Atty. Raymund Christian S.
Ong Abrantes BUSINESS ORGANIZATION I Ateneo de Davao University College of Law
August 23, 2019 by Carla Louise Bayquen
TITLE V
TRUSTS
A trust is a fiduciary relationship between a person having an equitable
ownership in property and another owning the legal title to such property.
GENERAL PROVISIONS
Article 1440. A person who establishes a trust is called the trustor; one
in whom confidence is reposed as regards property for the benefit of
another person is known as the trustee; and the person for whose
benefit the trust has been created is referred to as the beneficiary.
Trust is always has a relation to a property. So kapag walang property
you do not talk about the concept of trust.
Parties to a Trust:
− A person who establishes a trust is called the trustor;
− One in whom confidence is reposed as regards property for the
benefit of another person is known as the trustee; and
− The person for whose benefit the trust has been created is referred
to as the beneficiary.
GILBERT GUY vs COURT OF APPEALS
December 10, 2007
Facts: A family feud between the Guys involves the ownership and
control of 20,160 shares of stock of Northern Islands engaged in the
manufacture, distribution, sales of various home appliances bearing
the 3-D Trademark. Northern Islands is a family-owned corporation
organized in 1957 by Spouses Francisco and Simny Guy.
In 1984, the spouses found that their son Gilbert has been disposing
assets of their corporations without authority.
In 1986, they incorporated Lincoln Continental Development
Foundation as a holding company of the 50% shares of stock of
Northern Islands in trust for their three daughters Geraldine, Gladys
and Grace.
The 20,160 shares covered by the two Stock Certificates were
surrendered by Simny and registered n the names of the sisters
enabling them to assume an active role in the Management of the
Northern Islands.
In 2004, in a special meeting of stockholders of Northern Islands
• Simny – President
• Grace – VP Finance
• Geraldine – Corporate Treasurer
• Gladys – Corporate Secretary
• Gilbert – Executive Vice-President
Lincoln Continental filed with RTC for the Annulment of Transfer of
Shares of Stock against the respondents (Northern, Simny and the
sisters) alleging that it owned the 20,160 shares and that
respondents in order to oust Gilbert from the management of
Northern Islands, falsely transferred the said shares of stock in the
sisters’ names. It also prated for restoration of Gilbert to
management.
Trial court held that the case is a baseless and unwarranted suit
among family members, and that Gilbert was only entrusted to hold
the disputed shares of stock in his name for the benefit of other family
members and that it was only when he started to dispose assets
without his family’s knowledge that the sisters caused the registration
of the shares in their respective names. The CA affirmed.
Established Fact: Lincoln Continental held disputed shares of stock
of Northern Islands merely in trust for the Guy sisters.
Issue: Who owns the disputed shares of stock in Northern Islands?
- The Sisters
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Held: ART. 1440. A person who establishes a trust is called the
trustor; one in whom confidence is reposed as regards property for
the benefit of another person is known as the trustee; and the person
for whose benefit the trust has been created is referred to as the
beneficiary.
(1) Trust, Defined
Trust, in its technical sense, is a right of property, real or personal,
held by one party for the benefit of another. A trust is a fiduciary
relationship with respect to the property, subjecting the person
holding the same to the obligation dealing with the property for the
benefit of another person.
(2) Lincoln and Gilbert does not have evidence to support claim. –
While both of them claim for legal title to the shares, the record shows
that there is no evidence to support their claim. The evidence on
record clearly indicates that the stock certificates representing the
contested shares are in the possession of the sisters.
Significantly, there is no proof to his contention that the transfer of
the shares of stock to the sisters in fraudulent. Fraud is never
presumed but must be established by clear and convincing.
Respondents sisters own the shares of stock, Gilbert being a
mere trustee.
In this particular case and the other cases. It always revolves in proving
that there is a trust. There is a lot of implications and legal consequences
when you prove that something is given as a trust. You have to look trust
with relation to a property.
In this particular case a trust is a right of property, real or personal, held
by one party for the benefit of another.
Article 1441. Trusts are either express or implied. Express trusts are
created by the intention of the trustor or of the parties. Implied trusts
come into being by operation of law.
KINDS OF TRUST
The problem with this distinction as we go along, is because implied trust
is divided into types. You have your resulting implied trust and your
constructive implied trust.
When you try to look at the definition of the resulting implied trust, it
appears that there is that element of intent. So strictly speaking when
we talk about trust that come into being by operation of law, we only
considering the constructive implied trust.
Villanueva tries to rearrange the provisions so that the express trust
includes the resulting implied trust because of the definition. I have seen
why but there are also some opinions saying that the classification is
different as we have copied our law from the US law on trust. As
compared to the US law on trust, which contains a hundred provisions,
we only have a few. But there is a catch all provision:
Article 1442. The principles of the general law of trusts, insofar as they
are not in conflict with this Code, the Code of Commerce, the Rules of
Court and special laws are hereby adopted.
That tends to catch whatever types of trust are existing in the laws of the
United States.
Even if they are not listed in the subsequent provisions but they are
under the concept of trust, the general law on trusts are equally
applicable in our country.
CHARACTERISTICS OF TRUST (Morales vs Court of Appeals)
• It is a relationship
• It is a relationship of a fiduciary character.
• It is a relationship with respect to property, not one involving merely
personal duties.
• It involves the existence of equitable duties imposed upon the holder
of the title to the property to deal with it for the benefit of another
• It arises as a result of a manifestation of intention to create the
relationship.
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 Atty. Raymund Christian S. Ong Abrantes BUSINESS ORGANIZATION I Ateneo de Davao University College of Law
Trust do not create separate juridical entities. You do not consider trust.
In the same manner and nature of a partnership that has a separate
juridical personality.
Differentiate this from organizations doing trust services. For example,
yung mga IBF, fund management. That is in the nature of a trust. You
get your money, they administer the money for your beneficiary. In effect
they act as a trustee but they have a separate juridical personality
because in effect they act only in trust, they are under a corporation or
whatever juridical personality there is.
Trust per se based on the civil code does not create per se separate
juridical personality.
As taxpayers, a trust is considered an individual. Please take note of
that, same as an estate. Update: an estate can be a single stockholder.
Kapag namatay at maraming income producing property. If you try to
look at it kapag maraming milyo-milyones ang property and income
producing, sobrang tagal pa nang judicial settlement. What happens to
the income, if ipapasok mo siya as an estate magiging taxable siya as
individuals (more than 8 million is taxable at 35%). It gives an option to
the heirs for it to be taxed as a corporation for a lower tax (30 instead of
35%). It is a good way of planning the estate.
EXPRESS TRUSTS
Article 1443. No express trusts concerning an immovable or any
interest therein may be proved by parol evidence.
DELA CRUZ vs COURT OF APPEALS
GR 76590, February 26, 1990
Parties:
Petitioners: the heirs (children) of the late Maria de la Cruz y
Gutierrez, married to Mateo del Rosario Lansang
Private respondents: the heirs of Maria de la Cruz y Guevarra,
married to Calixto Dimalanta, and Fermin de la Cruz.
Facts: The controversy involves a 1,980 square meters portion of Lot
1488. From 1921 until her death in 1951, Maria de la Cruz y Gutierrez
resided in the questioned lot in the concept of an owner. She
declared the lot for tax purposes in her name. Later, she entrusted
the administration of the said lot to her niece Maria de la Cruz y
Guevarra.
In a cadastral case held, a court adjudicated Lot No. 1488 in favor of
“Maria de la Cruz, married to Calixto Dimalanta” and Fermin de la
Cruz (another person who has an interest on the said lot), instead of
Maria de la Cruz y Gutierrez, who was the claimant.
October 1, 1974: Petitioners, claiming to have learned of the same
only on July 1, 1974, filed a complaint for reconveyance. The main
thrust of the complaint is that the claimant of Lot 1488 in Cadastral
Case No. 18 was Maria de la Cruz y Gutierrez and not Maria de la
Cruz y Guevarra who by not using her maternal surname "Guevarra"
succeeded in registering Lot 1488 in her name and that of her brother
Fermin de la Cruz. Under the circumstances, it is claimed that Maria
de la Cruz married to Calixto Dimalanta and Fermin de la Cruz hold
the property in trust for the petitioners.
Private respondents claimed that the land in question is their
exclusive property, having inherited the same from their parents.
Issue: Whether or not petitioners’ action for reconveyance has
already prescribed. – No.
Held: It has been held that under the law on Trusts, it is not
necessary that the document expressly state and provide for the
express trust, for it may even be created orally, no particular words
are required for its creation. An express trust is created by the direct
and positive acts of the parties, by some writing or deed or will or by
words evidencing an intention to create a trust. No particular words
are required for the creation of an express trust, it being sufficient
that a trust is clearly intended.
Article 1443 of the Civil Code refers merely to enforceability, not
validity of a contract between the parties. Otherwise stated, for
purposes of validity between the parties, an express trust concerning
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an immovable does not have to be in writing. Thus, Article 1443 may
be said to be an extension of the Statute of Frauds.
The action to compel the trustee to convey the property registered in
his name for the benefit of the cestui for trust does not prescribe. If
at all, it is only when the trustee repudiates the trust that the period
of prescription may run.
Q: How did they prove the trust? Is there a written document?
A: No there was no written document. The court said that they referred
to Article 1443. No express trusts concerning an immovable or any
interest therein may be proved by parol evidence. It merely refers to
enforceability not validity of a contract between the parties.
Q: They questioned the trust because there is no document.
A: It can be written or made orally. Therefore, an express trust need not
to be in writing.
Q: What does the provision in Article 1443 provides? Is it for the purpose
of enforceability or it just concerns the validity?
A: Article 1443 of the Civil Code refers merely to enforceability, not
validity of a contract between the parties. Otherwise stated, for purposes
of validity between the parties, an express trust concerning an
immovable does not have to be in writing
Discussion: So therefore, even there is no document evidencing an
express trust, it does not mean na walang trust. It just means that you
cannot enforce it. In fact it is an extension of your Statute of Frauds
That id the ruling in Maria Dela Cruz vs CA. But please take note, that
you cannot prove an express trust by mere parol evidence if the trust
pertains to an immovable or any interest therein. You cannot prove such
by parol evidence.
Q: What is parol evidence?
A: Parol evidence is oral evidence; verbal, not written.
In other words you cannot prove 1443 by oral evidence. That is not
allowed. There must be some evidence other than parol evidence to
prove that there is an express trust.
Article 1444. No particular words are required for the creation of an
express trust, it being sufficient that a trust is clearly intended.
I want you to focus on this because the delineation of an express trust
and a resulting implied trust becomes very thin because of their
respective definition.
Express trust; hindi kailangang may nakalagay na this is an express
trust. It is sufficient na may nakalagay na that is clearly intended. Mark
that on your mind, iyan lang ang kailangan.
Clear intention is material when we discuss resulting implied trust.
MAXIMO LABANON vs HEIRS OF CONSTANCIO LABANON
530 SCRA 97, G.R. No. 160711 August 14, 2004
Facts: Being of very limited educational attainment, he found it
difficult to file his public land application over said lot.
Constancio then asked his brother, Maximo Labanon who was better
educated to file the corresponding public land application under the
express agreement that they will divide the said lot as soon as it
would be feasible for them to do so. The offer was accepted by
Maximo.
During the time of the application it was Constancio who continued
to cultivate the said lot in order to comply with the cultivation
requirement set forth under Commonwealth Act 141, as amended,
on Homestead applications.
After which, on June 6, 1941, due to industry of Constancio,
Homestead Application No. 244742 (E-128802) of his brother
Maximo was approved with Homestead Patent No. 67512.
Eventually, Original Certificate of Title No. P-14320 was issued by
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 Atty. Raymund Christian S. Ong Abrantes BUSINESS ORGANIZATION I Ateneo de Davao University College of Law
the Register of Deeds of Cotabato over said lot in favor of Maximo
Labanon.
Maximo Labanon executed a document denominated as
“Assignment of Rights and Ownership” and docketed as Doc. No. 20;
Page No. 49; Book No. V; Series of 1955 of the Notarial Register of
Atty. Florentino Kintanar. The document was executed to safeguard
the ownership and interest of his brother Constancio Labanon.
On April 25, 1962, Maximo Labanon executed a sworn statement
reiterating his desire that his elder brother Constancio, his heirs and
assigns shall own the eastern portion of the Lot.
After discovering that the defendant-heirs of Maximo Labanon were
taking steps to deprive the heirs of Constancio Labanon of their
ownership over the eastern portion of said lot, the latter, thru Alberto
Makilang, petitioners filed a complaint for Specific Performance,
Recovery of Ownership against respondents.
Issue: Whether or not there is an express trust. – Yes.
Held: In the instant case, such intention to institute an express trust
between Maximo Labanon as trustee and Constancio Labanon as
trustor was contained in not just one but two written documents, the
Assignment of Rights and Ownership as well as Maximo Labanon’s
April 25, 1962 Sworn Statement.
Q: What were the documents presented?
A: The assignment of rights and ownership and the sworn statement
Q: Ano yung nakalagay sa sworn statement?
A: That in order that I and the Heirs of Constancio Labanon will exercise
our respective rights and ownership over the aforementioned lot, and to
give force and effect to said deed of assignment, I hereby, by these
presents, request the Honorable Director of Lands and the Land Title
Commission to issue a separate title in my favor covering the western
half portion of the aforementioned lot and to the Heirs of Constancio
Labanon a title for the eastern half portion thereof.
Discussion: Sabi ng court hindi naman kailangan na the document
must indicate that it is a trust agreement. It is sufficient that there was
clear intention.
How do you appreciate the clear intention?
An express trust is created by the direct and positive acts of the parties,
by some writing or deed or by words evidencing an intention to create a
trust. The use of the word trust is not required or essential to its
constitution, it being sufficient that a trust is clearly intended.
Kapag express trust hindi naman talaga kailangang explicit, there must
just be a clear intention; a positive act.
Article 1445. No trust shall fail because the trustee appointed declines
the designation, unless the contrary should appear in the instrument
constituting the trust.
Even if the trustee declines the designation, it does not mean that the
trust shall fail.
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
This is similar to your law on donation, diba kailangan may acceptance?
There is a presumption that if there is no onerous condition, if there is
no proof to the contrary.
What do we need to remember in express trust? There is no particular
words necessary for as long as there is a clear intention to create the
trust. If it concerns an immovable, it cannot be proven by parol evidence.
Kailangan talaga na may document. This is only limited to immovables
and related interests. Let’s go to implied trust:
IMPLIED TRUST
− Constructive Trust: is a trust by the construction of equity in order
to satisfy the demands of justice and prevent unjust enrichment.
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− Resulting Trust: a trust raised by implication of law and presumed
always to have been contemplated by the parties, the intention of
which is found in the nature of their transaction, but not expressed
in the deed or instrument of conveyance.
This is why I have a problem. Sabi, pag may express trust there must
be a clear intention. Sabi, kapag implied trust, resulting, the intention of
which is found in the nature of their transaction, but not expressed in the
deed or instrument of conveyance.
So intention parin, paano natin madidifferentiate?
Samples of resulting trust are found in 1448, 1451, 1452, and 1453.
There is no problem in constructive trust. It is the law that steps in that
creates the trust for the purposes of equity.
For example there is a payment by mistake, may mali, it is the law that
creates a trust for purposes of equity; justice.
We have a problem when we talk about resulting implied trust and
express trust. Because both of them look at the intention of the trustor.
Constructive trust does not arise by agreement or intention but by
operation of law against one who, by fraud, duress, or abuse of
confidence obtains or holds the legal right to property which he ought
not, in equity and good conscience, to hold.
For example, si A nanloko, ang initial plan is sa pangalan ni A pero sa
relatives. By fraud inangkin ni A ang property. The law steps in, the
property does not belong to A. That is in trust of your relatives, the real
payor.
Constructive trust exists for equity, for purposes of justice. This is
precisely why it is not a concept of civil law jurisdiction but common law
jurisdiction.
Common Law is premised on equity, by reason of justice. That’s why
common law countries give emphasis on judges’ decisions because
judges can try facts and give exemption to what is written for the interest
of justice.
For example, nangawat ug Kitkat kay walay makaon. By law, that is
punishable but for the interest of justice it is not punishable.
So these are the distinctions that you have to know by heart.
Again, let’s go back to Constructive trust. This is illustrated in Articles
1450, 1454, 1455, and 1456. We will go to that later individually.
So know the problem is in distinguishing express trust and resulting
implied trust when both of them is premised on the intention of the
trustor.
Ok lang sana kung nakalagay sa batas na sa express trust nakalagay
na express pero walang requirement na ganoon eh. How can you
distinguish the two?
DISTINCTION: EXPRESS TRUST OR RESULTING IMPLIED TRUST
Although properly placed in different categories, in one major respect
express trusts and resulting trusts are similar: to be created, both
depend upon the transferor’s intention. They differ sharply however,
in the role intention plays in their respective inceptions. Consider
the function of intention with each type.
EXPRESS vs RESULTING IMPLIED
Express Trust Resulting Impied Trust
It is a positive intention Resulting trust are equally dependent on
flowing from some the element of intention for their existence.
agreement or other Its role, however, is the distinguishing
action between the feature of this grouping. Unlike the
parties that causes the express trust situation, an intention to
division of interest to actually create a resulting trust is not
occur and the trust to necessary for its existence. The resulting
exist. Such intention trust depends on the demonstration of
may be manifested in absence of an intention to vest beneficial
various ways. employment in the title holder.
The expressed intention The key point is that resulting trust is not
to create the trust and established by an intention to create a
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 Atty. Raymund Christian S. Ong Abrantes BUSINESS ORGANIZATION I Ateneo de Davao University College of Law
not how that expression trust, but is raised by operation of law
is manifested is the based on a presumption that despite
basic ingredient essen- appearances to the contrary, a trust
tial to the formation of relationship was intended. This
the express trust. application of intention distinguishes the
resulting trust from other trusts.
Source: Morris, Malcolm L., 1983. Rediscovering the Resulting Trust:
Modern Maneuvers for a Dated Doctrine. Akron L. Rev., 17, p.43.
August 23, 2019 by J Salem Laget
Diba ang gulo? Sabi niya, express trust, there’s an intention to split it.
Split the title— the legal title, the beneficial title. Now, ang resulting trust,
there is an absence of intention to vest it in the same person. Kung in
the positive ang isa, ang in the negative. Yun daw ang difference.
Unlike in express trust situation “where the intention to actually create
a resulting trust is not necessary for its existence, instead of a positive
intention to create a trust, the resulting trust depends on the
demonstration of an absence of intention to vest beneficial enjoyment in
the titleholder,” the key point is that the resulting trust is not established
by the intention to create a trust, but by operation of law based on
presumption that despite appearances to the contrary, a trust creation
was intended.
That’s why nakapasok pa rin siya sa Implied Trust because by operation
of law, sinasabing may intention to vest it at the same person (the
beneficial and legal title), that’s why there is an implied trust.
Now, Sir, ang gulo naman pala. Ano ang importansya kapag i-
differentiate natin? Isahin natin ang sabihing may trust?
Because, please take note, when it comes to immovables or interest
therein, no express trust can be proven by parol evidence.
So, that is why this distinction is important.
Kapag sinai ko’ng it is a resulting implied trust, that proscription on parol
evidence doesn’t apply. So, I can prove it by parol evidence. That’s why
kung ako ang abogado, and there is trust, and there is no document
whatsoever, I would say, that this is a result of an implied trust. I cannot
say that this is an express trust because I now precluded to prove it (by
parol). That’s why if you try to read, please be careful kung ano yung
contention ng mga parties. Again, that is how material it is to distinguish
express trust and yung implied resulting trust. Because although they
are the same specie, they are different.
The prohibition on presenting parol evidence doesn’t apply if it’s an
implied resulting trust. Please, be very careful on that.
IMPLIED TRUST
The enumeration of the following cases of implied trust does not exclude
others established by the general status law on trust, but the limitation
laid down in Article 1442 shall be applicable.
This is, again, a “catch-all” provision that the general law on trust is
equally applicable.
PURCHASE MONEY RESULTING TRUST
Now, there are two cases that seemingly contradict in classifying its
provision. It’s a resulting or constructive trust. Nasa Implied Trust na tayo
ha.
PNB v CA and Lopez vs Court of Appeals
I think Lopez came a bit later, but they have differences in classifying
certain provisions as a resulting trust or constructive trust.
Art. 1448. There is an implied trust when pretty is sold, and the legal
estate is granted to one party bu the price is paid by another for the
purpose of having the beneficial interest of the property. The former is
the trustee, while the latter is the beneficiary.
However, if the person to whom the title is conveyed is a child,
legitimate or illegitimate, of one paying the price of the sale, no trust is
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implied by law, it being disputably presumed that there is a gift in favor
of the child.
That’s Art. 1448; this is the “Purchase Money resulting trust”
Purchase money siya because the money that was used to purchase
came from a different person than the person kung saan nabigay yung
property.
Let’s say may anak si tatay. Gusto niya bilhan ng property si anak, gusto
niya ipangalan ang property kay anak; wala namang pera si anak. So,
si tatay ang nagbili; pera ang ginamit pambili dun. That’s an example of
purchase money resulting trust.
BUT, in that case given to the legitimate or illegitimate child, there is no
implied trust but is considered as a gift in favor of a child.
Ibahin natin; hindi tatay at anak. Kunwari kayo, may pera siya. Pera niya
ang ginamit. Pero, nung magpipirmahan na ng deed of sale, wala ako
dyan, di makapa-notarize dahil mag-States ako. Pwede muna ikaw na
mag-si-sign, pero ko gamiting, sayo ipapangalan ang title.
The purchase money came from sa kanya (trnscriber: person who had
the money and gave the instruction), and the title is given to sa kanya
(person who signed and whose name is written in the title). Therefore,
sa kanya, siya ang beneficiary. That is one way of looking at it. That is
purchase money resulting trust.
Again, there is no trust if it is given in favor of a child. And this
presumption is merely disputable and not absolute.
DELOS SANTOS vs Faustino REYES
Faustino Reyes purchased 3 lots and had them placed in his daughter’s
name, Virginia (in conformation with the limitation imposed by the vendor
that no vendee could purchase from the former more than two lots).
When the latter died upon giving birth, Reyes later executed an
extrajudicial partition in his favor over the said properties.
Bernardo Delos Santos, the husband of Virginia, files a suit claiming
ownership over the subject properties. He assails the decisions of the
RTC and CA in giving credit over the testimony of Reyes, which disputed
the presumed gift to Virginia.
Issue: May testimonial evidence be adduced in disputing the
presumption under Art.1448?
Ruling: Yes
Delos Santos assumes that an express trust over an immovable was
created when it was made to appear that the land in question was sold
to and registered in the name of Virginia, wife of Delos Santos.
Consequently, such a trust cannot be proved by parol evidence. If his
assumption is correct, Article 1444 is applicable and both the trial court
and the Court of Appeals 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.
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.
What are the exceptions, where the same situation but is not considered
a trust?
One, it is presumed a gift to a child. Ibinigay sa anak is considered as
gift but it is only a disputable presumption.
When actual, contrary intention is also present, because at the end of
the day, it is still the intention that matters. Even if that is the situation,
pera niya ginamit pambili ng property niya, if sa kanilang intention, wala
naman talagang trust, then, wala din trust.
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 Atty. Raymund Christian S. Ong Abrantes BUSINESS ORGANIZATION I Ateneo de Davao University College of Law
Lastly, when it is made in violation of a statute.
Give an example:
I am a foreigner, and I cannot own property in the Philippines. So, ang
gagawin ko, because I have many money, ang gagawin ko ay
maghahanap ako ng Pilipino at ipangalan sa kanila ang property. Now,
in that case, napangalan na sa kanya (Pilipino) ang property, can I ask
for the reconveyance? “May trust naman eh, I am the beneficiary. This
is my money, I can ask for reconveyance.” Sabi naman ng wife, may
pinag-aral ako, and this doesn’t apply and is a violation of a statute.
Those are the instances.
Let us discuss the cases where these instances are exemplified.
TY vs TY
Facts: Alexander Ty, son of Alejandro Ty and husband of Sylvia Ty, dies
of cancer at the age of 34. Sylvia files petition for the settlement of
Alexander’s intestate estate. In line with this, she also asks the court to
sell or mortgage properties in order to pay the estate tax. The properties
which were subjected to sale were a parcel of land in EDSA Greenhills,
a residential land in Notre Dame, Wack Wack, Mandaluyong and a
Meridien condo unit in Annapolis, Greenhills.
Alejandro Ty opposed such claiming that he owns the lands in EDSA,
Wack Wack and the Meridien condo unit because he paid for them. The
property was supposedly registered in trust for Alexander’s brothers and
sisters in case he dies. He also claimed that Alex had no financial
capacity to purchase the disputed property, as the latter was only
dependent on the former.
Sylvia countered that Alexander had purchased the property with his
money. Alexander was financially capable of purchasing it because he
had been managing the family corporations since he was 18 years old
and was also engage in other profitable businesses.
Issue: Whether or not an implied trust under Article 1448 was created.
Ruling: None
The Court held that no implied trust was created over the Meridien
condo and the property in Wack-Wack because there was no showing
that part of the purchase price was paid by petitioner and, on the
contrary, the evidence showed that Alexander Ty, son, had the means
to pay for the same.
But for the EDSA property, while it was found that Alejandro had
provided a portion for the purchase price, there was no implied trust
created by law, under Art.1448. Rather, that a gift was disputably
presumed, which was not successfully overcame by Alejandro.
It was found that Alexander had capacity to purchase said lots given that
he was in business for nine years and that aside from having common
interest in the businesses with his father, he held high positions (as
presidents, vice-presidents, etc), in various corporations.
Is this a gift or a trust? It is a gift.
The question now is, what quantum of proof do you need to prove a
trust? Clear and satisfactory, trustworthy and sufficient.
Yes, the quantum of proof is trustworthiness to prove that there is a trust.
Ang dali lang i-memorize: trustworthy = trust
TIGNO v CA
Facts: Bienvenido Sison, Remedios Sison and the heirs of Isaac Sison
appointed Dominador Cruz as agent to sell three parcels of land (two
fishponds, and a parcel of unirrigated riceland), adjoining each other
located at Padilla St., Lingayen, Pangasinan.
Later, Rodolfo Tigno learned that the subject properties were for sale.
Accordingly, he approached Cruz and told the latter to offer these
parcels of land to his brother, Eduardo Tigno who subsequently bought
the properties. In the Deed of Sale, Rodolfo was named as vendee in
order to enable him to mortgage these properties at PNB for the funds
needed for the development of these parcels of land.
Abrasaldo, Adlawan, Andamon, Banosan, Bayquen, Lagat, Mahusay, Maligad, Picot, Reyes, Rojo | III-Manresa 2019
Rodolfo, without the knowledge and consent of his brother, sold a
portion of the land, 508.56sqm., to Spouses Edualino Avelina Casipit. At
the time of sale, the Casipits were aware that the portion of the land they
bought was owned by Eduardo. There being a violation of trust and
confidence by Rodolfo, Eduardo demanded the reconveyance of said
lands, the surrender of the possession thereof to him and the
cancellation of the Deed of Sale of said portion of 508.56 square meters,
but all the demands were unjustifiably refused.
Issue: Whether or not there exists an implied trust between Rodolfo and
Eduardo
Ruling: YES, there was a resulting trust.
A resulting trust is exemplified by Article 1448.
The trust created under the first sentence of Article 1448 is sometimes
referred to as a purchase money resulting trust.
The trust is created in order to effectuate what the law presumes to have
been the intention of the parties in the circumstances that the person to
whom the land was conveyed holds it as trustee for the person who
supplied the purchase money.
To give rise to a purchase money resulting trust, it is essential that there
be:
1. an actual payment of money, property or services, or an equivalent,
constituting valuable consideration;
2. and such consideration must be furnished by the alleged beneficiary
of a resulting trust.
There are recognized exceptions to the establishment of an implied
resulting trust.
1) The first is stated in the last part of Article 1448 itself.
Thus, where A pays the purchase money and title is conveyed by
absolute deed to A's child or to a person to whom A stands in loco
parentis and who makes no express promise, a trust does not result, the
presumption being that a gift was intended.
2) Another exception is, of course, that in which an actual contrary
intention is proved.
3) Also where the purchase is made in violation of an existing statute
and in evasion of its express provision, no trust can result in favor of the
party who is guilty of the fraud.
As a rule, the burden of proving the existence of a trust is on the party
asserting its existence, and such proof must be clear and satisfactorily
show the existence of the trust and its elements. While implied trusts
may be proved by oral evidence, the evidence must be trustworthy and
received by the courts with extreme caution, and should not be made to
rest on loose, equivocal or indefinite declarations. Trustworthy evidence
is required because oral evidence can easily be fabricated.
“[I]t is clear that the name of Rodolfo Tigno appeared in the deeds of
sale not for the purpose of transferring ownership to him but only to
enable him to hold the property in trust for his brother, herein private
respondent. In the face of the credible and straightforward testimony of
the two witnesses, Cruz and Manuel, the probative value, if any, of the
tax declarations being in the name of Petitioner Rodolfo is utterly
minimal to show ownership. Suffice it to say that these documents, by
themselves, are not conclusive evidence of ownership.”
[T]he record is replete with clear and convincing evidence to show that
Eduardo Tigno is the real buyer and true owner of the lands in question
and Rodolfo M. Tigno is merely a trustee constituted over said lands on
behalf of plaintiff.
Was there an implied trust? Yes
What kind of an implied trust? There was a purchase money resulting
trust
HUANG vs CA
Facts:
Dolores Sandoval bought 2 lots in Dasmariñas Village; Lots
20 and 21. Because of the prohibition that forbids one single person to
5
 Atty. Raymund Christian S. Ong Abrantes BUSINESS ORGANIZATION I Ateneo de Davao University College of Law
own more than one lot, she registered only Lot 21 in her name and had However, if the purpose of the payor of the consideration in having title
Lot 20 in the name of his brother, Ricardo Huang. placed in the name of another was to evade some rule of the common
or statute law, the courts will not assist the payor in achieving his
improper purpose by enforcing a resulting trust for him in accordance
She built a residential lot in Lot 21, while Ricardo built a small house in
with the "clean hands" doctrine. The court generally refuses to give aid
Lot 20 after obtaining her sister’s consent. She financed the loan the
to claims from rights arising out of an illegal transaction, such as where
Ricardo obtained for the construction of the house. Dolores also had a
the payor could not lawfully take title to land in his own name and he
swimming pool built in the same lot.
used the grantee as a mere dummy to hold for him and enable him to
evade the land laws, e.g., an alien who is ineligible to hold title to land,
Later, the Huangs had the house leased out to Deltron-Sprague who pays for it and has the title put in the name of a citizen.
Electronics Corporation without Dolores’ permission. This was tolerated
by the latter until she and her family were denied access to the pool.
Otherwise stated, as an exception to the law on trusts, "[a] trust or a
provision in the terms of a trust is invalid if the enforcement of the
Issue: Was there an implied trust existing between Dolores and the
trust or provision would be against public policy, even though its
Huangs?
performance does not involve the commission of a criminal or
tortious act by the trustee." The parties must necessarily be subject
Ruling: Yes
to the same limitations on allowable stipulations in ordinary contracts,
The pertinent law is Art. 1448 which provides that there is an implied
i.e., their stipulations must not be contrary to law, morals, good customs,
trust when property is sold and the legal estate is granted to one party
public order, or public policy. What the parties then cannot expressly
but the price is paid by another for the purpose of having the beneficial
provide in their contracts for being contrary to law and public policy, they
interest of the property. A resulting trust arises because of the
cannot impliedly or implicitly do so in the guise of a resulting trust.”
presumption that he who pays for a thing intends a beneficial interest
therein for himself.
(transcriber: while there was no trust, ito ang sabi ng court in its decision:
In the present case, Dolores provided the money for the purchase of
“Although the contract should be voided for being contrary to public
Lot 20 but the corresponding deed of sale and transfer certificate of title
policy, we deem it equitable to allow the private respondents to recover
were placed in the name of Ricardo Huang because she was advised
what they had paid for the land with legal interest thereon commencing
that the subdivision owner prohibited the acquisition of two (2) lots by a
from the date of the filing of the complaint. Thus, she is entitled to the
single individual. A resulting trust was created. Ricardo became the
return of the amount she had paid to Herminio and the refund of the
trustee of Lot 20 and its improvements for the benefit of Dolores as
installments she had paid to the PHHC (P34.11 monthly for a period of
owner.
ten years), with legal interest thereon.
Kanino pinangalan ang property (Lot 20)? : Ricardo Huang
This is an example of the exemption, which is contrary to law.
So, pinangalan niya sa kanyang kapatid, pero kanino yung pera?
Dolores
My question is, diba dun (Huang case) ganun din, the reason bakit hindi
Sabi ng SC: merong Purchase Money Resulting Trust
mapangalan sa kanya ang property because it was prohibited, tama?
(yes). Pero, ang sabi ng Court, may trust.
RAMOS vs CA
Pero ito (Ramos), ganun din, hindi niya ma-acquire ang property dahil
Facts: may prohibition. Pero ang sabi ng court that is under the exception; it is
Lydia Celestino (buyer) and Herminio Ramos (seller) were employed contrary to law, kaya there is no trust. How do then we reconcile the
in the same department of the Central Bank. People's Homesite & two?
Housing Corporation (PHHC) awarded the rights to buy certain parcels
of land to employees of the Central Bank. As a Central Bank employee, In Huang, the prohibition is on a subdivision-level. While, in Ramos, the
Herminio was awarded the rights to buy the parcel of land designated at prohibition is by a statute, which cannot be tolerated.
Sikatuna Village, Diliman, Quezon City. Ramos later sold his rights to
buy the said property to Lydia. Therefore, ang sinasabing “contrary to law or public policy…” must be
really a statute of the land. Remember, the prohibition here (Ramos)
In order to avoid PHHC’s policy, restricting the alienation or transfer of came from PHHC, which has a law, charter, creating that commission.
the property within one year from said certificate's issuance without the Please take note of these two particular cases.
PHHC's written consent, spouses Ramos executed in Lydia's favor an
irrevocable special power of attorney, in sum empowering Lydia to sell, Therefore, if it is only a policy between private people, there could be
mortgage, or lease the subject property and to dispose of the proceeds trust. But if it is really a law, which prevents a person from acquiring the
thereof in any manner she wants. property, and subsequently that person acquires the property, there is
no trust, because that would be contrary to law.
Lydia filed an annulment over the issuance of new owner’s duplicate
copy that was in favor of Ramos (as he made it appear that his copy was That is 1448.
lost and missing). She now claims that an implied trust was created.
August 27, 2019 by Juris Paul Mahusay
Issue: Was there an implied trust?
Let’s continue on Trusts..
Ruling: No
Article 1449. There is also an implied trust when a donation is made to
The inevitable conclusion then is that Lydia Celestino, knowing of her a person but it appears that although the legal estate is transmitted to a
disqualification to acquire a lot from the PHHC at the subdivision donee, he nevertheless is either to have no beneficial interest or only
reserved for qualified Central Bank employees, tried to get one through apart thereof.
the backdoor. Otherwise stated, she wanted to get indirectly that which
she could not do so directly. Having acted with evident bad faith, she did
So read both the cases of PNB v. CA and Lopez v. CA. Now the reason
not come to court with clean hands when she asked for the
why I highlighted these cases is because they have different opinions
reconveyance of the property on the basis of a resulting trust under
whether or not this is considered as a resulting or constructive. Because
Article 1448 of the Civil Code.
again, express trust ( I think Implied Trust ang ginamean ni sir) is a
different type of trust. Under implied trust, we have 2 kinds:
A resulting trust is an "intent-enforcing" trust, based on a finding by the
court that in view of the relationship of the parties their acts express an
2 KINDS OF IMPLIED TRUST:
intent to have a trust, even though they did not use language to that
1. Implied Resulting Trust
effect. The trust is said to result in law from the acts of the parties.
2. Constructive Implied Trust.

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 Atty. Raymund Christian S. Ong Abrantes BUSINESS ORGANIZATION I Ateneo de Davao University College of Law
So, as discussed previously, when we talk about Constructive Implied
Trust, that is actually based on equity. So because of equity and justice,
the law presumes that there is a trust and consider that there is a trust
in a given situation.
So when we talk about Implied Resulting Trust, we have that hairline
distinction between express trust and Resulting Implied Trust.
If express trust, there is no definite word is needed. In fact, what is only
needed is the intention of the party. Ganun din naman yung requirement
pag dating sa Implied Resulting Trust. The distinction is really hairline.
However, if we consult Villanueva, Villanueva tried to rearrange the
provision and said that there can only be Express Trust and Constructive
Trust.
But again, we copied it from the US. And you know naman a dissertation
from a professor in Illinois (ilinoy pag dili sosyal) University saying that
there is a distinction although if you try to look at it, the distinction is more
virtual.
Just in case if you are asked what is the distinction, that is a good
argument.
So let’s talk about the type of implied trust. We are now in 1449.
According to PNB v. CA and Lopez vs. CA, this is a resulting trust as
compared to Constructive Trust:
So let us go to the case of Adaza v. CA:
Adaza v. CA
G.R. No. 47354 (from 2017 TSN)
FACTS:
In the lawful wedlock of Victor Adaza and Rosario Gonzales were
born six (6) children: petitioner Horacio, Homero, Demosthenes,
respondent Violeta, Teresita and Victor, Jr. The head of the
family,Victor Adaza, Sr., died in 1956, while the wife died in 1971.
During his lifetime, Victor Adaza, Sr.executed a Deed of Donation
dated 10 June 1953, covering the parcel of land subject matter of this
case located at Sinonok, Dapitan City, Zamboanga del Norte, in favor
of respondent Violeta, then still single. The donation was accepted in
the same instrument, which both donor and donee acknowledged
before Notary Public ex officio Milagros C. Galeposo.
The land donated was then partof the public domain, being
disposable public land, and had been held and cultivated by Victor
Adaza, Sr. for many years. Violeta, with the aid of her brother
Horacio, filed a homestead application covering the land involved.
Four (4) years later, petitioner Horacio invited respondent Violeta and
theother brothers and sister for a family gathering in his house.
There, Horacio asked Violeta to sign a Deed of Waiver which had
been prepared in respect of the property in Sinonok donated by
theirfather Victor Adaza, Sr.
This Deed stated that the Sinonok property was owned in common
byVioleta and her brother Horacio G. Adaza, even though the
certificate of title had been issued in her name only. The Deed also
provided for the waiver, transfer and conveyance by Violeta in favor
of Horacio of one-half (1/2) of the Sinonok property, together with all
improvements existing in that one-half (1/2) portion.
Violeta signed this Deed of Waiver: the Deed was also signed by
petitioner Horacio and Homero Adaza as witnesses
ISSUE: Whether or not there was an implied trust in favor of Horacio.
HELD:
Yes. Violeta had admitted in the Deed of Waiver, that is, that the
"property [here involved] is owned in common by [her] and [her]
brother, Horacio G. Adaza, although the certificate of title was issued
only in [her] name." SC believes and so hold that this statement is an
admission that she held half of the land in trust for petitioner Horacio.
The execution of the Deed of Donation of 10 June 1953 by
respondent Violeta's father created an implied trust in favor of
Violeta's brother, petitioner Horacio Adaza, in respect of half of the
property donated. Article 1449 of the Civil Code is directly in point:
Abrasaldo, Adlawan, Andamon, Banosan, Bayquen, Lagat, Mahusay, Maligad, Picot, Reyes, Rojo | III-Manresa 2019
Art. 1449. There is also an implied trust when a donation is made to
a person but it appears that although the legal estate is transmitted
to the donee, he nevertheless is either to have no beneficial interest
or only a part thereof.
Respondent Violeta and her husband also contended that the long
delay and inaction on the part of Horacio in taking any steps for
reconveyance of the one-half (1/2) share claimed by him, indicates
lack of any color of right over the said one-half (1/2) share. It was
also argued by the two (2) that considering that twelve (12) years had
passed since OCT No. P-11111 was issued and more than nineteen
(19) years since the Deed of Donation was executed, the
counterclaim for partition and reconveyance of Horacio's alleged
one-half share was barred by laches, if not by prescription.
In determining whether delay in seeking to enforce a right constitutes
laches, the existence of a confidential relationship based upon, for
instance, consanguinity, is an important circumstance for
consideration. Delay in a situation where such circumstance exists,
should not be as strictly construed as where the parties are complete
strangers vis-a-vis each other.
The doctrine of laches is not to be applied mechanically as between
near relatives; the fact that the parties in the instant case are brother
and sister tends to explain and excuse what would otherwise appears
as long delay.
Moreover, continued recognition of the existence of the trust
precludes the defense of laches. The two (2) letters noted above sent
by respondent Violeta to petitioner Horacio, one in 1969 and the
other in 1971, show that Violeta as late as 1971 had recognized the
trust imposed on her by law. Conversely, Horacio's reliance upon his
blood relationship with his sister and the trust and confidence
normally connoted in our culture by that relationship, should not be
taken against him. Petitioners' counter-claim in the trial court for
partition and reconveyance cannot be regarded as barred whether
by laches or by prescription.
Discussion:
Sir: So what are the evidences appreciated by the court saying that there
is an implied trust?
A: We have here sir the deed of waiver wherein Violeta admitted that
….. Because in here the deed of waiver provided for the waiver or
transfer and conveyance by Violeta in favor of Horacio, ½ of the Sinonok
property together with all the improvements existing on that property.
The deed of waiver in this case is considered as one of the evidences.
Sir: What does the deed contain? Anong nakalagay?
A: The Deed also provided for the waiver, transfer and conveyance by
Violeta in favor of Horacio of one-half (1/2) of the Sinonok property,
together with all improvements existing in that one-half (1/2) portion.
Sir: Saan dun yung trust? How did the court appreciate the Deed of
Waiver?
A: in this case sir, the court said that the execution of the Deed of
Donation of 10 June 1953 by respondent Violeta's father created an
implied trust in favor of Violeta's brother, petitioner Horacio Adaza, in
respect of half of the property donated.
Sir: Okay so, a deed of donation does not always results to trust, but
what is particular in these documents that the court appreciated is the
fact that there is really no _____ of both legal title and beneficial title.
And indeed there is a constitution of trust. Saan dun? How did the court
appreciated these documets? Because in reality, ganyan naman talaga
ehh, you will just appreciate the documents na bigay sayo ng iyong mga
clients. How would you know na there is trust? Can you read the
whereas clause? Dyan nakalagay.
A: (reads the whereas clause)
Sir: So the property is common even if Violeta’s name was the only
name there. So there is an admission that Violeta holds the property in
trust in favor of her brother. She basically holds the property in trust.
7
 Atty. Raymund Christian S. Ong Abrantes BUSINESS ORGANIZATION I Ateneo de Davao University College of Law
Now a good question is, why does the court did not take this particular The property is then transferred in the name of the trustee, the person
instance as an express trust? Look at this may document na, may deed who paid for the land, until he is reimbursed by the beneficiary, the
of waiver na, there was even an admission that she holds the property person for whom the land is purchased. It is only after the beneficiary
in trust of her brother. So bakit sya kinonsider as implied trust pa rin? reimburses the trustee of the purchase price that the former can
Why not consider it as an express trust. Diba express trust don’t need compel conveyance of the purchased property from the latter.
for that word “trust” to appear. No need for a clear and express words to
be considered as a trust, provided that there is a clear intention. So what From the evidence adduced, it may be concluded that respondent
is clearer than this? Valdes, using his own funds, purchased Pulong Maulap in behalf of
the late Nakpil. This is based on the letters to petitioner of Valdes
So bakit di sya Kinonsider na express trust? where he categorically admitted that "[b]oth of these loans, while in
my (respondent Valdes) name, were obtained by Pinggoy (the late
A: Because it falls under a particular provision specifically under Article Nakpil) for his person, and that the "P75,000.00 initially advanced for
441, sir. Despite of a clear admission, the court said that this is an the Moran property still remains unpaid.
implied trust and not an express trust because the facts of this case fall
under… the donation falls under Article 441. It is evident from these letters that while the balance of P75,000.00
on the mortgage of the vendors with PNB was liquidated from the
Sir: Well, to my opinion, it could fall under express trust. but clearly ang proceeds of a loan respondent obtained from FUB, such loan was
ginagawa, when you encounter this type of problem, pag tingin nyo, it actually secured by the late Nakpil by merely using Valdes' name.
falls under the exemplified situation under implied trust, dun mo sya Such is also the case with respect to another FUB loan amounting to
ilagay, bago kayo magsabi na express trust. If it falls particularly to a P65,000.00, the proceeds of which were used to finance the repair
certain provision, dun mo na iapply. But to my opinion, again, this could and renovation of Pulong Maulap. And, while the downpayment of
fall under express trust kasi may deed ehh. Tapos may clear intention. P50,000.00 and the partial payment of P25,000.00 to PNB came
So this case of Adaza is the example to what I told you about the hairline from the personal funds of Valdes, he considered them as advances
distinction between express trust and implied trust. to the late Nakpil. Otherwise, Valdes would never have deemed the
amount as "unpaid" in his letter to petitioner of 17 September 1974.
The letter of Valdes to the City Treasurer of Baguio made while
Article 1450. If the price of a sale of property is loaned or paid by one remitting payment of real estate taxes is also enlightening. It provided
person for the benefit of another and the conveyance is made to the therein that the payment being tendered was "[o]n behalf" of the
lender or pay or to secure the payment of the debt, a trust arises by Nakpil's, which is an express recognition of the implied trust.
operation of law in favor of the person to whom the money is loaned or
for whom it is paid. The latter may redeem the property and compel a However, petitioner cannot as yet redeem and compel conveyance
conveyance thereof to him of the property. For, Valdes must still be reimbursed for the advances
he made on the disputed property, such reimbursement being a
conditio sine qua non for compelling conveyance under Art. 1450.
Now let’ us go to the case of Nakpil v. CA.
The period within which to compel conveyance of Pulong Maulap is
not imprescriptible. The rule is well-settled that an action for
reconveyance based on an implied or constructive trust prescribes in
NAKPIL VS IAC G.R. No. 74449
ten (10) years.
(Case Digest: from 2017 TSN)
FACTS:
But, in th case before the Court, petitioner could still compel
conveyance of the disputed property from respondent provided the
Carlos Valdes acquired title over a Baguio summer residence named former reimburses the latter for all his expenses. After all, Valdes
Pulong Maulap but this was actually in behalf of Jose Nakpil who
never repudiated the constructive trust during the lifetime of the late
arranged that while he does not have the money to pay Valdes the
Jose Nakpil. On the contrary, he expressly recognized it. The
title remains under Valdes’ name, thereby creating a trust.
prescriptive period therefore did not begin to run until after he
repudiated the trust. And such repudiation came when Valdes
The property cost P150k, P75k of which was paid by Valdes. Valdes excluded Pulong Maulap from the list of properties of the late Jose
borrowed P75k from First United Bank to pay off the remainder of the
Nakpil submitted to the intestate court in 1973. Even then, the
balance and another P65k for the residence’s maintenance. After
present action for conveyance was filed in 1979 or well within the ten-
Nakpil died, Valdes denied the existence of a trust relationship and
year period.
he claims that the property is his.
Discussion:
Imelda Nakpil, widow of Jose, assailed this. Valdes however agreed
that Imelda and her co-heirs can stay in the property under a usufruct,
Sir: What did the court appreciated in terms of the evidences presented?
free from any encumbrance, for 5 years. And in a letter sent to
Imelda, should they fail to reimburse Valdes for his advances, the
A: From the evidence adduced sir, (adduced jod? Katawa si sir. :D) it
property is considered sold to him.
may be concluded that respondent Valdes, using his own funds,
Valdes denied that there is a pactum commissorium existing because
purchased Pulong Maulap in behalf of the late Nakpil. This is based on
he said there is no creditor-debtor relationship between him and
the letters to petitioner of Valdes where he categorically admitted that
Imelda; and that there is no trust relationship between him and the
"[b]oth of these loans, while in my (respondent Valdes) name, were
deceased Nakpil.
obtained by Pinggoy (the late Nakpil) for his person, and that the
"P75,000.00 initially advanced for the Moran property still remains
ISSUE/S: Whether Art. 1450 of the Civil Code applies Whether
unpaid.
petitioner can still compel reconveyance of Pulong Maulap from
It is evident from these letters that while the balance of P75,000.00 on
respondent Valdes.
the mortgage of the vendors with PNB was liquidated from the proceeds
of a loan respondent obtained from FUB, such loan was actually secured
HELD:
by the late Nakpil by merely using Valdes' name.
-Yes. Implied trusts, which may either be resulting or constructive,
are those which, without being express, are deducible from the
Sir: So, there were letters diba. Ito din. Isa din ‘to. Bakiit di sinabing
nature of the transaction as matters of intent, or which are super
express trust? Diba? There was a clear intention. It was paid in behalf
induced on the transaction by operation of law as matter of equity,
of another. Because again this situation falls squarely under Article
independently of the particular intention of the parties. Article 1450,
1450.
which petitioner invokes in the case at bar, is an illustration of an
So in other words, how do you appreciate this provision?
implied trust which is constructive.
So kapag it falls squarely under a specific provision, (sana all nafafall),
Article 1450 presupposes a situation where a person, using his own
yun yung iaapply nyo. You only apply the other thing pag wala sya dun
funds, purchases a certain piece of land in behalf of another who, in
sa specific provisions. Because this could fall under express trust. Look
the meantime, may not have sufficient funds to purchase the land.
at the elements. May clear intention. May positive acts. So it could fall

Abrasaldo, Adlawan, Andamon, Banosan, Bayquen, Lagat, Mahusay, Maligad, Picot, Reyes, Rojo | III-Manresa 2019 8
 Atty. Raymund Christian S. Ong Abrantes BUSINESS ORGANIZATION I Ateneo de Davao University College of Law
under express trust. Since again it falls under Article 1450, it is
considered as Implied Trust.
Now, while in PNB v. CA, it was held that this is actually a type of
Resulting Trust, but in Lopez v. CA, it was held that this is a Constructive
Trust. So again, maski sila, di sila maka decide (huhuhu)
So this is one of the instances wherein both cases have different rulings
on the type of implied trust.
Article 1451. When land passes by succession to any person and he
causes the legal title to be put in the name of another, a trust is
established by implication of law for the benefit of the true owner.
So this is considered as a Resulting Trust. Please Take Note! Please
take note that the law speaks of the inherited land, so this would only
apply kapag land siya.
Anong example nito?
Sir: (calls a student)
A: For example sir, Division of Lands when it comes to Estate.
Sir: (Discusses Succession)
Please read the case of Ancog v. CA. although, Article 1451 was just
applied by analogy.
ANCOG VS CA
G.R. No. 112260 (Case Digest: From 2017 TSN)
FACTS:
A parcel of land used to be the conjugal property of Gregorio Yap
and Rosario Diez. The former died leaving as heirs his wife and
children. Thereafter, Rosario (respondent) applied for a loan to be
secured by the subject land as mortgage. To facilitate the loan, she
executed an extrajudicial settlement of the property, signed by the
heirs except Gregorio Jr. (petitioner), then a minor. The title was
cancelled and a new one was issued in Rosario’s name. Since then,
Rosario exercised the rights of ownership over the property. Later,
she planned to sell the land.
In learning this, Jovita (her daughter) informed her younger brother
Gregorio Jr. of their mother’s plan to sell the land. So, petitioner-
siblings filed an action for partition against Rosario, alleging that in
signing the extrajudicial instrument, they did not really intend to
convey their interests in the property to their mother, but only to
enable her to obtain a loan on the security of the land to cover
expenses for their sister Caridad’s school fees and for household
repairs.
TC dismissed the case, and upheld the validity of the EJS. CA
affirmed. Both ruled that Gregorio Jr. was barred by laches. Hence,
the petition.
ISSUE: (R/T trust issue)
A. WON an implied trust was created in Gregorio Jr.’s favor
when the land was registered in the name of Rosario Diez.
(YES)
B. If so, WON Gregorio Jr. was barred by laches, considering
that he was still a minor at the time the EJS was executed.
(NO)
HELD:
An implied trust was created. And Gregorio Jr. was not barred by
laches.
**EJS WAS UPHELD TO BE VALID. ONLY ERROR WAS ON THE
ISSUE ON LACHES**
AN IMPLIED TRUST WAS CREATED.
At the time the extrajudicial settlement was executed, Gregorio Jr.,
was a minor. For this reason, he was not included or informed of the
Abrasaldo, Adlawan, Andamon, Banosan, Bayquen, Lagat, Mahusay, Maligad, Picot, Reyes, Rojo | III-Manresa 2019
partition. As he did not take part in the partition, he is not bound by
the settlement. Instead, the registration of the land in Rosario Diez’s
name created an implied trust in his favor by analogy to Art. 1451 of
the Civil Code, which provides:
ART. 1451, NCC. When land passes by succession to any person
and he causes the legal title to be put in the name of another, a trust
is established by implication of law for the benefit of the true owner.
Art. 1451 was held as creating a resulting trust, which is founded on
the presumed intention of the parties, as determined from the facts
and circumstances existing at the time of the transaction out of which
it is sought to be established.
In this case, the records disclose that the intention of the parties to
the extrajudicial settlement was to establish a trust in favor of
petitioner Yap, Jr. to the extent of his share. Rosario testified that she
did not claim the entire property, while Atty. de la Serna added that
the partition only involved the shares of the three participants.
HE IS NOT BARRED BY LACHES.
A cestui que trust may make a claim under a resulting trust within 10
years from the time the trust is repudiated.
Although the registration of the land in private respondent Diez’s
name operated as a constructive notice of her claim of ownership, it
cannot be taken as an act of repudiation adverse to petitioner
Gregorio Yap, Jr.’s claim, whose share in the property was precisely
not included by the parties in the partition. Indeed, it has not been
shown whether he had been informed of her exclusive claim over the
entire property before 1985 when he was notified by petitioner Jovita
Yap Ancog of their mother’s plan to sell the property.
For prescription to run in favor of the trustee, the trust must be
repudiated by unequivocal acts made known to the cestui que trust
and proved by clear and conclusive evidence. Furthermore, the rule
that the prescriptive period should be counted from the date of the
issuance of the Torrens certificate of title applies only to the remedy
of reconveyance of property under the Property Registration Decree.
Since the action brought by petitioner Yap to claim his share was
brought shortly after he was informed by Jovita Ancog of their
mother’s effort to sell the property, Gregorio Yap, Jr.’s claim cannot
be considered barred either by prescription or by laches.
Article 1452. If two or more persons agree to purchase property and by
common consent the legal title is taken in the name of one of them for
the benefit of all, a trust is created by force of law in favor of the others
in proportion to the interest of each.
This is more prevalent. Chip in chip in og kwarta, tapos mamalit og
property.tapos sa imoha lang sa ipangalan ang property. So this is one
way of exemplifying this provision.
So in PNB v. CA and Lopez v. CA, this is both considered as a Resulting
Trust.
Article 1453. When property is conveyed to a person in reliance upon
his declared intention to hold it for, or transfer it to another or the grantor,
there is an implied trust in favor of the person whose benefit is
contemplated
So you see again the separation of legal title and beneficial title.
Please take note that this is one of the examples that the law enforces
the intention of the parties. It is based on the promise or representation
of the grantee to hold the property conveyed for, or transfer it to another
or the grantor. The grantee is estopped from asserting ownership in
himself by denying his representation as against the person for whose
benefit the implied trust is created.
So again, this is founded upon equity, particularly on the faith of the
agreement or understanding, the grantee is enabled to gain an
advantage in the purchase of the property or where the consideration or
part thereof has been furnished by or for another.
9
 Atty. Raymund Christian S. Ong Abrantes BUSINESS ORGANIZATION I Ateneo de Davao University College of Law
Article 1454.. If an absolute conveyance of property is made in order to
secure the performance of an obligation of the grantor toward the
grantee, a trust by virtue of law is established. If the fulfillment of the
obligation is offered by the grantor when it becomes due, he may
demand the reconveyance of the property to him.
So this is when the transfer is made as a security for certain obligations.
Is this practical? of course not. Kasi may legal consequences ang pag
transfer ng properties.
Article 1455. When any trustee, guardian or other person holding a
fiduciary relationship uses trust funds for the purchase of property and
causes the conveyance to be made to him or to a third person, a trust is
established by operation of law in favor of the person to whom the funds
belong.
Applying this to your law on partnerships.
Example:
So ano ba ’yong may fiduciary relationship? dba in relation to our
discussion, a partner, what if a partner holding the funds of the
partnership uses the partnership fund for the purchase of the property
and causes the conveyance to be made to himself or to a third person.
Will there be a trust? Correlate it in favor of the person to whom the
funds belong, in that case, will there be a trust in favor of the
partnership? It’s an implied trust. In PNB vs. CA, It's a resulting trust.
According to Lopez, it's a constructive trust.
Remember the premise of constructive trust is to avoid fraud or mistake,
so if ginawa yan ng the one who holds fiduciary relationship to defraud
the person with whom he has fiduciary relationship with that becomes a
constructive trust. Pero kon hinold nya yan, with the acknowledgment
na he holds it in favor of the beneficiary, there’s no fraud. So it could be
a resulting trust.
So either way, resulting or constructive, depends upon the
circumstances. In resulting, there is an intention of the parties; it is just
the law which enforces an intention.
So interrelated tong lahat. Don’t forget your previous learning. So I hope
you see the law in that way. Connected tong lahat!
Article 1456 . If property is acquired through mistake or fraud, the
person obtaining it is, by force of law, considered a trustee of an implied
trust for the benefit of the person from whom the property comes.
So both of the cases classified this as a constructive trust. Because it is
now the force of law which considered this as constructive trust for the
reasons of justice and equity.
So let us continue next meeting.
August 30, 2019 by Anton Maligad (Part 1)
Article 1456—If property is acquired through mistake or fraud, the
person obtaining it is, by force of law, considered a trustee of an implied
trust for the benefit of the person from whom the property comes.
The trust created in this Article is a Constructive Trust.
The concept of trust is one where someone holds a property in behalf of
another. Usually, the remedy employed in the cases is actually for the
purpose of convenience.
This pertains to a situation, wherein the real beneficiary would like to
now have the property. That is why it is an action to reconvey.
• The action: An action for Reconveyance.
A common question now is when it comes to prescription, because there
is a lot of cases that deal with the issue of prescription.
• Has it (action for reconveyance) prescribed already?
• Will the trustee obtain ownership over the property subject to
a trust, based on prescription?
Abrasaldo, Adlawan, Andamon, Banosan, Bayquen, Lagat, Mahusay, Maligad, Picot, Reyes, Rojo | III-Manresa 2019
What are the modes of ownership? One of which is prescription.
BRITO vs. DIANALA
Facts: Civil Case No. 12887
Margarita Dichimo, assisted by her husband, Ramon Brito, Sr., together
with Bienvenido Dichimo, Francisco Dichimo, and several others filed a
Complaint for Recovery of Possession and Damages with the CFI of
Negros Occidental, against a certain Jose Maria Golez.
Margarita, together with Bienvenido and Francisco, alleged that they are
the heirs of a certain Vicente Dichimo, while the rest of the petitioners
claimed to be the heirs of one Eusebio Dichimo. Vicente and Eusebio,
as the only heirs of Esteban and Eufemia, inherited Lot No. 1536-B from
the latter. In turn, petitioners inherited Vicente and Eusebio’s pro indiviso
shares of Lot No. 1536-B.
Respondents filed an Answer-in-Intervention claiming that prior to his
marriage to Eufemia, Esteban was married to a certain Francisca and
that herein respondents are the heirs of Esteban and Francisca's
children. They claim to have in open, actual, public and uninterrupted
possession of a portion of Lot No. 1536-B for more than 30 years and
that, in fact, petitioner and his co-heirs have already disposed of their
sares in the said property a long time ago.
The trial dismissed respondents' Answer-in-Intervention for their failure
to secure the services of a counsel despite ample opportunity given
them.
Civil Case No. 12887 then went to trial. The parties in said case agreed
to enter into a Compromise Agreement wherein Lot No. 1536-B was
divided between Jose Maria Golez on one hand, and the heirs of
Vicente, namely: Margarita, Bienvenido, and Francisco, on the other. It
was stated in the said agreement that the heirs of Eusebio had sold their
share in the said lot to the mother of Golez.
The RTC of Bacolod City rendered a decision approving the said
Compromise Agreement.
Thereafter, on September 28, 1990, TCT No. T-12561 was issued by
the Register of Deeds of Cadiz City in the name of Margarita, Bienvenido
and Francisco.
Civil Case No. 548-C & Case No. 588-C
On January 18, 1999, petitioner and his co-heirs filed another Complaint
for Recovery of Possession and Damages, this time against herein
respondents. The case was docketed as Civil Case No. 548-C. Herein
respondents, on the other hand, filed with the same court, on August 18,
1999, a Complaint for Reconveyance and Damages against petitioner
and his co- heirs. The case was docketed as Civil Case No. 588-C.
Issue: Are the respondents barred by prescription? NO.
Held: Petitioners claim that respondents are barred by prescription for
having filed their complaint for reconveyance only after more than eight
years from the discovery of the fraud allegedly committed by petitioner
and his co-heirs, arguing that under the law an action for reconveyance
of real property resulting from fraud prescribes in four years, which
period is reckoned from the discovery of the fraud.
In the respondents’ complaint for reconveyance and damages, they
alleged that petitioner and his co-heirs acquired the subject property by
means of fraud.
Article 1456 of the Civil Code provides that a person acquiring property
through fraud becomes, by operation of law, a trustee of an implied trust
for the benefit of the real owner of the property. An action for
reconveyance based on an implied trust prescribes in ten years, the
reckoning point of which is the date of registration of the deed or the
date of issuance of the certificate of title over the property.
Thus, in Caro v. Court of Appeals, this Court held as follows:
Under the present Civil Code, just as an implied or constructive trust is
an offspring of the law (Art. 1456, Civil Code), so is the corresponding
obligation to reconvey the property and the title thereto in favor of the
true owner. In this context, and vis-a-vis prescription, Article 1144 of the
Civil Code is applicable.
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 Atty. Raymund Christian S. Ong Abrantes BUSINESS ORGANIZATION I Ateneo de Davao University College of Law
Article 1144. The following actions must be brought within ten years from
the time the right of action accrues:
(1) Upon a written contract;
 • Remember: In acquisitive prescription, your possession must be in
(2) Upon an obligation created by law;
(3) Upon a judgment.
An action for reconveyance based on an implied or constructive trust
must perforce prescribe in ten years and not otherwise. Undoubtedly, it
is now well settled that an action for reconveyance based on an implied
or constructive trust prescribes in ten years from the issuance of the
Torrens title over the property.
The law creates the obligation of the trustee to reconvey the property
and the title thereto in favor of the true owner. The prescriptive period
for the reconveyance of fraudulently registered real property is ten (10)
years reckoned from the date of the issuance of the certificate of title.
In the instant case, TCT No. T-12561 was obtained by petitioner and his
co-heirs on September 28, 1990, while respondents filed their complaint
for reconveyance on August 18, 1999. Hence, it is clear that the ten-year
prescriptive period has not yet expired.
Issue: W/N the Respondents are guilty of laches? No.
Held: Respondents' act of filing their action for reconveyance within the
ten-year prescriptive period does not constitute an unreasonable delay
in asserting their right. The Court has ruled that, unless reasons of
inequitable proportions are adduced, a delay within the prescriptive
period is sanctioned by law and is not considered to be a delay that
would bar relief.
Moreover, the prescriptive period applies only if there is an actual need
to reconvey the property as when the plaintiff is not in possession
thereof. Otherwise, if the plaintiff is in possession of the property,
prescription does not commence to run against him. The reason for this
is that one who is in actual possession of a piece of land claiming to be
the owner thereof may wait until his possession is disturbed or his title
is attacked before taking steps to vindicate his right, the rationale for the
rule being, that his undisturbed possession provides him a continuing
right to seek the aid of a court of equity to ascertain and determine the
nature of the adverse claim of a third party and its effect on his own title,
which right can be claimed only by the one who is in possession.
In the present case, there is no dispute that respondents are in
possession of the subject property as evidenced by the fact that
petitioner and his co-heirs filed a separate action against respondents
for recovery of possession thereof. Thus, owing to respondents'
possession of the disputed property, it follows that their complaint for
reconveyance is, in fact, imprescriptible. As such, with more reason
should respondents not be held guilty of laches.
Discussion:
An action based on an implied trust can prescribe.
What is the prescriptive period? 10 years.
Q: Could there be prescription of an action for reconveyance, based on
an express trust?
A: Yes. The reckoning point would be the time where the party
repudiated the express trust.
Q: Why would the reckoning point be different this time?
A: There is already knowledge on the part of the trustee that he is
holding it in trust for another. In order for the prescriptive period to begin
there must be a repudiation of such trust.
• Repudiation is considered as a Notice
According to the case:
Implied Trust—An action for reconveyance based on a constructive
trust, which prescribes in ten (10) years from the time of the issuance of
a title. The issuance of a title would be tantamount to notice.
EXPRESS TRUST
General Rule: Generally, an action for reconveyance can prescribe.
Reckoned from the time of repudiation.
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• Why? An express trust is one wherein you hold something in behalf
of another. So, the fact that it is an express trust you recognized that
this property belongs to someone and not you. So there is no claim.
the concept of an owner—open, continuous, exclusive, and
notorious possession (OCENPO).
• Now if you put a property in trust of another, the possession cannot
be explicit, because you acknowledge that this property belongs to
someone.
• It is only in an implied trust that there is repudiation (?).
• Repudiation—the act of registering the title in the name of the
trustee is an act of repudiation. That is why it is reckoned from the
time of registration of the title in the name of the trustee. But not in
all cases.
XPN: There is only one exception to the fact that an action for
reconveyance in an express trust prescribes.
That is when a beneficial owner is in possession of the property.
Because that would be tantamount to a quieting of title.
• It is the removing of a cloud from the title.
• The action for reconveyance doesn’t prescribe.
HEIRS OF VALIENTES v. RAMAS
GR 157784, December 16, 2008
Facts: Petitioners claim that they are the heirs of Domingo Valientes
who, was the owner of a parcel of land.
In 1939, Domingo Valientes mortgaged the subject property to secure
his loan to the spouses Belen and Brigida Sescon.
In the 1950s, the Valientes family purportedly attempted, but failed, to
retrieve the subject property from the spouses Belen.
Through an allegedly forged document captioned VENTA DEFINITIVA
purporting to be a deed of sale of the subject property between Domingo
Valientes and the spouses Belen, the latter obtained Transfer
Certificate of Title (TCT) No. T-5,427 in their name.
On February 28, 1970, Maria Valientes Bucoy and Vicente Valientes,
legitimate children of the late Domingo Valientes, had their Affidavit of
Adverse Claim duly entered in the Memorandum of Encumbrances at
the back of TCT No. T-5,427.
Upon the death of the spouses Belen, their surviving heirs Brigida
Sescon Belen and Maria Lina Belen executed an extrajudicial settlement
with partition and sale in favor of private respondent Vilma Valencia-
Minor, the present possessor of the subject property.
FIRST CASE: On June 20, 1979, herein private respondent Minor filed
with the then Court of First Instance of Pagadian City a “PETITION FOR
CANCELLATION OF MEMORANDUM OF ENCUMBRANCE
APPEARING IN TCT NO. T-5,427 OF THE REGISTRY OF DEEDS OF
ZAMBOANGA DEL SUR,” which granted Minor’s prayer to allow the
Register of Deeds to have the title to the subject property transferred to
her name.
SECOND CASE: In the meantime, on August 20, 1998, petitioners filed
a Complaint before the RTC of San Miguel, Zamboanga del Sur for the
“CANCELLATION OF TRANSFER CERTIFICATE OF TITLE NO. T-
5,427, RECONVEYANCE, WITH ACCOUNTING, RECEIVERSHIP
AND APPLICATION FOR A WRIT OF PRELIMINARY PROHIBITORY
INJUNCTION PLUS DAMAGES.”
On May 7, 2001, the RTC issued an Order granting the Motion for
Reconsideration of Minor by dismissing the second case on the ground
of forum shopping. Petitioners filed a Motion for Reconsideration on May
30, 2001, but the same was denied.
On November 12, 2001, petitioners filed with the Court of Appeals a
Petition for Certiorari assailing the RTC Orders dated.
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 Atty. Raymund Christian S. Ong Abrantes BUSINESS ORGANIZATION I Ateneo de Davao University College of Law
Petitioners raised the sole issue of whether the trial court was correct in
finding that the second case constitutes forum shopping, litis pendentia
or res judicata.
The Court of Appeals rendered its assailed Decision on said petition on
August 16, 2002. Despite agreeing with petitioners that there was no
forum shopping, litis pendentia or res judicata in the filing of the second
case, the Court of Appeals, asserting that it has the discretion to review
matters not otherwise assigned as errors on appeal if it finds that their
consideration is necessary at arriving at complete and just resolution of
the case, held that the second case cannot prosper on the grounds of
prescription and laches.
Issue 1: Authority of the Court of Appeals to Dismiss the Complaint on
the Grounds of Prescription and Laches Despite Respondent’s Failure
to Appeal
Petitioners recount that private respondent Minor interposed
prescription as one of her grounds for the dismissal of the case in her
Answer with Affirmative Defenses.
When private respondent Minor’s Motion to Dismiss was denied by the
RTC in open court, she filed a Motion for Reconsideration dwelling on
forum shopping, litis pendentia and/or res judicata.
The trial court proceeded to dismiss the case on the ground of forum
shopping. Petitioners now claim before us that private respondent
Minor’s failure to appeal the RTC’s dismissal of the complaint on the sole
ground of forum shopping constituted a waiver of the defense of
prescription.
There can be no waiver. Based on Section 1, Rule 9 of the Rules of
Court.
The second sentence of this provision does not only supply exceptions
to the rule that defenses not pleaded either in a motion to dismiss or in
the answer are deemed waived, it also allows courts to dismiss cases
motu proprio on any of the enumerated grounds—(1) lack of jurisdiction
over the subject matter; (2) litis pendentia; (3) res judicata; and (4)
prescription—provided that the ground for dismissal is apparent from the
pleadings or the evidence on record.
We therefore rule that private respondent Minor cannot be deemed to
have waived the defense of prescription, and that the Court of Appeals
may consider the same motu proprio. Furthermore, as regards the
pronouncement by the Court of Appeals that the second case is likewise
heavily infirmed with laches, we rule that the Court of Appeals is not in
error when it considered the same motu proprio.
While not included in the above enumeration under Section 1, Rule 9 of
the Rules of Court, we have ruled in previous cases that laches need
not be specifically pleaded and may be considered by the court on its
own initiative in determining the rights of the parties.
Issue 2: Whether or not prescription has already set in. –Yes.
The case cannot prosper because an action for reconveyance is a legal
remedy granted to a landowner whose property has been wrongfully or
erroneously registered in another’s name, which must be filed within ten
years from the issuance of the title since such issuance operates as a
constructive notice.
In conclusion, petitioners’ cause of action has already prescribed and
now heavily infirmed with laches.”
Petitioners claim that although the complaint was captioned for
“CANCELLATION OF TRANSFER CERTIFICATE OF TITLE NO. T-
5,427, RECONVEYANCE, WITH ACCOUNTING, RECEIVERSHIP,
AND APPLICATION FOR A WRIT OF PRELIMINARY PROHIBITORY
INJUNCTION PLUS DAMAGES,” the complaint is substantially in the
nature of an action to quiet title which allegedly does not prescribe.
The cause of action of petitioners in the second case, wherein they claim
that private respondent Minor’s predecessor-in-interest acquired the
subject property by forgery, can indeed be considered as that of
Abrasaldo, Adlawan, Andamon, Banosan, Bayquen, Lagat, Mahusay, Maligad, Picot, Reyes, Rojo | III-Manresa 2019
enforcing an implied trust. In particular, Article 1456 of the Civil Code
provides:
“Art. 1456. If property is acquired through mistake or fraud, the person
obtaining it is, by force of law, considered a trustee of an implied trust
for the benefit of the person from whom the property comes.”
However, the Court made a clear distinction in Olviga: when the plaintiff
in such action is not in possession of the subject property, the action
prescribes in ten years from the date of registration of the deed or the
date of the issuance of the certificate of title over the property. When the
plaintiff is in possession of the subject property, the action, being in
effect that of quieting of title to the property, does not prescribe.
In the case at bar, petitioners not in possession of the subject property.
If the second case it were to be considered as that of enforcing an
implied trust, should have therefore been filed within ten years from the
issuance of TCT No. T-5,427.
Civil Case No. 98-021 was, however, filed on August 20, 1998, which
was way beyond the prescriptive period.
Also, Articles 1141, 1134 and 1137 of the Civil Code are general rules
on prescription which should give way to the special statute on
registered lands, Presidential Decree No. 1529, otherwise known as the
Property Registration Decree.
SPS ALFREDO vs. SPOUSES BORRAS
GR 144225, June 17, 2003
Facts: A parcel of land measuring 81,524 square meters in Bataan
is the subject of controversy in this case. The registered owners of
the lot were petitioner spouses, Godofredo Alfredo (Godofredo) and
Carmen Limon Alfredo (Carmen) or the spouses Alfredo, for brevity.
Complaint for Specific Performance
On 7 March 1994, the private respondents, spouses Armando Borras
and Adelia Lobaton Borras (sps Borras), filed a complaint for specific
performance against sps Alfredo.
Allegations in Complaint
• Spouses Alfredo mortgaged the Subject Land forP7,000.00 with
the Development Bank of the Philippines (DBP). To pay the debt,
sps Alfredo sold the lot to sps Borras (Armando and Adelia) for
P15,000.00, the buyers to pay the DBP loan and its accumulated
interest, and the balance to be paid in cash to the sellers. 

• Spouses Borras gave the sps Alfredo the money to pay the loan
to DBP which signed the release of mortgage and returned the
owners duplicate copy of OCT No. 284 to Godofredo and
Carmen. Armando and Adelia subsequently paid the balance of
the purchase price of the Subject Land for which Carmen issued
a receipt dated 11 March 1970. Godofredo and Carmen then
delivered to Adelia the owners duplicate copy of OCT No. 284,
with the document of cancellation of mortgage, official receipts of
realty tax payments, and tax declaration in the name of
Godofredo. Godofredo and Carmen introduced Armando and
Adelia, as the new owners of the Subject Land, to the
Natanawans, the old tenants of the lot. Armando and Adelia then
took possession of the Subject Land. 

• In January 1994, Armando and Adelia learned that hired persons
had entered the Subject Land and were cutting trees under
instructions of allegedly new owners of the Subject Land.
Subsequently, Armando and Adelia discovered that Godofredo
and Carmen had re-sold portions of the Subject Land to several
persons. 

• On 8 February 1994, Armando and Adelia filed an adverse claim
with the Register of Deeds of Bataan. Armando and Adelia
discovered that Godofredo and Carmen had secured an owners
duplicate copy of OCT No. 284 after filing a petition in court for
the issuance of a new copy. Godofredo and Carmen claimed in
their petition that they lost their owners duplicate copy. Armando
and Adelia wrote Godofredo and Carmen complaining about their
acts, but the latter did not reply. 

12
 Atty. Raymund Christian S. Ong Abrantes BUSINESS ORGANIZATION I Ateneo de Davao University College of Law
Answer of Sps Alfredo and Subsequent Buyers 
 land. The statute of limitation becomes relevant in this case. The ten-
• Action is unenforceable under the Statute of Frauds because
there is no written instrument evidencing the alleged contract of
sale; 
 Action Filed within the 10 year-prescriptive period. - The
• Subsequent Buyers were buyers in good faith and for value.
Issue 1: Whether or not the sale was valid and enforceable. - YES.

Held: 
Statute of Frauds is Not Applicable. - The sale was
perfected. Not only was there a perfected contract of sale but it was
also consummated. The contract of sale of the Subject Land has also
been consummated because the sellers and buyers have performed
their respective obligations under the contract. In the instant case,
Godofredo and Carmen delivered the land to Armando and Adelia,
placing the latter in actual physical possession of the Subject Land.
This physical delivery of the Subject Land also constituted a transfer
of ownership of the Subject Land to Armando and Adelia. Moreover,
the Statute of Frauds applies only to executory contracts and not to
contracts either partially or totally performed. 
Sale was only
Voidable but it was Ratified by Husband. - 
The Family Code,
which took effect on 3 August 1988, provides that any alienation or
encumbrance made by the husband of the conjugal partnership
property without the consent of the wife is void. However, when the
sale is made before the effectivity of the Family Code, the applicable
law is the Civil Code. Article 173 of the Civil Code provides that the
disposition of conjugal property without the wife’s consent is not void
but merely voidable. However, Godofredo can no longer question the
sale. Godofredo ratified the sale when he introduced Armando and
Adelia to his tenants as the new owners of the Subject Land. That
Godofredo and Carmen allowed Armando and Adelia to enjoy
possession of the Subject Land for 24 years is formidable proof of
Godofredos acquiescence to the sale.
Even if, Sale Redounded to the Benefit of the Family. -
Moreover, Godofredo and Carmen used most of the proceeds of the
sale to pay their debt with the DBP. We agree with the CA that the
sale redounded to the benefit of the conjugal partnership.
Issue 2 (related to topic): Whether or not the action is barred by
prescription or laches. - NO.
Held: The Amended Complaint filed by Armando and Adelia with the
trial court is captioned as one for Specific Performance. In reality, the
ultimate relief sought by Armando and Adelia is the reconveyance to
them of the Subject Land. An action for reconveyance is one that
seeks to transfer property, wrongfully registered by another, to its
rightful and legal owner.
Fraud Created Implied Trust In Favor of Sps Borras. - Article 1456
of the Civil Code provides that a person acquiring property through
fraud becomes by operation of law a trustee of an implied trust for
the benefit of the real owner of the property. The presence of fraud
in this case created an implied trust in favor of Armando and Adelia.
This gives Armando and Adelia the right to seek reconveyance of the
property from the Subsequent Buyers.
To determine when the prescriptive period commenced in an action
for reconveyance, plaintiff’s possession of the disputed property is
material. An action for reconveyance based on an implied trust
prescribes in ten years (basis: Article 1144 of the Civil Code). The
ten-year prescriptive period applies only if there is an actual need to
reconvey the property as when the plaintiff is not in possession of the
property. However, if the plaintiff, as the real owner of the property
also remains in possession of the property, the prescriptive period to
recover title and possession of the property does not run against him.
In such a case, an action for reconveyance, if nonetheless filed,
would be in the nature of a suit for quieting of title, an action that is
imprescriptible.
Armando and Adelia lost possession of the Subject Land when the
Subsequent Buyers forcibly drove away from the Subject Land the
Natanawans, the tenants of Armando and Adelia. This created an
actual need for Armando and Adelia to seek reconveyance of the
Abrasaldo, Adlawan, Andamon, Banosan, Bayquen, Lagat, Mahusay, Maligad, Picot, Reyes, Rojo | III-Manresa 2019
year prescriptive period started to run from the date the Subsequent
Buyers registered their deeds of sale with the Register of Deeds.
Subsequent Buyers bought the subdivided portions of the Subject
Land on 22 February 1994, the date of execution of their deeds of
sale. The Register of Deeds issued the transfer certificates of title to
the Subsequent Buyers on 24 February 1994. Armando and Adelia
filed the Complaint on 7 March 1994. Clearly, prescription could not
have set in since the case was filed at the early stage of the ten-year
prescriptive period.
Action Not Barred by Laches. - Neither is the action barred by
laches. We have defined laches as the failure or neglect, for an
unreasonable time, to do that which, by the exercise of due diligence,
could or should have been done earlier. It is negligence or omission
to assert a right within a reasonable time, warranting a presumption
that the party entitled to assert it either has abandoned it or declined
to assert it.[53 Armando and Adelia discovered in January 1994 the
subsequent sale of the Subject Land and they filed this case on 7
March 1994. Plainly, Armando and Adelia did not sleep on their
rights.
Issue 3: Whether or not subsequent buyers were innocent
purchasers for value. - NO.
Held: Buyers Had Knowledge of Adverse Claim. - Subsequent
Buyers good faith hinges on whether they had knowledge of the
previous sale. Petitioners do not dispute that Armando and Adelia
registered their adverse claim with the Registry of Deeds of Bataan
on 8 February 1994. The Subsequent Buyers purchased their
respective lots only on 22 February 1994 as shown by the date of
their deeds of sale. Consequently, the adverse claim registered prior
to the second sale charged the Subsequent Buyers with constructive
notice of the defect in the title of the sellers
Indefeasibility of Title Does Not Apply When Fraud Attended
Issuance. - The Subsequent Buyers individual titles to their
respective lots are not absolutely indefeasible. The defense of
indefeasibility of the Torrens Title does not extend to a transferee
who takes the certificate of title with notice of a flaw in his title. The
principle of indefeasibility of title does not apply where fraud attended
the issuance of the titles as in this case.
Discussion on Prescriptive Period—
The appellate court resolved the issue of prescription by ruling that
the action should prescribe four years from discovery of the fraud.
We must correct this erroneous application of the four-year
prescriptive period.
In Caro vs. CA, we explained why an action for reconveyance based
on an implied trust should prescribe in ten (10) years. In that case,
the appellate court also erroneously applied the four-year
prescriptive period.
It must be remembered that before August 30, 1950, the date of the
effectivity of the new Civil Code, the old Code of Civil Procedure (Act
No. 190) governed prescription. It is provided:
Section 43. Other Civil Action; How Limited—Civil actions other
than for the recovery of real property can only be brought within the
following periods after the right of action accrues: Within four (4)
years. An action for relief on the ground of fraud, but the right of
action in such case shall not be deemed to have accrued until the
discovery of the fraud;
In contrast, under the present Civil Code, we find that just as an
implied or constructive trust is an offspring of the law (Art. 1456, Civil
Code), so is the corresponding obligation to reconvey the property
and the title thereto in favor of the true owner. In this context, and vis-
à-vis prescription, Article 1144 of the Civil Code is applicable:
13
 Atty. Raymund Christian S. Ong Abrantes BUSINESS ORGANIZATION I Ateneo de Davao University College of Law
Article 1444. The following actions must be brought within (10) ten
years from the time the right of action accrues:
(1) Upon a written contract;
(2) Upon an obligation created by law;
(3) Upon a judgment
An action for reconveyance based on an implied or constructive trust
must perforce prescribe in ten (10) years and not otherwise. A long
line of decisions of this Court, and of very recent vintage at that,
illustrates this rule. Undoubtedly, it is now well-settled that an action
for reconveyance based on an implied or constructive trust prescribe
in ten years from the issuance of the Torrens Title over the property.
An action for reconveyance has its basis in Section 53, par. 3 of
Presidential Decree No. 1529, which provides:
In all cases of registration procured by fraud, the owner may pursue
all his legal and equitable remedies against the parties to such fraud
without prejudice, however, to the rights of any innocent holder of the
decree of registration on the original petition or application.
This provision should be read in conjunction with Article 1456 of
Civil Code, which provides:
Article 1456. If property is acquired through mistake or fraud, the
person obtaining it is, by force of law, considered a trustee of an
implied trust for the benefit of the person from whom the property
comes.
The law thereby creates the obligation of the trustee to reconvey the
property and the title thereto in favor of the true owner.
Correlating Section 53, paragraph 3 of Presidential Decree No. 1529
and Article 1456 of the Civil Code with Article 1144(2) of the Civil
Code, the prescriptive period for the reconveyance of fraudulently
registered real property is ten (10) years reckoned from the date
of registration of the deed or the issuance of the certificate of
title.
Discussion:
The reason of why I want you to read this case is because this case
actually discusses the basis of the ten (10)-year prescriptive period.
If you look at the Civil Code, under Article 1144. It is actually PD 1529,
which actually gives the ten (10) year prescriptive period counted from
the time of registration of the title. Please take note of that in relation to
Article 1456 of the Civil Code.
The registration constitutes notice of repudiation. Of course there are
exceptions as we will discuss in the future.
SAMONTE vs. CA
GR 104223, July 12, 2001
Facts: The parcel of land (Lot 216) was originally covered by OCT
issued in the names Apolonia Abao and her daughter Irenea Tolero, pro
indiviso. Two cases were separately filed in the Regional Trial Court,
Branch II of Nasipit, Agusan del Norte involving the entire lot. Both cases
were filed by the surviving heirs of Apolonia Abao and Irenea
Tolero. These heirs, children of Irenea Tolero and grand children of
Apolonia Abao, are the respondents in this case.
The Second case is an action for quieting of title and recovery of
possession. Unlike the first case, however, it involves the entire. The
complaint therein sought the annulment of several certificates of title
covering portions of Lot 216 and the reinstatement of OCT. The
defendants were Nicolas Jadol, Beatriz Jadol, Jacobo Tagorda, Henry
Jadol, Aurelio Rotor and Tiburcio.
Plaintiffs in the second case are the grand children of Apolonia. They
claim ownership over the entire lot, Lot 216, as one-half(1/2) of the area
Abrasaldo, Adlawan, Andamon, Banosan, Bayquen, Lagat, Mahusay, Maligad, Picot, Reyes, Rojo | III-Manresa 2019
of 12, 753 square meters was registered in the name of their mother
Irenea Tolero (Exhibit E) the other half was registered in the name of
their and grandmother, Apolonia Abao. After Apolonia and Irenea died,
they inherited and became owners of Lot 216. They questioned the
series of cancellation of the certificate of title starting from OCT No. RO-
238 (555) and the Deed of Extrajudicial Settlement and Confirmation of
Sale executed by Ignacio Atupan adjudicating 1/2 of the area of Lot 216.
Plaintiffs maintain that Ignacio Atupan is not a son of Apolonia Abao but
he only grew up while living with Apolonia Abao. That the plaintiffs or
their predecessors-in-interest have not signed any document agreeing
as to the manner how Lot 216 was to be divided, nor have they
consented to the partition of the same.
Defendant Jadol spouses claim that they became owners of one-
half(1/2) portion of Lot 216 by purchase from Ignacio Atupan and
Apolonia Abao on September 15, 1939 as shown by a document
notarized by Jacobo Bello and signed by lrenea Tolero as a witness.
Defendant Tiburcio in his evidence claim that he bought portions of the
Lot 216 in good faith as he was made to believe that all the papers in
possession of his vendors (Jadol spouses) were all in order. One of the
documents presented by him is a Deed of Absolute Sale executed in
1939. He has been in open, continuous, adverse and exclusive
possession of the portions of Lot 216 he bought for more than 20 years
and have declared the land for taxation purposes. Tiburcio contends
that respondent's action in the court a quo had already prescribed.
Generally, an action for reconveyance of real property based on the
fraud may be barred by the statute of limitations which require that
the action must be commenced within four (4) years from the
discovery of fraud, and in case of registered land, such discovery
is deemed to have taken place from the date of the registration of
title. Tiburcio, as successor-in-interest of the Jadol Spouses, argues
that the respondents' action for reconveyance, filed only in 1975, had
long prescribed considering that the Jadol spouses caused the
registration of a portion of the subject lot in their names way back in
August 8, 1957. HE contends that since eighteen years had already
lapsed from the issuance of TCT No. RT-476 until the time when
respondents filed the action in the court a quo in 1975, the same was
time-barred.
Issue (just in case): WON Spouses Jadol acquired the property in good
faith---NO
Held: It is not disputed that Ignacio caused the fraudulent cancellation
of OCT No. RO-238 (555). Atupan, on the basis of his Affidavit of
Extrajudicial Settlement and Confirmation Sale," adjudicated unto
himself one-half of Lot 216 by misrepresenting himself as the sole, heir
of Apolonia Abao. Atupan, in said affidavit, likewise confirmed the two
deeds of sale allegedly executed by him and Abao on September 15
and 16, 1939, covering the latter's one-half lot in favor of Nicolas Jadol.
The trial court found Atupan's affidavit was tainted with fraud because
he falsely claimed therein that he was the sole heir of Abao when in fact,
he merely lived and grew up with her. Jadol and his wife, Beatriz, knew
about this fact. Despite this knowledge, however, the Jadol spouses still
presented the affidavit of Atupan before the Register of Deeds of the
Province of Agusan when they caused the cancellation of OCT No. RO-
238 (555) and issuance of TCT No. RT-476 in their names covering that
portion owned by Abao.
Based on the foregoing facts, the CA, on appeal, ruled that the
cancellation of OCT No. RO-238(555) and the consequent issuance of
TCT No. RT-476 in its place in the name of the Jadol spouses were
effected through fraudulent means and that they (spouses Jadol) not
only had actual knowledge of the fraud but were also guilty of bad faith.
Tiburcio knew that respondents were the only surviving heirs of Irenea
Tolero. Despite this knowledge, he still bought a portion of the subject
lot from the Jadol spouses on July 20, 1957, when the same was still
registered under OCT No. RO-238(555) in the name of Abao and Tolero.
Issue: WON the action has prescribed --NO
Held: Article 1456 of the Civil Code, however, provides:
14
 Atty. Raymund Christian S. Ong Abrantes BUSINESS ORGANIZATION I Ateneo de Davao University College of Law
Art. 1456. If property is acquired through mistake or fraud, the person
obtaining it is, by force of law, considered a trustee of an implied trust
for the benefit of the person from whom the property comes.
As it had been indubitably established that fraud attended the
registration of a portion of the subject property, it can be said that the
Jadol spouses were trustees thereof on behalf of the surviving heirs of
Abao. An action based on implied or constructive trust prescribes in ten
(10) years from the time of its creation or upon the alleged fraudulent
registration of the property.
Petitioner's defense of prescription is untenable. The general rule that
the discovery of fraud is deemed to have taken place upon the
registration of real property because it is considered a constructive
notice to all persons does not apply in this case.
In the case of Adille vs. Court of Appeal:
It is true that registration under the Torrens system is constructive notice
of title, but it has likewise been our holding that the Torrens title does not
furnish a shield for fraud. It is therefore no argument to say that the act
of registration is equivalent to notice of repudiation, assuming there was
one, notwithstanding the long-standing rule that registration operates as
a universal notice of title.
For the same reason, we cannot dismiss private respondents' claims
commenced in 1974 over the estate registered in 1955. While actions to
enforce a constructive trust prescribes in ten years, reckoned from the
date of the registration of the property, we, as we said, are not prepared
to count the period from such a date in this case. We note the
petitioner's sub rosa efforts to get hold of the property exclusively for
himself beginning with his fraudulent misrepresentation in his unilateral
affidavit of extrajudicial settlement that he is "the only heir and child of
his mother Feliza with the consequence that he was able to secure title
in his name [alone]." Accordingly, we hold that the right of the private
respondents commenced from the time they actually discovered the
petitioner's act of defraudation. According to the respondent Court of
Appeals, they "came to know [of it] apparently only during the progress
of the litigation." Hence, prescription is not a bar.
In this case, the CA reckoned the prescriptive period from the time
respondents had actually discovered the fraudulent act of Atupan which
was, as borne out by the records, only during the trial of Civil Case No.
1672.Citing Adille, the CA rightfully ruled that respondents' action for
reconveyance had not yet prescribed.
August 30, 2019 by Praisah Picot
Now this is very interesting because diba sabi natin as a rule if it is
constructive or implied trust you have your 10 year period. Given that
registration is equivalent to constructive notice. But in this case the
property was registered in 1955 and it was filed in 1974 so you have
around 19 years na lumagpas. But please take note the rationale of the
Supreme Court;
“While actions to enforce a constructive trust prescribes in ten years,
reckoned from the date of the registration of the property, we, as we
said, are not prepared to count the period from such a date in this case.
So you see how they did not give a reasonable reason. Acceptable
reason.”
If I was the lawyer of the respondent I would be very piss off.
We have this case law which says that it should be counted from this
time. And now you are telling me you are not prepared. That’s why I
would like to highlight this case because this is a peculiar case.
May cases of fraud which appears that it is from the date of discovery.
You need to look of how they appreciated. They just cited the transcript
siguro of the petitioners. They only came to know upon the progress of
the litigation there was not even a hard evidence of their knowledge.
This is a good question:
Does an action for reconveyance or recovery of possession
constitute an indirect collateral attack on the validity of the
certificate of title?
Abrasaldo, Adlawan, Andamon, Banosan, Bayquen, Lagat, Mahusay, Maligad, Picot, Reyes, Rojo | III-Manresa 2019
Because we know under PD 1529 we can only attack it within 1 year.
After that it cannot be collaterally attacked.
Hortizuela v Tagufa & Lumaban, 2015
The fact that you are going to reconvey the title of a certain
property, would that constitute an indirect collateral attack
which is proscribed in PD 1529?
No. The court is not unmindful of the principle of indefeasibility of
a Torrents title and Section 48 of P.D. No. 1529 where it is provided
that a certificate of title shall not be subject to collateral attack. A
Torrens title cannot be altered, modified, or cancelled except in a
direct proceeding in accordance with law.
When the Court says direct attack, it means that the object of an
action is to annul or set aside such judgment, or enjoin its
enforcement.
On the other hand, the attack is indirect or collateral when, in an
action to obtain a different relief, an attack on the judgment or
proceeding is nevertheless made as an incident thereof. In an action
for reconveyance, the decree is not sought to be set aside the decree
but, respecting it as incontrovertible and no longer open to review,
seeks to transfer or reconvey the land from the registered owner to
the rightful owner. Reconveyance is always available as long as the
property has not been passed to an innocent third person for value.
Kasi what you are asking is an action for reconveyance but indirectly
you are changing the title. That’s why sinasabing is it an indirect
attack? It does not set aside the decree but respecting it as
incontrovertible and no longer open to review seeks to transfer or
reconvey the land from the registered owner. Reconveyance is
always available as long as the property has not been passed to an
innocent third person for value.
So what is the Supreme Court is saying?
The SC is saying. No it’s not an indirect attack, we are not
questioning how that person secure the title doon sa mismong titulo.
We are not questioning paano nya napa change ang title. What we
are just after is to reconvey this property to the real owner, therefore
respecting this piece of title. There would be reconveyance so there
would be another transfer. Meaning itratransfer lang sya this is still
valid. That’s why it is not an indirect attack because you are not
questioning the validity of this title. We are questioning the
validity of the holder’s claim to this title. Did you get it?
Take note: There is no quibble that a certificate of title, like in the
case at bench, can only be questioned through a direct proceeding.
The MCTC and the CA, however, failed to take into account that in a
complaint for reconveyance, the decree of registration is respected
as incontrovertible and is not being questioned. What is being sought
is the transfer of the property wrongfully or erroneously registered in
another's name to its rightful owner or to the one with a better right.
If the registration of the land is fraudulent, the person in whose name
the land is registered holds it as a mere trustee, and the real owner
is entitled to file an action for reconveyance of the property.
PNB v Jumamoy
Facts: In December 27,1989, the RTC, Branch 19, of Digos City,
Davao del Sur, rendered a Decision ordering the exclusion of
2.5002 hectares from Lot 13521. The trial court found that said
2.5002 hectares is registered in the name of Antonio Go Pace
(Antonio) actually pertains to Sesinando Jumamoy (Sesinando),
Ciriaco’s predecessor-in-interest.
The RTC found that said 2.5002-hectare lot was erroneously
included in Antonio’s free patent application which became the
basis for the issuance of his OCT. 1950s. Apparently, Antonio and
15
 Atty. Raymund Christian S. Ong Abrantes BUSINESS ORGANIZATION I Ateneo de Davao University College of Law
his wife Rosalia mortgaged Lot 13521 to PNB as security for a series
of loans dated February 25, 1971, April 26, 1972, and May 11, 1973.
After Antonio and Rosalia failed to pay their obligation, PNB
foreclosed the mortgage on July 14, 1986 and title to Lot 13521 was
transferred to PNB.
Thus, in February 1996, Ciriaco filed the instant complaint against
PNB and the Paces for Declaration of Nullity of Mortgage,
Foreclosure Sale, Reconveyance and Damages.
In his complaint, Ciriaco averred that Antonio could not validly
mortgage the entire Lot 13521 to PNB as a portion thereof consisting
of 2.5002 hectares belongs to him (Ciriaco). He claimed that PNB is
not an innocent mortgagee/purchaser for value because prior to the
execution and registration of PNB’s deed of sale with the Register of
Deeds, the bank had prior notice that the disputed lot is subject of a
litigation. It would appear that during the pendency of the case, a
notice of lis pendens was annotated at the back of the title.
PNB contends that the lower courts erred in declaring that it is not an
innocent mortgagee/purchaser for value. PNB also argues that
Ciriaco’s complaint is barred by prescription—PNB’s title was issued
on March 23, 1990, while Ciriaco filed his complaint only six years
thereafter. Thus, the one-year period to nullify PNB’s certificate of
title had lapsed, making PNB’s title indefeasible. Moreover, Ciriaco’s
action had already prescribed since it took him 17 years to file his
first complaint for reconveyance and around 23 years to file his
second complaint.
Issue:
1. WON PNB was an innocent purchaser/mortgagee for
value: NO
2. WON Ciriaco’s action for reconveyance has already
prescribed: NO
Ruling:
1. A banking institution is expected to exercise due diligence before
entering into a mortgage contract. The ascertainment of the
status or condition of a property offered to it as security for a loan
must be a standard and indispensable part of its operations.
Both the CA and the trial court correctly observed that PNB could
not validly raise the defense that it relied on Antonio’s clean title.
The land, when it was first mortgaged, was then unregistered
under our Torrens system. The first mortgage was on February
25, 1971 while OCT No. P-4952 was issued on July 19, 1971.
Since the Paces offered as collateral an unregistered land,
with more reason PNB should have proven before the RTC
that it had verified the status of the property by conducting
an ocular inspection before granting Antonio his first loan.
Had PNB really taken the necessary precautions, it would
have discovered that a large portion of Lot 13521 is
occupied by Ciriaco.
2. If property is acquired through mistake or fraud, the person
obtaining it is, by force of law, considered a trustee of an implied
trust for the benefit of the person from whom the property
comes. An action for reconveyance based on implied trust
prescribes in 10 years as it is an obligation created by law, to be
counted from the date of issuance of the Torrens title over the
property. This rule, however, applies only when the plaintiff
or the person enforcing the trust is not in possession of the
property.
In Vda. de Cabrera v. Court of Appeals, we said that there is
no prescription when in an action for reconveyance, the
claimant is in actual possession of the property because
this in effect is an action for quieting of title.
Abrasaldo, Adlawan, Andamon, Banosan, Bayquen, Lagat, Mahusay, Maligad, Picot, Reyes, Rojo | III-Manresa 2019
The reason for this is that one who is in actual possession of a
piece of land claiming to be the owner thereof may wait until his
possession is disturbed or his title is attacked before taking steps
to vindicate his right, the reason for the rule being, that his
undisturbed possession gives him a continuing right to seek the
aid of a court of equity to ascertain and determine the nature of
the adverse claim of a third party and its effect on his own title,
which right can be claimed only by one who is in possession.
In Ciriaco’s case, as it has been judicially established that he is in
actual possession of the property he claims as his and that he has a
better right to the disputed portion, his suit for reconveyance is in
effect an action for quieting of title. Hence, petitioner’s defense of
prescription against Ciriaco does not lie
So we already discussed that ruling.
Art 1457. An implied trust may be proved by oral evidence.
So let’s compare the implied and express you see there is a very thin
distinction on resulting implied trust and express trust. Even if there is
only a very limited distinction you have to distinguish because the
consequences are different.
Resulting trusts are equally dependent on the element of intention for
their existence. Its role, however is the distinguishing feature of this
grouping.
Unlike in express trust situation, an intention to actually create a
resulting is not necessary for its existence. Instead a positive intention
to create a trust (as is found in the express trust setting) the resulting
trust depends on the demonstration of absence of an intention to vest
beneficial enjoyment in the title holder.
The key point is that the resulting trust is not established by an intention
to create a trust, but is raised by operation of law based on a
presumption that despite appearances to the contrary, a trust
relationship was intended. This application of intention distinguishes the
resulting trust from other trusts.
Express Trust Resulting Implied Trust
Cannot be proven by parole Can be proven by parole
evidence evidence
Cannot be acquired by Can be acquired by acquisitive
acquisitive prescription prescription.
So please take note of that because that would be very material. That’s
why when you try to look at your cases pag gusto nila ng prescription
they would always argue na implied trust.
To summarize our rules:
Acquisitive Prescription in Relation to Trusts
Express trust
General Rule: Express Trusts are not susceptible to acquisitive
prescription.
• There is a rule that the trustee cannot acquire by prescription
the ownership of a property entrusted to him (Palma v
Cristobal).
Basically because there would be no open, notorious and exclusive
possession. Because he recognizes that he acquires or possesses
the property on behalf of the true owner
• An action to compel a trustee to convey a property registered
in his name in trust for the benefit of the cestui qui trust (other
16
 Atty. Raymund Christian S. Ong Abrantes BUSINESS ORGANIZATION I Ateneo de Davao University College of Law
term for beneficiary) does not prescribed (Manalang v Canlas,
Cristobal v Gomez)
• The defense of prescription cannot be set up in an action to
recover the property held by a person in trust for the benefit
of another (Sevilla v Delos Angeles)
• That property held in trust can be recovered by the beneficiary
regardless of the lapse of time.
Exception:
There could be an acquisitive prescription in express trust in
cases;
• The trustee has performed unequivocal acts of repudiation
amounting to an ouster of the cestui qui trust;
Take note not just any act of repudiation it must be an
unequivocal acts of repudiation.
• Such positive acts of repudiation have been made known to
the cestui qui trust and;
• The evidence thereon is clear and conclusive
Take note, clear and conclusive these are the exceptions or
these are the requisites for the exception to apply.
Prescriptive Period for the enforcement of an express trust of ten
(10) years starts upon the repudiation of the trust by the trustee.
Good question:
Is registration in the name of the trustee would that be considered
unequivocal acts of repudiation?
Diba pag implied trust that could be considered as an act of repudiation
but in express trust would that be considered as an act of repudiation?
No. because it is not sufficient. An act of repudiation must amount to an
ouster. And the other owners must be informed. Further there are
requisites that must be observe and failure to comply with it would mean
that there is repudiation.
True it is not sufficient but what is sufficient?
This is one of the cases where it is material to distinguish whether it is
an express or implied trust. Kasi sa implied trust that would be sufficient
pero pag express trust it is not sufficient. It has to be positive
unequivocal acts of repudiation.
Example:
Sale of the trustee to another person.
Please bear in mind this because you might be given a situation na
ganun yung facts and you should learn to appreciate.
Sale or yung hindi mo na papasukin si trustor sa property yong i-
exclusive mo na that is an act of administration. Or this property is
owned by the trustee you no longer recognize the ownership of the
trustor.
As to when the prescriptive period commences to run, Crisostomo
v Gracia elucidated as follows:
When property is registered in another’s name, an implied trust is
created by law in favor of the true owner. The action for reconveyance
of the title to the rightful owner prescribes in 10 years from the issuance
of the title. An action for reconveyance based on an implied trust or
constructive trust prescribes in ten years from the alleged fraudulent
registration or date of issuance of the certificate of title over the property.
Abrasaldo, Adlawan, Andamon, Banosan, Bayquen, Lagat, Mahusay, Maligad, Picot, Reyes, Rojo | III-Manresa 2019
It is now settled that the prescriptive perod to recover the property
obtained by fraud or mistake, giving rise to an implied trust under Article
1456 of the Civil Code, is 10 years pursuant to Art.1144. this ten-year
prescriptive period begins to run from the date the adverse party
repudiates the implied trust, which repudiation takes place when the
adverse party registers the land.
Rule: Prescription may supervene in an implied trust, and whether the
trust is resulting or constructive, its enforcement may be barred by
laches.
• As differentiated from constructive trust, where the settled
rule is that prescription may supervene, in resulting trust, the
rule of imprescriptibility may apply for as long as the trustee
has not repudiated the trust. (GR no. 58010. March 31,1993
Emilia O’laco and Hugo Luna vs Valentin Co Cho Chit, Olay
Kia and Court of Appeals)
• It is settled that an action for reconveyance based on
constructive implied trust prescribes in 10 years likewise
in accordance with Article 1144 of the Civil Code. (Spouses
Abrigo v De Vera)
But ofcourse you have the exception case wherein the court did not
appreciate that it must be counted at the time of issuance but rather
it’s at the time of discovery of the fraud but that is the exception rather
than the general rule.
It cannot be subjected to prescription if the plaintiff is in possession of
the land to be reconveyed the reason is because it is already considered
as an action for quieting of title. Therefore imprescriptible.
In a similar case,
Millena v Court of Appeals (2001)
In a series of cases, this Court permitted the filing of an action for
reconveyance despite the lapse of ten years and declared that said
action, when based on fraud, is imprescriptible as long as the land
has not passed to an innocent purchaser for value. But in all those
cases, the common factual backdrop was that the registered owners
were never in possession of the disputed property. Instead, it was
the persons with the better right or the legal owners of the land who
had always been in possession of the same. Thus, the Court allowed
action for reconveyance to propser in those cases despite the lapse
of more than ten years from the issuance of titlte to the land. The
exception was based on the theory that registration proceedings
could not be used as a shield for fraud or for enriching a person at
the expense of another.
Again in trust you have to repudiate first before it can be acquired by
prescription. Pag may trust pa wala pang repudiation walang extinctive
or acquisitive prescription. Its only when someone repudiates that trust
then you are free to be acquired by other person through prescription.
TITLE X
AGENCY
Characteristic of Agency
• Consensual: it is perfected by mere consent;
• Nominate: it has its own name;
• Principal: it does not depend on another contract for its
existence and validity;
• Preparatory: it is a means to an end;
• It could be Unilateral or it could be Bilateral
The basis for agency is actually a representation. Now because of
the fact that you cannot be in two places at one time you must have
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 Atty. Raymund Christian S. Ong Abrantes BUSINESS ORGANIZATION I Ateneo de Davao University College of Law
someone to represent you. Appreciate this in relation to business
organization.
Business organization flourish because of the concept of agency
because if there is no agency even sole proprietorship there is always
that element of agency. That makes it conducive as a medium for
business transaction.
Contract of agency
Article 1868. By the contract of agency, a person binds himself to
render some service or to do something in representation or on
behalf of another, with the consent or authority of latter
Take note this is a contract and the person binds himself to render some
service or to do something in representation. It’s always in
representation.
Creation of Agency
Agency must be express, or implied from the acts of the principal, from
his silence or lack of inaction, or his failure or to repudiate knowing that
another person is acting on his behalf without authority.
Agency may be oral, unless the law requires a specific form.
Take note that there could be an agency through silence. The mere non-
repudiation of the principal as to someone representing him that can be
considered as agency created to the silence of the principal.
Yun Kwan Byung vs. PAGCOR
Doctrine: The basis for agency is representation, that is, the agent
acts for and on behalf of the principal on matters within the scope of
his authority and said acts have the same legal effect as if they were
personally executed by the principal.
On the part of the principal, there must be an actual intention to
appoint or an intention naturally inferable from his words or actions,
while on the part of the agent, there must be an intention to accept
the appointment and act on it. Absent such mutual intent, there is
generally no agency (Yun Kwan Byung vs. PAGCOR)
Facts: PAGCOR launched its Foreign Highroller Marketing Program.
The Program aims to invite patrons from foreign countries to play at
the dollar pit of designated PAGCOR-operated casinos under
specified terms and conditions and in accordance with industry
practice.
Petitioner, a Korean national, alleges that he came to the Philippines
four times to play for high stakes at the Casino Filipino; that in the
course of the games, he was able to accumulate gambling chips
worth US$2.1 million. Petitioner contends that when he presented the
gambling chips for encashment with PAGCORs employees or
agents, PAGCOR refused to redeem them.
PAGCOR claims that petitioner, who was brought into the Philippines
by ABS Corporation, is a junket player who played in the dollar pit
exclusively leased by ABS Corporation for its junket players.
PAGCOR alleges that it provided ABS Corporation with distinct
junket chips. ABS Corporation distributed these chips to its junket
players. At the end of each playing period, the junket players would
surrender the chips to ABS Corporation. Only ABS Corporation
would make an accounting of these chips to PAGCORs casino
treasury.
Issue: Whether or not there is an implied agency? 3;48
Ruling: NO. Article 1869 of the Civil Code states that implied
agency is derived from the acts of the principal, from his silence or
lack of action, or his failure to repudiate the agency, knowing that
another person is acting on his behalf without authority. Implied
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agency, being an actual agency, is a fact to be proved by deductions
or inferences from other facts.
On the other hand, apparent authority is based on estoppel and can
arise from two instances. First, the principal may knowingly permit
the agent to hold himself out as having such authority, and the
principal becomes estopped to claim that the agent does not have
such authority. Second, the principal may clothe the agent with the
indicia of authority as to lead a reasonably prudent person to believe
that the agent actually has such authority.
In an agency by estoppel, there is no agency at all, but the one
assuming to act as agent has apparent or ostensible, although not
real, authority to represent another.
The law makes no presumption of agency and proving its existence,
nature and extent is incumbent upon the person alleging it. Whether
or not an agency has been created is a question to be determined by
the fact that one represents and is acting for another.
On the part of the principal, there must be an actual intention to
appoint or an intention naturally inferable from his words or actions,
while on the part of the agent, there must be an intention to accept
the appointment and act on it. Absent such mutual intent, there is
generally no agency.
There is no implied agency in this case because PAGCOR did
not hold out to the public as the principal of ABS Corporation.
PAGCOR’s actions did not mislead the public into believing that an
agency can be implied from the arrangement with the junket
operators, nor did it hold out ABS Corporation with any apparent
authority to represent it in any capacity. The Junket Agreement was
merely a contract of lease of facilities and services.
There is no agency by estoppel.
The Supreme court discussed the Doctrine of Apparent authority.
Here an agency by estoppel which is similar to the Doctrine of
Apparent authority requires proof of reliance upon the
representations predated the action taken in reliance.
There can be no apparent authority of an agent without the acts or
conduct on the part of the principal and such acts or conduct of the
principal must have been known and relied upon in good faith and as
a result of the exercise of reasonable prudence by a third person as
claimant, and such must have produced a change of position to its
detriment. Such proof is lacking in this case.
You read this case because this is a very good case it discussed the
difference of implied agency and agency by estoppel. In implied agency
there is really agency meron talagang agency diyan implied nga lang
sya. In agency by estoppel thre is really no real agency but because
someone, some third party relied on the representation of the agent it
was made known to the principal and the principal did nothing and it
caused damage to the third person.
The law now provides for the agency by estoppel. That is one way to
differentiate. In this particular case sadly, sabi ng court there was no
implied agency nor agency by estoppel so therefore siyam lang yung
napanalunan ny koreano.
How to create an agency
ARTICLE 1870. Acceptance by the agent may also be express, or
implied from his acts which carry out the agency or from his silence or
inaction according to the circumstances.
• Between persons who are present, the acceptance of the
agency may also be implied if the principal delivers his power
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 Atty. Raymund Christian S. Ong Abrantes BUSINESS ORGANIZATION I Ateneo de Davao University College of Law
of attorney to the agent and the latter receives it without any
objection. So here,it is implied from the action.
• Between persons who are absent, the acceptance of the
agency cannot be implied from the silence of the agent,
EXCEPT—
1. When the principal transmits his power of attorney to the agent who
receives it without any objection
2. When the principal entrusts to him by letter or telegram a power of
attorney with respect to the business in which he is habitually
engaged as an agent, and he did not reply to the letter or telegram
(ARTICLE 1872)
ARTICLE 1873. If a person specially informs another or states by public
advertisement that he has given a power of attorney to a third person,
the latter thereby becomes a duly authorized agent, in the former case
with respect to the person who received the special information, and in
the latter case with regard to any person. The power shall continue to
be in full force until the notice is rescinded in the same manner in which
it was given.
Now have you ever wondered why some establishments pino-post ang
picture at pangalan that this person is no longer connected with blab bla
it’s because of this provision. If they have notified the public that this
person is an agent it is binding to any person. They must receive it also
through public advertisement. Meron pa ngang mug shot nyan.
Now very important, if you have to memorize one provision in agency it
should be Art. 1874
ARTICLE 1874. When a sale of a piece of land or any interest therein is
through an agent, the authority of the latter shall be in writing; otherwise,
the sale shall be void.
Very Important!
It’s not the sale which should be in writing but it is the authority of the
agent otherwise it is void. The void is not the authority but the sale. So
please take note of that. Kailangan talaga meron.
The good question related to your law on sales.
Does the sale of a piece of land have to be in a public instrument?
Kailangan ba naka public instrument for validity?
As a general rule, a sale is a consensual contract. However, a sale which
involves a piece of land, is required to be in writing.
This has been a problem. There has been a flip flopping of decisions.
They say, sale is consensual. But there are some jurisprudence, they
considered the execution of a public document part of the essential
elements. But the general rule, it is valid. It is unenforceable when it is
not in writing, or some note or memorandum. Please take note of this
particular transaction in your Law on Sales wherein there is a flip
flopping of decisions— there are decisions by the Supreme Court which
state that it must be in a public document and for good reasons.
For our purposes, the sale need not be in writing but the authority of the
agent transacting it has to be, otherwise it is void.
Mactan-Cebu International Authority vs. Unchuan
When the sale of a piece of land or any interest thereon is through
an agent, the authority of the latter shall be in writing; otherwise, the
sale shall be void. Thus the authority of an agent to execute a
contract for the sale of real estate must be conferred in writing and
must give him specific authority, either to conduct the general
business of the principal or to execute a binding contract containing
terms and conditions which are in the contract he did execute.
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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.
Take note pag sale of a piece of land it must be in a clear and
unmistakable language. Pinapa specify talaga diyan, “to sell this
property covered by TCT 1234”. It must not be unmistakable it must
not be ambiguous it must be clear. Otherwise it’s not the authority
that is void but it is the sale.
An agency is always presumed to be always for compensation.
Unless there is a proof to the contrary.
Distinction between a broker and an agent
Now you have the distinction between a broker and an agent. Now this
is very important because magkaiba ang effect. Are you a broker or an
agent? Iba pa yong broker iba pa ang ahente. What’s the difference?
That is very material because in some of the cases decided by the
Supreme Court the issue is always whether or not the broker is entitled
to a commission?
Yan naman lage kasi there are a lot of situation wherein gusto kong
bumili so meron ng tao nag ahente, nakakita na ng lupoa. Tapos pina
meet na si buyer atsaka seller. Tapos ngayon si buyer ayaw magbigay
ng commission. Ang gawin is im gonna cancel yun hindi natutuloy. Pero
yun pala humingi na ng number ni seller. Para kung mawala na sa
picture si broker ayun na, seller bilhin ko ganito nalang hindi ko bibigyan
si broker. Pag malalaman ni broker siyempre maiinis yan. They will have
this issue on whether or not this broker is entitled to a commission?
Sabihin naman ni buyer na “oy hindi naman ikaw yung nakapa-oo sa
akin.” Sabihin naman ni broker “kung hindi naman dahil sa akin hindi
kayo nagkita”.
Now let’s distinguish.
BROKER— negotiator between parties and he does not act in his own
name; he is the middleman or agent of both parties.
AGENT— represents only one party who is the principal
Tan vs. Gullas In this case, we had occasion to define a broker
and distinguish it from an agent, thus—
Agent. 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 the other parties, never acting in his
own name but in the name of those who employed him.
A Broker is one whose occupation is to bring the parties together, in
matter of trade, commerce or navigation.
Agent. One who receives a commission upon the successful
conclusion of a sale.
On the other hand, a broker earns his pay merely by bringing the
buyer and the seller together, even if no sale is eventually made.
Please take note of that.
If the broker is the cause in the series of event he allows the buyer and
the seller to meet even if wala namang na consummate na sale he is
still entitled to commission.
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 Atty. Raymund Christian S. Ong Abrantes BUSINESS ORGANIZATION I Ateneo de Davao University College of Law
Whereas, the agent there has to be an end product in which it is the
consummation of the sale in order to be entitled to a commission.
September 06, 2019 by Bea Reyes
LAW ON AGENCY
The basis of which is actually representation because an agent will act
on behalf of the principal. This is in relation to business organization.
You cannot run a business without the element of agency. Mutual
agency when it comes to partnership so that is an example of agency.
CHARACTERISICS OF A CONTRACT OF AGENCY:
• Consensual: it is perfected by mere consent;
• Nominate: it is governed by its own provisions;
• Principal: it does not depend on another contract for its existence
and validity;
• Unilateral/Bilateral
ARTICLE 1868. By the contract of agency a person binds himself
to render some service or to do something in representation or on
behalf of another, with the consent or authority of the latter.
Let’s discuss a few cases. We have Chemphil Export & Import Corp vs.
Court of Appeals
CHEMPHIL (CEIC) v. CA
GR 112438-39, December 12, 1995
Facts: Dynetics Inc. and Antonio Garcia filed a complaint for
declaratory relief and/or injunction against PISO, BPI, LBP, PCIB
and RBC or the Consortium seeking judicial declaration,
construction and interpretation of the validity of the surety
agreement that Dynetics and Garcia had entered into with the
Consortium and to perpetually enjoin the latter from claiming,
collecting and enforcing any purported obligations which Dynetics
and Garcia might have undertaken in said agreement.
The Consortium filed their respective answers alleging that the
surety agreement was valid and binding and that Dynetics and
Garcia were liable under the terms of the agreement.
Upon the trial court's issuance of a writ of preliminary attachment
in favor of SBTC, a notice of garnishment covering Garcia's shares
in CIP/Chemphil was served on Chemphil through its then
President. The notice was duly annotated in the stock and transfer
books of Chemphil on the same date.
Later on, the court also granted the Consortium's prayer for a
consolidated writ of preliminary attachment. Various real and
personal properties of Dynetics and Garcia were garnished,
including the disputed shares. This garnishment, however, was not
annotated in Chemphil's stock and transfer book.
During the pendency of the Consortium's appeal, it entered into a
Compromise Agreement with Garcia. This compromise became
the basis of judgment of the CA. Garcia was dropped as party to
the appeal leaving the Consortium to proceed solely against
Dynetics Inc.
However, it appears that on July 15, 1988, Garcia under a Deed of
Sale transferred to Ferro Chemicals, Inc. (FCI) the disputed shares
and other properties for P79M. It was agreed upon that part of the
purchase price shall be paid by FCI directly to SBTC for whatever
judgment credits that may be adjudged in the latter's favor and
against Garcia in the said SBTC case.
FCI later assigned its 4,119,614 shares in Chemphil, which
included the disputed shares, to petitioner CEIC. Meanwhile,
Garcia failed to comply with the terms of the compromise
agreement and as a result, the Consortium filed a motion for
execution which was granted by the court. Among Garcia's
properties that were levied upon on execution were his 1,717,678
shares in Chemphil (disputed shares).
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CEIC filed a motion to intervene in the Consortium case alleging
that it is the rightful owner of the disputed shares. It further alleged
that the shares were previously owned by Garcia but subsequently
sold by him to FCI which in turn assigned the same to CEIC in an
agreement.
The Consortium filed their opposition to CEIC's motion to intervene
alleging that their attachment lien over the disputed shares of
stocks must prevail over the private sale in favor of CEIC
considering that said shares of stock were garnished in the
Consortium's favor as early as July 19, 1985.
TC: Granted CEIC's motion. The Consortium admitted that the writ
of attachment/garnishment on the shares of stock belonging to
Garcia was not annotated and registered in the stock and transfer
books of Chemphil. On the other hand, the prior attachment issued
in favor of SBTC against the same Chemphil shares of Garcia was
duly registered and annotated in the stock and transfer books of
Chemphil. The matter of non-recording of the Consortium's
attachment assumes significance considering CEIC's position that
FCI and later CEIC acquired the Chemphil shares of Garcia without
knowledge of the attachment of the Consortium.
This is also important as CEIC claims that it has been subrogated
to the rights of SBTC since CEIC's predecessor-in-interest, FCI,
had paid SBTC pursuant to the Deed of Sale and Purchase of
Shares of Stock executed by Garcia. By reason of such payment,
sale with the knowledge and consent of Garcia, FCI and CEIC, as
party-in-interest, they are subrogated by operation of law to the
rights of SBTC.
CA: Reversed TC's decision. Confirmed the Consortium's
ownership over the disputed shares. It ruled that the attachment of
shares of stock in a corporation need not be recorded in the
corporation's stock and transfer book in order to bind third persons.
Section 7(d), Rule 57 of the Rules of Court was complied with when
the notice of garnishment over the Chemphil shares of Garcia was
served on the President of Chemphil. To bind third persons, no law
requires that an attachment of shares of stock be recorded in the
stock and transfer book of a corporation.
Anent the issue of subrogation, the CA rejected CEIC's subrogation
theory, stating that the obligation to SBTC was paid by Garcia
himself and not by a third party (FCI). While the check used to pay
SBTC was a FCI corporate check, it was funds of Garcia in FCI that
was used to pay off SBTC.
Issue: Who is legally entitled to the disputed shares - Consortium
Held: CEIC's theory of subrogation is unavailing. CEIC's theory is
premised on Art. 1302 (2):
Art. 1302. It is presumed that there is legal subrogation:
(1) When a creditor pays another creditor who is prefered,
even without the debtor's knowledge;
(2) When a third person, not interested in the obligation,
pays with the express or tacit approval of the debtor;
(3) When, even without the knowledge of the debtor, a
person interested in the fulfillment of the obligation pays, without
prejudicr to the effects of confusion as to the latter's share.
Garcia sold the disputed shares to FCI for a consideration of P79M.
FCI, however, did not pay the entire amount to Garcia as it was
obligated to deliver part of the purchase price directly to SBTC
pursuant to the stipulation in the Deed of Sale. Hence, when FCI
issued the BA check to SBTC in the amount of P35M to pay
Garcia's indebtedness to the said bank, it was in effect paying with
Garcia's money, no longer with its own, because said amount was
part of the purchase price which FCI owed Garcia in payment for
the sale of the disputed shares. The money "paid" by FCI to SBTC,
thus properly belonged to Garcia. It is as if Garcia himself paid his
own debt to SBTC but though a third party - FCI.
Since the money used to discharge Garcia's debt rightfully
belonged to him, FCI cannot be considered a third party under Art.
1302 (2). It was but a conduit, or as aptly categorized by
20
 Atty. Raymund Christian S. Ong Abrantes BUSINESS ORGANIZATION I Ateneo de Davao University College of Law
respondents, merely an agent as defined in Art. 1868 of the Civil
Code.
Art. 1868. By the contract of agency, a person binds himself to
render some service to do something in representation or on behalf
of another, with the consent or authority of the latter.
FCI was merely fulfilling its obligations under the Deed of Sale.
In sum, CEIC, for its failure to fulfill the requirements of Art. 1302
(2), was not subrogated to the rights of SBTC against Garcia and
did not acquire SBTC's attachment lien over the disputed shares
which, in turn, had already been lifted or discharded upon
satisfaction by Garcia, through FCI, of his debt to the said bank.
Discussion:
The issue is who owns the shares of stock of ChemPhil. Kasi ang sabi
ng isa he was subrogated because he paid for it.
In this case, Antonio Garcia here transferred shares of stock of
ChemPhil to FCI. Ito si Garcia may utang sabi niya sa purchase price
half portion of that ibayad ko sa utang ko. Si CEIC naman ang claim niya
is based on subrogation. They were subrogated by the rights of Security
Bank.
Sabi ng court nung pagbayad niya in fact he was acting as an agent of
Mr. Garcia. So andun yung agency.
In the long run it could have been binayad niya kay Mr. Garcia tapos si
Mr. Garcia magbayad ng utang ni SBTC pero ang usapan nila bilhin mo
ito bayaran mo ang portion dun sa SBTC directly. So sabi ng court there
was no subrogation. You are the purchaser and instead of giving it to
the seller, you gave it to someone based on the agreement of the Deed
of Sale because there is an existing debt. Sabi ng court you are in fact
an agent of Mr. Garcia.
Question: How about the contention that there was a corporate check?
Answer: It is, therefore, of no consequence that what was used to pay
SBTC was a corporate check of FCI. As we have earlier stated, said
check no longer represented FCI funds but Garcia's money, being as it
was part of FCI's payment for the acquisition of the disputed shares. The
FCI check should not be taken at face value, the attendant
circumstances must also be considered. Antoni M. Garcia owns the
money and in effect there was no legal subrogation.
Question: What requisite of legal subrogation that FCI failed to meet?
Answer: Art. 1302. It is presumed that there is legal subrogation:
(2) When a third person, not interested in the obligation, pays with the
express or tacit approval of the debtor;
That’s one. The other one is hindi siya yung third person, siya mismo
yung payor.
FILIPINAS LIFE ASSURANCE v. PEDROSO
GR 159489, February 04, 2008
FACTS: Respondent Teresita O. Pedroso is a policyholder of a 20-
year endowment life insurance issued by petitioner Filipinas Life
Assurance Company (Filipinas Life). Pedroso claims Renato Valle
was her insurance agent since 1972 and Valle collected her
monthly premiums. In the first week of January 1977, Valle told her
that the Filipinas Life Escolta Office was holding a promotional
investment program for policyholders. It was offering 8% prepaid
interest a month for certain amounts deposited on a monthly basis.
Enticed, she initially invested and issued a post-dated check dated
January 7, 1977 for P10,000. In return, Valle issued Pedroso his
personal check for P800 for the 8% prepaid interest and an agents
receipt.
Subsequently, she called the Escolta office and talked to the
branch manager, Angel Apetrior. Pedroso inquired about the
promotional investment and Apetrior confirmed that there was such
a promotion. She was even told she could "push through with the
check" she issued. From the records, the check, with the
endorsement of Alcantara at the back, was deposited in the
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account of Filipinas Life with the Commercial Bank and Trust
Company (CBTC), Escolta Branch.
Pedroso waited for the maturity of her initial investment. A month
after, her investment of P10,000 was returned to her after she
made a written request for its refund. The formal written request,
dated February 3, 1977, was written on an inter-office
memorandum form of Filipinas Life prepared by Alcantara. To
collect the amount, Pedroso personally went to the Escolta branch
where Alcantara gave her the P10,000 in cash. After a second
investment, she made 7 to 8 more investments in varying amounts,
totaling P37,000 but at a lower rate of 5% prepaid interest a month.
Upon maturity of Pedroso's subsequent investments, Valle would
take back from Pedroso the corresponding yellow-colored agent's
receipt he issued to the latter.
Pedroso told respondent Jennifer N. Palacio, also a Filipinas Life
insurance policyholder, about the investment plan. Palacio made a
total investment of P49,550 but at only 5% prepaid interest.
However, when Pedroso tried to withdraw her investment, Valle did
not want to return some P17,000 worth of it. Palacio also tried to
withdraw hers, but Filipinas Life, despite demands, refused to
return her money. With the assistance of their lawyer, they went to
Filipinas Life Escolta Office to collect their respective investments,
and to inquire why they had not seen Valle for quite some time. But
their attempts were futile. Hence, respondents filed an action for
the recovery of a sum of money. Filipinas Life contends that that
the investment scheme offered to respondents by Valle, Apetrior
and Alcantara was outside the scope of their authority as agents of
Filipinas Life.
ISSUE: Whether the agents of Filipinas Life exceeded the scope of
their authority
HELD: No, the agents of Filipinas Life did not exceed the scope of
their authority. The Supreme Court ruled that the general rule is
that the principal is responsible for the acts of its agent done within
the scope of its authority, and should bear the damage caused to
third persons. When the agent exceeds his authority, the agent
becomes personally liable for the damage. But even when the
agent exceeds his authority, the principal is still solidarily liable
together with the agent if the principal allowed the agent to act as
though the agent had full powers. In other words, the acts of an
agent beyond the scope of his authority do not bind the principal,
unless the principal ratifies them, expressly or impliedly.
Ratification in agency is the adoption or confirmation by one person
of an act performed on his behalf by another without authority.
Filipinas Life cannot profess ignorance of Valle's acts. Even if
Valle's representations were beyond his authority as a
debit/insurance agent, Filipinas Life thru Alcantara and Apetrior
expressly and knowingly ratified Valle's acts. It cannot even be
denied that Filipinas Life benefited from the investments deposited
by Valle in the account of Filipinas Life. In our considered view,
Filipinas Life had clothed Valle with apparent authority; hence, it is
now estopped to deny said authority. Innocent third persons should
not be prejudiced if the principal failed to adopt the needed
measures to prevent misrepresentation, much more so if the
principal ratified his agent's acts beyond the latter's authority.
PRINCIPAL: Filipinas Life
AGENT: Valle
Question: Did Valle act within the scope of his authority?
Answer: No, because the authority of Valle here is in regard to the
insurance and not with the investment plan of Filipinas Life.
Question: How did they ratify?
Answer: The issuance of receipt. The receipt issued by Valle was the
receipt issued by Filipinas Life Insurance.
EUROTECH v. CUIZON
G.R. No. 167552. April 23, 2007
FACTS: From January to April 1995, petitioner sold to Impact
Systems various products allegedly amounting to P91,338.00
pesos. Subsequently, respondents sought to buy from petitioner
one unit of sludge pump valued at P250,000.00 with respondents
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 Atty. Raymund Christian S. Ong Abrantes BUSINESS ORGANIZATION I Ateneo de Davao University College of Law
making a down payment of P50,000.00. When the sludge pump
arrived from the United Kingdom, petitioner refused to deliver the
same to respondents without their having fully settled their
indebtedness to petitioner. Thus, on 28 June 1995, respondent
EDWIN and Alberto de Jesus, general manager of petitioner,
executed a Deed of Assignment of receivables in favor of petitioner.
Impact systems is owed by ERWIN Cuizon.
Despite the existence of the Deed of Assignment, respondents
proceeded to collect from Toledo Power Company the amount of
P365,135.29. Alarmed by this development, petitioner made
several demands upon respondents to pay their obligations. As a
result, respondents were able to make partial payments to
petitioner. On 7 October 1996, petitioner's counsel sent
respondents a final demand letter wherein it was stated that as of
11 June 1996, respondents' total obligations stood at P295,000.00
excluding interests and attorney's fees. Because of respondents'
failure to abide by said final demand letter, petitioner instituted a
complaint for sum of money, damages, with application for
preliminary attachment against herein respondents.
By way of special and affirmative defenses, respondent EDWIN
alleged that he is not a real party in interest in this case. According
to him, he was acting as mere agent of his principal, which was the
Impact Systems, in his transaction with petitioner and the latter was
very much aware of this fact.
ISSUE: Whether the act of Edwin in signing the Deed of
Assignment binds his principal Impact Systems
HELD: Yes, the act of Edwin in signing the Deed of Assignment
binds Impact Systems.
The Supreme Court held that in a contract of agency, a person
binds himself to render some service or to do something in
representation or on behalf of another with the latter's consent. Its
purpose is to extend the personality of the principal or the party for
whom another acts and from whom he or she derives the authority
to act. It is said that the basis of agency is representation, that is,
the agent acts for and on behalf of the principal on matters within
the scope of his authority and said acts have the same legal effect
as if they were personally executed by the principal.
In this case at hand, the parties do not dispute the existence of the
agency relationship between respondents ERWIN as principal and
EDWIN as agent.
Question: What was the basis of his authority?
Answer: The basis of his authority is that he is the manager. The fact
that he is the manager he has the authority but please take note that the
authority to act as a manager must be reasonably necessary. It must be
for the protection of the interests of his principal otherwise we could say
he acted without authority. Please be careful because a manager has a
broad power of authority. We cannot demand from a manager a SPA
every time he acts. Meron na siyang presumed authority. Meron na
siyang broad power of authority by virtue of being a manager. These are
only two acts which are reasonably necessary and the acts which would
protect the business.
TWO INSTANCES OF HOW YOU DELIANTE THE LIMITATION THE
POWER OF THE GENERAL MANAGER:
1. Reasonably necessary or
2. Requisite for the protection of the interests of his principal entrusted
to his management
September 06, 2019 by Pau Rojo
BANATE VS. PHIL. COUNTRY SIDE RURAL BANK
G.R. No. 163825 July 13, 2010
Facts: Spouses Maglasang obtained a P1,070,000 loan (subject loan)
from PCRB. To secure the payment, they executed a real estate
mortgage over their property (lot), including the house thereon (subject
properties) owned by spouses Cortel. Later on, spouses Maglasang
obtained 2 other loans covered by separate promissory notes and
secured by mortgages on their other properties.
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The 2 spouses asked PCRB’s permission to sell, then to release from
mortgage the subject properties since the 2 other loans were secured
by their other properties. The 2 spouses claimed that the PCRB, acting
through its branch manager, Mondigo, verbally agreed to their request
but required first the full payment of the subject loan.
The 2 spouses sold the subject properties to Banate. Then, they used
the amount to pay the subject loan. After settling the subject loan,
PCRB gave the owner’s duplicate certificate of title of the lot to Banate,
who was able to secure a new title in her name. However, the said title
carried the mortgage lien in favor of PCRB. Prompting the petitioners
to request from PCRB a deed of release of mortgage. Since PCRB
refused, petitioners filed an action for specific performance.
PCRB invoked the cross-collateral stipulation in the mortgage deed
which states that, “That as security for the payment of the loan or
advance in principal sum of (P1,070,000.00) and such other loans or
advances already obtained, or still to be obtained…” Accordingly,
PCRB claimed that full payment of the 3 loans is necessary before any
of the mortgage could be released.
The petitioners disregarded the cross-collateral stipulation in the
mortgage contract because it had been novated by the subsequent
agreement with Mondigo.
Issue: Whether or not the subsequent agreement between the
petitioners and Mondigo novated the mortgage contract over the
subject properties and is thus binding upon PCRB
Held: NO.
As to the alleged novation, 4 essential requisites must be present: (1)
a previous valid obligation; (2) an agreement of all parties concerned
to a new contract; (3) the extinguishment of the old obligation; and (4)
the birth of a valid new obligation.
In this case, the second requisite is lacking. For the consequent
creation of a new contractual obligation, consent to both parties is
required. As a general rule, no form of words or writing is necessary to
give effect to a novation. Nevertheless, where either or both parties
involved are juridical entities, proof that the second contract was
executed by persons with the proper authority to bind their respective
principals is necessary.
Section 23 of the Corporation Code expressly provides that the
corporate powers of all corporations shall be exercised by the board of
directors. The power and the responsibility to decide whether the
corporation should enter into a contract that will bind the corporation
are lodged in the board. However, just as a natural person may
authorize another to do certain acts for and on his behalf, the board of
directors may validly delegate some of its functions and powers to its
officers, committees or agents.
Furthermore, the authority of corporate officer or agent in dealing with
third persons, it may be actual or apparent. With special reference to
banks the doctrine of apparent authority, had long been recognized in
this jurisdiction. The existence of apparent authority may be
ascertained through:
1) the general manner in which the corporation holds out an officer or
agent as having the power to act, or in other words, the apparent
authority to act in general, with which it clothes him; or
2) the acquiescence in his acts of a particular nature, with actual or
constructive knowledge thereof, within or beyond the scope of his
ordinary powers.
The principal's liability, however, is limited only to third persons who
have been led reasonably to believe by the conduct of the principal that
such actual authority exists, although none was given. In other words,
apparent authority is determined only by the acts of the principal and
not by the acts of the agent. There can be no apparent authority of an
agent without acts or conduct on the part of the principal; such acts or
conduct must have been known and relied upon in good faith as a result
of the exercise of reasonable prudence by a third party as claimant.
22
 Atty. Raymund Christian S. Ong Abrantes BUSINESS ORGANIZATION I Ateneo de Davao University College of Law
In the present case, the decision of the trial court was utterly silent on
the manner by which PCRB, as supposed principal, has "clothed" or
"held out" its branch manager as having the power to enter into an
agreement, as claimed by petitioners. No proof of the course of
business, usages and practices of the bank about, or knowledge that
the board had or is presumed to have of, its responsible officers' acts
regarding bank branch affairs, was ever adduced to establish the
branch manager's apparent authority to verbally alter the terms of
mortgage contracts. Neither was there any allegation, much less proof,
that PCRB ratified Mondigo's act or is estopped to make a contrary
claim.
Although a branch manager, within his field and as to third persons, is
the general agent and is in general charge of the corporation, with
apparent authority commensurate with the ordinary business entrusted
him and the usual course and conduct thereof, yet the power to modify
or nullify corporate contracts remains generally in the board of
directors. Being a mere branch manager alone is insufficient to support
the conclusion that Mondigo has been clothed with "apparent authority"
to verbally alter terms of written contract.
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 the agent's authority, and
in case either is controverted, the burden of proof is upon them to
establish it, which petitioners failed to do in this case. Hence the
alleged subsequent contract cannot prejudice PCRB, as it is beyond
Mondigo's authority.
Q: What do you call that stipulation?
A: Dragnet clause sir
Q: Which means?
A: To secure…
*Sir explains: It is a clause which would mean that, all encompassing
sya. It has been upheld by the Supreme Court as valid, it can be
considered as very onerous, which is part in the terms of the one who is
lending.
So what happens here is marami silang properties, naka collateral.
Apparently, they were told that It was released by the manager.
Q: How did novation came into picture? What is this agreement?
So verbal lang? there was no written?
A: They verbally agreed.
Q: Was there a new contract?
A: No sir.
Q: So, yung verbal agreement between manager and spouses? That
was not a valid contract?
What is the elements of your contract pala? Kailangan ba ng authority
to contract? The question is, was there a new contract.
*Sir explains:
Ano yung requisite number 2?
An agreement of all parties concerned in the contract. Sabi ng Supreme
Court no compliance with this requisite, an agreement of all parties.
Now, was there a new contract? - YES
But, was there an agreement between the concerned parties? - NO.
You have to dissect that. The question is, was there a contract? - YES.
Remember your “COC” (consent, object, cause/consideration) in your
obli con.
But, is it a contract which would novate the previous agreement? –
DEFINITELY, NOT. Kasi no agreement of all existing parties.
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Did you get my point? Kasi the question is that, was there a valid
contract. – YES
But, is it sufficient to be a novation of an existing obligation? – NO.
Because the person entering into it was not a party to the previous one,
kasi nga hindi siya authorized.
Therefor the second contract, hindi dapat binding kay principal.
Q: Diba manager siya? How would you differentiate that action from the
acts of manager in Eurotech? Kasi diba dito, ang sabi is binding kay
principal?
Tapos dito (present case of Banate) sabi ng court is no longer binding
to the principal. So what actions would bind and would not bind the
principal even if you are a manager who has broad powers?
Ano yung sabi kong dalawa kanina (referring to Eurotech?) to know that
the manager is acting within the scope of his authority?
1. Reasonably necessary
Reasonably necessary bang mag execute na i’release ang collateral? –
DEFINITELY NOT.
2. In protection to the business of the principal
What will happen if i’release ang collateral, less ang security ng
principal.
That is why ang sabi ng Supreme Court is, NO, you are not authorized
to conduct this. It is still the board of directors, it is not a power of a
branch manager.
Please remember this, pag branch manager, dapat andun sa dalawa.
Reasonably necessary ba siya dun sa business, if not, is it something
that would protect the business of the principal. Because in this
particular case the execution of the deed of assignment is not really
reasonably necessary, but it was allowed to protect the business of the
principal.
Classmate: Is it safe to conclude that, when the agent acts beyond the
scope of his authority and the principal has been benefitted, then the
principal would be bound to the act. But if it is sufficient to the interest of
the principal, and so the principal would not be bound?
Sir: is it safe? I would say no, it’s not safe. Because we have to
determine how is the principal benefitted. Dapat I’determine mo muna
pano ba siya na benefit.
So, how would you know if it is within the authority?
Tingnan mo muna ang nature ng authority niya. That would seem, when
you try to summarize everything, that would seem, there is a provision
in fact that if it is beneficial to the principal, the authority must not be
exceeded.
There is a provision on that, but it is not safe because there are some
cases that we have to know the nature of the benefit.
So, I would not say na it is safe, so please do not generalized.
We already discussed the case of Yun Kwan Byung before. It discussed
the distinction between implied agency and agency by estoppel.
When we say Implied Agency there is really an agency, it’s just that it’s
not expressed but you have to prove it by inference or by deductions.
When we say Agency by Estoppel, there is no agency but because of
the prejudice to the third person and the action of the principal, the
principal is now estopped.
23
 Atty. Raymund Christian S. Ong Abrantes BUSINESS ORGANIZATION I Ateneo de Davao University College of Law
CREATION OF AGENCY
Special Information
Art. 1873. If a person specially informs another or states by public
advertisement that he has given a power of attorney to a third
person, the latter thereby becomes a duly authorized agent, in the
former case with respect to the person who received the special
information, and in the latter case with regard to any person.
The power shall continue to be in full force until the notice is
rescinded in the same manner in which it was given. (n)
If you have seen establishments, if they tried to sever their relationship
with their agent, they would publish the face and the name of the agent.
We have this because of the said provision.
Sale of a Piece of Land
Art. 1874. When a sale of a piece of land or any interest therein is
through an agent, the authority of the latter shall be in writing;
otherwise, the sale shall be void. (n)
MACTAN-CEBU INTERNATIONAL AIRPORT AUTHORITY VS.
UNCHUAN
G.R. No. 182537 June 1, 2016
Facts:
Richard Unchuan filed a complaint for Declaration of Nullity of Deed
of Absolute Sale against MCIAA. He alleged that he was the rightful
owner of subject 2 lots covered by OCT No. 1173. The title was
registered under the names of the heirs of Eugenio Godinez and he
claims that he bought the lots from the surviving heirs of the registered
owners through several deeds of absolute sale, all dated December
7, 1998.
Unchuan alleged that he came to know that Atanacio Godinez, the
supposed attorney-in-fact of the registered owners and the heirs,
without their authority, sold both lots to the CAA covered by a DOAS
dated April 3, 1958.
MCIAA averred that on April 3, 1958, Atanacio, acting as the
representative of the heirs of Godinez, who were the registered
owners, sold the subject 2lots to the Republic, represented by CAA.
Thereafter, CAA took possession of the said property upon payment
of the purchase price and had been in the possession of the Republic
since then.
To corroborate the said transaction, on September 17, 1969,
Atanacio, along with other former registered co-owners, signed a
deed of partition attesting to the fact of sale of the two lots in favor of
the government and admitted its absolute right over the same.
The RTC held that Atanacio was not legally authorized to act as the
attorney-in-fact of his brothers and sisters and to transact on their
behalf because he was not clothed with a special power of attorney
granting him authority to sell the disputed lots.
The CA affirmed the RTC decision.
Issue: WON the Deed of Absolute sale entered into by MCIA and
Atanacio is void.
Held: Void as to Atanacio’s fellow registered owners, but valid as to
him.
The sale transaction executed between Atanacio, acting as an agent
of his fellow registered owners, and the CAA was indeed void insofar
as the other registered owners were concerned. They were
represented without a written authority from them clearly in violation
of the requirement under Articles 1874 and 1878 of the Civil Code,
which provide:
Art. 1874. When a sale of a piece of land or any interest
therein is through an agent, the authority of the latter shall
be in writing; otherwise, the sale shall be void.
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Art. 1878. Special powers of attorney are necessary in the
following cases: xxx
(5) To enter into any contract by which the ownership of an
immovable is transmitted or acquired either gratuitously or
for a valuable consideration;
The significance of requiring the authority of an agent to be put into
writing was amplified in Dizon v. Court of Appeals:
When the sale of a piece of land or any interest thereon is
through an agent, the authority of the latter shall be in
writing; otherwise, the sale shall be void. Thus the authority
of an agent to execute a contract for the sale of real estate
must be conferred in writing and must give him specific
authority, either to conduct the general business of the
principal or to execute a binding contract containing terms
and conditions which are in the contract he did execute. A
special power of attorney is necessary to enter into any
contract by which the ownership of an immovable is
transmitted or acquired either gratuitously or for a valuable
consideration. The express mandate required by law to
enable an appointee of an agency (couched) in general
terms to sell must be one that expressly mentions a sale or
that includes a sale as a necessary ingredient of the act
mentioned. For the principal to confer the right upon an
agent to sell real estate, a power of attorney must so
express the powers of the agent in clear and unmistakable
language. When there is any reasonable doubt that the
language so used conveys such power, no such
construction shall be given the document.
Without a special power of attorney specifying his authority to dispose
of an immovable, Atanacio could not be legally considered as the
representative of the other registered co-owners of the properties in
question. Atanacio's act of conveying Lot No. 4810-A and Lot No.
4810-B cannot be a valid source of obligation to bind all the other
registered co-owners and their heirs because he was not clothed with
any authority to enter into a contract with CAA.
The transaction entered into by Atanacio and CAA, however, was not
entirely void because the lack of consent by the other co-owners in
the sale was with respect to their shares only. ART. 493 of the Civil
Code recognizes the absolute right of a co-owner to freely dispose of
his pro indiviso share as well as the fruits and other benefits arising
from that share, independently of the other co-owners. The sale of the
subject lots affects only the seller's share pro indiviso, and the
transferee gets only what corresponds to his grantor's share in the
partition of the property owned in common. Since a co-owner is
entitled to sell his undivided share, a sale of the entire property by one
co-owner without the consent of the other co-owners is not null and
void; only the rights of the co-owner/seller are transferred, thereby
making the buyer a co-owner of the property.
In the case at bench, although the sale transaction insofar as the other
heirs of the registered owners was void, the sale insofar as the extent
of Atanacio's interest is concerned, remains valid. Atanacio was one
of the registered co- owners of the subject lots, but he was not clothed
with authority to transact for the other co-owners. By signing the deed
of sale with the CAA, Atanacio effectively sold his undivided share in
the lots in question.
Thus, CAA became a co-owner of the undivided subject lots.
Accordingly, Atanacio's heirs could no longer alienate anything in
favor of Unchuan because he already conveyed his pro indiviso share
to CAA.
24
 Atty. Raymund Christian S. Ong Abrantes BUSINESS ORGANIZATION I Ateneo de Davao University College of Law
ESTATE OF LINO OLAGUER VS. EMILIANO ONGJOCO
G.R. 173312 August 26, 2008
Facts:
Lino died on 1957, so there was a special proceedings for probate of
the will. Olivia Olaguer was appointed as administrator , then later
Eduardo Olaguer.
In an order but without prior notice from the probate court, Olivia and
Eduardo sold to Estanislao Olaguer 10 parcels of land in 1965. The
sale was approved by the probate court.
In 1966, Olivia executed a SPA in favor of Jose Olaguer, authorizing
the latter to “sell, mortgage, assign, transfer, endorse and deliver (6
properties).”
Estanislao executed SPA, still in favor of Jose, authorizing the latter
to “sell, mortgage, assign, transfer, endorse and deliver (another 10
lots).”
On March 1, 1967, by virtue of the SPA, Jose as attorney-in-fact of
Estanislao mortgaged lots 7589, 7593 and 7396 (3 lots) to PNB as a
security for a loan.
On October 29, 1966 Estanislao executed a GPA in favor of Jose
authorizing the latter to exercise general control and supervision of
over all of his business and properties and among others, to sell or
mortgage any of his properties.
On December 29, 1966, Estanislao sold to Jose for P15,000 the 10
parcels of land he bought from Olivia and Eduardo Olaguer.
On March 16, 1968, Estanisalao sold to Jose for P1 and other
valuable consideration for 2 parcels of land with a total area of 2.5
hectares.
Subsequently, there were several transactions wherein Estanislao
sold lots to Jose then Jose to Virgilio Olaguer.
In 1976, Jose claiming to be the aatorney-in-fact of Virgilio under a
general power of attorney sold the subject lots to Ongjoco.
In 1980, the estate of Lino Olaguer filed an action for the annulment
of sales of real property and/or cancellation of titles. The plaintiffs
alleged that the sales of some properties belonging to the estate of
Lino to Estanislao were absolutely ficticious or simulated. The
plaintiffs likewise prayed that the resulting TCTs issued to Jose,
Virgilio Olaguer, Cipriano Duran and the PNB be annulled.
Ongjoco alleged that he was a buyer in good faith because he
acquired lots 76-D, 76-E, 76-F, 76-G, lots 1 and 2 from Jose. His
stance is that, when he acquired the subject properties, the same
were already owned by Virgilio. Ongjoco insists that Jose was duly
authorized by a written power of attorney when the properties were
sold to him. He posits that, this fact alone validated the sales of the
properties and foreclosed the need for any inquiry beyond the title to
the principal.
Held:
The power of attorney with respect to the sale of Lot No. 1 and 2, was
never presented. No evidence was offered at all to prove the alleged
written attorney.
As to the lots 76-D, 76-E, 76-F and 76-G the sale was valid. Ongjoco
was able to present a general power of attorney that was executed by
Virgilio.
According to the provisions of ARTICLE 1874 of the Civil Code on
Agency, when the sale of a piece of land or any interest therein is
made through an agent, the authority of the latter shall be in writing.
Absent this requirement, the sale shall be void. Under ARTICLE
1878, a special power of attorney is necessary in order for an agent
to enter into a contract by which the ownership of an immovable
property is transmitted or acquired, either gratuitously or for a valuable
consideration.
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No evidence was presented to overcome the presumption in favor of
the duly notarized power of attorney. Neither was there a showing of
any circumstance involving the said document that would arouse the
suspicion of respondent and spur him to inquire beyond its four
corners, in the exercise of that reasonable degree of prudence
required of a man in a similar situation. We therefore rule that
respondent Ongjoco had every right to rely on the power of attorney
in entering into the contracts of sale of Lots Nos. 76-D to 76-G with
Jose A. Olaguer.
While the law requires a special power of attorney, the general power
of attorney was sufficient in this case as JOSE OLAGUER was
expressly empowered to sell any of Virgilio’s properties; and to sign,
execute acknowledge and delivery any agreement therefor. Even if a
document is designated as a general power of attorney, the
requirement of a special power of attorney is met if there is a clear
mandate from the principal specifically authorizing the performance of
the act. The special power of attorney can be included in the general
power when the act or transaction for which the special power is
required is specified therein.
Q: What document was presented? (referring to lots 76 D-G)
A: General Power of Attorney
Q: Is that sufficient?
A: The Supreme Court said in this case that the General Power of
Attorney is sufficient regarding the said lots. As Jose Olaguer, was
expressly empowered to sell any Virgillo’s properties.
Q: Does it have to be notarized?
A: In this case sir the power of attorney was notarized.
Q: Will the ruling change if not notarized?
A: No sir, because it is only for presumption of (regularity). There is
presumption of authenticity and due execution.
Q: Therefore, kahit di siya notarized, it is still valid? Is it still valid?
Let’s say it is not notarized but it is in writing.
A: It is still valid but it cannot bind third persons. If it is notarized then, I
believe with all my heart that it can bind third persons.
*Sir: The provision only provides for it to be in writing. So valid na siya,
pag ipa notarized mo then it becomes a public document. If it is a public
document there is presumption of authenticity and due execution.
Therefor, to counter that one, you need a clear and convincing evidence
not just mere preponderance.
If in writing lang siya, the quantum of proof to overthrow the presumption,
need not clear and convincing.
So, does it transfer? Does it give authority? Yes, of course because the
provision only provides that it be in writing to be valid.
September 17, 2019 by Mary Teng
REVIEW
Q: When is a broker entitled to compensation?
We have the case of Medrano vs. Court of Appeals, please memorize
the definition of procuring cause.
Procuring Cause - is meant to be the proximate cause. The term
"procuring cause," in describing a broker’s activity, refers to a cause
originating a series of events which, without break in their continuity,
result in accomplishment of prime objective of the employment of the
broker – producing a purchaser ready, willing and able to buy real estate
on the owner’s terms (full text).
A broker will be regarded as the "procuring cause" of a sale, so as to be
entitled to commission, if his efforts are the foundation on which the
negotiations resulting in a sale are begun. The broker must be the
efficient agent or the procuring cause of the sale. The means employed
25
 Atty. Raymund Christian S. Ong Abrantes BUSINESS ORGANIZATION I Ateneo de Davao University College of Law
by him and his efforts must result in the sale. He must find the purchaser,
and the sale must proceed from his efforts acting as broker.
Kinds of Agent:
1. General- transact all the business of the principal
2. Special – transact one or more specific transactions
Article 1877. An agency couched in general terms comprises only
acts of administration, even if the principal should state that he
withholds no power or that the agent may execute such acts as he
may consider appropriate, or even though the agency should
authorize a general and unlimited management.
Discussed previously, what are the types of transactions authorized
under a general power of attorney? We have certain criteria, be careful
in interpreting general power of attorney or general authority.
Q: What are considered to be acts of administration? (EXAMPLES)
1. To sue for the collection of debts owing to the principal is not
an incident of strict ownership, which must be conferred in
express terms.
2. To engaged counsel to preserve the ownership and
possession of the principal’s property.
3. To lease real property to another person for 1 year or less
− Take note if the lease involves for a term that is
more than 1 year, that is NOT considered as acts
of administration, because that
creates________(acts of dominion na siya which
requires to be in writing?-NOT SURE, walang
giprovide na answer si sir)
PLEASE MEMORIZE Article 1878. These are the special powers of
attorney, the cases wherein special power of attorney is necessary
Article 1878. Special powers of attorney are necessary in the
following cases:
(1) To make such payments as are not usually considered as
acts of administration;
(2) To effect novations which put an end to obligations already
in existence at the time the agency was constituted;
(3) To compromise, to submit questions to arbitration, to
renounce the right to appeal from a judgment, to waive
objections to the venue of an action or to abandon a
prescription already acquired;
(4) To waive any obligation gratuitously;
(5) To enter into any contract by which the ownership of an
immovable is transmitted or acquired either gratuitously or
for a valuable consideration;
(6) To make gifts, except customary ones for charity or those
made to employees in the business managed by the
agent;
(7) To loan or borrow money, unless the latter act be urgent
and indispensable for the preservation of the things which
are under administration;
(8) To lease any real property to another person for more than
one year;
(9) To bind the principal to render some service without
compensation;
(10) To bind the principal in a contract of partnership;
(11) To obligate the principal as a guarantor or surety;
(12) To create or convey real rights over immovable property;
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(13) To accept or repudiate an inheritance;
(14) To ratify or recognize obligations contracted before the
agency;
(15) Any other act of strict dominion.
If you try to look at it, these are those transactions which may out the
principal at disadvantage. That is why it requires special power of
attorney.
The question is must the special power of attorney be in writing? Does
the provision provide that it be in writing?
A: Article 1878 does not state that the special authority be in writing. (DE
LEON)
In the case of Patrimonio vs. Guitierrez and Marasigan, the SC held that
Article 1878 of the Civil Code does not state that the authority be in
writing. As long as the mandate is express such authority may be either
either oral or written. We unequivocally declared in Lim Pin vs. Liao Tian,
et al.,that the requirement under Article 1878 of the Civil Code refers to
the nature of the authorization and not to its form. Be that as it may, the
authority must be duly established by competent and convincing
evidence other than the self-serving assertion of the party claiming that
such authority was verbally given. So, although it does not require for it
to be in a written form it has to be established by a competent and
convincing evidence.
Anong example nyan? Pwedeng testimonial, pwede kayo magascertain
na yes, he was given the express mandate to have this authority.
Therefore, the SPA, the written SPA that we usually know is only for
convenience and evidence (evidentiary purpose). So again, SPA need
not be in writing.
SHOPPERS PARADISE vs. ROQUE
Facts:
Shopper’s Paradise Realty & Development Corporation, represented
by its president, Atienza, entered into a 25 year lease with Dr. Roque
over a parcel of land situated in Quezon City. Shoppers issued to Dr.
Roque a check for P250,000.00 by way of "reservation payment."
Simultaneously, they entered into a memorandum of agreement for
the construction, development and operation of a commercial
building complex on the property. Conformably with the agreement,
petitioner issued a check for another P250,000.00" downpayment" to
Dr. Roque.
The annotations on the title were never made because of the
untimely demise of Dr. Felipe C. Roque. Shoppers now deal with
Efren, the child of Dr. Roque but the negotiations broke down due to
some disagreements. Efren advised Shoppers "to desist from any
attempt to enforce the aforementioned contract of lease and
memorandum of agreement".
Thereafter, Efren filed a case for annulment of the contract of lease
and the memorandum of agreement.
He alleged that he had long been the absolute owner of the subject
property by virtue of a deed of donation inter vivos executed in his
favor by his parents; that His parent had no authority to enter into the
agreements with; that the donation was made in a public instrument
duly acknowledged by his parent before a notary public and duly
accepted on the same day by him before the notary public in the
same instrument of donation; that the title to the property, however,
remained in the name of his father, and it was only transferred to and
in the name of respondent sixteen years later, or on 11 May 1994;
that while he resided in the United States of America, delegated to
his father the mere administration of the property; and he came to
know of the assailed contracts with Shoppers only after retiring to the
Philippines upon the death of his father.
Issue: Whether or not Dr. Roque was authorized to lease the
property to Shoppers.
26
 Atty. Raymund Christian S. Ong Abrantes BUSINESS ORGANIZATION I Ateneo de Davao University College of Law
Held: No. It was not shown that Dr. Roque had been an authorized
agent of respondent.
In a contract of agency, the agent acts in representation or in behalf
of another with the consent of the latter. Article 1878 of the Civil Code
expresses that a special power of attorney is necessary to lease any
real property to another person for more than one year. The lease of
real property for more than one year is considered not merely an act
of administration but an act of strict dominion or of ownership. A
special power of attorney is thus necessary for its execution through
an agent.
Q: So what happens if there is no compliance with 1878?
A: It will be considered as an unenforceable contract (hindi inanswer ni
sir).
DOMINION INSURANCE CORP vs. CA
Facts:
Rodolfo S. Guevarra file a Civil Case for sum of money against
Dominion Insurance Corporation. He sought to recover certain sum
of money which he claimed to have been advanced by him to the
clients of the Insurance Corporation in his capacity as its manager.
However, the Insurance Corp argued that they are not liable to pay
the amount advanced by Guevarra, for he had not acted within his
authority. It added that the payment should be taken from the
revolving fund and not from Guevarra’s personal money.
Issue: Whether or not Guevarra acted within his authority as agent
of dominion.
Held: NO. Guevarra had acted beyond his authority.
By the contract of agency, a person binds himself to render some
service or to do something in representation or on behalf of another,
with the consent or authority of the latter.
In this case, even though the agreement entered into by Guevarra
and Dominion was with a word “special,” the contents of it would
reveal that what was constituted was actually a general agency. The
terms of the agreement read:
"That we, FIRST CONTINENTAL ASSURANCE COMPANY,
INC., a corporation duly organized and existing under and by
virtue of the laws of the Republic of the Philippines, xxx
represented by the undersigned as Regional Manager, xxx do
hereby appoint RSG Guevarra Insurance Services represented
by Mr. Rodolfo Guevarra xxx to be our Agency Manager in San
Fdo., for our place and stead, to do and perform the following acts
and things:
"1.To conduct, sign, manager (sic), carry on and transact Bonding
and Insurance business as usually pertain to a Agency Office, or
FIRE, MARINE, MOTOR CAR, PERSONAL ACCIDENT, and
BONDING with the right, upon our prior written consent, to
appoint agents and sub-agents.
"2. To accept, underwrite and subscribed (sic) cover notes or
Policies of Insurance and Bonds for and on our behalf.
"3. To demand, sue, for (sic) collect, deposit, enforce payment,
deliver and transfer for and receive and give effectual receipts
and discharge for all money to which the FIRST CONTINENTAL
ASSURANCE COMPANY, INC., may hereafter become due,
owing payable or transferable to said Corporation by reason of or
in connection with the above-mentioned appointment.
"4. To receive notices, summons, and legal processes for and in
behalf of the FIRST CONTINENTAL ASSURANCE COMPANY,
INC., in connection with actions and all legal proceedings against
the said Corporation."
A general power permits the agent to do all acts for which the law
does not require a special power. The content of this document does
not require a special power of attorney
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In this case, the SC ruled that, the payment of claims is not an act of
administration. included among the acts. A special power of attorney
is required before respondent Guevarra could settle the insurance
claims of the insured.
Q: Isn’t it, it was stated in the #3 of the agreement to pay the payment
due?
A: Yes sir. However, Guevarra’s authority is limited by the written
standard authority to pay, which state that the payment shall come from
Guevarra’s revolving fund or collection.
Q: Is authority similar with instructions? Does the 3rd person, the other
contracting party, have to know the instruction?
A: In this case, Guevarra, having deviated from the instructions of
Dominion, the expenses that he incurred in the settlement of the claims
of the insured may not be reimbursed from petitioner Dominion (Article
1918).
Article 1918, Civil Code.
"The principal is not liable for the expenses incurred by the agent
in the following cases:
"(1) If the agent acted in contravention of the principal's
instructions, unless the latter should wish to avail himself of the
benefits derived from the contract;
"xxx xxx xxx"
*Note in this case, the SC further rule that while the law on agency
prohibits respondent Guevarra from obtaining reimbursement, his right
to recover may still be justified under the general law on obligations and
contracts (unjust enrichment).
September 17, 2019 by Anton Maligad
Guillermo Adriano vs. Pangilinan
Facts:
Petitioner Adriano is the registered owner of a parcel of land situated
at Montalban, Rizal, and covered by TCT 337942.
Sometime on November 23, 1990, Petitioner entrusted the original
owner's copy of the TCT to Angelina Salvador, a distant relative, for
the purpose of securing a mortgage loan.
Without the knowledge and consent of Petitioner, Angelina Salvador
mortgaged the subject property to the Respondent Pangilinan.
Upon verifying the status of his title, Petitioner was surprised to
discover that upon the said TCT was already annotated a Real
Estate Mortgage (REM) purportedly executed by one Guillermo
Adriano over the parcel of land in favor of the Respondent, in
consideration of the sum of Sixty Thousand Pesos (₱60,000.00).
Petitioner denied that he ever executed the deed of mortgage, and
denounced his signature thereon as a forgery; he also denied having
received the consideration of ₱60,000.00 stated therein.
Petitioner then filed a criminal case for estafa thru falsification of
public document against Respondent, as well as against Angelina
Salvador, et al., before the RTC of San Mateo, Rizal.
The RTC rendered a Decision declaring the REM as null and void
and of no force and effect.
The CA, however, reversed the Decision of the RTC, holding that
even conceding for the sake of argument that the Petitioner’s
signature on the Deed of First REM was a forgery, the fact remains
27
 Atty. Raymund Christian S. Ong Abrantes BUSINESS ORGANIZATION I Ateneo de Davao University College of Law
that the Petitioner did entrust and deliver his TCT to a distant relative,
Angelina Salvador, for the purpose of using the said property as a
security or collateral for a REM debt of loan.
Issues: W/N Petitioner is negligent in entrusting and delivering his
TCT to Salvador, and should bear the loss of his property? No.
Held: Respondent Not an Innocent Mortgagee. – At the outset,
Respondent was not an “innocent mortgagee for value” because he
failed to observe due diligence in the grant of the loan and in the
execution of the REM.
Respondent testified that he was engaged in the real estate business
for almost seven (7) years, including the grant of loans secured by
real property mortgages. Thus, he is expected to ascertain the status
and condition of the properties offered to him as collaterals, as well
as to verify the identities of the persons he transacts business with.
Specifically, he cannot simply rely on a hasty examination of the
property offered to him as security and the documents backing them
up. He should also verify the identity of the person who claims to be
the registered property owner.
IN THE CASE AT BAR: Respondent did not verify whether the
mortgagor was really the owner of the property sought to be
mortgaged. Because of this, he must bear the consequences of
his negligence.
Salvador Clearly Not Authorized. – Petitioner's act of entrusting
and delivering his TCT and Residence Certificate to Salvador was
only for the purpose of helping him find a moneylender. Not
having executed a power of attorney in her favor, he clearly did
not authorize her to be his agent in procuring the mortgage. He
only asked her to look for possible money lenders
Article 1878 of the Civil Code Provides:
Article 1878. Special powers of attorney are necessary in the
following cases:
xxx
(7) To loan or borrow money, unless the latter act be urgent and
indispensable for the preservation of the things which are under
administration;
xxx
(12) To create or convey real rights over immovable property;
xxx
As between Petitioner and Respondent, the SC held that the failure
of the latter to verify essential facts was the immediate cause of his
predicament. If he were an ordinary individual without any expertise
or experience in mortgages and real estate dealings, we would
probably understand his failure to verify essential facts. However, he
has been in the mortgage business for seven years.
Thus, assuming that both parties were negligent, the SC opines that
respondent should bear the loss. His superior knowledge of the
matter should have made him more cautious before releasing the
loan and accepting the identity of the mortgagor.
THEREFORE: The SC held that both law and equity favor
petitioner. Equity dictates that a loss brought about by the
concurrent negligence of two persons shall be borne by one who was
in the immediate, primary and overriding position to prevent it. Herein
respondent – who is engaged in the business of lending money
secured by real estate mortgages – could have easily avoided the
loss by simply exercising due diligence in ascertaining the identity of
the impostor who claimed to be the owner of the property being
mortgaged.
Discussion:
Q: Does the respondent have the authority to mortgage?
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A: No.
Q: What were the instructions given to the Respondent?
A: It was for the purpose of securing a mortgage.
Q: So, does the Respondent have an authority? (Reiteration)
A: No, Sir. He was only given the authority to look for a moneylender
and not to mortgage the said property.
People vs. Carpo
Facts:
Jaime Carpo, Oscar Ibao, Warlito Ibao, and Roche Ibao were
convicted of multiple murder complexed with attempted murder for
the death of Florentino Dulay, Norwela Dulay and Nissan Dulay, and
the wounding of Noemi Dulay by the Regional Trial Court.
Accordingly, the trial court imposed upon all of the accused the
supreme penalty of death and ordered them to solidarily indemnify
the heirs of the deceased as well as Noemi Dulay in the amount of
P600,000.00.
It appears that under the auspices of the trial court, counsel for the
defense entered into an oral compromise with the public prosecutor,
which was subsequently ratified by the private complainant, limiting
the amount of civil liability to P600,000.00.
Issue: WON the oral compromise as to the accused’s civil liability
entered into by the defense counsel with the public prosecutor binds
the accused.
Held: NO. Article 1878 of the Civil Code and Sec. 23 of Rule 138 of
the Rules of Court set forth the attorney's power to compromise.
Under Art. 1878 of the Civil Code, a special power of attorney is
necessary "to compromise, to submit questions to arbitration,
to renounce the right to appeal from a judgment, to waive
objections to the venue of an action or to abandon a
prescription already acquired."
On the other hand, Sec. 23, Rule 138 of the Rules of Court provides,
"attorneys have authority to bind their clients in any case by any
agreement in relation thereto made in writing, and in taking appeal,
and in all matters of ordinary judicial procedure, but they cannot,
without special authority, compromise their clients' litigation or
receive anything in discharge of their clients' claims but the full
amount in cash."
The requirements under both provisions are met when there is
a clear mandate expressly given, by the principal to his lawyer
specifically authorizing the performance of an act. It has not
escaped our attention that in the present case counsel for both
parties had no special power of attorney from their clients to enter
into a compromise.
As for accused-appellants, it was not shown that they were ever
consulted regarding the proposed settlement. In the absence of a
special power of attorney given by accused-appellants to their
counsel, the latter can neither bind nor compromise his clients' civil
liability.
Consequently, since the defense counsel had no specific power to
compromise the civil liability of all accused- appellants, its approval
by the trial court which did not take the precautionary measures to
ensure the protection of the right of accused-appellants not to be
deprived of their property without due process of law, could not
legalize it. For being violative of existing law and jurisprudence, the
settlement should not be given force and effect.
In light of the foregoing, the award of damages must be set aside and
a new one entered with all the circumstances of the case in mind. For
the death of Florentino, Norwela and Nissan Dulay, civil indemnity at
P50,000.00 each or a total amount of P50,000.00 is awarded to their
28
 Atty. Raymund Christian S. Ong Abrantes BUSINESS ORGANIZATION I Ateneo de Davao University College of Law
heirs. This is in addition to the award of moral damages at an
aggregate amount of P150,000.00for their emotional and mental
anguish. With respect to Noemi, an indemnity of P30,000.00 would
be just and proper. All taken, an award of P330,000.00 is granted.
NOTE: insofar as Teresita (private complainant) was concerned, she
was apprised of the agreement and in fact had signed her name as
instructed by the court, thereby tacitly ratifying the same.
Discussion:
Q: What was the compromise about?
A: It was an oral compromise regarding the civil liability of the accused.
Q: How did the Court rule on the compromise agreement? Did it
validate the compromise?
A: The Court didn’t validate the compromise. It is because under
Article 1878, a special power of attorney is necessary to submit to a
compromise.
Q: What did the Court rule?
A: The Court ruled that the defense counsel had no authority to enter
into a compromise agreement, without the prior special power of
attorney.
Anacleto vs. Alexander Van Twest
Facts:
On February 6, 1995, a complaint for reconveyance of title was
filed in the name of Alexander Van Twest and Euroceanic Rainbow
Enterprises Philippines, Inc. (Euroceanic) against petitioner Gloria A.
Anacleto and Isaias M. Bongar. The complaint filed by Atty. Ernesto
V. Perez stated that Alexander Van Twest "has been reported
missing since June 16, 1992 but is duly represented herein by
undersigned counsel as his agent and/or general counsel."
On March 31, 1995, Atty. Perez, in representation of Van Twest,
entered into a compromise agreement with Anacleto and Bongar,
then represented by Atty. Diosdado M. Allado.
On April 6, 1995, the trial court rendered judgment based on the
compromise agreement. Petitioner later filed a manifestation,
submitting a copy of a special power of attorney (SPA).
On June 2, 1995, petitioner, represented by new counsel, Atty.
Marvin L. Herrera, filed an urgent omnibus motion asking the court to
order Atty. Perez to submit an SPA and, in the meantime, to defer
petitioner’s compliance with her obligation under the compromise
agreement.
In his comment dated June 23, 1995, Atty. Perez admitted he had no
SPA from Van Twest to enter into a compromise agreement.
However, he claimed that petitioner’s former counsel, the law firm of
Salonga, Hernandez and Allado, had been informed of this fact.
In an order dated March 17, 1996, the trial court denied petitioner’s
motion on the ground that she was estopped to question the validity
of the compromise agreement considering that, during the
negotiations which led to the signing of the compromise agreement,
Atty. Perez had disclosed the fact that he had no SPA.
Issue: Whether a party who enters into a compromise agreement
with another allegedly represented by a lawyer who has no authority
to institute litigation, much less enter into a compromise agreement,
is estopped from questioning the validity of such agreement? No.
Held:
(1) Atty. Perez’s authority to represent Van Twest did not include
a special authority to enter into the questioned compromise
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agreement. A compromise is a contract whereby parties, by making
reciprocal concessions, avoid litigation or put an end to one already
commenced.
Like any other contract, therefore, it must comply with the requisites
provided in Art. 1318 of the Civil Code, to wit: (1) consent of the
contracting parties; (2) object certain which is the subject matter of
the contract; and (3) cause of the obligation which is established.
Now, it is admitted by Atty. Perez that his only authority to represent
Van Twest and Euroceanic is the retainer agreement he had with Van
Twest.
This agreement reads:
Dear. Mr. Van Twest:
Thank you for deciding to retain our law firm as general counsel to
handle your civil and criminal cases.
The retainer will amount to P7,500.00 per month. In order to facilitate
your account, we shall bill this retainer monthly, starting July, 1990,
if agreeable to you.
The retainer will cover office conferences, drawing of ordinary
business documents, contracts, deeds, and the like as well as legal
advise not requiring substantial time expense on our part. The
retainer will not cover the trial of any litigated matters in court or
before any administrative body. The cases that we will handle for you
shall be subject of a separate progressive billings. In such cases we
cannot usually determine in advance the amount of work that will be
required. However, any extraordinary matters will be discussed with
you in advance so that you may have an estimate of the amount that
might be involved before making any commitments.
If the above arrangement is acceptable to you, please sign, date and
return the enclosed duplicate copy of this letter for our file.
Very truly yours,
MARTINEZ & PEREZ LAW OFFICES
by:
(Signed)
ERNESTO V. PEREZ
The above arrangement is acceptable: (Signed) 
10 July 1990
It is clear from this agreement that Atty. Perez’s authority to
represent Van Twest does not include a special authority to
enter into the questioned compromise agreement as required by
Rule 138, §23 which provides:
Authority of attorneys to bind clients. -Attorneys have authority to
bind their clients in any case by any agreement in relation thereto
made in writing, and in taking appeals, and in all matters of ordinary
judicial procedure. But they cannot, without special authority,
compromise their client’s litigation, or receive anything in discharge
of a client’s claim but the full amount in cash.
Indeed, a special power of attorney constituting Atty. Perez as
attorney-in-fact is necessary. Art. 1878 of the Civil Code
provides:
ART. 1878. Special powers of attorney are necessary in the following
cases:
(1) To make such payments as are not usually considered as acts of
administration;
(2) To effect novations which put an end to obligations already in
29
 Atty. Raymund Christian S. Ong Abrantes BUSINESS ORGANIZATION I Ateneo de Davao University College of Law
existence at the time the agency was constituted;
(3) To compromise, to submit questions to arbitration, to
renounce the right to appeal from a judgment, to waive
objections to the venue of an action or to abandon a
prescription already acquired;
(2) A compromise agreement entered into by a person not duly
authorized to do so by the principal is void and has no legal
effect. It is noteworthy that the action for reconveyance filed by Atty.
Perez was brought not only in behalf of Van Twest but also of
Euroceanic, a juridical person from which he should have secured
the necessary authority to institute this case and It is nonetheless
contended that, under the law, the compromise agreement, once
approved by the court, becomes executory in the absence of a
motion to set aside the judgment thereon on the ground of fraud,
mistake, etc. and that a party questioning the judgment on
compromise must not only move to set aside the judgment but must
also move to set aside or annul the compromise agreement itself.
This contention has no merit. The principles cited refer to the
annulment of voidable compromise agreements.
But here, the compromise agreement is void. A void contract does
not become valid and enforceable merely because it is based on a
judgment upon compromise, and, as we have held, can be impugned
in any proceeding.
We see no need for petitioner to wait until a writ of execution is issued
against her before resorting to certiorari or petition for annulment of
judgment to impugn the validity of the compromise agreement enter
into a compromise agreement.
The law specifically requires that juridical persons may enter into a
compromise only in the form and with the requisites that may be
necessary to alienate their property. The power to compromise or
settle claims in favor of or against the corporation is vested in
the board of directors. Hence, in the absence of any
authorization from the board of directors of Euroceanic, Atty.
Perez could not file any suit in its behalf, regardless of the fact
that Van Twest was the former chairman of its board.
As Atty. Perez had no authority to litigate or enter into a
compromise agreement in behalf of Van Twest or Euroceanic,
the compromise agreement is void. In Quiban v. Butalid, it was
held that a compromise agreement entered into by a person not duly
authorized to do so by the principal is void and has no legal effect.
The same is true as regards the judgment based on the compromise
agreement. In Alviar v. Court of First Instance of La Union, it was held
that a judgment based upon a compromise entered by an attorney
without a special authority from the client is null and void.
(3) Estoppel does not apply in the instant case. The Court of
Appeals held that petitioner is estopped to deny the authority of Atty.
Perez to represent Van Twest because petitioner knew from the start
of the negotiations for the compromise agreement that Atty. Perez
had no special power of attorney.
The appellate court appears to have based its finding on the affidavit
of Atty. Crispulo C. Rosacia, the lawyer who mediated the
compromise agreement between Atty. Perez and petitioner’s former
counsel, Atty. Diosdado M. Allado.
We hold that estoppel does not apply. The affidavit of Atty.
Rosacia shows that although petitioner’s former counsel knew that
Atty. Perez had no SPA, said counsel nonetheless negotiated
with him because of his representation that he was the
representative of Van Twest as to the latter’s properties in the
Philippines and that he could secure an SPA from the heirs of Van
Twest. This is why the negotiations did not fall through.
Petitioner was thus well within her right in relying upon this
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representation of Atty. Perez.
Of importance is paragraph 5 of the compromise agreement which
provides that "[t]he signatories to this Agreement hereby represent
and warrant that they are duly authorized to execute this Agreement."
By virtue of this provision, petitioner had the right to require Atty.
Perez to secure the necessary authority from Van Twest or the
latter’s heirs as well as from Euroceanic. Indeed, petitioner cannot be
faulted for treating this warranty as a condition precedent to her
compliance with the compromise agreement since the requirement
of special authority is mandatory and a lawyer’s authority to
compromise cannot simply be presumed.
This is the thrust of the urgent omnibus motion filed by petitioner in
the trial court in which she asked that the court require Atty. Perez to
show an SPA in accordance with paragraph 5 of their agreement.
That this was done by petitioner after the compromise agreement
was approved by the court is of no moment for, as just stated, it was
the nullity of the judgment itself that was put in issue by petitioner.
Equity, on which the principle of estoppel is based, is simply not on
the side of Atty. Perez. The risk of sustaining the decision of the Court
of Appeals is that of requiring petitioner to pay a debt to a stranger,
and we cannot just rely on the guaranty of Atty. Perez that he would
hold any money he receives in the cases he has filed in trust for Van
Twest and/or Euroceanic. In addition, there is no stopping Van Twest
and/or Euroceanic from suing petitioner again for the same cause of
action if they are unable to recover the money from Atty. Perez. In
fact, the law does not even require them to recognize the trust
unilaterally created by Atty. Perez or first seek to recover from him.
(4) A void contract does not become valid and enforceable
merely because it is based on a judgment upon compromise. It
is nonetheless contended that, under the law, the compromise
agreement, once approved by the court, becomes executory in the
absence of a motion to set aside the judgment thereon on the ground
of fraud, mistake, etc. and that a party questioning the judgment on
compromise must not only move to set aside the judgment but must
also move to set aside or annul the compromise agreement itself.
This contention has no merit. The principles cited refer to the
annulment of voidable compromise agreements. But here, the
compromise agreement is void. A void contract does not become
valid and enforceable merely because it is based on a judgment upon
compromise, and, as we have held, can be impugned in any
proceeding. We see no need for petitioner to wait until a writ of
execution is issued against her before resorting to certiorari or
petition for annulment of judgment to impugn the validity of the
compromise agreement.
Loyola Security & Detective Agency vs. NLRC
Facts:
Private respondents Victor Prado, Sr. and Matilde Tuscano filed a
complaint for illegal dismissal against petitioners, the Loyola
Security and Detective Agency and the latter's general manager,
Ruperto Acle, Jr.
The Labor Arbiter ruled in favor of private respondents and this
decision was later affirmed by the NLRC.
Private respondents then filed a Motion for Issuance of a Writ of
Execution. However, they later on filed a Joint Manifestation
acknowledging complete satisfaction of the award.
On November 17, 1992, private respondents again filed a Motion
for the Issuance of an Alias Writ of Execution for the recovery of the
balance of the award, claiming that they received less than the
award of the Labor Arbiter.
30
 Atty. Raymund Christian S. Ong Abrantes BUSINESS ORGANIZATION I Ateneo de Davao University College of Law
It appears that private respondent Prado entered into a compromise
agreement on his own behalf and on behalf of respondent Tuscano
and received P5,000 from petitioner Acle. Petitioner believes such
acts constituted novation of the award of the Labor Arbiter.
However, it does not appear that respondent Tuscano authorized
respondent Prado to enter into the agreement and waive a part of
the award given to her.
Issue: W/N the compromise agreement is valid and enforceable?
No.
Held: Under Article 1878 of the Civil Code of the Philippines, a
special power of attorney is necessary:
xxx xxx xxx
(2) To effect novation which put an end to obligations already in
existence at the time the agency was constituted;
(3) To compromise, . . . 
 power to sell?
(4) To waive any obligation gratuitously; 
 meaning if it is sold in cash, it doesn’t mean that the power of
xxx xxx xxx
(15) Any other act of strict dominion.
In this case, there was no showing that respondent Prado was duly
authorized by co-respondent Tuscano to waive a part of the award
given to her.
In addition, there was no compliance with the NLRC rules, which
requires the assistance of counsel and approval of the LA in
approving the compromise agreement.
Hence, being violative of existing law and jurisprudence, such
settlement cannot be given force and effect.
Discussion:
Q: What is the compromise agreement about?
A: The Compromise Agreement is void.
Article 1879. A special power to sell excludes the power to
mortgage; and a special power to mortgage doesn’t include the
power to sell.
Discussion:
The special power to sell doesn’t include the power to mortgage.
Of course, if you have a power to sell, you have the power to find a
purchaser under Article 1878. It is because if you have the power to
sell, but you don’t have the power to find a purchaser—then what is the
point? How will you exercise your power to sell?
To deliver the property. To make the usual representation.
Q: How do you know that a thing is usual?
A: You look at the nature and the customs.
Executing document which fix the terms of the sale, unless there be a
set of conditions as given by the principal.
He can only sell of cash. He can never sell for credit.
The following are not included in the power to mortgage:
▪ The power to sell;
▪ To execute a 2nd mortgage
Abrasaldo, Adlawan, Andamon, Banosan, Bayquen, Lagat, Mahusay, Maligad, Picot, Reyes, Rojo | III-Manresa 2019
▪ To mortgage for personal advantage of the agent, unless the
contrary has been clearly indicated
2018 TSN:
The following are included in a POWER TO SELL—
1. Find a purchaser or to sell directly;
2. Deliver the property;
3. Make the usual representation and warranty;
Take note— “usual representation and warranty”
If it is an unusual representation and warranty, it is not
included in the power to sell.
4. Execute the necessary transfer documents;
5. Fix the terms of the sale unless there be set conditions
stipulated by the principal;
6. Sell only for cash;
Why is it sell only for cash considered included in the
Because a sale for cash is advantageous to the principal,
the agent is exceeded.
7. Receive the price unless he was authorized only to solicit
orders.
The following are NOT included in a POWER to MORTGAGE—
The power to—
1. Sell;
2. Execute a 2nd mortgage;
3. Mortgage for the agent’s personal benefit or for the benefit
of any 3rd person, unless the contrary has been clearly
indicated.
Article 1880. A special power to compromise does not authorize
submission to arbitration.
What is the meaning of this?
In a power to compromise, you have a belief on the agent to settle the
issue and make the terms of the compromise.
But as to arbitration, there may be no trust on the arbitrator.
So, perhaps you have trust on your agent, but you don’t have trust on
your arbitrator.
2018 TSN:
Why is this the rule?
Because if the principal gives the power to compromise to an agent
that means he has the trust of the agent to actually compromise, to
make the terms, to negotiate the terms or compromise but when you
say authorize submission to arbitration, he may not have the trust of
the 3rd person or the arbitrator to whom the controversy is submitted.
Article 1881. The agent must act within the scope of his authority.
He may do such acts as may be conducive to the accomplishment
of the purpose of the agency.
In order for the agent to bind the principal, the former must have
authority. Now take note, that without any one of these requisites
the principal is not bound.
Requisites for Principal to be Bound by Act of Agent—
1. The agent must act in behalf of the principal;
2. The agent must act within the scope of his authority.
What is Authority?
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 Atty. Raymund Christian S. Ong Abrantes BUSINESS ORGANIZATION I Ateneo de Davao University College of Law
Clikas vs. Steele—The power of the agent to affect the legal relations
or the principal by acts done in accordance with the principal’s
manifestation of consent to him. The authority of the agent is the very
essence – sine qua non— of the principal and agent relationship. This
authority, unless it is otherwise agreed, includes only the authority to act
for the benefit of the principal, and the source of the authority is the
principal and never the agent.
September 24, 2019 by Juris Paul Mahusay
(Discussion of Answers in the exam.)
So what are the kinds of Principals?
Highschool, elementary? (nagjoke si sir) hahahaha
KINDS OF PRINCIPALS:
1. Disclosed Principal
2. Partially Disclosed Principal
3. Undisclosed Principal
Disclosed Principal
We have the disclosed principal: if at the time of the transaction
contracted by the agent, the other party thereto has known that the agent
is acting in behalf of the principal and he knows the principal’s identity.
Partially Disclosed Principal
We have partially disclosed principal: if the other party knows or has
reason to know that the agent is or may be acting for a principal but is
unaware of the identity of the principal. Hindi nya alam kung sino si
principal pero alam nyo yung agent agent lang, di yung identity ni
principal.
the partially disclosed principal may enforce against the third person the
contract of _____ (grabe dubidubidapdap najod. 500km/hr najod ang
travel sa sound ) of any disclosed principal. Similarly, the third person
has the right of action against the principal (?)
Undisclosed Principal
and we have the third which is the undisclosed principal, the party has
no notice of the fact that the agent is acting in behalf of a certain
principal.
What then is the remedy of the principal if the agent breached their
contract of agency?
➢ He can demand from the agent damages for his failure to
comply with the agency.
What is the remedy of the third person in whom the agent contracted in
case the obligation is not complied with?
➢ If the case falls under the general rule, he can sue the agent.
➢ But when the contract involves things belonging to the
principal, now I’m referring to Article 1883 ha.
Article 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
Now in most cases, iniimplead yang dalawa. Principal and Agent para
vongga!
Now let us go to the obligations of an Agent,
OBLIGATIONS OF AN AGENT:
Being an agent, you have your own obligations. You have to comply with
your obligations because agency is a contract. You have your rights and
obligations when it comes to contracts.
Abrasaldo, Adlawan, Andamon, Banosan, Bayquen, Lagat, Mahusay, Maligad, Picot, Reyes, Rojo | III-Manresa 2019
Acceptance in Calibo Jr. v. CA: Acceptance by an agent is necessary in
a Contract of Agency for him to be bound but not compulsory. Thus, if
the agent wants to _____ he must immediately react so that supposed
principal may be ______. So meron tayong implied acceptance.
GENERAL OBLIGATIONS OF THE AGENT
1) He must act in utmost good faith and loyalty in the advancement and
furtherance of the interest of the principal;
2) He must obey the principal’s instructions;
3) He must exercise reasonable care.
SPECIFIC OBLIGATIONS OF THE AGENT
1) To carry out the agency as accepted;
2) To answer for damages which, through his nonperformance, the
principal may suffer;
3) To finish the business already begun on the death of the principal,
should delay entail any danger;
4) To observe the diligence of a good father of a family in the custody
and preservation of the goods forwarded to him by the owner until the
latter should appoint an agent;
5) To advance the necessary funds if there’s obligation to do so;
6) To act in accordance with the instruction of the principal. In default
thereof, he shall do all that a good father of a family would do;
7) To not carry out the agency if its execution would manifestly result in
loss or damage to the principal;
8) To answer for damages when there is conflict between his interests
and those of the principal, should he prefer his own;
9) To not borrow money if he has been authorized to lend money and
interest;
Why? Kasi conflict of interest. The interest of the agent may not be
necessarily the same with the interest of the principal.
10) To render an account of his transactions and to deliver to the
principal whatever he may have received by virtue of the agency;
11) To be responsible for the acts of the substitutes appointed by him;
12) To pay interests on funds he has applied to his own use.
For the Obligations of the Agent, we have Article 1884:
Article 1884. The agent is bound by his acceptance to carry out the
agency and is liable for the damages which through his non-
performance the principal may suffer.
He must also finish the business already begun on the death of the
principal should delay entail any danger.
So, please take note na pag binigyan kayo ng SPA, you have the right
to know kung ano yung ginrant na power sa inyo. Because if you’ve done
something that caused damage to the principal, you may be held liable
because pwede mong sabihin na ito lang yung terms natin, you have the
right because you are not obliged to accept the contract of agency.
He must also finish the business already begun on the death of the
principal should delay entail any danger.
Sir: This is one of your?
(Dingal answers)
Article 1885. In case a person declines an agency, he is bound to
observe the diligence of a good father of a family in the custody and
preservation of the goods forwarded to him by the owner until the latter
should appoint an agent. The owner shall as soon as practicable either
appoint an agent or take charge of the goods..
Sir: This is an example of a? anyone?
A: this is an example of deposit. (class reacts in awe)
Sir. So what happened in BA Finance v. CA?
BA Finance Corporation vs. Court of AppealsG.R. No. 82040
August 27, 1991
Facts: On July 15, 1977, respondents Manuel and Lilia Cuady
obtained from Supercars, Inc. a credit of P39,574.80 which covered
the cost of one unit of Ford Escort 1300, a four-door sedan. It was
evidenced by a promissory note. The respondents was obligated to
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 Atty. Raymund Christian S. Ong Abrantes BUSINESS ORGANIZATION I Ateneo de Davao University College of Law
pay the amount in installments of P1,098. There was also a stipulated
penalty of P10 for every month of late installment payment. As a
security, the spouses constituted a chattel mortgage on the subject
vehicle.
On July 25, 1977, Supercars, Inc. assigned the promissory note,
together with the chattel mortgage, to BA Finance Corporation. The
spouses paid a total of P36,730.15, leaving an unpaid balance of
P2,344.65 and an additional P460 representing penalties and
surcharges.
BA Finance Corporation thereafter, as the assignee of the mortgage
lien, obtained the renewal of the insurance coverage over the subject
vehicle with Zenith Insurance Corporation. Under its terms, any loss
under the policy shall be payable to BA Finance Corp.
On April 18, 1980, the vehicle figured in an accident and was badly
damaged. The spouses asked BA Finance Corp. to consider the
same as total loss and to claim from the insurer the face value of the
car insurance policy and apply the same as payment to the remaining
balance of P2,344.65. Plaintiff corporation did not heed such request
and prevailed upon the spouses to just have the car repaired. Not
long thereafter, the car bogged down. The spouses once again
requested plaintiff to enforce the total loss provision in the insurance
coverage. BA Finance Corp. did not respond favorably such request
and thus, the spouses stopped paying their monthly installments
which prompted the former the sue them for the recovery of the
unpaid balance.
Issue: Whether or not BA Finance Corp. has waived its right to collect
the unpaid balance for failure to enforce the total loss provision in the
insurance coverage- YES
Ruling:
B.A. Finance Corporation was deemed subrogated to the rights and
obligations of Supercars, Inc. when the latter assigned the
promissory note, together with the chattel mortgage constituted on
the motor vehicle in question in favor of the former. Consequently,
B.A. Finance Corporation is bound by the terms and conditions of the
chattel mortgage executed between the Cuadys and Supercars, Inc.
Under the deed of chattel mortgage, B.A. Finance Corporation was
constituted attorney-in-fact with full power and authority to file, follow-
up, prosecute, compromise or settle insurance claims; to sign
execute and deliver the corresponding papers, receipts and
documents to the Insurance Company as may be necessary to prove
the claim, and to collect from the latter the proceeds of insurance to
the extent of its interests, in the event that the mortgaged car suffers
any loss or damage. In granting B.A. Finance Corporation the
aforementioned powers and prerogatives, the Cuady spouses
created in the former's favor an agency. Thus, under Article 1884 of
the Civil Code of the Philippines, B.A. Finance Corporation is bound
by its acceptance to carry out the agency, and is liable for damages
which, through its non-performance, the Cuadys, the principal in the
case at bar, may suffer.
Unquestionably, the Cuadys suffered pecuniary loss in the form of
salvage value of the motor vehicle in question, not to mention the
amount equivalent to the unpaid balance on the promissory note,
when B.A. Finance Corporation steadfastly refused and refrained
from proceeding against the insurer for the payment of a clearly valid
insurance claim, and continued to ignore the yearning of the Cuadys
to enforce the total loss provision in the insurance policy, despite the
undeniable fact that Rea Auto Center, the auto repair shop chosen
by the insurer itself to repair the aforementioned motor vehicle,
misrepaired and rendered it completely useless and unserviceable
Accordingly, there is no reason to depart from the ruling set down by
the respondent appellate court. In this connection, the Court of
Appeals said:
... Under the established facts and circumstances, it is unjust, unfair
and inequitable to require the chattel mortgagors, appellees herein,
to still pay the unpaid balance of their mortgage debt on the said car,
the non-payment of which account was due to the stubborn
refusal and failure of appellant mortgagee to avail of the
insurance money which became due and demandable after the
insured motor vehicle was badly damaged in a vehicular
accident covered by the insurance risk. ....
Abrasaldo, Adlawan, Andamon, Banosan, Bayquen, Lagat, Mahusay, Maligad, Picot, Reyes, Rojo | III-Manresa 2019
Discussion:
Sir: What did BA Finance breached? Ano ba ang BA Finance ditto?
Anong nature ng obligation nya?
( nag tawag ng another student pero time na, so bye bye na.)
October 1, 2019 by Rogelio Adlawan Jr.
We have started on the obligations of an agent.
Bank of the Philippine Islands v. Laingo, GR No. 205206, March 16,
2016
There is a rationale in the contract of agency, Which flows from “the
doctrine of representation,” that notice to the agent is notice to the
principal. Here, BPI had been informed of Rheozel’s death by the
latter's family. Since BPI is the agent of FGU Insurance, then such
notice of death to BPI is considered as notice to FGU Insurance as
well. FGU Insurance can up now justify the denial of a beneficiaries
insurance claim for being filed out of time when notice of death had
been communicated to each agent within a few days after the death
of the depositor insured. In short, there was a timely notice of
Rheozel’s death given to FGU insurance within three (3) months
from Rheozel's death as required by the insurance company.
This is actually a deposit that has an insurance as a part of their
marketing of their savings account services.
The three-month period here was the period to notify the insurer of the
death of the insured.
The Supreme Court held here that the notice of the death of Rheozel
with the BPI constitutes notice to FGU being a principal in this contract
of agency.
What are the general obligations of an agent to his principal?
GENERAL OBLIGATIONS OF AN AGENT TO HIS PRINCIPAL
• To act with the utmost good faith and loyalty for the furtherance
and advancement of the interests of the principal
• To obey the principal's instructions
• To exercise reasonable care
Now these are the general obligations. Now, what are the specific
obligations?
SPECIFIC OBLIGATIONS
• To carry out the agency he has accepted
• To answer for damages which through his non-performance the
principal may suffer
• To finish the business already begun on the death of the
principal should delay entail danger
• To observe the diligence of a good father of a family in the
custody and preservation of the goods forwarded to him by the
owner in case he declines an agency, until an agent is
appointed
• To advance the necessary funds should there be a stipulation
to do so
• To act in accordance with the instructions of the principal, and
in default thereof, to do all that a good father of a family would
do
• Not to carry out the agency if its execution would manifestly
result in loss or damage to the principal *
• To answer for damages if there be a conflict between his
interests and those of the principal, he should prefer his own **
• Not to loan to himself if he has been authorized to lend money
at interest
• Not to render an account of his transactions into deliver to the
principal whatever he may have received by virtue of the agency
• To be responsible in certain cases for the act of the substitute
appointed by him
• To pay interest on funds he has applied to his own use ***
* Take note of the term “manifestly result”: if the agent thinks that it
would result to a loss or damage, he is not excused to perform his job
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 Atty. Raymund Christian S. Ong Abrantes BUSINESS ORGANIZATION I Ateneo de Davao University College of Law
unless he thinks that it could manifestly result in loss or damage. Just
loss or damage is not enough.
** Remember, the concept of agency is representation: you represent
the principal. So, if there is a conflict of your interest and that of the
principal, the interest of the principal should always prevail.
*** This is because the nature of an agency is that of a fiduciary.
Obligations of the Agent (Cont’d.)
• Article 1886. Should there be a stipulation that the agent shall
advance the necessary funds shall be bound to do so except
when the principal is insolvent. *
• Article 1887. In the execution of the agency, The agent shall act
in accordance with the instructions of the principal.
• In default thereof, he shall do all that a good father of a family
would do, as required by the nature of the business. **
* Why is there an exception? Because, remember, the principal also
has the obligation to reimburse whatever amount the agent may have
advanced in favor of the principal. If the principal is insolvent, the latter
cannot pay the principal. Thus, you cannot force the agent to advance
the necessary funds.
may not be a good payor. The principal may have trust in him as a
representative, but the principal may not necessarily have trust in him
as a borrower.
Obligations of the Agent (Cont’d)
• Article 1891. Every agent is bound to render an account of his
transactions and to deliver to the principal whatever he may
have received by virtue of the agency, even though it may not
be owing to the principal. *
• Every stipulation exempting the agent from the obligation to
render an account shall be void. **
• Article 1892. The agent may appoint a substitute if the principal
has not prohibited him from doing so; But he shall be
responsible for the acts of the substitute:
1) When he was not given the power to appoint one;
2) When he was given such power, but without designating the
person, and the person appointed was notoriously incompetent
or insolvent. ***
• **** All acts of the substitute appointed against the prohibition
of the principal shall be void.
* This is based on the relationship between the agent and the principal
which is fiduciary.

** How would he execute the agency? in accordance with the
instructions of the principal. In the absence thereof, he shall do all that
a good father of a family would do, as required by the nature of the
business.
Distinguish between authority and instructions:
** Please take note of this one, a stipulation exempting the agent from
the obligation to render an accounting to the principal is void. This duty
of the agent to render account cannot be taken away.
*** Please take note of the words “notoriously incompetent.” Not just
incompetent.

Authority Instructions **** The right of an agent to appoint a substitute

Sum total of powers committed Direct the manner of transacting
or permitted to the agent by the the authorized business in We have the case of Villaluz vs. LBP:
principal contemplates only a private rule
of guidance to the agent * SPOUSES VILLALUZ vs. LAND BANK OF THE PHILIPPINES
Relates to the subject with Refers to the manner or mode January 18, 2017; GR No. 192602
which the agent is empowered of his action with respect to
The law creates a presumption that the agent has the power to
to deal or the kinds of business matters which in their substance
appoint the substitute. The consequence of the presumption is that,
or transactions upon which he is are within the scope of
upon a valid appointment of a substitute by the agent, there ipso
empowered to act permitted action
jure arises An agency relationship between the principle and the
Limitations of authority are Without significance as against substitute, i.e., the substitute becomes the agent of the principal. As
operative as against those who those dealing with the agent
a result, the principal is bound by the acts of the substitute as if
have or are charged with with neither knowledge nor these acts have been performed by the principal’s appointed agent.
knowledge of them notice of them **
Concomitantly, the substitute assumes an agent’s obligations to act
Contemplated to be made Not expected to be made known within the scope of authority, to act in accordance with the
known to the 3rd person dealing to those with whom the agent principles extractions, and to carry out the agency, among others. In
with the agent deals order to make the presumption inoperative and relieve himself from
its effects, it is incumbent upon the principle to prohibit the agent
* Therefore, a 3rd person does not necessarily have to be notified of
from appointing a substitute.
the instruction; authority is sufficient.
Please note this provision wherein an agent can appoint another
** Please take note.
agent. That is why, some SPA’s that you would have read provides:
“This is to authorize X, etc. , or any of the latter’s appointees.” This
What if an agent disobeys the instruction? What will happen? He was
means that that person (agent) can appoint a substitute to act within
able to do what he should do but he disobeyed the instruction.
the limits of the authority. But sadly, when you go to government
If the result is to the benefit of the principal, then the principal shall be offices, it requires a specific ID
bound. But if not, then the principal has a right of action against the
agent. If there is no prohibition, an agent can appoint a substitute. But that
substitute must act within the authority given by the original principal.
Obligations of the Agent (Cont’d)
The question is: can the original agent be made free from liability in
• Article 1888. An agent shall not carry out an agency if its
execution would manifestly result in loss or damage to the case he has already appointed a substitute? Article 1892 is instructive.
principal. *
To summarize Article 1892, here are the four (4) instances wherein a
• Article 1889. The agent shall be liable for damages if, there
being a conflict between his interests and those of the principal, sub-agent is appointed and the effects of each instance:
he should prefer his own.
Instance Effect
• Article 1890. If the agent has been empowered to borrow
money, he may himself be the lender at the current rate of No prohibition Agent responsible for all the
interest. If he has been authorized to lend money at interest, he acts of sub-agent *
cannot borrow it without the consent of the principal. ** Prohibition Sub-agents acts are VOID as to
the principal **
* Refer to our previous discussion on manifestly result. Authority to appoint but not Agent liable for acts of sub-
designated by principal agent if the sub-agent is
** Why is the consent of the principal needed when the agent already notoriously incompetent or
has the authority and seeks to borrow the money himself? Because he insolvent ***

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 Atty. Raymund Christian S. Ong Abrantes BUSINESS ORGANIZATION I Ateneo de Davao University College of Law
Authority to appoint and Agent is released from any
designated by principal **** liability from the acts of the sub-
agent
*Therefore, when there is no prohibition and the agent appoints a
substitute, the agent is still liable. He still has a responsibility.
** But as to the agent, that’s a different contract.
*** That is the burden to be proven by the agent who appointed the
sub-agent.
**** There is an authority to appoint and a specific person is named as
the one who could be appointed as the substitute. This is the only time
where the agent can be released from any liability from the acts of a
sub-agent.
Obligations of the Agent (Cont’d)
• Article 1893. In the cases mentioned in Nos. 1 and 2 of the
preceding article, the principal may furthermore bring an action
against the substitute with respect to the obligations which the
latter has contracted under the substitution.
• Article 1894. The responsibility of two or more agents, even
though they have been appointed simultaneously, is not
solidary, if solidarity has not been expressly stipulated.*
* If it is not solidarity, then it is joint.
Please be careful because if it is in reverse wherein there are two or
more principals and only one agent, the responsibility is different
because we have to consider how burdensome is the obligation of an
agent compared to the principal that’s why they have different types of
responsibilities.
Article 1915. If two or more persons have appointed an agent for a
common transaction or undertaking, they shall be solidarity liable to
the agent for all the consequences of the agency.
October 4, 2019 by Honey Charish U. Andamon
Article 1895. If solidarity has been agreed upon, each of the agents is
responsible for the non-fulfillment of the agency, and for the fault or
negligence of his fellow agents, except in the latter case when the fellow
agents acted beyond the scope of their authority.
Your concept of solidarity is actually applicable in cases of solidary
responsibility of poor negligence. The only exception is if the other agent
exceeded his authority. In that case, that other agent cannot be
considered as in default.
Article 1896. The agent owes interest on the sums he has applied to his
own use from the day on which he did so, and on those which he still
owes after the extinguishment of the agency.
Article 1897. The agent who acts as such is not personally liable to the
party with whom he contracts, unless he expressly binds himself or
exceeds the limits of his authority without giving such party sufficient
notice of his powers.
1897 reiterates the TWO INSTANCES wherein an agent can be liable:
1. If he exceeded his authority; and
2. If he expressly binds himself to be liable.
DBP v. Court of Appeals. What happened in this case?
DBP vs. Court of Appeals
FACTS:
Juan B. Dans, together with his wife Candida, his son and
daughterin-law, applied for a loan of P500,000.00 with the (DBP),
Basilan Branch. As the principal mortgagor, Dans, then 76 years of
age, was advised by DBP to obtain a mortgage redemption insurance
(MRI) with the DBP Mortgage Redemption Insurance Pool (DBP MRI
Pool).
A loan, in the reduced amount of P300,000.00, was approved by
DBP on August 4, 1987 and released on August 11, 1987. From the
Abrasaldo, Adlawan, Andamon, Banosan, Bayquen, Lagat, Mahusay, Maligad, Picot, Reyes, Rojo | III-Manresa 2019
proceeds of the loan, DBP deducted the amount of P1,476.00 as
payment for the MRI premium. On August 15, 1987, Dans
accomplished and submitted the "MRI Application for Insurance" and
the "Health Statement for DBP MRI Pool."
On August 20, 1987, the MRI premium of Dans, less the DBP service
fee of 10 percent, was credited by DBP to the savings account of the
DBP MRI Pool. Accordingly, the DBP MRI Pool was advised of the
credit.
On September 3, 1987, Dans died of cardiac arrest. The DBP, upon
notice, relayed this information to the DBP MRI Pool. On September
23, 1987, the DBP MRI Pool notified DBP that Dans was not eligible
for MRI coverage, being over the acceptance age limit of 60 years at
the time of application.
On October 21, 1987, DBP apprised Candida Dans of the
disapproval of her late husband's MRI application. The DBP offered
to refund the premium of P1,476.00 which the deceased had paid,
but Candida Dans refused to accept the same, demanding payment
of the face value of the MRI or an amount equivalent to the loan. She,
likewise, refused to accept an ex gratia settlement of P30,000.00,
which the DBP later offered.
On February 10, 1989, respondent Estate, through Candida Dans as
administratrix, filed a complaint with the RTC against DBP and the
insurance pool for "Collection of Sum of Money with Damages."
Respondent Estate alleged that Dans became insured by the DBP
MRI Pool when DBP, with full knowledge of Dans' age at the time of
application, required him to apply for MRI, and later collected the
insurance premium thereon.
ISSUE: Whether DBP as the agent exceeded its authority
RULING: YES.
It was DBP, as a matter of policy and practice, that required Dans,
the borrower, to secure MRI coverage. Instead of allowing Dans to
look for his own insurance carrier or some other form of insurance
policy, DBP compelled him to apply with the DBP MRI Pool for MRI
coverage. When Dan's loan was released on August 11, 1987, DBP
already deducted from the proceeds thereof the MRI premium. Four
days latter, DBP made Dans fill up and sign his application for MRI,
as well as his health statement. The DBP later submitted both the
application form and health statement to the DBP MRI Pool at the
DBP Main Building, Makati Metro Manila. As service fee, DBP
deducted 10 percent of the premium collected by it from Dans.
In dealing with Dans, DBP was wearing two legal hats: the first as a
lender, and the second as an insurance agent.
As an insurance agent, DBP made Dans go through the motion of
applying for said insurance, thereby leading him and his family to
believe that they had already fulfilled all the requirements for the MRI
and that the issuance of their policy was forthcoming. Apparently,
DBP had full knowledge that Dan's application was never going to be
approved. The maximum age for MRI acceptance is 60 years as
clearly and specifically provided in Article 1 of the Group Mortgage
Redemption Insurance Policy signed in 1984 by all the insurance
companies concerned.
Under Article 1987 of the Civil Code of the Philippines, "the agent
who acts as such is not personally liable to the party with whom he
contracts, unless he expressly binds himself or exceeds the limits of
his authority without giving such party sufficient notice of his powers."
The DBP is not authorized to accept applications for MRI when its
clients are more than 60 years of age. Knowing all the while that Dans
was ineligible for MRI coverage because of his advanced age, DBP
exceeded the scope of its authority when it accepted Dan's
application for MRI by collecting the insurance premium, and
deducting its agent's commission and service fee.
The liability of an agent who exceeds the scope of his authority
depends upon whether the third person is aware of the limits of the
agent's powers. There is no showing that Dans knew of the limitation
on DBP's authority to solicit applications for MRI.
35
 Atty. Raymund Christian S. Ong Abrantes BUSINESS ORGANIZATION I Ateneo de Davao University College of Law
PRINCIPAL— MRI POOL, AGENT— DBP, 3 RD PERSON— DANS
Did the 3rd person know that DBP here has no authority to accept him?
- The Supreme Court sir said that there is no showing here that
the 3rd person knew.
Would it matter then? Does the knowledge of the 3rd person, will it matter
with regard to the liability? If the 3rd person knew that he is not eligible,
would that change the liability of DBP in this case?
- Yes sir.
Because?
- The Supreme Court also said here that if the third person
dealing with an agent is unaware of the limits of the authority
conferred by the principal on the agent and he (third person)
has been deceived by the non-disclosure thereof by the
agent, then the latter is liable for damages to him. The rule
that the agent is liable when he acts without authority is
founded upon the supposition that there has been some
wrong or omission on his part either in misrepresenting, or in
affirming, or concealing the authority under which he assumes
to act.
So kung alam ng 3rd person na wala naman palang authority si agent,
hindi liable si agent? What concept would you apply?
• Definitely hindi liable si principal pag ganun. So what will
happen to the 3rd person? What do you think?
- I think sir the agent here would be personally liable.
• Eh alam naman nung 3rd person eh. Bakit siya liable? Anyway,
you think about that.
What is going to be the recourse? Meron ba silang recourse against
each other?
Article 1898. If the agent contracts in the name of the principal,
exceeding the scope of his authority, and the principal does not ratify the
contract, it shall be void if the party with whom the agent contracted is
aware of the limits of the powers granted by the principal. In this case,
however, the agent is liable if he undertook to secure the principal's
ratification.
So what happens? – Contract is void.
Exceeding the scope of authority, he may ratify and the party with whom
the agent contracted is aware of the limits of the powers granted by the
principal. So both of them are at fault.
Bakit siya void? Because both of them are in pari delicto. So wala silang
recourses against each other.
Safic Alcan.
SALFIC ALCAN Inc. vs. IMPERIAL VEGETABLE OIL, Inc.
Facts:
(This is a question of whether the act of the agent which is the
president binds the principal which is the corporation against third
party which is Salfic)
Salfic is a French corporation engaged in international purchase, sale
and trading of coconut oil. So apparently IVO sells coconut oil. Safic
then placed purchase orders with IVO for 2,000 tons of crude coconut
oil, valued at US$222.50 per ton.
IVO however failed to deliver and, instead, offered a "wash out"
settlement. (Washout settlement meaning the coconut oil subject of
the purchase contracts were to be "sold back" to IVO). Yet IVO
wanted it to be sold at the prevailing price in the international market
at the time of wash out. And IVO bound itself to pay to Safic the
difference between the said prevailing price and the contract price of
the 2,000 tons which amounted to US$293,500.00.
IVO however failed to pay this amount despite repeated oral and
written demands. Salfic then goes to court and alleged that on eight
occasions, it placed purchase orders with IVO for a total of 4,750 tons
and prayed to collect from IVO an aggregate amount of
US$391,593.62 and the US$293,500.00 difference between the
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contract price and the international market value, plus attorney's fees
and litigation expenses.
IVO’s defense: “Salfic has no legal capacity to sue since it is doing
business in the Philippines without the required licenses”. And when
pushed further IVO reveals that the subject contracts were
speculative contracts entered into by IVO's President in
contravention of the prohibition by the Board of Directors against
engaging in speculative paper trading.
Evidence shows the board is actually oblivious, clueless about the
said contract. And even truth to the matter is IVO doesn’t even have
license from the Central Bank to engage in speculative contracts.
(And why didn’t they know? Because the president who was
signatory to the contract never even submitted it to the board hence
never recorded into the company’s books of corporation)
ISSUE: So the question is can the corporation be held liable for the
losses sustained on such contracts or would it be the president that
should be held solidarily liable? NO.
RULING:
1. It is the Board and not the Officer that exercises corporate power.
So the officer is merely an agent who acted beyond the scope of his
authority.
The By-laws of IVO specifically stated that the president would have
direct and active management of the business. A provision in the by-
laws stated “conducting the same according to the orders,
resolutions and instructions of the Board of Directors and according
to his own discretion whenever and wherever the same is not
expressly limited by such orders, resolutions and instructions”.
But regarding this the court said that IVO president had no blanket
authority to bind IVO to any contract. He must act according to the
instructions of the Board of Directors. Even in instances when he was
authorized to act according to his discretion, that discretion must not
conflict with prior Board orders, resolutions and instructions.
2. There is no evidence that the board ratified the contracts.
Under Art. 1898 of the Civil Code: “Acts of an agent beyond the scope
of his authority do not bind the principal unless the latter ratifies the
same expressly or impliedly.”
• The Doctrine of Apparent Authority favors only those who
deal in good faith.
Meaning, if the third person knows that the agent was acting beyond
his power or authority, the principal cannot be held liable for the acts
of the agent. If the said third person is aware of such limits of
authority, he is to blame, and is not entitled to recover damages from
the agent, unless the latter undertook to secure the principal's
ratification.
Here, the court deemed Salfic has knowledge of the IVO president’s
act of ultra vires since there were much ample time for Salfic to have
obtained from the president prior authorization from the IVO board
yet it didn’t do so.
PRINCIPAL— IVO AGENT— MONTEVERDE 3RD PERSON—
SAFIC
So who is the 3rd person? Safic sir.
Yes, so it knew that there was no authority.
CERVANTES V. CA
FACTS:
Cervantes was issued a round ticket for Manila-Honolulu-Los
Angeles Honolulu-Manila, which ticket expressly provided an expiry
date of March 27, 1990. He was issued the said ticket following a
compromise agreement between the two parties from previous
lawsuits.
On March 23, four days before its expiration, he used the ticket and
went to Los Angeles. He booked a return ticket for the April 2 flight
36
 Atty. Raymund Christian S. Ong Abrantes BUSINESS ORGANIZATION I Ateneo de Davao University College of Law
which was confirmed by PAL personnel. On the day of his supposed
return, he was not allowed to board because it was already expired.
Petitioner contended that the confirmation by the PAL’s agents in Los
Angeles and San Francisco changed the compromise agreement
between the parties.
ISSUE: WON the PAL agents (personnel), upon confirmation of
Cervantes’ return ticket, extended the validity of the ticket. NO.
RULING:
PAL agents’ confirmation did not extend the validity of the ticket. They
did not have authority.
Ratio:
Since the PAL agents are not privy to the said agreement and
petitioner knew that a written request to the legal counsel of PAL was
necessary, he cannot use what the PAL agents did to his advantage.
The said agents acted without authority when they confirmed the
flights of the petitioner. If the said third person is aware of such limits
of authority, he is to blame and is not entitled to recover damages
from the agent, unless the latter undertook to secure the principal’s
ratification.
Was the agent liable?
Sino si 3rd person dito? -Cervantes sir.
Alam niya that the agent acted without authority? Liable si agent?
- The agents are not liable sir.
Why?
October 4, 2019 (Part 2) by Averell Abrasaldo
Article 1899. If a duly authorized agent acts in accordance with the
orders of the principal, the latter cannot set up the ignorance of the agent
as to circumstances whereof he himself was, or ought to have been,
aware.
Article 1900. So far as third persons are concerned, an act is deemed
to have been performed within the scope of the agent's authority, if such
act is within the terms of the power of attorney, as written, even if the
agent has in fact exceeded the limits of his authority according to an
understanding between the principal and the agent.
Again, walang business si third person to know the instructions or the
orders of the principal to the agent for as long as andun sa power of
attorney, that is sufficient. Even if the agent in fact exceeded the limits
of his authority according to an understanding between the principal and
the agent.
So when is an act considered to be deemed within the scope of agent’s
authority? When the act is performed within the terms of the power of
attorney as written, the basis of the written instrument in the contract of
agency.
So you see, hindi in writing sa power of attorney diba, we already settled
that. Unless, if it’s power to attorney to sell real property. In that case,
that sale would be void.
So hindi kailangan; but it is in writing for purposes of…? (hindi niya
tinuloy, mag study daw tayo.)
The written provisions of the contract shall be the yardstick and not xxx
arrangement between the principal and the agent.
These are the fundamental principles in inquiring whether the authority
exists.
You go with the law in order to reach the presumption that an agency
exists. It must be proven and presumed from facts.
The agent cannot established its own authority in either by his
representation or by assuming to exercise it.
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Although we do not require a written instrument, diba, it must be
corroborated. It must be corroborated other than the self-serving
testimony of the agent na meron siyang authority.
An authority cannot be established by mere rumor or general reputation.
A general authority one is not a limited one. Every authority must find its
ultimate source in some act or omission of the principal.
This is how you interpret the written authority of the agent. Eto yung mga
fundamental principles.
SIREDY ENTERPRISES vs. CA
G.R. No. 129039, September 17, 2002
Facts: Conrado De Guzman is an architect-contractor doing business
under the name and style of Jigscon Construction. Herein petitioner
Siredy Enterprises, Inc. (hereafter Siredy) is the owner and developer of
Ysmael Village, a subdivision.
As stated in its Articles of Incorporation, 7 the primary corporate purpose
of Siredy is to acquire lands, subdivide and develop them, erect
buildings and houses thereon, and sell, lease or otherwise dispose of
said properties to interested buyers.
On October 15, 1978, Santos entered into a Deed of Agreement 10 with
De Guzman. The deed expressly stated that Santos was "representing
Siredy Enterprises, Inc." Private respondent was referred to as
"contractor" while petitioner Siredy was cited as "principal"
From October 1978 to April 1990, De Guzman constructed 26 residential
units at Ysmael Village. Thirteen (13) of these were fully paid but the
other 13 remained unpaid.
De Guzman tried but failed to collect the unpaid account from petitioner.
Thus, he instituted the action below for specific performance against
Siredy, Yanga, and Santos who all denied liability.
Issue: 1.) Whether or not Hermogenes B. Santos was a duly constituted
agent of Siredy, with authority to enter into contracts for the construction
of residential units in Ysmael Village and thus the capacity to bind Siredy
to the Deed of Assignment?
2.) Assuming that Siredy was bound by the acts of Santos, whether or
not under the terms of the Deed of Agreement, Siredy can be held liable
for the amount sought to be collected by De Guzman?
Ruling: YES.
By the relationship of agency, one party called the principal authorizes
another called the agent to act for and in his behalf in transactions with
third persons. The authority of the agent to act emanates from the
powers granted to him by his principal; his act is the act of the principal
if done within the scope of the authority. "He who acts through another
acts himself."
On its face, the instrument executed by Yanga clearly and unequivocally
constituted Santos "to do and execute", among other things, the act
of negotiating and entering into "contract or contracts to build
Housing Units on our subdivision lots in Ysmael Village, Sta. Rosa,
Marilao, Bulacan." Nothing could be more express than the written
stipulations contained therein.
It was upon the authority of this document that De Guzman transacted
business with Santos that resulted in the construction contract
denominated as the Deed of Agreement.
Aside from the Letter of Authority, Siredy’s Articles of Incorporation, duly
approved by the Securities and Exchange Commission, shows that
Siredy may also undertake to erect buildings and houses on the lots and
sell, lease, or otherwise dispose of said properties to interested buyers.
24 Such Articles, coupled with the Letter of Authority, is sufficient to have
given De Guzman reason to believe that Santos was duly authorized to
represent Siredy for the purpose stated in the Deed of Agreement.
Petitioner’s theory that it merely sold lots is effectively debunked.
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 Atty. Raymund Christian S. Ong Abrantes BUSINESS ORGANIZATION I Ateneo de Davao University College of Law
To conclude: We find that a valid agency was created between Siredy
and Santos, and the authority conferred upon the latter includes the
power to enter into a construction contract to build houses such as the
Deed of Agreement between Santos and De Guzman’s Jigscon
Construction. Hence, the inescapable conclusion is that Siredy is bound
by the contract through the representation of its agent Santos.
The basis of agency is representation, that is, the agent acts for and in
behalf of the principal on matters within the scope of his authority (Art.
1881) and said acts have the same legal effect as if they were personally
done by the principal. By this legal fiction of representation, the actual or
legal absence of the principal is converted into his legal or juridical
presence.
Moreover, even if arguendo Santos’ mandate was only to sell
subdivision lots as Siredy asserts, the latter is still bound to pay
De Guzman. De Guzman is considered a third party to the agency
agreement who had no knowledge of the specific instructions or
agreements between Siredy and its agent. What De Guzman only
saw was the written Letter of Authority where Santos appears to be
duly authorized. Article 1900 of the Civil Code provides:
Art. 1900. So far as third persons are concerned, an act is deemed to
have been performed within the scope of the agent’s authority, if such
act is within the terms of the power of attorney, as written, even if the
agent has in fact exceeded the limits of his authority according to an
understanding between the principal and the agent.
The scope of the agent’s authority is what appears in the written terms
of the power of attorney. While third persons are bound to inquire into
the extent or scope of the agent’s authority, they are not required to go
beyond the terms of the written power of attorney. Third persons cannot
be adversely affected by an understanding between the principal and
his agent as to the limits of the latter’s authority. In the same way, third
persons need not concern themselves with instructions given by the
principal to his agent outside of the written power of attorney.
The essence of agency being the representation of another, it is evident
that the obligations contracted are for and on behalf of the principal. This
is what gives rise to the juridical relation. A consequence of this
representation is the liability of the principal for the acts of his agent
performed within the limits of his authority that is equivalent to the
performance by the principal himself who should answer therefor.
Way by which the agent’s authority may be broadened or restricted:
• By implication – agent’s authority extends not only to expres
requests, but also to those acts and transactions incidental
thereto. It embraces all the necessary and appropriate means
to accomplish the desired end.
• By usage and custom – an agent’s authority may not be
enlarged through usage and custom in the following cases:
where it is sought to:
o Vary the terms of an express authorization;
o Dispense with a legal requirement enacted for the
principal’s benefit;
o Change a rule of law or dispense with a formality
required by law;
o Vary an essential quality of the agency relationship.
• General rule: principal must have notice of the alleged
custom, before the agent’s acts, in accordance therewith, may
bind the principal.
Sir: Because in most cases or in reality, wala kang authority pero sabihin
ng agent, oh pero usual na to na ginagawa.
Please take note: if it is, the principal must have notice, that is to the
usage and custom of xxx otherwise, the agent cannot invoke the usual
as part of his authority. So this is the example where the agent’s
authority may be broadened or restricted.
(Nasa ppt)
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Exceptions:
o Where the principal and the agent reside in the
same community, the usage is definite and well-
known, and the agent has no notice that he is to act
to the contrary;
o Where the agent is authorized to deal in a particular
place or in a particular market exchange.
• By necessity – the existence of an emergency or other
unusual conditions may operate to invest in an agent authority
to meet the emergency, provided:
a.) Emergency really exists;
b.) Agent is unable to communicate with the principal;
c.) Agent’s enlarged authority is exercised for the principal’s
protection; and
d.) The means adopted are reasonable under the
circumstances.
Pinakaclassic example siguro, may woods na nakalagay sa basement.
Biglang umulan sobrang lakas na ulan tapos let’s say wala siyang
authority – uy, wag mo pakealaman yung nakaarrange nung sa baba.
But because it is for the benefit of the principal, kung hindi ko gawin yon,
the woods would be damaged so kinuha ni agent.
The principal cannot say, you’ve exceeded your authority. Because
precisely, there is an emergency and there is not time. Let’s say walang
time, let’s say nasa somewhere yung principal and it is for the benefit or
protection of the principal.
So these are the instances where the agent authority may be, although
not in writing or outside the written instrument, is considered as enlarged
or broadened.
• By certain doctrines – a.) Apparent authority; b.) Liability by
estoppel; c.) Ratification.
• By the ejusdem generis rule – such that where in an
instrument of any kind, an enumeration of specific matters is
followed by a general phrase is held to be limited in scope by
the specific matters.
Kasi sometimes no, some power of attorney, you would notice,
nakalagay, to file, process, blah blah blah, pag ganun na, -- “and any
other acts”, pag may ganun, it must in relation to those enumerated.
Kahit hindi siya nag file or nag process or nag receive, but if it is within
relation to that, it can be interpreted as part of those generic
classification, then it is considered as included.
Obligation of an Agent
Article 1901. A third person cannot set up the fact that the agent has
exceeded his powers, if the principal has ratified, or has signified his
willingness to ratify the agent's acts.
So you have your ratification.
Article 1902. A third person with whom the agent wishes to contract on
behalf of the principal may require the presentation of the power of
attorney, or the instructions as regards the agency. Private or secret
orders and instructions of the principal do not prejudice third persons
who have relied upon the power of attorney or instructions shown them.
So the agent is not bound to the instruction to the third person but the
third person may require ano ba ang instruction.
Article 1903. The commission agent shall be responsible for the goods
received by him in the terms and conditions and as described in the
consignment, unless upon receiving them he should make a written
statement of the damage and deterioration suffered by the same.
We have what we call commission agent.
38
 Atty. Raymund Christian S. Ong Abrantes BUSINESS ORGANIZATION I Ateneo de Davao University College of Law
A factor or commission agent is one whose business is to receive and
sell goods for a commission (also called factorage) and who is entrusted
by the principal with the possession of goods to be sold, and usually
selling in his own name.
So if you are familiar with consignment sales or consignment.
Article 1904. The commission agent who handles goods of the same
kind and mark, which belong to different owners, shall distinguish them
by countermarks, and designate the merchandise respectively
belonging to each principal.
I guess most of the supermarkets ganito naman diba.
Article 1905. The commission agent cannot, without the express or
implied consent of the principal, sell on credit. Should he do so, the
principal may demand from him payment in cash, but the commission
agent shall be entitled to any interest or benefit, which may result from
such sale.
“The commission agent cannot, without the express or implied consent
of the principal, sell on credit” – because it is to the disadvantage of the
principal. He can sell on cash but not on credit, unless allowed.
“Should he do so, the principal may demand from him payment in cash”
– so pag ginawa niya, pinautang niya, the principal may demand
payment by cash but the commission agent shall be entitled to any
interest or benefit, which may result from such sale.
Article 1906. Should the commission agent, with authority of the
principal, sell on credit, he shall so inform the principal, with a statement
of the names of the buyers. Should he fail to do so, the sale shall be
deemed to have been made for cash insofar as the principal is
concerned.
Sir: Why is it important to give the statement of the names of the
buyers? So, the principal can know if those people cannot pay the
obligation. Kasi si principal, utang to eh, dapat malaman ni principal sino
yung nangutang.
Article 1907. Should the commission agent receive on a sale, in
addition to the ordinary commission, another called a guarantee
commission, he shall bear the risk of collection and shall pay the
principal the proceeds of the sale on the same terms agreed upon with
the purchaser.
Guarantee commission – so this is a specie of agency.
Pag aside from the ordinary provision, meron siyang guarantee,
meaning ginaguarantee nung commission agent. It can be collected,
then he bears the risk of xxx
Article 1908. The commission agent who does not collect the credits of
his principal at the time when they become due and demandable shall
be liable for damages, unless he proves that he exercised due diligence
for that purpose.
*Sir talks and discusses about Tax*
October 04, 2019
40:01 – 60:00
***Atty. Ong teaches about tax arbitrage***
Tax arbitrage is the practice of profiting from differences that arise from
the ways transactions are treated for tax purposes. The complexity of
tax codes often allows for many incentives, which drive individuals to
restructure their transactions in the most advantageous way in order to
pay the least amount of tax—Investopedia .
Note: This is not part of the syllabus of the exam. This is part of the 3 rd
exam of Taxation 1.
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Article 1909. The agent is responsible not only for fraud, but also for
negligence, which shall be judged with more or less rigor by the courts,
according to whether the agency was or was not for a compensation.
METROBANK vs. CA
Facts: In January 1979, a certain Eduardo Gomez opened an
account with Golden Savings and deposited over a period of two
months 38 treasury warrants with a total value of P1,755,228.37.
They were all drawn by the Philippine Fish Marketing Authority. Six
of these were directly payable to Gomez while the others appeared
to have been indorsed by their respective payees, followed by
Gomez as second indorser.
On various dates, all these warrants were subsequently indorsed by
Gloria Castillo as Cashier of Golden Savings and deposited to its
Savings Account No. 2498 in the Metrobank branch in Calapan,
Mindoro. They were then sent for clearing.
More than two weeks after the deposits, Gloria Castillo went to the
Calapan branch several times to ask whether the warrants had
been cleared. She was told to wait. Accordingly, Gomez was
meanwhile not allowed to withdraw from his account. Later,
however, "exasperated" over Gloria's repeated inquiries and also as
an accommodation for a "valued client," the petitioner says it finally
decided to allow Golden Savings to withdraw from the proceeds of
the warrants.
Golden Savings subsequently allowed Gomez to make withdrawals
from his own account, eventually collecting the total amount of
P1,167,500.00 from the proceeds of the apparently cleared
warrants.
On July 21, 1979, Metrobank informed Golden Savings that 32 of
the warrants had been dishonored by the Bureau of Treasury on
July 19, 1979, and demanded the refund by Golden Savings of the
amount it had previously withdrawn, to make up the deficit in its
account.
The demand was rejected. Metrobank then sued Golden Savings.
Issue: WON Metrobank is liable as a collecting agent - YES
Held: Metrobank was negligent in giving Golden Savings the
impression that the treasury warrants had been cleared and that,
consequently, it was safe to allow Gomez to withdraw the proceeds
thereof from his account with it. Without such assurance, Golden
Savings would not have allowed the withdrawals; with such
assurance, there was no reason not to allow the withdrawal. Golden
Savings had no clearing facilities of its own. It relied on Metrobank
to determine the validity of the warrants through its own services.
Article 1909 of the Civil Code clearly provides that — The agent is
responsible not only for fraud, but also for negligence, which shall
be judged 'with more or less rigor by the courts, according to
whether the agency was or was not for a compensation.
The negligence of Metrobank has been sufficiently established. It
was the clearance given by it that assured Golden Savings it was
already safe to allow Gomez to withdraw the proceeds of the
treasury warrants he had deposited Metrobank misled Golden
Savings. There may have been no express clearance, as
Metrobank insists (although this is refuted by Golden Savings) but
in any case that clearance could be implied from its allowing Golden
Savings to withdraw from its account not only once or even twice
but three times. The total withdrawal was in excess of its original
balance before the treasury warrants were deposited, which only
added to its belief that the treasury warrants had indeed been
cleared.
The belated notification aggravated the petitioner's earlier
negligence in giving express or at least implied clearance to the
treasury warrants and allowing payments therefrom to Golden
Savings. But that is not all. On top of this, the supposed reason for
the dishonor, to wit, the forgery of the signatures of the general
39
 Atty. Raymund Christian S. Ong Abrantes BUSINESS ORGANIZATION I Ateneo de Davao University College of Law
manager and the auditor of the drawer corporation, has not been • Necessary pledge
established. • Voluntary pledge;

Discussion: This is an example of a necessary/legal pledge. In Article 1914, the

law prescribes that the agent has the right to hold or to keep on the
In this particular case the Court ruled that Metrobank, as a collecting condition of the payment of the indemnity and the interest due to the
agent, is liable not only for fraud but also for negligence. agent. The agent has the right.

OBLIGATIONS OF THE PRINCIPAL
Article 1910. The principal must comply with all the obligations, which
the agent may have contracted within the scope of his authority.
As for any obligations wherein the agent has exceeded his power, the
principal is not bound, except when he ratifies it expressly or tacitly.
Let’s say the agent advanced payments for the principal and held in
pledge the cellphone of the principal.
What happens the principal didn’t return to claim the property? What
will the agent do?
The agent must follow the procedure—as stated in CREDTRANS.

If the agent doesn’t follow the procedure, then he will be liable for
Remember: The agent acts only in representation of the principal.
damages. The recourse of the agent is to have a public sale.
GR: As for any obligation wherein the agent has exceeded his power,
the principal is not bound. ARTICLE 1915. If two or more persons have appointed an agent for a
common transaction or undertaking, they shall be solidarily liable to the
XPN: The principal is bound if he ratifies such: agent for all the consequences of the agency.
• Expressly; or
• Tacitly Discussion:

Article 1911. Even when the agent has exceeded his authority, the If it’s two or more agents it is generally a joint obligation. Unless,
principal is solidarily liable with the agent if the former allowed the latter expressly agreed upon.
to act as though he had full powers.
But, if it’s two or more principals it is a solidary obligation.
Ratificiation Estoppel The responsibilities are different.
Rests on intention Rests on prejudice
Affects the entire transaction Affects only the relevant parts of
ARTICLE 1916. When two persons contract with regard to the same
from the beginning the transaction.
thing, one of them with the agent and the other with the principal, and
Substance is confirmation of an Substance is the principal’s the 2 contracts are incompatible with each other, that of the prior date
unauthorized act or conduct inducement to another to act to shall be preferred, without prejudice to the provisions of ARTICLE 1544.
after it has been done his prejudice.
Discussion:
Article 1912. The principal must advance to the agent, should the latter
so request, the sums necessary for the execution of the agency. Correlate this to double sale.

Should the agent have advance to them, the principal must reimburse
him therefor, even if the business or undertaking was not successful,
provided that the agent is free from all fault.
The reimbursement shall include interest on the sums advanced from
the day on which the advance was made.
Discussion:
Relate this to the obligation of the agent to render an account. The
principal advances to the agent. Therefore, the agent must render an
account.
Please take note of the stipulation to exempt the agent from rendering
an account.
ARTICLE 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 or negligence on his part.
Discussion:
If the agent is without fault or negligence, then he must be indemnified.
ARTICLE 1914. The agent may retain in pledge the things, which are
the object of the agency until the principal effects the reimbursement and
pays the indemnity set forth in the 2 preceding articles.
Discussion:
Rule: The prior date shall be preferred because earlier in time,
stronger in right.
Correlate this with your rule on double sale of real property.
Rule: The one who has first registered in good faith has the stronger
right.
• Between the first buyer and the second buyer, the good faith
only applies to the second buyer.
• First buyer need not be in good faith.
ARTICLE 1917. In the case referred to in the preceding article, if the
agent has acted in good faith, the principal shall be liable in damages to
the third person who contract must be rejected.
If the agent acted in bad faith, he alone shall be responsible.
ARTICLE 1918. The principal is not liable for the expenses incurred by
the agent in the following cases:
1.) If the agent acted in contravention of the principal’s
instructions, unless the latter should wish to avail himself of
2.) the benefits derived from the contract;
3.) When the expenses were due to the fault of the agent;
4.) When the agent incurred them with knowledge that an
unfavorable result would ensue, if the principal was not aware
thereof;
5.) When it was stipulated that the expenses would be borne by
the agent, or that the latter would be allowed only a certain
sum.

This is an example of a necessary pledge/ legal pledge. Remember

Discussion:
your CREDTRANS. We have:
• Legal pledge;

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 Atty. Raymund Christian S. Ong Abrantes BUSINESS ORGANIZATION I Ateneo de Davao University College of Law
The principal is not liable for the expense incurred by the agent in the
following cases.
GR: The principal is liable for the sums and damages incurred by the
agent in the execution of the contract of agency.
XPN: If the agent acted in contravention of the principal’s instruction.
Although, the instructions don’t really matter to the third person.
Therefore, it is still possible to enter into a contract.
But in cases, where there are expenses incurred by the agent in
contravention of the instruction of the principal. The principal has the
right to deny reimbursement.
Those are the obligations of a principal. The obligations of the principal
are fewer than the obligations of the agent. That is why the different
liabilities.
• 2 or more principals—they are solidarily liable;
• 2 or more agents—They are not solidarily liable. Unless,
agreed upon
MODES OF EXTINGUISHMENT OF AGENCY
ARTICLE 1919. Agency is extinguished:
1.) By its revocation;
2.) By the withdrawal of the agent;
3.) By the death, civil interdiction, insanity, or insolvency of
the principal or the agent;
4.) By the dissolution of the firm or corporation which
entrusted or accepted the agency;
5.) By the accomplishment of the object or purpose of the
agency;
6.) By the expiration of the period for which the agency was
constituted.
DEATH OF THE PRINCIPAL OR AGENT
What happens if the principal or agent dies?
GR: Death of the principal or the agent extinguishes the agency.
• Civil personality is extinguished by death (Article 42)
Why? The contract of agency is based on trust and confidence. You
choose such person to be your agent, based on the personal
qualifications of the agent.
XPN:
Please take note of the exception when the agency exists, despite the
death of either principal or agent.
• ARTICLE 1930. Agency shall remain in full force and effect
even after the death of the principal if it has been constituted
in the common interest of the latter and of the agent or in the
interest of a 3rd person who has accepted the stipulation in his
favor.
• ARTICLE 1931. Anything done by the agent, without
knowledge, of the death of the principal or of any other cause
which extinguishes the agency is valid and shall be fully
effective with respect to 3rd persons who may have contracted
with him in good faith.
• ARTICLE 1884. The agent is bound by his acceptance to
carry out the agency and is liable for the damages which
through his non-performance, the principal may suffer.
He must also finish the business already begun on the death
of the principal, should delay entail any danger.
Memorize the exceptions.
REVOCATION
Abrasaldo, Adlawan, Andamon, Banosan, Bayquen, Lagat, Mahusay, Maligad, Picot, Reyes, Rojo | III-Manresa 2019
ARTICLE 1920. The principal may revoke the agency at will, and
compel the agent to return the document evidence the agency.
Such revocation may be express or implied.
Can the principal revoke a contract of agency at will?
GR: Agency may be revoked at will— the principal may revoke the
agency at will because agency is based on trust and confidence. It can
be revoked anytime because revocation is the prerogative of the
principal even if the agency is onerous or the period fixed for its
performance has not lapsed.
XPN:
1. If the agency is coupled with interest;
2. When the revocation is done in bad faith;
3. When there is, a waiver made by the principal of his right to
revoke.
ARTICLE 1927. An agency cannot be revoked if a bilateral contract
depends upon it, or if it is the means of fulfilling an obligation already
contracted, or if a partner is appointed manager of a partnership in
the contract of partnership and his removal from the management
is unjustifiable.
October 4, 2019 by Mariel D. Banosan
Art. 1921. If the agency has been entrusted for the purpose of
contracting with specified persons, its revocation shall not
prejudice the latter if they were not given notice thereof.
Remember diba magpublish ka na ito ang agent mo. So kung specific
mo sinabi na “uy, ito mga agents ko”, so dapat specific mo rin i-revoke
na “uyy, di ko na agent si ganito”. Kung paano mo-ginawa, [in informing
the public as to who your agents are], ganoon mo rin gawin [in the event
of revocation].
Art. 1922. If the agent had general powers, revocation of the agency
does not prejudice third persons who acted in good faith and
without knowledge of the revocation. Notice of the revocation in a
newspaper of a general circulation is a sufficient warning to third
persons.
Art. 1923. The appointment of a new agent for the same business
or transaction revokes the previous agency from the day on which
notice thereof was given to the former agent, without prejudice to
the provisions of the two preceding articles.
This shall pertain to incompatible appointment because there is an
implied revocation.
Art. 1924. The agency is revoked if the principal directly manages
the business entrusted to the agent, dealing directly with third
persons.
Again, if the 2 contracts are incompatible then there is an implied
revocation. Pero kung hindi naman [incompatible], let us say dalawang
lupa pala yon. Yung isa sa principal then yung isa sa agent, so the
previous agency is not revoked.
Art. 1925. When two or more principals have granted a power of
attorney for a common transaction, any one of them may revoke
the same without the consent of the others.
[One] can revoke without the consent [of the other] because remember
they are liable solidarily to the agent.
Art. 1926. A general power of attorney is revoked by a special one
granted to another agent, as regards the special matter involved in
the latter.
For example, a “general power of attorney to manage the business”
tapos meron kang “special power of attorney to buy short sized
envelopes”. So yung doon sa general power na revoke na doon ang
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 Atty. Raymund Christian S. Ong Abrantes BUSINESS ORGANIZATION I Ateneo de Davao University College of Law
power to buy short envelopes kasi sa special power naka-specify na sya
to a certain person.
Art. 1927. An agency cannot be revoked if a bilateral contract
depends upon it, or if it is the means of fulfilling an obligation
already contracted, or if a partner is appointed manager of a
partnership in the contract of partnerships and his removal from
the management is unjustifiable.
This is very important. The partner must be appointed manager in a
contract of partnership because remember if the appointment is not
written in the articles of partnership then they can revoke it.
LIM v. SABAN not in the syllabus but mentioned by. Atty Ong. Lifted
from 2018 tsn.
LIM vs. SABAN
G.R. No. 163720, December 16, 2004
Would the compensation arising from the law on agency be sufficient to
be within the ambit of the interest of the agent?
Stated differently, an agency is deemed as one coupled with an interest
where it is established for the mutual benefit of the principal and of the
agent, or for the interest of the principal and of 3rd persons, and it cannot
be revoked by the principal so long as the interest of the agent or of a
third person subsists.
In an agency coupled with an interest, the agent’s interest must be in the
subject matter of the power conferred and not merely an interest in the
exercise of the power because it entitles him to compensation.
Therefore, if the agent’s interest is only his compensation, then that is
not sufficient, that interest is an incidental interest in the exercise of the
power of the agency, meaning he only had an interest because there
was an agency.
When an agent’s interest is confined to earning his agreed
compensation, the agency is not one coupled with an interest since an
agent’s interest in obtaining his compensation as such agent is an
ordinary incident of the agency relationship.
---
The interest must not be incidental to the contract of agency.
BUADO v. LAYAG
AC No. 5182, August 12, 2004
Facts:
Precedent Case
Herein complainant Lising and her sister, Rosita de Guzman (mother of
herein complainant Susana de Guzman Buado), were the plaintiffs in
Civil Case No. C-14265, entitled Rosita de Guzman, et al., v. Inland
Trailways, Inc.,which was decided by the RTC in favor of the plaintiffs.
Both Lising and de Guzman were represented in said case by herein
respondent, Atty. Layag. The losing party, Inland Trailways, Inc.,
appealed the trial court's judgment to the Court of Appeals. While the
appeal was still pending, Rosita de Guzman died. In its decision dated
January 1995, the appellate court affirmed the judgment of the trial court.
Pursuant to the judgment against it, Inland Trailways, Inc. issued checks
which were received by Atty. Layag (respondent). Atty. Layag did not
inform Lising and the heirs of de Guzman about the checks. Instead he
gave the checks to one Marie Paz Gonzales for encashment on the
strength of a Special Power of Attorney, purportedly executed by de
Guzman constituting Gonzales as her attorney-in-fact. The Special
Power of Attorney supposedly authorized Gonzales, among others, to
encash, indorse, and/or deposit any check or bill of exchange received
in settlement of Civil Case No. C-14265.
It was only in February 1998 that Lising and de Guzman Buado, while
checking the status of Civil Case No. C-14265, found that judgment had
been rendered in the said case and that the losing party had paid the
damages awarded by issuing checks which were received by their
counsel, Atty. Layag, two years earlier. De Guzman Buado and Lising
then made demands upon Atty. Layag to give them the proceeds of the
checks, but to no avail. Marie Paz Gonzales eventually gave Lising
Abrasaldo, Adlawan, Andamon, Banosan, Bayquen, Lagat, Mahusay, Maligad, Picot, Reyes, Rojo | III-Manresa 2019
P10,000. No further amounts were remitted to either Lising or de
Guzman Buado despite demands by them.
Present Case
The instant case arose from a verified Letter-Complaint for malpractice
filed with this Court on December 9, 1999, against respondent Atty.
Eufracio T. Layag by Susana de Guzman Buado and Nena Lising. The
complaint stated that de Guzman Buado and Lising had instituted a
criminal action for estafa against Atty. Layag.
In his Comment dated April 11, 2000, Atty. Layag denied committing any
malpractice, saying that he merely complied with the wishes of his client,
the late Rosita de Guzman, to deliver any money judgment in Civil Case
No. C-14265 before the RTC, to her attorney-in-fact, one Marie Paz P.
Gonzales. Respondent prayed that the complaint be dismissed for want
of merit.
The matter was referred to the IBP for investigation and
recommendation.
Issue: Is Atty. Layag’s defense of relying on the strength of the SPA
tenable? – NO.
Held (IBP): On the Special Power of Attorney purportedly executed by
Rosita de Guzman in favor of Marie Paz Gonzales, the Investigating
Commissioner held that even assuming arguendo that there was indeed
a Special Power of Attorney, it nonetheless had no force and effect after
the death of Rosita de Guzman. Hence, any authority she had conferred
upon Gonzales was already extinguished. According to the IBP
Investigating Commissioner, since respondent represented de Guzman
in Civil Case No. C-14265, upon her death, respondent had the
obligation to preserve whatever benefits accrued to the decedent on
behalf of and for the benefit of her lawful heirs.
ESTATE OF JULIANA DIEZ VDA. DE GABRIEL v CIR
GR No. 155541, January 27, 2004
Facts:
During the lifetime of the decedent, Juliana Vda. De Gabriel, her
business affairs were managed by the Philippine Trust Company
(Philtrust). The decedent died on April 3, 1979. Two days after her death,
Philtrust, through its Trust Officer, Atty. Antonio M. Nuyles, filed her
Income Tax Return for 1978. The return did not indicate that the
decedent had died.
On May 22, 1979, Philtrust also filed a verified petition for appointment
as Special Administrator with the RTC. The court a quo appointed one
of the heirs as Special Administrator. Philtrust’s motion for
reconsideration was denied by the probate court.
In the meantime, the BIR conducted an administrative investigation on
the decedent’s tax liability and found a deficiency income tax for the year
1977 in the amount of P318,233.93. Thus, on November 18, 1982, the
BIR sent by registered mail a demand letter and Assessment Notice
addressed to the decedent "c/o Philippine Trust Company, Sta. Cruz,
Manila" which was the address stated in her 1978 Income Tax Return.
No response was made by Philtrust. The BIR was not informed that the
decedent had actually passed away.
In an Order dated September 5, 1983, the court a quo appointed Antonio
Ambrosio as the Commissioner and Auditor Tax Consultant of the Estate
of the decedent.
On June 18, 1984, respondent Commissioner of Internal Revenue
issued warrants of distraint and levy to enforce collection of the
decedent’s deficiency income tax liability, which were served upon her
heir, Francisco Gabriel. On November 22, 1984, respondent filed a
"Motion for Allowance of Claim and for an Order of Payment of Taxes"
with the court a quo. On January 7, 1985, Mr. Ambrosio filed a letter of
protest with the Litigation Division of the BIR, which was not acted upon
because the assessment notice had allegedly become final, executory
and incontestable.
On May 16, 1985, petitioner, the Estate of the decedent, through Mr.
Ambrosio, filed a formal opposition to the BIR’s Motion for Allowance of
Claim based on the ground that there was no proper service of the
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 Atty. Raymund Christian S. Ong Abrantes BUSINESS ORGANIZATION I Ateneo de Davao University College of Law
assessment and that the filing of the aforesaid claim had already
prescribed.
RTC: Denied respondent’s claim against the estate
CA: Decided in favor of the respondent. Although acknowledging that
the bond of agency between Philtrust and the decedent was severed
upon the latter’s death, it was ruled that the administrator of the Estate
had failed in its legal duty to inform respondent of the decedent’s death,
pursuant to Section 104 of the National Internal Revenue Code of 1977.
Consequently, the BIR’s service to Philtrust of the demand letter and
Notice of Assessment was binding upon the Estate, and, upon the lapse
of the statutory thirty-day period to question this claim, the assessment
became final, executory and incontestable.
Issue: Did the Court of Appeals err in holding that the service of
deficiency tax assessment against Juliana Diez Vda. de Gabriel through
the Philippine Trust Company was a valid service in order to bind the
Estate? – YES.
Petitioner’s Contention
Petitioner Estate denies that Philtrust had any legal personality to
represent the decedent after her death. As such, petitioner argues that
there was no proper notice of the assessment which, therefore, never
became final, executory and incontestable. Petitioner further contends
that respondent’s failure to file its claim against the Estate within the
proper period prescribed by the Rules of Court is a fatal error, which
forever bars its claim against the Estate.
Respondent’s Contention
Respondent, on the other hand, claims that because Philtrust filed the
decedent’s income tax return subsequent to her death, Philtrust was the
de facto administrator of her Estate. Consequently, when the
Assessment Notice and demand letter dated November 18, 1982 were
sent to Philtrust, there was proper service on the Estate. Respondent
further asserts that Philtrust had the legal obligation to inform petitioner
of the decedent’s death, which requirement is found in Section 104 of
the NIRC of 1977. Since Philtrust did not, respondent contends that
petitioner Estate should not be allowed to profit from this omission.
Held:
The resolution of this case hinges on the legal relationship between
Philtrust and the decedent, and, by extension, between Philtrust and
petitioner Estate. Subsumed under this primary issue is the sub-issue of
whether or not service on Philtrust of the demand letter and Assessment
Notice was valid service on petitioner, and the issue of whether
Philtrust’s inaction thereon could bind petitioner.
We find in favor of the petitioner.
The first point to be considered is that the relationship between the
decedent and Philtrust was one of agency, which is a personal
relationship between agent and principal. Under Article 1919 (3) of the
Civil Code, death of the agent or principal automatically terminates the
agency. In this instance, the death of the decedent on April 3, 1979
automatically severed the legal relationship between her and Philtrust,
and such could not be revived by the mere fact that Philtrust continued
to act as her agent when, on April 5, 1979, it filed her Income Tax Return
for the year 1978.
Since the relationship between Philtrust and the decedent was
automatically severed at the moment of the Taxpayer’s death, none of
Philtrust’s acts or omissions could bind the estate of the Taxpayer.
Service on Philtrust of the demand letter and Assessment Notice was
improperly done.
It must be noted that Philtrust was never appointed as the administrator
of the Estate of the decedent, and, indeed, that the court a quo twice
rejected Philtrust’s motion to be thus appointed. As of November 18,
1982, the date of the demand letter and Assessment Notice, the legal
relationship between the decedent and Philtrust had already been non-
existent for three years.
RP v. Evangelista not in syllabus but mentioned by Atty. Ong. Lifted from
2018 tsn.
REPUBLIC vs. EVANGELISTA
G.R. No. 156015, August 11, 2005
Abrasaldo, Adlawan, Andamon, Banosan, Bayquen, Lagat, Mahusay, Maligad, Picot, Reyes, Rojo | III-Manresa 2019
The reason for its irrevocability is because the agency becomes part of
another obligation or agreement. It is not solely the rights of the principal
but also that of the agent and third persons which are affected. Hence,
the law provides that in such cases, the agency cannot be revoked at
the sole will of the principal.
When an agency is constituted as a clause in a bilateral contract, that
is, when the agency is inserted in another agreement, the agency
ceases to be revocable at the pleasure of the principal as the agency
shall now follow the condition of the bilateral agreement.
This is common in loans, service contracts. Let’s say there’s a foreign
corporation and the agent here is SM. You have another contract with
another 3rd person particular to the agent, that agency becomes an
agency coupled with interest.
Consequently, the Deed of Revocation executed by Legaspi has no
effect. The authority of Gutierrez to file and continue with the prosecution
of the case at bar is unaffected.
Now, why grant an irrevocability to such contract nga mere extension
lang si agent sa personality ni principal?
Agencies coupled with interest are not true agents?
Because persons with proprietary interests in the subject matter of their
agency are not true agents at all. One of the hallmarks of the agency
relation is the control of the principal over the acts of the agent and over
the subject matter of the agency. An agency coupled with an interest
removes that control.
In effect, it’s already relying in another contract. The principal no longer
extends the personality to his agent but a condition of another bilateral
contract.
In an agency coupled with interest, it is the agency that cannot be
revoked or withdrawn by the principal due to an interest of a third party
that depends upon it, or the mutual interest of both principal and agent.
It now becomes a condition of another bilateral contract. The gist of the
agency is already revoked—that is the representation of the principal in
the person of the agent.
Let’s say inapply ko [as principal] si agent to enter into a contract so nag
enter naman si agent. Hindi ko pwede sabihin later on na the contract
[of agency] is revoked kasi a new contract [the one entered into by the
agent] is dependent on that authority given by the contract [of agency].
Art. 1928. The agent may withdraw from the agency by giving due
notice to the principal. If the latter should suffer any damage by
reason of the withdrawal, the agent must indemnify him therefor,
unless the agent should base his withdrawal upon the impossibility
of continuing the performance of the agency without grave
detriment to himself.
Simplify..
✓ The agent can withdraw.
✓ If there be damage due to such withdrawal, the principal may
go after him.
✓ Even if there be damage caused by such withdrawal, the
agent is not liable thereof if he should base such withdrawal
upon the impossibility of continuing the performance of the
agency without grave detriment to himself.
Art. 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.
So, it shows the fiduciary relationship of the contract of agency- that the
agent must always act for the benefit and for the protection of the
principal.
Art. 1930. The agency shall remain in full force and effect even after
the death of the principal, if it has been constituted in the common
interest of the latter and of the agent, or in the interest of a third
person who has accepted the stipulation in his favor.
43
 Atty. Raymund Christian S. Ong Abrantes BUSINESS ORGANIZATION I Ateneo de Davao University College of Law

Art. 1931. Anything done by the agent, without knowledge of the

death of the principal or of any other cause which extinguishes the
agency, is valid and shall be fully effective with respect to third
persons who may have contracted with him in good faith.

Rallos case not in syllabus but mentioned by Atty. Ong. Lifted from 2018
tsn.

RALLOS v. CA

Under this provision, an act done by the agent after the death of his
principal is valid and effective only under 2 conditions—

(1) That the agent acted without the knowledge of the death of the
principal; and
(2) That the 3rd person who contracted with the agent himself acted in
good faith.

Good faith here means that the third person was not aware of the death
of the principal at the time he contracted with said agent. These 2
requisites must concur the absence of one will render the act of the
agent invalid and unenforceable.

ARTICLE 1931 being an exception to the general rule is to be strictly

construed and it is not to be given an interpretation or application beyond
the clear import of its terms for otherwise the courts will be involved in a
process of legislation outside of their judicial function.

Art. 1932. If the agent dies, his heirs must notify the principal
thereof, and in the meantime adopt such measures as the
circumstances may demand in the interest of the latter.

Therefore, the heirs now become necessary or automatic agents.

Can the heirs continue the contract of agency?

NO. Agency is a fiduciary relationship, except agency by operation of
law.

*END OF 2019 BUSINESS ORGANIZATION - 1*

No class picture, nidagan nas sir.

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