Professional Documents
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FIRST EXAM COVERAGE In a contract of partnership, both parties will share the profits and losses.
JUNE 16, 2017 Eventually, hindi lang isa ang nagsusupply ng capital, dumami. Sa Rome,
(Transcriber: Kristine Confesor) mostly family-owned ang mga businesses. Like yung mga banks before.
Nagkakaroon na ng privilege to manage ang commendator so meron na rin
PARTNERSHIP silang voice in how to manage the business.
Partnership is in your Business Organization. During the industrial revolution, yan yung inapply ng England. They codified it,
Business Organization 1. If you ask me, the business organization for the 3, hence the English Partnership Law. The concept of this English Partnership
is partnership lang. because trusts and agency, di sila business organization Law is similar to this Commenda na limited ang liability nung capital. Now the
since they don’t have juridical personality. But, you will realize later on that Americans, also codified it but they have both general and limited liability –
trusts and agency have similarities to partnership. The concepts of agency can Universal Limited Partnership Act.
apply to partnership; the concepts of agency is also applied in trusts. In a way,
partnership also applies in trust. The Philppine laws on partnership are mostly taken with or without
modifications from the 2 American Statutes: Uniform Partnership Act and the
Q: What are three basic forms of business organization Uniform Limited Partnership Act.
1. Sole Proprietorship – from the word sole, siya lang isa. Naa kay
mga businesses, mga companies, pero soleprop lang, meaning isa Art. 45 last paragraph xxx
lang ang tag-iya; governed by your law on Sales, Civil Code Partnerships and associations for private interest or purpose are
Obligations and Contracts governed by the provisions of this Code concerning partnerships.
2. Partnership – daghan ug tag-iya, essentially; governed by a Title (36 and 37a)
IX Art. 1767-1867
3. Corporation – governed by the Corporation Code So before, meron tayong civil partnerships sa civil code, tapos meron tayong
commercial, but because of Art. 45 last paragraph, it expressly repealed the
You will realize later on that a partnership, it has a separate juridical previous law.
personality. But some authors say that that is a weak juridical personality vs
that of a corporation. Point: Partnership Law came into being to govern business
transactions.
Partnership Corporation
For AGENCY, you have the principal, agent, and third person. To simplify, si TITLE IX
principal mag-coconstitute siya ng contract of agency sa isang agent for that PARTNERSHIP
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 CHAPTER 1
with 3rd person. General Provisions
Article 1767. By the contract of partnership two or more persons bind
Given that differentiation, ang common sa tatlo: Partnership, Trusts, and themselves to contribute money, property, or industry to a common fund, with
Agency – there has to be an element of fiduciary relationship – trusts and the intention of dividing the profits among themselves.
confidence.
Art. 1767 gives us the definition of the contract of partnership. If there is one
that’s the general concept of Partnership, Trusts, and Agency.
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
HISTORY OF PARTNERSHIP
It dates back to Hammurabi Code, Mesopotamia, etc. but there’s no concrete two or more persons, hindi pwede magkaroon ng partnership kung isa
–version on how did the partnership law came to be There’s a written paper lang.
published in Queen’s University in Belfast in Ireland. Sabi niya 5th Century bind themselves so there is an intention to form a partnership
daw. It starts with the Islamic code of Hammurabi. Tapos, napunta siya sa to contribute money, property, or industry. Now, as I observed, in this
Justinian Code. Then 11th century, dun na siya sa Rome, Byzantine. Basically, particular provision, bakit nakaseparate si money, industry, at property?
due to the increase in trade, dati 1 owner= 1 business. So imagine, how limited Is money not a property? It is understandable to separate industry
your resources would be. because it means services. Pero, money or property? It’s because it’s
EX: Person 1 has a banana plantation and Person 2 is engaged in sugar liquid. Now, as I’ve told you last meeting, the provisions of the law of
industry. IF there is an increase of trade and demand for banana cue, partnership is taken from the US law of Partnership which is the Uniform
what will happen? To exploit the investment opportunities, person 1 and Partnerships Act. When you try to look at the definition of partnership
2 will enter into a partnership. under the UPA, ang partnership is hindi ganito yung pagkadefine. Kung
tingnan mo yung definition niya, sineparate siya sa liquidation. When a
In history, the contract of commenda, this one is commendator, and partnership is already dissolved, iliquidate na for the purpose of
dandator? Meron akong capital say 100, siya yung nagatravel sa mga determining ano yung liquid na asset na pwedeng pambayad sa
merchants, naghahanap ng investment opportunity. So ang nangayayari. partners. When we say liquid, it is something that can be easily
They enter into a partnership. One supplies the capital, then the other gets the exchanged. Money is liquid, since madali lang man siya iexchange.
investment opportunities. Whatever is the profit, they divide. In effect, one Whereas other properties, like lands buildings, hindi mo naman siya
partner’s risk is in his own capital. The other one, industry. Later on you will maexchange basta-basta diba, so you have to convert that into money.
realize, that in partnership, it’s not just the money or property that is
contributed, but also the industry. to a common fund, with the intention of dividing the profits among
themselves
1
BUSINESS ORGANIZATION I
(By: 3-Manresa, S.Y. 2017-2018)
From the Lectures of: Atty. Raymund Christian S. Ong-Abrantes, CPA
Here, Federico and Antonieta were pushing that there was actually a co-
During the course of the trial at the RTC, petitioner Federico Jarantilla, Jr., ownership. But the SC said that the existence of co-ownership does not
who was one of the original defendants, entered into a compromise necessarily mean that there exists a partnership because it has laid down the
2 elements of partnership.
agreement17 with AntonietaJarantilla wherein he supported Antonieta’s
claims and asserted that he too was entitled to six percent (6%) of the There is a co-ownership when an undivided thing or right belongs to different
supposed partnership in the same manner as Antonieta was. 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.
ISSUE: Whether or not the partnership subject of the Acknowledgement of
Q: How about if may partnership, necessarily ba may co-ownership?
Participating Capital funded the subject real properties.
With partnership, it is necessary that there is co-ownership because in
partnership, everyone has a say in the manamanget, and
1It is important to know that it is a nominate contract because meron siyang specific provisions pupunta (ObliCon), dun ka na sa specific provisions. Whereas, kung innominate yung contract, dun
provided under the law. Again, pag nominate ang contract, di ka na dun sa General Principles ka sa general principles.
2
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 thereon by the NLRC, as affirmed by the Court of Appeals, deserve not
kabilang party, bumili ng property. Yung isang partner naman nagsabi na “uy only respect but finality when supported by substantial evidence.
may share ako dun sa property, kasi ang pinanggamit dun na pera is out of Substantial evidence is such amount of relevant evidence which a
the partnership assets”. The problem here is, hindi naman siya nakaproduce reasonable mind might accept as adequate to justify a conclusion.
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. 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
A good question is regarding co-ownership. So a co-ownership does not not to be liable for the illegal dismissal case.
necessarily create a partnership because of the 2 elements. Pero, kung
partnership ka, necessarily, in effect meron talagang co-ownership with Q: What element is missing here?
regards to the partnership assets. Diba, you contribute money and property There was no intention.
to the common fund. Now, once nasa common fund na yun siya, sino ba
nagmamay-ari? Yung partnership. Sino ba nagmamay-ari ng partnership? Q: What is the most important thing mentioned by the SC?
Yung partners. Sabi ng SC . There is no proof that he was receiving a share in the profits as
In effect, may equity interest lang sila dun sa property. 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
SY VS CA management, administration and adoption of policies of the business.
(Case Digest: Ana Lapu)
Q: What is the difference between receiving a salary as to receiving a
profit?
FACTS: Sometime in 1958, private respondent Jaime Sahot started Receiving a salary whether the business is operating at a loss, you will get a
working as a truck helper for petitioners’ family-owned trucking business salary. Whereas, a partner in such a case, would not receive any profit from
named Vicente Sy Trucking. In 1965, he became a truck driver of the same the operations of the business.
family business, renamed T. Paulino Trucking Service, later 6B’s Trucking
So this is a labor case. You will see the difference. Some of the contentions
Corporation in 1985, and thereafter known as SBT Trucking Corporation
kasi ng lawyers is, hindi naming siya empleyado, partner naming yan. Bakit
since 1994. Throughout all these changes in names and for 36 years,
importante yan? Remember, a partner is an owner of the business. So pag
private respondent continuously served the trucking business of ma-allege yan at maprove yang tao nay an, walang illegal dismissal, kasi
petitioners. When Sahot was 59 years old, he incurred several absences walang empleyado.
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 SALARY VS PROFITS
about his medical and retirement benefits with the Social Security System Now, as you can see in labor cases where it is alleged na partner yung
(SSS) on April 25, 1994, but discovered that his premium payments had employee, there is a difference between receiving a salary vs receiving a profit.
not been remitted by his employer.Sahot filed a week-long leave to get The difference mainly lies on the fact that when you receive a profit, you have
medical attention. He was treated for EOR, presleyopia, hypertensive an equity interest, you have a residual interest in the business.
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 Illustration: Let’s say asset mo is 100, revenue 100, expenses mo
extension of his leave. When Sahot applied for an extended leave, he was 50. 50 yung residual, yan yung profit mo. When you say salary and
wages, san yun papasok? Nasa expenses mo yun. So regardless
threatened of termination of employment should he refuse to go back to
if w/n your business is profiting or operating at a loss,
work. Eventually, Sahot was dismissed from employment which prompted makakareceive ka [if you’re an employee]. Whereas, pag owner ka,
the latter to file an illegal dismissal case with the NLRC. For their part, pag loss, eh di wala, absorb mo yun, lugi ka because being the
petitioners admitted they had a trucking business in the 1950s but denied owner, you take the risks, na wala kang ma-earn.
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 TORRES VS CA
Trucking Corporation was established, and only then did respondent Sahot
become an employee of the company, with a monthly salary that reached (Case Digest: Ana Lapu)
P4,160.00 at the time of his separation. The NLRC and the CA ruled that
Sahot was an employee of the petitioner.
FACTS: Sisters Antonia Torres and Emeteria Baring, herein petitioners,
entered into a "joint venture agreement" with Respondent Manuel Torres
ISSUE: Whether Sahot is an industrial partner 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
HELD: No. Article 1767 of the Civil Code states that in a contract of which, under the Joint Venture Agreement, was to be used for the
partnership two or more persons bind themselves to contribute money, development of the subdivision. All three of them also agreed to share the
property or industry to a common fund, with the intention of dividing the proceeds from the sale of the subdivided lots.
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 The project did not push through, and the land was subsequently
no proof that he was receiving a share in the profits as a matter of course, foreclosed by the bank.
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 According to petitioners, the project failed because of “respondent’s lack
and the CA did not err in reversing the finding of the Labor Arbiter that of funds or means and skills.” They add that respondent used the loan not
private respondent was an industrial partner from 1958 to 1994. On this for the development of the subdivision, but in furtherance of his own
point, the Court affirmed the findings of the appellate court and the NLRC. company, Universal Umbrella Company.
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
3
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 to the stipulated percentage. Clearly, the contract manifested the intention
the Agreement. Respondent claimed that the subdivision project failed, of the parties to form a partnership.
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
It should be stressed that the parties implemented the contract. Thus,
to cause the clearing of the claims, thereby forcing him to give up on the
petitioners transferred the title to the land to facilitate its use in the name
project.
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
Subsequently, petitioners filed a criminal case for estafa against roads, the curbs and the gutters of the subdivision and entered into a
respondent and his wife, who were however acquitted. Thereafter, they contract to construct low-cost housing units on the property.
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
Respondent’s actions clearly belie petitioners’ contention that he made no
its assailed Decision, which, as earlier stated, was affirmed by the CA.
contribution to the partnership. Under Article 1767 of the Civil Code, a
Ruling of the Court of Appeals: partner may contribute not only money or property, but also industry.
In affirming the trial court, the Court of Appeals held that petitioners and
respondent had formed a partnership for the development of the
2. Alleged Nullity of the Partnership Agreement:
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 Petitioners argue that the Joint Venture Agreement is void under Article
Article 1797 of the Civil Code which provides: 1773 of the Civil Code, which provides:
“Article 1797 - The losses and profits shall be distributed in conformity with “ART. 1773. A contract of partnership is void, whenever immovable
the agreement. If only the share of each partner in the profits has been property is contributed thereto, if an inventory of said property is not made,
agreed upon, the share of each in the losses shall be in the same signed by the parties, and attached to the public instrument.”
proportion.”
They contend that since the parties did not make, sign or attach to the
The CA elucidated further: public instrument an inventory of the real property contributed, the
partnership is void.
“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 We clarify. First, Article 1773 was intended primarily to protect third
industrial partner shall not be liable for the losses. As for the profits, the persons. Thus, the eminent Arturo M. Tolentino states that under the
industrial partner shall receive such share as may be just and equitable aforecited provision which is a complement of Article 1771, “the execution
under the circumstances. If besides his services he has contributed of a public instrument would be useless if there is no inventory of the
capital, he shall also receive a share in the profits in proportion to his property contributed, because without its designation and description, they
capital.” 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
ISSUES:
declared void by the law when no such inventory is made.” The case at
1. WON the contract entered into by petitioners and respondent is a bar does not involve third parties who may be prejudiced.
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 Second, petitioners themselves invoke the allegedly void contract as basis
prescribed in Art. 1773 and for not having a valid consideration. NO
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
HELD: 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.
A reading of the terms embodied in the Agreement indubitably shows the In short, the alleged nullity of the partnership will not prevent courts from
existence of a partnership pursuant to Article 1767 of the Civil Code, which considering the Joint Venture Agreement an ordinary contract from which
provides: the parties’ rights and obligations to each other may be inferred and
enforced.
“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.”
Partnership Agreement Not the Result of an Earlier Illegal Contract:
Petitioners also contend that the Joint Venture Agreement is void under
Under the Agreement between petitioners and respondent, petitioners Article 1422 [14] of the Civil Code, because it is the direct result of an earlier
would contribute property to the partnership in the form of land which was illegal contract, which was for the sale of the land without valid
to be developed into a subdivision; while respondent would give, in addition consideration.
to his industry, the amount needed for general expenses and other costs.
Furthermore, the income from the said project would be divided according
4
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 Trial Court – Philippine Fishing Gear Industries is entitled to the Writ of
the consideration for the sale was the expectation of profits from the Attachment and that Chua, Yao and Lim, as general partners, were jointly
subdivision project. Its first stipulation states that petitioners did not liable to pay PFGI.
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.
CA - affirmed RTC
In this case, the cause of the contract of sale consisted not in the stated
ISSUE: W/N a partnership exists between Chua, Yao and Lim Tong Lim
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, HELD: Yes. Art. 1767 — By the contract of partnership, two or more
the [petitioners] acting in the expectation that, should the venture come persons bind themselves to contribute money, property, or industry to a
into fruition, they [would] get sixty percent of the net profits.” common fund, with the intention of dividing the profits among themselves.
Add’l. Info. 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.
Court’s ruling as to the liability of the parties:
Claiming that respondent was solely responsible for the failure of the In their Compromise Agreement, they subsequently revealed their
subdivision project, petitioners maintain that he should be made to pay intention to pay the loan with the proceeds of the sale of the boats, and to
damages equivalent to 60 percent of the value of the property, which was divide equally among them the excess or loss. These boats, the purchase
their share in the profits under the Joint Venture Agreement. 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
We are not persuaded. True, the Court of Appeals held that petitioners’ industry. That the parties agreed that any loss or profit from the sale and
acts were not the cause of the failure of the project. [16] But it also ruled operation of the boats would be divided equally among them also shows
that neither was respondent responsible therefor. [17] In imputing the that they had indeed formed a partnership.
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 The partnership extended not only to the purchase of the boat, but also to
45, as in this case. Petitioners have not alleged, not to say shown, that that of the nets and the floats. The fishing nets and the floats, both essential
their Petition constitutes one of the exceptions to this doctrine. [18] to fishing, were obviously acquired in furtherance of their business.
Accordingly, we find no reversible error in the CA's ruling that petitioners
are not entitled to damages.
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
LIM vs. PHILIPPINE FISHING GEAR INDUSTRIES all three.
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 Lim Tong Lim entered into a business agreement with Chua and Yao, in
were engaged in a business venture with Lim Tong Lim (petitioner), who which debts were undertaken in order to finance the acquisition and the
was not a signatory to the agreement. The total price of the nets was P532, upgrading of the vessels which would be used in their fishing business.
045. Floats worth P68, 000 were also sold. 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
The buyers of the fishing nets and floats were unable to pay. Philippine acquired from a loan in the name of the person the lender trusts, who in
Fishing Gear Industries filed a collection suit against Chua, Yao and Lim this case is the petitioner himself. After all, he is the brother of the creditor,
as well as a prayer for writ of preliminary attachment. The writ was issued Jesus Lim.
and enforced by attaching the fishing nets on the F/B Lourdes.
It is unreasonable for petitioner to sell his property to pay a debt he did not
Chua admitted liability and requested a reasonable time within which to incur, if the relationship among the three of them was merely that of lessor-
pay. lessee, instead of partners.
Yao filed an answer but failed to appear in subsequent hearings.
Lim Tong Lim filed an answer with Counterclaim and Crossclaim and It is true that petitioner did not directly act on behalf of the corporation.
moved for the lifting of the writ(denied) and the nets were sold at public However, having reaped the benefits of the contract entered into by
auction. He claimed that no partnership existed. 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.
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.
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 exemption claimed must be expressed in a language too plain to be
created or organized, joint-stock companies, joint accounts (cuentas en mistaken.
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 Q: Do you agree with the SC here that there is a partnership? Check the
petroleum, coal, geothermal and other energy operations pursuant to an 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
operating or consortium agreement under a service contract without the
with an end to obtain a profit. SC is impliedly saying that there is a division of
Government. ‘General professional partnerships’ are partnerships
profits.
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 This particular case is very different. There is no express agreement that
trade or business. 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
Thus, the Court in Evangelista v. Collector of Internal Revenue held that
ganito may partnership, wala naming express agreement. In fact, the pooling
Section 24 covered these unregistered partnerships and even associations of the insurers was because of a treaty na kailangan nilang gawin.
or joint accounts, which had no legal personalities apart from their
individual members. 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
Furthermore, Pool Agreement or an association that would handle all the
mauubos yung pera nila. That’s why, minsan kumukuha sila ng reinsurer. So
insurance businesses covered under their quota-share reinsurance treaty
itong mga insurance company is in fact being insured by reinsurers as required
and surplus reinsurance treaty with Munich may be considered a by the Insurance Code. Itong mga reinsurance companies, mga multinational
partnership because it contains the following elements: (1) The pool has a companies yan, Europe. Like sa plane crash, di naman mga local insurers
common fund, consisting of money and other valuables that are deposited magbabayad yan sa kanila. So usually, insured sila by reinsurers.
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 So here, ang nangyari, pursuant to a treaty, kailangan nila magpool, so wala
through an executive board, which resembles the board of directors of a silang choice. Ngayon, syempre may mga premium payments. Sabi ng SC
corporation, composed of one representative for each of the ceding partnership yan, why?. Because under tax code, partnerships are taxed are
companies. (3) While, the pool itself is not a reinsurer and does not issue corporations. So whatever profits daw nito may tax. Arguably, you can say that
any policies; its work is indispensable, beneficial and economically useful there is no partnership because of the lack of intention to form a partnership.
to the business of the ceding companies and Munich, because without it But then again, ang ginamit na provisions sa case are from the tax code, kung
they would not have received their premiums pursuant to the agreement pansin niyo.
with Munich. Profit motive or business is, therefore, the primordial reason
So this is an exceptional case where the SC stretched the definition of
for the pool’s formation.
partnership.
Most of the cases involve the CIR, because kasi nga under the Tax Code,
2) No: There is no double taxation. partnerships are taxable as a corporation.
indeed intended by the parties. While a corporation like the petitioner Two or more persons may also form a partnership for the exercise of a
cannot generally enter into a contract of partnership unless authorized by profession.
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 The crux of partnership is intention. If there is an
purpose. They also had a joint interest in the profits of the business as intention to form a partnership, there is partnership. If there is no intention,
there is no partnership.
shown by the 50-50 sharing of income of the mine.
How do you determine intention?
What do you look at? The contemporaneous and subsequent acts of the
Moreover, in an agency coupled with interest, it is the agency that cannot parties (as discussed in Lim Tong Lim Case).
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 The contribution need not be money or property. It could be:
this case the non-revocation or non-withdrawal under the PA applies to the 1.) industry (Article 1757); or
2.) credit (as discussed in Lim Tong Lim Case).
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 The last paragraph of Article 1767: Pinaka-common example is a lawfirm. A
an agency. lawfirm is a partnership.
SUMMARY: Definition of a contract of partnership, As a business vehicle, of course, partnerships, should have separate
Article 1767: By the contract of partnership two or more persons bind juridical personality. What do we mean when we say that a partnership has
themselves to contribute money, property, or industry to a common fund, a ‘juridical personality separate and distinct from that of each partner’? Your
with the intention of dividing the profits among themselves. 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
You will learn in your Corporation Law that although it is a separate Under Art. 1768 of the Civil Code, a partnership “has a juridical personality
person under the law, it has a different right from that of a natural person. separate and distinct from that of each of the partners.” The partners
There is a flip-flopping decision: Sinabing wala kasi wala namang nervous cannot be held liable for the obligations of the partnership unless it is
system si corporation. Afterwards, sinabing pwede, kasi may reputation shown that the legal fiction of a different juridical personality is being used
naman ang corporation. 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
To my mind, may reputation naman talaga ang corporation which, once used for fraudulent, unfair, or illegal purposes. Moreover, the title to the
tarnished, you can have the right to sue for damages. Pero siguro sa mental subject property is in the name of A.C. Aguila & Sons, Co. It is the
anguish, wala naman. The crux of moral damages is not only sleepless nights
partnership, not its officers or agents, which should be impleaded in any
but also besmirched reputation.
litigation involving property registered in its name. A violation of this rule
As an independent juridical person, a partnership may: will result in the dismissal of the complaint.
enter into contracts;
acquire and possess properties of all kinds in its firm
name; Applicability of the ‘Doctrine of Piercing the Corporate Veil.’
incur obligations; In Corporation Law, since may separate personality yung corporation, it is
bring civil and criminal actions; separate from the owner. So kung magiging insolvent si corporation, hindi
be declared insolvent even if partners are not; mahahabol si stockholder/owner, kasi nga separate. Pero we have this
enter into contracts and may sue and be sued in its firm ‘Doctrine of Piercing the Corporate Veil’ that you can disregard the fiction of
name or its duly authorized representative. corporate entity para ma-sue mo yung stockholder/owner/corporate officer.
In the case of AGUILA VS CA: Namali ang inimplead-yung partner. Ang sabi Since the corporation, may separate juridical personality, and since
ng SC, ano ang mangyari kung hindi mo inimplead ang real party in interest? sinabi natin na si partnership meron din separate juridical personality,
Madi-dismiss because of the failure to state the cause of action, wala kang does the doctrine of piercing the corporate veil equally apply to
aggrieved party. So that is very important when it comes to juridical persons. partnerships?
In this case, namali ang kanyang inimplead, umabot pa sa Supreme Court, Si partnership, pag may utang si creditor, separate personality ito, so ubusin
nadismiss din pala. 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
AGUILA VS CA 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
(Case Digest: April Pareno) pa pumunta to exhaust. Given that scenario, can the Doctrine of Piercing the
Corporate Entity apply sa partnership?
FACTS: In April 1991, the spouses Ruben and Felicidad Abrogar entered There’s no recent case regarding that one but, there’s an old case,
COMMISSIONER OF INTERNAL REVENUE VS SUTER (1969). This
into a loan agreement with a lending firm called A.C. Aguila & Sons, Co.,
involves a partnership, nagcreate yung mag-asawa, tapos nagka-in-love-an,
a partnership. The loan was for P200k. To secure the loan, the spouses nagpakasal. In this case, hindi naman talaga directly sinabi ng Supreme Court
mortgaged their house and lot located in a subdivision. The terms of the that it is applicable. However, if you try to look at the facts of the case, it is a
loan further stipulates that in case of non-payment, the property shall be limited partnership. Tapos ang ginawa, gi-compare siya into a corporation
automatically appropriated to the partnership and a deed of sale be readily tapos in-apply yung Doctrine of Corporate Personality. So in effect, sinabi na,
executed in favor of the partnership. She does have a 90 day redemption by analogy, applicable siya.
period.
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,
Ruben died, and Felicidad failed to make payment. She refused to turn babayaran niya muna ang kanyang mga personal creditors bago yung
over the property and so the firm filed an ejectment case against her creditors of the partnership.
(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 Pag-fraud kasi, ang liability mo is solidary. So in effect, parang applicable pa
the firm, seeking for the declaration of nullity of the deed of sale. The RTC rin yung concept. I am still waiting for a case na aakyat sa Supreme Court na
retained the validity of the deed of sale. The Court of Appeals reversed the ganun yun, whether or not iaapply ba talaga ng Supreme Court ang Doctrine
RTC. The CA ruled that the sale is void for it is a pactum of Piercing the Corporate Veil.
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 Partnership as a Business Enterprise. Again, a going concern, element of
actual value of the property which is after all located in a subdivision). 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
ISSUE: Whether or not the case filed by Felicidad shall prosper. 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.
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 Look at the case of VILLAREAL VS MARTINEZ, ang nangyari nito, nagkaroon
rather it was the partnership A.C. Aguila & Sons, Co. The Rules of Court ng partnership. Umalis yung isang tao tapos nagkaroon ng distribution. The
provide that “every action must be prosecuted and defended in the name problem with their dissolution and liquidation is that, ang ginawa nilang basis
of the real party in interest.” A real party in interest is one who would be for capital, for illustration purposes, let’s say nagcontribute sila P100, 4 sila,
benefited or injured by the judgment, or who is entitled to the avails of the initial contribution P400, nagoperate siya for 1 year. Ang nangyari, ang capital
suit. Any decision rendered against a person who is not a real party in at the end, same pa rin as is, P400, tapos ni-less nila ang utang, let’s say
interest in the case cannot be executed. Hence, a complaint filed against 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 (a) As a debt by installments or otherwise;
profits and losses. Kaya sinabi ng Supreme Court na mali yung computation (b) As wages of an employee or rent to a landlord;
niyo. Dapat, kung ano yung assets mo at the time na na-dissolve, yun ang i- (c) As an annuity to a widow or representative of a deceased
deduct mo sa liabilities. Kasi dito, parang binalik lang ang capital contribution, partner;
which is hindi naman necessary. (d) As interest on a loan, though the amount of payment very
with the profits of the business;
VILLAREAL VS RAMIREZ (e) As the consideration for the sale of a goodwill of a
business or other property by installments or otherwise.
(Case Digest: April Pareno)
Malamang, kung hindi kayo partners, hindi kayo partners as to third persons.
Equity interest (means) as a partner, you absorb all the losses and you 1.) Consensual.
gain also all the profits. For me, that is a very good case showing that Article 1771 states that a partnership may be constituted in any form, except
partners are equity holders. where immovable property or real rights are contributed thereto, in which case
a public instrument shall be necessary.
Article 1769: In determining whether a partnership exists, these rules shall
Article 1771: A partnership may be constituted in any form, except where
apply:
immovable property or real rights are contributed thereto, in which case a
(1) Except as provided by Article 1825, persons who are not public instrument shall be necessary.
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 Why is partnership, which has a separate juridical personality, medyo informal
not share any profits made by the use of the property; yung pagcreate sa kanya? Unlike in corporation na may mga formal
(3) The sharing of gross returns do not of itself establish a requirements? Bakit sa partnership, medyo considerate ang batas, it can be
partnership, whether or not the persons sharing them have a constituted in any form. What do you think is the reason?
joint or common right or interest in any property from which the
returns are derived; Partnership is less expensive compared to corporations. The law states
(4) The receipt by a person of a share of the profits of a business that it is easier to form a partnership, kasi nga yung mga nagcreate ng
is prima facie evidence that he is a partner in the business, but partnership are not as heavily financed as a corporation. So the law gives a
no such inference shall be drawn if such profits were received little leeway kasi partnership, in its essence, parang mga small sole
in payment: proprietorship na nag-enter into partnership. So hindi siya pareha sa
10
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 Article 1803: When the manner of management has not been agreed
merely, for purposes lang siya of convenience. upon, the following rules shall be observed:
Article 1772: Every contract of partnership having a capital of Three (1) All the partners shall be considered agents and whatever any
thousand pesos or more, in money or property, shall appear in a public one of them may do alone shall bind the partnership, without
instrument, which must be recorded in the Office of the Securities and prejudice to the provisions of Article 1801.
Exchange Commission. (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
Failure to comply with the requirements of the preceding paragraph shall court’s intervention may be sought.
not affect the liability if the partnership and the members thereof to third
persons. 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
Article 1773: A contract of partnership is void, whenever immovable personal qualifications and qualities which are solvency, ability, honesty and
property is contributed thereto, if an inventory of said property is not made, trustworthiness, among others. It is for this reason that there is mutual
signed by the parties, and attached to the public instrument. representation among partners so that the act of one is considered the act and
responsibility of the others as well.
General Rule: A partnership is consensual, meaning it is perfected by mere Again, the concept of delectus personae (meaning, selection of persons), you
consent. cannot enter into a partnership kung hindi mo gusto ang partners. By the mere
Exception: fact na gusto mo na i-dissolve ang partnership, it can be dissolved. Kasi nga,
1.) A capital of P3,000 or more shall appear in a public instrument. partnership is grounded on that principle of delectus personae. It is created by
(Note: The amount is outdated); mere consent, and it can be dissolved by mere consent.
2.) Where immovable property or real rights are contributed into the
partnership; 4.) Partners subject to unlimited liability. To distinguish from a corporation
3.) Limited Partnership wherein a stockholder has a limited liability sa investments niya, sa
Why (does) Article 1772 require it to be in a public instrument, kung hindi partnership, the creditor can actually go to the personal properties of the
naman pala makaka-affect sa liability ng partnership and members partner, albeit, subsidiarily. So, in essence, unlimited yung kanyang liability.
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, Partnership, distinguished from OTHER business media. Again, joint
hindi naman siya maka-affect nun, bakit kailangan pa rin siya i-public venture is limited to single transaction. It is not intended to pursue a continuous
instrument? Tapos bakit sa Article 1773, pag immovable property ang business. Whereas, a partnership, though it may exist for a single transaction,
pinag-uusaan, pag hindi mo siya kinomply, void talaga yung contract? usually contemplates the undertaking of the general and continuous business
Why is there a difference in the requirement? of a particular kind, which is necessarily involves a series of transactions.
According to Villanueva, in Article 1773, real property is considered as Joint Venture Partnership
constituting a cornerstone of our economic life and that dealings therewith
must be formal and public, which would afford to the public a reliable limited to single though it may exist for a single transaction,
means to determine the status of ownership and the existing liens on the transaction and is not usually contemplates the undertaking of the
property. Relate this with your concept in Landtitles--the Mirror Principle (on intended to pursue a general and continuous business of a particular
dealings in real property)-kung ano yung nakalagay sa title, yun lang yun. continuous business kind, which is necessarily involves a series of
Kung nagcontribute ka ng real property tapos hindi ka naka-public instrument, transactions
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-
Pansin niyo yung mga ‘the joint venture of Ayala Land and ganito’ for a single
ooperate yung partnership na yan.
condominium. Hindi naman necessarily magiging partner pa rin sila in a
separate project. Sa joint venture, specific lang ang transaction, per project
Imagine the incidents of operating ng business, i.e. taxes. Hindi malalaman ng
basis.
BIR sino yung operating na business. So, it is for convenience.
But then again, under our law, we have what we call particular partnership (it
Article 1774: Any immovable property or an interest therein may be
is a partnership for a specific project also.) So necessarily, when you read your
acquired in the partnership name. Title so acquired can be conveyed only cases, ang ina-apply pa rin, the concepts and stipulations, is under the law on
in the partnership name. partnership. Pero in different jurisdictions, meron talaga silang joint venture
provisions.
This is an incidence of a partnership having a separate juridical personality. Bakit yung mga ganyang project, yung mga condominium, bakit hindi na
lang sila magform ng partnership or corporation? i.e. Sta. Lucia with yung
Article 1775: Associations and societies, whose articles are kept secret may-ari ng lupa.
among the members, and wherein any one of the members may contract You will learn in practice that maintaining a corporation or partnership is very
in his own name with third persons, shall have no juridical personality, and burdensome. That is why we exist. The problem with that is that we carry their
shall be governed by the provisions relating to co-ownership. 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.
So why does the law not grant juridical personality to associations and
societies na yung articles are kept secret? Partnership distinguished from Co-ownership. A Co-ownership constitutes
According to Villanueva, the obligation of these individuals is not meant to merely a property relation whereby two or more person own pro-indiviso a
undertake a business or commercial venture that is supposed to deal with the property but the relationship does not seek the business or mercantile purpose
public at large so there is no purpose to grant a separate juridical personality. 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.
2.) Mutual agency.
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- Villareal vs Ramirez – concept of the partner having equity interest in a
ownership relationship. partnership.
Partnership distinguished from an Agency. In a pure agency agreement,
si agent is merely a legal extension of the personality of the principal, and Article 1769 provides for the rules to be applied in determining whether there
thereby under the complete control of the principal. Whereas, in a partnership, is a partnership or not.
there is a mutual agency. Meaning, yung agent, principal din siya nung
kanyang ka-partner. Start of today’s discussion – Recitation
OBILLOS VS CIR
Partnership distinguished from a Business Trust. A business trust is
constituted by deed of trust which is easier and less expensive to constitute (Case Digest: Cyndall Jardinel)
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.
DOCTRINE: The sharing of gross returns does not of itself establish
Partnership distinguished from Corporation. Again, yung stockholder, ang apartnership, whether or not the persons sharing them have a joint or
exposure niya sa corporation is limited lang sa kanyang investment. So kung common right or interest in any property from which the returns are derived.
insolvent man si corporation, hindi na aabot sa kanya. Alam niyo yung hotel, There must be an unmistakable intention to form a partnership or joint
ang corporation niyan minsan 2 or 3. Iba yung management, ibang corporation venture.
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 NATURE: Petition to review the decision of the Court of Tax Appeals
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 FACTS: In 1973, Jose Obillos completed payment on two lots located in
nilang restructuring, based on the concept na the corporation is a separate Greenhills, San Juan. The next day, he transferred his rights to his four
juridical personality. The liability of the stockholder is limited only doon sa
children for them to build their own residences. The Torrens title would
investment. In a partnership, will it apply? Not necessarily kasi nga sinabi natin
na ang partner has an unlimited liability although subsidiarily. show that they were co-owners of the two lots. However, the petitioners
resold them to Walled City Securities Corporation and Olga Cruz Canda
Does a defective incorporation process result into a partnership? for P313k or P33k for each of them. They treated the profit as capital
Again, look at the crux of partnership, it is the intention. Iba-iba ang gains and paid an income tax of P16,792.00
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.
The CIR requested the petitioners to pay the corporate income tax of their
shares, as this entire assessment is based on the alleged partnership
JUNE 30, 2017 under Article 1767 of the Civil Code; simply because they contributed each
(Transcriber: Jennifer Mortejo) to buy the lots, resold them and divided the profits among them.
Review of the last discussion But as testified by Obillos, they have no intention to form the partnership
Partnerships in general are allowed to enter into a contract of and that it was merely incidental since they sold the said lots due to high
partnership with other partnerships. As to corporations, as a general rule, demand of construction. Naturally, when they sell them as co-partners, it
they are not allowed. We will discuss this later why this is the rule and what will result to the share of profits. Further, their intention was to divide the
are the exceptions. lots for residential purposes.
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 HELD :We hold that it is error to consider the petitionersas having formed
which means it has the right to possess property of all kinds, as well as incur a partnership under article 1767 of the Civil Code simply because they
obligations and bring civil or criminal actions in conformity with the rules and allegedly contributed P178,708.12 to buy the two lots, resold the same and
regulations of the organization. divided the profit among themselves.
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 To regard the petitioners as having formed a taxable unregistered
failure to state a cause of action. If you will file a case against the partnership, partnership would result in oppressive taxation and confirm the dictum that
you should implead the partnership itself not the partners. Because again, by the power to tax involves the power to destroy. That eventuality should be
the concept of separate juridical personality, a partnership is a person under obviated.
the law.
12
BUSINESS ORGANIZATION I
(By: 3-Manresa, S.Y. 2017-2018)
From the Lectures of: Atty. Raymund Christian S. Ong-Abrantes, CPA
Q: What are the elements of a partnership? A: 1. There must N.B – Habituality is one of the determining factors of partnership.
be 2 or more persons who bind themselves to contribute money, property or
industry to a common fund; BASTIDA VS MENZI
2. There must be an intention that the parties would divide the profits among (Case Digest: Cyndall Jardinel)
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, FACTS: Bastida offered to assign to Menzi & Co. his contract with Phil
“unregistered partnership” is a context under tax. You cannot find it in the Civil Sugar Centrals Agency and to supervise the mixing of the fertilizer and to
Code. There is only “informal partnership” in the Civil Code, which means that obtain other orders for 50 % of the net profit that Menzi & Co., Inc., might
the requirements of the law were not complied with (e.g. public instrument and derive therefrom. J. M. Menzi (gen. manager of Menzi & Co.) accepted the
recording requirement). Now, if you will be asked if there is a contract of offer. The agreement between the parties was verbal and was confirmed
partnership, do not say that there is a contract of “unregistered partnership” by the letter of Menzi to the plaintiff on January 10, 1922.
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”.
Pursuant to the verbal agreement, the defendant corporation on April 27,
N.B - Co-ownership is different from partnership. Time and again, the proof of 1922 entered into a written contract with the plaintiff, marked Exhibit A,
partnership is the intention. If there is no intention to create a partnership,
which is the basis of the present action. Still, the fertilizer business as
then there is no partnership.
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
REYES VS CIR
intervention of the plaintiff was limited to supervising the mixing of the
(Case Digest: Cyndall Jardinel) fertilizers in the bodegas of Menzi.
FACTS: Petitioners Florencio and Angel Reyes, father and son, Prior to the expiration of the contract (April 27, 1927), the manager of Menzi
purchased a lot and building for P 835,000.00. 2. The amount of P notified the plaintiff that the contract for his services would not be renewed.
375,000.00 was paid. 3. The balance of P 460,000.00 was left, which Subsequently, when the contract expired, Menzi proceeded to liquidate the
represents the mortgage obligation of the vendors with the China Banking fertilizer business in question. The plaintiff refused to agree to this. It
Corporation, which mortgage obligations were assumed by the vendees. argued, among others, that the written contract entered into by the parties
4. The initial payment of P 375,000.00 was shared equally by the is a contract of general regular commercial partnership, wherein Menzi was
petitioners. 5. At the time of the purchase, the building was leased to the capitalist and the plaintiff the industrial partner.
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 ISSUE: Is the relationship between the petitioner and Menzi that of
income from rentals of the building amounted to about P 90,000.00 partners?
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. 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.
ISSUE: Are petitioners subject to the tax on corporations provided for in Neither the provisions of the contract nor the conduct of the parties prior or
the National Internal Revenue Code? 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
HELD: After referring to another section of the NIRC, which explicitly defendant corporation for one-half of the net profits derived by the
provides that the term corporations includes partnerships and then to corporation form certain fertilizer contracts.
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, According to Art. 116 of the Code of Commerce, articles of association by
property or industry to a common fund; and b) intent to divide the profits
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 account nor any memorandum for that matter and no license mentioning
any property, industry, or any of these things, in order to obtain profit, shall the existence of a partnership.
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 In fact, Tan Eng Lay was able to show evidence that Benguet Lumber is a
case, there was no common fund. The business belonged to Menzi & Co. sole proprietorship. He registered the same as such in 1954; that Kee was
The plaintiff was working for Menzi, and instead of receiving a fixed salary, just an employee based on the latter’s payroll and SSS coverage, and
he was to receive 35% of the net profits as compensation for his services. other records indicating Tan Eng Lay as the proprietor.
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. 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.
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. But the business was started after the war (1945) prior to the publication
of the New Civil Code in 1950?
If there is no contract, does it necessarily follow that there was no Even so, nothing prevented the parties from complying with this
intention to enter into partnership? How about the fact that Bastida is requirement.
receiving 35% of the net profits, would that lead to a conclusion that
there was a partnership? NO to both questions.
Also, the Supreme Court emphasized that for 40 years, Tan Eng Kee never
HEIRS OF TANG ENG KEE VS CA
asked for an accounting. The essence of a partnership is that the partners
(Case Digest: Cyndall Jardinel) 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
FACTS: Benguet Lumber has been around even before World War II but
grow rather than get immediate returns, a deferment of sharing in the
during the war, its stocks were confiscated by the Japanese. After the war,
profits is perfectly plausible.” But in the situation in the case at bar, the
the brothers Tan Eng Lay and Tan Eng Kee pooled their resources in order
deferment, if any, had gone on too long to be plausible. A person is
to revive the business. In 1981, Tan Eng Lay caused the conversion of
presumed to take ordinary care of his concerns. A demand for periodic
Benguet Lumber into a corporation called Benguet Lumber and Hardware
accounting is evidence of a partnership which Kee never did.
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.
The Supreme Court also noted:
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 In determining whether a partnership exists, these rules shall apply:
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 1. Except as provided by Article 1825, persons who are not
case against Tan Eng Lay for allegedly fabricating those evidence. Said partners as to each other are not partners as to third persons;
criminal case was however dismissed for lack of evidence.
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 A: Of course, it would have made a difference. If the agreement was written,
dissolution,winding up or liquidation to speak of. Hence, the petition must do you think the SC would consider the circumstantial facts to determine if
fail. 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
Q: Why is there no partnership in this case but only an employer- difference kung in writing siya.
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 Q: Is the sharing of profits sufficient to establish a partnership? What
did the SC say about it? are the things/circumstantial facts considered by the SC to say that Anay
A: The contention of the Heirs of Tan Eng Kee is that there was a partnership was a partner and not an employee of Tocao?
since Tan Eng Kee were allowed to order stocks and he was enjoying a A: The fact that she has a voice in the management of the business. She can
privilege not granted to other ordinary employees. He also had a right to select a person to be a manager. The sharing of profits is merely a prima facie
supervise. The SC said that those circumstances alone are not sufficient to evidence of the existence of a partnership. Correlate that with one case where
prove that there is a contract of partnership. The SC considered the the SC said that the sharing of profits in payment of compensation is not
relationship of Tan Eng Kee to the owner who was his brother. It all goes back conclusive of a partnership since you are merely an employee of the owner.
to the intention. Here, there is sharing of profits plus Anay had a voice in the partnership affairs.
So look at circumstances in determining intention.
N.B. - Intention is a product of mind. And how do you determine intention? By
looking at the contemporaneous and subsequent acts. 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
TOCAO VS CA guarantor. The SC said that Belo was indeed a mere guarantor.
(Case Digest: Lilybeth Petallo) 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.)
FACTS:
FACTS:
According to the testimony of respondent’s own witness, Elizabeth
Bantilan, Petitioner Belo acted merely as guarantor of Geminesse 1. 1945, Respondent Yang Chiao Seng proposed the formation of a
Enterprise, Belo being a good friend of Tocao. 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.
ISSUE: WON partnership exists between Belo &Anay. (NO) 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;
HELD: No partnership exists between Belo and Anay. b. That all gains and profits are to be distributed among the
partners in the same proportion as their capital
contribution;
It should be recalled that the business relationship created between c. That the liability of Yulo, in case of loss, shall be limited to
petitioner Tocao and respondent Anay was an informal partnership, her capital contribution.
3. However, since the land on which the theatre was constructed was
which was not even recorded with the Securities and Exchange
owned by the Carrion Sta. Marias., and was merely leased to
Commission. As such, it was understandable that Belo, who was after
Petitioner Yulo; the owners later exercised their right to cancel the
all petitioner Tocao's good friend and confidante, would occasionally contract of lease.
participate in the affairs of the business, although never in a formal 4. So, the owners filed an action for ejectment against Yulo and Yang.
or official capacity. It was also confirmed in Bantilan’s testimony that CFI granted the same. CA affirmed.
Belo’s presence in Geminesse Enterprise’s meetings was merely as 5. Consequently, Yulo demanded from YANG her share in the profits of
guarantor of the company and to help petitioner Tocao. the business.
6. Yang refused; hence, the action.
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. RTC ruled in favor of Respondent Yang; that the agreement was a
sublease, not a partnership.
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?
15
BUSINESS ORGANIZATION I
(By: 3-Manresa, S.Y. 2017-2018)
From the Lectures of: Atty. Raymund Christian S. Ong-Abrantes, CPA
HELD:
Unregistered partnership. Instead of distributing the estate among the
ISSUE: WON partnership exists, thereby requiring Yang to give Yulo’s heirs after the approval of the project of partition, the properties remained
share in the profits. (NO) 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
HELD: No partnership exists. It was a sublease contract. 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
The ff. facts belie her allegation of partnership: and, in effect, they thereby formed an unregistered partnership within the
purview of the provisions of the Tax Code.
a. Yulo did not furnish the supposed P20K capital;
b. She did not help or intervene in the management of the theatre; The Tax Court found that instead of actually distributing the estate of the
c. She never demanded any accounting of the expenses and deceased among themselves pursuant to the project of partition, the heirs
earnings of the business (Were she really a partner, her first allowed their properties to remain under the management of Oña and let
concern should have been to find out how the business him use their shares as part of the common fund for their ventures, even
was progressing, whether the expenses were legitimate, as they paid corresponding income taxes on their respective shares.
whether the earnings were correct, etc.)
She only received her of P3K a month, which cannot be interpreted in From the moment of such partition, the heirs are entitled already to their
any manner than a payment for the use of the premises which she had respective definite shares of the estate and the incomes thereof, for each
leased from the owners. 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
Q: Was there a partnership? What kind of contract was entered into by allows his share to be held in common with his co-heirs under a single
the parties in this case? management to be used with the intent of making profit thereby in
A: No. It was a contract of sub-lease. 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
Q: Why did the SC say that it was a sub-lease? unregistered partnership is formed.
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 Compare this case to the case of Obillos vs CIR. In that case, the siblings
appear that she has ever demanded from Yang any accounting of the inherited the land which was later found to be not good for residential so they
expenses and earnings of the business. Were she really a partner, her first sold it and they divided the profits among themselves Here, the land was
concern should have been to find out how the business was progressing, inherited, then they sold it and then they invested the proceeds again. See the
whether the expenses were legitimate, whether the earnings were correct, etc. difference? Here, there was really an intention to enter into a partnership since
She was absolutely silent with respect to any of the acts that a partner should the business is habitual. In the Obillos case, nagkataon lang.
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 We also discussed last meeting that a partnership must have a lawful object
premises which she had leased from the owners. or purpose otherwise the partnership shall be void and the profits shall be
confiscated in favor of the Government.
N.B. – The sharing of profits does not always mean there is a partnership. It
could be a payment of lease rentals. Art. 1770. A partnership must have a lawful object or purpose, and
must be established for the common benefit or interest of the
ONA VS CIR
partners.
(Case Digest: Jennifer Lim)
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
FACTS: instruments and effects of a crime. (1666a)
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 We also discussed the formalities of a contract of partnership.
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 General rule: Contract of Partnership is consensual in nature, perfected by
of land, 6 houses and money from the War Damage Commission. mere consent.
Although the project of partition was approved by the Court, no attempt Exceptions:
was made to divide the properties and they remained under the Art. 1771. A partnership may be constituted in any form, except where
management of Oña who used said properties in business by leasing or immovable property or real rights are contributed thereto, in which
selling them and investing the income derived therefrom and the proceeds case a public instrument shall be necessary. (1667a)
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 Art. 1772. Every contract of partnership having a capital of three
invested them. thousand pesos or more, in money or property, shall appear in a
public instrument, which must be recorded in the Office of the
Based on these facts, CIR decided that petitioners formed an unregistered Securities and Exchange Commission.
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.
Failure to comply with the requirements of the preceding paragraph
ISSUE: shall not affect the liability of the partnership and the members
W/N there was a co-ownership or an unregistered partnership 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
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 A contract of partnership is void, whenever immovable property is contributed
– YES thereto, if an inventory of said property is not made, signed by the parties, and
2. If a partnership does exist, is it null and void? - NO attached to the public instrument.
Art. 1767. By the contract of partnership two or more persons bind So it appears that Article 1773 is only applicable when it prejudices the right
themselves to contribute money, property, or industry to a common fund, of 3rd persons. But is it expressly written in the provision itself? Had it been the
with the intention of dividing the profits among themselves. 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
Under the Agreement, petitioners would contribute property to provision. My point is, why did they make it clear in Article 1772 and not in
the partnership in the form of land which was to be developed into a Article 1773?
subdivision; while respondent would give, in addition to his industry, the
amount needed for general expenses and other costs. Furthermore, the But I think the SC ruled otherwise because of the 2nd reason which provides
income from the said project would be divided according to the stipulated that:
percentage. Clearly, the contract manifested the intention of the parties to Second, petitioners themselves invoke the allegedly void contract as basis for
form a partnership. 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
It should be stressed that the parties implemented the contract. recognize it, depending on what momentarily suits their purpose. Parties
Thus, petitioners transferred the title to the land to facilitate its use in the cannot adopt inconsistent positions in regard to a contract and courts will not
name of the respondent. On the other hand, respondent caused the subject tolerate, much less approve, such practice.
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' For me, the 2nd reason is the more valid reason. The SC further said:
contention that he made no contribution to the partnership. Under Article In short, the alleged nullity of the partnership will not prevent courts from
1767 of the Civil Code, a partner may contribute not only money or considering the Joint Venture Agreement an ordinary contract from which the
property, but also industry. parties’ rights and obligations to each other may be inferred and enforced.
Petitioners argue that the Joint Venture Agreement is void
under Article 1773 of the Civil Code, which provides: 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
Art. 1773. A contract of partnership is void, whenever immovable property not prevent the court from interpreting it as an ordinary contract. Because at
is contributed thereto, if an inventory of said property is not made, signed the end of the day, there was still an agreement made by the parties.
by the parties, and attached to the public instrument.
LITONJUA VS LITONJUA
They contend that since the parties did not make, sign or attach
to the public instrument an inventory of the real property contributed, the (Case Digest: Earvin Alparaque)
partnership is void.
18
BUSINESS ORGANIZATION I
(By: 3-Manresa, S.Y. 2017-2018)
From the Lectures of: Atty. Raymund Christian S. Ong-Abrantes, CPA
Failure to comply with the requirement of the preceding paragraph shall Sole proprietorship
not affect the liability of the partnership and the members thereof to third e.g. I own a carwash and carinderia, magkatabi lang sila. If I am the sole
persons. 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
Art. 1773. A contract of partnership is void, whenever immovable property actually go to my property doon sa carwash. In return, I have unlimited liability
is contributed thereto, if an inventory of said property is not made, signed with respect to the creditors of the carinderia.
by the parties, and attached to the public instrument.
Why is that the case? Look at this, me as the sole owner, I can reap all the
The memorandum on its face, contains typewritten entries, profits of the businesses. I manage the businesses and I owned them.
personal in tone, but is unsigned and undated. As an unsigned document, Essentially, kung malugi siya dapat ako pud ang managot kay ako raman nag-
there can be no quibbling that it does not meet the public instrumentation decide.
requirements exacted under Article 1771 of the Civil Code. Moreover,
being unsigned and doubtless referring to a partnership involving more Corporation
than P3,000.00 in money or property, the memorandum cannot be Generally, the owners are the stockholders. Kinsa man ang naga-buot? Are
presented for notarization, let alone registered with the Securities and the stockholders the one “buot-ing” ? No. Ang nagpapa-lakad ng buong
Exchange Commission (SEC), as called for under the Article 1772 of the corporation are the Board of Directors (BOD). Now, would it be fair if the
Code. And inasmuch as the inventory requirement under the succeeding stockholders will have unlimited liability when in fact they are not the one
Article 1773 goes into the matter of validity when immovable property is making decisions?
contributed to the partnership, the next logical point of inquiry turns on the
nature of petitioner’s contribution, if any, to the supposed partnership. Partnership
Essentially in a partnership setting, it’s just like an aggrupation of sole
Petitioner, in an obvious bid to evade the application of Article proprietorship. Partners are the ones contributing money, property or industry,
1773, argues that the immovables in question were not contributed, but at the same time they are the ones realizing the profits. Essentially, sila pud
were acquired after the formation of the supposed partnership. Needless dapat ang malugi kay sila man ang naga-manage. That’s primarily the reason
to stress, the Court cannot accord cogency to this specious argument. For, why partners have unlimited liability compared to corporation’s stockholders.
as earlier stated, petitioner himself admitted contributing his share in the
supposed shipping, movie theatres and realty development family Different classifications of partnership
businesses which already owned immovables even before the
memorandum was allegedly executed. Art. 1776. As to its object, a partnership is either universal or
particular. As regards the liability of the partners, a partnership may
Considering thus the value and nature of petitioner’s alleged be general or limited. (1671a)
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 (Sir reads the book of De Leon)
support the existence of the partnership sued upon and sought to be (1) As to the extent of its subject matter. — A partnership may be:
enforced. The legal and factual milieu of the case calls for this disposition. (a) Universal partnership or one which refers to all the present property or to
A partnership may be constituted in any form, save when immovable all profits.
property or real rights are contributed thereto or when the partnership has There are thus two kinds of universal partnership, to wit:
a capital of at least ₱3,000.00, in which case a public instrument shall be (1) Universal partnership of all present property.
necessary. And if only to stress what has repeatedly been articulated, an (2) Universal partnership of profits. Or
inventory to be signed by the parties and attached to the public instrument
is also indispensable to the validity of the partnership whenever immovable (b) Particular partnership. — This is defined in Article 1783.
property is contributed to it.
(2) As to liability of the partners. — It may be:
This is not a case for damages but a case for accounting and specific (a) General partnership or one consisting of general partners who are liable
performance based on the alleged partnership contract. The SC said that pro rata and subsidiarily and sometimes solidarily with their separate property
Article 1773 was not complied but it applied the said article as it is in resolving for partnership debts; or
the case.
(b) Limited partnership or one formed by two or more persons having as
The SC further said that “considering that the allegations in the complaint members one or more general partners and one or more limited partners, the
showed that petitioner contributed immovable properties to the alleged latter not being personally liable for the obligations of the partnership.
partnership, the Memorandum which purports to establish the said
partnership/joint venture is NOT a public instrument and there was NO *Sir - Just take note that in limited partnership, there should be at least one
inventory of the immovable property duly signed by the parties. As such, the limited partner. If there is no limited partner, it is not a limited partnership.
said Memorandum is null and void for purposes of establishing the existence
of a valid contract of 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
Since here, the partnership was void; the action will not prosper because there a particular undertaking or venture and which may be terminated at anytime
was no actionable document. In this case, the SC did not anymore determine by mutual agreement of the partners, or by the will of any one partner alone;
whether there are 3rd persons or none and it applied Article 1773 as it is. This or one for a fixed term or particular undertaking which is continued by the
ruling is more in keeping with the law compared to the ruling in the previous partners after the termination of such term or particular undertaking without
case.Again, what is the reason why the contract of partnership is void when express agreement or
there is no inventory and public instrument?
- Under Land Titles and Deeds, if a real property contributed to the (b) Partnership with a fixed term or one in which the term for which the
partnership is not annotated/registered with the Registry of partnership is to exist is fixed or agreed upon or one formed for a particular
Property, it is equivalent to defrauding the persons who would undertaking, and upon the expiration of the term or completion of the particular
transact with that particular property. enterprise, the partnership is dissolved, unless continued by the partners.
Partner subject to unlimited liability (4) As to the legality of its existence. — It may be:
When you compare corporations to partnerships: (a) De jure partnership or one which has complied with all the legal
In Corporations, the owners are stockholders. Generally the stockholders have requirements for its establishment; or
limited liability in the sense that they can only be liable for the corporation’s (b) De facto partnership or one which has failed to comply with all the legal
debts to the extent of their capital contribution in the form of stocks. 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
(c) Silent partner or one who does not take any active part in the business
*Sir – I have an issue with this. Generally, a partnership is consensual in although he may be known to be a partner. Thus, he need not be a secret
nature. So it’s a gray area to say that there’s de jure or de facto partnership. If partner. If he withdraws from the partnership, he must give notice to those
it failed to comply with the formal requirements, then it is void. Why do you say persons who do business with the firm to escape liability in the future;
de facto?
(d) Dormant partner or one who does not take active part in the business and
(5) As to representation to others. — It may be: is not known or held out as partner. He would be both a silent and a secret
(a) Ordinary or real partnership or one which actually exists among the partner. He would be both a secret and a silent partner. He may retire from the
partners and also as to third persons; partnership without giving notice and cannot be held liable for obligations of
the firm subsequent to his withdrawal. His only interest in joining the
(b) Ostensible partnership or partnership by estoppel or one which in reality is partnership would be the sharing of the profits earned.
not a partnership, but is considered a partnership only in relation to those who, The term is used as synonymous with “sleeping partner”;
by their conduct or admission, are precluded to deny or disprove its existence.
(e) Original partner or one who is a member of the partnership from the time
(6) As to publicity. — It may be: of its organization;
(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 (f) Incoming partner or a person lately, or about to be, taken into an existing
partnership as a member; and
(b) Open or notorious partnership or one whose existence is avowed or made (g) Retiring partner or one withdrawn from the partnership; a withdrawing
known to the public by the members of the firm. partner.
(7) As to purpose. — It may be: All partners in any of these six classes are subject to liability for all partnership
(a) Commercial or trading partnership or one formed for the transaction of obligations.
business; or
Sir reads the following provisions:
(b) Professional or non-trading partnership or one formed for the exercise of a Art. 1777. A universal partnership may refer to all the present property
profession. or to all the profits. (1672)
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. Art. 1778. A partnership of all present property is that in which the
partners contribute all the property which actually belongs to them to
(1) Under the Civil Code. — Partners are classified into: a common fund, with the intention of dividing the same among
(a) Capitalist partner or one who contributes money or property to the common themselves, as well as all the profits which they may acquire
fund; therewith. (1673)
(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 Art. 1779. In a universal partnership of all present property, the
known as real partner; property which belongs to each of the partners at the time of the
(d) Limited partner or one whose liability to third persons is limited to his capital constitution of the partnership, becomes the common property of all
contribution. He is also known as special partner. The terms “general partner” the partners, as well as all the profits which they may acquire
and “limited partner” have relevance only in a limited partnership; therewith.
(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 A stipulation for the common enjoyment of any other profits may also
affairs upon dissolution; be made; but the property which the partners may acquire
(g) Partner by estoppel or one who is not really a partner, not being a party to subsequently by inheritance, legacy, or donation cannot be included
a partnership agreement, but is liable as a partner for the protection of innocent in such stipulation, except the fruits thereof. (1674a)
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.
Art. 1780. A universal partnership of profits comprises all that the
The term “quasi-partner” is sometimes used; partners may acquire by their industry or work during the existence
(h) Continuing partner or one who continues the business of a partnership after of the partnership.
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 Movable or immovable property which each of the partners may
(j) Subpartner or one who, not being a member of the partnership, contracts possess at the time of the celebration of the contract shall continue
with a partner with reference to the latter’s share in the partnership. to pertain exclusively to each, only the usufruct passing to the
partnership. (1675)
(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 Art. 1781. Articles of universal partnership, entered into without
partner, he is subject to liability by the doctrine of estoppel; specification of its nature, only constitute a universal partnership of
profits. (1676)
(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. Again, in a universal partnership of all present property, what is the common
He is an actual partner. He is also an active partner in the sense that he property?
participates in the management of the partnership affairs; 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? 4.) However, general partner Suter and limited partner Spirig got married
Generally, it cannot be contributed. Future pa nga eh. That’s why inheritance and, thereafter,limited partner Carlson sold his share in the partnership to
cannot be included. Suter and his wife. The sale was duly recordedwith the Securities and
Exchange Commission.
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 5.) The limited partnership had been filing its income tax returns as a
partnership. corporation, without objection by the hereinpetitioner, Commissioner of
Internal Revenue, until in 1959 when the latter, in an assessment,
Art. 1782. Persons who are prohibited from giving each other any determined a deficiency income tax against respondent Suter in the
donation or advantage cannot enter into universal partnership. (1677) amount of P2,678.06 for 1954 andP4,567.00 for 1955.
(2) Those made between persons found guilty of the same criminal HELD: No, it was not dissolved.
offense, in consideration thereof;
WHAT IS PROHIBITED IS FOR SPOUSES TO ENTER INTO A
GENERAL PARTNERSHIP.
(3) Those made to a public officer or his wife, descendants and
ascendants, by reason of his office. 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
In the case referred to in No. 1, the action for declaration of nullity into UNIVERSAL PARTNERSHIPS. It follows that the marriage of partners
may be brought by the spouse of the donor or donee; and the guilt of necessarily brings about the dissolution of a pre-existingpartnership.
the donor and donee may be proved by preponderance of evidence
in the same action. (n) WILLIAM SUTER MORCOIN LTD. WAS NOT A GENERAL
PARTNERSHIP BUT A PARTICULAR PARTNERSHIP. HENCE, IT IS
NOT A PROHIBITED PARTNERSHIP ENTERED INTO BY THE
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 SPOUSES
universal partnership?
CIR VS SUTER CIR evidently failed to observe the fact that William J. Suter "Morcoin" Co.,
Ltd. was not auniversal partnership, but a particular one. As appears
(Case Digest: Eliza Devilleres) 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
FACTS: 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
1.) A limited partnership, named "William J. Suter 'Morcoin' Co., Ltd.," was during the existence of thepartnership". William J. Suter "Morcoin" Co., Ltd.
formed on by William J. Suter as the general partner, and Julia Spirig and was not such a universal partnership, since the contributions ofthe partners
Gustav Carlson, as the limited 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
2.) The partners contributed, respectively, P20,000.00, P18,000.00 and that William J. Suter "Morcoin" Co., Ltd. was not a partnershipthat spouses
P2,000.00 to the partnership and was thereafter registered with the SEC. were forbidden to enter by Article 1677 of the Civil Code of 1889.
3.) The firm engaged,among other activities, in the importation, marketing, CONTRIBUTIONS BY THE SPOUSES REMAINED AS THEIR
distribution and operation of automatic phonographs, radios,television sets SEPARATE PROPERTIES EVEN AFTER MARRIAGE
and amusement machines, their parts and accessories. It had an office and
held itself out as alimited partnership.
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 - How about in conjugal partnership of gains? You have Article 87 of the Family
by the Spanish Civil Code or the Code of Commerce. 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
The appellant's view, that by the marriage of both partners the company
into a contract of particular partnership? No, it would amount to donation
became a single proprietorship, isequally erroneous. The capital contrary to Article 87.
contributions of partners William J. Suter and Julia Spirig were separately
ownedand contributed by them before their marriage, and after they were 3. A contract of partnership may offend Articles 76 and 77 of the Family Code
joined in wedlock, such contributionsremained their respective separate and there will arise the issue on control and binding effects of the acts of
property under the Spanish Civil Code (Article 1396): partners. It’s the co-administrators versus agents of partners. Article 76 and
The following shall be the exclusive property of each spouse: 77 states:
(a) That which is brought to the marriage as his or her own .... “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.
Thus, the individual interest of each consort in William J. Suter "Morcoin"
Art. 77. The marriage settlements and any modification thereof shall be in
Co., Ltd. did not become commonproperty of both after their marriage
writing, signed by the parties and executed before the celebration of the
in 1948.
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.”
It being a basic tenet of the Spanish and Philippine law that the
partnership has a juridical personality of its own,distinct and separate Again, under absolute community property and conjugal partnership of gains,
from that of its partners (unlike American and English law that does not the spouses are co-administrators. They are mutual agents with respect to the
recognize such separate juridical personality), the bypassing of the property they contributed to the partnership. There is a difference between a
existence of the limited partnership as a taxpayer can only bedone by co-administrators and co-agents of a certain property.
ignoring or disregarding clear statutory mandates and basic principles of
our law. The limited How about partnership charges?
partnership's separate individuality makes it impossible to equate its Remember in the Family Code, there is a rule of preference regarding charges
of the property of the spouses.
income with that of the component members.
True, section 24 of the Internal Revenue Code merges registered general Villanueva said that spouses can only enter into professional partnerships
copartnerships (compañiascolectivas)with the personality of the individual because this is allowed by Article 73 of the Family Code which provides:
partners for income tax purposes. But this rule is exceptional in its “Either spouse may exercise any legitimate profession, occupation, business
disregardof a cardinal tenet of our partnership laws, and can not be or activity without the consent of the other.”
extended by mere implication to limited partnerships.
What if this will come out in the Bar exams? How will you answer it? Can the
spouses validly enter into a particular partnership?
The spouses can enter into a particular partnership because the prohibition You can answer that based on CIR vs Suter. It is not yet overturned. But for
only provides that spouses are prohibited to donate to one another or from your answer to pop out of the 5000 notebooks, you will discuss the Family
entering into a universal partnership. The issue here is that, is this still Code.
applicable given the enactment of Family Code?
I put on hold before the reason why a corporation cannot be a partner, we will
According to Villanueva, spouses are not qualified to enter into other forms of discuss it now.
partnership for gain except professional partnership. The reasons are: Generally, a corporation is not allowed to become a partner in a partnership.
1. Every firm effectively makes partners donors to one another of their Let us say, C1 and C2 are corporations. Remember, a principle in corporation
contribution to the partnership. law is that the management is centralized, nasa BOD (BOD1 and BOD2). Their
- Why? Even if it’s particular, the wife will contribute the land and the husband authority came from the stockholders. So partners kunwari si C1 and C2. Diba
will contribute building. Ano ang mangyayari sa contributed capital? It will pag partner ka, may mutual agency? So in effect, everything that BOD1 will
become a co-ownership. So necessarily, it would appear that the prohibition do, damay si BOD2 because of mutual agency. Will it not violate the principle
against donation was violated indirectly. in corporation law that the authority of BOD is given only by the corporation’s
- For instance, there would be a contention that the partnership in not stockholders? Decision ni BOD1, damay si BOD2 when in fact the
gratuitous in nature, thus should not be considered a donation. It would still be stockholders of C2 only authorized BOD2 to manage its affairs.
violative of Article 1490 of the Civil Code which provides:
“Art. 1490. The husband and the wife cannot sell property to each other, So this is the evil sought to be prevented by prohibiting the corporation from
except: becoming a partner in a partnership. This is actually a concept in Anglo-
(1) When a separation of property was agreed upon in the marriage American. The Philippines adopted the jurisprudence of American courts in
settlements; or prohibiting the corporations. Now because of the *proliferation* of this na sabi
(2) When there has been a judicial separation or property under Article 191. ng SEC parang unfair naman kung ipagbabawal, to prevent this scenario, let’s
(1458a)” put conditions to allow a corporation to enter into a partnership.
2. The property regime should be under the Family Code and not the So what are those conditions? We have SEC OGC Opinion No. 22-2016 dated
partnership law in the Civil Code. October 4, 2016 which provides:
- Can spouses governed by the absolute community property regime vary the “The Commission has consistently opined that as a general rule, a corporation
effects between them of certain community property by contributing them into cannot enter into a contract of partnership with an individual or another
a particular partnership for gains? NO. Article 89 of the Family Code provides: corporation; however, it may be allowed to do so provided it complies with
“No waiver of rights, shares and effects of the absolute community of property certain conditions, to wit:
during the marriage can be made except in case of judicial separation of
property.” 1. The authority to enter into a partnership relation is expressly
conferred by the charter (Sir: meaning expressly authorized by the
So nag-asawa kayo tapos eventually nag-create kayo ng partnership, pag owners. In effect, the owners are waiving their right to question the
nagcontribute ka nagkakaroon ng co-ownership. So essentially, you’re varying effects of mutual agency) or the articles of incorporation of the
the effects of the absolute community property which is not allowed under corporation, and the nature of the business venture to be
Article 89. 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 2.) partnership for a fixed term.
corporation involved.
2. If it is a foreign corporation, it must obtain a license to transact If and when mag-expire ang partnership for a fix term or a particular
business in the country in accordance with the Corporation Code undertaking, then they continued, there is an implied agreement na wala
of the Philippines. naman silang dissolution—it can be considered as a partnership at will.
However, while a corporation has no power to enter into a partnership, A continuation of the business by the partners or such of them as habitually
nevertheless, it may validly enter into a joint venture agreement, where the acted thereon during the term without any settlement or liquidation of the
nature of that venture is in line with the business authorized by its charter.” partnership affairs, is prima facie evidence of the continuation of the
partnership.
JULY 7, 2017
(Transcriber: Zarah Domingo) Article 1786: Every partner is a debtor of the partnership for whatever he
may have promised to contribute thereto.
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; He shall also be bound for warranty in case of eviction with regard to
3.) Relation of the partnership with third persons; specific and determinate things which he may have contributed to the
4.) Relation of partners with third persons. 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
Partnership relationship is essentially one of mutual trust and thereof from the time they should have been delivered, without the need of
confidence. any demand.
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 What are the obligations of a partner with respect to the contribution of
relation. property:
(1) To contribute at the beginning of the partnership or at the stipulated
Article 1784: A partnership begins from the moment of the execution of time the money, property, or industry which he may have
the contract, unless it is otherwise stipulated. promised to contribute;
(2) To answer for eviction in case the partnership is deprived of the
determinate property contributed; and
As a consensual contract, a partnership exists from the moment of the Note: Remember the requisites for eviction on your law on sales. It
celebration of the contract. equally applies.
The birth and life of a partnership is predicated on a mutual desire and consent (3) To answer to the partnership for the fruits of the property the
of the parties. contribution of which he delayed, from the date they should have
been contributed up to the time of actual delivery; Note: This is an
Unlike a corporation, no time limit is prescribed by the law for the life of exception to the rule that there has to be a demand for delay to
partnership. incur.
Partners can fix it for one whole term. When you look at the Corporation Code, (4) To preserve said property with the diligence of a good father
the corporation has a limited life of 50 years but it is renewable. Within 50 of a family pending delivery to the partnership; and
years of the expiration, you can renew for another 50 years. In the case of (5) To indemnify the partnership for any damage caused to it by
partnership, walang expiration. the retention of the same or by the delay in its contribution.
Example: Kailangan na bumili ng equipment, hindi pa nadeliver
You will learn later on that one of the reasons or causes of dissolution is yung money na supposedly contribution. So since need na talaga
death. ang money, nagborrow. So ano ang damage nun? Yung interest.
So kung ang 23ay un partner, ang lifetime niya lang ay 30, hantud 30 lang So you can demand the:
pud, ma-dissolve siya. Limited siya of the lifetime of the partner. But as a rule, a.) interest of the loan of the money borrowed; and
there is no limit for partnership. b.) interest doon sa money na dapat i-contribute.
So iba yung damage, iba yung interest, even if both naman sila
Can you have a contract of future partnership? interest.
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? Failure to contribute makes the partner ipso jure a debtor of the
Pwede. That is what you call “future partnership.” partnership even in the absence of any demand.
So what is your remedy in case hindi pa magco-contribute yung isang partner?
The partners may stipulate some other time for the commencement of
the partnership. SANCHO vs LIZARAGA
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 (Case Digest: Eliza Devilleres)
must be in some form, note or memorandum to be enforceable.
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.
ISSUE:
1799.) W/N the dissolution of the partnership was proper. Obligation with respect to contribution of money and converted to
— No personal use:
2.) W/N 1681 & 1682 of the Civil Code was properly applied. – Yes 1.) To contribute;
2.) To reimburse any amount he may have taken from the
partnership coffers and converted to personal use;
HELD: 3.) To pay the agreed or legal interest;
4.) To indemnify the partnership for damages.
1.) APPEAL IN THE INSTANT CASE DEEMED PREMATURE He is liable for interest and damages not from the time of judicial or extra-
Until the accounts have been rendered as ordered by the trial court, and judicial demand.
until they have been either approved or disapproved, the litigation 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
involved in this action cannot be considered as completely decided and,
from the time he converted the amount to his own use.
as it was held in said case of Natividad vs Villarica, also with reference
to an appeal Unless otherwise stipulated, obligation to contribute arises from the
taken from a decision ordering the rendition of accounts following the commencement of the partnership.
dissolution of partnership, the appeal in the instant case must be deemed
premature. 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
2.) LIZARRAGA’S FAILURE TO PAY THE PARTNERSHIP, HE na ang element of deceit (since this is a case against Person 2 for estafa).
BECAME INDEBTED TO IT. BUT SANCHO CANNOT DEMAND 24ay un24 Supreme Court, kahit na contract of partnership, you look at this
RESCISSION. provision—even assuming that a contract of partnership has been
The affirmation of the judgment appealed from is inevitable. In view of the
entered into by and between the parties, we have a rule that when money
lower court’s findings referred to above, which we cannot revise because and property have been received by a partner for a specific purpose and
the parol evidence has not been forwarded to this court, articles 1681 he later misappropriated it, such partner is guilty of estafa.
and 1682 of the Civil Code have been properly applied.
Why? Because the relationship of partners is based on mutual trust and
Owing to the defendant’s failure to pay to the partnership the whole confidence. Meron pa din yung element ng trust, so may deceit pa din, if you
amount which he bound himself to pay, he became indebted to it for used it in a different way.
the remainder, with interest and any damages occasioned thereby,
but the plaintiff did not thereby acquire the right to demand Article 1789: An industrial partner cannot engage in business for himself,
rescission of the partnership contract according to article 1124 of the unless the partnership expressly permits him to do so; and if he should do
Code. This article cannot be applied to the case in question, so, the capitalist partners may either exclude him from the firm or avail
because it refers to the resolution of obligations in general, whereas themselves of the benefits which he may have obtained in violation of this
article 1681 and 1682 specifically refer to the contract of partnership provision, with a right to damages in either case.
in particular. And it is a well-known principle that special provisions
prevail over general provisions.
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.
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 The limitation is absolute: ‘Cannot engage in business for himself’,
failed to contribute, (the remedy is) specific performance. 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
Article 1787: When the capital or a part thereof which a partner is bound will you contribute your industry kung hati-hati imuhang time?
to contribute consists of goods, their appraisal must be made in the
Unless the contrary is stipulated, he becomes a debtor of the partnership
manner prescribed in the contract of partnership, and in the absence of
for his work or services from the moment the partnership relation begins.
stipulation, it shall be made by experts chosen by the partners, and In effect the partnership acquires an exclusive right to avail himself of his
according to current prices, the subsequent changes thereof being for the industry.
account of the partnership. 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.
This provision gives you the rules on how appraisal should be made.
1.) First, in the manner provided in the contract of partnership.
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: Requisites for application of this rule:
1.) Exclude him from the firm; or 1.) A partner has received, in whole or in part, his share of the
2.) Avail themselves of the benefits which he may have obtained. partnership credit;
2.) The other partners have not collected their shares; and
Kunwari may isa siyang business, tapos profitable yun. Pwedeng sabihin ng 3.) The partnership debtor has become insolvent.
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 Does this apply during the partnership or after dissolution?
both instances. So either right or remedy, may right to damages. 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
Article 1790: Unless there is a stipulation to the contrary, the partners shall partnership credit while the partnership is ongoing. How will that be for
contribute equal shares to the capital of the partnership. accounting purposes na nauna siya collect tapos sa iyahang self gibutang?
But then again, he has to account.
Kapag ba maliit lang yung gi-contribute mo, do you have a lesser voice in the Just take note of the opinion of Manresa and Ricci na hindi daw siya
management of the partnership. Let’s say 10% lang ang gicontribute, minority applicable pag after dissolution kasi it will not be just that:
lang, meaning ba nun, dili ka kabuot? 1.) he who diligently collected should suffer the consequence of the
negligence of his associates; and
Article 1791: If there is no agreement to the contrary, in case of an 2.) upon the dissolution, the tie that unites the partnership ceases
imminent loss of the business of the partnership, any partner who refuses thus the reason for the obligation disappears.
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. 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
General Rule: Capitalist partner is not bound to contribute more than what he industry. However, the courts may equitably lessen this responsibility if
agreed to. through the partner’s extraordinary efforts in other activities of the
Exception: In case of imminent loss of the business, and walang agreement partnership, unusual profits have been realized.
na in case of imminent loss, hindi ka pa rin magcontribute, you are obliged to
contribute additional share, to save the venture.
So hindi pwede, kunwari, nakasala ka, nagsuffer ang partnership, na instead
This is based on the concept that as an owner, your interest should be nimu bayaran ang damages, i-charge na lang sa akuang profits sa share. That
to the partnership. is not allowed.
Bakit excluded si industrial partner? Kasi diba yun naman talaga ang
icontribute niya, service. Hindi na niya mabawi ang efforts na kanyang inexert. What if (there was an) extraordinary effort and unusual profits have been
realized?
Requisites for the application of the rule: Kunwari, in the normal course of business, naa lang siya sa office. Nakasala
1.) There is an imminent loss of the business of the partnership; siya. Kabalu siya sa Article 1794, dili nako pwede icharge sa akuang profits,
2.) The majority of the capitalist partners are of the opinion that so dapat ko mag-extraordinary effort. So, nigawas siya sa iyahang office,
an additional contribution to the common fund would save the nagdistribute siya ug flyers para mabenta ilahang nabebenta. Because of that,
business; marami na ang customer, nagkaroon ng maraming profits.
3.) The capitalist partner refuses deliberately (not because of his
financial inability to do so), to contribute an additional share to Would the damages be offset by the profits? Would that lessen the
the capital; and damages that he brought to the partnership?
4.) There is no agreement that even in case of an imminent loss of Extraordinary effort 25ay un ha, dili usual na muadto siya sa malls para lang
the business the partners are not obliged to contribute. makakuha customer.
Article 1792: If a partner authorized to manage collects a demandable It is the court that will lessen equitably lessen.
sum, which was owed to him in his own name, from a person who owed So hindi pwede na by that effort alone, ma-lessen na ang kanyang obligation,
the partnership another sum also demandable, the sum thus collected ang kanyang damages. Kasi kahit pa extraordinary efforts, he has to ask the
shall be applied to the two credits in proportion to their amounts, even authority of the court to lessen his responsibility.
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 Article 1795: The risk of specific and determinate things, which are not
be fully applied to the latter. 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
The provisions of this article are understood to be without prejudice to the them.
right granted to the debtor by Article 1252, but only if the personal credit
of the partner should be more onerous to him.
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
Kapag you are authorized to manage the partnership tapos naka-collect ka,
by the partnership. In the absence of stipulation, the risk of things brought
even if yung resibo nasa pangalan mo lang, you have to apportion. This is
because your interest should be, nasa partnership. 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
But take note of the application. Article 1252 is the provision on applications appraised.
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 So this is based on the rule on your obligations and contract. Ano yun? (No
onerous. This was discussed thoroughly in your credit transactions. answer.)
Article 1793: A partner who has received, in whole or in part, his share Article 1796: The partnership shall be responsible to every partner for
of a partnership credit, when the other partners have not collected theirs, the amounts he may have disbursed on behalf of the partnership and for
shall be obliged, if the debtor should thereafter become insolvent, to bring the corresponding interest, from the time the expenses are made; it shall
to the partnership capital what he received even though he may have also answer to each partner for the obligations he may have contracted
given receipt for his share only.
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. 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.
Hindi lang ang partner ang may responsibility sa partnership. Ang partnership (How are they now going to) distribute the profits and losses? It is as if
din may responsibility sa partner. So kung nag-advance ka, dapat there is no stipulation. So kung profits—as to capital contribution. Kung
ipapareimburse mo rin sa partnership. losses—capital contribution.
Article 1797: The losses and profits shall be distributed in conformity Article 1800: The partner who has been appointed manager in the
with the agreement. If only the share of each partner in the profits has articles of partnership may execute all acts of administration despite the
been agreed upon, the share of each in the losses shall be in the same opposition of his partners, unless he should act in bad faith; and his
proportion. 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.
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 A power granted after the partnership has been constituted may be
industrial partner shall receive such share as may be just and equitable revoked at any time.
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. 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
Take note of this provision kasi usually tinatanong ito. 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
(How is the) sharing of profits and losses (made)? doon.
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 Pagnasabutan ninyu ang manager after the constitution, what will
contribution. 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
What about the industrial partner, (considering that he did not articles of partnership, there has to be bad faith.
contribute) capital?
He shall receive a just and equitable share under the circumstance. TAI TONG CHUACHE & CO vs INSURANCE COMMISSION
Sa accounting, inuuna ang industrial, ina-apportion. Ito yung profit. Pag-
walang agreement, unahin ang industrial. Usually yung pinaka-mababa sa (Case Digest: Eliza Devilleres)
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 FACTS:
industry.
1.) Azucena Palomo obtained a loan from Tai Tong Chuache Inc. in the
The losses shall be according to agreement. This is very weird, there is an amount ofP100,000.00. To secure the payment of the loan, a mortgage
agreement of sharing of losses. Who would agree to distribute the loss? was executed over the land and the building in favor of Tai Tong
Chuache& Co. On April 25, 1975, Arsenio Chua, representative of Tai
Kung walang agreement pero may profits, it should be in accordance with the Tong Chuache & Co. insured the latter’s interest with Travellers Multi-
profit-sharing stipulation. If walang profit-sharing stipulated, the losses in Indemnity Corporation for P100,000.00.
proportion to capital contribution.
But again the industrial partner is not liable for losses. The principle that the 2.) Pedro Palomo secured a Fire Insurance Policy covering the building
industrial partner is not liable for losses is luging-lugi na siya kung malugi ang for P50,000.00 with respondent Zenith Insurance Corporation. Another
company kasi nag-effort na siya. Maayo man ang capitalist kay hayahay ra Fire Insurance was procured from respondent Philippine British
man siya. Assurance Company, covering the same building for P50,000.00 and the
contents thereof for P70,000.00.
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
3.) The building and the contents were totally razed by fire.
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.
4.) Based on the computation of the loss, including the Travellers Multi-
Indemnity, respondents, Zenith Insurance, Phil. British Assurance and
The designation of losses and profits cannot be intrusted to one of the S.S.S. Accredited Group of Insurers, paid their corresponding shares of
partners. the loss.
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 5.) Demand was made from respondent Travellers Multi-Indemnity for its
profits and losses. share in the loss but the same was refused. Hence, complainants
demanded from the other three (3) respondents the balance of each
Article 1799 is a very important provision. share in the loss but the same was refused, hence, this action.
Article 1799: A stipulation which excludes one or more partners from any
share in the profits or losses is void.
26
BUSINESS ORGANIZATION I
(By: 3-Manresa, S.Y. 2017-2018)
From the Lectures of: Atty. Raymund Christian S. Ong-Abrantes, CPA
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
8.) RULING OF THE INSURANCE COMMISSION: Absolved respondent 40%. Do they have the right to question? Wala. Kasi hindi man tie.
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 So in case of a tie, saka magfollow ang rule on controlling interest.
civil action against the Palomos, Arsenio Lopez Chua stands as the
complainant and not Tai Tong Chuache. From said evidence respondent Kaya usually, in corporations, yung boards of directors, bungkig jud na siya,
commission inferred that the credit extended by herein petitioner to the like minimum of not more than 15. They try to avoid paralyzation of business,
Palomos secured by the insured property must have been paid. maghulat pa ug another way bago maconduct ang day-to-day operation.
Article 1802: In case it should have been stipulated that none of the
managing partners shall act without the consent of the others, the
HELD: Yes. 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.
A PARTNERSHIP MAY SUE AND BE SUED IN ITS NAME OR BY ITS
DULY AUTHORIZED REPRESENTATIVE
Kapag may stipulation na kailangan mag-act ang lahat, dapat mag-act ang
The premise is correct but the conclusion is wrong. Citing Rule 3, Sec. 2 lahat. Even disability cannot be alleged.
respondent pointed out that the action must be brought in the name of
What is the problem pag ganito ang setup? Madelay ang operations ng
the real party in interest. We agree. However, it should be borne in
business. What if magbakasyon yung isa or dalawa, kailangan tawagan mo
mind that petitioner being a partnership may sue and be sued in its pa? ‘Kailangan ba bilhin ito?’
name or by its duly authorized representative. The fact that Arsenio
Lopez Chua is the representative of petitioner is not questioned. That is why there is a caveat that ’unless there is imminent danger of grave or
Petitioner’s declaration that Arsenio Lopez Chua acts as the managing irreparable injury to the partnership’. So even if (the) managers (are not
partner of the partnership was corroborated by respondent insurance complete), they can still act provided that the circumstance imposes an
company. Thus Chua as the managing partner of the partnership may imminent danger of irreparable injury to the partnership.
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 JULY 15, 2017
petitioner Tai Tong Chuache & Company is an agent of the partnership. (Transcriber: Isaihlene Abad)
Being an agent, it is understood that he acted for and in behalf of the firm.
Art. 1803. When the manner of management has not been agreed
Public respondent’s allegation that the civil case filed by Arsenio Chua
upon, the following rules shall be observed:
was in his capacity as personal creditor of spouses Palomo has no basis.
1.) All the partners shall be considered agents and whatever any
one of them may do alone shall bind the partnership, without
The respondent insurance company having issued a policy in favor of
prejudice to the provisions of article 1801.
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 2.) None of the partners may, without the consent of the others,
the allegation of lack of insurable interest on the part of the petitioner, make any important alteration in the immovable property of the
respondent insurance company is and must be held liable. partnership, even if it may be useful to the partnership. But if the
refusal of consent by the other partners is manifestly prejudicial to
‘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
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 Compare and contrast this with the prohibition on industrial partners.
sought. 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
This talks about an act of strict dominion. You don’t need the consent of all capitalist partner but the losses shall be borne by him.
partners unless it is manifestly prejudicial. You seek the court’s intervention.
Again you cannot just decide on your own. Art. 1809. Any partner shall have the right to a formal account as to
partnership affairs:
Art. 1804. Every partner may associate another person with him in his
share, but the associate shall not be admitted into the partnership 1.) If he is wrongfully excluded from the partnership business or
without the consent of all the other partners, even if the partner possession of its property by his co-partners;
having an associate should be a manager.
2.) If the right exists under the terms of any agreement;
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 – FACTS: Leung Yiu filed with the CFI of Manila, to recover the sum
you can only check the books at any reasonable hour and have access or
equivalent to twenty-two percent (22%) of the annual profits derived from
inspect them at the principal place of business. You cannot demand to inspect
the book at 6pm or beyond the business hours. the operation of Sun WahPanciteria from petitioner Dan Fue Leung.
Art. 1806. Partners shall render on demand true and full information The Sun WahPanciteria was established sometime in October, 1955. It
of all things affecting the partnership to any partner or the legal was registered as a single proprietorship and its licenses and permits were
representative of any deceased partner or of any partner under legal issued to and in favor of Fue Leung as the sole proprietor.
disability. 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.
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. The private respondent’s evidence is summarized as follows:
Art. 1807. Every partner must account to the partnership for any About the time the Sun WahPanciteria started to become
benefit, and hold as trustee for it any profits derived by him without operational, the private respondent gave P4,000.00 as his
contribution to the partnership. This is evidenced by a receipt
the consent of the other partners from any transaction connected
wherein the petitioner acknowledged his acceptance of the
with the formation, conduct, or liquidation of the partnership or from
P4,000.00 by affixing his signature thereto.
any use by him of its property. 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.
Since partnership is based on mutual trust and confidence, the partner has the Furthermore, the private respondent received from the
duty to act for the common benefit. In this particular provision, any transaction petitioner the amount of P12,000.00 from the profits of the
connected with the formation, conduct or liquidation of the partnership. In operation of the restaurant for the year 1974.
liquidation, lets say ng.liquidate ka ng partnership, nagbenta kayo ng assets, The petitioner denied having received from the private respondent the
the money charged for liquidation has been able to gain profits, that person amount of P4,000.00. He contested and impugned the genuineness of the
must account for the profit and hold it as trustee for the partnership. receipt. His evidence is summarized as follows:
Duty begins during formation of partnership The petitioner did not receive any contribution at the time he
started the Sun WahPanciteria. He used his savings from his
Principle of good faith applies not only during partnership but during the salaries as an employee and waiter amounting to a little more
negotiations leading to the formation of the partnership. than P2,000.00 as capital in establishing Sun WahPanciteria.
To bolster his contention that he was the sole owner of the
Art. 1808. The capitalist partners cannot engage for their own account
restaurant, the petitioner presented various government
in any operation which is of the kind of business in which the
licenses and permits showing the Sun WahPanciteria was and
partnership is engaged, unless there is a stipulation to the contrary. still is a single proprietorship solely owned and operated by
himself alone.
Any capitalist partner violating this prohibition shall bring to the
Dan Fue also argues: IAC erred in not resolving the issue of prescription
common funds any profits accruing to him from his transactions, and
in his favor. The alleged receipt is dated October 1, 1955 and the complaint
shall personally bear all the losses.
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.
28
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 Q: What provision was used by petitioner in saying that the complaint
IAC found that the Leung Yiu is a partner of the petitioner in the setting up has already prescribed?
and operations of the panciteria and the Leung Yiu invested in the business
A: Art.1144 of the CC. the following action must be brought within the
as a partner
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
ISSUE: Whether or not the private respondent is a partner of the petitioner his right as a partner. In this particular case, the prescription will begin upon
in the establishment of Sun WahPanciteria. 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.
HELD: YES. Leung Yiu alleged that when the Panciteria was established, EMNACE vs CA
he gave P4, 000 with the understanding that he would be entitled to 22%
(Case Digest: Jennifer Lim)
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 FACTS: Emilio Emnace, Jacinto Divinagracia and Vicente Tabanao
profits among themselves". formed a partnership engaged in the fishing industry (Ma. Nelma Fishing
Industry). In 1986, Jacinto decided to leave the partnership hence they
Given its ordinary meaning, “financial assistance” is the giving out of agreed to dissolve the partnership. At that time, the partnership has an
money to another without the expectation of any returns. It connotes an estimated asset amounting to P30,000,000.00.
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.
Until the death of Vicente Tabanao in 1994, Emnace never rendered an
Anent the issue on prescription, his argument is based on NCC 1144 accounting either to Vicente or his heirs. Emnace reneged on his promise
(which provides for actions must be brought within 10 yrs: upon written to turn over Tabanao’s share which is 1/3 of the P30M.
contract, obligation created by law, upon judgment) in relation to NCC 1155
(prescription is interrupted when they are filed before the court, written The heirs of Tabanao then sued Emnace. Emnace argued, among others,
extra judicial demand by creditor, & written acknowledgment of debt by 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
debtor)
that was the time when Tabanao’s (and his heirs’) right to inquire into the
They are partners in Sun WahPanciteria as they fit the requisites of a business affairs accrued; that said right has expired in 1990 or 4 years
partnership. If excellent relations exist among the partners and all the after.
The trial court and appellate ruled that prescription begins to run only upon
partners are more interested in seeing the firm grow rather than get
the dissolution of the partnership when the final accounting is done. Hence,
immediate returns, a deferment of sharing in the profits is perfectly
prescription has not set in the absence of a final accounting. Moreover, an
plausible. It would be incorrect to state that if a partner does not assert his
action based on a written contract prescribes in ten years from the time the
rights anytime within 10 years from the start of operations, such rights are
right of action accrues.
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 ISSUE: Whether or not the right has prescribed.
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. 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
The question now arises as to whether or not the payment of a share of c) termination.
profits shall continue into the future with no fixed ending date. Considering In this case, Emnace and his partners dissolved their partnership but such
the facts of this case, the Court may decree a dissolution of the partnership did not perfect the dissolution because no accounting took place. The
under Article 1831 of the Civil Code which, in part, provides: On application partnership, although dissolved, continues to exist and its legal personality
by or for a partner the court shall decree a dissolution whenever: 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
xxx (3) A partner has been guilty of such conduct as tends to partners.
affect prejudicially the carrying on of the business; For as long as the partnership exists, any of the partners (or legal
representative – in this case the heirs of Tabanao) may demand an
(4) A partner willfully or persistently commits a breach of the accounting of the partnership’s business. Prescription of the said right
partnership agreement, or otherwise so conducts himself in starts to run only upon the dissolution of the partnership when the final
matters relating to the partnership business that it is not accounting is done.
reasonably practicable to carry on the business in partnership When a final accounting is made, it is only then that prescription begins to
with him; 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,
xxx(6) Other circumstances render a dissolution equitable. 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
Thus, there shall be liquidation and winding up of partnership affairs, return prescription.
of capital, and other incidents of dissolution because the continuation of
the partnership has become inequitable.
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
Q: How about the fact that it was registered as a sole proprietorship? the stipulated agreement?
Diba this was a business registered by the other party as a sole proprietorship?
A: The time of Dissolution. Art. 1809 (4) Whenever other
A: Even if its registered as a sole proprietorship, you have to look at circumstances render it just and reasonable. Although there is a stipulation to
the intention of the parties. The evidence presented by the parties here is account in 1983 but the partnership continued on and was dissolved in 1986.
actually more in keeping with partnership than sole proprietorship. From 1982 to 1983, the stipulation to account pertains only to that. At the time
29
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 against the partnership. When partnership property is
periods when no accounting has not been done(time of covered by the attached for a partnership debt the partners, or any of
stipulation to account up to time of actual liquidation). Your cause of action for them, or the representatives of a deceased partner, cannot
the stipulation to account is different from your cause of action to demand claim any right under the homestead or exemption laws;
formal accounting at the time of liquidation.
4.) A partner’s right in specific partnership property is not
Art. 1810. The property rights of a partner are: subject to legal support under art. 291.
1.) His rights in specific partnership property;
2.) His interest in the partnership; and Lets say yung partnership property kay carabao(property exempted from
execution). A partnership creditor can attach such property because you
3.) His right to participate in the management.
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.
Extent of property rights of a partner
Art. 1812. A partner’s interest in the partnership is his share of the
Principal rights- profits and surplus.
Art. 1811. A partner is co-owner with his partners of specific As a partner I can assign my whole interest, but my assignee does not become
partnership property. 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.
The incidents of this co-ownership are such that: Necessarily, that assignee has limited rights.
2.) A partner’s right in specific partnership property is not Art. 1814. Without prejudice to the preferred rights of
assignable except in connection with the assignment of partnership creditors under art. 1827, on due application to a
rights of all the partners in the same property; 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
Contrary to your usual co-ownership, you have a particular aliquot part of the
then or later appoint a receiver of his share of the profits, and of
property and that part can be specifically assigned. However, in partnership,
any other money due or to fall due to him in respect of the
you cannot assign that particular specific partnership property unless every
partner consents. partnership, and make all other orders, directions, accounts and
inquiries which the debtor partner might have made, or which
3.) A partner’s right in specific partnership property is not circumstances of the case may require.
subject to attachment or execution, except on a claim
30
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 However, the addition of one or more distinctive words shall not
foreclosure, or in any case of a sale being directed by the be allowed if the registered name is coined or unique unless the board of
court, may be purchased without thereby causing a directors or majority of the partners of the subject corporation or
dissolution: partnership gives its consent to the applied name;
1.) With separate property, by any one or more of the
partners; or c) Punctuation marks, spaces, signs, symbols and other similar
2.) With partnership property, by any one or more of the characters, regardless of their form or arrangement, shall not be
partners with the consent of all the partners whose interest acceptable as distinguishing words for purposes of differentiating a
are not so charged or sold. proposed name from a registered name.
Application for a “charging order” after securing judgement on his credit. The corporate name of a foundation shall use the word “Foundation.”
So si judgement creditor(personal judgement creditor ni partner) lets say may So hindi pwede partnership ka at yung surname or lastname is “Inc.”,
unsatisfied judgement. Remember this is only applicable if there is an ”Corp.” or “Corporation”. Lets say Dulay Corporation or Dulay Inc. or Dulay
unsatisfied judgment. It is property pa personally of debtor-partner. Di pwde Corp. – hindi siya pwede partnership. But Dulay Co or Dulay Company –
iinvoke ni debtor. Dapat ngsatisfy ng judgment bago siya mg.apply ng pwede siya partnership.
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.
4. Only one business or trade name may be registered for each
Right of the existing partners to redeem corporate or partnership name.
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 5. A tradename or trademark registered with the Intellectual
partnership itself can pay the unsatisfied creditor. The effect nabayaran nila Property Office may be used as part of the corporate or partnership name
they do not not step into the shoes of the creditor. There is no novation(?) of a party other than its owner if the latter gives its consent to such use.
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 This is applicable to franchise agreement, hindi nila tatangapin unless hindi
pagdating ng formal accounting mas malaki ang kanyang interest so pwede ka naclear ng IPO.
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. 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
Art. 1815. Every partnership shall operate under a firm name, which said entity and has consented to such use; if the person is already
may or may not include the name of one or more of the partners. deceased, the consent shall be given by his or her estate;
Those who, not being members of the partnership, include their There are 2 cases assigned to this. Just refer to it. Dati kasi bawal mg.use
names in the firm name, shall be subject to the liability of a partner. 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.
Please read SEC Memo Circular 5 series of 2008 which gives us the
The name of an internationally known foreign corporation, or something
guidelines and procedure for choosing a partnership or corporate name. So
we cannot unilaterally or by your own will choose a corporate or partnership similar to it, cannot be used by a domestic corporation unless it is its
name kasi ofcourse registered yan. It is the SEC that’s the regularity body who subsidiary and the parent corporation has consented to such use;
oversees partnership and corporations. Usually they require 5 names. First,
Remember in your Intellectual property, theres this convention, Paris
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 convention(?), that even if wala nareserve na name sa Philippines, pwede
name has already been used, the applicant must change said name.” 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
What are the guidelines? 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.
3. a) the name shall not be identical, misleading or confusingly
similar to a corporate or partnership name registered with the Commission, 12. Unless otherwise authorized by the Commission, the words and
or with the Department of Trade and Industry, in the case of sole phrases enumerated can be used only by the entities mentioned: (c)
proprietorships; “National,” “Bureau,” “Commission,” “State,” and other words, acronyms,
abbreviations that have gained wide acceptance in the Philippines - by
b) if the name applied for is similar to that of a registered
entities that perform governmental functions;
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;
31
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 legal intention deducible from the acts of the parties controls in determining
name is exclusively for government. 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
The name of a local geographical unit, site or location cannot be used as a
was to avoid the creation of such relation. Here the intention of the
corporate or partnership name unless its is accompanied by a descriptive word
or phrase, e.g., Pasay Food Store, Inc. persons making up, TeckSeing& Co., Ltd. was to establish partnership w/c
they erroneously denominated as a limited partnership.
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 Q: if this case happened today(the applicable law in the case was
to the UN. Also, “Finance Company,” “Financing Company,” Finance and different)?
Leasing Company” and “Leasing Company,” “Investment Company,” A: YES. Art.1815. would still be considered a general partnership
“Investment House” - are exclusive to entities engaged in the financing or
investment house business. Also, “Lending Company” and “Lending Investor” Again, it is only optional if you include your name. pwede ka mg.include ng
– by lending companies or “pawnshop” – by entities authorized to operate ibang name as long as it is compliant with the SEC circular.
pawnshops. “Bank,” “Banking,” “Banker,” “Savings and Loan Assocation,”
“Trust Corporation,” “Trust Company”- exclusive to entities engaged in the Art. 1816. All partners, including industrial ones, shall be liable pro
banking or trust business. “SPV-AMC” – exclusive to corporations authorized rata with all their property and after all the partnership assets have
to act as special purpose vehicle(SPV). been exhausted, for the contracts which may be entered into in the
name and for the account of the partnership. However, any partner
Another rule, do use “Investment(s)” or “capital” – exclusive to entities
may enter into a separate obligation to perform a partnership
organized as investment house, investment company or holding company;
“Asset/Investment/Fund/Financial Management,” or contract.
“Asset/Investment/Fund/Financial Management Adviser,” or any similar words
Partnership Liability – Partners are principals to the other partners and
or phrases – exclusive to entities organized as investment company adviser
agents for them and the partnership. They are liable to 3rd persons who have
or holders of investment management activities license from the Bangko
dealt with one of them in the same way that a principal is liable to 3rd persons
Sentral ng Pilipinas; “Association” and “Organization” or similar words which
who have dealt with an agent. The general rules is that a partner has the right
pertain to non-stock corporations – exclusive to entities primarily engaged in
to make all partners liable for contracts he makes for the partnership in the
non-profit acitivities; “Stock Exhange/Futures Exhange/Derivatives Exchange”
name and for the account of the partnership.
and “Stock Exhange/Futures Exhange/Derivatives Exchange broker” – by
entities engaged organizes as an exchange, broker dealer, commodity futures Please take note of the liability of the partners- its pro-rata meaning equally
broker, clearing agency, or pre-need company under the Securities Regulation or jointly not proportionately. Pro rata is based on the number of partners and
Code. 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
Again, you cannot just use any name. Those mentioned are highly regulated
niya ay 10% lang din. Because that would not be proportionate. So if there are
entities.
5 partners, mag-1/5th sila isa-isa. Even if one of the partners contributed only
JO CHUNG CANG vs. PACIFIC COMMERCIAL CO 10%. Hindi pwedeng i.pro-rate mo siya based on capital contributions but
based on the number of individual or partners there are.
(Case Digest: Jennifer Lim)
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
FACTS:*Facts were in Spanish. you have to prove that you have exhausted the properties of the debtor.
In the insolvency proceedings of petitioner-establishment, Please take not in this provision, that even an industrial partner is liable. Under
“SociedadMercantil, Teck Seing&Co., Ltd.”, creditors Pacific Commercial the previous provisions, the industrial partner is not liable for losses. Why is it
and others filed a motion with the Court to declare the individual partners now that the industrial partner is liable?
parties to the proceeding, for each to file an inventory, and for each to be
COMPANIA MARITIMA vs MUNOZ
adjudicated as insolvent debtors.
(Case Digest: Jennifer Lim)
Francisco was the capitalist partner while the other two were industrial
To establish a limited partnership, there must be, at least, one general partners. In the articles of partnership, it is expressly stated that they have
partner and the name of at least one of the general partners must appear agreed to form, and do form, an ordinary, general mercantile partnership.
in the firm name. This requirement has not been fulfilled. Those who seek The object of the partnership, as stated in the fourth paragraph of the
to avail themselves of the protection of laws permitting the creation articles, is a purely mercantile one and all the requirements of the Code of
of limited partnerships must the show a substantially full compliance with Commerce in reference to such partnership were complied with. The
such laws. articles of partnership were recorded in the mercantile registry in the
Province of Albay.
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
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 (Case Digest: Lilybeth Petallo)
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 FACTS:
industrial partners should not be liable pursuant to Article 141 of the Code
1. Petitioner Teodoro de los Reyes lent P1,086.65 in favor of the firm
of Commerce.
“Lukban&Borja” for merchandise bought on credit from petitioner’s
ISSUE: Whether or not the industrial partners are liable to third parties like ship supply store, La Industria.
La CompañiaMartitama. 2. When “Lukban&Borja” defaulted payment, Petitioner delos Reyes
filed an action for recovery of debt first against the firmLukban&Borja.
HELD: Yes. The controlling law is Article 127. There is no injustice in The court ordered the firm to pay the debt with interest; but only one
imposing this liability upon the industrial partners. They have a voice in the partner, i.e. Respondent EspiridionBorja, paid P522.69; thus leaving
management of the business, if no manager has been named in the a balance of P853. Thereafter, the partnership was dissolved.
articles; they share in the profits and as to third persons it is no more than 3. In the attempt to recover the balance, Petitioner delos Reyes, filed
right that they should share in the obligations. It is admitted that if in this another action to recover the balance of the debt now against both
case there had been a capitalist partner who had contributed only P100 he Respondents-Partners Vicente Lukban and EspiridionBorja; thus,
would be liable for this entire debt of P26,000. making them individually liable.
The Court’s construction of the article is that it relates exclusively to the 4. In his answer, Respondent Lukban’s alleged:
settlement of the partnership affairs among the partners themselves and a. That he was merely an industrial partner in the firm;
has nothing to do with the liability of the partners to third persons; that each b. That respondent Borja was the one who furnished the
one of the industrial partners is liable to third persons for the debts of the capital; and
firm; that if he has paid such debts out of his private property during the life c. That the assets of the firm “Lukban&Borja” have not been
of the partnership, when its affairs are settled he is entitled to credit for the exhausted yet.
amount so paid, and if it results that there is not enough property in the 5. The lower court sentenced both respondents-partners Lukban and
partnership to pay him, then the capitalist partners must pay him. Borjasolidarily liable for the balance.
Article 141 relates exclusively to the settlement of the partnership affairs ISSUE:WON Creditor delos Reyes may collect individually from the
among the partners themselves and has nothing to do with the liability of partners, Lukban and Borja, the balance of the debt that the partnership
the partners to third persons; that each one of the industrial partners is firm owed at the time of its dissolution. (YES)
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 HELD: Creditor delos Reyes may collect individually from the partners.
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 It should be noted that the dissolved partnership of “Lukban&Borja” had
(like when it is a partnership for the exercise of a profession). In such case, absolutely no property whatever of its own, based on the contents of the
if it is permitted that industrial partners are not liable to third persons then writ, the return of the execution of the final judgment, and the fact that
such third persons would get practically nothing from such partnerships if respondent Lukban did not pointed this out to avoid liability in solidum.
the latter is indebted.
Q: Lets say nagbayad na sila, industrial partner liable din siya. Lets
say nagbayad siya ng kanyang share. Ano ang kanyang recourse? We talked ART. 127, CODE OF COMMERCE provides:
about the previous article, hindi na man siya liable for losses. So saan siya
maliable? “All the members of the general co-partnership, be they or be
they nor managing partners of the same, are personally and
A: Liabilities. In this particular provision, you have to distinguish losses
from liabilities. Industrial partner shall not share with the losses but liable siya severally liable with all their property for the results of the
to third persons. If nagbayad ang industrial partner sa share niya sa third transactions made in the name and for the account of the
person ang recourse niya is on the other partners. In effect he does not share partnership, under the signature of the latter, and by a person
in the losses of the partnership. authorized to make use thereof.”
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 FOR THE FOREGOING REASONS, the judgment appealed from is
partner. Dahil hindi ako liable sa losses eh. Nagseserbisyo na nga ako.lugi AFFIRMED with costs of this instance against the appellant. So ordered.
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. 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.
DELOS REYES vs LUKBAN
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 attachment, garnished, or mortgaged. Chika…stock market. Credit rating.
preceding article shall be void, except as among partners. KMPG and SGV. Auditing practice. Publicly traded securities.
So you cannot stipulate na hindi liable si industrial partner sa third person. In the absence of an agreement to the contrary, all partners have equal rights
That stipulation is applicable only between the parties but not with regards to in the management and conduct of the partnership business.
third persons. The premise is walang paki.alam si third person. Bakit niya
As among themselves- when a partner performs an act within the scope of
naman pahirapan si third person na siya na nga ang ng.pautang. siya pah
his actual, implied, or apparent authority, he is not only a principal as to
yung nahirapan. The creditor has all the right to collect to all the partners.
himself, but is also for all purposes, an agent as to his co-partners or the
Art. 1818. Every partner is an agent of the partnership for the purpose partnership, considered as a group. Principle of mutual agency.
of its business, and the act of every partner, including the execution As to third persons- limitations upon the authority of any one of the partners
in the partnership name of any instrument, for apparently carrying on are not binding upon innocent 3rd persons dealing with the partnership who
in the usual way the business of the partnership of which he is a have the right to assume that every general partner has power to bind the
member, binds the partnership, unless the partner so acting has in partnership especially those partners acting with ostensible authority, by
fact no authority to act for the partnership in the particular matter, whatever is proper for the transaction in the ordinary and usual manner of the
and the person with whom he is dealing has knowledge of the fact business of the partnership.
that he has no such authority.
MUNASQUE vs CA
An act of a partner which is not apparently for carrying on of the 1. Petitioner Elmo Muñasque, in behalf of the partnership of “Galan and
business of the partnership in the usual way does not bind the Muñasque”, entered into a contract with Respondent Tropical
Commercial Company for remodeling of a building. Respondent
partnership unless authorized by the other partners.
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
Lets say you are engage in the selling of beauty products then biglang may petitioner.
isang partner bumili ng lupa. It not apparently the usual course of business of 2. As between Petitioner Muñasque and Tropical, the latter agreed to
the partnership therefore as a third person you should check whether or not pay in installments. Thus, Tropical gave the 1st check issued in the
there is authority. Pero kung the usual way of business na naman, you are in name of Muñasque. However, Muñasque indorsed the check to
no obligation to check the authority of the partner to whom you are dealing Respondent Galan for purposes of depositing it; but Galan instead
with. encashed the check for personal use.
3. Because of this, when the 2nd check came and Galan asked that the
Except when authorized by the other partners or unless they have same be indorsed to him, Muñasque refused out of mistrust. As a
abandoned the business, one or more but less than all the partners result, the check was withheld from Muñasque.
have no authority to: 4. Meanwhile, Galan told Tropical of their misunderstanding; so,
Tropical changed the name of the payee of the 2nd check from
1.) Assign the partnership property in trust for creditors or on Muñasque to “Galan & Associates”, which is the name of the
the assignee’s promise to pay the debts of the partnership; partnership under which the construction business was registered.
This enabled Galan to encash the 2nd check, again for his personal
2.) Dispose of the goodwill of the business; use.
5. Because Galan failed to pay for the labor and materials, Petitioner
3.) Do any other act which would make it impossible to carry on Muñasque was forced to continue the construction through his sole
the ordinary business of a partnership; efforts.
6. With this, Muñasque filed a Complaint for Sum of Money and
4.) Confess a judgment; Damages against Respondents Galan & Tropical.
7. Meanwhile, Cebu Southern Hardware and Blue Diamond Gold
5.) Enter into a compromise concerning a partnership claim or Palace, who supplied materials on credit to the partnership,
liability; intervened.
8. Trial Court found Petitioner Muñasque and Respondent Galan
6.) Submit a partnership claim or liability to arbitration;
solidarily liable as partners to the intervenors-creditors. CA affirmed,
7.) Renounce a claim of the partnership. but modified it to joint liability.
9. Hence, the petition.
34
BUSINESS ORGANIZATION I
(By: 3-Manresa, S.Y. 2017-2018)
From the Lectures of: Atty. Raymund Christian S. Ong-Abrantes, CPA
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
B. Petitioner is liable to the creditors for liabilities incurred by the and sell of lots. Because in here, the SC said there is a general presumption,
partnership. 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
Since the 2 were partners when the debts were incurred, they
inconvenient. Most especially when the transaction is apparently carrying on
are also both liable to third persons who extended credit to their in the usual way of the business. Payment of construction services and the
partnership. 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.
“There is a general presumption that each 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
individual partner is an authorized agent for the
consent of the other partners even if it is apparently carrying on in the usual
firm and that he has authority to bind the firm in
way of the business of the partnership.
carrying on the partnership transactions.” (Mills
vsRiggle) GOQUIOLAR vs SYCIP
a. That Kong Chai Pin is not a partner; hence, the sale made “The public need not make inquiries as to the agreements
by her is void for lack of consent of the other partners; or between the partners. Its knowledge is enough that it is
b. Granting that Kong may be partner, she is nothing more contracting with the partnership which is represented by one of
than a limited partner, and as such was disqualified to the managing partners.”
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.
“There is a general presumption that each individual
partner is an agent for the firm and that he has authority to
ISSUE: WON Kong Chai Pin is authorized to sell properties of the bind the firm in carrying on the partnership transactions.”
partnership to third persons, as sole managing partner in lieu of her
deceased husband, even without the consent of the other partners. (YES)
A. Kong Chai Pin lawfully acted as the sole managing partner in “The regular course of business procedure does not required
lieu of her husband. 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,
Although, the power of Tan Sin An as sole managing partner, which is or that he should first ascertain whether or not the other
premised upon trust and confidence, was a mere personal right that should partners had given their consent thereto.”
have been terminated upon Tan’s demise; such right was not extinguished
in this case based on the ff. circumstances:
ART. 180, CODE OF COMMERCE provides that
even if a new obligation was contracted against the
a. The articles of co-partnership specifically provided for the express will of one of the managing partners, it shall
continuation of the firm notwithstanding the death of one not be annulled for such reason, and it shall produce
of the partners. its effects without prejudice to the responsibility of
b. Since the heir of the deceased (i.e. Kong Chai Pin) never the member/s who contracted it, for the damages
repudiated or refused to be bound by such agreement, they may have caused to the common fund.
Kong Chai Pin became an individual partner with
surviving partner Goquiolay upon Tan’s death.
Although the partnership under consideration is a commercial
Goquiolay argued that granting Kong became a partner, she was nothing partnership and, therefore, to be governed by the Code of
more than a limited partner who is disqualified from managing the Commerce, the provisions of the old Civil Code may apply:
business. (LACKS MERIT)
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: 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
Acts for apparently carrying on in the usual way the business of the such property.
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.
Effects of conveyance of real property belonging to the partnership
There are two requisites in order that the partnership will not be liable:
The ownership of real estate is prima facie that indicated by the muniment of
a.) The partner so acting has in fact no authority; and title. Ordinarily, title to real property or interest therein belonging to the
rd partnership is registered in the partnership name. However, for one reason or
b.) The 3 person knows that the acting partner has no authority. 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
Remember with regard to the two requisites it is “AND” not “OR.” presumption is that, property purchased with partnership funds belongs to the
Acts of strict dominion (pars. 2 and 3) – For acts which are not apparently partnership unless a contrary intent is shown.
for carrying on in the usual way of business of the partnership, the partnership Article 1819 gives the legal effects of the conveyance of real property
is not bound, unless authorized by all the other partners or unless they have belonging to the partnership depending in whose name it is registered and in
abandoned the business. The general rule is that powers not specifically whose name it is conveyed. Under the article, the real property may be
delegated in a partnership agreement are presumed to be withheld. Paragraph registered or owned in the name of:
3 gives instances of acts generally outside the implied power of a partner and
constitute limitations to the authority to bind partnership. 1.) The partnership (pars. 1,2);
Acts in contravention of a restriction on authority (par. 4) – The 2.) One or more but not all the partners (par. 3);
partnership is not liable to third persons having actual or presumptive
rd
knowledge of the restrictions, whether or not the acts are for apparently 3.) One or more or all the partners, or in a 3 person in trust for the
carrying on in the usual way the business of the partnership. On the other partnership (par. 4);
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. 4.) All the partners (par. 5).
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 ownership, while under paragraphs 2 and 4, what is conveyed is merely
a contract without authority is himself personally liable on such contract. Such equitable interest. “Conveyance” interpreted to include a mortgage. Thus,
partner binds himself no matter in what name he contracts. The fact that he the right to mortgage is included in the right to convey (unlike in agency)
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.
SANTIAGO INC vs CASTRO
Art. 1819. Where title to real property is in the partnership name, any
(Case Digest: Lilybeth Petallo)
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 FACTS:
property has been conveyed by the grantee or a person claiming
through such grantee to a holder for value without the knowledge that 1. 1964, November, the Lims (Private Respondents) borrowed from
the partner, in making the conveyance, has exceeded his authority. 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
Where title to real property is in the name of the partnership, a Syjuco to have the mortgage extrajudicially foreclosed.
conveyance executed by a partner, in his own name, passes the 3. Problem is, the attempt to foreclose triggered off a legal battle that
equitable interest of the partnership, provided the act is one within has dragged on for more than 20 years now, fought through 5 cases
the authority of the partner under the provisions of the first paragraph in the trial courts, 2 in the CA, and 3 more in the SC.
of article 1818. 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,
Where title to real property is in the name of one or more but not all having been earlier deed over by them to the partnership, “Heirs of
the partners, and the record does not disclose the right of the Hugo Lim” as early as March 30, 1959. Hence, the mortgage was
partnership, the partners in whose name the title stands may convey void because it executed by them without authority from the
title to such property, but the partnership may recover such property partnership.
if the partners’ act does not bind the partnership under the provisions
of the first paragraph of Article 1818, unless the purchaser or his ISSUE: WON the mortgage executed by the Lims is attributable to the
assignee, is a holder for value, without knowledge. partnership, “Heirs of Hugo Lim”. (YES)
Where the title to real property is in the name of one or more or all the HELD: The mortgage is attributable to the partnership.
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 1. BY PRINCIPLE OF ESTOPPEL
the first paragraph of Article 1818.
37
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 the Lims, as individuals, and the partnership itself, since the former
exclusively of the individual Lims; their contribution to the partnership constituted the entire membership of the latter.
consisted chiefly, if not solely, of the property subject of the Syjuco
mortgage.
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
It is also a fact that despite its having been contributed to the partnership was the real party in interest in all the actions; it was actually represented
allegedly on March 30, 1959, the property was never registered with the in said actions by all the individual members thereof, and consequently,
ROD in the name of the partnership, but to this date remains registered in those members’ acts, declaration and omissions cannot be deemed to be
the names of the Lims as owners in ommon. simply the individual acts of said members, but in fact and in law, those of
the partnership.
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, What was done by the Lims – or by the partnership of which they were the
the respondent partnership was chargeable with knowledge of the only members – was to split their cause of action in violation of the well-
mortgage from the moment of its execution. 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
“The legal fiction of a separate juridical personality and
subject of a separate action. Upon these premises, application of the
existence will not shield it from the conclusion of having
sanction indicated by law is called for, i.e. the judgment on the merits in
such knowledge which naturally and irresistibly flows from
any one is available as a bar in the others. Hence, barred by prior
the undenied facts. It would violate all precepts of reason,
judgment. Res judicata.
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 In its dispositive portion, the SC ordered for the sale in public auction of the
taken part, where such matters or acts affect property subject property and held the private respondents (the Lims and the
claimed as its own by said partnership.” Partnership of the Heirs of Hugo Lim) jointly and severally liable to
petitioner.
A: The term “conveyance” was taken from the American … the right
to mortgage is included in the right.. this is…
In this case, the mortgaged property is still registered in the names of
So in this particular case, the SC said that the word “conveyance” in Art.1819
partners; hence, the conveyance (i.e. the mortgage) executed by all the
includes the right to mortgage. This is different from the general rule that the
partners passes all their rights in such property. 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
3. BY DOCTRINE OF RES JUDICATA 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
The cause of action of Civil Case No. Q036485 is barred by prior judgment. sa amin. They made this argument for purposes of delaying the execution.
The right subsumed in that cause is the negation of the mortgage, The SC said although different yung juridical personality niyo, the fact that
postulated on the claim that the parcels of land mortgaged by the Lims to 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
Syjuco did not in truth belong them, but to the partnership.
lang kayo maginvoke ng separate juridical personality. So in this particular
case, the SC ruled based on equity. Otherwise, the case would be prolonged.
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 Art. 1820. An admission or representation made by any partner
put forth by the partnership itself. Since the actions involved property concerning partnership affairs within the scope of his authority in
supposedly belonging to the partnership and were being prosecuted by the accordance with this Title is evidence against the partnership.
entire membership of the partnership, the partnership was in actuality, the
real party in interest. Thus, there is no reason to distinguish between
38
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 ISSUE: Whether or not there was an existence of a consortium.
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
RULING: NO. There was no documentary or other basis for Comelec to
have communicated it to the acting partner, operate as notice to or
conclude that a consortium had actually been formed amongst MPEI, SK
knowledge of the partnership except in case of a fraud on the
C&C and WeSolv, along with Election.com and ePLDT. The president of
partnership, committed by or with the consent of that partner.
MPEI signing for allegedly in behalf of MPC without any further proof, did
Notice to, or knowledge of, a partner of matter affecting partnership not by itself prove the existence of the consortium. It did not show that
affairs 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
Notice to, or knowledge of, any partner of any matter relating to partnership behalf and, more important, to commit them jointly and severally to the bid
affairs operates as a notice to or knowledge of the partnership except in case undertakings. The letter is purely self-serving and uncorroborated.
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 So in this particular case, sabi ng SC wala namang partnership eh. Wala
notice is delivered to a partner, that is an effective communication to the namang joint venture kung meron man limited ang rights. Sabi ng COMELEC
partnership notwithstanding the failure of the partner to communicate such meron and since you misrepresented dapat solidary ang liability. The SC said
notice or knowledge to his co-partners. may written reference kung saan limited ang liability yung iba sumali sa
bidding. So theres actually a consortium/ joint venture. Remember joint
So this particular provision tells us that kahit sabihan mo ang isang partner, it venture is a specie of partnership. So pwede mag.apply ang provision on
would operate as notice to the partnership itself. So you do not need to tell all partnership sabi ng OSG.
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) JULY 18, 2017
(Transcriber: Shats Tagtagan)
Art. 1822. Where, by any wrongful act or omission of any partner
acting in the ordinary course of the business of the partnership or Article 1825: When a person by words spoken or written or by conduct
with the authority of his co-partners, loss or injury is caused to any represents himself or consents to another representing him to anyone as
person, not being a partner in the partnership, or any penalty is a partner in an existing partnership or with one or more persons not actual
incurred, the partnership is liable therefore to the same extent as the partners he is liable to any such persons to whom such representation has
partner so acting or omitting to act. 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
Art. 1823. The partnership is bound to make good the loss: 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
1.) Where one partner acting within the scope of his apparent
person so giving credit by or with the knowledge of the apparent partner
authority receives money or property of a third person and
making the representation or consenting to its being made:
misapplied it; and
b) Indirectly represents himself by consenting to another representing him as because of the concept of unlimited liability, the partnership creditor can still
a partner in an existing partnership or in a non existing partnership. go after the separate property of the partners.
- To hold the party to be liable, the third person must prove that DISSOLUTION AND WINDING UP
there is representation or a bona fide reliance by him causing injury.
Article 1828: The dissolution of a partnership is the change in the relation
When a partnership liability results – If all the actual partners of the partners caused by any partner ceasing to be associated in the
consented to the representation, then the liability of the person who carrying on as distinguished from the winding up of the business.
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 You have to be familiar of three terms: DISSOLUTION, WINDING
is a partnership liability. UP, TERMINATION.
When liability is pro rata – When there is no existing partnership Dissolution – there is only a change of relation. Diba, the concept
and all those represented as partners consented to the representation, or not of partnership hinges to the principle of delectus personae. Kung madestroy
all of the partners of an existing partnership consented to the representation, yun, yung vinculum juris which ties the contract of partnership, may
then, the liability of the person who represented himself to be a partner or who dissolution. But it does not mean that the partnership is already terminated. It
consented to his being represented as partner, and all those who made and has to go under the process of winding up.
consented to such representation is joint or pro rata.
[De Leon’s book: Dissolution is the change in the relation of the partners
Pero kapag walang existing partnership, and only some of those represented caused by any partner ceasing to be associated in the carrying on of the
as partners consented to the representation, the liability will be separate. Ang business. It is that point in time when the partners cease to carry on the
gawin nyo dito is himay-himayin nyo lang sya. The importance of this provision business together. It represents the demise of a partnership. Thus, any time a
is you should know that ___ of the liability, when does the partnership liability partner leaves the business, the partnership is dissolved. This does not
occur. Kapag ang actual partner in an existing partnership consented to necessarily mean the business must cease to exist for the partners may be
another person representing him as partner, magkakaroon ng partnership allowed to continue the business.]
liability. It shall be pro rata when walang partnership na existing and all those
represented as partners consented to the representation. Magiging separate Winding up – settling of all accounts. After settled na lahat, comes
sya if not all consented sa pagrerepresent as partners. termination. [De Leon’s book: Winding up is the actual process of settling the
business or partnership affairs after dissolution, involving the collection and
Please note that the important thing in this provision is that this only pertains distribution of partnership assets, payment of debts, and determination of the
to liability to third persons who rely on the representation. It is not created to value of each partner’s interest in the partnership. It is the final step after the
establish a partnership. Let’s say there’s a partner by estoppel/partnership by dissolution in the termination of the partnership. The priority for distributing the
estoppel, it does not mean that a partner by estoppel is a partner by a contract proceeds of the process is set out in Article 1839.]
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 Kapag nag wawinding up ka, in theory, you should not engage into
them (the partners), walang contract of partnership. 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
There’s a discussion in the book of De Leon that “The law makes partners.
liable as general partners ‘all persons who assume to act as a
corporation’ and may include persons who attempt, but fail to form a Termination – [De Leon’s book: Termination is that point in time
corporation and who carry on business under the corporate name.” Sabi that all partnership affairs are completely wound up and finally settled. It
natin before na, kapag nag-apply ka as corporation, let’s say hindi mo na- signifies the end of the partnership life. It takes place after both dissolution and
comply ang partner requisites, it does not automatically result into a winding up have occurred.]
partnership, because partnership is by intention. But sabi dito, they can be
Article 1829: On dissolution the partnership is not terminated but
held liable as a general partner. Those who acted as a corporation failed to
continues until the winding up of partnership affairs is completed.
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 Effects of dissolution:
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 1) Partnership not terminated;
themselves and as between third persons. This provision protects the rights of
third persons. 2) Partnership continues for a limited purpose;
Article 1826: A person admitted as a partner into an existing partnership 3) Transaction of new business prohibited.
is liable for all the obligations of the partnership arising before his How do we cause the dissolution of a partnership?
admission as though he had been a partner when such obligations were
incurred except that this liability shall be satisfied only out of partnership Article 1830: Dissolution is caused:
property unless there is a stipulation to the contrary.
1.) Without violation of the agreement between the 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
d.) By the expulsion of any partner from the business bona fide in 3) By any event which makes it unlawful for the business of the partnership
accordance with such a power conferred by the agreement between the to be carried out on or for the members to carry it on in partnership;
partners;
For example, you started with a lawful business, then there came a
2.) In contravention of the agreement between the partners, where the supervening event, it becomes unlawful. So wala na.
circumstances do not permit a dissolution under any other provision of this
4) When a specific thing a partner had promised to contribute to the
article, by the express will of any partner at any time;
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;
3.) By any event which makes it unlawful for the business of the partnership but the partnership shall not be dissolved by the loss of the thing when it
to be carried out on or for the members to carry it on in partnership; occurs after the partnership has acquired the ownership thereof;
4.) When a specific thing, a partner had promised to contribute to the We already discussed that you become a debtor to the partnership for the
partnership, perishes before the delivery; in any case by the loss of the thing you have promised to contribute. Kapag mawala yun, anong
thing, when the partner who contributed it having reserved the ownership mangyayari? It can be a ground for dissolution. My issue here is, kapag
thereof, has only transferred to the partnership the use or enjoyment of the dissolution, ibig sabihin may contract of partnership na. What if promise pa
same; but the partnership shall not be dissolved by the loss of the thing lang? Is there a contract of partnership? Meron, kasi diba consensual naman
when it occurs after the partnership has acquired the ownership thereof; 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.]
2.) A partner becomes in any other way incapable of performing his part of
7.) By the civil interdiction of any partner; the partnership contract;
8.) By decree of court under the following article. 3.) A partner has been guilty of such conduct as tends to affect prejudicially
the carrying on of the business;
Please note that the enumeration is EXCLUSIVE.
We have partnership for a specific term. Kapag natapos na yung term, it can
be dissolved. 5.) The business of the partnership can only be carried on at a loss;
(b) By the express will of any partner who must act in good faith when no
definite term or particular undertaking is specified;
6.) Other circumstances render a dissolution equitable;
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 On the application of the purchaser of a partner’s interest under Article
dissolve the partnership in bad faith, you can be held liable for damages. 1813 or 1814:
Ground is Article 19 of the Civil Code.
1.) After the termination of the specified term or particular undertaking;
( 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; 2.) At any time if the partnership was a partnership at will when the interest
was assigned or when the charging order was issued.
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 Bakit kelangan ng judicial decree? As denominated, this requires evidentiary
be charged for their separate debts. proof.
(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;
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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 of any liability created by any partner acting for the partnership as if the
shown to be of unsound mind; 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
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.
2.) The dissolution being by the death or insolvency of a partner the partner
4) A partner willfully or persistently commits a breach of the partnership acting for the partnership had knowledge or notice of the death or
agreement or otherwise so conducts himself in matters relating to the insolvency.
partnership business that it is not reasonably practicable to carry on the
business in partnership with him;
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
If a partner commits a breach of the partnership agreement, that alone is not the cause of the dissolution is the act of any partner, the person acting for the
a ground. It has to be willful or persistent. partnership must act with knowledge. Kapag by death or insolvency, pwede
notice lang.
5) The business of the partnership can only be carried on at a loss;
Article 1834: After dissolution, a partner can bind the partnership except
as provided in the third paragraph of this article:
Anong remedy mo kapag luging-lugi ka na talaga? Gusto mong magdissolve 1.) By any act appropriate for winding up partnership affairs or completing
tapos niyaya mo yung iba na magdissolve. But the problem with that is transactions unfinished at dissolution; or
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.
2.) By any transaction which would bind the partnership if dissolution had
On the application of the purchaser of a partner’s interest under Article 1813 not taken place, provided the other party to the transaction:
or 1814: We discussed before the assignment of partner’s interest. Ito yung
mga remedies ng purchaser ng assignment. a.) Had extended credit to the partnership prior to dissolution and had no
knowledge or notice of the dissolution; or
1) After the termination of the specified term or particular undertaking;
b.) Though he had not so extended credit, had nevertheless known of the
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 prior to dissolution, and, having no knowledge or notice of
partnership. 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
2) At any time if the partnership was a partnership at will when the interest which the partnership business was regularly carried on.
was assigned or when the charging order was issued.
a.) When the dissolution is not by the act insolvency or death of a partner; 2.) So far unknown and inactive in partnership affairs that the business
or reputation of the partnership could not be said to have been in any degree
due to his connection with it.
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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, When dissolution is caused in contravention of the partnership agreement
having no knowledge or notice of his want of authority, the fact of his want the rights of the partners shall be as follows:
of authority has not been advertised in the manner provided for advertising
the fact of dissolution in the first paragraph, No. 2. 1.) Each partner who has not caused dissolution wrongfully shall have:
a.) All the rights specified in the first paragraph of this article, and
Nothing in this article shall effect the liability under Article 1825 of any
person who after dissolution represents himself or consents to another
b.) The right, as against each partner who has caused the dissolution
representing him as a partner in a partnership engaged in carrying in
wrongfully, to damages for breach of the agreement.
business.
Article 1836: Unless otherwise agreed the partners who have not Ito winding up na. Ang gawin, yung assets, of course ibebenta sya pambayad
wrongfully dissolved the partnership or the legal representative of the last ng liabilities, and whatever remains, pwede sya i-convert into cash. In
surviving partner not insolvent has the right to wind up the partnership accounting, liquidate then bayad ng liabilities. Ano yung maremain, ibebenta
affairs provided however that any partner his legal representative or his para may cash. Yun yung dinidistribute owing to the respective partners.
assignee
(b) The right as against each partner who has caused the dissolution
upon cause shown may obtain winding up by the court. wrongfully to damages for breach of the agreement.
Kung may nakalagay na “This person should wind up the partnership affairs”, Kapag in contravention or in bad faith ka, the other partners can ask damages
pwede. Pero kung wala, those persons who have not wrongfully dissolved the from you.
partnership, or kung patay na lahat, yung legal representative ng last surviving
partner. (2) xx the second paragraph No. 1 (b) of this article and in like manner
indemnify him against all present or future partnership liabilities.
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.
For example may apat na partners, yung isa, in contravention of the
Article 1837: When dissolution is caused in any way, except in agreement. Let’s say si industrial partner engaged in another business. So
contravention of the partnership agreement, each partner, as against his inexclude sya. Kahit papano may right pa rin sya sa partnership. Anong
co-partners and all persons claiming through them in respect of their mangyayari kung icocontinue nung tatlo? So icacalculate kung ano na lang
interests in the partnership, unless otherwise agreed, may have the yung share ni industrial partner at the time na naexpel sya. They can secure
partnership property applied to discharge its liabilities, and the surplus the payment by bond. Mag-aapply sila for bond, i-bond nila yung payment sa
applied to pay in cash the net amount owing to the respective partners. But industrial partner. Ang mangyayari, iaaccount. Assets – liabilities = surplus.
if dissolution is caused by expulsion of a partner, bona fide under the Idivide to how many partners, yun yung share ni industrial partner. Pero diba,
partnership agreement and if the expelled partner is discharged from all in contravention with the agreement, so magdeduct pa ng damages. Hindi kasi
partnership liabilities, either by payment or agreement under the second nila pwede ibenta yung assets kasi icontinue nga nila yung partnership. The
paragraph of Article 1835, he shall receive in cash only the net amount due only way to secure the payment of the interest of that person expelled is to
him from the partnership. 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.
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.
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,
Please take note of this because the order of payment in limited partnership is
b.) Those owing to partners other than for capital and profits, 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
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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
partner creditor. Then the partner as to their capital, meaning yung capital 5.) When any partner wrongfully causes a dissolution and the remaining
muna nila bago yung profits. partners continue the business under the provisions of Article 1837,
second paragraph, No. 2, either alone or with others, and without
(7) The individual property of a deceased partner shall be liable for the
liquidation of partnership affairs;
contributions specified in No. 4.
6.) When a partner is expelled and the remaining partners continue the
Kapag mas marami yung liabilities kaysa sa assets, by the concept of
business either alone or with others without liquidation of the partnership
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, affairs.
he can go after the existing partners.
9.) Where a partner has become insolvent or his estate is insolvent, the Nothing in this article shall be held to modify any right of creditors to set
claims against his separate property shall rank in the following order: aside any assignment on the ground of fraud.
a.) Those owing to separate creditors;
b.) Those owing to partnership creditors; 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
c.) Those owing to partners by way of contribution.
not of itself make the individual property of the deceased partner liable for
any debts contracted by such person or partnership.
Article 1840: In the following cases creditors of the dissolved partnership Article 1841: When any partner retires or dies and the business is
are also creditors of the person of partnership continuing the business: 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
1.) When any new partner is admitted into an existing partnership, or when as between him or his estate and the person or partnership continuing the
any partner retires and assigns (or the representative of the deceased business unless otherwise agreed he or his legal representative as against
partner assigns) his rights in partnership property to two or more of the such person or partnership may have the value of his interest at the date
partners, or to one or more of the partners and one or more third persons, of dissolution ascertained and shall receive as an ordinary creditor an
if the business is continued without liquidation of the partnership affairs; 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
2.) When all but one partner retire and assign (or the representative of a
partnership as against the separate creditors or the representative of the
deceased partner assigns) their rights in partnership property to the
retired or deceased partner shall have priority on any claim arising under
remaining partner, who continues the business without liquidation of
this article as provided by Article 1840 third paragraph.
partnership affairs, either alone or with others;
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
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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
account the time na nag wrap-up, yung final dissolution nila. _____ [Despite Expulsion of any partner from the business bona fide
earnest effort, hindi ko na talaga ma-clear yung last sentence ni Sir. Sorry ] in accordance with such a power conferred by the
agreement between the partners.
[OFF-TOPIC: Common Law Jurisdiction vs. Civil Law jurisdiction. In common
law, they bring more emphasis on case laws, jurisprudence. That’s why mas It is only when there is a power granted in the agreement that the expulsion
revered yung judgment. The jurisprudence becomes part of the law of the land. can be considered not in contravention of the partnership agreement.
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 Mutual withdrawal of all partners.
transaction, si judge magdecide. Anong implication non? Like in contracts in
general, diba tayo may obligation and contracts provisions. Kapag common [Not mentioned by Sir, pero nasa codal: Express will of all the partners who
law ka, walang codification, so the parties can actually freely stipulate have not assigned their interests or suffered them to be charged for their
anything, even if medyo weird na as long as hindi contrary to law. Kung civil separate debts, either before or after the termination of any specified term or
law kasi, may mga limited liability na hindi mo pwedeng sabihin na unlimited, particular undertaking.]
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 In contravention of the partnership agreement.
is borrowed from the Spanish Code. Trivia lang. ] One caused by force majeure or outside the will of
the partners.
Loss of the specific thing promised to be contributed.
JULY 21, 2017
(Transcriber: Shats Tagtagan) 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
Q: Is dissolution limited only to the withdrawal [of the partners]? What’s the partnership, binalik? Would that cause dissolution? Dito (loss of the specific
principle behind the contract of partnership? thing promised to be contributed), hindi nakuha ng partnership ang thing, hindi
A: Delectus Personae 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
Q: Anong nangyayari pag nagdidissolve ang partners? What happens to that
dissolution? So in this case, the SC said NO, kasi in effect, binigay mo naman
principle?
yung promise mo. After the fact na naestablish ang partnership, wala ng
A: There’s a change in the relations of the partners. pakialam dun ang law. The law is specific; it is only with regard to the thing
promised to be contributed.
Q: How about winding up? What is termination?Can there be winding up
without dissolution?
Partnership business becomes unlawful.
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 Say, there’s a joint venture. Two companies to log in the Surigao area. Lopez
partnership. Syempre mamaligya kag assets, so dapat mag ask ka ng becomes the DENR Secretary, tapos nag issue sya ng regulation na bawal
dissolution. na. So it becomes unlawful. Effectively, your partnership is dissolved.
1) Dissolution without court decree 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
Without violation of partnership agreement. to declare the partnership dissolved? YES, kasi nakalagay ‘in ANY judicial
Termination of the definite term or particular proceeding’. As long as there is a judicial declaration na insane ang partner.
undertaking specified in the agreement. But that does not automatically mean na dissolve na ang partnership. We have
to undergo a court decree.
Paano kung mag preterminate sya, hindi nya tinapos yung original
undertaking? That will be in contravention of the partnership agreement. A partner becomes in any other way incapable of
performing his part of the partnership contract.
Express will of any partner, who must act in good faith, A partner has been guilty of such conduct as tends to
when no definite term or particular undertaking is affect prejudicially the carrying on of the business.
specified.
A partner willfully or persistently commits a breach of
Remember, this is only for partnership at will. How about if it is exercised in the partnership agreement, or otherwise so conducts
bad faith? Even if it is a partnership at will pero inexercise mo sya in bad faith, himself in matters relating to the partnership business
that can be construed as in contravention of the partnership agreement. 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.
TOCAO VS CA ISSUE:
(Case Digest: Jordan Berguia)
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
2.3 By the person also not authorized, but this time, the counter-party had NOT
Therefore, the parties formed a partnership. extended credit, pero alam nya na existing ang partnership as such, and there
was NO PUBLICATION. PUBLICATION is very important.
What was the cause of dissolution? In the list where was it? Was he in bad
faith? Kung magdidissolve ka and wala namang authority yung tao, ipublish mo na
lang na “This person is the one authorized to liquidate.”
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 What if I’m a partner tapos I have no authority to liquidate, then I went to the
faith. Sa previous case wala. The one who caused bad faith is liable for person na may utang sa partnership. Sabi ko “I’m the person authorized to
damages. 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.
Not only can the partners cause the dissolution, but also the __ of a partner’s But because it was not published, partnership is BOUND. If it is published, and
interest. Remember that we can have the interest assigned. Kung ikaw ang the partner has no authority, the one really authorized to liquidate, pwede pa
purchaser ng interest na yun, ito yung cause mo. You have to wait for the rin nya icollect sa counter-party the P100.
termination of the specified or particular undertaking, or any time if there is a
partnership at will. 2.4 Any transaction which would bind the partnership, meaning ordinary
course of business. Not necessarily yung magcollect ng receivable para
EFFECT OF DISSOLUTION AS TO PARTNER’S AUTHORITY (ART 1832) magliquidate. Ordinary, like purchase order, etc. Dissolved na ito ha pero
A partner acts as an agent of the partnership and of the partners as well. conduct pa rin ng ordinary course of business. The counter-party has
extended credit before dissolution and wala syang knowledge or notice of
GENERAL RULE: Dissolution terminates all authority of any partner to act for dissolution.
the partnership.
2.5 Any transaction which will bind the partnership (so ordinary course of
EXCEPTION: business) has not extended credit but has knowledge of the partnership
[maybe Sir means dissolution?] before, and no publication at the place of
(1) So far as necessary to wind up the partnership affairs are completed; business.
(2) To complete transactions begun but not then finished. We talked about the person who has authority to wind up. WHO ARE THOSE
AUTHORIZED TO WIND UP? Under ART 1836:
EFFECTS OF TRANSACTIONS ENTERED INTO BY A PARTNER AFTER
DISSOLUTION 1. By agreement, so you can agree as to person who can liquidate
the partnership.
[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 2. Kung walang agreement, those who had not wrongfully
don’t remember na sinulat nya sa board.] dissolved the partnership.
(1) If the reason of the dissolution is the act of a partner, each partner is liable 3. The legal representative of the last surviving partner not
to his co-partners for his share on the liability created by the partner who acts insolvent.
for the partnership, EXCEPT (meaning no sharing of liability),
This presupposes na nangamatay na ang mga partners. Isa na lang nabilin.
1.1 If the partner acting had knowledge of the cause of the dissolution.
4. Any partner or his legal representative, upon caused shown may
1.2 If it is insolvency or death of a partner and the partner acting has obtain winding up from the court.
knowledge or notice.
Let’s say ang sa agreement, kaduda duda ang nakalagay. Si person A, wala
Mere notice [is enough]. Yung first, it shows bad faith. Ikaw yung nag act eh kay salig sa iyahang skills. You can ask the court to assign someone else.
alam mo naman na magdissolve na kayo. May knowledge ka, so it shows bad
faith. You cannot go after the other partners. RIGHTS OF A PARTNER IN DISSOLUTION
(2) If it is not the act, insolvency or death of a partner (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 For the partner’s separate assets, priority ang kanyang separate creditors.
partners. Again, the concept of unlimited liability. The partnership creditors can go after
the separate properties of the partners.
Please note that the law provides you to be PAID IN CASH. It does not state
that you should be paid in property. Paano magkakaroon ng “by way of contribution”?
If dissolution is caused in contravention with the partnership agreement: 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
(a) If the business is not continued under the provisions kinontribute ng isa, as to third person, pare pareho kayo ng liability. Kapag si
of the second paragraph, No. 2, all the rights of a partner under the 10% binayaran nya ang 20%. So 110 / 5. So 20 dapat [22 pag icompute].Si
first paragraph, subject to liability for damages in the second third person, 20-20 ang icollect hanggang sa ma 100. Dapat ang contribution
paragraph, No. 1(b), of this article (meaning ART 1837). 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”.
(b) If the business is continued under the second Because he contributed more than he should have.
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, Example: Assumption: Profits and losses. Dalawang partners, Holmes and
ascertained and paid to him in cash, or the payment secured by a Case. 70-30 ang ano [sharing siguro ginamean ni Sir?]. Let’s say, at the time
bond approved by the court, and to be released from all existing of dissolution, ito yung assets nila. You have cash, liabilities, equity, loan. Pag
liabilities of the partnership; but in ascertaining the value of the paano sya dinistribute, sa third person, unahin muna si 40. Partnership
partner’s interest the value of the goodwill of the business shall not creditor. Next mo yung partners but not in the form of their capital or profit.
be considered. May loan sya kay Holmes, so you have 10. The distribution will be like this:
Where a partner become insolvent or his estate is insolvent, the claims against
his separate property shall rank in the following order:
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.
Now, we have this species of partnership called Limited Partnership (LP). You
already know the different organizations: sole proprietorship, partnership, and
CHARACTERISTICS of Limited Partnership
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 1. It is formed by compliance with statutory requirements (Art.
characteristics of a corporation but it is still considered as a partnership. That 1844.);
is why specific ang provisions.
We already know what are the other two (2) (which have formal
In the old Civil Code, it is governed by the Spanish Code of Commerce. We
requirements): one is if the capital is Php3K or more, and the other
have several provisions for LP: Articles 1843 to 1867.
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
History of Limited Partnership property, there are 2 cases. Case 1: if walang third person, okay
lang [not to comply]; Case 2: must comply with statutory
• The Qirad and Mudaraba institutions in Islamic law and economic requirements. This (Limited Partnership) is the third one [which
jurisprudence were similar to the modern limited partnership. complies with statutory requirements]. In an LP, there must be
compliance with statutory requirements.
• In medieval Italy, a business organization known as
the commenda appeared in the 10th century that was generally 2. One or more general partners control the business and are
used for financing maritime trade. In a commenda, the traveling personally liable to the creditors (Article 1848, 1850.);
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 3. One or more limited partners contribute to the capital and
the contract. share in the profits but do not participate in the management
of the business and are not personally liable for partnership
So basically this is equivalent to what we have as we have discussed in the obligations beyond the amount of their capital contributions.
history of partnership wherein yung mga merchants; they have the capital and (Arts. 1845, 1848, 1856.);
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 Q: So bakit hindi sila liable beyond their capital contribution?
always unlimited yung liability. So as it evolves through time, nagkakaroon sila Because essentially, they are not allowed to manage the
ng partnership with the locals; taga-doon talaga sa place. Yung local doon has business. They are not allowed to actively participate in the
a limited liability. So essentially this partnership is akin to a LP wherein one business.
has limited liability and the other has unlimited liability.
Remember the discussion on why a general partner has unlimited
• In contrast, his investment partners on land had unlimited liability
liability. Kung sole prop ka, unlimited yung liability mo kasi you
and were exposed to risk. As an institution, the commenda is very
have control over everything. Kung partnership ka, it’s just an
similar to the qirad but whether the qirad transformed into the aggrupation of sole proprietorship; you have active participation in
commenda, or the two institutions evolved independently cannot the management of the business. So essentially, dapat, ang
be stated with certainty (Hillman, Robert H.; Limited Liability in liability mo rin unlimited kasi ikaw man ang magbuot sa everything.
50
BUSINESS ORGANIZATION I
(By: 3-Manresa, S.Y. 2017-2018)
From the Lectures of: Atty. Raymund Christian S. Ong-Abrantes, CPA
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.)
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; the requirements set forth in Article 1844 (last paragraph);
otherwise, the liability of the limited partners becomes the same as
(c) The location of the principal place of business; that of general partners.
(d) The name and place of residence of each member, In a corporation, there should be complete compliance. Eto (LP),
general and limited partners being respectively substantial. The problem here is: when do we say there is
designated; substantial compliance? It’s very vague if you look at the
provisions.
(e) The term for which the partnership is to exist;
Substantial compliance in good faith sufficient
(f) The amount of cash and a description of and the agreed
value of the other property contributed by each limited Q: If we say 6 out of 10 requirements was complied with, is
partner; there already substantial compliance? How do you know if it’s
substantial? How do you know when it’s not? In Jo Chung
(g) The additional contributions, if any, to be made by each
Cang vs Pacific, 45 Phil 142 (however, this was decided under
limited partner and the times at which or events on the
the Spanish Code of Commerce. Wala pang case decided under
happening of which they shall be made;
the current Civil Code) the SC said that:
(h) The time, if agreed upon, when the contribution of each
There is substantial compliance if the certificate already
limited partner is to be returned;
contains who is the limited partner and who is the
(i) The share of the profits or the other compensation by general partner or who are the general partners. So for
way of income which each limited partner shall receive by as long as nasabi mo na doon sa certificate mo na ito si
reason of his contribution; limited partner, ito ang kinontribute niya, at ito si general
partner ito and kinontribute niya, that will constitute as
(j) The right, if given, of a limited partner to substitute an substantial compliance.
assignee as contributor in his place, and the terms and
conditions of the substitution; 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,
(k) The right, if given, of the partners to admit additional you cannot go to SEC and claim, “Substantial compliance na man
limited partners; 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,
(l) The right, if given, of one or more of the limited partners substantial compliance and good faith will only be proper
to priority over other limited partners, as to contributions kapag naay nakalusot na dili kumpleto tapos nagkaroon ug
or as to compensation by way of income, and the nature of kaso.
such priority;
Q: What if there is no substantial compliance? The firm
(m) The right, if given, of the remaining general partner or becomes a general partnership only as to its relation with third
partners to continue the business on the death, retirement, persons; that the firm, in form is still a limited partnership; subject
civil interdiction, insanity or insolvency of a general to all the rules applicable to such partnership. Thus, a limited
partner; and partner treated as a general partner as far as third persons are
(n) The right, if given, of a limited partner to demand and concerned is entitled to reimbursement from the general partner or
receive property other than cash in return for his partners for whatever obligations he might have paid to partnership
contribution. creditors beyond his capital contribution.
(2) File for record the certificate in the Office of the Securities and As within the partners, whatever is their contractual relation is
Exchange Commission. 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.
A limited partnership is formed if there has been substantial
compliance in good faith with the foregoing requirements. 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
We say that it is a form of a contract so there are formal requirements
the notice of its formation.
1. The persons must sign the certificate or articles of the limited
Art. 1845. The contributions of a limited partner may be cash or
partnership which states the name of the partnership,
property, but not services.
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 A limited partner is not allowed to contribute services. He can only contribute
the spectrum of partnership and corporation, nandito siya banda [I money or property; otherwise, he shall be considered an industrial partner and
recall sir making a gesture indicating that LP is nearer a general partner, in which case, he shall not be exempted from personal
corporation]. It has some of the features of a corporation pero liability.
partnership pa rin siya. So like a corporation, you are required a
Art. 1846. The surname of a limited partner shall not appear in the
certificate containing these information.
partnership name unless:
2. File the certificate for record with the Office of Securities and (1) It is also the surname of a general partner, or
Exchange Commission.
However, one particular thing about LP, compared to a corporation, (2) Prior to the time when the limited partner became such, the
is that yung substantial compliance rule. A limited partnership is business has been carried on under a name in which his surname
formed if there has been substantial compliance in good faith with appeared.
52
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 partner.” Sabihin mo, “No. The mere giving of advice does not constitute
contrary to the provisions of the first paragraph is liable as a general control over the business.” So pwedeng mag-advice si limited partner.
partner to partnership creditors who extend credit to the partnership
without actual knowledge that he is not a general partner. However, the limited partner takes part in the management of the business
and is liable generally for the firm’s obligations where:
Art. 1847. If the certificate contains a false statement, one who suffers Art. 1849. After the formation of a lifted partnership, additional limited
loss by reliance on such statement may hold liable any party to the partners may be admitted upon filing an amendment to the original
certificate who knew the statement to be false: certificate in accordance with the requirements of Article 1865.
(2) Subsequently, but within a sufficient time before the statement Even after the formation of an LP, you can actually admit other partners. But
was relied upon to enable him to cancel or amend the certificate, or you must amend the certificate filed during the formation [of the partnership].
to file a petition for its cancellation or amendment as provided in Rights, powers, and liabilities of a general partner
Article 1865.
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
Under this provision, any partner to the certificate containing a false statement partnership without limited partners.
is liable provided the following requisites are present:
• He knew the statement to be false at the time he signed the However, without the written consent or ratification of the specific act
certificate, or subsequently, but having sufficient time to cancel or by all the limited partners, a general partner or all of the general
amend it or file a petition for its cancellation or amendment, he partners have no authority to:
failed to do so;
(1) Do any act in contravention of the certificate;
• The person seeking to enforce liability has relied upon the false
(2) Do any act which would make it impossible to carry on the
statement in transacting business with the partnership; and
ordinary business of the partnership;
• The person suffered loss as a result of reliance upon such false (3) Confess a judgment against the partnership;
statement.
(4) Possess partnership property, or assign their rights in specific
In other words, kapag meron itong requisites, liable ang any partner for partnership property, for other than a partnership purpose;
damages.
(5) Admit a person as a general partner;
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 (6) Admit a person as a limited partner, unless the right so to do is
a limited partner, he takes part in the control of the business. given in the certificate;
However, as we will learn later on, diba kapag nag-admit ka ng partner, you Conditions for exemption from liability as general partner:
will have to amend the certificate. And when you amend the certificate, you
need the consent of the other partners. So, ano ba talaga? 1.) On ascertaining the mistake, he promptly renounces his interest in the
• Kapag nakalagay sa certificate yung right, you can admit a person profits of the business or other compensation by way of income;
as a limited partner without the consent of the other partners 2.) His surname does not appear in the partnership name; and
• Pero kapag nag-amend ka nung certificate, eh kelangan mo naman
ng consent ng mga partners. So even if he renounces the profits or other compensation by way of income,
What this is saying is that the power to choose who the limited partners are to if nakalagay yung pangalan niya liable pa rin siya as a general partner.
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 3.) He does not participate in the management of the business.
partner, they cannot oppose because that right is admitted in the certificate. 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
Rights of a limited partner (eto lang yun) business he is still liable as a general partner.
Kung general partner ka and at the same time a limited partner, nagiging blurry
(3) Have dissolution and winding up by decree of court. 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.
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 According to De Leon since general partner ka: so kung yung creditors are
contribution as provided in Articles 1856 and 1857. 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.
Please take note that you can only have dissolution and winding up by decree But according to Villanueva: the only right mo as a limited partner is the right
of court. Hindi siya gaya ng general partnership. to demand for the return of your contribution.
The compensation by way of income is not the compensation because of the So medyo hindi sila pareho ng opinion. But I would go with the opinion of De
services rendered kasi nga, a limited partner is not allowed to contribute Leon na ang general partner niya is with respect to 3rd persons. And since
services. So eto, it’s just by way of income. limited partner din siya, with respect to his contribution, pwede rin siyang
magdemand doon sa general partner provided na meron pa talagang
Status of partner when there is failure to create an LP
bayaran si general partner. Kasi remember, he [limited partner] is also liable
A limited partnership is formed when there is substantial compliance in good up to the point of his original contribution. So kung ma-exhaust niya yun, wala
faith with the requirements of the law. If not complied with, the limited partner na. Pero kung ma-negative gani, meaning nagshell out na siya ng personal
will have the liability of a general partner as to 3rd persons. Article 1852 property niya, pwede na siyang magdemand doon kay general partner.
provides for an exemption.
Loan and other business transactions with limited partnership vis-a-viz
Art. 1852. Without prejudice to the provisions of Article 1848, a limited partner
person who has contributed to the capital of a business conducted
Art. 1854. A limited partner also may loan money to and transact other
by a person or partnership erroneously believing that he has become
business with the partnership, and, unless he is also a general
a limited partner in a limited partnership, is not, by reason of his
partner, receive on account of resulting claims against the
exercise of the rights of a limited partner, a general partner with the
partnership, with general creditors, a pro rata share of the assets. No
person or in the partnership carrying on the business, or bound by
limited partner shall in respect to any such claim:
the obligations of such person or partnership, provided that on
ascertaining the mistake he promptly renounces his interest in the (1) Receive or hold as collateral security and partnership property, or
profits of the business, or other compensation by way of income.
(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
So this is an exception to the general rule that if you do not comply with
persons not claiming as general or limited partners.
substantial compliance and good faith the limited partner will have the liability
of a general partner as to 3rd persons. The receiving of collateral security, or payment, conveyance, or
release in violation of the foregoing provisions is a fraud on the
Ex. So what if nagfile ng certificate. Eh akala ni limited partner nagcomply na
creditors of the partnership.
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
54
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 (1) All liabilities of the partnership, except liabilities to general
transact other business with it. partners and to limited partners on account of their contributions,
have been paid or there remains property of the partnership sufficient
Allowable transactions: to pay them;
1.) Granting loans to the partnership; (2) The consent of all members is had, unless the return of the
2.) Transacting other business with it; contribution may be rightfully demanded under the provisions of the
second paragraph; and
3.) Receiving a pro rata share of the partnership
assets with general
(3) The certificate is cancelled or so amended as to set forth the
creditors if he is not also a
general partner.
withdrawal or reduction.
Prohibited transactions: Subject to the provisions of the first paragraph, a limited partner may
1.) Receiving or holding as collateral security any partnership property; or rightfully demand the return of his contribution:
2.) Receiving any payment, conveyance, or release from liability if it will (1) On the dissolution of a partnership; or
prejudice the right of 3rd persons. (2) When the date specified in the certificate for its return has arrived,
Any violation of the prohibition will give rise to the presumption that it has been or
made to defraud partnership creditors. (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.
Preferred limited partners
In the absence of any statement in the certificate to the contrary or
Art. 1855. Where there are several limited partners the members may the consent of all members, a limited partner, irrespective of the
agree that one or more of the limited partners shall have a priority nature of his contribution, has only the right to demand and receive
over other limited partners as to the return of their contributions, as cash in return for his contribution.
to their compensation by way of income, or as to any other matter. If
A limited partner may have the partnership dissolved and its affairs
such an agreement is made it shall be stated in the certificate, and in
wound up when:
the absence of such a statement all the limited partners shall stand
upon equal footing. (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
As to the limited partners themselves, they can also decide kung sino ang
partnership property is insufficient for their payment as required by
preferred.
the first paragraph, No. 1, and the limited partner would otherwise be
By an agreement of all the members (general and limited) stated in the entitled to the return of his contribution.
certificate, priority may be given to some limited partners over other
limited partners as to the:
One of the peculiarities of a limited partner is that they can actually demand
1.) Return of their contributions;
the return of their contributions. So kung ayaw na niyang mag-invest, pwede
2.) Their compensation by way of income; or na siyang mag-pullout. So here are the
3.) Any other matter. Requisites for return of contribution of limited partner
In the absence of such statement in the certificate, even if there is an 1.) All liabilities of the partnership have been paid or if they have not
agreement, all the limited partners shall stand on equal footing in respect to yet been paid, the assets of the partnership are sufficient to pay such liabilities;
these matters.
2.) The consent of all members (general and limited) has been
(Like in a corporation, merong mga preferred stocks, meron pa talagang mas obtained except when the return may be rightfully demanded; and
preferred)
3.) The certificate is cancelled or so amended as to set forth the
Compensation of limited partner withdrawal or reduction of the contribution.
Art. 1856. A limited partner may receive from the partnership the When return a matter of right (don’t need the consent of all members)
share of the profits or the compensation by way of income stipulated
• On the dissolution of the partnership; or
for in the certificate; provided that after such payment is made,
whether from property of the partnership or that of a general partner, • Upon arrival of the date specified in the certificate for the return; or
the partnership assets are in excess of all liabilities of the partnership
(even if hindi naman nakalagay doon sa certificate)
except liabilities to limited partners on account of their contributions
and to general partners.
• 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.
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, Right of limited partner to cash in return for contribution
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 General rule: Under the 3rd paragraph, even if a limited partner has
to limited partners on account of their contributions and to general partners. contributed property, he has only the right to demand and receive cash for his
contribution.
Art. 1857. A limited partner shall not receive from a general partner or
out of partnership property any part of his contributions until: 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 4.) Takes part in control of business;
2.) Where all the partners (general and limited) consent to the return 5.) Receives partnership property as collateral
security, payment,
other than in the form of cash. conveyance, or release in
fraud of partnership creditors;
Bakit generally dapat cash lang siya? Bakit hindi pwede property? Kasi it is 6.) Failure to substantially comply with legal
requirements of
more convenient. formation of limited partnership.
Remember ongoing pa ang business tapos gusto ni limited partner na mag- To separate creditors – Creditor of limited partner may also apply for a
alis na sa business. What if yung property is where the business stands? So “charging order” subjecting the interest in the partnership of the debtor partner
anong mangyayari? For convenience purposes, cash na lang. for the payment of his obligation.
When limited partner may have the partnership dissolved Liability for unpaid contribution
1.) When his demand for the return of his contribution is denied • Limited partner liable not only for the difference between the
although he has a right to such return; or
amount of his actual contributions and that stated in the certificate
Please refer to enumeration above for when right to such return is present. as having been made but also for any unpaid contribution he
agreed to make at a future time.
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 Liability as trustee
partnership property insufficient for their payment. • Limited partner considered as trustee for the partnership for:
The limited partner must first ask the other partners to have the partnership 1.) Specific property stated in the certificate as contributed by him but
dissolved; if they refuse, then he can seek the dissolution of the partnership which he had not contributed;
by judicial decree.
2.) Specific property of the partnership which had been wrongfully
So please, please take note that the limited partner has no right to dissolve returned to him;
the partnership in any other method but by judicial decree. He is not a
general partner who can dissolve the partnership at will. 3.) Money wrongfully paid or conveyed to him on account of his
contribution; and
Art. 1858. A limited partner is liable to the partnership:
4.) Other property wrongfully paid or conveyed to him on account of
(1) For the difference between his contribution as actually made and his contribution.
that stated in the certificate as having been made; and
Requisites for waiver or compromise of liabilities
(2) For any unpaid contribution which he agreed in the certificate to 1.) Waiver or compromise is made with the consent of all the partners;
make in the future at the time and on the conditions stated in the and
certificate.
2.) The waiver or compromise does not prejudice partnership creditors
A limited partner holds as trustee for the partnership: who extended credit or whose claims arose before the cancellation or
amendment of the certificate.
(1) Specific property stated in the certificate as contributed by him,
but which was not contributed or which has been wrongfully Liability for return of contribution lawfully received
returned, and 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
(2) Money or other property wrongfully paid or conveyed to him on
arose before such return. His liability, of course, cannot exceed the sum
account of his contribution.
received by him with interest.
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 Art. 1859. A limited partner's interest is assignable.
waiver or compromise shall not affect the right of a creditor of a A substituted limited partner is a person admitted to all the rights of
partnership who extended credit or whose claim arose after the filing a limited partner who has died or has assigned his interest in a
and before a cancellation or amendment of the certificate, to enforce partnership.
such liabilities.
An assignee, who does not become a substituted limited partner, has
When a contributor has rightfully received the return in whole or in no right to require any information or account of the partnership
part of the capital of his contribution, he is nevertheless liable to the transactions or to inspect the partnership books; he is only entitled
partnership for any sum, not in excess of such return with interest, to receive the share of the profits or other compensation by way of
necessary to discharge its liabilities to all creditors who extended income, or the return of his contribution, to which his assignor would
credit or whose claims arose before such return. otherwise be entitled.
The substitution of the assignee as a limited partner does not release Art. 1861. On the death of a limited partner his executor or
the assignor from liability to the partnership under Articles 1847 and administrator shall have all the rights of a limited partner for the
1848. 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
Assignment of limited partner’s interest liabilities as a limited partner.
Does not necessarily dissolve the partnership. No limited partner, however, Right of executor on death of a limited partner
can withdraw his contribution until all liabilities to creditors are paid.
On the death of a limited partner his executor or administrator shall have all
Rights of assignee of limited partner 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
Assignee is only entitled to receive the share of the profits or other partner.
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 The estate of a deceased limited partner shall liable for all his liabilities as a
information or account of the partnership transactions or to inspect partnership limited partner.
books.
Art. 1862. On due application to a court of competent jurisdiction by
The assignee acquires all the rights of the limited partner only when he any creditor of a limited partner, the court may charge the interest of
becomes a substituted limited partner. the indebted limited partner with payment of the unsatisfied amount
of such claim, and may appoint a receiver, and make all other orders,
So pag-inassign ni limited partner ang kanyang interest, the assignee acquires directions and inquiries which the circumstances of the case may
all the rights of the limited partner when he becomes a substituted limited require.
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. The interest may be redeemed with the separate property of any
general partner, but may not be redeemed with partnership property.
Kelangan i-amend ang certificate so that the assignee becomes a substituted
limited partner, otherwise, mere assignee lang siya. The remedies conferred by the first paragraph shall not be deemed
exclusive of others which may exist.
When assignee may become substituted limited partner
Nothing in this Chapter shall be held to deprive a limited partner of
Requisites: his statutory exemption.
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; Rights of creditors of limited partner
2.) The certificate must be amended; • On due application to a court of competent jurisdiction by any
creditor of a limited partner, the court:
3.) The certificate as amended must be registered in
the SEC.
• may charge the interest of the indebted limited partner
Liability of substituted partner and assignor
with payment of the unsatisfied amount of such claim,
Substituted limited partner is liable for all the liabilities of his assignor except and;
only those of which he was ignorant at the time he became a limited partner
and which could not be ascertained from the certificate. • may appoint a receiver, and
Art. 1860. The retirement, death, insolvency, insanity or civil • make all other orders, directions, and inquiries which
interdiction of a general partner dissolves the partnership, unless the the circumstances of the case may require.
business is continued by the remaining general partners:
• The interest may be redeemed with the separate property of any
(1) Under a right so to do stated in the certificate, or
general partner, but may not be redeemed with partnership
(2) With the consent of all members. property.
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; (6) There is a change in the character of the business of the
partnership;
(5) Those to general partners in respect to profits;
Dissolution of a limited partnership (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
The partnership liabilities shall be settled in the following order:
3.) Those due to limited partners for the return of the capital
contributed; Requirements for amendment and cancellation of certificate
4.) Those due to general partners other than that for capital and profits; Art. 1865. The writing to amend a certificate shall:
5.) Those due to general partners in respect to profits; and (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
6.) Those due to general partners for the return of the capital make; and
contributed.
(2) Be signed and sworn to by all members, and an amendment
Partnership creditors are entitled to first distribution, followed by limited substituting a limited partner or adding a limited or general partner
partners who take priority over general partners. 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
Note that in a general partnership, the claims of the general partners in respect be signed by the assigning limited partner.
of capital enjoy preference over those in respect of profits.
A certificate shall be amended when: 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
(1) There is a change in the name of the partnership or in the amount of the Securities and Exchange Commission where the certificate is
or character of the contribution of any limited partner; 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.
(2) A person is substituted as a limited partner;
(4) A person is admitted as a general partner; (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
(5) A general partner retires, dies, becomes insolvent or insane, or is provisions of the fourth paragraph;
sentenced to civil interdiction and the business is continued under
Article 1860; (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.
58
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 So there are several laws. Ang joint venture kasi wala siyang specific na
party to proceedings by or against a partnership, except where the provision, ang tendency is mararami siyang naco-cover na law along the way.
object is to enforce a limited partner's right against or liability to the We are going to discuss that.
partnership.
For purposes of your exam, I will only limit the questions to these slides. So I
will not ask anything outside of these slides.
• When it’s a proceeding to enforce his liability to the partnership; Aurbach vs Sanitary Wares Manufacturing Corporation
This is viewed under Philippine law, ha. Under Philippine Law ha,
Note: For August 22, Our Professor discussed the answers for the 1st Exam. since this is considered partnership, ito yung consequences.
On that day, there was no discussion on any topic for the 2nd Exam.
2.) Each of the co-venturers would be liable with their private
August 22, 2017 property to the creditors of the joint venture beyond their
contributions to the joint venture
Joint Venture in the Philippine Setting
This is consistent with the doctrine of unlimited liability for the
Again, joint ventures, according to our laws, is a species of partnership partners in a 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. 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, as distinguished from a partnership is only for a particular joint venture unless all the other co-venturers consent
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 This is consistent with the principle of our partnership that an
want to practice business law, this will come out handy. assignee does not become a partner but has a set of rights.
Why? Since this is business organization, add on to sole proprietorship,
4.) Generally, the co-venturers acting on behalf of the joint
partnership which are two – general and limited, and you have corporation. venture are agents thereof as to bind the joint venture; and
Along those spectrum (sole proprietorship, partnership and corporation), may
mga nuances. Of course, business evolve. Of course, business people are This is consistent with the doctrine of delectus personae—mutual
investing and trying to modify their rights. Along the lines, nagkakaroon ng agents.
nuances. One of the nuances in this spectrum is the establishment of joint
ventures. 5.) Death, retirement, insolvency, civil interdiction or dissolution
of a co-venturer dissolves the joint venture.
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
So these are the effects or consequences of joint venture in the Philippine
our jurisdiction, we copy it from the American Law which in effect considers
setting. It is almost similar to partnership.
joint venture as a species of partnership.
59
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) Medyo abstract? Okay lang. Again, I will not ask you complicated questions
Tuason v. Bolaños with regards to this. Basic lang talaga ang tanong ko. It is just the application.
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
“…a corporation has no power to enter into a partnership…” (a doctrine in
Anglo-American jurisprudence recognized in Philippine jurisdiction) 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.
Nevertheless, Tuason recognized that a corporation may validly enter into a
IV. Contractual Joint Venture
joint venture agreement, "where the nature of that venture is in line with the
business authorized by its charter." The SEC has ruled that two or more corporations may enter into a joint venture
So, joint venture as a mode for corporations to enter into a partnership through a contract or agreement (contractual joint venture) if the nature of the
becomes a distinguishing business organization. So it becomes separate from venture is authorized by their charters, which contract need not be registered
partnership. Nagkakaroon siya ng sarili niyang buhay. Kasi nga, in joint with the SEC; provided, however that the joint venture will not result in the
ventures, corporations can enter into partnerships. formation of a new partnership or corporation.
LEGAL FORMS IN JV STRUCTURE 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.”
How could you structure your JV? So you have 4 general structure of joint Contractual Joint Venture lang yan pagwalang separate juridical personality.
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 What if gagawa ka ng joint venture corporation, ibig sabihin, there will be
saan ang gusto ng mga joint venturers. effectively 2 agreements (Article of Incorporation at yung Joint Venture). So
ano ang mangyayari kung may conflict?
I. Joint Venture Corporation
The SEC has ruled that generally, a joint venture agreement of two In case of conflicts between the provisions of the joint venture
corporations need not be registered with the SEC, provided it will not result in agreement and the charter (meaning the Articles of
the formation of a new partnership or corporation. However, should there be Incorporation) of the joint venture corporation, the provisions
an intention to acquire a separate Tax Identification Number (TIN) from the of the latter shall prevail (ibig sabihin yung provisions ng Articles
Bureau of Internal Revenue for the business venture, the same requires of Incorporation ang magprevail kasi yun ang nagbibigay ng
registration with the SEC in order to have a separate legal personality to obtain personality);
a separate TIN Equity Joint Venture.
However since joint venture is also a contract, yung mga binding doon na
Meaning, joint venture tayo pero gawin natin siyang through a contracts sa kanila, it is binding as to the parties, but as to the government,
corporation. So we will establish a corporation, we have all the ang mag-govern is the Articles of Incorporation.
requirements of a corporation, but joint venture siya. So ano ang
mangyayari? Tendency niyan, since a corporation is a contract It is an abstract concept but I took the liberty to discuss this with you kasi hindi
between the state and that entity giving it juridical personality, in ito madidiscuss sa inyo ever. I don’t think madidiscuss pa ito when you come
effect, in a joint venture corporation, they result into 2 agreements: to court…
1.) Article of Incorporation –charter of the corporation; its contract with WORDS OF WISDOM FROM SIR: Sometimes, failure teaches you how bad
the government 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.
2.) Joint Venture – the contract of the venturers
In case there are provisions or clauses in the joint venture
agreement not found in the charter of the joint venture
So ito, it is a joint venture, established in a corporation. There is a corporation, corporation, such provisions and clauses remain binding
the vehicle that gives it juridical personality, but the agreement is in the form contracts among the joint venture parties signatory to the
of joint venture. Meaning, may specific undertaking yung corporation na yun. agreement, but do not bind the joint venture corporation or
Meaning, yung corporation na yun is not the general corporation na may other parties not signatories thereto.
business continuity. Yung corporation nay un is specific lang talaga for a
particular undertaking. Nakuha niyo? FACTORS
II. Equity Joint Venture What determines individuals to create a structure? Kasi governed pa rin tayo
Equity joint ventures are also available in Philippine setting which may cover ng our own Philippine laws. How could venturers say: Let’s do a joint venture
the formation of a new joint venture company, with each co-venturer being corporation or let’s do equity venture etc. How do they decide? These are the
allocated proportionate shareholdings in the outstanding capital stock of the factors:
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, Limited Liability
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. 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,
In equity joint ventures, the rights and obligations of the parties among papasok ka ba sa joint venture na partnership ang form? Anong joint venture
themselves is covered not only in a separate joint venture agreement, but also in a partnership, anong factor ng partnership with regard to liability? Diba
implemented by certain provisions of the articles of incorporation and by-laws unlimited? So kung ayaw mo ng liability na unlimited, so bakit ako papasok sa
of the joint venture corporation. 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
So ito, pwede may existing corporation tapos may gusto makipagjoint venture
venturers decide and to what vehicle they want to go into when entering into
sa kanya, ibenta mo na lang ang shares mo sa kanya. There is no
a joint venture.
establishment of a new partnership kundi benta lang ng shares. Benta lang ng
ownership. Tax Consequences
60
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? The intrinsic validity of a joint venture agreement, as in all contracts in general
So yun. Kung gagawa ba ako ng either joint venture na partnership or joint executed in the Philippines, including consideration or cause thereof, the
venture na corporation, ano ang magiging tax ko? You will be taxed as interpretation or constructions of its provisions, and the nature and amount of
corporation. So para ma-avoid ko yan, I would rather do a contractual joint damages for breach thereof, are governed by the law voluntarily agreed upon
venture, di ba, na walang personality separate of its own. by the parties. The parties to a joint venture arrangement can therefore validly
stipulate which laws shall govern their arrangement.
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 However, any stipulation in the joint venture agreement cannot operate to oust
keep in one eyeglasses. You have it in the perspective of business for you to Philippine courts of their jurisdiction under the law, although the local courts
understand. This is different from your Civil Law concept and Constitutional would still apply the laws chosen by the parties to the agreement
Law concept.
It is governed by that voluntarily agreed upon by the parties. So freedom to
Limitation of Foreign Equity contract, whether or not kung ano ang agreement nila.
The Philippine Constitution prohibits any law impairing the obligation of It will again depend on the agreement of the parties based on the freedom to
contracts. The established rule is that contracting parties may establish such contract.
stipulations, clauses, terms and conditions as they may deem convenient,
provided they are not contrary to law, morals, good customs, public order, or August 25, 2017 (Part 1)
(Transcriber: Isaihlene Abad)
public policy Sec. 10, Art. III.
You have the right to contract for as long as it is not contrary to law, morals, We already started discussing Joint Venture (JV).
good customs, public order or public policy.
Again, JV has no particular provisions of law in the Philippines. What governs
Formal or Extrinsic Validity of Agreements 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,
Philippine laws recognize the principle that the formal or extrinsic validity of basically for corporations to enter into a partnership for a particular
undertaking, that is why you see, yang mga condominium usually JV lang yan,
contracts, including a joint venture arrangement, shall be governed by the laws
particular undertaking lang. They do not intend to be in partnership with one
of the country in which they are executed. Therefore, joint venture
another doing several condominium projects. Usually, isang condo lang.
arrangements, which are essentially partnership agreements, are valid in
whatever form executed. Art. 17, Civil Code. 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
Yung extrinsic? What will govern it? Of course, where you executed the big big big projects. When they have to pool their resources, kasi kung isa
contract. lang, too much liability, too much investment, too much risks.
Example: Kunwari ako si joint venture, gusto ko ng subdivision development
Meron din namang iba, they enter into JV kasi they don’t have expertise on
from a co-venturer from Singapore, ako Filipino. Gawa kami ng contractual that particular field, they just want to invest. Hindi sila nagpapartnership, kasi
joint venture and i-eexecute namin ito sa Singapore. As to form, what will yan may essence of business continuity, that after a project, the partnership
govern? The law that will govern the form will be the law wherein that contract still goes on.
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 In some jurisdiction, there are some particular JV Law, but under the
governed by the Singapore law. Ito yung sinasabi nito. Philippines, it is subsumed under our provisions on Partnership.
Capacity of Contract Parties No statutory provision directly governs joint ventures. And the Prevailing
school of thought is it is A specie of Partnership
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 Distinction: Partnership vs Joint Venture
Philippine laws Art. 15, Civil Code.
In Aurbach vs Sanitary Wares Manufacturing Corporation 180 SCRA 130
Of course, they will be governed by the national law. So kung ako, 17 years (1989), it was said that a partnership contemplates a general business with
old, I enter into a joint venture agreement with the Singaporean na 20 years some degree of continuity, while the joint venture is formed for the execution
old, sa Singapore kami nag-execute ng contract, now do I have the capacity of a single transaction, and is thus of a temporary nature.
to contract? My capacity to contract will be governed by my national law. My
So, we discuss the cases first:
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
J. Tiosejo Investment Corp. vs. Ang
capacity to enter into the contract.
630 SCRA 334 (Case Digest: Ana Lapu)
Intrinsic Validity
61
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 Petitioner filed before the CA a motion for extension within which to file its
partnership and is accordingly, governed by the law on partnerships. petition for review, claiming heavy workload of its counsel. This was denied
by the CA. MR was denied for lack of merit.
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 ISSUE: Whether or not the CA erred in affirming the HLURB’s decision
ordinary course of the business of the partnership or with the authority of insofar as it found J.
his co-partners. Whether innocent or guilty, all the partners are solidarily
Teosejo’s with PPGI to pay Spouses Ang.
liable with the partnership itself.
HELD: NO, the HLURB Arbiter and Board correctly held petitioner liable
FACTS: This is a petition for review seeking the reversal of the CA’s
alongside PPGI for
Resolution declaring J Tiosejo (petitioner) solidary liable with Primetown
Property Group, Inc. (PPGI) to pay Spouses Ang. respondents’ claims and the administrative fine.
J. Tiosejo entered into a JVA with PPGI for the development of a residential By express terms of the JVA, it appears that petitioner not only retained
condominium project known as Meditel in Mandaluyong City. Petitioner ownership of the property pending completion of the condominium project
contributed the lot while PPGI undertook to develop the condominium. The but had also bound itself to answer liabilities proceeding from contracts
parties further agreed to a 17%-83% sharing as to developed units. PPGI entered into by PPGI with third parties.
further undertook to use all proceeds from the pre-selling of its saleable
units for the completion of the Condominium Project.
Article VIII, Section 1 of the JVA distinctly provides as follows:
Sometime in 1996, PPGI executed a Contract to Sell with Spouses Ang on Section 1: Rescission and damages:
a certain condominium unit and parking slot for P2,077,334.25 and
xxx
P313,500.00, respectively. On July 1999, respondent Spouses filed before
the Housing and Land Use Regulatory Board(HLURB) a complaint for the In any case, the Owner shall respect and strictly comply with any
rescission of the Contract to Sell, against J. Tiosejo and PPGI. They claim covenant entered into by the Developer and third parties with respect
that they were promised that the condo unit would be available for turn- to any of its units in the Condominium Project. To enable the owner to
over and occupancy by December 1998, however the project was not comply with this contingent liability, the Developer shall furnish the Owner
completed as of the said date. Spouses Ang instructed petitioner and PPGI with a copy of its contracts with the said buyers on a month-to-month basis.
to stop depositing the post-dated checks they issued and to cancel said
Contracts to Sell. 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
Despite several demands, petitioner and PPGI have failed and refused to to Sell executed by PPGI and respondents.
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 Moreover, a joint venture is considered in this jurisdiction as a form of
alternatives to Spouses Ang to transfer their investment to its other feasible partnership and is, accordingly, governed by the law of partnerships. Under
projects and for the amounts they already paid to be considered as partial Article 1824 of the Civil Code of the Philippines, all partners are solidarily
payment for the replacement unit/s. 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.
On a separate answer, petitioner claims that its prestation under the JVA Whether innocent or guilty, all the partners are solidarily liable with the
consisted of contributing the property on which the condominium was to be partnership itself.
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 Ang sabi, bakit mo ako idadamay eh ikaw ang nagbenta, I did not receive any
failing to complete the condominium project. The Housing and Land Use benefit from it, I am not privy to that contract. Kasi ang nasa JV agreement nila
(HLU) ruled in favor of respondents, rescinding the contract and ordering is kanya kanya sila ng benta. Ngayon, ang client na ito came from the client of
petitioner and PPGI to pay refund, interest, damages, attorney’s fees and PPGI. Sabi ngayon ni J. Tiosejo, why am I going to be liable eh I am not privy
administrative fines. to the contract. So anong sabi ng SC?
What was the other basis used by the Supreme Court apart from their JV
Contract?
The HLURB Board of Commissioners affirmed the HLU’s order. Motion for
Reconsideration(MR) was denied. The case was subsequently raised to In here, you have a case of a JV between a land owner and a developer.
the Office of the President (OP) which rendered a decision dismissing Again, nakalagay sa contract nila, in any case, in the meantime, ako yung may
petitioner’s appeal on the ground that the latter’s appeal memorandum was ari ng property, I will respect any contract which the other joint venturer has
filed out of time and that the HLURB Board committed no grave abuse of 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
discretion in rendering the appealed decision. MR was also denied.
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
62
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 the beneficial owner of the project, and all billing invoices indicated the
ang offer nila, jan magkakaroon ng dispute resolutions. consortium as the client.
Ang nangyari dito is hindi nag agree si buyer, that is why they sued for the When there are two or more debtors, the obligation is presumed to be joint
rescission of the contract for failing to follow their obligations in the contract to unless the law or the obligation expressly states that the liability is solidary,
sell. Na rescind, and of course may damages. Sabi nila, they should be or unless the nature of the obligation requires solidary liability (Articles
solidarily liable as there is a Joint venture, sabi naman ni J. Tiosejo, I am just 1207 and 1208, Civil Code). In this case, since solidary liability was not
contributing the land, and in fact ang nakalagay sa JVA namin, kanya kanya required by law, or the contract, or by the nature of the obligation, the
kami ng selling, why should I be made liable to a contract eh hindi naman ako obligation to PGI was presumed to be joint between Marsman and
privy. Gotesco.
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 A joint venture being a form of partnership, it is to be governed by the laws
nakalagay sa kanilang JVA mismo na they should “respect and strictly comply on partnership. Under the laws on partnership, particularly Article 1797 of
with any covenant entered into by the Developer and third parties with respect the Civil Code, the losses and profits shall be distributed in accordance
to any of its units in the Condominium Project.” So yun yung ruling ng SC. with the agreement; if only the share of each partner in the profits has been
Tapos, moreover, since this is akin to a partnership, you apply the partnership agreed upon, the share of each in the losses shall be in the same
law. proportion.
Here, what happens, inuna yung contract bago inapply yung provisions ng In the joint venture agreement, Marsman and Gotesco agreed on a 50-50
partnership law. So this is one of the nuances of JV, even if partnership siya ratio on the proceeds of the project, but did not provide for the splitting of
in the Philippine settings, they can actually agree between the partners losses. Applying Article 1797, the same ratio applies in splitting the
regarding doon sa mga particularities. Pero when you look at the cases, the obligation-loss of the joint venture to PGI.
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 Q: Bakit daw shinelve yung project? What do you think is the unfavorable
dispute resolution. Kasi, para hindi siya magiging bias doon sa school of economix crisis?
thought na it is a partnership. Na in case of disputes, the law that will apply will - Asian Economic Crisis.
be this one, or it will be under the jurisdiction of this one.
Ano yung ginamit ng SC dito? Did the SC also consider the JV agreement
So let us in a way compare that to the case of Marsman Drysdale Land Inc. between the parties?
vs. Philippine Geoanalytics Inc. 622 SCRA 281.
In here, nangyari nagJV sila. Si Marsman nagcontribute ng lupa worth 420M,
Marsman Drysdale Land Inc. vs. Philippine Geoanalytics Inc. 622 tapos nag magconstruct naman si Gotesco. Pero part ng stipulation ng
SCRA 281 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
(Case Digest: Ana Lapu) 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
FACTS: Marsman Drysdale, Inc. (Marsman) and Gotesco Properties, Inc. Gotesco dapat ang magshoshoulder. So the issue there, contractual, sino ba
(Gotesco) entered into a joint venture agreement for the construction and magiging liable, will they be both liable or si Marsman lang o Gotesco lang.
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 Now this is weird because ang inapply na provision ng SC is the provision on
on how losses would be divided. 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.
The joint venture engaged the services of Philippine Geoanalytics, Inc.
(PGI) to provide subsurface soil exploration, seismic study and Villanueva in this particular case, disagreed. Bakit losses, kasi dapat daw sa
geotechnical engineering. PGI completed its seismic study but failed to losses, that is between the parties, that doesn’t concern the 3rd person. Pero,
complete its subsurface soil exploration because the area where drilling this is a Case, again, JV in the Philippine setting is geared towards treating it
was to be made had not been cleared. The building project was as a partnership. That is why sabi ko, pag JV, meron talaga yang laws applied
subsequently shelved due to unfavorable economic conditions. 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
PGI billed the joint venture for work done, but was not paid despite its particular transaction.
repeated demands. PGI, thus, filed a collection case against Marsman and
Gotesco. Marsman passed the obligation to Gotesco because under the So this is a case wherein the JV is treated as a partnership, ang difference
joint venture agreement, Gotesco was solely liable for the monetary lang niya is ang inapply lang na provisions is losses, they disregarded the
expenses of the project, and Marsman’s participation was limited to the provisions on defraying of expenses, developing, remember this is contractual,
land. Gotesco, on the other hand, asserted that PGI had no cause of action the demand is based on the contract, dapat, I would have to say, they
against it as PGI had yet to complete the services in its contract, and it was appreciated more the JVA. Pero again, this is an example of (?), sa Philippine
Marsman’s failure to clear the property of debris which prevented PGI from jurisdiction, they are going to treat JV as a partnership.
completing its work.
Clarification:
ISSUE: Whether or not Marsman and Gotesco are both liable to pay PGI S: Both the 2 cases involve the liability of the partners with regard to third
its unpaid claims. persons. For Marsman case, it is joint liability, while for J. Tiosejo, it is solidary.
RULING: Yes. Marsman and Gotesco are jointly liable to PGI. Atty: Sa J. Tiosejo, it was based on act or omission.
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 Remember the exam question number 1, the question was is it solidary or is it
under Partnership. 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
Yung case ni Marsman was based on a contractual demand for Specific liability but there is an act in between which makes it solidarily liable.
Performance or Collection. Tapos yung kay J. Tiosejo was for Rescission. Remember, what we are trying to protect is their liability for the third person.
Doon nagkakaroon ng difference. Your question is when will you know if it is
joint or solidary? 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
S: Yes, joint or solidary Sir. But, the fact that an act or omission is the basis act or omission is acting within the authority, so it is really hard to depict the
for the application of Article 1824 does not negate the existence of a contract. bad faith in it when a contract is involved because the requisites under the
In other words, for both situations contemplated under Article 1816 and Article 1824 somehow applies under 1816.
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 Atty: That is the reason why ang umaakyat na cases sa SC is between those
there is an act or omission that causes its nonperformance. So when the facts articles. But generally, kung wala namang fault, ordinary lang siya na contract,
of the case involve a contract, how then should we determine if the act or and it is just that, hindi lang makasingil si third person sa partnership kasi
omission qualifies for Article 1816 or Article 1824, considering that in J Tiosejo, walang property, magjojoint liability ka. Pero if merong something kaya kasi
there was no bad faith, there simply was a failure to comply with the obligation hindi siya makasingil, not because ubos na yung property, but because may
in the contract and yet the court said it was an act or omission which will call ginawa si partner kaya they ran out of business, dun nagiging solidary siya.
for the application of Article 1824. (reworded by S) 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.
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 One case was for specific performance or collection of sum of money. Yung
under their JVA, so ginaya nila sa profit. Remember, sabi ko nga, ang ginamit isa rescission with damages, there was a fault in the obligation. The problem
ng SC is the provision on losses, it treated the breach as a loss. 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
Whereas, in J. Tiosejo, they treated it as an act or omission. Marsman case which is very short lang. So I understand the confusion.
So you see the difference? Hindi inappreciate ng SC ang contract in the case August 25, 2017 (Part 2)
of Marsman even if nakalagay doon is ang magshoshoulder ng development (Transcriber: Miles Buhay)
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 For purposes of the bar exams, 1824, 1823, and 1822, that is the exception.
naman talaga kasi hindi naman nagconvey. 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
In Marsman, sabi ko nga, Villanueva has a separate opinion, kasi the SC used partners, so dapat joint siya. Remember yung nangyari doon kay Guy? Doon
the profit and loss sharing. So, this is an exception. If the case pertains to an sa case [Guy v Ca]? Hindi niya inubos yung property kaya sabi ng SC, dapat
act or omission in breach of a contract, punta ka doon sa Article 1824, which joint lang kasi yun yung general rule.
is solidary liable, which is more in keeping with the partnership law.
Clarifications time with regards to losses
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, Then again, sabi nga ni Villanueva, how would you apply the provisions for
but again, this is a Case. So you can either cite, which is more tugma sa facts. losses? It’s as if you’re operating tapos nagkaroon ng loss. So yun yung
But for purposes of discussion, I would have to agree with Villanueva, kasi the concern ni Villanueva eh. So yun yung concern niya: bakit inapply eto
profit and loss sharing is based on the assumption na nagoperate talaga kayo, [Art.1797], yun agad. Because it is strict to the parties. Kasi diba pwede
there was a business. Pero ito, wala pa diba, so it should have been Article namang joint, as to 3rd persons, pero between the two of you 70-30.
1824 that would apply. Kasi again, the profits and loss is internal and not
Remember liquidation and settlement? So pwede naming ganun. So bakit
concerning a third person. Pero, ang nangyari dito, they disregarded the JVA.
agad yun ang inapply mo. Kung 10-90 lang pala: 10 si Gotesco 90 si Marsman,
When it comes naman to J. Tiosejo, it is more in keeping with the partnership would the SC’s ruling be different?
law, kasi if it is an act or omission of any partner, authorized by the partner,
So diba dapat kung ang basis ng ruling ng SC sa Marsman is the profit and
solidarily liable. Although it would have been different if sila yung magsettle
with 3rd parties. Did I answer you question? 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
S: Yes sir. Last qualification sir. When we talk of 1816 (joint) sir, we talk of a naman. So iba yung opinion ni Villanueva.
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 Joint Venture Characteristics
it that a contract can be violated by an act or omission? So when do we know
It would have a juridical personality separate and distinct from that
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 of each of the joint-venturers;
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? Each of the co-venturers would be liable with their private property
to the creditors of the joint venture beyond their contributions to the
Atty: In 1824, ordinary course of business yung basis ng contract. But in the joint venture
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 Even if a co-venturer transfers his interest to another, the
magsisingil ako but wala pang property si partnership, I can go directly to the transferee does not become a co-venturer to the others in the joint
partner, but joint yung liability nila. Pero if there is an element of negligence or
venture unless all the other co-venturers consent
anything na bad faith, or ito si partner hindi pala siya authorized, or apparently
ginawa siyang authorized, that becomes solidary.
Generally, the co-venturers acting on behalf of the joint venture are
So general rule, it is joint if it is a contract done under the ordinary course of agents thereof as to bind the joint venture; and
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 Death, retirement, insolvency, civil interdiction or dissolution of a
then again, yung solidary na yan it only becomes solidary when it comes to co-venturer dissolves the joint venture
third persons, but as to them partners, kung sino yung liable talaga, siya yung
magshoshoulder. Did you get the difference? 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- which contract need not be registered with the SEC; provided,
American jurisprudence that "a corporation has no power to enter into a however that the joint venture will not result in the formation of a
partnership." Nevertheless, Tuason recognized that a corporation may validly new partnership or corporation.
enter into a joint venture agreement, "where the nature of that venture is in line
with the business authorized by its charter." In the Philippine setting this becomes one ___ agreement because our courts
treat it as a partnership. In other jurisdictions, it becomes a contractual joint
What is special about joint venture is that In relation to corporations, sabi ng venture meaning whatever is the contract lang talaga, yun ang mag-govern.
SEC, although they cannot enter into partnerships, they can enter into a joint Of course except those contrary to public policy, good customs, etc.
venture provided that they comply with the requisites.
Resolutions of Conflict Provisions
Legal Forms in JV Structure
Eto, this will happen if what if the JVA between the parties na nagform ng
Joint Venture Corporation 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.
Equity Joint Venture
In situations where joint venture agreements contain provisions not
Partnership Arrangement covered by the charter of the joint venture corporation or vice-
versa, the resolutions of issues arising therefrom shall be as
Contractual Joint Venture follows:
Joint Venture Corporation
(a) In case of conflicts between the provisions of the joint venture
The SEC has ruled that generally, a joint venture agreement of two agreement and the charter of the joint venture corporation, the provisions
corporations need not be registered with the SEC, provided it will of the latter shall prevail;
not result in the formation of a new partnership or corporation. (b) In case there are provisions or clauses in the joint venture
However, should there be an intention to acquire a separate Tax agreement not found in the charter of the joint venture corporation, such
Identification Number (TIN) from the Bureau of Internal Revenue provisions and clauses remain binding contracts among the joint venture
for the business venture, the same requires registration with the parties signatory to the agreement, but do not bind the joint venture
SEC in order to have a separate legal personality to obtain a corporation or other parties not signatories thereto.
separate TIN .
Factors
There is an agreement but it is in the form of a corporation. Now bakit gagawa
Which structure would you want? Would you want a corporation or a
ng corporation? Diba it is for specific undertaking lang naman? Kasi
partnership agreement? These are the factors that you are going to consider
sometimes, even if it’s a specific undertaking, it would last for years. Kaya ang
in coming up with your decision:
ginagawa nila is corporation. Take note that in a joint venture, kahit may
corporation; tapos let’s say: 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.
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- Tax Consequences – you’ve learned in your Tax [subject] that
corporation. __ It becomes an equity. partnerships and corporations are taxed at 30% except for
Equity Joint Venture partnerships that are general professional partnerships.
Equity joint ventures are also available in Philippine setting which So kung gagawa pala ako ng partnership or ng corporation pareho
may cover the formation of a new joint venture company, with each lang pala sila na taxed. So ano ang difference sa kanilang dalawa?
co-venturer being allocated proportionate shareholdings in the Well, for corporations – very tedious. You have other administrative
outstanding capital stock of the joint venture corporation. Equity filings. Ang dami po pang gagawin to maintain a corporation. So
joint venture may also be pursued where a co-venturer is allocated partnerships are less tedious.
the agreed shares of stock in an existing corporation, either from Limitation of Foreign Equity – kung corporation, dapat may shares.
new issuances of the capital stock of the existing corporation, or It should be in line with what is limited under loss.
sold shares from those already issued in the names of the other co-
venturers. Governing Law and Language
In equity joint ventures, the rights and obligations of the parties Freedom to Contract, In General
among themselves is covered not only in a separate joint venture
agreement, but also implemented by certain provisions of the Formal or Extrinsic Validity of Agreements
articles of incorporation and by-laws of the joint venture
corporation. Capacity of Contract Parties
A third type of joint venture arrangement is to formally operate the Language of Joint Venture Agreements
joint venture set-up as a partnership, with a separate and distinct
juridical personality Freedom to Contract, In General
contrary to law, morals, good customs, public order, or public policy It is the basic law that provides the conditions, activities,
Sec. 10, Art. III. and procedures where foreign enterprises may invest
and do business in the Philippines. It applies to joint
Formal or Extrinsic Validity of Agreements venture arrangements in the Philippines.
Philippine laws recognize the principle that the formal or extrinsic
Foreign Investment Act of 1991
validity of contracts, including a joint venture arrangement, shall be
governed by the laws of the country in which they are executed. This would be very helpful, I think, in your Corporation law.
Therefore, joint venture arrangements, which are essentially
The salient points of FIA '91 are the following:
partnership agreements, are valid in whatever form executed. Art.
17, Civil Code.
(a) Under the concept of a negative list, more areas are open to foreign
investments, and investment policy is made transparent and stable;
Capacity of Contract Parties
(b) The law redefined "export enterprise" to mean at least 60% export
The capacity of the parties to enter into a joint venture agreement
(from the former 70% export level).
is generally governed by their national law. However, in case of
joint venture agreements covering the alienation or encumbrance (c) It opened the domestic economy to 100% foreign investments except
of properties, both real and personal, located in the Philippines, the for those in the negative lists.
capacity of the parties is governed under Philippine laws Art. 15,
Civil Code. (d) One layer of bureaucracy is reduced because there is no need for
Board of Investments (BOI) approval if the investor is not seeking
Intrinsic Validity incentives.
The intrinsic validity of a joint venture agreement, as in all contracts List A covers area of investment in which foreign ownership is limited
in general executed in the Philippines, including consideration or by the Constitution and nationalization laws, as follows:
cause thereof, the interpretation or constructions of its provisions, No Foreign Equity Allowed:
and the nature and amount of damages for breach thereof, are
governed by the law voluntarily agreed upon by the parties. The (a) Mass media ownership and management;
parties to a joint venture arrangement can therefore validly stipulate
which laws shall govern their arrangement. 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
However, any stipulation in the joint venture agreement cannot it’s as if it is Filipino-owned pa rin siya. Let’s say ang corporation ni
operate to oust Philippine courts of their jurisdiction under the law, 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.
although the local courts would still apply the laws chosen by the
So ito yung ginagawa for previous years. Eh nalaman ng government
parties to the agreement
kaya gumawa sila ng Anti-Dummy Law. According to this law, if the
management is composed of foreigners even they own the minimum[?]
Language of Joint Venture Agreements
of percentage, that is a violation of the Anti-Dummy Law. The 60% does
There are likewise no restrictions on the language in which a not only pertain to the equity shareholders but also to the management;
document or contract may be executed, since the language does to the top executive.
not go into the validity or enforceability of the agreement.
COMMONWEALTH ACT No. 108
Nevertheless, it would be prudent for the parties to draw the
documents in an official language, since any future suit on a AN ACT TO PUNISH ACTS OF EVASION OF THE LAWS ON THE
document must always be accompanied by an official transaction NATIONALIZATION OF CERTAIN RIGHTS, FRANCHISES OR
in the official language. PRIVILEGES
Under Section 33, Rule 132 of the Philippine Rules of Court, Be it enacted by the National Assembly of the Philippines
documents written in an unofficial language shall not be admitted Section 1. Penalty — In all cases in which any constitutional or legal
as evidence, unless accompanies with a translation into English or provisions requires Philippine or any other specific citizenship as a
Filipino. Under the 1987 Constitution of the Philippines, the official requisite for the exercise or enjoyment of a right, franchise or privilege, any
languages are Filipino and, until otherwise provided by law, citizen of the Philippines or of any other specific country who allows his
English. name or citizenship to be used for the purpose of evading such provision,
and any alien or foreigner profiting thereby, shall be punished by
Defining JV’s Scope of Business Activity 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
Now, under our jurisdiction, remember that corporations may enter into joint enjoyed or acquired in violation of the provisions hereof but in no case less
ventures instead of partnership. But the operations of a JV must be in line with than five thousand pesos.
what is limited by law.
The fact that the citizen of the Philippines or of any specific country charged
Foreign Investment Act of 1991 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
Kapag merong corporations na foreign, let’s say a Singaporean
real or personal property, credit or other assets the value of which shall at
Corporation would enter into a joint venture with a Philippine entity,
least be equivalent to said holdings, shall be evidence of a violation of this
they must comply with the foreign administration[?] That is why not
Act.1
all business activities may be held towards a joint venture. May
mga limitations ang law na dapat Filipino Corporation lang. This is Section 2. Simulation of minimum capital stock — In all cases in which a
in line with the Constitutional Policy of “Filipino First” which is sabi constitutional or legal provision requires that, in order that a corporation or
ni Father [Gus] is a non-progressive policy. 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
[Chika on the need for foreign investors.]
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 specifically authorized, with substantial export, by the Secretary of
citizens, for the purpose of evading said provision. The president or National Defense
managers and directors or trustees of corporations or associations
convicted of a violation of this section shall be punished by imprisonment List B also includes activities regulated by law because of risks they
of not less than five nor more than fifteen years, and by a fine not less than may pose to public health and morals. For example, dangerous
the value of the right, franchise or privilege, enjoyed or acquired in violation drugs, gambling, nightclubs, bars, and message clinics are not
of the provisions hereof but in no case less than five thousand pesos.2 open for foreign investments;
(c) Retail trade; Preferred Areas of Investments (BOI Registered and with
Incentives)
(d) Fisheries; and
Non-Preferred Area Investor (Investment Without Incentives);
(e) Rice and corn farming.
Incentives of Export Processing Zone Enterprise.
25% Foreign Equity Allowed:
So may mga PEZA (Philippine Economic Zone Authority). Kapag nasa zone
(a) Recruitment agencies; and
ka, i.e. part of Lanang, Matina, Felcris, kapag nandyan ang establishment mo,
(b) Locally funded public works project. 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
30% Foreign Equity Allowed: to encourage foreign investors. But this is based on limited activities lang.
40% Foreign Equity Allowed: 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
(a) Exploitation of natural resources and utilization of land ownership; 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
(b) Public utilities; ventures wherein the private entity will build for some time but after the
completion is ibigay na nila sa government.
(c) Educational institutions;
Joint ventures projects in Philippine jurisdiction are financed
(d) Financing companies;
through a combination of equity infusion and commercial or special
(e) Construction. loans.
(f) Cooperatives; What has become a very popular scheme of financing joint
ventures covering infrastructure projects is the Build-Operate-
(g) Private security agencies; and
Transfer (B-O-T) schemes under Rep. Act No. 6957.
(h) Small-scale mining.
Subsequently, Rep. Act 7718 extended the coverage and
Retail Trade Liberalization Act of 2000 applicability of the B-O-T Law not merely to "government
infrastructure projects" but also to government "development
Foreigners are excluded only in retail enterprises with paid-up capital of
projects."
less than US$2,500,000.00 (Category A) which is resecured exclusively
for Filipino citizens and corporations wholly-owned by Filipino citizens.
So you have any government entity on one side and a private entity on the
That is why yung mga retailer jan – DCLA, yung mga may-ari mga intsik – other side.
alam mo, pagtiningnan mo yung papers nila, hindi sila yung may-ari. Mga
Let’s say magconstruct ng power plant. Hindi kaya ni government yan.
Filipinos; mga dummy. Mga katabang nila.
Kailangan niya ng pera from a private source.
List B
Schemes Recognized under the Act
List B covers defense-related materials which by law are licensed
Build-Operate-and-Transfer (BOT)
and regulated by the Department of National Defense, unless
67
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) operates the facility on behalf of the implement agency
under an agreement.
Build-Own-Operate (BOO)
CAO The project proponent adds to an existing infrastructure
Build-Lease-Transfer (BLT) facility which it is renting from the government. It operates
the expanded project over an agreed franchise period.
Build-Transfer-and-Operate (BTO)
There may, or may not be, a transfer arrangement in regard
to the facility.
Contract-Add-and-Operate (CAO)
DOT The favorable conditions external to a new infrastructure
Develop-Operate-and-Transfer (DOT)
project which is to be built by a private project proponent
Rehabilitate-Operate-and-Transfer (ROT) are integrated into the arrangement by giving that entity the
right to develop adjoining property, and thus, enjoy some
Rehabilitate-Own-and-Operate (ROO) of the benefits the investment creates such as higher
property or rent values.
BOT A contractual arrangement whereby the contractor
undertakes the construction, including financing, of a given ROT An existing facility is turned over to a private sector to
infrastructure facility, and the operation and maintenance refurbish, operate and maintain for a franchise period, at
thereof. the expiry of which the legal title to the facility is turned over
to the government. The term is also used to described the
Ako yung magbui-build. Ako yung mag-ooperate for some purchase of an existing facility from abroad, importing,
time let’s say for 20 years. At the end of the 20 years, refurbishing, erecting and consuming it within the host
ibibigay ko sa government. country.
BT The contractor undertakes the construction, including ROO An existing facility is turned over to the private sector to
financing, of a given infrastructure facility, and its turnover refurbish and operate with no time limitation imposed on
after completion to the government agency or local ownership. As long as the operator is not in violation of its
government unit concerned which shall pay the contractor franchise, it can continue to operate the facility in
its total investment expended on the project, plus a perpetuity.
reasonable rate of return thereon.
Bakit rehabilitate? Nagdrugs? lol sir.
After mo magbuild, [sa] government na agad. Sabihin mo,
“sir, kawawa naman yung nagbuild.” Hindi naman yan siya Rehabilitate – meaning may existing facility na napabayaan
transfer na donation. Ano ito, charity? Meron din yang na. Ex. There’s a plant in Cotabato City somewhere and
consideration. napabayaan siya for a while. Now pwedeng may
magrehabilitate niyan na private entity. “I-rehabiitate ko.
BOO A project proponent is authorized to finance, construct, Bigyan mo ako ng authority government to rehabilitate and
own, operate and maintain an infrastructure or operate it. Bigyan kita ng share.”
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,
Equity Limitations for Operators of Public Franchises
fees, rentals and other charges from facility users. Under
this scheme, the proponent which owns the assets of the The ownership structure of the contractor of an infrastructure
facility may assign its operation and maintenance to a facility whose operation requires a public utility franchise must be
facility operator. in accordance with the Constitution, which requires at least 60%
Filipino ownership.
Here, you can actually own. You can build the plant or the
infrastructure and then own it. Ex. SLEX, NLEX. Private Originally under the B-O-T Law, in the case of corporate investors
persons ang nagco-collect ng toll fees. Kasi sila naman in the BOT corporation, the citizenship of each stockholder in the
yung nagspend for the establishment. Pansin mo yung corporate investors shall be the basis for the computation of Filipino
ginawa nila na road mas maganda pa doon sa gawa ng equity in the said corporation. Rep. Act 7718 has done away with
government. the citizenship test applied to corporate investors in BOT
corporations and its variations involving operation of public facilities
BLT A project proponent is authorized to finance and construct (e.g., BOO, BTO, CAO, DOT and ROO).
an infrastructure or development facility and upon its
completion turns it over to the government agency or local Citizenship Test
government unit concerned on a lease arrangement for a
fixed period after which ownership of the facility is Kapag limited yung partnership nyo to 60-40, let’s say 60% Filipino, sabi ko
automatically transferred to the government agency or local nga ang ginagawa diba is nagse-setup ng company; ng dummy, so nalaman
government unit concerned. ng Congress, they established the Citizenship test. Paano mo ba malalaman
na 60% Filipino siya or less than that?
BTO The public sector contracts out the building of an
But that is a discussion on Corpo so I will let Father discuss on that.
infrastructure facility to a private entity such that the
Grandfather’s Rule. You really, really have to master that. That is a basic
contractor builds the facility on a turn-key basis, assuming principle.
cost overrun, delay, and specified performance risks. Once
the facility is commissioned satisfactorily, title is transferred Preference to Filipino Contractors
to the implementing agency. The private entity however,
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 otherwise, in restraint of trade or commerce or to prevent by artificial
fact that hindi kaya ng mga Filipino. So that is another statutory requirement means free competition in the market;
for the foreigner to enter into the market.
(b) Any person who shall monopolize any merchandise or object of
Republic Act 7718 raises the standards that must be met by Filipino trade or commerce, or shall combine with any other person or persons
contractors in order for them to be accorded preference over to monopolize said merchandise or object in order to alter the price
foreign contractors bidding for B/T and BLT contracts. thereof by spreading false rumors or making use of any other artifice to
restrain free competition in the market;
In order to be accorded preference, a Filipino contractor is required
(c) Any person who, being a manufacturer, producers, or processor of
to submit an equally advantageous bid with the same price and
any merchandise or object of commerce or an importer of any
technical specifications as that of the foreign contractor. A
merchandise or object of commerce from any foreign country, either as
Filipino contractor will not be accorded preference unless his bid is
principal or agent, wholesale or retailer, shall combine, conspire or agree
at par, on both price and technical aspects, with that of the foreign in any manner with any person likewise engaged in the manufacture,
contractor. production, processing, assembling or importation or such merchandise
or object of commerce, or with any person not so similarly engaged, for
So may bid ang Filipino contractor and may bid ang foreign contractor. Now if the purpose of making transactions prejudicial to lawful commerce, or of
magkalevel yan; pareho sa price and technical specifications, Filipino rights increasing the market price in any part of the Philippines.
yun because of the Filipino First Policy.
So ano ang ginagawa ngayon ng government to prevent monopoly? So before
Repayment Schemes mag-enter into joint venture and dalawang mega-players in an industry, they
For the financing, construction, operation and maintenance of any are required to notify the PCC na, “hey, magme-merge kami ha.”
infrastructure project undertaken pursuant to the B-O-T Law, the Republic Act 10677
contractor shall be entitled to a reasonable return of its investment
and operating and maintenance costs in accordance with its bid Republic Act 10677 also known as the Philippine Competition Act
proposal as accepted by the concerned contracting infrastructure (PCA) was put into law to recognize the efficiency of market
agency or local government unit and incorporated in the contract's competition as a mechanism for allocating goods and services is a
terms and conditions. generally accepted precept. The State recognizes that past
measures undertaken to liberalize key sectors in the economy
Land Reclamation or Industrial Estates need to be reinforced by measures that safeguard competitive
conditions. The State also recognizes that the provision of equal
In the case of land reclamation or the building of industrial estates,
opportunities to all promotes entrepreneurial spirit, encourages
the repayment scheme may consist of the grant of a portion or
private investments, facilitates technology development and
percentage of the reclaimed land or industrial estate built, subject
transfer and enhances resource productivity. Unencumbered
to the constitutional requirements with respect to the ownership of
market competition also serves the interest of consumers by
lands only by Filipino citizens.
allowing them to exercise their right of choice over goods and
services offered in the market. By virtue of this law, the Philippine
Registration with BOI
Competition Commission (PCC) was created to implement the
Republic Act 7718 provides that projects costing in excess of P1 national competition policy and attain the objectives and purposes
Billion shall be registered with the Board of Investments and of RA 10677.
entitled to the incentives provided under the Omnibus Investments
Code. Notification requirement
69
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 When you read the provisions on income tax, diba merong tax treaty?
are authorized to submit their controversies to arbitration, or they
Ex. Let’s say Philippines and Singapore. Kapag may income sa Philippines
can provide as part of their joint venture arrangements that all
and Singapore, kapag non-resident corporation, ilang percent ang tax? 30%.
issues and controversies shall be resolved by arbitration through a
Pero kung may tax treaty with Singapore na pwede siya maging 10%, pwede
procedure drawn out in the joint venture contract. The stipulation
siya.
on arbitration can validly provide that the resolution or decision of
the board of arbitrators is valid and final Art. 2042, Civil Code. Tax treaty Agreement
The Philippine Chamber of Commerce and Industry, as a service The following are basic guarantees under the Philippine
to its members and in response to request for assistance to provide Constitution as protection to foreign investors:
arbitration facilities and services to parties to a commercial dispute,
has adopted its own Rules on Conciliation and Arbitration. (a) Freedom from expropriation without just compensation;
In the construction industry, The Philippine Domestic (b) Right to remit profits, capital gains and dividends within the
guideline of the Central Bank of the Philippines;
Construction Board was created under Pres. Decree No. 1476
"to adjudicate and settle claims and disputes in the implementation (c) Right to obtain foreign exchange to meet principal and interest
of public construction contracts" and to "formulate and recommend payments on foreign obligations.
rules and procedures for the adjudication and settlements of claims
and disputes in the implementation of contracts in private ICSID Convention
construction." Subsequently, the Philippine Construction The 1965 Convention on the Settlement of Investment
Industry Arbitration Commission (CIAC) was constituted under Disputes between States and Nationals of Other States (also
Executive order No. 1008, giving it original and exclusive referred to as the Washington Convention). The purpose of the
jurisdiction over claims and disputes arising from or connected with ICSID Convention is to encourage cross-border investment in
public and private constructions contracts in the Philippines. developing states by providing an effective means of enforcing
contractual rights.
New York Convention
In 1965, the Philippines adhered, to the 1958 United Nations What if ang kapartner mo [ng foreigner] is the government? Can you sue the
Convention on the Recognition and Enforcement of Foreign government in Philippine courts? I will file a collection of sum of money.
Arbitral Awards, otherwise known as the New York 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
Convention. The Convention seeks to make arbitral awards
suit, except for certain circumstances. But generally the State is immune from
rendered in a foreign state enforceable in any state which is
suit. So if you are a foreign investor, what will happen to your investment? That
a party to the Convention. is why meron itong ICSID Convention.
Remember the news about the Manila Water? Diba ang arbitration nila nasa Activities and Jurisdiction
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. The settlement of
But the dispute resolution must be made in Singapore.
→investment disputes is not carried out by ICSID itself but by
Impact of Changes in the Law Subsequent to Formation conciliation commissions or arbitral tribunals which are constituted
on an ad hoc basis for each individual dispute. The method most
Let’s say bagong president will say: “No Tax! Foreign investor ka? No Tax!
often chosen is arbitration by a tribunal of three independent
Free tanan! No LTFRB!” So, invest ka nang invest. Nagpartner ka with the
arbitrators. →Conciliation is also foreseen in the ICSID Convention
government to create a power plant. Let’s say good for 50 years. What if next
but rarely used. Conciliation is a flexible and informal method that
administration ni-repeal ang law? Nagpagawas n aka ug kwart;, nagkautang
is designed to assist the parties in reaching an agreed settlement.
na ka and all. Tapos ni-repeal ang law. You have to pack your things and go
Therefore, this method depends on the willingness of both parties
home to the country where you are from. As an investor, what are your rights?
to cooperate. →Arbitration is a more formal and adversarial
The general rule under Philippine laws is that subsequent changes process leading to a binding award which is subject to
in the law, such as the introduction of new incentives or abolition of enforcement.
existing incentives, is within the power of Legislature to so provide So you can actually have a case. Let’s say Gotesco Properties vs. Republic of
even as it affects existing enterprises, including joint ventures. 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.
This rule emanates from constitutional doctrines that provide that Paano kung ayaw magconsent ni Republic of the Philippines? Then the World
even with a guarantee of non-impairment of contract obligations, it Bank will impose penalties. Can there be a country that could operate without
does not prevent changes of rights of parties to a contract only as the World Bank? I doubt.
between them, and not with reference to third-parties, including the
State. More importantly, Section 11, Article XII of the Philippine This is what is good about ICSID kasi nagkakaroon ng World Bank factor.
Constitution provides for a reservation clause in favor of the So this is one of the remedies which a foreign investor may go through in cases
Government to revoke or amend existing grants and privileges, where there are subsequent changes of law.
including incentives granted to investors: "Neither shall any such
franchise or right be granted except under the condition that it shall Pero one of the criteria – kasi dapat ang breach ng country is in bad faith pero
be subject to amendment, alteration, or repeal by the Congress bad faith is defined in a very broad manner. Hindi siya gaya ng bad faith sa
when the common good so requires." 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
Double Taxation Agreements and relinquishment of a known right.
Impact on the Joint Venture
70
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, Tatlo. There is one Trustor which entrusts to a Trustee a certain property for
1997, the Supreme Court held: the benefit of the Beneficiaries. So may tatlong parties. Trustor, trustee and
beneficiary.
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
2. That bad faith “imports a dishonest purpose or some moral to the beneficiary.
obliquity and conscious doing of wrong”;
Q: Now bakit kailangan i-split?
- Again, ang premise ng Philippine provisions on Trust is that it is
3. That “it means a breach of a known duty through some motive or based on equity. May mga transactions kasi na kung susundin
natin si legal title, it would be inequitable.
interest or ill will that partakes of the nature of fraud”;
- Example 1:
Co-ownership sa succession na kung minsan co-owners kayo sa
4. That “it must be reiterated that bad faith should be established by property pero sa titulo, nakapangalan lang sa isa. So, the beneficial
clear and convincing evidence”; and 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.
5. That “settled rule is that the law always presumes good faith such So if we follow strictly the legal title, kawawa naman yung isang co-
that any person who seeks to be awarded damages due to acts of another owner na hindi nakapangalan sa kanya. So based on equity
has the burden of proving that the latter acted in bad faith or with ill motive”. 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 kung hindi talaga pwede, magpayag man yang investor. Ang gusto lang
niyan nila is to get their investment back. So may mga ganung considerations na for purposes of equity, that
person holds it in trust for other people.
September 2, 2017
CLASSIFICATION OF TRUST
(Transcriber: Isaihlene Abad)
Now, the classification of Trust under our Law:
TRUST
1. Express Trust - meron talagang intention between the parties
Why does the topic on Trust included in Business Organization 1, eh hindi
to create the trust.
naman siya partnership o corporation? This is because, merong element of
2. Implied Trust - purely based on equity considerations ang by
Fiduciary relationship. Consistent also with Agency na may element of
operation of law
fiduciary relationship, kaya inisa siya.
For Implied trust, you have other 2 classifications:
But the law on trust in our jurisdiction, written in the Civil Code, is based on
1. Resulting trust
Equity. It is not like the uniform Trust Law in the US, wherein structured talaga
2. Constructive trust.
siya.
In express trust, by the word itself, it was expressly constituted by the parties
In fact, trust does not create separate juridical personality.
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
In your tax, there is a provision that a Business trust is considered as a
implied trust is given by operation of law, again, for purposes of Equity.
separate taxable entity. So, we have a situation wherein for tax purposes, we
follow the US treatment on Trust.
Article 1442. The principles of the general law of trusts, insofar as
But in Civil Law, we follow the usual equity consideration purpose. It is not they are not in conflict with this Code, the Code of Commerce, The
really popular for us. A lawyer once asked me bakit daw hindi maxado Rules of Court and special laws are hereby adopted.
ginagamit ang trust for tax avoidance, hindi evasion. Yun nga, only few lawyers
know the structure of trust.
This is what we call the Order of Preference Provision in International Law.
Trust is a fiduciary relationship between 1 person having an equitable If you have come across international contracts, may mga stipulation talaga
ownership in a property and another owning the legal title to such na order of preference. Kasi, yung sa volume ng transactions, iba-iba yung
property, the equitable ownership of the former entitling him to the mga nagaaply na law, na jurisdiction, so naglalagay talaga sila. Under Article
performance of certain duties and the exercise of certain powers by the 1442, the principle on the general law on trusts prevails for as long as it is not
latter. in conflict with other laws. Again, wala na kayong makikitang provisions on
trust sa Code of Commerce.
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 The Nature of Trust
another.
Trust do not create a separate juridical personality. Unlike a partnership,
walang separate juridical personality si trust. So by that, can the trust sue?
PARTIES to the Trust Relationship Hindi. But in your tax, it is considered a separate taxable entity.
benefit of another person is known as the Trustee, and the person for 1. It is a relationship;
whose benefit the trust has been created is referred to as the 2. It is a relationship of fiduciary character;
Beneficiary. 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
“As regards Property” title to the property to deal with it for the benefit of another; and
Please take note that the trust is constituted as regards a certain property . So 5. It arises as a result of a manifestation of intention to create the relationship.
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 a relationship of fiduciary character with respect to property not one
involving merely personal duties.
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 involves the existence of equitable duties imposed upon the holder of title
it, take good care of it pero the benefit of it is to the beneficiary. to the property to deal with it for the benefit of another.
Q: So ano naman ngayon ang consideration for the trustee? It arises from ---- intention of the parties to create the relationship. This is
- Usually sa mga express trust meron yang mga stipulation for applicable only to express trust and resulting implied trust. Again, sa
compensation for the trustee, but the benefit will eventually accrue constructive, kahit na ayaw nila magform ng trust, because of equitable
to the beneficiary or in French term it is called the Cestui Que consideration, it is the law that imposed the constructive trust.
Trust.
Things to ponder.
Article 1441. Trusts are either express or implied. Express trusts are Q: Can a minor child be a trustor?
created by the intention of the trustor or of the parties. Implied trusts Can a minor be a trustee?
come in to being by operation of law. Can a minor be a beneficiary?
Ponder ninyo lang. � (see Villanueva)
Please take note, ang sabi ng provision, Express trust daw ay created by the Q: Is it necessary for the cestui que trust or the beneficiary to be named at the
intention of the parties but when you go to the rest of the provisions, when you time the trust is created?
read your references, pagdating ninyo sa Resulting Implied trust na topic, it - No, it is not necessary. In the case of DBP vs. COA, it is enough
is also based on the implied intention of the parties. So, Jurisprudence has that the beneficiary is ----- or identifiable.
been flip-flopping on the differentiation between express trust and resulting
implied trust. We will discuss this as we go along. Q: Meaning, pwede bang magconstitute na beneficiary si unborn child?
Pwede ba?
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 Q: How do you distinguish a trust relationship from a stipulation pour atrui?
fraud or mistake na element.
Remember sa stipulation pour atrui, there is a contract, it is a stipulation for
Example: Nag-usap tayo. the benefit of a third person which is not actually a party to that contract. But
A: Pre, naay baligya nga property, wala man gud ko ugma kay naa koy flight because of that stipulation, he is a person to benefit from the provisions of the
sa America, ang seller muabot ugma. So pwede ba na ikaw lang sa ang contract. So, here are the distinctions:
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. Trust – it can arise either by virtue of a contract or by operation of
law.
Nilakaw ka. Nagtransact na, ang buyer na gibutang didto si beshie. Nibalik ka, Stipulation pour atrui – can only arise by virtue of a contract.
tingala ka, asa naman ang property? Remember the requisites for a stipulation pour atrui? It has to be
stipulated, knowledge etc.
B: Ay besh, gibaligya baya nako sa lain kay ako man gud ang nakapangalan
as buyer. Trust – object of trust is always a specific and identifiable property
whether real or personal. Stipulation pour atrui – can neither be
So there was fraud, there was mistake. The law states that, there is a specific property or object things, generic property. (?)
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 Trust – the stipulation for trust may be express. Stipulation pour
can rescind the contract, kasi hindi siya yung real party in interest yung buyer atrui must always be express and must be accepted by the third
na nagbenta. Did you get it? Wala talagang intention to create the trust pero person before the grant.
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 That is the basic introduction of trust. Let us discuss the cases. What
you get that? That is constructive trust. happened in the case of Guy vs. CA?
Now, Resulting Trust, there was an intention to create but it was not clearly GILBERT G. GUY vs THE COURT OF APPEALS
intended. Dito nagkakaroon ng confusion. Sa Express trust, there was
intention, sa resulting trust, there was an intention pero implied. Okay lng sana (December 10, 2007)
yun na sa express trust kailangan documented, may document of trust. Tapos
G.R. No.165849, 170185, 170186, 171066,176650
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 (Case Digest: April Pareno)
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 NATURE: The petition composed five (5) consolidated cases which
Court based on that fact alone. Basically, ang main motive pa rin ng SC is stemmed from Civil Case No. 04-109444 filed with the Regional Trial Court.
which decision is more equitable for the parties. So sa equity consideration But the focus of the case with respect to trust is GR 176650. The petition
parin nagdedecide ang SC. 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
The Characteristics of Trust
dismissing their complaint against the respondents.
72
BUSINESS ORGANIZATION I
(By: 3-Manresa, S.Y. 2017-2018)
From the Lectures of: Atty. Raymund Christian S. Ong-Abrantes, CPA
The trial court held that the complaint was baseless and an unwarranted Q: What if it is an implied trust and the property is immovable?
suit among family members. That based on the evidence, Gilbert was only - In that case it can be proven by parol evidence even in the absence
entrusted to hold the disputed shares of stock in his name for the benefit of a written agreement. Precisely because implied trust na siya,
of the other family members; and that it was only when Gilbert started to how would you have a written agreement in an implied trust.
dispose of the assets of the family’s corporations without their knowledge
that respondent sisters caused the registration of the shares in their Q: So if the property involved is a personal property and it is an express trust,
can it be proven by parol evidence?
respective names. On appeal, the Court of Appeals affirmed the Trial
- Yes.
Court. Hence this petition.
What happened in the case of Dela Cruz vs. CA?
ISSUE: Whether or not Gilbert was merely trust for the Guy sisters. DELACRUZ vs CA
RULING: There was no doubt that Lincoln Continental held the disputed (Case Digest: April Pareno)
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
FACTS: Petitioners are the heirs (children) of the late Maria de la Cruz y
proffered by Lincoln Continental itself supports this conclusion. Article
Gutierrez, married to Mateo del Rosario Lansang, while herein private
1440 of the Civil Code provides that: A person who establishes a trust is
respondents are the heirs of Maria de la Cruz y Guevarra, married to
called the trustor; one in whom confidence is reposed as regards property
Calixto Dimalanta, and Fermin de la Cruz. The controversy involves a
for the benefit of another person is known as the trustee; and the person
1,980 square meters portion of Lot 1488.
for whose benefit the trust has been created is referred to as the
beneficiary.
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
In the early case of Gayondato v. Treasurer of the Philippine Island, this
purposes in her name. Later, she entrusted the administration of the said
Court defines trust, in its technical sense, as “a right of property, real or
lot to her niece Maria de la Cruz y Guevarra. Later, the lot was
personal, held by one party for the benefit of another.” Differently stated, a
adjudicated to Maria de la Cruz, 26 years old, married to Calixto Dimalanta
trust is “a fiduciary relationship with respect to property, subjecting the
and Fermin de la Cruz, Single. Finally, Original Certificate of Title was
person holding the same to the obligation of dealing with the property for
issued in their names.
the benefit of another person.”
been included in her title), filed a complaint for reconveyance. Beneficiary: heirs of Maria Guttierez
Petitioners' predecessor-in-interest, Maria de la Cruz y Gutierrez, was an This is where there becomes a grey line between express trust and resulting
unlettered woman, a fact borne out by her affixing her thumbmark in her implied trust. Kasi tingnan mo, hindi kailangan magstipulate expressly na may
answer in Cadastral Case No. 18. Because of her mental weakness, in a express trust. By the facts and the circumstances, it is sufficient na it is clearly
prepared document for her, Exhibit "B-3", she consented and authorized intended. It is hard to distinguish between the 2.
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 The only thing that we can distinguish it is because, the resulting implied trust
Maria de la Cruz y Gutierrez that Maria de la Cruz y Guevarra was the one scenarios are enumerated in the provisions, but same provisions state that it
entrusted with the paying of land taxes. 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
Private respondents argue that said Exhibit "B-3" is a portion of the tax an express trust or would we be saying na it is a resulting implied trust? Yun
declaration (Exhibit "B") which was prepared by the Office of the Municipal yung nagkakaroon ng debate yung mga authors.
Assessor/Treasurer where the lot in question is located, and clearly not the
written instrument constituting an express trust required under Article 1443 What I would suggest is that, for purposes of the bar, you memorize those
of the Civil Code. 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.
And the prescription, diba ang sabi express trust does not generally prescribe.
Except if may repuadiation. By common sense, express trust nga eh, there
HELD: Yes. 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,
As maintained by petitioners, their action is one based on express trust
Exclusive and Adverse. Meaning, it must be in conflict with the real owner.
and not on implied or constructive trust and thus, has not yet prescribed.
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.
The argument of private respondents, is untenable. It has been held that That is why it cannot be acquired through acquisitive prescription. Doon lang
under the law on Trusts, it is not necessary that the document expressly yung principle na it doesn’t prescribe. Nakuha ninyo? Pero the exception here
state and provide for the express trust, for it may even be created orally, is if the Trustee repudiates the trust, kasi from the time na nirepudiate niya, it
becomes an adverse possession.
no particular words are required for its creation (Article 1444, Civil Code).
GR: Express Trust is Imprescriptible.
Expn: Repudiation by the Trustee.
An express trust is created by the direct and positive acts of the parties, by Pagnarepudiate na ito, wala ng express trust. So you relate this with your
some writing or deed or will or by words evidencing an intention to create property law. Ganyan lang yan siya eh, connect connect lang yan lahat.
a trust. No particular words are required for the creation of an express trust,
it being sufficient that a trust is clearly intended. 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.
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 Please take note that it is presumed kapag walang onerous condition, if there
be proved by parol evidence," refers merely to enforceability, not validity of is no proof to the contrary. Kapag may onerous condition, the acceptance by
a contract between the parties. Otherwise stated, for purposes of validity the beneficiary is never presumed. You know naman the meaning of onerous.
between the parties, an express trust concerning an immovable does not So that is for Express trust. Let us discuss other cases.
have to be in writing.
ARANETA vs CA
Corporation (UEC), respectively. 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.
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 Q: What was the nature of the action of Irene Marcos?
those shares and their fruits in trust and for the benefit of Irene to the extent In essence, she wants Benedicto to recognize that there was a trust
of 65% of such shares. 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
3. Several years after, Irene, through her trustee-husband, Gregorio Ma. residence of the parties be material?
Araneta III, demanded the reconveyance of said 65% stockholdings, but - Personal action.
the Benedicto Group refused to oblige.
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?”
4. In March 2000, Irene thereupon instituted before the RTC two similar - In this particular case, an action to recognize a trust agreement
complaints for conveyance of shares of stock, accounting and is an Action in Personam, whether or not there is a real property
receivership against the Benedicto Group with prayer for the issuance of a involved.
temporary restraining order (TRO). The first, docketed as Civil Case No.
3341-17, covered the UEC shares and named Benedicto, his daughter, Here, allegedly sabi ni Irene Marcos, yung company na yan 65% akin as a
and at least 20 other individuals as defendants. The second, docketed as beneficiary. Eh ngayon, siguro kumita yung company, sabi ng trustee, No!
Civil Case No. 3342-17, sought the recovery to the extent of 65% of FEMII There is no trust agreement. Sabi ni Irene, No, I will file a case against you.
shares held by Benedicto and the other defendants named therein. 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.
5. Respondent Francisca Benedicto-Paulino,3 Benedicto's daughter, filed Tapos, nung nalaman na ang residence pala ni Irene is sa Forbes Park Makati,
a Motion to Dismiss Civil Case No. 3341-17, followed later by an Amended sabi ng SC, eh bakit mo finile sa Ilocos? Nataranta yung lawyer, inamend yung
Motion to Dismiss. Benedicto, on the other hand, moved to dismiss4 Civil complaint, nag implead ng plaintiff from Ilocos. Nastress siguro siya. Sabi ng
Case No. 3342-17, adopting in toto the five (5) grounds raised by Francisca SC, such was not the real party in interest. Eventually, it was denied.
in her amended motion to dismiss. Among these were: (1) the cases
involved an intra-corporate dispute over which the Securities and 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
Exchange Commission, not the RTC, has jurisdiction; (2) venue was
on an action in personam.
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. HEIRS OF LABANON vs HEIRS OF LABANON
Article 1444 of the New Civil Code on express trust provides that "[n]o
5. On February 11, 1955, Maximo Labanon executed a document particular words are required for the creation of an express trust, it being
denominated as "Assignment of Rights and Ownership" and was executed sufficient that a trust is clearly intended."
to safeguard the ownership and interest of his brother Constancio
Labanon. Civil law expert Tolentino further elucidated on the express trust, thus:
9. Further, after discovering that the defendant-heirs of Maximo Labanon In the instant case, such intention to institute an express trust
were taking steps to deprive the heirs of Constancio Labanon of their between Maximo Labanon as trustee and Constancio Labanon as
ownership over the eastern portion of said lot, the latter, thru Alberto trustor was contained in not just one but two written documents, the
Makilang, demanded the owner’s copy of the certificate of title covering the Assignment of Rights and Ownership as well as Maximo Labanon’s
aforesaid Lot to be surrendered to the Register of Deeds of Cotabato so April 25, 1962 Sworn Statement. In both documents, Maximo Labanon
that the ownership of the heirs of Constancio may be fully effected but the recognized Constancio Labanon’s ownership and possession over
defendants refused and still continue to refuse to honor the trust the eastern portion of the property covered by OCT No. P-14320, even
agreement entered into by the deceased brothers. 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
10. Thus, on November 12, 1991, petitioners filed a complaint5 for Specific over the eastern portion of the land. The existence of an express trust
Performance, Recovery of Ownership, Attorney’s Fees and Damages with cannot be doubted nor disputed.
Writ of Preliminary Injunction and Prayer for Temporary Restraining Order
against respondents. On the issue of prescription, we had the opportunity to rule in Bueno v.
Reyes that unrepudiated written express trusts are imprescriptible:
ISSUE: WON there exists a TRUST? While there are some decisions which hold that an action upon a trust is
imprescriptible, without distinguishing between express and implied trusts,
HELD: YES. 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
The trust agreement between Maximo Labanon and Constancio Labanon Co., Inc. vs. Magdangal, 4 SCRA 84, 88, as follows:
may still be enforced
Under Section 40 of the old Code of Civil Procedure, all actions for
Former Vice-President and Senator Arturo Tolentino, a noted civilist, recovery of real property prescribed in 10 years, excepting only actions
explained the nature and import of a trust: 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
Trust is the legal relationship between one person having an equitable
in section 38 of the Code of Civil Procedure referred only to express
ownership in property and another person owning the legal title to such
unrepudiated trusts, and did not include constructive trusts (that are
property, the equitable ownership of the former entitling him to the
imposed by law) where no fiduciary relation exists and the trustee does not
performance of certain duties and the exercise of certain powers by the
recognize the trust at all.14
latter.10
In the more recent case of Secuya v. De Selma, we again ruled that the
Trusts are classified under the Civil Code as either express or implied.
prescriptive period for the enforcement of an express trust of ten (10) years
Such classification determines the prescriptive period for enforcing such
76
BUSINESS ORGANIZATION I
(By: 3-Manresa, S.Y. 2017-2018)
From the Lectures of: Atty. Raymund Christian S. Ong-Abrantes, CPA
starts upon the repudiation of the trust by the trustee.16 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
In the case at bar, Maximo Labanon never repudiated the express trust executed on September 23, 1988 by and among Parsons' heirs, namely,
instituted between him and Constancio Labanon. And after Maximo Patrick, Michael, Peter and Jose, all surnamed Parsons
Labanon’s death, the trust could no longer be renounced; thus,
respondents’ right to enforce the trust agreement can no longer be 3. The herein legal dispute started when brothers Patrick and Jose, both
restricted nor prejudiced by prescription. 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
Trustor: Constancio August 31, 1992 before the RTC of Makati City, a suit for recovery of MC
Trustee: Maximo No. 1088 with damages against the Estate of Parsons, Patrick Parsons
Beneficiary: Heirs of Constancio and MGCC.
Q: Was there a Trust Agreement? 4. Patrick Parsons averred that his father was, with respect to MC No.
- Yes. 1088, a mere trustee of the true owner thereof, G-P & Co.,
Q: Did they execute a Trust agreement or a deed of trust? Is there a document
of trust agreement? ISSUE:
- There was a document wherein part of it stated that the property is
merely entrusted to Maximo and it was actually owned by 1. WON the transfer of MC No. 590 effected on September 7, 1964 by
Constancio. Grimm in favor of Parsons resulted, as the petitioner would have it, in the
formation of a trust relation between the two?
This is one of the instances wherein the provisions on trust becomes
in(?)convenient and practical. Kasi in this case Constancio was “not schooled” 2. WON the transfer to Parsons of MC No. 590, as replaced by MC No.
or walang pinag-aralan but he has a property. Since wala siyang alam sa mga 1088, partook of the nature of a trust transaction.
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 HELD: YES.
wherein it was clearly stipulated that Maximo holds the eastern portion in trust
for Constancio. Ito yung mga instances wherein yung provisions ng trust HELD: Trust is the legal relationship between one having an equitable
becomes in(?)convenient and practical. This is not for the purpose of avoiding ownership in property and another person owning the legal title to such
law ha. property, the equitable ownership of the former entitling him to the
performance of certain duties and the exercise of certain powers by the
Please, the splitting of the legal title and the beneficial title is not to evade the latter.26 Trust relations between parties may be express, as when the trust
law.
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
Example: Foreigner, bawal makaown ng property, pinangalan sa Pinoy, hindi
pwede sabihin na may trust because the purpose was specifically to evade words evidencing an intention to create a trust; the use of the word trust is
the law. 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,
Dapat the arrangement must be made for the purpose of equitable either through implication of an intention to create a trust as a matter of law
considerations. or through the imposition of the trust irrespective of, and even contrary to
any such intention.29
Q: How about the issue on prescription?
- Since it was an express trust, it cannot prescribe anymore. The
Judging from their documented acts immediately before and subsequent
heirs can no longer repudiate as Maximo, their predecessor
to the actual transfer on September 7, 1964 of MC No. 590, Parsons, as
already died.
transferee, and Grimm, as transferor, indubitably contemplated a
Please take note of this ha. Si trustee, hindi niya nirepudiate ang trust in his trust arrangement.
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 At bottom then, documented events immediately before and after the
during his lifetime, hindi na marerepudiate ng kanyang heirs yung property, February 28, 1968 share certificate conveyance in question veritably
prescription could never run. But we will discuss a case later on (Secuya vs. confirm the trust arrangement Parsons had or intended to have with
Vda. De Selma) na kung saan sabi ng SC, pwede magrun kasinirepudiate Grimm and vice versa, vis-à-vis MC No. 1088. If, as herein respondent
nung heir. Just take note of this.
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
ESTATE of GRIMM VS ESTATE OF PARSONS Club for safekeeping instead of directly to the G-P & Co. was without
sense.
G.R. No. 159810
2. After Grimm's demise on November 27, 1977, Parsons and Simon And lest it be overlooked, Parsons had previously acknowledged Grimm to
continued with the partnership under the same name, G – P and Company, be the owner of MC No. 1088, after his earlier repeated declarations that
as reflected in Articles of Partnership dated December 14, 1977.5 The the transfer of the replaced MC No. 580 was temporary. Parsons was thus
articles of the partnership would later undergo another amendment to in contextually in estoppel to deny, thru the Letter of Trust aforementioned,
77
BUSINESS ORGANIZATION I
(By: 3-Manresa, S.Y. 2017-2018)
From the Lectures of: Atty. Raymund Christian S. Ong-Abrantes, CPA
Summing up, the Court finds the evidence adduced and admitted by AGREEMENT OF PARTITION
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 I, MAXIMA CABALLERO, Filipina, of legal age, married to
Grimm or his estate. The fact that respondent G-P & Co. may have paid, Rafael Cariño, now residing and with postal address in the
starting 1992, as evidence discloses, the membership fees due on MC No. Municipality of Dumaguete, Oriental Negros, depose the
1088 does not make Grimm less of a beneficial owner. Such payment, following and say:
needless to stress, is not a mode of acquiring ownership.
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;
Q: What was the purpose of the trust?
- To temporarily accommodate a Japanese citizen of the playing 2. That the said Lot 5679 was formerly registered in the name
rights of the club. of Felix Abad y Caballero and the sale certificate of which has
already been cancelled by the Hon. Secretary of Agriculture
Q: How was the trust proven? and Commerce;
- Letters.
3. That for and in representation of my brother, Luis
Q: Did the allege trust agreement violate an existing law? Did they circumvent Caballero, who is now the actual occupant of said lot I deem
any particular law? Diba sabi natin bawal magconstitute ng trust if it is to it wise to have the said lot paid by me, as Luis Caballero has
circumvent a law. Dito nangyari, inassign muna sa kanya para maaccomodate no means o[r] any way to pay the government;
si Yoshida –san. How do you reconcile?
- They did not violate any law. In fact, hindi naman law yun, it was 4. That as soon as the application is approved by the
just a policy. It was even suggested to them by the management Director of Lands, Manila, in my favor, I hereby bind
itself. 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
BENIGNA SECUYA ET. AL vs GERARDA M. VDA. DE SELMA address in Tungkop, Minglanilla, Cebu. Said portion of one-
G.R. No. 136021 third (1/3) will be subdivided after the approval of said
(Case Digest: Earvin Alparaque) application and the same will be paid by her to the
government [for] the corresponding portion.
BACKGROUND OF THE CASE:
5. That the said portion of one-third (1/3) will be located
This involves an action for quieting of title filed by Benigna Secuya et. al. adjoining the municipal road;
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 6. I, Paciencia Sabellana y Caballero, hereby accept and take
case) and a Deed of Confirmation of Sale executed in favor of Dalmacio the portion herein adjudicated to me by Mrs. Maxima
Secuya. Caballero of Lot No. 5679 Talisay-Minglanilla Estate and will
pay the corresponding portion to the government after the
FACTS: subdivision of the same;
Before the grant of her application for private sale of Lot 5679, a friar IN WITNESS WHEREOF, we have hereunto set our hands
land (12,750 sqm.), Maxima Caballero executed a document entitled this 5th day of January, 1988, at Talisay, Cebu."
"Agreement of Partition," wherein she stipulated to transfer one-third
(1/3) of the lot to and accepted by Paciencia Sabellano, her aunt. When Notwithstanding its purported nomenclature, this Agreement is not one
the application was approved, Maxima failed to transfer the agreed of partition, because there was no property to partition and the
portion to Paciencia who took possession thereof. parties were not co-owners. Rather, it is in the nature of a trust
agreement.
Paciencia thereafter sold a portion of the lot (3000 sqm.) to
Dalmacio Secuya. When Paciencia died, her only heir, Ramon Trust is the right to the beneficial enjoyment of property, the legal title to
Sabellano, executed a private document, "Deed of Confirmation of Sale," which is vested in another. It is a fiduciary relationship that obliges the
confirming the sale between Paciencia and Dalmacio. The document trustee to deal with the property for the benefit of the beneficiary. Trust
was, however, lost. Meanwhile, Maxima sold the entire lot to Silverio Aro, relations between parties may either be express or implied. An express
husband of Cesaria Caballero. Upon Silverio's death, the lot was trust is created by the intention of the trustor or of the parties. An implied
transferred to Cesaria from whom respondent bought the lot. trust comes into being by operation of law.
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 The present Agreement of Partition involves an express trust. Under
respondent. 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
Petitioners, heirs of Dalmacio Secuya, filed an action for quieting of title intended." That Maxima Caballero bound herself to give one third of Lot
on the ground that respondent's title is a cloud on their title as owners No. 5629 to Paciencia Sabellona upon the approval of the former's
and possessors of the property subject of litigation. They claimed that application is clear from the terms of the Agreement. Likewise, it is
they had been occupying the property for forty-seven years though they evident that Paciencia acquiesced to the covenant and is thus bound to
did not pay the land taxes. The trial court rendered judgment against fulfill her obligation therein.
respondent. It was affirmed, on appeal, by the Court of Appeals.
As a result of the Agreement, Maxima Caballero held the portion
ISSUE: specified therein as belonging to Paciencia Sabellona when the
application was eventually approved and a sale certificate was issued in
Nature of the Agreement between the parties - An Express Trust, Not her name. Thus, she should have transferred the same to the latter,
a Partition but she never did so during her lifetime. Instead, her heirs sold the
entire Lot No. 5679 to Silvestre Aro in 1955.
78
BUSINESS ORGANIZATION I
(By: 3-Manresa, S.Y. 2017-2018)
From the Lectures of: Atty. Raymund Christian S. Ong-Abrantes, CPA
From 1954 when the sale certificate was issued until 1985 when Article 1445. No trust shall fail because the trustee appointed declines the
petitioners filed their Complaint, Paciencia and her successors-in- designation, unless the contrary should appear in the instrument constituting
interest did not do anything to enforce their proprietary rights over the the trust.
disputed property or to consolidate their ownership over the same. In
fact, they did not even register the said Agreement with the Registry of In the case of express trust, acceptance of trust is necessary to
Property or pay the requisite land taxes. While petitioners had been charge him with the office of the trustee and the administration of the trust and
doing nothing, the disputed property, as part of Lot No. 5679, had been to vest the legal title in him. However, his acceptance of trust is not necessary
the subject of several sales transactions and covered by several transfer to its existence and validity, since if he declines the trust the courts will appoint
certificates of title. a trustee to fill the office the he declines.
It is the intention of the trustor to create the trust thus that must be
The Repudiation of the Express Trust respected.
While no time limit is imposed for the enforcement of rights under Article 1446. Acceptance by the beneficiary is necessary. Nevertheless, if the
express trusts, prescription may, however, bar a beneficiary's action trust imposes no onerous condition upon the beneficiary, his acceptance shall
for recovery, if a repudiation of the trust is proven by clear and be presumed, if there is no proof to the contrary.
convincing evidence and made known to the beneficiary.
Here there is a presumption of acceptance on the part of the
There was a repudiation of the express trust when the heirs of
beneficiary except if there is onerous condition.
Maxima Caballero failed to deliver or transfer the property to
Paciencia Sabellona, and instead sold the same to a third person
What are the grounds for the total extinguishment of an express trust?
not privy to the Agreement. In the memorandum of encumbrances of
1. Total loss of object of the trust
TCT No. 3087 issued in the name of Maxima, there was no notation of
2. Expiration of the term
the Agreement between her and Paciencia. Equally important, the
3. Agreement of the parties
Agreement was not registered; thus, it could not bind third persons.
4. happening of the resolutory condition
Neither was there any allegation that Silvestre Aro, who purchased the
5. Total destruction of object
property from Maxima's heirs, knew of it. Consequently, the subsequent
6. Decision of the trust by the court
sales transactions involving the land in dispute and the titles covering it
7. Merger of right of the trustee and beneficiary
must be upheld, in the absence of proof that the said transactions were
8. Prescription of the rights where there is express obligation
fraudulent and irregular.
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
Trustor: Maxima actual adverse possession except if there is repudiation.
Trustee:
Beneficiary: Pacencia What are the requisites for repudiation?
1. The trustee has performed open and unequivocal acts of repudiation
Q: was there repudiation of the express trust? amounting to an ouster of the cestui que trust
- Yes 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
Q: Who repudiated the trust? fixed has prescribe - ordinarily its 10 years
- Heirs of the Trustee.
So this is what I am trying to tell you that you have to compare. In the Heirs Implied Trust
of Maximo Labanon vs. Heirs of Constancio Labanon case, hindi niya
nirepudiate diba during his lifetime, sabi ng SC – No. You cannot repudiate it 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
anymore.
down in Article 1442 shall be applicable.
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 The law provides for an instances for there can be an implied trust
please take note that in this particular case, there were other circumstances but that instances are not exclusive, so in any other cases for purposes of
which would preponderate into the repudiation of trust. 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
Dun sa Heirs of Maximo Labanon vs. Heirs of Constancio Labanon case, is Equitable Consideration.
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 Why would I choose establishing a trust rather than putting it in a last will and
testament?
hindi iupheld yung subsequent sale. Kasi marami na na kaso ito eh.
Remember if there is a will, there’s probate which would take time whereas in
So what does this imply? If you are given a problem wherein the only issue is trust once that condition ends kc namatay ka, the beneficiary can ask for a
repudiation, walang other circumstances you use the Heirs of Maximo reconveyance because by the establishment of an irrevocable trust that
property is no longer property of the trustor, it becomes separate, so if
Labanon vs. Heirs of Constancio Labanon ruling. But if there are other
mamatay man sya, it will no longer part of his estate.
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
Article 1448. There is an implied trust when property is sold, and the legal
and preponderate the evidence, kung sino yung mas heavy. But please estate is granted to one party but the price is paid by another for the purpose
compare this with the previous case ni Maximo for reference. 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
Again, ito yung sinasabi ko na ang ruling ng SC is based on equity. They don’t
conveyed is a child, legitimate or illegitimate, of the one paying the price of the
rule based on the pure provisions of law. Ganun naman talaga ang SC diba. sale, no trust is implied by law, it being disputably presumed that there is a gift
“We are not final because we are infallible, but we are infallible only because in favor of the child.
we are final." US SC justice yun diba? (Robert H. Jackson)
This trust is based on the premised that it’s the substantial interest
We will just continue with implied Trust next time. Madali nalang to.
of the beneficiary which actually governs rather than the legal title.
September 8, 2017
(Transcriber: Janice Espinosa-Molina)
79
BUSINESS ORGANIZATION I
(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 covering the years 2000-2004, and the tax declaration receipts for the
G.R. No. 165696 Meridien Condominium covering the years 2000-2001, showed that to his date
(Case Digest: Earvin Alparaque) it is still the estate of Alexander that is paying for the real estate taxes thereon.
The present controversy involves an action for the settlement of the estate of Whether or not there was an implied trust under Art. 1448 of the Civil Code -
Alexander Ty. The case involves three real properties to which Alejandro Ty NONE
claims absolute ownership. The latter alleged that the properties were merely
registered in trust for Alexander’s siblings. RULING:
Alexander Ty, son of Alejandro Ty and husband of Sylvia Ty, dies of cancer at Petitioner contends that the EDSA property, while registered in the name of
the age of 34. Sylvia files petition for the settlement of Alexander’s intestate his son Alexander Ty, is covered by an implied trust in his favor under Article
estate. In line with this, she also asks the court to sell or mortgage properties 1448 of the Civil Code. This, petitioner argues, is because he paid the price
in order to pay the estate tax amounting to P4,714,560.02 assessed by the when the property was purchased and did so for the purpose of having the
BIR. The properties which were subjected to sale were a parcel of land (1,728 beneficial interest of the property.
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 Article 1448 of the Civil Code provides:
Annapolis, Greenhills.
Art. 1448. There is an implied trust when property is sold, and the legal estate
Alejandro Ty opposed the move and filed for recovery of the property with is granted to one party but the price is paid by another for the purpose of having
prayer for preliminary injunction and/or temporary restraining order. Plaintiff the beneficial interest of the property. The former is the trustee, while the latter
Alejandro claims that he owns the lands in EDSA, Wack Wack and the is the beneficiary. However, if the person to whom the title is conveyed is a
Meridien condo unit because he paid for them. The property was supposedly child, legitimate or illegitimate, of one paying the price of the sale, no trust is
registered in trust for Alexander’s brothers and sisters in case plaintiff dies. implied by law, it being disputably presumed that there is a gift in favor of the
Plaintiff also claimed that Alex had no financial capacity to purchase the child.
disputed property, as the latter was only dependent on the former.
The CA conceded that at least part of the purchase price of the EDSA
Sylvia countered that Alexander had purchased the property with his money. property came from petitioner. However, it ruled out the existence of an
Alexander was financially capable of purchasing it because he had been implied trust because of the last sentence of Article 1448- However, if the
managing the family corporations since he was 18 years old and was also person to whom the title is conveyed is a child, legitimate or illegitimate,
engage in other profitable businesses. 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.
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 Petitioner now claims that in so ruling, the CA departed from jurisprudence in
that the implication created by law under Art. 1448 does not apply if the that such was not the theory of the parties. Petitioner, however, forgets that
property was in the name of the purchaser’s child. It was agreed that it was he who invoked Article 1448 of the Civil Code to claim the
Alejandro partly paid for the EDSA property. Plaintiff appealed. 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
Findings of the CA: 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
Going by the records, we hold that plaintiff-appellee in this case was not able paying the price of the sale, NO TRUST IS IMPLIED BY LAW, it being
to show by clear preponderance of evidence that his son and the defendant- disputably presumed that there is a gift in favor of the child."
appellant were not financially capable of purchasing said property. Neither was
plaintiff-appellee able to prove by clear preponderance of evidence that the Stated otherwise, the outcome is the necessary consequence of petitioner’s
money used to purchase the said properties really came from him. And even theory and argument and is inextricably linked to it by the law itself.
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. 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
If anything, what is clear from the evidence at bench is that Alexander and the of the one paying the price of the sale, and in this case this is undisputed,
defendant-appellant were not exactly bereft of the means, the financial NO TRUST IS IMPLIED BY LAW. The law, instead, disputably presumes
capability or resources, in their own right, to purchase, or acquire, the Meridien a donation in favor of the child.
Condominium and the Wack-Wack property.
On the question of whether or not petitioner intended a donation, the CA
The evidence on record shows that Alexander Ty was 31 years old when he found that petitioner failed to prove the contrary. This is a factual finding
purchased the Meridien Condominium and was 33 years old when he which this Court sees no reason the record to reverse.
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 The net effect of all the foregoing is that respondent is obliged to collate into
care business and a beer garden business. He was actively engaged in the the mass of the estate of petitioner, in the event of his death, the EDSA
business dealings of several family corporations, from which he received property as an advance of Alexander’s share in the estate of his father, to the
emoluments and other benefits. As a matter of fact, Alexander and plaintiff- extent that petitioner provided a part of its purchase price.
appellee had common interest in various family corporations of which they
were stockholders, and officers and directors. The Meridien Condominium and the Wack-Wack property.
Furthermore, at the time of his death, the son Alexander was Vice-President Petitioner would have this Court overturn the finding of the CA that as regards
of Union Ajinomoto Executive Vice-President of Royal Porcelain Corporation; the Meridien Condominium and the Wack-Wack property, petitioner failed to
Treasurer of Polymart Paper Industries; General Manager of Hornblower show that the money used to purchase the same came from him.
Sales Enterprises and Intercontinental Paper Industries, Inc.; President of
High Professional Drilling and Manufacturing, Inc.; President of Crown Again, this is clearly a factual finding and petitioner has advanced no
Consumer Products, Inc.; Executive Vice-President of MVR-TV Picture Tube, convincing argument for this Court to alter the findings reached by the
Inc.; and Director of ABT Enterprise, Inc. He even had a controlling interest in CA.
ABT Enterprises, which has a majority interest in Union Ajinomoto, Inc.
The appellate court reached its findings by a thorough and painstaking review
What is more, the tax declaration receipts for the Wack-Wack property of the records and has supported its conclusions point by point, providing
80
BUSINESS ORGANIZATION I
(By: 3-Manresa, S.Y. 2017-2018)
From the Lectures of: Atty. Raymund Christian S. Ong-Abrantes, CPA
citations from the records. This Court is not inclined to reverse the same. 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
Among the facts cited by the CA are the sources of income of Alexander Ty of plaintiff's signature and personal presence, the loan proceeds to be used as
who had been working for nine years when he purchased these two properties, seed capital for the fishponds; that there being trust and confidence as
who had a car care business, and was actively engaged in the business brothers between plaintiff and defendant, the former instructed the Notary
dealings of several family corporations, from which he received emoluments Public, who prepared the Deeds of Sale, to put in said Deeds the name of
and other benefits. Rodolfo as vendee.
The CA, therefore, ruled that with respect to the Meridien Condominium Defendants denied the material allegations of the complaint and alleged, by
and the Wack-Wack property, no implied trust was created because there way of special and affirmative defense, that Rodolf became the absolute and
was no showing that part of the purchase price was paid by petitioner exclusive owner of the parcels of land having purchased the same after
and, on the contrary, the evidence showed that Alexander Ty had the means complying with all legal requirements for a valid transfer and that in selling a
to pay for the same. 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
What do you call that kind of trust under the first sentence in Article 1448? the vendor's ownership.
Purchase Money Resulting Trust - precisely because somebody else paid the
property and somebody took it for title ISSUE:
Quantum of proof required to prove an implied trust? Whether or not there exists an implied trust between Rodolfo and Eduardo-
(1.) Clear and Satisfactory (2.) trustworthy and sufficiently strong YES, Resulting trust
Exception of Article 1448 is that if it is given to a child no trust is implied by law RULING:
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 Discussion about express and implied trusts
child is capable of buying that for himself so there can be no trust in that case.
Implied trusts are those which are deducible by operation of law from the
TIGNO vs CA nature of the transaction as matters of equity, independently of the particular
G.R. No. 110115 intention of the parties. An implied trust arises where a person purchases
(Case Digest: Earvin Alparaque) 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
BACKGROUND OF THE CASE: one furnishing the consideration for the transfer, unless a different intention or
understanding appears. The trust which results under such circumstances
The present case stems from the right of ownership over three parcels of land. does not arise from a contract or an agreement of the parties, but from the
Eduardo Tigno bought the said properties but his brother Rodolfo was named facts and circumstances; that is to say, the trust results because of equity
vendee in the Deed of Sale in order for the latter to develop said properties and it arises by implication or operation of law. The species of implied trust
and derive income from them. Eduardo is forced to file an action for raised by private respondent was extensively discussed by the Court
reconveyance because his brother sold a portion of the properties without his in Morales, et al. vs. Court of Appeals, et al.:
consent.
A trust is the legal relationship between one person having an equitable
FACTS: ownership in property and another person owning the legal title to such
property, the equitable ownership of the former entitling him to the
Sometime in January, 1980, Bienvenido Sison, Remedios Sison and the heirs performance of certain duties and the exercise of certain powers by the
of Isaac Sison, namely: Manuel Sison, Gerardo Sison and Adelaida Sison latter. The characteristics of a trust are:
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 1. It is a relationship;
a parcel of unirrigated riceland with an area of 3006.66 sqm.), adjoining each 2. It is a relationship of fiduciary character;
other located at Padilla St., Lingayen, Pangasinan. 3. It is a relationship with respect to property, not one involving merely personal
duties;
Sometime in April 1980, Rodolfo Tigno learned that the subject properties 4. It involves the existence of equitable duties imposed upon the holder of the
were for sale. Accordingly, he approached Cruz and told the latter to offer title to the property to deal with it for the benefit of another; and
these parcels of land to his brother, Eduardo Tigno who subsequently bought 5. It arises as a result of a manifestation of intention to create the relationship.
the properties.
Trusts are either express or implied. Express trusts are created by the
Thereafter, a Deed of Sale was executed and Rodolfo was named as vendee intention of the trustor or of the parties, while implied trusts come into being by
in order to enable him to mortgage these properties at PNB for the funds operation of law. In turn, implied trusts are either resulting or constructive
needed for the development of these parcels of land. On April 29, 1989, trusts. Resulting trusts are based on the equitable doctrine that valuable
Rodolfo Tigno, without the knowledge and consent of his brother, sold to consideration and not legal title determines the equitable title or interest and
Spouses Edualino Casipit and Avelina Casipit, 508.56 square meters of the are presumed always to have been contemplated by the parties. They arise
land previously owned by Bienvenido Sison. At the time of sale, the Casipits from the nature or circumstances of the consideration involved in a transaction
were aware that the portion of the land they bought was owned by Eduardo. whereby one person thereby becomes invested with legal title but is obligated
There being a violation of trust and confidence by defendant Rodolfo, in equity to hold his legal title for the benefit of another. On the other hand,
plaintiff demanded from said defendants the reconveyance of said lands, the constructive trusts are created by the construction of equity in order to satisfy
surrender of the possession thereof to him and the cancellation of the Deed of the demands of justice and prevent unjust enrichment. They arise contrary to
Sale of said portion of 508.56 square meters, but all the demands were intention against one who, by fraud, duress or abuse of confidence, obtains or
unjustifiably refused. holds the legal right to property which he ought not, in equity and good
conscience, to hold.
On May 24, 1989, the plaintiff filed a complaint for Reconveyance, Annulment
of Document, Recovery of Possession and Damages against Rodolfo and A resulting trust is exemplified by Article 1448 of the Civil Code, which
defendant spouses. The complaint alleged, among others, that plaintiff reads:
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 Art. 1448. There is an implied trust when property is sold, and the legal estate
the fishponds; that plaintiff and Rodolfo agreed that the latter would secure a is granted to one party but the price is paid by another for the purpose of having
loan from the Philippine National Bank at Lingayen using said lands as the beneficial interest of the property. The former is the trustee, while the latter
collateral; that considering the busy schedule of plaintiff, then as executive is the beneficiary. However, if the person to whom the title is conveyed is a
vice-president of an American firm based in Makati, Metro Manila, it was made child, legitimate or illegitimate, of the one paying the price of the sale, no trust
81
BUSINESS ORGANIZATION I
(By: 3-Manresa, S.Y. 2017-2018)
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 of Rodolfo, as the Deeds of Sale were not yet prepared on May 2, 1980. Thus,
the child. 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
The trust created under the first sentence of Article 1448 is sometimes referred brothers. Secondly, it is well-settled that the tax declarations or the
to as a purchase money resulting trust. The trust is created in order to payments of real estate taxes on the land are not conclusive evidence of
effectuate what the law presumes to have been the intention of the parties in ownership of the declarant or payor. Since defendant Rodolfo is named as
the circumstances that the person to whom the land was conveyed holds it as vendee in the Deeds of Sale, it is only natural that Tax Declarations and the
trustee for the person who supplied the purchase money. corresponding tax payment receipts be in his name so as to effect payment
thereof.
To give rise to a purchase money resulting trust, it is essential that there
be: Petitioners contend that there was no fiduciary relationship created between
the brothers Tigno. Petitioners argue that Rodolfo Tigno had exercised all the
1. An actual payment of money, property or services, or an equivalent, acts of dominion and ownership over the fishponds in question, as nobody
constituting valuable consideration; 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
2. The consideration must be furnished by the alleged beneficiary of a resulting the ownership of a portion to Spouses Casipit.
trust.
We firmly reject these contentions and need only to cite Respondent Court's
There are recognized exceptions to the establishment of an implied incisive findings:
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 After a careful examination of the evidence on record, we hold that an implied
deed to A's child or to a person to whom A stands in loco parentis and who trust was created in favor of Eduardo within the meaning of Article 1448 of the
makes no express promise, a trust does not result, the presumption being Civil Code.
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 It is also the rule that an implied trust arises where a person purchases
in violation of an existing statute and in evasion of its express provision, land with his own money and takes a conveyance thereof in the name of
no trust can result in favor of the party who is guilty of the fraud. 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
As a rule, the burden of proving the existence of a trust is on the party intention or understanding appears. The trust which results under such
asserting its existence, and such proof must be clear and satisfactorily show circumstances does not arise from contract or agreement on the parties, but
the existence of the trust and its elements. While implied trusts may be proved from the facts and circumstances, that is to say, it results because of equity
by oral evidence, the evidence must be trustworthy and received by the courts and arises by implication or operation of law.
with extreme caution, and should not be made to rest on loose, equivocal or
indefinite declarations. Trustworthy evidence is required because oral On the other hand, the record is replete with clear and convincing evidence to
evidence can easily be fabricated. 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
Ruling of the Court regarding the existence of an implied trust constituted over said lands on behalf of plaintiff.
Petitioners deny that an implied trust was constituted between the brothers It was established thru plaintiff's testimony that plaintiff paid P5,000.00 each,
Rodolfo and Eduardo. They contend that, contrary to the findings of as first installment, to the three vendors for a total of P15,000.00 which was
Respondent Court, the documents showing the receipt of the balance of the witnessed by Dominador Cruz and Atty. Manuel. Later, he gave a check to
purchase price of the parcels of land were fully authenticated by Dominador Dominador Cruz, the agent, in the amount of P26,000.00, representing the
Cruz, an instrumental witness. But these documents are proof merely of following:
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 a) P15,000.00 as the balance for the three (3) parcels of land;
was unshakable in testifying that Private Respondent Eduardo, though b) P6,000.00 representing Cruz's commission as agent;
not named in the receipts or in the deeds of sale, was definitely the real c) P5,000.00 for capital gains tax, registration and other incidental expenses.
buyer.
On the other hand, Petitioner Rodolfo, although in possession of the deeds of
Aside from the "trust and confidence" reposed in him by his brother, Petitioner sale in his name, failed to present a single witness to corroborate his claim
Rodolfo was named as vendee in the deeds of sale to facilitate the loan and that he bought the property partly with his own money and partly with the
mortgage the brothers were applying for to rehabilitate the fishponds. Be it money he allegedly borrowed from a certain Jose Manaoat.
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 From the foregoing, it is ineludible that Article 1448 of the Civil Code
Lingayen, Pangasinan and, at the same time, to tend the fish farm on a daily finds application in this case. Although the deeds of sale were in the
basis. Atty. Modesto Manuel, who prepared and notarized the deeds of sale, name of Petitioner Rodolfo, the purchase price was paid by private
unhesitatingly affirmed the unwritten agreement between the two brothers. respondent who was the real owner of the property. Petitioner Rodolfo
is the trustee, and private respondent is the beneficiary.
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 Exceptions to the establishment of an implied resulting trust
but only to enable him to hold the property in trust for his brother, herein 1. Donation to the Child
private respondent. 2. Actual contrary intention is proved
3. When it is against an existing statute and in evasion of its express provision
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 HUANG VS CA
and Tax payment receipts in his name, must inevitably yield to the clear and G.R. No. 108525
positive evidence of plaintiff. Firstly, as has thus been fully established, the (Case Digest: Eliza Devilleres)
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 FACTS:
at Lingayen to generate seed capital for the fishponds, out of which
Rodolfo could derive income. With Rodolfo's name as vendee, there Dolores Sandoval bought two (2) lots in Dasmariñas Village, Lot 20 and
would be no need anymore for the personal presence of plaintiff- 21. Lot 21 was registered in her name; however, Lot 20 was registered
appellant who was very busy with his work in Manila. Moreover, aside in her brother’s name, Petitioner Ricardo Huang. This was because the
from the fact that plaintiff was to travel abroad for thirty (30) days sometime in spouses Milagros and Ricardo Huang advised Dolores that the
June, 1980, he could not have executed a Special Power of Attorney in favor subdivision owner forbade the acquisition of two (2) lots by a single
82
BUSINESS ORGANIZATION I
(By: 3-Manresa, S.Y. 2017-2018)
From the Lectures of: Atty. Raymund Christian S. Ong-Abrantes, CPA
individual. 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
Dolores constructed a residential house in Lot 21 and Ricardo asked an adverse possession. Mere perception of rents and profits by the trustee,
Dolores’ permission to construct a small residential house in Lot 20. 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.
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 IN THE CASE AT BAR
up the said house. 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
Despite the loan, Dolores actually financed the construction of the amounting to an ouster of Dolores. The only acts which may be considered as
house, the swimming pool and the fence in Lot 20 knowing that the indicative of his intention not to respect the trust anymore were his leasing the
Huang Spouses merely holds title in trust for her beneficial interest. 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
Dolores requested the Huangs to execute a Deed of Absolute Sale with refusal to give the necessary papers to Dolores to enable her to get the title
Assumption of Mortgage of Lot 20 with all its improvements in favor of from the SSS. Secondly, the foregoing acts are not positive acts of repudiation;
her to protect her rights, and they obliged. 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 Huangs then leased the house, years after the execution of Deed the fact remains that they were done at the earliest only on 15 March 1980
of Sale, to Deltron-Sprague Electronics Corporation without Dolores’ when Ricardo leased Lot 20 and its improvements to Deltron. Dolores'
permission. complaint before the trial court was filed on 19 February 1981, or within the
10-year prescriptive period.
She tolerated it but challenges to her ownership arise when Deltron
started prohibiting Dolores’ family from using the swimming pool. PRESCRIPTION; TEN (10) YEAR PRESCRIPTIVE PERIOD FROM
ISSUANCE OF TITLE NOT APPLICABLE TO CASE AT BAR
HUANG’S CONTENTION: The implied trust among them was not
supported by evidence and that they were the rightful owner of Lot 20 Petitioners are of the mistaken notion that the 10-year prescriptive period is
and all of its improvements. 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,
ISSUE: W/N an implied trust existed between Dolores and the Huangs, and par. 3, P.D. No. 1529, otherwise known as the Property Registration Decree,
was supported by any evidence. and Art. 1456 of the Civil Code. Reconveyance is available in
caseof registration of property procured by fraud thereby creating
HELD: YES. a constructive trust between the parties, a situation which does not obtain in
TRUSTS; IMPLIED TRUST ESTABLISHED IN CASE AT BAR this case.
The pertinent law is Art. 1448 of the New Civil Code which provides that there ||| (Spouses Huang v. Court of Appeals, G.R. No. 108525, [September 13,
is an implied trust when property is sold and the legal estate is granted to one 1994])
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 Quantum of Proof Required for Repudiation: Clear and Conclusive
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 RAMOS VS CA
the name of Ricardo Huang because she was advised that the subdivision G.R. No. 108121
owner prohibited the acquisition of two (2) lots by a single individual. Guided (Case Digest: Eliza Devilleres)
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. FACTS:
Ricardo became the trustee of Lot 20 and its improvements for the
benefit of Dolores as owner. On or about November 26, 1974, Herminio, together with Herminia,
executed in Lydia's favor an irrevocable special power of attorney, in
ACTION TO COMPEL TRUSTEE TO CONVEY PROPERTY TO sum empowering Lydia to sell, mortgage, or lease the subject property
THE CESTUI QUE TRUST DOES NOT PRESCRIBE; EXCEPTION. 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
Petitioners raise the issue of prescription. But the action to compel the trustee expert, one Isidro Gonzales, as a practical means of giving
to convey the property registered in his name for the benefit of the cestui que assurance to Lydia that Herminio, together with his spouse
trust does not prescribe. If at all, it is only when the trustee repudiates the trust Herminia, was in good faith and recognized the existing implied
that the period of prescription commences to run. trust relationship between them over the subject land, particularly
in view of the restriction annotated on the title certificate in sum to
TEN (10) YEAR PRESCRIPTIVE PERIOD STARTS FROM the effect that within one year from said certificate's issuance no
REPUDIATION OF THE TRUST transfer or alienation of the property shall be made without the
The prescriptive period is ten (10) years from the repudiation of the trust. It is PHHC's written consent.
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 RTC issued an order cancelling and declaring null and void "the owner's
true owner. In this context, and vis-a-vis prescription, Art. 1144 of the New duplicate copy of Transfer Certificate of Title No. 204173 that was lost"
Civil Code, which is the law applicable, provides: "The following actions must and ordering the ROD to issue another owner's duplicate copy. Said
be brought within ten years from the time the right of action accrues: (a) Upon Order was issued upon Herminia's petition, in sum claiming that the
a written contract; (b) Upon an obligation created by law; (c) Upon a judgment." original owner's duplicate copy was lost and missing.
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 After learning of the order of the RTC, Lydia filed the herein petition
gave rise to a cause of action by Dolores against the Huang spouses. 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
NECESSITY OF UNEQUIVOCAL ACTS OF OUSTER OF THE CESTUI QUE delivered to Herminia be cancelled, on the ground that Herminia
TRUST secured such new owner's duplicate copy thru fraud and
Before the periodof prescription may start, it must be shown that: (a) the misrepresentation because she well knew that the supposedly "lost"
trustee has performed unequivocal acts of repudiation amounting to an owner's duplicate copy was in Lydia's possession and custody.
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 Sometimes later, after having verified that Herminio had passed away
conclusive. In Laguna v. Levantino and Valdez v. Olorga, we held that acts in the early part of 1985 and that Herminia and his successors-in-
which may be adverse to strangers may not be sufficiently adverse to 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 (Case Digest: Eliza Devilleres)
the complaint herein. FACTS:
HERMINIA AND HERMINIO RAMOS’ CONTENTIONS: No trust was Delos Santos wants to dispute the finding of the CA in this case which
established in this case because - held:
(1) there is a restriction expressly imposed by the PHHC in the sale of the land There is no question of trust involved under the proven facts of the case, as
to Herminio Ramos, to wit: appellant raises in his third assignment of error. The court a quo made no
Within a period of one year from the issuance of TCT by virtue of this deed no finding as to the existence or non-existence of one. As cited by appellant
transfer or alienation whatsoever of the property subject thereof whether in himself, Article 1448, New Civil Code, provides:
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 There is an implied trust when property is sold, and the legal estate is granted
and (2) even assuming arguendo that Herminio Ramos sold his rights over the to one party but the practice is paid by another for the purpose of having the
lot, the sale was null and void for being contrary to the public policy of awarding beneficial interest of the property. The former is the trustee, while the latter is
PHHC lots to Central Bank employees who are not residential landowners. the beneficiary. However, if the person to whom the title is conveyed is a child,
Private respondent Lydia Celestino, Herminio's vendee, was disqualified to legitimate or illegitimate, of the one paying the price of the sale; no trust is
acquire any PHHC lot because she already owned a residential lot in Quezon implied by law, it being disputably presumed that there is a gift in favor of the
City. child. (Emphasis supplied).
ISSUE: W/N an implied trust exists in this case.
The disputable presumption of a gift as created in the aforequoted provision
HELD: No. 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
TRUST; RULE IF PROVISIONS IN THE TERMS THEREOF BE AGAINST by appellant at least after he married his wife as the supposed beneficiary.
PUBLIC POLICY They then should have enjoyed also the fruits, and also paid for the tax. No
The inevitable conclusion then is that Lydia Celestino, knowing of her evidence, however, of such payment was presented. To all appearances,
disqualification to acquire a lot from the PHHC at the subdivision reserved for appellant knew as a fact that his wife never was the owner of the land, not
qualified Central Bank employees, tried to get one through the backdoor. even as a gift under the legal provision he cited. Otherwise, it should not have
Otherwise stated, she wanted to get indirectly that which she could not do so taken him almost seven long years to assert ownership with the filing of the
directly. Having acted with evident bad faith, she did not come to court with present action. That this action is a mere afterthought, stirred by a legal mind
clean hands when she asked for the reconveyance of the property on the basis with a gambling instinct is not just a mild surmise, considering how long it took
of a resulting trust under Article 1448 of the Civil Code. the appellant to file it in court and its contingent nature. It may be well to
A resulting trust is an "intent-enforcing" trust, based on a finding by the court remember, however, that lawsuits are not won by chance, as by the turn of the
that in view of the relationship of the parties their acts express an intent to dice, or how the cards fall on the gambling table — not while the courts sit,
have a trust, even though they did not use language to that effect. The trust is anyway.
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
CONTENTION OF DELOS SANTOS: An express trust over an
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 immovable was created when it was made to appear that the land in
in accordance with the "clean hands" doctrine. The court generally refuses to question was sold to and registered in the name of Faustino Reyes'
give aid to claims from rights arising out of an illegal transaction, such as where daughter, Virginia — wife of petitioner — to conform with the limitation
the payor could not lawfully take title to land in his own name and he used the imposed by the vendor that no vendee could purchase from the former
grantee as a mere dummy to hold for him and enable him to evade the more than two lots. Consequently, pursuant to Article 1444 of the Civil
land laws, 28 e.g., an alien who is ineligible to hold title to land, who pays for Code, such a trust cannot be proved by parol evidence.
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
ISSUE: W/N there was an express trust in this case.
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 HELD: NO.
necessarily be subject to the same limitations on allowable stipulations in
ordinary contracts, i.e., their stipulations must not be contrary to law, morals, IMPLIED TRUST DEFINITION; SCOPE
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. If his assumption is correct, Article 1444 is applicable and both the trial court
(Ramos v. Court of Appeals, G.R. No. 108121, [May 10, 1994]) 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
SC said that resulting trust is an "intent-enforcing" trust meaning there is intent
correctly pointed out by respondent Court, is Article 1448 which provides as
by the acts of the parties although not expressly agreed. The trust is said to
follows:
result in law from the acts of the parties. But again the consideration is equity
it cannot be made to circumvent the law.
There is an implied trust when property is sold, and the legal estate is
Again as I told you last meeting, here we have a gray area between express granted to one party but the price is paid by another for the purpose of
trust and resulting trust because in Express trust, dba no words are required having the beneficial interest of the property. The former is the trustee,
to establish an express trust, so any other scenario or document or even verbal while the latter is the beneficiary. However, if the person to whom the
can establish an express trust. Now, we have a resulting trust which says that title is conveyed is a child, legitimate or illegitimate, of the one paying
it is "intent-enforcing". So it becomes gray. Based on jurisprudence the SC the price of the sale, no trust is implied by law, it being disputably
would always tilt in favor of equity. So which decision would make it more presumed that there is a gift in favor of the child. (Emphasis supplied).
equitable under the circumstances, Yun ang efollow nila.
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.
DE LOS SANTOS VS REYES
G.R. No 45027
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 properties in behalf of her siblings. As she herself admitted, she intended to
exceptions on the establishment of an implied trust, if it is the donation to the convey Lots 10 and 11 to Jose in the event the latter returned from
child, against public policy and contrary intention to that effect. So this is a abroad. There was thus an implied trust constituted in her favor. Art. 1449 of
contrary intention to that effect. So sabi ng Supreme Court, there can neither the Civil Code states:
be express nor implied trust.
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
Article 1449. There is also an implied trust when a donation is made to a
nevertheless is either to have no beneficial interest or only a part thereof.
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.
There being an implied trust, the lots in question are therefore subject to
collation in accordance with Art. 1061 which states:
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 Every compulsory heir, who succeeds with other compulsory heirs, must bring
donee, he is to have no beneficial interest or only a part thereof. 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
NAZARENO VS CA 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.
G.R. No. 138842
(Case Digest: Jennifer Lim) 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
FACTS: 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
Maximino Nazareno, Sr. and Aurea Poblete were husband and wife. Aurea oblige him to go behind the certificate to determine the condition of the
died on April 15, 1970, while Maximino, Sr. died on December 18, 1980. They property.
had five children, namely, Natividad, Romeo, Jose, Pacifico, and Maximino,
Jr. Natividad and Maximino, Jr. are petitioners in this case, while the estate of
Here, Natividad admitted that she held it in trust so why would it still be an
Maximino, Sr., Romeo, and his wife Eliza Nazareno are the respondents. 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
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 ADAZA VS CA
of sale conveying a number of real properties in favor of his sister, Natividad.
G.R. No. 47354
One of the deeds involved six lots in Quezon City which were allegedly sold
(Case Digest: Jennifer Lim)
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. FACTS:
Unknown to Romeo, Natividad sold Lot 3-B, w/c had been occupied by In the lawful wedlock of Victor Adaza and Rosario Gonzales were born six (6)
Romeo, his wife, & Maximino, Jr.,to Maximino, Jr. Romeo filed the present children: petitioner Horacio, Homero, Demosthenes, respondent Violeta,
case for annulment of salew/ damages against Natividad & Maximino Jr. on Teresita and Victor, Jr. The head of the family,Victor Adaza, Sr., died in 1956,
the ground that both sales were void for lack of consideration-Romeo while the wife died in 1971.
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.
During his lifetime, Victor Adaza, Sr.executed a Deed of Donation dated 10
In 1969, their parents instead offered to sell to them the lots. He testified that, June 1953, covering the parcel of land subject matter of this case located at
although the deeds of sale executed by his parents in their favor stated that Sinonok, Dapitan City, Zamboanga del Norte, in favor of respondent Violeta,
the sale was for a consideration, they never really paid any amount for the then still single. The donation was accepted in the same instrument, which
supposed sale. The transfer was made in this manner in order to avoid the both donor and donee acknowledged before Notary Public ex officio Milagros
payment of inheritance taxes. Allegedly, it was only Natividad who bought the C. Galeposo.
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
The land donated was then partof the public domain, being disposable public
dated January 29, 1970,except as to Lots 3, 3-B, 13 and 14 which had passed
land, and had been held and cultivated by Victor Adaza, Sr. for many years.
on to third persons. On appeal to the Court of Appeals, the decision of the trial
Violeta, with the aid of her brother Horacio, filed a homestead application
court was modified in the sense that titles to Lot 3 (in the name of Romeo
covering the land involved. Four (4) years later, petitioner Horacio invited
Nazareno) and Lot 3-B(in the name of Maximino Nazareno, Jr.), as well as to
respondent Violeta and theother brothers and sister for a family gathering in
Lots 10 and 11 were cancelled and ordered restored to the estate of Maximino
his house. There, Horacio asked Violeta to sign a Deed of Waiver which had
Nazareno, Sr.
been prepared in respect of the property in Sinonok donated by theirfather
ISSUE: Whether or not it was the intention of Maximino Nazareno, Sr. to give Victor Adaza, Sr.
the subject lots to Natividad.
HELD:
This Deed stated that the Sinonok property was owned in common byVioleta
Yes. It cannot be denied that Maximino, Sr. intended to give the six Quezon and her brother Horacio G. Adaza, even though the certificate of title had been
City lots to Natividad. As Romeo testified, their parents executed the Deed of issued in her name only. The Deed also provided for the waiver, transfer and
Sale in favor of Natividad because the latter was the only female and the only conveyance by Violeta in favor of Horacio of one-half (1/2) of the Sinonok
unmarried member of the family. She was thus entrusted with the real property, together with all improvements existing in that one-half (1/2) portion.
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From the Lectures of: Atty. Raymund Christian S. Ong-Abrantes, CPA
Violeta signed this Deed of Waiver: the Deed was also signed by petitioner
Horacio and Homero Adaza as witnesses
The property cost P150k, P75k of which was paid by Valdes. Valdes borrowed
ISSUE: Whether or not there was an implied trust in favor of Horacio. 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
HELD: 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
Yes. Violeta had admitted in the Deed of Waiver, that is, that the "property
Imelda and her co-heirs can stay in the property under a usufruct, free from
[here involved] is owned in common by [her] and [her] brother, Horacio G.
any encumbrance, for 5 years. And in a letter sent to Imelda, should they fail
Adaza, although the certificate of title was issued only in [her] name." SC
to reimburse Valdes for his advances, the property is considered sold to him.
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 Valdes denied that there is a pactum commissorium existing because he said
donated. Article 1449 of the Civil Code is directly in point: there is no creditor-debtor relationship between him and Imelda; and that there
is no trust relationship between him and the deceased Nakpil.
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 ISSUE/S:
nevertheless is either to have no beneficial interest or only a part thereof.
Whether Art. 1450 of the Civil Code applies
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- Whether petitioner can still compel reconveyance of Pulong Maulap from
half (1/2) share claimed by him, indicates lack of any color of right over the respondent Valdes.
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 HELD:
more than nineteen (19) years since the Deed of Donation was executed, the
counterclaim for partition and reconveyance of Horacio's alleged one-half -Yes. Implied trusts, which may either be resulting or constructive, are those
share was barred by laches, if not by prescription. 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
In determining whether delay in seeking to enforce a right constitutes laches, operation of law as matter of equity, independently of the particular intention
the existence of a confidential relationship based upon, for instance, of the parties. Article 1450, which petitioner invokes in the case at bar, is an
consanguinity, is an important circumstance for consideration. Delay in a illustration of an implied trust which is constructive.
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 Article 1450 presupposes a situation where a person, using his own funds,
of laches is not to be applied mechanically as between near relatives; the fact purchases a certain piece of land in behalf of another who, in the meantime,
that the parties in the instant case are brother and sister tends to explain and may not have sufficient funds to purchase the land. The property is then
excuse what would otherwise appears as long delay. 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
Moreover, continued recognition of the existence of the trust precludes the purchased. It is only after the beneficiary reimburses the trustee of the
defense of laches. The two (2) letters noted above sent by respondent Violeta purchase price that the former can compel conveyance of the purchased
to petitioner Horacio, one in 1969 and the other in 1971, show that Violeta as property from the latter.
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 From the evidence adduced, it may be concluded that respondent Valdes,
confidence normally connoted in our culture by that relationship, should not be using his own funds, purchased Pulong Maulap in behalf of the late Nakpil.
taken against him. Petitioners' counter-claim in the trial court for partition and This is based on the letters to petitioner of Valdes where he categorically
reconveyance cannot be regarded as barred whether by laches or by admitted that "[b]oth of these loans, while in my (respondent Valdes) name,
prescription. 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
Take note, dito may papel, may Deed of Waiver, expressly admitting that she mortgage of the vendors with PNB was liquidated from the proceeds of a loan
holds this in trust for Horacio. So bakit hindi parin xa Express Trust? 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
Article 1450. If the price of a sale of property is loaned or paid by one person to finance the repair and renovation of Pulong Maulap. And, while the
for the benefit of another and the conveyance is made to the lender or pay or downpayment of P50,000.00 and the partial payment of P25,000.00 to PNB
to secure the payment of the debt, a trust arises by operation of law in favor of came from the personal funds of Valdes, he considered them as advances to
the person to whom the money is loaned or for whom it is paid. The latter may the late Nakpil. Otherwise, Valdes would never have deemed the amount as
redeem the property and compel a conveyance thereof to him "unpaid" in his letter to petitioner of 17 September 1974.
In the case of PNB vs. CA, it held that this is a resulting trust. However, in the The letter of Valdes to the City Treasurer of Baguio made while remitting
case of Lopez vs.CA, it said that this is a constructive trust. But Legal ___ payment of real estate taxes is also enlightening. It provided therein that the
would appreciate this provision as a resulting trust based again on who has payment being tendered was "[o]n behalf" of the Nakpil's, which is an express
the beneficial title. recognition of the implied trust.
NAKPIL VS IAC G.R. No. 74449 (Case Digest: Jennifer Lim) However, petitioner cannot as yet redeem and compel conveyance of the
property. For, Valdes must still be reimbursed for the advances he made on
FACTS:
the disputed property, such reimbursement being a conditio sine qua non for
Carlos Valdes acquired title over a Baguio summer residence named Pulong compelling conveyance under Art. 1450.
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’ The period within which to compel conveyance of Pulong Maulap is not
name, thereby creating a trust. 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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From the Lectures of: Atty. Raymund Christian S. Ong-Abrantes, CPA
case before the Court, petitioner could still compel conveyance of the disputed At the time the extrajudicial settlement was executed, Gregorio Jr., was a
property from respondent provided the former reimburses the latter for all his minor. For this reason, he was not included or informed of the partition. As he
expenses. 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
After all, Valdes never repudiated the constructive trust during the lifetime of trust in his favor by analogy to Art. 1451 of the Civil Code, which provides:
the late Jose Nakpil. On the contrary, he expressly recognized it. The
ART. 1451, NCC. When land passes by succession to any person and he causes the legal title to be put in the name
prescriptive period therefore did not begin to run until after he repudiated the
of another, a trust is established by implication of law for the benefit of the true owner.
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 Art. 1451 was held as creating a resulting trust, which is founded on the
within the ten-year period. 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.
Now what happens if hindi nakabayad si beneficiary? 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,
You will file a collection suit or foreclose the property. It is improper to Jr. to the extent of his share. Rosario testified that she did not claim the
appropriate immediately because it is pactum commissorium.
entire property, while Atty. de la Serna added that the partition only involved
What happens in Foreclosure, magkakaroon ng execution sale, there will be
a public bidding in effect that is not pactum commissorium because there is the shares of the three participants.
no automatic appropriation. That is the distinction between pactum HE IS NOT BARRED BY LACHES.
commissorium and obtaining the property in a foreclosure proceeding. A cestui que trust may make a claim under a resulting trust within 10
years from the time the trust is repudiated.
Article 1451. When land passes by succession to any person and he causes Although the registration of the land in private respondent Diez’s name
the legal title to be put in the name of another, a trust is established by operated as a constructive notice of her claim of ownership, it cannot be
implication of law for the benefit of the true owner. 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
This is a resulting trust. Please take note that the law speaks of the inherited parties in the partition. Indeed, it has not been shown whether he had been informed of her exclusive
land, so this would only apply kapag land xa.
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.
ANCOG VS CA
Please connect this with your law on co-ownership, so even if the title is given
to one, there is still co-ownership.
ISSUE: (R/T trust issue)
A. WON an implied trust was created in Gregorio Jr.’s favor when the land Article 1453. When property is conveyed to a person in reliance upon his
was registered in the name of Rosario Diez. (YES) declared intention to hold it for, or transfer it to another or the grantor, there is
B. If so, WON Gregorio Jr. was barred by laches, considering that he was an implied trust in favor of the person whose benefit is contemplated.
still a minor at the time the EJS was executed. (NO)
Please take note that this is one of the examples that the law enforces the
HELD: An implied trust was created. And Gregorio Jr. was not barred by intention of the parties. It is based on the promise or representation of the
laches. 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
**EJS WAS UPHELD TO BE VALID. ONLY ERROR WAS ON THE ISSUE ON LACHES** denying his representation as against the person for whose benefit the implied
trust is created.
AN IMPLIED TRUST WAS 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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From the Lectures of: Atty. Raymund Christian S. Ong-Abrantes, CPA
of the property or where the consideration or part thereof has been furnished Granting that fraudulent acquisition of property exists, respondents are
by or for another. barred by prescription for having filed their complaint for reconveyance
only after more than 8 years from the discovery of fraud allegedly
Article 1454. If an absolute conveyance of property is made in order to secure committed by the heirs, arguing that under the law, the action prescribes
the performance of an obligation of the grantor toward the grantee, a trust by in 4years, reckoned from the discovery of fraud.
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 ISSUE:
property to him.
A.WON an implied trust was created. (YES)
Please take note, that it's an Absolute Conveyance so the property is given to B.If so, WON the action for reconveyance has prescribed. (NOT
you in order to secure the performance of the grantor. PRESCRIBED)
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. HELD: An implied trust was created when a person acquires a property
through fraud. The law thereby creates the obligation of the trustee to
Article 1455. When any trustee, guardian or other person holding a fiduciary reconvey the property and title to the true owner. As such, an action for
relationship uses trust funds for the purchase of property and causes the reconveyance based on implied trust may be filed within 10 years. Here,
conveyance to be made to him or to a third person, a trust is established by it was filed on time, and the action has not prescribed.
operation of law in favor of the person to whom the funds belong.
A.IMPLIED TRUST WAS CREATED.
Soano ba’yongmay fiduciary relationship? dba in relation to our discussion, a Respondents alleged in their complaint for reconveyance and damages
partner, what if a partner holding the funds of the partnership uses the that petitioner and his co-heirs acquired the subject property by means
partnership fund for the purchase of the property and causes the conveyance
of fraud. Article 1456 of the Civil Code provides that a person acquiring
to be made to himself or to a third person. Will there be a trust? Correlate it in
property through fraud becomes, by operation of law, a trustee of an
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 implied trust for the benefit of the real owner of the property. Hence, an
trust. According to Lopez, it's a constructive trust. implied trust was created. Consequently, the law thereby creates the
obligation of the trustee to reconvey the property and the title thereto in
Remember the premise of constructive trust is to avoid fraud or mistake, so if favor of the true owner.
ginawa yan ng the one who holds fiduciary relationship to defraud the
person with whom he has fiduciary relationship with that becomes a B.ACTION FOR RECONVEYANCE HAS NOT PRESCRIBED.
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. 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
So either way, resulting or constructive, depends upon the or the date of issuance of the certificate of title over the property. (P/T
circumstances. In resulting, there is an intention of the parties; it is just ART. 1144 (2))
the law which enforces an intention.
Article 1456. If property is acquired through mistake or fraud, the person In the instant case, TCT No. T-12561 was obtained by petitioner and his
obtaining it is, by force of law, considered a trustee of an implied trust
co-heirs on September 28, 1990, while respondents filed their complaint
for the benefit of the person from whom the property comes.
for reconveyance on August 18, 1999. Hence, it is clear that the ten-year
prescriptive period has not yet expired.
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. Petitioner invokes laches and estoppel on the part of respondent. The
Court found this unmeritorious. As a rule:
Can there be an implied trust in the absence of fraud or mistake? Yes.
a. The prescriptive period applies only if there is an actual need to
BRITO VS DIANALA reconvey the property as when the plaintiff is not in possession
G.R. 171717 thereof.
(Case Digest: Lilybeth Petallo) 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
FACTS: 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
This involves a parcel of land originally owned by spouses Esteban and
thereof may wait until his possession is disturbed or his title is attacked before taking steps to
Eufemia, who died leaving their children as heirs. The heirs filed a vindicate his right, the rationale for the rule being, that his undisturbed possession provides him a
Complaint for Recovery of said land against a certain Golez, in which a continuing right to seek the aid of a court of equity to ascertain and determine the nature of the
compromise agreement was made. TCT No. T-12561 was thereafter adverse claim of a third party and its effect on his own title, which right can be claimed only by the
issued on September 28, 1990 in the name of said heirs Margarita, one who is in possession.
Bienvenido, and Francisco. Margarita is petitioner’s wife.
PETITIONER’S CONTENTION:
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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
Please take note that in express trust it’s imprescriptible unless there are I. On Reconciling the rule on proscription against collateral
positive acts of repudiation. Pag Implied trust, ganun din attack and the rule on propriety of an action for
reconveyance based on implied trust
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 Q: Isn’t it that an action for reconveyance is in effect an indirect attack on the
the properties so once registered na maging constructive notice na sya to the certificate of title? Di ba bawal ang indirect or collateral attack? If you want to
whole world that you are repudiating the trust, that you are asserting adverse question a certificate of title, it has to be in a direct proceeding and it has to be
ownership from it. 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
However, there are some cases wherein the SC said that it is from the certificate of title?
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 Di ba sa landtitles, merong 1 year to question. After lapse of one year, it
para lang d sya mag prescribe. Now one thing in common for this decision is becomes indefeasible, so you can no longer attack. Now if an action of
that based on equitable consideration. 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?
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
A: Hindi siya indirect attack or collateral attack. The fact that you are asking
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 for reconveyance, means that you acknowledge that it is named to a different
ownership. 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
If you are going to be asked in your bar exam or in your exam, the reckoning have to follow your rules on property to have ownership over the thing.
period will be at the time of registration. 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
Now some cases previously, it would say that it is 4 years but that has been constitute as a review of the proceedings of the issuing of the title. It is just that
misapplied and reiterated couple of times by jurisprudence that it is not 4 years you are admitting that it is registered in the name of another person and you
but rather 10 years. Reference is PD 1529, The Property Registration Act. want to reconvey. Kaya nga “reconvey” ang tawag sa kanya, hindi siya
annulment of title but a reconveyance. Meaning, you are respecting the title,
Now, express trust, imprescriptible unless repudiated. Implied trust, there's it is just that the person in whose name it is registered and the real owner
repudiation which is in the form of issuance of the title in the name of the one
are not one, so you have to reconvey. So if you are going to be asked on
repudiating, so 10 years. Exception to that, it becomes imprescriptible if the
person asking for reconveyance is in possession of the property. how to reconcile that, that is your answer.
Why is it imprescriptible? Because remember kon nasa possession ka tapos For purposes of the exam, please read the explanation of the Supreme Court
e reconvey nimo ang property na nakapangalan sa uban. Remember it will be in this case of Hortizuela vs Tagufa dun sa sinabi ko nga na it is not an
in the form of quieting of title. The requisite is that d kailangan may legal title, indirect 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, Hortizuela vs Tagufa
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 “In this case, in filing the complaint for reconveyance and recovery of
even if lapse nang 10 years if you are in possession, you can still ask for an possession, Hortizuela was not seeking a reconsideration of the granting
action for reconveyance pero technically the supreme court will going to treat of the patent or the decree issued in the registration proceedings. What
it as an action to quiet title, why, if they are going to treat it as an action for she was seeking was the reconveyance of the subject property on account
reconveyance, it is going to be prescriptible but if they are going to treat it as of the fraud committed by respondent Gregoria. An action for
an action to quiet title it’s going to be imprescriptible. 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 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: the land to him.”
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
II. On counting from the date of discovery of fraud instead
proven.
of the date of registration, for equitable consideration
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 In this particular case of Samonte vs CA, nalaman lang ng party noong
prescription? Then you look at the time kon saan xa mag re-reckon. Again, nagkaroon na ng litigation. Before that, hindi nila alam. So sabi ng Supreme
general rule is from the time of the issuance of the certificate of title meaning Court, if we will apply the general rule, it will be inequitable on the part of the
at the time ni record, kon ako yung trustee, sa akin nakapangalan ang real owner. So this is a particular example wherein hindi na-fo-follow ang
document so in the reconveyance of property dun mag ka.count kc it becomes general rule. Based on jurisprudence, ano ba talaga ang rule? When you see
a constructive notice. Exception is if the one asking for reconveyance is in a case like this, it is going to be the registration or discovery of fraud,
possession of the property because that would be in the nature of an action to whichever is later. If the problem is very straightforward, you go back to
quiet title which is imprescriptible.
the general rule pero kapag may particular aspect of fraud, if it is going
Again there are few cases wherein pag may fraud or mistake pag ma reconvey to be inequitable to judge based on the general rule, you count it from
sya or na titled sya or na registred sya way back tapos if they are going to use the date of discovery of fraud.
that rule, it becomes prescriptible, so ang ginagawa ng supreme court pag
there are other facts and circumstances leading towards fraud talaga on the Ang thrust ng trust is, it is based on equitable consideration. Hindi nga sila
part of the one repudiating, they can put a leeway and they will count it from prepared to apply the general rule, paano na lang tayo.
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. III. On courts changing the original action to an action for
reconveyance where there is implied trust based on
Important Concepts from the FINAL CLASS DISCUSSION on TRUST: Article 1456
(Excerpts from the recorder)
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
89
BUSINESS ORGANIZATION I
(By: 3-Manresa, S.Y. 2017-2018)
From the Lectures of: Atty. Raymund Christian S. Ong-Abrantes, CPA
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.
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.
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.”
90
BUSINESS ORGANIZATION I
(By: 3-Manresa, S.Y. 2017-2018)
From the Lectures of: Atty. Raymund Christian S. Ong-Abrantes, CPA
(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
Therefore, ruled the Court of Appeals, the attachment made over the
We have a few cases. What happened in the case of ChemPhil Export vs Chemphil shares in the name of Garcia was made in accordance with law
CA? and the lien created thereby remained valid and subsisting at the time
Chemphil Export & Import Corp vs. Court of Appeals 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.
(Digest by: Ana Lapu) He/she is in effect an extension of the latter. Obviously, as such, one
NOTE: The case is very long with so many issues. Highlight and of her duties is to receive letters and notices for and in behalf of her
underscore supplied. superior, as in the case at bench. The notice of garnishment was
addressed to and was actually received by Chemphil's president
FACTS: through his secretary who formally received it for him.Thus, in one
case, we ruled that the secretary of the president may be considered
Before us is a legal tug-of-war between the Chemphil Export and Import an "agent" of the corporation and held that service of summons on
Corporation (hereinafter referred to as CEIC), on one side, and the PISO him is binding on the corporation. Moreover, the service and receipt of
and Jaime Gonzales as assignee of the Bank of the Philippine Islands the notice of garnishment was duly acknowledged and confirmed by the
(BPI), Rizal Commercial Banking Corporation (RCBC), Land Bank of corporate secretary of Chemphil, Rolando Navarro and his successor
the Philippines (LBP) and Philippine Commercial International Bank Avelino Cruz through their respective certifications. We rule, therefore, that
(PCIB), on the other (hereinafter referred to as the consortium), over there was substantial compliance with Sec. 7 (d), Rule 57 of the Rules of
1,717,678 shares of stock (hereinafter referred to as the "disputed shares") Court.
in the Chemical Industries of the Philippines (Chemphil/CIP).
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 Discussion: What was the issue on subrogation? So the question here is,
consortium with the Regional Trial Court seeking judicial declaration, kasi sinettle to diba, there was a compromise agreement, sinettle, binayaran
construction and interpretation of the validity of the surety agreement that yung utang, tapos ngayon, ang nagbayad, may binenta na property pero part
Dynetics and Garcia had entered into with the consortium and to ng stipulation was the purchase price should be.. instead of bayaran siya,
perpetually enjoin the latter from claiming, collecting and enforcing any ibayad nalang dun [huh? Sir?], ngayon ang question, sabi nung sa part ng
purported obligations which Dynetics and Garcia might have undertaken in Bank, I was subrogated kasi ako yung nagbayad, pero sabi ng SC, No. that
said agreement. The consortium filed their respective answers with was the money of Garcia, there was an agency. In this case, the provisions on
counterclaims alleging that the surety agreement in question was valid and subrogation cannot apply since wala naming 3rd party, in effect yung
binding and that Dynetics and Garcia were liable under the terms of the nagbayad, si 3rd party, is acting for his principal who is Mr. Garcia.
said agreement. A notice of garnishment covering Garcia's shares in
CIP/Chemphil (including the disputed shares) was served on From FT of the case: When FCI issued the BA check to SBTC in the amount
Chemphil through its then President.The notice of garnishment was of P35,462,869.62 to pay Garcia's indebtedness to the said bank, it was in
duly annotated in the stock and transfer books of Chemphil on the same effect paying with Garcia's money, no longer with its own, because said
date. The trial court denied the application of Dynetics and Garcia for amount was part of the purchase price which FCI owed Garcia in payment for
preliminary injunction and instead granted the consortium's prayer for a the sale of the disputed shares by the latter to the former. The money "paid"
consolidated writ of preliminary attachment. Hence, after the consortium by FCI to SBTC, thus properly belonged to Garcia. It is as if Garcia himself
had filed the required bond, a writ of attachment was issued and paid his own debt to SBTC but through a third party — FCI. Since the money
various real and personal properties of Dynetics and Garcia were used to discharge Garcia's debt rightfully belonged to him, FCI cannot be
garnished, including the disputed shares. 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. Valle's acts. It cannot even be denied that Filipinas Life benefited from the
1302 (2), was not subrogated to the rights of SBTC against Antonio Garcia investments deposited by Valle in the account of Filipinas Life. In our
and did not acquire SBTC's attachment lien over the disputed shares which, considered view, Filipinas Life had clothed Valle with apparent authority;
in turn, had already been lifted or discharged upon satisfaction by Garcia, hence, it is now estopped to deny said authority. Innocent third persons
through FCI, of his debt to the said bank. should not be prejudiced if the principal failed to adopt the needed
measures to prevent misrepresentation, much more so if the principal
ratified his agent's acts beyond the latter's authority.
Filipinas Life vsPedroso G.R. No. 159489; February 4, 2008 (Digest
by: Ana Lapu)
Discussion: Ano lang ba ang ino-offer ni Filipinas? Sabi ni Filipinas, it is only
FACTS: 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
Respondent Teresita O. Pedroso is a policyholder of a 20-year endowment that while we acknowledge that Agent Valle is our agent, still the act was made
life insurance issued by petitioner Filipinas Life Assurance Company outside the scope of his authority. Ano ang sabi ng SC? In a contract of
(Filipinas Life). Pedroso claims Renato Valle was her insurance agent agency, it is the principal that is bound if the agent acted within the scope of
since 1972 and Valle collected her monthly premiums. In the first week of his authority. So kung mag-exceed si agent sa kanyang authority, he will be
January 1977, Valle told her that the Filipinas Life Escolta Office was personally bound. However, if it was ratified by the principal, then pareho
holding a promotional investment program for policyholders. It was offering silang solidarily liable.
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 Eurotech Industrial Technologies Inc. vs Cuizon
check for P800 for the 8% prepaid interest and an agents receipt. G.R. No. 167552; April 23, 2007
(Digest by: Ana Lapu)
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 FACTS: From January to April 1995, petitioner sold to Impact Systems
was even told she could "push through with the check" she issued. From various products allegedly amounting to P91,338.00 pesos. Subsequently,
the records, the check, with the endorsement of Alcantara at the back, was respondents sought to buy from petitioner one unit of sludge pump valued
deposited in the account of Filipinas Life with the Commercial Bank and at P250,000.00 with respondents making a down payment of P50,000.00.
Trust Company (CBTC), Escolta Branch. When the sludge pump arrived from the United Kingdom, petitioner refused
to deliver the same to respondents without their having fully settled their
Pedroso waited for the maturity of her initial investment. A month after, her
indebtedness to petitioner. Thus, on 28 June 1995, respondent EDWIN
investment of P10,000 was returned to her after she made a written
and Alberto de Jesus, general manager of petitioner, executed a Deed of
request for its refund. The formal written request, dated February 3, 1977,
Assignment of receivables in favor of petitioner. Impact systems is owed
was written on an inter-office memorandum form of Filipinas Life prepared
by ERWIN Cuizon.
by Alcantara. To collect the amount, Pedroso personally went to the
Escolta branch where Alcantara gave her the P10,000 in cash. After a Despite the existence of the Deed of Assignment, respondents proceeded
second investment, she made 7 to 8 more investments in varying amounts, to collect from Toledo Power Company the amount of P365,135.29.
totaling P37,000 but at a lower rate of 5% prepaid interest a month. Upon Alarmed by this development, petitioner made several demands upon
maturity of Pedroso's subsequent investments, Valle would take back from respondents to pay their obligations. As a result, respondents were able to
Pedroso the corresponding yellow-colored agent's receipt he issued to the make partial payments to petitioner. On 7 October 1996, petitioner's
latter. 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
Pedroso told respondent Jennifer N. Palacio, also a Filipinas Life insurance
excluding interests and attorney's fees. Because of respondents' failure to
policyholder, about the investment plan. Palacio made a total investment
abide by said final demand letter, petitioner instituted a complaint for sum
of P49,550 but at only 5% prepaid interest. However, when Pedroso tried
of money, damages, with application for preliminary attachment against
to withdraw her investment, Valle did not want to return some P17,000
herein respondents
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, By way of special and affirmative defenses, respondent EDWIN alleged
they went to Filipinas Life Escolta Office to collect their respective that he is not a real party in interest in this case. According to him, he was
investments, and to inquire why they had not seen Valle for quite some acting as mere agent of his principal, which was the Impact Systems, in his
time. But their attempts were futile. Hence, respondents filed an action for transaction with petitioner and the latter was very much aware of this fact.
the recovery of a sum of money. Filipinas Life contends that that the
investment scheme offered to respondents by Valle, Apetrior and ISSUE:
Alcantara was outside the scope of their authority as agents of Filipinas
Life. Whether the act of Edwin in signing the Deed of Assignment binds his
principal Impact Systems
ISSUE:
HELD:
Whether the agents of Filipinas Life exceeded the scope of their authority
Yes, the act of Edwin in signing the Deed of Assignment binds Impact
HELD: No, Systems
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 The Supreme Court held that in a contract of agency, a person binds
responsible for the acts of its agent done within the scope of its authority, himself to render some service or to do something in representation or on
and should bear the damage caused to third persons. When the agent behalf of another with the latter's consent. Its purpose is to extend the
exceeds his authority, the agent becomes personally liable for the damage. personality of the principal or the party for whom another acts and from
But even when the agent exceeds his authority, the principal is still whom he or she derives the authority to act. It is said that the basis of
solidarily liable together with the agent if the principal allowed the agent to agency is representation, that is, the agent acts for and on behalf of the
act as though the agent had full powers. In other words, the acts of an principal on matters within the scope of his authority and said acts have
agent beyond the scope of his authority do not bind the principal, unless the same legal effect as if they were personally executed by the principal.
the principal ratifies them, expressly or impliedly. Ratification in agency is
the adoption or confirmation by one person of an act performed on his In this case at hand, the parties do not dispute the existence of the agency
behalf by another without authority. relationship between respondents ERWIN as principal and EDWIN as
agent.
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 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. there any allegation, much less proof, that PCRB ratified Mondigo’s act or
Ano sabi ng SC? In this particular case, the SC said that The powers of an is estopped to make a contrary claim.
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 Discussion: in effect, what did the manager do? Nakamortgage pa diba?
entrusted to his care and management. In the absence of an agreement to the Tapos nirelease niya from mortgage. Let’s compare this to the previous case,
contrary, a managing agent may enter into any contracts that he deems kasi diba sabi don it is included within the scope of the agent’s authority if it’s
reasonably necessary or requisite for the protection of the interests of his reasonably necessary. Now, is this reasonably necessary dun sa kanyang job
principal entrusted to his management. 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
So what the SC is trying to say: may business ka, may principal, tapos meron in general charge of the corporation, with apparent authority commensurate
din kayong manager. Hindi naman sa lahat kailangan meron siyang SPA, with the ordinary business entrusted him and the usual course and conduct
pwede naman general power lang, if it involves acts reasonably necessary or thereof, yet the power to modify or nullify corporate contracts remains
requisite for the protection of the interests of his principal entrusted to his generally in the board of directors. So in this particular case, by saying
management. In this particular case, hindi sila makabayad. Wala silang verbally, by allowing the title to be released as lien, the manager is actually
choice, but to execute a deed of assignment. So in this particular case, sabi modifying the contract. So it’s not part of the manager’s obligation.
ng SC, that is included in the power of the manager.
October 3, 2017
VioletaBanateet. al. vs. Philippine Countryside Rural Bank Transcriber: Zarah Domingo
GR 16382513 July 2010
(Digest by: April Pareno)
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
FACTS: Sometime in November 1997 the spouses Maglasang and the repudiate the agency, knowing that another person is acting on his
spouses Cortel asked PCRB’s permission to sell the properties which they behalf without authority.
mortgaged with the bank. They likewise requested that the said properties
be released from the mortgage since the two other loans were adequately Agency may be oral, unless the law requires a specific form.
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 As you can see in the provision, it is the act of the principal.
full payment ofthe subject loan. They thereafter sold to petitioner
VioletaBanate the subject properties for P1,750,000.00 and used the Classification of Agency as to Manner of Execution:
amount to pay the subject loan with PCRB. (1) Express
(2) Implied
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
If Express, there is actually an authority orally or in writing. It can be Implied,
her name. It, however, carried the mortgage lien in favor of PCRB,
from the acts of the principal, or his silence, or lack of action or failure to
prompting the petitioners to request from PCRB a Deed of Release of
repudiate the agency, knowing that another person is acting on his behalf
Mortgage. As PCRB refused to comply with the petitioners’ request, the
without authority.
petitioners instituted an action for specific performance before the RTC to
compel PCRB to execute the release deed.
An agency can be gratuitous or onerous.
Accordingly, PCRB claimed that full payment of the three loans, obtained
by the spouses Maglasang, was necessary before any of the mortgages The extent of business covered:
could be released; the settlement of the subject loan merely constituted (1) General – covers all the business of the principal;
partial payment of the total obligation. Thus, the payment does not (2) Special – it covers only one or more specific transactions
authorize the release of the subject properties from the mortgage lien.
The authority may be couched in general terms which is deemed to comprise
ISSUE: Whether or not Mondigo, as branch manager of PCRB, has the only acts of administration or it can be couched in specific terms which
authority to modify the original mortgage contract on behalf of the authorize only the performance of specific acts.
company.
Nature and Effects: You have representative –the agent acts in the name of
RULING: NO. He is not authorized to modify the mortgage contract that the principal.
would in eff ect cause novation.
Can an agency be presumed?
Under the doctrine of apparent authority, acts and contracts of the agent, As a general rule, no, because the relationship between the principal and
as are within the apparent scope of the authority conferred on him, agent, must exist as a fact. The only exceptions to this rule are:
although no actual authority to do such acts or to make such contracts has (1) When the agency arises by operation or law; or
been conferred, bind the principal. The principal’s liability, however, is (2) The agency is presumed to prevent unjust enrichment.
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 Are there formal requirements for an agency?
was given. In other words, apparent authority is determined only by the As a general rule, none, except in particular provisions which we will discuss
acts of the principal and not by the acts of the agent. There can be no later.
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 Yun Kwan Byung vs. Philippine Amusement and Gaming
good faith as a result of the exercise of reasonable prudence by a third Corporation
party as claimant, and such acts or conduct must have produced a change
of position to the third party’s detriment. G.R. No. 163553 December 11, 2009
In the present case, the decision of the trial court was utterly silent on the (Digest by: April Pareno)
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 FACTS: PAGCOR launched its Foreign Highroller Marketing
presumed to have of, its responsible officers’ acts regarding bank branch Program. The Program aims to invite patrons from foreign
aff airs, was ever adduced to establish the branch manager’s apparent countries to play at the dollar pit of designated PAGCOR-operated
authority to verbally alter the terms of mortgage contracts. Neither was
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 Acceptance may be express or implied. Of course it is express when it oral or
with industry practice. 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.
Petitioner, a Korean national, alleges that he came to the
Article 1884: The agent is bound by his acceptance to carry out
Philippines four times to play for high stakes at the Casino Filipino;
the agency and is liable for the damages which, through his non-
that in the course of the games, he was able to accumulate
performance, the principal may suffer.
gambling chips worth US$2.1 million. Petitioner contends that
when he presented the gambling chips for encashment with
He must also finish the business already begun on the death of the
PAGCORs employees or agents, PAGCOR refused to redeem
principal, should delay entail any danger.
them.
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,
PAGCOR claims that petitioner, who was brought into the he must react immediately so that his supposed principal will take notice.
Philippines by ABS Corporation, is a junket player who played in
the dollar pit exclusively leased by ABS Corporation for its junket Article 1871: Between persons who are present, the acceptance
players. PAGCOR alleges that it provided ABS Corporation with of the agency may also be implied if the principal delivers his power
distinct junket chips. ABS Corporation distributed these chips to its of attorney to the agent and the latter receives it without any
junket players. At the end of each playing period, the junket players objection.
would surrender the chips to ABS Corporation. Only ABS
Corporation would make an accounting of these chips to
PAGCORs casino treasury. Is this presumption conclusive? No, it is only disputable. You can actually rebut
it with contrary proof.
RULING: Acts and conduct of PAGCOR negates the existence of So the construction of a power of attorney must be strictly construed and
an implied agency or an agency by estoppels. Petitioner alleges strictly pursued. Kaya nga bawal yan na magpa-SPA ka tapos magpa-notarize
that there is an implied agency. Petitioners argument is clearly ka sa city hall. Nakakatakot yan. Pag-SPA, dapat proper talaga siya. Paano
misplaced. The basis for agency is representation, that is, the what if ang ibebenta lupa, kawawa. It must be strictly construed. Kung ano
agent acts for and on behalf of the principal on matters within the yung powers granted in an SPA, yun lang ang granted to the agent as regards
scope of his authority and said acts have the same legal effect as the principal.
if they were personally executed by 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.
On the part of the principal, there must be an actual intention to
appoint or an intention naturally inferable from his words or actions, If you try to look at an SPA, meron din siya on the later paragraph, meron yan
while on the part of the agent, there must be an intention to accept general powers, necessarily implied. Yun siya, yung actions na yun must be
the appointment and act on it. Absent such mutual intent, there is related doon sa main purpose of the power of attorney, otherwise, the power
generally no agency. is not deemed to be granted.
There is no implied agency in this case because PAGCOR did not The meaning of “present” in Article 1871, this is not limited to face-to-face
hold out to the public as the principal of ABS Corporation. encounters. Pwede by phone, it can also be considered as present ka.
PAGCORs actions did not mislead the public into believing that an
agency can be implied from the arrangement with the junket How about for persons who are absent?
operators, nor did it hold out ABS Corporation with any apparent
authority to represent it in any capacity. The Junket Agreement was
Article 1872: Between persons who are absent, the acceptance of
merely a contract of lease of facilities and services.
the agency cannot be implied from the silence of the agent, except:
95
BUSINESS ORGANIZATION I
(By: 3-Manresa, S.Y. 2017-2018)
From the Lectures of: Atty. Raymund Christian S. Ong-Abrantes, CPA
in the former case with respect to the person who received the to exercise general control and supervision over all of his business
special information, and in the latter case with regard to any person. and properties and among others, to sell or mortgage the same.
The power shall continue to be in full force until the notice is Olivia P. Olaguer and Eduardo Olaguer were removed as
rescinded in the same manner in which it was given. administrators of the estate and on February 12, 1980, plaintiff Ma.
Linda Olaguer Montayre was appointed administrator by the
So kung sinabi ko sayo na binigyan ko ng power of attorney si PERSON A, Probate Court.
kung specifically sinabi ko sayo, then he becomes my agent as to you. Pero
The decedent Lino Olaguer have had three marriages. He was first
paginadvertise ko na siya yung agent, he becomes an agent as to anyone na
married to Margarita Ofemaria who died April 6, 1925. His second
nakabasa ng advertisement.
wife was Gloria Buenaventura who died on July 2, 1937. The third
wife was the defendant Olivia P. Olaguer.Jose Olaguer acting upon
In the 2nd Paragraph, if it given specially, it shall be revoked specially. If it is
the general power of attorney sold 8 parcels of land to Emilio
given by public advertisement, it shall be revoked by public advertisement.
Ongjoco.
Article 1874: When a sale of a piece of land or any interest therein On 28 January 1980, the Estate of Lino Olaguer filed an action for
is through an agent, the authority of the latter shall be in writing; the Annulment of Sales of Real Property and/or Cancellation of
otherwise, the sale shall be void. Titles in the then Court of First Instance of Albay. The plaintiffs
therein alleged that the sales of the following properties belonging
So, this is one of the instances wherein the authority shall be in writing. to the Estate of Lino Olaguer to Estanislao Olaguer were absolutely
simulated or fictitious, the plaintiffs likewise prayed that the
Estate of Lino Olaguer v. Ongjoco resulting Transfer Certificates of Title issued to Jose Olaguer,
G.R. No. 173312 August 26, 2008 Virgilio Olaguer, Cipriano Duran and the PNB be annulled.
(Digest by: April Pareno)
Respondent Ongjoco, on the other hand, invokes that he was an
innocent purchaser for value. His adamant stance is that, when he
FACTS: Lino Olaguer died on October 3, 1957 so Special probate acquired the subject properties, the same were already owned by
of will was filed in the then Court of First Instance of Albay. Virgilio Olaguer. Respondent insists that Jose A. Olaguer was duly
Defendant Olivia P. Olaguer was appointed as administrator authorized by a written power of attorney when the properties were
pursuant to the will. Later, defendant Eduardo Olaguer was sold to him (Ongjoco). He posits that this fact alone validated the
appointed as co-administrator. In the order of the probate court sales of the properties and foreclosed the need for any inquiry
dated April 4, 1961, some properties of the estate were authorized beyond the title to the principal. All the law requires, respondent
to be sold to pay obligations of the estate. concludes, is that the agents authority be in writing in order for the
Relying upon the order, but without prior notice or permission from agents transactions to be considered valid.
the Probate Court, defendants Olivia P. Olaguer and Eduardo ISSUE: Whether or not, under the facts and circumstances of this
Olaguer on November 1, 1965 sold to Estanislao Olaguer 10 case, respondent Ongjoco can be considered an innocent
parcels of land. The sale to was approved by the Probate Court. purchaser for value.
On July 7, 1966, defendant Olivia P. Olaguer executed a Special HELD: As regards some of the lots, YES. He merely relied on the
Power of Attorney in favor of defendant Jose A. Olaguer, general power of attorney which was presented to him.
authorizing the latter to "sell, mortgage, assign, transfer, endorse
and deliver" of 6 properties. Estanislao Olaguer executed a Special In sum, we hold that respondent Emiliano M. Ongjoco was in bad
Power of Attorney in favor of Jose A. Olaguer authorizing the latter faith when he bought Lots Nos. 1 and 2 from Jose A. Olaguer, as
to "sell, mortgage, assign, transfer, endorse and deliver" the 9 the latter was not proven to be duly authorized to sell the said
properties. properties.
By virtue of this Special Power of Attorney, on March 1, 1967, Jose However, respondent Ongjoco was an innocent purchaser for
A. Olaguer as Attorney-in-Fact of Estanislao Olaguer mortgaged value with regard to Lots Nos. 76-D, 76-E, 76-F and 76-G since it
Lots 7589, 7593 and 7396 to defendant PNB as security for a loan was entirely proper for him to rely on the duly notarized written
of 10,000 Pesos. The mortgage was later foreclosed by the PNB power of attorney executed in favor of Jose A. Olaguer.
and the properties mortgage were sold at public auction to PNB.
Then, PNB transferred the properties to the Republic of the According to the provisions of Article 1874 of the Civil Code on
Philippines for agrarian reform purposes. 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.
On October 29, 1966, Estanislao Olaguer executed a General Absent this requirement, the sale shall be void. Also, under Article
Power of Attorney in favor of Jose A. Olaguer, authorizing the latter 1878, a special power of attorney is necessary in order for an agent
to exercise general control and supervision over all of his business to enter into a contract by which the ownership of an immovable
and properties, and among others, to sell or mortgage any of his property is transmitted or acquired, either gratuitously or for a
properties. valuable consideration.
On December 29, 1966, Estanislao Olaguer sold to Jose A. When Lots Nos. 1 and 2 were sold to respondent Ongjoco through
Olaguer for 15,000 the 10 parcels of land he bought from Olivia P. Jose A. Olaguer, the Transfer Certificates of Title of said
Olaguer and Eduardo Olaguer.On March 16, 1968, Estanislao propertieswere in Virgilio’s name.Unfortunately for respondent, the
Olaguer sold to Jose A. Olaguer for 1 Peso and other valuable power of attorney that was purportedly issued by Virgilio in favor of
consideration 2 parcels of land which have a total area of 2.5 Jose Olaguer with respect to the sale of Lots Nos. 1 and 2 was
hectares. never presented to the trial court. Neither was respondent able to
explain the omission. Other than the self-serving statement of
On June 5, 1968, Estanislao Olaguer sold another 2 lots to Jose A. respondent, no evidence was offered at all to prove the alleged
Olaguer for 1 Peso and other valuable consideration. 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.
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 The trial court was thus correct in disregarding the claim of
Peso and other valuable consideration. On July 15, 1974, Jose A. itsexistence. Accordingly, respondent Ongjoco’s claim of good faith
Olaguer sold to his son Virgilio Olaguer Lot No. 4521 and Lot No. in the sale of Lots Nos. 1 and 2 has no leg to stand on. As regards
4522 for 1,000 Pesos. Lots Nos. 76-D, 76-E, 76-F and 76-G, Ongjoco was able to present
On September 16, 1978 Virgilio Olaguer executed a General a general power of attorney that was executed by Virgilio Olaguer.
Power of Attorney in favor of Jose A. Olaguer authorizing the latter 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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BUSINESS ORGANIZATION I
(By: 3-Manresa, S.Y. 2017-2018)
From the Lectures of: Atty. Raymund Christian S. Ong-Abrantes, CPA
was expressly empowered to sell any of Virgilio’s properties; and Department of Public Works and Highways
to sign, execute, acknowledge and deliver any agreement therefor. approved the sale; and that his
predecessors-in-interest merely tolerated
Even if a document is designated as a general power of attorney, the possession by CAA and, later, by
the requirement of a special power of attorney is met if there is a MCIAA.
clear mandate from the principal specifically authorizing the In its Answer, MCIAA averred that on April 3, 1958, Atanacio,
performance of the act. The special power of attorney can be acting as the representative of the heirs of Eugenio Godinez,
included in the general power when the act or transaction for which who were the registered owners, sold Lot No. 4810-A and Lot
the special power is required is specified therein. No. 4810-B to the Republic of the Philippines, represented by
CAA. Thereafter, CAA took possession of the said property
On its face, the written power of attorney contained the signature
upon payment of the purchase price.
of Virgilio Olaguer and was duly notarized. As such, the same is
considered a public document and it has in its favor the o To corroborate the said transaction, on
presumption of authenticity and due execution, which can only be September 17, 1969, Atanacio, along with
contradicted by clear and convincing evidence. No evidence was other former registered co-owners, signed a
presented to overcome the presumption in favor of the duly deed of partition attesting to the fact of sale
notarized power of attorney. Neither was there a showing of any of the two lots in favor of the government and
circumstance involving the said document that would arouse the admitted its absolute right over the same.
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 Since then, the said lots had been in the possession of the Republic
respondent Ongjoco had every right to rely on the power of attorney in the concept of an owner. The said real properties were declared
in entering into the contracts of sale of Lots Nos. 76-D to 76-G with by the Republic for taxation purposes under Tax Declaration No.
Jose A. Olaguer. 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
Kahit nakalagay siya sa ‘general power’, if that act is particularly specified in over the management of the said lots to MCIAA.
the general power, it is sufficient.
On March 3, 2006, the RTC rendered judgment in favor of
Mactan-Cebu International Airport Authority vs Richard E. Unchuan.
Unchuan
The RTC held that Atanacio was not legally authorized to act
(Digest by: Cyndall Jardinel) as the attorney-in-fact of his brothers and sisters and to
transact on their behalf because he was not clothed with a
FACTS: On March 5, 2004, respondent Richard Unchuan special power of attorney granting him authority to sell the
(Unchuan) filed a complaint for Partial Declaration of Nullity of the disputed lots. CA affirmed the RTC decision.
Deed of Absolute Sale with Plea for Partition, Damages and
Attorney's Fees before the RTC against MCIAA. Unchuan later filed ISSUE: WON the sale by Anstacio bound all the heirs entitling the
an Amended Complaint for Declaration of Nullity of Deed of MCIAA to the whole portion of lot.
Absolute Sale, Quieting of Title and/or Payment of Just
Compensation, Rental and Damages and Attorney's Fees. HELD: The Court finds that the sale transaction executed between
Atanacio, acting as an agent of his fellow registered owners, and
In his complaint, Unchuan alleged, among others, that he was the the CAA was indeed void insofar as the other registered owners
legal and rightful owner of Lot No. 4810-A, with an area of 177,176 were concerned. They were represented without a written authority
square meters, and Lot No. 4810-B, with an area of 2,740 square from them clearly in violation of the requirement under Articles 1874
meters, both located in Barrio Buaya, Lapu-Lapu City, and covered and 1878 of the Civil Code, which provide:
by Original Certificate of Title (OCT) No. R0-1173;
Art. 1874. When a sale of a piece of land or any interest therein is
o that the title was registered under the names through an agent, the authority of the latter shall be in writing;
of the heirs of Eugenio Godinez, specifically, otherwise, the sale shall be void.
Teodora Tampus, Fernanda Godinez (the
wife of Iscolastico Epe), Tomasa Godinez Art. 1878. Special powers of attorney are necessary in the following
(the wife of Mateo Ibañez), Sotera Godinez cases:
(the wife of Guillermo Pino), Atanasio
Godinez (married to Florencia Pino), Juana (5) To enter into any contract by which the ownership of
Godinez (the wife of Catalino Cuison), and an immovable is transmitted or acquired either
Ambrosio Godinez (married to Mamerta gratuitously or for a valuable consideration;
Inot); and that he bought the two lots from
The significance of requiring the authority of an agent to be put into
the surviving heirs of the registered owners
writing was amplified in Dizon v. Court of Appeals:
through several deeds of absolute sale, all
dated December 7, 1998. 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,
Unchuan further alleged that he came to know that Atanacio the sale shall be void. Thus the authority of an agent to execute a
Godinez (Atanacio), the supposed attorney-in-fact of all the contract for the sale of real estate must be conferred in writing and
registered owners and their heirs, already sold both lots to Civil must give him specific authority, either to conduct the general
Aeronautics Administration (CAA), the predecessor of MCIAA; that business of the principal or to execute a binding contract containing
the sale covered by the Deed of Absolute Sale, dated April 3, 1958, terms and conditions which are in the contract he did execute. A
was null and void because the registered owners and their heirs special power of attorney is necessary to enter into any contract by
did not authorize Atanacio to sell their undivided shares in the which the ownership of an immovable is transmitted or acquired
subject lots in favor of CAA; either gratuitously or for a valuable consideration. The express
mandate required by law to enable an appointee of an agency
o that no actual consideration was paid to the
(couched) in general terms to sell must be one that expressly
said registered owners or their heirs, despite
mentions a sale or that includes a sale as a necessary ingredient
promises that they would be paid;
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
o that the deed of absolute sale did not bear
powers of the agent in clear and unmistakable language. When
the signature of the CAA representative; that
there was no proof that the Secretary of the
97
BUSINESS ORGANIZATION I
(By: 3-Manresa, S.Y. 2017-2018)
From the Lectures of: Atty. Raymund Christian S. Ong-Abrantes, CPA
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 former comprises all the business of the principal. The latter,
the other heirs of the registered owners was void, the sale one or more specific transactions.
insofar as the extent of Atanacio's interest is concerned,
remains valid. Atanacio was one of the registered co-owners What is the difference between attorney-in-fact and attorney-at-law? Attorney-
of the subject lots, but he was not clothed with authority to in-fact is the person who is given authority by his principal to do a particular
transact for the other co-owners. By signing the deed of sale with act. You and I can be an attorney-in-fact. But an attorney-at –law is one whose
the CAA, Atanacio effectively sold his undivided share in the lots in business is to represent clients in legal proceedings. If what you are going to
question. Thus, CAA became a co-owner of the undivided subject do is not in legal proceeding, you cannot be an attorney-at-law, attorney-in-
lots. Accordingly, Atanacio's heirs could no longer alienate fact ka lang.
anything in favor of Unchuan because he already conveyed his pro
indiviso share to CAA. 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
98
BUSINESS ORGANIZATION I
(By: 3-Manresa, S.Y. 2017-2018)
From the Lectures of: Atty. Raymund Christian S. Ong-Abrantes, CPA
may consider appropriate, or even though the agency should Inc.(WBI) for the construction of a warehouse, and a lease
authorize a general and unlimited management. agreement with Poderosa Leather Goods Company, Inc. with a
condition that the warehouse be ready by April 1, 1992. The
Please take note that if the SPA is couched in general terms, it does not building was finished and Poderosa became the lessee. - WHI
involve acts of strict dominion. complained to Roberto Roxas that the vehicles of RECCI were
parked on a portion of the property over which WHI had been
This (provision) gives you the idea that the power of attorney or the authority granted a right of way. Roxas promised to look into the matter.
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 Dy and Roxas discussed the need of the WHI to buy a 500-square-
only to acts of administration not to acts of strict dominion. meter portion the adjacent lot as provided for in the deed of
absolute sale. However, Roxas died soon thereafter. WHI wrote the
Example of acts of mere administration: RECCI, reiterating its verbal requests to purchase a portion of the
1.) To sue for collection of debts; said lot as provided for in the deed of absolute sale, and
2.) To employ workers and employees needed for the conduct of complained about the latter’s failure to eject the squatters within the
business; three-month period agreed upon in the said deed.
3.) To engage legal counsel to preserve the ownership and
possession of the principal property; and RECCI rejected the demand of WHI, so WHI filed a case for
4.) To lease real property to another person for one year or less, Specific Performance and Damages in the RTC of Makati.
provided that the lease is not registered;
RTC ruled in favor of WHI. CA reversed the RTC decision and
5.) To make customary gifts for charity or employees in the business
dismissed the complaint. The CA ruled that, under the resolution of
managed by the agent;
the Board of Directors of the RECCI, Roxas was merely authorized
6.) To borrow money if be urgent and indispensable for the
to sell the first lot, but not to grant right of way in favor of the WHI
preservation of the things which are under administration
over a portion of the second lot, or to grant an option to the
petitioner to buy a portion thereof.
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 ISSUE: WON Roxas has authority to sell the subject lot.
is required.
RULING: Roxas was not authorized.
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 SC ruled in favor of the respondent. Judgment of CA affirmed with
to memorize in Agency, ito yun. modification.
99
BUSINESS ORGANIZATION I
(By: 3-Manresa, S.Y. 2017-2018)
From the Lectures of: Atty. Raymund Christian S. Ong-Abrantes, CPA
apparent authority cannot remedy the lack of the written power Respondent, while he resided in the United States of America,
required under the statement of frauds. In addition, the petitioners delegated to his father the mere administration of the property.
fallacy is its wrong assumption of the unproved premise that the Respondent came to know of the assailed contracts with petitioner
respondent had full knowledge of all the terms and conditions only after retiring to the Philippines upon the death of his father.
contained in the deed of absolute sale when Roxas executed it.
The trial court dismissed the complaint of respondent. On appeal,
For the principle of apparent authority to apply, the petitioner was the CA reversed the decision of the trial court and held to be invalid
burdened to prove the following:
the Contract of Lease and Memorandum of Agreement.
(a) the acts of the respondent justifying belief in the agency by the
ISSUE: W/N Dr. Felipe Roque was an authorized agent of the
petitioner;
respondent.
(b) knowledge thereof by the respondent which is sought to be held;
and, HELD: NO. In a contract of agency, the agent acts in
representation or in behalf of another with the consent of the latter.
(c) reliance thereon by the petitioner consistent with ordinary care
and prudence. Article 1878 of the Civil Code expresses that a special power of
attorney is necessary to lease any real property to another person
In this case, there is no evidence on record of specific acts made for more than one year. The lease of real property for more than
by the respondent showing or indicating that it had full knowledge one year is considered not merely an act of administration but an
of any representations made by Roxas to the petitioner that the act of strict dominion or of ownership. A special power of attorney
respondent had authorized him to grant to the respondent an option
isthus necessary for its execution through an agent.
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 The Court cannot accept petitioner's argument that respondent is
him to do so. guilty of laches. Laches, in its real sense, is the failure or neglect,
for an unreasonable and unexplained length of time, to do that
October 6, 2017 which, by exercising due diligence, could or should have been done
Transcriber: Shats Tagtagan and Jeniffer Mortejo 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.
Shopper’s Paradise Realty & Development Corp. vs Roque Respondent learned of the contracts only in February 1994 after
G.R. No. 148775. January 13, 2004 the death of his father, and in the same year, during November, he
(Digest by: Cyndall Jardinel) assailed the validity of the agreements. Hardly, could respondent
then be said to have neglected to assert his case for an
FACTS: Petitioner Shopper’s Paradise Realty & Development unreasonable length of time. Neither is respondent estopped from
Corporation, represented by its president, Veredigno Atienza, repudiating the contracts.
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 Dominion Insurance Corporation vs. CA (2002)
payment.” (Digest by: Jennifer Lim)
Simultaneously, petitioner and Dr. Roque likewise entered into a FACTS:
memorandum of agreement for the construction, development and In 1991, Rodolfo Guevarra (Guevarra) filed a civil case for sum of
operation of a commercial building complex on the property. money against Dominion Insurance Corp. (Dominion) for the
Conformably with the agreement, petitioner issued a check for amount advanced( P156,473.90) by Guevarra in his capacity as
another P250,000.00 “downpayment” to Dr. Roque. The contract manager of defendant to satisfy certain claims filed by defendant’s
of lease and the memorandum of agreement, both notarized, were client.
never annotated on the Certificate of title because of the untimely
demise of Roque. Dominion, however, stated that they are not liable to pay
respondent because he had not acted within his authority as an
Roque’s death constrained petitioner to deal with respondent Efren agent for Dominion. They have instructed the respondent that the
P. Roque, one of the surviving children of the late Dr. Roque, but payment for the claims of the insured should be taken from the
the negotiations broke down due to some disagreements. In a revolving fund, not from respondents’ personal money
letter, respondent advised petitioner “to desist from any attempt to
The pre-trial was always postponed. During one of the pre-trial
enforce the aforementioned contract of lease and memorandum of
conferences, Dominion failed to arrive and the court declared them
agreement”.
to be in default. Dominion filed a Motion to Lift Order of Default but
On 15 February 1995, respondent filed a case for annulment of the was denied by the court. The RTC rendered its decision making
Dominion liable to repay Guevarra for the sum advanced, other
contract of lease and the memorandum of agreement, with a prayer
damages and attorney’s fees. Dominion appealed but CA affirmed
for the issuance of a preliminary injunction before the RTC alleging
the decision of RTC and denied the appeal of Dominion.
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 ISSUE/S:
his parents, Dr. Felipe Roque and Elisa Roque, and that the late
Dr. Felipe Roque had no authority to enter into the assailed (a) Whether or not Guevarra acted within his authority as agent of
agreements with petitioner. petitioner.
(b) Whether or not Guevarra must be reimbursed for the amount
The donation was made in a public instrument duly acknowledged advanced.
by the donor-spouses before a notary public and duly accepted on
the same day by respondent before the notary public in the same HELD:
instrument of donation. The title to the property, however, (a) NO. By the contract of agency, a person binds himself to
remained in the name of Dr. Felipe C. Roque, and it was only render some service or to do something in representation or
transferred to and in the name of respondent sixteen years later. 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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From the Lectures of: Atty. Raymund Christian S. Ong-Abrantes, CPA
intention naturally inferrable from his words or actions, and on Thereafter without the knowledge and consent of petitioner,
the part of the agent, there must be an intention to accept the Salvador mortgaged the property to Respondent Pangilinan.
appointment and act on it,and in the absence of such intent, Subsequently when petitioner verified the status of his title with the
there is generally no agency. RD of Marikina, he was surprised to discover that there was already
annotation for REM in the title, purportedly executed by one
Even though the contact entered into by Guevarra and Dominion Adriano, in favor of the Respondent, in consideration of
was with the word “special” the contents of the document was P60,000.00, petitioner then denied that he executed deed.
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 After repeated demand by the petitioner that respondent return or
contents in the document did not require a special power of reconvey to him his title to the said property and when these
attorney. Art 1878 provides for instances when a special power of demands were ignored or disregarded, he instituted the present
attorney is required: suit.
1) To make such payment as are not usually
considered as acts of administration. Respondent claimed that petitioner voluntarily entrusted his title
XXXXXX Salvador for the purpose of securing a loan, thereby creating a
15) any other act of dominion principal-agent relationship between the plaintiff and Salvador for
the aforesaid purpose. Thus, according to respondent, the
The payment of claims is not an act of administration which execution of the REM was within the scope of the authority granted
requires a special power of attorney before Guevarra could settle to Salvador; that in any event that since the said TCT has remained
the insurance claims of the insured. with petitioner, the latter has no cause of action for reconveyance
against him." The trial court ruled in favor of the petitioner, and the
(b) YES. Guevarra was instructed that the payment for the insured CA reversed the said decision.
must come from the revolving fund or collection in his possession,
Gueverra should not have paid the insured through his own ISSUE: Whether or not Salvador was acted as an agent of
capacity. An agent who acted in contravention of the principal’s petitioner (to excuse the purchaser from concurrent neglience).
instruction the principal will not be liable for the expenses incurred
by the agent. This conclusion is in accord with Article 1918, Civil HELD: No. Since he knew that the property was being leased,
Code, which states that: respondent should have made inquiries about the rights of the
The principal is not liable for the expenses incurred by actual possessors. He could have easily verified from the lessees
the agent in the following cases: whether the claimed owner was, indeed, their lessor.
(1) If the agent acted in contravention of the principals Petitioners act of entrusting and delivering his TCT and Residence
instructions, unless the latter should wish to avail Certificate to Salvador was only for the purpose of helping him find
himself of the benefits derived from the contract; a money lender. Not having executed a power of attorney in her
xxx xxx xxx favor, he clearly did not authorize her to be his agent in procuring
However, While the law on agency prohibits the mortgage. He only asked her to look for possible money
respondent Guevarra from obtaining reimbursement, his right to lenders. Article 1878 of the Civil Code provides:
recover may still be justified under the general law on obligations Art. 1878. Special powers of attorney are necessary in
and contracts. the following cases:
Article 1236, second paragraph, Civil Code, xxxxxxxxx
provides: (7) To loan or borrow money, unless the latter act be
urgent and indispensable for the preservation of the
Whoever pays for another may demand from the debtor things which are under administration;
what he has paid, except that if he paid without the xxxxxxxxx
knowledge or against the will of the debtor, he can (12) To create or convey real rights over immovable
recover only insofar as the payment has been beneficial property;
to the debtor. x x x x x x x x x.
In this case, when the risk insured against occurred, petitioners As between petitioner and respondent, the court ruled that the
liability as insurer arose. This obligation was extinguished when failure of the latter to verify essential facts was the immediate cause
respondent Guevarra paid the claims and obtained Release of of his predicament. Thus, assuming that both parties were
Claim Loss and Subrogation Receipts from the insured who were negligent, the Court opines that respondent should bear the
paid. Thus, to the extent that the obligation of the petitioner has loss. His superior knowledge of the matter should have made him
been extinguished, respondent Guevarra may demand for more cautious before releasing the loan and accepting the identity
reimbursement from his principal. To rule otherwise would result in of the mortgagor.
unjust enrichment of petitioner.
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
Q: The money should be taken from the revolving fund. But what he did was made to suffer for respondent’s failure to verify the identity of the
he used his personal money. Did he exceed his authority? mortgagor and the actual status of the subject property before
agreeing to the real estate mortgage. While we commiserate with
A: Yes. In this case, meron silang Special Power of Attorney. However, the
respondent -- who in the end appears to have been the victim of
specific acts indicated in the SPA are of general nature. SC said you cannot scoundrels -- his own negligence was the primary, immediate and
construe it as SPA. SPAs are strictly construed. overriding reason that put him in his present predicament.
Adriano vs. Pangilinan (2002) To summarize, SC ruled that both law and equity favor
(Digest by: Jennifer Lim) petitioner. First, the relevant legal provision, Article 2085 of the Civil
Code, requires that the mortgagor be the absolute owner of the
FACTS: thing x x x mortgaged. Here, the mortgagor was an impostor who
executed the contract without the knowledge and consent of the
The petitioner Adriano is the registered owner of a parcel of land owner. Second, equity dictates that a loss brought about by the
covered by Transfer Certificate of Title No. 337942. Sometime on concurrent negligence of two persons shall be borne by one who
1990, petitioner entrusted the original owner's copy of the TCT to was in the immediate, primary and overriding position to prevent
Salvador, a distant relative, for the purpose of securing a mortgage it. Herein respondent who, we repeat, is engaged in the business
loan. of lending money secured by real estate mortgages could have
easily avoided the loss by simply exercising due diligence in
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From the Lectures of: Atty. Raymund Christian S. Ong-Abrantes, CPA
ascertaining the identity of the impostor who claimed to be the 138 of the Rules of Court provides, "(a)ttorneys have authority to
owner of the property being mortgaged. Finally, equity merely bind their clients in any case by any agreement in relation thereto
supplements, not supplants, the law. The former cannot made in writing, and in taking appeal, and in all matters of ordinary
contravene or take the place of the latter. 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."
People vs. Carpo (2001) (more on Evidence and Crim Pro na The requirements under both provisions are met when there is a
case) clear mandate expressly given, by the principal to his lawyer
(Digest by: Jennifer Lim) specifically authorizing the performance of an act. It has not
escaped our attention that in the present case counsel for both
Facts: parties had no special power of attorney from their clients to enter
The accused Jaime Carpo impute error to the trial court for relying into a compromise. However, insofar as Teresita was concerned,
on the testimony of a single witness in convicting them of multiple she was apprised of the agreement and in fact had signed her
murder complexed with attempted murder for the death of name as instructed by the court, thereby tacitly ratifying the same.
Florentino Dulay, Norwela Dulay and Nissan Dulay, and the As for accused-appellants, the aforecited dialogue between the
wounding of Noemi Dulay. court and counsel does not show that they were ever consulted
Since the three (3) murders and attempted murder were produced regarding the proposed settlement. In the absence of a special
by a single act, namely, the explosion caused by the hurling of a power of attorney given by accused-appellants to their counsel, the
grenade into the bedroom of the Dulays, the case comes under Art. latter can neither bind nor compromise his clients' civil liability.
48 of The Revised Penal Code on complex crimes. Consequently, since Atty. Sanglay and Atty. Rafael had no specific
The court a quo's award of damages was in the "negotiated amount power to compromise the civil liability of all accused-appellants, its
of P600,00.00." It appears that under the auspices of the trial court approval by the trial court which did not take the precautionary
counsel for the defense entered into an oral compromise with the measures to ensure the protection of the right of accused-
public prosecutor, which was subsequently ratified by the private appellants not to be deprived of their property without due process
complainant, limiting the amount of civil liability to P600,000.00. of law, could not legalize it. For being violative of existing law and
jurisprudence, the settlement should not be given force and effect.
“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. Gloria Anacleto vs Alexander Van Twest
COURT: Are the accused confident that they August 29, 2000
could be acquitted in this case? Atty (Digest by: Lilybeth Petallo)
Sanglay?
ATTY. SANGLAY: I think so, your Honor. FACTS:
COURT: What about Atty. Rafael?
This arose from a complaint for reconveyance of title filed by
ATTY. RAFAEL: We are confident, your Honor.
Atty. Ernesto Perez, in the name of Alexander Van Twest and
COURT: All right. So you can easily
stipulate. First of all, how much do you Euroceanic (respondents), as against Gloria Anacleto (petitioner)
want Fiscal? and Isaias Bongar, on Feb 6 1995.
PROS. CORPUZ: P1,282,740.00, your Honor x x
According to Atty. Perez, Van Twest, has been reported
xx
COURT: x x x x Agree gentlemen of the defense? missing since June 16, 1992, but is duly represented by said
ATTY. SANGLAY: P600,000.00, your Honor. Atty. Perez as his agent/or general counsel.
COURT: Do you agree Fiscal?
Eventually, a compromise agreement was entered into by
PROS. CORPUZ: Yes, your Honor.
COURT: All right so P600,000.00 is the agreed petitioner and Atty. Perez, in representation of Van Twest. It was
liquidated amount in case of conviction stipulated therein that petitioner shall pay the debts directly to
without necessarily having to interpret this Atty. Perez. The TC rendered judgment based on the said
stipulation as admission of guilt on the part compromise agreement.
of any of the accused. All right so we will
dispense with the testimony on the civil However, petitioner, represented by new counsel, filed an urgent
aspect x x x x omnibus motion asking the Court to order Atty. Perez to
COURT: x x x x Are you the private complainant submit a SPA, and in the meantime to defer petitioner’s
in this case? compliance with her obligation under the compromise agreement.
TERESITA DULAY: Yes, sir.
COURT: If the accused get convicted and I will ATTY. PEREZ’ CONTENTION:
hold them severally liable for you of
damages in the liquidated sum of Although Atty. Perez admitted that he had no SPA from Van
P600,000.00 as agreed upon by the Twest to enter into a compromise agreement, he claims that
counsel, will you be satisfied? x x x x petitioner is estopped from denying his authority since
TERESITA: Yes, sir. petitioner’s former counsel (law firm of Salonga, Hernandez, and
COURT: So let that be of record. Will you sign Allado) was informed of this fact. The TC & CA sustained this
the note so that there will be evidence.” argument.
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From the Lectures of: Atty. Raymund Christian S. Ong-Abrantes, CPA
HELD: A lawyer, in representation of his client (respondents), a. In requiring petitioner to pay a debt to a stranger, we
cannot enter into a compromise agreement without a SPA. Even if cannot just rely on the guaranty of Atty. Perez that
the petitioner was aware of the absence of the SPA from the start, he would hold any money he receives in the cases he
the petitioner cannot be held to be in estoppel, since the SPA is a has filed in trust for Van Twest and/or Euroceanic.
mandatory requirement. b. There is no stopping Van Twest and/or Euroceanic
from suing petitioner again for the same cause of
A. ATTY. PEREZ IS WITHOUT SPA TO COMPROMISE action if they are unable to recover the money from Atty.
Perez.
c. In fact, the law does not even require them to
1. With respect to respondent Van Twest: recognize the trust unilaterally created by Atty.
Perez or first seek to recover from him.
It should be noted that the action for reconveyance filed by Atty. Q: Was the regular (?) agreement sufficient?
Perez was brought not only in behalf of Van Twest but also of
Euroceanic, a juridical person. A: No. There must be SPA providing for such authority.
As a rule, the power to compromise or settle claims in favor Loyola Security and Detective Agency vs National Labor
of or against the corporation is vested in the board of Relations Commission
directors. May 9, 1995
(Digest by: Lilybeth Petallo)
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 FACTS:
chairman of its board.
This involves a complaint for illegal dismissal, etc. filed by Victor
B. ESTOPPEL DOES NOT APPLY. Prado Sr. and Matilde Tuscano (respondents) against Loyola
Security and Detective Agency and/or GM Ruperto Acle Jr.
(petitioners).
The CA held that petitioner is estopped to deny Atty. Perez’
authority to represent respondents because petitioner knew from Labor Arbiter ruled in favor of respondents. NLRC affirmed.
the start of the negotiations for the compromise agreement that
So, respondents subsequently filed a Motion for Issuance of a
Atty. Perez had no SPA. (LACKS MERIT)
Writ of Execution. But thereafter, they filed a Joint Manifestation
Estoppel does not apply. Although petitioner’s former counsel acknowledging complete satisfaction of the award.
knew that Atty. Perez had no SPA, said counsel nonetheless
However, respondents again filed a Motion for the Issuance of an
negotiated with him because of his representation that he was
Alias Writ of Execution for the Recovery of the Balance of the
the representative of Van Twest and that he could secure an
Award, claiming that they received less than the award of LA. This
SPA from the heirs of Van Twest. Petitioner was thus well
motion was granted
within her right in relying upon such representation of Atty. Perez.
Petitioner moved for reconsideration, but was denied. Hence, this
Of importance is paragraph 5 of the compromise agreement
petition.
which provides that “[t]he signatories to this Agreement hereby
represent and warrant that they are duly authorized to execute PETITIONERS’ CONTENTION:
this Agreement.”
That respondent Prado’s acts of entering into a compromise
By virtue of this provision, petitioner had the right to require Atty. agreement and in accepting an advance of P5,000 from
Perez to secure the necessary authority from Van Twest or the petitioner Acle constituted a novation of the award adjudged by
latter’s heirs as well as from Euroceanic. Indeed, petitioner the LA.
cannot be faulted for treating this warranty as a condition
precedent to her compliance with the compromise agreement ISSUE: WON the compromise agreement is valid and
since the requirement of special authority is mandatory and a enforceable. (NOT VALID)
lawyer’s authority to compromise cannot simply be
presumed. HELD: The compromise agreement is not valid:
C. What injury will result if we sustain the CA’s a. There is no compliance with the NLRC rules which
decision in affirming the compromise agreement requires the assistance of counsel and approval of the
despite the absence of the SPA? LA in approving the compromise agreement; and
The risk of sustaining the decision of the Court of Appeals is b. There is no compliance with Article 1878, NCC which
that: 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.
a. On Dec 12 1996, Julian mortgaged with Allied Banking Under Article 1878 of the Civil Code, a special power of
Corp. (respondent bank) the subject property covered attorney is necessary in cases where real rights over
by TCT No. RT-18206 (106338) registered with the immovable property are created or conveyed. In the SPA
ROD-Quezon City to secure a loan of P3M, and the executed by Perla in favor of Julian on 28 May 1992, the latter
additional loan of P5M. (However, no such property is was conferred with the authority to "sell, alienate, mortgage, lease
identified in the SPA) and deal otherwise" the different pieces of real and personal
b. Rather, the SPA covers, among others, a property property registered in Perla's name. The SPA likewise authorized
covered by TCT No. RT-106338 registered with the Julian "[t]o exercise any or all acts of strict dominion or
ROD- Pasig.
ownership" over the identified properties, and rights and interest
therein.
Because Julian defaulted payment, respondent bank foreclosed
There is no question therefore that Julian was vested with the
the REM.
power to mortgage the pieces of property identified in the SPA.
neither go beyond nor deviate from the power of attorney. This principle is applied more strenuously when the
Where powers and duties are specified and defined in an mortgagee is a bank or a banking institution.
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
Considering that the property mortgaged by Julian was not his,
“strict and limited construction of the terms of a SPA”.
and there are additional doubts or suspicions as to the real
Thus, SC is not convinced that the two properties are the same. identity of the same, based on the:
There was no supporting proofs to verify respondent bank’s claim:
a. Palpable difference between the TCT numbers referred
a. It failed to present any certification from the ROD, to in the REM and Julian’s SPA, and
b. Respondent bank did not take the effort of submitting b. The registration in the ROD which is of different cities,
and making part of the records of this case copies of the these should have put respondent bank on guard. It should have
two TCTs and closely comparing them. 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.
Hence, Julian was not conferred by Perla with the authority to
mortgage the subject property.
Given that Perla revoked the SPA as early as 10 March 1993, and
WHEREFORE, IN VIEW OF THE FOREGOING, the instant petition is GRANTED. The Decision
that she informed the Registry of Deeds of Quezon City of such
dated 12 October 2005 and its Resolution dated 15 February 2006 rendered by the Court of
revocation in a letter dated 23 January 1996 and received by the
Appeals in CA-G.R. CV No. 82636, are hereby REVERSED. The Decision dated 23 September
latter on 7 February 1996, then third parties to the SPA are
2003 of the Regional Trial Court of Quezon City, Branch 220, in Civil Case No. Q-99-37145, is
constructively notified that the same had been revoked and Julian
hereby REINSTATED and AFFIRMED with modification that the real estate mortgages constituted
no longer had any authority to mortgage the subject property.
over TCT No. RT – 18206 (106338) are not null and void but UNENFORCEABLE. No costs.
105
BUSINESS ORGANIZATION I
(By: 3-Manresa, S.Y. 2017-2018)
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.
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.
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.
Art. 1881. The agent must act within the scope of his authority. He may 8) To answer for damages when there is conflict between his interests and
do such acts as may be conducive to the accomplishment of the purpose those of the principal, should he prefer his own;
of the agency.
9) To not borrow money if he has been authorized to lend money and
Art. 1882. The limits of the agent’s authority shall not be considered interest;
exceeded should it have been performed in a manner more
Why? Kasi conflict of interest. The interest of the agent may not
advantageous to the principal than that specified by him.
be necessarily the same with the interest of the principal.
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
106
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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 same as total loss and to claim from the insurer the face value of
the diligence of a good father of a family in the custody and preservation the car insurance policy and apply the same as payment to the
of the goods forwarded to him by the owner until the latter should appoint remaining balance of P2,344.65. Plaintiff corporation did not heed
an agent. The owner shall as soon as practicable either appoint an agent such request and prevailed upon the spouses to just have the car
or take charge of the goods. repaired. Not long thereafter, the car bogged down. The spouses
once again requested plaintiff to enforce the total loss provision in
Art. 1886. Should there be a stipulation that the agent shall advance the the insurance coverage. BA Finance Corp. did not respond
necessary funds, he shall be bound to do so except when the principal is favorably such request and thus, the spouses stopped paying their
insolvent. monthly installments which prompted the former the sue them for
the recovery of the unpaid balance.
Art. 1887. In the execution of the agency, the agent shall act in
accordance with the instructions of the principal. Issue: Whether or not BA Finance Corp. has waived its right to
collect the unpaid balance for failure to enforce the total loss
In default thereof, he shall do all that a good father of a family would do, provision in the insurance coverage- YES
as required by the nature of the business.
Ruling:
Art. 1888. An agent shall not carry out an agency if its execution would B.A. Finance Corporation was deemed subrogated to the rights
manifestly result in loss or damage to the principal. and obligations of Supercars, Inc. when the latter assigned the
promissory note, together with the chattel mortgage constituted on
Art. 1889. The agent shall be liable for damages if, there being a conflict the motor vehicle in question in favor of the former. Consequently,
between his interests and those of the principal, he should prefer his own. B.A. Finance Corporation is bound by the terms and conditions of
the chattel mortgage executed between the Cuadys and
Art. 1890. If the agent has been empowered to borrow money, he may Supercars, Inc. Under the deed of chattel mortgage, B.A. Finance
himself be the lender at the current rate of interest. If he has been Corporation was constituted attorney-in-fact with full power and
authorized to lend money at interest, he cannot borrow it without the authority to file, follow-up, prosecute, compromise or settle
consent of the principal. insurance claims; to sign execute and deliver the corresponding
papers, receipts and documents to the Insurance Company as may
Art. 1891. Every agent is bound to render an account of his transactions be necessary to prove the claim, and to collect from the latter the
and to deliver to the principal whatever he may have received by virtue of proceeds of insurance to the extent of its interests, in the event that
the agency, even though it may not be owing to the principal. the mortgaged car suffers any loss or damage. In granting B.A.
Finance Corporation the aforementioned powers and prerogatives,
Every stipulation exempting the agent from the obligation to render an the Cuady spouses created in the former's favor an agency.
account shall be void. Thus, under Article 1884 of the Civil Code of the Philippines,
B.A. Finance Corporation is bound by its acceptance to carry
Art. 1892. The agent may appoint a substitute if the principal has not out the agency, and is liable for damages which, through its
prohibited him from doing so; but he shall be responsible for the acts of non-performance, the Cuadys, the principal in the case at bar,
the substitute: may suffer.
1.) When he was not given the power to appoint one; Unquestionably, the Cuadys suffered pecuniary loss in the form of
salvage value of the motor vehicle in question, not to mention the
2.) When he was given such power, but without designating the person, amount equivalent to the unpaid balance on the promissory note,
and the person appointed was notoriously incompetent or insolvent. when B.A. Finance Corporation steadfastly refused and refrained
from proceeding against the insurer for the payment of a clearly
All acts of the substitute appointed against the prohibition of the principal valid insurance claim, and continued to ignore the yearning of the
shall be void. 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
BA Finance Corporation vs. Court of AppealsG.R. No. 82040 unserviceable
August 27, 1991
(Digest by: Earvin Alparaque) Accordingly, there is no reason to depart from the ruling set down
by the respondent appellate court. In this connection, the Court of
Facts: Appeals said:
On July 15, 1977, respondents Manuel and Lilia Cuady obtained
from Supercars, Inc. a credit of P39,574.80 which covered the cost ... Under the established facts and circumstances, it is unjust, unfair
of one unit of Ford Escort 1300, a four-door sedan. It was and inequitable to require the chattel mortgagors, appellees herein,
evidenced by a promissory note. The respondents was obligated to still pay the unpaid balance of their mortgage debt on the said
to pay the amount in installments of P1,098. There was also a car, the non-payment of which account was due to the stubborn
stipulated penalty of P10 for every month of late installment refusal and failure of appellant mortgagee to avail of the insurance
payment. As a security, the spouses constituted a chattel mortgage money which became due and demandable after the insured motor
on the subject vehicle. vehicle was badly damaged in a vehicular accident covered by the
insurance risk. ... (Ibid.)
On July 25, 1977, Supercars, Inc. assigned the promissory note,
together with the chattel mortgage, to BA Finance Corporation. The
This is an example of Art. 1884.
spouses paid a total of P36,730.15, leaving an unpaid balance of
P2,344.65 and an additional P460 representing penalties and
surcharges.
What if the agent declines the agency? *Sir reads Art. 1885*
BA Finance Corporation thereafter, as the assignee of the
mortgage lien, obtained the renewal of the insurance coverage What is the difference between authority and instruction? In a power to sell,
over the subject vehicle with Zenith Insurance Corporation. Under what would be the instruction? Should an instruction be included in a Special
its terms, any loss under the policy shall be payable to BA Finance Power of Attorney? Is it necessary for the third person to know the
Corp. instruction?
On April 18, 1980, the vehicle figured in an accident and was badly *Sir reads Art. 1889.*
damaged. The spouses asked BA Finance Corp. to consider the
107
BUSINESS ORGANIZATION I
(By: 3-Manresa, S.Y. 2017-2018)
From the Lectures of: Atty. Raymund Christian S. Ong-Abrantes, CPA
The rule of strict fidelity requires that the agent should choose the Art. 1895. If solidarity has been agreed upon, each of the agents is
professional interest of his principal rather than his own, otherwise he will be responsible for the non-fulfillment of the agency, and for the fault or
liable for damages. negligence of his fellow agents, except in the latter case when the fellow
agents acted beyond the scope of their authority.
*Sir reads Art. 1890.*
Art. 1896. The agent owes interest on the sums he has applied to his
Rationale: The agent can lend money to the principal using the agent’s own own use from the day on which he did so, and on those which he still
funds at the current rate of interest and NOT at a higher interest rate owes after the extinguishment of the agency.
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 Art. 1897. The agent who acts as such is not personally liable to the
agent can’t be the borrower without the consent of the principal because the party with whom he contracts, unless he expressly binds himself or
agent may not be a good borrower or he may be insolvent or he may not be exceeds the limits of his authority without giving such party sufficient
a good risk. There is a danger here that the interest of the principal would be notice of his powers.
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
1.) When the agent binds himself; or
w/o interest because of the same reason.
2.) When he exceeds the limits of his authority without giving the third
*Sir reads Art. 1891.* party sufficient notice of his powers.
This Article requires full transparency because the agent owes fiduciary __ to Rustan Pulp & Paper Mills Inc., Bienvenido Tantoco Sr., and
the principal. Kahit may stipulation na hindi magrerender ng accounting, that Romeo S. Vergara vs. Intermediate Appellate Court and Iligan
is void. Diversified Products Inc., Rome Lluch and Roberto Borromeo
G.R. No. 70789 October 19,1992
*Sir reads Art. 1892.* (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
Art. 1893. In the cases mentioned in Nos. 1 and 2 of the preceding In the installation of the plant facilities, the technical staff of Rustan
Pulp and Paper Mills, Inc. recommended the acceptance of
article, the principal may furthermore bring an action against the
deliveries from other suppliers of the pulp wood materials for which
substitute with respect to the obligations which the latter has contracted
the corresponding deliveries were made. But during the test run of
under the substitution. the pulp mill, the machinery line thereat had major defects while
deliveries of the raw materials piled up, which prompted the
Art. 1894. The responsibility of two or more agents, even though they
Japanese supplier of the machinery to recommend the stoppage of
have been appointed simultaneously, is not solidary, if solidarity has not
the deliveries. The suppliers were informed to stop deliveries and
been expressly stipulated. 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
108
BUSINESS ORGANIZATION I
(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. b) NAGATA CO. a commission of $1,752.00 for the sale of the
The court of origin dismissed the complaint but at the same time twelve generators to RJL MARTINEZ.
enjoined petitioners to respect the contract of sale and to continue
accepting and paying for the deliveries of pulp wood products. The c) All fifteen (15) generators subject of the two transactions
IAC affirmed the lower court's decision with a modification by burned out after continuous use. RJL MARTINEZ informed
ordering the petitioners to pay the respondents P30,000 as moral SCHMID about this development. In turn, SCHMID brought
damages and P15,000 as attorney's fees. the matter to the attention of NAGATA CO. In July 1976,
NAGATA CO. sent two technical representatives who made
Issue: Whether or not Tantoco and Vergara should be held liable an ocular inspection and conducted tests on some of the
for the payment of moral damages and attorney's fees- NO burned-out generators, which by then had been delivered to
the premises of SCHMID.
Ruling:
Petitioners argue that Tantoco and Vergara should not have been d) The tests revealed that the generators were overrated.
adjudged to pay moral damages and attorney's fees because
Tantoco merely represented the interest of Rustan Pulp and Paper 6.) Initially, SCHMID replaced the three (3) generators subject of the first
Mills, Inc. while Romeo S. Vergara was not privy to the contract of sale with generators of a different brand.
sale. On this score, We have to agree with petitioners' citation of
authority to the effect that the President and Manager of a 7.) CONTENTION OF RJL MARTINEZ: Refund It asks for a refund of the
corporation who entered into and signed a contract in his official cost of the generators and also the payment of damages as not all of the
capacity, cannot be made liable thereunder in his individual generators were replaced or repaired.
capacity in the absence of stipulation to that effect due to the
personality of the corporation being separate and distinct from the 8.) CONTENTION OF SCHMID: It maintained that it was not the seller of
person composing it (Bangued Generale Belge vs. Walter Bull and the twelve (12) generators and thus refused to refund the purchase price
Co., Inc., 84 Phil. 164). And because of this precept, Vergara's therefor.
supposed non-participation in the contract of sale although he
signed the letter dated September 30, 1968 is completely 9.) Hence, RJL MARTINEZ brought suit against SCHMID on the theory
immaterial. The two exceptions contemplated by Article 1897 that the latter was the vendor of the twelve (12) generators and, as
of the New Civil Code where agents are directly responsible such vendor, was liable under its warranty against hidden defects.
are absent and wanting.
ISSUE: W/N SCHMID can be held liable under the contract.
WHEREFORE, the decision appealed from is hereby MODIFIED in
the sense that only petitioner Rustan Pulp and Paper Mills is HELD: Yes, it can be held liable. However, even as SCHMID was merely
ordered to pay moral damages and attorney's fees as awarded an indentor, there was nothing to prevent it from voluntarily warranting that
by respondent Court. 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
SCHMID & OBERLY, INC v. RJL MARTINEZ FISHING CORP. vendee. As such agent, therefore, he may expressly obligate himself to
(Digest by: Eliza Devilleres)
undertake the obligations of his principal [See Art. 1897, Civil Code.]
SUMMARY OF THE RULING:
Q: What was the primary defense of Schmid in this case?
AGENT MAY UNDERTAKE THE OBLIGATIONS OF HIS PRINCIPAL; A: That he is only an indentor, Sir.
CASE AT BAR. — However, even as SCHMID was merely an indentor,
there was nothing to prevent it from voluntarily warranting that twelve (12) Q: What is an indentor?
generators subject of the second transaction are free from any hidden A: An indentor is a middlemen in the same class as commercial brokers and
defects. In other words, SCHMID may be held answerable for some other commission merchants.
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 Q: What will happen if it is proven that indeed Schmid is only an indentor?
such agent, therefore, he may expressly obligate himself to undertake the A: He will not be liable.
obligations of his principal [See Art. 1897, Civil Code.]
3.) The parties had two separate transactions over "Nagata"-brand Art. 1898. If the agent contracts in the name of the principal,
generators. The first transaction was the sale of three (3) generators. In
exceeding the scope of his authority, and the principal does not ratify
this transaction, it is not disputed that SCHMID was the vendor of the
the contract, it shall be void if the party with whom the agent
generators.
contracted is aware of the limits of the powers granted by the
4.) The company supplied the generators from its stockroom; it was also principal. In this case, however, the agent is liable if he undertook to
SCHMID which invoiced the sale. secure the principal's ratification.
5.) The second transaction, which gave rise to the present controversy,
involves twelve (12) "Nagata"-brand generators. These are the facts So if the agent promised to secure the principal’s ratification, the agent would
surrounding this particular transaction: be liable.
a) As RJL MARTINEZ was canvassing for generators, SCHMID SALFIC ALCAN Inc. vs. IMPERIAL VEGETABLE OIL, Inc.
gave RJL MARTINEZ its Quotation dated August 19, 1975 (Digest by: Jordan Berguia)
[Exhibit "A"] for twelve (12) "Nagatan-brand generators
FACTS:
109
BUSINESS ORGANIZATION I
(By: 3-Manresa, S.Y. 2017-2018)
From the Lectures of: Atty. Raymund Christian S. Ong-Abrantes, CPA
from the agent, unless the latter undertook to secure the principal's
(This is a question of whether the act of the agent which is the president ratification.
binds the principal which is the corporation against third party which is
Salfic) (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
Salfic is a French corporation engaged in international purchase, sale obtained from the president prior authorization from the IVO board yet it
and trading of coconut oil. So apparently IVO sells coconut oil. Safic then didn’t do so)
placed purchase orders with IVO for 2,000 tons of crude coconut oil,
valued at US$222.50 per ton Q: Was there ratification in this case?
IVO however failed to deliver and, instead, offered a "wash out" A: There was none Sir. When Monteverde entered into the speculative
settlement. (Washout settlement meaning the coconut oil subject of the contracts with Safic, he did not secure the Board’s approval. He also did not
purchase contracts were to be "sold back" to IVO). Yet IVO wanted it to submit the contracts to the Board after their consummation so there was, in
be sold at the prevailing price in the international market at the time of fact, no occasion at all for ratification.
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.
Q: What is the effect then?
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 A: Monteverde, as agent, becomes solely liable for not securing the ratification
placed purchase orders with IVO for a total of 4,750 tons and prayed to of the principal.
collect from IVO an aggregate amount of US$391,593.62 and the
US$293,500.00 difference between the contract price and the CERVANTES V. CA
international market value, plus attorney's fees and litigation expenses. (Digest by: Jordan Berguia)
IVO’s defense: “Salfic has no legal capacity to sue since it is doing FACTS:
business in the Philippines without the required licenses”. And when
pushed further IVO reveals that the subject contracts were speculative Cervantes was issued a round ticket for Manila-Honolulu-Los Angeles-
contracts entered into by IVO's President in contravention of the Honolulu-Manila, which ticket expressly providedan expiry date of March
prohibition by the Board of Directors against engaging in speculative 27, 1990. He was issued the said ticket following a compromises
paper trading. agreement between the twoparties from previous lawsuits. On March 23,
four days before its expiration, he used the ticket and went to Los
Evidence shows the board is actually oblivious, clueless about the said Angeles. Hebooked a return ticket for the April 2 flight which was
contract. And even truth to the matter is IVO doesn’t even have license confirmed by PAL personnel. On the day of his supposed return, hewas
from the Central Bank to engage in speculative contracts. (And why didn’t not allowed to board because it was already expired.
they know? Because the president who was signatory to the contract
never even submitted it to the board hence never recorded into the ISSUE: WON the PAL agents (personnel), upon confirmation of
company’s books of corporation) Cervantes’ return ticket, extended the validity of theticket.NO.
ISSUE: RULING:
PAL agents’ confirmation did not extend the validity of the ticket. They did
So the question is can the corporation be held liable for the losses not have authority.
sustained on such contracts or would it be the president that should be
held solidarily liable?NO. Ratio:
Since the PAL agents are not privy to the said agreement and petitioner
RULING: 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
1. It is the Board and not the Officer that exercises corporate power. So agents acted without authority whenthey confirmed the flights of the
the officer is merely an agent who acted beyond the scope of his petitioner. If the said third person is aware of such limits of authority, he is
authority. to blame.
The By-laws of IVO specifically stated that the president would have Q: What was the contention of Cervantes?
direct and active management of the business. A provision in the by-laws
stated “conducting the same according to the orders, resolutions and A: Petitioner contended that the confirmation by the PAL’s agents in Los
instructions of the Board of Directors and according to his own discretion Angeles and San Francisco changed the compromise agreement between the
whenever and wherever the same is not expressly limited by such orders, parties.
resolutions and instructions”
Q: What did the SC say?
But regarding this the court said that IVO president had no blanket
A: The SC said that the confirmation did not extend the validity of the tickets.
authority to bind IVO to any contract. He must act according to the
The PAL agents are not privy to the Agreement and petitioner knew that a
instructions of the Board of Directors. Even in instances when he was
written request to the legal counsel of PAL was necessary, he cannot use what
authorized to act according to his discretion, that discretion must not
the PAL agents did to his advantage. The said agents acted without authority
conflict with prior Board orders, resolutions and instructions.
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
2. There is no evidence that the board ratified the contracts.
damages from the agent, unless the latter undertook to secure the principal’s
ratification.
Under Art. 1898 of the Civil Code:
Art. 1899. If a duly authorized agent acts in accordance with the orders of
“Acts of an agent beyond the scope of his authority do not bind the
principal unless the latter ratifies the same expressly or impliedly.” 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.
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 So what happens if the principal appoints an agent who is ignorant? Kasalanan
liable for the acts of the agent. If the said third person is aware of such niya yun. Equity demands that the principal should be bound by the acts of the
limits of authority, he is to blame, and is not entitled to recover damages agent if the latter acts within the scope of his authority and in accordance with
the instructions of the former.
110
BUSINESS ORGANIZATION I
(By: 3-Manresa, S.Y. 2017-2018)
From the Lectures of: Atty. Raymund Christian S. Ong-Abrantes, CPA
3. By necessity On its face, the Letter of Authority executed by Yanga clearly and
4. By certain doctrines unequivocally constituted Santos to do and execute,among other things,
a. Doctrine of Apparent Authority the act of negotiating and entering into contract or contracts to build
b. Doctrine of Liability by Estoppel Housing Units on the subdivisionlots in Ysmael Village, Sta. Rosa,
c. Doctrine of Ratification Marilao, Bulacan. Nothing could be more express than the written
stipulations containetherein.
5. By the rule of ejusdem generis
Where an instrument of any kind, an enumeration of specific matters is It was upon the authority of this document that De Guzman transacted
followed by a general phrase, the general phrase is held to be limited in business with Santos that resulted in the constructioncontract
scope by the specific matters. denominated as the Deed of Agreement.
FACTS: Art. 1901. A third person cannot set up the fact that the agent has
Conrado De Guzman is an architect-contractor doing business under the exceeded his powers, if the principal has ratified, or has signified his
name and style of Jigscon Construction. SiredyEnterprises, Inc. willingness to ratify the agent's acts.
(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. The effect of ratification by the principal is that it gives the same effect as if the
principal originally authorized such act.
As stated in its Articles of Incorporation, the primary corporate purpose of
Siredy is to acquire lands, subdivide and developthem, erect buildings Who must ratify the contract?
and houses thereon, and sell, lease or otherwise dispose of said It is only the principal.
properties to interested buyers.
Art. 1902. A third person with whom the agent wishes to contract on behalf
Sometime before October 1978, Yanga executed an undated Letter of of the principal may require the presentation of the power of attorney, or
Authority duly signed by Yanga which constitutedHermogenes Santos as the instructions as regards the agency. Private or secret orders and
Siredys agent, whose authority included entering into a contract for the instructions of the principal do not prejudice third persons who have relied
building of housing units at upon the power of attorney or instructions shown them.
Ysmael Village.
Thereafter, Santos entered into a Deed of Agreement with De Guzman. Art. 1903. The commission agent shall be responsible for the goods
From October 1978 to April 1990, De Guzman constructed 26 residential received by him in the terms and conditions and as described in the
units at Ysmael Village. Thirteen (13) of thesewere fully paid but the other consignment, unless upon receiving them he should make a written
13 remained unpaid. The total contractual price of these 13 unpaid statement of the damage and deterioration suffered by the same.
houses is P412,154.93which was verified and confirmed to be correct by
111
BUSINESS ORGANIZATION I
(By: 3-Manresa, S.Y. 2017-2018)
From the Lectures of: Atty. Raymund Christian S. Ong-Abrantes, CPA
So you have a commission agent. TRAVEL WIDE ASSOCIATED SALES (PHILS.), INC., and TRANS
RECIT! WORLD AIRLINES, INC., petitioners, vs.COURT OF APPEALS,
Q: What is the difference between an ordinary agent and a commission DECISION SYSTEMS CORPORATION and MANUEL A. ALCUAZ,
agent? JR., respondents.
A: (Please refer to De Leon) (Digest by: Queene Resurreccion)
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 FACTS:
possession of the goods to be sold, and usually selling in his own name. He Decision Systems Corporation and its President, Manuel A. Alcuaz, Jr.,
may act in his own name or in that of the principal. 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
An ordinary agent need not have possession of the goods of his accommodations from Travel Wide Associated Sales (Phils.), Inc. for which
principal, while the commission agent must be in possession. the plaintiffs had made the corresponding payment in Manila.
Art. 1904. The commission agent who handles goods of the same kind and Sometime in March 1975 however, Decision System and Alcuaz filed a
mark, which belong to different owners, shall distinguish them by complaint against Travel Wide Associated Sales (Phils.), Inc..alleging that
countermarks, and designate the merchandise respectively belonging to the latter had failed to comply with their obligations under Travel Pass '73
each principal. 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,
Art. 1905. The commission agent cannot, without the express or implied Inc. As neither of the defendants was a real party-in-interest, there could
consent of the principal, sell on credit. Should he do so, the principal may be no cause of action against them.
demand from him payment in cash, but the commission agent shall be
entitled to any interest or benefit, which may result from such sale. 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,
If you are a commission agent, without the consent of the principal, you can Inc. and/or their agents" are acting "as agents for the passengers." They
only sell on cash. But if you sell it on credit, the principal cannot demand the stress further that the Miscellaneous Charge Order issued to Alcuaz
interest or benefit from the commission agent. He can only demand the indicated that the amount of $218.00 was payable to Tour Services, Inc.
payment in cash. 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.
So technically, if you are a commission agent, you are not acting exclusively
for the benefit of the principal. ISSUE/S:
WON TWA SALES IS AN AGENT OF THE PASSENGERS
Art. 1906. Should the commission agent, with authority of the principal, sell
RULING/S:
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. 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
Art. 1907. Should the commission agent receive on a sale, in addition to significance of the Miscellaneous Charges Order which was issued by
the ordinary commission, another called a guarantee commission, he shall TWA. We note that even the trial court observed the active participation of
bear the risk of collection and shall pay the principal the proceeds of the TWA in the promotion of the travel pass plan as an additional source of
revenue for its airline business.
sale on the same terms agreed upon with the purchaser.
It is also worth noting that if the petitioners were indeed acting as agents
That is the purpose of the guarantee commission. It is a commission paid in of the passengers, as the brochure stipulates, they could still be held liable
addition to the ordinary commission agreed upon for purposes of guaranteeing under Article 1909 of the Civil Code, which provides:
to the principal the payment of debts arising through his agency.
The agent is responsible not only for fraud, but also for
An agent receiving a guarantee commission cannot put up the defense that negligence, which shall be judged with more or less rigor by the
the debtor possesses no property since this is precisely the risk that the courts, according to whether the agency was or was not for a
guarantee commission assumes. (Libog kaayo ang ingun ni Sir, rapper na compensation.
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 The private respondent is entitled to prove that the petitioners did not
principal at the time when they become due and demandable shall be liable provide adequately for the pre-paid hotel accommodations of Alcuaz, who
had to incur additional expenses and was compelled to cut short his
for damages, unless he proves that he exercised due diligence for that
business trip because of his depleted dollar allocation. It was not
purpose.
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
Art. 1909. The agent is responsible not only for fraud, but also for
should have been followed by the petitioners as so provided in the Travel
negligence, which shall be judged with more or less rigor by the courts, Pass '73 USA.
according to whether the agency was or was not for a compensation.
Hence, even granting that they are mere agents of the passengers, they
Is the agent liable for fraud? are still liable under Article 1919.
Yes.
Q: Was there a cause of action against Travel Wide?
For negligence?
Yes, but the liability can be mitigated by the court. The court will consider A: According to them, there was no cause of action against them because they
whether the agency is or is not gratuitous in fixing the liability of the agent for were merely acting as agents for the passengers.
negligence (not fraud).
112
BUSINESS ORGANIZATION I
(By: 3-Manresa, S.Y. 2017-2018)
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 In stressing that it was acting only as a collecting agent for Golden
Article 1909 of the Civil Code. Even if Travel Wide was merely an agent, it Savings, Metrobank seems to be suggesting that as a mere agent it
actively participated in the promotion of the travel pass plan as an additional cannot be liable to the principal. This is not exactly true. On the contrary,
source of revenue for its airline business. Article 1909 of the Civil Code clearly provides that —
METROPOLITAN BANK & TRUST COMPANY, petitioner, vs.COURT OF
APPEALS, GOLDEN SAVINGS & LOAN ASSOCIATION, INC., LUCIA Art. 1909. — The agent is responsible not only for fraud, but
CASTILLO, MAGNO CASTILLO and GLORIA CASTILLO, respondents. also for negligence, which shall be judged 'with more or less
(Digest by: Queene Resurreccion) rigor by the courts, according to whether the agency was or was
not for a compensation.
FACTS:
In January 1979, a certain Eduardo Gomez opened an account with The negligence of Metrobank has been sufficiently established. To repeat
Golden Savings and deposited over a period of two months 38 treasury for emphasis, it was the clearance given by it that assured Golden Savings
warrants with a total value of P1,755,228.37. They were all drawn by the it was already safe to allow Gomez to withdraw the proceeds of the
Philippine Fish Marketing Authority and purportedly signed by its General treasury warrants he had deposited Metrobank misled Golden Savings.
Manager and countersigned by its Auditor. Six of these were directly There may have been no express clearance, as Metrobank insists
payable to Gomez while the others appeared to have been indorsed by (although this is refuted by Golden Savings) but in any case that clearance
their respective payees, followed by Gomez as second indorser. 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
On various dates between June 25 and July 16, 1979, all these warrants was in excess of its original balance before the treasury warrants were
were subsequently indorsed by Gloria Castillo as Cashier of Golden deposited, which only added to its belief that the treasury warrants had
Savings and deposited to its Savings Account No. 2498 in the Metrobank indeed been cleared.
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 belated notification aggravated the petitioner's earlier negligence in
the Bureau of Treasury for special clearing. 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
More than two weeks after the deposits, Gloria Castillo went to the Calapan of this, the supposed reason for the dishonor, to wit, the forgery of the
branch several times to ask whether the warrants had been cleared. She signatures of the general manager and the auditor of the drawer
was told to wait. Accordingly, Gomez was meanwhile not allowed to corporation, has not been established.
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
Q: Why did Metrobank contend that it was merely an agent?
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. 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
In turn, Golden Savings subsequently allowed Gomez to make withdrawals the principal.
from his own account, eventually collecting the total amount of
P1,167,500.00 from the proceeds of the apparently cleared warrants. The Q: What did the SC say?
last withdrawal was made on July 16, 1979.]
A: The SC cited Article 1909 of the Civil Code. The negligence of Metrobank
has been sufficiently established in this case.
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, October 21, 2017 (First Half)
and demanded the refund by Golden Savings of the amount it had Transcriber: Miles Buhay
previously withdrawn, to make up the deficit in its account.
1. To comply with all the obligations which the agent may have contracted Ex. The principal instructed the agent to sell the principal’s lot only to his
within the scope of his authority; 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
2. To advance to the agent, should the latter so request, the sums necessary debt falls due, pag-encash niya sa check at ginamit niya yung pera, there is
for the execution of the agency; implied ratification.
3. To reimburse the agent for all the advances made by him, provided the You have to note also that the ratification __ the contract from all its effects
agent is free from fault; from the moment it was constituted; in effect, ratification is retroactive.
4. To indemnify the agent for all the damages which the execution of the So what are the conditions for ratification? ICPEC
agency may have caused the latter without fault or negligence on his part; and
1. There must be intent to ratify on the part of the principal;
5. To pay the agent the compensation agreed upon or the reasonable value
of the agent’s services. 2. The principal must have capacity and power to ratify;
When the agent mismanages the business of the principal, the principal So insane persons and persons under civil interdiction cannot
is liable. ratify. The latter is prohibited from disposing his property inter
vivos.
Ex. Principal: Agent, bayaran mo yung utang ko kay Judy Ann. Eto ang
P5,000. Ibigay mon a kasi ayaw ko nang may utang. 3. He must have knowledge or had reason to know of material facts about the
transaction;
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. Ex. My agent is in possession of my iPad. He sold it to Juday who
So ngayon, may utang ka pang P2,000 na naiwan kay Judy Ann. paid in check. Ako naman (principal), tinanggap ko at pinaencash
yung check kasi akala ko bayad yun sa akin ni agent kasi may
Si Judy Ann, medyo engot pud [harsh], nagfile siya ng small claims for the utang rin siya sa akin. So in this case, was there ratification? Wala,
P2,000. because I had no knowledge of the material facts involved in the
sale of my iPad.
Q: So is the principal liable?
4. The act must be done in behalf of the principal;
A: Yes, the principal is liable because the principal is not excused when the
agent mismanages his business. Ex. Agent enters into a contract with Juday without disclosing the
fact na agent siya ni principal. He is not authorized to enter into
You have to remember the principle enunciated by the Supreme Court in the
such contract. So in that case the principal cannot ratify because
case of Cuison v. CA (G.R. No. 88539 October 26, 1993). The SC said
the agent entered into the contract in his personal capacity.
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. 5. The principal must ratify the act of the agent in its entirety; and
So as between two persons, in my example they are the principal and Juday The principal cannot accept the benefits of the transaction and
Ann (the third person), who made it possible for the wrong to occur? The refuse to accept the obligation.
principal.
Ex. Same sa example ko kanina. Yung agent, binigay niya yung
Q: Is the principal liable for a tort committed by the agent? 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
A: Yes. The principal is liable to third persons for the torts which the agent
yung bayad. So there is ratification of the sale in its entirety and
committed at the principal’s direction or enforced within the agent’s authority.
also because there is ratification of the sale, I am also liable with
Ex. The security guard (agent) of the principal in one of the latter’s stores shot the warranties that goes with the selling of the iPad. So we have
Judy Ann because he suspected her to have stolen something from the store warranties against hidden defects.
and place it in her pocket. It turns out na nangatol ra diay si Juday. So wala
6. The act must be capable of ratification.
siya nangawat.
Example of acts that are NOT capable of ratification:
Q: Is the principal liable for the agent’s katangahan?
a. Those acts which are absolutely void;
A: Yes. Binaril ng guard si Juday in the course and within the scope of his
employment as security guard. b. Unauthorized contracts revoked by third person
before ratification by the principal
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. Q: What is the effect of ratification with respect to the agent?
Ex. A delivery boy inutusan mong magdeliver ng Cheetos sa store ni Juday. - It relieves the agent from liability to the third party to the
Pero ayaw ni Juday magbayad kay huyos daw. But since nakalabas lang yung unauthorized transaction.
pera na pambayad sana, kinuha ni delivery boy. Is the principal liable? - It relieves the agent from liability to his principal for acting without
authority.
Yes. He acted in furtherance of the principal’s business. - The agent may recover compensation due for performing the act
Q: What is the meaning of “ratification” in the second paragraph [of 1910]? which has been ratified.
A: It is the adoption or affirmance by a person of a prior act which did not bind Q: What is the effect of ratification with respect to the principal?
him, but which was done or professed to be done on his account thus giving - He assumes responsibility for the unauthorized act because he
effect to the acts as if originally authorized. ratified it.
The doctrine specifically applies to the ratification of the act of an agent in - He is NOT liable for acts outside the authority approved by his
excess of his authority. So ratification is done by the principal whether ratification.
expressly or impliedly but the principal accepts the benefits of the agency. 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 So here, there is authority by estoppel because I negligently permitted A
been bound if the ratified act had been authorized in the first to collect from Juday kasi 11 months na doon pa ako nagcollect. Dapat
instance. nung 3rd month pa lang.
- He cannot raise the question of the agent’s authority to do the
ratified act.
Where the third person is liable to a principal under an unauthorized act In the case of Manila Remnant v. CA (G.R. No. 82978. November 22, 1990),
of his agent, di pwedeng sabihin ng third person na, ay wala mang the SC said that Article 1911 is intended to protect the rights of innocent
authority si agent. (De Leon: Where the third person is liable to a third persons. In such a situation, both the principal and the agent may
principal under an unauthorized act of his agent, the third person may be considered as joint tortfeasors whose liability is joint and solidary.
not be relieved of his liability on the theory that the principal ratified the
Art. 1912. The principal must advance to the agent, should the latter so
agent’s acts merely because the principal made an unsuccessful effort
request, the sums necessary for the execution of the agency.
to collect from the agent.
Should the agent have advanced them, the principal must reimburse him
Art. 1911. Even when the agent has exceeded his authority, the principal
therefor, even if the business or undertaking was not successful, provided
is solidarily liable with the agent if the former allowed the latter to act as
the agent is free from all fault.
though he had full powers.
The reimbursement shall include interest on the sums advanced, from the
day on which the advance was made.
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. The principles to remember here:
Q: So what is the effect if the agent exceeded his authority? - 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
A: The principal is not bound and the contract is unenforceable unless the
broker.
principal ratifies it impliedly or expressly.
- Reimbursement also includes interest and the sums advanced.
However, the principal is bound when knowing the act is beyond the agent’s The legal interest prevailing now is 6%.
powers, he held out the agent to act as if he is in full powers.
Q: Should the principal reimburse the agent for the advances made by the
Q: So what is the meaning of “estoppel”? latter even when the agency was unsuccessful?
A: It is a bar which precludes a person from denying or asserting anything A: It depends. Yes, if the agent is free from fault. No, if the agent was with
contrary to that which has been established as the truth by his own deed or fault.
representation either express or implied.
Q: Is the broker always entitled to a commission?
Let us distinguish apparent authority from authority by estoppel.
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 Arises in those cases where the
granted, the principal knowingly or principal, by his negligence, permits
consciously permits the agent to his agent to exercise powers not The basis of this rule is equity since the principal receives benefits from the
exercise or holds him out as granted to him [even though the agency, then he should answer for the damages which the agent might have
possessing principal may have no notice or incurred.
knowledge of the conduct of the
Art. 1914. The agent may retain in pledge the things which are the object
agent. ~De Leon]
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.
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.
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2. The principals have all concurred in the appointment of the same I am going back to the previous example (#1 above). Since I (principal)
agent; and contracted with Juday before the agent transacted with Ryan, Ryan’s contract
has been rejected.
3. There is a common transaction or undertaking.
Now, my contract will prevail because it is on a prior date. For liability for
Q: Why is the rule solidary? damages, however, we have to note if the agent contracted with Ryan in good
faith or in bad faith.
A: Because of the common transaction.
If he contracted with Ryan knowing that I have previously
Art. 1916. When two persons contract with regard to the same thing, one
contracted with Juday, the agent is in bad faith and will be
of them with the agent and the other with the principal, and the two
personally liable to Ryan.
contracts are incompatible with each other, that of prior date shall be
preferred, without prejudice to the provisions of Article 1544. 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
The rule here is that the contract of prior date shall prevail and the rule on
in the following cases:
double sales is applicable when the provisions on double sale shall apply.
(1) If the agent acted in contravention of the principal's instructions, unless
Remember your provisions on double sales?
the latter should wish to avail himself of the benefits derived from the
If the sale involves immovable property, it is the buyer who first registered the contract;
same shall prevail. And if it is a movable property, it is the one who first took
(2) When the expenses were due to the fault of the agent;
possession of the same.
(3) When the agent incurred them with knowledge that an unfavorable
Art. 1544. If the same thing should have been sold to different vendees,
result would ensue, if the principal was not aware thereof;
the ownership shall be transferred to the person who may have first taken
possession thereof in good faith, if it should be movable property. (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.
(2) When the expenses were due to the fault of the agent;
Ex. #1. I (principal) authorized A to contract for the repair of my iPad. Without So hindi liable si principal kasi kasalanan ni agent.
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 (3) When the agent incurred them with knowledge that an unfavorable
niya kay Ryan. result would ensue, if the principal was not aware thereof;
So under Art.1516, my contract with Juday is preferred because it is on a prior The agent here is guilty of bad faith so he is personally liable.
date.
(4) When it was stipulated that the expenses would be borne by the
#2. I authorized A to sell my property in Woodridge. Without A’s knowledge, I agent, or that the latter would be allowed only a certain sum.
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. We know that when the stipulation is not contrary to law, good
morals, public order or public policy, it is binding between the parties.
Here, the rule on double sales applies. The subsequent sale shall prevail not
the one with the prior date.
CHAPTER 4
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 MODES OF EXTINGUISHMENT OF AGENCY
person whose contract must be rejected. If the agent acted in bad faith, he
alone shall be responsible. Remember that an agency, like love, does not last forever.
Mnemonics: W.R.D.E.A.D.
Whether the principal or the agent will be the one liable for damages to the Art. 1919. Agency is extinguished:
third person who has been prejudiced depends on whether the agent acted in
bad faith or in good faith. (1) By its revocation;
If the agent acted in good faith, and within the scope of his authority, then the (2) By the withdrawal of the agent;
principal is liable.
(3) By the death, civil interdiction, insanity or insolvency of the principal or
Meaning of good faith: hindi niya alam na nagdeal ako with a third of the agent;
person.
(4) By the dissolution of the firm or corporation which entrusted or accepted
If the agent acted in bad faith, he alone shall be responsible to such third the agency;
person. Alam niya na he is personally liable.
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(5) By the accomplishment of the object or purpose of the agency; 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
(6) By the expiration of the period for which the agency was constituted. and shall be fully effective with respect to third persons who may have
contracted with him in good faith.
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Ex. Juday wants to sell her 3 iPads, because she doesn’t need them A: As to former customers, actual notice must be given to them because they
anymore, since she has 3 iMacs. Then nawala yung isang iPad. In this always assume the continuance of agency relationship. As to other third
case, there is only partial loss. Yung agency magcontinue pa rin with persons, notice by publication is enough.
respect to the 2 iPads.
Q: May the agent renounce the agency again?
Q: Are the modes of extinguishment of agency exclusive?
A: Yes because you cannot compel him (Involuntary servitude). Kung ayaw
A: No. Article 1919 gives only those causes of extinguishment particular to niya, eh ‘di wag.
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 Hindi ko na i-discuss yung hindi naman lumalabas sa Bar. Sayang lang ang
and also during existence of war, the agency is ineffective if the agent is a time.
citizen of the enemy state. And also when the agency becomes unlawful.
Q: Do violations of the instructions of the principal amount to renunciation?
Ex. Attorney-client relationship. I was engaged by my client to represent
A: No. The mere fact that the agent violates the instructions of the principal
him in an estafa case. Now, during the course of the proceedings, I was
does not amount to renunciation.
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. 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
The occurrence of a specified event
were not given notice thereof.
I authorize you as my agent to manage my convenience store while
The reason for this is because third persons were made to believe by the
I am on vacation (parang si Atty. Ong. Haha). My return from vacation
principal that the agent is authorized to act. So if wala silang notice na yung
will terminate the agency.
agent wala na palang authority, then pwede pa rin silang makipag-contract sa
Art.1920. The principal may revoke the agency at will, and compel the agent. In that case, the principal will still be bound.
agent to return the document evidencing the agency. Such revocation
Ex. Ako si principal. I authorized my agent to buy Juday’s iPad. Notice of the
may be express or implied.
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
GR: The agency may be revoked by will because it is based on trust and my agent without notifying Juday.
confidence.
If later on, binili pa rin ng agent yung iPad, am I liable to Juday for the purchase
The reason is that since the authority of the agent emanates from the principal, price? Yes. The agent here contracted with a specific person (Juday). And in
and if the principal wishes to revoke the agency, then he may do so. order for the revocation to be valid, Juday should be notified of such
Confidence also, being a cardinal basis of the relation, stands to reason that it revocation.
should cease when no such confidence exists.
Art. 1922. If the agent had general powers, revocation of the agency does
The principal-agent relationship is also personal and consensual in nature. In not prejudice third persons who acted in good faith and without knowledge
fact, kung yung agent ayaw na niyang maging agent sa iyo, the principal of the revocation. Notice of the revocation in a newspaper of general
cannot sue him for specific performance because it will amount to involuntary circulation is a sufficient warning to third persons.
servitude.
Exceptions:
Ex. Owner ako ng small convenience store and authorized A to be the general
1. The agency cannot be terminated at will if the agency is coupled manager of the same. Part of his duties is to receive payments from customers
with an interest; in general. The agent is given general powers.
2. When the revocation is done in bad faith;
3. When there is waiver made by the principal of his right to revoke; 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
4. Under Article 1927: when a bilateral contract depends on the
ang ginawa ni A, tumanggap lang siya ng mga bayad at tinago niya yung pera
agency;
sa akin. Pwede ba ako maningil sa mga customers? Hindi, as long as the
5. When it is a means of fulfilling an obligation;
customers acted in good faith and without knowledge of the revocation.
6. When a partner’s appointed manager in a contract of partnership
and his removal from the partnership is unjustifiable. 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
Q: What is the reason for requiring that an agent must return the document person shall be binding with the principal even if the agent acted in bad faith.
evidencing the agency?
What if yung revocation na-advertise sa newspaper of general circulation?
A: Para hindi niya na magamit, siyempre; to prevent the agent from making Pwede ako maningil? Paano kung di niya (customer/third person) nabasa?
use of the power of attorney and to protect innocent third persons. Hindi material whether or not the 3rd person read the revocation in the
newspaper.
What are the kinds of revocation?
Let us distinguish the notice required in Article 1921 from that of Article 1922.
1. Express
2. Implied 1921 1922
When the principal appoints a new agent for the same business or transaction The agent is authorized to deal with The agent is given general powers.
or the principal directly manages the business entrusted to the agent. specified persons.
Q: Is notice to the agent of the revocation necessary? Notice of revocation must be Notice here may not be personal.
PERSONAL.
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. Revocation must be known to the Even if the 3rd person does not
3rd person. know, as long as there is
Q: Is notice to third persons of the revocation necessary?
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From the Lectures of: Atty. Raymund Christian S. Ong-Abrantes, CPA
publication in the newspaper of P appoints A as general manager of his small convenience store. The authority
general circulation. 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.
Art. 1923. The appointment of a new agent for the same business or
So,may special power si Juday to hire personnel. Si A general power being
transaction revokes the previous agency from the day on which notice
the general manager. So as to hiring of employees, the general powers of A
thereof was given to the former agent, without prejudice to the provisions
is revoked but only to that matter, sa hiring lang ng employees. Sa other
of the two preceding articles.
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.
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 Article 1927. An agency cannot be revoked if a bilateral contract depends
person, the principal is still liable. 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
If there is no notice given to the 1st agent, and he continued the agency in his removal from the management is unjustifiable.
good faith, the contract he entered into is binding upon the principal.
The general rule is that the principal may revoke an agency at will because
The 2nd power of attorney revoking the 1st one operates only after notice has the essence of agency is the agent’s duty of obedience to the principal. The
been given to the 1st agent. exceptions:
In order for 1920 to apply, also you have to remember that the two (2) agencies 1. If a bilateral contract depends on the agency.
must be incompatible with each other. If they are compatible with each other, 2. If the agency is the means of fulfilling an obligation already
then the 2 agencies may co-exist and there will only be a revision of the contracted
agency.
3. If a partner is appointed manager of a partnership in the contract of
Ex. I authorize A to sell my iPad (baboy na pud daw ma’am). The next day, I partnership and his removal from the management is unjustifiable.
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 So let’s discuss the first exception, when the bilateral contract depends on the
B to sell the baboy. So, unahan. But if the principal gave B the exclusive agency. This is what is known as the agency coupled with an interest.
authority to sell the baboy, there is implied revocation because now there is
Example:
exclusive authority.
P sold his convenience store to Juday for 1Million. Juday only paid
Notice of appointment in this case must be given to A, the prior agent, in order
500thousand. So may balance pa na 500T. Ngayon yong parties nag stipulate
to terminate his authority.
na yong ownership ng convenience store will be transferred to Juday upon full
Art. 1924. The agency is revoked if the principal directly manages the payment of the purchase price. So they agreed na itong si P, iyong seller, he
business entrusted to the agent, dealing directly with third persons. 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
Generally, it revokes the agency because there will no longer be any basis for
the representation previously conferred. 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
Exception: When the only desire of the principal is for him and the agent to convenience store will be transferred only pag nabayaran na lahat. So mayron
manage the business together. 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
Ex. P appoints A as manager of the convenience store. Tapos wala lang, gusto
store in the meantime na hindi pa nabayaran iyong buo, iyong remaining 500T
lang ni principal magbenta benta. His only desire is for him and the agent to
and then iyong profits ng convenience store, yun ibabayad paunti-unti dun sa
manage the convenience store together.
500T. So ngayon ang mangyayari nito kasi yong sale bilateral contract and
October 22, 2017 (Second Half) naka depend sya dun sa agency hindi sya marerevoke, hindi sya marerevoke
Transcriber: Janice Molina 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?
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 For an agency coupled with an interest to be irrevocable the interest of the
consent of the others. agent must be in the subject matter of the power conferred and not merely an
interest in the exercise of the power.
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 Example:
is the act of all. So, any of the principals may revoke the agency.
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
Article 1926. A general power of attorney is revoked by a special one granted
nakabayad ng utang nya. Si P nangutang kay A ng 1Million tapos sabi nya ito
to other agent, as regards the special matter involved in the latter.
yong property ko sa Tibungco, mortgage ko sayo tapos pde mo syang
So how many agents are involved in this article? Two, there are two agents: e.dispose if hindi ako nakabayad ng utang ko. The agency here is irrevocable
one to whom a general power is previously granted and the other, where the because the interest of the agent is in the subject matter of the power
special power of appointment is subsequently granted. So what is the effect of conferred. What is the subject matter of the agency? Katong property sa
the issuance of the special power as regards to general power? The general Tibungco. So hindi sya marevoke. Iba naman if:
power is impliedly revoked as to matters covered by the special power
P appoints A to sell his iPad on commission. P gives A power of attorney to
because the special power of attorney naturally prevails over a general power.
secure his commission from the proceeds of the sale. Itong ipad ko ibenta mo
Example: 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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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. 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
Number 2 exception, when the agency is a means of fulfilling an obligation sale. Before the iPad is sold, P dies. Now here the agency to sell is not
already contracted. 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
Example: 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
P is the owner of a condo for rent. P borrows 1Million from Juday. As a security
ni.render nya.
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 2. If the agency has been constituted in the interest of a third person
agree kami na mag execute ako ng power of attorney in favor of A, sabi ko who has accepted the stipulation in his favor.
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 Example: P borrows from Juday 10T payable in 6 months. On the third month,
of P to Juday. So hindi nya pdeng e.revoke yung agency kasi pag na revoke P sold his iPad to A and authorized A to pay P’s debt to Juday out of the iPad’s
yung agency wala nang mag collect ng pera sa condo at magbabayad kay purchase price. Juday accepts the agency of A. If P dies on the fifth month,
Juday. the agency is not extinguished and Juday is still entitled to receive payment
from A.
Number 3 exception, when a partner is appointed manager of a partnership in
the contract of partnership and his removal from the management is Generally, dapat marevoke na yong agency kasi walanayong presence but
unjustifiable. 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
A, B, and C are partners. They appointed A as manager in the articles of
person.
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. Article 1931. Anything done by the agent, without knowledge of
the death of the principal or of any other cause which extinguishes
If the contract of agency stipulates that the contract will be irrevocable, is such
the agency, is valid and shall be fully effective with respect to third
terminology controlling? Whether an interest which will make an agency
persons who may have contracted with him in good faith.
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. This talks about the knowledge by the agent of the fact of the death of the
So it is said that an “agency” coupled with an interest is not a true agency. principal. If he executed the act without knowledge then the act is valid,
Why is that so? One of hallmarks of an agency relation is the control of the effective and enforceable. The principal is bound. You have to take note that
principal over the agent and if there is an agency coupled with an interest the both the agent and the third person must be in good faith here. So, both of
principal is now divested with that power of control. them must have no knowledge of the death of the principal.
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 Article 1932. If the agent dies, his heirs must notify the principal
of the withdrawal, the agent must indemnify him therefor, unless the thereof, and in the meantime adopt such measures as the
agent should base his withdrawal upon the impossibility of continuing the circumstances may demand in the interest of the latter.
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 So if the agent dies, you have to remember that the heirs of the agent have
principal and the basis of this is the constitutional prohibition against the duty to notify the principal. But if the principal dies, the principal’s heirs do
involuntary servitude. 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
If the agent withdraws from the agency without just cause, he should notify the be necessary to meet the situation and adopt such measures as the
principal and he should indemnify the principal should the latter suffer any circumstances may demand in the interest of the principal.
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 Can the heirs continue the agency? No, because an agency calls for personal
impossibility of continuing with the agency without grave detriment to himself services on the part of the agent except if the agency is created by operation
or if by reason of fortuitous event. 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.
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. Estate of the Late Juliana DiezVda. De Gabriel vs CIR (January
27, 2004)
This is to prevent damage or prejudice to the principal. (Digest by: Zarah Domingo)
Article 1930. The agency shall remain in full force and effect even after (Note: This is a Tax 2 –related Case. The Court held that the effect
the death of the principal, if it has been constituted in the common of improper service of the demand letter and assessment notice
interest of the latter and of the agent, or in the interest of a third person was that there was never any valid notice of this assessment. In
who has accepted the stipulation in his favor. effect, the notice could not have become final and executory. Also,
since there was failure to make the assessment within the 5 year
General rule, agency is terminated automatically upon the death of the period provided in NIRC, CIR’s claim against the Estate is barred.
principal because, what is lacking? PRESENCE. Exceptions: 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
1. If the agency has been constituted for the common interest of the
the agent of the decedent. Since there was no proper service, the
principal and of the agent. assessment cannot bind the Estate of the decedent.)
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So who is the principal in this case? Vda de Gabriel Agent? Philtrust (2) Even if indeed the agency and the Saudi principal had already
severed their agency agreement at the time Reyes was injured, the
So we have here Article 1919 which provides that the death of the principal
Agency may still be sued for a violation of the employment contract
automatically terminates the agency since the relationship of Philtrust and the
because no notice of the agency agreement’s termination was
decedent is automatically severed at the moment of the taxpayer’s death.
given to Reyes.
None of Philtrust acts or omission could bind the estate of the taxpayer.
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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Albeit the Agency was at the time of the accident resulting in his In the case at bench, the evidence is sufficient to warrant a finding
permanent partial disability no longer the accredited agent of its that petitioner and Parangan merely intended to consolidate the
foreign principal, the Agency’s responsibility over the proper former's indebtedness to the latter in a single instrument and to
implementation of complainant’s employment/service contract and secure the same with the subject property. Even when a document
the welfare of complainant himself in the foreign job site still appears on its face to be a sale, the owner of the property may
existed, the contract of employment in question not having expired prove that the contract is really a loan with mortgage by raising as
yet. This must be so, because the obligations covenanted in the an issue the fact that the document does not express the true intent
recruitment agreement entered into by and between the local agent of the parties.
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 Petitioner had no knowledge that the contract she signed is a deed
agreement, the responsibilities of such parties towards the of sale. The contents of the same were not read nor explained to
contracted employees under the agreement do not at all end, but her so that she may intelligibly formulate in her mind the
the same extend up to and until the expiration of the employment consequences of her conduct and the nature of the rights she was
contracts of the employees recruited and employed pursuant to the ceding in favor of Parangan. Petitioner is illiterate and her condition
said recruitment agreement. Otherwise, it will render nugatory the constrained her to merely rely on Parangan's assurance that the
very purpose for which the law governing the employment of contract only evidences her indebtedness to the latter.
workers for foreign jobs abroad was enacted.
(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
Adoracion Lustanvs CA, Nicolas Parangan and Soledad
Parangan, PNB (January 27, 1997) consent was given, the fact that the loans were solely for the benefit
of Parangan would not invalidate the mortgage with respect to
(Digest by: Zarah Domingo)
petitioner's property. In consenting thereto, even granting that
petitioner may not be assuming personal liability for the debt, her
FACTS:
property shall nevertheless secure and respond for the
1.) Petitioner Adoracion Lustan is the registered owner of a
parcel of land otherwise known as Lot 8069 of the Cadastral Survey performance of the principal obligation. It is admitted that petitioner
of Calinog, Iloilo containing an area of 10.0057 hectares. is the owner of the parcel of land mortgaged to PNB on five (5)
2.) Petitioner leased the property to private respondent occasions by virtue of the Special Powers of Attorney executed by
Nicolas Parangan for a term of 10 years and an annual rent of petitioner in favor of Parangan. Petitioner argues that the last three
mortgages were void for lack of authority. She totally failed to
P1,000.00.
consider that said Special Powers of Attorney are a continuing one
3.) During the period of lease, Parangan was regularly
and absent a valid revocation duly furnished to the mortgagee, the
extending loans in small amounts to petitioner to defray her daily
same continues to have force and effect as against third persons
expenses and to finance her daughter's education
4.) Petitioner executed a Special Power of Attorney in favor who had no knowledge of such lack of authority. Article 1921 of the
of Parangan to secure an agricultural loan from private respondent Civil Code provides:
Philippine National Bank (PNB) with the aforesaid lot as collateral Art. 1921. If the agency has been entrusted for the purpose of
5.) A second Special Power of Attorney was executed by contracting with specified persons, its revocation shall not prejudice
the latter if they were not given notice thereof.
petitioner, by virtue of which, Parangan was able to secure four (4)
The Special Power of Attorney executed by petitioner in favor of
additional loans: The last three loans were without the knowledge
Parangan duly authorized the latter to represent and act on behalf
of herein petitioner and all the proceeds therefrom were used by
of the former. Having done so, petitioner clothed Parangan with
Parangan for his own benefit. These encumbrances were duly
annotated on the certificate of title. authority to deal with PNB on her behalf and in the absence of any
6.) Petitioner signed a Deed of Pacto de Retro Sale in favor proof that the bank had knowledge that the last three loans were
of Parangan which was superseded by the Deed of Definite Sale without the express authority of petitioner, it cannot be prejudiced
thereby.
which petitioner signed upon Parangan's representation that the
As far as third persons are concerned, an act is deemed to have
same merely evidences the loans extended by him unto the former.
been performed within the scope of the agent's authority if such is
7.) For fear that her property might be prejudiced by the
within the terms of the power of attorney as written even if the agent
continued borrowing of Parangan, petitioner demanded the return
of her certificate of title. has in fact exceeded the limits of his authority according to the
8.) Instead of complying with the request, Parangan understanding between the principal and the agent.
asserted his rights over the property which allegedly had become The Special Power of Attorney particularly provides that the same
his by virtue of the aforementioned Deed of Definite Sale. Under is good not only for the principal loan but also for subsequent
commercial, industrial, agricultural loan or credit accommodation
said document, petitioner conveyed the subject property and all the
that the attorney-in-fact may obtain and until the power of attorney
improvements thereon unto Parangan absolutely for and in
is revoked in a public instrument and a copy of which is furnished
consideration of the sum of P75,000.00.
to PNB.
9.) Petitioner filed an action for cancellation of liens,
quieting of title, recovery of possession and damages against Even when the agent has exceeded his authority, the principal is
Parangan and PNB solidarily liable with the agent if the former allowed the latter to act
as though he had full powers (Article 1911, Civil Code).
ISSUES: The mortgage directly and immediately subjects the property upon
which it is imposed. The property of third persons which has been
(1) WON the Deed of Definite Sale is in reality an equitable
expressly mortgaged to guarantee an obligation to which the said
mortgage: YES
persons are foreign, is directly and jointly liable for the fulfillment
(2) WON petitioner's property is liable to PNB for the loans
thereof; it is therefore subject to execution and sale for the purpose
contracted by Parangan by virtue of the special power of attorney:
YES of paying the amount of the debt for which it is liable. However,
petitioner has an unquestionable right to demand proportional
HELD: indemnification from Parangan with respect to the sum paid to PNB
(1) The Deed of Definite Sale is in reality an equitable from the proceeds of the sale of her property in case the same is
mortgage as it was shown beyond doubt that the intention of the sold to satisfy the unpaid debts.
parties was one of a loan secured by petitioner's land.
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Who is the principal here? Adoracion Lustan. Agent? Parangan to be constructively bound by the published notice of revocation,
Ortigas and/or any of its officers must be a subscriber and/or any
Was there a valid revocation in this case? No, because there was no notice. of its officer should read the notice as actually published: YES
herein, to recover from them, jointly and severally, the sums of prove that Mrs. Mesa had no authority to issue a surety bond, much
P17,826.08, representing the principal and interest due up to said less one in excess of P8,000.00, and took no exception to the
date, and P1,551.60, as attorney's fees. admission of said evidence. Hence, Hodges must be deemed to
7.) In its answer, petitioner disclaimed liability under the have waived the benefits of said rule and petitioner herein cannot
surety bond in question, upon the ground (a) that the same is null be held liable in excess of the sum of P8,000.00.
and void, it having been issued by Mrs. Rosita Mesa after her b.) Under the third assignment of error, petitioner maintains that,
authority therefor had been withdrawn on March 15, 1952; (b) that having been instituted on October 24, 1955 — or nine (9) months
even under her original authority Mrs. Mesa could not issue surety after the expiration of petitioner's surety bond on January 23, 1955
bonds in excess of P8,000.00 without the approval of petitioner's — the present action is barred by the provision in said bond to the
main office which was not given to the surety bond in favor of effect that it:
Hodges; and (c) that the present action is barred by the provision ...will not be liable for any claim not discovered and presented to
in the surety bond to the effect that all claims and actions thereon the Company within three (3) months from the expiration of this
should be filed within three (3) months from the date of its expiration bond and that the obligee hereby waives his right to file any court
on January 23, 1955. action against the surety after the termination of the period of three
months above-mentioned.
ISSUE: Court has, however, held (in an identical case) "that the three-
WON CA erred in finding that petitioner was liable on a bond issued month period" prescribed therein "established only a condition
by an agent whose authority ... had already been withdrawn and precedent, — not a limitation of action," and that, when a claim has
revoked: NO been presented within said period, the action to enforce the claim
may be "filed within the statutory time of prescription."
HELD:
The assignment of error is predicated upon the fact that prior to SANCHEZ vs.MEDICARD PHILIPPINES, INC.
January 23, 1954, when the surety bond involved in this case was G.R. No. 141525
executed, or on March 15, 1952, petitioner herein had withdrawn September 2, 2005
the authority of its branch manager in the City of Iloilo, Mrs. Rosita (Digest by: Lizette Estillore)
Mesa, to issue surety bonds and that, accordingly, the surety bond,
is null and void. FACTS:
Article 1922: If the agent had general powers, revocation of the MEDICARD Philippines, Inc. (MEDICARD) appointed SANCHEZ
agency does not prejudice third persons who acted in good faith as its special corporate agent with a commission based on the
and without knowledge of the revocation. Notice of the revocation "cash brought in” by the latter.
in a newspaper of general circulation is a sufficient warning to third
persons. Through SANCHEZ’ efforts, MEDICARD and United Laboratories
It is not disputed that petitioner has not caused to be published any Group of Companies (UNILAB) executed a Health Care Program
notice of the revocation of Mrs. Mesa's authority to issue surety Contract where UNILAB shall pay MEDICARD a fixed monthly
bonds on its behalf, notwithstanding the fact that the powers of Mrs. premium for the health insurance of its personnel. UNILAB paid
Mesa, as its branch manager in Iloilo, were of a general nature, for MEDICARD ₱4,148,005 as premium for one (1) year. MEDICARD
she had exclusive authority, in the City of Iloilo, to represent then handed SANCHEZ 18% of said amount as commission. The
petitioner herein, not with a particular person, but with the public in contract was subsequently renewed incorporating an increase.
general, "in all the negotiations, transactions, and business in SANCHEZ was also paid his commission.
wherein the Company may lawfully transact or engage on subject
only to the restrictions specified in their agreement.” Prior to the expiration of the renewed contract, MEDICARD
Contrary to petitioner's claim, Article 1922 applies whenever an proposed to UNILAB, through SANCHEZ, an increase of the
agent has general powers, not merely when the principal has premium for the next year. However, UNILAB rejected the proposal
published the same, apart from the fact that the opening of "for the reason that it was too high," prompting DR. MONTOYA
petitioner's branch office amounted to a publication of the grant of (MEDICARD’s president and general manager) to request
powers to the manager of said office. Then, again, by honoring SANCHEZ to reduce his commission, but the latter refused.
several surety bonds issued in its behalf by Mrs. Mesa
subsequently to March 15, 1952, petitioner induced the public to At first UNILAB decided not to renew the contract. It nonetheless
believe that she had authority to issue such bonds. As a negotiated with DR. MONTOYA, through EJERCITO, and entered
consequence, petitioner is now estopped from pleading, into a new scheme to continue the insurance coverage of those
particularly against a regular customer thereof, like Hodges, the personnel.
absence of said authority.
Note: As to other allegations of error (not related to Topic, in case SANCHEZ demanded from MEDICARD payment of ₱338,000 as
asked in class): his commission plus damages. The latter refused. This prompted
a.) The second assignment of error assails the finding of the CA to SANCHEZ to file a complaint for sum of money against
the effect that the petitioner is liable for the full amount of surety MEDICARD, DR. MONTOYA and EJERCITO.
bond — despite the fact that it exceeded the sum of P8,000.00 and
hence, required, for its validity and binding effect as against ISSUE:
petitioner herein, the express approval and confirmation of its WON THE CONTRACT OF AGENCY HAS BEEN REVOKED BY
Manila office, which were not secured — in view of petitioner's MEDICARD. Yes
failure to deny under oath the genuineness and due execution of WON SANCHEZ IS ENTITLED TO A COMMISSION. No
said bond.
We have however, held that: “... where a case has been tried in HELD:
complete disregard of the rule and the plaintiff having pleaded a An agent receives his commission only upon the successful
document by copy, presents oral evidence to prove the due conclusion of a sale. Thus, it follows that where his efforts are
execution of the document as well as the agent's authority and no unsuccessful, or there was no effort on his part, he is not entitled
objections are made to the defendant's evidence in refutation, the to a commission.
rule will be considered waived.”
In the case at bar, the parties acted in complete disregard of or However, for the purpose of equity, an agent who is not the efficient
wholly overlooked the rule above-quoted. Hodges had neither procuring cause is nonetheless entitled to his commission, where
objected to the evidence introduced by petitioner herein in order to
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said agent, notwithstanding the expiration of his authority, 1,000 board feet from the buyer of the logs. Shinko was able to
nonetheless, took diligent steps to bring back together the parties, collect a total of U.S. $77,264.67.
such that a sale was finalized and consummated between them.
The proximate, close, and causal connection between the agent’s CMS claimed that this commission paid to Shinko was in violation
efforts and the principal’s sale of his property cannot be ignored. 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
In the case at bar, it was through SANCHEZ that MEDICARD was been paid the 5% commission under the agreement, it is no longer
able to enter into a one-year Health Care Program Contract with entitled to the additional commission paid to Shinko as this
UNILAB. As a result, MEDICARD paid him his commission. Again, tantamount to DRACOR receiving double compensation for the
through his efforts, the contract was renewed and once more, he services it rendered.
received his commission. Before the expiration of the renewed
contract, MEDICARD, through SANCHEZ, proposed an increase After this discovery, CMS sold and shipped logs valued at U.S.
in premium, but UNILAB rejected this proposal. MEDICARD then $739,321.13 or P2,883,351.90, directly to several firms in Japan
requested SANCHEZ to reduce his commission should the contract without the aid or intervention of DRACOR.
be renewed on its third year, but he was obstinate. Meantime, on
October 3, 1990, UNILAB informed MEDICARD it was no longer CMS sued DRACOR for the commission received by Shinko and
renewing the Health Care Program contract. for moral and exemplary damages, while DRACOR counterclaimed
for its commission from the sales made by CMS of logs to
In order not to prejudice its personnel, UNILAB, through Japanese firms. CMS averred as a defense to the counterclaim
EJERCITO, negotiated with respondent DR. MONTOYA, in order that DRACOR had retained the sum of P101,167.59 as part of its
to find mutually beneficial ways of continuing the Health Care commission for the sales made by CMS. Thus, as its counterclaim
Program. The negotiations resulted in a new contract wherein to DRACOR's counterclaim, CMS demanded DRACOR return the
UNILAB shall pay MEDICARD the hospitalization expenses amount it unlawfully retained. DRACOR later filed an amended
actually incurred by each employees, plus a service fee. Under the counterclaim, alleging that the balance of its commission on the
"cost plus" system which replaced the premium scheme, sales made by CMS was P42,630.82, thus impliedly admitting that
SANCHEZ was not given a commission. it retained the amount alleged by CMS.
The principal in this case is? Medicard Even if it was shown that Shinko did in fact receive the
The agent is? Sanchez commissions in question, CMS is not entitled thereto since these
were apparently paid by the buyers to Shinko for arranging the sale.
CMS LOGGING vs. CA This is therefore not part of the gross sales of CMS's logs.
G.R. No. L-41420
July 10, 1992 CMS: DRACOR is not entitled to its commission from the sales
(Digest by: Lizette Estillore) made by CMS to Japanese firms.
Meritorious. The principal may revoke a contract of agency at will,
FACTS: and such revocation may be express, or implied, and may be
Through a contract of agency, CMS (forest concessionaire availed of even if the period fixed in the contract of agency as not
engaged in the logging business) appointed DRACOR (engaged in yet expired. As the principal has this absolute right to revoke the
the business of exporting and selling logs and lumber) as its agency, the agent can not object thereto; neither may he claim
exclusive export and sales agent for all logs that CMS may damages arising from such revocation, unless it is shown that such
produce, for a period of five (5) years. was done in order to evade the payment of agent's commission.
CMS was able to sell through DRACOR a total of 77,264,672 board In the case at bar, CMS appointed DRACOR as its agent for the
feet of logs in Japan. About six months prior to the expiration of sale of its logs to Japanese firms. Yet, during the existence of the
the agreement, while on a trip to Japan, Atty. Sison (CMS's contract of agency, DRACOR admitted that CMS sold its logs
president), and Atty. Dominguez (general manager and legal directly to several Japanese firms. This act constituted an implied
counsel), discovered that DRACOR had used Shinko Trading as revocation of the contract of agency under Article 1924 of the Civil
agent, representative or liaison officer in selling CMS's logs in Code, which provides:
Japan for which Shinko earned a commission of U.S. $1.00 per
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ISSUE: WON the sale of the undivided share of Concepcion in Lot notice of death ever annotated on said OCT by the heirs of the
5983 valid although it was executed by the agent after the death of principal, said heirs should suffer the consequences of such
his principal, (NO) omission. (LACKS MERIT)
HELD: The sale of the undivided share of Concepcion is Respondent-corporation’s argument refers to the “revocation by an
unenforceable, as it was executed by the agent after the death of act of the principal” as a mode of terminating an agency, which
his principal (and with knowledge of such death at the time of the should bedistinguished from“revocation by operation of law”, such
transaction). 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
COURT’S DISCUSSION: parties concerned, yet a revocation by operation of law (e.g. death
1. The basic axiom in civil law is that: “no one may contract of principal) is instantaneously effective inasmuch as “by legal
in the name of another without being authorized by the latter, or fiction, the agent’s exercise of authority is regarded as an execution
unless he has by law a right to represent him”. ART. 1403 provides of the principal’s continuing will”. With death, the principal’s will
that contracts entered into in the name of another person by one ceases or is terminated; the source of authority is extinguished.
who has been given no authority or legal representation or who has
acted beyond his powers are unenforceable unless ratified. This The Civil Code does not impose a duty on the heirs to notify the
principle is the basis of the “relationship of agency”, whereby one agent of the death of the principal. What the Code provides in ART.
party (the principal/mandante) authorizes another (the 1932 is that, if the agent dies, his heirs must notify the principal
agent/mandatorio) to act for and in his behalf in transactions with thereof. Hence, the fact that no notice of the death of the principal
third persons. Such agency is basically personal, representative, was registered on the OCT is not fatal to the cause of the estate of
and derivative in nature. The authority of the agent to act emanates the principal.
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 6. RESPONDENT-CORPORATION’S CONTENTION:
aliumfacit per se. (He who acts through another acts himself.) That the instant case is “parallel” to that of an innocent purchaser
for value of a registered land – that the registered owner has no
2. There are various ways of extinguishing agency, e.g. recourse against such IPV but only against the forger, citing
death of the principal/agent (PAR. 3, ART. 1919). According to Blondeau doctrine. (LACKS MERIT)
Manresa, the rationale is found in the juridical basis of agency
which is “representation”. Laurent says that the juridical tie between Blondeau doctrine is inapplicable as it finds basis in Sec. 5 of the
the principal and the agent is severed ipso jure upon the death of Land Registration Law. Since the parties admitted that Simeon was
either without necessity for the heirs of the principal to notify the an agent, the situation is covered by the law on agency.
agent of the fact of death of the former. The same rule prevails at
common law – that the death of the principal effects instantaneous 7. RESPONDENT-CORPORATION’S CONTENTION:
and absolute revocation of the authority of the agent unless the That in Cassiday vs McKenzie, payments made to an agent after
power be coupled with an interest. the death of the principal were held to be “good”, “the parties being
ignorant of the death”. (LACKS MERIT)
3. The general rule is that the death of the principal/agent
extinguishes agency. The exceptions are: Again, the SC stressed that the exception in ART. 1931 requires
a. ART. 1930 – if the agency is coupled with interest; and concurrence of the 2 requisites. Thus, it is an indispensable
b. ART. 1931 – If (a) the agent acted without knowledge of requirement that the agent acted without knowledge or notice of the
the death of the principal, and (b) the 3rd person who contracted death of the principal. However, in this case, the agent executed
with the agent acted also in good faith. These two the sale notwithstanding notice of the death of his principal.
conditions/requisites must concur, the absence of one will render Accordingly, the agent’s act is unenforceable against the estate of
the act of the agent invalid and unenforceable. his principal.
IN THE CASE AT BAR: Art. 1930 does not apply because the SPA IN VIEW OF ALL THE FOREGOING, We set aside the decision of
was not coupled with interest. respondent appellate court, and We affirm entoto the judgment
rendered by then Hon. Amador E. Gomez of the Court of First
On the other hand, Art. 1931 would have been the more applicable Instance of Cebu, quoted in pages 2 and 3 of this Opinion, with
law. However, there was no concurrence of the two requirements, costs against respondent realty corporation at all instances.
rendering ART. 1931 also inapplicable because:
*End of Final Exam Coverage*
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.
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
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