.) Hence, RJL MARTINEZ brought suit against SCHMID on the theory
that the latter was the vendor of the twelve (12) generators and, as
such vendor, was liable under its warranty against hidden defects.
ISSUE: W/N SCHMID can be held liable under the contract.
HELD: Yes, it can be held liable. However, even as SCHMID was merely
an indentor, there was nothing to prevent it from voluntarily warranting that
twelve (12) generators subject of the second transaction are free from any
hidden defects. In other words, SCHMID may be held answerable for some
other contractual obligation, if indeed it had so bound itself. As stated
above, an indentor is to some extent an agent of both the vendor and the
vendee. As such agent, therefore, he may expressly obligate himself to
undertake the obligations of his principal [See Art. 1897, Civil Code.]
Q: What was the primary defense of Schmid in this case?
A: That he is only an indentor, Sir.
Q: What is an indentor?
A: An indentor is a middlemen in the same class as commercial brokers and
commission merchants.
Q: What will happen if it is proven that indeed Schmid is only an indentor?
A: He will not be liable.
Recit: DBP vs CA
Q: Did DBP exceed its authority?
A: Yes Sir. DBP exceeded in its authority when it accepted the application
of Juan Dans despite knowledge that he is no longer qualified to obtain
mortgage redemption insurance (MRI).
Art. 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.
So if the agent promised to secure the principal’s ratification, the agent would
be liable.
SALFIC ALCAN Inc. vs. IMPERIAL VEGETABLE OIL, Inc.
(Digest by: Jordan Berguia)
FACTS:
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From the Lectures of: Atty. Raymund Christian S. Ong-Abrantes, CPA
(This is a question of whether the act of the agent which is the president
binds the principal which is the corporation against third party which is
Salfic)
Salfic is a French corporation engaged in international purchase, sale
and trading of coconut oil. So apparently IVO sells coconut oil. Safic then
placed purchase orders with IVO for 2,000 tons of crude coconut oil,
valued at US$222.50 per ton
IVO however failed to deliver and, instead, offered a "wash out"
settlement. (Washout settlement meaning the coconut oil subject of the
purchase contracts were to be "sold back" to IVO). Yet IVO wanted it to
be sold at the prevailing price in the international market at the time of
wash out. And IVO bound itself to pay to Safic the difference between the
said prevailing price and the contract price of the 2,000 tons which
amounted to US$293,500.00.
IVO however failed to pay this amount despite repeated oral and written
demands. Salfic then goes to court and alleged that on eight occasions, it
placed purchase orders with IVO for a total of 4,750 tons and prayed to
collect from IVO an aggregate amount of US$391,593.62 and the
US$293,500.00 difference between the contract price and the
international market value, plus attorney's fees and litigation expenses.
IVO’s defense: “Salfic has no legal capacity to sue since it is doing
business in the Philippines without the required licenses”. And when
pushed further IVO reveals that the subject contracts were speculative
contracts entered into by IVO's President in contravention of the
prohibition by the Board of Directors against engaging in speculative
paper trading.
Evidence shows the board is actually oblivious, clueless about the said
contract. And even truth to the matter is IVO doesn’t even have license
from the Central Bank to engage in speculative contracts. (And why didn’t
they know? Because the president who was signatory to the contract
never even submitted it to the board hence never recorded into the
company’s books of corporation)
ISSUE:
So the question is can the corporation be held liable for the losses
sustained on such contracts or would it be the president that should be
held solidarily liable?NO.
RULING:
1. It is the Board and not the Officer that exercises corporate power. So
the officer is merely an agent who acted beyond the scope of his
authority.
The By-laws of IVO specifically stated that the president would have
direct and active management of the business. A provision in the by-laws
stated “conducting the same according to the orders, resolutions and
instructions of the Board of Directors and according to his own discretion
whenever and wherever the same is not expressly limited by such orders,
resolutions and instructions”
But regarding this the court said that IVO president had no blanket
authority to bind IVO to any contract. He must act according to the
instructions of the Board of Directors. Even in instances when he was
authorized to act according to his discretion, that discretion must not
conflict with prior Board orders, resolutions and instructions.
2. There is no evidence that the board ratified the contracts.
Under Art. 1898 of the Civil Code:
“Acts of an agent beyond the scope of his authority do not bind the
principal unless the latter ratifies the same expressly or impliedly.”
BTW TAKE NOTE: The Doctrine of Apparent Authority favors only those
who deal in good faith. Meaning, if the 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 such
limits of 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.
(Here, the court deemed Salfic has knowledge of the IVO president’s act
of ultra vires since there were much ample time for Salfic to have
obtained from the president prior authorization from the IVO board yet it
didn’t do so)
Q: Was there ratification in this case?
A: There was none Sir. When Monteverde entered into the speculative
contracts with Safic, he did not secure the Board’s approval. He also did not
submit the contracts to the Board after their consummation so there was, in
fact, no occasion at all for ratification.
Q: What is the effect then?
A: Monteverde, as agent, becomes solely liable for not securing the ratification
of the principal.
CERVANTES V. CA
(Digest by: Jordan Berguia)
FACTS:
Cervantes was issued a round ticket for Manila-Honolulu-Los Angeles-
Honolulu-Manila, which ticket expressly providedan expiry date of March
27, 1990. He was issued the said ticket following a compromises
agreement between the twoparties from previous lawsuits. On March 23,
four days before its expiration, he used the ticket and went to Los
Angeles. Hebooked a return ticket for the April 2 flight which was
confirmed by PAL personnel. On the day of his supposed return, hewas
not allowed to board because it was already expired.
ISSUE: WON the PAL agents (personnel), upon confirmation of
Cervantes’ return ticket, extended the validity of theticket.NO.
RULING:
PAL agents’ confirmation did not extend the validity of the ticket. They did
not have authority.
Ratio:
Since the PAL agents are not privy to the said agreement and petitioner
knew that a written request to the legal counsel of PAL was necessary,
he cannot use what the PAL agents did to his advantage. The said
agents acted without authority whenthey confirmed the flights of the
petitioner. If the said third person is aware of such limits of authority, he is
to blame.
Q: What was the contention of Cervantes?
A: Petitioner contended that the confirmation by the PAL’s agents in Los
Angeles and San Francisco changed the compromise agreement between the
parties.
Q: What did the SC say?
A: The SC said that the confirmation did not extend the validity of the tickets.
The PAL agents are not privy to the Agreement and petitioner knew that a
written request to the legal counsel of PAL was necessary, he cannot use what
the PAL agents did to his advantage. The said agents acted without authority
when they confirmed the flights of the petitioner. If the third person is aware of
the limits of authority of the agent, he is to blame, and is not entitled to recover
damages from the agent, unless the latter undertook to secure the principal’s
ratification.
Art. 1899. 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.
So what happens if the principal appoints an agent who is ignorant? Kasalanan
niya yun. Equity demands that the principal should be bound by the acts of the
agent if the latter acts within the scope of his authority and in accordance with
the instructions of the former.
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From the Lectures of: Atty. Raymund Christian S. Ong-Abrantes, CPA
Art. 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.
Does the 3rd person have to inquire further as to the power of attorney? Is it
sufficient for him to just rely on the power of attorney as written? The answer
is no. He is not required to inquire further other than the terms of the written
power of attorney.
If there’s a secret mutual understanding between the principal and the agent
and such is not expressed in the written power of attorney, does the 3rd person
have to inquire?
No. Whatever their mutual understanding, iba na yun. For as long as the
authority is written, it is sufficient.
Ways/Methods by which the agent’s authority may be broaden or
restricted:
1. By implication
Agent’s authority extends not only to express requests but also to those
acts and transactions incidental thereto.
2. By usage and customs
Some of the cases say that if the agent’s acts are normal and customary,
baka pwede pang i-allow kasi incidental naman sya.
3. By necessity
4. By certain doctrines
a. Doctrine of Apparent Authority
b. Doctrine of Liability by Estoppel
c. Doctrine of Ratification
5. By the rule of ejusdem generis
Where an instrument of any kind, an enumeration of specific matters is
followed by a general phrase, the general phrase is held to be limited in
scope by the specific matters.
The concept of Agent by necessity
An agent by necessity is an agent which arises from the existence of an
emergency or other unusual conditions which may operate to invest in an
agent authority to meet the emergency.
SIREDY ENTERPRISES, INC. petitioner, vs. HON. COURT OF
APPEALS and CONRADO DE GUZMAN, respondents.
(Digest by: Jordan Berguia)
QUISUMBING, J.:
FACTS:
Conrado De Guzman is an architect-contractor doing business under the
name and style of Jigscon Construction. SiredyEnterprises, Inc.
(hereafter Siredy) is the owner and developer of Ysmael Village, a
subdivision in Sta. Cruz, Marilao,Bulacan. The president of Siredy is
Ismael E. Yanga.
As stated in its Articles of Incorporation, the primary corporate purpose of
Siredy is to acquire lands, subdivide and developthem, erect buildings
and houses thereon, and sell, lease or otherwise dispose of said
properties to interested buyers.
Sometime before October 1978, Yanga executed an undated Letter of
Authority duly signed by Yanga which constitutedHermogenes Santos as
Siredys agent, whose authority included entering into a contract for the
building of housing units at
Ysmael Village.
Thereafter, Santos entered into a Deed of Agreement with De Guzman.
From October 1978 to April 1990, De Guzman constructed 26 residential
units at Ysmael Village. Thirteen (13) of thesewere fully paid but the other
13 remained unpaid. The total contractual price of these 13 unpaid
houses is P412,154.93which was verified and confirmed to be correct by
Santos, per an Accomplishment Billing that the latter signed. Yanga is
nota signatory to the said contact.
De Guzman tried but failed to collect the unpaid account from petitioner.
Thus, he instituted the action below for specificperformance against
Siredy, Yanga, and Santos who all denied liability.
During the trial, Santos disappeared and his whereabouts remain
unknown.
ISSUE:
WONHermogenes B. Santos was a duly constituted agent of Siredy, with
authority to enter into contracts for theconstruction of residential units in
Ysmael Village and thus the capacity to bind Siredy to the Deed of
Agreement.YES
RULING:
Siredy Enterprises, Inc. is ordered to pay Conrado de Guzman actual
damages with legal interest.
Ratio:
By the relationship of agency, one party called the principal authorizes
another called the agent to act for and in his behalf intransactions with
third persons. The authority of the agent to act 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. He who acts through another acts
himself.
On its face, the Letter of Authority executed by Yanga clearly and
unequivocally constituted Santos to do and execute,among other things,
the act of negotiating and entering into contract or contracts to build
Housing Units on the subdivisionlots in Ysmael Village, Sta. Rosa,
Marilao, Bulacan. Nothing could be more express than the written
stipulations containetherein.
It was upon the authority of this document that De Guzman transacted
business with Santos that resulted in the constructioncontract
denominated as the Deed of Agreement.
In this particular case, the SC said that the scope of the agent’s authority is
what appears in the written terms of the power of attorney. While third persons
are bound to inquire into the extent or scope of the agent’s authority, they are
not required to go beyond the terms of the written power of attorney. Third
persons cannot be adversely affected by an understanding between the
principal and his agent as to the limits of the latter’s authority. In the same way,
third persons need not concern themselves with instructions given by the
principal to his agent outside of the written power of attorney.
Art. 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.
The effect of ratification by the principal is that it gives the same effect as if the
principal originally authorized such act.
Who must ratify the contract?
It is only the principal.
Art. 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.
Art. 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.
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From the Lectures of: Atty. Raymund Christian S. Ong-Abrantes, CPA
So you have a commission agent.
RECIT!
Q: What is the difference between an ordinary agent and a commission
agent?
A: (Please refer to De Leon)
A factor or commission agent is one whose business is to receive
and sell goods for a commission and who is entrusted by the principal with the
possession of the goods to be sold, and usually selling in his own name. He
may act in his own name or in that of the principal.
An ordinary agent need not have possession of the goods of his
principal, while the commission agent must be in possession.
Art. 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.
Art. 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.
If you are a commission agent, without the consent of the principal, you can
only sell on cash. But if you sell it on credit, the principal cannot demand the
interest or benefit from the commission agent. He can only demand the
payment in cash.
So technically, if you are a commission agent, you are not acting exclusively
for the benefit of the principal.
Art. 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.
Art. 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.
That is the purpose of the guarantee commission. It is a commission paid in
addition to the ordinary commission agreed upon for purposes of guaranteeing
to the principal the payment of debts arising through his agency.
An agent receiving a guarantee commission cannot put up the defense that
the debtor possesses no property since this is precisely the risk that the
guarantee commission assumes. (Libog kaayo ang ingun ni Sir, rapper na
kaayo sya  please refer nalang sa De Leon or Villanueva about this one)
Art. 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.
Art. 1909. The agent is responsible not only for fraud, but also for
negligence, which shall be judged with more or less rigor by the courts,
according to whether the agency was or was not for a compensation.
Is the agent liable for fraud?
Yes.
For negligence?
Yes, but the liability can be mitigated by the court. The court will consider
whether the agency is or is not gratuitous in fixing the liability of the agent for
negligence (not fraud).
Recit: Travel Wide Associated Sales vs CA
TRAVEL WIDE ASSOCIATED SALES (PHILS.), INC., and TRANS
WORLD AIRLINES, INC., petitioners, vs.COURT OF APPEALS,
DECISION SYSTEMS CORPORATION and MANUEL A. ALCUAZ,
JR., respondents.
(Digest by: Queene Resurreccion)
FACTS:
Decision Systems Corporation and its President, Manuel A. Alcuaz, Jr.,
bought a Travel Pass '73 U.S.A. package deal consisting of a TWA ticket
to Los Angeles, New York and Boston, in the United States, and hotel
accommodations from Travel Wide Associated Sales (Phils.), Inc. for which
the plaintiffs had made the corresponding payment in Manila.
Sometime in March 1975 however, Decision System and Alcuaz filed a
complaint against Travel Wide Associated Sales (Phils.), Inc..alleging that
the latter had failed to comply with their obligations under Travel Pass '73
U.S.A. After hearing, the court held that complaint still did not state a cause
of action because Travel Wide was only the general agent of TWA and that
the latter was only an agent of a disclosed principal, namely, Tour Services,
Inc. As neither of the defendants was a real party-in-interest, there could
be no cause of action against them.
The complaint was later on amended and Trans World Airlines, Inc was
impleaded. In disclaiming liability, the petitioners point to the stipulation on
Responsibility in the Travel Pass '73 Plan brochure that "Tour Services,
Inc. and/or their agents" are acting "as agents for the passengers." They
stress further that the Miscellaneous Charge Order issued to Alcuaz
indicated that the amount of $218.00 was payable to Tour Services, Inc.
and not to either of them. This would mean that, if at all, they were acting
as agents of Tour Services, Inc. and not as principal obligors.
ISSUE/S:
WON TWA SALES IS AN AGENT OF THE PASSENGERS
RULING/S:
No. Without arriving at any factual conclusion, the Court believes it would
be useful to make a careful appraisal of the evidence, particularly the terms
and conditions of the brochure distributed by the petitioners and the
significance of the Miscellaneous Charges Order which was issued by
TWA. We note that even the trial court observed the active participation of
TWA in the promotion of the travel pass plan as an additional source of
revenue for its airline business.
It is also worth noting that if the petitioners were indeed acting as agents
of the passengers, as the brochure stipulates, they could still be held liable
under Article 1909 of the Civil Code, which provides:
The agent is responsible not only for fraud, but also for
negligence, which shall be judged with more or less rigor by the
courts, according to whether the agency was or was not for a
compensation.
The private respondent is entitled to prove that the petitioners did not
provide adequately for the pre-paid hotel accommodations of Alcuaz, who
had to incur additional expenses and was compelled to cut short his
business trip because of his depleted dollar allocation. It was not
established that the petitioners received any confirmation of the hotel
reservations they sent and yet they did not follow up their request nor did
they inform Alcuaz that they had not received confirmation. This procedure
should have been followed by the petitioners as so provided in the Travel
Pass '73 USA.
Hence, even granting that they are mere agents of the passengers, they
are still liable under Article 1919.
Q: Was there a cause of action against Travel Wide?
A: According to them, there was no cause of action against them because they
were merely acting as agents for the passengers.
Q: What did the SC say?
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From the Lectures of: Atty. Raymund Christian S. Ong-Abrantes, CPA
A: The SC said that if the petitioners were indeed acting as agents of the
passengers, as the brochure stipulates, they could still be held liable under
Article 1909 of the Civil Code. Even if Travel Wide was merely an agent, it
actively participated in the promotion of the travel pass plan as an additional
source of revenue for its airline business.
METROPOLITAN BANK & TRUST COMPANY, petitioner, vs.COURT OF
APPEALS, GOLDEN SAVINGS & LOAN ASSOCIATION, INC., LUCIA
CASTILLO, MAGNO CASTILLO and GLORIA CASTILLO, respondents.
(Digest by: Queene Resurreccion)
FACTS:
In January 1979, a certain Eduardo Gomez opened an account with
Golden Savings and deposited over a period of two months 38 treasury
warrants with a total value of P1,755,228.37. They were all drawn by the
Philippine Fish Marketing Authority and purportedly signed by its General
Manager and countersigned by its Auditor. Six of these were directly
payable to Gomez while the others appeared to have been indorsed by
their respective payees, followed by Gomez as second indorser.
On various dates between June 25 and July 16, 1979, all these warrants
were subsequently indorsed by Gloria Castillo as Cashier of Golden
Savings and deposited to its Savings Account No. 2498 in the Metrobank
branch in Calapan, Mindoro. They were then sent for clearing by the
branch office to the principal office of Metrobank, which forwarded them to
the Bureau of Treasury for special clearing.
More than two weeks after the deposits, Gloria Castillo went to the Calapan
branch several times to ask whether the warrants had been cleared. She
was told to wait. Accordingly, Gomez was meanwhile not allowed to
withdraw from his account. The first withdrawal was made on July 9, 1979,
in the amount of P508,000.00, the second on July 13, 1979, in the amount
of P310,000.00, and the third on July 16, 1979, in the amount of
P150,000.00. The total withdrawal was P968.000.00.
In turn, Golden Savings subsequently allowed Gomez to make withdrawals
from his own account, eventually collecting the total amount of
P1,167,500.00 from the proceeds of the apparently cleared warrants. The
last withdrawal was made on July 16, 1979.]
On July 21, 1979, Metrobank informed Golden Savings that 32 of the
warrants had been dishonored by the Bureau of Treasury on July 19, 1979,
and demanded the refund by Golden Savings of the amount it had
previously withdrawn, to make up the deficit in its account.
Hence this case.
ISSUE/S: 1.WON golden savings is liable to refund the amounts to
Metrobank
2. WON Metrobank is a mere collecting agent of Golden
Savings
RULING/S:
1. No. From the facts above, Metrobank was indeed negligent in giving
Golden Savings the impression that the treasury warrants had been
cleared and that, consequently, it was safe to allow Gomez to withdraw the
proceeds thereof from his account with it. Without such assurance, Golden
Savings would not have allowed the withdrawals; with such assurance,
there was no reason not to allow the withdrawal. Golden Savings had no
clearing facilities of its own. It relied on Metrobank to determine the validity
of the warrants through its own services.
2. No.
The conditions read as follows:
Kindly note that in receiving items on deposit, the bank
obligates itself only as the depositor's collecting agent,
assuming no responsibility beyond care in selecting
correspondents, and until such time as actual payment shall
have come into possession of this bank, the right is reserved to
charge back to the depositor's account any amount previously
credited, whether or not such item is returned. This also applies
to checks drawn on local banks and bankers and their branches
as well as on this bank, which are unpaid due to insufficiency of
funds, forgery, unauthorized overdraft or any other reason.
(Emphasis supplied.)
In stressing that it was acting only as a collecting agent for Golden
Savings, 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,
Article 1909 of the Civil Code clearly provides that —
Art. 1909. — The agent is responsible not only for fraud, but
also for negligence, which shall be judged 'with more or less
rigor by the courts, according to whether the agency was or was
not for a compensation.
The negligence of Metrobank has been sufficiently established. To repeat
for emphasis, it was the clearance given by it that assured Golden Savings
it was already safe to allow Gomez to withdraw the proceeds of the
treasury warrants he had deposited Metrobank misled Golden Savings.
There may have been no express clearance, as Metrobank insists
(although this is refuted by Golden Savings) but in any case that clearance
could be implied from its allowing Golden Savings to withdraw from its
account not only once or even twice but three times. The total withdrawal
was in excess of its original balance before the treasury warrants were
deposited, which only added to its belief that the treasury warrants had
indeed been cleared.
The belated notification aggravated the petitioner's earlier negligence in
giving express or at least implied clearance to the treasury warrants and
allowing payments therefrom to Golden Savings. But that is not all. On top
of this, the supposed reason for the dishonor, to wit, the forgery of the
signatures of the general manager and the auditor of the drawer
corporation, has not been established.
Q: Why did Metrobank contend that it was merely an agent?
A: In stressing that it was acting only as a collecting agent for Golden Savings,
Metrobank seems to be suggesting that as a mere agent it cannot be liable to
the principal.
Q: What did the SC say?
A: The SC cited Article 1909 of the Civil Code. The negligence of Metrobank
has been sufficiently established in this case.
October 21, 2017 (First Half)
Transcriber: Miles Buhay
CHAPTER 3
OBLIGATIONS OF THE PRINCIPAL
Art. 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.
So what you have to remember here is that whatever the agent has been
authorized to do, as long as it is within the scope of his authority or as long as
it is authorized by the principal, it is binding upon the principal. Conversely, the
principal is NOT bound if the agent acted without or outside the scope of his
authority.
Q: So what is the contract if the agent acts outside of his authority?
A: Unenforceable.
So when a contract is unenforceable, the principal is not bound by such
contract unless he ratifies it expressly or impliedly.
So where can the specific obligations and duties of the principal to the agent
be found? Usually in the contract creating the agency. In the absence of such
agreement, that is when you go over your Civil Code.
So what are these obligations?
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1. To comply with all the obligations which the agent may have contracted
within the scope of his authority;
2. To advance to the agent, should the latter so request, the sums necessary
for the execution of the agency;
3. To reimburse the agent for all the 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; and
5. To pay the agent the compensation agreed upon or the reasonable value
of the agent’s services.
When the agent mismanages the business of the principal, the principal
is liable.
Ex. Principal: Agent, bayaran mo yung utang ko kay Judy Ann. Eto ang
P5,000. Ibigay mon a kasi ayaw ko nang may utang.
So binayaran ni agent yung utang ko. Ako yung principal. Kaso yung binayad
niya P3,000 lang; ‘yung P2,000 binulsa niya kasi ipinambili niya ng makeup.
So ngayon, may utang ka pang P2,000 na naiwan kay Judy Ann.
Si Judy Ann, medyo engot pud [harsh], nagfile siya ng small claims for the
P2,000.
Q: So is the principal liable?
A: Yes, the principal is liable because the principal is not excused when the
agent mismanages his business.
You have to remember the principle enunciated by the Supreme Court in the
case of Cuison v. CA (G.R. No. 88539 October 26, 1993). The SC said
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.
So as between two persons, in my example they are the principal and Juday
Ann (the third person), who made it possible for the wrong to occur? The
principal.
Q: Is the principal liable for a tort committed by the agent?
A: Yes. The principal is liable to third persons for the torts which the agent
committed at the principal’s direction or enforced within the agent’s authority.
Ex. The security guard (agent) of the principal in one of the latter’s stores shot
Judy Ann because he suspected her to have stolen something from the store
and place it in her pocket. It turns out na nangatol ra diay si Juday. So wala
siya nangawat.
Q: Is the principal liable for the agent’s katangahan?
A: Yes. Binaril ng guard si Juday in the course and within the scope of his
employment as security guard.
Another point to remember is that the principal cannot escape liability whether
the tort is committed willfully or negligently so long as the tort is committed
by the agent while performing his duties in the furtherance of the
principal’s business.
Ex. A delivery boy inutusan mong magdeliver ng Cheetos sa store ni Juday.
Pero ayaw ni Juday magbayad kay huyos daw. But since nakalabas lang yung
pera na pambayad sana, kinuha ni delivery boy. Is the principal liable?
Yes. He acted in furtherance of the principal’s business.
Q: What is the meaning of “ratification” in the second paragraph [of 1910]?
A: It is the adoption or affirmance by a person of a prior act which did not bind
him, but which was done or professed to be done on his account thus giving
effect to the acts as if originally authorized.
The doctrine specifically applies to the ratification of the act of an agent in
excess of his authority. So ratification is done by the principal whether
expressly or impliedly but the principal accepts the benefits of the agency.
Ex. The principal instructed the agent to sell the principal’s lot only to his
mayaman friends. But the agent disobeyed this instruction and sold it doon sa
insolvent pa. So if the principal accepts the promissory notes and when the
debt falls due, pag-encash niya sa check at ginamit niya yung pera, there is
implied ratification.
You have to note also that the ratification __ the contract from all its effects
from the moment it was constituted; in effect, ratification is retroactive.
So what are the conditions for ratification? ICPEC
1. There must be intent to ratify on the part of the principal;
2. The principal must have capacity and power to ratify;
So insane persons and persons under civil interdiction cannot
ratify. The latter is prohibited from disposing his property inter
vivos.
3. He must have knowledge or had reason to know of material facts about the
transaction;
Ex. My agent is in possession of my iPad. He sold it to Juday who
paid in check. Ako naman (principal), tinanggap ko at pinaencash
yung check kasi akala ko bayad yun sa akin ni agent kasi may
utang rin siya sa akin. So in this case, was there ratification? Wala,
because I had no knowledge of the material facts involved in the
sale of my iPad.
4. The act must be done in behalf of the principal;
Ex. Agent enters into a contract with Juday without disclosing the
fact na agent siya ni principal. He is not authorized to enter into
such contract. So in that case the principal cannot ratify because
the agent entered into the contract in his personal capacity.
5. The principal must ratify the act of the agent in its entirety; and
The principal cannot accept the benefits of the transaction and
refuse to accept the obligation.
Ex. Same sa example ko kanina. Yung agent, binigay niya yung
check sa akin. Sabi niya, ay binenta ko pala yung iPad mo kasi di
mo na kailangan kasi abogada ka na [haha]. Pero tinanggap ko
yung bayad. So there is ratification of the sale in its entirety and
also because there is ratification of the sale, I am also liable with
the warranties that goes with the selling of the iPad. So we have
warranties against hidden defects.
6. The act must be capable of ratification.
Example of acts that are NOT capable of ratification:
a. Those acts which are absolutely void;
b. Unauthorized contracts revoked by third person
before ratification by the principal
Q: What is the effect of ratification with respect to the agent?
- It relieves the agent from liability to the third party to the
unauthorized transaction.
- It relieves the agent from liability to his principal for acting without
authority.
- The agent may recover compensation due for performing the act
which has been ratified.
Q: What is the effect of ratification with respect to the principal?
- He assumes responsibility for the unauthorized act because he
ratified it.
- He is NOT liable for acts outside the authority approved by his
ratification.
Q: What is the effect of ratification with respect to the third person?
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- He is bound by a ratification to the same extent as he would have
been bound if the ratified act had been authorized in the first
instance.
- He cannot raise the question of the agent’s authority to do the
ratified act.
So here, there is authority by estoppel because I negligently permitted A
to collect from Juday kasi 11 months na doon pa ako nagcollect. Dapat
nung 3rd month pa lang.

Where the third person is liable to a principal under an unauthorized act
of his agent, di pwedeng sabihin ng third person na, ay wala mang
authority si agent. (De Leon: Where the third person is liable to a
principal under an unauthorized act of his agent, the third person may
not be relieved of his liability on the theory that the principal ratified the
agent’s acts merely because the principal made an unsuccessful effort
to collect from the agent.
Art. 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.
So the agent’s act arising in this provision is known as apparent authority. In
this case estoppel operates because there is an authorization from the part of
the principal that the agent is in fact coated with the full authority.
Q: So what is the effect if the agent exceeded his authority?
A: The principal is not bound and the contract is unenforceable unless the
principal ratifies it impliedly or expressly.
However, the principal is bound when knowing the act is beyond the agent’s
powers, he held out the agent to act as if he is in full powers.
Q: So what is the meaning of “estoppel”?
In the case of Manila Remnant v. CA (G.R. No. 82978. November 22, 1990),
the SC said that Article 1911 is intended to protect the rights of innocent
third persons. In such a situation, both the principal and the agent may
be considered as joint tortfeasors whose liability is joint and solidary.
Art. 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.
The principles to remember here:
- The agent has a right to reimbursement. His right to be reimbursed
does not depend on the success of the transaction unless he is a
broker.
- Reimbursement also includes interest and the sums advanced.
The legal interest prevailing now is 6%.
Q: Should the principal reimburse the agent for the advances made by the
latter even when the agency was unsuccessful?

A: It is a bar which precludes a person from denying or asserting anything
contrary to that which has been established as the truth by his own deed or
representation either express or implied.
Let us distinguish apparent authority from authority by estoppel.
A: It depends. Yes, if the agent is free from fault. No, if the agent was with
fault.
Q: Is the broker always entitled to a commission?
A: A broker is entitled to commission if the sale is effected. If the sale is not
effected, then the broker is not entitled.

Art. 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
Apparent Authority Authority by Estoppel or negligence on his part.

That which though not actually
granted, the principal knowingly or
consciously permits the agent to
exercise or holds him out as
possessing
Arises in those cases where the
principal, by his negligence, permits
his agent to exercise powers not
granted to him [even though the
principal may have no notice or
knowledge of the conduct of the
agent. ~De Leon]
The basis of this rule is equity since the principal receives benefits from the
agency, then he should answer for the damages which the agent might have
incurred.
Art. 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.

Ex. Principal authorizes A (Agent) to sell the principal’s iPad to Juday, the
purchase price payable to the principal in 12 monthly installments.
This provision provides for the pledge created by law.
Principal: A, ikaw na lang yung magcollect tapos itago mo lang yung pera
Q: What is the nature of the agent’s right to lien under this provision?
kasi marami tayo niyan.
1. The right is limited only to the subject matter of the agency.

2. The right requires possession, whether actual or constructive, by the agent

So here, A has apparent authority kasi the principal knowingly permits A
of the subject matter of the agency.
to collect even when the original authority was only to sell the iPad.
3. The right is generally only in favor of the agent.

But if A collects from Juday without informing the principal, but under such Art. 1915. If two or more persons have appointed an agent for a common
circumstances he permits such collection, example: Hala, 11th month na, transaction or undertaking, they shall be solidarily liable to the agent for all
di pa rin nagbayad si Juday. the consequences of the agency.

Requisites for the application of the article:

1. There are two (2) or more principals;

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2. The principals have all concurred in the appointment of the same
agent; and
3. There is a common transaction or undertaking.
Q: Why is the rule solidary?
A: Because of the common transaction.
Art. 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.
The rule here is that the contract of prior date shall prevail and the rule on
double sales is applicable when the provisions on double sale shall apply.
Remember your provisions on double sales?
If the sale involves immovable property, it is the buyer who first registered the
same shall prevail. And if it is a movable property, it is the one who first took
possession of the same.
Art. 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)
Ex. #1. I (principal) authorized A to contract for the repair of my iPad. Without
A’s knowledge, I contracted with Juday for the repair of my iPad. Sabi ko kay
Juday siya na lang magrepair kasi friend ko siya. The next day, si A pinarepair
niya kay Ryan.
So under Art.1516, my contract with Juday is preferred because it is on a prior
date.
#2. I authorized A to sell my property in Woodridge. Without A’s knowledge, I
sold it to Juday who did not register it in good faith. Later, A sold the property
to Ryan who, in good faith, registered the same.
Here, the rule on double sales applies. The subsequent sale shall prevail not
the one with the prior date.
Art. 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.
Whether the principal or the agent will be the one liable for damages to the
third person who has been prejudiced depends on whether the agent acted in
bad faith or in good faith.
If the agent acted in good faith, and within the scope of his authority, then the
principal is liable.
Meaning of good faith: hindi niya alam na nagdeal ako with a third
person.
If the agent acted in bad faith, he alone shall be responsible to such third
person. Alam niya na he is personally liable.
I am going back to the previous example (#1 above). Since I (principal)
contracted with Juday before the agent transacted with Ryan, Ryan’s contract
has been rejected.
Now, my contract will prevail because it is on a prior date. For liability for
damages, however, we have to note if the agent contracted with Ryan in good
faith or in bad faith.
If he contracted with Ryan knowing that I have previously
contracted with Juday, the agent is in bad faith and will be
personally liable to Ryan.
If he contracted with Ryan in good faith, then I (principal) will be
liable to Ryan for damages.
Art. 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.
The mnemonics here is F.U.C.S.
(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;
This is to punish the agent. But when the principal has availed of
the benefits then there is an implied ratification.
(2) When the expenses were due to the fault of the agent;
So hindi liable si principal kasi kasalanan ni agent.
(3) When the agent incurred them with knowledge that an unfavorable
result would ensue, if the principal was not aware thereof;
The agent here is guilty of bad faith so he is personally liable.
(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.
We know that when the stipulation is not contrary to law, good
morals, public order or public policy, it is binding between the parties.
CHAPTER 4
MODES OF EXTINGUISHMENT OF AGENCY
Remember that an agency, like love, does not last forever.
Mnemonics: W.R.D.E.A.D.
Art. 1919. Agency is extinguished:
(1) By its revocation;
(2) By the withdrawal of the agent;
(3) By the death, civil interdiction, insanity or insolvency of the principal or
of the agent;
(4) By the dissolution of the firm or corporation which entrusted or accepted
the agency;
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(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.
Under the law, we have this presumption of continuance of agency. When
agency is shown to have once existed, an agency relation will be presumed to
have continued, in the absence of anything to show its extinguishment.
Q: Who has the burden of proving that the agency has been extinguished?
A: The person asserting that it has been extinguished.
Note also that even if the reason for the extinguishment of the agency is not
proved, the agent cannot insist on reinstatement. The agent can only claim
damages against the principal.
Q: What are the modes of extinguishing an agency?
Generally:
1. by agreement (Nos. 5,6); or
2. by the subsequent acts of the parties which may either be:
a. by the act of both parties or by mutual consent; or
b. by the unilateral act of one of them (Nos. 1,2); or
Such as when the agent dies or the principal dies or by
the revocation (unilateral act of principal) or withdrawal
(unilateral act of agent).
3. by operation of law. (Nos. 3,4)
When there is death of a natural person or the
dissolution of a corporation.
Let’s go to revocation.
If it is the agent who renounces the agency, it is called a withdrawal. If it is the
principal, it is called revocation.
The principal’s ability or power to terminate the agency is an exception to the
general rule that the validity or compliance of a contract cannot be left to the
will of one of the parties under Article 1308 of the Civil Code. To be effective
is must not be done in bad faith.
Withdrawal of the agent
This is done by giving due notice to the principal under
Article 1922. And although the agent withdrawal is provided the
agent continues to act until the principal has the opportunity to take
the necessary measures for the situation. (Guys, I’m not sure if this
paragraph makes sense. Pero lisod jud kaayo idecipher ang gina-
ingon ni ma’am. Sorry.)
Death of the principal or the agent
You have to take note of the three (3) essential
characteristics of the parties for the continuance of the agency:
P.S.C.
1. Presence
2. Solvency
3. Capacity
Kung wala yan, ma-extinguish yung agency.
GR: Death of either of the parties extinguishes the agency by operation of law.
What is absent in the death of a party? Presence.
Except: Under Article 1930; if the agency is coupled with interest. It will not
result to the extinguishment of the agency upon the death of any of the parties.
Art. 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.
We will discuss more of this later.
However, in the case when you have several principals or several agents,
the death of one of the agents or of one of the principals will not
automatically extinguish the agency. It depends on the intention of the
parties.
Ex. Attorney-client relationship.
Agent – Attorney
Principal – Client
When the principal dies, the lawyer can no longer
represent the client.
Insanity/Incapacity/Civil Interdiction
It is a mode of extinguishing agency because here there
is loss of capacity (P.C.S.).
In cases of civil interdiction, if the term is still rendered
during the effectivity of his sentence, the right to manage his
property and to dispose of such property by an act inter vivos. As
a result, the principal loses control of the subject matter of the
agency and the authority of the agent to act for his principal stops
by operation of law __.
Dissolution of a Corporation
What is lacking here? Dissolution is like the death of a
natural person. So what is lacking is presence.
Accomplishment of the purpose of the agency
The fulfillment of the purpose for which the agency was
created ipso facto terminates the agency.
Ex. The purpose of the agency is to sell my iPad. If the
iPad is already been sold, then the agency is terminated kasi wala
na yung ibebenta. Yung purpose ng agency na ibenta yung iPad
mo, na-fulfill na.
What if the agency is subject to a term? Well, if the
agency is created for a fixed period, the expiration of such period
terminates the agency even though the purpose for which the
agency has been created has not been accomplished.
Ex. Agency to sell my iPad on or before October 31,
2017. So pagdating ng October 31, 2017, hindi pa rin nabenta yung
iPad ko. Diba ang purpose nung agency is ibenta yung iPad. Tapos
ngayon hindi pa nabenta pero yung agency is subject to a term,
then the agency is still extinguished kahit hindi na-serve yung
purpose ng agency.
Q: What happens if no time is specified?
A: The agency terminates at the end of a reasonable period of time.
Loss or destruction of the subject matter of the agency
Q: What happens if the subject matter of the agency is lost or destroyed?
A: It terminates the agent’s authority to deal with reference to it.
Exceptions:
1. If it is possible of substitution;
2. If the destroyed subject matter was not essential to the contract;
and
3. In case of a partial loss.
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Ex. Juday wants to sell her 3 iPads, because she doesn’t need them
anymore, since she has 3 iMacs. Then nawala yung isang iPad. In this
case, there is only partial loss. Yung agency magcontinue pa rin with
respect to the 2 iPads.
Q: Are the modes of extinguishment of agency exclusive?
A: No. Article 1919 gives only those causes of extinguishment particular to
agency. This is not exclusive. The general rule actually is that an agency may
be extinguished by modes of extinguishment like novation, or loss of the thing
and also during existence of war, the agency is ineffective if the agent is a
citizen of the enemy state. And also when the agency becomes unlawful.
Ex. Attorney-client relationship. I was engaged by my client to represent
him in an estafa case. Now, during the course of the proceedings, I was
appointed as RTC judge. So in that case there is a legal impossibility to
perform the agency. So the agency is extinguished in that case.
The occurrence of a specified event
I authorize you as my agent to manage my convenience store while
I am on vacation (parang si Atty. Ong. Haha). My return from vacation
will terminate the agency.
Art.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.
GR: The agency may be revoked by will because it is based on trust and
confidence.
The reason is that since the authority of the agent emanates from the principal,
and if the principal wishes to revoke the agency, then he may do so.
Confidence also, being a cardinal basis of the relation, stands to reason that it
should cease when no such confidence exists.
The principal-agent relationship is also personal and consensual in nature. In
fact, kung yung agent ayaw na niyang maging agent sa iyo, the principal
cannot sue him for specific performance because it will amount to involuntary
servitude.
Exceptions:
1. The agency cannot be terminated at will if the agency is coupled
with an interest;
2. When the revocation is done in bad faith;
3. When there is waiver made by the principal of his right to revoke;
4. Under Article 1927: when a bilateral contract depends on the
agency;
5. When it is a means of fulfilling an obligation;
6. When a partner’s appointed manager in a contract of partnership
and his removal from the partnership is unjustifiable.
Q: What is the reason for requiring that an agent must return the document
evidencing the agency?
A: Para hindi niya na magamit, siyempre; to prevent the agent from making
use of the power of attorney and to protect innocent third persons.
What are the kinds of revocation?
1. Express
2. Implied
When the principal appoints a new agent for the same business or transaction
or the principal directly manages the business entrusted to the agent.
Q: Is notice to the agent of the revocation necessary?
A: Yes. The revocation without notice to the agent will not render the invalid
the act done pursuant to the authority as long as the agent acted in good faith.
Q: Is notice to third persons of the revocation necessary?
A: As to former customers, actual notice must be given to them because they
always assume the continuance of agency relationship. As to other third
persons, notice by publication is enough.
Q: May the agent renounce the agency again?
A: Yes because you cannot compel him (Involuntary servitude). Kung ayaw
niya, eh ‘di wag.
Hindi ko na i-discuss yung hindi naman lumalabas sa Bar. Sayang lang ang
time. 
Q: Do violations of the instructions of the principal amount to renunciation?
A: No. The mere fact that the agent violates the instructions of the principal
does not amount to renunciation.
Art. 1921. If the agency has been entrusted for the purpose of contracting
with specified persons, its revocation shall not prejudice the latter if they
were not given notice thereof.
The reason for this is because third persons were made to believe by the
principal that the agent is authorized to act. So if wala silang notice na yung
agent wala na palang authority, then pwede pa rin silang makipag-contract sa
agent. In that case, the principal will still be bound.
Ex. Ako si principal. I authorized my agent to buy Juday’s iPad. Notice of the
such authorization was given to Juday. Eto yun; 1921 ka if yung agency has
been entrusted for the purpose of contracting with specified persons. Yung
agent nag-contract with Juday. After negotiations, I revoked the authority of
my agent without notifying Juday.
If later on, binili pa rin ng agent yung iPad, am I liable to Juday for the purchase
price? Yes. The agent here contracted with a specific person (Juday). And in
order for the revocation to be valid, Juday should be notified of such
revocation.
Art. 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.
Ex. Owner ako ng small convenience store and authorized A to be the general
manager of the same. Part of his duties is to receive payments from customers
in general. The agent is given general powers.
Later, I revoked the authority of A to receive payments and appointed Juday
as cashier. Ngayon, itong mga customers, nasanay na magbayad kay A. So
ang ginawa ni A, tumanggap lang siya ng mga bayad at tinago niya yung pera
sa akin. Pwede ba ako maningil sa mga customers? Hindi, as long as the
customers acted in good faith and without knowledge of the revocation.
Here, if the agency is revoked by the principal, and the third person is not
aware of the revocation, the transaction concluded by the agent with the third
person shall be binding with the principal even if the agent acted in bad faith.
What if yung revocation na-advertise sa newspaper of general circulation?
Pwede ako maningil? Paano kung di niya (customer/third person) nabasa?
Hindi material whether or not the 3rd person read the revocation in the
newspaper.
Let us distinguish the notice required in Article 1921 from that of Article 1922.
1921 1922
The agent is authorized to deal with The agent is given general powers.
specified persons.
Notice of revocation must be Notice here may not be personal.
PERSONAL.
Revocation must be known to the Even if the 3rd person does not
3rd person. know, as long as there is
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publication in the newspaper of
general circulation.
Art. 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.
Remember that notice here must be given to the 1st agent for the revocation
to be valid. If walang notice and the agent entered into a transaction with a 3rd
person, the principal is still liable.
If there is no notice given to the 1st agent, and he continued the agency in
good faith, the contract he entered into is binding upon the principal.
The 2nd power of attorney revoking the 1st one operates only after notice has
been given to the 1st agent.
In order for 1920 to apply, also you have to remember that the two (2) agencies
must be incompatible with each other. If they are compatible with each other,
then the 2 agencies may co-exist and there will only be a revision of the
agency.
Ex. I authorize A to sell my iPad (baboy na pud daw ma’am). The next day, I
gave the same authority to B. So here, there is no implied revocation. There
is no incompatibility. Ang intention lang ng principal dito is to authorize A and
B to sell the baboy. So, unahan. But if the principal gave B the exclusive
authority to sell the baboy, there is implied revocation because now there is
exclusive authority.
Notice of appointment in this case must be given to A, the prior agent, in order
to terminate his authority.
Art. 1924. The agency is revoked if the principal directly manages the
business entrusted to the agent, dealing directly with third persons.
Generally, it revokes the agency because there will no longer be any basis for
the representation previously conferred.
Exception: When the only desire of the principal is for him and the agent to
manage the business together.
Ex. P appoints A as manager of the convenience store. Tapos wala lang, gusto
lang ni principal magbenta benta. His only desire is for him and the agent to
manage the convenience store together.
October 22, 2017 (Second Half)
Transcriber: Janice Molina
Article 1925. When two or more principals have granted a power of attorney
for a common transaction, anyone of them may revoke the same without the
consent of the others.
The appointment of an agent by two or more principals for a common
transaction makes them solidarily liable. In a solidary obligation, the act of one
is the act of all. So, any of the principals may revoke the agency.
Article 1926. A general power of attorney is revoked by a special one granted
to other agent, as regards the special matter involved in the latter.
So how many agents are involved in this article? Two, there are two agents:
one to whom a general power is previously granted and the other, where the
special power of appointment is subsequently granted. So what is the effect of
the issuance of the special power as regards to general power? The general
power is impliedly revoked as to matters covered by the special power
because the special power of attorney naturally prevails over a general power.
Example:
P appoints A as general manager of his small convenience store. The authority
to manage the business includes the authority to hire personnel kasi small
lang to, small convenience store so ikaw general manager lahat na sayo, ikaw
cashier, lahat. Ngayon lumaki na yong convenience store ksi yon mayaman
na sya, gihire nya si Juday, granting her special power to hire personnel.
So,may special power si Juday to hire personnel. Si A general power being
the general manager. So as to hiring of employees, the general powers of A
is revoked but only to that matter, sa hiring lang ng employees. Sa other
obligations nya as agent like for example naging cashier sya or anoba hindi
yon revoke. As to other matters not covered by special power, the general
power granted to A remains valid.
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 partnership in the contract of partnership and
his removal from the management is unjustifiable.
The general rule is that the principal may revoke an agency at will because
the essence of agency is the agent’s duty of obedience to the principal. The
exceptions:
1. If a bilateral contract depends on the agency.
2. If the agency is the means of fulfilling an obligation already
contracted
3. If a partner is appointed manager of a partnership in the contract of
partnership and his removal from the management is unjustifiable.
So let’s discuss the first exception, when the bilateral contract depends on the
agency. This is what is known as the agency coupled with an interest.
Example:
P sold his convenience store to Juday for 1Million. Juday only paid
500thousand. So may balance pa na 500T. Ngayon yong parties nag stipulate
na yong ownership ng convenience store will be transferred to Juday upon full
payment of the purchase price. So they agreed na itong si P, iyong seller, he
will appoint A to manage the convenience store in the meantime and the profits
of the convenience store will be applied on the purchase price, iyong balance.
So P here cannot revoke the agency because the sale which is a bilateral
contract depends upon it. Gets nyo? Ulit ha ulit 
Binenta ni P iyong convenience store niya kay Juday for 1Million. So ang
binayaran ni Juday 500T lang. It was stipulated na iyong ownership ng
convenience store will be transferred only pag nabayaran na lahat. So mayron
500T na balance si Juday. Ngayon nag agree si Juday saka yong seller, yong
principal na e.appoint ni principal si A para e.manage nya yong convenience
store in the meantime na hindi pa nabayaran iyong buo, iyong remaining 500T
and then iyong profits ng convenience store, yun ibabayad paunti-unti dun sa
500T. So ngayon ang mangyayari nito kasi yong sale bilateral contract and
naka depend sya dun sa agency hindi sya marerevoke, hindi sya marerevoke
at will ng principal kasi pag ni revoke mo yun hindi na mababayan yong
purchase price na 500T, so hindi maco.consumate yung sale. Hindi ma ta-
transfer yong ownership. Okay?
For an agency coupled with an interest to be irrevocable the interest of the
agent must be in the subject matter of the power conferred and not merely an
interest in the exercise of the power.
Example:
P borrows from A 1Million and he mortgages his convenience store to A as a
security for the debt and gives A the power to dispose of it if hindi sya
nakabayad ng utang nya. Si P nangutang kay A ng 1Million tapos sabi nya ito
yong property ko sa Tibungco, mortgage ko sayo tapos pde mo syang
e.dispose if hindi ako nakabayad ng utang ko. The agency here is irrevocable
because the interest of the agent is in the subject matter of the power
conferred. What is the subject matter of the agency? Katong property sa
Tibungco. So hindi sya marevoke. Iba naman if:
P appoints A to sell his iPad on commission. P gives A power of attorney to
secure his commission from the proceeds of the sale. Itong ipad ko ibenta mo
to tapos yung commission mo kunin mo na sa bayad ng kon sino man nakabili,
sa purchase price. The agency here is not coupled with an interest. It is
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From the Lectures of: Atty. Raymund Christian S. Ong-Abrantes, CPA
revocable because the interest of A is not in the subject matter of the agency.
What is the subject matter of the agency here? Ipad, tapos yung kanyang
interest nasa commission lang. So agency here is revocable.
Number 2 exception, when the agency is a means of fulfilling an obligation
already contracted.
Example:
P is the owner of a condo for rent. P borrows 1Million from Juday. As a security
for the debt, P gives A a power of attorney to collect rents due from the tenants
occupying the condo owned by P to apply the rents to the utang of P to Juday.
Gets? May-ari akong condo ngayon nag borrow ako kay Juday tapos nag
agree kami na mag execute ako ng power of attorney in favor of A, sabi ko
kay A ikaw mag collect ng renta ng condo, yung renta ibayad mo kay Juday
kasi may utang ako dun. Here P cannot revoke the contract without justifiable
cause because it is a means of fulfilling a contract of obligation that is the debt
of P to Juday. So hindi nya pdeng e.revoke yung agency kasi pag na revoke
yung agency wala nang mag collect ng pera sa condo at magbabayad kay
Juday.
Number 3 exception, when a partner is appointed manager of a partnership in
the contract of partnership and his removal from the management is
unjustifiable.
A, B, and C are partners. They appointed A as manager in the articles of
partnership. The appointment of A here cannot be revoke unless there is just
and lawful cause. Only upon the vote of partners representing controlling
interest, you know that already.
If the contract of agency stipulates that the contract will be irrevocable, is such
terminology controlling? Whether an interest which 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.
So it is said that an “agency” coupled with an interest is not a true agency.
Why is that so? One of hallmarks of an agency relation is the control of the
principal over the agent and if there is an agency coupled with an interest the
principal is now divested with that power of control.
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.
So the agent has the right to renounce or withdraw at any time just like the
principal and the basis of this is the constitutional prohibition against
involuntary servitude.
If the agent withdraws from the agency without just cause, he should notify the
principal and he should indemnify the principal should the latter suffer any
damages by reason of such withdrawal. If the agent withdraws for just cause,
he cannot be held liable for damages, if his withdrawal is based on the
impossibility of continuing with the agency without grave detriment to himself
or if by reason of fortuitous event.
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.
This is to prevent damage or prejudice to the principal.
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.
General rule, agency is terminated automatically upon the death of the
principal because, what is lacking? PRESENCE. Exceptions:
1. If the agency has been constituted for the common interest of the
principal and of the agent.
Example: A repaired the old iPad of P. P offers A to sell his iPad for a certain
amount and pay himself for the services rendered out of the proceeds of the
sale. Before the iPad is sold, P dies. Now here the agency to sell is not
extinguished by the death of the principal because it is for the common interest
of the principal and the agent. In this case, hindi sya ma-extinguished because
the agency to sell is constituted for the common interest of the principal and
the agent. Kailangan mabenta nya ang iPad para mabayaran ang services na
ni.render nya.
2. If the agency has been constituted in the interest of a third person
who has accepted the stipulation in his favor.
Example: P borrows from Juday 10T payable in 6 months. On the third month,
P sold his iPad to A and authorized A to pay P’s debt to Juday out of the iPad’s
purchase price. Juday accepts the agency of A. If P dies on the fifth month,
the agency is not extinguished and Juday is still entitled to receive payment
from A.
Generally, dapat marevoke na yong agency kasi walanayong presence but
dito the agency is not extinguished and Juday is still entitled to receive
payment from A because the agency is for the interest of Juday, the third
person.
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.
This talks about the knowledge by the agent of the fact of the death of the
principal. If he executed the act without knowledge then the act is valid,
effective and enforceable. The principal is bound. You have to take note that
both the agent and the third person must be in good faith here. So, both of
them must have no knowledge of the death of the principal.
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.
So if the agent dies, you have to remember that the heirs of the agent have
the duty to notify the principal. But if the principal dies, the principal’s heirs do
not have such obligation. In case of death, the heirs must first notify the
principal to enable the latter reasonable opportunity to take such steps as may
be necessary to meet the situation and adopt such measures as the
circumstances may demand in the interest of the principal.
Can the heirs continue the agency? No, because an agency calls for personal
services on the part of the agent except if the agency is created by operation
of law or if there is a presumed and tacit agency like in this case, or when the
agency is coupled with an interest in the subject matter of the agency.
Estate of the Late Juliana DiezVda. De Gabriel vs CIR (January
27, 2004)
(Digest by: Zarah Domingo)
(Note: This is a Tax 2 –related Case. The Court held that the effect
of improper service of the demand letter and assessment notice
was that there was never any valid notice of this assessment. In
effect, the notice could not have become final and executory. Also,
since there was failure to make the assessment within the 5 year
period provided in NIRC, CIR’s claim against the Estate is barred.
The issue on Agency is only relevant because it was to Phitrust that
the assessment notice was served but Philtrust is found to be not
the agent of the decedent. Since there was no proper service, the
assessment cannot bind the Estate of the decedent.)
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From the Lectures of: Atty. Raymund Christian S. Ong-Abrantes, CPA
FACTS:
1.) During the lifetime of the decedent, Juliana Vda. De
Gabriel, her business affairs were managed by the Philippine Trust
Company (Philtrust). The decedent died on April 3, 1979. 2 days
later, Philtrustfied her Income Tax Return for 1978. The return did
not indicate that the decedent died.
2.) Philtrust filed a verified petition for appointment as
Special Administrator but it was denied by the probate court. The
appointed administrator was relieved, another one was appointed,
and was subsequently replaced by another. In all these instances,
Philtrust was never appointed administrator.
3.) The Bureau of Internal Revenue conducted an
administrative investigation on the decedent’ s tax liability and
found a deficiency income tax. BIR sent a demand letter and
assessment notice to Philtrust.
4.) CIR issued warrants of distraint and levy to enforce
collection of the deficiency income tax liability which were served
upon the heir, Francisco Gabriel.
5.) A protest was filed by the Estate with the Litigation
Division of the BIR but was not acted upon because the
assessment notice had allegedly become final, executor and
inconstestable.
ISSUE:
What is the legal relationship between Philtrust and the decedent,
and, by extension, between Philtrust and petitioner Estate?
Upon the death of the Principal (the decedent), there is no more
agency. Hence, the notice to Philtrust (former agent of decedent)
no longer binds the Estate of the decedent.
(In case asked in class: Under this primary issue is the sub-issue
of WON service of the demand letter and assessment notice was
valid service ; and WON Philtrust’s inaction could bind the Estate)
HELD:
The relationship between the decedent and Philtrust was one of
agency, which is a personal relationship between agent and
principal.
Under Article 1919 (3) of the Civil Code, death of the decedent
automatically severed the legal relationship between her and
Philtrust, and such could not be revived by the mere fact that
Philtrust continued to act as her agent when it filed the decedent’s
income tax return after her death.
Since the relationship between Philtrust and the decedent was
automatically severed at the moment of the Taxpayer’s death, none
of Phitrust’s acts or omissions could bind the estate of the
Taxpayer.
Consequently, the service on Philtrust of the demand letter and
assessment notice was improperly done. (It must be noted the
Philtrust was never appointed as the administrator of the Estate of
the decedent, and indeed, that the court a quo twice rejected
Phitrust’s motion to be thus appointed. As of the date of the
demand letter and assessment notice, the legal relationship
between the decedent and Philtrust had already been non-existent
for 3 years.
So who is the principal in this case? Vda de Gabriel Agent? Philtrust
So we have here Article 1919 which provides that the death of the principal
automatically terminates the agency since the relationship of Philtrust and the
decedent is automatically severed at the moment of the taxpayer’s death.
None of Philtrust acts or omission could bind the estate of the taxpayer.
Manuela S. Catan/ M.S. Catan Placement Agency vs NLRC,
POEA and Francisco D. Reyes (April 15, 1988)
(Digest by: Zarah Domingo)
FACTS:
1.) M.S. Catan Placement Agency is a duly licensed
recruitment agency. It is an agent of Ali and Fahd Shabokshi
Group, a Saudi Arabian firm.
2.) M.S. Catan Placement Agency recruited Francisco
Reyes to work in Saudi Arabia as a steelman.
3.) The term of the contract was for one year, from May 15,
1981 to May 14, 1982. However, the contract provided for its
automatic renewal if neither of the parties notifies the other party of
his wishes to terminate the contract by at least 1 month prior to the
expiration of the contractual period.
4.) The contract was automatically renewed when Reyes
was not repatriated by his Saudi employer but instead was
assigned to work as a crusher plant operator.
5.) While he was working as a crusher plant operator, his
right ankle was crushed under the machine he was operating.
6.) After the expiration of the renewed term, he returned to
the Philippines. His ankle was operated on for which he incurred
expenses.
7.) He again returned to Saudi. He was repatriated and
upon his return, he had his ankle treated for which he incurred
further expenses.
8.) On the basis of the provision in the employment contract
that the employer shall compensate the employee if he is injured
or permanently disabled in the course of employment, Reyes filed
claim with POEA.
9.) POEA rendered judgment in favor of Reyes. NLRC
affirmed.
10.) The Placement Agency instituted a special civil action
for certiorari. The Agency contended that it was not liable for
disability benefits since at the time he was injured, his original
employment contract, which it facilitated, has already expired and
that its agency agreement with the Saudi principal had already
expired when the injury was sustained.
ISSUE:
(1)What is the liability of a private employment agency when sued
with its foreign principal for violations of the recruitment agreement
and the contracts of employment: JOINT AND SOLIDARY
(2)Is a Placement Agency free from any liability to a recruited
employee if the latter sustained an injury after the agency
agreement between the former and the principal employer already
expired: NO
(Note: The Court found that the contract of employment cannot be
said to have expired when the injury was incurred because the
contract was automatically renewed since no notice of its
termination was given by either or both parties. Thus, the injury was
sustained during the lifetime of the contract.)
HELD:
(1) Section 10(a) (2) Rule V, Book I, Rules to Implement the Labor
Code provides for the power of the agency to sue and be sued
jointly and solidarily with the principal or foreign-based employer
for any of the violations of the recruitment agreement and the
contracts of employment.
(2) Even if indeed the agency and the Saudi principal had already
severed their agency agreement at the time Reyes was injured, the
Agency may still be sued for a violation of the employment contract
because no notice of the agency agreement’s termination was
given to Reyes.
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.
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From the Lectures of: Atty. Raymund Christian S. Ong-Abrantes, CPA
Albeit the Agency was at the time of the accident resulting in his
permanent partial disability no longer the accredited agent of its
foreign principal, the Agency’s responsibility over the proper
implementation of complainant’s employment/service contract and
the welfare of complainant himself in the foreign job site still
existed, the contract of employment in question not having expired
yet. This must be so, because the obligations covenanted in the
recruitment agreement entered into by and between the local agent
and its foreign principal are not coterminous with the term of such
agreement so that if either or both of the parties decide to end the
agreement, the responsibilities of such parties towards the
contracted employees under the agreement do not at all end, but
the same extend up to and until the expiration of the employment
contracts of the employees recruited and employed pursuant to the
said recruitment agreement. Otherwise, it will render nugatory the
very purpose for which the law governing the employment of
workers for foreign jobs abroad was enacted.
Adoracion Lustanvs CA, Nicolas Parangan and Soledad
Parangan, PNB (January 27, 1997)
(Digest by: Zarah Domingo)
FACTS:
1.) Petitioner Adoracion Lustan is the registered owner of a
parcel of land otherwise known as Lot 8069 of the Cadastral Survey
of Calinog, Iloilo containing an area of 10.0057 hectares.
2.) Petitioner leased the property to private respondent
Nicolas Parangan for a term of 10 years and an annual rent of
P1,000.00.
3.) During the period of lease, Parangan was regularly
extending loans in small amounts to petitioner to defray her daily
expenses and to finance her daughter's education
4.) Petitioner executed a Special Power of Attorney in favor
of Parangan to secure an agricultural loan from private respondent
Philippine National Bank (PNB) with the aforesaid lot as collateral
5.) A second Special Power of Attorney was executed by
petitioner, by virtue of which, Parangan was able to secure four (4)
additional loans: The last three loans were without the knowledge
of herein petitioner and all the proceeds therefrom were used by
Parangan for his own benefit. These encumbrances were duly
annotated on the certificate of title.
6.) Petitioner signed a Deed of Pacto de Retro Sale in favor
of Parangan which was superseded by the Deed of Definite Sale
which petitioner signed upon Parangan's representation that the
same merely evidences the loans extended by him unto the former.
7.) For fear that her property might be prejudiced by the
continued borrowing of Parangan, petitioner demanded the return
of her certificate of title.
8.) Instead of complying with the request, Parangan
asserted his rights over the property which allegedly had become
his by virtue of the aforementioned Deed of Definite Sale. Under
said document, petitioner conveyed the subject property and all the
improvements thereon unto Parangan absolutely for and in
consideration of the sum of P75,000.00.
9.) Petitioner filed an action for cancellation of liens,
quieting of title, recovery of possession and damages against
Parangan and PNB
ISSUES:
(1) WON the Deed of Definite Sale is in reality an equitable
mortgage: YES
(2) WON petitioner's property is liable to PNB for the loans
contracted by Parangan by virtue of the special power of attorney:
YES
HELD:
(1) The Deed of Definite Sale is in reality an equitable
mortgage as it was shown beyond doubt that the intention of the
parties was one of a loan secured by petitioner's land.
In the case at bench, the evidence is sufficient to warrant a finding
that petitioner and Parangan merely intended to consolidate the
former's indebtedness to the latter in a single instrument and to
secure the same with the subject property. Even when a document
appears on its face to be a sale, the owner of the property may
prove that the contract is really a loan with mortgage by raising as
an issue the fact that the document does not express the true intent
of the parties.
Petitioner had no knowledge that the contract she signed is a deed
of sale. The contents of the same were not read nor explained to
her so that she may intelligibly formulate in her mind the
consequences of her conduct and the nature of the rights she was
ceding in favor of Parangan. Petitioner is illiterate and her condition
constrained her to merely rely on Parangan's assurance that the
contract only evidences her indebtedness to the latter.
(2) Third persons who are not parties to a loan may secure the latter
by pledging or mortgaging their own property. So long as valid
consent was given, the fact that the loans were solely for the benefit
of Parangan would not invalidate the mortgage with respect to
petitioner's property. In consenting thereto, even granting that
petitioner may not be assuming personal liability for the debt, her
property shall nevertheless secure and respond for the
performance of the principal obligation. It is admitted that petitioner
is the owner of the parcel of land mortgaged to PNB on five (5)
occasions by virtue of the Special Powers of Attorney executed by
petitioner in favor of Parangan. Petitioner argues that the last three
mortgages were void for lack of authority. She totally failed to
consider that said Special Powers of Attorney are a continuing one
and absent a valid revocation duly furnished to the mortgagee, the
same continues to have force and effect as against third persons
who had no knowledge of such lack of authority. Article 1921 of the
Civil Code provides:
Art. 1921. If the agency has been entrusted for the purpose of
contracting with specified persons, its revocation shall not prejudice
the latter if they were not given notice thereof.
The Special Power of Attorney executed by petitioner in favor of
Parangan duly authorized the latter to represent and act on behalf
of the former. Having done so, petitioner clothed Parangan with
authority to deal with PNB on her behalf and in the absence of any
proof that the bank had knowledge that the last three loans were
without the express authority of petitioner, it cannot be prejudiced
thereby.
As far as third persons are concerned, an act is deemed to have
been performed within the scope of the agent's authority if such is
within the terms of the power of attorney as written even if the agent
has in fact exceeded the limits of his authority according to the
understanding between the principal and the agent.
The Special Power of Attorney particularly provides that the same
is good not only for the principal loan but also for subsequent
commercial, industrial, agricultural loan or credit accommodation
that the attorney-in-fact may obtain and until the power of attorney
is revoked in a public instrument and a copy of which is furnished
to PNB.
Even when the agent has exceeded his authority, the principal is
solidarily liable with the agent if the former allowed the latter to act
as though he had full powers (Article 1911, Civil Code).
The mortgage directly and immediately subjects the property upon
which it is imposed. The property of third persons which has been
expressly mortgaged to guarantee an obligation to which the said
persons are foreign, is directly and jointly liable for the fulfillment
thereof; it is therefore subject to execution and sale for the purpose
of paying the amount of the debt for which it is liable. However,
petitioner has an unquestionable right to demand proportional
indemnification from Parangan with respect to the sum paid to PNB
from the proceeds of the sale of her property in case the same is
sold to satisfy the unpaid debts.
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From the Lectures of: Atty. Raymund Christian S. Ong-Abrantes, CPA
Who is the principal here? Adoracion Lustan. Agent? Parangan
Was there a valid revocation in this case? No, because there was no notice.
ChoithramJethmalRamnani and/or Nirmla V. Ramnani and
Moti G. Ramnanivs CA, Spouses IshwarJethmalRamnani,
Sonya JethmalRamnani and Overseas Holding Co., Ltd. (May
7, 1991)(Digest by: Zarah Domingo)
(Note: This is a very long case. The Court probed into factual
circumstances and even made its own interpretations of facts and
an analysis of their probability. Nonetheless, it seems that the issue
relevant to our topic is the notice and publication of revocation.)
FACTS: 1.) Ishwar,
Choithram and Navalrai, all surnamed JethmalRamnani, are
brothers of the full blood. Ishwar and his spouse Sonya had their
main business based in New York.
2.) Realizing the difficulty of managing their investments in the
Philippines they executed a general power of attorney on January
24, 1966 appointing Navalrai and Choithram as attorneys-in-fact,
empowering them to manage and conduct their business concern
in the Philippines.
3.) In 1966, Choithram, in his capacity as aforesaid attorney-in-fact
of Ishwar, entered into two agreements for the purchase of two
parcels of land located in Barrio Ugong, Pasig, Rizal, from Ortigas&
Company, Ltd. Partnership.
4.) Choithram alleged that he paid the downpayment and
installments on the lot with his personal checks. A building was
constructed thereon by Choithram in 1966 and this was occupied
and rented by Jethmal Industries and a wardrobe shop called
Eppie's Creation. Three other buildings were built thereon by
Choithramallegedly through a loan of P100,000.00 obtained from
the Merchants Bank as well as the income derived from the first
building. The buildings were leased out by Choithram as attorney-
in-fact of Ishwar. Two of these buildings were later burned.
5.) Sometime in 1970 Ishwar asked Choithram to account for the
income and expenses relative to these properties during the period
1967 to 1970. Choithram failed and refused to render such
accounting. As a consequence, on February 4, 1971, Ishwar
revoked the general power of attorney.
6.) Choithram and Ortigas were duly notified of such revocation on
April 1, 1971 and May 24, 1971, respectively. Said notice was also
registered with the Securities and Exchange Commission on March
29, 1971 and was published in the April 2, 1971 issue of The Manila
Times for the information of the general public.
7.) Nevertheless, Choithram as such attorney-in-fact of Ishwar,
transferred all rights and interests of Ishwar and Sonya in favor of
his daughter-in-law, NirmlaRamnani, on February 19, 1973. Her
husband is Moti, son of Choithram. Upon complete payment of the
lots, Ortigas executed the corresponding deeds of sale in favor of
Nirmla.
8.) Ishwar and Sonya (spouses Ishwar for short) filed a complaint
in the Court of First Instance of Rizal against Choithram and/or
spouses Nirmla and Moti (Choithram et al. for brevity) and Ortigas
for:
a.) reconveyance of said properties; or b.) payment
of its value and damages.
9.) The trial court dismissed the case. The appellate court
promulgated an amended decision granting the motion for
reconsideration of Ortigas by affirming the dismissal of the case by
the lower court as against Ortigas but denying the motion for
reconsideration of Choithram, et al.
ISSUES:
(1) WON Ishwar remitted the amount of $150,000 to
Choithram: (Factual finding: YES)
(2) WON CA erred in holding that at any rate no one ever
testified that Ortigas was a subscriber to the Manila Times
Publication or that any of its officers read the notice as published in
the Manila Times, thereby erroneously concluding that for Ortigas
to be constructively bound by the published notice of revocation,
Ortigas and/or any of its officers must be a subscriber and/or any
of its officer should read the notice as actually published: YES
HELD:The problem is compounded in that respondent Ortigas is
caught in the web of this bitter fight. It had all the time been dealing
with Choithram as attorney-in-fact of Ishwar. However, evidence
had been adduced that notice in writing had been served not only
on Choithram, but also on Ortigas, of the revocation of Choithram's
power of attorney by Ishwar's lawyer, on May 24, 1971. A
publication of said notice was made in the April 2, 1971 issue of
The Manila Times for the information of the general public. Such
notice of revocation in a newspaper of general circulation is
sufficient warning to third persons including Ortigas. A notice of
revocation was also registered with the Securities and Exchange
Commission on March 29, 1971.
Indeed in the letter of Choithram to Ishwar of June 25, 1971,
Choithram was pleading that Ishwar execute another power of
attorney to be shown to Ortigas who apparently learned of the
revocation of Choithram's power of attorney. Despite said notices,
Ortigas nevertheless acceded to the representation of Choithram,
as alleged attorney-in-fact of Ishwar, to assign the rights of
petitioner Ishwar to Nirmla. While the primary blame should be laid
at the doorstep of Choithram, Ortigas is not entirely without fault. It
should have required Choithram to secure another power of
attorney from Ishwar. For recklessly believing the pretension of
Choithram that his power of attorney was still good, it must,
therefore, share in the latter's liability to Ishwar.
So what is the power granted to the agent here, is it general or special?
General
Who is the principal? Ishwar and his spouse
The Agents are? The two brothers
Central Surety and Insurance Company vs C.N. Hodges and
CA (Digest by: Zarah Domingo)
FACTS:
1.) Prior to January 15, 1954, lots Nos. 1226 and 1182 of
the Cadastral Survey of Talisay, Negros Occidental, had been sold
by C. N. Hodges to Vicente M. Layson, for the sum of P43,000.90,
payable on installments.
2.) As of January 15, 1954, the outstanding balance of
Layson's debt, after deducting the installments paid by him prior
thereto, amounted to P15,516.00.
3.) In order that he could use said lots as security for a loan
he intended to apply from a bank, Layson persuaded Hodges to
execute in his (Layson's) favor a deed of absolute sale over the
properties, with the understanding that he would put up a surety
bond to guarantee the payment of said balance.
4.) Layson executed, in favor of Hodges, a promissory note
for P15,516.00, with interest thereon at the rate of 1% per month,
and the sum of P1,551.60, for attorney's fees and costs, in case of
default in the payment of the principal or interest of said note.
5.) To guarantee the same, on January 23, 1954, the
Central Surety and Insurance Company — hereinafter referred to
as petitioner — through the manager of its branch office in Iloilo,
Mrs. Rosita Mesa, executed in favor of Hodges the surety bond
Annex B, which was good for twelve (12) months from the date
thereof.
6.) When Layson defaulted in the discharge of his aforesaid
obligation, Hodges demanded payment from the petitioner, which,
despite repeated extensions of time granted thereto, at its request,
failed to honor its commitments under the surety bond. On October
24, 1955, Hodges commenced, therefore. the present action, in the
Court of First Instance of Iloilo, against Layson and petitioner
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From the Lectures of: Atty. Raymund Christian S. Ong-Abrantes, CPA
herein, to recover from them, jointly and severally, the sums of
P17,826.08, representing the principal and interest due up to said
date, and P1,551.60, as attorney's fees.
7.) In its answer, petitioner disclaimed liability under the
surety bond in question, upon the ground (a) that the same is null
and void, it having been issued by Mrs. Rosita Mesa after her
authority therefor had been withdrawn on March 15, 1952; (b) that
even under her original authority Mrs. Mesa could not issue surety
bonds in excess of P8,000.00 without the approval of petitioner's
main office which was not given to the surety bond in favor of
Hodges; and (c) that the present action is barred by the provision
in the surety bond to the effect that all claims and actions thereon
should be filed within three (3) months from the date of its expiration
on January 23, 1955.
ISSUE:
WON CA erred in finding that petitioner was liable on a bond issued
by an agent whose authority ... had already been withdrawn and
revoked: NO
HELD:
The assignment of error is predicated upon the fact that prior to
January 23, 1954, when the surety bond involved in this case was
executed, or on March 15, 1952, petitioner herein had withdrawn
the authority of its branch manager in the City of Iloilo, Mrs. Rosita
Mesa, to issue surety bonds and that, accordingly, the surety bond,
is null and void.
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.
It is not disputed that petitioner has not caused to be published any
notice of the revocation of Mrs. Mesa's authority to issue surety
bonds on its behalf, notwithstanding the fact that the powers of Mrs.
Mesa, as its branch manager in Iloilo, were of a general nature, for
she had exclusive authority, in the City of Iloilo, to represent
petitioner herein, not with a particular person, but with the public in
general, "in all the negotiations, transactions, and business in
wherein the Company may lawfully transact or engage on subject
only to the restrictions specified in their agreement.”
Contrary to petitioner's claim, Article 1922 applies whenever an
agent has general powers, not merely when the principal has
published the same, apart from the fact that the opening of
petitioner's branch office amounted to a publication of the grant of
powers to the manager of said office. Then, again, by honoring
several surety bonds issued in its behalf by Mrs. Mesa
subsequently to March 15, 1952, petitioner induced the public to
believe that she had authority to issue such bonds. As a
consequence, petitioner is now estopped from pleading,
particularly against a regular customer thereof, like Hodges, the
absence of said authority.
Note: As to other allegations of error (not related to Topic, in case
asked in class):
a.) The second assignment of error assails the finding of the CA to
the effect that the petitioner is liable for the full amount of surety
bond — despite the fact that it exceeded the sum of P8,000.00 and
hence, required, for its validity and binding effect as against
petitioner herein, the express approval and confirmation of its
Manila office, which were not secured — in view of petitioner's
failure to deny under oath the genuineness and due execution of
said bond.
We have however, held that: “... where a case has been tried in
complete disregard of the rule and the plaintiff having pleaded a
document by copy, presents oral evidence to prove the due
execution of the document as well as the agent's authority and no
objections are made to the defendant's evidence in refutation, the
rule will be considered waived.”
In the case at bar, the parties acted in complete disregard of or
wholly overlooked the rule above-quoted. Hodges had neither
objected to the evidence introduced by petitioner herein in order to
prove that Mrs. Mesa had no authority to issue a surety bond, much
less one in excess of P8,000.00, and took no exception to the
admission of said evidence. Hence, Hodges must be deemed to
have waived the benefits of said rule and petitioner herein cannot
be held liable in excess of the sum of P8,000.00.
b.) Under the third assignment of error, petitioner maintains that,
having been instituted on October 24, 1955 — or nine (9) months
after the expiration of petitioner's surety bond on January 23, 1955
— the present action is barred by the provision in said bond to the
effect that it:
...will not be liable for any claim not discovered and presented to
the Company within three (3) months from the expiration of this
bond and that the obligee hereby waives his right to file any court
action against the surety after the termination of the period of three
months above-mentioned.
Court has, however, held (in an identical case) "that the three-
month period" prescribed therein "established only a condition
precedent, — not a limitation of action," and that, when a claim has
been presented within said period, the action to enforce the claim
may be "filed within the statutory time of prescription."
SANCHEZ vs.MEDICARD PHILIPPINES, INC.
G.R. No. 141525
September 2, 2005
(Digest by: Lizette Estillore)
FACTS:
MEDICARD Philippines, Inc. (MEDICARD) appointed SANCHEZ
as its special corporate agent with a commission based on the
"cash brought in” by the latter.
Through SANCHEZ’ efforts, MEDICARD and United Laboratories
Group of Companies (UNILAB) executed a Health Care Program
Contract where UNILAB shall pay MEDICARD a fixed monthly
premium for the health insurance of its personnel. UNILAB paid
MEDICARD ₱4,148,005 as premium for one (1) year. MEDICARD
then handed SANCHEZ 18% of said amount as commission. The
contract was subsequently renewed incorporating an increase.
SANCHEZ was also paid his commission.
Prior to the expiration of the renewed contract, MEDICARD
proposed to UNILAB, through SANCHEZ, an increase of the
premium for the next year. However, UNILAB rejected the proposal
"for the reason that it was too high," prompting DR. MONTOYA
(MEDICARD’s president and general manager) to request
SANCHEZ to reduce his commission, but the latter refused.
At first UNILAB decided not to renew the contract. It nonetheless
negotiated with DR. MONTOYA, through EJERCITO, and entered
into a new scheme to continue the insurance coverage of those
personnel.
SANCHEZ demanded from MEDICARD payment of ₱338,000 as
his commission plus damages. The latter refused. This prompted
SANCHEZ to file a complaint for sum of money against
MEDICARD, DR. MONTOYA and EJERCITO.
ISSUE:
WON THE CONTRACT OF AGENCY HAS BEEN REVOKED BY
MEDICARD. Yes
WON SANCHEZ IS ENTITLED TO A COMMISSION. No
HELD:
An agent receives his commission only upon the successful
conclusion of a sale. Thus, it follows that where his efforts are
unsuccessful, or there was no effort on his part, he is not entitled
to a commission.
However, for the purpose of equity, an agent who is not the efficient
procuring cause is nonetheless entitled to his commission, where
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From the Lectures of: Atty. Raymund Christian S. Ong-Abrantes, CPA
said agent, notwithstanding the expiration of his authority,
nonetheless, took diligent steps to bring back together the parties,
such that a sale was finalized and consummated between them.
The proximate, close, and causal connection between the agent’s
efforts and the principal’s sale of his property cannot be ignored.
In the case at bar, it was through SANCHEZ that MEDICARD was
able to enter into a one-year Health Care Program Contract with
UNILAB. As a result, MEDICARD paid him his commission. Again,
through his efforts, the contract was renewed and once more, he
received his commission. Before the expiration of the renewed
contract, MEDICARD, through SANCHEZ, proposed an increase
in premium, but UNILAB rejected this proposal. MEDICARD then
requested SANCHEZ to reduce his commission should the contract
be renewed on its third year, but he was obstinate. Meantime, on
October 3, 1990, UNILAB informed MEDICARD it was no longer
renewing the Health Care Program contract.
In order not to prejudice its personnel, UNILAB, through
EJERCITO, negotiated with respondent DR. MONTOYA, in order
to find mutually beneficial ways of continuing the Health Care
Program. The negotiations resulted in a new contract wherein
UNILAB shall pay MEDICARD the hospitalization expenses
actually incurred by each employees, plus a service fee. Under the
"cost plus" system which replaced the premium scheme,
SANCHEZ was not given a commission.
It is clear that since SANCHEZ refused to reduce his commission,
MEDICARD directly negotiated with UNILAB, thus revoking its
agency contract with SANCHEZ. We hold that such revocation is
authorized by Article 1924 of the Civil Code which provides:
Art. 1924. The agency is revoked if the principal directly manages
the business entrusted to the agent, dealing directly with third
persons.
Moreover, SANCHEZ DID NOT RENDER SERVICES TO
MEDICARD, HIS PRINCIPAL, TO ENTITLE HIM TO A
COMMISSION. There is no indication from the records that he
exerted any effort in order that UNILAB and MEDICARD, after the
expiration of the Health Care Program Contract, can renew it for
the third time. In fact, his refusal to reduce his commission
constrained MEDICARD to negotiate directly with UNILAB. We
find no reason in law or in equity to rule that he is entitled to a
commission. Obviously, he was not the agent or the "procuring
cause" of the third Health Care Program Contract between
MEDICARD and UNILAB.
The principal in this case is? Medicard
The agent is? Sanchez
CMS LOGGING vs. CA
G.R. No. L-41420
July 10, 1992
(Digest by: Lizette Estillore)
FACTS:
Through a contract of agency, CMS (forest concessionaire
engaged in the logging business) appointed DRACOR (engaged in
the business of exporting and selling logs and lumber) as its
exclusive export and sales agent for all logs that CMS may
produce, for a period of five (5) years.
CMS was able to sell through DRACOR a total of 77,264,672 board
feet of logs in Japan. About six months prior to the expiration of
the agreement, while on a trip to Japan, Atty. Sison (CMS's
president), and Atty. Dominguez (general manager and legal
counsel), discovered that DRACOR had used Shinko Trading as
agent, representative or liaison officer in selling CMS's logs in
Japan for which Shinko earned a commission of U.S. $1.00 per
1,000 board feet from the buyer of the logs. Shinko was able to
collect a total of U.S. $77,264.67.
CMS claimed that this commission paid to Shinko was in violation
of the agreement. and that the amount is part of the proceeds of
the sale of the logs. It also contended that since DRACOR had
been paid the 5% commission under the agreement, it is no longer
entitled to the additional commission paid to Shinko as this
tantamount to DRACOR receiving double compensation for the
services it rendered.
After this discovery, CMS sold and shipped logs valued at U.S.
$739,321.13 or P2,883,351.90, directly to several firms in Japan
without the aid or intervention of DRACOR.
CMS sued DRACOR for the commission received by Shinko and
for moral and exemplary damages, while DRACOR counterclaimed
for its commission from the sales made by CMS of logs to
Japanese firms. CMS averred as a defense to the counterclaim
that DRACOR had retained the sum of P101,167.59 as part of its
commission for the sales made by CMS. Thus, as its counterclaim
to DRACOR's counterclaim, CMS demanded DRACOR return the
amount it unlawfully retained. DRACOR later filed an amended
counterclaim, alleging that the balance of its commission on the
sales made by CMS was P42,630.82, thus impliedly admitting that
it retained the amount alleged by CMS.
ISSUE:
WON DRACOR IS ENTITLED TO ITS 5% COMMISSION
ARISING FROM THE DIRECT SALES MADE BY CMS TO
BUYERS IN JAPAN. No.
HELD:
***While it is true that the evidence adduced establishes the fact
that Shinko is DRACOR's agent or liaison in Japan, there is no
evidence which established the fact that Shinko did receive the
amount of U.S. $77,264.67 as commission arising from the sale of
CMS's logs to various Japanese firms. Also, the testimonies of the
witnesses presented constitute as hearsay for not being presented
in court for cross-examination.
***The statements made in the memorandum of Atty. Ciocon to
DRACOR dated, the letter of the president of DRACOR, and the
reply-letter by DRACOR's counsel to CMS's demand letter cannot
be categorized as admissions that Shinko did receive the
commissions in question. This is not supported by evidence.
Even if it was shown that Shinko did in fact receive the
commissions in question, CMS is not entitled thereto since these
were apparently paid by the buyers to Shinko for arranging the sale.
This is therefore not part of the gross sales of CMS's logs.
CMS: DRACOR is not entitled to its commission from the sales
made by CMS to Japanese firms.
Meritorious. The principal may revoke a contract of agency at will,
and such revocation may be express, or implied, and may be
availed of even if the period fixed in the contract of agency as not
yet expired. As the principal has this absolute right to revoke the
agency, the agent can not object thereto; neither may he claim
damages arising from such revocation, unless it is shown that such
was done in order to evade the payment of agent's commission.
In the case at bar, CMS appointed DRACOR as its agent for the
sale of its logs to Japanese firms. Yet, during the existence of the
contract of agency, DRACOR admitted that CMS sold its logs
directly to several Japanese firms. This act constituted an implied
revocation of the contract of agency under Article 1924 of the Civil
Code, which provides:
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From the Lectures of: Atty. Raymund Christian S. Ong-Abrantes, CPA
Art. 1924 The agency is revoked if the principal directly manages
the business entrusted to the agent, dealing directly with third
persons.
Since the contract of agency was revoked by CMS when it sold its
logs to Japanese firms without the intervention of DRACOR, the
latter is no longer entitled to its commission from the proceeds of
such sale and is not entitled to retain whatever moneys it may have
received as its commission for said transactions. Neither would
DRACOR be entitled to collect damages from CMS, since
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: DRACOR had committed acts of fraud and bad faith.
Unmeritorious. Findings of the CA on the matter were based on its
appreciation of the evidence, and these findings are binding on this
Court.
In fine, there is no evidence to support CMS's contention that
Shinko earned a separate commission of U.S. $1.00 for every
1,000 board feet of logs from the buyer of CMS's logs.
However, the SC reversed the decision of CA with regard to
DRACOR's right to retain the amount of P101,536.77 as part of its
commission from the sale of logs by CMS, and hold that DRACOR
has no right to its commission. Consequently, DRACOR is hereby
ordered to remit to CMS the amount of P101,536.77.
Geneivieve Lim vs Saban
(Digest by: Rafael Rivas)
FACTS:
Eduardo Ybaez , the owner of a 1,000-square meter lot in Cebu
City (the lot), entered into an Agreement and Authority to Negotiate
and Sell (Agency Agreement) with Florencio Saban (Saban). Under
the Agency Agreement, Ybaez authorized Saban to look for a
buyer of the lot for Two Hundred Thousand Pesos (P200,000.00)
and to mark up the selling price to include the amounts needed for
payment of taxes, transfer of title and other expenses incident to
the sale, as well as Sabans commission for the sale.
Through Sabans efforts, Ybaez and his wife were able to sell the
lot to Genevieve Lim (Lim) and the spouses Benjamin and Lourdes
Lim (the Spouses Lim) on March 10, 1994. The price of the lot as
indicated in the Deed of Absolute Sale is Two Hundred Thousand
Pesos (P200,000.00). It appears, however, that the vendees
agreed to purchase the lot at the price of Six Hundred Thousand
Pesos (P600,000.00), inclusive of taxes and other incidental
expenses of the sale. After the sale, Lim remitted to Saban the
amounts.
Subsequently, Ybaez sent a letter addressed to Lim. In the letter,
Ybaez asked Lim to cancel all the checks issued by her in Sabans
favor and to extend another partial payment for the lot in his
(Ybaez) favor. After the four checks in his favor were dishonored,
Saban filed a Complaint for collection of sum of money and
damages against Ybaez and Lim. Saban alleged that Ybaez told
Lim that he (Saban) was not entitled to any commission for the sale
since he concealed the actual selling price of the lot from Ybaez
and because he was not a licensed real estate broker. Ybaez was
able to convince Lim to cancel all four checks.
In his Answer, Ybaez claimed that Saban was not entitled to any
commission because he concealed the actual selling price from
him and because he was not a licensed real estate broker.
ISSUE:
Whether or not Saban is entitled to receive his commissions from
the sale?
Ruling: Yes, Saban is entitled.
The agency was not revoked since Ybaez requested that Lim make
stop payment orders for the checks payable to Saban only after the
consummation of the sale. At that time, Saban had already
performed his obligation as Ybaezs agent when, through his
(Sabans) efforts, Ybaez executed the Deed of Absolute Sale of the
lot with Lim and the Spouses Lim. To deprive Saban of his
commission subsequent to the sale which was consummated
through his efforts would be a breach of his contract of agency.
However, the Court posits that Saban’s agency is not coupled with
an interest. 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 is 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.
With Sabah’s entitlement being settled, Ybaez and Lim are liable
to Sabah for conniving the latter of what is due to him.
Is the agency here coupled with interest? No, since an agents
interest in obtaining his compensation as such agent is an ordinary
incident of the agency relationship
RAMON RALLOS, Administrator of the Estate of
CONCEPCION RALLOS v.FELIX GO CHAN & SONS REALTY
CORPORATION and COURT OF APPEALS, G.R. No. L-24332,
January 31, 1978
(Digest by: Lilybeth Petallo)
FACTS:
This involves the attorney-in-fact(Simeon Rallos), who, after the
death of his principal(Concepcion Rallos), sold the latter’s
undivided share in a parcel of land pursuant to a SPA which the
principal had executed in his favor.
Notably, on Apr 21 1954, the SPA was executed by the sisters and
registered co-owners, Concepcion and Gerundia, in favor of their
brother, Simeon, authorizing him to sell for and in their behalf Lot
5983.
However, on Mar 3 1955, Concepcion died. Nevertheless, on Sep
12 1955, Simeon sold Lot 5983 to Felix Go Chan & Sons Realty
Corp. (respondent).
This prompted Ramon Rallos, as administrator of the Intestate
Estate of Concepcion, (petitioner) to file a Complaint praying that
the sale of undivided share of the deceased Concepcion in Lot
5983 be declared unenforceable, and be reconveyed to her estate,
among others.
TC granted petitioner’s relief; declaring the deed of sale null and
void insofar as Concepcion’s share is concerned.
CA REVERSED and ruled in favor of respondent-corporation;
sustaining the validity of the sale.
Hence, the petition.
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ISSUE: WON the sale of the undivided share of Concepcion in Lot
5983 valid although it was executed by the agent after the death of
his principal, (NO)
HELD: The sale of the undivided share of Concepcion is
unenforceable, as it was executed by the agent after the death of
his principal (and with knowledge of such death at the time of the
transaction).
COURT’S DISCUSSION:
1. The basic axiom in civil law is that: “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”. ART. 1403 provides
that contracts 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 are unenforceable unless ratified. This
principle is the basis of the “relationship of agency”, whereby one
party (the principal/mandante) authorizes another (the
agent/mandatorio) to act for and in his behalf in transactions with
third persons. Such agency is basically personal, representative,
and derivative in nature. The authority of the agent to act 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
aliumfacit per se. (He who acts through another acts himself.)
2. There are various ways of extinguishing agency, e.g.
death of the principal/agent (PAR. 3, ART. 1919). According to
Manresa, the rationale is found in the juridical basis of agency
which is “representation”. Laurent says that the juridical tie between
the principal and the agent is severed ipso jure upon the death of
either without necessity for the heirs of the principal to notify the
agent of the fact of death of the former. The same rule prevails at
common law – that the death of the principal effects instantaneous
and absolute revocation of the authority of the agent unless the
power be coupled with an interest.
3. The general rule is that the death of the principal/agent
extinguishes agency. The exceptions are:
a. ART. 1930 – if the agency is coupled with interest; and
b. ART. 1931 – If (a) the agent acted without knowledge of
the death of the principal, and (b) the 3rd person who contracted
with the agent acted also in good faith. These two
conditions/requisites must concur, the absence of one will render
the act of the agent invalid and unenforceable.
IN THE CASE AT BAR: Art. 1930 does not apply because the SPA
was not coupled with interest.
On the other hand, Art. 1931 would have been the more applicable
law. However, there was no concurrence of the two requirements,
rendering ART. 1931 also inapplicable because:
a. Although respondent-corporation claimed that it acted
“In Omnibus Amare et Servire Domino” (In Everything, Love & Serve the Lord)
in good faith in buying the property (thereby establishing the 2nd
requisite);
b. Still the 1st requisite is lacking since it cannot be
questioned that Simeon (agent) knew of the death of his principal
at the time of the sale. This knowledge of death can be inferred
from the pleadings filed by Simeon himself.
4. RESPONDENT-CORPORATION’S DEFENSE: That no
provision in the Code provides that whatever is done by an agent
having knowledge of the death of his principal is void, even with
respect to third persons who may have contracted with him in good
faith. (LACKS MERIT)
ART. 1931, being an exception to the general rule, should be
strictly construed. The two requisites should concur.
5. RESPONDENT-CORPORATION’S CONTENTION:
That it, as vendee acting in good faith, relied on the SPA duly
registered on the original certificate of title; and since there was no
notice of death ever annotated on said OCT by the heirs of the
principal, said heirs should suffer the consequences of such
omission. (LACKS MERIT)
Respondent-corporation’s argument refers to the “revocation by an
act of the principal” as a mode of terminating an agency, which
should bedistinguished from“revocation by operation of law”, such
as the death of the principal as in this case. 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 (e.g. death
of principal) is 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 terminated; the source of authority is extinguished.
The Civil Code does not impose a duty on the heirs to notify the
agent of the death of the principal. What the Code provides in ART.
1932 is that, if the agent dies, his heirs must notify the principal
thereof. Hence, the fact that no notice of the death of the principal
was registered on the OCT is not fatal to the cause of the estate of
the principal.
6. RESPONDENT-CORPORATION’S CONTENTION:
That the instant case is “parallel” to that of an innocent purchaser
for value of a registered land – that the registered owner has no
recourse against such IPV but only against the forger, citing
Blondeau doctrine. (LACKS MERIT)
Blondeau doctrine is inapplicable as it finds basis in Sec. 5 of the
Land Registration Law. Since the parties admitted that Simeon was
an agent, the situation is covered by the law on agency.
7. RESPONDENT-CORPORATION’S CONTENTION:
That in Cassiday vs McKenzie, payments made to an agent after
the death of the principal were held to be “good”, “the parties being
ignorant of the death”. (LACKS MERIT)
Again, the SC stressed that the exception in ART. 1931 requires
concurrence of the 2 requisites. Thus, it is an indispensable
requirement that the agent acted without knowledge or notice of the
death of the principal. However, in this case, the agent executed
the sale notwithstanding notice of the death of his principal.
Accordingly, the agent’s act is unenforceable against the estate of
his principal.
IN VIEW OF ALL THE FOREGOING, We set aside the decision of
respondent appellate court, and We affirm entoto the judgment
rendered by then Hon. Amador E. Gomez of the Court of First
Instance of Cebu, quoted in pages 2 and 3 of this Opinion, with
costs against respondent realty corporation at all instances.
*End of Final Exam Coverage*
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