CIVIL LAW REVIEW II

Part Three – Partnership, Agency, and Trusts

I. Partnership
A. General Provisions
1. Definition
2. Elements
3. Characteristics
4. Rules to Determine Existence
5. Partnership Term
6. Partnership by Estoppel
7. Partnership as Distinguished from Joint Venture
8. Professional Partnership
9. Management
• Doctrines:
THE FOLLOWING ARE THE REQUISITES OF PARTNERSHIP: (1) TWO OR MORE PERSONS WHO BIND
THEMSELVES TO CONTRIBUTE MONEY, PROPERTY, OR INDUSTRY TO A COMMON FUND; (2)
INTENTION ON THE PART OF THE PARTNERS TO DIVIDE THE PROFITS AMONG THEMSELVES
Where one of the parties does not contribute the capital; does not furnish any help in the management of the
business; does not demand an accounting of the expenses and earnings of the business but only receives a
fixed monthly sum from the other, there can be no other conclusion than that the contract between them is
one of lease and not of partnership. (Yulo v. Yang Chiao Seng, G.R. No. L-12541, August 28, 1959)
THAT THE PARTNERSHIP HAS A JURIDICAL PERSONALITY OF ITS OWN, DISTINCT AND SEPARATE
FROM THAT OF ITS PARTNERS
It being a basic tenet of the Spanish and Philippine law that the partnership has a juridical personality of its
own, distinct and separate from that of its partners (unlike American and English law that does not recognize
such separate juridical personality). The bypassing of the existence of the limited partnership as a taxpayer
can only be done by ignoring or disregarding clear statutory mandates and basic principles of our law.
(Commissioner of Internal Revenue v. Suter, G.R. No. L-25532, February 28, 1969)
THE PARTNERSHIP THAT SPOUSES ARE PROHIBITED FROM ENTERING REFERS ONLY TO UNIVERSAL
PARTNERSHIPS, AND DOES NOT INCLUDE PARTICULAR OR LIMITED PARTNERSHIPS
A husband and a wife may not enter into a contract of general co-partnership because persons prohibited
from making donations to each other are prohibited from entering into universal partnerships. The
petitioner-appellant has evidently failed to observe the fact that William J. Suter “Morcoin” Co., Ltd. was not
a universal partnership, but a particular one. It follows that it was not partnership that spouses were
forbidden to enter by Article 1677 of the Civil Code of 1889 (now Art. 1782 of the New Civil Code).
(Commissioner of Internal Revenue v. Suter, G.R. No. L-25532, February 28, 1969)
WHETHER THE PARTIES TO A PARTICULAR CONTRACT HAVE THEREBY ESTABLISHED AMONG
THEMSELVES A JOINT VENTURE OR SOME OTHER RELATION DEPENDS UPON THEIR ACTUAL
INTENTION WHICH IS DETERMINED IN ACCORDANCE WITH THE RULES GOVERNING THE
INTERPRETATION AND CONSTRUCTION OF CONTRACTS
The legal concept of a joint venture is of common law origin. It has no precise legal definition, but it has been
generally understood to mean an organization formed for some temporary purpose. It is in fact hardly
distinguishable from the partnership, since their elements are similar — community of interest in the
business, sharing of profits and losses, and a mutual right of control. Under Philippine law, a joint venture is
a form of partnership and should thus be governed by the law of partnerships. The Supreme Court has
however recognized a distinction between these two business forms, and has held that although a
corporation cannot enter into a partnership contract, it may however engage in a joint venture with others.
(Aurbach v. Sanitary Wares Manufacturing Corp., G.R. Nos. 75875, 75951, & 75975-76, December 15, 1989)
B. Rights and Obligations of Partnership and Partners

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1. Rights and Obligations of the Partnership

2. Obligations of Partners among Themselves
3. Obligations of Partnership/Partners to Third Persons
• Doctrines:
ARTICLE 1773 IS NOT APPLICABLE WHERE NO IMMOVABLE PROPERTY WAS CONTRIBUTED, EVEN IF
IT CAN BECOME PART OF THE ASSETS
It should be noted, however, that, as stated in Annex “A” the partnership was established “to operate a
fishpond,” not to “engage in a fishpond business.” Neither said fishpond nor a real right thereto was
contributed to the partnership or became part of the capital thereof, even if a fishpond or a real right thereto
could become part of its assets. Their contributions were limited to the sum of P1,000 each. The operation of
the fishpond mentioned in Annex “A” was the purpose of the partnership. (Agad v. Mabato, G.R. No. L-24193,
June 28, 1968) 1773 not applicable for immovable as capital
REDEMPTION BY A PARTNER OF A FORECLOSED PARTNERSHIP PROPERTY DOES NOT OPERATE TO
MAKE HIM THE OWNER THEREOF BUT MERELY A TRUSTEE WHO HOLDS THE SAME IN TRUST FOR HIS
CO-PARTNER, SUBJECT TO HIS RIGHT TO DEMAND FROM THE LATTER HIS CONTRIBUTION TO THE
PRICE OF THE REDEMPTION PLUS LEGAL INTEREST
Under general principles of law, a partner is an agent of the partnership. Furthermore, every partner becomes
a trustee for his co-partner with regard to any benefits or profits derived from his act as partner. The
redemption can be viewed merely as having removed the lien of mortgage and restoring the property to their
original status as partnership property free from any encumbrance. (Catalan v. Gatchalian, G.R. No. L-11248,
April 22, 1958)
IN COMPENSATION CASES UNDER THE WORKMEN’S COMPENSATION ACT, THE LIABILITY OF
BUSINESS PARTNERS IS SOLIDARY
The provisions of Arts. 1711 and 1712 of the new Civil Code taken together with those of Section 2 of the
Workmen’s Compensation Act, reasonably indicate that in compensation cases, the liability of business
partners, like appellants, should be solidary; otherwise, the right of the employee may be defeated, or at least
crippled. If the responsibility of appellants were to be merely joint and not solidary, and one of them happens
to be insolvent, the amount awarded to the appellees would only be partially satisfied, which is evidently
contrary to the intent and purposes of the Act. Since the Workmen’s Compensation Act was enacted to give
full protection to the employee, reason demands that the nature of the obligation of the employers to pay
compensation to the heirs of their employee who died in line of duty, should be solidary; otherwise, the
purpose of the law could not be attained. (Liwanag v. Workmen’s Compensation Commission, G.R. No. L-
12164, May 22, 1959)
C. Dissolution and Winding Up
• Doctrines:
PRESCRIPTIVE PERIOD BEGINS TO RUN ONLY AFTER FINAL ACCOUNTING IS MADE
For as long as the partnership exists, any of the partners may demand an accounting of the partnership’s
business. Applied in relation to Articles 1807 and 1809, which also deal with the duty to account, Article 1842
states that the right to demand an accounting accrues at the date of dissolution in the absence of any
agreement to the contrary. Prescription of the said right starts to run only upon the dissolution of the
partnership when the final accounting is done. (Emnace v. Court of Appeals, G.R. No. 126334, November 23,
2001)
MANAGER OF THE PARTNERSHIP HAS THE DUTY TO LIQUIDATE THE ASSETS THAT FORM THE
COMMON PROPERTY, AND TO STATE THE RESULT OBTAINED THEREFROM IN THE FINAL RENDERING
OF THE ACCOUNTS WHICH HE IS TO PRESENT AT THE CONCLUSION OF THE PARTNERSHIP
It is a rule of law generally observed that he who takes charge of the management of another’s property is
bound immediately thereafter to render accounts covering his transactions; and that it is always to be
understood that all accounts rendered must be duly substantiated by vouchers. (Aldecoa & Co. v. Warner,
Barnes & Co., G.R. No. 5242, August 6, 1910) (NOTE: According to Jurado [2019], this applies to extrajudicial
liquidation of partnerships with a managing partner. If the winding up or liquidation is judicial, or if there is no
managing partner, or if there is one but he dies, Art. 1836 applies.)
D. Limited Partnership

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II. Agency
A. Nature, Form, and Kinds
• Doctrines:
THE RELATIONSHIP OF AGENCY IS WHEREBY ONE PARTY, CALLED THE PRINCIPAL (MANDANTE),
AUTHORIZES ANOTHER, CALLED THE AGENT (MANDATARIO), TO ACT FOR FIND IN HIS BEHALF IN
TRANSACTIONS WITH THIRD PERSONS
The essential elements of agency are: (1) there is consent, express or implied, of the parties to establish the
relationship; (2) the object is the execution of a juridical act in relation to a third person; (3) the agents acts
as a representative and not for himself; and (4) the agent acts within the scope of his authority. Agency is
basically personal, representative, and derivative in nature. The authority of the agent to act emanates from
the powers granted to him by his principal; his act is the act of the principal if done within the scope of the
authority. Qui facit per alium facit per se. “He who acts through another acts himself.” (Rallos v. Felix Go Chan
& Sons Realty Corp., G.R. No. L-24332, January 31, 1978)
TO DETERMINE THE NATURE OF A CONTRACT COURTS DO NOT HAVE OR ARE NOT BOUND TO RELY
UPON THE NAME OR TITLE GIVE IT BY THE CONTRACTING PARTIES
Should there be a controversy as to what the contracting parties really had intended to enter into, the way
the contracting parties do or perform their respective obligations stipulated or agreed upon may be shown
and inquired into, and should such performance conflict with the name or title given the contract by the
parties, the former must prevail over the latter. Taking into consideration the facts that the operator owed
his position to the company and the latter could remove him or terminate his services at will; that the service
station belonged to the company and bore its tradename and the operator sold only the products of the
company; that the equipment used by the operator belonged to the company and were just loaned to the
operator and the company took charge of their repair and maintenance; that an employee of the company
supervised the operator and conducted periodic inspection of the company’s gasoline and service station;
that the price of the products sold by the operator was fixed by the company and not by the operator; and
that he was a mere agent, the operator was an agent of the company and not an independent contractor.
(Shell Co. of the Philippines, Ltd. v. Firemen’s Insurance Co. of Newark, G.R. No. L-8169, January 29, 1957)
THE AUTHORITY OF AN AGENT TO EXECUTE A CONTRACT FOR THE SALE OF REAL ESTATE MUST BE
CONFERRED IN WRITING AND MUST GIVE HIM SPECIFIC AUTHORITY, EITHER TO CONDUCT THE
GENERAL BUSINESS OF THE PRINCIPAL OR TO EXECUTE A BINDING CONTRACT CONTAINING TERMS
AND CONDITIONS WHICH ARE IN THE CONTRACT HE DID EXECUTE
A special power of attorney is necessary to enter into any contract by which the ownership of an immovable
is transmitted or acquired either gratuitously or for a valuable consideration. The express mandate required
by law to enable an appointee of an agency (couched) in general terms to sell must be one that expressly
mentions a sale or that includes a sale as a necessary ingredient of the act mentioned. For the principal to
confer the right upon an agent to sell real estate, a power of attorney must so express the powers of the agent
in clear and unmistakable language; when there is any reasonable doubt that the language so used conveys
such power, no such construction shall be given the document. (Cosmic Lumber Corp. v. Court of Appeals,
G.R. No. 114311, November 29, 1996)
UNLESS DULY AUTHORIZED, A CORPORATE TREASURER, WHOSE POWERS ARE LIMITED, CANNOT
BIND THE CORPORATION IN A SALE OF ITS ASSETS
The general principles of agency govern the relation between the corporation and its officers or agents,
subject to the articles of incorporation, bylaws, or relevant provisions of law. Thus, this Court has held that
“a corporate officer or agent may represent and bind the corporation in transactions with third persons to
the extent that the authority to do so has been conferred upon him, and this includes powers which have been
intentionally conferred, and also such powers as, in the usual course of the particular business, are incidental
to, or may be implied from, the powers intentionally conferred, powers added by custom and usage, as usually
pertaining to the particular officer or agent, and such apparent powers as the corporation has caused persons
dealing with the officer or agent to believe that it has conferred.” Furthermore, the Court has also recognized
the rule that “persons dealing with an assumed agent, whether the assumed agency be a general or special
one, are bound at their peril, if they would hold the principal liable, to ascertain not only the fact of agency
but also the nature and extent of authority, and in case either is controverted, the burden of proof is upon
them to establish it.”(San Juan Structural & Steel Fabricators, Inc. v. Court of Appeals, G.R. No. 129459,
September 29, 1998)
A PERSON DEALING WITH AN AGENT ASSUMES THE RISK OF LACK OF AUTHORITY IN THE AGENT

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It is a settled rule that persons dealing with an agent are bound at their peril, if they would hold the principal
liable, to ascertain not only the fact of agency but also the nature and extent of authority, and in case either is
controverted, the burden of proof is upon them to establish it. The basis for agency is representation and a
person dealing with an agent is put upon inquiry and must discover upon his peril the authority of the agent.
If he does not make such an inquiry, he is chargeable with knowledge of the agent’s authority and his
ignorance of that authority will not be any excuse. (Manila Memorial Park Cemetery, Inc. v. Linsangan, G.R.
No. 151319, November 22, 2004)
STOCKHOLDER MAY EXERCISE HIS RIGHT OF INSPECTION THROUGH AN AGENT
The right of inspection given to a stockholder can be exercised either by himself or by any proper
representative or attorney in fact, and either with or without the attendance of the stockholder. This is in
conformity with the general rule that what a man may do in person he may do through another. (Philpotts v.
Philippine Manufacturing Co., G.R. No. 15568, November 8, 1919)
WHERE ONE OF THE CONTRACTING PARTIES AGREES TO MAN THE OTHER PARTY’S BRANCH OFFICE,
SOLICITING AIRLINE FARES FOR AND ON BEHALF OF THE LATTER, AND RETAINING 4% OF THE
PROCEEDS THEREOF IN COMMISSION, THE TRUE NATURE OF THEIR RELATIONS IS THAT OF AGENCY,
NOT OF EMPLOYER-EMPLOYEE NOR OF JOINT MANAGEMENT OR PARTNERSHIP
On one hand, the following belies the claim of an employer-employee relationship: under the contract of lease
covering the Tourist World’s Ermita office, petitioner had bound herself in solidum as and for rental
payments; the branch was run by her relying on her own gifts and capabilities; and she is not in the company’s
payroll, but instead retained 4% in commissions from airline bookings, the remaining 3% going to Tourist
World. On the other hand, the following rejects the idea that the parties embarked on a joint venture or
partnership: petitioner herself did not recognize said relation; she expressly recognizes Tourist World’s
control over the manner in which the business was run; the parties did not hold themselves out as partners;
and the building itself was embellished with the electric sign “Tourist World Service, Inc.,” in lieu of a distinct
partnership name. (Sevilla v. Court of Appeals, G.R. Nos. L-41182-3, April 16, 1988)
POWER OF ATTORNEY TO SELL REAL PROPERTY NEED NOT BE NOTARIZED TO BE VALID
The power conferred upon Manuel de los Reyes is valid although no notary public intervened in its execution.
And the sale executed by said attorney-in-fact is likewise valid because in the execution of the corresponding
deed the essential requisites provided by law were complied with. (Barretto v. Tuason, G.R. Nos. 36811,
36827, 36840, & 36872, March 31, 1934)
B. Obligations of the Agent
• Doctrines:
AN AGENT WHO TAKES A SECRET PROFIT IN THE NATURE OF A BONUS, GRATUITY OR PERSONAL
BENEFIT FROM THE VENDEE, WITHOUT REVEALING THE SAME TO HIS PRINCIPAL, THE VENDOR, IS
GUILTY OF A BREACH OF HIS LOYALTY TO THE PRINCIPAL AND FORFEITS HIS RIGHT TO COLLECT
THE COMMISSION FROM HIS PRINCIPAL, EVEN IF THE PRINCIPAL DOES NOT SUFFER ANY INJURY BY
REASON OF SUCH BREACH OF FIDELITY, OR THAT HE OBTAINED BETTER RESULTS OR THAT THE
AGENCY IS A GRATUITOUS ONE, OR THAT USAGE OR CUSTOM ALLOWS IT
This is because the rule is to prevent the possibility of any wrong, not to remedy or repair an actual damage.
By taking such profit or bonus or gift or propina from the vendee, the agent thereby assumes a position wholly
inconsistent with that of being an agent for his principal, who has a right to treat him, insofar as his
Commission is concerned, as if no agency had existed. The fact that the principal may have been benefited by
the valuable services of the said agent does not exculpate the agent who has only himself to blame for such a
result by reason of his treachery or perfidy. (Domingo v. Domingo, G.R. No. L-30573, October 29, 1971)
A BROKER IS AN AGENT
A broker is generally defined as one who is engaged, for others, on a commission, negotiating contracts
relative to property with the custody of which he has no concern; the negotiator between other parties, never
acting in his own name, but in the name of those who employed him; he is strictly a middleman and for some
purposes the agent of both parties. A broker acts for another. By the contract of brokerage a person binds
himself to render some service or to do something in behalf of or at the request of another person. (Behn,
Meyer & Co. v. Nolting, G.R. No. 10620, November 8, 1916)
A COMMISSION MERCHANT DIFFERS FROM A BROKER IN THAT HE MAY BUY AND SELL IN HIS OWN
NAME WITHOUT DISCLOSING HIS PRINCIPAL, WHILE THE BROKER CAN ONLY BUY OR SELL IN THE
NAME OF HIS PRINCIPAL

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A “commission merchant” . . . as he is generally known . . . is a commercial agent to whom the possession of

personality is entrusted by or for the owner, to be sold for a compensation in pursuance of the agent’s usual
trade or business, with title to goods remaining in principal — . . . as distinguished from person who purchases
merchandise with his own capital, takes title in his own name, and sells for his own account at whatever price
he may deem advisable. (Commissioner of Internal Revenue v. Cadwallader Pacific Co., G.R. No. L-18297,
November 29, 1966)
C. Obligations of the Principal
• Doctrines:
WHERE AN AGENT, WHO HAS BEEN AUTHORIZED TO SELL A PROPERTY, PURCHASES THE SAME FOR
HIMSELF THROUGH A SUBAGENT, WITHOUT THE CONSENT OF THE PRINCIPAL, THE SALE IS
INEFFECTUAL
Article 267 of the Code of Commerce declares that no agent shall purchase for himself or for another that
which he has been ordered to sell. The law has placed its ban upon a broker’s purchasing from his principal
unless the latter with full knowledge of all the facts and circumstances acquiesces in such course; and even
then the broker’s action must be characterized by the utmost good faith. A sale made by a broker to himself
without the consent of the principal is ineffectual whether the broker has been guilty of fraudulent conduct
or not. (Barton v. Leyte Asphalt & Mineral Oil Co., Ltd., G.R. No. 21237, March 22, 1924)
IN CASE OF EXCESS OF AUTHORITY BY THE AGENT, ARTICLE 1897 DOES NOT SAY THAT A THIRD
PERSON CAN RECOVER FROM BOTH THE PRINCIPAL AND THE AGENT
Article 1897 of the New Civil Code. upon which petitioner anchors its claim, “does not hold that in case of
excess of authority, both the agent and the principal are liable to the other contracting party.” To reiterate,
the first part of Article 1897 declares that the principal is liable in cases when the agent acted within the
bounds of his authority; under this, the agent is completely absolved of any liability. The second part of the
said provision presents the situations when the agent himself becomes liable to a third party when he
expressly binds himself or he exceeds the limits of his authority without giving notice of his powers to the
third person. (Eurotech Industrial Technologies, Inc. v. Cuizon, G.R. No. 167552, April 23, 2007)
A PRINCIPAL IN WITHDRAWING THE AUTHORITY GIVEN TO AN AGENT CANNOT TAKE ADVANTAGE
OF THE SERVICES RENDERED BY THE LATTER AND THEN EVADE PAYMENT OF THEIR COMMISSION
A principal may withdraw the authority given to an agent at will, but the situation varies if one of the parties
takes advantage of the benevolence of the other and acts in a manner that would promote his own selfish
interest. This act is unfair as would amount to bad faith. This act cannot be sanctioned without according to
the party prejudiced the reward, which is due him. Petitioner took advantage of the services rendered by
respondents, but believing that she could evade payment of their commission, she made use of a ruse by
inducing them to sign the deed of cancellation. This act of subversion cannot be sanctioned and cannot serve
as basis for petitioner to escape payment of the commission agreed upon. (Infante v. Cunanan, G.R. No. L-
5180, August 31, 1953)
D. Modes of Extinguishment
• Doctrines:
SALE MADE BY AN AGENT, AFTER THE DEATH OF THE PRINCIPAL BUT WITHOUT KNOWLEDGE
THEREOF, IS VALID
As to the appellants’ contention that, as the death of the principal on 14 March 1934 ended the authority of
the agent, the sale of 8 hectares of the parcel of land by the agent to the appellee Mariano Panuyas and his
wife Sotera B. Cruz was null and void, suffice it to state that it has not been shown that the agent knew of his
principal’s demise, and for that reason article 1738, old Civil Code or 1931, new Civil Code is the law
applicable to the point raised by the appellants. (Buason v. Panuyas, G.R. No. L-11415, May 25, 1959)
SALE BY AN AGENT WHO HAS KNOWLEDGE OF HIS PRINCIPAL’S DEATH IS UNENFORCEABLE
Under Article 1931, an act done by the agent after the death of his principal is valid and effective only under
two conditions, viz: (1) that the agent acted without knowledge of the death of the principal, and (2) that the
third person who contracted with the agent himself acted in good faith. Good faith here means that the third
son was not aware of the death of the principal at the time he contracted with said agent. These two requisites
must concur: the absence of one will render the act of the agent invalid unenforceable. (Rallos v. Felix Go
Chan & Sons Realty Corp., G.R. No. L-24332, January 31, 1978)
ACT THAT AMOUNTS TO A REVOCATION OF THE AGENCY THAT IS USED AS THE MEANS OF FULFILLING
THE OBLIGATION IS NOT SANCTIONED UNDER ARTICLE 1927

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Good faith required that BISTRANCO refrain from opening its branch in Butuan City during the effectivity of
the agency contract with Sanchez because the agency was the means by which Sanchez could fulfill his
obligations. It may be true that there is no express prohibition for BISTRANCO to open its branch in Butuan
City. But, the very reason why BISTRANCO agreed not to employ or appoint another agent in Butuan City was
to prevent competition against Sanchez’ agency, in order that he might recover what he invested and
eventually maximize his profits. The opening by BISTRANCO of a branch in Butuan City virtually resulted in
consequences to Sanchez worse than if another agent had been appointed. In effect, the opening of a branch
office in Butuan City was a violation of the Contracts of agency. (Biasaya Land Transportation Co., Inc. v.
Sanchez, G.R. No. L-74623, August 31, 1987)
POWER OF SALE GIVEN IN A REAL ESTATE MORTGAGE IS A POWER COUPLED WITH AN INTEREST
WHICH SURVIVES THE DEATH OF THE GRANTOR
However that may be, conceding that the power of sale is not revoked by the death of the mortgagor,
nevertheless in view of the silence of Act No. 3135 and in view of what is found in section 708 of the Code of
Civil Procedure, it would be preferable to reach the conclusion that the mortgagee with a power of sale should
be made to foreclose the mortgage in conformity with the procedure pointed out in section 708 of the Code
of Civil Procedure. That would safeguard the interests of the estate by putting the estate on notice while it
would not jeopardize any rights of the mortgagee. The only result is to suspend temporarily the power to sell
so as not to interfere with the orderly administration of the estate of a decedent. A contrary holding would
be inconsistent with the portion of our law governing the settlement of estates of deceased persons. (Pasno
v. Ravina, G.R. No. 31581, February 3, 1930)
A MERE STATEMENT THAT THE AGENCY IS COUPLED WITH INTEREST IS NOT ENOUGH TO CREATE AN
AGENCY COUPLED WITH AN INTEREST NOR TO CLOTHE THE AGENCY WITH AN IRREVOCABLE
CHARACTER
A mere statement in the power of attorney that it is coupled with an interest is not enough. In what does such
interest consist must be stated in the power of attorney. The fact that Tiburcio del Rosario, the principal, had
mortgaged the improvements of the parcel of land to Primitivo Abad, the agent, is not such an interest as
could render irrevocable the power of attorney executed by the principal in favor of the agent. In fact no
mention of it is made in the power of attorney. As the agency was not coupled with an interest, it was
terminated upon the death the principal, and the agent could no longer validly convey the parcel of land to
Teodorico Abad. (Del Rosario v. Abad, G.R. No. L-10881, September 30, 1958)

III. Trusts
• Doctrines:
IF THE INTENTION TO ESTABLISH A TRUST IS CLEAR, THE TRUST IS EXPRESS; IF THE INTENT TO
ESTABLISH A TRUST IS TO BE TAKEN FROM CIRCUMSTANCES OR OTHER MATTERS INDICATIVE OF SUCH
INTENT, THEN THE TRUST IS IMPLIED
Our Civil Code defines an express trust as one created by the intention of the trustor or of the parties, and an
implied trust as one that comes into being by operation of law. Express trusts are those created by the direct and
positive acts of the parties, by some writing or deed or will or by words evidencing an intention to create a trust.
On the other hand, implied trusts are those which, without being expressed, are deducible from the nature of the
transaction by operation of law as matters of equity, in dependently of the particular intention of the parties.
(Cuaycong v. Cuaycong, G.R. No. L-21616, December 11, 1967)
WHETHER THE TRUST IS RESULTING OR CONSTRUCTIVE, ITS ENFORCEMENT MAY BE BARRED BY LACHES
Plaintiffs in this case slept on their rights. They allowed more than forty years to elapse before they woke up and
complained that they were much aggrieved of the inequities allegedly vitiating the partition of their father’s estate.
Vigilantibus et non dormientibus jura subveniunt. “If eternal vigilance is the price of safety, one cannot sleep on
one’s right for more than a tenth of a century and expect it to be preserved in its pristine purity.” (Ramos v. Ramos,
G.R. No. L-19872, December 3, 1974)
THE 10-YEAR PRESCRIPTIVE PERIOD IS RECKONED FROM THE REPUDIATION OF THE TRUST
It is only when the trustee repudiates the trust that the period of prescription commences to run. The prescriptive
period is ten (10) years from the repudiation of the trust, because just as a resulting trust is an offspring of the
law, so is the corresponding obligation to convey the property and the title thereto to the true owner. In this
context, and vis-a-vis prescription, Art. 1144 of the New Civil Code, which is the law applicable. Thus, the
reckoning point is repudiation of the trust by the trustee because from that moment his possession becomes
adverse. However, before the period of prescription may start, it must be shown that: (a) the trustee has

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performed unequivocal acts of repudiation amounting to an ouster of the cestui que trust; (b) such positive acts
of repudiation have been made known to the cestui que trust; and, (c) the evidence thereon is clear and conclusive.
(Spouses Huang v. Court of Appeals, G.R. No. 108525, September 13, 1994)
LACHES MAY BAR AN ACTION BROUGHT TO ENFORCE A CONSTRUCTIVE TRUST
In constructive trusts, . . . the rule is that laches constitutes a bar to actions to enforce the trust, and repudiation is
not required, unless there is a concealment of the facts giving rise to the trust. An action for reconveyance of real
property based upon a constructive or implied trust, resulting from fraud, may be barred by the statute of
limitations. The action therefor should be filed within four years from the discovery of the fraud. In the case at
bar, not only had laches set in when the appellants instituted their action for reconveyance in 1960, or 32 big years
after the sale and actual transfer of the property, but as well their right to enforce the constructive trust had
already prescribed. (Fabian v. Fabian, G.R. No. L-20449, January 29, 1968)
AN ACTION FOR RECONVEYANCE OF REAL PROPERTY BASED UPON A CONSTRUCTIVE TRUST IS SUBJECT
TO PRESCRIPTION IN 10 YEARS COUNTED FROM THE DISCOVERY OF THE BAD FAITH OR MISTAKE
The case at bar is one of constructive trust under Article 1456. Prescription does supervene where the trust is
merely an implied one. The cause of action for an action for reconveyance such as the present, which is subject to
prescription in ten years, must be deemed to have accrued only upon the discovery of the bad faith or mistake, or
to put it more specifically, upon the discovery by the appellants that Francisco H. Reyes, in violation of their
agreement with him, had obtained registration of the disputed property in his own name and in the names of his
brothers. (Bueno v. Reyes, G.R. No. L-22587, April 28, 1969)
AN ACTION FOR RECONVEYANCE OF REAL PROPERTY BASED UPON A CONSTRUCTIVE OR IMPLIED TRUST,
INVOLVING AN ANNULMENT OF A CONTRACT ON THE GROUND OF FRAUD, MAY BE BARRED BY THE
STATUTE OF LIMITATIONS IF NOT FILED WITHIN 4 YEARS FROM THE DISCOVERY OF THE FRAUD
It is already settled in this jurisdiction that an action for reconveyance of real property based upon a constructive
or implied trust, resulting from fraud, may be barred by the statute of limitations. Inasmuch as petitioners seek to
annul the aforementioned deed of “extra-judicial settlement” upon the ground of fraud in the execution thereof,
the action therefor may be filed within four (4) years from the discovery of the fraud. Such discovery is deemed
to have taken place, in the case at bar, when said instrument was filed with the Register of Deeds and new
certificates of title were issued in the name of respondents exclusively, for the registration of the deed of extra-
judicial settlement constitute constructive notice to the whole world. (Gerona v. De Guzman, G.R. No. L-19060,
May 20, 1964)
ACTION FOR RECONVEYANCE ANCHORED ON SIMULATED DEEDS OF TRANSFER CANNOT BE BARRED BY
PRESCRIPTION
The rights of herein respondents over subject properties, which were the subjects of simulated or fictitious
transactions, does not prescribe. The characteristic of simulation is the fact that the apparent contract is not really
desired nor intended to produce legal effects nor in any way alter the juridical situation of the parties. A void or
inexistent contract is one which has no force and effect from the very beginning, as if it had never been entered
into, and which cannot be validated either by time or by ratification. No amount of time could accord validity or
efficacy to such fictitious transactions, the defect of which is permanent. (Tongoy v. Court of Appeals, G.R. No. L-
45645, June 28, 1983) (NOTE: Here, the SC held that no implied trust was generated by the simulated transfers;
because being fictitious or simulated, the transfers were null and void ab initio — from the very beginning — and
thus vested no rights whatsoever in favor of Luis Tongoy or his heirs. That which is inexistent cannot give life to
anything at all.)
AN ACTION FOR RECONVEYANCE FOR PROPERTY WRONGFULLY REGISTERED IN ANOTHER’S NAME,
WHICH IS IN HIS POSSESSION, IS IMPRESCRIPTIBLE
Juliana, whose property had been wrongfully registered in the name of another, but which had not yet passed into
the hands of third parties, can properly seek its reconveyance. Prescription cannot be invoked against her for the
reason that as lawful possessor and owner of the Disputed Portion, her cause of action for reconveyance which,
in effect, seeks to quiet title to the property, falls within settled jurisprudence that an action to quiet title to
property in one’s possession is imprescriptible. Her undisturbed possession over a period of fifty-two (52) years
gave her a continuing right to seek the aid of a Court of equity to determine the nature of the adverse claim of a
third party and the effect on her own title. (Caragay-Layno v. Court of Appeals, G.R. No. 52064, December 26,
1984)

Part Seven – January 2017 to December 2019

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III. Partnership, Agency, and Trusts

A. Partnership
1. General Provisions
a. Definition
b. Elements
c. Characteristics
d. Rules to Determine Existence
e. Partnership Term
f. Partnership by Estoppel
g. Partnership as Distinguished from Joint Venture
h. Professional Partnership
i. Management
• Doctrines:
THERE IS A PARTNERSHIP WHERE PERSONS BOUND THEMSELVES TO ESTABLISH A
PARTNERSHIP FOR THE PRACTICE OF LAW, CONTRIBUTE CAPITAL AND INDUSTRY FOR THE
PURPOSE, AND RECEIVE COMPENSATION AND BENEFITS IN THE COURSE OF ITS OPERATION
The opening paragraph of the Articles of Partnership reveals the unequivocal intention of its signatories
to form a partnership. The subsequent registration of the Articles of Partnership with the SEC, on the
other hand, was made in compliance with Article 1772 of the Civil Code, since the initial capital of the
partnership was P500,000.00. The other provisions of the Articles of Partnership also positively identify
SAFA Law Office as a partnership: (1) it constantly used the words “partners” and “partnership”; (2) it
designated petitioner Saludo as managing partner, and Agpalo, Fernandez, and Aquino as industrial
partners; (3) it provided for the term of the partnership, distribution of net profits and losses, and
management of the firm; and (4) it provided for the cause and manner of dissolution of the partnership.
Thus, an MOU where one of the partners undertake sole liability cannot change the nature of a duly-
constituted partnership into a sole proprietorship. (Saludo, Jr. v. Philippine National Bank, G.R. No.
193138, August 20, 2018)
A PARTNERSHIP FOR THE PRACTICE OF LAW HAS A SEPARATE AND DISTINCT JURIDICAL
PERSONALITY
A partnership for the practice of law, constituted in accordance with the Civil Code provisions on
partnership, acquires juridical personality by operation of law. Having a juridical personality distinct
and separate from its partners, such partnership is the real party-in-interest in a suit brought in
connection with a contract entered into in its name and by a person authorized to act on its behalf.
(Saludo, Jr. v. Philippine National Bank, G.R. No. 193138, August 20, 2018)
2. Rights and Obligations of Partnership and Partners
a. Rights and Obligations of the Partnership
b. Obligations of Partners among Themselves
c. Obligations of Partnership/Partners to Third Persons
• Doctrines:
USE OF A JOINT VENTURE CORPORATION ALLOWS THE CO-VENTURERS TO TAKE FULL
ADVANTAGE OF THE LIMITED LIABILITY DOCTRINE NOT AVAILABLE IN A PARTNERSHIP
By choosing to adopt a corporate entity as the medium to pursue the joint venture enterprise, the parties
to the joint venture are bound by corporate law principles under which the entity must operate. Among
these principles is the limited liability doctrine. The use of a joint venture corporation allows the co-
venturers to take full advantage of the limited liability feature of the corporate vehicle which is not
present in a formal partnership arrangement. (Mabuhay Holdings Corp. v. Sembcorp Logistics Ltd., G.R.
No. 212734, December 5, 2018)
3. Dissolution and Winding Up

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4. Limited Partnership
B. Agency
1. Nature, Form, and Kinds
• Doctrines:
THERE IS AGENCY WHERE IN A PROMISSORY NOTE WITH CHATTEL MORTGAGE OVER A VEHICLE
THAT REQUIRES THAT AN INSURANCE POLICY BE TAKEN OUT FOR THE VEHICLE, EXECUTED BY
THE MORTGAGOR, THE MORTGAGEE IS APPOINTED BY THE FORMER AS THEIR ATTORNEY-IN-
FACT, AUTHORIZED TO CLAIM WITH THE INSURANCE COMPANY AND TO COLLECT PROCEEDS
THEREOF AS BENEFICIARY
All the elements of agency exist in this case. Under the promissory note with chattel mortgage, Spouses
Briones appointed iBank as their attorney-in-fact, authorizing it to file a claim with the insurance
company if the mortgaged vehicle was lost or damaged. Petitioner was also authorized to collect the
insurance proceeds as the beneficiary of the insurance policy. These are based on the clear wording of
Sections 6 and 22 of the promissory note with chattel mortgage, which petitioner prepared and
respondents signed. (International Exchange Bank [now Union Bank of the Philippines] v. Spouses
Briones, G.R. No. 205657, March 29, 2017)
A MERE CHECK MARK IN THE BOX BESIDE “AUTHORIZED REPRESENTATIVE” IN THE DELIVERY
RECEIPT IS INSUFFICIENT TO ESTABLISH AGENCY RELATIONSHIP
A contract of agency is created when a person acts for or on behalf of a principal, with the latter’s consent
or authority. While the Delivery Receipt showed that Baitan received the credit card packet for petitioner
Rainier, it failed to indicate Baitan’s relationship with him. Respondent also failed to substantiate its
claim that petitioner Rainier authorized Baitan to act on his behalf and receive his pre-approved credit
card. The only evidence presented was the check mark in the box beside “Authorized Representative” in
the Delivery Receipt. This self-serving evidence is obviously insufficient to sustain respondent’s claim.
Thus, respondent fell short in establishing an agency relationship between petitioner Rainier and Baitan,
as the evidence presented did not support its claim that petitioner Rainier authorized Baitan to act on
his behalf. (Spouses Yulo v. Bank of the Philippine Islands, G.R. No. 217044, January 16, 2019)
THE LIABILITY OF A BANK TO THIRD PERSONS FOR ACTS DONE BY ITS AGENTS OR EMPLOYEES
IS LIMITED TO THE CONSEQUENCES OF THE LATTER’S ACTS WHICH IT HAS RATIFIED, OR THOSE
THAT RESULTED IN PERFORMANCE OF ACTS WITHIN THE SCOPE OF ACTUAL OR APPARENT
AUTHORITY IT HAS VESTED
The bank, in its capacity as principal, may also be adjudged liable under the doctrine of apparent
authority. The doctrine of apparent authority or what is sometimes referred to as the “holding out”
theory, or the doctrine of ostensible agency, imposes liability, not “as the result of the reality of a
contractual relationship, but rather because of the actions of a principal or an employer in somehow
misleading the public into believing that the relationship or the authority exists.” While it is clear that
the proximate cause of respondents’ loss is the misappropriation of Robles, petitioner is still liable under
Article 1911 of the Civil Code. (Citystate Savings Bank v. Tobias, G.R. No. 227990, March 7, 2018)
CORPORATION WHO NEGLIGENTLY CLOTHES ITS AGENT WITH APPARENT AUTHORITY IS
ESTOPPED FROM DENYING SUCH APPARENT AUTHORITY AS TO INNOCENT THIRD PARTIES
When a corporation intentionally or negligently clothes its agent with apparent authority to act in its
behalf, it is estopped from denying its agent’s apparent authority as to innocent third parties who dealt
with this agent in good faith. As the former president of Ricarcen, it was within Marilyn’s scope of
authority to act for and enter into contracts in Ricarcen’s behalf. Her broad authority from Ricarcen can
be seen with how the corporate secretary entrusted her with blank yet signed sheets of paper to be used
at her discretion. Likewise, it reasonably appeared that Ricarcen’s officers knew of the mortgage
contracts entered into by Marilyn in Ricarcen’s behalf as proven by the issued Banco De Oro checks as
payments for the monthly interest and the principal loan. It appears as if Ricarcen and its officers gravely
erred in putting too much trust in Marilyn; however, Calubad, as an innocent third party dealing in good
faith with Marilyn, should not be made to suffer because of Ricarcen’s negligence in conducting its own
business affairs. (Calubad v. Ricarcen Development Corp., G.R. No. 202364, August 30, 2017)
DOCTRINE OF APPARENT AUTHORITY DOES NOT APPLY TO A SALE BY PURPORTED AGENTS
WHERE THEIR AUTHORITY IS MERELY TO NEGOTIATE THE TERMS OF A POTENTIAL SALE OF THE
PROPERTY AND NOT TO SELL IT IN AN ABSOLUTE WAY OR ACT AS SIGNATORIES IN THE
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Although the general rule is that “no person, not even its officers, can validly bind a corporation” without
the authority of the corporation’s board of directors, this Court has recognized instances where third
persons’ actions bound a corporation under the doctrine of apparent authority or ostensible agency.
Under the doctrine of apparent authority, the question in every case is whether the principal has by
his/her voluntary act placed the agent in such a situation that a person of ordinary prudence, conversant
with business usages and the nature of the particular business, is justified in presuming that such agent
has authority to perform the particular act in question. Acts done by the corporate officers beyond the
scope of their authority cannot bind the corporation unless it has ratified such acts expressly or is
estopped from denying them. (Ayala Land, Inc. v. ASB Realty Corp., G.R. No. 210043, September 26, 2018)
2. Obligations of the Agent
• Doctrines:
AN AGENT WHO IS NEGLIGENT IN ITS DUTIES AND WHO PRIORITIZED ITS INTERESTS OVER THAT
OF ITS PRINCIPAL IS LIABLE FOR THE DAMAGES SUFFERED BY THE LATTER
As the agent, petitioner was mandated to look after the interests of the Spouses Briones. However,
instead of going after the insurance proceeds, as expected of it as the agent, petitioner opted to claim the
full amount from the Spouses Briones, disregard the established principal-agency relationship, and put
its own interests before those of its principal. The facts show that the insurance policy was valid when
the vehicle was lost, and that the insurance claim was only denied because of the belated filing. Having
been negligent in its duties as the duly constituted agent, petitioner must be held liable for the damages
suffered by the Spouses Briones because of non-performance of its obligation as the agent, and because
it prioritized its interests over that of its principal. Furthermore, petitioner’s bad faith was evident when
it advised the Spouses Briones to continue paying three (3) monthly installments after the loss,
purportedly to show their good faith, because if petitioner was indeed acting in good faith, it could have
timely informed the Spouses Briones that it was terminating the agency and its right to file an insurance
claim, and could have advised them to facilitate the insurance proceeds themselves. (International
Exchange Bank [now Union Bank of the Philippines] v. Spouses Briones, G.R. No. 205657, March 29,
2017)
ARBITRATION CLAUSE APPLIES TO AGENT EVEN IF NOT SIGNATORY
Having established the fact of agency, there is no question that P&A derives its authority for the UHLP
liquidation from Ernst & Young Asia. As such agent, P&A cannot sue and be sued on the contract of
employment between Strickland and Ernst & Young Asia. The fact of agency in itself and the discussion
of its effects shows that P&A’s liability is anchored on that of Ernst & Young Asia, giving rise to a reason
why the trial court’s proceedings must be suspended in the light of the pending arbitration proceedings
between PA’s principal and Strickland. Moreover, that P&A is not a signatory to the Partnership
Agreement containing the arbitration clause is of no moment. The arbitration clause is applicable to PA
and effectively stays the proceedings against it. (Strickland v. Ernst & Young LLP, G.R. Nos. 193782 &
210695, August 1, 2018)
3. Obligations of the Principal
4. Modes of Extinguishment
• Doctrines:
WHERE THE PRINCIPAL-MORTGAGOR AUTHORIZED THE AGENT-MORTGAGEE TO CLAIM,
COLLECT, AND APPLY THE INSURANCE PROCEEDS TOWARDS THE FULL SATISFACTION OF THEIR
LOAN IF THE MORTGAGED VEHICLE WERE LOST OR DAMAGED, A BILATERAL CONTRACT
EXISTED BETWEEN THE PARTIES, THEREBY MAKING THE AGENCY IRREVOCABLE
Revocation as a form of extinguishing an agency under Article 1924 of the Civil Code only applies in cases
of incompatibility, such as when the principal disregards or bypasses the agent in order to deal with a
third person in a way that excludes the agent. A bilateral contract that depends upon the agency is
considered an agency coupled with an interest, making it an exception to the general rule of revocability
at will. Here, a bilateral contract exists between the parties. Petitioner was also aware of the bilateral
contract; thus, it included the designation of an irrevocable agency in the promissory note with chattel
mortgage that it prepared for the Spouses Briones to sign. (International Exchange Bank [now Union
Bank of the Philippines] v. Spouses Briones, G.R. No. 205657, March 29, 2017)
AN AGENT’S ACT OF ENTERING INTO A COMPROMISE AGREEMENT AFTER THE DEATH OF THE
PRINCIPAL, WITHOUT ANY OF THE CIRCUMSTANCES PROVIDED FOR UNDER ARTICLES 1930 OR
1931 OBTAINING, IS VOID AB INITIO

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The general rule is that the death of the principal or, by analogy, the agent extinguishes the contract of
agency, unless any of the circumstances provided for under Article 1930 or Article 1931 obtains; in
which case, notwithstanding the death of either principal or agent, the contract of agency continues to
exist. Here, the Compromise Agreement, which was filed on February 2, 2012, was entered into more
than two years after the death of Marcelino Lopez. Considering that Atty. Angeles had ceased to be the
agent upon the death of Marcelino Lopez, Atty. Angeles’ execution and submission of the Compromise
Agreement in behalf of the Lopezes by virtue of the special power of attorney executed in his favor by
Marcelino Lopez were void ab initio and of no effect. The special power of attorney executed by
Marcelino Lopez in favor of Atty. Angeles had by then become functus officio. For the same reason, Atty.
Angeles had no authority to withdraw the petition for review on certiorari as far as the interest in the
suit of the now-deceased principal and his successors-in-interest was concerned. (Lopez v. Court of
Appeals, G.R. Nos. 163959 & 177855 [Resolution], August 1, 2018)
C. Trusts
• Doctrines:
TRUSTEE’S BREACH OF ITS UNDERTAKINGS UNDER THE DEEDS OF TRUST BY MORTGAGING SUBJECT
PROPERTIES, IN CONTRAVENTION OF THE EXPRESS PROHIBITION THEREIN AGAINST DISPOSITION
OR MORTGAGE, RENDERS SAID MORTGAGE TRUSTEE NULL AND VOID
The deeds of trust expressly provided that: “The TRUSTEE hereby acknowledges and obliges itself not to
dispose of, sell, transfer, convey, lease or mortgage the said twelve (12) parcels of land without the written
consent of the TRUSTORS first obtained.” By entering into the Revere REM, therefore, Revere openly
breached its undertakings under the deeds of trust in contravention of the express prohibition therein against
the disposition or mortgage of the properties. (Spouses Chua v. United Coconut Planters Bank, G.R. No.
215999, August 16, 2017)

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